HOUSING MARKET UPDATE DECEMBER 2015

HOUSE PASSES BILL TO CAP GSE PAY

 The U.S. House of Representatives passed a bill to cap the CEO pay for Fannie Mae and Freddie Mac; unanimously.

 According to the office of U.S. Representative Ed Royce, R- Calif.,”The House took up and passed the Senate version of the bill, and passed it tonight by voice vote, as no House member requested a roll call vote. Essentially, no Member was willing to go on record with their opposition to the bill.”

 The bill now goes before the President. And if the President signs the bill into law, the salaries of the CEOs will be capped at $600,000.

 Mel Watt, the Director of the Federal Housing Finance Agency, had authorized pay to the CEOs at $7.26 million per year; which is in line with Wall Street CEO pay.

"While this is a victory for taxpayers, the real battle of winding down the GSEs and ending the government's domination of the housing market remains,” said Royce. "My ultimate goal is still comprehensive housing finance reform that brings private capital into the system to eliminate the boom-and-bust cycle that wreaked havoc on the American economy. This task takes on all the more urgency as Fannie and Freddie slip into the red and invite new taxpayer bailouts." (housingwire.com)

Of course the House passed a bill to cap the pay of the CEOs. Anything to weaken the GSEs would be seen as a victory for most Republicans. But a victory for taxes payers? Just ask yourself and your fellow tax payers, “Do you like the option of a 30 year fixed mortgage?” Without the GSEs and government guarantees, there would be no 30 year fixed mortgages. That is a direct product of Fannie Mae and Freddie Mac. And while the third quarter proved to be challenging for both Fannie and Freddie, they have been printing money for years, making money hand over fist for the government; and the taxpayer.

Bring private capital into the system (i.e. Wall Street) to avoid the boom bust cycle that wreaked havoc on the American economy? Fannie Mae and Freddie Mac did not create the housing crisis of 2008. Wall Street did. OK, maybe Wall Street learned its lesson over the last seven years and will no longer be tempted by greed over the public’s wellbeing. If you are willing to make that bet, support those that want to put the fate of our housing market solely in the hands of Wall Street, and rid the country of Fannie Mae and Freddie Mac.

 HOUSE VOTES TO REVAMP QM

 The House of Representatives voted this month to change the definition of Qualified Mortgage (QM) with the Portfolio Lending and Mortgage Access Act. If passed, the definition of what could be considered a Qualified Mortgage would be dramatically broadened.

The new QM rule would recognize all residential mortgage loans held in portfolio by credit unions and other lenders as qualified mortgages for the purposes of the Consumer Financial Protection Bureau’s mortgage lending rules. The current QM rules require a lender to make a good faith effort to determine that a borrower has the ability to repay a mortgage, and that the loan does not include excessive upfront points and fees.

Under the bill, depository institutions that hold a loan in portfolio would receive a legal safe harbor even if the loan contains terms and features that are abusive and harmful to consumers. The bill would limit the right of borrowers to file claims against holders of such loans and against mortgage originators who directed them to the loans, the White House said.

“The Administration strongly opposes this bill because it would undermine critical consumer protections by exempting all depository financial institutions, large and small, from QM standards—including very basic standards like verifying a consumer's income—as long as the mortgage loans in question are held in portfolio by the institution,” the White House said in a statement.

If the bill were to pass, many underwriting restrictions would be lifted, making it easier to lend to less qualified borrowers.

 One of the bill’s main supporters, House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said that the CFPB’s rules make it harder to lend to “credit-worthy” Americans.

“The Independent Community Bankers Association reports that 73% of community bankers have decreased their mortgage business or completely stopped providing mortgage loans due to the expense of complying with this regulatory burden,” Hensarling said in a statement. 

“One-out-of-five Americans who borrowed to buy a home just five years ago will not meet the underwriting requirements of the CFPB’s mortgage rules. According to the Federal Reserve, that will hit roughly one-third of Hispanic and African-American borrowers,” Hensarling continued.

As can be expected, many Democrats oppose the bill.

