Transcript 18th Annual Fisher Real Estate Conference

Palace Hotel, San Francisco
April 22, 2013
U.C. Berkeley
18TH ANNUAL FISHER REAL ESTATE
CONFERENCE
OH, THOSE HARD TIMES…
WHAT A DIFFERENCE A YEAR MAKES
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Construction is growing faster than at any time since
2008
2012 was the strongest year of home sales since the
economic crisis began
Rising home values lifting 1.4 million families above
water
Foreclosure starts are down around the country and
shadow inventories continue to shrink
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WE HAVE A WAYS TO GO
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THE WORK IS NOT YET DONE
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Need to:
 Complete
economic recovery
 Create stable future for the Market
 Focus:
― Restore housing market
― Help families get back on their feet
― Enter new era of housing finance as quickly
as possible with a balanced approach
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PRESIDENT’S
STATE OF THE UNION ADDRESS
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IMPORTANT POINTS ON HOUSING
 Rebuilding
communities and local economies
by investing in the hardest hit people and
places
 Facilitating and maintaining access to credit
 Strengthening the FHA Single Family
insurance fund
 Addressing the long-term housing finance
regulatory framework
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OPPORTUNITIES FOR FAMILIES
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Choice Neighborhoods
Strong Cities, Strong Communities (SC2)
Promise Zones
Jobs and local economy
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ACCESS TO CREDIT
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REFINANCE
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Current efforts
― FHA’s Streamline Refinance program
― Administration’s efforts to open up
refinancing
― Senators Boxer, Menendez and Merkely
have proposed legislation
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LENDER OVERLAYS
We cannot have a healthy housing market
without appropriate access
 Why overlays?
 We hear that uncertainty in the regulatory
environment is a big factor
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TAKING ACTION
Consumer Financial Protection Bureau (CFPB)
― Ability to Re-pay Rule
 Qualified Residential Mortgage (QRM) is next
on the regulatory agenda
 Engaging in rulemaking on FHA’s version of QM
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LENDER ENFORCEMENT, REPS & WARRANTS
Recent enforcement actions
 GSEs’ rep and warrant risk
 Lenders’ concerns- loan default exposure to
the risk of indemnification or a put back, no
matter how trivial or immaterial the
underwriting flaws or error
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WORKING WITH LENDERS
Need to develop clear and transparent
standards on indemnification
 Made changes to our own underwriting criteria
― Confidence that borrowers can be successful
 Consider requiring housing counseling for
certain borrowers
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A STRONGER FHA
FHA played a crucial role in the single family,
multifamily and even healthcare mortgage
finance market since 2009
 Without FHA programs, Moody’s Analytics
predicts that house prices would have fallen an
additional 25 percent
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AGGRESSIVE STEPS IN 2011 - 2012
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Secretary Donovan and FHA leadership quickly
realized there were some significant changes
we needed to make
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Created an Office of Risk Management, the first in
FHA’s history
Established a higher down payment for borrowers
with credit scores under 580
Enhanced lender approval guidelines
Got rid of bad actors
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FHA SINGLE FAMILY
The books of business originated since 2010
are the strongest in Agency history
 Like other players in the mortgage industry,
FHA faced significant challenges over the past
several years
 NO financial institution or mortgage insurer has
weathered this crisis without pain
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FHA’S MUTUAL MORTGAGE INSURANCE FUND
2012 independent actuary report predicts the
Mutual Mortgage Insurance Fund is $16.3B
short of having sufficient funds to pay all
projected claims over the next 30 years
 FY 2013-14 budget proposes shortfall funding
in the event it becomes necessary
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SOURCES OF LOSSES
Projected losses stem largely from loans
originated from 2007-2009 as well as reverse
mortgage loans
 $14B of these expected losses are the result of
loans originated using a Seller Funded
Downpayment Assistance program
― FHA got Congress to ban
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FHA’S PRICING AND CREDIT POLICY STEPS
Announced a total of 5 increases, the highest
insurance premium in history
 Reversed a policy where insurance premiums
were automatically cancelled
 Required any borrower with a credit score
