[Please Note: These are prepared remarks. Mr. Stevens may add to or subtract from these remarks during the course of his presentation. Portions of the text may be omitted during the speech.]
WASHINGTON, D.C. – May 18, 2015 – (RealEstateRama) — Good morning! We have an exciting event with the biggest crowd in a decade. It’s great to be back in New York City. The energy of this town is infectious. Great to have this conference here and let that energy contribute to a great event.
New York – As Michael Bloomberg said, “No place epitomizes the American Experience and the American Spirit more than New York City.”
And it’s so true. It’s my birthplace and where my father first returned from World War II and got his first job at The Hanover Bank, now the Manufacturers Hanover Trust.
Two birthdays today here in NYC – Jacob Javitz and Tina Fey – they exemplify politics, business, theater and satire. These are also the final episodes of David Letterman who once said, “New York now leads the World’s great cities in the number of people around whom you should not make a sudden move.”
And that’s what New York is known for – its fun, its frankness, and its raw, direct style.
In that context and in the spirit of frankness, I want to talk to you today about accountability.
Today the American Dream is in the penalty box, and the Justice Department and other enforcement agencies appear to be in the driver’s seat when it comes to the nation’s housing policy. Everyone working in the mortgage business feels like there is a giant target on their backs.
And the fact is consumers and the housing market would all be better served if the tone in DC changed. The negative rhetoric and the enforcement environment are hurting everyone – homebuyers, lenders and the stewards of the nation’s economy. Housing policy is failing today.
Accountability – We have acknowledged and taken accountability for the role our industry played in actions that led to the meltdown. Lenders have paid hundreds of billions in settlements. We’ve also made tremendous change in controls, compliance, and to improve the consumer experience.
I have spoken before at this conference about the industry’s role. We know it and the vast majority here in this room are focused on fixing it.
But now too, policymakers – the vast network at the federal and state level – must account for their role in the recovery. They must account for their role in credit access and consumer confidence. It’s time to acknowledge the flaws in policy, corrections needed to the rules, and the impacts of going too far.
When the rate checker tool was released, it wasn’t about the actual tool. It was about what it signaled. It was, “do as I say not as I do.” When the use of false claims is an overreach for even minor immaterial errors; when legislation and proposed rules are targeted toward both banks and non-banks of any shape and size; when a complaint database is launched that contains unverified claims without the opportunity for all sides to be represented; all of this does nothing to instill confidence for consumers in the mortgage market.
Accountability – We acknowledged the role we played as an industry in the recession. As we set our sights on the pathway forward, regulators and enforcement agencies must own their role in the pace and path of recovery — especially who can achieve the American Dream and who can’t.
Today’s environment is not encouraging credit expansion. It’s forcing lenders to be overly conservative — ultimately failing entry-level homeowners on every front.
Fact – the homeownership rate today is at its lowest point in over two decades.
Current policy has erected a set of ironclad chokepoints that are preventing or discouraging qualified young families and non-traditional borrowers from ever buying homes. And it’s working-I’m sorry to say.
What it says to me is we’re failing. We’re failing our kids. We are failing the thriving generations of new Americans.
But this can be fixed. So let’s start. Let’s recognize that we need to have a conversation and willingness to change.
When interviewed by the Economist, in response to questions about Dodd Frank’s impact, President Obama said, “We can go back at it and further refine it, learn lessons from things that aren’t working as well, make it simpler, make it better.”
I couldn’t agree more. But this means that they must listen to a broader audience. And by “they”, I am referring to the multiple regulators and legislators, who seem unwilling to acknowledge what President Obama knows – the rules are not perfect.
So here are a few things to fix:
Five years since the enactment of Dodd-Frank, the housing market is finally improving, but home sales remain far below the typical pace. Rules are being written and adjusted for nearly every real estate finance business model, restricting competition in the marketplace and causing confusion for consumers.
And this is all having a negative effect on access to credit for would-be homeowners. As our own mortgage credit availability index clearly shows, access to affordable credit remains tight and is a key factor in preventing many qualified borrowers from buying a home.
As a matter of fact on Wednesday, I will be speaking to a group of 200 investors and pension fund executives. Their top questions for me are: “Where are the originations? Where are new home starts? If the Dodd-Frank regulations create a safer lending environment for consumers, why aren’t they borrowing?”
Here is the bottom line – historically speaking, we are still in one of the tightest credit environments in memory. At the beginning of the month, Zillow reported that credit remained significantly tighter at the end of last year than in its benchmark year of 2002.
The issues are as follows:
First – Right now there are different rules for different business models. If the industry cannot understand this complex lending environment, how can a consumer be expected to understand it?
As an industry, we encourage consumers to shop around for their loans to understand what would work best for their finances and their families. Thanks to policymakers dicing and slicing lending rules based on business models, we are headed to a world where a consumer may go to a bank and get one set of options, then go to a non-bank, and likely get another set of options.
Some depositories may be allowed to offer interest-only loans, while others will not be given the same exemption. Capital costs under Basel III restrict options some banks can provide borrowers and could differ depending on the business model, and who the regulator is.
Next – we are living in a world of inter-regulatory confusion; confusion among and across federal agencies, but also with state regulations on top of federal regulations.
This is why we have continually called for consistent and common national standards across the entire industry. Several years ago we also called for a Housing Policy Coordinator and I believe we should broaden that job description to include impact assessment.
Finally, we’re living today in an era of enforcement when we should be living in an era of innovation.
Some regulators appear to have an enforcement-first strategy, instead of providing clear rules and guidance – particularly regarding unfair, deceptive, or abusive acts or practices – UDAAP actions – which expose lenders to an outcome that we call “regulation by enforcement action”.
