By Robert Freedman, Senior Editor, REALTOR® Magazine
Former FHA official Brian Chappelle has come up with a few ideas for getting the housing market back on track that are notable for one thing: They make so much sense that you wonder why these ideas haven’t been implemented already.
Chappelle posted his ideas in a piece he did for American Banker, and many of them accord with ideas that came out of the housing solutions conference that NAR leaders participated in last month with other industry leaders, members of Congress, and policy analysts.
Chappelle says his laundry list of ideas can be thought of as a “Moneyball” approach because although each idea is relatively modest, when combined with the others they equal a powerful way to stimulate home sales and, by extension, the broader economy. That’s got to be something Fed Chairman Ben Bernanke would love, because he has had one of the loudest voices this year for lawmakers and policymakers to do something to get housing moving again, because as long as sales stay down, the economy can’t grow itself out of its doldrums.
In a nutshell, Chappelle proposes a few small changes. The first, restore FHA and conforming loan limits to where they were in 2008, is something some lawmakers are already trying to do. The Senate passed legislation to restore the limits to 125 percent of area median home price with a high-cost limit of $729,750. That proposal is now in the House. But it remains an uphill climb.
The second is for FHA to once again allow for “spot” loan approvals for condominiums. This is simply a fast-track loan approval process that FHA stopped allowing earlier this year. Chappelle says condo loans are performing better than single-family loans, so FHA’s backing away from spot approvals makes little sense.
Housing solutions conference
Third, along with this, FHA and Fannie Mae and Freddie Mac should look at ways to bring in investors under their rehabilitation loan programs (in FHA, it’s the 203(k) program). This idea came up at the housing solutions conference, too, because investors can rally make a dent in inventory today and help neighborhoods if this vehicle was open to them.
Fourth, Fannie and Freddie need to rethink their loan price adjustments. This is another idea that came up at the housing solutions conference. These fees are making loans too expensive and they’re having a dampening effect on home buyers. Chappelle says Fannie and Freddie’s own regulator has wondered whether the fees are even necessary for borrowers with credit scores above 660. In any case, it would be better for the fees to be blended into the guaranty fee rather than kept as a separate upfront fee.
Fifth, FHA’s new mortgage insurance premium structure should be rethought. Chappelle says the agency should return to the structure it used before, which is a higher upfront premium and a modest annual premium of .5 percent. Right now, the fee is structured as a lower upfront fee but the monthly payments are higher.
In his sixth idea, Chappelle takes on one of the highest hurdles to increasing the availability of mortgage finance today, and that’s the credit overlays that lenders are imposing on borrowers. These overlays are, as the name implies, over and above the requirements of FHA and Fannie and Freddie. You might wonder, as Chappelle does, why lenders even have to impose these additional requirements on borrowers since the loans are backed by the federal government anyway. But, as Chappelle points out, lenders are concerned about buyback and indemnification risk from the government if loan go bad.
Chappelle calls this situation a stalemate and suggest ways to break it:
• Offer arbitration or mediation on repurchase requests.
• Implement a prior approval program for higher risk loans.
• Have the agencies manage the relationship with appraisers, like the VA does, on higher risk loans.
• Develop uniform repurchase or indemnification standards similar to what FHA published in a proposed rule last October.
• Establish sunset provisions on enforcement liability (although fraud and misrepresentation would run life of the loan).
• Revisit the treble damages statute for loss mitigation processing errors (although treble damages for program fraud should be continued).
What was notable about the housing solutions conference last month was that no one had a single grand idea that would help housing, but there were a lot of little ideas. and these ideas, when added up, amounted to more than the sum of their parts. Chappelle has done something similar, and his ideas merit a serious look.
Read Chappelle’s piece in its entirety on American Banker’s Web site. Chappelle is with a policy consulting firm called Potomac Partners LLC.