Archive for the ‘MND NewsWire’ Category

According to the Department of Housing and Urban Development's (HUD) research publication, Evidence Matters, the U.S. has not examined its national rental policy since the housing crisis began.  As a result of that crisis, an ever-increasing number of renters are facing a shortage of decent, safe, and affordable homes.

In addition to the fallout from the housing crisis, there are other reasons for revisiting this topic.  Derek R.B. Douglas, a special assistant to the president who serves on the White House Domestic Policy Council and leads an interagency rental policy working group says, "It is not just homeowners who are struggling in the economy; a third of the population rents. We need to start the conversation, and the thinking, about what we can do at the federal level, and what can be done by the state, local, and private sectors to support those renters who are now looking for affordable housing options, or having trouble making rents, or living in communities where rental prices are going up, as more people who were homeowners move into the rental markets."

This was the impetus for a conference titled Informing the Next Generation of Rental Housing Policy held last October under sponsorship of the Departments of Agriculture, Treasury, and HUD at which more than a dozen experts from the nonprofit development, financial, and academic worlds offered ideas for budget-neutral initiatives in the areas of rental housing for low-income households, the relationship between rental housing and neighborhoods, and the financial and regulatory barriers in the housing industry.

That conference featured a panel of experts from the nonprofit, development, financial, and academic worlds that looked at rental housing in three different ways: rental housing and low-income households, the relationship between rental housing and neighborhoods, and the financial and regulatory barriers inherent to the industry.  This panel discussion forms the basis for the final article in the spring edition of Evidence Matters.

The primary theme that emerged from the panel discussion was using rental policy to promote better outcomes across a whole array of domains - asset-building for low income families, good schools, better neighborhood conditions, more positive outcomes for children and an end to chronic homelessness.

Nancy O. Andrews, president of the Low Income Investment Fund, said she envisioned a "children's healthy start voucher" that would link affordable housing to an array of early interventions: prenatal nutritional support; quality early childcare; community health care; replications of the family nurse visitation program which trains caregivers to parent effectively; and quality schools.

There is evidence supporting the efficacy of this approach.  Nutritional support programs such as the Special Supplemental Nutrition Program for Women, Infants, and Children, as well as increases in family income in the early childhood years appear to have more long-term effects than similar initiatives aimed at adults. Likewise, studies and experiments "have shown long-term effects, even into adulthood, of high-quality early childhood education," said Jeanne Brooks-Gunn, a social scientist at Columbia University Teachers College. Finally, each early intervention initiative "saves government spending later" on remedial programs, criminal justice, unemployment, and welfare, according to Tama Leventhal, assistant professor of child development at Tufts University.

Andrews conceived the idea of using rental housing as a platform for a healthy start voucher based on a 17-year longitudinal study by Professor Gary Evans at Cornell University which suggests that the stresses of poverty pose a serious threat to children's brain development.  The research shows that the high stresses of poverty on children "actually create physical impairments in child brain formation. In other words, poverty poisons children's brains" including inhibiting executive function and working memory, the parts of the brain used in learning. Making matters worse is that the diminished function appears to be long lasting, perhaps permanent.

The Evans study and others bring the importance of housing affordability and safe communities into focus.  Andrews said, "I began to see the connections among housing, community, and human potential." When implemented together, the services embedded in her voucher concept may counteract the stresses on children's brains and the resultant deficits. As a result, Andrews believes that lower-income children will enter kindergarten ready to learn, which may help diminish the achievement gap over the long term.

Although it may not seem as critical as quality childcare or education, research shows that net worth is a key predictor of long-term educational attainment. The article cites a study showing that parental net worth has a significant effect on total years of schooling, post-high school years of schooling, and college attendance," and net worth and non-liquid assets also affect whether parents can obtain loans to support their children's college attendance.  Given the huge and growing disparity in income in this country and the distribution of wealth, building assets is a hurdle to low income households and, given the link between net worth and educational attainment this becomes a vicious cycle. .

