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Lending

Obama jumps into the great housing debate

President's vision for housing mirrors existing plans

Money_WhiteHouse

President Obama called for both political parties to rebuild the nation’s housing finance system in a speech that drew both praise and skepticism from the mortgage industry Tuesday.

Professionals in the space seemed receptive to the president’s newfound housing push, while still reluctant to fully embrace Obama's vision. 

Any reluctance stems from concerns that the president will either go too far, or not far enough, when pushing for housing agency reforms.

On one hand, GSE-wind down advocates fear Obama is not doing enough to deal with issues already weighing down lending activity.

“If the president is sincere about having private capital play more of a role in our housing finance system, the first thing he can do is stop his CFPB's regulatory tsunami on private lenders,” wrote U.S. Rep. Scott Garrett, R-NJ. “Specifically, he can halt the CFPB's new so-called Qualified Mortgage Rule, the soon to be announced Risk-Retention Rule, the unconstitutional legal theory of disparate impact, and increased burdensome rules on community banks and credit unions.”

On the other hand, those who want some type of public backstop for the mortgage market fear the administration could back GSE reforms that go too far.  

Obama specifically called for a private backstop for the mortgage system and a reduction in the GSEs’ role.

Yet, he expressed ongoing support for the 30-year, fixed-rate mortgage – generally considered a staple of the government-supported housing finance system.

A few skeptics questioned the president’s assertion that he could do both, without compromising one or the other.  

Tim Rood, former director and principal of Fannie Mae’s eBusiness Division and a partner at The Collingwood Group, is worried the president may travel the path of nudging the GSEs too hard.

“You cannot do this in the abstract,” Rood said when discussing GSE reform. “No one would dispute that the financial crisis and collapse of the housing market caused us to investigate the business models of the GSEs and the FHFA.”

Yet, Rood worries Obama’s speech shows an administration leaning too heavily on the “false narrative” that the old system for homeowners caused trillions of dollars in losses and equity.

Rood recognizes problems existed at Fannie and Freddie, but doubts the sustainability of the mortgage finance system without some type of government backdrop. He even ruminates on the possibility that the housing finance industry is shouldering too much of the blame in light of larger macroeconomic trends.

“What I would say is there is a difference between bad economic policy and bad credit policies,” he told HousingWire. “It is bad economic policy that is creating the circumstances of low growth, bad unemployment and more defaults.”

And when it comes to whether the private market can provide the 30-year, fixed-rate mortgage currently supported by the housing agencies, Rood turns a bit more skeptical.

The private market has shown a willingness to lend using the 30-year, FRM model, Rood noted. In particular, the jumbo market is offering 30-year, FRM’s right now, he said.  

“The challenge is how durable that is,” Rood explained. He believes the private sector may be willing to play a greater role in the 30-year, FRM space. Still, the segment's loyalty to the 30-year mortgage could be predicated on how volatile the market is at any given moment.

Rood is not alone in calling for the safety of the 30-year, FRM. Obama mentioned his support for it Tuesday, and MBA CEO David Stevens made it a key part of his response to the president’s speech.

“Of particular importance is the president’s insistence on transitioning the mortgage market toward a future state that will rely primarily on private capital, while at the same time ensuring sufficient liquidity and the availability of the affordable 30-year, fixed rate mortgage, and mortgages that finance multifamily rental housing, in both good and bad times, through an appropriate use of a government guarantee,” Stevens said.

He also applauded Obama for backing the single securitization platform.

“Going forward it will continue to be critical that the White House and Congress work in a bipartisan, cooperative manner to develop and implement long-term housing finance policies that support and protect all consumers, while at the same time promotes access to credit for all qualified borrowers,” the MBA CEO added.

National Association of Realtors President Gary Thomas also showed support for some type of government backstop.

“Realtors also urge continued support for the Federal Housing Administration’s single- and multifamily mortgage insurance programs,” Thomas said.  “While many first-time home buyers rely on FHA-insured loans to purchase a home, including more than 40% of first-time buyers in 2012, it is important that we preserve access to FHA for all qualified middle-class families.”

For Rick Judson, chairman of the National Association of Home Builders, keeping the 30-year, FRM as part of the discussion is critical. The trade group chair believes without a clear housing plan, the economy will continue to lose out on construction jobs.

“In normal economic times, housing accounts for more than 17% of the nation's gross domestic product,” Judson wrote. “Constructing 100 homes creates more than 300 full-time jobs and generates $8.9 million in tax revenues that help local governments to provide essential services such as schools, roads, and police and firefighter protection.”

From the consumer angle, the president’s speech is a step forward, but one with a few missing pieces of information, suggests John Taylor, CEO for the National Community Reinvestment Coalition. Taylor specifically wants a plan for serving low- to-moderate income borrowers.

“We call on the president to make a clear stand that an obligation to provide access to conventional loans for the full spectrum of creditworthy borrowers of all incomes must be a part of GSE reform. We need the president to say more here," Taylor said.

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