The GSE will face hard caps of 6% on purchases and 3% on refinances of “higher risk” loans.

The Mortgage Bankers Association asked for a meeting with Treasury and Federal Housing Finance Agency officials to address MBA member concerns over newly imposed limits on government-sponsored enterprise operations that could cause potential disruptions to the housing finance system. The letter to Treasury Secretary Janet Yellen and FHFA Director Mark Calabria specifically cites amendments to GSE Senior Preferred Stock Purchase Agreements announced this past January. The amendments included provisions to enhance clarity on milestones necessary for the GSEs to exit conservatorship, and were intended to promote stability in the market. MBA welcomed certain provisions of the PSPA amendments allowing the GSEs to build capital while remaining in conservatorship until other reforms are implemented. However, MBA raised concerns when the PSPAs were released that certain restrictions on product-type purchases and cash window deliveries would be difficult to implement and could impair market functioning. The revised PSPAs feature several provisions limiting GSE acquisitions of certain types of loans. One such provision requires the GSEs to limit “acquisitions of Single-Family Mortgage Loans secured by either investment properties or second homes to not more than 7 percent of the Single-Family Mortgage Loans acquired…during the preceding 52-week period.” The PSPAs also imposed caps on loans exhibiting “higher risk” characteristics – mortgages with 2 or more of the following features: credit scores below 680, combined loan-to-value ratios above 90%, or debt-to-income ratios above 45%. The GSE will face hard caps of 6% on purchases and 3% on refinances of such “higher risk” loans. In the past week, the GSEs have begun reaching out to lenders implement the investor/2nd home caps.

Source; MBA