Please Note: These are prepared remarks. Dave Stevens may add to or subtract from these remarks during the course of his presentation.]
New York, NY – May 11, 2012 – (RealEstateRama) — “The dream to come from nothing and buy a home.”
These are powerful words, and I want to thank Mitch for sharing his amazing family story with us today. Ladies and Gentlemen, Mitch Kider is with us today. Mitch, would you please stand and be recognized?
Helping families live and thrive in a warm home is the ultimate public service and it’s what we, as an industry, provide each and every day to families throughout the nation. It’s the reason I became a mortgage banker 30 years ago and the reason we’re all here today. We should be proud of the work we do and the services we provide. Don’t you agree?
When I stood in this very spot last year, on my second day as MBA’s President and CEO, I talked about the challenges that lay ahead. Today, we’re looking better and market conditions demonstrate that we’re headed in the right direction.
The inventory of existing homes is down to 2.5 million, compared to 3.3 million a year ago, and sales of existing homes are picking up pace. The inventory of new homes is at its lowest level in recorded 50-year history to 144,000. Shadow inventories are decreasing, although we’re still roughly at 4 million distressed homes.
Foreclosures are still impacting the economy. Foreclosures in states with non-judicial foreclosure proceedings are much lower, down to 2.79 percent of the market, and continue to fall. Unfortunately, foreclosure rates in judicial states are higher at 6.8 percent, severely impeding the reduction of foreclosures.
Economically speaking, we are starting to see slow signs of recovery and growth. Optimism is becoming apparent with record home affordability, jobs coming back and a recovering stock market. However, positive signs of recovery can be easily reversed because the overall market remains at risk. The amount of uncertainty this industry faces with regulations yet to be determined could have severe unintended consequences for consumers.
As I watched the morning news last week, they reported on the potential need for another stimulus package. While pumping cash into markets does help spur economic growth, it is not the solution for the housing market. We need private capital back in the real estate finance market, and we need to ensure qualified borrowers have access to credit. This is the way to reinvigorate the housing market; drive the economy in the right direction; and transition to an era of recovery and stabilization.
It comes down to this, uncertainty and over correcting the mistakes of the past are the two greatest impediments to real estate market recovery and economic stability.
We still have borrowers who can’t or won’t buy a home. They are unsure about their job stability, may be afraid of buying when home prices aren’t stable, or are concerned about how they will be treated by the their lender or loan servicer.
Lenders are fearful of lending because they don’t know how the rules of the road are changing or if a loan might get pushed back on them for a minor, immaterial defect.
Investors are skittish because they have questions about the collateral backing the loans they are being asked to buy, they don’t know which way the market is headed or what new policy may come next that will impact their position.
The mortgage finance industry is grappling with an overwhelming number of government rules, regulations and policies that go beyond their intent. This over correction has created the tightest credit environment in fifty years and is limiting access to homeownership.
Legislators and regulators have successfully eliminated the most risky features and products that created the housing bubble. They have created well-intended consumer protections. However, we are quickly approaching the tipping point where overcorrection is going to limit access and shut out the very people everyone is trying to protect.
The fact is lenders are continuing to tighten credit over the 2011 book of business, which was already too tight. In fact, access to credit is taking on some disturbing characteristics that will have long term impacts if not addressed immediately.
Lenders are simply afraid to make any loan on the margin fearing repurchase, litigation, and regulatory risk. Therefore, the only loans that will be made are those to the wealthy or with means. It will be too risky to take a chance on a first-time homebuyer without spotless credit or a large down payment.
With this type of restrictive lending, the economy will not recover, especially for the middle and lower middle class who buy starter homes and lower sales price homes.
According to the Research Institute for Housing America (RIHA), 80 percent of American households across all age groups and demographics think now is a good time to buy a home. Housing demand is expected to increase significantly with the Echo Boom generation, who are 80 million strong and in a financial position to purchase. A Harvard Joint Center for Housing study suggests that over the next 10 years, 12 to 15 million new households will be ready purchase homes out of this generation.
Another interesting trend is who is expected to lead this housing growth — the Hispanic community.
According to Census data, in third quarter 2011, 53 percent of all new homebuyers nationwide were Hispanic. These numbers are expected to increase for the next 10 years.
Two in every three Hispanic renters wants to buy, according to the National Association of Hispanic Real Estate Professionals (NAHREP). They are obtaining jobs, have higher educational achievements, and greater buying power.
Unfortunately, if government regulations continue down this path of overreaction, the majority of these potential homebuyers will not have access to affordable homes they desire.
Limiting access to credit has resulted in two phenomena. First, investors and speculators are driving the low end market with all cash deals because FHA has become harder to get for the marginal buyer.
Second, middle class America’s access to the primary owner occupied market is shrinking, especially if they have had any minor hiccup in their history.
We cannot rely upon legislative corrections to fix these problems. While it’s still important that we educated and lay groundwork with lawmakers, Congress is at a stalemate; the Senate and House cannot agree and consensus is not guaranteed after the elections. Even if one party controls both sides, they may not have enough votes and they may be in disagreement with the White House. Even if there is a change in the White House, there are no guarantees anything will pass a divided Congress.
