House Subcommittee Considers Consolidating the Rural Housing Service

MAY 21, 2015

Earlier this week, the House Financial Services Subcommittee on Housing and Insurance held a hearing

examining the Rural Housing Service (RHS) and the role it plays in the single-family mortgage market.

During the hearing, Subcommittee members debated the findings of a 2012 Government Accountability

Office (GAO) report that suggested that RHS's single-family lending programs be consolidated with

similar programs administered by the Federal Housing Administration (FHA). The witnesses at the

hearing were Tony Hernandez, the Administrator of RHS, and Mathew Scire, the Director for Financial

Markets and Community Investment at GAO.

During his opening statement, Subcommittee Chairman Blaine Luetkemeyer (R-MO) highlighted the

importance of programs serving rural America's affordable housing needs. Luetkemeyer said that, as a

representative from district with a large rural area, he sees the impact programs like RHS make on rural

communities first-hand. Luetkemeyer indicated that he appreciated GAO's report calling for

consideration of consolidating USDA and FHA programs and said he would like to see RHS "streamlined."

Subcommittee Ranking Member Emanuel Cleaver (D-MO) echoed Rep. Luetkemeyer's sentiment for

streamlining RHS in his opening statement. Cleaver also voiced concern about the funding levels for

RHS. He stated that there is a way to improve RHS without cutting its budget and argued that he would

like to see the budget increased for programs serving rural America’s housing needs.

Hernandez defended the RHS' single-family programs in his opening statement, arguing that there is not

significant overlap between USDA and FHA programs. Many of the customers who receive mortgages

through RHS, Hernandez claimed, do not qualify for similar FHA products. Hernandez highlighted the

changes RHS has made to streamline its single-family lending program, including the automation process

RHS has recently completed, which he said will save the agency roughly $5 million in administration

costs per year.

Hernandez also said RHS is pursuing legislative proposals that he feels will improve the program.

Hernandez said he wants RHS to delegate loan approvals to its lenders, emulating the way FHA currently

handles loan approvals. He also advocated for congressional approval to charge a $50 user fee to cover

the costs of maintaining and improving RHS' underwriting technology. Throughout the hearing,

Hernandez mentioned that RHS does not cost taxpayers any money and has never required a taxpayer-

funded bailout.

Scire refuted many of Hernandez's claims in his opening testimony. Specifically, Scire said the GAO

found that 74 percent of FHA borrowers meet RHS product requirements, though he did acknowledge

that there would be some borrowers who would be unable to receive federal mortgage assistance if RHS

were rolled into FHA. Hernandez and Scire went back and forth throughout the hearing about what

borrowers RHS serves multiple times.

Committee Ranking Member Maxine Waters (D-CA) pressed both Hernandez and Scire for a direct

answer on how consolidation would benefit RHS and FHA. Hernandez responded that he does not see

the benefit for RHS to consolidate with FHA, which pleased Waters. Scire said he feels Congress should

seriously consider GAO's recommendation to consolidate RHS and FHA. Waters pressed Scire for facts

to back up his consolidation recommendation, which Scire was unable to produce during the hearing.

Luetkemeyer ended the hearing with a set of pointed questions for Hernandez regarding RHS staffing

levels. Luetkemeyer said FHA endorsed $786.2 billion in single-family loans in fiscal year 2014, while

RHS endorsed $19 billion in single-family loans the same year. Luetkemeyer stated that the total

number of RHS staff is roughly double the number of FHA staff. He expressed his strong desire for RHS

to be "innovative" and cut their staffing levels to the same as FHA.

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Shelby finance bill clears Senate panel

05/21/15

The Senate Banking Committee approved a financial overhaul package on a 12-10 vote Thursday, but

without support from moderate Democrats seen as crucial to the sweeping proposal’s clearing the

upper chamber.

The vote was split along party lines, with Republicans arguing the legislation would provide regulatory

relief to boost the economy and Democrats saying it will weaken the 2010 Dodd-Frank Wall Street

reform law.

The tally indicates that the bill’s author, Committee Chairman Richard Shelby (R-Ala.), will have a hard

time clearing 60-vote procedural hurdle generally needed to get a floor vote in the Senate.

After the hearing, however, Shelby didn't seem worried and signaled he was looking to continue

negotiations throughout the summer.

"This is Round One," Shelby said with a smile. "It's a good start. We've raised the level of debate on this

and there are four, five, six Democrats that might be able to work with us on this on the committee. This

is the beginning of some serious negotiations."

He said it was "not a routine piece of legislation" because of the bill's economic impacts.

"We're not trying to get cloture right now," he said. "We're moving to the second step to have some

serious negotiations."

The legislation has sparked intense interest from the financial community because it is the most

aggressive overhaul since Congress passed Dodd-Frank, a landmark statute enacted in response to the

2008 economic crisis.

Shelby's bill would ease regulations on community banks and credit unions, while broadening the

definition of smaller banks eligible for exemptions from Dodd-Frank. It would also seek to reform the

Federal Reserve by shifting power to its regional banks.

Sen. Sherrod Brown (Ohio), the panel's top Democrat, railed at the bill during the hearing as a "one-

sided [industry] wish list — pleasing to various interest groups but lacking any provisions to help the

average American trying to navigate our financial system."

After the hearing, Brown advocated for a more piecemeal regulatory relief approach, saying he hoped to

move legislation easing the burdens facing community banks that have widespread bipartisan support.

The community banking industry has argued since Dodd-Frank passage that the rules for big banks

should not be applied to their institutions.

"We start with community banks, we should do where there is consensus, move quickly because the

other [issues] will take longer, so we can get something out in the spring still before summer and get it

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signed by the president," Brown said. "And then let's sit down and talk about" the other issues, such as

Fed reform.

After the hearing, Sen. Bob Corker (R-Tenn.), a committee member, said, "obviously there won't be a

vote on it in its current form."

"But hopefully between now and that time it'll change enough to where it will," Corker said.

Sens. Mark Warner (D-Va.) and Heidi Heitkamp (D-N.D.) — two moderates Shelby could need to build

support for the bill — took Shelby to task during the hearing for his negotiations, reiterating claims that

Shelby didn't work with Democrats in putting together the proposal.

"I have been more upset by this process than anything I’ve been involved with in the entire United

States Senate," Warner said during the hearing.

