WASHINGTON, D.C. – January 17, 2012 – (RealEstateRama) — David H. Stevens, President and CEO of the Mortgage Bankers Association, today delivered a speech to the Exchequer Club of Washington, DC on the housing market and housing policy titled, “Consumers Deserve a Balanced, Transparent, Coordinated Housing Policy System.”
Below is the text of Mr. Stevens’ speech, as prepared for delivery.
[Please Note: These are prepared remarks. Dave Stevens may add to or subtract from these remarks during the course of his presentation.]
Good afternoon and thank you for inviting me to speak today.
It is a pleasure to be with you again and I am honored to be with such a distinguished group of industry leaders, political insiders, and economic influencers.
One year ago, I stood before you and talked about the overall uncertainty in the mortgage industry and real estate finance markets. So, where are we today?
I am pleased to report that we have made some progress in the last 12 months. By most measures, the housing market is starting a broad recovery. We are now starting to see the first of the rules, mandated under Dodd Frank, coming out of the CFPB and other regulators, which will help shape the new mortgage lending environment under which my members will have to operate and homeowners across the country will have to navigate. As these rules continue to come out, the picture will get clearer, and certainty will grow.
But certainty, while helpful, will not, by itself, solve the remaining ills of the housing and mortgage markets. The rules must be done right, in a coordinated fashion mindful of downstream impacts, if we are to accelerate the housing recovery.
Take for example the Ability to Pay/Qualified Mortgage (QM) Rule.
The QM was the first rule to be released and its 804 pages of regulation alone will significantly change the landscape of homeownership. Congress and the Consumer Financial Protection Bureau’s (CFPB) goal with this rule was to eliminate the risky products and features that once plagued our industry. This rule accomplishes that and the CFPB is to be commended on the deliberative, inclusive, transparent process they undertook in creating this rule.
Given that 90 percent of today’s market is already going through GSE and FHA underwriting, this rule is unlikely to have a huge impact on tightening credit. However, it is not going to do much to loosen credit either.
This is where they got the rule right:
• It eliminates most of the risky products and features that got borrowers in trouble and helped cause the housing crisis.
• The rule includes a clearly defined safe harbor that will give lenders the confidence and certainty to lend right to the edges of the intended QM credit box.
• Allowing for 43 percent DTI, with permissions for loans that are eligible for purchase or guarantee by Fannie Mae, Freddie Mac, FHA, VA and RHS, creates a broad credit box that should serve a large number of qualified borrowers seeking conforming loans.
But there is still much more work to be done. There are volumes of detail in the nuances of this 804-page rule. Since the release last Friday, MBA has received hundreds of emails from our members. Risk managers, compliance attorneys, underwriters and servicers are going through this with a fine-tooth comb and asking us, “What does this mean?” and “Did you know this was in there?” and saying, “This is a problem,” as they read the rule line by line.
So far, we’ve identified three big bucket items that we need to look at closer:
• As defined, the three percent point and fee limit is overly inclusive, in that it includes affiliated fees and compensation for loan officers. We will be working with the CFPB to fix that.
• The 43 percent DTI limit on jumbo loans will make those loans more expensive in high cost areas like DC, NY and California. Other attempts to apply an ability to repay standard have completely exempted large balance loans which are necessarily made to higher income households. It is worth discussing whether limited regulatory resources should go towards this issue – exemption above a certain loan size might make sense.
• The three percent point and fee cap, and the 150 basis point over APOR calculation for the safe harbor, could limit access or increase the cost of lower balance loans.
The fact is that QM is just one part of a broader environment of significant change.
I have consistently warned of the regulatory tidal wave to come and it is finally upon us. By January 21, just a few short days away, seven new regulatory rules will have been released this month and many more will be released by mid-year. These changes will impact business operations and the future of mortgage access for years to come. There are more shoes still left to drop – namely Basel III, Risk Retention/Qualified Residential Mortgage (QRM), and RESPA TILA, on top of the major Servicing Standards and Loan Officer Compensation/Qualification Standards scheduled to be released this week.
Meanwhile, our nation’s focus also remains on the huge economic challenges we face in the overall economy. All Americans, business owners, and political leaders are concerned about economic growth in the midst of debates over the debt ceiling, the U.S. budget, and international economies. Not to mention additional monetary policies such as QE3, Operation Twist, and other Federal Reserve activity.
The point is, how does all of this impact the average American who doesn’t understand the detailed intricacies of the regulations and monetary policy?
They are left wondering, will I be able to purchase a home or should I rent?
We, at MBA, will finance all housing, owner occupied or rental. Our members finance homes for purchase and rental. We, more than anyone, have a balanced perspective.
Let’s be clear. Changes had to be made. Additional regulations were necessary to make sure that what happened in the early 2000s never happens again. But in this environment, we can go one of two ways:
We can get the rules done right with a coordinated, balanced approach that doesn’t tighten credit even further for qualified borrowers. We can ensure a balanced housing policy where qualified borrowers make the ultimate decision on whether to rent or own, and that decision is not made for them by federal regulators and policymakers. This would be good for everyone involved from the renters to the first time buyers to the move up buyers. A balanced housing policy will drive broader economic growth.
