The National Association of Home Builders (NAHB) released a white paper on Wednesday calling for an overhaul of the system by which residential appraisals are determined. The group made a number of recommendations, some of which members of the National Association of REALTORS® have supported in the past, including the implementation of licensing and certification standards as well as minimum education requirements. However, another in their list of recommendations could have serious consequences for the role of the multiple listing service (MLS) in home sales.
A section of the white paper focused on data technology criticizes local MLSs for becoming “less reliable” in recent years. The solution to this, and the more general problem of a lack of data standards that apply across the country, is what NAHB refers to as “the development of a real estate superhighway.” The group proposed creating this in four sections:
- Terra.gov – NAHB proposed “a national real property registry… with access by all stakeholders.” They named this as the site of an “official record of the factual details of both the structure and the regulatory constraints on the land.” Some of the specific items mentioned as included in such a database were time stamped photographs, satellite images, and floor plans. As of Friday afternoon, the Terra.gov domain name remained unregistered according to WhoIs.com. Continue reading »
Researchers from Columbia University and the University of Chicago have done mortgage investors a big favor by teasing out two examples of how investors were fed bad information on the safety of so-called private-label subprime mortgages during the housing boom.
Private-label subprime mortgages are those no-down payment and other exotic subprime mortgages that Wall Street securitizers packaged into non-federally backed securities for sale to investors around the world. These were the first securities to go bust once home prices stopped rising and which a U.S. Treasury report two years ago said were the fuel that led to the mortgage crisis and, by extension, the economic crisis that we now call the Great Recession.
What the Columbia and University of Chicago researchers show in a report they just released is that the underwriters of these private-label mortgage backed securities misrepresented key facts about the loans in a sizable percentage of the cases. What’s more, the researchers limited their investigation to just two indicators of asset quality: the owner-occupancy status of the loans at origination and the presence or absence of second-lien financing.
The researchers raise the possibility that, based on the findings from just these two quality indicators, other indicators might have similar rates of incorrect information, although the researchers don’t know that for sure because they didn’t investigate other indicators.
“The results in our paper indicate the presence of sizeable asset misrepresentations even among the most reputable underwriters,” say the researchers, Tomasz Piskorski and James Witkin of Columbia University, and Amit Seru of the University of Chicago.
Based on their research into the loans collateralizing private-label securities in just one year, 2007, the researchers found misrepresentation in about 10 percent of the cases. “Misrepresentations on just [these] two relatively easy-to-quantify dimensions of asset quality could result in forced repurchases of mortgages by intermediaries in upwards of $160 billion,” they say.
According to one industry analyst, the nature of these findings suggest that federal banking regulators, as they proceed with forthcoming rules on qualified residential mortgages (QRM), which apply just to securitized loans, might want to switch their focus away from underwriting factors such as amount of down payment and instead focus on issues related to transparency.
Under the rules being written for QRM, regulators would require lenders to maintain at least 5 percent of the loan amount on their books to ensure they have some skin in the game for each loan they make that’s packaged into a security and sold to investors. That would likely increase costs to borrowers, but lenders would have the option to make loans with no 5 percent holdback if they originate the loans to the QRM standards. These standard haven’t been finalized yet, so we don’t know what they’ll entail, but there have been proposals to require a minimum down payment, among other things.
What the research suggests is that minimum down payment and other requirements like that might be less helpful than focusing on transparency on the loan quality that goes into the security. That’s what this new research shows: if investors are given accurate information about loan quality, they can decide for themselves whether the risk of investing in the loans makes sense for them and, if it does, how much they’re willing to pay for it.
Coverage of the 2013 State of the Union speech:
President Barack Obama in his first State of the Union speech since winning election to a second term said the federal government needs to streamline rules that are making home purchases and mortgage refinances too hard for creditworthy households. He also urged Congress to tackle tax reform, despite all the other priorities on its agenda, and he said homes and commercial buildings must be part of the country’s effort to improve energy efficiency.
The President also touted his initiative to help rebuild communities hard hit by the economic slowdown by incubating new businesses and working with public and private partners to rebuild vacant homes.
“Our housing market is healing . . . and homeowners enjoy stronger protections than ever before,” the President said at the beginning of his speech. But among the country’s unfinished business, he said, is the continuing difficulty among households to get mortgage credit.
“Even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected,” the President said. “Too many families who have never missed a payment and want to refinance are being told no. That’s holding our entire economy back, and we need to fix it.”
Obama pointed to legislation pending in Congress to encourage refinancing by underwater and other struggling borrowers who’ve remained current on their mortgage. The legislation “would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates,” Obama said. “Democrats and Republicans have supported it before. What are we waiting for? Take a vote, and send me that bill.”
There are a number of mortgage refinance bills pending in Congress, including the “Responsible Homeowners Refinancing Act” by Sens. Robert Menendez (D-N.J.) and Barbara Boxer (D-Calif.) to streamline refis of Fannie Mae and Freddie Mac loans, and a bill to let struggling borrowers refinance into FHA loans, among others.
