Dave Stevens has been president and CEO of the Mortgage Bankers Association (MBA) since 2011. He has more than three decades of mortgage-finance experience, including positions in senior management with Wells Fargo, Freddie Mac and World Savings. Immediately prior to heading MBA, he served as assistant secretary for housing and as federal housing commissioner at the U.S. Department of Housing and Urban Development (HUD).
Stevens generously agreed to answer some questions for The Score and its readers, on topics ranging from the impact of the Consumer Financial Protection Bureau (CFPB), to the future of the GSEs (Government-sponsored Enterprises, i.e., Fannie Mae and Freddie Mac), to millennials and their financial habits.
A recent Bloomberg profile indicated that you’re keenly familiar with the millennial generation, its aversion to debt, and the impact that has on national demand for homeownership (or the lack of it). What is your advice to millennials who are contemplating buying their first home?
Having a few millennials under my own roof, I witness their struggles with homeownership firsthand. My daughter and her fiancé have good jobs and could afford a mortgage, but not in the location they would prefer and after living through the last recession, are very much risk-adverse. Most millennials understand that earning equity in a home is a good idea. There will always be some risk in owning a home, but today that risk is much less. Interest rates are down. Prices are beginning to rise, so if they get in now, they can see the value of their asset increase. Any investment is a risk, some — like a home — are better than others. However, until we truly see the job market return and a more robust economic recovery, many millennials will remain on the sidelines.
When someone makes the decision to buy a home, my biggest piece of advice is to shop around for a loan just like you shop around for your home. There are many choices to consider in addition to interest rates – mortgage insurance, term of the loan (30-year, 15-year, ARMs), down-payment level — each of these has an effect on your monthly payment as well as how much you owe through the life of the loan.
We’ve just marked the fourth anniversary of Dodd-Frank, and the CFPB will be marking the same milestone in a few weeks. What’s your assessment of these institutions’ impact on the stability and vitality of the U.S. housing market?
Some additional regulations were needed to ensure consumer protections and we don’t repeat mistakes of the past. The CFPB, under Director [Richard] Cordray’s leadership, has done a good job in seeking input from consumers and the real estate finance community. The CFPB has a tough job to do; they have to find the right balance between consumer protections and access to credit. That said, we may have gone too far. Regulators have created a web of regulatory hoops that is complex and at times confusing and contradictory. This is a very large piece of the puzzle that is restraining a robust housing recovery. While the majority of the rules are in place, we’re still fixing some of the details so that qualified borrowers have access to the credit they need for the right home. Additionally, as the industry navigates the compliance phase and prepares for audits, the costs of production continue to mount, and those costs will only be transferred to consumers.
What’s your read on the willingness or appetite for mortgage lenders to consider lowering credit score cut-offs as means of reopening credit opportunities, as the economic recovery drives risk out of the single-family housing market?
Many lenders would like to get back to the business of providing qualified families access to the credit they need to obtain a home. However, the fear of additional litigation remains a real threat to the lending process. Additionally, the current regulatory environment and lack of certainty is exacerbating the problem.
Lending institutions are loosening credit and lending, but it’s primarily for high-end borrowers. However, first time homeowners and lower-end consumers are still struggling to get mortgages. Clearly we need to reexamine credit in this country so that more consumers into the mix.
MBA has been making the case for GSE reform even though the GSEs are profitable and have paid back the government. As part of these reform efforts, MBA has also been making the case for explicit federal guarantees backing residential mortgage-backed securities (RBMS) issued by the GSEs or whatever entity succeeds them. If the GSEs are profitable and the housing market is stabilized, why continue pushing for reform? How do you respond to critics of explicit guarantees, who argue that the federal government shouldn’t be in the business of protecting investors, and that private insurers should be relied on to protect them instead?
The current state of conservatorship presents risk to the housing finance system, consumers and taxpayers. While the GSEs appear to be profitable again, both enterprises acknowledge that they cannot sustain high levels of profitability and are unable to build or retain capital. Under the terms of the Treasury Department’s GSE rescue package and subsequent amendments, all of the enterprises’ profits are swept back to Treasury and they are only permitted to retain a minimum amount of capital, an amount that is mandated to decrease over time. As a result of the lack of capital, should the housing market soften or the economy dip into another recession, one or both of the GSEs may require additional funds from the Treasury, putting taxpayers at risk. Congressional reaction to the need for additional taxpayer support would likely be swift, and the resulting “crisis-mode” reform could result in an “ad-hoc” fix, rather than a stable, long-term solution.
Most analysts agree that an explicit federal backstop behind the MBS is needed to provide stable financing for long-term fixed-rate mortgages through all interest rate and credit cycles. An explicit guarantee that is clearly defined to cover only MBS, not entire enterprises, will limit taxpayer risk as well as the cost of ensuring market liquidity in the future.
We’re looking forward to the MBA Risk Management and Quality Assurance conference next month in Miami. Can you give us a preview of the topics you expect to dominate discussion at this year’s event?
This event has really grown over the past couple of years given the intense focus in the industry on risk management, QA, QC, and fraud prevention. We’re bringing in risk management leaders from FHA, the GSEs, and the lending industry. This year’s conference also offers detailed sessions hosted by risk management and fraud experts such as: Measuring, Tracking and Reducing Loan Defect Rates, Mitigating Repurchase, Indemnification and Rescission Risk, Risk Management in Third Party Origination Channels, and Business Risks Presented by RESPA/TILA Integration. We even have a session on the latest developments in credit scoring, which I know will interest fellow readers of The Score.