TAMPA, Fla., Aug. 29—Sen. Johnny Isakson (R-Ga.) said at a policy forum here yesterday during the Republican National Convention that real estate is the core issue in this year’s national elections. “This is the most important discussion at the convention,” he told a packed audience of real estate, mortgage finance, and other industry representatives at a housing policy forum sponsored by NAR and more than a dozen other national real estate organizations.
No matter who comes out on top in November, the administration will have to make crucial decisions in 2013 on how to revamp the secondary mortgage market and deal with regulators whose proposed rules could derail the country’s slow recovery by hurting the availability of mortgage financing.
Rep. Michael Turner (R-Ohio), who joined Isakson at the forum, said out-of-control federal spending is choking off private enterprise and everything needs to be on the table after the elections to rein in federal debt. But he also said the mortgage interest deduction and other federal housing priorities remain among the most popular provisions with lawmakers.
“There’s pretty universal support for the mortgage intrerst deduction,” he said.
The forum was just one of hundreds of events taking place in Tampa through Thursday as thousands of delegates, lawmakers, and others from around the country participate in the convention. The Democrats will be holding their convention in Charlotte, N.C., next week. In the 2-minute video above, NAR leaders and REALTORS® who are delegates to the convention talk about the political process and the impact REALTORS® are having protecting real estate by getting involved in political activities at the local, state, and national levels.
Since the market downturn several years ago lawmakers in Washington have been talking about reforming the secondary mortgage market but nothing has come out of Congress yet. This year, though, a lot of progress is expected to be made toward reform, so it will be especially important for real estate brokers and sales associates to stay engaged in what’s happening, particularly this spring.
Although we’re still waiting for legislation to come out, lawmakers have been working on the issue quite a bit. Four bills have been introduced that would take a comprehensive approach to reform, including a bill by Rep. Gary Miller (R-Calif.) that very closely matches up with NAR’s priority, which is to encourage private investors to return to the secondary market while replacing Fannie Mae and Freddie Mac with an entity that continues to back conforming loans but as a nonprofit, not as a for-profit company.
NAR wants the federal government to keep a presence in the market out of a concern that mortgages remain available and affordable even in bad markets, when it’s too risky or not profitable enough for purely private participants to be counted on.
Sen. Johnny Isakson (R-Ga.) also has a bill out that matches up with NAR aims in many respects, and the association is working with the senator and his staff to refine his approach this spring. In a key point about his bill, it would define conforming loans as those that are based on sound underwriting, not on the amount of downpayment.
That’s important, because banking regulators have drafted Wall Street reform rules that would define conforming loans—what they call qualified residential mortgages (QRM)—as those that meet minimum downpayment requirements and other standards. NAR and others have been vocal about how bad that would be for the market, and the Isakson bill would address that.
In addition to these and a couple of other comprehensive reform bills, lawmakers have introduced 19 other bills that look at specific aspects of reform. NAR has never come out in support of any of these single-issue bills because it wants reform to be comprehensive, not piecemeal. All of the aims of these many bills will get looked at and, as NAR would like to see it, folded into a comprehensive bill where that makes sense.
So, a lot will be going on in the next few months, and NAR members can expct to hear more shortly. But whether all of this activity results in a single bill for a vote this year is uncertain. For one thing, starting around summer lawmakers will begin focusing on the upcoming national elections, so that could mean putting off a big vote like this until 2013, when the dust from the elections has settled.
But that’s all the more reason NAR members have to be engaged now. Because even if legislation takes until 2013 to pass, key decisions could be made in the next few months.
You can learn more about what to expect on reform in the 6-minute video with NAR analyst Tony Hutchinson.
Human cost of protracted housing crisis adds sense of urgency to conference on identifying solutions to negative equity and slow home sales
By Robert Freedman, Senior Editor, REALTOR® Magazine
On the day the Wall Street Journal ran an op-ed online calling for federal action to get the housing market moving again, a group of lawmakers, industry leaders, and policy strategists were devising ways to do just that.
Sen. Johnny Isakson (R-Ga.) called for allowing underwater home owners to use money from their retirement accounts to help them stay in their home rather than lose it to foreclosure. Rep. Dennis Cardoza (D-Calif.) called for lenders to refinance mortgages of troubled home owners without requiring an appraisal. Richard Smith, president and CEO of national real estate brokerage giant Realogy Corp. called for a share equity program and also to make federally backed mortgages assumable.
These were just a few of the ideas to come out of a day-long meeting, hosted by two policy think tanks, the Progressive Policy Institute and Economic Policies for the 21st Century, that these and other housing leaders participated in to find solutions to the housing crisis.
“This meeting called by the private sector is the kind of meeting that ought to be taking place on Pennsylvania Avenue and in the Capitol of the United States of America,” said Sen. Isakson.
NAR President Ron Phipps set the tone of the conference when he said the market is capable of self-correcting but it needs two things. First, it needs the federal government to stop intervening (or threatening to intervene) in the market in the wrong way such as by imposing a 20 percent down requirement in the qualified residential mortgage (QRM) rule or by talking about curbs to the mortgage interest deduction. Piecemeal federal intervention in foreclosure processing isn’t helping, either. Second, it needs the government to intervene in smart ways. Hence, the search for solutions like those offered up by Sen. Isakson, Rep. Cardoza, and others.
Had the conference, called “New Solutions for America’s Housing Crisis,” been merely a talkfest among policy strategists, many of the ideas for getting housing moving again might not get to the ear of Congress as quickly as many would like. But with several lawmakers there, including Sen. Isakson, Rep. Cardoza, and Sen. Jeff Merkley (D-Ore.), half the battle of getting the ear of Congress has already been won. Sen. Isakson is a widely respected leader in the Senate on real estate issues and Rep. Cardoza has been on the forefront in seeking solutions to the housing crisis, as you would expect he would be: his district is in California’s central valley, one of the hardest-hit areas in the country. In some parts of his district, underwater home owners outnumber those with positive equity by a factor of three-to-one.