Obama also echoed real estate industry concerns over the qualified mortgage (QM) and qualified residential mortgage (QRM) rules, which federal banking regulators have been working on since passage of the big Wall Street reform law that was enacted two years ago. QM was issued earlier this year and lays out broad-based lender requirements to ensure loans are made only to borrowers who can reasonably be expected to meet repayment obligations. QRM is still to be released. It sets additional restrictions on lenders for loans that would be packaged into mortgage backed securities and sold to investors. NAR and other industry and consumer groups back broad-based, flexible standards and remain concerned that QRM restrictions that go beyond QM could keep the availability of mortgage credit too tight.
“Right now, overlapping regulations keep responsible young families from buying their first home,” Obama said. “What’s holding us back? Let’s streamline the process, and help our economy grow.”
The tax reform agenda the President laid out included no specifics, but on individual taxes, he called for eliminating “tax loopholes and deductions for the well off and well-connected.” He also called for simplifying taxes for small businesses. On corporate taxes, he called for “a tax code that lowers incentives to move jobs overseas and lowers tax rates for businesses and manufacturers that create jobs right here in America.”
More detail on what he has in mind for tax reform will likely be included in his Administration’s 2014 budget request, which he’s expected to submit to Congress in mid-March.
Obama said his goal for home and commercial property energy efficiency is a 50 percent reduction in energy waste. “Let’s cut in half the energy wasted by our homes and businesses over the next twenty years,” he said. “The states with the best ideas to create jobs and lower energy bills by constructing more efficient buildings will receive federal support to help make it happen.”
Obama’s initiative to help economically hard-hit areas by rebuilding vacant homes isn’t new; he’s touted what he calls “Project Rebuild” before. In last night’s speech he talked about his plan to ramp it up a bit by partnering with “twenty of the hardest-hit towns. . . . We’ll work with local leaders to target resources at public safety, education, and housing. We’ll give new tax credits to businesses that hire and invest.”
All of these and other domestic initiatives the President referenced, including a public-private effort for rebuilding the country’s aging bridges, ports, and other infrastructure, are intended to help boost the economy and the middle class, which he said has been disproportionately hard hit for the past decade. “It is our generation’s task . . . to reignite the true engine of America’s economic growth—a rising, thriving middle class,” he said.
Habitat for Humanity released its 2013 Shelter Report earlier this week and as part of its release it joined NAR and the REALTOR® University Center for Real Estate Studies to host a discussion on how moderate-income households are faring in the housing market now that the recession is behind us. The answer is, they’re not faring well because of tight lending standards, uncertainty in the market, and a shortage of homes for sale, among other things.
That’s unfortunate for them and it’s a problem for the market, especially since responsible moderate-income households, if they’re given the right loan product, have proven to be excellent credit risks, said Janneke Ratcliffe, executive director of the UNC Center for Community Capital. Ratcliffe shared statistics from an affordable home ownership program in North Carolina called the Community Advantage Program which showed that, despite the economic turmoil of the last few years, the 50,000 borrowers in the program have performed well. “This portfolio has been incredibly resilient,” she said.
The borrowers performed well despite having a median income of less than $35,000 and most of them putting down 5 percent or less, Ratcliffe said.
David Berenbaum, chief program officer of the National Community Reinvestment Coalition, reinforced the idea that down payment amount is the wrong measurement to focus on if your goal is to help households become stable, long-term home owners. What’s key to stable mortgage borrowing is the quality of the loan product and the underwriting. “It’s the products, folks, not the amount of the downpayment,” he said.
On the importance of underwriting over downpayment, the real estate industry is in complete agreement, he said, which makes it all the more frustrating for housing advocates that federal regulators are talking about mandating a minimum downpayment for qualified residential mortgages. These QRM loans, once regulators release rules on them, will require lenders to maintain a 5 percent stake in loans they originate for inclusion in mortgage-backed securities unless they meet the QRM requirements. The rules have yet to be released in final form, but there’s been talk of a 20-percent or other minimum downpayment requirement as part of the definition of a qualifying loan, and that would be destabilizing to the market, Berenbaum said. “There are decades [of research] on that point,” he said, referring to research showing underwriting is what’s important in borrowrer performance, not downpayment amount.
Other presenters at the policy duscussion, called “Affordable Housing After the Great Recession,” were Peter Burley of the REALTOR® University Center for Real Estate Studies, Paul Bishop of NAR’s research department, and Liz Blake of Habitat for Humanity.
The 3-minute video above summarizes some of the main points made at the event, held Feb. 6 in NAR’s Washington, D.C., offices. Habitat for Humanity will have a video of the entire policy discussion on its website shortly.
Access the 2013 Shelter Report from Habitat for Humanity.