To help build assets among the 4 million people receiving rental assistance and the 8 million families who spend more than half their income on rent and utilities, Andrea Levere, president of the Corporation for Economic Development, proposed embedding asset-building strategies within rental housing; creating opportunities for renters to build assets through positive behaviors like contributing to a building's maintenance, paying rent on time, helping to manage properties, and reducing energy usage for individually metered apartments. These activities would be rewarded with credits, convertible to cash, that are deposited in savings accounts which residents, after financial counseling, could borrow against for asset-building investments, including education, debt reduction, homeownership, and launching a business. 

Levere also suggested eliminating restraints on asset building such as limits for subsidized housing that discourage savings accounts or even owning a car.  Income limits also discourage people from earning more money which might force them to leave their subsidized rental homes. Expanding the Family Self-Sufficiency program would allow people to stay in subsidized housing as their income rises, banking those extra funds in escrow accounts which might ultimately enable them to put a downpayment on a house or a deposit on a market-rate apartment.

Another advocate of basing a range of social services within rental housing, Rosanne Haggerty, MacArthur Fellow and founder and president of Common Ground, proposed blending nine different housing and services programs to create long-term supportive housing with the ultimate goal of ending long-term homelessness. Mental health, health care, and other programs would share risk and pool their resources she said and when those services are tied to the places where people live, the evidence of the effectiveness of supportive housing is overwhelming

Haggerty pointed to a recent 3-year Seattle study of a supportive housing development for homeless alcoholics which found that the development saved taxpayers more than $4 million in its first year - funds that would otherwise have gone toward emergency care, the criminal justice system, and other services. The savings began to appear within the first six months despite the start-up costs.  Another study found that the costs of housing a homeless person for one year were nearly the same as the systemic costs of the individual remaining homeless for a year.

The idea of supportive housing, Haggarty said, "Is an approach to housing that is relevant to so many more people and families than the homeless. All of us at some point are going to need supportive housing - to have options other than nursing homes or being a burden to our kids. Individuals and families are able to lead more stable and productive lives when they have a secure home and the help that they need to manage challenges, whether they be related to health or employment."

READ MORE: Builder Report Offers Reminder. Affordable Rental Units Needed

READ MORE:  HUD Focused on Rebuilding America's Dilapidated Housing Inventory

READ MORE:  Affordable Housing Units Needed for Low Income Renters

READ MORE: The Dearth of Affordable Rental Housing

READ MORE:  Gimme Shelter: Homelessness Rate Climbing. Low Income Rental Units Needed

Originally published in the July 2011 issue of Asset Securitization Report

The regulatory agencies charged with implementing the risk-retention provision of the Dodd-Frank Act (DFA) recently announced that the comment period for their initial proposal will be extended to Aug. 1. As reported in the press, the delay resulted from widespread opposition to the definition of qualified residential mortgages (QRMs) as outlined in the March proposal. More fundamentally, it reflects the difficult tradeoffs involved in attempting to implement the risk retention provisions outlined in the DFA without limiting the access of large numbers of borrowers to mortgage credit and further damaging the housing market.

As part of its risk-retention provisions, the DFA requires the regulators to define QRMs, i.e., the loans that are either fully or partially exempt from the 5% minimum requirement. The regulators subsequently proposed a fairly narrow definition that included front and back debt-to-income ratios of 28% and 36%, respectively, along with a maximum LTV (for purchase loans) of 80%. It does not allow mortgage insurance to be taken into consideration, while exempting loans securitized by the GSEs as long as Fannie Mae and Freddie Mac remain under the FHFA conservatorship.

There are numerous issues with the interagency proposal. As I discussed last month, the principal capture cash reserve account (PCCRA) provision would thoroughly distort the consumer mortgage market. In addition, the language exempting loans securitized by the GSEs might effectively serve as a poison pill that would make it more difficult to remove them from conservatorship, and may wind up as another step toward making them permanent, nationalized entities.

However, the most complex challenge for the regulators is that they are being asked to create a broad and permanent definition of mortgages that will be exempt from required risk retention. Implicit in the surrounding controversies is the understanding that mortgages ineligible for QRM status will be significantly more expensive for consumers than QRMs, if available at all. The QRM definition proposed by the regulators was generally viewed as being overly narrow, and has generated widespread opposition from the lending industry. This was highlighted by a recent report in ASR sister publication National Mortgage News entitled “Regulators Could Be Ready for a ‘Redo’ on Risk Retention.” In addition to comments supporting relaxed down payment requirements (one industry official was quoted as saying that “(L)ow down payments did not cause this crisis”), others argued for front DTI ratios as high as 37%-38%.

