Stevens Strongly Defends FHA’s Financials

By Brian Summerfield, Online Editor, REALTOR® Magazine

In an address to hundreds of REALTORS® at the 2009 NAR Conference & Expo Saturday afternoon, FHA Commissioner David Stevens offered a fervent defense of the organization’s financials. He specifically addressed the negative press surrounding the FHA’s recent audit, which showed part of its capital reserves below congressionally mandated levels.

Stevens distinguished the FHA’s capital reserves for unexpected losses from its regular reserve fund, which remains above 2 percent. Together, the two funds equal almost 4 percent in reserves. “We’ve come through the 100-year flood,” he said. “Despite the crisis, FHA is still standing with $31 billion in capital, $3.5 billion more than it had a year ago.” Read more

New Financial Regulator Would Impact You

By Robert Freedman, Senior Editor, REALTOR® Magazine

But not in the way you might think.

A new financial regulator is in the works but it’s one of those developments that’s easily lost in the news while other federal initiatives command the headlines.

The Consumer Financial Protection Agency (CFPA), which passed the House Financial Services Committee just a few weeks ago, would represent a sweeping change in the way financial services companies are regulated. Right now, our alphabet soup of federal banking regulators—OCC, FDIC, NCUA, and so on—have two missions: 1) to oversee the safety and soundness of financial services companies, and 2) to protect consumers.

The logic behind CFPA is to split off the consumer-protection side of the regulators’ portfolio so they can focus on bank safety and soundness. The new agency would focus on consumer protection.

What’s key for real estate professionals is that CFPA will focus only on financial services companies. That seems obvious, but it wasn’t always this way. As the language was originally drafted, any number of professional services that handle money in some way would have fallen under the definition of financial services. Thus, real estate professionals, who handle earnest-money deposits among other things, could have been subject to regulation under CFPA.

The fact that the House Financial Services Committee makes clear in its bill that real estate brokers and sales associates aren’t regulated under CFPA is an advocacy victory for REALTORS®, who, through NAR, let lawmakers know that the original draft would lead to unforseen consequences if it wasn’t changed. It was.

You should be aware that CFPA could still touch the real estate transaction in several ways, though. Read more

Stevens: Facts Getting Lost in FHA Safety Debate

By Robert Freedman, Senior Editor, REALTOR® Magazine

“Nobody has asked to come in and look at our balance sheet, to go through our finances, which I’ve offered to everybody.”—FHA Commissioner David Stevens

News reports raising concerns that FHA might be the next major financial institution requiring a government infusion are based on misinformed comparisons with what happened in the subprime market, FHA Commissioner David Stevens said in an exclusive interview with REALTOR® Magazine this week.

At their peak, subprime lenders commanded 40 percent of the residential mortgage market by making low-downpayment, no-document, interest-only, and other types of exotic loans to high-risk borrowers, investors, and speculators, a market that FHA sat out entirely, says Stevens.

Today, it’s FHA that commands 40 percent of the market, but that’s where the comparison ends. The agency makes 30-year, fixed-rate, fully documented loans only for households buying their primary residence. For each loan, the agency maintains capital reserves for the full 30 years of the loan rather than for the 1-2 years required of banks.

Today, the agency has more than $30 billion in reserves, including a fully funded loan-loss reserve. All the talk in the media about reserves dipping below a 2-percent required threshold is about a secondary account that’s above and beyond the agency’s primary reserve. Those two accounts together represent more than 4 percent of assets, he says.

An actuarial audit of FHA finances due out in a few weeks from a non-governmental auditor is expected to find that FHA has sufficient capital to cover all forecasted losses, even assuming further delines in home prices, says Stevens.

“What concerns me, and I think should concern all REALTORS®, is . . . non-fact-based [criticism] from people who jump to conclusions without looking at data [and] create an environment where we’ll be forced to make corrections where they are not required and can hurt this housing recovery.”

