#MBASecondary22: ‘The Time for Leadership’

MBA President & CEO Bob Broeksmit, CMB, at the MBA Secondary and Capital Markets Conference Monday in New York.

NEW YORK—Mortgage Bankers Association President & CEO Bob Broeksmit, CMB, opened the MBA Secondary and Capital Markets Conference here on Monday in a very different mortgage environment from its most recent gathering three years ago.

“One thing is certain: Now is the time for leadership,” Broeksmit said. “And as I look out across this room, I see the leaders who have already done so much for our economy and country. It was true the last time we were together, in 2019. It’s even more true now. The past two years saw you reach new heights of service to society. Tens of millions of people are better off now, thanks to you.”

Broeksmit noted when MBA canceled this conference in 2020, the economy was sputtering and families were struggling. “No one had any idea what would happen next,” he said. “But then you did what you do best. You rose to the occasion. You gave millions of families real stability in a fundamentally unstable time. All told, our industry had back-to-back years of more than $4 trillion in new loans. Each new mortgage helped a family find the home they need at a price they could afford. At the same time, you helped record numbers of people refinance their homes. Today, from coast to coast, families are paying less and saving more.”

And at every stage, Broeksmit said, the secondary markets helped those hardest hit, with forbearance. “A stunning five million families are still in their homes, thanks in large to your grace and good work” he said. “It’s tough to overstate the difference you made. We’ve heard a lot of talk about ‘stimulus’ and ‘relief,’ but you did more than anyone else to make those words a reality. When interest rates fell, you helped borrowers turn them into refis. And when checks went out, you helped families turn them into the down payment on a new home.”

Broeksmit praised the industry for adapting quickly to a different environment. “To start, you embraced virtual operations basically overnight,” he said. “Then you encountered a sudden and massive shift in the market. What looked like a prolonged decline in volume turned into one of the biggest increases in the industry’s history. You took the unexpected and turned it into excellence.”

Now, Broeksmit cautioned, things are changing all over again. “After the stratospheric heights of 2020 and 2021, the market is coming back down to earth,” he said. “To a certain extent, the headwinds we expected have finally arrived. Rising rates are putting pressure on new loans and refis, and after ramping up, the focus is now on scaling down.”

Despite this, Broeksmit said, the industry is in a strong position to weather the storm. “The Mortgage Bankers Association has analyzed the current market,” he said “Our findings should give you cause for hope.”

First he said, markets have already priced in the bulk of the anticipated rate increases from the Federal Reserve. “We don’t anticipate mortgage rates will rise much higher than they currently are,” he said. “They’ll plateau very soon if they haven’t already, albeit with significant volatility.”

MBA also projects 2022 will still be a record year for purchase volume. “The number of units will fall a little compared to last year, but the dollar amount of new purchase loans will rise to a record due to the steady increase in home prices,” Broeksmit said.  

Refis, however, are a different story: MBA projects refis to fall by by two-thirds. “And while that’s hard to hear, it’s not the full story,” Broeksmit said. “The MBA forecast says we’ll still have a $2.6 trillion year in total volume. Two-point-six-trillion-dollars – that’s still one of the eight best years we’ve ever had.”

In Washington, Broeksmit said, MBA has engaged in “decisive advocacy.” 

“Whenever a challenge arises, we meet it head-on,” Broeksmit said. “The pandemic was proof. From the moment COVID arrived, we swung into action to give you the policy framework and flexibility you needed. We seized opportunities to address old issues, and as new challenges arose, we tackled them, too.”

For example, Broeksmit said, last summer, after the Supreme Court invalidated the structure of FHFA, MBA launched a project to help the agency in its transition. “We drafted a comprehensive ‘Day 1 Memo’ listing the key policies you and your customers needed, and the moment Sandra Thompson became acting director, we handed her team a copy and offered to help,” he said. “In a matter of days, FHFA eliminated the 50-basis-point adverse market refinance fee. It was one of our top recommendations. It’s now a reality.”

And last September, FHFA suspended limits on the GSEs’ acquisition of loans secured by second homes and investment properties, as well as lenders’ use of the cash windows. “When it comes to strengthening the secondary market, wins like this really matter,” Broeksmit said.

One reason MBA delivers for its members is its fact-driven approach. “Everything we do is backed up by data, and whenever we reach out to an agency or sit down with a policymaker, we lay out the evidence simply and clearly,” Broeksmit said.

For example, at a recent HUD event, Broeskmit recalled a conversation with Consumer Financial Protection Bureau Director Rohit Chopra. “It was a cordial chat, and at one point, he thanked me for how MBA always leads with data,” he said. “He called our approach ‘constructive.’ I promised him we’ll keep it up while continuing to press our case for commonsense regulation and enforcement.

MBA continues to press regulators on key issues. Chief among them is the FHA Mortgage Insurance Premium.

“We strongly believe it should be reduced, especially in the current market,” Broeksmit said. “As mortgage rates and home prices have shot up, finding affordable homes has only gotten harder. Yet the Mortgage Insurance Premium levels only make loans that much more expensive for borrowers. What’s more, after the past few years, FHA’s insurance fund has a historic cushion. There’s simply no need to charge homebuyers so much.”

MBA is also focused on the GSEs’ recent loan-level price adjustments on second homes and high-balance conforming loans. “The LLPAs came out in January and were effective for April deliveries,” Broeksmit said. “You’re now telling us that, as a result, a good chunk of this business is going into the private market.

“Let me be clear: The MBA strongly favors a robust private market. Yet the price adjustments may be doing more harm than good. A stated goal was to raise capital reserves at Fannie and Freddie and facilitate more cross-subsidization, but if volume falls to such an extent, the GSEs will be making less money and not building capital. That could limit their ability to reduce LLPAs for more mission-centric borrowers. That would be an unfortunate result, and when the LLPAs were announced, we called on the agency to reconsider if evidence emerged that it overshot its targets. That now appears to be the case. The MBA will continue to take that message to FHFA until it moves in the right direction.”

Even without the LLPAs, Broeksmit noted, the private mortgage market is making a comeback. “There’s a healthy amount of innovation from lenders, now that so many products don’t fit in the conforming bucket,” he said. “MBA welcomes this development. There are now many safe and effective ways to verify income. That includes relying on 6 to 12 months of banking history as well as cash-flow underwriting. These developments promise to give borrowers more options while protecting the broader economy.” 

The private market is only going to get more durable, Broeksmit said. “And we’re doing our part to help. MISMO, the language of lending, is creating a new standardized Private-Label Securitization dataset to support faster, more efficient and more accurate due diligence for private-label RMBS transactions. When this standard is finished, the days of 100% manual due diligence will finally be over. It can’t come soon enough.”