The Week Ahead

Upcoming Hearings

The House and Senate return home for a District work period.

Upcoming Conferences

  • MBA Servicing, 2/23-26
  • SFIG Vegas, 2/23-26
  • NEXT Winter, 2/24-25
  • Moody’s Housing, 3/30
  • MBA Secondary, 5/17-20
  • Digital Banking, 6/8-10
  • VA Lenders Conference, 6/9-11
  • MBA Annual, 10/18-21
  • NEXTDC20, 11/9-10

Banks Contemplating Return to FHA

FHA Commissioner Brian Montgomery, who oversaw a double-digit increase in FHA lending during his first stint as Federal Housing Commissioner, is said to be courting a number of banks seeking their re-entry into government-insured origination.

Reportedly, JP Morgan Chase is one of those banks. A vocal critic of the government’s heavy-handed approach in use of the Department of Justice (DOJ) False Claims Act and Treble Damages for what many considered process fouls, CEO Jamie Dimon appears to have been swayed by the HUD/DOJ Memorandum of Understanding and a number of steps taken by HUD to clarify its underwriting policies under Montgomery.

Another factor coming into play for banks is the FHFA proposal to raise the minimum financial eligibility requirements for GSE Seller/Servicers. This proposal, which is currently out for comment, could significantly alter the relative economics of Agency and Ginnie servicing in ways that reduce liquidity for Ginnie Mae MSRs and increase costs for borrowers using the FHA, VA, or RHS programs.

We assess that banks exploring a return to FHA will do so in a measured deliberate pace with a close watch on this November’s presidential election.

Klobuchar Surprises in New Hampshire

Political pundits are scrambling to assess the surprise showing and on-going viability of Senator Amy Klobuchar (D-MN) who took third in New Hampshire and more than doubled the primary vote count of Senator Elizabeth Warren (D-MA).

With former Vice President Biden falling to fifth in New Hampshire, and Michael Bloomberg entering the campaign, the focus of Democrats is turning to Socialist Bernie Sanders, who held off a surge from Mayor Pete Buttigieg to win New Hampshire.

The Sanders’ campaign is well funded and enjoys a well-organized ground game staffed and ready for a big night on Super Tuesday, which now includes delegate-rich California.

Fed Chairman Appears before House and Senate

Fed Chair Jay Powell briefed House and Senate committees this week and said with some uncertainties surrounding trade having diminished and amid some signs that global growth may be stabilizing, the Committee intends to leave the policy rate unchanged.

The FOMC believes that the current stance of monetary policy will support continued economic growth, a strong labor market, and inflation returning to the symmetric 2 percent objective.

Powell went on to say: “As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy will likely remain appropriate. Of course, policy is not on a preset course. If developments emerge that cause a material reassessment of our outlook, we would respond accordingly.”

The Q&A was largely on script and we highlighted a reference to GSE reform.

“I think in the long run it’s very important that GSE reform happen … it’s not really ideal to have the entire financial system riding on the federal government in the long run,” said Federal Reserve Chairman Jerome Powell in testimony this week.

HUD Budget Faces Critics

HUD’s Fiscal Year 2021 budget requests $47.9 billion, $8.6 billion less than the enacted level for this year.

Under the Administration’s proposal, the HOME and CDBG programs would be eliminated.

The Administration has tried to terminate these programs and reduce funding for other HUD initiatives before, but Congress has maintained its support, with HOME receiving $1.35 billion and the CDBG fund receiving $3.43 billion in 2020.

Adrianne Todman, CEO of the National Association of Housing and Redevelopment Officials said: “Once again, it will be up to Congressional leaders to correct this wrong, as they thankfully have during the past several budget cycles.”

And notwithstanding an Administration focus on homelessness, the budget reduces homeless funding from $4M to $2.8M.

African American Homeownership Ticking Up      

With Census Bureau statistics showing incremental improvement to African American homeownership rates from the fourth quarter of 2016 to the fourth quarter of 2019, rising from 41.7% to 44%, it is appropriate to examine the trend and consider the macro factors involved.

