What Will The Experts Be Watching In 2019

Please note: The following is reprinted from my article for MortgageMedia. I encourage all those in the real estate finance sector to sign up for it HERE

Harry and Meghan will gift us with a royal baby, 3D printers will go mainstream, and the FIFA Women’s World Cup takes place this summer in France with Team USA as the defending champs. This new year even marks the 50th anniversary of the Apollo 11 mission, a great reminder as to how old this writer is.

Yes, 2019 will be an exciting year with expectations of changes ahead. But what changes might impact your business?

I reached out to superstars in our industry to ask their views. Here is the list of experts to whom I asked this question: “What are the 2-3 things you will be watching in 2019?”

Our All Star Lineup:

  1. Mark Zandi – Chief Economist at Moodys
  2. Frank Nothaft – Chief Economist as CoreLogic
  3. Jim Parrott – Former senior advisor on housing policy to President Obama, Nonresident Fellow at the Urban Institute, and owner of Falling Creek Advisors
  4. Barry Zigas – Director of Housing Policy at the Consumer Federation of America
  5. Gary Acosta – Co-Founder and CEO of NAHREP
  6. Susan Stewart – CEO of SWBC Mortgage and Vice Chairman of the MBA
  7. Bill Cosgrove – President and CEO of Union Home Mortgage and former MBA Chairman
  8. Barry Habib – Founder and CEO of MBS Highway
  9. David Lykken – Founder, Owner, & Managing Partner of TMS Advisors
  10. Byron Boston – President and CEO of Dynex Capital, Inc
  11. Andrew Rippert – CEO Global Mortgage Group, Arch Capital Group Ltd.
  12. Toni Moss – CEO and Founder of Americatalyst and Eurocatalyst
  13. Carol Galante – Donald Terner Distinguished Professor in Affordable Housing and Urban Policy, Faculty Director Terner School for Housing Innovation, University of California Berkeley. Former FHA Commissioner

Not surprisingly, there are many common elements to the perspectives of these renowned leaders in housing. Whether running mortgage, MI, or REIT companies, forecasting economic ramifications going forward, or leading in policy and strategic advisory roles, many of the views point to change and uncertainty in this dynamic environment. Let’s review some of the perspectives of this stellar group:

On GSEs:

Leadership changes at the GSEs, FHFA:

  • “In housing policy, leadership at FHFA is the biggest issue hanging over 2019 by a long shot,” stated Jim Parrott.
  • “In the past quarter-century, 2019 will mark the first time that FHFA, Fannie Mae and Freddie Mac will all have new leadership at the helm,” observed Frank Nothaft.

Many are wondering what will happen to the GSEs under new leadership:

  • When will Mark Calabria be confirmed? And once confirmed, how will he balance his previously-professed desire to shrink the GSE footprint, versus attempting to maintain momentum in the economy for Trumps 2020 bid for re-election?” asked Andrew Rippert.
  • “IMBs played a significant role during the housing crisis, responsibly delivering to the GSE’s as the playing field became more level,” stated Susan Stewart. “A reduction in products offered immediately limits access to credit for borrowers and is a direct hit to the IMB.”
  • “Like most, I do expect efforts to constrict the GSE footprint through loan limits, restrictions on cash-out refinances, higher capital requirements leading to higher g-fees and tighter restrictions on pilots that could expand access,” said Barry Zigas.
  • “At Dynex we believe government policy will drive returns. Hence we await changes given the changes at FHFA,” added Byron Boston
  • “On FHFA and the GSEs, how does the Trump Administration policy affect the slowing housing market?” asked Bill Cosgrove.
  • And on a related note, Jim Parrott observed: “The wildcard is personnel. Who’s running the show on these issues at Treasury and HUD in a year? This would be a bit uncertain in any administration, but it’s especially so in this one.”

On Rates, Volumes, and Margins:

What will rates do next year affects … everything?

