TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/105753
take 5 Jeb Mason on Policy and Progress As the managing director of the Cypress Group, Jeb Mason specializes in helping clients navigate risks in today's challenging housing finance environment, and having served on the front lines of the mortgage meltdown as deputy assistant secretary of the Treasury and policy advisor to Secretary Hank Paulson at the peak of the financial crisis, Mason offers a dynamic perspective on the policies driving the industry's evolution. M // Nationally, what housing finance trends both positive and negative are you observing in the marketplace? M // What new initiatives are emerging within the Cypress Group to address these challenges? Mason // Policy remains an sent by CFPB staff that they were disinclined to provide a safe-harbor for qualified mortgages, we advised clients to work with consumer groups on a compromise two-tiered solution that includes a safe-harbor and to enormous driver impacting business and investment decisions in the marketplace. This is great for our business advising clients on political risk, but not so great for the mortgage industry or the country, if you ask me. Dodd-Frank introduced new terms into our lexicon, like "QM" and "QRM," that remain ill-defined concepts and will have an enormous impact on mortgage credit availability for years to come. Policymakers have yet to wrestle with the future of Fannie and Freddie or address FHA solvency issues in a convincing way. These uncertainties are compounded by state actions that call property rights into question, and a lack of clarity over put-backs certainly hasn't encouraged entrepreneurs and investors to bring capital back to the housing market. On the positive side, 2013 will see the finalization of a number of important Dodd-Frank mortgage reforms that should contribute to a better-defined regulatory environment going forward, provided those rules are written in a reasonable way. Meanwhile, the FHFA is taking steps to bring more clarity to put-back risks and they are advancing toward reformed Fannie and Freddie in the absence of leadership from the administration or Congress. Hopefully, by the time this is published, our leaders in Washington will have addressed the fiscal cliff and put the country on at least a somewhat more stable fiscal trajectory. Regardless, we see 2013 as another volatile year but are optimistic we can move toward some needed policy certainty and stability by the end of the year. 16 | The M Report Mason // After some initial signals compliance is a core value for us and important to our clients. Recognizing this, Cypress Advisory moved early to achieve accreditation for compliance with industry best practices from Integrity Research Associates, LLC, an information and solutions provider specializing in the investment research industry. We will continue to keep our focus on people and client service in 2013 and expect it to be a busy year. Policy remains an enormous driver impacting business and investment decisions in the marketplace. approach CFPB with an alternative that includes a safe-harbor and has buy-in from a wide variety of important housing interests. We're now anticipating where CFPB will land, which is a much improved position from what seemed to be its initial posture. Recognizing the shift in the tax and regulatory landscape created by Dodd-Frank, the Cypress Group has built upon its core strengths in mortgage finance, banking, insurance, and derivatives and further increased its focus on the Consumer Financial Protection Bureau and on tax issues in the last year. Noting that states have a big impact on the mortgage and consumer space, we have also dramatically expanded our state advocacy and intelligence coverage to include boots on the ground in 36 states. Finally, M // Among the wide array of policy and regulatory issues within the financial services sector, what key concerns are at the forefront for your company's clients? Mason // With so much attention on our fiscal challenges, naturally, tax law changes have come to the forefront as a concern for many clients. Another key focus, particularly as it relates to the mortgage space, are the Dodd-Frank mortgage rulemakings mentioned above. People have clearly been preparing for the ability-to-repay rule and qualified mortgage (QM) definition critical to the future of origination, as well as the risk-retention rule with the all-important Qualified Residential Mortgage (QRM) definition. The original rule proposed in March 2011 was met with widespread negative reaction, particularly related to the proposed 20 percent down payment requirements, which we expect to be lowered in a final rule or re-proposal. M // As investors make strategic changes in response to the shifting economic environment, what are your expectations over the next 12 months regarding the need for additional private capital in the secondary market? Mason // The government guarantees more than 90 percent of the mortgage market today. There is general consensus within the industry and among policymakers in Washington that the government's share needs to be reduced gradually while substituting private capital. There are a lot of policy pieces that need to fall into place, however, before we are likely to see a real resurgence in the private label securities market and the government starts ceding significant share to private capital—the risk-retention rule is just one among them. Fortunately, the incoming House Financial Services Committee chairman, Jeb Hensarling (R-Texas), has signaled that housing finance reform will be among his top priorities. Meanwhile, FHFA is trying to advance the ball with discussion around a single-security and open securitization platform, but there's still work to be done creating real transparency at the loan level, as well as some potential regulatory snags related to derivatives rules and security liability, so it will take some time to start seeing some real credit risk transfer. Higher premiums at FHA and higher g-fees at Fannie and Freddie can also help bring private capital back in, but it's hard to judge how much private capital is needed when the Federal Reserve is buying $40 billion a month