Full Transcript is Below:
– I’m NFM TV’s, Greg Sher. Joining us right now is former FHA Commissioner and President of the Mortgage Bankers Association. In addition to so many other titles, it would take way too long to recite them. David Stevens, friend of the network is with us now in what is shaping up to be, it looks like a very long and dark winter ahead. David, thanks for joining us during what I consider tumultuous times at this point, pipelines are drying up across the industry. Everybody that I know is very worried. Should they be?
– Yeah, I mean they should be and, and look, to put it bluntly as someone who worked in a Presidential administration on the democratic side of the aisle, I look at this administration and just struggle with the talk versus reality of everything they’re doing. I mean, when you have rates at seven and a quarter or wherever they are today, it’s not just the wealthy home buyer you’re hurting. You’re hurting entry level, first time home buyers, often African American and Hispanic, single women and others. You’re literally making it impossible for them to be able to buy a home. So all this is doing is separating those who can and those who can’t. And the list of those who can’t is getting wider and wider. And those are the people who often are more populated with the kinds of people who vote for this administration’s policy interests. So it’s great to talk about wanting to help first time home buyers and minorities as the FHFA does, and as the HUD secretary does as the Vice President has spoken about. But with this interest rate market run amuck which is controllable by the way, fully controllable, it blows me away because all we’re doing is we’re crushing the housing market all driven by the Federal Reserve’s actions, not just in terms of raising the Fed funds rate but in terms of how they’re impacting the supply and demand of mortgage-backed securities. And that’s crushing us from an interest rates perspective. The Fed was the biggest buyer of mortgages for the last decade, and now they’re out of the market and they’ve created a supply and demand imbalance which as we all know, has widened spreads between 30 year mortgages and 10 year treasuries out about a hundred basis points wider than they normally would be. And so you’ve got rates in the sevens that would normally be in the low sixes if we just had a more balanced demand against the supply of MBS coming to market. But the Fed’s sitting on their thumbs, they’re crushing the housing market.
– The Mortgage Bankers Association is essentially the lobbying arm of the independent mortgage bankers all over the place. You ran it for a while. I don’t feel like I’m hearing enough, if any rhetoric about this gigantic spread between the 30 year fixed rate and the yield on the 10 year which traditionally as you mentioned, is around 170. It sits around 300 right now. Is the MBA doing enough right now?
– Why the major trades, not just the MBA, ABA, Housing Home Builders, NAR, Community Bankers Association, Why aren’t they raising the concern calling on the administration and the Federal Reserve to stop unloading MBS, at least to stop the amortizations? The Fed could reverse course right now and buy a very small amount of MBS, that signal to the markets would likely spur an action which would shrink that unusual spread. The other option, by the way, is the FHFA. The administration could put pressure on Sandra Thompson because yes, the preferred stock purchase agreement limits the portfolio sizes that the GSEs can hold. But right now they have about $190 billion of portfolio, of retained portfolio. They can go up to 240 each. And so there is room in the portfolio right now to start buying some MBS on the GSEs without violating the preferred stock purchase agreement. It wouldn’t require any action by treasury or anybody to permit it. It’s permitted as long as they stay within the boundaries of the PSPA. And then the third solution obviously would be some emergency action that Treasury could implement with the FHFA to modify the PSPA, create a new amendment that would allow them under emergency circumstances, which would be defined as an environment similar to this, to expand their purchase activities on the retained portfolio. Any one of these would at least wipe out the abnormally wide 130 basis points spread. And imagine what that would do to your market. Imagine if rates suddenly tomorrow dropped from seven and three eights or quarter wherever you’re at today to six and a quarter or six ’cause we’re really about 130 basis points wide. So, yeah, should the MBA and others be vocal about this? Yes, I think they should. And if we increase the level of the voice of outrage and spread it everywhere, maybe we get some folks in Washington to wake up and say, “Wow, this could mean votes,” because the realtors are huge. mortgage industry is huge, banking industry is huge. We all vote. We all contribute money to candidates and we rank in the hundreds of thousands of Americans.
– Pick up the phone, you call Bob Broeksmit, who is the President of the MBA. What are you telling him you need? What kind of support right now?
– This is survival and it’s dues-paying membership that may not be able to renew ultimately, they may not be here a year from now. So if it were me, if I was a CEO or advising CEOs, I would say every CEO in the IMB space did absolutely pick up the phone or email Bob and tell him that the biggest challenge we have right now is we have interest rates that are higher than they otherwise normally would be. If the Fed would just simply step in and solve some of the excess. To your audience, Greg, that are IMBs, all of you get to your CEOs, tell ’em they need to notify the heads of the MBA and that you demand that MBA take a strong position that the federal government, whether it’s Treasury, the Fed, or the FHFA with the GSEs, any one of those three could help eliminate this short.
– If they stepped in today and committed to buying a small amount for an indefinite period of time, you think that rates go down how much?
– So if you take out the excess, theoretically, you could drop the entire spread. And I gotta tell you, markets will start moving if they see activity. If they think the Fed’s gonna be stepping back in and buying some MBS, if they see the GSEs doing it, they’re not gonna wanna be the last ones at the door to take advantage of this opportunity. They’ll jump in as well and that will begin to eliminate the spread and normalize rates. And if rates became normalized, a lot of the duration risk concerns would be diminished and rates would drop back down to somewhere into the low sixes, maybe six.
– Is this an emergency for the mortgage business right now?
– To me, this is the only emergency we have right now. This is more urgent from a crisis standpoint for the survival of our industry over the months ahead. And it’s the right argument to have for home ownership. In the interest of the majority of institutions, not in size but in number, which are IMBs, my advocacy would be this is your top priority and it’s solvable and it was created by the same institutions that I’m advocating we go yell at and get them back reengaged to solve just the excess, the excess problem that you’ve created by removing yourself in entirety from the market.
– David Stevens, thank you so much. Really appreciate the relationship we have with you and I know the industry is so grateful as well. Look forward to talking to you. Hopefully better times are ahead in short order. Thanks so much.
– Thanks Greg. Good to be with you as always.
– Take care.