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The future of the mortgage profession will be defined by the industry’s willingness to fight for what it believes to be is right, according to David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA).
“It’s been nearly 10 years since the financial crisis began,” said Stevens in a speech delivered this morning before the MBA’s Secondary Market Conference in New York. “Since the crisis, we have been confronted with thousands of pages of new laws and regulations that impact every part of our business. Add on to this new and often unclear interpretations of old rules and unique uses of existing laws like the Civil War-era False Claims Act. And while the simple fact is that today’s mortgage lending environment is the most conservative, safest we have ever seen, most lenders still feel like we are under attack. Add in a political atmosphere complete with broad brush accusations in political rhetoric that only perpetuate anger towards an industry that’s sole purpose is to provide real estate finance opportunities to qualified borrowers, and it can be tough not to want to fight back.”
Stevens praised his trade as “The outsized voice advancing a litany of important policy changes that are making a difference,” noting its impact on issues ranging fighting congressional attempts to divert guarantee fees into non-real estate projects to encouraging better relations with the government-sponsored enterprises (GSEs). Going forward, however, Stevens identified three key areas where the MBA will be focusing.
“First, we must modify some of the rules so that they work on their own,” he said. “For example, QM has done a lot of good, but still falls short of being the long term solution. Under the current rule, the GSEs can purchase good, sustainable loans that meet their underwriting standards but failed to meet the QM standard of 43 percent DTI. This is because the QM “patch” provides a safe harbor exemption for these loans. If we had to underwrite loans solely based on the written QM rule without the patch, and the permanent exemption for the GNMA programs, credit would be much tighter.
“Here’s the problem,” Stevens continued. “The patch is only in effect as long as the GSEs remain in conservatorship or for seven years, whichever comes first. When the patch expires, or if GSE underwriting changes substantially, a whole segment of qualified potential borrowers will be frozen out of the market. The QM rule needs to stand on its own two feet. It should not be a rule that essentially punts all credit decisions to two companies that are not even regulated by the same agency. More importantly, the rule should demand the same credit approval process for a borrower, regardless as to whether the loan is being sold to a GSE or a private investor, as long as all the other terms are the same.”
Stevens also noted that the future of the GSEs is a long-stalled problem that needs to be resolved.
“The conversation on the future of the GSEs is still very much alive and now other voices are being added to ours,” Stevens said. “Consumer groups, economists and members from Capitol Hill all recognize the need to solve the conservatorship question. The transition steps being taken now will prepare the market for any future state and help ensure a competitive marketplace for institutions of all sizes.”
While Stevens noted that progress was underway in the creation of a common securitization platform (CSP), he stressed the need for greater speed in making this a reality. “Aligning the TBA markets for both GSEs in order to promote a single fungible instrument should result in a more liquid market for all participants,” Stevens said. “Investors will retain the option to stipulate the issuer they want, which should keep discipline in the process with respect to key policies that impact prepayment speeds and other performance variables.”
The third challenge, according to Stevens, was the creation of a federal housing policy coordinator as part of the next president’s administration.
“The industry needs a key housing policy expert at the most senior level in the next administration to coordinate across federal regulators to ensure they meet, talk to each other, and consider the implications of the confusion and conflict created by uncoordinated overlaps in the rules,” he said. “We need to work with the leading candidates of both parties to make housing a priority in the next administration. America is facing a housing affordability crisis that is only getting worse. The next president will need to tackle this issue immediately upon taking office.”