FHA

Executives and board members in financial services are increasingly held accountable for the actions of their firms. Among their many responsibilities, they are required in particular to be engaged in their company’s efforts to adhere to the letter and spirit of laws that seek to ensure consumer protection.

As the regulatory landscape facing executives in the financial services industry has grown increasingly complex – and integral to their enterprises and their firms’ reputations – so too has the need to demonstrate and document the actions taken by their firms.

Gate House Chairman and Partner Brian Montgomery recently outlined the challenges facing executives in a piece for HousingWire. As he argued, even with the best of intentions, there are often inconsistencies and conflicting interpretations of what firms need or ought to do — and what executives need or ought to in order to stay apprised of their firm’s efforts.  One thing we know it that it will require vigilance and a lot of hard work to get it right.

Recognizing the important need in C-suites and executive board rooms, Gate House Strategies has launched a new subsidiary, Gate House Compliance, LLC, to provide fair lending and compliance management services. The firm, comprised of veterans in financial services and specialists in fair lending and consumer protection law and regulation (and support from CrossCheck Compliance’s deep bench of experts), will advise and support compliance regimes across multiple asset classes, including mortgage, student loan, credit card, and other secured and unsecured credit products.

The addition of Gate House Compliance is a timely and critical expansion of the firm’s ability to serve the growing needs of the industry. After careful examination, clients can choose services that complement their current compliance program, or on a subscription basis, they may utilize Gate House Compliance 365, a comprehensive system of ongoing support of fundamental services and a coordinated, dynamic approach to the management of regulatory risk.

The important policy goals our country require executives to be engaged. They need experience, perspective, and insight in order to do what is right and, and – when the path is made unclear by conflicting policies or interpretations – what is prudent for business.

The goal for Gate House Compliance is to put executives and firms ahead of the curve and ahead of the scrutiny that characterizes the current environment and road ahead. Vigilance and a team of experts with a steady hand will be a must.

Gate House Partner and Chairman Brian Montgomery shared his perspective on the regulatory landscape facing executives in the financial service industry — the need to act responsibly with respect to fair lending laws and to understand the complexity of it all – in a piece for Housing Wire.

“[M]ultiple agencies pursuing the same general goals sometimes creates inconsistencies or conflicting interpretations of policy, making it difficult for financial institutions to navigate uncharted waters, even with the best of intentions.” Montgomery wrote.

Montgomery, who served as Deputy Secretary of HUD and FHA Commissioner twice, emphasized the risks, particularly in the areas of lending and loan servicing: “Recent regulatory actions have targeted marketing practices, credit allocation and product offerings,” he said, with top executives more often being held accountable for their “company policies, procedures, operations, and culture.”

With risk to the firm not only financially but reputationally, the need to “identify gaps that may exist in their knowledge and experience and structure management teams accordingly” is paramount if they are to demonstrate to overseers that they possess a comprehensive approach to their compliance obligations.

Private industry participants have their work cut out for them as they go about the critical work of upholding the letter and spirit of our country’s fair lending laws, Montgomery said. Both private firms and government must work together at times, with private industry willing to serve as partners to government and the government for their part providing “transparency, open dialogue and technology improvements” to make our system work.

Fed Chairman Jay Powell is on the Hill delivering the Fed’s semiannual report on monetary policy to the Senate and House. He told the House Committee the Fed is likely to raise interest rates in the coming months but at a slower pace than they have moved over the past year, weighing the risk that the combination of their 10 consecutive rate hikes and recent banking stress is more than enough to slow the economy to tame inflation (perhaps causing an deeper economic downturn than expected) against the risk that the combination of economic strength of the first two quarters and inflation staying elevated may require additional tightening. Powell pushed back on the notion that last week’s pause was indeed a pause, signaling the Fed will not hesitate to take future action on inflation.

In the absence of recent negative headlines around regional bank stress in the US, Morgan Stanley said they believe there is complacency setting in while “key data points on bank balance sheets show that things have worsened on the margin since March.”  We’ve been watching this relative to its potential impact on the commercial real estate loan refinances expected in the next 12-18 months.

Green Street said commercial deals are down a “stunning” 70% year over year.”  With the U.S. vacancy average at 18 percent for office properties verses 3.8 percent for industrial properties, and given a lower per-square-foot cost relative to conversion to residential brokerage firm, a Newmark report find conversions from office to industrial are on the rise. Although delinquency rates for office properties are low, with office vacancy rates on the rise, the Financial Stability Oversight Council (FSOC) said Friday that they are stepping up scrutiny of how exposed banks are to commercial real estate.