Despite the fact that these contentions are clearly contrary to the historical experience, the reactions to the proposal nonetheless highlight the difficulties inherent in outlining any set of universal and invariable lending standards. In addition to the subjective nature of such criteria, loan underwriting itself is a complex and multifaceted process; an attempt to forge a set of concrete and inflexible lending requirements is likely to inadvertently exclude significant numbers of credit-worthy borrowers.

Moreover, the DFA’s decision to leave the interpretation of the risk-retention proposals to the regulators forces them to interpret the concept of “skin in the game” itself. As outlined in the March release, the initial proposal looks to “establish underwriting standards designed to ensure that QRMs are of very high credit quality.” Given the difficulties in establishing a set of broad standards as well as the potential dangers to housing of reduced mortgage credit availability, this standard is clearly too restrictive. I support an alternative interpretation: risk retention should serve to inhibit the more egregious lending practices that led to the mortgage crisis. This means that QRMs should be defined broadly, particularly with respect to down payments and LTVs. Regulators do not need to usurp the role of credit managers in order to protect the financial system from systemic risks

One obvious lesson we've all learned from the ongoing mortgage crisis: everyone loses when consumers are unable to determine if  they can afford to pay back their loans.

Unfortunately recent government regulations have made credit products, especially mortgages, even more opaque with mandated disclosures in obscure legal language produced in small type. As a result, an extra burden has been imposed on lenders while providing no additional benefit to consumers.

Transparency is critical and today much of the paperwork associated with a mortgage is far too confusing. Elizabeth Warren, Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau, told a House subcommittee on March 17th that,  "A simple, straightforward and consistent presentation of a credit agreement is the best way to level the playing field between consumers and lenders - and among different types of lenders - and foster honest competition."

So on May 18th,  the Consumer Financial Protection Bureau (CFPB) put pen to paper and released their first attempt at simplifying home loan disclosures by combining the Good Faith Estimate and Truth in Lending statement.

The industry responded with more than 13,000 comments.  Now the CFPB has offered an even newer version. And they want more feedback.

A few words from the CFPB...

Below are the latest disclosure forms for the same loan product, which come to us from the (fictitious, of course) Redbud Credit Union and Dogwood Credit Union …

• The revised first page features the dark tabs and yes/no buttons from the Ficus Bank draft from Round 1. Both Round 1 forms generally performed well, but some groups of consumers found the Ficus Bank format easier to use, so we kept many of the Ficus design elements. The new prototype also integrates several of the best Pecan features, and it reorganizes and clarifies the information to reflect the lessons we learned from Round 1. Again, this time, the first page is the same for both prototypes.
• The second pages of the Round 2 forms provide alternative approaches to showing closing costs, so that we can focus in on how much detail is helpful to consumers.

Just like last time, here are a few questions we’d like you to keep in mind as you review:

• Would this form help consumers understand the closing costs associated with their loans?
• Could lenders and brokers clearly and easily explain the form to their customers?
• What would you like to see improved on the form? Is there some way to make things a little bit clearer?

In the first round, the back page was the same on both versions. The front page – the “shopping sheet” – was different. This time, the first page is the same on both versions, and the focus is on the back page, which deals with closing costs: how well do these new drafts communicate that information? Which format would you prefer to have your customer use to compare your loan with another?

OPTION 1

OPTION2

WHAT VERSION DO YOU LIKE MORE? <----SHARE YOUR FEEDBACK WITH THE CFPB

This round is open for feedback until Tuesday, July 5th, at 7pm Eastern time. 

PS. Dare I say the CFPB is using common sense to communicate with the industry and consumers? I think that's what's happening here....

Transparency is critical and today much of the paperwork associated with a mortgage is far too confusing.

Recent government regulations have made credit products, especially mortgages, even more opaque with mandated disclosures in obscure legal language produced in small type. As a result, an extra burden has been imposed on lenders while providing no additional benefit to consumers.

Elizabeth Warren, Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau, told a House subcommittee on March 17th that,  "A simple, straightforward and consistent presentation of a credit agreement is the best way to level the playing field between consumers and lenders - and among different types of lenders - and foster honest competition."

