MBA Calls for Reform in Construction Lending Policies

News Summary

The Mortgage Bankers Association (MBA) has proposed significant reforms to enhance access to construction and renovation financing. Their recommendations aim to facilitate borrower accessibility, boost lender participation, and address barriers in the construction loan market. Key points include the introduction of a pilot program for early securitization of loans, extending credit documentation validity to 18 months, and revising HomeStyle Renovation Mortgages to support partially completed projects. These reforms are essential for improving housing supply and affordability challenges while aligning with the missions of Fannie Mae and Freddie Mac.

MBA Calls for Reform in Construction Lending Policies

The Mortgage Bankers Association (MBA) has recently taken a significant step towards enhancing access to construction and renovation financing by submitting a letter to Fannie Mae and Freddie Mac on July 15. The MBA’s recommendations aim to facilitate borrower accessibility and increase lender participation in the construction loan market, a segment that has been facing restrictions and challenges for some time.

Key Recommendations for Improved Efficiency

Among the main points highlighted by the MBA are three critical recommendations focused on boosting efficiency, reducing lender risk, and extending support to underserved market segments. These changes are particularly pertinent in light of ongoing challenges related to housing supply and affordability that continue to impact homebuyers across the nation.

Addressing Barriers to Construction Lending

One of the essential aspects of the MBA’s recommendations involves the Single Close Construction-to-Permanent loan. Currently, lenders are required to wait until construction is completed before they can sell these loans in the secondary market. This waiting period puts a strain on independent mortgage banks (IMBs) and limits their ability to leverage liquidity. To counter this issue, the MBA proposed a pilot program that would allow these loans to be securitized at the time of closing. This adjustment would not only enhance liquidity but also potentially lower overall financing costs for borrowers.

Extending Credit Documentation Validity

Another recommendation from the MBA is to extend the validity of credit documentation for Single Close Construction-to-Permanent loans to 18 months. This proposed extension recognizes the growing challenges in modern construction timelines, which are often affected by supply chain delays, labor shortages, and numerous permitting issues. This change would help borrowers avoid having to requalify for loans due to expired documentation, thereby reducing friction and costs for lenders.

Enhancing Renovation Financing

Alongside construction lending, the MBA also addressed HomeStyle Renovation Mortgages. They encourage lowering the completion threshold for these mortgages from 90% to 50%. By doing this, funds can be utilized for partially completed or stalled projects, allowing for timely and efficient completion of homes that may otherwise sit unfinished. The implementation of safeguards, such as scheduled inspections and a 10% holdback on each draw, has been suggested to prevent any misuse of funds.

Importance of Reform in Construction Lending

The urgency of reforming construction loan policies has become increasingly clear, given the ongoing challenges in the housing market. These recommendations from the MBA aim not only to provide immediate relief to lenders and borrowers but also to align more closely with the missions of Fannie Mae and Freddie Mac to expand mortgage access and ensure liquidity in the secondary market.

Historical Context and Reinforcement of Strategies

The MBA also made reference to a time when Fannie Mae allowed financing for homes that were only 50% completed, illustrating the feasibility and practicality of such adjustments. This historical context supports the association’s proposals, showing that change in this area is both necessary and achievable.

Conclusion and Future Steps

The full details of the MBA’s letter disclose a comprehensive strategy to reform construction and renovation lending policies, designed to alleviate financial barriers and address the critical issues of housing accessibility. As the situation in the housing market continues to evolve, these recommendations could play a vital role in shaping a more inclusive and efficient lending landscape.

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Additional Resources

• The Mortgage Point
• Mortgage News Daily
• The Mortgage Reports
• Multifamily Dive
• Newsweek
• Wikipedia: Mortgage
• Google Search: Construction Lending
• Encyclopedia Britannica: Mortgage
• Google News: Construction Financing