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Where did this bill come from?

In an odd development in the Oregon Senate this month, a bill was introduced that would essentially end the practice of mortgage banking and mortgage brokerage in the state. Senate Bill 663, a succinct, one-page proposal to prevent the transferring of a mortgage loan for a period of 5 years after origination, may not have been written with the goal of eliminating non-depository mortgage originators, but that will be the result if passed in its present form.  Fortunately, the composition of the Senate and the House in Oregon are equally divided between Democrats and Republicans, and this bill stands virtually no chance of passing.  However, it’s another example of poorly-written legislation that would significantly harm consumers in the state.  Does anybody truly believe that consumers would be best served if only depository banks were allowed to originate mortgage loans?  With the coming changes to Fannie Mae and Freddie Mac, along with the ongoing reformation of FHA’s single-family home loan program, there will be a growing need for private lending options.  Eliminating mortgage bankers and mortgage brokers certainly won’t be a prudent thing to do as we enter into the new lending environment.  More than ever, these sources will serve as a conduit for consumers to access new lending programs.

While incidents of poorly-managed servicing transfers have been widely publicized, the ability to securitize a mortgage loan is a vital element in our system of mortgage financing.  To eliminate this practice in Oregon would do severe damage to not only the housing industry, but it would force more people onto the unemployment role and deepen the recession in this state.  I’m sure this is not what the creators of SB 663 had in mind, but it’s not the first time that activist groups have proposed legislation that would do more harm than good.

 

The Mortgage Industry Continues to Evolve

The future of the mortgage industry continues to evolve.  Recent events have shed some light on what we might expect to see in the not-too-distant future.

To start things off, on Friday, February 11^th, the US Dept. of the Treasury presented Congress with the blueprint for the future of Fannie Mae and Freddie Mac, which were taken into conservatorship by the federal government in September of 2008.  The two government-sponsored enterprises have already cost taxpayers over $135 billion, and the Treasury’s plan is to greatly reduce Fannie and Freddie’s role in housing finance in the future.  While the process will take many years to complete, the first steps have been taken to address their drain on taxpayer money.  The plan involves increasing the fees that they charge to guarantee mortgages, which should put them on par with the fees charged by private institutions.  They also want to reduce the size of the mortgages that Fannie and Freddie can purchase, which will place their focus on more low and moderate income families. 

Second, on Monday, February 14^th, the Department of Housing and Urban Development (HUD) issued a new mortgagee letter, which is the communication tool used to announce changes to the FHA loan program.  This most recent letter (ML 11-10) informed the lending world that once again the monthly FHA mortgage insurance premium is being increased.  This will increase the monthly payment b roughly $20 for every $100k financed.  Added to the increase that was passed along in October of 2010, and we’ve seen the monthly FHA mortgage insurance payment for a 30-year fixed rate loan double.  As with the proposed changes to Fannie Mae and Freddie Mac, the FHA changes are designed to generate more private financing alternatives and take the brunt of the housing market off of the federal government.

At the moment, over 90% of all mortgages originated in the US are either guaranteed by Fannie Mae, Freddie Mac, or FHA/HUD.  The federal government wants to significantly change this percentage and become a far smaller player in the mortgage market.  The proliferation of private financing options is a must for this to occur.  As government-backed loan programs become more expensive, the hope is that the private sector will step forward and become a viable option for the consumer.  Only time will tell how this all plays out, but it’s clear that the government’s objective is to assume a much smaller role in the mortgage game.