Shelby refuted those reprovals: "At the staff level, the process has included more than 40 bipartisan

staff meetings, briefings and conference calls to discuss each issue and a possible way forward."

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Fannie and Freddie set new financial rules for mortgage servicers and sellers

Specifically targets nonbanks

May 20, 2015

In January, Fannie Mae and Freddie Mac announced a proposal for new minimum financial

requirements for mortgage sellers and servicers that do business with the government sponsored

enterprises, specifically targeting nonbanks.

Now, Fannie and Freddie are making those new rules official. The Federal Housing Finance Agency

announced Wednesday that Fannie and Freddie are officially issuing new operational and financial

requirement for all current and potential sellers and servicers that do business with the GSEs.

Under the new rules, all seller and servicers will be required to have a minimum net worth base of $2.5

million plus 25 basis points of the total unpaid principal balance for the loans each nonbank services.

Additionally, the new rules will also require that nonbanks must maintain a minimum capital ratio of

tangible net worth greater than or equal to 6% of the nonbank’s total assets.

The GSEs are also stating additional minimum liquidity requirements for nonbanks, including: 3.5 basis

points of total agency servicing (Fannie Mae, Freddie Mac, and Ginnie Mae) and incremental 200 basis

points of total non-performing agency servicing in excess of 6% of the total Agency servicing unpaid

principal balance.

The FHFA stated that the new operational requirements will become effective no later than Sep. 1,

2015 and the financial requirements will become effective Dec. 31, 2015.

"These updated operational and financial requirements will help mitigate risks associated with changes

in the servicing industry," FHFA Director Mel Watt said of the new rules. "Strengthened enterprise

servicer counterparty standards should also improve access to credit and protect taxpayers by reducing

market uncertainty about the enterprises' expectations for mortgage servicer counterparties."

For all depository institutions, all sellers and servicers must maintain a minimum net worth $2.5 million

plus a dollar amount equivalent to 25 basis points of the unpaid principal balance of all mortgages

secured by 1- to 4-unit residential properties that it services directly, regardless of whether the

mortgages are owned by the servicer or by a third-party investor.

In a statement, Joy Cianci, senior vice president for credit portfolio management at Fannie Mae, said

that Fannie will “work closely with servicers to make sure they have a clear understanding of the

requirements and continue to be strong counterparties for Fannie Mae.”

Cianci said that Fannie Mae sellers and servicers must implement the operational requirements by Sep.

1, 2015, and the financial eligibility changes by Dec. 31, 2015.

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Dave Lowman, the executive vice president of single-family business at Freddie Mac, said that the rules

recognize the expanding position of nonbanks in the industry.

"The new seller/servicer eligibility standards announced today incorporate the lessons of the recent

housing crisis and reflect the expanding role of non-bank servicers in the mortgage industry,” Lowman

said.

“These new standards are intended to improve the customer experience for borrowers and mortgage

investors alike by establishing common-sense servicing benchmarks for operational efficiency and

financial strength,” Lowman continued. “Today's announcement underscores Freddie Mac's

commitment to work with the Federal Housing Finance Agency and other stakeholders to continually

improve America's mortgage finance system."

Lowman said that Freddie sellers and servicers must be in compliance with the new operational

standards on Aug. 18, 2015 and the revised financial standards on Dec. 31, 2015.

“In response to changes taking place in the servicing industry, FHFA directed Fannie Mae and Freddie

Mac, as part of their 2014 and 2015 Conservatorship Scorecards, to update their counterparty standards

for mortgage servicers,” the FHFA said in a statement. “The new requirements are intended to help

ensure the safe and sound operation of the enterprises and provide greater transparency, clarity and

consistency to industry participants and other stakeholders and reflect feedback received over the past

several months.”

Michael Stegman to Become President's Top Housing Advisor

MAY 20, 2015

The Obama Administration announced today that Michael Stegman will join the National Economic

Council (NEC) this week as its top housing official. In this role, Stegman will be the White House’s top

advisor on housing policy.

Stegman has worked the last four years at the U.S. Department of Treasury, where he serves as

Counselor to the Secretary for Housing Finance Policy. At Treasury, Stegman has been involved in a

number of critical housing issues and spearheaded the department’s housing finance reform efforts.

NCSHA worked very closely with Stegman on a number of initiatives involving HFAs. Stegman also spoke

to HFAs and their partners at several NCSHA events, most recently NCSHA’s 2015 Legislative Conference

in March.

Stegman will replace Seth Wheeler, who has been with NEC for two years and who previously worked

for Treasury and the Federal Reserve. Wheeler will leave the White House next month. In his various

federal roles, Wheeler has worked closely with NCSHA to develop policies that would aid HFAs’ efforts

to fulfill their affordable housing mission. At Treasury, Wheeler played an integral role in developing the

Obama Administration’s HFA Initiative. Wheeler consistently sought input from NCSHA and HFAs on key

housing issues and met with HFA executive directors at several NCSHA events.

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Shelby Releases Draft of Regulatory Reform Bill

May 18, 2015

Senate Banking Committee Chairman Richard Shelby, R-Ala., yesterday released a discussion draft for his

long-anticipated regulatory reform legislation.

The Financial Regulatory Improvement Act of 2015

(http://www.banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=0a1162a8-e8f0-

44c3-9828-b7ff7d2192ea), which Shelby called a “starting point” for further negotiation, borrows

heavily from earlier House and Senate bills that gained bipartisan support. It proposes, among other

provisions, to prohibit Congress from using credit guaranty fees for purposes other than GSE business

functions; provides a legal “safe harbor” for most banks from federal mortgage underwriting standards;

provides additional congressional supervision of the Federal Reserve Board; and changes how regulators

supervise banks and nonbanks.

“This discussion draft is a working document intended to initiate a conversation with all members of the

Committee who are interested in reaching a bipartisan agreement to improve access to credit and to

reduce the level of risk in our financial system,” Shelby said. “I look forward to engaging with members

of the Committee on specific proposals in the discussion draft.”

Mortgage Bankers Association President and CEO David Stevens said the bill "attempts to answer some

of the more difficult questions facing the real estate finance industry today with a variety of modest, but

important, changes that will help the housing market expand for more qualified borrowers. I would

hope that both Democrats and Republicans would be able to come together and support key

components of this legislation.”

