President Trump signed an executive order Thursday directing the regulator of Fannie Mae and Freddie Mac to try a new approach to mortgage insurance: a pilot program in which the two companies would cancel the coverage on their own initiative once a borrower's equity, measured against the home's current value, clears the required bar.
The order reaches well beyond insurance. It tells the Federal Housing Finance Agency to turn a limited title insurance waiver for refinancing into an ongoing nationwide program, creates a federal task force on factory-built housing, and directs the secretaries of Agriculture and Veterans Affairs to lower the interest rates their departments charge on single-family home loans they make directly. In a White House fact sheet, the administration said the order was signed "to lower the costs of single-family homeownership and mortgages and promote innovation throughout the housing market."
Under the insurance provision, the agency's director would have Fannie Mae and Freddie Mac periodically review the single-family loans they own, guarantee or securitize, using automated valuation models and other data to estimate what each home is worth now and to flag borrowers who appear to qualify for cancellation. The pilot would apply only to mortgages made after it begins, which leaves existing loans outside its reach. Borrowers would still have to meet payment-history and other requirements, and any cancellation would have to square with safety and soundness standards and the companies' contracts. Servicers would be told, where the law allows and it is feasible, to notify eligible borrowers promptly and to reduce or eliminate needless document requests, appraisal costs and other obstacles.
The title measure is aimed at refinancing. It would let either company accept an automated title review, or another title-risk assessment approved by the agency, in place of a lender's title insurance policy on eligible refinance loans. The director is asked to weigh opening the program to borrowers above the current 80 percent loan-to-value limit where title risk stays low, lifting geographic restrictions and certifying more providers. The director is also to consider waiving appraisals and income re-verification on limited cash-out refinances that lower a borrower's monthly payment, and reducing or eliminating loan-level price adjustments and other fees on those loans. Any savings must be passed through to borrowers, and lenders must tell them about it.
Neither housing finance step happens on its own. The order makes each one contingent on the director's judgment that it serves Fannie Mae, Freddie Mac or the agency, along with the public, and the whole directive is to be carried out consistent with applicable law and subject to available appropriations, a condition that also covers the Agriculture and VA rate cuts. Scotsman Guide reported that many of the proposals, such as waiving appraisals and income checks on certain cash-out refinances, would need industry input to carry out, while others, including the fee reductions and the portfolio review for insurance cancellation, could move faster.
The new Task Force on Manufactured Housing Innovation will be co-chaired by Housing and Urban Development Secretary Scott Turner and FHFA Director Bill Pulte and will include the secretaries of Agriculture, Commerce and Veterans Affairs. It has 180 days to recommend ways to bring modern manufacturing methods to factory-built homes that qualify for federal programs, including steps to eliminate federal requirements and duplicative reviews that needlessly add time or cost. It must also study whether federal grant money can be tied to, or used to encourage, state and local adoption of standardized permitting for those homes, in line with best practices issued under a March 13 order on home construction, and prepare legislative recommendations. Turner said in a press release, quoted by Scotsman Guide, that home building "has been crippled by regulatory red tape" for decades and that the panel "can usher in the next generation of housing by modernizing standards and speeding up approvals across government."
The signing capped days of anticipation in the mortgage business. HousingWire reported that it obtained a draft of the order from three sources Monday evening, and that talk of a coming order ran through the Mortgage Bankers Association's annual convention in Chicago last week, where attendees had expected Pulte to discuss new initiatives before he canceled the appearance to travel with Trump. Scotsman Guide, which reported Tuesday that the president's team was weighing the order, said the signed version closely tracked the draft it had obtained, apart from some revised section headings.
Industry groups welcomed it. Bob Broeksmit, president and chief executive of the Mortgage Bankers Association, said in a statement to Scotsman Guide that the group's lender members "welcome these latest initiatives to reduce the costs of refinancing and expand innovative manufactured housing options for potential homebuyers," and that the association would work with federal agencies toward "a timely and thorough implementation." "These actions to reduce title insurance costs, promote manufactured home affordability, and reduce mortgage loan costs for veterans have long been CHLA priorities," said Scott Olson, executive director of the Community Home Lenders of America.
Brendan McKay, a mortgage broker and co-founder of the Broker Action Coalition, called the order "a big deal" in a statement reported by HousingWire, saying proactive cancellation "will keep real money back into families' pockets every month" and that streamlined refinances and broader title waivers "could slash closing costs by thousands of dollars."
Wall Street analysts were more restrained. In an Oct. 21 research note cited by HousingWire, written the day before the signing, analysts at Keefe, Bruyette & Woods said the order's effect on mortgage companies and the broader market was likely to be limited. The title pilot operates in only a few regions and covers only eligible refinances, which account for about 7 percent of title premiums, they wrote, so the hit to title insurance earnings should stay limited as long as the program applies only to refinances. Broadening it to home purchases could carry more risk for title insurers, they said, and mortgage insurers could offset any earnings pressure from more cancellations with stock buybacks.
The order adds to a string of housing actions this year. According to the White House summary, Trump signed an order in January to keep large institutional investors from buying single-family homes that families could otherwise purchase, directed Fannie Mae and Freddie Mac that month to buy $200 billion in mortgage-backed securities to push borrowing costs lower, and signed a March order to reduce regulatory burdens that the administration said had raised mortgage costs and limited access for creditworthy borrowers.