Washington News

The Department of Housing and Urban Development will soon publish an advance notice of rule making concerning reverse mortgages that the agency's official who oversees the Home Equity Conversion Mortgage program says "a lot of people may find disconcerting." The notice, which is awaiting approval from the Office of Management and Budget, "asks some very serious questions," Meg Burns, the director of the office of single-family program development at the Federal Housing Administration, said at the National Reverse Mortgage Lenders Association's annual conference in San Diego. One "straight out" question that will be asked is whether borrowers should be allowed to pocket the proceeds of a reverse loan and use the money as the basis of an annuity against falling prices. Another question is whether or not a limit should be placed on how the proceeds are used by the borrower, and a third is whether draws should be limited unless the borrower has an immediate need. "We think it's appropriate to ask these questions because these are the issues the come up all the time with lawmakers," Ms. Burns told the conference. She added HUD would soon publish a proposed regulation that would require all reverse mortgage lenders to determine if the income of a would-be borrower is enough to meet his and/or her current obligations. If so, HUD may place restrictions on how much of the loan proceeds a borrower can draw. Yet another idea on the table at HUD is what's called a "HECM Mini" in which borrowers whose equity in their homes was more than needed would tell the lender what percentage of the value they wanted and the maximum claim limits would be adjusted accordingly.

Still bristling from the Federal Housing Administration's decision in late September to cut "principal list factors" by roughly 10% across the board as of Oct. 1, reverse mortgage lenders are now bracing for another haircut, this one probably around Jan. 1. After meeting with FHA Commissioner David Stevens before the start of the National Reverse Mortgage Lenders Association's annual conference in San Diego, NRMLA President Peter Bell seemed resigned to the reality that the FHA would lower the two factors - the borrower's age and the current mortgage rate - that form the matrix used to determine what percentage of the property's value is available to the borrower. But at the same time, he told MortgageWire that his members would not be pleased. "This whole thing with risk management has ruffled a lot of feathers," Mr. Bell said. Changes in the matrix are dictated by the Office of Management and Budget's reading of house prices, which have been falling in most locations. An announcement is expected shortly after the Thanksgiving holiday. "It's really a new day in Washington," he said. "Evidence-based decision making drives the process now." According to a rump survey by the group of the loans booked year-to-date by the three largest portfolio lenders of reverse mortgages, had the Oct. 1 changes been in effect for the entire year, one out of five borrowers would not have qualified for their loans because the amount of equity available to them would have been less than what was still owed on the property.

The Federal Reserve Board has clarified its new HOEPA lending standard so that lenders can refinance short-term balloon mortgages on farmhouses and other rural residences. Rural lenders make nonconforming 3-year and 5-year balloon mortgages that they hold in portfolio. They raised concerns that the Home Ownership and Equity Protection Act regulations that went into effect Oct. 1 could prohibit such products. The HOEPA rule requires lenders to evaluate the borrower's ability to repay a loan. On higher-cost balloon mortgages with a term of less than seven years, it appeared the borrower must be able to pay off the mortgage in full at the end of the term. FRB director of consumer affairs Sandra Braunstein said there is "no" such pay off requirement since it would effectively ban short-term balloon loans. "If the Board had intended to ban such products it would have done so explicitly," she says in a letter to banking trade groups and bank examiners. In making the loan, the lender should "verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral," Mr. Braunstein says. American Bankers Association regulatory counsel Rod Alba said, "most of our members" are satisfied with this clarification. But some are concerned that they may still be open to possible private litigation or borrowers exercising a right of rescission, he said.

While concerns about low appraisals are legitimate, the problem is not necessarily with the Home Valuation Code of Conduct, a key federal regulator told an angry crowd of real estate professionals in San Diego. "We keep trying to find a provision (in the HVCC) that is causing problems, but we can't," Alfred Pollard of the Federal Housing Finance Agency said at the National Association of Realtors' annual convention. NAR members are hopping mad at delayed closings and lost transactions. In a survey conducted earlier in the year, three our of four agents said it is taking longer to get appraisals and the holdup is affecting their sales. But Mr. Pollard, the FHFA's general counsel, said that a few lost deals may be the price that has to be paid to rid the marketplace of lousy appraisers. Mark Johnson of LSI Title, an appraisal management company, also defended the code. While there are some "bad actors" in the AMC sector, he said, "the reality is that no matter how you look at it," the increase in complaints coincided not only with the "huge decline in prices that took place last year" but also at a time when mortgage rates hit bottom and lenders strained to handle the volume of applications. "There were too many loans in the pipeline," said Mr. Johnson, who manages the appraisal and valuation divisions at LSI, a division of Lender Processing Services. "I'm trying to be humble and confident at the same time," he told a session of hostile Realtors, "but applications tripled in some cases."

Given the success of the first-time homebuyer tax credit and its extension into next year, the National Association of Realtors is forecasting that existing home sales will jump 13.6% in 2010 after a 2% increase in 2009. First-time buyers will account for a record 47% of homes sales in 2009, according to NAR chief economist Lawrence Yun. "In fact the credit is working better than first projected — it now looks like we'll have 2.3 million to 2.4 million first-time buyers this year," he said. The National Association of Home Builders estimates the tax credit has generated 200,000 extra sales. Mr. Yun expects sales of previous owned homes will hit 5.7 million in 2010, up from 5.0 million in the previous year. Congress recently extended the $8,000 first-time homebuyer tax credit to April 30 and it gives buyers with a binding sales contract an extra 60 days to close. The lawmakers also created a new $6,500 tax credit for repeat or move-up buyers. Bernard Markstein, NAHB director of economic forecasting, expects the extended/expanded tax credit, which goes into effect Dec. 1, will generate 180,000 extra sales, including 40,000 new home sales.