  • Frank Nothaft: “The Fed is expected to raise its federal funds rate 50-75 bps higher by the end of 2019. That means short-term rates will go up, affecting ARMs and HELOCs. Long-term rates will rise too, but not as much. It’s important to see how much higher rates go and their effect on originations.”
  • Mark Zandi: “The key to the health of mortgage banking in 2019 is mortgage rates. If the 30-year fixed is much over 5 percent, it will be a tough year. Under 4.5 percent should be a good year assuming rates aren’t falling because we are headed into a recession. The mortgage banking industry should buckle in, if it hasn’t already.”
  • Byron Boston: “I am watching the impact of larger macro factors on the US housing market. Will there be a larger global credit correction that ripples through multiple global markets from stocks, currencies, real estate, etc. On the one hand interest rates could stay lower but on the other hand credit may once again become an issue. This does not have to be a 2008 scenario. It can simply be a nasty correction that slows activity in the housing market.”
  • Toni Moss expressed this concern: “The Trump economy has not lifted the middle class and under middle class. Jobs are insecure and further layoffs should be anticipated. Servicers should hope for the best but prepare for the worst.”

And what about margins?

  • From Susan Stewarts view: “And lastly, margin compression. We keep watching as the industry continues to create new business models including various M&A options. For carefully managed companies, 2019 should be a year of growth opportunities.”
  • David Lykken is looking to see this: “There is a very real potential for an unusually large number of IMB’s being forced to close their doors for three primary reasons. Continued margin compression due to failure to address the elephant in the room, MLO compensation. Failure to focus on reducing operating costs due to outdated and inefficient business processes. And finally an intensely competitive landscape where those that take care of 1&2 above will do better than those that haven’t.”
  • Bill Cosgrove states it simply: “Rate compression, where do we go from here?”

There was a lot on the growth of Mortgage Brokers and MLO Strategies for success.

  • As Gary Acosta asked: “Will Mortgage Brokers gain substantial market share?”
  • David Lykken: “I believe there is solid evidence that there will be a significant resurgence of the wholesale/broker channel that could grow to eclipse previous highs.” He adds, “We are already seeing evidence of the beginning of a migration of top MLO’s who are being told that their compensation is too high, leaving where they can go out on their own. Many believe they will be better on their own than having their future tied to a losing IMB operation.” David adds that he has been “advising his clients to start a wholesale origination operation so that MLO’s who leave will at least have the option to broker back to them.”
  • Barry Habib suggested: “The originator needs to transition from a salesperson to a consultant.” He suggests more time be spent on understanding the total borrowers profile. “a deeper look at the examination of their overall debt picture” will help identify other ways to the use the mortgage as a financial planning tool. He adds, “loans should be looked at two at a time, not just the current loan but how does it fit into the next loan they will need.”

Finally, varied thoughts in technology, FHA, and opportunity to innovate:

On Technology:

  • “We are focused on maximizing our investment in technology. The current cost to originate is not sustainable and the effective use of technology to reduce cost without sacrificing quality appears to be our best hope. Ultimately providing an easier process for the borrower should create a great upside for lenders,” said Susan Stewart
  • Bill Cosgrove stated a similar view: “Technology and the level of consumer acquisition – seeing beyond the horizon. What does the next generation look like and how do you compete and win?”


  • Jim Parrott: “Another area to keep on eye on is whether the FHA cleans up its false claims act mess because the ripple effect could be significant either way. If it does, look for some larger lenders to ease their way back in”. He adds a note of caution, “And if it doesn’t look for FHA and Ginnie to become increasingly anxious about their counterparty risk as the market tightens.”
  • Barry Zigas added: “Whether and how far FHA will be able to reverse its decades long decline in infrastructure capacity, finalize its taxonomy and loan level certification, and diversify its lender base to include more regulated and deeply capitalized lenders to serve first time and low wealth borrowers.”
  • Carol Galante agreed, adding: “Will policy makers finally give FHA the funding needed for a modern infrastructure to support its essential functions and while at it make reforms to ensure its ability to serve all those who depend on them.”

Clearly these leaders had a lot more to say which we hope to cover in more in depth discussions with many of them in the weeks ahead. But questions ranged from the New Democratic leadership in the House of Representatives and potentials for bipartisan GSE reform, new programs for borrowers such as shared appreciation and more to help todays buyer connect with housing, pressure on rental housing, and critical points about adjusting to increased risk of major storm implications to coastal areas. We share a wonderful industry, but one that changes and presents all of those involved with challenges … and opportunities. The key point I take away from this thoughtful input is the need to see the future and adapt. Here’s to a successful 2019 for all of you!  

