By Doug Page
If anything shines through during an interview with Federal Housing Finance Agency (FHFA) Director Sandra Thompson, it’s her enthusiasm and optimism for the agency’s mission.
In an interview with Mortgage Banker Magazine, she discussed her goals for the FHFA, how it’s helping first-time homebuyers, and appraisal bias.
“I just believe, with everything I have, that everybody deserves decent and affordable housing, whether it’s a home they purchase or an apartment they live in,” she said. “And just to have this opportunity is just a blessing for me personally and professionally because I never would’ve expected to have this opportunity.
“I’m just so grateful for it,” she continued, “and I really want to make a difference in communities across the country.”
Long Career In Public Finance
Thompson is the first Black director (and sixth director overall) of the FHFA, an agency that came about as a result of the 2008 financial crisis. She graduated from Howard University in Washington before beginning a 23-year career at the Federal Deposit Insurance Corporation. Her time at the FDIC included leading the agency’s examination and enforcement program for risk management and consumer protection at the height of the 2008 financial crisis.
She parlayed that experience when she joined the FHFA during the Obama Administration in 2013. In her first role, as deputy director, she oversaw housing and regulatory policy, capital policy, financial analysis, fair lending and all mission activities for Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
Prior to being confirmed by the U.S. Senate as director of the FHFA in June 2022, she served as the agency’s acting director for the previous year.
As for what she hopes to accomplish during her time leading the FHFA, Thompson said, “I’m just really hopeful that, at the end of my tenure, I can look back and, using my metrics, say, ‘Here’s where we were and here are the policies we implemented. And based on that we’ve increased housing in rural areas, or we’ve decreased the time to appraisals in rural areas and we’ve just made a more efficient and equitable industry.’”
Eliminating Upfront Fees
Toward that goal, the FHFA recently announced a new policy discontinuing upfront fees for certain first-time homebuyers, low-income mortgage borrowers, and those from underserved communities. Thompson defended the policy, saying it’s not a “silver bullet” but it’s better than “doing nothing.”
“We think the policy provides a savings, on average, of about $800 in upfront fees,” she said on Wednesday. “It’s not a silver bullet but it is part of the solution that we have for lowering some of the barriers to homeownership.”
Information from the National Association of Realtors shows that while the homeownership rate for Blacks increased in 2020 to 43.3%, it’s lower than it was 10 years ago. In the same time frame, the homeownership rate among whites, Asian Americans and Hispanic Americans increased to 72.1%, 61.7% and 51.1% respectively.
Overall, the homeownership rate among all Americans is 65.5%.
One of Thompson’s former colleagues, David Stevens, who served in the Obama Administration as the U.S. assistant secretary of housing and Federal Housing Administration (FHA) director, applauded the policy but said its impact will be marginal due to increased mortgage rates and higher home prices.
When told about this critique, Thompson’s enthusiasm jumped through the Zoom screen when she replied, “Marginal impact is better than no impact!
“And we really think that a decrease in upfront fees and borrower costs is certainly better than an increase or doing nothing,” she added, saying the FHFA thinks 1 in 5 borrowers will be eligible for the new policy.
At least one independent mortgage broker shares Thompson’s optimism for the policy.
“I think (the policy change) is a good thing because ultimately those fees get passed along to the consumer and it determines how much (of a mortgage) someone is able to qualify for because it affects their mortgage payment,” said mortgage broker Shawn Williams, president of College Park, Md.-based Fortis Mortgage. “I haven’t put my finger on how much of an impact it will have given interest rates, but it is going to make houses more affordable for minorities and low-income borrowers seeking to buy.”
One of the things that impressed Stevens was that the policy came from her, not the Biden Administration.
“It really reflects Director Thompson’s mission that she has vocally promoted since she took (her current) role,” he said. “She has been very public about wanting to expand home ownership opportunities, particularly for African Americans and Latinos.”
