Painful Mortgage Memories Ebb, But Reform Obstacles Persist

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Atlantic City, N.J. — U.S. policymakers' negative attitudes toward the mortgage industry are starting to thaw, but that doesn't mean devising Fannie Mae and Freddie Mac's exit from conservatorship or charting a path forward for housing finance will be any easier.

Politicians like to beat up the government-sponsored enterprises to score points with the public, and that reality has stymied reform, Joseph Murin, the vice chairman of Chrysalis Holdings, said at the Regional Conference of Mortgage Bankers Association being held here this week.

"The way Washington works, there are victims and there are villains," said Murin, who served as president of Ginnie Mae from 2008 to 2009. "The mortgage industry has been the villain for the past six years and now [politicians] are starting to realize, 'Maybe we need to back off.'"

An overhaul of housing finance will be a huge task, and policymakers need to come to grips with its impact on the GSEs' operations, particularly the relationship between mortgage bond pricing and interest rates on home loans, Murin said. Without federal guarantees behind mortgage securities, he estimates the interest rates that consumers pay on mortgages could rise 200 to 300 basis points.

"The bond market likes explicit guarantees. They don't like implicit," Murin said. "If [policymakers] do something to the GSEs that doesn't have some form of explicit guarantee associated with it, what do you think that's going to do the price of the bonds, and in turn, interest rates?"

As President Obama outlined in a January policy speech in Phoenix, the White House has recently taken steps to expand access to mortgage credit, including the cut to Federal Housing Administration mortgage insurance premiums and new 3%-down-payment GSE loans.

While the new policies demonstrate the Obama administration's willingness to address the mortgage industry's future, the overtures have come too late in the president's tenure to spark more comprehensive reforms, said Robert Couch, an attorney at Bradley Arant Boult Cummings LLP who was counsel for the Department of Housing and Urban Development and later president of Ginnie Mae during the George W. Bush administration.

"[Obama] doesn't have much time, and he doesn't have much political capital. I wish he had come to this conclusion a lot earlier," Couch said.

Presidential candidates generally will avoid the issue because housing finance reform is a hard topic to campaign on.

"The average consumer out there today, the millennial, is not most concerned about housing — they're more concerned about the economy," said Michael Vitali, Sr., the chief compliance officer of LoanLogics, a mortgage-quality-control vendor in Pennsylvania. "The economy is a much more sexy topic and much more important topic to the young people today."

"It will be difficult for any presidential candidate to put into a sound bite what the cure to this problem is," added Couch.

Another challenge is the Consumer Financial Protection Bureau, which has broad power to create rules and take enforcement action against lenders and servicers, panelists said.

"We have a czar or emperor in the CFPB," Vitali said. "Are you really prepared to live in that environment? You have to be because it's the rule of the land."

"The thing you have to remember as a mortgage banker is that you're not below the radar," Murin said. "Having the CFPB come in [for a lender audit] is like having your mother-in-law move in with you and not care about you one bit."

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