Stevens: Pace of GSE Reform Too Slow
NEW YORK–Mortgage Bankers Association President and CEO David Stevens, CMB, said the real estate finance industry must continue its vigilance in ensuring that the secondary mortgage market continues to function efficiently.
“We must know when to fight, but also when to stay the course,” Stevens said yesterday here at the MBA National Secondary Market Conference & Expo. “It’s been nearly 10 years since the financial crisis began. Since the crisis we have been confronted with thousands of pages of new laws and regulations that impact every part of our business. Add on to this new and often unclear interpretations of old rules and unique uses of existing laws like the civil war -era False Claims Act.”
Stevens said despite today’s mortgage lending environment being the most conservative, safest we have ever seen, most lenders still feel under attack. “Add in a political atmosphere complete with broad brush accusations in political rhetoric that only perpetuate anger towards an industry that’s sole purpose is to provide real estate finance opportunities to qualified borrowers, and it can be tough not to want to fight back,” he said.
Stevens noted MBA has been an “outsized voice” in advancing a litany of important policy changes that are making a difference. “Imagine the impact on borrowers had we not led the efforts with Fannie Mae, Freddie Mac and the Federal Housing Finance Agency for relief and clarity on rep and warrants and compensatory fees,” he said. “We persistently negotiated the reforms to rep and warrants to clarify lenders’ obligations and reduce the need for undue overlays. The revisions to compensatory fees are also a positive step forward with properly structured incentives to deter poor servicer performance. The new timelines will reduce the severity of assessments in cases where the existing timelines do not accurately reflect the actual time it takes to foreclose. Finally, raising the de minimis exception should provide substantial compensatory fee relief to small and mid-size mortgage servicers.”
Additionally, Stevens said MBA helped beat back seven attempts in Congress to divert guarantee fees, encouraging and reinforcing the belief that if any additional fees be placed on mortgages, then those should be used exclusively for real estate finance purposes.
“For quite some time Fannie Mae and Freddie Mac, while regulated and government-sponsored, could set rules without coordinating with other regulators or obtaining public review and comment,” Stevens said. “Thanks to MBA’s relationship with FHFA and the GSEs, they now often seek public comment prior to setting new major polices, to the benefit of lenders and investors and most importantly, consumers.”
Looking ahead, Stevens said MBA continues to call on FHFA to take non-legislative transition steps designed to modernize and advance the business operations of the GSEs.
“Let’s be clear, our calls for GSE reform are to protect the critical role these two companies perform,” Stevens said. “Conservatorship with no capital and facing a political regime change poses a real threat to our mortgage system. We called for the creation of a single security for the two GSEs. We called for up-front risk share in order to level the playing field of competition and provide access to the market for lenders of all sizes. And we called for the common securitization platform to ensure data standardization, fungibility and objectiveness.”
Stevens said the work isn’t finished yet. “Leading amidst a transforming mortgage market is a marathon, not a sprint,” he said. “We still have much left to do and we still need to stay together on these efforts. Many of our calls for key policy actions are being met, but I’m concerned some are moving at too slow a pace. Now that the major rules required under Dodd Frank are out and the implementation phase is over, the CFPB has moved on to other consumer issues. It’s our job to keep leading and pushing to refine the rules so qualified borrowers can have the opportunities they deserve.”
Stevens outlined three objectives:
Modify Rules So They Work on Their Own. For example, Stevens said, the Qualified Mortgage has done a lot of good, but still falls short of being the long-term solution. “The QM rule needs to stand on its own two feet,” he said. “It should not be a rule that essentially punts all credit decisions to two companies that are not even regulated by the same agency. More importantly, the rule should demand the same credit approval process for a borrower, regardless as to whether the loan is being sold to a GSE or a private investor, as long as all the other terms are the same…the clock is ticking. Let’s proactively re-write the rule now in a thoughtful way rather than in a panic response to events out of our control. As we re-write the rule, we should take into account the lessons learned about access to credit. We must be mindful of the dynamics affecting approval for a new generation that is more diverse and less traditional than we have ever seen in this country.”
Work with FHFA on Secondary Market Transition Steps. “The conversation on the future of the GSEs is still very much alive and now other voices are being added to ours,” Stevens said. “Consumer groups, economists and members from Capitol Hill all recognize the need to solve the conservatorship question. The transition steps being taken now will prepare the market for any future state and help ensure a competitive marketplace for institutions of all sizes.”
Stevens said the real estate finance industry must continue to push for faster implementation of the Common Securitization Platform and the single security to ensure that these advances cannot be reversed. “Additionally, the platform should be open to non-agency mortgage-backed securities so that long-term efforts for both private capital and GSE reform can take advantage of the benefits of its efficiency, data and consistency. And third, the CSP, and CSS itself, must be truly independent. Moving the full function of securitization away from the respective companies to the CSP will bring integrity, scale, and standardization to the securitization market.”
Although FHFA has made “significant progress” in getting investor buy-in to the benefits of a common security, and key details continue to be negotiated, Stevens noted according to FHFA, the single security won’t be implemented for both GSEs until 2018, most likely after the current Director finishes his term. “Now is not the time to slow down and we urge FHFA to maintain focus on a more aggressive timeline,” he said.
Stevens also noted risk share is now a growing part of the GSE model. “While today’s transactions are certainly helpful to dispersing risk from the GSEs, and ultimately the taxpayers, they risk unleveling the playing field and do not clearly provide a direct benefit to borrowers,” he said. “Other forms of credit enhancement, including deep-cover MI and recourse need to be implemented with full transparency as to structure and execution. The upfront model of risk sharing is a common theme in almost all GSE reform proposals because of its inherent advantages in transparency and borrower benefits. While some have been able to take advantage of up-front risk sharing in recent quarters, we need to make it an accessible option available to all lenders who serve borrowers in the market. Expanding the up-front risk-sharing program is a priority.”
Stevens said MBA’s new Task Force for a Future Secondary Market will soon develop a proposal that will address end-state models that can fulfill an affordable housing/duty to serve mission while reducing taxpayer risk. “The task force anticipates a proposal by the end of the year and this will serve as MBA’s secondary market position and strategy going forward,” he said.
Advocate for a Federal Housing Policy Coordinator. “The industry needs a key housing policy expert at the most senior level in the next Administration to coordinate across federal regulators to ensure they meet, talk to each other, and consider the implications of the confusion and conflict created by uncoordinated overlaps in the rules,” Stevens said. “We need to work with the leading candidates of both parties to make housing a priority in the next Administration. America is facing a housing affordability crisis that is only getting worse. The next president will need to tackle this issue immediately upon taking office.”
Stevens added that mortgage lending is safer today than it has ever been, but is not operating at full capacity because the regulatory/enforcement environment is forcing lenders to lend defensively. “Home prices are up, unemployment is down and we have reforms in place that make the market safer, as a whole, and more sustainable for consumers, the economy and our businesses,” he said. “With low rates, safe and well-underwritten loan products and an improving job market and economy, borrowers who can qualify and want to buy a home should feel great making that decision, but they don’t. When I think about the real estate market today, the one word I keep coming back to is opportunity. And this opportunity is built on a platform of protections, confidence and skill sets that exist to make sure we build a positive future for America’s next homeowners under the umbrella of the safest system in the world. Because of this opportunity, now is the time for leadership and perseverance.”
