In 2012, economists from the FHFA published a research paper describing a countercyclical approach for estimating the capital level required for mortgage portfolios to withstand future shocks to the housing sector. This approach uses state-level countercyclical stressed housing price paths (CSPs) based on where a state’s housing price levels are relative to its long-run trends and on the historical downside volatility of the state’s housing prices. FHFA has published a set of 51 of these 30-year CSPs (one for each state plus DC) starting from 13 different launch dates (each of the past 7 quarters—Q4 2013 through Q2 2015—as well as 6 quarters from 2003 to 2010).[1] While the approach is not new, we believe it provides an interesting alternative to the Federal Reserve’s annual Dodd Frank Act Stress Test (DFAST) stressed housing price scenarios because it is more transparent and more granular. This paper compares FHFA’s CSPs to the DFAST stressed HPI scenarios and outlines an approach for applying the state-level granularity of the CSPs to national-level DFAST Severely Adverse scenario.

Loan Modification Performance: A Multi-Variate Review Approach

As this article goes to print, our nation is nearing the 100-day mark until the presidential election of 2012. While the candidates debate, most polls rate the economy, jobs, and housing as differentiators. For the issue of housing to be included as top of mind speaks volumes to the challenges the housing market has brought to the policy makers on the one hand, and the confidence of the voters on the other. Policy makers want to f ind answers to the next gen-eration of housing finance and have sought to balance the fragility of the housing market with appropriate loan modification programs as an overall economic recovery takes hold. The questions of how to solve our homeown-ership conundrum are generational; and they are due additional quantitative analysis and scrutiny. Many factors affect the success of the various loan modification programs, and in this article, we review the different loan modification efforts that have been observed in the non-agency market and assess the performance of these different modification types. As the campaign rhetoric fades past November, we will continue to analyze the data surrounding the success and failure of the various loan modification programs and the impact these programs are having on our nation’s housing recovery.