"Enough is enough"; Stevens Calls for End to Conflicting, Unbalanced Policymaking
Access to the credit needed to drive this economy
is being stifled by government decisions that are an overreaction to events of
five years ago, David H. Stevens said today.
In an effort to be diligent in correcting for the loose standards of
yesterday, "Policymakers all over town have been making hundreds of policy
decisions to clamp down on risk, decisions that may make sense in isolation but
in the aggregate are choking off credit."
In prepared remarks for a speech at the 100th
anniversary convention and expo of the Mortgage Bankers Association (MBA),
Stevens, the association's president and CEO, excoriated the government saying
that "More than five years after the crisis, countless, innocent, would-be
borrowers are still being caught in the aftermath, all because Washington won't
trust lenders to make fact-based credit decisions without countless strings
attached and second-guessing."
Stevens looked back over the 100 year history of
the organization noting that there has always been a need to balance access to
credit with minimizing risk. It's a
tough balancing act-no doubt about it. And over the years, sometimes the
market has gotten out of balance--- tilted too far in one direction or the
other. Well today we are in such a moment.
At this same event last year, he said, MBA called
for policymakers to reassess that risk-credit balance and coordinate with
others so that choices would be coherent.
MBA asked to be part of the solution and warned that once again American
families would be the victims of the confusion.
"One year ago, we called for leadership. But our calls have gone
unheeded, so I stand here today to say, in the politest way possible--enough is
enough. The overcorrection and conflicting policies that continue to come
out of Washington are threatening not just this market, but they are
threatening the recovery."
He called the current mortgage finance system
landscape one of "confusion, excess, piling on, and dysfunction," and said that
with the housing market accounting for 20 percent of last year's GDP growth,
stunting the housing recovery puts the economic recovery in peril.
The federal government reacted swiftly when the
housing market melted down, but the response was not perfect. While the efforts by all involved at the time
were noble, some of the specific programs and policies had their limitations
and it is critical to recognize their shortcomings as well as their successes.
"Yet policymakers have not turned the page. They
continue to clamp down on risk, run up pricing on government lending, and
pursue enforcement actions that may have made sense in 2009 and 2010, but today
are impeding our economic health rather than supporting it."
Referring to his former position as Federal
Housing Administration Commissioner Stevens said that to deal with the housing
crisis fallout they raised premiums, changed minimum credit score requirements
and tightened risk controls, all of which made sense at the time. Today however there are proposals in congress
"That have extraordinary indemnification provisions that will curtail credit
access to even more families on the margin simply because the risk of a mistake
- should those bills go through as is - is simply too great."
FHA mortgage insurance premiums were raised to
shore up the fund but given the loans being originated today the large
forecasted profits will be disproportionate to the risk. And these profits, in context with new indemnification
terms, come at the expense of the very families FHA was created to help. The
country needs a financially sound FHA where fees reflect risk and lenders
follow origination standards but today the rigid oversight and overly
aggressive policing is out of control. It
is going too far.
"The GSEs have all but eliminated the ability for
any borrower with a low down payment and average credit score from having access
to a home loan at a reasonable price, Stevens said. Add-ons for less attractive loans, adverse
market fees, and mortgage insurance fees have produced a portfolio that,
quoting the recent Home Mortgage Data Act (HMDA) report, "implies no risk
When the GSEs were put in conservatorship no one
would have argued against a rise in g-fees and implementation of sustainable
lending. "But, today, the GSEs are
virtually printing money and the excess profits are going to the Treasury - all
at a cost to home ownership and the broad recovery of the housing market.
Today we face our toughest challenge yet as an
industry, Stevens continued. There's a patchwork of stifling regulation
and legal actions for as far as the eye can see. If lenders make one wrong
move-or in some cases, even one right move-they could be caught up in a web of
confusion based enforcement actions.
"Put backs and indemnifications on any error, even
completely non-material errors, class actions, settlements, Justice Department
suits, state attorney's suits, treble damage penalties from False Claims Act
suits - need I go on?" he asked. These
all create serious disincentives for those considering the borrower on the
margin and the impact is hitting the very underserved populations these
programs were set up to serve.
Almost 80 percent of FHA's purchase business is
made up of first-time homebuyers. Thirty
percent are minorities and more than half of African American and Hispanic
homebuyers used FHA financing to buy their home in 2012. These borrowers tend
to have less wealth available for down payments; more than 51 percent of
African Americans and 44 percent of Hispanic homebuyers in 2009 had LTVs above
"We have to ask if our country's real estate
finance policy is doing the job it was set up to do. Or have a series of post-crisis over
corrections turned into actions to the detriment of responsible, qualified
Taxpayers certainly need to be protected but the
goal can't be zero risk as that means zero lending. The goal has to be striking
the right balance between risk and access to credit, and we are a long way from
the right balance.
Stevens said policymakers don't seem to understand
what they're doing and there are conflicts everywhere. A new take on
disparate impact rules conflicts directly with a new QM standard. Speeches are
made that call for efforts to reduce red tape and take the extra step to lend
to the marginal borrower, yet all of this is offset by ability-to-repay
requirements that come with extraordinary penalties should a lender make even a
minor error or dare consider a compensating factor. "It's like the left
hand isn't talking to the right."
He said we are already seeing the result. Lending volumes have started to decline, and
purchase markets need all the help they can get from a viable lending
Stevens said the MBA has long called for a housing
policy coordinator who would make sure the regulators met and talked with each
other at the most senior levels to consider implications of obvious and
uncoordinated overlaps but this hasn't been done and the confusion continues.
We are nearing a tipping point and if we don't get
policies right, he said, we won't be able to return to a time when average
Americans have solid prospects for homeownership. "While we may end up creating a perfectly
risk-free, safe and sound housing finance system-it might be one built for
those who least need the help."
The conflicting rule makers are also hurting the
return of private capital. "Policymakers
can give lip service to their desire to bring more private capital into the
mortgage markets, but so many of their own actions are working against that
Stevens said he is asking again for policymakers
and the Administration to pay attention; to act on the industry's call for
greater transparency from FHFA, Freddie Mac and Fannie Mae in their policymaking
process, and to name a national policy coordinator. He said the industry should also advocate for
the five transition steps MBA had laid out for a smooth transition to a new