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FHFA refi opps and desktop appraisals; Buy now, Pay later 😁

By October 20, 2021 No Comments

FHFA expands mortgage refinance opportunities for low- and medium-income families

The Federal Housing Finance Agency (FHFA) announced at the MBA the expansion of Fannie Mae and Freddie Mac’s refinance programs for low- and moderate-income borrowers. 

These changes are set to increase affordability for homeowners and homebuyers in the U.S., with a focus on underserved communities. 
The programs, RefiNow and Refi Possible, allow low- and moderate-income borrowers with home loans backed by Fannie and Freddie. Now, after receiving feedback on the effectiveness of the programs, the FHFA announced it will expand these programs and who is eligible for them.

“By taking advantage of lower interest rates, borrowers can reduce the share of their income they have to use for housing costs,” FHFA Acting Director Sandra Thompson said at the MBA Annual Conference in San Diego. “This should be a significant priority since we are seeing low-income borrowers paying rates that are 30% higher than other borrowers.”

“Expanding eligibility for low- and moderate-income families to refinance their mortgage and lower their monthly payments, together with leveraging desktop appraisals to reduce inefficiencies in the mortgage process, are meaningful steps towards overcoming barriers to affordable and sustainable homeownership,” Thompson said.

“Today’s actions demonstrate that FHFA will continue to act purposefully and in dialogue with its stakeholders to minimize market disruption and ensure its regulated entities operate in a safe and sound manner.”

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FHFA also announces that desktop appraisals will be permanent

Desktop appraisals, a temporary flexibility implemented in March 2020 to keep the mortgage industry afloat amid lockdowns and social distancing, will become permanent, the Federal Housing Finance Agency said today. 

Sandra Thompson, acting director of the FHFA, said both Fannie Mae and Freddie Mac will allow appraisals to be conducted remotely, using public records such as listings and tax appraisals, for purchase loans starting in early 2022.
Thompson said that “frictions in the appraisal process” can slow down the mortgage process, a problem she said is particularly acute in rural communities. Appraisers often spend much of their day driving from property to property, explained coverage in HousingWire.

Zitin has a few questions that he feels need to get answered as the industry moves to permanently adopt this product.

“The big question in all of this is: What’s going to be the eligibility criteria for these Desktop Appraisals,” Zitin asks. “Will regulatory certainty lead to more adoption from originators and the rest of the secondary market investors as well?”

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Buy now — Pay later loans gain a foothold and threaten traditional lenders

Fintechs are capitalizing on the growth of Point-of-Sale (POS) products including Buy Now Pay Later (BNPL) offerings, which could present a longer-term competitive threat to banks and card companies.

Failure to adapt and compete effectively with these new payment/commerce constructs could erode market share and reduce profitability, which could lead to negative rating momentum for monoline card issuers, Fitch Ratings says.

BNPL, defined as short-duration (6-8 week) loans carrying a 0% interest rate, is a rapidly growing segment within POS financings, with strong growth driven by shifting consumer preferences, technological innovation, and merchants’ willingness to subsidize the cost of financing to boost sales growth. 

BNPL provides a digital gateway to merchants through an app interface that appeals to millennials and Gen Zers but appears to have greater exposure to near-prime/subprime borrowers or those lacking credit history.

BNPL usage has accelerated since the start of the pandemic, but Fitch does not believe the product thus far has made a significant dent in credit cards’ market share of consumer spending, particularly for Fitch-rated prime-focused credit card issuers. 

U.S. credit card volume was around $4 trillion in 2020, with BNPL still a small share. Still, according to McKinsey & Company, POS financing, including BNPL, more than doubled between 2016 and 2020 to over $100 billion, while credit cards grew less than 4% over the same period.

Credit cards’ higher APRs, late fees, and revolving balances relative to BNPL are cited as primary reasons that consumers choose BNPL. 

However, credit cards maintain other benefits relative to BNPL, including reward programs, ubiquitous merchant acceptance, payment flexibility, and fraud protection. 

Still, BNPL platforms are making inroads into the brick-and-mortar channel by offering virtual cards and linking debit cards to their digital apps while offering additional products and services.

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