In his Wall Street Journal piece, Neal Lipschutz made an important observation. “There are reasonable proposals offered from many corners that don’t spell stimulus in capital letters but would do some good,” he said. The housing conference, which got underway just about the time his piece came out, makes it clear that it’s not because of a shortage of ideas that the housing market is stuck in neutral. What’s needed, rather, is leadership, said President Phipps. “We’ve had plenty of talking about blame,” he said. “We need to get to solutions.”
The 4-minute video above summarizes the solutions to come out of the meeting.
By Robert Freedman, Senior Editor, REALTOR® Magazine
There’s still a long way to go for NAR and the 44 other organizations in a coalition to get banking regulators to rethink their controversial qualified residential mortgage (QRM) rule, but a press conference held on Wednesday in a Senate hearing room shows how well lawmakers can work together when the issue is strongly bi-partisan, as home ownership issues are.
At that press conference, Sen. Johnny Isakson (R-Ga.) and Sen. Kay Hagan (D-N.C.) joined Rep. John Campbell (R-Calif.) and Rep. Brad Sherman (D-Calif.) to make a forceful call to banking regulators to go back to the drawing board on QRM. It’s not that the proposed rule is completely off the mark; it takes important steps toward strengthening underwriting requirements so lenders don’t make the same mistakes they made during the housing boom. But they need to go back to the drawing board on the proposed requirement that borrowers make a down payment of at least 20 percent to get the most affordable financing available for borrowers with solid credit. Continue reading »
By Robert Freedman, senior editor, REALTOR® Magazine
A banking reform rule proposed by the FDIC and Federal Reserve earlier this month to require 20 percent minimum down payments on residential mortgage loans is based on the idea that loans with higher down payments perform better than those with lower down payments. As recently as last week, FDIC General Counsel Michael Krimminger told a House Banking subcommittee that his agency’s studies show “a significant relationship between higher loan-to-value ratios and increased risk of default.”
The Fed and FDIC’s 20-percent minimum-down proposal isn’t for all residential mortgages; it’s just for mortgages that get included in securities and sold to investors. If lenders don’t want to require a minimum 20 percent down, they just need to hold at least 5 percent of the value of the loan on their books. If they don’t want to retain that 5 percent, then they would have to require that minimum 20 percent down.
It’s hard to argue with the regulators that, in an ideal world, households would put down 20 percent when taking out a mortgage to buy a house. And indeed, the FDIC isn’t the only entity to find a relationship between high down payments and loan performance. The Community Mortgage Banking Project, a coalition of independent mortgage bankers, points to its own work showing a small correlation between down payment amount and performance—but with the emphasis on small.
In an analysis of the performance of loans made between 2002 and 2008, loans on which the down payment is increased from 5 percent to 10 percent showed improvement of between 0.1 percent and 0.5 percent. No, those aren’t typos. The gains are that small.
There was a little bit better improvement when down payments were increased from 5 percent to 20 percent. Performance improved between 0.3 percent and 1.6 percent.
Any time you can improve loan performance it’s a good thing, but to get these small levels of improvement, the market for home sales would have to shrink enormously, between 6.6 percent and 14.7 percent in the case of requiring a minimum 10 percent down, and between16.7 percent and a whopping 28.8 percent in the case of requiring a minimum 20 percent down. The market would shrink that much because requiring those higher down payments would drive huge numbers of households out of the market.
In other words, what the FDIC and Federal Reserve want to do is lop off almost a third of the home sales market to get up to 1.6 percent improved loan performance.
By Robert Freedman, Senior Editor, REALTOR® Magazine
Sen. Johnny Isakson (R-Ga.) is drafting legislation that would phase out the federal backstop role in the secondary mortgage market over 10 years while leaving a private company that’s created to replace Fannie Mae and Freddie Mac with a hefty reserve fund to cover any future catastrophic market events so the federal government doesn’t have to step in.
Isakson outlined his plan in broad strokes to hundreds of politically involved REALTORS®, who were in Washington, D.C., on Wednesday to learn about and to give input into NAR’s 2011 federal legislative and regulatory agenda.
Isakson’s proposal is likely to be just one of many that will be introduced in the legislative session ahead to reform Fannie Mae and Freddie Mac, the two government chartered secondary mortgage market companies that have been under federal conservatorship since the mortgage crisis.
The Obama administration is expected to submit its own plan for reforming the two companies, kicking off a comprehensive debate over how to ensure a robust conventional mortgage market going forward.
Currently, Fannie Mae and Freddie Mac are involved in more than half of the mortgage market (and FHA about a third), but there is widespread agreement within the administration, Congress, and industry groups that the companies must either be replaced or reformed so that the secondary market is no longer characterized by private, profit-motivated companies that receive taxpayer-funded support in the event of collapse, as happened in the wake of the financial crisis.
Isakson said he envisions the companies being replaced by a new entity, which he tentatively called the Mortgage Security Agency, that would be backed 100 percent by the federal government during its first year. It would generate money for reserves funded by a 50 basis-point fee on the mortgages it handles. For each of the next nine years, the federal guarantee role would be reduced by 10 percentage points until year 10, when the federal backing would stop completely. The agency would retain its reserve fund, which would function as its backstop in the event of a financial crisis.
“We have to get the government out of the sponsorship of business, but we can’t do it overnight,” he said.