So on May 18th,  the Consumer Financial Protection Bureau (CFPB) put pen to paper and released their first attempt at simplifying home loan disclosures by combining the Good Faith Estimate and Truth in Lending statement.

The industry responded with more than 13,000 comments.  Now the CFPB has offered an even newer version. And they want more feedback.

A few words from the CFPB...

Below are the latest disclosure forms for the same loan product, which come to us from the (fictitious, of course) Redbud Credit Union and Dogwood Credit Union …

• The revised first page features the dark tabs and yes/no buttons from the Ficus Bank draft from Round 1. Both Round 1 forms generally performed well, but some groups of consumers found the Ficus Bank format easier to use, so we kept many of the Ficus design elements. The new prototype also integrates several of the best Pecan features, and it reorganizes and clarifies the information to reflect the lessons we learned from Round 1. Again, this time, the first page is the same for both prototypes.
• The second pages of the Round 2 forms provide alternative approaches to showing closing costs, so that we can focus in on how much detail is helpful to consumers.

Just like last time, here are a few questions we’d like you to keep in mind as you review:

• Would this form help consumers understand the closing costs associated with their loans?
• Could lenders and brokers clearly and easily explain the form to their customers?
• What would you like to see improved on the form? Is there some way to make things a little bit clearer?

In the first round, the back page was the same on both versions. The front page – the “shopping sheet” – was different. This time, the first page is the same on both versions, and the focus is on the back page, which deals with closing costs: how well do these new drafts communicate that information? Which format would you prefer to have your customer use to compare your loan with another?

OPTION 1

OPTION2

WHAT VERSION DO YOU LIKE MORE? <----SHARE YOUR FEEDBACK WITH THE CFPB

This round is open for feedback until Tuesday, July 5th, at 7pm Eastern time. 

PS. Dare I say the CFPB is using common sense to communicate with the industry and consumers? I think that's what's happening here....

There's some positive news on the future of home sales. 

The Pending Home Sales Index rose sharply in May, indicating an upbeat outlook for the second half of the year, according to the National Association of Realtors®.  The Index, released on Wednesday, showed pending sales up nationally with every region recording increases on both a month-over-month and one year comparison.  A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale is typically finalized within one or two months of signing.

The Index rose 8.2 percent to 88.8 in May from April's figure of 82.1 percent which was also revised upward from the preliminary numbers.  The May figures are 13.4 percent above the May 2010 numbers.  This is the first time in over a year that year-over year index figures were up and was the largest increase since November 2010 when pending sales rose 10.6 percent.

An index of 100 is equal to the average level of contract activity during 2001, the base year for the index.  2001 coincided with the first of five consecutive record years for existing-home sales so represents a level that is historically healthy.

Lawrence Yun, NAR chief economist, said the Index increase bodes well for home prices. "Absorption of inventory is the key to price improvement, and this solid gain in contract signings implies that home values in many localities are or will soon be stabilizing as inventories get absorbed at a faster pace," he said. "Some markets have made a rapid turnaround, going from soft activity to contract signings rising by more than 30 percent from a year ago, including areas such as Hartford, Conn.; Indianapolis; Minneapolis; Houston; and Seattle."

Pending home sales have trended up unevenly since bottoming last June, rising in seven of the past 11 months. "Home sales still could be 15 to 20 percent higher," Yun said. "If banks would simply return to normal sound underwriting standards and begin lending to more creditworthy borrowers, we'd get a much faster recovery in the housing sector."

On a regional basis, in the West, which may have been hardest hit by the housing downturn, the Index surged 12.9 percent to 100.6.  This is 13.5 percent above May 2010.  The Midwest rose 10.5 percent to 82.8 percent, 17.2 percent higher than a year earlier and in the Northeast the increase was 7.3 percent from April and 4.4 percent year-over-year.  The Index in the South was up 4.1 percent to 95.0, 14.6 percent higher than a year earlier.

Yun indicated that the figures might have been higher.  "A nonsensical situation has developed recently in some states with HUD unable to complete foreclosure deals because of insufficient funds to pay attorney fees at closing, even with buyers offering the full listing price."

There's some positive news on the future of home sales. 