A summary of key sections of the draft appear below:

• Prohibition on Use of Guarantee Fees to Offset Other Government Spending. Prohibits use of increases

in a guarantee fee charged by Fannie Mae and Freddie Mac to offset outlays or reductions in revenues

for any purpose other than enterprise business functions or housing finance reform as passed by

Congress in the future.

• Limitation on Sale of Preferred Stock. Prohibits sale or other disposition of preferred stock in Fannie

Mae or Freddie Mac by the U.S. Treasury unless directed to do so by Congress.

• Secondary Market Advisory Committee. Instructs the Federal Housing Finance Agency director to

establish a committee of mortgage market participants to advise on decisions pertaining to the

development of market infrastructure.

• Common Securitization Platform. Directs the FHFA director to: (1) report to Congress annually on

development of the Common Securitization Platform; (2) establish a board of directors of CSP to advise

on development and transition of the CSP; and gradually increase the number of CSP board members

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who do not work for Fannie Mae or Freddie Mac; and (3) after five years, transition the CSP to a non-

profit entity available to approved issuers other than Fannie Mae and Freddie Mac.

• Mandatory Risk Sharing. Establishes minimum annual levels of required risk sharing that must be at

least 150 percent of the previous year’s level, at least half of the total amount of which must be front-

end risk sharing. The FHFA director and the Secretary of the Treasury may delay these requirements for

up to one year if their imposition would adversely affect the housing market.

• Exception to Annual Written Privacy Notice Requirement. Amends the Gramm-Leach-Bliley Act to

exempt from its annual written privacy policy notice requirement any financial institution that: (1)

shares nonpublic personal information only in accordance with specified requirements, (2) has not

changed its policies and practices with respect to disclosing nonpublic personal information from those

disclosed in the most recent disclosure sent to consumers, and (3) otherwise provides customers access

to the most recent disclosure in electronic or other form permitted by specified regulations.

• Allows Privately Insured Credit Unions Authorized to Become Members of a Federal Home Loan Bank.

Amends the Federal Home Loan Bank Act to treat certain privately insured credit unions as insured

depository institutions for the purposes of determining eligibility for membership in a federal home loan

bank.

• Examination Ombudsman. Establishes in the Federal Financial Institutions Examination Council an

Office of Examination Ombudsman, charged with receiving and investigating complaints from financial

institutions, representatives of financial institutions or any other entity acting on behalf of the

institutions, concerning examinations, examination practices or examination reports.

• Confidentiality of Information Shared between State and Federal Financial Services Regulators.

Amends the S.A.F.E. Mortgage Licensing Act of 2008 to extend access to any information provided to the

Nationwide Mortgage Licensing System and Registry to State and Federal regulatory officials having

financial services oversight authority, without the loss of privilege or confidentiality protections

provided by Federal and State laws.

• Safe Harbor for Certain Loans Held in Portfolio. Provides Qualified Mortgage protection for creditors

holding a mortgage in portfolio so long as certain criteria are met.

• Protecting Consumer Access to Mortgage Credit. Amends the Truth in Lending Act to exclude from the

computation of points and fees an escrow for future payment of insurance. This section also requires

the GAO to study the impact of Dodd-Frank mortgage rules on the availability of mortgage credit,

including the impact on affiliated lenders.

• Protecting Access to Manufactured Homes. Amends the Truth in Lending Act to exclude from the

definition of “mortgage originator” any employee of a retailer of manufactured homes who does not for

compensation or gain take residential mortgage loan applications, and to revise the definition of “high

cost mortgage” as it applies to manufactured housing.

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• Study on Privacy Risks of Government Publication of Personal Financial Data. Requires the GAO to

study the privacy risks of new Home Mortgage Disclosure Act reporting requirements added by Dodd-

Frank.

• Ensuring Reporting of Appraisal Misconduct. Provides persons involved in a real estate transaction

with protection against defamation suits when reporting appraisal misconduct.

• Clarifying Applicability of Section 619 of Dodd-Frank. Amends Section 13 of the Bank Holding Company

Act to exempt from the Volcker Rule banks with $10 billion or less in assets and those with a holding

company with less than $10 billion in assets, as such threshold shall be adjusted for GDP growth.

• Study of Mortgage Servicing Assets. Requires federal banking agencies to perform a study of the

impact of the recent changes in the regulatory treatment of mortgage servicing assets.

• No Wait for Lower Mortgage Rates. Removes the new three-day wait period required for the

combined TILA/RESPA mortgage disclosure if the only change from the prior disclosure is a reduction in

the consumer’s interest rate; Provides lenders with a safe harbor from liability until the Consumer

Financial Protection Bureau certifies that use of the forms does not conflict with state law.

• Eliminating Barriers to Jobs for Loan Originators. Allows an individual who is employed by a financial

institution and a registered loan originator to continue to originate loans for 120 days after being

employed by a state-licensed non-depository entity.

• FHLB Membership Proposed Rule. Requires the Federal Housing Finance Agency to withdraw its

September 2014 proposed rule, Members of Federal Home Loan Banks.

• Nonbank Determinations. Provides greater transparency to the Financial Stability Oversight Council

designation process and allows regulated entities to address risks and concerns identified by FSOC.

• Federal Reserve Reports to Congress. Replaces the current semi-annual monetary policy reports to

Congress by the Federal Reserve Board with a quarterly report published by the Federal Open Market

Committee, containing a more detailed analysis of recent, current, and future economic conditions and

trends (while still requiring the Chair of the Federal Reserve to testify semi-annually and not quarterly).

• Commission for Restructuring Federal Reserve System. Creates an independent commission to study

potential restructuring of districts of the Federal Reserve System.

• Federal Reserve Study on Nonbank Supervision. Requires the Federal Reserve to conduct a study and

prepare a report to Congress every two years (with a sunset after 10 years) on its plan to regulate and

supervise nonbank institutions.

• Federal Reserve Bank Governance. Requires the president of the New York Federal Reserve Bank to

be appointed by the President and confirmed by the Senate due to the unique role of the Federal

Reserve Bank of New York in the Federal Reserve System.

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A complete section by section look at the discussion draft can be found at

http://www.banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=6139c689-ace8-

4fd6-8927-3b1f97c15a19.

Shelby originally planned for a markup of the discussion draft for next Thursday, May 21, but following

objections by Banking Committee Democrats, who said they had not received a copy of the draft,

postponed the markup to a later date to be determined.

