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1) HUD Releases Report Assessing Limited Supply of Small Mortgage Lending and Its Impact on Affordable Homeownership: Research Reveals Policy Implications for FHA Actions Regarding Small Dollar Mortgages

The U.S. Department of Housing and Urban Development (HUD) today released a report that assesses the factors that limit the supply of small mortgage loans and the impact to affordable homeownership for those interested in lower-priced homes. . . .

The report, titled “Financing Lower-Priced Homes: Small Mortgage Loans”, was submitted in response to a request from Congress to (1) “identify barriers or impediments to supporting, facilitating, and making available mortgage insurance for mortgage loans having an original principal obligation of $70,000 or less, (2) identify administrative actions that HUD could take to remove barriers and impediments, and (3) describe the effect of such actions on the solvency of the Mutual Mortgage Insurance Fund (MMI Fund).”

The report highlights challenges facing borrowers who need loans to purchase lower-priced homes. Among its principal findings, the report notes:

-- Mortgage loans with an original principal obligation of $70,000 or less are a small portion of the mortgage lending market, constituting less than 3.5 percent of home purchase originations in 2020. Many of these low balance mortgage loans secure properties valued at more than $70,000, indicating that the purchases included substantial down payments. Future reviews many want to focus on a different cut-off point.
-- Federal Housing Administration (FHA) programs do not impose minimum loan amounts, nor do FHA’s policies intentionally discriminate against small mortgage loans. FHA disproportionately insures loans for lower-priced homes compared to the rest of the mortgage market. FHA also has loan insurance programs for financing property improvements and manufactured homes that are particularly targeted to lower loan amounts.
-- A significant barrier to small mortgage lending are fixed costs of loan origination and servicing, which makes smaller loans less profitable and may require additional incentivization for lenders.

The report is supplemented by a Request for Information (RFI), released by HUD today, that solicits specific and actional feedback on the barriers that prevent the origination of small-balance mortgages and recommendations for increasing the volume of small-mortgage loans in FHA programs. HUD Secretary Marcia L. Fudge announced the report and RFI during remarks at Treasury’s Second Annual Freedman’s Bank Forum.

https://www.hud.gov/press/press_releases_media_advisories/hud_no_22_201
 
2) Oct 4 -- Office of the Assistant Secretary for Housing—Federal Housing Commissioner, Department of Housing and Urban Development. In its 2022-2026 Strategic Plan, the Department established strategic goals to “Support Underserved Communities” and to “Promote Homeownership.” Among the goal of supporting underserved communities is to advance housing justice and proactively strengthen and protect vulnerable and underserved communities. Through this Request for Information (RFI), the Federal Housing Administration (FHA) seeks public input regarding barriers to the origination of small mortgages in the FHA program. Information provided in response to this RFI will allow FHA to identify barriers to the origination of small mortgages in the FHA program and consider the development of policies and programs that better support and expand affordable homeownership opportunities in underserved markets with lower housing prices. Comments are requested on or before December 5, 2022.

HUD's 2022-2026 Strategic Plan, released in March 2022, established strategic goals to “Support Underserved Communities” and to “Promote Homeownership.” Among the objectives of supporting underserved communities is to “Advance Housing Justice,” which includes expanding the Department's role in proactively strengthening and protecting vulnerable and underserved communities. Borrowers often experience difficulty finding affordable options to finance the purchase or refinance of properties below certain price thresholds, especially in areas where home values are low. FHA's mission is to provide mortgage financing options for low- to moderate-income borrowers who are not well served by the private mortgage market, including those seeking small mortgage. HUD understands that a primary barrier to small mortgage lending is the costs to originate and service small mortgages in relation to the limited potential compensation afforded by these loans. Therefore, lenders do not find it economically feasible to originate mortgages with low principal balances. This lack of financing availability for mortgages with low principal balances creates a significant barrier to affordable homeownership for underserved households, particularly in certain geographic areas.

Under Title II of the National Housing Act (NHA), FHA insures loans made by FHA-approved mortgagees for the purchase or refinance of 1-4 family residences, including individual condominium units and manufactured homes classified as real estate. FHA insures mortgages to increase the availability of affordable home financing options for low- and moderate-income borrowers by protecting mortgagees and lenders against the risk of default.

The Title II program provides limits on the maximum loan amounts but does not contain limitations on a minimum loan amount. Additionally, FHA's regulation at 24 CFR 203.18d prohibits lenders from establishing a minimum principal loan amount under FHA's Title II program.

The House of Representatives Committee Report, 116-452, accompanying the U.S. Departments of Transportation, Housing and Urban Development, and Related Agencies Appropriations Bill, 2021 directed HUD to submit a review of its FHA single-family mortgage insurance policies, practices, and products to identify any barriers or impediments to supporting, facilitating, and making available mortgage insurance for mortgages having an original principal obligation of $70,000 or less. In response, HUD is issuing a report concurrently with this RFI that outlines FHA's role in the small mortgage lending market and identifies certain potential impediments to small mortgage lending.

The purpose of this RFI is to solicit information regarding barriers to originating small mortgage lending in the FHA program and obtain feedback on ways to improve FHA policies and programs that support affordable homeownership opportunities in underserved markets with lower housing prices.

While FHA welcomes all comments relevant to expanding small mortgage lending in the FHA mortgage insurance program, FHA is particularly interested in receiving input from interested parties on the questions outlined below.

1. Communities have reported a lack of available financing for small balance mortgage loans in some areas. Have you observed this to be true and is there a particular mortgage loan amount below which the problem is most acute?

2. What housing supply market conditions and purchasing characteristics affect the availability of and demand for small mortgages?

3. What information can you provide regarding the ways in which the FHA program serves or does not serve borrowers seeking small mortgages?

4. What barriers (e.g., origination and servicing costs, compensation, disincentives) exist for mortgage lenders and other industry participants in facilitating transactions that include the origination or servicing of small mortgages in the FHA program?

5. What technology solutions could improve the availability of small mortgages in the FHA program?

6. What changes to policies, regulations, features, or processes of the current FHA program would encourage mortgagees to do more lending for small mortgages in the FHA program?

7. What policies, regulations, features, or processes outside of FHA/HUD impact the availability of small mortgages in the FHA program?

8. What, if any, state and local requirements affect the availability of small mortgages in the FHA program?

9. What consumer protections are unique to small mortgages that should be considered in the FHA program?

10. What issues should be considered relating to provision of liquidity for small mortgage lending through securitization?

11. Offer any additional comments on the role that FHA programs could play in improving the supply of small mortgages.

RFI: https://www.federalregister.gov/d/2022-21047
Press release: https://www.hud.gov/press/press_releases_media_advisories/hud_no_22_200

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