The lack of clarity swirling around the mortgage banking business is having a residual effect on the creativity that helped Americans with unique challenges to buy a home. That was one of the areas touched upon when ON conducted a roundtable with several leading mortgage industry figures at the Regional Conference of Mortgage Bankers Associations’ annual conference held in March in Atlantic City.
An earlier part of the discussion, which appears in the March 26 issue of ON affliate National Mortgage News starts off with what seemed to be the theme of the meeting, which is there is a whole lot of uncertainty out there and very little happening to help clarify it.
This excerpt of the discussion picks up with the possibility that too tight regulation could stifle the industry’s ability to continue to meet the needs of the emerging markets segment of the business.
SourceMedia Mortgage Group editorial director Mark Fogarty, ON managing editor Brad Finkelstein and vice president and group publisher Tim Murphy were joined by E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey/New Jersey Association of Mortgage Brokers; Regina Lowrie, former chairwoman of the Mortgage Bankers Association and current president and CEO of Vision Mortgage Capital, a division of Continental Bank; Michael DiSalvio, president of the MBA of New Jersey and an account manager for Genworth Mortgage Insurance; Jonathan Pinard, chairman of the Empire State MBA and president of First National Compliance Solutions; and Paul Logan, president of the Pennsylvania Association of Mortgage Brokers and an account manager with Franklin American Mortgage.
LEVY: The other part of the problem is the question of what loan products are you going to be willing to use to deal with the emerging markets and you are going to be as able to be as innovative as you used to be. That part of it is of concern to a lot of those in the marketplace because that is where this uncertainty comes into play as far as whether somebody is going to come down on you for using loan products that they would consider unfair to consumers, even though you’re using them to open up these markets. We need to find a middle ground where companies are feeling free and comfortable in creating products that would work for those folks in the emerging markets.
LOWRIE: The lesson learned in this past credit crisis, is not everybody should own a home. That’s why there is rental housing and the multifamily housing industry.
DISALVIO: We in the mortgage insurance industry have expanded our guidelines a little bit to suit the housing finance agencies.
LEVY: FHA’s reserves are not what they should be, so there is concern about what the taxpayer is going to wind up having to put in to cover losses. Same thing with Fannie and Freddie. There is a vast political issue and are you going to have the willingness to sit down and work through this on a more objective basis.
LOWRIE: There are certain investors that see an opportunity long term in the housing market. Bringing private capital back and creating liquidity...
MURPHY: There are other things, too. It leads to diverse sources, which leads to innovation.
LOWRIE: It leads to more competition.
MURPHY: Because they are going to have their guidelines and thus they’re playing against one another, which will allow people to think outside the box.
LOGAN: I totally love private money, but my concern is this. If you jam those breaks on, and you don’t have a good game plan, you’re going to have a catastrophe. Who’s going to take their place, how is it going to work and so forth. It has to be a very gradual transition.
FOGARTY: If there weren’t a Freddie or Fannie in 2008-2009, the mortgage business would have collapsed. But it is an expensive way to run a business, I grant you that.
MUPRHY: What do you do with the herd mentality is the problem. Private equity, you see it in stocks, you see it in bonds, when things start going bad, everyone heads for the exits. You’d see the same thing in the housing market and the housing market really can’t have that.
LOWRIE: That is a much broader discussion, because you need to discuss the transparency in the market that didn’t exist when this crisis began. As liquidity improves in the private-label market, now you are going to have more transparency in the securities.
DISALVIO: That brings us full circle to the qualified residential mortgage definition, which is going to looking at the private money coming in and set the standards for them.
FINKELSTEIN: It also brings us to another situation regarding whole loan aggregators. A number of large correspondent purchasers, notably Bank of America and MetLife, have left the market. Without the private-label securitizers, these firms were the competition to Fannie/Freddie in the secondary market, especially for pricing. Can this business come back?
LOWRIE: This is another uncertainty, relative to Basel III. The huge financial institutions know that in 2013 they are going to have to comply with Basel III. Part of that is how much mortgage servicing rights are they going to able to book and keep on the books and comply with Basel III?
LEVY: If you really look at it on a macro basis, is that the system that worked well for many, many, many years, that is the free capital market system that we live with. One example I’ve always given is interest rates. In 1980 we passed deregulation that wiped out usury ceilings across the country. So what happened, mortgage interest rates fluctuated but then came down to lows, even before the debacle and it was all due to the market. The free marketplace left to its own devices does work. It did work until we hit a wall due to certain activities and you can go on and on with what they were for days but that now has caused us to take a different view of our marketplace and our marketplace is no longer the free marketplace that it was.
LOWRIE: As an industry we need to communicate that the plethora of regulations and legislation have potential unintended consequences for the housing recovery and economy recovery. At the end of the day, competition in the correspondent market and every thing we are talking about has a negative impact on the consumer and it is going to increase the cost of homeownership. We shouldn’t be hearing they are increasing the g-fee to pay for the payroll tax.
LOGAN: Why would you tax an industry that is on its knees to support a payroll tax? Why would you do that?
PINARD: There is a school of thought where if you make it more expensive, you bring money back in, but I’m not sure how it works. I would rather encourage money back in then say “let’s raise rates to 9%.”
FOGARTY: I saw HMDA data which showed 40% of mortgage applications last year were unfunded. Do you see any loosening of underwriting standards?
LOWRIE: Every investor had a separate overlay—even though Fannie and Freddie would purchase a particular loan, an investor had separate credit score requirements, LTV requirements. The investors have eased up on some of the overlays but I don’t think you will see a real loosening of credit guidelines. At the end of the day I feel like it when I got in the business. People have to have a job and pay their bills and put some money down.
PINARD: You are seeing 700 average FICO score on FHA. When I got into the business, not only weren’t there FICO scores, we had people getting 100% financing with spotty employment history who were able to buy houses and successfully stay in them. FHA should probably be a 620 FICO score on an average basis.
LOWRIE: I think FHA is trying to decrease their market share.
PINARD: They don’t want to write claims, so they are coming to lenders telling them they are indemnifying FHA. The lenders are saying, “well I am not doing those loans.” The stated mission of the FHA is to serve the marginal borrower and the emerging marketplace.
LOGAN: I don’t see these underwriting standard coming back to where they were, loosey-goosey. Mortgage bankers are getting a lot of push back from the agencies on buy backs. The buybacks are at an all-time high. So the underwriters have been given the word they have to straight down the middle on these things.
