Local proposals that involve using eminent proposals to remedy underwater mortgage concerns top the list because of their potential for market disruption, he said when asked about the group’s top real estate finance concerns after its recent State of the Industry meeting.
“It may ultimately discourage mortgage lending” as it threatens to reduce the value of mortgage securities after their purchase and hurt a key funding source for the real estate finance market, says Snook, who oversees business policies and practices for SIFMA.
Rising home prices and a reduction in underwater mortgages as well as other types of borrower relief obtained through modifications have reduced the need for the proposals, he said, when asked if the housing recovery has lessened the concern.
Advocates like the American Civil Liberties Union continue to try to push eminent domain proposals forward despite fierce opposition, and both sides have filed lawsuits to back their positions.
Risk retention also is a top mortgage priority for the Securities Industry and Financial Markets due to the rule’s re-proposal and a lingering technical concern for commercial securitizations, Snook says.
The threat of premium capture is gone but it has been replaced by other concerns that are a threat to a securitized mortgage market that has done particularly well when it comes to showing resilience in the wake of the downturn, he says.
SIFMA “at this point” is pleased that the proposed qualified residential mortgage rule designed to mitigate risk retention requirements for securitization sellers has been consistent with the recently launched qualified mortgage rule relieving lenders from ability-to-repay requirements.
Fannie Mae and Freddie Mac reform also is a concern for SIFMA members, particularly the need for the 30-year to be announced (TBA) mortgage-backed securities market to survive it. Borrowers could lose the ability to lock loans without the TBA market, he notes.
Legislative government-sponsored enterprise reform may be a long-term prospect but it is getting “significant attention from congress” and is a focus for members, Snook says. Eminent domain is a concern in this context as it could block private capital from filling in if the GSEs scale back, he says.
Even with the housing market exhibiting signs of recovery, threats like eminent domain and principal reduction persist because they are moves that policy-making elected government officials perceive as politically valuable, says Rick Sharga, executive vice president of Auction.com.
“You can’t make a compelling argument you need” distressed loan relief as much, but the political capital such moves hold could still move them forward this year, he said when asked about this.
This probably is the last year that nonperforming loans will boom, Sharga told editors of this publication last week in an interview.
Broader issues of interest to the mortgage market that the securities industry group has been focused on include review of recent market-disrupting or potentially market-disrupting concerns with an eye toward preparing the market better for such circumstances in the future.
A review of Hurricane Sandy, for example, found “While there was communication [among market participants], there wasn’t a clear protocol,” said Kenneth Bentsen Jr., president/CEO of SIFMA, at the group’s recent meeting.