Stevens: Lenders Want to Lend, But Need Clarity
SAN DIEGO–Mortgage Bankers Association President and CEO David Stevens said regulatory and legislative impediments continue to inhibit lenders’ ability to serve the growing housing finance marketplace.
“We cannot allow a core component of the real estate finance system–risk sharing–to be implemented in a fashion that cuts out the vast majority of lenders and returns to the market to dangerous footing,” Stevens said here at the MBA 102nd Annual Convention & Expo. “We all want to provide a safe, reliable and affordable pathway for housing, but some of the actions being taken today are forcing lenders into a very restrictive and defensive lending posture. Whether we’re talking enforcement regimes or confusion in some of the rules, today’s credit restraints did not come out of thin air.”
For example, Stevens noted the Department of Justice is using the False Claims Act–enacted during the Civil War to combat fraud against the federal government by suppliers to the Union Army–to apply treble damages against lenders for originating an FHA loan with even minor of errors.
“And people wonder why lenders are lending defensively?” Stevens said. “As long as the current public policy environment and public discourse continues, it only perpetuates the lack of trust in the financial services system. We’re going to be stuck in an environment where the very same families some advocates care about most will be the ones blocked from that opportunity.”
Stevens said lenders want to lend. “There are some critics that believe that lenders are somehow holding borrowers and real estate market hostage,” he said. “The enforcement risk today exceeds any lender’s ability to make sound common sense business decisions in the interest of consumers. It’s as if we have one foot on the accelerator and one foot on the brake at all times.”
Stevens noted on one hand, administration officials are encouraging consumers to buy homes, as evidenced by making credit available through MIP reductions and returning responsible 97 percent loan-to-value lending. “But then here come the brakes with the DOJ changing the game using the False Claims Act and treble damages. When lenders begin pulling out of the FHA market due to the enforcement environment, we are concerned about the future viability of the program and those that will be hurt the most are first-time and underserved buyers.”
Stevens said MBA continues to support clear regulation. ‘We are not against it,” he said. “However, when everybody is too busy regulating, nobody is focused on the overall outcome and unintended consequences on consumers and the marketplace. Multiple, duplicative or confusing rules do not always make for a better, easier or safer lending environment. Getting the rules right with clarity creates the best environment and will lead to effective and functional consumer protection.”
Stevens said regulators and legislators at all levels must recognize that lenders operate today in the safest lending environment in history. “Leaders in Washington should be taking a victory lap for creating a process that is safer and more transparent for consumers,” he said. “Continuing to focus on the past will not allow our housing economy to move forward. The country wants to move forward. Borrowers want to borrow and lenders want to lend. We need to get the balance back between enforcement and encouragement.”
Stevens insisted Washington leaders must understand their role in helping the market recover. “It requires a cultural shift in the mindset and rhetoric of regulators and enforcement officials,” he said. “They should use any public remarks to promote trust in the real estate finance process, not the opposite.”
Stevens also said the spotlight needs to shine on abusive enforcement. “And not just for the rest of this administration, but for the next administration as well,” he said. “Lenders are living in a ‘gotcha’ environment where enforcement replaces clear regulatory policy and it is hurting your efforts to serve America’s communities.”
Stevens also noted that the secondary market is still “fragile” and could be just one market drop away from GSE legislation in a crisis environment. “We need to avoid that at all costs,” Stevens said. “Together, the Federal Housing Finance Agency and MBA have supported efforts to create more competition and protect taxpayer investments. We must advocate for a future state that would allow Fannie Mae and Freddie Mac to provide liquidity in the market, but also ensure we don’t repeat the sins of the past.”
Stevens expressed concerns about the risk share programs being used today. “It’s the single biggest issue I’m hearing from our members right now,” he said. “There are two forms of risk share deals–backend and upfront. Backend risk share has raised many concerns among market analysts, including ours at MBA. These deals are not transparent and do next to nothing to help the borrower, since the loan has already been originated.”
Upfront risk share transactions are only being offered to a handful of institutions, Stevens said, leaving thousands of medium and small lenders out in the cold. “This is why we’ve consistently promoted upfront risk share that works for all,” he said. “It’s also why we’ve included mortgage insurance and recourse as part of our proposed risk share structure. It brings more competition to the market, could lower costs to consumers, and allows all lenders to participate on an equal, level playing field.”
Stevens said MBA will continue advocacy efforts with legislation still on Capitol Hill to include everything from Qualified Mortgage modifications, freezing the proposed rule on Federal Home Loan Bank Membership, points and fees, transitional licensing and stopping efforts to use credit guaranty fees as pay for efforts “We have to fight to establish clear rules of the road for lenders,” Stevens said. “Uncertainty remains in the lending community, whether it is the proposed FHA Loan Certification rule or the recently released guidance on Marketing Service Agreements by the Consumer Financial Protection Bureau.”
