TheMReport

TH E M R EP O RT | 63 SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Diversity and Success Work Hand in Hand Slow labor market and recovery from the Great Recession amongst many other factors are slowing down younger homebuyers. T here are many fac- tors that have affected homeownership rates since the 2008 financial crisis, but changes in the social norms of young people is one of the biggest, according to a recent Fannie Mae's Perspectives blog written by Dowell Meyers, Professor of Policy, Planning, and Demography at University of Southern Carolina, and Patrick Simmons, Director of Strategic Planning at the Economic & Strategic Research Group. The homeownership rate among 25- to 44-year-olds has dropped 10 percent in the last decade and, according to the blog, this can be attributed to slow labor market recovery from the Great Recession, tighter post-crisis mortgage credits, limited supply of entry-level homes, and social changes such as delayed marriage and childbearing. In their fifth and final paper in a series on unraveling the factors influencing young homeowner - ship (or a lack thereof), Meyers, along with Southern Carolina researchers Gary Painter, Julie Zissimopoulos, Hyojung Lee, and Johanna Thunell are focusing on how increases in racial and ethnic diversity and alternative scenarios for future college education might alter young-adult homeownership. The researchers analyzed esti - mated prospective changes from 2015 to 2035 for ages 25-44 and found that, unlike the popular narrative, an increase in racial and ethnic diversity won't lead to a decline in young-adult home - ownership rate. Instead, it would cause an increase of about 1.5 per- cent over the next two decades. When simulating completely clos- ing interracial gaps in education, the researchers found it could generate an even larger 2.5 percent increase in homeownership. If interracial gaps in income and wealth were to close along with gaps in education, their research shows young-adult homeowner - ship rates would increase by 6 to 7 percent over the next 20 years. Even in the workforce, diversity brings more success to the table. The American Mortgage Diversity Council, whose mission is to create and sustain a dialogue that addresses key issues affect - ing diversity and inclusion in the mortgage industry, reported that companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have finan - cial returns above their respective national industry medians, but companies in the bottom quartile for gender, ethnicity, and race are statistically less likely to achieve above-average financial returns. "Human capital is the most important asset in our industry," said Bradley Osborne, Attorney at Richard M. Squire & Associates. "Diversifying our customer base, workforce, and vendors/suppliers creates an atmosphere of positiv - ity, inclusion, innovation, and uniqueness. This environment is vibrant, collective, and intellectual with an overt ability to be inven - tive and overcome challenges with measured civility and respect. The end result of which is continuing prosperity in a growing global society." Long Road Ahead for GSE Profit Allocation Battle Litigation surrounding profit sweeps could extend 10 years and beyond. I n a recent Bloomberg inter- view by Joe Light and Erik Schatzker, Fairholme Hedge Fund Manager Bruce Berkow- itz said the legal battle with the U.S. government regarding Fannie Mae's and Freddie Mac's profits could last another five years. Back in February, the D.C. Circuit panel gave the U.S. Department of the Treasury and Federal Housing Finance Agency a win over the allocation of profits from Freddie Mac and Fannie Mae to the Treasury. This affirmed a lower court's ruling that actions taken under the FHFA's conserva - torship of the GSEs cannot be chal- lenged in court. However, Fannie and Freddie shareholders sued the two for agreeing to the deal. When the government took over the GSEs in 2008 during the housing crisis, the Treasury had "senior" preferred shares that paid a 10 percent divi - dend and had warrants acquiring nearly 80 percent of the companies' stock. When the company changed the terms in 2012, instead of the 10 percent dividend, the government would receive nearly all profits— and there would be no payouts if the company suffered losses. The plaintiffs believe the profit sweep violates the reasonable expectations that they had when they originally purchased stock in the GSEs. The battle has already lasted more than four years, but Berkowitz said from beginning to end, it could be a 10-year process. He and several other investors were part of the group that initially sued the government over its 2012 decision to seize all of Freddie's and Fannie's earnings. Federal judges have so far upheld the legality of that decision. According to Bloomberg, lawmakers in the Senate are in the early stages of developing legislation to revamp the housing finance systems. Even if it suc - ceeds though, it won't provide a clear ending for shareholders. Treasury Secretary Steven Mnuchin said he prefers to work with Congress on bipartisan reform but hasn't ruled out taking action without lawmakers. Though Berkowitz said he hasn't discussed Fannie and Freddie overhaul plans with Mnuchin, if the Trump ad - ministration doesn't stop the profit sweep, Fairholme will "absolutely" go to the Supreme Court. "When you go back and think about it, right, there are issues of breach of contract," Berkowitz said in reference to the Federal Housing Finance Agency who oversees the GSEs. "There are constitutional issues. How do you create an agency that oversees Fannie and Freddie that doesn't answer to any branch of government?" According to Bloomberg, lawmakers in the Senate are in the early stages of developing legislation to revamp the housing finance systems.

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