Voice of Housing

House Amendment Poses Threat to Lending Liquidity

Joe Murin — Thu, 19 Nov 2009 18:10:00 GMT

On the same day that Treasury Secretary Tim Geithner was in downtown Washington calling on banks to boost lending , up on Capitol Hill the House Financial Services Committee passed an amendment to that would do just the opposite. At an Obama administration summit on strengthening credit flows to small businesses, Geithner said “We need banks to be working with us, not against recovery." At the very same time on Wednesday, an amendment from Reps. Brad Miller and Dennis Moore would allow the FDIC to impose a 20 percent haircut on all secured creditors, including the 12 Home Loan banks, when resolving systemically important institutions that fail. The amendment, said to be pushed by FDIC chair Sheila Bair, is aimed at ending the Home Loan banks' priority status in the event of a...(read more)

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Golden Opportunity: Make the FHA an Independent Agency

Jim Russell — Tue, 17 Nov 2009 21:40:00 GMT

Today we are facing a severe economic crisis which is placing unprecedented stress on every sector of financial system. At the same time a golden opportunity born from the crisis is sitting at our doorstep waiting for us to take action. Seventy-five years ago (1934) in the face of the Great Depression, Congress created the FHA and then soon after in 1938, Fannie Mae was created to purchase mortgage loans from banks and establish a disciplined secondary market. There have been volumes of commentary from pundits about how both institutions are obsolete, failed in their mission and are no longer relevant. All untrue! However it is time to refurbish the interior of each after 70 years of hard use. We need to make the FHA an independent agency like the FDIC, where every authorized seller/servicer...(read more)

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Dodd's Financial Reform Draft: Initial Observations and Expected Reactions in the Mortgage Market

Brian Montgomery — Wed, 11 Nov 2009 23:46:00 GMT

It may have been a government holiday, but Veteran’s Day this year was a working day for financial services officials in Washington. Senate Banking Committee chairman Christopher Dodd released his financial reform bill late Tuesday evening. Instead of spending down time with friends and family, industry types occupied their day devouring the details of the 1,000-page proposal. There’s a lot to digest in Dodd's Discussion Draft: Restoring American Financial Stability One of the tidbits we have found interesting so far is Section 1503, which requires the Securities and Exchange Commission to adopt regulations "requiring each issuer of an asset-backed security to disclose, for each tranche or class of security, information regarding the assets backing that security.”...(read more)

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BEWARE: GSEs Strictly Enforcing Lender Loan Repurchase Agreements

Tim Rood — Tue, 10 Nov 2009 19:40:00 GMT

What a difference 18 months can make. Need an example? Look no further than recent news from the GSEs that lenders are thumbing their noses at repurchase and reimbursement requests in record numbers. As reported in their quarterly filings, Fannie Mae and Freddie Mac are seeing an increase in the number of lenders not honoring agreements to repurchase loans that breached representations about the eligibility and quality of loans they sold. While this is not uncommon in the current economic environment, there is noticeable difference : Lenders have told us that the GSE’s are showing a new toughness when it comes to auditing non-performing loans. Once a material breach is uncovered, GSEs make a repurchase demand requiring the seller/servicer to buy the loan back from the GSE at par, regardless...(read more)

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Ironic Twist: Wells Fargo Cuts Borrower Payments. Bets on Housing Recovery

Joe Murin — Mon, 09 Nov 2009 18:56:00 GMT

Wells Fargo last week announced it will let some at-risk borrowers pay interest only on their mortgage loans in order to stay current and remain in their homes. The announcement makes you to stop and think: Wells is gambling on a housing recovery to make up for losses. That sounds very similar to the mid-decade business models of so many lenders who, counting on continuous rises in home values, bet the ranch on interest-only loans. We know how well that went. So Wells’ action has the feeling of a very ironic twist. But the lender’s new strategy does indeed improve credit quality --- or at least the appearance of it in the short term --- and no doubt will reduce the number of homeowners who might otherwise simply mail in the keys. It’s a very strange world that we’re...(read more)

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Risk Retention and Transparency in the Mortgage Market

Jim Russell — Fri, 06 Nov 2009 15:50:00 GMT

The House Financial Services Committee’s systemic regulator bill, HR 1754 , is hung up this month on the proposed risk retention requirements. The proposal requires creditors to retain 10 percent or more of credit for securitized loans and let regulators adjust that level to between 5 percent and 10 percent. Financial institutions prefer a 5 percent base. The argument over the specific number will be resolved. The larger issue --- the need for “skin in the game” in the new mortgage lending paradigm --- no one disputes. Risk retention will establish a necessary sense of ownership and responsibility at the origination end of the home loan process. But any risk retention debate is incomplete unless policymakers give equal weight to time to the need for transparency. One doesn’t...(read more)