The Pending Home Sales Index rose sharply in May, indicating an upbeat outlook for the second half of the year, according to the National Association of Realtors®.  The Index, released on Wednesday, showed pending sales up nationally with every region recording increases on both a month-over-month and one year comparison.  A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale is typically finalized within one or two months of signing.

The Index rose 8.2 percent to 88.8 in May from April's figure of 82.1 percent which was also revised upward from the preliminary numbers.  The May figures are 13.4 percent above the May 2010 numbers.  This is the first time in over a year that year-over year index figures were up and was the largest increase since November 2010 when pending sales rose 10.6 percent.

An index of 100 is equal to the average level of contract activity during 2001, the base year for the index.  2001 coincided with the first of five consecutive record years for existing-home sales so represents a level that is historically healthy.

Lawrence Yun, NAR chief economist, said the Index increase bodes well for home prices. "Absorption of inventory is the key to price improvement, and this solid gain in contract signings implies that home values in many localities are or will soon be stabilizing as inventories get absorbed at a faster pace," he said. "Some markets have made a rapid turnaround, going from soft activity to contract signings rising by more than 30 percent from a year ago, including areas such as Hartford, Conn.; Indianapolis; Minneapolis; Houston; and Seattle."

Pending home sales have trended up unevenly since bottoming last June, rising in seven of the past 11 months. "Home sales still could be 15 to 20 percent higher," Yun said. "If banks would simply return to normal sound underwriting standards and begin lending to more creditworthy borrowers, we'd get a much faster recovery in the housing sector."

On a regional basis, in the West, which may have been hardest hit by the housing downturn, the Index surged 12.9 percent to 100.6.  This is 13.5 percent above May 2010.  The Midwest rose 10.5 percent to 82.8 percent, 17.2 percent higher than a year earlier and in the Northeast the increase was 7.3 percent from April and 4.4 percent year-over-year.  The Index in the South was up 4.1 percent to 95.0, 14.6 percent higher than a year earlier.

Yun indicated that the figures might have been higher.  "A nonsensical situation has developed recently in some states with HUD unable to complete foreclosure deals because of insufficient funds to pay attorney fees at closing, even with buyers offering the full listing price."

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey* for the week ending June 24, 2011.

After seeing a modest uptick in refinance applications three weeks ago after mortgage rates set new year-to-date lows, momentum has once again stalled. The Refinance Index declined 7.2 percent two weeks ago and another 2.6 percent in the most recent report.  Purchase demand decreased too, this time by 3.0%. Although mortgage rates have rallied back to levels just above their all-time lows, home loan demand has largely failed to react to it.

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.7 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 3.0 percent compared with the previous week.  The four week moving average is up 0.7 percent.

The Refinance Index decreased 2.6 percent from the previous week. The four week moving average is up 1.5 percent. The refinance share of mortgage activity increased to 69.5 percent of total applications from 69.2 percent the previous week.

The seasonally adjusted Purchase Index decreased 3.0 percent from one week earlier. The unadjusted Purchase Index decreased 3.8 percent compared with the previous week and was 4.5 percent higher than the same week one year ago. The four week moving average is down 1.5 percent.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.46 percent from 4.57 percent, with points increasing to 1.19 from 0.91 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  This is the lowest 30-year rate recorded in the survey since the middle of November 2010.  The effective rate also increased from last week.  

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.64 from 3.70 percent, with points increasing to 1.11 from 1.05(including the origination fee) for 80 percent LTV loans.   This is the lowest 15-year rate recorded in the survey since the beginning of Novemeber 2010.  The effective rate also increased from last week.

The adjustable-rate mortgage (ARM) share of activity decreased to 5.8 percent from 5.9 percent of total applications from the previous week.

We're turning into a broken record on this but here goes anyway.Regarding the barriers that continue to block borrowers from reducing their monthly payments...

