On the Hill Episode 24: David Stevens, CEO, Mountain Lake Consulting
In this episode of "On the Hill," Tim Rood talks with David Stevens, CEO, Mountain Lake Consulting and former head of the Mortgage Bankers Association, about the numerous challenges plaguing the market. "The shortage of inventory, the demographic demand and the layering of regulatory risk being placed on all the institutions that participate is probably at the worst tipping point we’ve ever seen — I certainly don’t remember it in my lifetime,” said Stevens, a four-decade industry veteran, CMB and former Federal Housing Administration (FHA) Commissioner.
Stevens talks about how the growth of various regulatory bodies after the Global Financial Crisis have diluted the authority of the Secretary of Housing and Urban Development (HUD). Today these siloed, overlapping agencies act at cross purposes, creating unintended consequences.
"A wide array of regulators tinker in housing and mortgage (policies) and all come up with individual policies, but don’t think about working together or the downstream effects of federal efforts," Stevens said. "There really is no central body that can drive housing policy."
For example, this year the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, tinkered with the pricing structure and loan level price adjustments to make mortgages more affordable for first-time homebuyers, especially those with lower credit scores and down payments. "Then the FHA dropped the mortgage insurance premium by 30 basis points, which immediately offset all the math," Stevens said. “These are two federal regulators, both headed by people at the will of the president, and they’re acting almost as if they are not in cooperation.”
Stevens also cited the inconsistent repurchase rules at Fannie Mae, Freddie Mac and Ginnie Mae, and enforcement actions by HUD, the Department of Justice, and the Consumer Finance Protection Bureau. “Then you have the OCC (Office of the Comptroller of the Currency) which just published a new proposed rule on bank capital standards, which will have all sorts of very uncomfortable tentacles that will strike at every aspect of our mortgage system," he said.
"The biggest risk we have in the housing finance sector is a lack of coordination and a lack of focus by the administration to empower a real housing head," he continued. "We need an individual who reports to the president, whose sole job is to coordinate all of these activities going on by all of the regulators."
Stevens said he does not expect much action to address the housing crisis, with provisions for new construction finance and down payment assistance eliminated from recent stimulus bills, and the 2024 presidential election heating up. Rood and Stevens also discussed the renewed focus on counterparty risk on issuer side, and the potential industry shakeout as originators continue to struggle with profitability.
"(The government) could stabilize these markets by having backup liquidity facilities available," Stevens noted. "Why don’t you use that? Why are we thrusting more instability on a sector which has originated extremely great credit quality? The GSEs' recent profits were huge. So here they’re saying we have the best quality book we've ever seen — but they're also putting back more loans, (citing) counterparty risk concerns and not bringing in a solution to help alleviate some of that burden. This is part of the lack of coordination."
Listen to the podcast above.