In a recent letter of comment, the MBA urged the GSEs Fannie Mae and Freddie Mac to improve their policies to facilitate borrower access and lender involvement in construction and renovation lending.
In a July 15 letter to the heads of the Enterprises’ single-family divisions, the MBA outlined three major recommendations aimed at enhancing efficiency, reducing lender risk, and supporting underserved market segments:
- Establish a trial program that allows single-close construction-to-permanent loans to be securitized upfront; and
- Increase the age of credit paperwork from 12 to 18 months; and
- Reduce the HomeStyle Renovation mortgage completion criteria to 50%.
According to MBA, these adjustments would lower financial obstacles, boost operational effectiveness, and assist in resolving ongoing issues with housing supply and affordability.
The Residential Board of Governors (RESBOG) of MBA has highlighted construction loan reform as a critical issue for its members, and this letter reflects their lobbying goals.
Pete Mills, SVP of Residential Policy and Strategic Industry Engagement for the MBA, offered more detail on the government action, stating,
We appreciate the Enterprises’ efforts to reduce financing barriers through products such as the Single Close Construction-to-Permanent loan, which plays a vital role in enabling new housing production. To further support lender participation and borrower access, we want to work with your teams to consider several policy enhancements to modernize the loan process, expand access to construction and renovation financing, and help alleviate the affordability and supply challenges in the market.
Pilot Program for Upfront Securitization
Currently, Fannie Mae and Freddie Mac require lenders to wait until construction is complete before they can sell Single-Close Construction-to-Permanent loans on the secondary market. This delay places significant strain on lenders, especially independent mortgage banks (IMBs), which must carry construction-phase loans on warehouse lines for extended periods.
The MBA’s proposed pilot program would allow these loans to be securitized at the time of closing. They suggest that this would help improve liquidity, reduce financing costs, and encourage greater lender participation in new construction lending.
“Enabling securitization at loan closing—modeled after existing renovation loan structures—would reduce financing costs and increase lender participation,” the letter states, noting that the change aligns directly with the GSEs’ mission of providing secondary market liquidity and expanding mortgage access.”
Modernize Credit Documentation Timelines
The MBA also recommends extending the permitted age of credit documentation to 18 months for Single-Close Construction-to-Permanent loans. This would encompass income, employment, and credit reports, and the extension would reflect the reality of modern construction timelines, which are often prolonged by supply-chain delays, labor shortages, and permitting issues. MBA notes that requiring borrowers to requalify due to expired documentation adds friction, increases lender costs, and delays projects.
“Extending the credit document validity period for construction loan products would reflect current market realities, streamline the conversion process, and better support borrowers and lenders navigating extended construction periods,” MBA’s letter states.
Greater Flexibility for HomeStyle Renovation Loans
The MBA also urges Fannie Mae to lower the completion threshold for HomeStyle Renovation Mortgages from 90% to 50%, allowing funds to be used for partially completed homes.
This change would help ensure that stalled or half-finished homes can be completed in a timely and controlled manner. The MBA suggests that safeguards, such as inspections and a 10% holdback on each draw, could help protect against misuse.
The MBA letter added, “Fannie Mae has previously allowed financing for homes at 50% completion, illustrating the practicality of this approach and the potential benefits of reinstating it.”
To read the full letter, click here.
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