We don’t foresee Congress taking up any major legislation impacting the mortgage industry until after the elections. Whatever they do, we are imploring Congress not to raid the real estate finance piggy bank like they did at the end of 2011 when they raised the GSE’s guarantee fees to compensate for the payroll tax cuts. Forty years worth of higher prices for homebuyers to pay for two months’ of tax cuts.
This is a painful example of Congress not considering the consequences for homeowners and potential home buyers. Congress actually taxed the very consumer they had intended to help.
Therefore, by default, we must rely on federal regulators to keep markets moving in the right direction. We must ensure regulators are aware of the potential consequences proposed rules and regulations can have on qualified borrowers if some of the recent provisions are not fixed.
This is exactly why MBA has been a leading voice with regulators and Congress to focus on sensible policies that will ensure credit access to qualified borrowers and revive the real estate markets. Our voice is being heard and our efforts are paying off.
There has been a systemic breakdown of trust. Frankly, no one trusts the system. To restore certainty and trust, we must have consistent standards that strike the right balance of consumer protections and access to credit.
There are four key areas of uncertainty which are holding back credit – the Qualified Mortgage Rule, national servicing standards, repurchase demands and ratings agency standards. If there are clear rules of the road in these key areas, it will provide a much needed level of certainty to the industry and the real estate finance markets will continue to move in the right direction.
As part of Dodd Frank, the CFPB requires lenders to prove the borrower’s “ability to repay” the loan through the Qualified Mortgage Rule, or QM. Making sure a consumer has the ability to repay the loan is the right rule for the consumer and for the lender.
Unfortunately, the proposed rule left open the possibility that the final rule might include standards for mortgages that lenders can’t rely on. If the final rule comes out that way, it won’t be good for consumers after all. Specifically, too many consumers will be denied safer, more sustainable loans or they will pay more than they should.
The QM Rule is the most important rule to affect lending and access to homeownership in this country. We are expecting a final rule this summer and if it’s not done correctly, it will harm consumers and hinder the availability of credit for a large number of borrowers. A wide swath of qualified borrowers will not get loans if the credit box is too small or lenders don’t have a bright line safe harbor. In short, this rule defines who will have access to the American dream of owning their own home and who will not.
QM is a top priority and MBA’s intense focus on the issue continues. We have been meeting with regulators and legislators to make certain they understand the implications of the proposed rule. And, we have seen signs of progress. Recently, HUD Secretary Shaun Donovan publicly stated the QM Rule should not be overly restrictive. His comments are a welcome indication that regulators may be rethinking the definition in the proposed rule.
The industry needs clarity and certainty in Servicing. We remain steadfast in our push for national servicing standards and were encouraged by the CFPB announcement that it intends to propose rules for residential mortgage servicers this summer. National standards that apply to all residential loan servicers have the potential to create more confidence and certainty in the market for borrowers and servicers alike.
Borrowers would be protected by a single set of standards regardless of where they live and servicers would have one set of rules to comply with everywhere they operate bringing much needed certainty to everyone.
Secretary Donovan and Federal Reserve Chairman Ben Bernanke, have acknowledged another key driver of today’s tight credit environment is the unprecedented number of repurchase, or buyback, demands being put on lenders by the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, based on representations and warranties made by lenders when they sell loans to the GSEs.
Unfortunately, lenders are now facing what has been described as a tsunami of repurchase demands from investors looking to recoup losses. A portion of these are legitimate requests and are being honored, as they should be. However, lenders are finding more and more loans being sent back for repurchase for minor, technical mistakes that had questionable relevance to loan performance.
If we want to see the much needed expansion of credit, lenders need relief on rep and warrant interpretations now and clarity on policies going forward.
And finally, we must restore confidence in our ratings system. We cannot restore investor confidence or expect private capital to return without accurate and credible ratings. They are indispensible to the industry and critical to restoring investor confidence in private label mortgage backed securities. The collapse of the private securitization market shook the confidence of many investors. Investors want more information, and they want detailed bonds ratings data. Restoring trust and confidence in ratings is a critical area where we must focus and eliminate uncertainty.
Until these four major issues are addressed, mortgage credit will remain tight and the housing market will continue to struggle. All stakeholders in the housing finance system have an interest in seeing the market rebound, and only together can we find solutions that will restart the flow of credit to qualified borrowers.
The key to a stable, successful, economically sound real estate finance system is liquidity. Sufficient amounts of private capital will provide the liquidity in the market so families can get the loan they need in order to achieve homeownership.
The future of the GSEs must be addressed to ensure the long-term stability of the real estate market and reinvigorate private capital.
Private investment is practically non-existent in the current mortgage finance market. Government entities — Freddie, Fannie and FHA — are at capacity, representing more than 90% of the market.
The importance of housing in the economic and social fabric of the United States warrants a federal government role. Except in times of extreme duress, the federal government’s role should be to promote liquidity for investor purchases of mortgage-backed securities.
Something must be done now. We can’t wait for Congress and the Administration to take action. In an election year, any promise of significant changes to the GSEs through legislative channels is a pipe dream. Even after the election, chances are slim.
