The Week Ahead
The House has adjourned for its August recess while the Senate remains in session.
- NEXT #Summer19, 8/26-27
- MBA Risk Management, 9/15-17
- MBA Reg. Compliance, 9/22-24
- Digital Mortgage, 9/23-24
- MBA Annual, 10/27-30
- #NEXT19DC, 11/18-19
Ginnie Seeks Input on Stress Testing Model
Ginnie Mae published a 33-page Request for Input this week on the analytical framework it is developing to assess Issuer financial performance under a variety of economic environments. Comments are due by the end of August.
Gregory Keith, SVP and Chief Risk Officer, explained this week in a Ginnie In Brief post that the RFI is part of the agency’s continuing efforts to monitor and support the sustainability of the Ginnie Mae mortgage-backed securities market.
As outlined in the Ginnie Mae 2020 report and shared at the recent Summit, the development of this analytical framework and the publication of the RFI aligns with additional policy steps the agency has undertaken to ensure the strength and liquidity of Ginnie Mae’s counterparties.
Specifically, the stress-test model will use different data points to forecast an Issuer’s outcome over the short and medium term when subjected to economic pressures or tension due to, for example, an economic downturn or rate volatility.
The agency is in the process of refining the model, which will be used to evaluate the performance of each MBS Issuer under various economic scenarios.
Deal to Extend Debt Ceiling; End Sequester
With little fanfare, the White House agreed to a deal with House and Senate Leaders to increase the debt ceiling through the 2020 elections and end the sequester.
The budget agreement would raise U.S. discretionary spending to $1.37 trillion in fiscal year 2020, up from $1.32 trillion this year.
The arrangement was sought by Treasury Secretary Mnuchin as he looked to avoid the threat of debt default; and by Democrats seeking to end automatic, across-the-board spending cuts. It also could prevent a government shutdown when funding expires after September 30, though lawmakers will have to pass separate appropriations bills.
Kraninger Continues to Ease Regulatory Burdens
As members of the Exchequer Club in Washington, DC, we regularly attend events that have bearing on oversight and enforcement of critical matters in the mortgage industry.
We recently attended a luncheon speech featuring CFPB Director Kathy Kraninger where the Director spoke to the Administration’s ongoing focus on reducing regulatory barriers.
Kraninger also addressed steps the CFPB is taking to reconsider how it examines financial institutions “to ensure that [the Bureau is] risk-prioritizing our resources, utilizing technology to automate certain tasks and taking full advantage of appropriate partnerships with … fellow regulators.”
As it relates to housing finance reform, Kraninger spoke to ongoing discussions with FHFA and Treasury Department about the pending expiration of the qualified mortgage patch. Some consider the QM patch to be a private capital barrier in and of itself.
“Part and parcel of this is the Bureau’s responsibility under the law to ease unwarranted regulatory burdens and to consider the impact of our rulemaking on consumers and those we regulate, and we take it seriously,” said CFPB Director Kraninger.
HUD Issues Stay on DPA ML
Cedar Band of Paiutes, a federally recognized American Indian tribe, successfully delayed a HUD Mortgagee Letter on down payment assistance loans by suing the Department.
The lawsuit claims HUD’s “informal guidance” to clarify down payment assistance rules would effectively shut down its down payment assistance program.
According to the suit, HUD’s Mortgagee Letter “unlawfully targets American Indian tribes and bands by prohibiting them from participating in home-purchasing assistance programs and thus threatens a critical source of revenue for the Cedar Band.”
The lawsuit seeks an order to immediately halt the policy’s enforcement on the grounds that it was adopted without issuing proper notice and opportunity for comment, and that it stands in violation of federal law.
First American: Annual HPRI Underperforming
This week, First American published its annual Homeownership Progress Index which found that shifting demographics are keeping the homeownership rate below its potential.
