January 14, 2015
Tech News World quoted me in CFPB Shifts Some Power to Mortgage Shoppers. The story reads in part,
The Consumer Financial Protection Bureau on Tuesday introduced Owning a Home, a set of online tools designed to make it easier for consumers to comparison shop for the best deal in mortgage financing.
With one tool, users can plug in a credit score and ZIP code to get a sense of the current interest rates being offered within a particular area.
There is also a guide that walks consumers through the various loan options on the market, complete with basic definitions of “loan term,” “interest rate type” and “loan type.”
Another guide describes the closing documents in a typical home purchase.
There is also a checklist that offers suggestions for a smooth closing, including advice on mistakes to avoid.
Other tools will be added to facilitate shopping for a mortgage and improving consumer understanding of the mortgage process.
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This offering is not going to automatically assist all potential homebuyers as they approach the mortgage process, though, said Brooklyn Law School professor David Reiss.
“Shopping for a mortgage is one of the most complex financial transactions that people engage in,” he told CRM Buyer. “Providing additional information should help at least some people, but others are overwhelmed by this type of transaction and will continue to rely on word of mouth, advertising and preexisting relationships to find a lender.”
Some lenders benefit from dealing with uneducated consumers and are able to charge higher fees and interest rates as a result, Reiss pointed out.
The informed consumer is in a much better position to select products and services that provide the greatest value, Cadden observed.
“Informed consumers are, to put it simply, much better shoppers,” he said. “The challenge has always been how to easily acquire information.”
The mortgage shopping assistance is a natural extension of the CFPB’s broader mandate to act as an advocate for consumers in financial matters, Reiss noted.
“It clearly complements the other components of that mission,” he said.
January 13, 2015
The National Low Income Housing Coalition has posted Aligning Federal Low Income Housing Programs with Housing Need. The Executive Summary goes right to the heart of the matter:
The number of renters in the United States has steadily increased since 2006 and will continue to rise as new households form in the post-recession economy. In 2012, one out of four renter households had incomes at or below 30% of the area median income (AMI) for a total of 10.3 million households categorized as extremely low income (ELI). In the same year there were just 3.2 million units affordable and available to ELI households, creating a shortage of 7.1 million rental units affordable to these households.
- Developers layer multiple funding sources while adapting to rapidly changing political and fiscal environments. Many also rely on non-traditional resources, such as private donations, to fill funding gaps.
- Reducing or eliminating mortgage debt is critical to be able to serve ELI households.
- Cultivating strong local partnerships is a key factor affecting developers’ ability to serve ELI households. Often, local jurisdictions that have prioritized affordable housing are willing to donate land or property at a low cost.
- Cross-subsidization is an important strategy used by many developers committed to inclusive properties that serve ELI households. This strategy incorporates units affordable to ELI households into projects containing other units occupied by households with a broader mix of incomes. The rents paid by higher income households supplement the overall operating expenses of the project, compensating for the lower rents that ELI households can afford.
- While the case studies highlighted some very effective strategies for serving ELI households without the use of vouchers, there is not one model that can be easily replicated. (iii-iv)
None of this is particularly earth shattering, but it is useful to to look into this topic in a systematic way. The Coalition hopes that this report “will contribute to the broader conversation about simplifying the process of financing affordable housing developments, refining existing programs so that they incentivize developers to serve ELI households, and finding ways to fund the ongoing operating costs of units that do serve ELI renters.” (iv)
As an off-the-cuff response, I wonder if the nation’s affordable housing agenda is benefited from such a complex funding environment for housing for extremely low income households. Can it just be funded more comprehensively, acknowledging the reality that it requires deep subsidies from the get-go? What is the opportunity cost of requiring developers to devote so much time to creating such complicated deal structures? In the current political environment, I doubt that affordable housing advocates have the stomach to raise these questions, lest Congress decides to cut back affordable housing subsidies even further. But in the long term, these are questions worth asking.
January 12, 2015
Last week, I discussed an up beat S&P report on the overall RMBS market. Today I discuss and S&P report on the jumbo mortgage market. This report sees much slower growth in the private-label jumbo residential mortgage-backed securities market. It opens,
U.S. housing has been recovering, and residential mortgage collateral performance continues to improve, a trend that we expect to continue in 2015. However, housing finance still faces challenges and relies on government support. Private capital has been slow to reenter the residential mortgage market, and nonagency securitization volume remains relatively small, with diversity and growth mostly coming from nontraditional transactions in recent years. Standard & Poor’s Ratings Services believes nonagency securitization—-utilizing private capital–could be a key contributor to a more healthy housing finance market while limiting risk to taxpayers.
A revival in the U.S. nonagency residential mortgage-backed securities (RMBS) market has not followed measured recoveries in the broader economy, employment, and housing. RMBS not guaranteed by one of the government-sponsored enterprises (GSEs)–such as Fannie Mae or Freddie Mac–hit a high of $1.2 trillion in 2006, but we expect that figure to be near $50 billion in 2015, up approximately $12 billion from 2014. Clearly, even with the ongoing recoveries in the overall economy and housing market, nonagency U.S. RMBS-related issuance remains negligible in the $10 trillion housing finance market.
We believe the slow pace of non-agency securitization reflects a market still grappling with the changing economics of complying with new regulations, a lack of standardization in nonagency securitization provisions, anticipated interest rate hikes in mid-2015, and a cautious investor base in newly originated nonagency RMBS. Considerable clarity has emerged regarding new regulations this year, but other limiting factors persist.