Meanwhile, a slight decline in 30-year fixed rates over the past few weeks was met with a Mortgage Bankers Association (MBA) report that purchase applications increased “driven by a 2 percent gain in conventional purchase applications and a 3 percent increase in FHA purchase activity,” according to Joel Kan, MBA vice president and deputy chief economist. (The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.73 percent from 6.77 percent, MBA said)

The American Bankers Association’s Economic Advisory Committee said they expect credit conditions to tighten the rest of the year and loan losses to rise. Still, given the low inventory, the Census Bureau and HUD jointly reported this week that privately owned housing starts in May hit a seasonally adjusted annual rate of 1,631,000, 21.7% above the revised April estimate of 1,340,000 and up 5.7% year-over-year. The May rate for units in buildings with five units or more hit 624,000. Single-family housing starts were just shy of 1 million at 997,000, or 18.5% above the revised April figure — the largest single-month jump since June 2020 which occurred as the market rebounded from the initial shock of the COVID pandemic.

We are awaiting the Fed Board’s decision on interest rates Wednesday afternoon, when they are expected to pause, albeit with a hawkish tone, signaling they may not be done with rate hikes this year, and in fact lean toward keeping rates higher for longer to quell lingering inflation, before deciding to go lower late in the year.

As we’ve discussed here, the backdrop has been an economic dichotomy — a strong first quarter, followed with what appears to be even stronger second quarter amidst signals (credit tightening, profit margins tightening, consumers tightening, hiring slowing notwithstanding the strong May) the economy will slow later this year. We may not have seen the last of the bank failures either — while the Fed’s lending facility has calmed the outflow of deposits from smaller and regional banks, the longer these rates stay higher, the more pressure we will see.

Adding to those signals was a report from Attom indicating increased foreclosure activity in May, resuming what it said is “a slow climb back toward levels seen prior to the pandemic.” Meanwhile, Redfin reported 33.4% of home purchases in April were all-cash, reflecting tight supply and reduced affordability for mortgage borrowers, almost the highest share in nine years and up from 30.7% in April 2022.  Median down payments were down in April, with the typical down payment of $52,500, down 18% year-over-year, the second-biggest drop since May 2020. Down payments have been falling year-over-year since November.

Redfin said FHA loans “were up as a percentage of purchases, at about 16.4% in April. That’s a notable increase from 10.4% a year earlier. They’ve become more common as high mortgage rates have cooled the market–FHA loans were losing out to buyers with all-cash or conventional loans during the stretch of highest competition.”

The Mortgage Bankers Association reported that mortgage credit availability declined in May, the third consecutive month and the lowest reading since January 2013 “as the industry continued to see more consolidation and reduced capacity as a result of the tougher market.”

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In their recent article for Reverse Mortgage Daily, Gate House Partners Keith Becker, Dror Oppenheimer, and Michael Marshall discuss the pressures in the housing finance market relative to reverse or home equity conversion mortgages (HECMs), suggesting action is needed to avoid further failures of Ginnie Mae HECM servicers and issuers.

If reverse servicers and “issuers”  are a liquidity lifeline soon, the authors opined, “there could be additional failures, with Ginnie Mae and possibly, taxpayers holding the bag. Further harm can be avoided if Ginnie Mae provides support and the Federal Housing Administration (FHA) makes some critical changes to its HECM rulebook.”

Gate House illuminates the challengers facing HECM servicers and issuers as a result of both the rapidly rising interest rate environment and esoteric HUD policies that differ from the GSEs, for example, the fact that Ginnie Mae issuers are required to fund the buyout of “due and payable” loans, often for a period of two to three years, and advance tax and insurance payments when the loans are bought out of pools.

In their recent article for Reverse Mortgage Daily, Gate House Founding Partners Brian Montgomery, Keith Becker and Dror Oppenheimer discuss the implications of the first positive capital ratio for the HECM program in six years.

The Gate House team, who worked together at the Federal Housing Administration managing the HECM program, provided their unique perspective and explained that important policy changes, and most certainly strong home price appreciation, have contributed to the substantial improvement in the HECM capital ratio.

