WORD ON THE STREET: The Mortgage Bankers Association (MBA) and its members strongly believe that housing will be a key factor in our economic recovery. The MBA recognizes that our ability to effect change depends on rebuilding badly shaken trust by restoring credibility, transparency and integrity to our industry.
We all know that there are many who share responsibility for the mistakes that led us to this place, including mortgage bankers and servicers. However, rather than pointing fingers, all stakeholders need to work together to stabilize and revitalize the housing industry.
The MBA is grateful for the variety of relief efforts undertaken by Congress and two administrations. Clearly, the challenge is greater than these many programs could support on their own.
Mortgage servicers have also participated by completing 4.8 million loan modifications in the last four years, and any successful solution must include those entities as part of the effort. Additionally, any new programs must give lenders adequate time to implement these changes.
In searching for solutions, the MBA's members continue to be concerned about the ongoing conflicting policy objectives emanating from all involved stakeholders. This regulatory and legal ambiguity is causing consumers to pay an uncertainty premium in the form of increased costs
and diminished access to credit.
The MBA recently convened a task force to develop new solutions to reinvigorate the housing market by bringing back private capital to absorb excess supply. We believe any program to help spur the housing recovery should be prioritized in the following order.
First, we need to help the large number of borrowers who are unable to refinance at today's near-record-low interest rates. While policymakers have introduced programs to help some distressed borrowers, eligibility criteria excludes a significant number of borrowers who would benefit from refinancing.
Some advocates have called for other types of large-scale mortgage refinance programs that would include principal forgiveness by lenders, and new mortgage rates below current market rates. Although such programs could have a positive impact on the housing market and the
economy, the Congressional Budget Office and other analysts indicate that the programs would entail significantly higher costs.
The MBA believes the preferred approach to adjust the guidelines of existing programs. Policymakers should consider reducing the government-sponsored enterprises' (GSEs) loan level price adjustments on Home Affordable Refinance Program (HARP)-eligible loans, which would
reduce costs to borrowers that are arguably unnecessary because the GSEs already assume the credit risk of the existing loan.
Other options include streamlining appraisal and other closing requirements in order to reduce the time and expense of refinancing and raising HARP's requirements to enable more otherwise qualified ‘underwater’ borrowers to refinance into a lower-interest-rate mortgage.
Finally, the Federal Housing Finance Agency should expand the loans eligible for a HARP refinance to loans that were originated after June 2009. Sen. Robert Menendez, D-N.J., and others have suggested a shared appreciation mortgage, in which a lender agrees to reduce the principal balance of a troubled borrower's mortgage in exchange for the borrower sharing any future increase in the home's appreciation with the lender.
Second, we should encourage local investment in the existing housing inventory. Local investors understand their local rental market and have a long-term stake in the community. Existing government programs should be modified to support financing and availability for local investment in rental housing.
Unfortunately, individual sales and local investors cannot provide the economies of scale required for the housing market to recover. The MBA supports bulk investor sales of properties in order to alleviate the real estate owned (REO) inventory. In order for any large-scale program
to be successful, it should be simple, quick to administer, and attractive to investors.
Safeguards should include investor screening, buy and hold covenants, revenue sharing, and rehabilitation incentives, though they should not be so restrictive as to sabotage the program's success. We also believe that the GSEs should consider a mechanism to allow investors to identify and aggregate REO properties, likely enhancing multiple property sales.
As we work to attract private capital back to the housing market, I urge you to pay careful attention to the relationship between housing and the overall economy, as well as to the importance of certainty for consumers, lenders and investors. I believe it is important to remember that no part of the housing market operates in a vacuum.
Instead, the housing market is a series of complex but interdependent systems, and well-intentioned change may result in unintended consequences that could lead to increased costs and diminished access to credit for consumers.
David H. Stevens is president and CEO of the Mortgage Bankers Association. This article is edited and adapted from recent testimony delivered before the U.S. Senate Banking Subcommittee on Housing, Transportation and Community Development. The full text is available online.
