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Too Difficult to Get a U.S. Home Loan

Housing-Market / US Housing Nov 18, 2014 - 06:05 AM GMT

By: Bloomberg

Housing-Market

HUD Secretary Julian Castro spoke with Bloomberg TV's Peter Cook about the first positive balance for the Federal Housing Administration's mortgage-insurance fund in two years and the outlook for an overhaul of federal housing-finance rules.

Castro detailed the improving financial picture for the Federal Housing Administration, stating the government's mortgage insurance fund is "back in the black" for the time in two years: "Is it now in positive territory. In fact, over the last two years it's seen an increase of $21 billion in its value. And the underlying fundamentals of the portfolio of the fund are stronger than they have been in quite a while."


He also spoke about the difficulties some Americans are having in qualifying for home loans, citing the example of former Federal Reserve chairman Ben Bernanke: "If a few years ago, it was too easy to get a home loan and today what we see out there is that for many everyday Americans who are responsible and hardworking it's too difficult to get a home loan...Folks remember just a few weeks ago that Ben Bernanke was saying that he couldn't get his home refinanced. Then the question is where is the pendulum best placed? Can we get the pendulum right in the middle where it belongs with a balance of ensuring that we don't slide back to where we were and also ensuring there is good access to credit for Americans who are ready and responsible to buy a home."

Castro said reforming the mortgage finance system would be a "priority" for the administration over the next two years: "This could be I believe a good victory either in the lame duck session or more realistically perhaps in the next term of Congress where there is bipartisan support for housing finance reform, for doing away with Fannie and Freddie as we have known them. Creating a backstop, however, introducing more private capital into the market and taking the taxpayers off the hook."

Housing Secretary: U.S. Home Loans Too Hard to Get

PETER COOK: I am joined by the newest member of the president's cabinet. From HUD's headquarters, the secretary of Housing and Urban Development Julian Castro. Mr. Secretary, thank you for the time today and first time for us to chat with you since you've come to Washington. Welcome to the nation's capital.

JULIAN CASTRO: Thanks so much, Peter. It's - it's great to be with you.

COOK: Let's start with this latest assessment of the FHA's mortgage insurance fund. It's got its first positive balance in two years, but things aren't exactly perfect. Still below its congressionally mandated target. Walk me through what's going on with the fund right now.

CASTRO: Well we're pleased with good news today that the FHA's Mutual Mortgage Insurance Fund, the MMI Fund, for the first time in a couple of years is back in the black. Folks may remember that last year it had to take a mandatory appropriation from the treasury. Is it now in positive territory. In fact, over the last two years it's seen an increase of $21 billion in its value. And the underlying fundamentals of the portfolio of the fund are stronger than they have been in quite a while.

The default rates are down. The recovery rates are up. And so right now it's at a 0.41 percent capital reserve ratio. As you mentioned, as you alluded to, that is not perfect. That's still underneath the 2 percent statutory requirement. However, it is projected to stay on a strong track and in fiscal year 2016 to actually be just above that 2 percent requirement.

COOK: Mr. Secretary, the improving finances. What does that mean where the rubber hits the road, the agency's efforts to help Americans finance a home? Does it mean for example you might be able to lower some of the fees and premiums that FHA is charging right now?

CASTRO: It's a very good question. And as you know, a lot of folks in the housing industry are asking and have been asking for quite some time. It's a little bit premature to answer that question. That analysis has not yet been done. We just got this annual report, and so we'll be taking the time to do the due diligence that is part of answering that question.

COOK: So you can't rule it out at this point. It's possible, but you can't make that decision at this point.

CASTRO: That's right. We're not- of course not making a decision about that. That's going to take further analysis about that question.

COOK: What about the risk factors out there to FHA right now? You've got Fannie Mae and Freddie Mac, Mr. Secretary, who are in the not too distant future going to be taking 3 percent down on - on loans that they backstop. FHA the lowest is 3.5 percent down. Is there a risk here that FHA might be left backstopping the riskiest borrowers?

CASTRO: We believe that - that the FHA will be in good shape. It's - it's true volume there has been down over the last year. However, what we see is that the loans that are part of the portfolio generally have been performing well. They've been stronger than they had been in the last couple of years.

So we understand that we have a responsibility to ensure that the FHA is on a strong track, but also, Peter, to fulfill this role that for the last 80 years of its existence FHA has fulfilled of ensuring that - that first-time home buyer and folks of modest means are able to get access to credit. And it's all about striking that balance, and those are the questions that - going forward that we're going to be putting a lot of time and effort to continually analyzing.

COOK: Mr. Secretary, how are you going to reassure Republicans in particular up on Capitol Hill that we're not going to be right back where we were just a couple years go with Americans getting homes that they just quite honestly couldn't afford?

CASTRO: Well and I think it's - it's - it's not just Republicans. It's Democrats. It's all Americans that want to ensure that we don't go back to where we were before. And all of us are very mindful of that, and so it is about striking this balance. The fact is that since the housing crisis we have put into the law - that Congress has put into law Dodd-Frank.

The Consumer Financial Protection Bureau has put policies into effect that protect us against sliding back to where we were. In fact, many of those risky mortgage products don't exist in the same way that they did back then. The question becomes if a few years ago it was too easy to get a home loan and today what we see out there is that for - for many everyday Americans who are responsible and hard working, it's too difficult to get a home loan. Folks remember just a couple weeks ago Ben Bernanke saying that he couldn't get his home refinanced.

Then the question is where is the pendulum best placed? Can we get the pendulum right in the middle where it belongs with a balance of ensuring that we don't slide back to where we were but also ensuring that there's good access to credit for Americans who are ready and responsible to - to buy a home?

COOK: Well we - we certainly did take note of former Chairman Bernanke's problems in refinancing his home here at Bloomberg. Let me just ask you in the time we have remaining, just two lefts in this administration. What do you see as your main priorities right now in terms of trying to lift the housing recovery further, and what role are Fannie and Freddie going to play in this? Obviously there's a lot of talk about overhauling them, doing away with Fannie and Freddie. Is that going to be a priority for this administration in the final two years?

CASTRO: Yeah. Housing finance reform certainly ahs been a priority and will continue to be a priority. As your viewers know, this has been an issue with a lot of attention over the last year or so. There was a bipartisan piece of legislation, Johnson-Crapo, that made it out of the Senate Banking Committee. There are others, Senators Corker and Warner, as well as folks in the House who have been working on this issue.

This could be I believe a good victory either in the lame duck session or more realistically perhaps in the next term of Congress where there is bipartisan support for - for housing finance reform, for doing away with Fannie and Freddie as we've known them, creating a backstop. However, introducing more private capital into the market and taking the taxpayers off the hook if we do ever experience what we just went through as part of the housing crisis in 2007, 2008, 2009, that is a priority this administration and for HUD.

COOK: All right. Mr. Secretary, got to leave it there. Thank you for joining us. Our first change to chat --

CASTRO: Thank you.

COOK: - with the newest member of the Obama administration cabinet. Julian Castro, the secretary of Housing and Urban Development.

bloomberg.com

Copyright © 2014 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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