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Homebuyer Tax Credit is Net Positive, But Not the Universal Solution

Tim Rood — Thu, 05 Nov 2009 20:10:00 GMT

Following a 98-0 vote in the Senate, the House of Representatives has overwhelmingly agreed to pass legislation extending the home buyer tax credit until April 30, 2009. Next the bill will head to the desk of President Obama to be signed into law. No one argues the extension of the tax credit has value to the marketplace. But what other immediate steps must be taken --- either by government or industry --- to create a sustained housing recovery? It is universally expected that interest rates will rise next year when the Fed is expected to stop purchasing MBS next year. How high, how quickly is a matter for debate. What is not debatable is the negative impact of higher rates and an ever shrinking credit box. The extension of the Homebuyer Tax Credit will serve to soften these blows. However...(read more)

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Addressing Continued Concerns About the FHA

Brian Montgomery — Fri, 30 Oct 2009 20:15:00 GMT

In January of this year, both Joe Murin and I were asked by HUD Secretary Donovan to remain as Ginnie Mae president and FHA Commissioner respectively to help the new Administration deal with the on-going housing crisis. We both were privileged to be asked and were honored to continue serving in the Obama Administration for several more months. However, today, as a former government official, if I could leave you with one message it would be this: There has never been a point in our nation’s history that better illustrates exactly why FHA and Ginnie Mae exist. During these uncertain economic times, their counter-cyclical role of ensuring adequate mortgage activity and liquidity has been necessary and vital. FHA has saved close to one million sub-prime/Alt-A borrowers from possible financial...(read more)

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A Deeper Look: GSEs Lend a Hand to Independent Mortgage Bankers

Tim Rood — Thu, 08 Oct 2009 14:05:00 GMT

What’s not clear from yesterday's announcement is whether or not Fannie and Freddie are acting strategically or at the behest of Treasury or FHFA. Strategically this makes a lot of sense since the GSE’s have long supported a diverse market of loan sellers: credit unions, community banks, no profits, etc. - to avoid the operational risks and margin compression that come from fewer, larger clients. Try as I might, I struggle with what public policy motives or purpose is served by throwing independent mortgage bankers a life line . The best I can come up with is the motive to ensure more capacity and competition, and to increase the ability to respond to market demands. The GSEs have long had a love/hate relationship with large lenders . Love them for the volume commitments and...(read more)

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The New RESPA Rule – The ESSENTIALS

Gary Cunningham — Tue, 06 Oct 2009 19:00:00 GMT

If you’re a home mortgage loan originator, mortgage broker, realtor, title agent or other provider of services related to the processing or closing of a residential mortgage loan, you know that January 1, 2010 is D-Day for the use of the new Good Faith Estimate (GFE) of settlement charges ( www.hud.gov/respa ) and HUD-1 Settlement Statement ( www.hud.gov/respa ) prescribed by the RESPA reform final rule published January 16, 2009. Hopefully, you and your firm are well on you way to being ready to implement the rule. RESPA reform has had a long and tortuous history spanning several administrations. A final rule developed in 2004 was withdrawn by HUD in response to strong objections largely directed at provisions of the rule which would have permitted the “packaging” and sale...(read more)

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Obscure Truths About the Health of FHA

Brian Montgomery — Mon, 21 Sep 2009 14:02:00 GMT

The FHA critics I suspect are thinking I told you so with Friday's announcement that the FHA “reserves” have fallen below 2%. But they would be wise to consider the following episode. The story is legend among the HUD career staff: many, many years ago, an unnamed HUD Secretary upon learning the FHA “reserve” fund had surpassed $20 billion instructed the staff to print a rather large check, imprint it with the dollar amount and make it payable to the White House (whose budget office was looking for revenue). With the check and the photographer in tow, the group proceeded to the White House. With much fanfare, the Secretary presented the check to the White House budget office who was rather surprised at the Secretary’s gesture. Why? What he didn’t know...(read more)

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Fannie Mae's Herculean Challenge

Tim Rood — Wed, 16 Sep 2009 18:39:00 GMT

Fannie Mae has a herculean challenge in front of them. The Government Sponsored Enterprise has to manage the legacy issues of loose underwriting and documentation practices of it’s lender/servicer clients and the fallout from those dubious practices, the present day realities of an economic conditions that have wreaked havoc on home values and employment levels and prospects, the manifestations of these economic realities in the form of delinquencies and foreclosures, and the monumental operational burdens borne of being the Financial Agent and administrator of the HAMP on behalf of Treasury. Let’s not forget that they are still buying and securitizing hundreds of billions of dollars worth of mortgages in their spare time. I raise these observations not to martyr Fannie Mae, but...(read more)

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Use The Current Economic Crisis as an Opportunity to Support America’s Veterans ... and Help Fix The Current Housing Crisis ...

