US FHFA to Examine Role of Fintechs in Housing Finance

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

First, the agency announced the creation of an Office of Financial Technology, the purpose of which is to “address[] emerging risks and advance[] agency priorities related to the adoption and deployment of financial technology.” Referred to as the “Fintech Office,” this new office initially will be engaging with external stakeholders, including “market participants, industry, non-profits, 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 personnel, the most senior of which is a three-decade FDIC veteran who currently is the office’s Deputy Director of Conservatorship Oversight and Readiness. FHFA explained that, once established, the Fintech Office will:

• Support the agency in developing strategies for FHFA’s regulated entities to advance housing finance fintech and innovation in a safe and sound, responsible, and equitable manner
• Engage with market participants, industry, nonprofits, consumer groups, and academia to facilitate the sharing of best practices of housing finance fintech and innovation
• Establish ongoing outreach through the regulated entities, promoting awareness and understanding of housing finance fintech and innovation
• Facilitate interagency collaboration with other regulators to enable information sharing and partnership opportunities
• Serve as an agency resource for innovations, general trends, and emerging risks in housing finance fintech

Second, FHFA issued a request for information (RFI) on the role of fintech in the mortgage industry. The document begins with an overview of fintech’s growing role at every node of 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 mortgage origination. FHFA’s overview reflects a mixed approach to fintech—recognizing the many potential benefits but cautious regarding 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 adoption of fintech in the primary and secondary markets for housing finance
• Identifying opportunities for fintech use, including whether fintechs might speed up lending decisions and whether regulator or data limitations inhibit fintech adoption
• Equitable access to credit, including what new tools might expand access to credit and how to reduce the risk of discrimination when developing algorithms
• Whether fintech firms present specific risks to the mortgage sector and how firms manage those risks
• Regtech, including the most promising areas for applying technology to regulatory and compliance functions
• How the Fintech Office can effectively engage with outside stakeholders

What does this mean? As the conservator and regulator for Fannie Mae and Freddie Mac, FHFA’s views on fintech firms could play a large role in the future of fintechs in the mortgage industry. Indeed, Fannie and Freddie themselves already leverage technology for their operations (often partnering with fintechs) through products such as Freddie’s Asset and Income Modeler and Fannie’s Day 1 Certainty program. Further engagement with FHFA could provide additional business opportunities to new entrants and help current participants allay whatever concerns may have prompted FHFA’s RFI. So fintechs and industry groups should seriously consider whether and how to take up FHFA on its offer to engage on the issues the agency is wrestling with.