May 26, 2018

'Do No Harm' Is Mantra at Housing Solutions Conference

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'Do No Harm' Is Mantra at Housing Solutions Conference

The federal government can help the housing market self-correct by adopting a housing policy that resolves servicing issues, gets underwater home owners back on their feet, removes uncertainty about financing, and sets out how the federal government will backstop housing for the long-term, lawmakers and housing leaders said in Washington yesterday at a meeting on housing crisis solutions.
The Progressive Policy Institute and Economic Policies for the 21st Century, two policy institutions, hosted key members of Congress, NAR, and other housing industry leaders and policy strategists at the New Solutions for America’s Housing Crisis event in Washington, D.C., yesterday to devise ways to spur the housing market and in turn get the U.S. economy back on a solid growth path.

  NAR President Ron Phipps (left) and Rep. Dennis Cardoza (D-Calif.) discussed ways to improve the real estate industry at yesterday's New Solutions for America’s Housing Crisis event. 

“The market can self-correct,” NAR President Ron Phipps said at the all-day meeting, called New Solutions for America’s Housing Crisis, “but the government first has to do no harm.” That refers to the federal government’s proposed 20 percent down payment requirement, talk in the administration and in Congress about curbing the mortgage interest deduction as a way to cut the government’s deficit, Congress’ failure to extend 2008 FHA and conforming loan limits, and the delay in approving a long-term reauthorization of flood insurance until possibly later this year.
The Wall Street Journal on the same day as the conference put the need for solutions to the housing crisis on the front burner in a piece in its Real Time Economics blog. Read that piece now.

The government is sending contradictory messages, housing leaders from throughout the industry said. On the one hand, the government is intervening in the mortgage modification process for troubled home owners and in other ways, while on the other hand it’s failing to take obvious steps that the market needs, like extending the loan limits.
“The damage has been done,” said Richard Smith, president and CEO of the national diversified real estate company Realogy, referring to the expiration of the 2008 loan limits. “In anticipation of the change, housing started reflecting this two or three months ago, so it’s now built into the marketplace. Here we are trying to figure out how to stimulate housing while the lack of a national housing policy is letting it deteriorate.”
Smith and Dave Stevens, president and CEO of the Mortgage Bankers Association, estimated that the drop in loan limits from 125 percent to 115 percent of area median home price and in the high-end limits from $729,750 to $625,500 will push about 5 percent of buyers out of the market.
Sen. Johnny Isakson (R-Ga.) called the failure to extend the loan limits a missed opportunity and warned the Obama administration about moving forward with the 20 percent down payment requirement in the proposed qualified residential mortgage rule. “If they [publish the final rule after the 2012 elections, as some are saying], you’re going to have another housing conference in 2013 talking about the same things we’re talking about today because the housing market cannot stand the QRM rule as it’s written today,” he said.
The participants offered up a number of steps for the government to put the housing market into a position to self-correct. These include starting with a clear, comprehensive housing policy under which all government efforts, from loan modifications to mortgage servicing standards, mortgage financing standards, and long-term federal mortgage market backstopping, flow from the same strategy.
“Government needs to refine what its involvement will be, make cohesive policy, and stick with that,” said Smith.
From there the government can put into place a number of market-building and confidence-producing programs:
Appraisal-free refis for underwater borrowers. “We already know they’re underwater,” said Rep. Dennis Cardoza (D-Calif.). “The government guarantees these mortgages. We can establish a new floor and allow people to refinance at current interest rates. Extend the terms to 20, 30, or even 40 years.” Cardoza said that, for little cost to the federal government, the refinancings will have a significant stimulus effect on the broader economy as households’ cash position improves. Stan Humphries, Zillow chief economist, agreed the idea made sense from a stimulus standpoint. “It is a great economic stimulus if it [generates] about $70 billion [a year],” he said.
Shared-equity refis. Encourage lenders to allow underwater borrowers to refinance and write down the balance to the market rate in exchange for the lender taking an equity position in the home and imposing some resale restrictions in the early years of the new mortgage term.
Assumable government-backed loans. Allowing government-backed loans to be assumable would increase the attractiveness of buying today because buyers would know their mortgages would be attractive to buyers five or 10 years down the road, when interest rates are likely to be back up to 7, 8, or 9 percent. “That would be a very good asset to carry into the next decade,” said Smith.
Bulk investor foreclosure purchases. Keep priority purchase of foreclosures to owner-occupant buyers and communities but also pave the way for more investor participation. One possibility, said Dave Stevens of the MBA, is to open Sec. 204(k) FHA single-family property disposition loans to broader participation.
National servicing standards. Right now different federal regulators are getting involved in servicing issues, and lenders are negotiating with attorneys general in the 50 states separately over issues arising from servicing problems. This piecemeal approach is holding back lenders’ ability to move forward with new efforts to help borrowers, Stevens said.
Looking over the long term, participants widely agreed the federal government must stay in the mortgage finance market and provide an explicit guarantee. “I spent a lot of time in my last job [as FHA commissioner during the first two years of the Obama administration] talking to banks in China and around the world and the bottom line was, most investors internationally would not invest unless [the security] was Triple A and, in the United States, unless it had an explicit guarantee,” said Stevens.
Isakson, Smith, and others entertained the idea of rolling all of the existing federal entities guaranteeing mortgages into a single entity. That would mean some form of consolidation of Fannie Mae, Freddie Mac, the FHA, the VA, and the Rural Housing Service to enable the government to benefit from “economies of scale,” said Isakson.
Isakson also likes the idea of paying for the federal guarantee taking a sinking-fund approach in which the entity charges “fees in return for government sponsorship,” said Isakson. “Put the fees in a sinking fund ... large enough to absorb the shock waves, build up cash reserves sufficient over time, so the insurance on the paper dissipates 10 percent a year.”
Participants said the market is slowly starting to recover on its own, with many investors and first-time buyers coming in with all cash to get around the stymied lending market. Investors are turning the properties into rentals, and slowly but surely foreclosure inventories are easing. But the mixed signals from the government and lack of a comprehensive federal policy is keeping the market from recovering in a solid, steady way, and until that happens, the broader economy can’t get out of the doldrums.
“Conversations about increasing down payments, the mortgage interest deduction, the loan limits continue to eat away at the average consumer’s ability to purchase a house in confidence,” said Phipps.

By Robert Freedman, REALTOR® Magazine Daily News