The Week Ahead 

 

 Upcoming Hearings

The Congress is in recess for the Thanksgiving holiday.

Upcoming Conferences

  • NAHB IBS 2020, 1/23-25
  • MBA IMB, 2/3-6
  • SIFMA AML, 2/5-6
  • NAR Policy Forum, 2/6
  • MBA Servicing, 2/23-26
  • SFIG Vegas, 2/23-26
  • NEXT Winter, 2/24-25
  • MBA Advocacy, 4/21-22
  • MBA Secondary, 5/17-20

Revised Capital Rule Good for Markets   

 As we expected, FHFA announced plans this week to re-propose the entire regulation on capital requirements for Fannie Mae and Freddie Mac next year. 

While the headline risk of a delay to new capital requirements can be viewed as a headwind stalling progress on ending the conservatorships of the GSEs, we assess that the new rulemaking is actually another marker indicating the resolute approach of Calabria et al to ending the current state.

Clearly, the 2018 Capital Rule was proposed before FHFA began the process of retaining capital at the GSEs as a first step toward ending the conservatorships.

FHFA posits that in fairness to all interested parties, the comments submitted during the previous rulemaking were submitted under a different set of assumptions about the future of Fannie and Freddie. During the process of the 2018 rulemaking, important issues were identified by FHFA that will be addressed in the re-proposal.

FHFA understands that time is not on their side and so the rule will be re-proposed and finalized within a timeline fully consistent with ending the conservatorships. We agree that requiring the GSEs to build capital that can properly support their risk ensures that taxpayers will never be on the hook again during a crisis. 

Inaugural DC Housing Conference a Hit

This week we partnered with NEXT Mortgage Events and held our first annual Housing Policy conference in Washington, DC. The mortgage summit was a tremendous success and featured the highest quality of exchange and networking geared primarily to women executives in mortgage.

One of our panelists noted that 24 of 32 speakers were women and that was by design. While we welcome the participation of men, such as our keynote speaker, Craig Phillips, well known as the architect of the Administration’s Housing Reform Plan, we were fortunate to offer insight and competitive intelligence in an environment that promotes and accentuates opportunities for women in housing finance.

Housing Makes Agenda of MSNBC Dem Debate                                          

The fifth democratic debate brought housing front and center and candidate Elizabeth Warren took full advantage.

Having introduced legislation called the American Housing and Economic Mobility Act that invests $500 billion over the next ten years to build, preserve, and rehab units that will be affordable to lower-income families, Warren has recently pledged to create a Tenant Protection Bureau (TPB) as part of her affordable housing plan.

According to Warren, the TPB will be modeled after the CFPB.

The TPB includes a national public database of information about large corporate landlords, including information like corporate landlords’ median rent, the number and percentage of tenants they evicted, building code violations, the most recent standard lease agreement used and the identity of any individuals with an ownership interest of 25% or more.

“The federal government has subsidized the purchase of housing for decades for white people and has said for black people: ‘you’re cut out of the deal.’ That was known as redlining,” said candidate Elizabeth Warren during this week’s Democratic debate. 

FHFA Reports on CRT  

FHFA issued its semi-annual CRT Progress Report describing the status and volume of CRT transactions through the second quarter of 2019. The report provides a comprehensive picture of how Fannie and Freddie transfer a substantial portion of credit risk to the private sector through a variety of transactions in both the SF and MF markets.  

Through the first half of 2019, Fannie and Freddie transferred 84 percent and 89 percent, respectively, of the allocated credit risk capital on 2018 acquisitions covered by credit risk transfer.  Of total single-family loan acquisitions in 2018, 73 percent were targeted for CRT.  

Since the start of the programs in 2013 through the end of June 2018, the GSEs have transferred a portion of credit risk on approximately $3.1T of UPB with a combined Risk in Force (RIF) of about $102B or 3.3 percent of UPB.

Fannie Mae Points to Improving 2020 Outlook      

Fannie Mae published its Economic and Housing Outlook this week finding expected easing trade tensions, stimulative fiscal policies, and continued consumer spending will contribute to an upgraded 2020 forecast for real GDP growth of 1.9 percent.

Housing added to growth in the third quarter for the first time in more than a year and a half, and Fannie expects that momentum to continue into the fourth quarter and the first half of 2020.

Housing should continue to function as a positive contributor to growth in the near term, as indicated by both new and existing single-family home sales advancing in the third quarter, as well as pending home sales, permits, and starts. However, persistent supply and affordability constraints continue to hold back household formation, inhibiting housing market activity.

While macroeconomic data remains largely positive, risks to the forecast remain weighted to the downside and include a potential breakdown in trade talks between the United States and China, as well as ongoing political uncertainty abroad.

Given the range of downside risks and muted inflation, Fannie Mae continues to expect one more rate cut from the Federal Reserve in early 2020 before pausing for the remainder of the year.

“Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan.

“A stronger-than-expected third quarter contributed to the downward revision to our fourth quarter forecast, as some of the previously expected weakness in trade and inventories appears likely to have been pushed back into this quarter.”

Consumer spending is expected to remain the primary driver of economic growth for the forecast horizon, with business fixed investment poised to benefit in the New Year as additional corporate expenditures work to meet sustained consumer demand.

Faith’s Corner: Median Age of FTHB Up to 33 

I examine the maturing age of the FTHB in my corner this week. The FTHB median age has increased to 33, the oldest in records dating back to 1981, according to a National Association of Realtors report. The median age of all buyers also hit a fresh record, 47, increasing for a third straight year — and well above the median age of 31 in 1981.

While the median age of first-time home buyers only rose by one year, the increase reflects a variety of factors facing Americans searching for a home.

A nationwide shortage of affordable housing, coupled with lower mortgage rates, has stoked prices in cities from the coasts to the heartland. At the same time, student loans and other debts make it harder for Americans to save tens of thousands of dollars for a down payment, while tight lending standards can make getting a bank loan difficult for borrowers with less-than-stellar credit scores.

“Housing affordability is so difficult today, especially when coupled with rising rents and student loan debt, that they’re finding different ways to enter home ownership,” said Jessica Lautz, vice president of demographics and behavioral insights at the Realtors group in Washington.

The characteristics of home buyers have changed in recent years. The share of married couples has declined as unmarried couples and those purchasing as roommates has risen. As buyers’ ages have increased, so have their incomes. The typical income of purchasers rose to $93,200 in 2018 as a lack of affordable options squeezed lower-income potential buyers out of the market. Nearly a third of first-time home buyers said they used a gift from a relative or friend to fund their down payment.

IMB Profit Increases to 7 Year High 

IMBs and mortgage subsidiaries of chartered banks reported a net gain of $1,924 on each loan they originated in 3Q, up from $1,675 per loan in 2Q.

The MBA 3Q Mortgage Bankers Performance Report also reported average pre-tax production profit rose to 74 basis points in 3Q, up from an average net production profit of 64 bps in 2Q.

New Home Applications

MBA Builder Applications Survey data for October show mortgage applications for new home purchases increased by nine percent from September and by 31.5% from a year ago.

By product type, conventional loans composed 67.8% of loan applications, FHA loans composed 19.2%, RHS loans composed 0.7% and VA loans composed 12.3%. The average loan size of new homes increased to $335,235 in October.

 At an annual pace of 791,000 units, the estimate of new sales has reached its highest level since the inception of the survey in 2012.

 

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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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