Mortgage Analytics News And Views
Finance forecasts and projections abound with financial reform now right around the corner
. It's all white noise, of course, until the chips begin to fall. But one thing is for sure: it's bound to shake up the way we all approach mortgage analytics. And this industry has certainly seen its share of changes in the last couple years. But while we're not putting too much stock in all the prognoses circulating the web, we do think it's important to stay tuned in. Here are a couple we've been paying attention to lately.
This week The Atlantic gave us 7 Reasons To Be Skeptical About Financial Reform. Sounds like a good place to start. Here are a few excerpts:
2. The Bill Doesn't Deal With Fannie, Freddie, Credit Runs, or Leverage. Fannie and Freddie played a huge role in helping to overheat the U.S. mortgage market. Until those agencies experience some fundamental change in policy and procedures, it's hard to see how another housing disaster won't occur again in the future. There's no attempt at any reform for these companies in either of Congress' financial regulation proposals.
4. Financial Reform Won't Protect Taxpayers From a Future Bailout. If financial reform accomplishes anything, it should minimize the cost to taxpayers of future financial crises. But looking at the bailouts that Americans will be on the hook for, it fails that very basic test. And this isn't really a controversial point, since it does nothing to reform the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. [Via Bloomberg:] 'The White House's Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens."'
7. We Failed to Kill 'Too Big to Fail.' In Fact, We Might Have Made It Stronger. What happens when lots of banks start to fail together? The liquidation process will be so onerous and ugly that in future severe crises where we've got widespread problems in the industry with multiple systemically crucial banks ... the once-every-three-generations kind of catastrophes ... the government might not have the stomach for widespread liquidation. "Think about it this time around," says Brookings' Doug Elliott. "If they had to take down Citi and Bank of America and the law required them to liquidate these guys, it would have been a disaster. And we would have created TARP."
...and The Huffington Post has these thoughts about how the impending bill will impact the mortgage industry in particular:
The Bill is Jet Fuel for Concentration of Mortgage Risk: One of the likely outcomes of the bill is that the largest financial institutions will increase their already bloated share of the mortgage market. Five banks today control in excess of 65% of the mortgage market the financial bill will accelerate this trend by favoring banks over independent lenders. This was a deliberate decision pushed by Chairman Frank and the administration on the theory that large banks were easier to regulate than myriad independent lenders. Thus risk retention requirements, compensation rules, and licensing standards are all tilted toward large banks. The result is that the big will get bigger and the level of mortgage risk will concentrate further though the administration argues that more competent regulators and safer mortgage products alleviate the concern about "too bigger to fail."
Indefinite and Increased Government Support for Mortgage Market: The bill further increases the dependence of the mortgage and housing market on federal support. Private capital is already scarce in housing over 95% of mortgages today are guaranteed directly or indirectly by FHA and other government agencies. Private securitizations will be helped by new rules that create transparency and requirements that rating agencies do their homework before rating a mortgage security. But other parts of the bill impose new liability on securitizers for the underlying mortgages originated by third parties, and requirements to retain capital when transferring risk. The full contours of these rules won't be issued by regulators for 2-3 years extending a period of uncertainty that has dissuaded private investors from restarting the flow of mortgage capital. Meanwhile, the federal footprint in mortgages will become deeper and deeper in order to keep the housing market from the dreaded double dip and making the unwinding of federal intervention that much more difficult.
A Smaller Mortgage Market With Fewer Qualified Borrowers: The new law places significant hurdles to offering any mortgage products outside the "plain vanilla" category. Regulators must define what is inside or outside the plain-vanilla box. Clearly, firm regulation of mortgage products is necessary in light of the subprime meltdown. But exactly where regulators draw the line will have a substantial impact on what kind of mortgages are available and which borrowers will qualify for a mortgage. Already we have seen that non-traditional borrowers have virtually fallen out of the home-buying market, other than thru government guaranteed FHA loans. Last year, rejection rates for African American and Latino borrowers skyrocketed for non-FHA loans. Will new mortgage standards be flexible enough to allow for reasonable credit risk determinations or will plain vanilla mortgages mean plain vanilla homeowners?
by: Mortgage Analytics
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