By 2014 NAR President Steve Brown
Just as the winter snows melt, and spring begins to bloom, there are also signs of renewal for the Federal Housing Administration (FHA).
The White House released its fiscal 2015 budget proposal last week, and it indicates that the FHA should not need additional taxpayer funding in the coming year. This excellent news couldn’t have come at a better time. This announcement puts the FHA on the right path not only towards achieving compliance, but being positioned to cover any future losses without seeking additional funds from the federal government.
When private lenders fled the market after the 2008 financial crash, the FHA was left carrying an oversized burden. I saw this up close in my own company in Dayton, Ohio. During the depths of the Great Recession, FHA-backed loans were more than 60 percent of my affiliated mortgage company’s business. Even today, FHA-backed loans are nearly 30 percent of my book. There is no question that my business would not have survived without the FHA. In fact, the housing recovery we are now experiencing would not have happened if the FHA had not been there when times were tough.
Understandably, FHA paid a price for this commitment. It suffered financial losses and needed additional funding to cover an accounting shortfall in its emergency reserve account. For the first time in the agency’s 80-year history, the FHA drew $1.7 billion from the Treasury Department last year.
To ensure the agency does not need additional funds, the FHA made significant changes. The White House budget announcement indicates these reforms are producing positive results.
NAR continues to be a strong supporter of the FHA. We are pleased that Congress allowed the FHA to put its house in order without enacting hasty reforms that would have stalled the real estate market’s fragile recovery.
Of course, we aren’t out of the woods, yet. This is why we support needed housing finance reforms, especially the Senate’s Johnson-Crapo “FHA Solvency Act of 2013.” This bill is a strong step forward in strengthening the FHA.
But, for now, everyone across the political spectrum should welcome the news that the FHA is on the path to financial solvency. It demonstrates that the FHA’s mission of providing low cost loans to qualified borrowers—particularly low- and middle-income buyers – does not have to come at the expense of America’s taxpayers.
By NAR 2013 President Gary Thomas
Last week I met with Ed DeMarco, Acting Director of the Federal Housing Finance Agency. We had a very positive discussion in which I reiterated NAR’s position of opposing lower conforming loan limits for Fannie Mae and Freddie Mac.
Earlier this year, NAR acknowledged the reduction of current FHA limits from $729,500 to $625,500 at the end of the year. However, we believe that further action of lowering the size of mortgages for Fannie and Freddie now would disrupt the housing finance market and negatively impact the availability of affordable housing credit.
NAR Research estimates that if the national conforming limit were lowered to $400,000, roughly 154,000 total mortgages and 49,000 purchase mortgages would have been impacted in 2012.
Many of these borrowers would not have qualified under the high minimum down payments and tight credit standards currently required by the private market. For example, one bank offered a loan to borrowers with an average credit score of 769 that required nearly a 34 percent down payment.
How many buyers have this much to put down on a home, especially first-time buyers.
Furthermore a number of changes are already in the wind. In January, many adjustments to Dodd-Frank changes will take effect, including the new QM rules. We expect the QRM rules to follow shortly after, as well as actions by the Federal Reserve.
The housing market is coming back, but its recovery is still fragile. It’s crucial that the federal government act to maintain market stability, not add disruptive and unnecessary changes at this critical time.
Many in the industry agree with us. NAR initiated the call to not lower the limits in a letter to Acting Director DeMarco September 19th and spearheaded a coalition of more than a dozen trade groups to show broad-based, grass roots support for maintaining loan limits at this time. Let’s hope our positive discussion with Acting Director DeMarco has resonance.
I believe he understands our message: Let’s enact what has already been decided. Regarding the rest, for now, just let it be.
By NAR 2013 President Gary Thomas
When it comes to rules and regulations, the National Association of REALTORS® must always be vigilant. We have heard your concerns about the Federal Housing Administration’s (FHA) proposal to prohibit “dual agency” in pre-foreclosure transactions.
