TORONTO, Canada - Last week's Mortgage Banker's Association (MBA) 88th Annual Convention & Expo was a reflection of what life after Sept. 11 is like.

Though there were approximately 3,200 attendees - an impressive turnout considering the circumstances - this still does not compare to what it was previously. Last year's number of participants was about 5,000.

There were reminders everywhere that things are not as they used to be. Every speech was filled with references to the World Trade Center and Pentagon attacks and some of the panel discussions were exclusively devoted to discussing life after Sept. 11 with CNN correspondents replacing mortgage bankers as moderators. In one of the general sessions, former British Prime Minister John Major talked at length about Britain's role in the current fight against terrorism.

And when the lights went out throughout the MetroToronto Convention Centre after a session featuring GSE views on the changing mortgage industry, people were visibly shaken, although power was restored in no time at all.

But despite the power mishap and the constant references to the terror attacks, people were determined to proceed with business as usual. As James Murphy said in his speech as the new MBA chairman, "Fear has no hold over America."

And even the significant number of cancellations did not faze a top Freddie Mac official. "We decided that even if only one of our clients comes to this convention, we will be here for the client."

Mortgage sector,

strong as ever

The drive to push business in the mortgage market is fueled largely by the strength of the sector.

In a speech, chairman and chief executive officer at Fannie Mae Franklin Raines said, "If you look beyond the anecdotes at the real driver of the housing market in this country, we could be looking at another decade of strong and sustained growth."

He said that Fannie believes the consumer demand for residential investment may double in the decade, from $11 trillion currently to $21 trillion to $25 trillion by 2010.

This would, in turn, spur demand for mortgage capital to rise to $11-14 trillion by 2010 from its current $5.4 trillion.

According to Fannie, mortgage originations this year are expected to go over the record-breaking number $1.8 trillion.

The MBA shares this projection but has lower expectations for next year compared to Fannie. The association expects only $1.3 trillion in total loan production for next year while Fannie expects $1.6 trillion.

Raines also said that homeownership rates are currently at nearly 68% and could reach 71%. To reach this level, 15 million more homeowners need to come in.

Housing sector:

is it still a savior?

Before the Sept. 11 attacks, the housing sector was said to be saving the floundering economy, but analysts at the MBA conference were unclear as to whether this still holds.

Last week, new and existing home sales were up 6%, which experts said is a good sign for the housing market.

One aspect of this sector that was believed to be contributing significantly to the economy was the high volume of cash-out refinancings.

By taking out equity from their homes, consumers were able to channel their finances towards other things including travelling and buying new cars. Experts said that pre-Sept. 11 data showed that a typical homeowner would take out about $30,000 worth of equity and spend 50% of that on consumer items and the remainder on paying down debt.

But will cashout refis continue to spur the economy?

According to MBA chief economist Douglas Duncan, the next question should be, "Would consumers become more financially conservative?"

Duncan said that there is anecdotal evidence to show that after the terrorist attacks consumers are depositing the money into banks rather than spending the equity derived from their homes. So it may be questionable whether cash-out refis will continue to spur the economy going forward.

Housing as an

economic stimulant

The MBA also released last week a plan containing priority policy recommendations that would use the housing and real estate sector to stimulate the economy.

The MBA plans to ask Congress and the Administration to include these proposals in an economic stimulus program.

Through the implementation of the priority items, MBA hopes that in the first year $11.8 billion would be contributed to the economy and 55,000 new jobs will be created.

The longer-term expectation is that over five years $59.2 billion would be put into the economy and 275,000 jobs will be made available.

Among the steps suggested by the MBA are making permanent the Federal Housing Administration (FHA) downpayment calculation pilot which ends at the end of the next fiscal year; allowing FHA to insure adjustable-rate mortgages; keeping Ginnie Mae guaranty fees at the current amount without increasing it by 50% in Oct 2004 as planned; and eliminating the multifamily housing insurance premium increase.

Preliminary feedback on the proposal has been good. In his speech at the convention, Department of Housing and Urban Development (HUD) Secretrary Mel Martinez said that he liked the points raised in the MBA stimulus program.

At the press conference with the association's officers on the proposals, they said Ginnie Mae officials had already given a positive response on keeping the Agency's guaranty fees as they are.

The recommendation on the elimination of the increase in the multifamily housing insurance premium might be feasible as well, barring budgetary constraints.

According to Howard Glaser, senior staff vice president of government affairs at the MBA, the days of good government policy are over. He added that for a proposal to go through a Congress currently preoccupied primarily with national security and economic recovery, the appropriate argument would be how to stimulate the economy.

Efforts to broaden


In his speech at the MBA convention, HUD Secretary Martinez emphasized the importance of expanding the numbers of homeowners in the United States. He also mentioned that the interest of minority homeowners should be protected.

He said that future homebuyers should not be hindered by unlawful practices and decried the fact that many homebuyers are unprepared when presented with unexpected fees at the closing of their mortgage. A clearer and more user-friendly process in buying a home is needed, he said.

Martinez focused on the importance of Real Estate Settlement Procedures Act (RESPA) reform.

Under the RESPA, which was enacted in 1974, the charging of excessive and unreasonable fees is illegal. But according to Martinez, the law has to be updated to be effective.

"Reforming RESPA is now the right thing to do," Martinez said. "The RESPA has not kept pace with current mortgage practice."

Last Monday, the day before his speech, Martinez pushed for complete, upfront disclosure and explanation of all fees that buyers pay at settlement.

According to a release from the HUD, Martinez will be issuing a mortgage letter for all Federal Housing Administration lenders that would encourage full disclosure at the start of the buying process. The Secretary will also be coming out with a policy statement that would clarify and guide lenders on home buying fees.

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