This chart shows changes in where consumers want to borrow

It’s not how it used to be

May 14, 2015

Consumers are changing who they borrow from to finance the big purchases in their lives, like buying a

home or car.

In light of its latest initiative to become the No. 1 nonbank consumer lender, loanDepot created an

infographic to show how much demand for unsecured personal loans has grown.

Marketplace personal loans only reached $1.2 billion in 2012. In comparison, just two years later,

demand surged to $8.8 billion in new loans.

Meanwhile, parents who will take out a personal loan to help their Millennial-age children buy a home

is projected to significantly increase, growing to 8% in the next five years, compared to 3% in the past

five years.

"Support from parents is playing a significant role in the housing recovery, and this new research

indicates the trend will increase," said Dave Norris, president and chief operations officer at loanDepot.

http://www.housingwire.com/ext/resources/images/editorial/BS_ticker/PDF/April-

2015/InfoGraphic.jpeg

FHFA Issues Update on the Single Security

5/15/2015

Washington, DC – The Federal Housing Finance Agency (FHFA) today released An Update on the

Structure of the Single Security. The Update details progress that has been made on the single

mortgage-backed security that would be issued by Fannie Mae or Freddie Mac. Developing the Single

Security is a key goal of FHFA's 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie

Mac. Finalizing the structure of the Single Security is a 2015 Scorecard item for both companies and for

Common Securitization Solutions, LLC (CSS), the joint venture between Fannie Mae and Freddie Mac

that is advancing the work on this project.

The Single Security project is intended to improve the overall liquidity of Fannie Mae and Freddie Mac

mortgage-backed securities, and lower costs for borrowers and taxpayers. Last year, FHFA issued a

Request for Input on all aspects of a proposed structure for the Single Security. This Update contains

FHFA's decisions based on careful consideration of the responses and further dialogue with industry

stakeholders. These decisions are generally consistent with the proposal set forth in the Request for

Input.

"While the Single Security remains a multi-year initiative, we believe this Update represents another

significant milestone we have reached in defining the structure and processes necessary to transition

successfully to a Single Security," said FHFA Director Melvin L. Watt. "Our objective is to continue to

make progress on building a new securitization infrastructure for Fannie Mae and Freddie Mac that is

adaptable for use by other secondary market participants in the future. FHFA therefore invites

additional feedback on the decisions about the Single Security structure described in this Update," Watt

said.

Interested parties may submit additional input electronically via FHFA.gov, or to the Federal Housing

Finance Agency, Office of Strategic Initiatives, 400 7th Street, S.W., Washington, DC 20024. All

submissions received will be made public and posted to FHFA's website.

Link to An Update on the Structure of the Single Security

http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/Single%20Security%20Update%20final.pdf

The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan

Banks. These government-sponsored enterprises provide more than $5.6 trillion in funding for the U.S.

mortgage markets and financial institutions. Additional information is available at www.FHFA.gov, on

Twitter @FHFA, YouTube and LinkedIn.

Contacts:

Media: Corinne Russell (202) 649-3032 / Stefanie Johnson (202) 649-3030

Consumers: Consumer Communications or (202) 649-3811

Moody’s: Falling delinquencies bolster single, multifamily HFA portfolios

Two reports show delinquencies down

May 15, 2015

Both single-family and multifamily portfolios securing housing finance agency bonds showed significant

improvement in delinquency rates, Moody’s Investor Service says in two new reports.

Following a decade of steady increases in single-family delinquencies, foreclosures have waned by 17%.

Combined with a 9% drop in 60 days+ delinquencies, year-end 2014 saw a 9% decline in total

delinquencies. This indicates new strengthening in these HFA loan portfolios and slower rates of

foreclosures and potential loan losses.

“We expect continued improvement in HFA single-family portfolio performance buoyed by improving

unemployment numbers and the upward movement of median home prices, helping homeowners faced

with negative equity in their homes,” Moody’s AVP – Analyst Eileen Hawes says in the first report,

“Strongest Rebound in HFA Single Family Delinquencies in 10 Years.”

Moody’s also says multifamily loan delinquencies fell to new lows of 0.30% from 0.50% over the past

three years, which contributed to the strong performance of these loan portfolios and supported

increasing credit enhancement.

Moody’s says a healthy national rental market will continue to support the solid performance of the

multifamily portfolios, with vacancies projected to remain below 5% over the next five years.

“In 2014, only two HFAs reported losses on REO sales with losses totaling $25.6 million (0.15% of current

outstanding principal) over the prior five years which is a slight improvement over 2013 levels of $25.8

million. We attribute this strong performance to the asset management strategies utilized by housing

finance agencies,” Moody’s Analyst Richard Kubanik says in “HFA 2014 Multifamily Medians Reflect

Strong Rental Markets Nationwide.”

Despite the solid 2014 multifamily performance, loans in foreclosure, workout or real estate owned

have increased to 0.71% from 0.48% of outstanding loans, but still remain low overall.

Similarly, seven state HFAs are struggling with elevated single-family delinquencies with reported total

delinquencies of over 10% for nine programs as of December 31.

The programs account for roughly 27% of the total loans in the HFA portfolios, and while elevated, the

overall number of programs has fallen from 11 as of December 31, 2013. A primary factor for the higher

delinquency levels revolves around the time needed to process a foreclosure.

HUD and USDA Adopt Minimum Energy Standards for Housing Programs

MAY 12, 2015

Last week, the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of

Agriculture (USDA) issued a Notice of Final Determination that establishes minimum energy standards

that newly-constructed housing units must meet to be eligible for insurance through various HUD and

USDA programs.

The Energy and Independence and Security Act of 2007 (EISA) requires both HUD and USDA to adopt

specific new minimum energy standards as long as the agencies determine that implementing such

standards will not negatively affect the affordability and availability of certain HUD- and USDA-assisted

housing. Specifically, EISA requires that the two agencies adopt the 2009 edition of the International

Energy Conservation Code (IECC) for single-family homes and the 2007 edition of the American Society

of Heating, Refrigerating, and Air-conditioning Engineers (ASHRAE) 90.1 for multifamily buildings. The

notice makes it clear that the agencies believe that adopting these standards will not substantially

reduce the availability of affordable housing through their programs.

The standards put into effect by the notice will apply specifically to newly constructed housing that is

insured through the Federal Housing Administration’s (FHA) single-family and multifamily insurance

programs, USDA’s Section 502 Guaranteed Home Loan program, and the HOME program.

