The Three Percent Solution

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56 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET The laTesT Five major developments to Bolster Housing in 2015 policy changes will make all the difference this year. W ith 2015 underway, Fitch Ratings is the latest forecaster predicting great things for housing in the coming year. However, unlike other com- mentators, whose projections were based on encouraging market trends, the ratings agency says it's a combination of recent government actions that rein- forces its view. In a report released last month, Fitch outlined five big events—all of which have taken place in the past few months—that, taken together, "could have a relatively meaningful impact on homebuyer psychology, pent-up demand, and housing trends in 2015 and beyond," the company said. 1. The Federal Housing Administration's (FHA) announce- ment that it will lower insurance premiums to 0.85 percent annually. Historically considered one of the top resources for low-income and first-time homebuyers, FHA has fallen off in the past few years as it's been forced to raise premiums and require life-of- loan payments to help shore up its capital reserves. As a result of the changes, Fitch estimates that FHA's share of the new hous- ing finance market through Q 3 2014 was down to 11.9 percent from 15.6 percent in all of 2013 and 20.4 percent in 2012. With premiums set to come down by the end of January—a move the White House estimates will save the average FHA borrower $900 annually—the agency expects FHA-insured loans may become a more attractive option again. 2 Fannie and Freddie's move to lower down payment requirements: In another action to open up mortgage lending, the Federal Housing Finance Agency (FHFA) announced late last year that it has directed Fannie Mae and Freddie Mac to introduce programs offer- ing down payments as low as 3 percent to qualified homebuyers. To minimize risk, FHFA said the programs will take into account compensating factors to prove creditworthiness and will feature homeownership counseling. 3. FHFA's clarified rep and warrant framework designed to reduce lender confusion: Taking notice of FHFA's pursuit of certain originators over loans they sold to the GSEs, many lenders have set up stricter credit overlays (often worse than the GSEs' minimum requirements) in order to mitigate putback risk. To reassure lenders, both Fannie and Freddie updated their frame- works in November to better define what they consider to be a misrepresentation, a step that will hopefully spur originators to expand their lending criteria. 4. Regulators' finalizing of the quali- fied residential mortgage (QRM) rule: FHFA, the Fed, the Comptroller of the Currency, and other financial regulators finalized in October a rule requiring banks to hold on to a portion of loans they sell, cutting out an exemp- tion for low-risk mortgages. The final rule did away with an earlier provision requiring a 20 percent down payment for low- risk loans after mortgage bankers and trade groups voiced con- cerns about how such a require- ment would restrict credit. 5. A welcome decline in oil (and fuel) prices: An oversupply of oil has brought costs down by more than half, slashing costs at the pump considerably. (In an interview with USA Today, Saudi business- man Prince Alwaleed bin Talal said he doesn't expect to see oil prices climb to $100 per bar- rel again.) The decline has left American drivers with more disposable income, opening up affordable housing options for those who were worried about their commute. community lending group criticizes government sweep of gse Profits, as Other measures draw ire What amounts to a government Windfall locks borroWers out of the mortgage market, according to the cmla. a s Fannie Mae and Freddie Mac continue to generate profits in a recovering housing market, a group of community lenders has joined the chorus of advocates calling for the government to revisit the terms of its bailout agreement with the two mortgage giants. In a recent letter addressed to Treasury Secretary Jack Lew and Mel Watt, director of the Federal Housing Finance Agency (FHFA), the Community Mortgage Lenders of America (CMLA) urged the government to "take immediate action to cure the under-capitalization" of the GSEs by re-amending the payment terms established when they were forced to take a bailout after the crash. Per the terms of their pre- ferred stock purchase agree- ments, both Fannie and Freddie are required to turn the majority of their profits over to Treasury. By the end of 2014, the compa- nies had paid a combined $225.5 billion, tens of billions of dollars more than the amount they drew to avoid going under. In a statement, CMLA Chair Paulina McGrath said that steps taken to ensure the GSEs' profitabil- ity—including driving up guaranty fees—are pointless if those steps aren't contributing to their capital. Continued on Page 58

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