under 620 to have a maximum DTI of 43%
 Mandating higher down payments and higher
premiums for jumbo loans
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FURTHER ACTIONS TAKEN
 Revising
the loss mitigation waterfall
 Launched the Distressed Asset
Stabilization Program
 Ramping up a claims without conveyance
process to allow direct sales of foreclosed
properties to third parties
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HOME EQUITY CONVERSION MORTGAGE
Borrowers age 62 or older and with little to no
income use their equity to pay bills and
expenses while aging in place
 HECM is sensitive to both home prices and
borrowers age and longevity
 HECM loans disproportionately responsible for
large amount of expected losses
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HOUSING FINANCE REFORM
Proceed with the important work of solidifying
the long term health of the FHA
 GSE reforms need a similar approach
― GSEs are now earning profits and paying back
Treasury
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GSE REFORMS
Similar approach to GSE reforms- best
practices, industry-wide standards that support
our broad range of goals
― Preserve the 30-year mortgage
― Maintain access to credit for all households
― Keep the market stable
 Recognition that GSEs are now earning profits
and paying back Treasury but reform remains
an important issue
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HUD’S FY 2013-14 PROPOSED BUDGET
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Budget
Control
Act of
Background –– The
FY2014
Budget
at 2011
a Glance
Because of these discretionary caps, FY2012 set a new baseline – requiring HUD to make
tough choices in FY2013 and FY2014 – which are further magnified by Sequestration…
Billions
Despite these tough choices, this budget:
 Increases gross Budget Authority by 7.3% over FY2012 levels, to $47.58 billion
 Maintains housing assistance for every family HUD currently serves
 Increases investments in several key initiatives
$20
FY2012
Enacted
$15
FY2014
Request
$10
$5
$0
TBRA
PBRA
PH Op Fund
CDBG
Formula
HOME
Homeless
Assistance
Grants
Sections
202 and
811
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HUD’s
FY 2013
Budget––Bringing
Strengthening
Nation’s
Market Market
The
Budget
Principles
Private the
Capital
BackHousing
to the Housing
HUD’s FY2014 budget request helps reignite America’s engine of economic growth
by strengthening the housing market, speeding the recovery, and building a
stronger middle class…
o Allows FHA and Ginnie Mae to continue crucial, temporary
countercyclical role while building the middle class:
$248 billion FHA loan volume anticipated in 2014, providing an
estimated 1.2 million single family mortgages
$247 billion GNMA new guarantees anticipated in 2014
o Strengthens financial soundness, assists housing market recovery
and brings private capital back to the mortgage market:
Continuing to generate receipts for the taxpayer, $18 billion in
FY2013 and an estimated $13 billion in FY2014
Supports policies to reduce losses to the Fund
Facilitates access to credit for qualified borrowers
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TheBudget
BudgetPrinciples
Principles––Prioritizing
PrioritizingRenewals
Renewals
The
The majority of HUD’s budget is required each year simply to hold ground—keeping
current recipients in their homes and providing basic upkeep to the public housing stock…
In FY2014, 84% of HUD’s budget request will be used to:
• Renew Existing Rental Assistance/Operating
Subsidies
• Fund accrued capital needs of Public Housing
• Renew Existing Homeless Assistance Grants
IN A BUDGET FREEZE:
Funding for existing families increases with inflation
- as a result, other programs must decrease.
For every 1% increase in renewals, other programs
must decrease by nearly 5% to keep the budget level
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2013 Budget – Strengthening the Nation’s Housing Market
HUD’s FY 2014
HUD’s 2014 Budget request helps create ladders to opportunity by strengthening
the nation’s housing market, which in turn strengthens the middle class…
Strengthening the
Nation’s Housing
Markets to Bolster
the Economy and
Protect Consumers
•
$248 billion FHA loan volume in 2014, providing an
estimated 1.2 million single family mortgages
•
$239 billion GNMA new guarantees in 2014
Program ($ in millions)
2013
2012 Enacted Sequestration 2014 Request
FHA Loan Guarantee Limitation Level
$400,000
$400,000
$400,000
Ginnie Mae Loan Guarantee Limitation
Level
$500,000
$500,000
$500,000
$45
$45
$55
Housing Counseling Assistance
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IN CONCLUSION
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SUSTAINING OUR ECONOMIC RECOVERY
Investing in people and communities
 Facilitating access to credit for creditworthy
borrowers
 Ensuring that creditworthy, low wealth,
underserved borrowers and affordable housing
developers continue to have access to a strong,
sustainable FHA
 Creating clear rules of the road now and in the
future
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