MReport May 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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60 | TH E M R EP O RT SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T When the Patch Is Ripped Off The Ability to Repay and Qualified Mortgage Rule "patch" is set to expire in 2021. Here's what that could mean for homebuyers. T he Ability to Repay and Qualified Mortgage Rule (QM) patch that allows Freddie Mac and Fannie Mae to exceed the QM debt to income (DTI) test is set to expire at the beginning of 2021. However, Edward J. Pinto, Co-Director of the American Enterprise Institute (AEI) Center on Housing Markets and Finance argues that, in order to protect homeowners, lawmak- ers must allow that expiration to happen. "The 'patch' has been a major contributor to the current home price boom, particularly entry- level homes," Pinto stated in a piece entitled "Protect First Time Buyers and Taxpayers. Let the 'Patch' Expire." Arguing that first- time buyers have been particu- larly disadvantaged by the patch, Pinto claimed that "allowing the patch to expire would reduce pressure on house prices in the near term, and retaining QM's DTI test would prudently apply countercyclical friction in 'hot' housing markets in the future." The so-called "patch" was intended to mitigate recovery problems in the non-qualified mortgage market following the 2008 crisis. The patch established a second QM category for loans that met other QM requirements but for which the borrower's DTI exceeds 43 percent. This patch has already expired for other lenders such as FHA, VA, USDA, and the United States Department of Agriculture Rural Housing Service (RHS). It will expire for Fannie Mae and Freddie Mac seven years after the effective date of January 10, 2014. Pinto states that the patch should be allowed to expire due to a number of factors. He notes that the large and long-running housing boom has been sup- ported by rapidly rising DTIs, which have put borrowers at risk. According to Pinto, the GSEs have ignored the intent of the patch, and following the patch's expiration, HUD and FHA must take action to better protect consumers. Fannie Explores Changing Housing Demos How can innovative design and technology improve affordable housing and healthy communities? I n a Fannie Mae Perspectives blog, Maria Evans, VP for Sustainable Communities at Fannie Mae, gave the example of an exhibit called "Making Room: Housing for a Changing America" at the National Building Museum in Washington, D.C., to drive home the point for the need for innovation in housing. According to the exhibit, nucle- ar families accounted for only 20 percent of America's households, down from 43 percent in 1950. Nearly 30 percent of households today consist of single adults living alone, while 28 percent of adults choose to share a home. Housing stock, however, has failed to keep up with these changing demographics. The exhibit revealed that 11.63 percent of the total housing stock was for one-bedroom homes, a preferred choice for single adults. It indicated that two-bedroom homes made up 26.54 percent of the housing stock while three- and four-bedroom homes consisted of 39.8 percent and 16.6 percent of the overall housing stock, respectively. "When affordable housing is part of a mixed-income community with good schools, health and wellness opportunities, and good-paying jobs, it is much easier for those communities to address longstanding disparities in educational or health outcomes of low-income residents," Evans wrote in the blog. However, she added that it was important for the industry to innovate to address the affordable housing needs where it intersected with key aspects of the community. Giving the example of West Denver Renaissance Collaborative, which participated in Fannie Mae's Innovation Challenge, Evans said that this organization was implementing an accessory dwelling unit (ADU) program across nine neighborhoods in West Denver to enable long-term, low-income homeowners to remain part of their communities and benefit from recent investments. "The ADU will be a detached residence, between 450-870 square feet, in the backyard of the primary home and will serve as a rental unit, creating a new income source for homeowners and increasing their property value," Evans said. "The ADU also adds to the affordable housing supply, allowing new residents to move into an established community. We expect the overall result will be a vibrant, multi-generational, mixed-income community that better reflects how we're living today." The exhibit at the National Building Museum, Evans said, showcased such innovations that allowed for comfortable living in smaller spaces, "which are both more affordable to construct, less expensive to live in, and can be leveraged in any neighborhood." It underscored how much could be accomplished if the housing industry and adjacent sectors started to think differently about design.

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