Primer on HUD and Carson Testimony, Thoughts on MIP Cut, and Reduced Government Footprint

News

The
average person in the residential lending sector would be hard pressed to say
what Julian Castro, the current Secretary of HUD, does, or what role he serves.
(Kind of like asking someone what gluten is.) We should remember that the
Department of Housing and Urban Development is responsible for programs
concerned with the Nation’s housing needs, fair housing opportunities, and
improvement and development of the Nation’s communities. It has
responsibilities ranging from insuring low-down-payment mortgages to
administering rental assistance for low-income home owners. It does not oversee
Fannie Mae or Freddie Mac, or directly oversee the myriad of residential loan lenders
or investors. It does, however, carry a big stick when it comes to making sure
that lenders and investors who originate its loans adhere to its policies and
procedures. What does
the Secretary of HUD do? He or she runs it.
(I know – a cop out answer. But if you click on the link you’ll see the pages
and pages of job duties that are too lengthy to list here.)

But
everyone sure weighed in on Ben Carson’s testimony and questioning yesterday on
Capitol Hill. Others were interested in Ben’s choice of art work,
including… a
painting of him and Jesus
?
(That’s okay – my kids think I hung out with Moses.) The topics addressed in
yesterday’s session should give you a good idea about HUD.

KBW’s
Bose George sent, “He acknowledged the growth in FHA volume since the financial
crisis, and said he would explore ways to reduce that liability to the
taxpayer. He said that he was surprised by the timing of the recent FHA premium
cut, and would work with his FHA commissioner to examine that policy. Carson
didn’t address any specific policy changes, but said he supported ‘some type of
backstop’ for the mortgage market. In response to a question regarding the
preservation of the 30-year mortgage, he said, ‘there are probably a number of
ways to preserve that dream.’ Without offering any specific policy
recommendations, Carson said he was ‘in favor of introducing more private entities
to the market,’ while still providing the security of a government backstop.
President-elect Trump and his cabinet nominees have only made high-level
comments regarding their stance on housing. We believe, however, the
administration is generally in favor of a reduced government footprint. Any
reduction in the FHA footprint should be positive for the mortgage insurers.”

Bloomberg’s
Joe Light wrote up a description of his positions. “…He questions the
need for a government backstop
of the market for 30-year mortgages, saying the
private market could take on much of the responsibility.
Elizabeth Warren asked Carson if he could vow that no HUD funding would benefit
Trump. In response, Carson said he would focus on whether policies benefit
those who need help. ‘I can assure you that the things that I do are driven by
a sense of morals,’ Carson said, adding that he wouldn’t get in the way if
there ‘happens to be an extraordinarily good program that’s working for
millions of people and it turns out that someone that you’re targeting is going
to gain $10 from it.’

Few
other countries offer a 30-year mortgage
, and will often say there are few
natural buyers of 30-year mortgages. “Carson also said he believes private
companies should play a greater role
in the mortgage market. He said he
supports a government backstop in the market, but also said he believes the
30-year fixed-rate mortgage could continue to exist if that backstop ceased to
exist
. ‘You can’t do it overnight. It has to be a gradual change,’ Carson said.
‘We can’t do it in a haphazard way.’

“At
the hearing, Carson also said he wasn’t briefed by the Obama administration
before its decision on Monday to cut premiums the FHA charges by a quarter of a
percentage point. Many Republicans lambasted the move as fiscally
irresponsible, while some Democrats and housing-industry advocates said the
move would help first-time home buyers. Carson said that he was surprised the
administration made the decision on its way out the door and that he would
revisit the
policy, which takes effect on Jan. 27. He didn’t say whether he would reverse
the change.”

Carson,
in his prepared remarks, raised concern that banks are reluctant to participate
in low-down payment loan programs for fear of getting sued if borrowers default.
The wealthy have ‘their
pick of loans’ while those without good credit are ‘locked out,’ he said.

Last
month Democratic Representative Maxine Waters of California called Carson a
frightening choice to lead the agency. Carson “may be a brain surgeon but he is
not qualified to run HUD,” Waters wrote in a statement.
But four former HUD secretaries, who served under presidents Bill
Clinton and George W. Bush, support him: Henry Cisneros, Mel Martinez, Alphonso
Jackson, and Steven Preston.

Reporters
Megan R. Wilson and Tim Devaney came up with “Four
Takeaways from the Carson’s Confirmation Hearing.”

Compass
Point’s Isaac Boltansky thought that the FHA’s recent mortgage insurance
premium (MIP) cut is likely to stand. “More broadly, however, Dr. Carson’s
commentary regarding the need for more private capital in the mortgage market
suggests that additional pricing changes at the FHA – either to the MIP or
cancelability – are far less likely in the years ahead.

“In
his written testimony,
Dr. Carson said, ‘Banks are loath to participate in low-down payment programs
through FHA for fear of getting sued if the borrowers default. We need to make
sure HUD and FHA are fulfilling their missions to help people build up an
asset, like a home, which will help them climb up the rungs of the economic
ladder.’ We continue to expect the Trump Administration to shift the
enforcement paradigm related to the False Claims Act, which should lessen
lingering legal liability concerns for FHA lenders.

“In
response to a question, Dr. Carson expressed his view that government support
would not be necessary to ensure the viability of the 30-year fixed-rate
mortgage. He suggested that the private market would offer the product
following a gradual transition away from a federal backstop. As a reminder, Mark Zandi estimated that the PATH Act, which proposed largely privatizing the mortgage
market, would have raised the price of a mortgage by ~90bps.”

