The Federal Housing Finance Agency has completed amending its regulation governing the Federal Home Loan Banks' Affordable Housing Program to be more flexible.

The aim was to provide more flexibility at the local level to allocate their Affordable Housing Program funds, and to design their project selection scoring systems to address affordable housing needs in their districts. The amended rules remove requirements that exist through other federal programs--making the program easier for Federal Home Loan Banks and award recipients.

“We appreciate the thoughtful comments we received on the proposed rule and implemented many of those suggestions," said Melvin Watt, director of the FHFA. “We believe that those suggestions incorporated into the final rule will help to further strengthen this important program, which has supported more than one million units of housing affordable to low-income homebuyers and renters since its inception in 1990.”

Also, the rule authorizes the Federal Home Loan Banks to establish special competitive funds that target specific affordable housing needs in their districts. In addition, it removes the requirement for retention agreements for owner-occupied units where the Affordable Housing Program subsidy is used solely for rehabilitation, which reduces administrative and financial burdens on Federal Home Loan Banks, members and households related to calculating and obtaining household subsidy repayments.

The Federal Home Loan Banks must implement all changes in the final rule by Jan. 1, 2021, except that they must implement the changes regarding the owner-occupied retention agreement requirements by Jan. 1, 2020.

The Federal Home Loan Bank Act requires each Federal Home Loan Bank to establish a program to provide subsidies for long-term, low- and moderate-income, owner-occupied and affordable rental housing. Each bank is required to allocate annually 10 percent of its prior year's net income to fund its program to help subsidize the purchase, construction, and rehabilitation of affordable rental and owner-occupied housing. In 2017, the Federal Home Loan funded $384 million in Affordable Home Program funding.

Full-year 2018 economic growth was increased to 3.1 percent, just one-tenth higher than last month’s forecast. Third quarter economic growth came in at a 3.5 percent annualized rate, slowing from 4.2 percent in the second quarter, according to the Fannie Mae Economic and Strategic Research Group forecasts.

Solid third quarter growth was backed by an impressive labor market, an acceleration in both consumer and government spending, and a build-up in private inventories, despite a widening trade deficit that more than offset its positive contribution in the second quarter.

However, according to the November 2018 Economic and Housing Outlook, the Research Group expects full-year 2019 growth to slow to 2.3 percent as the economy contends with higher short-term interest rates and the waning effects of the fiscal stimulus enacted in February 2018. The housing sector is also expected to continue to face challenges despite the strong economy and job market. Ongoing affordability constraints stemming from further home price appreciation and a lack of for-sale inventory will likely remain headwinds for housing through 2018 and into 2019.

“As we proceed through the fourth quarter, we expect growth to slow further but to remain solid at 2.6 percent,” said Doug Duncan, chief economist for Fannie Mae. “Trade remains a downside risk to growth as a strong dollar is likely to contribute to a further widening of the trade gap. While consumer spending growth is expected to moderate from the robust second and third quarters, both business fixed investment and residential fixed investment should pick up. We also expect the economy to continue to receive strong support from government spending, at least in the near term. Looking further ahead, the Bipartisan Budget Act of 2018 should continue to boost growth through the first half of 2019 before it begins to fade, ultimately acting as a drag on the economy in the second half of 2020.”

The current labor market hot streak, however, isn’t strong enough to boost the housing sector. Both new and trade-up home buyers remain discouraged by rising mortgage rates, elevated home prices, and a shortage of available inventory, particularly in the lower tier of the market.

“Market conditions also present a challenge for builders, as higher interest rates are driving up construction costs and tight labor conditions are accelerating the average hourly earnings growth of residential construction workers,” said Duncan. “Given weak housing data over the past month, we lowered our 2018 originations forecast by $11 billion to $1.624 trillion and our 2019 forecast by $21 billion to $1.603 trillion. However, we expect that existing and new home sales will stabilize in 2019 as home price appreciation moderates and mortgage rates begin to stabilize.”

Fannie Mae has completed its final Credit Insurance Risk Transfer transaction of 2018, covering loans in the company's portfolio.

The deal, CIRT 2018-8, which covers $12.8 billion in unpaid principal balance of 15-year and 20-year loans, is a part of Fannie Mae's ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has acquired about $7.6 billion of insurance coverage on $307 billion of loans through the CIRT program.

"In 2018, we entered into commitments to insure over $91 billion of single-family loans through CIRT, transferring almost $2.6 billion of risk through eight separate transactions. This latest transaction transferred $192 million of risk to 20 reinsurers," said Rob Schaefer, vice president for credit enhancement strategy and management at Fannie Mae. “As the CIRT program continues to grow, Fannie Mae remains committed to increasing liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions."

In CIRT 2018-8, which became effective Sept. 1, 2018, Fannie Mae will retain risk for the first 35 basis points of loss on a $12.8 billion pool of loans. If the $44.7 million retention layer is exhausted, reinsurers will cover the next 150 basis points of loss on the pool, up to a maximum coverage of $192 million.

Coverage for this deal is provided based on actual losses for a term of 7.5 years. Depending on the paydown of the insured pool and the principal amount of insured loans that become seriously delinquent, the aggregate coverage amount may be reduced at the one-year anniversary and each month thereafter. The coverage may be canceled by Fannie Mae after the four-year anniversary of the effective date by paying a cancellation fee.

The covered loan pool for the transaction consists of fixed-rate loans with loan-to-value ratios greater than 75 percent and less than or equal to 97 percent, and original terms between 15 and 20 years. The loans were acquired by Fannie Mae from April 2017 through May 2018.

Since 2013, Fannie Mae has transferred a portion of the credit risk on single-family mortgages with an unpaid principal balance of over $1.5 trillion, measured at the time of transaction, through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities, and other forms of risk transfer.