The Week Ahead

Congress is adjourned for the July 4 holiday and a district work period.

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Democratic Primary Debate Season Opens

Primary season officially kicked off this week with two nights of NBC televised debates featuring 20 Democratic candidates seeking to unseat President Trump.

And while housing plans have garnered website attention in the lead-up to the debates, the medium of television kept the candidate focus on the bright light issues of immigration, jobs and the economy, national defense and health care.

On day one of the democratic debates, none other than former HUD Secretary, Julian Castro, dazzled the media and pundits. Castro sought to dispatch fellow Texan and former Congressman Robert (“Beto”) O’Rourke (D-TX) from the race by painting him as soft on immigration because of his reluctance to endorse the repeal of Section 1325 in Title 8 of the United States Code – the criminal provision making unlawful entry into the United States a misdemeanor.

Thus the hopes of housing industry zealots thinking this would be the campaign where housing takes center stage were dashed… at least for now.

Meanwhile, President Trump created an Affordable Housing Council this week that ostensibly answers the call for his housing plans. The Council will seek to root out unnecessary zoning and other barriers to development of more affordable housing.

POTUS Signs Bill Increasing VA Loan Limit

This week President Trump signed a bill into law revising the VA’s home loan guaranty program that eliminates the limit on the guaranty amount that is based on the Freddie Mac conforming loan limit.

The Blue Water Navy Vietnam Veterans Act allows homebuyers to borrow above the 2019 limit of $484,350 for most counties without any down payment.

Housing industry trade groups successfully fought off provisions in earlier versions of the bill that would have raised fees on the program.

WH Establishes Affordable Housing Council

President Trump entered the 2020 campaign this week signing an Executive Order establishing the Council on Eliminating Barriers to Affordable Housing.

The Council will consist of members across eight federal agencies and engage with state, local, and tribal leaders across the country to identify and remove the obstacles that impede the production of affordable homes.

The Administration cited the “enormous price tag that follow burdensome government regulations” as a barrier in creating affordable housing.

“With the signing of today’s Executive Order, President Trump is prescribing a powerful treatment that correctly diagnoses the source of America’s affordable housing condition: this is a matter of supply and demand, and we have to increase the supply of affordable homes by changing the cost side of the equation,” said Chair Carson.

“Increasing the supply of housing by removing overly burdensome rules and regulations will reduce housing costs, boost economic growth, and provide more Americans with opportunities for economic mobility,” said HUD Secretary and Council Chair Ben Carson.

Ben Carson

Ben Carson, United States Secretary of Housing and Urban Development

NAR Sales Index Edges Up

NAR published its May Pending Home Sales Index, a forward-looking indicator based on contract signings. The index slightly increased to 105.4 in May, rising one point from April.

Despite this growth, NAR indicates that year-over-year contract signings fell 0.7%, marking the 17th consecutive month of annual decreases.

NAR’s Chief Economist Lawrence Yun said declining mortgage interest rates led to the increase in pending sales for May.

“Rates of 4% and, in some cases even lower, create extremely attractive conditions for consumers,” Yun said. “Buyers, for good reason, are anxious to purchase and lock in at these rates.”

 “Home builders have not ramped up construction to the extent that is needed. Homes are selling swiftly, and more construction will create more ownership opportunities.”

Report Finds 20-Year High in Investor Share

CoreLogic reported that the investor share of home sales has reached its highest level in two decades in 2018. Importantly, the report found this increase is not driven by big institutional buyers, but rather from smaller investors. These smaller investors appear to be focusing in the starter-home tier, giving first-time home buyers a run for their money while also chasing homes in markets with relatively high rents.

The report said by the end of 2018, the investment rate in the US housing market reached 11.3%, the highest rate since CoreLogic started tracking this data in 1999. The investment purchase rate in 2017 was the second highest on record at 11%, which was above the investor buying fury of 2012-2014, when purchase rates reached 10.3%-10.9%.

“Smaller investors are responsible for increasing investor home buying activity,” the CoreLogic report said. “This is in sharp contrast to the rise in large institutional investors in the years following the recession.”

CoreLogic said when looking at investor activity based on the total number of properties purchased over our study period, it found small investors–those who purchased 10 homes or less between 1999 and 2018–increased their share of home buying more than large- and medium-sized investors.

By contrast, large investors–those who purchased more than 101 homes–nearly doubled their activity between 2000 and 2013 but have pulled back since the foreclosure crisis and now sit at 15.8% of purchases. Medium-sized investors–those who purchased between 11 and 100 homes–have also seen their share steadily fall, from a peak of 30% in 2010 to 22.7% in 2018.

“While it’s certainly possible that an increase in investors into a market increases competition and lowers supply relative to aggregate demand, the opposite is also possible: markets with tightening supply could draw investors as they perceive markets with a dwindling supply to be safer bets than those with a more plentiful supply,” CoreLogic Deputy Chief Economist Ralph McLaughlin said.

Faith’s Corner: Growing Nonbank Share

This week the Urban Institute’s Housing Policy Center May Chartbook is in my corner. Urban’s data on nonbanks continues to demonstrate market share growth as well as a greater percentage of mortgage credit availability. Urban found the following:

Nonbank origination share has been rising steadily for all three agencies since 2013. The Ginnie Mae nonbank share has been consistently higher than the GSEs, standing at a record high of 86 percent in April 2019. Freddie Mac’s nonbank share grew in April, increasing to 51 percent, while Fannie remained at 61 percent. For Fannie and Ginnie, the nonbank origination share is higher for refinance loans than for purchase loans; they are about the same for Freddie.

Nonbank originators have played a key role in opening up access to credit. Median GSE and Ginnie Mae FICOs for nonbank originations are lower than their bank counterparts, with a larger differential in the Ginnie Mae market. Within the GSE space, bank FICOs have declined slightly since 2014 and nonbank FICOs are roughly constant.

In contrast, within the Ginnie Mae space, FICO scores for bank originations have been flat since 2014, while nonbank FICOs have declined. This largely reflects the sharp cut-back in FHA lending by many banks. While banks comprise only 14% of the Ginnie Mae origination, those banks that are originating have relaxed their overlays. Bank FICO scores for Ginnie Mae origination have been steadily declining since December of 2018.

The median LTV for nonbank and bank originations are comparable, while the median DTIs for nonbank loans are higher, indicating that nonbanks are more accommodating in this dimension as well as in the FICO dimension.

HFS Hearing on Appraisals

The HFS subcommittee on Housing, Community Development and Insurance held a hearing recently entitled What’s Your Home Worth? A Review of the Appraisal Industry.

Subcommittee Chairman Lacy Clay (D-MO) held the hearing to discuss the de minimus threshold for federally related transactions, the role of modern technology in appraisals and the impact of inaccurate appraisals, especially on communities of color.

The committee focus appeared to be on the impact of undervaluation of homes in minority neighborhoods.

HUD Reports HECM Volume Grew in Q1

HUD reported that HECM endorsements rose in the first quarter of 2019, ending a period of decline that began in the second quarter of last year.

Overall HECM lending totaled $2.8 billion in 1Q19, a 12.9% sequential gain. The last time HECM volume peaked was in 2Q18 when endorsements totaled $5.4 billion.


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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