REQUIRED READING: The projected dollar volume for one- to four-family mortgage originations this year will fall to $966 billion from about $1.5 trillion last year, according to data released today by the Mortgage Bankers Association (MBA). Although the MBA's economists forecast an increase in mortgage purchase loans – a function of pent-up demand and anticipated private-sector job growth – the refinance market will see a big drop.
‘There will be some more refis, we think, as people take a second look at some of their [adjustable-rate mortgages (ARM)], but with short-term rates being low, the refi incentive for ARM-holders just hasn't been there,’ Jay Brinkmann, MBA's senior vice president and chief economist, said Tuesday. His comments came as part of the MBA's ‘State of the Real Estate Finance Industry’ press briefing.
During the call with reporters, MBA President and CEO John Courson also outlined the trade group's legislative priorities in the coming year. Taking center stage, unsurprisingly, are approximately 100 rules enacted under the Dodd-Frank Act that affect real estate finance. Courson cautioned that with various regulators working on different iterations of rules on the same issue, the mortgage industry risks being subjected to dueling rules.
‘What we're concerned with is we're going to see a set of rules out, and then, in coming months, an additional set of rules on the same topic,’ Courson said, calling the scenario confusing for consumers and industry participants alike. To illustrate his point, Courson cited the example of the qualified residential mortgage (QRM) definition. While the Federal Deposit Insurance Corp. and other regulators have until mid-April to release their QRM definition, the Federal Reserve, separately, is slated to release a second standard for ‘qualified mortgages.’
The concern for lenders is that the definitions will not be in synch, Courson said, explaining that it is costly for lenders to tool up for standards that are constantly changing or being supplemented.
Speaking about the possible underwriting criteria for the QRM – some analysts have suggested regulators will require a minimum 20% down payment – MBA officials said Tuesday that a potential unintended consequence of having too tight of a QRM definition is that more consumers will be pushed toward Federal Housing Administration (FHA)-insured loans, increasing the agency's market share. Currently, FHA and other government agencies account for roughly 90% of new originations.
Also on the QRM, Courson repeated the MBA's adamant objection to proposals for regulators to consider servicing standards as part of the QRM rulemaking process. Although the QRM rulemaking represents a ‘defining moment for the mortgage market,’ Courson said it would be a mistake to rush in at the 11th hour and make servicing standards part of the debate.
‘You can't put just servicing standards in a rule and be done with it. This is a very, very interrelated piece of looking at servicers' responsibilities versus the economic model.’
Noting the Federal Housing Finance Agency's announcement last week that Fannie Mae, Freddie Mac and Ginnie Mae will explore alternative compensation models for residential mortgage servicing, Courson said the MBA's newly launched servicing task force, which met last week in Washington, D.C., will eventually release its own recommendations.
Courson also praised the Obama administration and the Consumer Financial Protection Bureau (CFPB) for wanting to simplify up-front disclosures for consumers. Elizabeth Warren, special adviser to President Obama on the CFPB's implementation, has prioritized the simplification of disclosure statements, including the good-faith estimate and the Truth in Lending statement. The MBA has been advocating the streamlining of these documents for years, Courson said.
‘What we have today doesn't allow consumers to compare apples to apples,’ he stated.
However, Courson also pinpointed specific concerns over the CFPB, noting that the bureau's purview will extend beyond huge financial institutions to include small businesses. He expressed hope that the bureau will be mindful of the effect that any new rules will have on small business. Moreover, he said the CFPB lacks oversight, suggesting Congress will take up the matter sometime this year.
Turning to tax-reform proposals put forth in recent months by the White House's deficit commission, Courson said the MBA supports the maintenance of the mortgage-interest tax deduction, as well as deductions for local real estate taxes – two items that could wind up on the chopping block.
‘Of all the times, particularly now is not the time to be going in and changing tax code in what is obviously a struggling and fragile part of the economy that we need to get robust to lead us out and into better economic times,’ Courson said.
Commenting on Obama's Sate of the Union address Tuesday night, in which Obama spoke about consolidating government agencies (including housing agencies), Courson said the MBA is looking forward to working with the administration to find a ‘more rational, coordinated and consistent’ policy for real estate finance.
Courson additionally explained that repurchase demands from Fannie Mae, Freddie Mac and private mortgage insurance companies are forcing lenders to adopt extremely tight credit standards. Some of the repurchase demands are in relation to loans that have gone bad because of broader economic issues like unemployment, rather than risky underwriting.
‘Lenders are just afraid, and so they're pulling back from the standards given to them in the underwriting criteria and giving themselves room to protect themselves against future repurchases,’ Courson said.