Brian O'Reilly — Wed, 08 Apr 2009 18:07:00 GMT

Since June 1944, following enactment of the Servicemen’s Readjustment Act – more commonly known as the GI Bill of Rights - America’s Veterans have played a unique role in establishment of our Nation’s middle class and more specifically in the development of the Nation’s modern housing economy. But for the GI Bill, which among other things provided guarantees for home loans for WWII Veterans, the dream of homeownership would have continued to elude most average Americans. The GI Bill changed that and between 1944 and the early 1950s, more that two million Veterans took advantage of the Bill’s benefits and bought homes.

Today, with America’s economy severely stressed due in large measure to continuing declines in housing prices as a result of excess inventory and record numbers of foreclosures, the opportunity exists to turn to America’s Veterans to help rebuild America’s housing economy through implementation of what will be know as the “Veterans’ Secure Housing Program”.

An important first step in arresting the downward spiral in housing prices involves reducing the current inventory of unsold homes. Much of the inventory of foreclosed homes (or what are generally referred to as REO) are currently owned either directly by the U.S. government by the Department of Housing and Urban Development (HUD) or indirectly through the government’s interest in Fannie Mae and Freddie Mac. Even more foreclosed homes are owned by the numerous depository institutions that have recently received substantial government assistance.

The record level REO inventory of these institutions is generally secured and maintained by the institutions that own them at significant expense and the REO properties are then disposed of at auctions at severely depressed prices. Sales of this REO inventory at depressed prices are a significant contributing factor to the continuing overall decline in U.S. housing prices, which has broader implications for the general economy.

The larger process of recovering from the excesses of the past decade and correcting the enormous economic imbalances leading to the current crisis will take years, but a first step targeting the current housing inventory imbalance through implementation of the Veterans’ Secure Housing Program might work like this:

1. Modify the current Veterans’ benefits to permit today’s returning veterans as they either transition to civilian life or elect to continue to loyally serve our nation as active-duty personnel, to occupy one of the government-owned (or controlled) REO properties rent free for some period of time – say up to 5 years. And for the families of Veterans who have been killed, extend this benefit to their families as well. During that period, require that the occupants only be responsible for minor maintenance. Major repairs would remain the responsibility of the REO owner - as it is today.
2. At the conclusion of the rent-free period, offer the Veteran (or their family) the option to either purchase the property using a VA loan on favorable terms or to remain in the property as a rental at a market or near-market rate for an extended period.

3. As a condition of eligibility, it would also be wise to require the Veteran or their family to complete a Homeownership/Financial Planning Education seminar, which program could be centrally developed and administered by the VA as a normal part of the GI Benefits administration process. As the experience of the past several years teaches, society benefits most when the experience of home ownership is a positive and successful one.

Implementation of this Program would benefit all parties in the following ways: 1) the market would benefit in that the REO would be removed from inventory for some period of time thus reducing downward pressure on housing prices; 2) the REO owners would benefit in that properties that were vacant would now be occupied and maintained by invested tenants. This would also aid in the process of stabilizing the neighborhoods and communities in which these REO properties are located, and; 3) America’s servicemen and women would benefit from the opportunity to live in a home rent free – a reasonable tribute for those (and their families) who have worn the uniform and have sacrificed in the service of their nation.

The implementation of the Veterans’ Securing Housing Program could be accomplished very quickly, especially with the coordinated support of HUD and the VA and the backing of the current administration.

...(read more)

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Mark-to-Market As Is Means Fewer Funds for Housing

Brian O'Reilly — Thu, 26 Mar 2009 15:46:00 GMT

Here’s something housing advocates around the country may not be focused on: the connection between the debate over mark-to-market accounting and their own funding needs. With the economic downturn, housing nonprofits are seeing revenues shrink dramatically. One of the last reliable sources is the Affordable Housing Fund (AHP) of the Federal Home Loan Banks. Now those dollars are threatened too.

The Federal Home Loan Banks’ AHP is the largest source of private sector funds for housing and community development, funded every year with 10 percent of each home loan bank’s net income. More than 600,000 housing units have been financed using the AHP.

But now, much of that money could disappear if the Financial Accounting Standards Board doesn’t make adjustment to its mark-to-market rule. Mark-to-market --- or so-called fair-value --- accounting is designed to improve the quality of information available to investors. Nothing wrong with that. But there are some unintended --- and for housers: dire --- consequences during these tough times.

