Notes from the Bloomberg Housing Panel

Tina was at the Bloomberg Housing Conference last week.  Here are her notes:

All,

I attended the Bloomberg conference last week and below are some notes from the Housing Panel. The panelist were: Sean Donovan Current Secretary at HUD, Jim Millstein Chairman & CEO of Millstein & Co, LLC former Restructuring officer, U.S Dept of Treasury and James Lockhart, Vice Chairman for Wilbur Ross & Co, Federal Housing Finance  Agency, Former Deputy Commissioner and COO social Security Administration

This is according to Sean Donovan (Secretary of HUD):  Housing has reached a bottom. We saw the biggest losses before President Obama took office and progress has been made. We have seen the best winter of home sales and we are beginning to see a different view in the markets. He trend is changing.

There are still 3 barriers to entry: People are being screened out because of barriers

1-      # of new foreclosures

2-      Shadow inventory

3-      Credit availability- home buyers are being priced out or extra hassles of getting a loan if even credit worthy, too expensive to obtain credit

-          Upwards of 3-4mm of foreclosures to go on the market with another 2mm in the pipeline which if this happens will be catastrophic to the housing markets and we could see 2008 all over again but a lot worse. So on  the flip side of what Sec. Donovan said above about housing getting better this doesn’t bode well. This would destroy the housing market and neighborhoods with foreclosures. Crippling our markets yet again.  This was not taken well by groups like us because this just show confidence in our current administration.

-          Affordable housing goals set by the Clinton and Bush administration were too high

-          The Harp 2.0 refi program set out by the Obama Administration has worked, there is a need for Congress to move into the private label market with refi’s

-          there is still uncertainty for about 15-20% of homebuyers

-          Banks are now making mortgages rather selling to Fannie and Freddie

-          The bank’s balance sheets need to shrink by about 20% but they are going in the wrong direction at this point and there is insufficient capital to support

-          There are 10.5 Trillion mortgages

Fannie and Freddie- What to do with them and their future?

The biggest issue with both Fannie and Freddie right now is there is no general consensus in D.C (congress) as to what to do with them either unwind or keep solvent.

There is no plan to unwind them or restore solvency. It will be difficult to get private capital back as they are undercapitalized and until you bring capital back into both of them this is an ongoing issue.  We need some type of action from Congress. All of the uncertainty is causing a mass exodus of very talented individuals at these organizations and this will continue if there is no plan in place or steps being taken from Congress.

There needs to be some consensus as to what to do with the fate of Fannie and Freddie, if it is decided they will both be kept running they both need to be recapitalized and better regulated that is a known fact and something everyone agrees upon. If Congress is going to end both then they need to just do it and start the process..

Fannie and Freddie hold 55% of the mortgages there needs to be mechanisms around working these mortgages in the private label market.

There needs to be a fundamental reform in structure to understand what is being bought in securitization and the focus needs to be broader than just Fannie and Freddie.

The big barriers to Fannie, Freddie and FHA loans is the uncertainty around the foreclosure process.

This is why banks are doing less and less origination and getting out of the origination business

The FHA has raised fees 4x and their market share continues to drop this reiterates the need for private capital to come back to the financial system

The big questions is Can private capital come back without GSE reform? There are currently 6.5T holders of GSE credit so with those numbers it is too risky for private capital. Until there is some type of gov’t guarantee in the system the private sector won’t come back at least without any type of encouragement.

All and all there is a lot of uncertainty right now about the GSEs and this is going to be an ongoing problem until Congress steps in with some type of action.

Christina