“We did not get any push from the Biden Administration on this policy,” Thompson confirmed during the interview. She went on to emphasize that the FHFA is an “independent agency and our independence is valued.”
Asked how the FHFA will measure the policy’s effectiveness, she said, “I look at the numbers. Strictly the numbers. If you don’t have measurable, quantifiable goals, then, there’s absolutely no way to evaluate whether a policy has been successful or not.
“We’re fact driven, and we want to make sure that we’re measuring these initiatives that we’re putting in place,” she added.
“One of the things I committed to as acting director, and you can see this in the scorecard that we publish,” Thompson continued, “we placed a pricing review as a priority in the 2022 scorecard and the strategic plan.”
In addition, she said, since the “enterprises (Fannie Mae and Freddie Mac) are accumulating capital and we want to make sure they’re achieving some viable returns on that capital. So, there are a number of strategic priorities that we have, and we believe that the pricing changes that we have made and will make are going to further our publicly stated goals.”
Easy Not Always Best
When asked if these consumers would be better served if the FHFA borrowed from the Veterans Administration and allowed them to receive mortgages that didn’t require a down payment, Thompson said, “What’s easy isn’t always what’s best.”
She cited the 2008 mortgage crisis as a reason not to pursue such a policy.
“We saw a number of zero down payment mortgages,” Thompson said. “We saw some of those predatory products.
“And we’ve got a mission here (at FHFA) as a safety and soundness regulator, to make sure that the (GSEs) are operating in a safe and sound manner,” she added.
Fannie Mae and Freddie Mac have been in conservatorship since 2008. The FHFA acts as the conservator, overseeing the two entities on behalf of the federal government.
Asked if a down payment makes someone a better borrower, Thompson said, “Sometimes it does help, when you have equity and you know that you’re working for something.
“All circumstances aren’t the same,” she continued, “but it would be our preference to have a low down payment.”
Other changes to GSE-purchased mortgages included using two different credit score providers, FICO 10-T and VantageScore 4.0 instead of the Classic FICO score, which should also help first-time homebuyers.
“These new and updated credit score modeling systems factor rental payment histories,” Thompson said. “They also take into consideration payments that borrowers make for utilities and telecoms.
“These are things that are not included in the Classic FICO score,” she added, saying the GSEs have been using the classic version for about 20 years.
‘I look at the numbers. Strictly the numbers. If you don’t have measurable, quantifiable goals, then, there’s absolutely no way to evaluate whether a policy has been successful or not.’
When asked what the FHFA was doing to stop appraisal bias, Thompson said her agency joined PAVE, a task force of 13 federal government agencies led by U.S. Housing and Urban Affairs Secretary Marcia Fudge and Susan Rice, the director of the Domestic Policy Council.
“We’ve joined with the other federal agencies in notifying The Appraisal Foundation that the current non-discrimination standard is inadequate and needs to be revised,” Thompson said.
She says the FHFA has more than 23 million appraisal records that are available to the public.
“It’s aggregated data but the public can access statistics from more than 23 million appraisal records that we have,” she said, adding that the public can compare appraisal gaps in minority neighborhoods nationwide.
“We’ve got a lot of information and it’s not just these anecdotes that we hear about, people whitewashing their house or removing pictures or doing things to neutralize their home so that a potential buyer has no basis for making any decisions based on race,” Thompson said. “Not to say that it happens all the time, but these are the things we’ve heard. They’ve been in the newspaper, and they’ve been seen on television.”
One of the issues she mentioned during the interview was the composition of the home appraisal workforce, saying that Fannie Mae and Freddie Mac support The Appraisal Diversity Initiative, which “is looking to bring diversity into the appraisal profession,” she said.
“According to labor statistics it’s one of the least diverse professions in the country,” Thompson said.
She also said Fannie Mae is working on diversity through its Future Housing Leaders Program, “which provides opportunities for diverse candidates to enter the housing and mortgage industry.” Freddie Mac “is working on improving access to capital for diverse (real estate) developers” through its Develop The Developer program, Thompson said.