Over a month ago we wrote, "Right now we're witnessing the beginnings of a mini-refinance boom in the primary mortgage market, but there has been little activity in the secondary market that would indicate increased rate locking by consumers." says MND's Managing Editor Adam Quinones. "However, if conventional 30-year rates reach 4.25%, we'd expect to see a mini-boom scenario play out. There is much stored demand in the system as many borrowers missed the boat on record low rates in October and early November. This crowd is waiting in the wings for those rates to return. Whether or not that happens is still very much up in the air"

In reaction to that comment, Ted Rood, a loan originator from MetLife Home Loans added, "One thing to consider regarding refi volume is that HUD effectively ended FHA streamlines over the course of the last year by tightening underwriting guidelines and jacking up monthly MIP fees. After the change, many existing FHA clients have been unable to meet net benefit rules,  even when dropping their rate by 1% or more, since their monthly MIP would double on the new loan. So FHA clients don't get to benefit from lower rates and HUD doesn't get new upfront MIPs from existing clients with clean payment histories who want to refinance".

READ MORE: New FHA MIP Structure to Slow Streamlines

READ MORE: Rents Seen Rising as Poor Credit Hurts Homeownership Demand

READ MORE: Realtors Request Looser Credit Regs as Home Sales Decline

* ABOUT: The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (may boost consumer spending. It also allows debtors to pay down personal liabilities faster. A trend of declining purchase applications implies home buyer demand is shrinking.

While they aren't a new concept, the second issue of the HUD publication Evidence Matters highlights the growing importance of multibank efforts in financing affordable housing developments.  This "consortia" of private banks share the risk, reduce the cost of lending, and pool together their expertise to meet affordable housing needs in their respective communities.

"Consortia" came about as a result of the federal Low Income Housing Tax Credit (LIHTC) program in 1986. Private commercial banks, accustomed to working primarily with short-term capital, were asked to provide long-term capital, permanent mortgages, and related services to affordable housing projects and, in response, formed the first multibank consortia in the early 1990s.

The consortia helps banks meet Community Reinvestment Act (CRA) requirements while satisfying local affordable rental housing needs. These consortia are able to expand their funding resources by qualifying with the Treasury as a Community Development Financial Institution (CDFI).  This allows member banks to apply for more funds to be used specifically for economic revitalization and community development works.

The consortia can be flexible in their approach to development activity as long as it profits the public and includes low and middle income members of the community.  Their activities might include forming community development corporations or forming partnerships with community-based organizations; creating loan pools to finance affordable housing development, revitalizing low-moderate income areas or underserved rural areas and participating in tax credit programs.  The member banks must determine what credit issues need to be addressed in their community and decide how to contribute to solving those problems.

The bank consortia provide services that generally fall into two categories; capital-based backing of loans or knowledge-based services such as the provision of technical assistance, guidance in underwriting, loan services, and asset management.

Member banks determine their own geographic coverage area.  This is a crucial decision that must take into account the ability to provide adequate coverage, the potential to expand and diversity borrowers, and the need to spread out risk.  Members also decide on the lending products they offer and the appropriate operational structures to adopt.

The Spring 2011 Evidence Matters article features the Network for Oregon Affordable Housing or NOAH, a 22-member non-profit consortium operating in one of the country's least affordable rental markets as an example of the consortia's operations and potential. 

More than 63 percent of Oregon's renter households are low, very low, or extremely low-income and one quarter of the renter households spend more than 50 percent of their income on housing.  Federally subsidized housing is shrinking at an alarming rate with 8.1 out of 10 privately owned subsidized units scheduled to disappear within the next five years.  An additional 2,700 households were displaced between 1999 and 2008 as manufactured home parks closed.

NOAH was established by the Oregon Bankers Association in 1990 and uses various financing and technical assistance tools to help developers build and renovate affordable housing throughout the state.  The member banks contribute to a blind loan pool where the banks participate in any loan that the 12 member board and its loan committee approve.  The committee is composed of bankers and two public-sector representatives charged with evaluating the public benefit of any loan under consideration. NOAH's professional staff works out the details of each loan.

NOAH also has a permanent loan program which, as of last June, had financed 6,445 units of housing with 139 permanent loans.  The loans, totaling more than $158 million, were used to leverage $726 million in project costs.  NOAH also offers predevelopment loans and staffs a statewide initiative to preserve at-risk federally subsidized rental properties.  This initiative had preserved 416 units of subsidized housing by the end of last year.