Hopefully, S&P has correct identified the cause of the slow growth in this sector. But we need to be vigilant to ensure that there is not a more fundamental problem with the jumbo private-label MBS market. it is vital that this sector of the market develops in order to provide a private capital alternative to the existing market which depends to a very large extent on government guarantees.
January 9, 2015
S&P posted U.S. RMBS Roundtable: Mortgage Origination And Securitization In The Post-Qualified Mortgage/Ability-To-Repay Market. The roundtable discussion offers views on many aspects of the 2015 mortgage market, but I found this passage to be particularly interesting:
Originators agreed loans that fall outside of the safe harbor by virtue of interest-only (IO) features have been and will continue to be attractive non-QM lending products. These loans have been originated post-crisis, and originators expect to continue lending to high-quality borrowers with substantial equity in their properties. There was general consensus that IO loans should not have been automatically excluded from QM treatment.
However, large bank depository lenders have shown a desire to originate and hold larger balance IO loans on their balance sheets rather than including them in securitizations. One participant from a major depository institution indicated that, given the increasing IO concentration on those institutions’ balance sheets, there may be a desire to securitize these loans upon meeting balance sheet thresholds. (1)
After Dodd-Frank, there was a lot of concern that the Qualified Mortgage and Ability-to-Repay rules would shut down the mortgage markets. It seems pretty clear to me that lenders are figuring out how to navigate both the plain-vanilla world of the Qualified Mortgage and the exotic world of the non-Qualified Mortgage, with its interest-only and other non-prime products. Lenders are still figuring out how far afield they can roam from a plain-vanilla product, but that is to be expected during a major transition such as the one from the pre- to the post-Dodd-Frank world.
January 8, 2015
Law360 quoted me in FHA Premium Cut Sets Up Fight Over Future Of Housing (behind a paywall). It reads in part,
President Barack Obama’s plan to lower premiums on Federal Housing Administration insurance has rekindled a battle with Republicans over the rehabilitation of the recently bailed out government mortgage insurer and the government’s role in the U.S. housing market more broadly.
Obama on Thursday officially laid out a plan that would see the FHA charge borrowers half a percentage point less on mortgage insurance premiums beginning this month in a move to boost affordability for the low- and middle-income borrowers who traditionally rely on FHA-backed mortgages.
The announcement came as the FHA continues to recover from a post-financial crisis shortfall that saw the long-standing program receive a $1.7 billion bailout from the U.S. Department of the Treasury in 2013, the first time the FHA has needed federal support.
Obama’s move on mortgage insurance premiums could make the road to a secure FHA take that much longer, and, coupled with earlier policy changes by the Federal Housing Finance Agency on mortgages backed by Fannie Mae and Freddie Mac, set up a renewed fight with Republicans over government support for the housing market.
“What’s at stake is not just housing prices and mortgage rates,” Brooklyn Law School professor David Reiss said. “What’s implicit of all of this is: What’s the appropriate role of the government in the housing market?”
The president’s plan would see the FHA charge borrowers 0.85 percent annual premiums on their mortgage insurance, down from the 1.35 percent they currently pay. First-time homebuyers will see a $900 drop in their mortgage payments each year under the new policy, according to a fact sheet released Wednesday by the White House.
“It’ll help make owning a home more affordable for millions” around the country, Obama said in a speech in Phoenix on Thursday.
Housing analysts said that the move could help boost the housing market at the margins but would not entice a large number of first-time buyers to get into the housing market.
The lower mortgage insurance premium will prove to be “marginally beneficial for the average borrower, in our opinion, and consequently, we do not believe this news … is a catalyst for higher housing demand and higher earnings estimates,” Sterne Agee analyst Jay McCanless said in a note Thursday.
But what the rate cut does is put in clear relief Obama’s plan to boost the housing market and provide a strong government role in that key economic sector, even if it means potentially putting added pressure on the agencies that provide government assistance to the housing market. Those agencies include the FHA as well as the Federal Housing Finance Agency and the two failed mortgage giants over which it has authority, Fannie Mae and Freddie Mac.
“The tension is between financial responsibility and public policy about housing,” Reiss said.
In the FHA’s case, lowering the mortgage insurance premium is likely to increase the amount of time that the agency will need to get to a 2 percent capital level that is mandated by Congress.
An independent audit of the FHA’s finances released late last year found that the agency’s Mutual Mortgage Insurance Fund stood at a positive $4.8 billion as of the end of September after being as much as $16.3 billion in the hole in 2012.
Still, while the gain on the fund has been real, its capital ratio stood at only 0.41 percent in that period, far lower than the mandated 2 percent.
* * *
Obama had backed congressional efforts to eliminate Fannie Mae and Freddie Mac and boost private capital in the mortgage market, but they failed amid disagreements between the Senate and House Republicans. The issue is now largely dormant.
That has left a vacuum for Obama to fill, Reiss said.
“Because Congress refused to act, Republicans are going to be stuck with a more activist government because they refused to come to the table and put together a proposal that can pass,” he said.
January 7, 2015
- Mark A. Calabria, Director of Financial Regulation Studies, Cato Institute
- Laurie Goodman, Center Director for the Housing Finance Policy Center, Urban Institute
- David Min, University of California, Irvine School of Law
- Jennifer Taub, Vermont Law School