"Enough is enough"; Stevens Calls for End to Conflicting, Unbalanced Policymaking

Access to the credit needed to drive this economyrnis being stifled by government decisions that are an overreaction to events ofrnfive years ago, David H. Stevens said today. rnIn an effort to be diligent in correcting for the loose standards ofrnyesterday, “Policymakers all over town have been making hundreds of policyrndecisions to clamp down on risk, decisions that may make sense in isolation butrnin the aggregate are choking off credit.”</p

In prepared remarks for a speech at the 100^{th</supanniversary convention and expo of the Mortgage Bankers Association (MBA),rnStevens, the association’s president and CEO, excoriated the government sayingrnthat “More than five years after the crisis, countless, innocent, would-bernborrowers are still being caught in the aftermath, all because Washington won’trntrust lenders to make fact-based credit decisions without countless stringsrnattached and second-guessing.”</p}

Stevens looked back over the 100 year history ofrnthe organization noting that there has always been a need to balance access torncredit with minimizing risk.  It’s arntough balancing act-no doubt about it.  And over the years, sometimes thernmarket has gotten out of balance— tilted too far in one direction or thernother.  Well today we are in such a moment. </p

At this same event last year, he said, MBA calledrnfor policymakers to reassess that risk-credit balance and coordinate withrnothers so that choices would be coherent. rnMBA asked to be part of the solution and warned that once again Americanrnfamilies would be the victims of the confusion. rn”One year ago, we called for leadership. But our calls have gonernunheeded, so I stand here today to say, in the politest way possible–enough isrnenough.  The overcorrection and conflicting policies that continue to comernout of Washington are threatening not just this market, but they arernthreatening the recovery.”</p

He called the current mortgage finance systemrnlandscape one of “confusion, excess, piling on, and dysfunction,” and said thatrnwith the housing market accounting for 20 percent of last year’s GDP growth,rnstunting the housing recovery puts the economic recovery in peril.</p

The federal government reacted swiftly when thernhousing market melted down, but the response was not perfect.  While the efforts by all involved at the timernwere noble, some of the specific programs and policies had their limitationsrnand it is critical to recognize their shortcomings as well as their successes. </p

“Yet policymakers have not turned the page. Theyrncontinue to clamp down on risk, run up pricing on government lending, andrnpursue enforcement actions that may have made sense in 2009 and 2010, but todayrnare impeding our economic health rather than supporting it.”  </p

Referring to his former position as FederalrnHousing Administration Commissioner Stevens said that to deal with the housingrncrisis fallout they raised premiums, changed minimum credit score requirementsrnand tightened risk controls, all of which made sense at the time.  Today however there are proposals in congressrn”That have extraordinary indemnification provisions that will curtail creditrnaccess to even more families on the margin simply because the risk of a mistakern- should those bills go through as is –  is simply too great.” </p

FHA mortgage insurance premiums were raised tornshore up the fund but given the loans being originated today the largernforecasted profits will be disproportionate to the risk.  And these profits, in context with new indemnificationrnterms, come at the expense of the very families FHA was created to help. Therncountry needs a financially sound FHA where fees reflect risk and lendersrnfollow origination standards but today the rigid oversight and overlyrnaggressive policing is out of control.  Itrnis going too far.</p

“The GSEs have all but eliminated the ability forrnany borrower with a low down payment and average credit score from having accessrnto a home loan at a reasonable price, Stevens said.  Add-ons for less attractive loans, adversernmarket fees, and mortgage insurance fees have produced a portfolio that,rnquoting the recent Home Mortgage Data Act (HMDA) report, “implies no riskrntaking.”  </p

When the GSEs were put in conservatorship no onernwould have argued against a rise in g-fees and implementation of sustainablernlending.  “But, today, the GSEs arernvirtually printing money and the excess profits are going to the Treasury – allrnat a cost to home ownership and the broad recovery of the housing market.  </p

Today we face our toughest challenge yet as anrnindustry, Stevens continued.  There’s a patchwork of stifling regulationrnand legal actions for as far as the eye can see. If lenders make one wrongrnmove-or in some cases, even one right move-they could be caught up in a web ofrnconfusion based enforcement actions.</p

“Put backs and indemnifications on any error, evenrncompletely non-material errors, class actions, settlements, Justice Departmentrnsuits, state attorney’s suits, treble damage penalties from False Claims Actrnsuits – need I go on?” he asked.  Thesernall create serious disincentives for those considering the borrower on thernmargin and the impact is hitting the very underserved populations thesernprograms were set up to serve.</p

Almost 80 percent of FHA’s purchase business isrnmade up of first-time homebuyers.  Thirtyrnpercent are minorities and more than half of African American and Hispanicrnhomebuyers used FHA financing to buy their home in 2012. These borrowers tendrnto have less wealth available for down payments; more than 51 percent ofrnAfrican Americans and 44 percent of Hispanic homebuyers in 2009 had LTVs abovern95 percent.  </p

“We have to ask if our country’s real estaternfinance policy is doing the job it was set up to do.  Or have a series of post-crisis overrncorrections turned into actions to the detriment of responsible, qualifiedrnborrowers?”</p

Taxpayers certainly need to be protected but therngoal can’t be zero risk as that means zero lending. The goal has to be strikingrnthe right balance between risk and access to credit, and we are a long way fromrnthe right balance.</p

Stevens said policymakers don’t seem to understandrnwhat they’re doing and there are conflicts everywhere.  A new take onrndisparate impact rules conflicts directly with a new QM standard. Speeches arernmade that call for efforts to reduce red tape and take the extra step to lendrnto the marginal borrower, yet all of this is offset by ability-to-repayrnrequirements that come with extraordinary penalties should a lender make even arnminor error or dare consider a compensating factor. “It’s like the leftrnhand isn’t talking to the right.”</p

He said we are already seeing the result.  Lending volumes have started to decline, andrnpurchase markets need all the help they can get from a viable lendingrnenvironment.  </p

Stevens said the MBA has long called for a housingrnpolicy coordinator who would make sure the regulators met and talked with eachrnother at the most senior levels to consider implications of obvious andrnuncoordinated overlaps but this hasn’t been done and the confusion continues. </p

We are nearing a tipping point and if we don’t getrnpolicies right, he said, we won’t be able to return to a time when averagernAmericans have solid prospects for homeownership.  “While we may end up creating a perfectlyrnrisk-free, safe and sound housing finance system-it might be one built forrnthose who least need the help.”  </p

The conflicting rule makers are also hurting thernreturn of private capital.  “Policymakersrncan give lip service to their desire to bring more private capital into thernmortgage markets, but so many of their own actions are working against thatrngoal.”</p

Stevens said he is asking again for policymakersrnand the Administration to pay attention; to act on the industry’s call forrngreater transparency from FHFA, Freddie Mac and Fannie Mae in their policymakingrnprocess, and to name a national policy coordinator.  He said the industry should also advocate forrnthe five transition steps MBA had laid out for a smooth transition to a newrnmortgage market. 

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