July 2012

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THE LATEST SECONDARY MARKET GSE Questions the Impact of Consumer L Fannie Mae's May 2012 National Housing Survey. The data released by Fannie ulls in employment and income growth led to a plateau in consumer senti- ment in May, according to Mae showed that although many consumers (72 percent) believe that now is a good time to pur- chase a house, the percentage of respondents who said they would buy a house after moving actually dropped for the second consecu- tive month—63 percent in May compared to 64 percent in April and 66 percent in March. Fifteen percent of respondents said now is a good time to sell a home. This cautious sentiment devel- Sentiment Fannie Mae released its most recent housing survey, and the findings show mixed messages from consumers. April's number (32 percent), as did the percentage who expected home rental prices to increase in the next 12 months (49 percent). Those who anticipated rental price increases on average ex- pected a rise of 4.1 percent over the next year, half a percentage point above April's expectations and back to March's level. Belief that the economy is on Treasury Finds More Questions Than Answers the right track hit an all-time high among respondents in May, with 38 percent responding positively. The percentage of consumers oped in spite of other indicators that would suggest a positive trend in consumer attitude about home purchases. Respondents expected both mortgage rates and home prices to rise in the next 12 months. Fannie Mae VP and chief econo- mist Doug Duncan said he be- lieves the decrease in interested buyers falls in line with trends from the past few years. "Our May consumer data who expected their financial sit- uation to deteriorate in the next year stayed steady at 12 percent, while the number of respondents who expect positive changes in their financial situations went up 2 percentage points to 46 percent. Fannie Mae also saw a record show that Americans are taking a 'wait and see' approach about buying or selling a home. This is not surprising given their assess- ment that their income during the past 12 months and their personal financial expectation for the next 12 have leveled off," said Duncan. "These data are in line with what we are seeing on the macroeconomic front, as upside and downside risks and activities are moderating one another." The percentage of consumers who would rent a home stayed more or less consistent with low in respondents who say their household income has decreased significantly in the last year (15 percent). The percentage of consumers whose expenses have increased significantly also hit a record low at 32 percent, a 4-per- centage-point drop from April. Despite the overall positive M ore than a year after releas- ing a white paper that set forth three options for housing finance reform, Treasury and HUD struggle to determine the best path forward for America's housing finance system. Speaking before an audience at a meeting of the American Real Estate and Urban Economics Association, Counselor to the Treasury Secretary for Housing Finance Michael Stegman explained that rather than answer- ing the broader question of what the future of housing should look like, each proposal seems to ignite a slew of additional critical questions. "[N]o matter how thoughtful trend in consumer attitude about the economy, Duncan said he does not anticipate any further upturns in consumer sentiment for the next few months. "Current jobs data are reminiscent of the spring slowdown that continued into the summer months during the last two years," he said. "If this pattern continues, we do not expect to see any significant upturn in consumer sentiment during the summer, and a meaningful housing recovery likely will be delayed once again." any plan, the deeper you dig be- neath its top-line description, try to understand all its interrelated parts, and ask second- and third-level questions, one quickly realizes the challenges and complexities of the reform process and sees a dulling of the bright lines among options," Stegman stated. Stegman said all three of Treasury's proposals included a few common themes, including allowing private capital to serve as the primary source of mortgage financing, ensuring government support is "transparent, explicit, and limited," and extending assistance to low- and moderate-income families through the Federal Housing Administration. Outside of these broad prin- ciples, however, Treasury and policymakers must determine ap- propriate underwriting standards for a qualified mortgage, the amount of taxpayer exposure to FHA risk, a reasonable support structure for multifamily and rental properties, and suitable steps for preventing a concentration of mortgage-related risk among market participants. Beyond these questions lie even narrower ones such as the viability of the 30-year fixed-rate, pre-payable mortgage. Stegman stressed that "if not properly constructed, any option for reform can create potential taxpayer exposure to the mortgage market." While focusing on the complexi- ties of the decisions at hand, Stegman made no reference to when Treasury would release a plan. However, as Treasury and Congress struggle to de- termine a path forward, some believe it is the mere uncertainty in the market that is currently holding it back. Federal Reserve Secretary Gov. Elizabeth A. Duke said in a recent speaking engagement, "[U]ntil these tough decisions are made, uncertain- ties will continue to hinder access to credit, the evolution of the mortgage finance system, and the ultimate recovery in the housing market." "It's time to start choosing that path," she stated. THE M REPORT | 73 for Housing Finance HUD and the Treasury continue the struggle to evaluate current proposals for reforming the structure of U.S. housing finance. ORIGINATION SERVICING ANALYTICS SECONDARY MARKET

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