"LAS VEGAS — This week saw a blizzard of planned federal government agency and GSE reforms designed, at least in theory, to increase credit availability, (ie. “the credit box”) that has been plaguing lending at the conforming level (loans under $417,000). While interagency cooperation and coordination in Washington is typically as rare as the Kansas City Royals making the World Series, there was more than enough activity in a three-day period to make it mere coincidence.
Starting with news from the Federal Housing Finance Agency, which will eventually supersede Fannie Mae and Freddie Mac, that the agency would streamline and make more clear how and when the GSEs would force lenders to buy back loans that had defaulted, something the industry had long complained was a barrier to more lending to higher risk borrowers. Next up, Fannie Mae and Freddie Mac officials said they would renew buying loans with just a 3% down payment.
Later in the week, the FDIC approved a final rule on “retention-risk” designed to boost private repurchases of mortgage loans by requiring banks to have “skin in the game” -- holding at least 5% of the mortgage debt they repackage and sell, making loan portfolios more attractive to investors. Finally, the CFPB eased some rules on small mortgage servicers as well as expanded some non-profits’ exemptions from the bureau’s challenging “Ability to Repay” regulations. The CFPB also made it easier for lenders and others to refund excess fees to borrowers.
“Call me a skeptic, but all of this is undoubtedly a coordinated government effort to boost the housing market,” said Greg McBride, chief financial analyst with Bankrate.com in Palm Beach, Fla.
While a CFPB spokesman said the timing of the bureau’s announcement this week was independent of the other agency announcements, the collective impact of the other agencies’ moves had mortgage bankers expressing satisfaction that finally, somebody in the federal government was listening.
“With QE ending, government agencies have a greater sense of urgency in bringing these programs to the marketplace and expanding credit,” said Jeff Taylor, managing partner of Digital Risk, which processes about $8 billion worth of mortgages a month. “What the industry is primarily looking for is clarity on issues that could cause financial loss, and these efforts are good progress toward encouraging lenders to move down the credit scale and make good loans, not just perfect loans.”
The proposed reforms come as the mortgage industry has had a particularly bad year, a projected $1.1 trillion in mortgages written in 2014, down sharply from 2013, when the total amount in mortgages written (both new mortgages and refinances) was $1.85 trillion, in part due to confusion and regulatory uncertainty over Dodd-Frank, which went into effect in January of this year.
“The lending rate right now is ‘Code Red,’ said Anthony Hsieh, chief executive of loanDepot.com of Foothill Ranch, Ca., the second-largest U.S. non-bank lender. “Dodd Frank has a substantial impact on lending and credit availability,” he said. “These reforms collectively will make a difference but we are just at the beginning of turning a corner. The financial crisis is yesterday’s news — now it’s the shrinkage of credit availability.”
Still, even with the proposed reforms, it’s unlikely that we’ll see an immediate impact. While the Mortgage Bankers Association predicts that mortgage applications will rise 7% in 2015 over 2014, that’s mainly due to the rock-bottom 10-year Treasury rates that will remain under 3% until at least mid-2015 and an improving job market, not Washington’s doing.
“We do not believe that the mortgage credit spigot will be turned on full blast in 2015 given remaining fundamental and policy overhangs,” said Isaac Boltansky, a banking analyst for CompassPoint LLC, “but we are encouraged by recent policy efforts and expect an improvement in mortgage credit availability if the prose turns into policy.”
One possible catalyst for further change: a Republican takeover of the U.S. Senate. David Moffat, chief executive of Mortgage TrueView, a mortgage risk-management company in Media, Pa., says while conventional wisdom suggests Republicans would like to gut the CFPB, what’s more likely is the Republicans adding pressure by way of adopting “legislative clarification” to what the CFPB can and can’t do. “They’re going to try and hit the ground running and do what they can do quickly.”