The move towards a single mortgage security is moving too slowly, and that could result in a setback for this program after the election, Mortgage Bankers Association CEO Dave Stevens said.
The common securitization platform will result in investors being "better served in a market with better liquidity and homogeneous characteristics," he said Wednesday at an investor conference in New York.
But his fear is that when Federal Housing Finance Agency Director Mel Watt and the team working on the platform leave — most likely at the end of President Obama's term — the program could be set back by the loss of institutional knowledge.
Whenever the new platform is up and running, there will still need to be some sort of government guarantee on the mortgage-backed securities it generates, "or no investor would buy this stuff," he said.
Another issue being left for the next administration and Congress to deal with is reform of the government-sponsored enterprises.
Stevens believes it will be done in a piecemeal fashion. The Johnson-Crapo bill from a few years ago was just "too big" in what it was looking to accomplish.
Deeper coverage by private mortgage insurers was another issue Stevens addressed, calling it just one way to accomplish front-end risk sharing with the GSEs.
The same goals can be accomplished through balance sheet mechanisms like recourse.
During the crisis, because of their capital problems, private mortgage insurers became "untrusted counterparties" for GSEs, he said, a perception that still remains.
Fannie and Freddie have implemented new capital standards for private mortgage insurers, but some inside the GSEs apparently feel that is not at the level needed to withstand another housing crisis.
"If we are not going to trust these counterparties under the current risk metric, tell us what the risk metric is," Stevens said.
During his talk, Stevens, a former Federal Housing Commissioner, said that while he was not speaking for Wells Fargo (his onetime employer), he believes the lender saw Fannie Mae as a better partner for its recently announced low down payment program than the Federal Housing Administration.
There has been unprecedented use of the False Claims Act, with its treble damages per incident that has affected lenders' willingness to participate in the FHA program, he said.
When asked if he believes FHA will do another premium reduction later this year, Stevens started by noting that he was the person who put in the life-of-loan coverage requirement. He then added that he doesn't think low down payment consumers make a loan product decision based on whether FHA insurance is cancellable or not. So that is not likely to change.
A decision to cut the upfront and/or annual FHA premium "would purely be a political move" in this presidential election year, he said.
Stevens would like to see more transparency in the GSE loan level price adjustments, including a review of them by a third party.
"It is not for me to tell [the GSEs] they are overpricing," but he would like to get a more objective view.
When it comes to the Consumer Financial Protection Bureau, he believes it does good work, but "my worry is how decisions are made and communicated."
For example, PHH Corp. was operating under a letter that said its marketing services agreements were in accordance with regulations. Regulators can change their views, but to do it in an "ex post" manner like it did with PHH was not proper. Lenders are "operating under a fear" that the Unfair, Deceptive or Abusive Acts or Practices laws will be applied to their past production, Stevens said.
The qualified mortgage rule also needs to be rewritten. If the exemption for loans sold to the GSE was not in there, credit would be 7% to 10% tighter than it currently is. The rewrite should not include the GSE exemption.
"I think the rule needs to be rewritten. It needs to happen now while we're not in a crisis," Stevens said, adding the GSE exemption "crowds out private capital."