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Opinion, commentary, and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.

Most compelling mortgage finance stories of 2013

The first-time homebuyers who never came, and the bidding wars that sparked fierce battles

December 30, 2013

Looking back at the year 2013, it’s clear the housing market is one of the few parts of the economy that started to consistently sing a positive tune throughout the year – albeit a tepid tune at times.

But compared to the jobs market – which finally improved with the unemployment rate falling to 7% from 7.3%  and the general consumer sentiment dipping a few times -- housing stayed on a rather positive note throughout the year.

And this stability likely gave the Federal Reserve at least some confidence in the belief that quantitative easing – while potentially risky for the economy – had at least sparked and maintained some semblance of demand in the housing segment.

So as the news team counts down our top picks for the most compelling articles of 2013, it’s only fair that the No. 1 Compelling Story of the Year is the Fed’s decision to possibly taper in Septemberthen not to taper – and then to officially announce a taper much later in December when many did not expect it until March of 2014.

Confused yet? You’re not alone. The markets were confused at the time too.

Homebuyers and mortgage-backed securities investors found themselves searching for clarity in late spring when news of a possible taper in September sent interest rates on a roller coaster after months of continuous lows that had sparked a welcomed dose of energy into the ‘then sizzling’ housing market.

And sizzling is probably an understatement when describing local real estate markets at the time – many of which were finally dealing with falling inventories and bidding wars for ideal properties.

But the pesky tapering debate sent rates rising – and then falling again when it became clear the Fed didn’t intend to taper in September after all.

When Congress faced a shutdown in the fall, many expected the taper announcement to be put off until March. Yet, as it turns out, the market was wrong again.

By December, the Fed was ready to announce a $10 billion cut in its monthly purchases of mortgage-backed securities and Treasurys. So with tapering keeping us guessing most of the year, the subject inevitably became one of the biggest stories of 2013.

And when homebuyers weren’t worried about rising rates and tapering, student debt managed to keep many of these potential housing consumers on the sidelines, dreaming of homeownership rather than participating in the many bidding wars.

As it turns out, in a nation where adults hold $1 trillion-plus in student debt, first-time homebuyers are on hold, paying down other obligations. In many cases, mountains of education debt. As The Nation reports, the average undergraduate left school in 2012 with an average student loan debt of $29,400. 

Student loans prompted the CFPB to jump into the housing debate to suggest that one crisis – higher student debt in particular – is creating another potential issue: namely fewer first-time homebuyers or young people who can positively contribute to the economy.

Nothing is hurting the housing recovery in such a nuanced way as student loan debt, said Rohit Chopra, the student loan ombudsman for the Consumer Financial Protection Bureau, during a conference back in October. He noted that the CFPB is combing over data to find correlations in borrower behavior.

And when the market wasn’t worrying about who would buy homes – the future of selling loans and securitizing them remained up in the air as well.

One of the more compelling stories of the year was the ongoing debate and development of the single-securitization platform proposed by the Federal Housing Finance Agency to jump-start the secondary mortgage market.

Senators serving on the Senate Banking Committee raised concerns about whether the single-securitization platform proposed by the Federal Housing Finance Agency would leave out community banks.

And mid-year the current acting director Ed DeMarco of the FHFA outlined initial steps to move back to a mortgage market financed predominately by private capital, including the creation of a new business entity between Fannie Mae and Freddie Mac.

The establishment of the entity, which would be separate from the government-sponsored enterprises, would be developed to serve as a catalyst for building a new secondary mortgage infrastructure, DeMarco explained.

But it’s not just the GSEs that captured the attention of housing analysts and in 2013.

The Federal Housing Administration continued to battle controversy while attempting to evoke change.

In December, HUD told Congress the FHA Mutual Mortgage Insurance Fund remained $1.3 billion in the hole even though it gained $15 billion over the past year.

The agency also became the subject of numerous bills trying to reform the FHA, with Rep. Justin Amash, R-Mich., proposing a bill that aimed to take the government out of lending using a 5-year phased in plan.  Rep. Jeb Hensarling, R-Texas, also took aim at FHA – as well as Fannie Mae and Freddie Mac – proposing The PATH Act, which is designed to cut back on the FHA’s influence in the housing market while bringing private capital back in.

Despite the FHA remaining everyone’s favorite whipping boy, when the agency announced plans to lower the high-cost loan ceiling down to $625,500, the agency received heat from the mortgage industry and much pushback from the market with many suggesting such a move could stall lending and harm housing.

It’s safe to say with most of the proposals to reform the FHA getting virtually nowhere this year, the agency will still be capturing headlines in 2014.

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