4 things housing needs to get back on track
FBR housing conference optimistic despite current market
Though recent MBS data indicates a slower spring buying season than many expected, the word on the street at FBR Capital’s second annual Housing Recovery Conference was relatively positive, especially regarding how policy in the sector is working to support home price appreciation and a recovery of the housing market.
Leaders from federal housing agencies, Treasury, the Consumer Financial Protection Bureau, and industry executives discussed the current state of the housing market and policy efforts, and came up with four key takeaways.
Attendees wanted to continue efforts of policymakers to remove credit overlays, and to maintain a liquid MSR transfer market. There’s also an ongoing desire to attract private capital into the mortgage space — including support for the mortgage insurance industry and a desire to restart private-label securitization and expand credit risk transfers. This is a positive step, considering the recent Fannie Mae housing survey is trending negative toward housing.
1. Liquid MSR transfers
The recent regulatory scrutiny on MSR transfers was a repeated topic at the conference, including the need to ensure servicers are adequately supervised and positioned to fulfill their commitments on loans they are servicing.
However, a key takeaway from the day was the desire to preserve a robust and liquid MSR transfer market as a way to preserve the value of MSRs.
FBR’s take: “We view this focus as a positive for future MSR transfers, especially on Fannie and Freddie loans.”
2. Opening the FHA credit box
FHA Commissioner Carol Galante highlighted the agency’s efforts to expand access to mortgage credit. FHA is launching the Homeowners Armed with Knowledge (HAWK) pilot program, which provides borrowers who complete housing counseling with savings on FHA-insured loans.
FBR’s take: “On the lender side, there is an effort to revise a standard on how FHA lenders are regulated, in an effort to have originators remove some of their credit overlays. At issue is the ‘compare ratio,’ which compares a lender’s default rate to the default rate of similarly situated lenders. Many fear that the compare ratio is creating a “race to the top” where lenders will only lend to highly qualified borrowers, limiting access to credit.”
3. Bringing in Private Capital
Washington regulators, looking to expand the role of private capital in the mortgage market, took a positive view of the mortgage insurance industry during our conference last week. Additionally, we view policymakers’ push to expand the credit box in an effort to revive an improving but still sluggish housing market as a win for the MI industry, particularly as credit expansion will be most acutely felt among the lower down payment borrower cohort that the MIs serve.
Industry leaders on the conference’s mortgage insurance panel praised the FHFA’s recent 2014 Scorecard, which aimed to improve the availability of credit and to reduce taxpayers' risk from the GSEs. The FHA also continues to revert to its more traditional role of providing insurance on creditworthy, but otherwise underserved, borrowers.
FBR’s take: “As housing normalizes and the FHA de-emphasizes its counter-cyclical role in favor of expanding mortgage availability to the underserved, we believe the mortgage insurers stand to fill the high-LTV assistance among more traditional borrowers.”
4. The G-fees
Despite word last week that the FHFA will revisit raising G-fees, the consensus was they don’t expect a raise anytime soon.
FBR’s take: “We believe the FHFA has a desire to take a more holistic approach in setting this fee. We think this approach makes it likely that g-fees will be flat to down in any final analysis. Coupled with the new guidance on reps and warranties, we see the FHFA working diligently to open up the credit box, especially for first-time borrowers and higher-LTV loans.”