MBA's Stevens calls for End to Policy by Enforcement

“Everyone working in the mortgage business feelsrnlike there is a giant target on their backs,” David H. Stevens said in remarksrnprepared for delivery today at the Mortgage Bankers Association’s (MBA’s) National Secondary MarketrnConference and Expo.  Stevens, MBA’srnPresident said the Department of Justice and other enforcement agencies appearrnto be in charge of the nation’s housing policy and both consumers and thernhousing market would be better served if the tone in DC changed.  Housing policy, he said, is failing today.</p

The mortgage industry has acknowledged and taken accountability for itsrnrole in the meltdown and lenders have paid hundreds of billions of dollars inrnsettlements and made major changes in controls and compliance.  But now it is time for policymakers at bothrnstate and federal levels to account for their role in the recovery and inrncredit access and consumer confidence.  “It’s time to acknowledge the flaws in policy, correctionsrnneeded to the rules, and the impacts of going too far,” he said.</p

The former FHA commissioner said the current environmentrnis not encouraging credit expansion but rather forcing lenders to be overlyrnconservative and failing entry-level homeowners on every front.  He pointed to the homeownership rate, at itsrnlowest point in over two decades and said there is a set of “ironclad chokepoints”rnpreventing or discouraging qualified young families and non-traditionalrnborrowers from ever buying homes.”</p

But the situation can be fixed. Quoting PresidentrnObama about the Dodd Frank impact; “We can go back at it and further refine it,rnlearn lessons from things that aren’t working as well, make it simpler, make itrnbetter,” he said he couldn’t agree more but this means that the regulators andrnlegislators must listen to a broader audience. rn”[They] seem unwilling to acknowledge what President Obama knows – thernrules are not perfect.”</p

Five years into Dodd-Frank, rules are beingrnwritten and adjusted for nearly every real estate finance business model,rnrestricting competition in the marketplace and causing confusion for consumers.  This is having a negative effect on access torncredit which remains right and is a key factor in preventing many qualifiedrnborrowers from buying a home.  Investors toornare asking questions; where are the mortgage originations and new homernstarts?  If Dodd Frank regulations createrna safer lending environment, why aren’t consumers borrowing? </p

One problem he said are the different rules forrndifferent business models.  And if thernindustry cannot understand this complex lending environment, how can a consumerrnbe expected to understand it?  Borrowersrnare encouraged to shop around for a mortgage but “thanks to policymakers dicingrnand slicing lending rules based on business models, we are headed to a worldrnwhere a consumer may go to a bank and get one set of options, then go to arnnon-bank, and likely get another set of options.”</p

Next he said, it is a world of inter-regulatoryrnconfusion; confusion among and across federal agencies, but also with staternregulations on top of federal regulations. rnThere is a need for consistent and common national standards across thernentire industry and the Housing Policy Coordinator MBA asked for several yearsrnago is still needed but with its job description broadened to include impactrnassessment.</p

Finally, today is an era of enforcement ratherrnthan of innovation. “Some regulators appear to have an enforcement-firstrnstrategy, instead of providing clear rules and guidance which expose lenders tornan outcome that we call “regulation by enforcement action”.  This he said, is not rulemaking at all.  “Enforcement on a case-by-case basis becomesrna guessing game for businesses to know if and when they may be penalized. Itrnproduces the most defensive lending posture that severely impairs access torncredit.”</p

“This atmosphere of the unknown; this environmentrnof fear and trepidation rather than an environment of constructive engagementrnand compliance, has a steep cost. It makes lenders much more conservative thanrnthey might otherwise be, keeping qualified borrowers from being able to obtainrna home,” he said.</p

The industry has actively engaged in historicrnchange. Now, it’s time for Washington to do its part, starting with threernthings at a very high level.</p

1)      rnChange the dialogue.  The lending environment is the safest andrnsoundest in decades and consumers should feel confident applying for loans andrnpurchasing homes. The dialogue of distrust must end. Regulators shouldrnunderstand the power that their message has over the mortgage market and justrnhow their messages influence behavior and negative messages from regulators aboutrnthe lending community fosters fear in consumers. “The impact of all thisrnnegative dialogue to the economy is real. Consumers won’t buy; builders won’trnbuild; lenders won’t lend.”</p

2)      rnThe most problematicrnrules must be changed.  Policymakersrnshould utilize the industry as a partner and advisor.  Lenders’ ability to use judgment to determinernthe soundness of a loan is all but gone from the decision making process. Householdsrnas we know them are changing and much of the Ability to Repay/QualifiedrnMortgage rule doesn’t take these changing dynamics into account.  The only reason QM is working is because ofrnthe GSE patch.  The hardwired 43 percentrnDTI is too high for some borrowers and too low for others. The lenders actuallyrndo the lending but their hands are tied and the perception of the lack of trustrnremains.</p

3)      rnSecondary marketrnquestions must be resolved.  The privaternsecuritization model must return but private capital will not return until thernsecondary market question is answered and we will not have a true functioningrnmarket until then.  Stevens said hernproposed steps two years ago to move Fannie Mae and Freddie Mac (the GSEs)rnforward to prepare for their transition out of conservatorship.  These included deeper up-front risk sharing,rna new single security, and the common securitization platform (CSP).  Progress is being made on all three but thernindustry needs to keep the pressure on. </p

Stevens said that in order to protect the corerncapabilities the GSEs provide to the housing market these actions must be takenrnor the industry risks emergency Congressional action. Risk needs to be movedrnaway from the taxpayer and resolve core components of GSE reform that don’trnrequire Congress to act. “Let’s leave Congress with a small list of issues suchrnas re-affirming an explicit guarantee, defining capital standards, dealing withrnaffordable housing concerns, confirming the regulators and any fees to offsetrnthe government commitment, and establishing rules should new entrants bernpermitted in the market.”</p

He concluded that we must bring confidence back, thernconfidence to provide access to credit to more qualified borrowers at the lowerrnand middle income levels.  Privaterncapital must be returned to the secondary mortgage market and the economicrnengine of the real estate market reignited. rnIt is time for regulators to take credit for the protections that are inrnplace today, but also to fix what needs to be fixed, change the tone from a dialoguernof distrust to a dialogue of confidence and fix the rules to allow forrninnovative, sustainable, safe lending and end relentless enforcement regimes.

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