- HUD releases report of its activities, for instance, to assess its efforts on homelessness, housing vouchers, energy efficiency in multifamily housing.
- The Government Accountability Office releases report, which finds that “qualified mortgage (QM) and qualified residential mortgage (QRM) regulations are unlikely to have a significant effect on the availability or securitization of mortgages in the current market.”
- CFPB releases “2015 Plain Writing Act Compliance Report”, which gives information about what documents executive agencies are required to use plain language in.
- CFPB releases report on eClosings, finding that they can benefit consumers.
Tag Archives: GAO
Optimizing Mortgage Availability
The United States Government Accountability Office (GAO) has issued a report, Mortgage Reforms: Actions Needed to Help Assess Effects of New Regulations. The GAO did this study to predict the effects of the Qualified Mortgage (QM) and Qualified Residential Mortgage (QRM) regulations. The GAO found
Federal agency officials, market participants, and observers estimated that the qualified mortgage (QM) and qualified residential mortgage (QRM) regulations would have limited initial effects because most loans originated in recent years largely conformed with QM criteria.
- The QM regulations, which address lenders’ responsibilities to determine a borrower’s ability to repay a loan, set forth standards that include prohibitions on risky loan features (such as interest-only or balloon payments) and limits on points and fees. Lenders that originate QM loans receive certain liability protections.
- Securities collateralized exclusively by residential mortgages that are “qualified residential mortgages” are exempt from risk-retention requirements. The QRM regulations align the QRM definition with QM; thus, securities collateralized solely by QM loans are not subject to risk-retention requirements.
The analyses GAO reviewed estimated limited effects on the availability of mortgages for most borrowers and that any cost increases (for borrowers, lenders, and investors) would mostly stem from litigation and compliance issues. According to agency officials and observers, the QRM regulations were unlikely to have a significant initial effect on the availability or securitization of mortgages in the current market, largely because the majority of loans originated were expected to be QM loans. However, questions remain about the size and viability of the secondary market for non-QRM-backed securities.
This last bit — questions about the non-QRM-backed market — is very important.
Some consumer advocates believe that there should not be any non-QRM mortgages. I disagree. There should be some sort of market for mortgages that do not comply with the strict (and, in the main, beneficial) QRM limitations.
Some homeowners will not be eligible for a plain vanilla QM/QRM mortgage but could still handle a mortgage responsibly. The mortgage markets would not be healthy without some kind of non-QRM-backed securities market for those consumers.
So far, that non-QRM market has been very small, smaller than expected. Regulators should continue to study the effects of the new mortgage regulations to ensure that they incentivize making the socially optimal amount of non-QRM mortgage credit available to homeowners.
Friday’s Government Reports Roundup
- United States Government Accountability Office releases report: “Collateral Requirements Discourage Some Community Development Financial Institutions from Seeking Membership”.
- The National Low Income Housing Coalition (NLIHC) released its Out of Reach 2015 report, in which it asserts that low wages and high rents are preventing people from living in many different areas of the country. It states that the most expensive city to live in is San Francisco, where a worker would need to make $40/hour to afford a decent two-bedroom apartment.
- The Federal Reserve released its Report on the Economic Well-Being of U.S. Households in 2014, which reveals how adult-consumers feel they are doing financially. Though in a number of categories adults’ beliefs on how they are doing went up beneficially, half of all renters that wanted to purchase a home could not afford the down payment and 31% were unable to qualify for a mortgage.
Friday’s Government Reports Roundup
- HUD released “Effect of QAP Incentives on the Location of LIHTC Properties” which examined the patterns of Low Income Housing Tax Credit (LIHTC) developments.
- The Government Accountability Office (GAO) releases its report on the status of the Community Development Capital Initiative (CDCI), which is intended to service the underserved communities after the Great Recession.
- The Center on Budget and Policy Priorities (CBPP) releases its National and State Housing Data Fact Sheets on rental assistance and the Housing Choice Voucher (HCV) program.
Transit-Oriented Development No Panacea
The Government Accountability Office issued a report, Multiple Factors Influence Extent of Transit-Oriented Development. The GAO writes that
From 2004 to 2014, FTA [Federal Transit Administration] allocated $18.9 billion to build new or expanded transit systems through the Capital Investment Grant program. One of the key goals for many local governments when planning major capital-transit projects is to encourage transit-oriented development as a way to focus future regional population growth along transit corridors. Transit-oriented development is generally described as a compact and “walkable” neighborhood near transit with a mix of residential and commercial uses.
