(Video) House of the Day: A Caribbean Getaway

Today’s House of the Day is a St. Lucia compound, overlooking a World Heritage site, that serves as a vacation escape for its owner. This compound, named Caille Blanc Villa, is comprised of five free-standing suites in Soufrière, St. Lucia. The suites converge in a common courtyard, with access to an infinity pool. It’s listed for $10 million, with quarter shares available for $2.5 million. (Slide show.)

HUD SECRETARY DONOVAN ANNOUNCES NEW REGULATIONS TO ENSURE EQUAL ACCESS TO HOUSING FOR ALL AMERICANS REGARDLESS OF SEXUAL ORIENTATION OR GENDER IDENTITY

WASHINGTON – U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan announced today new regulations intended to ensure that HUD’s core housing programs are open to all eligible persons, regardless of sexual orientation or gender identity. Donovan previewed the announcement at the 24th National Conference on Lesbian, Gay, Bisexual and Transgender (LGBT) Equality – Creating Change.

Housing Industry Reacts to State of the Union

Housing featured prominently in
President Obama’s State of the Union speech on Tuesday night.  The President made two specific proposals,
one to deal with the ghosts of housing past, the other to provide expanded
credit to homeowners.

In contrast to the settlement with banks
that Obama was widely rumored to announce
at the State of the Union, he instead directed Attorney General Eric Holder to
create a new office on Mortgage Origination and Securitization Abuses.  The President said, “The American people
deserve a robust and comprehensive investigation into the global financial meltdown
to ensure nothing like it ever happens again.”

According to the Huffington Post, the new
office will take a three-pronged approach to the issue, holding financial
institutions accountable for abuses, compensating victims, and providing relief
for homeowners, and will operate as part of the existing Financial Fraud
Enforcement Task Force.  On Wednesday several
news outlets were reporting that the unit will be chaired by State Attorney
General Eric Schneiderman, who has been regarded as among the toughest of state
law enforcement officers with Lanny Breuer, an assistant attorney general in
the Criminal Division of the Department of Justice (DOJ) as co-chair.  Others reported to be in the group are Robert
Khuzami, director of enforcement at the Securities and Exchange Commission,
U.S. Attorney for Colorado John Walsh and Tony West, assistant AG, DOJ. 

The President’s second and more
broad-reaching proposal was for a massive refinancing of mortgage loans that
would reach beyond the current government initiates such as the Home Affordable
Refinance Program (HARP).  While few
details are available, the President said that his proposed initiative would
cut red tape and could save homeowners about $3,000 a year on their mortgage
payments because of the current historically low rates.  Unlike HARP, the program would apply to all
borrowers whether or not their current mortgages are government-backed and
would be paid for by a small fee on the largest financial institutions. Obama
did not mention principal reduction in his proposal.

Bloomberg is reporting that the program is
Obama’s response to a call by Fed Chairman Ben Bernanke in a paper sent to Congress
earlier this month for the administration to offer more aid for housing.   While largely dealing with the need to
convert excess housing inventory to rental property, the paper also touched on
the benefits of easing refinancing beyond the HARP program.

Bloomberg also outlined some of the
tradeoffs of a super-refinancing program saying it may damage investors in
government-backed securities by more quickly paying off those with high coupons
and limited default risk while aiding holders of other home-loan securities and
banks.  Word that such a proposal might be
forthcoming in the President’s speech, Bloomberg said, “Roiled the market for
Fannie Mae and Freddie Mac securities according to a note to clients by Bank of
America Corp.”

The Associated Press quoted Stan
Humphries, chief economist at Zillow as saying the refinancing could allow 10
million more homeowners to refinance and, by preventing foreclosures and
freeing up money for Americans to spend, could give the economy a $40 to $75
billion jolt.  The Federal Reserve, the
AP said, was more cautious, estimating that 2.5 million additional homeowners
might be able to refinance.

