Residential: Experts see promising opportunity in 2019 mortgage market

The Collingwood Group’s Chairman Tim Rood sees “big opportunity” in 2019 for the housing market to advance housing finance reform and normalize after last quarter’s slowdown in price appreciation. New leadership at the Federal Housing Finance Agency (FHFA), in particular, could be key in getting private capital back into the mortgage market and expanding housing credit.

“Christmas came early for Fannie Mae and Freddie Mac,” Rood said on a recent interview with CNBC’s Brian Sullivan, referring to the Trump administration’s announcements in early December of the nomination of a permanent FHFA Director as well as an Acting Director to oversee operations until a confirmation vote.

“There’s a lot going on in housing,” said Sullivan, including new developments in the debate over state and local tax (SALT) deductions. Rood said, “Interest rates and appreciation have been the biggest factors in the housing market,” but looking forward, fundamental changes in FHFA’s view of the conservatorship of the government-sponsored enterprises (GSEs) could be a game changer.

President Trump nominated Mark Calabria, Vice President Mike Pence’s Chief Economist, to serve as the permanent replacement of Mel Watt, whose term expired on January 6, 2019. “As chief economist, Mark understands that macroeconomics and demographics are far more important to the housing market than the government’s role in housing. If the economy remains strong, I would expect Mark to move quickly to de-risk the GSEs through more conservative underwriting and deeper [mortgage insurance] coverage,” Rood said previously on the nomination. Shortly after announcing his permanent pick, President Trump tapped Joseph Otting, Comptroller of the Currency, to serve as Acting FHFA Director.

Sullivan asked Rood how these changes will help the housing market.  “The opportunity right now that the Trump administration has indicated is ‘we’ve got to get these guys out of conservatorship,’” Rood said. “There’s got to be a path to allow them to build capital and get out of conservatorship.”

“How does this change matter for the average America?” Sullivan asked. Rood explained that government-backed mortgages account for about 90% of the mortgage market today. As a result of the conservatorship of the GSEs, “credit has tightened (in the absence of private-label mortgage-backed securities) and therefore there are fewer people qualified to buy a house.”

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