Mr.
Boltansky’s thoughts wrapped up with, “…mortgage finance reform was barely
mentioned, which reinforces our view that the odds of comprehensive reform in this
Congress are only ~30%. Questions relating to the potential impact of HUD
policies on the Trump companies will likely persist in the months ahead. Doctor Carson’s performance was strong and we believe
his path to confirmation is clear.”

MBA
president Dave Stevens weighed in with, “While clearly we need to find ways to
get more private capital back into the housing system, the role of a government
guarantee behind a segment of the mortgage system is critical to insuring a
steady flow of capital
in good economies and in bad. Pulling the rug out could
result in a significant disruption to housing.”

The
Association of Mortgage Professionals (for some reason still
calling itself NAMB) broadcast, “NAMB and its members are committed to working
with Dr. Carson and HUD in developing policies that will expand affordable
credit, therefore moving more Americans towards the dream of homeownership,”
said Fred Kreger, CMC, NAMB President. HUD is integral to mortgage lending and
plays an important role in supporting NAMB’s goal of consumer protection
through clear regulation and consumer education. We look forward to working
with Dr. Carson and his team to ensure that HUD continues to be vital to
homeownership. We wish Dr. Carson great success as the new secretary.”

And
the National Rental Home Council “shares Dr. Carson’s goals to improve
housing security for all Americans and build stronger, more inclusive
neighborhoods. We recognize the important role that rental housing can play in
helping to advance these priorities, which is why our members are committed to
providing many Americans with a quality, affordable housing option and an
excellent resident experience. We look forward to collaborating with Dr. Carson
to ensure America’s housing market remains vibrant and continues to serve the
full spectrum of America’s housing needs.”

Turning to the capital markets
rates…  Are you positive that rates are going higher? Me neither, and there are reasons why rates may stay here or actually slide back down a bit. No one has a crystal ball… certainly the demand for mortgages has fallen since the autumn, but then again, in talking to lock desks they are seeing signs of life as clients, and LOs, adjust to slightly higher rates. Then again, the business plans of top lenders and originators are rarely entirely dependent on rates. Or forecasting them.

Jobs and housing drive the
economy, although the weekly Initial Jobless Claims numbers have been good for
so long their impact has worn off somewhat. They have remained near historic
lows all year and only a sustained upturn is likely to concern investors.
Unfortunately, speeches by the presidents of the various Federal Reserve
districts have lost some of their impact as well: several of them seem to be
speaking on any given day. (Of note, however, was Philadelphia Fed President
Patrick Harker saying that the Fed would have to think about halting the
reinvestment of interest income from its portfolio once the Fed funds rate gets
to 1.00%.) Rates barely budged, again, Thursday.

This morning we’ve had a spate
of bank earnings for the 4th quarter, and thus all of 2016, for
Wells Fargo, JP Morgan, and the Bank of Italy, uh, I mean America (+43%!).
December’s Producer Price Index figures (+.3%, ex-food energy +.2%, kind
of a non-event) and December’s Retail Sales (+.6%, a little lower than
expected) and Retail Sales ex-auto (+.2%). Coming up is the January Michigan
Sentiment figure, usually of little consequence. After this we find the 10-year, which closed Thursday
yielding 2.36%, at 2.38% and agency MBS prices worse a shade versus last night.
Bond market is closed Monday.

Jobs and Announcements

A trusted provider of Quality Control and Due Diligence Auditing since 2011, Buckley Advisors is expanding its Audit area this year. “Our audit services are compliant with GSE and Agency requirements; staff has on average over ten years of underwriting/audit experience and we can assist in developing solutions to address recurring defects. We offer competitive pricing and personalized services not available elsewhere. For more information contact Mike Celenza at 904-329-7247.”

In retail product news, “Is there a doctor in the house? Sierra Pacific Mortgage understands the unique financial needs of Medical and Dental Professionals who are in a residency program and/or a clinical fellowship program. That’s why they just released a Medical Loan program aimed at providing new doctors and dentists with simple solutions to meet their home financing needs. You should contact your local retail branch for more information about this loan or joining the team. Your podiatrist needs a place to rest his feet at the end of a long day. Now he can, in his own home.”

In TPO job news, Plaza Home Mortgage, Inc. has exciting opportunities in New Jersey and Virginia! Management is currently looking for two experienced Account Executives, one in each market. Account Executives will have a great opportunity to grow market share with both wholesale and mini-correspondent clients, in addition to a very advantageous compensation plan! Their loan programs are tailor-made for the NJ and Mid-Atlantic region, with Agency, FHA/VA down to 580, jumbo, renovation loans, reverse, manufactured homes and flexible condo guidelines.” Interested candidates can contact Deborah Robertson, Sales Manager, at 904-332-6380, ext. 2459. Plaza is an EEOC employer and follows all federal, state, and local laws relating to fair employment.

A veteran independent mortgage banker, in the west, is searching for lenders operating in the region who would like to merge or sell. The ideal candidate is funding less than $30 million a month, holds a California DBO license and an active FHA Approval. There are several purchase options available depending on the situation. For a confidential discussion, please email me to be connected with the principals and specify the opportunity. Principals only please.

For those companies using subservicers in 2017, Subsequent QC, LLC (SQC) an affiliate of Mortgage Quality Management and Research, LLC (MQMR) will again be conducting its annual round of subservicer oversight reviews on behalf of numerous clients for all major subservicers. SQC, a servicing risk mitigation and compliance advisory firm, has developed an oversight review program for master servicers that utilize subservicers. If you are interested in learning more about SQC’s subservicer oversight program or how to participate in an upcoming subservicer review, please contact Britt Haven. (Britt is attending the IMB Conference if you’d like to meet in person or look for Nicholas Corpuz, VP of Servicing Oversight, at the MBA Servicing Conference next month who will be speaking on the topic of Pros and Cons of In-House Servicing vs. Use of Subservicer.)

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