Know that NAR is working hard on your behalf to address this issue. On September 18, I sent FHA Commissioner Carol Galante a letter expressing NAR’s concerns about the new policy. As a result, the Department of Housing and Urban Development (HUD) has delayed implementation of its proposal, which would have been implemented on October 1. This gives NAR more time to continue our dialogue with agency officials.
Under the proposed policy, the Department of Housing and Urban Development (HUD) would no longer allow dual agency agreements in short sale transactions. This is when two agents, working for the same broker, represent the buyer and the seller. It also applies to a single agent representing both parties in a short sale transaction. In either case, under current law, dual agency transactions must be disclosed in writing and accepted by both parties.
According to HUD, the new policy comes as a result of the detection of fraud and abuse in pre-foreclosure sales. However, no statistics or reports were provided to NAR, detailing short sale fraud by real estate agents. As you are well aware, REALTORS® adhere to a strict Code of Ethics. Indeed, it was the founding principle on which NAR was created.
In our view, the fact that the policy would put excessive restrictions on agents representing buyers or sellers in the short sales process will only add to delays in the process. Some large brokers have hundreds of agents across multiple offices. Under HUD’s new policy, if one of those offices lists a short sale, none of the other agents can bring a buyer to that property.
One large broker told us that in his market, there are over 2000 agents across multiple offices. His firm has buyer’s and seller’s agents work on the same transaction in more than 30 percent of their sales. In rural areas with fewer agents, those numbers are even higher.
Brokers have also expressed concerns that the policy would conflict with certain MLS guidelines and state license laws. In every state, except Colorado, dual agency is allowed, as long as it is disclosed in writing to the parties involved in the real estate transaction and accepted by them. Most states have established standards and a complaint process in the event of suspected fraud.
We believe there are other ways that HUD could address concerns about the short sale process without restricting so many real estate agents from participating in pre-foreclosure transactions.
For example, Fannie Mae allows dual agency on short sales. They recently implemented a policy that requires all properties being considered for a short sale to be listed on an MLS, according to certain specifications. They provide relevant training and contact information to report potential fraud regarding a short sale.
NAR stands strongly against fraud of any kind, but we believe there is a more effective way to solve the problem then unnecessarily restricting dual agency. Let’s not kill the patient to cure the cancer. Instead, we should take the long view: establish a national standard that most states have already adopted and crack down on violations when and where they occur.
By NAR 2013 President Gary Thomas
REALTORS® are finally being heard, and it makes you want to jump and shout!
Today President Obama delivered the message loud and clear—Home Ownership Matters!
I’m pleased to say that our efforts to make our voices heard by the Administration have had a positive impact. The President agrees with the National Association of REALTORS® (NAR) on an overwhelming majority of the housing finance issues of the day.
In a speech at the Desert Vista High School in Phoenix, the President spoke to area REALTORS® and others about housing policy and his vision for reform of the housing finance system. In the speech, he stated his commitment to ensuring consumers retain access to the 30-year mortgage—traditionally the quickest route into the middle class—and cutting red tape so that families have access to safe, reliable mortgages.
Additionally, the President expressed support for reform of the Federal Housing Administration (FHA) and the Government Sponsored Enterprises (GSEs). He said the Administration plans to continue the phase-out of GSEs Fannie Mae and Freddie Mac, now in conservatorship. At the same time, he supports the creation of a common securitization platform to encourage investment in mortgage-backed securities. NAR agrees with the Administration’s view that any new system includes a government guarantee.
The President said he supports the historic affordability role of the FHA, which is critical to first-time homebuyers. While we support the goal of maintaining the FHA as an affordable option, NAR believes the FHA should preserve access for all qualified middle class families.
The Administration calls on Congress to approve refinance programs that provide more relief to troubled borrowers. NAR supports the government’s refinancing program, known as “HARP,” along with “bright line” standards that provide certainty to community banks selling loans on the secondary mortgage market.
While we have concerns about specific FHA reforms, protecting loan limits and keeping down payments low, we believe recent bipartisan legislation introduced in the Senate is a good place to start. President Obama made good use of the bully pulpit in stating his commitment to protecting the dream of homeownership for all Americans.