“The homeownership rate is influenced by shifts in underlying demographic and economic factors, as well as housing market conditions,” said Chief Economist Mark Fleming. “Historically, potential homeownership demand as measured by the HPRI has mostly outpaced the actual homeownership rate, meaning the actual homeownership rate should have been higher based on the lifestyle, societal and economic trends influencing the demand for homeownership,” said Fleming. “This was largely due to demographic trends as Baby Boomers settled down to form households of their own.”
Fleming said as of 2018, the homeownership rate underperformed potential demand by 8.7 percent. When broken down by age group, the report said the majority of demand for homeownership in 2018 and 2017 was driven by the millennial generation. “Even though they drove the bulk of actual homeownership demand in 2018, millennials and their lifestyle choices may explain why the homeownership rate remained below potential demand,” he said.
Fleming said millennial homeownership demand is “just beginning. Millennials are the largest generational group in the history of the U.S., and that’s not the only thing that separates them from their generational predecessors,” he said. “Millennials are more diverse, more educated and tend to marry later in life than previous generations. Many Millennials have prioritized furthering their education, thus delaying getting married and having children, which are critical lifestyle triggers to buying a first home.”
Despite these factors, Fleming said, Millennials view homeownership as an important life goal. “There is a six-percentage point difference in homeownership between millennials and Generation X at the same age of 30 years old,” he said. “But, the bulk of millennials have yet to turn 30, which signals higher potential homeownership demand may be on the horizon. The largest group of millennials by birth year will turn 30 in 2020, entering their prime home-buying years.”
Faith’s Corner: ‘Foreign’ Buyers Pullback
In my corner this week I consider the global real estate market and what NAR’s Chief Economist calls a ‘striking’ pullback in demand for US real estate.
NAR reported in its Profile of International Transactions in US Residential Real Estate 2019 that foreign buyers purchased $77.9 billion worth of U.S. existing homes from the 2019 survey reference period, a 36% decline from the level reached in the previous 12 months ($121 billion).
Non-resident foreign buyers accounted for $33.2 billion of U.S. existing-home sales, a 37% decline from the prior level of $53 billion. Resident foreign buyers – that is, recent immigrants – purchased $44.7 billion of residential property, a 34% drop from the prior level ($67.9 billion).
The dollar volume of purchases saw a decline as the number of purchases, as well as the average price, decreased from the previous year, as foreign buyers purchased in comparison to the levels during the previous 12 months. Foreign buyers were able to buy 183,100 properties (266,800 in the previous period) at an average price of $426,100.
“A confluence of many factors – slower economic growth abroad, tighter capital controls in China, a stronger U.S. dollar and a low inventory of homes for sale – contributed to the pullback of foreign buyers,” said Lawrence Yun, NAR chief economist. “However, the magnitude of the decline is quite striking, implying less confidence in owning a property in the U.S.”
Following historical trends, Florida was at the epicenter of foreign investment. The state attracted 20% of foreign buyers.
Bipartisan Senate Legislation on NFIP
Senators Cassidy (R-LA) and Menendez (D-NJ) introduced the National Flood Insurance Program Reauthorization and Reform Act of 2019.
The bipartisan bill would extend the NFIP for five years while addressing issues such as premium relief, mitigation, mapping, insurer compensation and claims processing.
FDIC Issues NPR on RMBS
The FDIC issued a Notice of Proposed Rulemaking that would amend its Securitization Safe Harbor Rule to more closely align disclosure requirements for RMBS with those in place at the SEC.
The Notice of Proposed Rulemaking states that FDIC-insured banks issuing RMBS as private placements would no longer be required to provide the disclosures that are currently required for public securities offerings under the SEC’s Regulation AB II.
Banks would remain obligated to provide these disclosures for any public RMBS offerings.
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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Faith Schwartz is the owner of Housing Finance Strategies, a professional services firm founded in 2016 to provide Strategic Advisory Services, Government and Industry Relations, Public Policy Expertise, Roundtable and Event Management and Professional Speaking Services.