The State of the Mortgage Industry According to MBA

The Mortgage Bankers Association (MBA) provided its annualrnassessment of The State of the Mortgage Industry in a press conference Wednesdayrnafternoon.  Michael Young, MBA Chairmanrnsaid that the states that have been hardest hit by the housing crisis are andrnwill continue to deal with the aftermath but there are signs that in much ofrnthe nation 2012 will bring a recovering market.</p

One bright spot, Young said, is that the turmoil in thernsingle family market has actually helped the multi-family sector; the rentalrnmarket has tightened and more lenders have moved into the sector, especiallyrnlife insurance companies.  In thernresidential market, he said, the one topic that is discussed everywhere is thernlack of financing and what can be done about it. </p

David H. Stevens, MBA President and CEO said that lack ofrnfinancing can be traced to a single factor, market uncertainty.  Part of it is uncertainty about internationalrnmarkets and how they might ultimately impact the domestic situation but therernis also a tremendous amount of uncertainty about regulation.  Dodd-Frank, he said, has 300 regulations thatrnhave yet to be fully promulgated and the new Consumer Financial ProtectionrnBureau (CFPB) and other regulators all have or are considering regulationsrnabout how loans can be provided and serviced. rnThere is uncertainty surrounding repurchases as well and while MBArnbelieves lenders should be held accountable for their mistakes, they should notrnbe held accountable for the loans performance if it failed solely due tornchanging economic circumstances.  Forrnthat reason MBA supports a time limit on the repurchase obligation.</p

Addressing three areas in particular, he said, wouldrndecrease a lot of the insecurity.  Newrnregulations regarding Qualified Mortgages (QM) and Qualified ResidentialrnMortgages (QRM) are eminent and QM will in effect, define what loans getrnmade.  Mortgages which do not meet QM asrnlaid out by CRPB will simply not get made because lenders will feel there isrntoo much liability involved.   MBA supports certain parts of the QM such asrnthe requirement for full documentation but other parts such as the point andrnfee cap lack flexibility and will disproportionately affect the pricing of smallrnloans.  </p

Most of all, he said, the proposed regulations are too general.  There needs to be specificity in thernunderwriting standards such as in the definition of what constitutions “abilityrnto repay.”  Without a bright line in thernregulations that enable a safe harbor for lenders, he said, any lending isrngoing to be restricted on the margins and any loans that fall into the gaprnbetween QM and QRM will see significant price adjustments to reflect thernliability.</p

While MBA also supports risk retention and much of thernintent of the QRM such as eliminating no-docs and interest only and otherrnexotic loans, regulators are going beyond the intent of Congress by adding debtrnto income and loan-to-value ratios.  Thernrequirement for a 20 percent down payment will create a dual class system underrnQRM, with lower income borrowers, unable to amass the down payment; forced intornFHA loans while there will be a private market for upper income borrowers.  Stevens said MBA will be “very aggressive” inrnmaking sure these changes to QRM are pulled back.</p

Another area of uncertainty is the 50-state settlement withrnservicers.  Borrowers don’t care aboutrntheir servicers until they get into trouble with their mortgages but then thernmultiple state and federal laws that govern servicing cause stress for thernborrowers and for servicers and investors as well.  The settlement may provide a framework forrnnational standards which would remove some of the uncertainty in this area.  In the same vein, Stevens said that PresidentrnObama’s new fraud task force must be careful to avoid redundancy with otherrninvestigations and carefully measure how it impacts borrowers or it couldrncreate trepidation among lenders and further reluctance to lend.  </p

The present structure of the mortgage market with 90 percentrnof lending having some government involvement through the GSEs or FHA is simplyrnunsustainable, Stevens said.  The privaternsector must be brought back into the market and the major players in thernindustry are close to agreement on what the future of the secondary marketrnshould look like.  This is very close torna model proposed by MBA some years ago which would have the followingrncharacteristics:</p<ul class="unIndentedList"<liTransactions would be funded with privaterncapital from a broad range of sources.</li<liThe federal government should have a role inrnpromoting stability and liquidity in the core mortgage market. This role should be in the form of anrnexplicit credit guarantee on a class of mortgage-backed securities and thernguarantee would be paid for by risk-based fees.</li<liTaxpayers and the system itself should bernprotected through limits on the mortgage products covered, the types ofrnactivities undertaken, strong risk-based capital requirement, and actuariallyrnfair payments into a federal insurance fund.</li</ul

In answer to a reporter’s question about the chances ofrnPresident Obama’s streamlined refinancing program being approved, Stevens saidrnit would be an uphill climb.  FHA isrnlegislatively limited to loans with a maximum LTV of 97.5 percent so to go asrnhigh as 140 percent which Steven’s said he expected the legislation to attemptrnwill require full approval of Congress.</p

Jay Brinkmann, Senior Vice President and Chief Economists saidrnhe expects jobs to be created at about a 150,000 per month pace in 2012 butrnthis will be uneven by location and dependent on an individual’s education.  The length of unemployment hit a record highrnin November and persons with a high school education or less are remainingrnunemployed longer than those with a college degree. </p

According to Brinkmann, mortgage originations will drop fromrn$1.26 trillion in 2011 to $992 billion in 2012 with most of the loss coming inrnrefinancing.  The purchase market will bernlargely unchanged or will rise slightly. rnThis does not, however, reflect any changes that might be made in thernHARP program or any unforeseen outside events.

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