The refinancing initiative would require
approval by Congress, however the day after the speech the focus was on other issues
such as tax reform and we could not find any reaction from members of Congress
specific to the refinancing issue.  Even the
Mortgage Bankers Association (MBA) issued a statement from its president David
H. Stevens which did not mention the refinancing program, obliquely addressing
instead the creation of the mortgage fraud office.    

“Like the
President, we believe it is time to move forward with rebuilding this nation’s
housing market and that lenders and borrowers alike contributed to the housing
crisis we are currently in.  Let there also be no mistake, those who
committed illegal acts ought to face the consequences, if they haven’t already.”

Stevens
then called for a clear national housing policy “that establishes certainty for
lenders and borrowers alike.”  This,
according to MBA, requires finalizing the Risk Retention/Qualified Residential
Mortgage (QRM) rule “in a way that ensures access to credit for all qualified
borrowers,” establishing working national servicing standards, developing a
legal safe-harbor for Dodd-Frank QRM/Ability to Repay requirements, and “Move(ing)
quickly to determine the proper role of the federal government in the mortgage market
in order to ensure sufficient mortgage liquidity through all markets, good and
bad.

Creation
of the fraud office generated substantial comment, much of which was
unfavorable.  A lot of the criticism
focused on the lack of prosecutions that have emerged from the existing fraud
task force and there was a strong suspicion voiced by the liberal blogosphere
that the new office was merely a cover for pushing the DOJ/50-state attorneys
general settlement with major banks.  However,
one analysis, written by Shahien Nasiripour in U.S. Politics and Policies pointed out the wider powers of
enforcement available to attorneys general in some states such as New York’s
Martin Act and how the states and federal government might use the new office
to pool their powers and responsibilities to the benefit of each.  

The new
office will not lure California Attorney General Kamala Harris back into the
fold.  Harris and Schneiderman both
withdrew from the national foreclosure settlement last year, feeling that it
did not represent the interest of their respective states.  Despite the appointment of Schneiderman to
head the new office, Harris announced on Wednesday that she would not be
rejoining her fellow AGs
in their negotiations saying that the latest
settlement proposal was inadequate for California.  A spokesman for her office said, “Our
state has been clear about what any multistate settlement must contain:
transparency, relief going to the most distressed homeowners, and meaningful
enforcement that ensures accountability. At this point, this deal does not
suffice for California.”

Here’s the video of the speech beginning at the point discussing housing related issues…

…(read more)

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Study: No Additional Restrictions on QRM Needed

The proposed down payment standards
for new mortgages might push 60 percent of potential borrowers into high-cost
loans or out of the housing market altogether according to a paper released
today by the Center for Responsible Lending.  The paper,
Balancing Risk and Access:  Underwriting
Standards for Qualified Residential Mortgages
, is the result of a study to
weigh the effects of proposed underwriting guidelines for qualified residential
mortgages (QRM)
, mortgages that are exempt from the risk retention requirements
laid out in the Dodd-Frank Wall Street Reform Act.

The Center, a nonprofit, nonpartisan
research and policy organization with a stated mission of “protecting
homeownership and family wealth by working to eliminate abusive financial
practices” has, along with other consumer and industry groups, raised concerns
about a potential disproportionate impact of restrictive QRM guidelines on
low-income, low-wealth, minority and other households traditionally underserved
by the mainstream mortgage market.  The
study examines the way different QRM guidelines may affect access to mortgage
credit and loan performance and estimates the additional impacts on defaults
resulting from guidelines above and beyond QM product requirements.

The researchers, Roberto G. Quercia,
University of North Carolina Center for Community Capital, Lei Ding, Wayne
State University, and Carolina Reid, Center for Responsible Lending used
datasets from Lender Processing Services (collected from servicers) and
Blackbox (data from loans in private label securities collected from investor
pools.)  They identified from among 19
million loans originated between 2000 and 2008 the 10.9 million that would meet
the current QRM guidelines, i.e. loans with full documentation that have no
negative amortization, interest only, balloon, or prepayment penalties.  Adjustable rate mortgages must have fixed
terms of at least five years and no loans over 30 years duration. 