However, it is my strong belief there are things that can and should be done now – and do not require legislative action.
In order to ensure long-term growth, stability and liquidity, the GSEs should eventually transition into a single security. But with any transition, you must take the necessary steps to achieve your goal.
Therefore, the first step must be for the GSEs to transition to a fungible, pooled, TBA eligible securities market. In this system, both Freddie and Fannie securities would be delivered into the same TBA contract for greater liquidity in the market. In order to accomplish this, changes would need to be made with the Freddie Mac PC. With today’s trading disparities between Freddie and Fannie’s securities, the direct cost to competitively trade Freddie securities is by default being borne by taxpayers. Doing this now, while interest rates are low is of critical importance.
If the industry embraces a fungible MBS market, everyone involved will benefit. There will be more liquidity because the combination of Freddie Mac and Fannie Mae currency brings greater volume in any coupon. We all know that large, liquid pools create better trading value. Taxpayers will be saved hundreds of millions of dollars because the execution will no longer be subsidized. This is a necessary step to prepare the industry for the inevitable rise interest rates. Quite frankly, it doesn’t just save money – it helps to transition the market to a new paradigm by providing a more flexible and efficient way of trading securities.
This action doesn’t require legislation. We can do this right now to the benefit of taxpayers, homeowners, the mortgage market system and the economy.
With any transition, we can expect a few bumps in the road. We recognize that some areas may be at a competitive disadvantage at first, but the market will recover quickly due to the liquidity and flexibility of the combined pools. By transitioning now, the risk is lower, especially if you consider the expectation of 12-15 million new households coming into the market in the next 10 years; I believe the market will recover quickly. I urge you to consider the possibilities.
“That’s the bank that gave me the loan to buy our home,” Mitch Kider’s father told them each time they came here, to Manhattan. It’s the reason Mitch Kider got into this industry. It’s the reason we’re all in this industry.
Homeownership is the American dream for many families. We want to help our members empower customers to make the best decisions and reach financial stability. This is why MBA partnered with EverFi, the nation’s leading financial literacy software company, and launched the EverFi at Work Program.
Mortgage financing is complicated. Educating homeowners and potential homeowners on the core concepts of personal finance will help them feel confident and secure in their home buying, or renting, decision.
The EverFi at Work program is specially designed for adults who are considering homeownership, refinancing or just want to make sure they are on the right track. The program is available for private label to MBA members now, and I encourage each of you to provide this service to your customers. This is just one of the many steps we can take to getting the country and housing market back on stable footing.
And while we’re on the subject, I want to talk to you about something that I’m very passionate about – helping families, and in particular children, in need. MBA is committed to helping families around the country find comfort in their homes when they need it most.
The last few years have been challenging for many families. Now imagine having to choose between spending time with a critically ill child, or choosing to work to make sure you can pay the mortgage. I wouldn’t want to have to make that choice. I don’t think any of us could.
So we created the Opens Doors Foundation. Opens doors will provide a mortgage payment grants to assist parents who are caring for a critically ill or injured child.
This is MBA’s first non-profit, grant-making program, and we donated the first fifty thousand dollars to get things going. We have now over fifty thousand more, but we would like to raise one million dollars in the next year.
The program was created in Washington, DC and plan to launch three programs in 2012. We welcome industry partners in this undertaking to spread Opens Doors throughout the U.S. We are now registered to solicit tax deductable donations in all 50 states.
I know you all share in our support for children and their families. You can contribute to this important endeavor by making a donation, but also by partnering with us. We’ve made it easy for you. Simply go to www.mortgagebankers.org/opensdoors to make a donation or become a partner. More information is also available at the MBA booth number 318.
We can be a proud of the work we do to help families across the nation. We are the leaders in recovery and stabilization of the mortgage finance market. MBA and its members can and are making a difference.
Yet, as the “voice of the real estate finance industry”, we can do more – we just need your help. Your membership and active participation is critical. So join now.
If you are already a member, get more involved. Join an MBA committee, working group or task force. These teams focus on specific initiatives and issues.
Lend your voice in Washington and at your state capital by joining the Mortgage Action Alliance. The Mortgage Action Alliance is dedicated to strengthening the industry’s voice and lobbying power in Washington, DC and state capitals across America. MAA members take part in “Call to Action” campaigns by sending letters to their lawmakers on pending legislation.
Any way you can – get involved. Now is the time to create a better tomorrow – for our industry, our customers and our country.
Unfortunately, there are factors preventing us from doing our jobs. Without access to credit, without a fully-functioning, liquid securities market, we cannot help qualified borrowers get the loans they need to have a safe, comfortable home and contribute to growing communities.
Fixing the market-constraining rules and regulations will certainly provide access to credit and keep the real estate finance market and the economy in the right direction. We must do more than that. We must make long-term, sustainable changes that save hundreds of millions of taxpayer dollars and truly have a liquid security market that reinvigorates private capital by providing benefits borrowers, lenders and investors. We must reform the GSEs and transition to fungible securities.
Now is the perfect time to transition out of the era of uncertainty and into the era of recovery and sustainability.
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.