GAO was asked to examine transit-oriented development. This report addresses (1) the extent to which transit-oriented development has occurred near select transit lines that received federal funds and the factors and local policies that affect transit-oriented development, and (2) the extent to which FTA considers factors related to the potential for transit-oriented development when assessing proposed projects and the extent to which FTA’s assessment of these factors is consistent with the factors that local stakeholders told GAO affect a project’s results. To address these issues, GAO reviewed relevant literature and visited six federally funded case study transit projects in Baltimore, MD; Washington, DC; Charlotte, NC; Santa Clara County, CA; San Francisco, CA; and Houston, TX, selected for diversity in local programs, markets, and geography. During these visits, GAO met with stakeholders, such as local officials and developers. GAO also interviewed FTA officials. In commenting on a draft of this report, DOT noted FTA’s longstanding commitment to encourage transit-oriented development.
The GAO’s findings are quite mixed, but it did note that “many of the factors or local government policies that supported or hindered transit-oriented development are generally consistent with FTA’s summary assessment for economic development and land use.” Some promote transit-oriented design as a panacea for what ails American communities and others argue that we are too developed and too dispersed for it to make much of a difference in how we live and work. This report does not really move the debate one way or the other, but it does provide some interesting case studies that can help to inform the debate.
A Framework For Housing Finance
The Government Accountability Office has released Housing Finance System: A Framework for Assessing Potential Changes. The GAO writes,
To help policymakers assess various proposals for changing the single-family housing finance system and consider ways in which the system could be made more effective and efficient, we prepared this report under the authority of the Comptroller General. Specifically, this report (1) describes market developments since 2000 that have led to changes in the federal government’s role in single-family housing finance; (2) analyzes whether and how these market developments have challenged the housing finance system; and (3) presents an evaluation framework for assessing potential changes to the housing finance system. (2)
It is useful to have a framework to figure out what kind of housing finance system we want for the 21st century. The GAO’s has 9 elements:
- Clearly defined and prioritized housing finance system goals
- Policies and mechanisms that are aligned with goals and other economic policies
- Adherence to an appropriate financial regulatory framework
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Government entities that have capacity to manage risks
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Mortgage borrowers are protected and barriers to mortgage market access are addressed
- Protection for mortgage securities investors
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Consideration of cyclical nature of housing finance and impact of housing finance on financial stability
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Recognition and control of fiscal exposure and mitigation of moral hazard
- Emphasis on implications of the transition (54-55)
This all sounds very Yoda-like, but the report itself goes into great detail as to what each of these 9 elements means. Given that Congress has left the housing finance system to its own devices, it is helpful that other branches of government like the GAO, Treasury and the FHFA are trying to move us beyond our current state of limbo. We need a housing finance system that is designed to last longer than the Band Aids and duct tape that were applied to it during the financial crisis.
Foreclosure Review
The US Government Accountability Office issued a report, Foreclosure Review: Regulators Could Strengthen Oversight and Improve Transparency of the Process. GAO did this study because it was asked to examine the amended consent order process relating to foreclosures. This process was pretty controversial. By way of background,
In 2011 and 2012, OCC and the Federal Reserve signed consent orders with 16 mortgage servicers that required the servicers to hire consultants to review foreclosure files for errors and remediate harm to borrowers. In 2013, regulators amended the consent orders for all but one servicer, ending the file reviews and requiring servicers to provide $3.9 billion in cash payments to about 4.4 million borrowers and $6 billion in foreclosure prevention actions, such as loan modifications. One servicer continued file review activities. (no page number)
GAO concluded that
One of the goals that motivated the original file review process was a desire to restore public confidence in the mortgage market. In addition, federal internal control standards and our prior work highlight the importance of providing relevant, reliable, and timely communications, including providing information about the processes used to realize results, to increase the transparency of activities to stakeholders — in this case, borrowers and the public. Without making information about the processes used to categorize borrowers available to the public, such as through forthcoming public reports, regulators may miss a final opportunity to address questions and concerns about the categorization process and increase confidence in the results. (66)
GAO also found that in “the absence of specific expectations for evaluating and testing servicers’ actions to meet the foreclosure prevention principles, regulators risk not having enough information to determine whether servicers are implementing the principles and protecting borrowers.” (66)
So we are left with an ongoing crisis in confidence for the public and homeowners in particular. We are also left with regulators who are at risk of not being able to properly regulate financial institutions. With much of the news we are receiving these days, it feels as if we have let our financial crisis go to waste. No foreclosure reform, no housing finance reform, no real leadership to create a housing finance system for the 21st Century.
During the Great Depression, the federal government created the Federal Home Loan Bank System, the Federal Housing Administration, the Home Owners’ Loan Corporation. We have created a black hole — Fannie and Freddie are in that limbo known as conservatorship. The President must take a lead on housing finance reform. Otherwise, my money is on another bailout in the not so distant future.