Many of the Federal Home Loan Banks put mortgage securities on their books as collateral for which now there is virtually no market if sold. It’s the same situation that other large banking institutions find themselves now in the nation’s financial crisis. But the Federal Home Loan Banks plan to hold these securities to maturity. Mark-to-market principles dictate that they must be valued as if they were sold today.

That could force the Federal Home Loan Banks which hold these assets to take big accounting losses, even though their underlying economics are strong. Bingo-bango: no AHP funds.

The Federal Home Loan Banks and other financial interests have been pressuring Congress and FASB to reconsider. A number of members of Congress agree that FASB should find a way to strike a balance during the economic downturn. Several lawmakers are particularly sympathetic because of the impact the rule has on the availability of housing funds through the AHP.

FASB closes its comment period next week and is expected to decide soon thereafter.

...(read more)

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Searching for the silver bullet to solve the nation’s Housing Crisis: is refinancing all home loans the answer?

Brian O'Reilly — Tue, 27 Jan 2009 14:17:00 GMT

At least one U.S. Senator seems to think so. According to U.S. Senator John Ensign (R-NV) appearing this morning on CNBC’s Squawk Box, Senate Republicans are considering adding to the President’s stimulus plan a provision that would enable current homeowners to refinance their current loans into new 30-year fixed rate mortgages with interest rates equal to 4%.

Senator Ensign did not elaborate on how such a plan would solve the current housing crisis, although he did correctly point out that such a provision could have significant stimulative impacts on the economy. On that point, the Senator’s plan seems valid. He noted that the average homeowner would see their fixed housing payments reduced nearly $400 per month, which he correctly described as the equivalent of an immediately available tax cut. And assuming his savings calculations are correct, and given the permanent nature of those savings, consumers – even in this economy - would likely direct some percentage of those savings to increased spending.

No doubt increased consumer spending – especially spending that results from cash on hand and not credit – could have positive economic impacts. On the other hand, it seems naïve to suggest that the current housing crisis will be resolved simply through a tax cut – even one whose impact will be as immediate as the one that would result from this proposed plan.

The answer to the question involving the full impacts of Senator Ensign’s refinance proposal on the current housing crisis lies in the details, which have yet to be articulated. However, to be sure, solving this problem requires unconventional thinking and solutions as the standard approaches have thus far failed to have the desired impacts. This will require, among other things, that an effective refinance plan will require that we cast aside (temporarily – for this program only) many of the standard principles of mortgage lending. Here are some proposals for the Senator’s consideration:

1. Remember that homeowners current on their mortgages aren’t the real problem. For the most part, the current housing crisis is not a result of those homeowners who remain current on their mortgage payments – even where those homeowners’ mortgage interest rates are high relative to current rates. It is largely the result of borrowers who have defaulted on their mortgage obligations and whose properties have been foreclosed on resulting in a situation where property values have spiraled down.

2. An effective refinance plan would need to accommodate reduced home values. As reported only today, data from an S&P/Case-Shiller report showed that U.S. home prices fell 18.2 percent from November a year earlier. In many cases, these precipitous declines in value have left homeowners owning more on their homes than they are currently worth. Under traditional guidelines such homeowners would not be eligible to refinance or would be required to make significant cash payments at closing in order to qualify. Therefore, this proposal should disregard the current value entirely and should refinance the current principle at 100% regardless of the homeowners’ loan-to-value ratios.

3. The Plan should disregard borrowers’ income and employment status. For maximum impact the program should not impose any requirements on borrowers regarding employment or income. And though this may seem counterintuitive, the principle is quite simple really, For borrowers who are current on their mortgage over the past 12 months and whose mortgage payments would be significantly reduced by a refinance under this plan, those borrowers should be permitted to qualify regardless of their income or employment. That’s right – regardless of their income or even if they are unemployed. If they have been making their payments and their new payment will be less, then who cares about such things … their chances of success are improved by having a lower payment. Such treatment is not without precedent and is in fact part of FHA’s current streamline refinance program.

4. Leverage Ginnie Mae as a guarantor of the securities associated with these loans. Many of the proposals outlined above will undoubtedly be met with skepticism by the mainstream banking community who will argue that such loans would not be eligible for traditional securitization, which would make it difficult for them to make such loans. This is where Ginnie Mae could come in and serve as the guarantor of securities issued in connection with this unique class of mortgage assets.

No doubt other requirements would be needed to make such a program a success. But what is also certain is that creativity will need to be the cornerstone of such a plan if it is to have the desired impact of materially addressing the current housing crisis.

...(read more)

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