Nevertheless, they argued, the results do not “provide a reason for complacency or assurance of future (positive) results” and therefore continued vigilance to ensure the program “is not continuously subsidized by the premiums … in the forward book, will be vital for the HECM program to continue to serve its mission.”

Montgomery is the only person to have served as FHA Commissioner twice under three presidents. Becker served as the Deputy Assistant Secretary and Chief Risk Officer for FHA. Oppenheimer served as a Senior Advisor to the Commissioner of FHA.

Gate House Chairman Brian Montgomery and CEO Keith Becker recently opined in the M Report on the favorable condition of the FHA Mutual Mortgage Insurance Fund.

In their article, Montgomery and Becker argue that FHA must be prepared to weather adverse events in the future similar to the wake of the Financial Crisis in 2008 or the COVID-19 pandemic. As pressure mounts to reduce mortgage insurance premiums (MIP), continued commitment to FHA’s countercyclical role would dictate caution. FHA must work, they wrote, “to put itself in a position to best serve low- to moderate-income borrowers who will be most affected should private markets constrict (which history has shown sometimes do).”

In urging caution on mortgage insurance premiums, they cite the Annual Report’s acknowledgment that the assumptions underlying the financial position of the fund can “change materially and quickly with changes in both actual and projected home values.”

Montgomery and Becker caution that unintended effects of MIP changes could occur, and FHA would be wise to keep available “all options that help to expand opportunities for low- to moderate-income homebuyers by deploying some of the excess capital into new programs, products, or underwriting policies.”

Gate House Vice Chairman Hunter Kurtz moderated a panel for the Bipartisan Policy Center (BPC) forum on the critical need to address homelessness amidst our nation’s veterans.

“America’s Call to Duty: Ending Veterans’ Homelessness” was hosted by the BPC’s J. Ronald Terwilliger Center for Housing Policy. The panel featured Rep. Mike Levin (D-CA) Chairman, Economic Opportunity Subcommittee, House Committee on Veterans Affairs; Philip Mangano, President and CEO, The American Round Table to Abolish Homelessness; Rosanne Haggerty, President and CEO, Community Solutions; John Kuhn, National Director, Supportive Services for Veteran Families, U.S. Department of Veterans Affairs; and Kathryn Monet, Chief Executive Office, National Coalition for Homeless Veterans.

During the forum, the experts discussed the unique challenges facing our veterans population, the lessons learned during the COVID-19 pandemic, and strategies that have proven effective in combating veterans homelessness.  While there has been tremendous success throughout the country reducing veterans homelessness in recent years, removing tens of thousands from the streets, significant work remains to demonstrate our nation’s commitment to our veterans and to ensure those who have served our country and defended our freedom are stably housed.

Reflecting on his long career in public service, Gate House Chairman Brian Montgomery spoke with DS News about the key lessons he has learned over the years.

Montgomery’s remarkable journey, which began driving in a Vice Presidential motorcade in his home state of Texas, took him to the White House, back to Texas to the Governor’s Mansion, and then back again to the White House and, eventually, to HUD and FHA (twice).

Montgomery was with the President of the United States on 9-11. He was at HUD dealing with the aftermath of the 2008 financial crisis and the housing collapse, and in 202, he was back at HUD addressing the unique challenges presented by the COVID-19 pandemic.

Reflecting on what he has taken away from these experiences, Montgomery takes pride in getting things done, in working with people on both sides of the aisle, and seeking common ground.  When trying to get something accomplished in Washington, he emphasizes, “Don’t ever assume anything, especially in a political environment. You never know how people will react to something, especially if you’re telling them you need their help.”

Gate House Chairman Brian Montgomery recently spoke with Chris Clow of Reverse Mortgage Daily to discuss HUD’s reverse mortgage (Home Equity Conversion Mortgage or “HECM”) program and the impact of that program in the recent budget request. The growth in the Secretary-held HECM portfolio which has been significant in recent years, and the challenges presented to servicing that portfolio, likely contribute to the Biden Administration requesting an additional $50 million in its budget request.

“Due to the structure of the program,” Montgomery said, “the Secretary-held portfolio has grown significantly in the last 5 years (approximately 150,000 loans), and it keeps growing.”

Montgomery, who led FHA twice under three presidents and recently served as Deputy Secretary of HUD, added that “This process requires a highly competent Servicer to handle a highly complex product for one of HUD’s key constituents — seniors.”