SAN FRANCISCO - With the more than 6,000 attendees flocking to San Francisco's Moscone Convention Center for the Mortgage Bankers Association's 91st Annual Conven-tion & Expo - which is by all accounts an attendance record - it's no wonder that MBA President Jonathan Kempner called the gathering a "dream," in his welcome remarks. Talk at the conference centered around the upcoming elections, extending homeownership, specifically to minorities, and of course the GSEs and their accounting woes.
Even Freddie Mac CEO Richard Syron tried to make light of the headline risk that has plagued his firm and more recently its rival Fannie Mae. "I'm assuming the good turnout is because today happens to be my birthday," Syron said, at the GSE Forum session. "I'll pretend it has nothing to do with all the big names on your general session program. Or all the media attention given lately to the GSEs."
The big names Syron was referring to were former New York Governor Mario Cuomo and former Speaker of the House Newt Gingrich who were the guest speakers at the conference's opening general session. Not surprisingly, the two polar political opposites hotly debated the war in Iraq, and alternately defended and attacked each of the presidential candidates. Gingrich received a warmer welcome from the crowd, duly noted by Cuomo, making it obvious whom the crowd supported.
However, even with the elections just a week away (at the time of the conference), focus was still placed on the GSEs and their alleged accounting irregularities. In responding to questions about Fannie Mae's response to its current accounting controversy, Fannie CEO Franklin Raines said, "We see this us our responsibility," adding that Fannie is are not shirking the issue. However, Raines also stated that Fannie Mae tried not to debate this in the press but instead sought a more formal medium through Congress.
Fannie Mae management is trying very hard to deal with issues raised without them having a detrimental on its customers. "We cannot allow regulatory and management issues" to prevent Fannie Mae from meeting its goals, Raines added.
Expanding home ownership
Aside from the elections and accounting-related problems, conference participants emphasized the importance of extending home ownership to immigrants and minorities. Outgoing MBA Chairman Robert Couch in his farewell address said that the MBA, through its strategic initiatives, is removing the impediments to placing homeowners in clean, affordable housing. Meanwhile, incoming Chairman Michael Petrie said that even as interest rates rise, the MBA is committed to helping create new mortgage products and to and simplifying the mortgage application process.
Freddie's Syron underscored the significance of catering to this area of the population when he mentioned that although approximately three quarters of Caucasian families own homes, only roughly half of minority families currently do. In the coming years, he stated that around two-thirds of all homeowner growth would come from minority families while the number of Caucasian first-time homebuyers is expected to drop.
In his speech, Fannie Mae's Raines noted that minorities would represent 80% of the population growth this decade and 46% of future first-time homebuyers will be minorities and immigrants. "We know that the so-called atypical borrower of today will be the typical borrower of tomorrow," he said.
Syron also said that Freddie Mac's changes go beyond the accounting issues that brought him there - specifically, applying a new credit culture by adjusting its approach to this type of risk. "We're going to work very hard
to manage credit risk, not simply avoid it," he said. He noted, however, that there is a thin line between being aggressive and predatory, and although Freddie wants to be more of the former, management is also setting these goals against a backdrop of low interest rates and rapid home price appreciation. There is a balancing act required, Syron said, to not only extend homeownership but to make sure people stay in their homes.
In light of extending its view of credit, Freddie Mac launched an initiative called Project Greenlight, which Syron said is "an in-house name that tells you, we want to greenlight more loans." Through this, the GSE is pushing its credit boundaries by, among other things, creating new mortgage products that allow lower down payments and credit scores as well as redesigning A-minus loans.
During the question and answer portion, Fannie Mae's Raines stated that in terms of emerging markets, lenders have to go beyond the stereotypical way of approaching these borrowers and should develop banking systems to accommodate them. Citing ethnic financial institutions as an example of entities that have historically been used to integrate immigrants into the mainstream, Raines noted it usually takes years to accomplish this.
In other areas, Raines said that one has to look beyond the financing level and examine supply and demand issues. In California, for instance, because of the run-up in prices, only 30% of homebuyers could afford a median-price home. Thus homeownership becomes an issue for the middle class population in some geographic regions as well. Raines also said that prime lenders stood to learn from their subprime lending counterparts, which are better at marketing new loan products to customers, and through this, are able to extend homeownership to underserved borrowers, regarded as inaccessible by originators in the prime sector.
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