With the evolution of mortgage risk management and data analytics creating fundamental change and business opportunities for firms like RiskSpan, we are attending the July 26-28, 2015 RiskSummit hosted by CoreLogic. This year’s gathering of industry risk leaders represents a cross-section of our clients and political leaders taking stock of how we collectively move forward to responsibly grow the extension of credit to the mortgage markets.
As RiskSpan increases its presence in the secondary mortgage markets, our leaders are taking an active role in the dialogue of key capital markets issues such as those highlighted in the Monday session titled GSEs—Evolving with the Market vs. Crowding Out Private Capital. Moderated by industry colleagues and friends of RiskSpan, who are leaders in the Washington, DC debate on the tactical planning of the future of housing finance, Faith Schwartz and Andy Davidson will engage both the panel and the audience on the key topics of risk-sharing and the steps being taken now to develop a common securitization platform for the GSEs.
As we look back on the key mortgage and housing issues of 2014, three predominant themes emerge: access to credit, enforcement and regulation. With purchase mortgage lending stuck at 1993 levels, the Federal Housing Finance Agency (FHFA) has taken steps to clarify mortgage lending rules so that qualified borrowers can purchase a home. However, enforcement actions by the Department of Justice (DOJ) and other government agencies continue to dampen lender appetite for extending credit below the 700 FICO score threshold. On the regulatory front, preparation for the Consumer Financial Protection Bureau’s (CFPB) RESPA-TILA rule has the full attention of mortgage originators as they prepare their systems for compliance.
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This past September, the Office of the Comptroller of the Currency (OCC)deputy comptroller for credit and market risk identified home equity lines of credit (HELOCs) as a major point of concern for the organization, citing this topic as an area of focus for the coming year. According to the OCC, financial institutions are at varying stages of preparedness for the problems that may occur when a bulk of their HELOCs begin amortizing, and there is much work that still should be done to quantify and address the risks of delinquencies and losses.
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In the aftermath of the housing crisis, Fannie Mae and Freddie Mac issued repurchase requests on nearly $100 billion in mortgages. Not surprisingly, this caused many lenders to look toward the future with uncertainty as to whether repurchases would abate or continue to abound. In the crisis era, the government-sponsored enterprises (GSEs) could at any time in the lifespan of a loan issue a repurchase request as part of their representation and warranty policies, even when a loan had been performing for many years. This created a tremendous amount of pressure on lenders that were unable to estimate and quantify the potential repurchases that would come their way.
Last winter, Congress quietly raided the GSEs’ cookie jar to pay for an extension of a payroll-tax holiday. It could prove the start of a much bigger development.
Although the statutory guidance provided by Congress was intended to fund a payroll tax extension, the legislation in question may move the industry closer to establishing a market-clearing price for the credit risk of mortgages. Law of unintended consequences, you say-sounds about right.