Manufactured housing loans are exempt from these requirements. The new standards will also not

apply to units receiving support programs that have already adopted building codes that meet or exceed

the ERISA standards, including the Public Housing Capital Fund, Section 811 Supportive Housing, and the

Choice Neighborhoods initiative. Also exempt from the new standards is housing constructed through

the Community Development Block Grant (CDBG) and Housing Choice Vouchers programs, which are

not specifically mentioned in ERISA.

The new energy standards will take effect immediately for the HOME program. For FHA’s multifamily

programs, the standards will apply to all properties that file a pre-application for FHA insurance four

months after the Notice was published in the Federal Register (May 6). The new standards will apply to

single-family homes that have their building permit issued at least seven months after the Notice was

published.

While the Notice implements the policy nationwide, the agencies expect that its actual impact will be

much smaller, because most states have already adopted these standards. Currently, all but 16 states

have adopted the single-family IECC standards and all but 13 states have adopted the multifamily

ASHRAE standards. Further, in some of the states that have not adopted the standards, a substantial

number of municipalities have. A list of states potentially impacted by the new standards can be found

in a fact sheet HUD and USDA put together on the new standards.

Based on their 2011 production data, HUD and USDA estimate that the new standards will affect 3,200

multifamily units and 15,000 single family units per year. The agencies also expect the new standards to

be cost-effective, projecting that annual energy savings generated by the new standards will cover the

up-front costs in just over five years.

Worst-Case Housing Needs High Despite Short-Term Improvement

Posted: 5/8/2015

HUD recently released the full version of its Worst Case Housing Needs: 2015 Report to Congress

following the release of its summary findings in early February. This is the 15th report in a biannual

series that HUD prepares for Congress to discuss trends in and causes of worst case housing needs.

HUD defines worst case housing needs as renters with very low incomes (below 50 percent of Area

Median Income) who do not receive government housing assistance and who either spend more than

half of their income on rent, live in severely inadequate conditions, or face both of these challenges. In

2013, the vast majority of households with worst case housing needs had severe housing cost burdens,

while 3 percent lived in severely inadequate conditions.

According to the report, worst case housing needs fell from a record-breaking 8.8 million in 2011 to 7.7

million in 2013. This 9 percent decline is in part due to the economic recovery. However, the report

stresses that worst case housing needs remain 50 percent higher than in 2003. Worst case housing

needs affect very low-income renters across racial and ethnic groups, household structure, as well as

location.

The report concludes that worst case housing needs result from a shortage of affordable rental housing.

While the total supply of rental units increased 2 percent between 2011 and 2013, it was not enough to

keep pace with the increase in the number of renter households, which went up by nearly 4 percent.

This is especially concerning for low-income households that must compete for a small stock of

affordable rental units. In 2013, there were only 65 affordable units available per 100 very low-income

renters, and only 39 units available per 100 extremely low-income renters. The report underscores the

importance of housing assistance to combating worst case housing needs. Yet, approximately only one-

in-four very low-income households receive some form of rental assistance nationwide.

FHFA: HARP now extended through 2016

Brena Swanson

May 8, 2015 3:40PM

The Federal Housing Finance Agency officially announced that the deadline for the Home Affordable

Refinance Program has been extended to the end of 2016, matching the deadline of the Home

Affordable Modification Program.

“Although the number of new borrowers entering these two programs continues to decline, in part

because many eligible borrowers have already taken advantage of them and in part because of

recovering house prices, lenders and servicers are continuing to approve new HAMP modifications and

HARP refinances,” FHFA Director Mel Watt said at the Greenlining Institute’s 22nd Annual Economic

Summit in Los Angeles.

“Extending HAMP and HARP through the end of 2016 will provide real relief for borrowers who

continue to face challenges either paying their mortgage or refinancing their loan,” Watt said.

So far, nearly 3.3 million borrowers have already taken advantage of HARP to reduce their monthly

payments and obtain some financial relief.

Both HAMP and HARP were originally launched in 2009 to provide relief to borrowers by lowering their

monthly payments and were set to expire on Dec. 31, 2013.

However, in June 2014, U.S. Treasury Secretary Jacob Lew announced several initiatives designed to

spur the flailing housing market, including the extension of HAMP until Dec. 31, 2016.

“This innovative program has provided relief to homeowners across the country, including more than a

million homeowners who have been able to permanently modify their mortgages through HAMP and

save roughly $540 a month in mortgage payments," Lew said at the time of the announcement. “The

Making Home Affordable Program is not just helping families keep their homes, it is giving families

peace of mind.”

Back in 2013, the Department of Housing and Urban Development teamed up with the Treasury

Department to announce an extension of the Obama administration’s Making Home Affordable Program

through Dec. 31, 2015.

The then deadline was determined in coordination with the FHFAto align with extended deadlines for

the Home Affordable Refinance Program and the Streamlined Modification Initiative for homeowners

with loans owned or guaranteed by Fannie Mae and Freddie Mac.

As a result, after the second announcement of a HAMP extension in June 2014, it was rumored that

HARP would be extended as well, since the FHFA did just that when both programs were extended for

the first time in 2013.

Once again, talks quickly spread on the potential of a HARP extension after a town hall meeting on the

Home Affordable Refinance Program in Newark, New Jersey, in March 2015.

Watt once again put an end to the rumors, explaining the next day that what he was saying is that the

FHFA doesn’t like to leave any option off the table, but that didn't mean that the agency was in any talks

to pursue either an extension or expansion, just that anything was possible.

And possible just became reality.

While this will be the last time HAMP will ever be extended, there is still a chance that HARP could be

revived.

“HAMP and HARP were never intended to be permanent programs. As a result, this will be the final

extension that FHFA will make for the Enterprises’ participation in HAMP and we anticipate that this will

also be the final extension for HARP,” Watt said.

“FHFA will use the time between now and the end of 2016 to consider how best to build on the lessons

of HAMP for 2017 and beyond. In the meantime, we have determined that it is appropriate to maintain

the Enterprises’ streamlined modification program as part of their loss mitigation toolkit,” he continued.

Last year, Watt started a nationwide public campaign to visit targeted cities with the highest number of

in-the-money borrowers who have yet to take advantage of a HARP refinance in order to help spur

participation.

