“Before you call hospice for housing finance entrepreneurism, consider the juxtaposition of public policy and regulatory actions with private enterprise’s response.”
vate enterprise. Modern government leaders are intent on getting the government out of housing finance and pushing private enterprise to take the risk and reward of housing finance fully By Daniel Jacobs into the private sector. During Bill Clinton’s presidency, the Administration Entrepreneurism is a hallmark of vate enterprise’s response. Despite the published a document, “The National American business and industry, a cor- apparent market and regulatory adver- Homeownership Strategy: Partners in nerstone of the American way. So too is sity, there is a renaissance of housing the American Dream,” which stated: homeownership, but is entrepre- finance Entrepreneurism among us. “For many potential homebuyers, the neurism in housing finance on the lack of cash available to accumulate the precipice of its death or on the verge of Government pressure required downpayment and closing costs a renaissance? Before you call hospice for entrepreneurism in is the major impediment to purchasing a for housing finance entrepreneurism, housing finance consider the juxtaposition of public The idea of entrepreneurism in housing home. Other households do not have sufpolicy and regulatory actions with pri- finance is not one pushed only by pri- ficient available income to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.”
Entrepreneurism in the Mortgage Business
Are we on the precipice of its renaissance or death?
OCTOBER 2013 n Florida Mortgage Professional Magazine n
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But wait, there was bipartisan governmental pressure for the private sector to more fully participate and expand access to housing finance. George W. Bush, in a 2002 speech on housing, said: “There’s a homeownership gap; a gap that we got to work together to close. And by the end of this decade we’ll increase the number of minority homeowners by 5.5 million families. “One of the major obstacles to minority homeownership is financing. Fannie Mae and Freddie Mac have committed to provide more money for lenders … Freddie Mac just began 25 initiatives around the country to dismantle barriers and create better opportunities for homeownership … One of the programs is designed to help families with bad credit histories to qualify for homeownership. “Corporate America has a responsibility to work to make America a compassionate place.” This bipartisan encouragement of the private markets to more fully, creatively and expansively participate the housing finance was bolstered by relaxed government regulations and
cheap, easy access to a robust government-backed secondary market for private enterprise. As we know, this public-private partnership worked well in terms of increasing home loans and homeownership. But, as we are also painfully aware, this very same success led to a cataclysmic meltdown of the U.S. housing market.
Government regulation The grand public-private partnership to spawn innovation and broaden access to housing finance for the masses not only failed, but the government reversed course by proposing and implementing an unprecedented degree of new financial regulations. While few people dispute the need for the housing finance industry to have more sensible controls, even fewer dispute how the degree of new regulations has swung the pendulum in an equally unhealthy manner. Consider the 3,200-page DoddFrank Act and the Federal Reserve’s rule on loan originator (LO) compensation. This landmark legislation not only codified certain business practices but created an entire new agency—the Consumer Financial Protection Bureau (CFPB)—to promulgate regulations and have comprehensive oversight of the entire financial services industry, including housing finance. Just last month, the CFPB released its final rule on LO compensation. The 273-page, single-topic document clarified and refined rules on LO compensation. The Qualified Mortgage (QM) and Qualified Residential Mortgage (QRM) Rules will further serve to regulate and quash innovation, some industry professionals say. Companies will have such draconian risk imposed, they will not invest in the housing market and they will simply invest in higher yielding, lower risk opportunities, many economic analysts have said. Various studies cite skyrocketing costs to produce loans given the expense of compliance implementation. While some of these costs were absorbed by lenders during the last refinance cycle when margins were fat and