Stevens noted over the past four years, the real estate finance industry has been presented with more than 5,000 pages of new rules, guidance and commentary. “We can easily get lost in the drama of political posturing, media headlines and change management to comply with regulatory deadlines,” he said. “What truly gets lost in the enormity of your work is the significant changes and accomplishments we’ve achieved to create today’s safe lending environment and vibrant industry. Have there been some inadvertent bumps in the road? Sure. With massive change, it’s to be expected. But our industry has more than met the challenge.”
Despite the obstacles, Stevens cited a number of MBA accomplishments over the past year:
–Secured a safe harbor in the Ability to Repay/Qualified Mortgage rule. “When we started, everyone said the odds were against us and a safe harbor wasn’t possible, any many fought us on this, but we persisted, stayed in the game and got it done,” Stevens said.
–Procured a “right to cure” mechanism under the Ability to Repay rule so that lenders now have the ability to fix a problem rather than face immediate punitive action.
–Achieved alignment of the Qualified Residential Mortgage exception from risk retention with the CFPB’s “QM = QRM” definition under the rule. “This alignment could be an important step in rebuilding the private-label mortgage-backed securities market in the years ahead,” Stevens said
–Eliminated other provisions in the final risk retention rule, such as the 20 percent down payment requirement, the maximum front- and back-end debt-to-income ratios, and the Premium Capture Cash Reserve Account.
–Stopped an effort to require that all loan officers be compensated only by a flat origination fee.
–Convinced regulators to leave the existing risk-based standard for residential mortgage loans in the Basel rule, allowing all institutions to remain competitive in the marketplace.
“We continue pressing for regulatory relief for all segments of our industry on Capitol Hill as well,” Stevens said. “Already this year, we’ve passed legislation raising the QM cap on points and fees through the House and have seen bipartisan bills introduced in Congress to allow loan originators to obtain transitional licenses. We’ve been able to stop the ability for eminent domain loans to be financed with the FHA and so far we have blocked the use of g-fees for efforts outside of housing.”
Stevens said MBA will continue to resist efforts to divide the industry. “Many in Washington, some who are regulators, others that claim to represent factions of our industry, are purposefully trying to divide us to serve their own self interests,” he said. “MBA represents the whole industry. We represent every business model and advocate for all. I talk to our members daily and I can assure you that threats exist to every business model here in this room, not just the ones in the headlines. If you think a rule is in your favor, trust me, there is another one out there that is not. What has made us effective is our unity and our power from staying together. Divided, we will fail and our voice will be muted.”
Stevens said MBA is sitting on the cusp of the best period of growth and demand for housing that our industry has seen in more a decade: over the next 10 years, the U.S. will gain between 13.9 and 15.9 million additional households.
“The next generation has arrived; they are bigger than the Baby Boomers; and they all need somewhere to live,” Stevens said. “Some will rent and some will own. Should homeownership rates revert back to a healthy, long-term averages–not the historical lows we have today, nor the overinflated rates of 2005–Millennials could boost homeownership by 4.3 million households.”
This potential, Stevens said, is why MBA has been so vocal about the need for regulatory clarity. “It is so we can serve this next generation to the best of our ability,” he said. “It is why we said from the very beginning, that we need clarity in the rules to achieve the proper balance between consumer protections and access to credit. You have tirelessly worked to operationalize the tidal wave of changes that have swept this industry. And this is about so much more than complying with new regulations. It’s about serving consumers and communities. It’s about families and providing them a home.”
Stevens praised lenders for their “remarkable” ability to absorb change and rally the industry to recovery. “No other industry has experienced this kind of dramatic shift in the way they do business,” he said. “We’ve proven that the real estate finance industry can change and adapt to do whatever is necessary to contribute to a safe, affordable marketplace. As an industry, we help communities grow by financing the homes for America’s families, and we build a path to homeownership for families when they are ready to take that step.”
Stevens said while lenders continue focusing on this next decade of extraordinary market opportunity and helping consumers get a piece of the American Dream, MBA’s role will be to keep fighting the fight and to ensure their growth and success is without unpredictable, excessive regulatory and enforcement impediments.
“The country is ready to move forward,” Stevens said. “Consumers want to be free to live in the homes they choose and can sustainably afford. The real estate finance community wants to help them realize those goals. We’re committed. We’re ready…we need our policymakers to join us and turn the page.”