These investments are not without return.  A model developed by the Association of Oregon Community Development Organizations with the assistance of the National Association of Home builders attempted to measure the economic impact of the affordable housing developed by the Associations' members between 1990 and 2002.  It concluded that the $94 million invested in 7,562 affordable housing units had helped generate 12,212 jobs, $393 million in wages, and $23 million in income taxes.  In addition, the original investment leveraged $408 million from private and federal sources. 

The most important impact: Renters in the units constructed by these organizations paid about $267 less per month in rent than if they lived in market rate units and the increased purchasing power (a total of $24 million) of these families supported 833 ongoing jobs

"In light of these outcomes," the article concludes, "bank consortia like NOAH, which stimulate the available supply of affordable rental housing with capital loans, are an integral part of safeguarding the future well-being of American communities and building community capacity for sustainable, long-term growth."

Related MND Content....

READ MORE: Builder Report Offers Reminder. Affordable Rental Units Needed

READ MORE:  HUD Focused on Rebuilding America's Dilapidated Housing Inventory

READ MORE:  Affordable Housing Units Needed for Low Income Renters

READ MORE: The Dearth of Affordable Rental Housing

READ MORE:  Gimme Shelter: Homelessness Rate Climbing. Low Income Rental Units Needed

While they aren't a new concept, the second issue of the HUD publication Evidence Matters highlights the growing importance of multibank efforts in financing affordable housing developments.  This "consortia" of private banks share the risk, reduce the cost of lending, and pool together their expertise to meet affordable housing needs in their respective communities.

"Consortia" came about as a result of the federal Low Income Housing Tax Credit (LIHTC) program in 1986. Private commercial banks, accustomed to working primarily with short-term capital, were asked to provide long-term capital, permanent mortgages, and related services to affordable housing projects and, in response, formed the first multibank consortia in the early 1990s.

The consortia helps banks meet Community Reinvestment Act (CRA) requirements while satisfying local affordable rental housing needs. These consortia are able to expand their funding resources by qualifying with the Treasury as a Community Development Financial Institution (CDFI).  This allows member banks to apply for more funds to be used specifically for economic revitalization and community development works.

The consortia can be flexible in their approach to development activity as long as it profits the public and includes low and middle income members of the community.  Their activities might include forming community development corporations or forming partnerships with community-based organizations; creating loan pools to finance affordable housing development, revitalizing low-moderate income areas or underserved rural areas and participating in tax credit programs.  The member banks must determine what credit issues need to be addressed in their community and decide how to contribute to solving those problems.

The bank consortia provide services that generally fall into two categories; capital-based backing of loans or knowledge-based services such as the provision of technical assistance, guidance in underwriting, loan services, and asset management.

Member banks determine their own geographic coverage area.  This is a crucial decision that must take into account the ability to provide adequate coverage, the potential to expand and diversity borrowers, and the need to spread out risk.  Members also decide on the lending products they offer and the appropriate operational structures to adopt.

The Spring 2011 Evidence Matters article features the Network for Oregon Affordable Housing or NOAH, a 22-member non-profit consortium operating in one of the country's least affordable rental markets as an example of the consortia's operations and potential. 

More than 63 percent of Oregon's renter households are low, very low, or extremely low-income and one quarter of the renter households spend more than 50 percent of their income on housing.  Federally subsidized housing is shrinking at an alarming rate with 8.1 out of 10 privately owned subsidized units scheduled to disappear within the next five years.  An additional 2,700 households were displaced between 1999 and 2008 as manufactured home parks closed.

NOAH was established by the Oregon Bankers Association in 1990 and uses various financing and technical assistance tools to help developers build and renovate affordable housing throughout the state.  The member banks contribute to a blind loan pool where the banks participate in any loan that the 12 member board and its loan committee approve.  The committee is composed of bankers and two public-sector representatives charged with evaluating the public benefit of any loan under consideration. NOAH's professional staff works out the details of each loan.

NOAH also has a permanent loan program which, as of last June, had financed 6,445 units of housing with 139 permanent loans.  The loans, totaling more than $158 million, were used to leverage $726 million in project costs.  NOAH also offers predevelopment loans and staffs a statewide initiative to preserve at-risk federally subsidized rental properties.  This initiative had preserved 416 units of subsidized housing by the end of last year.