According to an interactive map on the FHFA’s website, there are more than 600,000 borrowers

nationwide who would still benefit from HARP

Congress Adopts Concurrent Resolution on FY 2016 Budget

MAY 07, 2015

For the first time in six years, both houses of Congress have adopted a concurrent budget resolution—

the final product of negotiations between the Senate and House on their respective budget resolutions

released earlier this spring. The Concurrent Resolution on the Fiscal Year (FY) 2016 Budget

(S.Con.Res.11) outlines the chambers’ Republican policy priorities, aims to eliminate the deficit over the

next decade with more than $5 trillion in spending cuts without raising taxes, adheres to the FY 2016

discretionary spending caps imposed by the Budget Control Act of 2011 (BCA), and includes procedural

language that could be used to repeal the Affordable Care Act.

The House adopted S. Con. Res. 11 on April 30, by largely a party-line vote of 226 to 197. Fourteen

Republicans joined all Democrats in the House to oppose the budget agreement. The Senate followed

suit on May 5, passing the budget by a vote of 51 to 48. No Senate Democrats voted in favor and two

Republicans – Senators Ted Cruz (R-TX) and Rand Paul (R-KY) --voted against the budget agreement.

Congressional Budget resolutions provide broad parameters for federal spending and taxation, including

overall limits on discretionary spending and guidance to authorizing committees directing them to

report legislation that accomplishes specific spending or tax-related goals. Budget resolutions are

intended only to guide congressional activity and are not bills. They require a simple majority vote for

passage in each chamber and cannot be blocked by filibuster in the Senate. Budget resolutions do not

go before the President for his signature and are not subject to his veto authority. Congressional Budget

resolutions that pass both chambers also provide procedural protection from Senate filibuster for

legislation reported in response to such guidance, which is also known as “reconciliation instructions.”

The deal struck between the House and Senate provides reconciliation instructions to the Senate

Finance and Health, Education, and Labor Committees and to the House Ways and Means, Energy and

Commerce, and Education and the Workforce Committees to report deficit-reducing legislation by July

24. While the budget doesn’t dictate how each Committee is to achieve its $1billion target, the

reconciliation instructions are widely seen as paving the way for an Affordable Care Act repeal bill that

the President would then likely veto.

Please contact NCSHA's Althea Arnold with any questions or comments.

Senators Cantwell and Roberts Introduce Housing Credit Minimum Rate Legislation

MAY 06, 2015

On May 5, Senators Maria Cantwell (D-WA) and Pat Roberts (R-KS) introduced S. 1193, the Improving

the Low-Income Housing Tax Credit Rate Act, which would permanently establish a minimum 9 percent

Housing Credit rate and a minimum 4 percent Credit rate for acquisition. In addition to Senator

Cantwell as lead sponsor, 21 Senators are original cosponsors of the bill.

S. 1193 is the companion legislation to H.R. 1142, introduced on February 26 by Representatives Pat

Tiberi (R-OH) and Richard Neal (D-MA), which currently stands at 55 cosponsors plus Representative

Tiberi as lead sponsor.

Establishing permanent minimum Credit rates is one of NCSHA legislative priorities. We encourage all

HFAs and their Housing Credit partners to ask their members to cosponsor and press for enactment of S.

1193 and H.R. 1142.

HUD Modifies Its FHA Distressed Asset Stabilization Program

MAY 05, 2015

HUD recently announced that it is making adjustments to its Distressed Asset Stabilization Program

(DASP) to help more struggling homeowners avoid foreclosure. Specifically, HUD will impose a 12-

month foreclosure moratorium on all loans sold through DASP and create more opportunities for

nonprofit organizations to participate in the program.

Under DASP, HUD sells Federal Housing Administration (FHA)-insured single-family loans that are

headed for foreclosure to investors who are encouraged to work with borrowers to help them avoid

default. Supporters argue that this initiative benefits all parties involved because: in many cases it is

less expensive for HUD than the alternative of a foreclosure and subsequent sale as a real estate-owned

(REO) property; it guarantees that the borrower has access to all available loss mitigation options; and

the loan servicer has a monetary incentive to get the loan performing again. Mortgages must be at least

six months delinquent to be included in a DASP pool, and the loan servicer must have exhausted all

possible steps through FHA's loss mitigation process.

Currently, any investors who purchase a loan pool through DASP cannot foreclose on any of the loans in

the pool for at least six months. Investors are also encouraged, though not required, to asses a

borrower's eligibility for various loss mitigation programs. Under the new guidelines, investors will be

unable to foreclose on loans they purchase through DASP for at least one year, and investors must also

evaluate whether each borrower would qualify for the Home Affordable Modification Program (HAMP).

HUD also announced that non-profit servicers will have first access to Neighborhood Stabilizing

Outcome (NSO) loan pools to boost non-profit participation. NSO pools are comprised of loans from

geographically concentrated areas. Investors who purchase NSO pools are required to ensure that half

of the nonperforming loans in the pool are resolved in such a way that promoted neighborhood

stabilization. HUD will also create special auctions that are only open to nonprofit bidders and

establishing a first-look period during which owner occupants, government entities, and nonprofits have

the opportunity to buy a real estate owned property before an investor may bid. Many advocates had

been urging HUD to increase nonprofits' role in the program, arguing that such groups are more likely to

work with borrowers to help them avoid default than private investors.

Other DASP changes include stricter reporting requirements and increased penalties for failing to

comply. HUD plans to hold the first DASP sale under the new parameters in June 2015.

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Do millions of Americans face impending housing peril?

Rising rents, lack of credit could displace potential borrowers

Pamela Patenaude

April 29, 2015

For those who thought the "improving" economy and a favorable interest-rate environment would

provide a much-needed boost for homeownership, yesterday’s news from the U.S. Census Bureau was

particularly disappointing.

According to Census, the national homeownership rate now stands at 63.7%, marking the sixth

consecutive quarter in which the rate has declined. The rate has dropped by more than five percentage

points since its high of 69.2% in 2004. That translates into some six million households transitioning

from homeownership to rental housing.

To put matters in perspective, the last time the national homeownership rate was this low was during

the first quarter of 1993 when Bill Clinton was beginning his first term as President, the World Wide

Web was still in its infancy, and Jurassic Park – the top-grossing film that year – had yet to hit movie

theaters.

