MBA's Stevens: Refinancing Guidelines should be Eased, Bulk Sales Encouraged

David H. Stevens, President and CEO of the Mortgage Bankers Association (MBA) told a Senate hearing this week that MBA's members are concerned about the conflicting policy objectives that continue to emanate from all involved stakeholders.   "This regulatory and legal ambiguity, he said, "is causing consumers to pay an uncertainty premium in the form of increased costs and diminished access to credit."

Stevens, speaking at a hearing titled "new Ideas for Refinancing and Restructuring Mortgage Loans" sponsored by the Subcommittee on Housing, Transportation and Community Development said that his association recognizes that the public trust has been badly shaken and in order to affect change the industry must restore its credibility, transparency and integrity.  "We all know that there are many who share responsibility for the mistakes that led us to this place, including mortgage bankers and servicers.  However rather than pointing fingers, all stakeholders need to work together to stabilize and revitalize the housing industry."

MBA recently assembled a task force to look for housing market solutions by bringing private capital back to the market.  The task force pointed to several steps that should be given priority.  First, assist the large numbers of borrowers who are unable to refinance and take advantage of record-low interest rates.  Rather than large scale mortgage refinance programs involving principal forgiveness and even further discounted interest rates, MBA suggests a more cost efficient approach would be to merely adjust the guidelines of existing programs.  

For example, policymakers should consider reducing the GSEs' loan level price adjustments on HARP-eligible loans which would reduce costs to borrowers where the GSEs already assume the credit risk for the existing loan.  Streamlining appraisal and other requirements to reduce the time and expense of refinancing and raising HARP's 1 LTV requirements would enable many otherwise qualified "underwater" borrowers to refinance.  Finally FHFA should expand eligibility for the HARP program to include loans originated after June 2009. 

Another refinancing avenue worth considering, Stevens said, is a shared appreciation mortgage proposed by Senator Menendez.  A lender would agree to reduce the principal balance of a distressed borrower's mortgage if the borrower agreed to share any future increase in the home's value with that lender.

Second, existing government programs should be modified to support financing and availability for local investment in rental housing, but individual sales and local investment alone cannot effectively reduce REO backlogs so MBA supports bulk investor sales of properties to quickly pare down lender inventories.  Any large scale programs should be simple, easy to administer, and attractive to investors.   While they must not be overly restrictive, such sales should include safeguards like investor screening, buy and hold covenants, revenue sharing and rehabilitation incentives.  The GSEs should also consider a way for investors to identify and aggregate REO properties.

Stevens said he believes it is important to remember that no part of the housing market operates in vacuum.  "Instead the housing market is a series of complex, but interdependent systems and well intentioned change may result in unintended consequences that could result in increased costs and diminished access to credit for consumers."