Discussing the Trump Administration’s proposal for GSE reform, how many people think it is a good time to buy or sell a home, Freddie’s forecast for the economy and housing market plus more!
Shuffling the Deck Could Lead to Privatizing the GSEs
The recent release of plans by the Trump administration to reorganize the government has not been getting as much press as you would think. It is pretty extensive and you can read it at Delivering Government Solutions in the 21st Century.
It could have dramatic effects on real estate and the housing market because they would end the conservatorship of Fannie Mae and Freddie Mac and fully privatize the GSEs. Look at the summary of the proposal for mortgage finance:
This proposal would transform the way the Federal Government delivers support for the U.S. housing finance system to ensure more transparency and accountability to taxpayers, and to minimize the risk of taxpayer-funded bailouts, while maintaining responsible and sustainable support for homeowners. Proposed changes, which would require broader policy and legislative reforms beyond restructuring Federal agencies and programs, include ending the conservatorship of Fannie Mae and Freddie Mac, reducing their role in the housing market, and providing an explicit, limited Federal backstop that is on-budget and apart from the Federal support for low- and moderate-income homebuyers.
On the surface this does not sound too bad but since anything Trump does or says causes an uproar, we need to look deeper and consider at some of the responses form various sources.
First, they say they want to end the conservatorship and decrease the Federal subsidies that support housing by working with the private sector. This would mean working with the banks but would the needs and interests of the average American be protected?
They say that increasing competition for the GSEs would decrease the risks to the taxpayers. Which sounds great as long as the availability of mortgage credit to those that are financially sound is not restricted.
One of the problems is what to do with the mortgage backed securities (MBS) that the GSEs issue. They are proposing that the GSEs would not be the only entities issuing MBS. These MBS would have a Federal guarantee that is limited to only exigent circumstances and would be on-budget and fully paid-for.
Which sounds great since the taxpayers being on the hook while the investors reap only the rewards is a screwed up system. They say that any changes will ensure that mortgage credit will still be available to credit worthy borrowers during times of market unrest.
I am especially glad to see part of the proposal specifically mentions helping low and moderate income people to become home owner:
The proposal would be designed so that the affordable housing fees transferred to HUD would enable FHA to provide more targeted subsidies to low- and moderate-income homebuyers while maintaining responsible and sustainable support for homeownership and wealth-building. Some of the fees could potentially be used to support affordable multifamily housing or other HUD activities. All of this support would be on-budget and accountable.
How much money will actually go to support affordable housing? Because of the HUGE problem with a lack of affordable housing in America today, this is a very important detail that is unknown.
Chief Economist Danielle Hale of realtor.com said:
If those government programs are well-funded, then low- and moderate-income buyers will be OK. But the plan doesn’t say explicitly what’s going to happen to those funding levels.
So many unknown details at this point! Remember that it isn’t what politicians say but what they actually do that matters. Let’s look at what some others have to say about these proposed changes!
David H. Stevens, CMB, President and CEO of the Mortgage Bankers Association (MBA) said:
MBA applauds the Administration for releasing a proposal to reform Fannie Mae and Freddie Mac which closely tracks much of the work that has been done to date by policymakers on Capitol Hill. It includes many core principles that MBA has long advocated for, such as an explicit government guarantee on MBS only as a catastrophic backstop, allowing for multiple guarantors and ensuring small lender access. MBA is heartened that the proposal recognizes that reform must be part of any plan before either Fannie Mae or Freddie Mac is released from conservatorship.
As with any proposal of this size, the devil is in the details and MBA looks forward to working with the Administration, and Congress to finally tackle this long overdue issue.
Yes the devil is in the details and only time will tell exactly what they are planning or what changes could take place!
Nikitra Bailey, Executive Vice President at the Center for Responsible Lending said:
A decade ago, excessive Wall Street greed and predatory lending led to a tsunami of unnecessary foreclosures that took away the homes of millions of hardworking families. That experience should have served as a warning to this administration about the harmful costs of reckless deregulation letting greed go unchecked on all Americans.
Unfortunately, the White House has not learned from history. This proposal is a bull in a china shop that threatens to harm our recovering economy and exacerbate our affordable housing crisis. Congress should reject this misguided plan.