Let’s Continue To Protect FHA For The Long Term

Each November HUD releases it’s FHA Actuarial Report to Congress. This is a congressional mandate based on a history of FHA finding itself under capitalized risking draws from its “permanent and indefinite” authority as provided to draw funds from the Treasury should it have insufficient reserves in place to cover forecasted losses on it’s book of business. This years 2018 independent Actuarial Report on the health of the MMI fund continues to affirm my concern that we stay committed to not weaken the fund despite calls from some to reduce premiums or modify the premium structure.

As a former FHA Commissioner, I excitedly await these releases each year having walked into that role in 2009 when the fund was already destined for trouble. As a matter of fact, and to remember this history, I testified to to this concern in my confirmation hearing in front of the Senate Banking Committee in April of 2009 and asserted what we all knew – that the MMI fund was in trouble, “FHA has not been immune to the adverse conditions of this market. Default rates and foreclosures exceed prior estimates.“, was one of my statements to this point.

To be clear, the FHA is unlike any private or other government sponsored provider of credit. It is a massive insurance company that guarantees reimbursement to GNMA MBS investors for the full value of loss associated with an FHA default. This guaranty is backed behind loans that have higher risk characteristics than loans backed by the GSE’s. FHA loans combine higher debt to income ratios, lower credit scores, and higher loan to values than their other government sponsored counterparts. And as you can see by the report issued by Isaac Boltansky of Compass Analytics it is trending worse. As shown below, the trend in both credit score and DTI in the FHA portfolio is weakening:

FHA is unique and important in the single family housing market in other aspects. It serves minorities and first time homebuyers in manner unmatched by any other credit provided in the US. It is the largest provider of reverse mortgages for seniors in the nation. And lenders that help distribute FHA loans across the nation are dominated by non-bank, independent mortgage bankers, primarily because the major bank lenders have backed away from the program due to concerns related to indemnification risk that may obligate them to severe financial penalties in the event of default, a subject that I have been vocal about for years.

The MMI fund also backs the far riskier reverse mortgage program (HECM), a product that has whip-sawed the reserves significantly over the years and in this years report reflects its ongoing concern to taxpayers as shown in Isaac’s analysis comparing the forward and reverse books.

In short, the concentration of credit attributes in the FHA portfolio contain more risk factors across the spectrum than loans created by Fannie Mae or Freddie Mac or most other private lenders. The good news is that this year the actuarial shows that the capital reserves continue to grow above the base minimum of the 2% legislated floor, standing at 2.76%. But risk remains and we have learned through history that the reserves held today still may underestimate the true loss exposure in a nationwide recession. In an economy with virtually full employment, low interest rates, and stable house prices, it would be ludicrous to forget the realities of economic cycles as we have seen in the past. Yes, FHA has rebuilt its financial resources. But holding 3.89% in capital resources on it’s massive $1.26 trillion portfolio is minimal on a risk adjusted basis.

Recently some of my industry colleagues have called for either an outright reduction in premium or an elimination of the lifetime premium. I oppose either move at this juncture. In fact, as commissioner I made several moves to protect the fund including raising premiums with congressional support, establishing a credit score minimum, and installing life of loan MIP, and would argue against moves to the alternative until we see more improvements in the HECM program and understand the economic cycle we may be facing in the years forward.

I installed the life of loan MIP for one key reason. FHA, unlike the MI elimination policy in the GSE program, still remains on the hook for losses even if the premium is cancelled. Just as you pay for auto, health, or other insurance as long as you are under its protection, FHA needs to do the same. In 2009 after home prices dropped nationally over 20% and in some regions between 30%-40%, we found that we were obligated to pay for losses on homes where the MIP was not being collected due to previous elimination based on equity, and yet many of these homes were not underwater due to the price corrections in the recession. Because there is always risk in HPI forecasting it was our view that a premium must be paid as long as the insurance is in place. Not only does this add significant economic value to the fund, it protects the integrity of its administrators to make certain that appropriate premiums are applied to all insured borrowers. While some might argue adverse selection in interest rate rallies or periods of property value appreciation for better qualified borrowers who refinance out of the program, I would argue that the math does not offset the down side forecast risk to home prices as projected in any actuarial.

