FHA chief bullish

Watch a video of David Stevens at the end of this blog.

FHA Commissioner spoke at the Realtor Rally in Denver on Tuesday.

Federal Housing Commissioner David Stevens speaking in Denver on Tuesday, said he is “optimistic and bullish” on the nation’s housing market.

Stevens, who has deep ties to Denver – he graduated from CU-Boulder and bought his first home in Denver where he started his banking career as a loan officer – bases his positive outlook on historic precedents, economic improvements during his 22 months with the FHA, and long-term demographic changes.

Stevens: A student of history

Prior to speaking at the Realtor Rally, which attracted an estimated 1,500 people at the Colorado Convention Center, Stevens researched the Great Depression. The Great Depression is especially poignant to him, because his father graduated from Harvard in 1929 and took a job as a runner on Wall Street, six or seven weeks before the crash. The more recent economic and housing downturn, is frequently described as the worst financial calamity in the U.S. since the Great Depression. Stevens said when he researched newspaper and other accounts from the 1930s he found many parallels between the two crashes. Many experts during the 1930s said the nation was ensnared not so much in an economic catastrophe as a crisis of confidence.

The same is not only true today, but during every downturn, he said. Stevens recalled when he was working for a savings and loan in Denver in the 1980s and mortgage rates were were hovering at 16 percent and 17 percent, and many people were predicting that rates would only go higher, squeezing the life out of the market.

He noted soon after President Obama was elected, at the height of the downturn, the nation was losing 700,000 jobs a month. Most recently, the nation gained about 200,000 jobs in a month.

Lots of blame to go around

Stevens said there is plenty of blame to go around, from Wall Street to Main Street, noting that consumers had to “stop using their homes as a piggy bank…the proverbial ATM machine.” Wall Street and lenders, he noted, were able to “build a house of cards that collapsed,” and systems in the future cannot be allowed to function that way. He said he has done his part to help prevent similar meltdowns by closing more than 700 financial institutions during the past 22 months, an exponentially greater number than during by any other FHA Commissioner. Typically, at the most, 30 or 40 institutions annually might be shut down, he said, following his speech.

And while fees on FHA loans will be raised for the third time on April 18, he said it will leave the agency is sound fiscal shape and is a better alternative than requiring huge down payments. He said he hopes and expects this will be the last increase. He also noted that FHA fees rise and fall. In fact, when he bought his first home in Denver in the 1980s, he used a FHA-guaranteed loans and fees were about three times higher than they are today.

He noted that “recent vintage loans” guaranteed by the FHA are showing near historic lows as far as default. When asked if that means lenders are being too risk-adverse, he said he has had many conversations with top banks on that subject. He said that FHA will guarantee mortgages to consumers with 580 FICO scores, but many banks will not touch those borrowers in many circumstances, preferring only to make loans to people with FICO scores of 640 or higher. Recently, he said, many big banks have agreed to provide loans to consumers with lower scores.

Generation Y to the rescue

Stevens noted that he recently presented a “White Paper” to Congress, outlining three possible scenarios for the future of them. All of them, he said, will keep the FHA’s core mission in place to primarily serve first-time home buyers and those without huge incomes. He said limits for FHA loans are too high in some parts of the country. Also, between FHA, Fannie Mae, Freddie Mac and the VA, about 95 percent of all loans being made are now government-backed, which he said is too high. He said that Fannie Mae and Freddie Mac have cost taxpayers about $150 billion, and are basically being wound down. He said the implied government-guarantee of Fannie and Freddie mortgages, while it is was attempting to maximize returns to shareholders, didn’t work. “They privatized the gains and socialized the losses,” he said.

Looking forward, Stevens said that one reason that he is “very optimistic about the future is demographics.” He said the “Echo Generation,” or “Generation Y” – those born between 1977 and 1997 – is bigger than the Baby Boom generation. The Baby Boom generation built what is today’s housing market, changing the perception that a home is not just a place to live and raise a family, but a good, long-term investment, he said. Generation Y is about twice as big as Generation X, Stevens said. Few from the Generation Y generation currently are home owners, but a large percentage hope to be in the future, even though they are scared by the current housing mess, he said.

Stevens also noted that he is not some career politician. “I’m a temp worker,” as the FHA Commissioner, he said. He plans to return to the private industry and expect that the FHA will be in extremely strong shape for generations to come, when he leaves.