This week, two financial undertakings will be at the forefront of national attention: the continued push by the Senate and House with separate stop-gap funding bills to keep the federal government operating and FHA’s expected receipt of an estimated $1 billion cash infusion from the Treasury Department to shore up its reserves.
Key MBA Action
Fed, CFPB Release Results of the 2012 HMDA Data
The Federal Reserve Board has released its annual analysis of the 2012 HMDA data. In addition to the regular report, the Fed for the first time matched a five percent sample of the HMDA data to credit report data and compared results for loans originated in 2006 – at the height of the boom – and in post-boom 2010. MBA will be doing more in-depth reviews of the results and their implications, but the Fed report highlights the following findings that will be relevant in upcoming policy debates on the qualified mortgage (QM), GSE Reform, and FHA Reform:
-Government-backed loans (FHA, VA, RHS) accounted for nearly 45 percent of first-lien, owner-occupant home-purchase loans;
-Higher-priced mortgage loans (HPMLs) remained subdued at about three percent of all loans, down from a high of about 28 percent in 2006; and
-As in prior years, Black and Hispanic borrowers were more likely to receive HMPLs than were Asian and White borrowers. Additionally, denial rates were significantly higher for Black and Hispanic-white applicants compared with Asian and non-Hispanic white applicants.
Some of the main findings from the analysis of the matched HMDA–credit record data include:
-The credit scores of Black and Hispanic-white mortgage borrowers at the time of loan origination tend to be lower – and subsequent delinquency rates higher – compared with Asian and non-Hispanic white borrowers. Delinquency was highly correlated with credit score, local area house price declines, and HPML status, but substantive differences in delinquency rates across racial and ethnic groups remain after accounting for these variables;
-The credit scores of individuals obtaining a mortgage in 2010 were much higher than in 2006, and delinquency rates on 2010 loans were much lower than those on 2006 loans;
-The proportion of conventional home-purchase loans originated in 2010 that became 60 days or more past due within two years of origination was just 0.5 percent, about one-twentieth the rate for the 2006 vintage. The delinquency rate on 2010 FHA home-purchase loans was five percent—about one-third the rate of the 2006 vintage; and
-The fraction of all home purchase borrowers with a back-end DTI ratio above 43 percent (the QM threshold) declined only slightly between 2006 and 2010, from 25 percent to 22 percent. However, loan performance (percentage that became 60 day DQ after two years) for all purchase loans improved dramatically, declining from 10 percent in 2006 to three percent in 2010.
-The last item will play an important role in ongoing discussions about the impact of QM on the market, and the need for a more flexible DTI standard in the QM rule, especially after the GSE “patch” expires.
On a related note, the CFPB has released an online tool that allows the public to look at interactive “heat maps” on lending activity (both applications and originations) by MSA and county, loan type, loan purpose and other factors. Additional functionality will be added in the future as part of CFPB’s efforts to make the market more transparent for consumers.
MBA Issues Analysis of CFPB Servicing Rule Amendments
Two weeks ago, the CFPB issued final rule amendments clarifying various provisions of the Servicing, Ability to Repay/Qualified Mortgage, Loan Originator Compensation and Appraisal rules. Since their release, MBA has completed a summary of the rule amendments that modify the Servicing provisions to Regulation X, and recently hosted a meeting of its Loan Administration Committee to identify remaining areas of concern. In its revisions, the CFPB was responsive to many of MBA’s comments, including narrowing the definition of “first notice or filing,” greatly reducing the scope of the proposed designated address requirements, and extending the definition of short-term forbearance from two to six months. MBA will continue to work with the CFPB to address MBA member issues and concerns in order to ensure effective implementation of the rules.
MBA Submits Comment Letter to FASB on Measuring Financial Liabilities of a Consolidated Financing Entity
On September 27, 2013, MBA submitted a comment letter to FASB on its proposed accounting for financial liabilities of consolidated financing entities. By way of background, reporting entities that are deemed to be the Primary Beneficiary (PB) of a Variable Interest Entity (VIE) of a securitization like a mortgage-backed Security (MBS) are required to include the VIE’s assets and liabilities in their respective consolidated financial statements. Upon initial consolidation, the PB can elect the fair value option to account for the financial assets and financial liabilities of the VIE. Recently, the Emerging Issues Task Force (EITF) identified diversity in practice in the accounting for the difference upon consolidation between the fair value of assets and the fair value of the liabilities of the VIE. As a result the EITF reached a consensus that PBs that elect fair value option must measure the financial liabilities of the VIE by reference to the fair value of the financial assets of the VIE. MBA disagrees with the proposal, pointing out that frequently better market data is available for VIE liabilities traded in the market than the whole loan assets underlying the MBS. MBA proposed that FASB use the following principles in the final rule:
-Reporting should be structured such that what flows to the consolidated income statement should be limited to changes in the fair value of retained interests in the VIE.
-A reporting entity should measure VIE financial assets by reference to fair value measures of financial liabilities or vice versa depending on which measurement is highest in the fair value hierarchy.
FHFA Launches Campaign to Inform Homeowners about HARP
The Federal Housing Finance Agency (FHFA) recently launched a campaign to inform homeowners about its Home Affordable Refinance Program (HARP). The campaign will seek to encourage homeowners who have been making their mortgage payments, but who owe more than their home is worth, to contact mortgage lenders offering HARP refinances to review their refinancing options. FHFA has launched a new website, www.HARP.gov in support of their campaign. HARP, which ends in December 2015, requires borrowers to: be current on their loan payments, have an LTV ratio greater than 80 percent, have loans owned or guaranteed by Fannie Mae or Freddie Mac, and the mortgage must have been sold to them on or before May 31, 2009. HARP refinances currently make up a large portion of refinance activity, and this effort may encourage homeowners to participate at a time when the refinance market is otherwise slowing.
Senate Banking Committee Holds hearing on TRIA
Last Wednesday, the Senate Banking Committee held a hearing on reauthorization of the Terrorism Risk Insurance Act, which is set to expire at the end of 2014. The hearing examined the current state of the terrorism risk insurance market, and the committee heard from representatives of Marsh & McLennan Companies, the Wharton School, and the Insurance Information Institute. During the hearing, witnesses expressed the importance of reauthorization, and emphasized that the private market does not have the appetite to insure beyond a certain capacity for terrorism risk without TRIA because terrorism risk remains immeasurable. The program has previously been extended twice, most recently in 2007. Several bills have been introduced in the house to provide a five- or 10-year extension of TRIA; legislation has not yet been introduced in the Senate. Given the crowded congressional calendar, we do not anticipate TRIA legislation to be considered before the beginning of next year.
Run a MAA Enrollment Campaign at your Company
Are you interested in conducting a MAA enrollment campaign at your office? Contact Annie Gawkowski at 202-557–2816 or agawkowski@mba.org to receive an enrollment campaign kit and learn more about how you can engage your colleagues and employees in the Mortgage Action Alliance.