Look, I am not saying that FHA should never consider reducing premiums. But keep in mind that all net earnings are booked as reserves for future losses and without getting into the confusing explanations of federal budgeting and spending, these reserves are critical to keep FHA well supported during down markets. We are in the best credit cycle seen in decades. We have had low interest rates, record low unemployment, and nearing a decade of home price gains. FHA has insured the best credit books perhaps ever seen its history. But the HECM program remains a huge problem and we have not tested mortgage performance in a down cycle yet. With both credit and LTV drift, some counter parties facing potential capital and liquidity concerns, and many forecasting a weakening economy in the next couple of years, this is the time to remain vigilant and continue to build the reserves until there us unanimous confidence in this ability to withstand a negative cycle.

I applaud the fortitude of my friend FHA Commissioner Brian Montgomery in holding back on any MIP changes and I would suggest that most former commissioners would have a similar view. All stakeholders in housing and mortgage finance need to protect FHA from future scrutiny due to short sighted acts that could jeopardize its long term role in serving homeownership. Let’s protect the FHA.

The Moelis Plan – Putting The Cart Before The Horse

The team from Moelis has unveiled a new and somewhat improved version of their plan to return the Government Sponsored Enterprises to the shareholders. Before turning to the substance, much of which is quite good, it’s important to note up front that they have the interests of their clients, who are major shareholders in the GSEs, foremost in mind here. This is not a criticism of Moelis, which is doing what it is being paid to do, and admirably I must say, but something to keep in mind in understanding the effort, as some key features only make sense in that light.
What Moelis gets right:
1. It is important to appreciate what pushed the GSE’s into conservatorship in the first place. Moelis makes the point that it was not the core TBA guaranty book but rather the actions taken with the portfolios of both firms in purchasing lower quality and riskier PLS, subprime, and alt-a mortgage product. In leveraging their implicit federal backstop, they had an almost unlimited execution advantage in disrupting the non agency markets.
2. The principles set forth by Moelis appeal to most stakeholders. This includes a list of items including protecting the taxpayer, leveling the playing field permanently for all lenders regardless of size, and affirming the affordable lending regime that currently exists today. It references the joint trade association letter and endorses the calls made in that document to lock in many of the reforms that were made by policy under Director Watt and his team. Frankly much of that was initiated under then Acting Director DeMarco.
3. Moelis lays out a pro-forma outlook at the future financials and how the taxpayer might profit from their proposal. While I will leave the details of this to others with more expertise to debate, I will note that it is at the very least counterintuitive. Today all profits from both institutions go to the taxpayer, so it is difficult to imagine how the taxpayer would manage to reap greater returns by selling its position. I’m not saying it’s fair or good policy, but as a matter of taxpayer math, it’s hard to see why this is a positive.
 4. Moelis goes to great lengths to diminish the GNMA operational model proposed by the recent discussion draft released from Congressman Hensarlings’ office. To this point I am in complete agreement about the understaffed, overwhelmed, undercapitalized aspects of GNMA today and the stark comparison to the capabilities of the GSE’s in their current form. There is simply no comparison and the false belief that GNMA can serve this role is far fetched at best. Moelis adds some key points that others have made in the past especially the value to small lenders that would be likely lost including access to a cash window and the ability to buy defaults out of pools. The GNMA model likely increases concentration risk on large banks, not the opposite.
What Moelis Gets Wrong:
1. The plan starts with recapitalization. In essence, they are putting fuel back into the tank of the car before it is fixed. This poses the very real risk that we never fix the car adequately before it’s entirely refueled and ready to drive off. This makes no sense at all as a matter of public policy, as it increases the odds that we skip reform altogether. But it makes a great deal of sense for shareholders, as it increases the odds that they recoup dramatically with or without reform. Assuming we should think of this from the perspective of the nation and not the shareholders, the focus here must be reform first. If we cannot get the structure and framework right, we sure as heck better not have them on the edge of release. Frankly, the housing system might be better off retaining the current structure than letting free market capitalism with a government backstop back out in the open before insuring that they are framed in with the appropriate policies and a commitment behind them and to the markets for safety and sustainability first.
2. While agreeing that an explicit federal backstop is needed, Moelis explains that this requires legislation. And, while recognizing that this would help MBS pricing and likewise lower interest rates for borrowers, it does not seem to make this a cornerstone event. In the absence of a congressionally authorized explicitly guaranty behind the MBS, investors in a forward looking global market will ultimately have to believe that the US Government will bail these entities out in the future just as they did a decade ago. Sovereigns would have to determine whether their institutions could trust this model and consider its risk weighting in the same manner as they do today. This could have meaningful impact to interest rates and consumer access to credit.
3. This leads to the next critical point. The plan leaves in place the duopoly model. Unless we end the system’s reliance on a TBTF duopoly we are simply not addressing the fundamental flaw in incentives that got us into so much trouble. You can do that by increasing the number of guarantors so that any one can fail, or collapsing them into one that is treated like a market utility. But you’ve got to do one or the other to have any real reform.  The duopoly model would be the worst of all outcomes, resulting in too much risk and too little competition.
4. Moelis argues that the regulator can protect the level playing field, continue the affordable housing goals, and frame in the charter creep concerns. The reality is that the effectiveness of any regulator varies by regime and leadership. We have seen that stark contrast in other regulators just in the past two years. The confidence in relying on regulatory infrastructure that is subject to change versus the more concrete and permanent changes established by legislation are important decision points. With the view about getting this right before we march to recapitalize and monetize speculative shareholders, I continue to advocate that reform before recapitalization must be protected in this debate.
Conclusion: The conservatorship has lasted too long and ending it will take political will that thus far we just haven’t had. The alternative presented by Moelis is tantamount to giving up, putting Fannie and Freddie on a path to re-privatization. But it makes no sense from a matter of public policy, as even conservatorship is better than a return the system that has failed us already. Indeed, it only makes sense from the perspective of the shareholder. But surely the needs of the housing finance system must come first.
Let’s avoid putting the cart before the horse. Let’s continue to pursue legislation and unite around the need to establish an explicit guaranty, prohibit pricing for market share, establish more rational and effective affordable housing measures, frame in the permissible activities of the future entities, and implement a capital regime that will stand the test if time. Any other action at this point leave open the slippery slope back into the abyss that resulted in the bailout to begin with.

