Reinforcing the sharp turn-around in housing markets evident since the Fed surprised markets with its first 75 bps hike, a new working paper from the San Francisco Fed provides the first hard evidence of how monetary-policy shocks in the U.S. hit listing prices hard and fast….
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As seems always the case, FHFA Director Thompson is as good as her word to Congress earlier this summer, announcing yesterday a review of the extent to which the Home Loan Banks and their System meet the mission assigned to them and, regardless, if that mission still makes sense. Building on our initial assessment of FHFA’s plans, we here turn to what the System, its allies, and reformers are likely to say and what FHFA and/or Congress will then do about it.
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BofA’s new no-down payment mortgage is another innovative product in which banks use their balance sheets to address their CRA obligations by offering down payment assistance or, as here, flat out nothing down. The extent to which nonbanks can match these programs depends on the extent to which Fannie and Freddie are able and then willing to cross-subsidize ….
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We look here at an interesting idea from three senior Fannie Mae officials: an index to measure a Single-Family MBS’s social impact. The proposal seeks to enable socially conscious investors to support affordable housing for underserved communities while balancing the needs of mortgage borrowers, investors, and market function. It also reflects the objectives laid out in Fannie Mae’s Equitable Housing Finance Plan such as providing social impact data and boosting low-income and minority homeownership. …
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The Federal Reserve Bank of Philadelphia’s latest report on foreclosure risk includes a worrisome finding: the sharp rise in interest rates means that most loan-mod recipients won’t actually get much relief. This combined with troubling data on GSE loan-mod results and racial equity could spur FHFA intervention if market conditions worsen…
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Continuing its use of novel rulings that preclude public notice and comment, the CFPB has issued a landmark ruling on artificial intelligence (AI) and other forms of algorithmic underwriting stipulating lender responsibility for sending out the adverse action notices required under the Equal Credit Opportunity Act (ECOA). The CFPB recently added a broader range of credit decisions on outstanding loans (e.g., granting or reducing lines), to these notice requirements, making the reach of this new policy still broader. Lenders are responsible for adherence to these requirements even if their underwriting models are provided by third parties or credit decisions are made by third parties such as fintechs or auto dealers. However, when these nonbanks are the lender, they are then subject to CFPB enforcement even if the Bureau does not have formal supervisory power over them under another recent CFPB ruling…
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Following much talk about the need to update Community Reinvestment Act (CRA) rules since this was last done in 1995, federal banking agencies have finally agreed on a proposed redesign of standards essential to banks that wish to expand or acquire as well as those seeking strong community ties and the policy and political benefit these afford. Much of the complexity in the NPR results from the agencies’ decision to allow only partial credit for activities (e.g., mortgages) largely assumed in the past…
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As we noted last week, the federal banking agencies sighed a mighty sigh and heaved up a massive inter-agency proposal rewriting decades-old standards detailing which activities earn the Community Reinvestment Act (CRA) points essential for any bank’s strategic objectives and national reputation. As discussed below, the new proposal is lengthy, complex, and in some cases analytically daunting or flat-out confusing. Still one critical conclusion is clear…
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Continuing her very different vision of Fannie and Freddie, FHFA Acting Director Thompson today has released a new strategic plan for the agency emphasizing the importance of both equitable and sustainable housing finance.
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In its effort to combat what it calls “junk fees”, the CFPB conflates advancing consumer protection with curtailing market power. This won’t work — that which is anti-consumer can take place in a super-competitive market (think subprime mortgages) and that conducted in a market powerhouse (innovative financial-inclusion products) may be very much to a consumer’s benefit. Thus, if the CFPB makes a muddle of its two worthy goals, it will scramble its policies. This will create a patchwork of conflicting actions that sometimes put consumers at great risk, sometimes put market integrity in peril, and sometimes do both at the same time.
Let me be clear: this critique isn’t an attack on either of the Bureau’s goals. Consumers should not be duped into seemingly low-cost financial services only to be saddled with predatory after-charges; conversely, dominant providers should not be allowed to exploit their power no matter how low direct prices may seem to fall. As we’ve learned the hard way from tech-platform firms and as the CFPB has rightly pointed out, that which is “free” can be very, very expensive. For how, see our 2019 report.
However, taking two things you don’t like and combining them doesn’t result in something that’s double-bad. Instead, one element in the mixture can counteract the other, the two elements together turn explosive, or the two together just make an ineffectual mess. For the CFPB to maximize the likelihood of getting as much as possible towards each of its worthwhile goals, …