Let me be clear; rulemaking through enforcement is not rulemaking at all. Enforcement on a case-by-case basis becomes a guessing game for businesses to know if and when they may be penalized. It produces the most defensive lending posture that severely impairs access to credit.
This atmosphere of the unknown; this environment of fear and trepidation rather than an environment of constructive engagement and compliance, has a steep cost. It makes lenders much more conservative than they might otherwise be, keeping qualified borrowers from being able to obtain a home.
How do we fix this? The industry has actively engaged in historic change. Now, it’s time for Washington to do its part.
Let’s start with these three things at a very high level.
First – we must change the dialogue. We’re operating in the safest, soundest lending environment in decades. Consumers should feel confident in applying for loans and purchasing homes. Policymakers should champion this environment and do a victory lap letting consumers know they are well protected and that they can trust the system.
The dialogue of distrust must end. Regulators should understand the power that their message has over the mortgage market and just how their messages influence behavior. For example, when Chairman Janet Yellen speaks, markets move. When regulators continue with negative messages about the lending community, it fosters fear in consumers and they won’t engage in home buying. The impact of all this negative dialogue to the economy is real. Consumers won’t buy; builders won’t build; lenders won’t lend. We all feel it.
Next, federal officials should work with the industry and stakeholders to change the most problematic rules. Policymakers should utilize the industry as a partner, as an advisor. We are the ones who actually do the lending, but our hands are tied and the perception of the lack of trust remains.
For example, lenders’ ability to use judgment to determine the soundness of a loan is all but gone from the decision making process. Households as we know them are changing and much of the Ability to Repay/Qualified Mortgage rule doesn’t take these changing dynamics into account. The fact is the QM rule itself does not work and should be rewritten.
The only reason QM is working today is because of the “GSE patch”, without which we would be in a world of trouble. The hardwired 43 percent DTI is too high for some borrowers, and too low for others.
Non-QM/non-agency loans are primarily going to the wealthier buyers. There is strength at the top end of the market for well-heeled borrowers seeking jumbo loans, but credit remains tight for first-time borrowers who often get lower-balance loans. This directly translates into strength at the high end of the market, while the entry-level buyers in most communities still lag behind.
It’s time to recognize that QM does not work without the patch, which leaves us beholden to Fannie Mae and Freddie Mac’s underwriting systems as the hope for credit access rather than the rule itself.
Finally, we must resolve the secondary market questions. We want and need the private securitization model to return. Unfortunately, private capital will not return until the secondary market question is answered and therefore, we will not have a true functioning market until then.
Two years ago, I stood upon this very stage proposing transition steps to move the GSEs forward and prepare for transition out of conservatorship. These steps included deeper up front risk sharing, a new single security, and the common securitization platform (CSP).
As recognized by FHFA’s 2015 Scorecard announcement last week, progress is being made, but we need to keep the pressure on this effort. Single security will lead to more liquidity. The CSP will lead to more confidence, better and more transparent data. Up front risk share will lead to a broader risk share model that encourages more competition and brings more private capital back to the market.
Let’s be real – in order to protect the core capabilities that Fannie and Freddie provide to our housing market, we have to move on these items or risk emergency Congressional action. We need to de-risk the taxpayer and moving on the core components that don’t require legislation leaves a lot less work for Congress to do on GSE reform. Let’s leave Congress with a small list of issues such as re-affirming an explicit guarantee, defining capital standards, dealing with affordable housing concerns, confirming the regulators and any fees to offset the government commitment, and establishing rules should new entrants be permitted in the market.
The good news is, the GSEs appear to be ready for legislation. In a recent interview with Housingwire, Freddie Mac CEO Don Layton stated that his company is prepared for any housing reform package. His business operations are prepared, noting “any legislative solution will be easier to implement.”
So let’s get these three things done.
As we navigate this complex lending environment, we must find every way possible to expand opportunities. And, at MBA, we are doing just that for our members.
Today MBA is entering into three new partnerships. We are partnering with Fannie Mae, Capital Markets Cooperative, and The Mortgage Collaborative in order to provide new benefits to MBA member companies.
Fannie Mae will be offering a series of benefits to MBA members, including discounts on Desktop Underwriter fees and a variety of other services they provide. Additionally, this partnership will include various enhanced education, training and industry engagement offerings.
Also, as a result of MBA’s new agreement with Capital Markets Cooperative and The Mortgage Collaborative, MBA members will now be eligible to join both organizations at a reduced rate.
Once part of Capital Markets Cooperative, companies will be able to be part of negotiating for increased incentives and discounts from nationally-known mortgage investors and service providers.
Similarly, companies joining The Mortgage Collaborative will be able to leverage the network’s collective market power and enjoy mutually beneficial partnerships with suppliers of required services, investors, and others in the mortgage value chain.
These partnerships are the exact type of innovative approach I am referring to and would encourage others in the industry to explore.
Let me leave you with this –
It is time for regulators to take credit for the protections that are in place today, but as the President said the rules are not perfect. So, let’s fix what needs to be fixed.
Let’s change the tone from a dialogue of distrust to a dialogue of confidence. Let’s fix the rules to allow for innovative, sustainable, safe lending. Let’s end the relentless enforcement regimes.
Bring confidence back. Give us the confidence to provide access to credit to more qualified borrowers at the lower and middle income levels. Return private capital to the secondary mortgage market. Reignite the economic engine of the real estate market.
This is our message and we need leaders to focus on this – confidence – as the single greatest threat to a more robust recovery that brings opportunity to so many more Americans.
Rob Van Raaphorst
(202) 557- 2799