My Fight Against Cancer – Help Research Leaders

July 1, 2018

Hello Family, Friends, Fellow Industry and Housing Leaders,

As many/most of you know my life took a different direction in 2016 when I was diagnosed with stage 4 prostate cancer, ultimately forcing my decision to leave the MBA. The nationally renowned Dr Ken Pienta at the Brady Urological Institute at Johns Hopkins put my cancer into remission in February of 2017 – until this past month when it returned. So today I write while under a new treatment plan in hopes of pushing this back again for more time with family and life.

 Prostate Cancer is a huge deal. Here are some facts:

About 1 man in 9 will be diagnosed with prostate cancer during his lifetime. Just under 30,000 men die each year from prostate cancer – enough to fill a stadium. There will be approximately 165,000 new cases this year alone. Over 3.1 million men have prostate cancer in the US right now.

Dr Peinta’s team and their revolutionary approach to kill prostate cancer and advanced stages of it, has an urgent need. They need to purchase a state of the art Nikon Eclipse Ti2 microscope (description attached) that costs $250,000. Unlike other microscope’s that show a moment in time, this can show cancer cells and their movements for up to two weeks and see how they interact and transform under various treatments. So, rather than guess where and when mine came back, they can get far more precise. This is huge. Mary and I are starting this off with $20,000 in hopes others will give what they can.

Any donation is fully tax deductible.

As someone in the midst of this battle, I cannot state how thankful we would be and how helpful your donation would be to helping this state of the art research team find cures that would be shared with experts worldwide. Johns Hopkins is a research hospital but funding needs to come from people like us!

All of you have likely been touched by cancer in some way  – this is the number one cancer in men. To donate: please go to: https://secure.jhu.edu/form/stevensprostatecancer

Thank you for any help – Mary, our children, and grandchild, thank you too.

Dave and Mary Stevens


Attempts to Influence the Future of Fannie and Freddie


(Note: This is the first of a series that will look at the current state, the players involved, the options forward, and the politics surrounding the GSE debate)

Since the moment Fannie Mae and Freddie Mac were put into conservatorship, a debate has raged over their future. The debate is complex, highly charged and at times, frankly nasty.

