We have had a bevy of economic and political “events” in the last six months that have focused on stabilizing home prices. The President’s efforts on refinancing are starting to pay dividends, and the major settlement between the attorneys general with five of the biggest mortgage servicers offered some order to a market process that previously bordered on chaos. Money from the settlement has started to flow to the states, even though there is a looming concern that some of those funds are being used to close budgetary holes instead of helping families.
This past week, the National Association of Realtors held their Mid-Year Legislative Meetings and on Tuesday, PPI helped to assemble a panel of experts to discuss on-the-ground issues and upcoming housing issues.
The government’s role in the future of housing and current regulatory uncertainty was the most discussed topic. All panelists agreed that Fannie Mae and Freddie Mac aren’t going anywhere anytime soon and their future existence, in whatever version they take, would be necessary for a 30-year fixed rate mortgage, which is currently 95% of all loans being made.
Dr. Mark Zandi, Chief Economist, Moody’s Analytics, proclaimed the crash to be over. Ron Insana, Senior Analyst and Commentator, CNBC, and panel moderator, added some geographic context to Zandi’s assertion, artfully describing the housing market as a “national boom, a national bust and a regional recovery.” Zandi believes the regulators are not responsible for prohibiting loans, but he would like to see no new regulations. He states that as far as our problems in housing, we should be focusing on “hitting singles,” as there is no “home run” solution. Mark believes that when interest rates do finally begin to increase, there will be an explosion of activity as buyers realize they (and their kids and grand kids) probably will never see 4% rates ever again.
Other panelists expressed general optimism, but cautioned that “green shoots” they are seeing need to be nurtured along for a sustainable recovery.
Dr. Susan Wachter, Professor of Real Estate and Finance, Wharton School of Business, explained that regulators are engaged in a “race to the top,” and that we misunderstand that we do not face the same price risk today as we did in 2006. Expanding on the conventional wisdom that a government presence is required for a 30-year fixed rate mortgage, Dr. Wachter added one more necessary ingredient, which is a functioning securitization market. She was very definitive that without Fannie Mae and Freddie Mac, the government-sponsored entities, we would enter a second recession. She also noted that while much is accurately made of a “shadow supply” there is also “shadow demand” that would help, and feels our biggest looming threat is the European debt crisis.
Cutler Dawson, President and CEO, Navy Federal Credit Union, told the story of having nine Consumer Financial Protection Bureau (CFPB) examiners in his credit union for five months, finding no discrepancies, despite credit unions playing no significant role in the financial crisis. He said his credit union is still lending mortgages with no down payments, if he knows his customer is “buying the right house at the right price for that person at that stage of life, and we know them.”
Renee Glover, President and CEO, Atlanta Housing Authority, made the case that there is a threat of access to credit for families not at top of income range. She pointed out that there is not sufficient private capital without the GSEs and this is true in the multi-family space as well as the traditional single family. President Glover worries about the threat resetting adjustable rate mortgages (ARMs) pose to first time homebuyers of the lower income brackets and sees a decline in household formation.