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Will new mortgage regulators in D.C. keep your home safe?

By Jeff Lazerson

1/3/19

What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.

Rate news summary

From Freddie Mac’s weekly survey: Down 2 basis points from last week and, for the first time in four months, the 15-year fixed rate is under 4 percent, averaging 3.99 percent. The 30-year fixed rate improved to 4.55 percent, down 4 basis point from last week.

The Mortgage Bankers Association reported an almost 10 percent drop in mortgage application volume from two weeks earlier.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $159 lower than this week’s payment of $2,457.

What I see: Locally, well-qualified borrowers can get the following fixed rate mortgages at  a 0-point cost: 15-year FHA at 3.50 percent; 30-year FHA at 3.75 percent; 15-year conventional 3.75 percent; 30-year at 4.25 percent; high-balance ($484,351 to $726,525) FHA 30-year at 4 percent; high balance conventional ($484,351 to $726,525) 15-year at 4.0 percent; 30-year high-balance conventional at 4.50 percent; and jumbo (over $726,525) 15-year jumbo at 4.25 percent and 30-year jumbo at 4.875 percent.

What I think: Consider, for a moment, the Beltway-based mortgage industry regulators and leadership. Their ideas and actions steer the course of housing and, by extension, economic stability and soundness for you and yours. After all, Americans owe more than $15 trillion in mortgage debt, and residential real estate represents more than 15 percent of U.S. GDP.

So, let’s take a peek at the changing of the guard — that being the leadership at the Federal Housing Finance Agency or FHFA (Fannie Mae’s and Freddie Mac’s conservator and regulator), the Consumer Financial Protection Bureau (your mortgage police), Fannie and Freddie.

President Obama appointee Mel Watt recently completed his five-year term steering the FHFA ship as its director.

Watt is credited with overseeing the development of the Single Security and Common Securitization Platform or CSP. Briefly stated, it’s a way to merge and align Fannie’s mortgage-backed securities and Freddie’s participation certificates to reduce or eliminate trading disparities. The goal is to bring additional liquidity to newly forming securities.

Besides a subordinate FHFA employee accusing Watt of alleged sexual misconduct, there is another question mark about Watt’s leadership. Did he allow mortgage giants Fan and Fred to get too loose with credit standards?

Some in the industry are not keen on Watt.

“I’m not a fan,” said Tom Lamalfa, president of TSL Consulting. “Watt liberalized and weakened credit standards,”

“Loan-to-value keeps going up for first-time buyers. Last in are at the highest risk,” said Lynn Fisher, resident scholar of the American Enterprise Institute. “Not good risk management.”

Low down payments and generous approvals work well in a good economy but how many of those borrowers will falter when economic headwinds hit?

Mark Calabria, chief economist for Vice President Mike Pence, was recently nominated by President Donald Trump to be the new FHFA director. My own first-hand experience with Calabria more than a dozen years ago gives me high confidence Calabria will properly guide the mortgage giants.

Before the mortgage meltdown, I was heading a platform to stop discriminatory and predatory lending practices. Calabria was a staffer on Alabama Sen. Richard Shelby’s Senate banking committee.

Calabria was the only person in Washington who made the effort. He paved a path for me with the House Financial Services Committee and regulators. Calabria, unusually modest for D.C. standards, is an economist by training. He understands housing as well as anyone.

He’s also not a big fan of government-backed mortgages, writing in 2016: “The primary barrier [to homeownership] is the high price of housing relative to income” and “the clear solution is to increase that supply of housing, not continue down the path of low down payments.” As Barrons’ pointed out in December, Calabria said packaging mortgages into bonds sold to investors was “a false god that failed us.”

After Fan and Fred were placed into conservatorship 10 years ago, most big decisions needed to be vetted through the FHFA. Much of the job was manning the ship.

Regarding Fannie Mae’s now-former CEO Tim Mayopoulos, “Not screwing something up is a pretty good accomplishment,” said Paul Muolo, managing editor at Inside Mortgage Finance.

Donald Layton will be stepping down as Freddie Mac’s CEO. Layton deserves credit for advancing more loan approvals and homeownership by eliminating the lender charge in 2015 for running borrowers through Freddie Mac’s Loan Prospector automated loan decision engine.

Fannie Mae soon followed, eliminating the lender charge for running borrowers through its similarly situated Desktop Underwriter automated decision engine.

Mick Mulvaney replaced Consumer Financial Protection Bureau Director Richard Cordray as acting director after Cordray resigned to run for governor of Ohio in late 2017. (Cordray lost the election). In mortgage circles, Cordray’s gained a reputation of blurred lines of regulation by enforcement.

Mulvaney had a more reasoned approach. “We are after the bad actors,” he said at the MBA convention a few months ago.

Kathy Kraninger was recently confirmed as the new CFPB director. Kraninger should start by addressing kickbacks from real estate settlement service providers to real estate agents. Consumers pay a lot more than need be when the mortgage police don’t care.