David Stevens, President of the Mortgage Bankers Association (MBA), told an audience attending the association's s annual convention in Las Vegas that the rules for Qualified Residential Mortgages will be, as rumored, released on Wednesday. This rule, which was sent back to the drawing board two years ago after housing stakeholders complained it would shut down mortgage lending will, in this iteration, he said be aligned with the Qualified Mortgage Rule and will not have steep downpayment or strict debt-to-income requirements.  He credited the industry and consumer groups for advocating on the issue.   

Stevens pointed to other accomplishments MBA and other industry groups have made over the past year but said there is still a lot wrong with housing.  Many people seem to have forgotten that housing is good for the economy.  Homeownership helps families, communities, and the economy but today it is being publicly devalued.  At the same time housing is being pulled along by the economic recovery rather than fulfilling its historic role of doing the pulling

Homeownership, he said, remains the single best idea for building family wealth and growing the middle glass; housing wealth is far more broadly distributed than that from the stock market and so when the housing industry argues for better access to credit it's not an argument for the interests of the industry, it is sound policy advocacy for family, national and local economies, and for a stronger middle class.

But that access isn't getting any easier.  Originations are declining and aversion to risk is a big reason why.  Lenders are increasing requirements for credit scores, builders are building fewer lower-priced homes because of concern about that market.  There is change taking place throughout the system.  Minorities and women are making up a growing portion of potential borrowers he said, and this "will likely cause stress to the square peg/square hole underwriting mentality."  And further he asks, "Isn't tight credit our own fault?"

MBA's figures show that credit availability is about one quarter of what it is in a more typical year and credit overlays are one key factor.  While FHA allows scores as low as 580, lenders feel it is too risky and credit scores below 640 have been virtually eliminated from the industry. By contrast, credit standards are easing for high income and wealthier borrowers.  The result is a mortgage market that can be summarized as "Strength at the top, weakness at the bottom."

The recent HMDA data report confirms that regulation-induced credit overlays are making credit harder to get for the very borrowers the rules were intended to protect.  "As a result, we're seeing a clear opportunity gap.  Mortgage credit is most available to those who need it least.  This is not right, not tolerable, and not good for families or the economy.  We've got to bridge this divide."

And it can't be done by continuing to bash the failings of the past, it's time to change the dialogue and no one, he said, is better positioned to do this than the Obama Administration.  "It's time to acknowledge all the safeguards added to mortgage lending.  It's time to start talking about housing finance like the beneficial activity that it is.  It's time to let people know it's OK to start trusting the system again.  Most of all, it's time to change the dialogue of distrust to a dialogue of confidence."

Stevens said lenders want to lend more but while they are worried about declining volume they are even more worried by an uncertain, confusing and intimidating regulatory and enforcement environment.  Regulators need to hold lenders accountable for egregious behavior, he said, but they also have to create better clarity for lenders on what they will be held accountable for down the road.  Three factors are at play:  Unclear rules; "zero-tolerance" approaches to enforcement; and conflicting, duplicative regulatory incentives.  "It ultimately piles on so deeply that nobody wants to take any risk," he said.  

There are some things MBA members can do to change the dialogue and some things that will not change, Stevens said, first suggesting that members work to make FHFA Director Watt "wildly successful" as many of the things on his agenda are on MBA's as well.  It is also time to modify key rules, leverage HUD Secretary Castro's good start on improving access to credit; work with the Consumer Financial Protection Bureau to modify rules to ensure the enforcement actions are the exception not the rule.  No single remedy is a silver bullet, he said, but each problem that gets fixed could help tens of thousands of creditworthy borrowers qualify for a loan.

And among those things that will not change is the expense of running a mortgage lending business, but working with regulators to reduce uncertainty and risk will improve sustainability and give more stability and confidence to the industry.  Mortgage lending is going to be a smaller industry of professionals who have the expertise to manage the increasing complexity; the fly-by-night operators are gone

And, "The CFPB is here to stay.  Anyone who's not reconciled to that fact should get over it.  Of course the Bureau's not perfect - neither are we.  But they're performing a necessary function with energy and they are devoted to their mission.  Our task is to challenge them constructively to make them better, not to automatically drag our heels."

The common thread, he concluded, is that it does no good to pine for things to be the way they used to be.  "The sooner we adjust to new realities - challenging them when it makes sense - the sooner we'll bend the future our way, instead of being dragged into it kicking and screaming.  Sure, venting is therapeutic.  But every breath we waste venting is one we can spend instead to advocate sound changes.