 “H.R. 1210 would allow lenders to deal in the same kind of risky loans that sank Washington Mutual, Wachovia, Countrywide and eventually the entire economy in 2008,” Maxine Waters said in a statement.

 “The bill undermines the anti-predatory lending provisions of the Dodd-Frank Act and virtually eliminates one of the most significant consumer protection rules implemented by the CFPB,” Waters continued.

“The bill also revives an industry practice under which mortgage brokers can earn hefty bonuses by steering borrowers into riskier, more expensive loans regardless of whether they qualify for better rates,” Waters said.

The bill will most likely be vetoed by the President. (housingwire.com)

U.S. TARGETS INDIVIDUALS FOR MORTGAGE MELTDOWN

Seven years after the great mortgage meltdown, the Department of Justice is finally pursing criminal charges against executives thought to be responsible for selling bad mortgage backed securities. Their first targets, executives at Royal Bank of Scotland and JPMorgan Chase.

According to a report from the Wall Street Journal, federal investigators are working on establishing cases against the RBS and JPMorgan Chase executives for “allegedly selling flawed mortgage securities,” despite reportedly receiving warnings that they were securitizing too many potentially toxic mortgages.

 The Wall Street Journal Report:

 Officials are working to establish that the bankers ignored warnings from associates that they were packaging too many shaky mortgages into investment offerings and are weighing whether they can prove that constituted fraud, the people said.

At RBS, prosecutors are scrutinizing a $2.2 billion deal that repackaged home mortgages into bonds in 2007, the people said. In a 2013 civil settlement with RBS, the Securities and Exchange Commission described the lead banker on that deal, whom it didn’t name, as trying to push it through over concerns of the diligence department.

At J.P. Morgan, prosecutors are focusing on two people who worked on a different residential-mortgage deal, the people said.

The J.P. Morgan criminal probe flows directly from the Sacramento civil investigation, in which prosecutors unearthed a 2007 memo written by a bank employee warning her bosses before the financial crisis hit that they were putting bad loans into securities—warnings that were ignored. That memo helped the Justice Department develop a legal basis for the then-record 2013 settlement.

Per the Wall Street Journal, the Department of Justice is aiming to complete the criminal cases before the 10 year statute of limitations expires in 2017.

 The Department of Justice reached a $16.65 billion settlement with Bank of America and a $7 billion settlement with Citigroup over bad mortgages. Those suits were against companies. This is the first time the DOJ is going after individuals for bad mortgages. (housingwire.com)

FANNIE & FREDDIE REPORT DISMAL NUMBERS FOR THE 3RD QUARTER

A bad time to report poor financials with a CEO pay increase on the table, and the Republicans gunning for your demise.

 Fannie Mae saw its net income cut in half in the third quarter to the tune of $2 billion. The silver lining, it was still a $2 billion dollar profit. Freddie Mac on the other hand reported a $500 million lose. Freddie Mac CEO Donald Layton, called the loss as “accounting noise.”

In the new Compass Point report, analyst Issac Boltansky writes that Freddie’s loss in the third quarter reduced its total equity from $1.8 billion to $1.3 billion, adding that due to the 3rd Preferred Stock Purchase Agreement requires each GSE to reduce its capital buffer by $600 million a year until hitting $0 in 2018.

“To that end, the potential for the GSEs to take another draw from the U.S. Treasury increases each year as the capital buffers steadily decline to $0 while accounting-related earnings variability persists,” Boltansky writes.” Our view remains that under the current terms of the bailout agreement it is a matter of when, not if, the GSEs will be forced to take another draw.”

Draw or no draw, the GSEs are not going away or getting reformed anytime soon. Certainly nothing will be done until after the Presidential election. (housingwire.com)

 FORECLOSURE FILINGS ON THE RISE

 Foreclosure filings were up 6% in October over the previous month in the latest RealtyTrac Foreclosure Market Report. This is the biggest month over month increase since August 2011. (RealtyTrac)

DEMOCRATS TAKE ON HOUSING IN LAST DEBATE

The debate featured former Secretary of State Hillary Clinton, Sen. Bernie Sanders and former Maryland Gov. Martin O'Malley, and was moderated by John Dickerson of "Face the Nation," Nancy Cordes of CBS, Kathie Obradovich of the Des Moines Register and Kevin Cooney.