It has been said that a rising tide lifts all boats, and that may be true in this case as historically disadvantaged groups are benefiting the most from today’s tight labor market. In 2019, the unemployment rates for African Americans, Hispanic Americans, and Asian Americans all hit record lows.

It is clear that the increasing labor participation rate is a boon to all, but add to it pointed economic incentives such as the federal government’s Opportunity Zones and the private sector’s Second Chance programs, a case can be made that homeownership rates across the board may be the beneficiary of economic success.

Yet, even as many housing experts acknowledge the positive direction of African American homeownership, they lament the burgeoning gap compared to white homeownership which is some 28 percentage points higher.  Policymakers therefore must continue to sharpen the pencil to enlarge the playing field.

The 2020 presidential campaign is already producing an overdue discussion on criminal justice reform that follows bi-partisan legislation passed in December 2018 called The First Step Act. That bi-partisan legislation was designed to prepare inmates to successfully rejoin society and is supported by a broad coalition spanning the political spectrum, including business groups, faith-based organizations and local leaders.

In fact, ahead of the legislation, a big bank announced several major steps to encourage second-chance hiring for those with criminal records. This bank is officially “banning the box”—removing all questions about criminal records from its job applications.

A further alignment of government and private sector efforts must continue to grow economic investment so that all workforce participation increases and the opportunities for homeownership, and especially that of African Americans, broadens.

Faith’s Corner: Inventory Slides 11.1% YoY

In my corner this week, I am examining the ongoing inventory conundrum. Redfin reported this week that new home sales rose by 8.8% year-over-year in the fourth quarter, the biggest gain in more than two years and the third consecutive quarter of increases, driving continued depletion of inventory in the market.

As sales rose, supply dropped. Redfin said new home supply slid 11.1% year-over-year, the biggest inventory drop since at least 2012 and the third-straight quarterly decline.

The report said the national sale prices of new homes slipped 0.3% year-over-year to a median of $369,900 in the fourth quarter, marking the smallest drop out of the past three consecutive quarters of declines. But even though the national median price was flat from last year, many affordable markets, including Greensboro, NC, saw prices rise. Meanwhile, existing home prices rose 6%, sales increased 5.8% (the largest gain in three years) and inventory slipped 14.2% (the biggest slide since 2013).

“The market has seen a mismatch between where new construction of homes are needed the most and where new homes are being built, and that’s because builders are focused on areas where they can cheaply acquire and develop land,” said Redfin chief economist Daryl Fairweather.

“The only way to solve this mismatch between where people need homes and where homes are being built is for people to move to An American Addiction Centers Resource and where the homes are, and that’s already happening,” Fairweather said. “Looking ahead, permits have increased thanks to low interest rates, so even though inventory is down, there’s hope for the future given that permits are up so significantly.”

CA Gov Homeless Plan Criticized by LAO

The non-partisan CA Legislative Analyst’s Office (LAO) wrote in opposition to Governor Newsom’s 2020-2021 Homeless budget plan saying it “falls short of articulating a clear strategy.” While supporting the funding level, the LAO recommends developing a clear, strategic plan. If a plan cannot be developed over the next few months, LAO encourages the state legislature to take one-time action this year utilizing existing state mechanisms to support local efforts to address homelessness.

Household Size Shrinks

Today, 35.7 million Americans live alone, 28% of households. That’s more than 35-million houses, townhouses, condos and apartments that have just one occupant.

This number is up from 13% of households in 1960 and 23% in 1980, according to the US Census Bureau. Households led by non-Hispanic whites in the US had the smallest average size in 2019, at 2.36, while those led by Hispanics averaged 3.22 persons.

About 63% of households in the US now consist of two or fewer people, but 61% of US housing units have three bedrooms or more.

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Editor’s note: This is a compilation of industry periodicals (including American Banker, Bloomberg, Mortgage Bankers Association media, Politico and the Wall Street Journal among others) and is intended solely for the use of the addressee and not for further distribution without the sender’s permission.

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