18TH ANNUAL FISHER REAL ESTATE CONFERENCE
U.C. Berkeley
Palace Hotel, San FranciscoApril 22, 2013
OH, THOSE HARD TIMES…
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WHAT A DIFFERENCE A YEAR MAKES 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 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’SSTATE 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
Choice Neighborhoods Strong Cities, Strong
Communities (SC2) Promise Zones Jobs and local economy
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ACCESS TO CREDIT
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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
REFINANCE
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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 Secretary Donovan and FHA
leadership quickly realized there were some significant changes we needed to make―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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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
SOURCES OF LOSSES
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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 TAKENRevising 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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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
HOME EQUITY CONVERSION MORTGAGE
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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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Background – Budget Control Act of 2011Background – The FY2014 Budget at a Glance
$0
$5,000,000,000
$10,000,000,000
$15,000,000,000
$20,000,000,000FY2012 EnactedFY2014 Request
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
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…
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HUD’s FY 2013 Budget – Strengthening the Nation’s Housing Market
oAllows 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
oStrengthens 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 $13 billion in FY2014
Supports policies to reduce losses to the Fund Facilitates access to credit for qualified borrowers
HUD’s FY2014 budget request helps reignite America’s engine of economic growth by strengthening the housing market, speeding the recovery, and building a stronger middle class…
The Budget Principles – Bringing Private Capital Back to the Housing Market
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The majority of HUD’s budget is required each year simply to hold ground—keeping current recipients in their homes and providing basic upkeep to the public housing stock…
In FY2014, 84% of HUD’s budget request will be used to:• Renew Existing Rental
Assistance/Operating Subsidies• Fund accrued capital needs of Public Housing• Renew Existing Homeless Assistance Grants
IN A BUDGET FREEZE: Funding for existing families increases with inflation - as a result, other programs must decrease.
For every 1% increase in renewals, other programs must decrease by nearly 5% to keep the budget level
The Budget Principles – Prioritizing RenewalsThe Budget Principles – Prioritizing Renewals
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HUD’s FY 2013 Budget – Strengthening the Nation’s Housing Market
Strengthening the Nation’s Housing Markets to Bolster the Economy and Protect Consumers
HUD’s 2014 Budget request helps create ladders to opportunity by strengthening the nation’s housing market, which in turn strengthens the middle class…
Program ($ in millions)2012
Enacted
2013 Sequestrati
on2014
RequestFHA Loan Guarantee Limitation Level $400,000 $400,000 $400,000Ginnie Mae Loan Guarantee Limitation Level $500,000 $500,000 $500,000
Housing Counseling Assistance $45 $45 $55
HUD’s FY 2014 Budget – Strengthening the Nation’s Housing Market
• $248 billion FHA loan volume in 2014, providing an estimated 1.2 million single family mortgages
• $239 billion GNMA new guarantees in 2014
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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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