REPEALING FINANCIAL REFORM ON THE FASTTRACK
On April 1st, Republicans introduced a bill, “The Financial Takeover Repeal Act of 2011,” to repeal the Dodd-Frank Act.
The Dodd-Frank Act’s goal was to: “To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘‘too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes,” (Dodd-Frank Act) was signed into law on July 21, 2010 by President Obama.
Some estimate that the initial cost to the federal government to implement the Dodd-Frank Act at almost $1 billion.
Former Federal Reserve Bank Chairman Alan Greenspan says extensive new rules contemplated by Dodd-Frank “would be impossible to implement, distortive to markets and a possible threat to US living standards.” Mr. Greenspan writes that the financial reforms will create “the largest regulatory-induced distortion in the United States since the imposition of wage and price controls in 1971.” The Financial Crisis Inquiry Commission report stated that “more than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan...stripped away key safeguards, which could have helped avoid catastrophe.” (suite101.com)
THE FEDERAL RESERVE BOARD SUCEEDS IN LIMITING CONSUMER CHOICE
The Federal Reserve Board’s final Rule of loan originator compensation finally goes into effect on April 6th. The two mortgage broker associations, NAIHP and NAMB sued the Fed last month over the Rule, which will drive up consumer costs and limit choice. The court ruled in favor of the Fed, which was appealed. A stay was issued on March 31st, just hours before the Rule was to go into effect. On Tuesday, April 5th, the Circuit Court denied the appeal and lifted the stay.
This was a blow to the industry, and to the housing market. NAMB and NAIHP continue their battle to protect the mortgage industry, and the consumer. The CFPB takes away the Federal Reserve Board’s authority on July 21st. The CFPB will have even greater authority, at the hands of just one person, Elizabeth Warren. It is critical that Elizabeth Warren and the CFPB do not make the same mistakes that the Federal Reserve Board has.
Go to www.namb.org or www.naihp.org to support consumer choice and housing.
GREAT RENTAL MARKET FOR LANDLORDS
Rental vacancy rates have dropped below the 10% level where they have been for years. With lower vacancy rates and greater demand, rents are going up. Rent hikes on average have increased less than 1% per year for almost 10 years. Peggy Alford, president of Rent.com, anticipates an increase in rents at a rate of 7% in each of the next couple of years. (cnnfn.com)
Financing guidelines for those with a foreclosure are tightening. Homeowners that have been forced from their homes due to a foreclosure or short sale, may not be able to obtain new financing for as long as 7 years. There will be a lot of renters for the foreseeable future.
FORECLOSURES RULE THE HOUSING MARKET
“Foreclosure sales continued to account for more than 20% of all U.S. home sales in the fourth quarter and fiscal year 2010, foreclosure data firm RealtyTrac said Thursday. The Irvine, Calif.-based data firm said foreclosure sales made up 26% of all home sales last year, down from 29% in 2009, but still higher than 2008 levels when foreclosures accounted for roughly 23% of all home sales. Buyers who acquired foreclosures in 2010 also benefited from a steep discount, with foreclosed homes selling 28% below the average price of non-distressed properties.” (housingwire.com)
DOUBLE DIP
“January home prices fell for the sixth month in a row, edging closer to a double dip. The S&P/Case-Shiller home price index covering 20 major markets fell 3.1% year-over-year, hovering near the market's bottom set in April 2009. The dismal report followed other negative housing market indicators recently. Sales of existing homes were off nearly 10% in February and new homes sales were at a record low.” (cnnfn.com)
UNWINDING THE WHOLE SYSTEM – THE END OF THE 30 YEAR MORTGAGE
“This entire housing crisis is because of Fannie Mae and Freddie Mac.” A quote from an Arizona Representative (name omitted to protect the guilty). “We are going to unwind Fannie and Freddie and everything else these Dems have done.” On March 29th, Republicans introduced eight bills to do just that.
Proposed legislation is as follows:
Equity in Government Compensation Act: Suspends the current compensation packages for all employees at Fannie Mae and Freddie Mac, and establishes a compensation system that is consistent with other senior executives in the federal government. "The failures of Fannie Mae and Freddie Mac helped precipitate the deepest economic decline since World War II," the bill reads.
GSE Mission Improvement Act: Aims to end all affordable housing goals set by Fannie Mae and Freddie Mac. This bill would essentially repeal The Federal Housing Enterprises Financial Safety and Soundness Act of 1992.
Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act: Further regulates Fannie and Freddie by requiring the GSE Inspector General to report to Congress on a regular basis.
GSE Subsidy Elimination Act: The guarantee fee or g-fee would steadily increase in order to eliminate Fannie and Freddie's government subsidies.
GSE Portfolio Risk Reduction Act, to cap the current portfolios of Fannie Mae and Freddie Mac and increase their annual attrition rate.
GSE Risk and Activities Limitation Act to prohibit Fannie Mae and Freddie Mac from engaging in any new activities or businesses.
GSE Debt Issuance Approval Act: Requires formal approval by the Treasury for any new debt issuance by the GSEs.
GSE Credit Risk Equitable Treatment Act of 2011: Prohibits the exemption of GSE securities from the risk-retention requirements of Dodd-Frank. (housingwire.com)
A Brief History:
The Federal National Mortgage Association (Fannie Mae) was created in 1938 to increase the supply of capital from the federal government to local banks to increase affordable home ownership. The Federal Home Loan Mortgage Corporation (Freddie Mac) was establishing by Congress in 1970 to compete with Fannie Mae.
Fannie Mae and Freddie Mac goal is to improve home ownership of low and middle income families, underserved areas, and generally through special affordable methods such as "the ability to obtain a 30-year fixed-rate mortgage with a low down payment... and the continuous availability of mortgage credit under a wide range of economic conditions." (HUD 2002 Annual Housing Activities Report)
President George H.W. Bush signed the Housing and Community Development Act of 1992 which forced Fannie Mae and Freddie Mac to meet affordable housing goals established by HUD. In 1999, the Clinton Administration applied additional pressure on Fannie Mae and Freddie Mac to lower underwriting guidelines to better serve low and moderate income borrowers. In 2000, HUD instituted anti-predatory lending laws that restricted high risk loans. In 2004, those rules were dropped. In the mid-2000s, due to sweeping deregulation of the financial system, Wall Street aggressively entered the mortgage backed securities market and began to take market share away from Fannie and Freddie; with exotic mortgage products and low underwriting standards. Shareholder pressure forced Fannie and Freddie to lower underwriting guidelines to compete with the large investment banks on Wall Street. On September 7th, 2008, due to the housing crisis, Fannie and Freddie were put under conservatorship of the Federal Housing Finance Agency.
Unwinding Fannie and Freddie would put entire mortgage industry in the hands of investment banks and Wall Street. Without government guarantees, Wall Street would be unlikely to offer long term fixed mortgage products, i.e. 30 year fixed mortgages. Fannie Mae and Freddie Mac are the sole reason the United States is one of the few countries in the world with long term fixed mortgage products. Adjustable rate mortgages will become the primary financing tool for housing.
Fannie and Freddie are part of the problem. Wall Street and deregulation was the cause of the problem. Unwinding Fannie and Freddie will drive up borrowers costs, interest rates, and one’s ability to purchase a home; further stalling the housing recovery. Wall Street did such a bang up job with home loans in the recent past, why don’t we just give them the entire market, with no government involvement? Unwinding Fannie and Freddie could unwind the entire housing market.
MARKET UPDATE brought to you by:
CHRIS TILLER
Cell: 602-561-1346
Email: tiller34@hotmail.com
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