This morning we were treated to an hour long conference call with FHA Commissioner Dave Stevens, courtesy of NAR. Long-time readers know I’m a fan of Stevens, even got a nice comment from him on a blog I wrote last fall following his address at NAR. I think it’s a good thing to have somebody in his position who actually knows real estate, knows what it takes to sell a house, get a mortgage, work a short sale, etc. As introduced this morning, they said it’s ‘refreshing to have someone who knows our industry.’ I concur.
Stevens started his talk saying these are ‘unprecedented times’ in the housing industry. ‘The good news is that the housing industry has never received this much attention. The bad news is that the housing industry has never received this much attention.’ The housing industry brought the U.S. economy to it’s knees and nearly took the world economy with it. We had a severe hiccup when people lost sight of housing as shelter and started viewing it as an investment strategy.
He then ran through some of the stats that most of us are aware of. Exotic mortgages nearly wiped out the FHA base. With their 3% down, 30 year fixed mortgages they were too boring, couldn’t complete with ‘0’ down, no interest, no doc loans – they were irrelevant and shrank to less than 3% of the market. Today they are back up to 30+% and growing. They originate 50% of loans to Blacks, 45% of loans to Hispanics and 80% of loans to 1st time homebuyers.
He also talked about some of the changes FHA has made to protect their base things like increasing the down payment amount in for some buyers and decreasing the amount of seller contributions. He noted those things are vital to protect FHA and he quoted numerous studies showing the rise in failure rates between buyers getting 3% seller contributions and those getting 6%. He also talked about the SAFE Act, which he believes will go a long ways toward eliminating the type of ‘rogue’ lender that contributed so much to questionable lending. He sees this as a good step toward rebuilding consumer confidence in the market.
He also stated that, in hindsight, it’s clear that everybody should not have become homeowners as was the mantra for the first half of the decade, and through their policies they intend to make sure everybody doesn’t become a homeowner going forward – only those who should be, who can demonstrate the fiscal ability to meet the responsibility they are undertaking. He realizes that some of the policies sound harsh and that some innocent people will be hurt, but in the interest in returning credibility, confidence and integrity to the market, these are steps that need to be taken. And with 95% of the financial market under the control of the Federal Government, they are in a position to set those rules.
And for the most part I find myself in agreement with what Stevens said – up to a point. He started losing me when he said that the belief in Washington is that THEY need to act to restore confidence in the market because WE failed. WE collectively built this market – all of us, according to Stevens, but it is the Obama administration that now sees the mandate to ride to the rescue. He credits this administration with stabilizing the market at a time it was in free-fall. He believes the HAMP & HARP and other programs have been resounding successes and that without them the crisis would have gotten much worse.
That’s all partially true but it strikes me that in some respects Dave has been drinking the Kool-Aid. And that’s OK – I mean he works for the administration and his job depends on toeing the company line on this kind of stuff – just don’t expect everybody else to believe it without question. And we were all too polite to question it on the call this morning.
I just sent out my monthly newsletter in which I pretty much said the same thing Stevens did about it being a unique market and that the government has their finger in darn near every aspect of the market. Where we diverge is that while Stevens thinks more government intervention and manipulation is a good thing, I think it has artificially propped the market up and has kept us from a true stabilization, reaching a real bottom and starting a sustainable recovery. We simply don’t know what the government is going to do next – and that creates instability – especially when the majority of people don’t have much confidence in that government.
As Ben Bernanke recently commented to the Dallas Regional Chamber, “We have yet top see evidence of a sustained recovery for the housing market. Mortgage delinquencies for both prime and sub-prime loans continue to rise as do foreclosures.”
It’s cyclical. The market would never have peaked as high or as boisterously as it did without government intervention. When Barney Frank and Bill Clinton decided everybody who could fog a mirror should buy a house, the die was cast. When the financial markets, including the GSE’s responded with vigor and with increasingly exotic products and Barney Frank and George W encouraged it, we were toast and didn’t know it. So when Stevens said WE built this market, he should have expanded his collective WE to include all the federal cronies who are now charged with straightening out the mess they helped create in the first place. Dave didn’t mention that.
Oh well,. As always, we at the street level are left to deal with what plops in steaming piles from the bowels of Congress. Thus has it always been. Obama didn’t create the mess and he sure as heck ain’t cleaning it up, though when the cycle ultimately turns you can bet he’ll be leading the parade to take credit for it. The rest of us will just keep working and trying to eke out a living and stashing as much as we can before higher taxes and interest rates take it. That’s the fun part. As Dave Stevens closed today he quoted that thing that makes each of us get up in the morning and do what we do – “We still own the American Dream business.” Well, at least the part the administration doesn’t lay claim to.