These investments are not without return.  A model developed by the Association of Oregon Community Development Organizations with the assistance of the National Association of Home builders attempted to measure the economic impact of the affordable housing developed by the Associations' members between 1990 and 2002.  It concluded that the $94 million invested in 7,562 affordable housing units had helped generate 12,212 jobs, $393 million in wages, and $23 million in income taxes.  In addition, the original investment leveraged $408 million from private and federal sources. 

The most important impact: Renters in the units constructed by these organizations paid about $267 less per month in rent than if they lived in market rate units and the increased purchasing power (a total of $24 million) of these families supported 833 ongoing jobs

"In light of these outcomes," the article concludes, "bank consortia like NOAH, which stimulate the available supply of affordable rental housing with capital loans, are an integral part of safeguarding the future well-being of American communities and building community capacity for sustainable, long-term growth."

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Independent mortgage banks and subsidiaries saw a huge dip in profitability as the average they made on each loan originated dropped from $1,082 per loan in the fourth quarter of 2010 to $346 in the first quarter of this year.  According to the Mortgage Bankers Association's (MBA) Mortgage Bankers Performance Report, lenders increased their overall revenues but profits suffered because of higher production costs.   Only 63 percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2011, compared to 84 percent in the fourth quarter of 2010.

Marina Walsh, MBA's Associate Vice President of Industry Analysis said that a significant drop in volume during the first quarter was due largely to a fall-off in refinancing.  This made it difficult for mortgage companies to manage staff levels which in turn caused higher production costs.  Walsh continued, "In the first quarter of 2011, changes in compensation plans and investor expectations are additional factors that likely drove up loan production expenses per loan to the highest levels ever reported for this study."

Loan production revenues increased substantially from an average of $2,102 in Q4 to $2,297.  Within this number, loan origination fees rose from $1,443 to $1,569; correspondent and broker fee income decreased to $138 from $143 and "other originations-related income" rose from $516 to $590.   Expenses however more than kept pace....

Direct loan production expenses rose from $4,664 to $5,471 driven, as Walsh said, by personnel expenses which rose to $3,640 from $3,124. The cost of fulfillment and production support employees rose by over $167 and $134 per loan respectively while sales personnel costs were down $8 per loan.

Average production volume was $164 million per company, down from $286 million in the fourth quarter and the average number of loans originated was down from 1,296 to 793.  The loss of business came mainly from the refinancing share which dropped from 60.13 percent of volume in the fourth quarter to 48.23 percent and in the share of the dollar volume from 63 percent to 50 percent.  The size of the average loan fell to $196,456 in the first quarter from $208,319.  Loan closings per production employee were down from 3.79 per month to 2.25.

Net Secondary Marketing Income rose to 200.78 basis points to 187.88 bp, but because of the decreasing average loan balance the net secondary marketing income was down slightly from $3,870 per loan to $3,827.    Full-year 2010 production profits were $1,054 per loan originated. In comparison, average production profits in 2009 were $1,135 per loan originated and $305 per loan originated in 2008.

The government share of loans originated by survey respondents rose from 34.5 percent in the fourth quarter of 2010 to 37.9 percent in the first quarter of 2011.  Prime conforming fixed-rate loan production decreased from 58.9 percent to 53.71 of the total while prime conforming ARMs gained 96 basis points in market share to 2.95 percent.  The percentage of ARM loans overall was also up from 3.73 percent of all lending to 4.98 percent.

Just less than 9 percent of loans were written for borrowers having FICO scores below 650 points while 46 percent were to borrowers with scores over 750.  47 percent of loans were written with an LTV above 80 percent compared to 42.6 percent in the fourth quarter of 2010.  Lenders originated 99.15 percent of their loans for sale to others; 37.11 percent were sold to Fannie Mae, Freddie Mac, or Ginnie Mae.

Of the 329 companies responding to the MBA survey 72 percent were independent mortgage companies.  312 reported involvement with residential loan production and 174 company serviced loans.  Those servicing loans reported an average servicing portfolio of $5.6 billion, down from $7.03 billion in the fourth quarter. They serviced 959 loans per FTE employee or a total portfolio averaging 36,769 loans, down from 44,799 in the previous quarter.  Servicing companies reported Net Servicing Operating Income of $197 per loan compared to $231 in Q4 and Total Net Servicing Financial Income $65, less than half the $138 reported in the previous quarter.