Assessing the Proposed Housing Goals
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By establishing annual housing goals for mortgages purchased by Fannie Mae or Freddie Mac, the Federal Housing Finance Agency (FHFA) seeks to encourage lending to creditworthy borrowers with low incomes and those in traditionally underserved communities. Setting these goals requires FHFA to walk a fine line to meaningfully expand lending to all qualified applicants without encouraging lending to borrowers who cannot sustain mortgage payments. This commentary critiques the goals proposed by FHFA for 2015 - 2017, examining three central issues: How do the goals interact with other policy issues; Should the FHFA apply both benchmark (prospective) and market (retrospective) goals; and Did the FHFA set its benchmark goals appropriately?
Charting the Course to a Single Security
, Posted: September 03, 2014
The Federal Housing Finance Agency has proposed a thoughtful path to creating a single security for Fannie Mae and Freddie Mac, using the Common Securitization infrastructure, in its August Request for Input. While the proposal would benefit from a more definitive time frame, its many strong provisions make it likely to succeed and benefit taxpayers, borrowers and lenders. A key strength of the proposal is the structural provisions – which ensure that the securities backed by both entities will trade equivalently, ending the costly subsidies Freddie has been forced to pay to stay competitive. Ultimately, moving toward this single security should make the market more responsive to borrower and lender needs, boost competition, increase the availability of mortgage credit and potentially help pave the way for GSE reform.
HARP Significantly Reduced Mortgage Default Rates Posted: September 03, 2014
This commentary discusses the impact of the federal government's Home Affordable Refinance Program (HARP) on mortgage loan default rates between April 2009 and November 2011. We analyze a unique borrower-level data set from Freddie Mac and conclude that HARP more than halved the default rate, a material and significant improvement.
A Realistic Assessment of Housing Finance Reform Posted: August 01, 2014
In August 2008, the GSEs went into conservatorship, and the clear intent was that they were never going to re-emerge; a new system, with a larger role for private capital providers was to take its place. Nearly six years later, GSE reform remains a dream: the government essentially guarantees 80% of new mortgage debt, and credit availability is limited. In this paper, we take a look at the current system, evaluate the proposals for GSE reform, and offer some thoughts on what is being done and what more can be done without a legislative solution.
Guarantee Fees - An Art, Not a Science
, , , Posted: August 14, 2014
This commentary examines the potential impact of increasing the guarantee fees that Fannie Mae and Freddie Mac charge lenders. We identify the three most important assumptions made in determining the fees, conclude that transparency regarding these assumptions is critical, and that, under any reasonable set of assumptions, the fees should not be increased for the least risky loans. We also conclude that the GSEs' mission should be taken into account in determining the appropriate capital requirement.
Nonbank Specialty Servicers: What's the Big Deal? Posted: August 04, 2014
Following the crisis, nonbank specialty servicers rapidly expanded their portfolios of distressed loans. This has contributed to a significant market change: in 2011, the 10 largest mortgage servicers were all banks; by 2013, only five of the top 10 were banks, and the other five were nonbank servicers. The rapid growth and lack of a federal regulator have contributed to significant, heated regulatory scrutiny. This commentary discusses major concerns raised about the largest nonbank servicers, focusing on the three fastest-growing large nonbank servicers. We explore the regulatory and market framework driving their striking growth, then address the major charges against them, in an effort to elevate the debate and inform sound policy.
How To Stop Corporations From Fleeing U.S. Tax Laws Posted: July 28, 2014
In a contribution to The Wall Street Journal's MarketWatch, Eric Toder explains why corporations expatriate from the United States and argues that they will continue to do so until Congress addresses the fundamental flaws in the corporate income tax. He then provides some possible solutions to end the erosion of the U.S. corporate tax base.
Insights on Instability and Children's Development: Commentaries from Practitioners, Policymakers, and Researchers Posted: July 22, 2014
Concern is growing about the damage that instability can do to children's healthy development. However it has emerged separately across different domains, with little focus on the pervasive and interconnected nature of the issue or on possible cross-cutting policy solutions. In November 2013, the Urban Institute convened policymakers, practitioners, and researchers to discuss the implications of instability for children's development, as well as what we know, need to learn, and need to do across research, policy, and practice. This paper contains essays from some of the meeting participants; a companion report includes the insights from the conference.
VA Loans Outperform FHA Loans. Why? And What Can We Learn?
, , Posted: July 16, 2014
Veterans Administration (VA) loans have consistently performed better than Federal Housing Administration (FHA) loans. In this commentary, we take a closer look at both programs to identify why VA loans perform better. We conclude that the residual income test may be a critical differentiating factor and suggest that regulators evaluate whether the test might be a good supplement to FHA’s current assessment of a borrower’s ability to pay.
Supplementing the Compare Ratio Posted: June 09, 2014
The FHA has been taking actions to reduce lender overlays, enhancing access to credit. Among these measures is the introduction of Supplemental Performance Metrics, to accompany the inflexible Lender Compare Ratios. In this article we reiterate the need for this type of metric, applaud the FHA for proposing it, and suggest a slight variation to make it even more effective.