Stevens sat down with the magazine for a 30-minute interview that covered the agency’s new appraisal policy and an upcoming mortgagee letter that’s expected to make condo financing more attractive as well as the agency’s credit health. He also talked about the improvements to the agency’s processing that makes it comparable to conventional lenders in terms of processing speed and paperwork requirements.

Listen to snippets of the conversation here: Read more

An Under-the-Radar Win for Common Sense

By Robert Freedman, Senior Editor, REALTOR® Magazine

It’s a small thing, but it’s impact could have been big. Some new federal lending rules take effect tomorrow (under HOEPA—the Home Ownership and Equity Protection Act) and among them is a restriction on prepayment penalties, something anyone who’s taken out a mortgage would certainly appreciate. No one likes to pay a prepayment penalty, and certainly not when they’re abusive.

But lenders were concerned that the rule, which imposes the prepayment restriction on higher-priced loans (those with an interest rate 1.5 percent above prime), would snag higher-priced FHA loans. FHA requires borrowers, when they pay off their loan, to pay the entire month’s interest, no matter when during the month the pay-off occurs.

Depending on how you look at it, that extra interest payment has the character of a prepayment penalty, and indeed, NAR has been trying to get FHA to change that policy. Read more

Can You Afford to Say No to FHA Borrowers?

By Robert Freedman, Senior Editor, REALTOR® magazine

Hopefully you don’t consider it a mark against buyers if they want to use FHA financing. It’s true it typically takes longer to process FHA-backed financing than it does conventional loan applications, but with the challenging credit environment, for a big chunk of your potential clientele the only financing available to them is FHA. What’s more, these days it’s taking longer to get conventional financing applications processed, so the time gap between the two has narrowed considerably.

Yet here in NAR we continue to hear that sellers—and some sales associates—are discouraging FHA borrowers from making offers on homes in the outdated belief that FHA is significantly slower and more paper-intensive than conventional financing.

Not true, says NAR Senior Policy Analyst Megan Booth. While it’s the case FHA still requires borrowers to jump through some hoops that don’t apply to conventional borrowers, the agency has undergone a sea-change in the last several years in the way it does business. Read more

A Proposed Reboot for Fannie and Freddie

By Brian Summerfield, Online Editor, REALTOR® Magazine

A proposal to take Freddie Mac and Fannie Mae’s bad assets off the books and restructure the two organizations is scheduled for discussion at the White House’s National Economic Council today. A central part of the plan is the creation of a permanent, government-supported “bad bank” that would always be there to back up Fannie and Freddie by absorbing any toxic debts. (This idea originated with James Lockhart III, the chief regulator of the two companies and head of the Federal Housing Finance Agency, who recently announced that he’ll be stepping down from that role at the end of this month.)

Proponents of the move say this would shore up the organizations and get them funding mortgage loans again, which they haven’t been doing much of since their near-collapse in the summer of 2008. (The Federal Housing Authority has stepped up to fill some of the vacuum left by this breakdown in the mortgage lending system.) By reducing both bad assets and risk, Fannie and Freddie would be in a position to resume their roles as the prime movers of the mortgage market, which would in turn boost the housing sector and, ostensibly, the entire economy.

However, there are potential problems with the plan. Read more

Lender Logic Meltdown

By Wendy Cole, Senior Editor,  REALTOR® Magazine

Thought I would share this mind-boggling post from one of my REALTOR® friends on Facebook. Jennifer Bunker is the savvy broker-owner at Coldwater Creek Properties, an environmentally-conscious brokerage in Ogden, Utah: 

“Today Wells Fargo made a buyer prove that she has a fiancee before they would fund her loan (WTH?). So, she took a picture of her hand w/ the ring on it and emailed it as proof and … they took it! Seriously, what are bank people ingesting these days? Can it get any more bazaar?”

If this really happened, it shows that anxiety has overtaken reasonableness at a major lending institution. Since when is having a fiance a factor in qualifying for a mortgage?  And how could a photo be considered proof of anything? Anyone else come up against lending tales that defy logic, even in these cautious times?