Here's everything that was said, with the moderator's comments when they were pertinent, from the Washington Post's transcript:

 DICKERSON: Secretary Clinton... Senator Sanders recently said, quote, "People should be suspect of candidates who receive large sums of money from Wall Street and then go out and say 'Trust me. I'm going to really regulate Wall Street'. So you've received millions of dollars in contributions and speaking fees from Wall Street companies. How do you convince voters that you are going to level the playing field when you're indebted to some of its biggest players?

CLINTON: Well, I think it's pretty clear that they know that I will. You have two billionaire hedge fund managers who started a super PAC and they're advertising against me in Iowa as we speak. So they clearly think I'm going to do what I say I will do and you can look at what I did in the Senate.

I did introduce legislation to reign in compensation. I looked at ways that the shareholders would have more control over what was going on in that arena. And specifically said to Wall Street, that what they were doing in the mortgage market was bringing our country down. I've laid out a very aggressive plan to reign in Wall Street -- not just the big banks.

That's a part of the problem and I am going right at them. I have a comprehensive, tough plan. But I went further than that. We have to go after what is called the shadow banking industry. Those hedge funds. Look at what happened in '08, AIG, a big insurance company, Lehman Brothers, an investment bank helped to bring our economy down. So, I want to look at the whole problem and that's why my proposal is much more comprehensive than anything else that's been put forth.

SANDERS: Here's the story. I mean, you know, let's not be naive about it. Why do -- why, over her political career has Wall Street been a major -- the major campaign contributor to Hillary Clinton? You know, maybe they're dumb and they don't know what they're going to get, but I don't think so.

 Here is the major issue when we talk about Wall Street. It ain't complicated. You have six financial institutions today that have assets of 56 percent, equivalent to 56 percent of the GDP In America. They issue two-thirds of the credit cards and one-third of the mortgages.

 If Teddy Roosevelt, a good Republican, were alive today, you know what he'd say? "Break them up." Reestablish Glass-Steagall. And Teddy Roosevelt is right. That is the issue. Now I am the only candidate up here that doesn't have a super PAC. I am not asking Wall Street or the billionaires for money. I will break up these banks. Support community banks and credit unions. That's the future of banking in America.

Moderator to Sanders: You said they (banks) know what they're going to get. What are they going to get?

SANDERS: I have never heard a candidate never, who has received huge amounts of money from oil, from coal, from Wall Street, from the military industrial complex, not one candidate say, oh, these campaign contributions will not influence me. I'm going to be independent. Well, why do they make millions of dollars of campaign contributions? They expect to get something. Everybody knows that.

 Once again, I am running a campaign differently than any other candidate. We are relying on small campaign donors, 750,000 of them, 30 bucks a piece. That's who I'm indebted to.

 CLINTON: So, I represented New York, and I represented New York on 9/11 when we were attacked. Where were we attacked? We were attacked in downtown Manhattan where Wall Street is. I did spend a whole lot of time and effort helping them rebuild. That was good for New York. It was good for the economy and it was a way to rebuke the terrorists who had attacked our country.

So, you know, it's fine for you to say what you're going to say, but I looked very carefully at your proposal. Reinstating Glass- Steagall is a part of what very well could help, but it is nowhere near enough. My proposal is tougher, more effective, and more comprehensive because I go after all of Wall Street not just the big banks.

SANDERS: This issue touches on two broad issues. It's not just Wall Street. It's campaign -- a corrupt campaign finance system. And it is easy to talk the talk about ending Citizens United, but what I think we need to do is show by example that we are prepared to not rely on large corporations and Wall Street for campaign contributions, and that's what I'm doing.

 In terms of Wall Street, I respectfully disagree with you, madam secretary, in the sense that the issue here is when you have such incredible power and such incredible wealth. When you have Wall Street spending $5 billion over a 10-year period to get -- to get deregulated, the only answer they know is break them up, reestablish Glass-Stegall.

