Last week CHLA released its annual report detailing who we are and what we’re trying to accomplish going forward. It’s a busy agenda and I thought I’d summarize the detailed agenda in thematic fashion. What are we about?
I think three major themes dominate what we’re trying to do for our members and US families trying to reach and sustain homeownership.
One major theme is to ensure that US mortgage products are not priced too high relative to actual risk. The issue here is plain: Washington ought not use housing programs to fund other federal programs. This is happening today, unfortunately, in both the FHA and VA mortgage programs, arguably the two housing programs that serve families of modest means and diverse populations. It’s incredibly ironic that Washington claims to want to bridge the wealth divide and close income and racial disparities yet keeps this mortgage money priced too high!
We were hoping the current Administrations cuts FHA premiums this week at the MBA conference. But given that hope is not a great strategy, we have to keep working to educate Washington how inaction here hurts real American families for no good reason.
Also, it’s worth noting that VA mortgage premiums, raised by Congress in 2019 to fund health benefits for Vietnam veterans, are set to decline April of next year as those so-called “Blue Water Navy” benefits have now been paid for. In particular, first-time VA mortgage users will see a cut from 2.30 percent to 2.15 percent; so-called subsequent users of their earned benefit will see a major reduction of 30 basis points, from 3.6% to 3.3%. This will greatly help American veterans and active-duty families–unless Congress again grabs the extra premium income to fund some other non-housing spending next year.
In both cases, CHLA has been at the forefront arguing for common-sense reductions. If we don’t “keep Washington honest here” with mortgage pricing and actual risk, it makes it harder for us all to serve those who’ve been left behind unfairly.
Another major theme we pursue is making sure that Washington does not concentrate the market, wittingly or unwittingly, but regulating all mortgage lenders the same way. It’s merely common sense to ensure that smaller lenders, which cannot amortize large fixed costs of regulatory and compliance burdens (due to a smaller book of business) ought not be regulated the same as giant lenders, which not only can amortize such costs due to their enormous books of business, but arguably ought see more regulation due to (1) legitimate market spillover effects should they encounter trouble, but (2) also a propensity to have larger bureaucracies that often make mistakes due to a lack of close management supervision.
In this area we’re working on excluding small lenders from the recently proposed Ginnie Mae risk-based capital rules, as well as urging the Conference of State Bank Supervisors to find a way to have states coordinate and consolidate state exams such that small lenders can dedicate more resources to lending as opposed to nonstop, and redundant, state examinations.
Finally, we have seen instances, whether it’s:
(1) the Federal Reserve rapidly buying MBS—in a very short period of time in early 2020—that blew up long-used pipeline hedges for well-run lenders, or;
(2) Congress mandating a new world where borrowers need not pay their mortgages for an extended period of time (without even needing to prove hardship!) where community lenders have had to navigate very challenging environments. And these environments provided risks that no one lender could have modeled, nor foreseen.
These situations required lenders to suddenly produce cash to cover what economists call “externalities,” which were not the fault of any individual lender, and affected the entire marketplace. In both cases IMBs had to find a way to access cash, quickly, so they could stay in business and serve their customers.
In the depository world, institutions have multiple ways to raise short-term cash quickly and inexpensively. The IMB model has no such avenues; in fairness, it didn’t need them in the past, as the model never contemplated IMBs having to act as bankers, essentially. IMBs accessed warehouse lines of credit, turned them into mortgage and MSR products, and repaid the warehouse lines when the production was sold off to investors; there was no economic reason to maintain large balances of short-term cash.
In the modern world however, this seems to have changed. So CHLA is working on liquidity facilities that allow us to do what we do best: serve families. We already have two CHLA “task forces” that will meet and allow us to forward recommendations to Ginnie Mae on a new liquidity facility for the future, and to FHFA on a special FHLB advance program (through warehouse banks) to help IMBs navigate short-term hedge squeezes (as happened in spring 2020.)
These three themes don’t capture everything we do of course, but they cover key areas on which we work not only behalf of our member lenders, but indeed American families and communities looking for a better tomorrow.
By Rob Zimmer
Disclaimer: The views expressed above are those of the guest commentator and do not necessarily reflect CHLA policy or perspectives.