Digging a little deeper, other numbers are similarly disappointing: The homeownership rate for African-

American households now stands at 41.9%, a 20-year low, while the rate for Hispanics has fallen to

44.1%, well off its high of 50.1% in 2007. The homeownership rates for younger households, a

traditional source of strength for the housing market, have also registered precipitous declines.

What’s behind the plunge?

It is clear we are still experiencing the aftershocks of the Great Recession. While the pace of home

foreclosures has lessened, thousands of families continue to migrate from homeownership to the rental

ranks.

For first-time homebuyers, today’s tougher mortgage underwriting standards in the form of higher

down payment and credit-score requirements have been well documented. Credit overlays are

common, as lenders remain cautious about being held responsible for minor defects in underwriting

despite the continuing efforts of the regulatory agencies to assuage these concerns.

For younger households, student debt likely acts as a major obstacle to homeownership. According to

the Consumer Financial Protection Bureau, this debt is approaching $1.2 trillion, an all-time high.

Add to this mix the fact that median household incomes have hardly budged over the past decade, and

it’s clear that fewer and fewer families have the resources for sustainable homeownership.

An optimist would say we are now returning to the historically normal rate of homeownership and the

current decline will soon level off. After all, between 1965 and 1995, the rate hovered between 63% and

65% with little variation outside these two boundaries. Today’s 63.7% rate falls well within this range.

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While such optimism may be warranted, it is hard to square with the broad demographic trends now

unfolding in America. After staying on the housing sidelines during the Great Recession, millions of

young Millennials are beginning to form households for the first time. Lacking the income and wealth for

homeownership, most are choosing to rent, often in urban multifamily settings.

This new demand is putting upward pressure on rents in many cities and making renting less and less

affordable. For those Millennials aspiring to homeownership, they find themselves caught in a vicious

circle: Rising rents are making it even more difficult to save for a mortgage down payment.

America is also becoming increasingly diverse. According to the Urban Institute, minorities are expected

to account for 77% of new household growth this decade and a staggering 88% from 2020 to 2030. The

expansion of the Hispanic population will be a big part of this story.

In the near term at least, renting will be the only housing option for many of these minority families,

who typically have much lower incomes and wealth than their white counterparts. Highlighting the

dramatic impact of these trends, the Urban Institute estimates that 62% of new housing demand will be

rental during this decade, reversing the experience of past decades where most new housing demand

was felt in the ownership market.

In my view, the latest figures from the U.S. Census Bureau portend an even larger decline in the national

homeownership rate. We are likely to arrive at a “new normal” where the rate falls well below 63%. The

flip side of this lower homeownership rate will be an explosion in new rental demand that will send

rents soaring even higher.

The result: Millions more families will find themselves stuck between a rental market they can no longer

afford and a homeownership market for which they do not qualify.

It’s time to wake up to this crisis and make responding to it a national priority.

House FY 2016 THUD Bill Cuts Critical Housing Programs APRIL 29, 2015

Earlier today, the House Transportation-Housing and Urban Development (THUD) Appropriations Subcommittee held its mark-up of the Fiscal Year (FY) 2016 THUD funding bill. The bill provides $55.3 billion in discretionary spending for transportation and housing programs, but falls $1.5 billion short of what HUD says it needs just to maintain current programs in FY 2016 and is $9.7 billion less than the Administration's budget request. The bill also contains several controversial policy provisions, including one that would ostensibly eliminate the Housing Trust Fund (HTF). In a move the Committee claims would maintain HOME funding at last year's $900 million level, the bill would transfer funds that would otherwise capitalize HTF in calendar year 2016—estimated by the Committee at $133 million—into the HOME account to buttress its otherwise reduced appropriation, which the bill sets at just $767 million. The bill further prohibits the transfer, reprogramming, or credit of any funds to HTF. NCSHA strongly opposes both the reduction in HOME program funding and the elimination of the Housing Trust Fund. Subcommittee Chairman Mario Diaz-Balart (R-FL) opened the markup by highlighting key areas of the bill, including $3 billion for the Community Development Block Grant (CDBG) and $900 million for HOME, both equal to their FY 2015 funding levels. Diaz-Balart did not mention the bill’s actual appropriation of just $767 billion to HOME or its transfer of funding from the HTF to HOME to fill the gap between the proposed appropriated level and the $900 million he claimed the bill provides. He did however note that, in order to provide adequate funding for other HUD programs, the bill makes strategic reductions to capital accounts, proposes no new programs or fees, and reduces overhead. Diaz-Balart added that the bill adheres to the FY 2016 budget caps imposed by the Budget Control Act of 2011, and although not perfect, it "takes steps to make sure our…all of your priorities are taken into consideration" if sequestration goes into effect in FY 2016.

Ranking Member David Price (D-NC) remarked that many of the Appropriations Subcommittees were operating under serious constraints given the FY 2016 budget cap. Referring to the THUD bill, he said "We are not investing nearly what we should in our housing and transportation infrastructure…not enough to even sustain it." Price then stressed the importance of a bipartisan budget deal this year, arguing that House Republicans need to address the main drivers of the deficit -- tax expenditures and entitlement spending—and stop forcing "critical domestic investments to bear the brunt of deficit reduction."

Appropriations Committee Chairman Hal Rogers (R-KY) called this a "tough bill" and commended Diaz-Balart for negotiating it as much as possible. Rogers said the bill "strikes an appropriate balance by prioritizing programs that provide critical services to the American public while taking a targeted, thoughtful approach to reducing non-essential or inefficient programs." He highlighted full-funding for tenant-based rental assistance renewals and the importance of capital programs, including CDBG, SHOP, and HOME. He added that the bill would fully-fund project-based rental assistance program for 12 month contracts at $10.65 billion, but this falls $106 billion short of the $10.8 billion HUD estimated it would need to fully fund the project-based Section 8 program.

Appropriations Committee Ranking Member Nita Lowey (D-NY) took issue with the bill's overall low funding level and the various policy riders, especially those related to transportation. Lowey was the only Committee member to address how HOME was funded in this bill. She expressed deep concern that by taking money from HTF to pay for HOME, the Committee would "perpetuate another gap in the spectrum of affordable housing." She remarked that she would address these issues and the policy riders during the full Committee markup which has not yet scheduled.

The Subcommittee unanimously voted to favorably report the FY 2016 THUD bill to the full Committee on Appropriations.

