Panelists at the second general session of the Mortgage Bankers Association's (MBA) National Secondary Conference & Expo were all praises for the housing market, while executives from Ginnie Mae, Fannie Mae, Freddie Mac and the Federal Home Loan Bank spoke in detail about current issues affecting their respective organizations.
Paul Peterson, executive vice president and chief operating officer at Freddie Mac, said that while some in the market are concerned about rising interest rates and the corresponding upward movement in mortgage rates, increases might not necessarily adversely affect the housing market. For instance, though rates have now risen to the 6% level, this is low compared to the historical average of around 8.9%. The supply and demand dynamics in the market are also looking good. Currently, there is only about four months worth of mortgage supply but demand for the product remains robust.
The housing market is part of the fabric of the country, declared Ronald Rosenfeld, president of Ginnie Mae. Although there are some areas of weakness, many places maintain robust growth, such as Las Vegas. In Las Vegas, there is a significant amount of untapped land, he said.
Raymond Christman, president and chief executive officer of the Federal Home Loan Bank of Atlanta, echoed the sentiment about the regional disparity in the housing market, as growth and job creation remain concentrated in certain areas, such as Chicago and Atlanta. Also, over the last couple of years, a broader group of people has begun to understand the importance of the housing sector, which is positive to the industry.
All told, there doesn't seem to be a national housing bubble (whew!). Fannie Mae Vice Chairman and Chief Operating Officer Daniel Mudd identified only a few areas - which went through recent periods of rapid growth - that may experience house price depreciation. These include Portland, parts of Boston and the Silicon Valley. However, on the national level, the housing bubble is a non-issue, he said.
Organizational
and other matters
Aside from the health of the housing sector, the panel focused on key themes such as providing access to a diversity of mortgage products, minority homeownership, current GSE issues and affordable housing goals for the different institutions.
However, providing borrowers with a variety of mortgage products can put a strain on credit standards. Freddie's Peterson said that quality control is important. Lenders must exercise due-diligence because there are opportunities for misrepresentation, specifically when a loan depends on a borrower's stated income and assets (see related story, p. 17).
Fannie's Mudd emphasized the importance of knowing the customer and tracking the loan throughout the origination process.
In terms of minority homeownership, Mudd said the focus should be on taking the cost out of applying for a mortgage and finding areas of growth. Minority borrowers can have issues about not having a traditional income profile or credit history or they may have had bad experiences with a bank in their home areas, and therefore distrust the system.
To build their trust, nontraditional avenues, such as churches, can be used.
Other panelists raised concerns about affordability. Though average income is rising, there are still borrowers at the tail of the curve who cannot afford to own a home, Freddie's Peterson said.
Public awareness is a major issue in lending to minorities. If minority housing does not become a tangible issue, it will lose its momentum, especially as the issue is not widely addressed in government policy. However, President Bush's minority housing program was noted as a bright spot.
Discussion also centered on the issue of affordable housing goals for the different institutions represented. Atlanta's FHLB devotes 10% of its profits to an affordable housing grant program, which CEO Christman described as a tangible, effective way of distributing a portion of the FHLB's income.
As for the GSEs, Ginnie's Rosenfeld believes corporate goals can interfere with social goals. Meanwhile, Peterson stated that it is important to define what form the mission support will take. For instance, should goals for the GSEs compete with those of the FHA?
Though there has been much hoopla about the role of the GSEs, representatives from Fannie Mae and Freddie Mac defended their respective organizations and goals.
Freddie's Peterson said that the GSEs were created to provide liquidity to the marketplace and to have institutions permanently committed to housing finance. Agencies devoted to housing and housing alone are not only critical in today's economic environment but in the future, especially as financial institutions and transactions become more sophisticated. He added that strong bipartisan support fortunately remains for these agencies.
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