Trending Thursday is a roundup of the stories shaping the week and what’s yet to come through the weekend — also taking into account social media reaction. Think of it as a mid-week Monday Morning Cup of Coffee, but with extra caffeine.
Last week House Speaker John Boehner surprised most everyone when he announced he’s quitting his post and his seat in October.
Will this have an impact on GSE reform efforts? Not really, especially since he never made housing policy a priority in the first place. But the momentum for a GSE wind down faded already.
Isaac Boltansky at Compass Point Research & Trading says his sense is that the policy conversation has shifted away from the GSE wind down contemplated in Rep. Jeb Hensarling’s, R-Texas, PATH Act.
“(It) reinforces our view that Speaker Boehner’s retirement does not alter the GSE reform calculus in any way whatsoever,” he says.
But speaking of GSE reform, this week a Washington Post editorial "A New Housing Finance System" threw support behind legislation being championed by Senator Bob Corker, R-Tenn., which would prevent Treasury from selling any of its preferred equity in Fannie Mae and Freddie Mac without Congressional approval.
Corker's bill, critics say, won’t actually “jumpstart GSE reform” despite its title. In fact, many don’t have patience at all with Congress anymore.
“Waiting endlessly for Congress to get its act together only perpetuates the status quo, the worst of all possible worlds – where the two largest financial institutions in the United States are running with no capital,” says Investors Unite, the GSE investor group opposed to the conservatorship and third amendment sweep of profits by Treasury.
In September, Corker’s bill stalled out. It’s not dead just held up. It has been headed for fast track consideration by the Senate, bypassing committee hurdles and buoyed by a popular measure that limited compensation of the Fannie and Freddie’s CEOs.
When Sen. Elizabeth Warren, D-Mass., withdrew her support, reportedly because it no longer included the prohibition on using G-Fees for general purposes, it sputtered off the fast track. It’s still in the pipeline for later consideration.
Investors Unite says that what’s being lost in the debate over "Jump Start GSE Reform" is the Housing and Economic Recovery Act of 2008, the statute that governs the conservatorship of Fannie and Freddie.
Because HERA states that the Federal Housing Finance Agency, not Congress, and not the Treasury Department, have a duty to preserve and conserve the assets of Fannie and Freddie while they're under conservatorship, Investors Unite says that what Congress is doing goes counter to HERA.
Moreover, they argue that when the Treasury Department enacting the net worth profit sweep in 2012, it broke the law requiring the conservator of Fannie and Freddie to "preserve and conserve" their assets.
Here’s some side reading on that point from Mark Calabria and Ike Brannon. Money quote from their piece:
HERA provides FHFA all the tools it needed to resolve a troubled GSE — conservatorship or receivership, depending upon the circumstances, with both being well-tested by the FDIC
Despite the clear intentions of Congress, the Treasury Department and FHFA made a different decision — or rather a nondecision. As noted above, HERA allows for conservatorship, with an eventual exit, or receivership with a resolution. Apparently Treasury Secretaries Henry Paulson and Timothy Geithner did not share the preferences of Congress and decided to pursue a third path despite lacking any statutory authority to do so."
The shareholders think Corker should not undermine FHFA Director Mel Watt unless Congress is ready to re-examine HERA altogether, arguing that his stopgap bill falls doesn’t accomplish this.
They say the GSEs' underwriting is tighter, their loan portfolios are smaller and the taxpayers have been paid back with $50 billion in profit.
So the show continues.
Speaking of Corker, GSE reform, conservatorship, FHFA, Fannie, Freddie and all the gang, that will be the topic next week at the Bipartisan Policy Center’s discussion on housing finance reform in Washington.
The event will be on Tuesday from 10:30 am-12:30 pm ET, and feature Sen. Corker, Sen. Mark Warner, D-Va.; Kevin Chavers, managing director at BlackRock; Bon Ryan, acting deputy director of the Division of Conservatorship at FHFA, and Pat Sinks, CEO of Mortgage Guaranty Insurance Corporation (MTC).
Nic Retsinas, senior lecturer in Real Estate at Harvard Business School, will serve as moderator.
They will discuss conservatorship and bringing in private capital, with a focus on risk-sharing, specifically “front-end,” to make housing finance more sustainable
For more information, click here.
Click to enlarge
(Source: Confounded Interest)
Our friend Anthony Sanders at Confounded Interest has a digging observation.
But never fear! JPMorgan is financing Los Angeles mansions starting at $115 million.
With home prices over twice as fast as average wages, the FHA has troubles. right here in Potomac City.
The national appraisal volume held steady the week of Sept. 20, dropping just 0.07%.
“(It dropped) less than 0.1%, following the Fed’s non-action the prior week,” says Kevin Golden, director of analytics for a la mode inc. “Most likely fulfilling orders for applications submitted prior to the FOMC meeting.”
HousingWire is partnering with a la mode, inc., an appraisal forms software company which has tracked the appraisal volume throughout the country since 2006, to provide a weekly read on appraisal volume. Appraisal volume is an indicator of market strength.
Here’s the latest appraisal volume:
(Source: a la mode, inc.)
So the next housing crisis is literally staring us right in the face!
The Urban Institute's Housing Finance Policy Center has just released a new blog: “Heavy rent burdens + strong renter growth = tough times ahead for US households”
The blog predicts that, if current trends and policies continue, the number of cost-burdened renters will increase over the next 10 years by 2.2 to 4 million due to an increasing demand for rentals, low vacancy rates and high rents.
The authors, Rolf Pendall, Laurie Goodman and Jun Zhu, urge policymakers to focus on preserving and developing affordable rental housing.
Among the highlights, the report concludes that reaching or even surpassing past peak performance does not guarantee a return to investment-grade ratings for homebuilders analyzed in the report, including NVR Inc. (NVR), D.R. Horton (DHI), Toll Brothers (TOL), Inc., Lennar Corp. (LEN), PulteGroup Inc. (PHM) and M.D.C. Holdings Inc. (MDC).
The report says that although the housing rebound has not been as strong as previous recoveries, homebuilding companies will need to generate strong, not just minimum, quantitative and qualitative investment-grade metrics to reclaim peak credit ratings.
In addition to generating strong debt leverage, interest coverage and gross margins, builders will need to have the scale, business profiles and financial policies necessary to weather a downturn.
Moody’s says that none of the homebuilders outlined in the report have demonstrated strong performance with regards to the above factors so far, except NVR Inc., who is the sole investment-grade builder.
The report concludes that NVR, D.R. Horton, Toll Brothers, Inc. and Lennar Corp. are most likely to surpass some or most of their peak metrics of a decade ago, while PulteGroup Inc. and M.D.C. Holdings are unlikely to reach their former peak levels