The State of the Mortgage Industry According to MBA

The Mortgage Bankers Association (MBA) provided its annual
assessment of The State of the Mortgage Industry in a press conference Wednesday
afternoon.  Michael Young, MBA Chairman
said that the states that have been hardest hit by the housing crisis are and
will continue to deal with the aftermath but there are signs that in much of
the nation 2012 will bring a recovering market.

One bright spot, Young said, is that the turmoil in the
single family market has actually helped the multi-family sector; the rental
market has tightened and more lenders have moved into the sector, especially
life insurance companies.  In the
residential market, he said, the one topic that is discussed everywhere is the
lack of financing and what can be done about it.

David H. Stevens, MBA President and CEO said that lack of
financing
can be traced to a single factor, market uncertainty.  Part of it is uncertainty about international
markets and how they might ultimately impact the domestic situation but there
is also a tremendous amount of uncertainty about regulation.  Dodd-Frank, he said, has 300 regulations that
have yet to be fully promulgated and the new Consumer Financial Protection
Bureau (CFPB) and other regulators all have or are considering regulations
about how loans can be provided and serviced. 
There is uncertainty surrounding repurchases as well and while MBA
believes lenders should be held accountable for their mistakes, they should not
be held accountable for the loans performance if it failed solely due to
changing economic circumstances.  For
that reason MBA supports a time limit on the repurchase obligation.

Addressing three areas in particular, he said, would
decrease a lot of the insecurity.  New
regulations regarding Qualified Mortgages (QM) and Qualified Residential
Mortgages (QRM) are eminent and QM will in effect, define what loans get
made.  Mortgages which do not meet QM as
laid out by CRPB will simply not get made because lenders will feel there is
too much liability involved.   MBA supports certain parts of the QM such as
the requirement for full documentation but other parts such as the point and
fee cap lack flexibility and will disproportionately affect the pricing of small
loans.  

Most of all, he said, the proposed regulations are too general.  There needs to be specificity in the
underwriting standards such as in the definition of what constitutions “ability
to repay.”  Without a bright line in the
regulations that enable a safe harbor for lenders, he said, any lending is
going to be restricted on the margins and any loans that fall into the gap
between QM and QRM will see significant price adjustments to reflect the
liability.

While MBA also supports risk retention and much of the
intent of the QRM such as eliminating no-docs and interest only and other
exotic loans, regulators are going beyond the intent of Congress by adding debt
to income and loan-to-value ratios.  The
requirement for a 20 percent down payment will create a dual class system under
QRM, with lower income borrowers, unable to amass the down payment; forced into
FHA loans while there will be a private market for upper income borrowers.  Stevens said MBA will be “very aggressive” in
making sure these changes to QRM are pulled back.

Another area of uncertainty is the 50-state settlement with
servicers
.  Borrowers don’t care about
their servicers until they get into trouble with their mortgages but then the
multiple state and federal laws that govern servicing cause stress for the
borrowers and for servicers and investors as well.  The settlement may provide a framework for
national standards which would remove some of the uncertainty in this area.  In the same vein, Stevens said that President
Obama’s new fraud task force must be careful to avoid redundancy with other
investigations and carefully measure how it impacts borrowers or it could
create trepidation among lenders and further reluctance to lend.  

The present structure of the mortgage market with 90 percent
of lending having some government involvement through the GSEs or FHA is simply
unsustainable, Stevens said.  The private
sector must be brought back into the market and the major players in the
industry are close to agreement on what the future of the secondary market
should look like.  This is very close to
a model proposed by MBA some years ago which would have the following
characteristics:

  • Transactions would be funded with private
    capital from a broad range of sources.
  • The federal government should have a role in
    promoting stability and liquidity in the core mortgage market. This role should be in the form of an
    explicit credit guarantee on a class of mortgage-backed securities and the
    guarantee would be paid for by risk-based fees.
  • Taxpayers and the system itself should be
    protected through limits on the mortgage products covered, the types of
    activities undertaken, strong risk-based capital requirement, and actuarially
    fair payments into a federal insurance fund.