Moderator to O’Malley: Governor, along with your answer, how many Wall Street veterans would you have in your administration?

O' MALLEY: Well, I'll tell you what, I've said this before. I don't -- I believe that we actually need some new economic thinking in the White House. And I would not have Robert Rubin or Larry Summers, with all due respect, Secretary Clinton, to you and to them, back on my council of economic advisers.

DICKERSON: Anyone from Wall Street?

O' MALLEY: They are the architects. Sure, we'll have an inclusive group but I won't be taking my orders from Wall Street. And look, let me say this. I put out a proposal. I was on the front lines when people lost their homes, when people lost their jobs. I was on the front lines as a governor fighting against -- fighting that battle.

Our economy was wrecked by the big banks of Wall Street. And Secretary Clinton, when you put out your proposal on Wall Street, it was greeted by many as, quote, unquote, "Weak tea". It is weak tea. It is not what the people expect of our country.

We expect that our president will protect the main street economy from excesses on Wall Street. And that's why Bernie's right. We need to reinstate a modern version of Glass-Steagall and we should have done it already.

 CLINTON: Well, you know, governor, I know that when you had a chance to appoint a commissioner for financial regulation, you chose an investment banker in 2010. So for me, it is looking at what works and what we need to do to try to move past what happened in '08.

And I will go back and say again, AIG was not a big bank. It had to be bailed out and it nearly destroyed us. Lehman Brothers was not a big bank. It was an investment bank. And its bankruptcy and its failure nearly destroyed us. So I've said, if the big banks don't play by the rules, I will break them up.

SANDERS: The big banks—

CLINTON: And I will also go after executives who are responsible for the decisions that have such bad consequences for our country.

SANDERS: I don't know and with all due respect to the secretary, Wall Street played by the rules? Who are we kidding? The business model of Wall Street is fraud. That's what it is.

And we have -- and let me make this promise. One of the problems we have had -- I think all Americans understand this, is whether it's Republican administrations or Democratic administrations, we have seen Wall Street and Goldman Sachs dominate administrations. Here's my promise-- Wall Street representatives will not be in my cabinet.

 Clinton. She did. She's the senator from New York. She worked -- and many of us supported you -- in trying to rebuild that devastation. But at the end of the day, Wall Street today has enormous economic and political power. Their business model is greed and fraud. And for the sake of our economy, they must -- the major banks must be broken up.

Moderator: Senator Sanders -- I'm sorry. Senator Sanders, but what is it in Secretary Clinton's record that shows you that she's been influenced by those donations?

SANDERS: Well, (inaudible) the major issue right now is whether or not we reestablish Glass-Steagall. I led the effort, unfortunately unsuccessfully, against deregulation because I knew when you merge large insurance companies and investment banks and commercial banks it was not going to be good. The issue now is do we break them up, do we reestablish Glass-Steagall? And Secretary Clinton, unfortunately, is on the wrong side.

CLINTON: Well, I'll tell you who is on my side. Paul Krugman, the Nobel Prize winning economist, who said my plan for what we should do to reign in Wall Street was more comprehensive and better. Paul Volcker, one of the leading lights of trying to reign in the excesses, has also said he does not support reinstating Glass-Steagall.

 So, I mean this may seem like a bit of an arcane discussion. I have nothing against the passion that my two friends here have about reinstating Glass-Steagall. I just don't think it would get the job done. I'm all about making sure we actually get results for whatever we do.

O'MALLEY: John, there is not a serious economist who would disagree that the six big banks of Wall Street have taken on so much power and that all of us are still on the hook to bail them out on their bad bets. That's not capitalism, Secretary Clinton. That's crony capitalism. That's a wonderful business model. If you place bad bets, the taxpayers bail you out. But if you place good ones, you pocket it.

Look, I don't believe there's the model -- there's lots of good people that work in finance, Secretary Sanders, but Secretary Clinton, we need to step up and we need to protect Main Street from Wall Street and you can't do that by campaigning as the candidate of Wall Street. I am not the candidate of Wall Street... (housingwire.com)