With the extension of the $8,000 first-time homebuyers tax credit and the addition of a smaller $6,500 credit for move-up buyers, the housing sector has gotten a second chance, but a third is unlikely. There will not be a third extension, according to the National Association of Realtors' director of tax policy. Lawmakers "made us promise practically in blood that we would not come back" for another extension, Lindo Goold said at NAR's annual convention in San Diego. Ms. Goold also spoke of "the high drama" involved in persuading Congress to increase the income limits involved with the credits. "You have no idea how nip and tuck it was," she told a convention session. The NAR's chief tax lobbyist also pleaded with realty agents not to allow their clients to "dream up schemes" to get around the rules regarding the credits, warning that the industry's credibility is on the line. Ms. Goold said the group enjoyed unprecedented success and "extraordinary victories" on Capital Hill this year. But she also advised that 2009 probably will be the last year the Realtor lobby will be able to be on the offensive. "We won't have that luxury too much longer," Ms. Goold said, explaining that with the government's coffers all but empty, the highly prized mortgage interest deduction, the capital gains write off and a favorable estate tax all may be on the table next year.

With nobody looking over its shoulder, the Federal Housing Administration has been "very vigilant" in not resetting area median home prices to their current levels, a National Association of Realtors' lobbyist said at the group's convention in San Diego. Noting that the agency is using 2006-level prices to set loan limits for individual markets, Megan Booth, an NAR senior policy representative, told a convention session that the "dramatic drop in house prices" over the last three years would result in lower loan limits in numerous places. With the conforming loan limit remaining at $417,000 for another year — and $729,750 in high-cost areas — the ceilings on loans that can be insured by the FHA also will not change in 2010 unless the agency recalculates the median prices for the nation's 3,300-plus counties. But Ms. Booth indicated the government fears any decline in the limits would rock local housing markets. NAR, meanwhile, will use the next 12 months to push to make the 2010 limits permanent. "No. 1 on our agenda is liquidity," said the group's new president, Vicki Cox Golder, a Tucson land broker. "Without funding, we can't get people into homes."

Effective immediately, the Federal Housing Administration will no longer require two appraisals on higher-balance loans for properties located in declining markets. The two-appraisal mandate — both were required prior to an underwriting decision — was put into place at the peak of the housing crisis. But "we haven't noticed any benefit" from the rule, "and it really slowed down the process," FHA Commissioner David Stevens told Mortgage Wire at the National Association of Realtors' convention in San Diego, where he announced the policy change over the weekend. The move was hailed by NAR officials, who have been seeking the change. But they were disappointed that Mr. Stevens, who headed Long & Foster Realtors, the nation's largest independent brokerage firm, before his appointment and is considered one of the Realtors' own, did not announce a change in policy requiring that condominium reserves be fully funded. He told Mortgage Wire that the problem of unfunded reserves is particularly acute in resort markets where there is an excess supply of new but unsold apartments. "We're all about owner-occupancy," he said. "I'm not sure it is up to the FHA to fill that void." In his remarks to the conference, Mr. Stevens, who also has worked for Freddie Mac and Wells Fargo, said the FHA's share of originations "may be significantly higher" at year-end than the current 25% level. But he also said he is looking forward to the time when FHA originations will shrink back to a more normal level. "We are here to bear witness to the countercyclical role the FHA was created to play," he said. "And we will be here until private capital returns to the housing finance system."

Lenders trying to comply with a new RESPA rule that goes into January 1 will not have to worry about being slapped with an enforcement action if they fall short during the first few months, according to the Department of Housing and Urban Development. HUD has instructed its staff to exercise restraint in taking enforcement actions against Federal Housing Administration-approved lenders during the first 120 days. HUD also is urging other federal and state enforcement agencies to go easy on other lenders that are making a good faith effort to implement the new Real Estate Settlement Procedures Act rule. "We will work with those who are making an honest effort to work with us as we implement these important new consumer protections," said HUD Secretary Shaun Donovan. Lenders and certain other settlement services groups have been urging HUD to delay the implemention date for a few months. But HUD has refused. "While we will not delay implementation of RESPA's new requirements, we are sensitive to the concerns of the industry as it integrates these new rules into their day-to-day business practices," secretary Donovan said.

Federal Reserve Board chairman Ben Bernanke said Monday that the central bank will continue to support the mortgage market while bank lending remains constrained. "We continue to encourage banks to raise additional capital to support their lending. And we continue to facilitate securitizing through our Term Asset-Backed Securities Loan Facility (TALF) and to support home lending through our purchases of mortgage-backed securities," the Fed chief told the Economic Club of New York. The Fed has purchased more than $800 billion in agency MBS and it recently extended its MBS purchase program through March 31. (The effort was originally slated to expire at yearend 2009.) The Fed chairman noted that banks have tightened their lending standards more than the central bank had expected. "Unfortunately, reduced bank lending may well slow the recovery," Mr. Bernanke said. A Fed survey of senior loan officers in October found that 25% of banks had tightened their underwriting standards on prime single-family loans, a slightly higher percentage than reported in the July survey.