Or we get the rules done wrong. If the rules make lending too restrictive, credit will become even tighter than it is today and minorities and the middle class will feel the greatest impact. Further tightening credit also entrenches a large FHA/government role, rather than reinvigorating private capital back into the marketplace.
To put it frankly, consumers are the ones who will get cut out of the market. Federal Reserve Chairman Ben Bernanke noted in a November speech, “The pendulum has swung too far the other way…overly tight lending standards may now be preventing creditworthy borrowers from buying homes.”
In fact, just this morning I saw a report, citing Ellie Mae, that among the denied applications for conforming purchase loans in 2012 the average FICO score was 733 and the average LTV was 81 percent.
One of the greatest risks we face is lenders leaving the credit markets. The impact of over regulating, uncontrolled litigation, and policy and repurchase confusion will not only affect lenders, but consumers. The risk is already going well beyond creating a safe market for consumers. I’ve been saying for two years now that the victims of this current tight-credit environment will be first time buyers and lower to middle-income families. The wealthy will always get loans.
These are the issues I’ve been driving home with policymakers, thought leaders, the media, industry leaders, and others in Washington and around the country. The sheer volume of change is astounding and if policies are not done correctly, the future of housing will be threatened for generations to come.
What really worries me is that we’re not just talking theoretically. We are actually witnessing in the United Kingdom (UK) what could happen to the U.S. in just a few short years. We can see strong parallels to the UK housing market. For example banks are exiting the lending business due to risks created by the regulatory environment. A recent article from The Guardian states, “Labour and Conservative policymakers have identified housing as a key battleground at the next election, fighting to win the support of Generation Rent – young people who are struggling to get on the housing ladder and may never afford a home of their own.”
And the Financial Times recently reported, “Banks have left the real estate market over the past couple of years, as funding sources dried up and regulators imposed tougher rules governing the risk-weighting of property assets.”
This underscores the fact that we need a balanced housing policy in the United States. We cannot have a system that over corrects and prevents qualified borrowers from obtaining a home.
I’ve been talking about this for a year now and it started with this very speech, when I spoke here last year – we must have a coordinated housing policy strategy; a strategy with clear, distinct goals; clear, distinct rules; and clear forethought to the downstream effects of overlapping policies. The housing market needs it. The economy needs it. And consumers deserve it.
And this is why MBA has called on the White House to create the role of housing policy coordinator – a traffic cop for all new rules.
This office won’t have authority to tell regulators not to do their job, but to identify points of conflict, try to balance timing and impact on markets, and push regulators to communicate with each other. The office would be charged with bringing an integrated approach to housing policy change management. And it would have a clear and absolute mandate to identify and evaluate downstream effects and unintended consequences of all changes to government housing policy.
It would give all of us greater confidence in the real estate finance market and help set housing on a sustainable recovery path.
We cannot talk about a coordinated policy effort without including the GSEs. We all need, respect and support the critical role the GSEs have played – and continue to play. The fact is, they are financing 70 percent of the single-family housing market and have a significant impact on our economy. They are in conservatorship and thus are, for all intents and purposes, part of the government.
We all know that federal regulators are obligated to be transparent. Regulations must be announced in the public arena for comment, and stakeholder input has been critical to making new rules and policies work.
Therefore, MBA has also called for an open and transparent process when the GSEs wish to make major policy or business changes. They are a significant part of the broader housing and economic ecosystem. The good news is that FHFA, Fannie Mae and Freddie Mac have all shown willingness to discuss how we can work toward transparency and be better coordinated going forward.
Let me be clear. This is not about the GSEs. It’s about federal housing policy and the future of housing in the country. It’s about the economy.
MBA has been sharing these proposals around Washington with lenders of all shapes, sizes and business models, with trade groups, stakeholders, and industry leaders. We are making progress. This thought leadership has led to discussions with key decision makers at FHFA, within the Administration and the GSEs.
What I’ve learned is that there is widespread industry support and we need a louder voice. We need your voice.
So, moving forward, where do we go from here? What do we need to do? Are stakeholders working toward finding workable solutions or are they stuck in their lanes or sitting on the sidelines?
We need stakeholders to be willing to cross customary lines in the sand to create better policy. This means creating non-traditional alliances for the greater good, for the good of borrowers.
If we’re not careful, we will tip the balance and block the gates to homeownership for qualified families.
All of us in this room are the stakeholders;
• Stakeholders in our communities;
• Stakeholders in the marketplace;
• Stakeholders in the economy;
• And stakeholders in the success of this country.
Collectively, we all contribute to one entire economic and social ecosystem.
Over the next six months, much of the future of the real estate finance industry will be decided. The Dodd-Frank rules are now truly upon us and they will dramatically transform the industry—make no mistake about it. More importantly they will determine what kind of housing market we leave for future generations.
Will it be the same dream machine – so uniquely American — that’s elevated so many out of poverty?
Will it be a housing market that offers a ladder-up for a new middle class?
Or, will it shut the door on all but the most comfortable and secure?
Will it be a housing opportunity society?
Or will it be a take-no-chances market – where only the fortunate need apply?
I deeply believe in the housing market — and I know you do too. I believe the home mortgage is a doorway to opportunity – when used responsibly.
We need you, your support, and your voice.
Thank you.
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The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation’s residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,200 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA’s Web site: www.mortgagebankers.org.