Part of the reason for the tone of the debate is that various groups representing the interests of shareholders of the two companies have chosen to wage a bare-knuckles campaign to get the two companies re-privatized. If they were re-privatized the increase in value of these stocks, currently trading below $2 per share, could produce a massive profit to their investors. Thus, a hodge-podge of players acting on behalf of shareholders has put significant capital behind a coordinated effort to increase the odds of their re-privatization, including contributing to sympathetic non-profits and other stakeholders who could be persuaded to share their views, hiring PR firms to plant beneficial op-eds and other stories in the press, and creating organizations intended to give the impression of grass roots support.

At times they have taken to aggressive, ad hominem attacks on those who support GSE reform that they take to be a threat to their interests, suggesting that their positions are motivated by private gain not by public interest, apparently unaware of the irony. They have gone after current and past policymakers in Congress and the executive branch, stakeholders and policy experts, anyone who appears to pose a threat to their interests. While their arguments have yet to break through to a broad set of policymakers in any meaningful way, they have succeeded in infusing the discussion with a level of vitriol and mutual suspicion that has made an already immensely difficult policy challenge even more challenging.

While it is no doubt important for policymakers to decide how to handle the interests of the shareholders of these two institutions, it is critical that they are able to distinguish between that question and the question of what kind of housing finance system is in the best interest of the nation. And it is critical that they don’t reward the kind of campaign that is being waged on their behalf, one that threatens our very ability to deliberate about important issues in a way that has any hope of getting to the right outcome.

So, whether we wind up choosing a path in which Fannie and Freddie are ultimately re-privatized in one form or another, be it legislative or administrative, let us choose that path on the basis of what is best for the nation, not because a few hedge funds have mounted an ugly campaign to keep us from thinking clearly.

Transitioning Beyond MBA

This past week the Mortgage Bankers Association (MBA) announced that they had voted on my replacement as CEO and President. Robert (Bob) Broeksmit was an excellent choice to lead this association in the years ahead.

MBA is the powerhouse that our industry needs in order to effectively represent and influence the key policy issues affecting mortgage finance for both commercial and residential lending. While National Mortgage News did a great job in this article (https://www.nationalmortgagenews.com/news/mbas-david-stevens-a-tough-act-to-follow-for-new-ceo-robert-broeksmit) highlighting the success of these past 7 years, it also showed Bob’s strong background and thoughtful views and reflected the support from leaders he has coming into the job.

Leaving a job you love is hard for anyone, and these past years have been extremely rewarding. To watch this industry come together and align around some really critical issues where we supported good regulation but fought against creating even more confusion in policy making, where we worked closely with administrations on both sides of the aisle, and where we grew our membership and activities will be great memories to reflect on.

Together we fought for a level playing field for all lenders, created the Diversity and Inclusion Committee and its conference, we established the Opens Doors Foundation to provide mortgage and rental payments for families with critically ill children, grew our young professionals program (mPact), created mPower under Marcia Davies leadership, testified in front of congress multiple times, established a new brand for the association, brought us back to fiscal soundness where we are stronger than ever, and so much more. I have spent time with multiple Presidents including, members of congress, and key regulators from both sides of the aisle. Our brand has never been stronger.

The key to all of this success has been the incredible team of dedicated employees of this association that are experts in policy, finance, law, conferences, education, communication, politics, and more. This is the team that makes it happen and they will do the same going forward.

As I leave MBA and move into my future roles where I plan to consult and participate in other things that are less than full time in order for my wife Mary and I, along with our kids and grandchild, to focus on my cancer, health, and enjoy life, I leave excited for Bob.

Everyone is replaceable and all we can hope for is to leave our roles and organizations in better shape than when we arrived. I have known Bob for decades as have so many others in the industry. He will do a great job in this next chapter.

And, while we will likely see each other around Washington at various events and in congressional hallways, I will enjoy seeing MBA in it’s next chapter and will look forward to our industry maintaining its path focusing on responsible lending, rational legislation and rule making, and addressing the critical issues ahead.

