MBA says Washington's 'conflicting' polices are choking off credit and threatening recovery
By Ken McCarthy
Finding harmony between granting access to credit and minimizing risk can be tricky for the mortgage banking industry — and over the years that balance has occasionally gone out of kilter.
"Well today we are in such a moment," David Stevens, president and CEO of the Mortgage Bankers Association, said Oct. 28 during the association's annual convention in Washington D.C.
Stevens said that in an effort to correct the loose standards of the past, access to credit has been stifled and the economy has suffered as a result. Policymakers' decisions to take a harder line on risk are choking off credit.
Amid these challenges, Stevens said, the MBA called on Washington at its 2012 convention to provide leadership. "But our calls have gone unheeded, so I stand here today to say, in the politest way possible: enough is enough. The overcorrection and conflicting policies that continue to come out of Washington are threatening not just this market, but they are threatening the recovery," he said.
Many steps taken by the government to restore confidence and eliminate the bad practices that caused the financial crisis were not clear enough and that has led to a tightening of credit, Shaun Donovan, secretary of the Department of Housing and Urban Development, said at the conference. He added that according to the Federal Reserve, from 2007 to 2012, mortgage lending to borrowers with credit scores of more than 780 fell by a third. Loans to those with scores between 620 and 680 fell 90%.
"There are a lot of qualified buyers out there who are being rejected. So my colleagues and I have been working with a wide variety of stakeholders to simplify things moving forward," he said.
Donovan said the number of homeowners who have refinanced through the HARP program since the fall of 2011 has soared from 400,000 to 2.8 million as of July. And the Neighborhood Stabilization Program, which addresses the foreclosed and abandoned properties that "often hold back communities trying to rebuild," has allocated $7 billion to neighborhoods in all 50 states to refurbish properties. In more than 70% of the neighborhoods that have received the funds, vacancies are down and home prices are up compared to similar communities, he said.
However, Stevens said that more than five years after the financial crisis, countless would-be borrowers are still being caught up in the aftermath, "all because Washington won't trust lenders to make fact-based credit decisions without countless strings attached and second-guessing."
He said the MBA has asked for "sanity and certainty" and called for the appointment of a housing policy coordinator. "We asked for someone who would simply make sure the regulators met, talked to each other at the most senior levels to consider the implications of obvious and uncoordinated overlaps," he said. "But, this hasn't been done and the confusion continues."
Donovan said the risks and rewards of mortgage lending have historically been in the hands of the private sector and should continue to be so in the future. One crucial step to making that a reality is to address uncertainty in the marketplace, he said. "That's why steps, like our proposed QRM rule, are so important. They will go a long way in ending the uncertainty out there and increasing private sector participation in the market," he said.
Donovan said reform legislation should have flexibilities that will allow for private capital to be creative and innovative. And by putting private capital in a first loss position, taxpayers will never again be "on the hook" for bad loans and bailouts. This, he said, has implications for Fannie Mae and Freddie Mac.
"That means winding down Fannie and Freddie. As the President has said, for too long, their model was heads we win, tails you lose."
Randy Woodward
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