RALEIGH, N.C. (AP) - The Obama Administration is pressing its case for reforming the country's home loan industry by providing a greater role for investors while preserving the fixed-rate, 30-year mortgages.
As the Senate Banking, Housing & Urban Affairs committee prepares to take up housing finance reform on Thursday, Housing and Urban Development Secretary Shaun Donovan on Tuesday addressed a mortgage conference packed with lenders and investors already facing intense change.
Congress and President Barack Obama are working this fall to overhaul the country's mortgage finance system. While years of lax regulation and too-easy credit fueled the country's financial crisis in 2008, Donovan said, some rules put in place in the crisis' aftermath may have gone too far and cut off too many families from borrowing for their own home.
"We have to, within government, make sure that the rules are clear," he said. "It's simply wrong for a family to lose out on an opportunity, you to lose out on business, us to lose out on the growth that can come to our economy overall if a family is ready to buy and be successful and can't get access to mortgage capital."
Last month, Donovan noted, HUD and other regulators revised a firm down-payment requirement to qualify for the best loan rates. Lenders now must ensure that borrowers have the ability to repay their mortgage or retain more of the default risk, a rule proposed earlier this year by the Consumer Financial Protection Bureau.
The administration's plan to overhaul the country's mortgage finance system includes a greater role for private investors and winding down government-backed Fannie Mae and Freddie Mac, which made bad bets in buying mortgages from lenders, guaranteeing them against default and selling them to investors. Taxpayers bailed out Fannie and Freddie in 2008 with $187 billion.
But Obama also wants to avoid shocking an improving housing sector in which sellers have enjoyed a 12 percent rise in home prices in the past year, Donovan said. That includes preserving the popular 30-year, fixed-rate mortgage, he said.
Obama's proposals are generally in line with a bipartisan Senate plan that would phase out Fannie and Freddie over five years, likely leading to slightly higher mortgage rates for borrowers. A House Republican bill would virtually privatize the mortgage market but sustain the 30-year fixed rate mortgage.
David Stevens, CEO of the Mortgage Bankers Association and a former official in Donovan's agency, told the conference that rising interest rates mean the industry is in the midst of a lasting change as consumers quit refinancing existing mortgages. Mortgage refinancing in 2014 will be about a quarter of last year's $1.2 trillion, Stevens said.
Rising interest rates also have cut in half new mortgage applications in the past four months, according to the association.
Wells Fargo, the largest originator of residential mortgages in the U.S., said Monday it expects a nearly 30 percent drop in originations in its third quarter compared to the previous three-month period. The bank has announced it is cutting 3,000 full-time jobs and may have to lay off more if demand continues to weaken.