My final message to the members of the MBA is this: stay united and committed to this institution. If you pull back due to short term business challenges, you will lesson the power of its collective voice. Your responsibility as a member of this industry is to join together to make sure we maintain our voice and our success through committed and broad participation from everyone.

Thanks for all of your support these past years. Bob starts in this seat on August 20, 2018 – please be there for him as I move into my new post MBA role.


MBA Launches mPower Moments

18649_mPower_Landing_Page_Web_HeaderThis week, MBA launched a new monthly video series, mPower Moments, featuring Marcia Davies, our COO and the founder of mPower, exploring issues important to women in the real estate finance industry.  For anyone who is unaware, mPower is MBA’s platform for women in our industry to strengthen their networks, to achieve professional growth and development, and to exchange ideas and information. Continue reading…

Response to Recent News Stories about Racial Disparities in Lending

charming hood

For the past month, an activist group named The Center for Investigative Reporting (CIR), has been using a deeply flawed analysis of government lending data in order to prop up a story about racial disparities in mortgage lending that they have been peddling to news outlets.

Make no mistake, discrimination is unacceptable in any way, at any time.  Period.  End of Story.  And yes, members of minority communities are being denied mortgage loans at a greater rate than white borrowers.  But it is flat-out incorrect, defamatory and disgraceful to accuse the mortgage lending industry of denying loans to borrowers simply based on the color of their skin.

What this group is doing – not just relying on a study that fails to consider many of the key data-based variables that lenders rely on to make an individual loan decision, but also cherry-picking among loan types – is actually counterproductive to the important discussion we are having regarding access to credit challenges in our nation’s communities.

CIR’s conclusions come from a simple look at data collected from all lenders by the government under the Home Mortgage Disclosure Act (HMDA).  This despite the Federal Reserve itself warning that racial disparities in loan denial rates are driven by factors that are not included in the HMDA data:

differences in denial rates and in the incidence of higher-priced lending (the topic of the next subsection) among racial or ethnic groups stem, at least in part, from factors related to credit risk that are not available in the HMDA data, such as credit history (including credit score), ratio of total debt service payments to income (DTI), and LTV ratio.

The Federal Reserve goes on to say that when it is examining a bank’s fair lending performance, it does review these additional factors.

When examiners for the federal banking agencies evaluate an institution’s fair lending risk, they analyze HMDA price data and loan application outcomes in conjunction with other information and risk factors that can be drawn directly from loan files or electronic records maintained by lenders, as directed by the Interagency Fair Lending Examination Procedures.36 The availability of broader information allows the examiners to draw stronger conclusions about institution compliance with the fair lending laws.

As part of the HMDA reporting process, lenders can report their reasons for denying a loan.  As you can see from the chart below,  the two most frequently cited reason for denial are debt-to-income ratio (DTI) and credit history – two factors that CIR failed to control for in their analysis.

Dave Blog 1

Source of the quotes above and table:


Now, another major flaw in their reporting is CIR’s inexplicable decision to look at only conventional loans, and ignore government lending, particularly FHA.  There is no rational reason for failing to include FHA loans.  They are widely available, allow smaller downpayments, and in some ways are more flexible with respect to credit history than conventional programs

And, as you can see in the chart below, they are the predominant means of financing for black and Hispanic home buyers.

Dave Blog 2

Listen, MBA and its members have been working long and hard to find ways to responsibly expand the credit box in order to serve borrowers of all demographics, with different credit profiles and income levels.  With the coming of the Millennials — the largest, most diverse generation this country has ever seen — it is of paramount importance we solve this.

But false narratives constructed in an effort to generate scintillating headlines and tarnish an entire industry are not a productive means to have this important discussion.  This kind of faulty reporting is insulting and insensitive to the realities of credit access in the US housing market and only serves to distract from the real issues that are preventing minorities from being able to enjoy the benefits of homeownership.

Open Mind on GSE Reform

Capitol-SunriseLargeThe recent release of the draft discussion text from the Corker/Warner Senate team on GSE reform is a strong step forward in the effort towards legislation to resolve the conservatorship of Fannie Mae and Freddie Mac in a productive manner. I encourage all lenders and stakeholders to read the draft text and form your own opinions as a lot of misinformation is circulating about what the text actually says.

Continue reading…

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