Over the past year, REALTORS® have sometimes felt like a voice in the wilderness. No longer.
By NAR 2013 President Gary Thomas
As Bob Hope said, “a bank is a place that will lend you money if you can prove that you don’t need it.”
All kidding aside, we understand banks play a vital role in the housing market. And just as banks are important, so is protecting the interests of consumers.
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). It established a new government agency, called the Consumer Financial Protection Bureau (CFPB). The purpose of the CFPB is to supervise banks, credit unions and other financial companies and enforce the federal consumer financial laws.
According to the CFPB, their mission is “to make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.”
Because of their important role, NAR maintains an ongoing dialogue with the Bureau. Recently, NAR organized a mortgage roundtable with Iowa REALTORS®, CFPB Director Richard Cordray, NAR staff, and other industry partners. The meeting went very well and demonstrates the importance of presenting the REALTOR® perspective on lending issues to the CFPB. It also shows our members the value of NAR and our ongoing partnerships with federal agencies.
Last March, the CFPB held a field hearing in Iowa on their release of an expanded version of its consumer complaint database, including complaints on obtaining a mortgage, loan modification, or short sale. We welcome the database as a good start in addressing some of the difficulties facing consumers, and our REALTOR® members will appreciate that a light is being shined on deficient banking practices.
Let me mention that CFPB Director Cordray spoke at the May Midyear Legislative Meetings & Trade Expo in Washington, DC. We were interested to hear his perspective on how best to protect consumers.
Here at NAR, our goals are to increase mortgage liquidity and help consumers make better decisions about which mortgage is right for them. This will allow the real estate market to continue improving, help lift the country’s economic markets, and ensure that the dream of homeownership remains within reach for the majority of Americans.
By NAR 2013 Vice President Bill Brown
“Whatever the cost of our libraries, the price is cheap compared to that of an ignorant nation.” That sentiment from Walter Cronkite is being tested as the cost of an education soars ever higher.
The College Board Advocacy & Policy Center’s Trends in College Pricing 2012 report found that overall the average cost of tuition and fees has risen for both public and private schools by over 4 percent, reaching up to $60,000 per year.
A college education helps people get better jobs and gives them a leg up in climbing the economic ladder. But with the high cost of a college education these days, many students have to take out loans to afford tuition.
The result is that students are piling up debt. The New York Federal Reserve reports that total U.S. student debt has almost tripled over the past eight years to reach a total of $966 billion.
The overall number of borrowers past due on their student loan payments has also grown, from less than 10 percent in 2004 to 17 percent in 2012.
The Consumer Financial Protection Bureau (CFPB) raised the issue of whether this debt will have a domino effect on the economy. Their concern is that young people are using a larger portion of their paycheck to pay off debt than for other purposes. This could keep them out of the economy, particularly the housing market.
While approximately 85 percent of student loans are backed by the federal government, the rest are held by private lenders. Now, there is an issue with these private loans. The Fed’s report says the growth in student debt is caused by a combination of more students attending college, more parents taking out loans for their children’s education and a lack of available options for discharging the debt.
While government student loans have options for modifying the loans, (i.e., deferment or making payments a percentage of income) private loans do not. According to the CFPB, they’ve heard from thousands of private student loan borrowers who are willing to make good on their debt, but are seeking a more affordable payment.
The CFPB has issued a “Request for Information” to gather feedback from borrowers, lenders, schools and everyone with a stake in the success of the lending market. As REALTORS®, you’re on the front lines of this issue and will be impacted by whatever the CFPB’s decides.
Please share your stories with us about how student loan debt is impacting sales in your area and, in particular, the impact on individuals. We want to hear from you.
by Moe Veissi, 2012 NAR President
I was honored today to celebrate the 20th million loan given by the Department of Veterans Affairs home loan program.
Even more special was meeting the recipients of that loan — Elizabeth Carpenter and her son Joey. Elizabeth’s husband, Captain Matthew Carpenter, was a West Point Graduate and a veteran of the Iraq war who died of cancer in December of 2010. Last month, Elizabeth used her surviving spouse benefits to purchase a home in Virginia to be closer to family. I can’t describe what a thrill it was to welcome her and Joey to their new home.