In answer to a reporter’s question about the chances of
President Obama’s streamlined refinancing program being approved, Stevens said
it would be an uphill climb.  FHA is
legislatively limited to loans with a maximum LTV of 97.5 percent so to go as
high as 140 percent which Steven’s said he expected the legislation to attempt
will require full approval of Congress.

Jay Brinkmann, Senior Vice President and Chief Economists said
he expects jobs to be created at about a 150,000 per month pace in 2012 but
this will be uneven by location and dependent on an individual’s education.  The length of unemployment hit a record high
in November and persons with a high school education or less are remaining
unemployed longer than those with a college degree.

According to Brinkmann, mortgage originations will drop from
$1.26 trillion in 2011 to $992 billion in 2012 with most of the loss coming in
refinancing.  The purchase market will be
largely unchanged or will rise slightly. 
This does not, however, reflect any changes that might be made in the
HARP program or any unforeseen outside events.

…(read more)

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Mr. President, it’s Time for a National Housing Policy

Please Mr. President, enough with the one-off responses, it’s time for a National Housing Policy.

The only thing more predictable than the fact that the President will deliver to Congress a State of the Union Address each year is the speculation that precedes it regarding what “Big” announcements the President’s speech will contain.

This year is no different, and a great deal of current speculation surrounds the topic of housing and whether the President’s speech will include some grand proposal intended to relieve those American homeowners who continue to suffer under the weight of a housing economy that remains stuck in neutral.

One plan getting a great deal of attention would involve the government granting debt forgiveness to borrowers whose mortgages are underwater, meaning that the amount currently owed by them on their mortgage exceeds the current value of their home.

To date, the Federal Finance Housing Finance Agency (FHFA) – the primary regulator of Fannie Mae and Freddie Mac – has resisted calls from Congress to approve principal forgiveness. In a report circulating today, we now understand why. According to that report, the cost of such a plan to Fannie and Freddie could well exceed $100 Billion! That $100 Billion would be in addition to the $151 Billion already owed by the two enterprises to the US Treasury. And to be clear, that means owed to US taxpayers.

Hopefully, current speculation is wrong and the President’s address includes no such proposal. Its not that we don’t sympathize with underwater homeowners, we most certainly do. We too look forward to the day when the American housing economy is once again growing and functioning well – and by extension, when the challenges facing homeowners are far less. When that day arrives, that will be a sure sign that the American economy generally has returned to a healthy condition.

Our objection is broader and goes to the fact that since 2009 the policy response to the housing crisis by the Administration has involved one tactical reaction after another – or as we have said before … “a series of one-off reactions …” and, unfortunately, little more.

And while certain tactical reactions were appropriate and even required in 2009 and even into 2010, the time is long passed for the development and introduction of a comprehensive National Housing Policy. Such a policy would lay out in clear terms the goals to be achieved through the Nation’s support of housing; the economic costs and benefits of such a policy; as well as the anticipated intangible benefits of such a policy. Finally, such a plan would identify the likely costs and risks of the failure to implement such a plan.

With such a plan in place (or at least proposed), the uncertainty that today plagues this industry would begin to lift and Congressional policy makers, regulators and business leaders alike would be better equipped to address the important considerations that must still be resolved if we hope to develop an enduring solution to the Nation’s housing crisis.

And for those who would ask, “Why should a housing policy be a priority?”, consider the following written in 2003 – perhaps the last time we had a legitimate National Housing Policy in this great Nation – by the Millennial Housing Commission:

“… housing matters. It represents the single largest expenditure for most American families and the single largest source of wealth for most homeowners. The development of housing has a major impact on the national economy and the economic growth and health of regions and communities. Housing is inextricably linked to access to jobs and healthy communities and the social behavior of the families who occupy it. The failure to achieve adequate housing leads to significant societal costs.”

Until these sort of deliberations and debate occur and a National Housing Policy is in place, it is impossible to know what we as taxpayers get (and give up) for another $100 Billion spent in this manner in support of the housing crisis.

It seems to us, that the time to answer the important question: “What do we get?” … before we give more … is long overdue.

…(read more)

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