Video Link: FHA Commissioner David Stevens speaks at DU
David Stevens, Commissioner of the Federal Housing Administration and Assistant Secretary for HUD, told about 200 lenders and other housing officials in Denver that the current real estate environment is very similar to what it was like in 1934, when the FHA was born to help Americans get home loans during the Great Depression.
Stevens, a University of Colorado graduate, who is considered the first FHA commissioner with real-life mortgage lending experience, noted that “private capital has evaporated today,” just like it did during the Great Depression.
“It’s A Wonderful Life” is not so wonderful,” Stevens said, alluding to the 1946 Jimmy Stewart movie about a local mortgage lender, whose community depended on him for their home loans.
“You may not like everything I do,” he told the crowd at one point during the Town Hall-style meeting, largely underwritten by American Southwest Mortgage Corp. The meeting also included industry panels, where a number of people called for loosening tight underwriting limits, saying that things such as stated-income loans are not inherently evil, and must be returned to the market to allow qualified, higher-income people to get loans for homes.
Hard data key
But Stevens assured the group that everything he does is not based on whimsy, but is the product of the analysis of thousands of points of data. He noted he has hired five Phd’s to analyze economic and housing data and run computer-simulation models on various scenarios. He said steps he is taking, as well as those by the Obama Administration, are helping to get the housing market back on track.
For example, he announced last month that new borrowers would need a minimum FICO score of 580 to qualify for FHA’s 3.5 percent down payment program. Those with lower scores need to pony up at least 10 percent. But before settling on 580, he ran the impact of raising it to 620, but he said that would have knocked too many people out of the market. And he said some industry executives wanted him to raise the down payment to 5 percent or even 10 percent, but he rejected those changes as too severe.
Core FHA market not the rich
“But the purpose of FHA is not so some business executive can buy a $729,000 home in Vail with only 3 percent down,” he said. “Our primary job is to help the under-served buyer in Atlanta, Georgia, or Detroit, Michigan, or New Orleans, Louisiana,” and other communities nationwide.
During this crisis, he said, the government has become too big of a player in the mortgage markets, which has been necessary until the private market returns. Indeed, he received his biggest applause when he said that not everyone should be a homeowner.
“It is a sick system,” Stevens said. “There is no private-market demand. It’s all being picked up by the government…There is no demand for mortgage money on the private side. Private capital is opportunistic -it goes where it can make money.” He predicted that will change. He said several initiatives by the Obama administration to make the housing market healthy and vibrant again, are showing signs of momentum.
Stevens also announced last month that the FHA is raising the mortgage insurance premium to 2.25 percent from 1.75 percent, to shore up FHA’s reserves, but first considered other alternatives, but decided that 50 basis point was enough to boost FHA’s reserves. Some feared that would knock too many people out of the market, while others thought it should be raised more. But he said the agency’s comprehensive analysis assured them that was the optimal number and it will assure that FHA will meets its statutory required reserve numbers.
Shadow inventory may be myth
What may surprise some observers, is that following his keynote presentation, he said the data does not support the widely held notion that there is a huge “shadow inventory” of homes of foreclosed home being held by banks that it has not yet been put on the market. “We have heard that, too, but we have found no evidence that it the case,” after reviewing data from the FHA and Freddie Mac and Fannie Mae loan portfolios.
Instead, he said there is more demand for REOs (real estate owned) properties held by banks than the supply of foreclosed homes is growing. Indeed, he said one concern in some markets is that owner-occupants are being crowded out of the market by investors armed with letters of credits. He said he would rather encourage owner-occupant buyers than investors looking to flip properties.
He did say that there are concerns that homeowners who are delinquent on their mortgage payments may become part of the “shadow inventory” of foreclosed homes yet to hit the market. And in some areas, especially Florida, where it can take a year or more to work is way through the foreclousre process, there may be many more foreclosed homes ready to hit the market.
Mortgage brokers not “whipping boys”
During his talk, one audience member asked Stevens if mortgage brokers have become the “whipping boy,” for the nation’s housing crisis.
Stevens assured him that the head of every imaginable real estate organization, including banks, mortgage bankers, appraisers, Realtors, new home builders and appraisers, all have complained to him that they are the “whipping boys” that have been unfairly singled out.
But he said that following the years of things such as no-doc loans, improper underwriting, and other things that led to the housing bubble’s collapse, “you guys are perceived to be the centerpiece of the collapse.” Not that there isn’t plenty of blame to go around. He said he recently met with a group of Chinese bankers, and “they don’t know if they can trust us. They have no faith in us. And guess who they blame? They blame all of us.”
Steven has been heralded of having more real-life experience in the mortgage industry than any other FHA Commissioner, said he and the Obama Administration are making headway in dealing with a wide variety of problems, from record foreclosures to issues of trust. For example, he said there more than a million people nationally, who are in the process of receiving permanent loan modifications. So far, in Colorado, fewer than 2,000 people have received permanent loan modifications. (Please go to this link for a separate blog on permanent loan modifications.)
Stevens bought first home in Denver with a FHA loan
Stevens, who bought his first home in Denver almost 25 years ago with a FHA-insured loan, said he would not have been able to do so at the time, despite having a good job and great credit history, without the FHA, because it only required a 3 percent down payment, and he did not have the money for a larger down payment.
Today, he is re-making the industry and is taking heat from all sides. Before being named FHA Commissioner, he was president and COO of the Long & Foster Companies, which includes Long & Foster Real Estate and its affiliated businesses, including mortgage, title, insurance and home service connections. “If you don’t know Long & Foster, it is a monstrous-sized company,” DU’s Levine said.
When Stevens was first approached by the Obama administration, he assumed they wanted to pick his brain about what he saw with as the shortcomings in the system. He noted that he has always been a Democrat in a largely Republican industry, but wasn’t happy with what was happening on the housing front.
“It was like there were no grown-ups in the room,” during the days of easy credit, he said. “People were buying homes with no skin the game with Option ARMS and slapping on a HELOC (lined of credit) on it. People were betting on homes as an investment, vs a place for shelter.”
Stevens background is vast
Stevens’ background also includes serving as Executive Vice President, National Wholesale Manager at Wells Fargo Home Mortgage’s wholesale channel; Vice President of single family business at Freddie Mac; and, a 16-year tenure at the World Savings Bank, where he began his career. He is also the founding executive sponsor of the Women’s’ Mortgage Industry Network and while at Freddie Mac, he coordinated the first Latino joint venture initiative with Freddie Mac and Latino mortgage industry leaders.
Veteran mortgage official Michael Rosser said that Stevens hit all the right notes during his wide-ranging speech.
“He was right on the money,” said Rosser, who served on a state foreclosure task force and is managing director of Aurora-based Mortgage Investment Co.
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.< class="related_post_title">Related Posts:>