The Week Ahead
The House and Senate return home for a District work period through November 12.
- SFIG Residential, 11/4
- NAR Conf. and Expo, 11/8-11
- #NEXT19DC, 11/18-19
- NRMLA Annual, 11/18-20
- MBA Accounting, 11/19-21
- NAHB IBS 2020, 1/23-25
- MBA IMB, 2/3-6
- MBA Servicing, 2/23-26
Calabria Beats Drum on Housing Reform
In a consequential week for Housing Reform, FHFA Director Calabria published the new Strategic Plan and Scorecard for Fannie Mae and Freddie Mac calling the release a “critical milestone” toward the agency’s goal of reforming the government-sponsored enterprises.
Speaking in Austin, TX, Calabria said: “I came here to the MBA Annual Convention to discuss what is in the new Strategic Plan and Scorecard and how these two documents will guide Fannie and Freddie through this important period of change and reform.”
Calabria said today’s status quo poses “significant risk” to taxpayers, homeowners, renters and the nation’s financial system. “Yet, since 2008, reforming our mortgage finance system has received a fair amount of discussion but very little action,” he said. “Or, as they like to say here in Texas, it has been all hat and no cattle.”
Calabria continued his push later in the week noting to industry press that one of the GSEs is engaging in the heretofore common practice of volume discounts and that it must stop. Clearly Calabria is ‘all cattle’ in his quest to promote competition and leave no stone unturned in fostering an environment accommodating to private capital.
Industry Attention Turns to #NEXTDC19
Even as many of the MBA Annual conference attendees arrive back to their home offices, the industry’s attention is settling in on what appears to be the most consequential mortgage event of the year: NEXTDC being held on November 18-19.
Quite the contrast from mega gathering in Austin, NEXTDC is the pre-eminent executive women’s summit held in Washington, DC. With a keynote address by former Treasury official Craig Phillips and a luncheon featuring the outspoken House Financial Services Congresswoman Katie Porter (D-CA), the event has captured the attention of mortgage executives seeking an intimate setting to empower women executives, share competitive intel and make deals. Details here: https://nextdc19.splashthat.com/.
DOJ Steps Up in Signing MOU on False Claims Act
Big banks have been wary of participating in the FHA program since the Obama Administration began using the 1863 False Claims Act to pursue treble damages against FHA mortgagees.
In hearings and speeches more than two years ago, HUD Secretary Carson pledged to tighten the agency’s application of the False Claims Act to material deficiencies. However, it was not until Brian Montgomery was nominated to the role of HUD Deputy Secretary that the Department of Justice engaged in earnest and began working toward a Memorandum of Understanding executed this week.
The engagement of Attorney General Barr indicates a sea change in future use of the False Claims Act during the balance of the Trump Administration.
Nonetheless, big banks may remain cautious on FHA origination until after the 2020 election plays out.
“DOJ and HUD will work together to determine when HUD’s administrative remedies are sufficient, or other recourse is appropriate, to address harm to the borrower, the taxpayer or the government,” said United States Attorney General William Barr.
Housing Share of GDP Up
After declines for six consecutive quarters, the home building component of GDP increased during the third quarter of 2019. Per NAHB, this gain was due to the housing rebound that has taken hold since the spring, with the pace of SF permits rising since April and the rate of SF starts increasing since May.
Housing-related activities contribute to GDP in two basic ways. The first is through residential fixed investment and includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees.
The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) and utility payments.
TransUnion Reports on Expected FTHB Wave
TransUnion reported this week that at least 8.3 million first-time homebuyers will enter the mortgage market between 2020 and 2022. That number could climb to as high as 9.2 million if economic growth exceeds expectations. Both growth projections mark a significant acceleration from the 7.6 million first-time homebuyers added in the last three-year period (2016-2018).
The findings come at a time when overall home ownership growth has been muted. As of Q2 2019, 68.3 million consumers carried a mortgage balance, on par with the 68.2 million observed one year earlier in Q2 2018. The totals remain significantly lower than a decade ago, when 73.1 million consumers carried a mortgage balance in Q2 2010.
“While we’ve recently seen a boom in refi activity, actual homeownership rates are down. Challenges have included high home prices, sluggish wage growth and limited housing inventory,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “But we may be starting to see daylight as slowing home price appreciation, low unemployment, increased wage growth and low interest rates are helping affordability. As a result, we are optimistic that first-time homebuyers will contribute more to home ownership than at any time since the start of the Great Recession.”
TransUnion data also show that first-time homebuyers are younger today than they were around the time of the Great Recession. The median age of such homebuyers declined from 39 in 2010 to 36 in 2018. In fact, consumers aged 25-34 have seen their share of all first-time homebuyers rise by 6%.
TransUnion found the top motivations to purchase a home included seeking more privacy (45%) and wanting to build equity/wealth (44%). Less than a quarter of respondents indicated that getting married (24%) or expanding their family (23%) would be the top reason to purchase a home. On the other hand, the number one reason respondents would delay home purchase is due to concerns of not having enough money for a down payment and/or monthly payments (58%). About half said they believed they would need to meet a down payment requirement of 10-20%.
Faith’s Corner: Inventory Dearth Driving HPA
In my corner this week, I wanted to share an update from the American Enterprise Institute’s conference on Housing Markets and notes regarding how the lack of inventory is driving home prices.
The share of available homes for sale in September fell after a slight recovery earlier this year, as Zillow reports there are 102,112 fewer homes on the market than there were last year—a 6.4% annual drop and the lowest level since 2013.
At the AEI event, Zillow reported that the sector impacted the hardest are first-time and low-income borrowers. Inventory growth among this group reached 6.7% in October and fell 10.3% annually in September.
The flip side of a dearth of inventory is its effect on appreciation. “Housing appears to have renewed its place as a bright spot contributing to continued U.S. economic growth. The return of accelerating quarterly price growth, rising sales numbers and increasing home builder confidence and activity all point to closing out 2019 on a healthy note…”said Zillow Director of Economic Research Skylar Olsen.
New listings at the beginning of the home buying season were 8.4% lower than April 2018 and 10.6% below May 2018 numbers. Making matters worse, HUD and the Census Bureau reported that housing starts in September were 9.4% below the revised August number of 1.38M. The report states that 1.25M homes started in September.
Housing completions were 9.7% below the prior month, as 1.13 million homes were completed in September compared to 1.26 million in August. The month-over-month drop in single-family housing completions for September was 8.6%.
3Q Homeownership Rate Edges Higher
The homeownership rate during the third quarter reached 64.8 percent, according to data from the U.S. Census Bureau edging up from 64.1 percent in the second quarter and 64.4 percent in the third quarter of 2018.
The third quarter 2019 homeownership rate was highest for those householders ages 65 years and over (78.9 percent) and lowest for those under 35 years of age (37.5%).
CA Wildfires Wreak Havoc
Bloomberg reported that damages from the fires ripping across California could run as high as $25.4 billion, and the risks are bound to keep rising.
The estimates come from an Enki Research database that slices the Earth into quarter-mile (365 meter) squares, augmented by assessment maps, photographs and other reports. In the case of California’s wildfires, the firm also uses infrared scans generated by a U.S. polar-orbiting satellite that shows the exact extent of the fire.
Damage estimates vary because many people will pay for repairs out of their own pocket.
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.