The default rate for the universe of
loans was 11 percent, for prime conventional loans, 7.7 percent, and for loans
(regardless of type) that would have met the QM product feature limits, 5.8
percent.  In other words, the research “suggests
that the QM loan term restrictions on their own would curtail the risky lending
that occurred during the subprime boom and lead to substantially lower
foreclosure rates without overly restricting access to credit.”

The next step was to apply some of
the suggested additional criteria for QRM to the loans; a minimum down payment
of 20 percent, a range of higher FICO scores, and lower debt to income (DTI)
ratios.  The goal was to determine the
benefit of each as measured by an improvement in default rates without an undo reduction
in borrowers able to qualify for an affordable loan.

When various permutations of
loan-to-value (LTV), FICO scores, and DTI ratios were applied to the loans lower
default rates were achieved.  These
improvements, however, were accompanied by the exclusion of a larger share of
loans.  As Figure 4 shows, some of the restrictions
resulted in the exclusion of as many as 70 percent of loans.   

To quantify this, the authors
developed two additional measures.  The
first, a benefit ratio, compares the percent reduction in the number of
defaults to the percent reduction in the number of borrowers who would have
access to QRM loans with the proposed guidelines.  For example, an underwriting restriction that
resulted in a 50 percent reduction in foreclosures while excluding only 10
percent of borrowers would have a higher benefit ratio than one with the same
reduction in foreclosures that excluded 20 percent of borrowers.


One finding was that LTVs of 80 or
90 percent resulted in particularly poor outcomes while an LTV of 97 percent
had added benefits of reduced defaults relative to borrower access.  This suggests that even a very modest down payment
may play an important role in protecting against default while excluding a
smaller share of borrowers than would a higher down payment requirement.

Since underwriting is unlikely to
impose restrictions in isolation, the study analyzed a combination of possible
QRM restrictions.  They found that the
strictest guidelines produced the worst outcomes and that none of the patterns
of proposed restrictions performed as well as the QM restrictions on their own.

The second measure, an exclusion
ratio, looks at the number of performing loans a certain threshold would
exclude to prevent one default.  In this
measure, the number of excluded loans can be viewed as a proxy for the number
of “creditworthy” borrowers who would be excluded from the QRM market.

Imposing 80 percent LTV requirements
on the universe of QM loans would exclude 10 loans from the QRM market to
prevent one additional default.  Adding
to this a FICO above 690 and 30 percent DTI ratio would exclude 12 creditworthy
borrowers to prevent one default.

The current QRM criteria are more
restrictive for rate-term and cash-out refinancing than for purchase
loans.  The study found that the QM
product restrictions are the most effective in balancing the demand between reducing
defaults and ensuring access to credit.

The study also found that imposing
additional LTV, DTI, and FICO underwriting requirements
on QM loans had
disproportionate effects on low-income borrowers and borrowers of color.  Just over 75 percent of African-American
borrowers and 70 percent of Latino borrowers would not qualify for a 20 percent
down QRM mortgage and significant racial and ethnic disparities are evident for
FICO requirements as well.  At FICO
scores above 690, 42 percent of African-Americans and 32 percent of Latino
borrowers would be excluded against 22 percent of white and 25 percent of Asian
households.  At the most restrictive
combined thresholds (80 percent LTV, FICO above 690, DTI of 30 percent) approximately
85 percent of creditworthy borrowers would not qualify with African American
and Latino disqualifications each above 90 percent.

The Center says in conclusion that
its research provides “compelling evidence that the QM product loan guidelines
on their own would curtail the risky lending that occurred during the subprime
boom and lead to substantially lower foreclosure rates, while not overly
restricting access to credit.”

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FHA ANNOUNCES ADDITIONAL STEPS TO LIMIT RISK AND STRENGTHEN FINANCES

WASHINGTON – Today, Acting Federal Housing Administration (FHA) Commissioner Carol J. Galante announced the latest in a series of steps to protect and strengthen the FHA’s Mutual Mortgage Insurance Fund, while enabling the agency to continue to fulfill its mission to provide access to homeownership for qualified borrowers.