Despite a mortgage lending environment that is both the most conservative and safest we have ever seen, David H. Stevens. President and CEO of the Mortgage Bankers Association (MBA), said on Monday, most lenders feel like the mortgage industry is under attack. "Add in a political atmosphere complete with broad brush accusations in political rhetoric that only perpetuate anger towards an industry that's sole purpose is to provide real estate finance opportunities to qualified borrowers, and it can be tough not to want to fight back."

In remarks prepared for presentation to MBA's National Secondary Market Conference and Expo, Stevens continued, "I'm here to tell you that we cannot let our frustration cloud our judgement, not when we've come so far and have led the discussion on so many critical policy issues."

Stevens touted the difference the mortgage industry's leadership has made "fighting the good fight to responsibly and sustainably provide access to credit and to help offer those opportunities for qualified borrowers."  MBA's voice, he said has led to negotiated reforms to reps and warrants and to revisions to compensatory fees.  MBA has beaten back seven attempts in Congress to divert guarantee fees and moved the government sponsored enterprises (GSEs) and their regulator, the Federal Housing Finance Agency (FHFA) toward often seeking public comment on major new policies.

Uncertainty around the future of the GSEs continues to "paralyze investment in new or dormant securitization channels," he said, but still there has been progress.  Conservatorship was never meant to be permanent and MBA has been working with FHFA toward non-legislative transition actions to modernize and advance the companies' business operations. 

"Conservatorship with no capital and facing a political regime change poses a real threat to our mortgage system," Stevens said.  MBA has called for the creation of a single GSE security and for up-front risk sharing to increase competition and provide market access to lenders of all sizes. It also called for the common securitization platform (CSP) to ensure data standardization, fungibility, and objectiveness.

Director (Melvin) Watt responded, Stevens said, the single security is in sight, the CSP is being built although MBA must push aggressively to get it completed, and progress is being made on risk sharing to bring private capital into the market.

Progress has extended beyond the GSEs.  MBA fought for a safe harbor in Ability to Repay/Qualified Mortgage (QA) rule and to align QA and the Qualified Residential Mortgage (QRM) rule, one without a downpayment requirement.

Pivoting toward the future, Stevens said that MBA's work is far from finished.  While many calls for key policy actions are being met, many are moving at too slow a pace.  With the major rules required under Dodd Frank implemented, MBA now needs to keep leading and pushing to refine them to give borrowers the opportunities they deserve.

QM, he said, has done a lot of good but falls short of being a long-term solution. The GSEs can purchase loans that are solidly underwritten but fail to meet the QM standard of 43 percent debt-to-income (DTI) ratios because of a QM "patch" that provides safe harbor for these loans. Without the parch and the permanent exemption for GNMA loans, credit would be much tighter.

But the patch only exists for as long as the GSE's remain in conservatorship or seven years, whichever comes first.  When it expires or if GSE underwriting changes substantially "a whole segment of qualified potential borrowers will be frozen out of the market."  The QM rule should not punt all credit decisions to two companies that aren't even regulated by the same agency, he said, and the rule should demand the same credit approval process for a borrower whether the loan is being sold to a GSE or a private investor, as long as all the other terms are the same.

He admitted that the industry did advocate for the patch to gain time to assess QM's impact, but said there are now too many "what ifs" that could impact the real estate finance system. What if a new regime at CFPB has a different view about the rule and the patch, or the next FHFA director comes with different ideas of the role scope, and size of the GSEs in the market, or the conservatorship ends? 

"The patch is temporary and the clock is ticking," Stevens said. The rule must be proactively and thoughtfully rewritten now rather than in a panic response to events later, and rewritten taking into account lessons learned about access to credit.  "We must be mindful of the dynamics affecting approval for a new generation that is more diverse and less traditional than we have ever seen in this country."

The industry must also continue working with FHFA on secondary market transition steps. The conversation about the GSEs future is very much alive and other voices are joining the discussion; consumer groups, economists, and congress all recognize the need to solve the conservatorship question. The transition steps being taken now will prepare the market for what happens and help ensure a competitive marketplace for institutions of all sizes.

He outlined the progress being made on both the CSP and single security.  The former is in development and Freddie Mac should begin using it for its current single-class securities (CSS) this year. The CSP has a CEO and an employee base, and they are progressing toward the release dates set by FHFA.  The industry must continue to push for a faster implementation to ensure that these critical advances cannot be reversed and to make sure the platform is open to non-agency MBS so that long-term efforts for both private capital and GSE reform can take advantage of the benefits of its efficiency, data, and consistency. And third, the CSP, and CSS itself, must be truly independent. Moving the full function of securitization away from the respective companies to the CSP will bring integrity, scale, and standardization to the securitization market.

However, he said there must be faster progress toward the single security.  Aligning each GSE's TBA market to promote a single fungible instrument should result in a more liquid market.  Investors will retain the option to stipulate the issuer thus keeping discipline in the process so far as policies that impact prepayment speeds and other performance variables.  According to FHFA the single security won't be fully implemented until 2018, most likely after Director Watt finishes his term and key personnel move on.  FHFA must be urged to maintain focus on a more aggressive timeline.

Risk share is now a growing part of the GSE model and certainly helpful in transferring risk from the companies and the taxpayers but its risks unleveling the playing field while not directly benefitting borrowers.  Other forms of credit enhancement including "deep-cover MI and recourse" need to be implemented with full transparency as to structure and execution.  Up-front risk sharing is a common theme in most GSE reform proposals and it needs to be made an accessible option available to all lenders.  Stevens calls expanding the existing program a priority.

As MBA continues working on transition steps with FHFA, its new Task Force for a Future Secondary Market will be developing a proposal addressing end-state models that can fulfill and affordable housing mission while reducing taxpayer risk This proposal should be complete by the end of the year to serve as MBA's secondary market position and strategy going forward.

Finally, Stevens said, MBA will continue to fight for a federal housing policy coordinator.  A policy expert at the most senior level in the nest administration could coordinate across federal regulators to ensure communication and consideration of the implications created by overlaps in the rules.  "America is facing a housing affordability crisis that is only getting worse," he said.  "The next president will need to tackle this issue immediately upon taking office."

Mortgage lending, Stevens reiterated, is safer today than it has ever been, "but it is not operating a full capacity because the regulatory/enforcement environment is forcing lenders to lend defensively."  Home prices are up, unemployment is down, and there are reforms in place that that make the market safer and more sustainable for consumers, the economy and our businesses. "With low rates, safe and well-underwritten loan products and an improving job market and economy, borrowers who can qualify and want to buy a home should feel great making that decision, but they don't."

"I understand the desires of many to just deal with the issues we have now," he said, "but if we don't look ahead to see what is needed to meet the demands of those coming into the market now and over the next decade, we will end up sliding backward. We have to keep moving forward."