US FHFA to investigate Fintech’s role in housing finance | Perspectives and events

On July 18, 2022, the Federal Housing Finance Agency (FHFA) signaled its focus on the fintech industry with two actions that add the FHFA as yet another regulator focusing on the effects of technology companies in their jurisdictions.

Firstthe agency announced the creation of an Office of Financial Technology, whose purpose is to “address[] new risks and advances[] the agency’s priorities related to the adoption and deployment of financial technology.” This new office, referred to as the “Fintech Office,” will initially engage with external stakeholders, including “market participants, industry, nonprofit organizations, consumer groups, and academia,” “to facilitate the sharing of best practices”. The Fintech Office’s website indicates that its initial leadership team consists of three current staff, the most senior of whom is a three-decade FDIC veteran who is currently the Office’s Deputy Director for Conservatorship Oversight and Preparedness. The FHFA explained that the Fintech Office, when it is established, will:

• Support the agency in developing strategies for FHFA’s regulated entities to promote housing finance fintech and innovation in a safe and sound, accountable and fair manner
• Engage with market participants, industry, non-profits, consumer groups and academia to facilitate the sharing of fintech best practices and housing finance innovation
• Establish continuous outreach through the regulated entities, promote awareness and understanding of housing finance fintech and innovation
• Facilitate inter-agency collaboration with other regulators to enable information sharing and partnership opportunities
• Serve as an agency resource for innovations, general trends and emerging risks in home finance fintech

Second, the FHFA issued a request for information (RFI) on fintech’s role in the mortgage industry. The document begins with an overview of the growing role of fintechs at every node in the mortgage ecosystem, noting that fintechs have been “most active in the loan origination and underwriting space”, capitalizing on consumers’ desire for low-cost, digital alternatives to traditional mortgages. origin. The FHFA’s overview reflects a mixed approach to fintech — acknowledging the many potential benefits but being cautious about the effects of certain innovations, such as the use of artificial intelligence in underwriting and credit decisions. The RFI’s questions focus on six areas:

• Fintech and innovation, including the factors that may inhibit the use of fintech in the primary and secondary housing finance markets
• Identify opportunities for fintech use, including whether fintech can speed up lending decisions and whether regulators or data limitations are hindering fintech adoption
• Fair access to credit, including what new tools can expand access to credit and how to reduce the risk of discrimination when developing algorithms
• Whether fintech firms pose specific risks to the mortgage sector and how firms manage these risks
• Regtech, including the most promising areas for using technology for regulatory and compliance functions
• How the Fintech Office can effectively collaborate with external stakeholders

What does this mean? As the conservator and regulator of Fannie Mae and Freddie Mac, the FHFA’s view of fintech firms could play a major role in the future of fintech in the mortgage industry. In fact, Fannie and Freddie themselves are already leveraging technology for their operations (often partnering with fintechs) through products like Freddie’s Asset and Income Modeler and Fannie’s Day 1 Certainty program. Further engagement with FHFA may provide more business opportunities for new participants and help current participants alleviate any concerns that may have prompted FHFA’s RFI. So fintechs and industry groups should seriously consider whether and how to take up FHFA’s offer to engage with the issues the agency is grappling with.