The VA loan guaranty, which began in 1944 under the GI bill, provides veterans with a zero-downpayment loan. VA loans have one of the lowest default rates, and provide affordable financing to our nation’s military families.
NAR is working in partnership with the Department of Veterans Affairs to promote the VA home loan guaranty, and assure REALTORS® are familiar with this program and the benefits it provides veterans and their families. We are proud to work closely with the Department of Veterans Affairs to ensure that the VA guaranteed home loan program is not only a top priority for our nation’s policy makers, but is also widely promoted so that every veteran is aware of home ownership’s invaluable benefits. NAR never stops working with our elected officials to ensure that home ownership is accessible and affordable for our nation’s veterans.
We are especially proud of our work with Congress that raised VA loan limits and make permanent the VA adjustable rate mortgages.
Congratulations to the Department of Veterans Affairs for creating one of the most enduring programs – the VA home loan program – and for reaching 20 million loans.
Learn more about this terrific program in the video below.
By NAR 2012 President Elect Gary Thomas
So how do we sustain the housing recovery? That was the question on the table at a forum put together by the Progressive Policy Institute and the American Action Forum. It drew many people who care deeply about housing, including economists, politicians and public policy experts and media.
As part of the event, I participated in a panel to discuss future reform of government-sponsored enterprises (GSEs). We enjoyed a lively debate among panelists Douglas Holtz-Eakin, President of the American Action Forum; Jason Gold, Senior Fellow for Financial Services at the Progressive Policy Institute; and Christopher Mayer, Professor of Real Estate at Columbia University School of Business.
Most of the policy experts agreed that reforming Fannie Mae and Freddie Mac will be delayed in the near term as lawmakers focus on helping the country recover from the recession. Ultimately, we think it will be the regulator of the government-sponsored enterprises (GSEs)—the Federal Housing Finance Agency—that raises the issue. In the meantime, no real progress will be made on GSE reform until the Consumer Financial Protection Bureau and the Federal Reserve craft rules that establish reasonable underwriting and risk retention standards.
The fact is that today the federal government buys or insures 9 out of every 10 mortgages. In other words, the government provides the capital to keep the mortgage market, and, in turn, the real estate market alive.
Given this reality, there must continue to be a role for government in the secondary mortgage market to ensure the availability of mortgage capital. Therefore, any restructuring must ensure consumers have access to affordable mortgage capital in all markets, at all times, and under all economic conditions.
At the same time, the institutions must be reformed to ensure the failures of the past do not return. The structure that privatized profits and made losses public must be changed.
To address these issues, NAR developed a set of eleven principles to help shape reform that ensures a robust financing environment for both residential and multi-family housing. Broadly, these principles call for reform of the secondary mortgage market to:
1. Ensure the viability and affordability of long-term fixed rate mortgage products.
2. Define a clear and explicit role for the federal government
3. Return to strong regulation and oversight
4. Conduct strong underwriting of government-guaranteed products
5. Continue support of multifamily housing and other specialized consumer products
NAR shared these principles with Congress and industry partners. We have, and will continue to revise these principles to reflect the desires of our members. You can be sure that NAR will continue to speak up loudly and often on this important issue.
by Ron Phipps, 2012 Immediate Past President, NAR
So if you are like me, you have been working in real estate for a long time. You think you have seen it all. Your body of work includes lots of transactions, and some amazing human stories, both happy and sad. In real estate we deal with the full range of life experiences.
Our collective experience right now of getting to closing is an obstacle course. Doesn’t it feel like the stars are conspiring to knock your transaction off track? Just closed one that ended up with 4 appraisals and weeks of heartache before we got to closing.
So what is happening behind the Wizard of Mortgage Oz’s curtain? Am I the only one who struggles to get my buyer to the closing table? The answer is absolutely not.