Pretty harsh words BUT there is no doubt that much of the blame for the housing market crash came from the shady practices of some mortgage lenders. There have been many settlements for the bank shenanigans that lead to the economy crashing.
But the current system of mortgage financing is NOT sustainable and has needed reform for years. Working with the banks probably means any changes will benefit them. Let’s hope the Trump administration does not screw over the people in favor of the banks and Wall Street!
Scott Olson, Executive Director of the Community Home Lenders Association (CHLA) said:
CHLA applauds the Administration for its call to end the conservatorship of Fannie Mae and Freddie Mac and to recapitalize and re-privatize them with an explicit government guarantee.
However, CHLA continues to have significant concerns about adding GSE guarantors, which could facilitate vertical integration and hurt small lenders and consumers.
CHLA also encourages the Administration to incorporate explicit policies of G Fee parity and banning volume discounts into their GSE reform proposals as they are developed, to protect those very same small lenders and consumers.
Olson brings up some very good points. There is no doubt that the big banks could use this as an opportunity to get an unfair advantage and eliminate competition.
Less competition normally means higher prices for consumers. Since the Trump administration is wanting to encourage competition, we will see if they are truly serious about it.
Andres Carbacho-Burgos, a senior economist focused on housing at Moody’s Analytics said:
Practically everybody will have to pay higher mortgage after the privatization. The question is how much. It could be harder for folks on a tighter budget to get a mortgage because there will be fewer options and programs available to them.
I know some Trump supporters will ignore this since it critical of a proposal coming from the Trump administration. Will everyone wind up paying more because it leads to less competition or will there be more competition and lower mortgage payments?
David M. Dworkin, president and CEO of the National Housing Conference said:
While there remain many details to work out, we are pleased to see the proposal would preserve much of the current system that is working while addressing structural flaws that must be addressed, including the need to bring more private capital into the mortgage markets. NHC strongly supports the continuation of the Affordable Housing Trust Fund and the Capital Magnet Fund in their current or enhanced form, as well as clearly defined responsibilities to serve the entire market that are quantified and enforced by a strong and independent regulator in keeping with the Enterprises safety and soundness.
Dworkin sounds like me in that the GSEs need reform but there are many details to be worked out. The details will REALLY matter when it comes to making changes to something as important as housing finance and the GSEs.
This is a HUGE issue and we must keep an eye on what the actual changes will be!
68% Think It Is a Good Time to Buy a Home
Interesting stuff in the latest NAR Home Survey:
- 68% believe that now is a good time to buy a home
- Only 29% believe that now is not a good time to buy a home
- 75% believe that now is a good time to sell a home
- 29% believe it is not a good time to sell a home
- 68% believe that prices have gone up within their communities in the last 12 months
- 40% believe that prices will stay the same in their communities in the next six months
- 55% believe prices will increase in their communities in the next six months
- 58% believe the U.S. economy is improving
- 77% believe that home ownership strengthens a community a great deal
- 73% believe attaining home ownership will be harder for future generations of home buyers
NAR Chief Economist Lawrence Yun said:
Inventory remains the driving force in real estate, affecting everything for rising prices to household formation. Improving supply conditions is critical to improving buyer optimism and helping to remove some of the barriers holding back potential first-time buyers.
Hopefully this strong seller optimism will lead to an increase in inventory later on in the year.
There is no doubt that we need more inventory. But how many of the 75% that think now s a good time to sell will actually follow through and list their home?
Freddie Mac Economic and Housing Forecast June 2018
Check out the highlights from Freddie’s latest Outlook:
If we see mortgage rates and home prices keep growing as Freddie is forecasting, it will have negative effect on affordability. Waiting to buy a home could mean you must pay more!
‘Ridiculous’ for UN to Analyze Poverty in America?
From The Hill:
U.S. Ambassador to the United Nations Nikki Haley on Thursday dismissed a poverty report by the United Nations, saying it’s “ridiculous” for the intergovernmental body to analyze American poverty.
Criticism is hard to take and sometimes it isn’t justified. Seeing ourselves as we truly are and seeing our faults or shortcomings can be difficult.
Sometimes it takes someone else to point out things we can improve or change to unlock our true potential. Maybe the report is BS or maybe it means we should take a long hard look at poverty in America.