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Homeownership rate falls to lowest since 1993

Economists question whether tumble will continue or has bottomed out

Trey Garrison

April 28, 2015

The national rate of homeownership in the first quarter of 2015 hit the lowest it’s been since 1993,

which continues an ongoing decline in the rate, the Department of Commerce’s Census Bureau

announced today.

The homeownership rate of 63.7% was 1.1 percentage points lower than the first quarter 2014 rate of

64.8% and a 0.3 percentage point drop from the fourth quarter of 2014.

The homeownership rate is an important lagging indicator of demand, says Jonathan Smoke, chief

economist for realtor.com, noting that nothing quite explains what happened in the housing boom and

bust like the homeownership rate and the associated implications for demand and supply.

“At 63.7% we’re now back to Q1-1993 levels and actually 63.7 was the low point for 1993,” Smoke says.

“That level effectively means we have lost all of the gains from the Clinton-W Bush eras. At this level, we

are essentially slightly lower than the average rate in the 1970s and 1980s as well. You have to go all the

way back to the 1960s to see a lower rate that stuck.

"But the rate itself is a lagging indicator because it reflects the percent of households that are owners.

So I think this number now more underscores what we’ve been through versus where we are going,”

Smoke says. “In terms of where we have been, the rate bears witness to the fact that we have record

levels of renters now, and for this decade, essentially all net new households have been renters.”

Smoke notes that there is also a record numbers of owners now as well. And the pace of household

formation is on an uptick, yet the industry has essentially added nothing to the housing stock for a

decade.

"We’ve gone from having a demand problem and a supply surplus to having solid demand and a dearth

of supply," Smoke says. "So where will new households live? Vacancy rates show little room for rentals

and little excess now for owned housing, especially in the fastest growing and strongest markets."

As noted here, an April 15 research report from analysts at Goldman Sachs, “Demographics support

homeownership, tight credit does not,” says that after peaking at 69.4% in 2004, the homeownership

rate in the U.S. has been declining for a decade.

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Based on their research and analysis, they project the homeownership rate to drop further over the next

two years, bottoming at 63.5% in 2016.

That’s a little different than what Ed Stansfield at Capital Economics sees happening.

“The homeownership rate fell further at the start of the year to a 22-year low of 63.7%,” Stansfield

writes in a client note. “However, with credit conditions now loosening and employment set to continue

growing strongly, we suspect this long downward trend may not last for much longer.

“Finally, the strong 1.5 million annual rate of household formation suggests that the 1.7 million reading

at the end of last year was no fluke. As we have previously argued, a long- overdue upturn in household

formation, as more young adults leave the parental home, could provide a significant boost to

homebuilding over the coming years,” he says.

Smoke’s analysis tracks with this reading. He notes that the 63.7% number wasn’t a surprise as he

forecasted that homeownership would fall this year under 64%. But he doesn’t expect it to go much

lower especially with mortgage rates remaining so low.

“The homeownership rate is likely to bottom this year or next not far from where we are now,” Smoke

says. “By historical patterns, the rate could indeed go up. The simple math behind what it costs to rent

versus buy shows that if you can afford the down payment and qualify for a mortgage, it is cheaper to

buy rather than rent in 80% of the counties in the US now. Low vacancies for rentals, higher rents, and

the economics favoring buying will not encourage net new households to be mostly renters.”

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Millennial Expectations Demand Tech and Customer Service Upgrades

by Teresa Blake

APR 28, 2015

It's time for the mortgage industry to adapt to the high-tech expectations of the millennial generation

and provide an end-user experience that focuses on establishing a personal relationship with each

customer and enabling each customer with a stake in the company's brand.

After a lifetime of technology access, millennials have what some call an elevated expectation for what

their customer experiences can and should be: exceptionally convenient, technology-enabled,

accessible, fast and easy to understand. These expectations should not be passed off as a mere side-

effect of an "entitled" population.

Instead, the millennials' expectations indicate a major shift in values that will carry on for future

generations. Business leaders who accommodate these expectations will not only bring much more

opportunity than hardship in the long run, but also more immediately benefit businesses.

Considered to be the most diverse generation in U.S. history according to Pew Research, the behaviors

and buying patterns of this generation are far different and more difficult to define than past

generations. With a population of more than 75.7 million and buying power of $1.68 billion according to

CEB Global, the millennial generation is larger and more influential than any other generation before its

time. Though many have yet to dip their toes into the home buying waters, the question is no longer

whether they'll purchase a home, but when.

This demographic is spending a lot of time searching for homes online and from their mobile devices.

One of the best ways to relate to this generation is to tap into their love of technology. If a company

wants to know where a brand or product stands with these consumers, check YouTube, Yelp, Facebook,

Twitter and LinkedIn for product review posts, and if no one is talking about the company online, then

chances are good consumers don't know the company exists.

Millennials desire a two-way dialogue that allows for greater interaction, feedback and responsiveness.

By making strategic investments into mobile strategy and online channel expansion, lenders will be

more prepared to tap into the millennial market. A comprehensive mobile strategy may appeal to the

millennial borrower's desire to connect on a more personal level by allowing loan officers and brokers to

meet the borrower at their preferred location and walk them through the loan process, answer

questions and deliver instant information.

The benefits of an on-the-go mobile-enabled workforce are not exclusively the borrower's. This tech-

savvy and personal marketing approach can nurture the borrower further into the loan process faster,

increasing productivity, and reducing the overall cost per loan for the lender. In addition, it will improve

the lender's brand image and serve to attract the tech-savvy talent that is entering the workforce in

droves, and who, according to PWC, will represent 50% of the U.S. workforce by 2020. Indeed, the

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millennial affinity for digital and high-tech tools will be a critical factor when it comes to choosing an

employer.

Lenders who pursue channel expansion should do so with a carefully mapped out strategy and keep in

mind that the millennial borrower does not just want convenience and brand interaction, but also

demands a consistent experience from a brand from all customer touch points. The information, service

and experience provided from a branch should be consistent with the service delivered from a mobile

device and should enable the borrower to remain actively engaged throughout the process. With that in

mind, channel expansion should correlate with well-planned technology integrations and operational

alignment strategy.

To crack open the millennial floodgates, lenders must recognize that the millennial consumer is now in

the driver's seat, and the self-service mortgage capabilities that borrowers have come to expect are here

to stay.