[Correction: The conference in Las Vegas is called ABS Vegas, not ABS West. Additionally, the quote below from Compass Point Research & Trading was incorrectly attributed to Lauren Burk. The quote is actually from Isaac Boltansky.]
Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.
By the time you are reading this sentence, an estimated 7,000 thousand traders, investors and structured finance/securitization professionals will be patrolling the halls and casinos of Las Vegas.
So what’s drawn them all to the land occasionally known as “Lost Wages?”
The largest capital markets conference in the world, ABS Vegas 2015, hosted ably by the Structured Finance Industry Group and IMN.
The three-and-a-half day program is developed by leaders within the structured finance industry and welcomes participants including investors, issuers, financial intermediaries, regulators, law firms, accounting firms, technology firms, rating agencies, servicers and trustees.
The keynote speaker at this year’s event is former U.S. Congressman and co-author of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Barney Frank.
As Chair of the House Financial Services Committee from 2007 to 2011, Frank helped craft the compromise bill to stem the explosion of foreclosures that nearly crippled the country’s economy in the wake of the subprime mortgage crisis.
“We look forward to Mr. Frank’s insights on the original intent of the bill, implementation to date, and whether more work needs to be done,” SFIG said in its announcement.
With Republicans now in control of the House and Senate, it may only be a matter of time before they are taking measures to reform much of what they call the overreach of the Dodd-Frank Act. That puts Frank in a truly unique position to offer his thoughts on the impact of any potential rollbacks of the regulations laid out by the act that bares his name.
But before Frank addresses the Las Vegas crowd Monday at 10:15 a.m. Las Vegas time, he sat down for an exclusive interview with HousingWire’s senior financial reporter, Trey Garrison. Frank shares some insights into the current state of the housing market and the economy as a whole. And keep an eye out for HousingWire's coverage of Frank's keynote address on Monday.
In other Congressional news, the current House Financial Services Committee welcomes U.S. Department of Housing & Urban Development Secretary Julián Castro to the hill for a hearing entitled “The Future of Housing in America: Oversight of the Federal Housing Administration.”
The committee is expected to question Castro on the FHA’s Mutual Mortgage Insurance Fund, which rose by almost $6 billion in the last 12 months, printing now at $4.8 billion. Last year it fell short by more than $1.3 billion.
Those figures seem good on the surface, but the MMI capital ratio stands at only .41%, well below the 2% considered optimal capital reserves.
The improvement in the MMI fund was one of the main reasons cited by the Obama administration when it announced that it was directing the FHA to reduce annual mortgage insurance premiums by 50 basis points, from 1.35% to 0.85%.
Even before the announcement was made, analysts questioned how well the cut would be received by Republicans, considering the state of the MMI fund.
“Given that the (MMI fund) is expected to remain below the Congressionally-mandated 2.0% threshold until October 2016, a decision to lower FHA premiums in 2015 would undoubtedly be met by considerable opposition from Congressional Republicans,” Isaac Boltansky, analyst with Compass Point Research & Trading, said in November.
“Specifically, we believe that House Financial Services Chair (Jeb) Hensarling, R-Texas, and likely Senate Banking Committee Chair (Richard) Shelby, R-Ala., would publicly and aggressively attack a move to lower FHA premiums in advance of the MMIF clearing the 2.0% threshold,” Boltansky added.
And with Castro in the hot seat on Wednesday, it’s a pretty safe bet (winking at everyone in Las Vegas) that Hensarling will take dead aim at the Obama administration’s decision to cut the FHA premiums.
For Castro’s sake, let’s hope he answers Hensarling’s questions a little more capably than he handled the “tough” questioning of Jon Stewart in a recent appearance on The Daily Show.
Castro’s appearance led HousingWire’s own Trey Garrison to question if there was any “there there” with Castro. In Garrison’s words:
Castro looked genuinely surprised when asked about the FHA’s capital reserves. Watching him cringingly repeat “strong trajectory” three times as a fallback was painful.
Hopefully Castro and his staff have been hard at work, reviewing his talking points, and making sure to remind him to limit the number of times he mentions “trajectory.”
HousingWire will have full coverage of ABS Vegas with Garrison on the ground in Las Vegas, as well as Castro’s appearance on Capitol Hill.
In other housing news, the New York Times dropped an extensive report on the influx of foreign buyers into New York City’s luxury market. While the presence of foreign buyers in a market like NYC isn’t anything new, what is very interesting about the NY Times piece is just how these foreign buyers, including a hefty amount of criminals, government officials and other wealthy foreigners, use shell companies and other entities to hide where the money is coming from.
From the Times piece:
The Times also found a growing proportion of wealthy foreigners, at least 16 of whom have been the subject of government inquiries around the world, either personally or as heads of companies. The cases range from housing and environmental violations to financial fraud. Four owners have been arrested, and another four have been the subject of fines or penalties for illegal activities.
The foreign owners have included government officials and close associates of officials from Russia, Colombia, Malaysia, China, Kazakhstan and Mexico.
They have been able to make these multimillion-dollar purchases with few questions asked because of United States laws that foster the movement of largely untraceable money through shell companies.
Vast sums are flowing unchecked around the world as never before — whether motivated by corruption, tax avoidance or investment strategy, and enabled by an ever-more-borderless economy and a proliferation of ways to move and hide assets.
For those of us in the real world, John Burns of John Burns Real Estate Consulting shares four philosophical shifts that must take place for new home sales to improve.
Burns puts the burden of changing not on the buyers, but on the builders and developers.
Burns says that developers need to change their business plans in the following ways to capture the market in its current conditions:
1. Less move-up housing
“Many of those born in the 1970s bought their first home 10+/- years ago and thus are far less likely to have sufficient equity to move,” Burns said. “They are also more likely to have gone through foreclosure, which has a marginally positive housing demand element to it, as some will return to homeownership soon. Not only are there fewer traditional move-up households, but a high percentage of them are unable to move.”
2. More luxury housing
“Luxury home buying typically occurs when buyers reach their years of peak earning and net worth,” Burns said. “The U.S. currently has more people in this group, aged 46-60, than ever before, and they have more income (two careers) and less expenses (fewer kids) than any generation before them. Compared to prior generations, this group is loaded.”
3. More retiree housing
“Eight million more people will turn 65 over the next 10 years than the last 10 years, and more of them than ever before plan to move, according to our Consumer Insights survey,” Burns said. “This creates opportunities in all regions and at all price points, as the demand drivers are no longer solely golf courses in sunny states. Proximity to kids and grandkids, as well as entertainment, and health and wellness are just a few of the main success drivers we see over and over.”
4. More entry-level housing, but not yet
“While entry-level buyers are financially challenged, the number of people is so large and the desire to own so high that many entry-level buyers will emerge over the next decade, especially if mortgage rates and down payment requirements stay low,” Burns said. “While most will buy resale homes for affordability reasons, a small percentage of a large number will still translate to strong new home demand.”
And finally, no banks were reported failed by the FDIC for the week ending Feb. 6.