In his third major speech since becoming secretary of the U.S. Department of Housing and Urban Development (HUD) in July, Julian Castro told attendees of the Mortgage Bankers Association's (MBA) Annual Conference and Expo this week that he is looking forward to working with mortgage lenders to help free up credit for underserved borrowers by giving lenders better clarity and certainty with regard to regulations and policies.
Castro pointed out that although the economy has mostly recovered from the economic crisis of 2008 – for example, U.S. businesses have added 10.3 million new jobs in the past five years, the longest streak of private sector growth in history – and that the housing market is getting stronger, ‘lending to minorities is at a 14-year low, in part because these folks were hit hardest by the economic crisis.’
What's more, the millennial generation isn't ‘striking out on their own at the same pace as previous generations,’ with many of them still living with their parents, he said.
‘So it's critical that we expand opportunity to all Americans so they can strengthen their financial futures and, in turn, strengthen the housing market of the future,’ Castro said, adding that now is the time ‘to remove the stigma from promoting homeownership, and that ‘it's in our entire nation's interest to help more responsible Americans succeed in the housing market by expanding access to credit.’
‘Some believe that a few years ago, it was too easy to get a home loan,’ Castro said. ‘Now, it's too hard. In fact, according to the Urban Institute, the housing market is missing out on 1.2 million loans every year because credit is so tight.
‘Even Ben Bernanke recently said that he's having trouble refinancing his mortgage,’ he added. ‘If the former Fed Chair is having trouble, imagine the frustration of average folks.’
Castro in effect laid down the challenge to lenders when he asked, rhetorically, ‘do you want to leave business on the table?’
Castro said HUD recognizes that lenders have ‘been reluctant to lend because of regulatory uncertainty.’
‘You want to be able to manage your risk better – and so does FHA,’ he said, adding that the FHA recently unveiled its ‘Blueprint for Access,’ which outlines a number of actions to get credit moving.
‘First, we are overhauling our Single Family Housing Policy Handbook,’ he said, adding that the handbook, which will be completed by next year, ‘streamlines the compliance process by bringing together over 900 mortgagee letters and other policy artifacts into a single document.’
‘This is an important accomplishment and should give you confidence that you understand FHA's policies and its expectations for compliance,’ Castro told the crowd of mortgage bankers and their vendor partners.
In addition, FHA recently introduced its Supplemental Performance Metric report, which provides ‘a more in depth view of a lender's portfolio performance.’
‘Right now, FHA relies solely on a metric that compares a lender's default performance against peers in its local market – and this simply doesn't paint a complete picture,’ he said, adding that the report ‘addresses this by focusing on a lender's performance compared to those also doing business in the credit score range that FHA is targeting.’
Also, FHA recently released a draft version of its Loan Defect Taxonomy, which takes the 99 different codes FHA uses to describe loan defects and boils them down to nine distinct categories. He said this ‘new way of looking at loan defects’ is expected to become ‘a critical tool for our partners,’ as it ‘will allow FHA to monitor trends in deficiencies and determine if policies can be enhanced to help lenders avoid deficiencies.’
‘Together, we expect these changes will bolster your confidence so that you can originate more loans to credit-worthy borrowers in FHA's credit box,’ he said.
Castro also touched on initiatives that will help borrowers become more responsible, includingÂ the recently launched Homeowners Armed With Knowledge initiative (HAWK) which ‘will allow homeowners who commit to housing counseling to qualify for reduced mortgage insurance premiums.’
This will increase the pool of responsible borrowers and save the average FHA buyer nearly $10,000 over the life of the loan,’ Castro said. ‘This is good for our business, your business and, of course, for families.’
In yet another major initiative designed to free up more credit, FHA is also partnering with Ginnie Mae in developing a ‘pilot program to give small financial institutions more access to the secondary market.’
‘In partnership with the Federal Home Loan Bank of Chicago, the effort allows members that do FHA, VA lending and Rural Housing loans to have access to our full-faith and credit guarantee, and get the execution that provides for their loans,’ he said. ‘As a result, participating community lenders will get a better price in the marketplace, and use that capital to make credit available for other loans. Building on this success, we'll be launching a nationwide effort in the first quarter of next year so more lenders can benefit.’
Finally, Castro said, it's time to get housing finance reform done, ‘once and for all.’
‘We all want a healthy and growing housing market,’ he concluded. ‘We all want credit flowing freely and responsibly. We all want to restore the trust between borrowers and lenders, industry and government. And so my message to you is this: Let's work together. Americans are counting on us to get this right. Through partnership, I know we will and help more folks gain access to the American Dream.’