Full Transcript is Below:
– Welcome into NFMTV. I’m your host, Greg Sher. We are always delighted to welcome in former FHA Commissioner and CEO and President of the Mortgage Bankers Association, David Stevens to our airwaves. Great to see you again, David. We’ve got a lot to talk about.
– Great to be with you, Greg, as always.
– Hope you’re enjoying your summer. You really caught me. You caught my attention when the Joint Center for Housing Studies at Harvard University released this year’s State of the Nation’s Housing. You were alarmed by a lot of the things that were in there to the extent that you wrote an op-ed recently where you said “the challenges today are as large and looming as the nation has seen in decades”, referring to the housing industry. Please elaborate for our audience.
– In this report this year, to me, might as well have been a billboard that says, “Hey, Washington, pay attention, you are messing this up.” I mean, literally, I think that’s what the study says and it says it through data. It shows that the gap in available units for first time home buyers has never been worse. We haven’t seen such a low volume of single family units for sale or for rent in this country since the end of World War II. This is a really dramatic time for our country, and, you know, if you’re in lending, you know it, there’s not enough units for sale in many of the markets. I mean, this is a tough time if you’re a first time home buyer in America. And unfortunately, the bullseye for that difficulty is the African-American community, the Hispanic community, single parents, mostly female who are single parents in this country. It’s a really challenging time for those that are, you know, not in the bastion of wealth, W2 income and more. And that’s what this Harvard study said.
– And you hold the government responsible to a large degree in the op-ed, which I referenced. Your opinion was that Biden should focus on the housing crisis. Why do you feel the administration is to blame?
– I view today’s housing environment to be as bad or worse than it was during the housing crisis. And there is no public policy being done in a coordinated effort to try to help things. You can’t just blame pricing through lenders, right? Lenders don’t invent inventory. They’re not, where are the builders building entry level, low income housing in America? What’s going on with all the zoning rules that are happening in communities, cities, urban markets and rural across the country, which are making the time from breaking land to getting the certificate of occupancy and getting a buyer, a new homeowner into their home, why is that lengthened so much, adding such incredible cost to the home building industry? Why can’t we find workers to build homes today? All of this, you know, on top of natural supply chain shortages and others that occurred during Covid, but none of this is gonna happen unless there is a national cry to say, “We gotta pull all the stakeholders together.” So, we’re seeing large, traditional institutional players in the marketplace not come forward, which is what a good administration should be doing to try to encourage private/public partnership to expand opportunity. Instead, we see industry running from it and then we have, unfortunately, the entire independent mortgage banker community, which funds 80% of all mortgages in this country struggling with profitability, enforcement actions, capital limitations, scrutiny from regulators and more. It’s a really difficult time. And who’s missing from action here? My view, it’s the White House. I think this, you only solve this with a national effort sponsored by the President’s team. President doesn’t have to attend these meetings, but the president can certainly make it a priority.
– Do you have any reason to believe that they’re hearing this message?
– I know for a fact that they’ve read my stuff, but reality, they’re far from doing anything that’s bringing a solution. If they wanna see an actual reality test to prove that they’re not doing enough, Harvard just gave it to ’em.
– Let’s assume that they’re not doing enough. Clearly you don’t feel like they are. What is the next domino to fall and what is the window that the government has to avoid that domino from falling?
– I think this administration is likely to do very little. They’re focused on a war in Ukraine. They do have other, you know, broader economic concerns about the recovery. Even Powell I think has totally missed the mark, in terms of understanding the criticality of housing’s relationship to the GDP of the United States and why you can’t just blow this thing up. But what could happen going forward? Powell will stop quantitative tightening, right? And rates will at minimum flatten, the markets will rally, the spread between the 30 year mortgage and the 10 year will start to shrink, mortgage rates will start to come down. Virtually every economist is forecasting rates in the fives, maybe even the fours over the next 18 to 24 months. That means we get some more refis, we create a surge in housing demand, but trust me, that ain’t gonna benefit any of the audiences, the constituencies, that this democratic administration talks about a lot. We’re hearing a lot of speeches. We’re hearing a lot of talk. This administration is doing, in my view, absolutely nothing. Far less than the Obama administration did by leaps and bounds. This is not exclusive to either party, but you would think that the Biden regime would see the data in front of them and stop circling the wagons. This should be a national crisis. It’s, you know, a roughly 40 basis points of the GDP of the United States, which is housing. It’s the most significant sector for GDP in this country.
– If we do get to that place where interest rates in the next 18 to 24 months get down into that 5% range, will some of these issues alleviate themselves in terms of more inventory, which then will open it up to the underserved for their percentage? Or is the problem so bad that even if inventory returns that’s just gonna remain the same or get worse?
– No, marginally, it’ll definitely help, Greg. I mean, lower rates will deal with all of these sedentary homeowners who don’t wanna sell their home. They wanna sell their home, but they’re not ’cause they don’t wanna give up their 3% rate. If rates get in the mid fours, in the five, they might finally say, “Okay, that’s enough.” “I wanna make the move.” “I’ve been waiting too long to get the home of my dreams.” Or that first time home buyer bought the first time home, but they now have had second or third kid in the last couple years, they need the extra bedroom. They need the bigger house. They’ll make that move. So, two things will happen. One is, we’ll see more resell inventory come to market because we have really a huge pent up demand of existing homeowners who have not come to market because they don’t want to give up those low rates. They won’t give it up for seven, like we’re at today, but they will give it up for five or four and a half. Not all of them, but a ton more will come to market. That’ll be good for inventory. That’ll open up supply. It’ll also open up affordability, right? Because, we’ll, you know, qualifying for a mortgage at seven versus qualifying for a mortgage at five is a pretty big deal and that’ll benefit a lot of potential home buyers. Will it solve the problem? No, we’re not gonna solve the problem without new inventory. We need to build a ton of more homes to deal with the current existing demand coming in from the biggest wave of millennial demand of that generation that’s ever occurred in this country. Better times are ahead for the mortgage business. If I’m a loan officer today and I’m struggling with low margins and worried how am I gonna make it through? I can assure you your business is gonna get better. Next couple of years are gonna be a lot better than this year or last year. And you can see the forecast, go to the Mortgage Bankers Association website and pull down their forecast for the next few years. Volume is going to increase, not back to where it was in 2020 and 21, it’s going to increase. Will that solve the problem I’m talking about and that Harvard’s talking about? No. Will it change for the better everything that a lender is doing? Yeah.
– How long in your estimation until IMB’s return to sustainable profitability?
– Prognosticating this is difficult. You tell me when rates are gonna be at five and a half and I’ll tell you when we’re gonna return to profitability, but I think coming to spring market next year we will finally have turned the real corner, the real one, gotten through the winter of the end of this year going into next year, and as we go into next year, we will be, I think have turned the corner. We will have a right size industry, rates will be coming down. The Fed’s actually gonna do a couple rate cuts I believe when this over the year and a half or so after this is over. And so, you know, we’ll have some good news in terms of being able to do mortgages and margin will be back. It will never return to where it was before, but you will be making profit and that’s important. I think you got three to five really strong years of ever increasing originations looking forward after this year.
– Never get tired of hearing from you, talking to you. Really appreciate the time you spent with us here on NFMTV. I know the industry appreciates your insights. So, thanks for spending so much time with us today and look forward to talking to you, hopefully during better times ahead, hopefully in the very near future. David Stevens, thanks so much.
– Take care, Greg. Good to be with you.
– Appreciate it very much. We’ll see you next time.