This February, CoreLogic partnered with the Urban Institute to co-host a seminar highlighting the effect of higher interest rates on the housing and mortgage markets. The event was the 10th in the Sunset Seminar series, sponsored by CoreLogic and the Urban Institute and focused on public policy thought leadership relevant to the mortgage market. The series brings together policymakers, practitioners and analysts for lively, data-driven discussions on topics of current importance.
More than two hundred people registered for the event, bringing together a capacity audience at the Urban Institute’s offices in downtown Washington, D.C. The audience included a mix of administration staff, think tank researchers, legislative policy analysts and private industry professionals. The panel was led by Stuart Pratt, senior vice president of government and industry relations for CoreLogic, and included the following housing industry experts:
- Laurie Goodman – Co-Director of the Housing Finance Policy Center, Urban Institute
- Dr. Frank Nothaft – Chief Economist, CoreLogic
- Marietta Rodriguez – Vice President of National Homeownership Programs, NeighborWorks America
- Saul Sanders – Co-CEO, Shellpoint Partners LLC
Dr. Nothaft opened the dialogue by using CoreLogic data to forecast potential consequences of higher mortgage rates for both the housing and mortgage markets. Since resell rates tend to be higher when mortgage rates are lower, an increase in mortgage rates may be a large hurdle for the resell market to overcome in 2017. Additionally, higher mortgage rates should lead to a significant decrease in single-family refinances, another prediction Nothaft made in his presentation (Figure 2).
Ms. Goodman picked up the conversation, discussing some of the repercussions of higher mortgage rates on credit. “The market is taking very, very little credit risk relative to what it has historically taken… credit has become way too tight,” she said. Therefore, with an increase in mortgage rates, we should expect some loosening of the credit box. Goodman also mentioned that she doesn’t see the new administration often enforcing the False Claims Act, which could be beneficial to Federal Housing Administration (FHA) origination volumes. She closed her remarks by stating that she’d like to see the FHA take steps to reduce the overall cost of mortgage servicing.
Ms. Rodriguez outlined four hurdles that borrowers often need to overcome: a lack of available inventory, overly strict credit standards, high rents that limit opportunities to save for down payments, and an abundance of student loan debt. According to Rodriguez, even in circumstances where there is affordable inventory, that inventory is in need of repair and most originators aren’t originating a mortgage that allows a stream for repair. While Rodriguez reminded us that “there is no silver bullet” for these issues, she proffered that “the first strategy would be to incentivize smart shopping and smart homebuying on the part of the borrower,” placing an emphasis on housing education, especially in low-to-moderate income communities.
The final member of the panel, Saul Sanders, provided the unique perspective of an individual who is “actually out there originating.” Sanders’ company, Shellpoint Partners LLC, focuses on the U.S. residential mortgage market and has originated approximately $25 billion in loan volume since it split from flagship New Penn Financial in 2010. Sanders believes he may be facing some “significant consolidation” within his industry, forecasting the “emergence of some very large players” over the next few years, and indicating that he expects to benefit from this trend. When asked if a decrease in the FHA’s Mutual Mortgage Insurance Fund premium would loosen credit underwriting standards, Sanders’ answer was an unequivocal “no.” When asked about the tight underwriting standards, he pointed out that the secondary market dictates the pace of change and went on to discuss the fact that buyback risks, costs of servicing and regulatory complexity remain significant headwinds that work against an expanded market and which must be addressed legislatively.
A summary of the event is available online, as well as a copy of the event agenda, speaker biographies and speaker presentations. CoreLogic and the Urban Institute are currently in the early stages of planning the 11th installment of the Sunset Seminar series, and more information will be released in the months ahead.
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