Bruce begins by asking David if he chose a good time to sell his company and become the chairman of the MBA. David says that selling his company worked out well for him, and he does not wish that he had changed his plans. David feels that he has the opportunity to make a difference this year, and he is looking forward to it. Bruce agrees with David, and he feels that there are going to be a lot of important things occurring within the next 12 months, and it will be very significant to play a part in them.
Bruce was watching Ben Bernanke being interviewed by the congressional staff, and he noticed that there were a lot of empty seats. Bruce asks David if it is common for there to be many empty congressional seats when he appears before congress. David says that it can be because they can be busy with other votes and opponents.
There are a lot of important political issues being dealt with right now, and it can be easy for real estate and the mortgage world to be ignored because of things like health care and cap and trade. Bruce asks David and the Mortgage Brokers Association keeps mortgage and real estate issues a priority to the government. The MBA has staff members for government affairs who work with committees like the financial services committee and the banking committee to make changes occur.
Bruce asks what the differences are between the Mortgage Improvement Regulations Act and HR 3915. MIRA is actually an example of the MBA calling in a strike on itself. The MBA is saying that there is need for more regulation. Net worth needs to be increased for the brokers and make sure there is increased net worth for the lenders. The difference between a broker and a lender is that brokers have no skin in the game, few education requirements, and they have different disclosure practices. Because brokers have no risk, and they do not lend their own money, they need to disclose the yield spread premium that they earn on a loan. Brokers claim that they have no responsibility to anyone in a loan. MIRA is working towards improving truth in lending, so that there are fewer opportunities for predatory lending. They want to improve trust in lending, good faith estimate, and make sure that matches the HUD-1 at closing. The other legislative options are more confusing than MIRA, and they require more paper work. David thinks this is a bad thing because we need legislation to be simple, so that customers can understand. Under the Bush administration an act was created to take a one page good faith estimate and turn it into a four page estimate. There needs to be less paperwork and more transparency.
Bruce recently filled out a loan application that was 12 inches deep, and he is worried about how large the loan documents are going to be. There are four lines on the loan application in which the applicant must say whether or not they will be occupying the property, and David feels that is over the top. Over a year and a half ago, the MBA presented HUD with a new GFE and a new HUD-1 in which every line matched. You cannot have predatory lending until you lend. If we have complete and understandable disclosure at the closing table then there is less chance for someone to be preyed upon.
In one way, Bruce looks at the process of legislation as very slow, but then it scares him when he sees people trying to pass legislation quickly, because they can do it without having a complete understanding of what they are supporting. Bruce asks if there is a chance that Congress might pass legislation that will not do what we want it to because they are in too much of a hurry. David believes that we have a system that helps prevent hurrying from being a big problem. Bills are first read by people who can explain them to Congress, then they are sent to the House of Representatives, and then they must also go to the Senate. Groups like the MBA help protect U.S. citizens from bad legislation because Congress knows that the MBA is truly there to protect consumers and support transparency.
Bruce asks how transparency failed in 2005 and 2006 when there were very different lending policies. David thinks that just about everyone involved in the industry can be blamed in some way for the failures that occurred in those years. Bruce and David both feel that even the borrowers can be blamed for the failures because they borrowed money knowing that they couldn’t make payments. We cannot just blame brokers or any one specific group of people.
Fraud is rampant, but we are getting better at detecting fraud. The MBA has been lobbying for a new regulator for Fannie Mae and Freddie Mac, and it took this crisis for people to realize that these changes need to occur. For the last 16 years, the MBA has been pushing for a new Fannie Mae and Freddie Mac regulator and it took this situation to finally get it through. Same goes for modernizing FHA which finally happened this year. Many of our current problems would not have occurred if we had gotten a new regulator and FHA reform.
In about 35-40% of the overall country, in some areas it’s higher, FHA is still using a computer system called Cobalt which was developed before DOS and Windows. It is ridiculous for FHA to have equipment that is that old.
Fraud is getting worse because of the difficulties in getting mortgages and refinances. The FBI says there are two types of fraud: fraud for property and fraud for profit. Unfortunately, they are only investigating one type and one they won’t. Individuals who had the stated income loan will not be pursued. Bruce feels like we’re teaching the consumer that it was all OK.
Right now there are a lot of loan modification occurring, but a report has shown that 70 percent of the loan modifications done in 2008 are either delinquent or they have been foreclosed on. Bruce asks David if he thinks loan modifications are an effective way to deal with these problems. David says that loan mods are just one way to fix these problems. There are other ways to solve these problems such as short sales and deeds in lieu of foreclosure. You cannot modify a loan for someone if they lose their job or can’t pay.
Bruce asks if David thinks that the U.S. is headed down the right path to create more jobs. David thinks the best way to get this economy started is to take the $8,000 dollar home buyers tax credit, and expand it so that it is worth $15,000 and everyone can use it. Taxing small business would be the wrong way to go.
Bruce asks if this tax credit should be given to investors as well. David thinks that the program should be limited to owner occupants, any income, and price. On every purchase, regardless of new home or existing home, the buyer goes out after the closing costs and spends an average of $7,500 dollars on their house purchasing things like furniture. That money goes right back into the economy.
The U.S. is currently having trouble with appraisals which is affecting Realtors and lenders who are trying to make refi loans and purchases. David says the HVCC is an issue. MBA is currently speaking out on this issue and there is legislation for a moratorium being pushed right now.
In the 1004MC (market conditions report) the appraiser is asked to tell which direction the value of real estate is going in that area and it also asks the appraiser to come up with the median value. Market value is the common number that appraisers usually come up with. Median valued houses in California are almost all vacant REOs and every time there is a sale that is higher than that median value they consider it to be an anomaly. This is making it difficult to resale properties.
Bruce asks David where he thinks the real estate market is headed in the next year. David thinks that we will recover next year. In multiple places like Oklahoma City and the state of Alaska, property values are going up right now. Things are more stable in places like California, Florida, Nevada, and Arizona. David hopes that people are not afraid to make purchases because energy costs and health care taxes are going to go up. David fears that certain political issues in Congress might slow down the real estate market.
David says the shadow banking system is currently in bad shape because people have no confidence in the rating agencies. We need to find a way to ensure that investments are producing quality loans. We need to set the bar higher for people entering the mortgage business.