What we do know is that we have over corrected from the free-flow capital, no underwriting standards of 2004-2006. I repeat…over corrected. Prior to 2004, the average credit score for Fannie Mae and Freddie Mac mortgage was 720; today it is 760. This means that 15 percent of potential buyers cannot qualify.
In the past, pre-approval letters actually meant something. Now, they are a single yellow brick on the road to homeownership. The sad part is that they do not have a lot of value.
So what is going on? The problem is that the market for mortgage backed securities is very limited. The federal government continues to buy or insure most of them, upwards of 9 out of every 10 mortgages. In other words, the government provides the capital to keep the mortgage market, and, in turn, the real estate market alive.
As a result, the mortgage package needs to be perfect and complete. Three years of tax returns and back statements are not enough. Explanations of all deposits and expenses over $1,000 are now required.
You know all of the new requirements. You also know the reality of conditional commitments. Is the lender really committing to the buyer if the ‘commitment letter’ really isn’t a letter of intent? What does that mean for a seller? What does that mean for you? How can a commitment be rescinded two days before closing?
What you need to know is that strict underwriting standards are being applied precisely and aggressively. Some investors will penalize the origination loan company $30,000 if a mortgage defaults in the first year. Yes, that will make the processor obsessive.
We have not even talked about the appraisal process. In general you need direct, like kind sales within six months and within a few miles of the subject. If not, it will be a problem. What is also true is that the “appraisal review” is where the real problems occur. Someone in the process looks at the appraiser’s work as something to just pick apart.
All of this is part of the process of compliance…to make sure the package is “perfect and complete.”
When Dorothy was lost in the Land of Oz and wanted to get back home, she just clicked her heels three times. I wish it were that easy for REALTORS® and consumers to get back to a place where closings would make it to the table.
In the meantime, what can we as REALTORS® do? Here are a few recommendations:
1. Understand the process, particularly underwriting criteria.
2. Educate the buyers (and sellers) to process and requirements.
3. Be realistic in timelines.
4. Manage buyer and seller expectations.
5. Help buyers identify the lenders that are most likely to provide them the loan.
6. Be proactive in real time with the process.
7. Be active in NAR with Calls to Action and RPAC to improve the situation.
We will get through this…sooner rather than later. See you at closing.
We’ve been hearing a lot about the lack of consumer confidence in the economy. The negative drumbeat of grim economic news has been steady. And consumers are the ones who have been taking it in.
But there’s some positive news on the legislative front that I am sure could get home owners – and all consumers – smiling again.
Legislation introduced by former REALTOR ® and good friend, Senator Johnny Isakson, and Senator Barbara Boxer would boost economic growth and keep more Americans in their homes by helping up to 2 million non-delinquent homeowners refinance their mortgages at today’s historically low interest rates.
Those that would benefit from the bill are home owners who are current on their payments, but are “underwater” on their homes because the value of their home is now less than the amount they owe on the home.
The legislation would save American families thousands of dollars and result in up to 54,000 fewer defaults. Few defaults in turn are good for both consumers and lending organizations.
By far though, the greatest benefit would be the infusion of confidence the resulting stabilized market conditions would bring to home owners and home buyers. Why? Because confident home owners and home buyers feel secure and therefore take actions that reflect that — they will spend more, will be able to start small businesses, and generally take actions that reinforce that confidence…and send a positive ripple effect throughout the entire economy.
Interest rates for 30-year home mortgages are currently at 4.12 percent, the lowest rate in 60 years. Yet of the 27.5 million mortgages guaranteed by Fannie Mae and Freddie Mac, more than 8 million still carry an interest rate at or above 6 percent.
The bill will also:
• Eliminate risk-based fees on loans for which Fannie and Freddie already bear the risk;
• Remove refinancing limits on underwater properties;
•Make it easier for borrowers with second mortgages to participate in refinancing programs;
• Require that borrowers are able to receive a fair interest rate, comparable to that received by any other borrower in good standing who has not suffered a drop in home value and has stayed current with their mortgage payments.
So, even though the days are getting shorter as fall approaches, positive proposals like this one have the potential to make them much brighter.