DS News - Digital Archives

» HOUSING GROUPS CONSIDER IMPACT OF IMMIGRATION REFORM As Congress moves to consider immigration reform, the housing industry is also weighing in on how certain provisions will impact the market. According to the National Association of Hispanic Real Estate Professionals (NAHREP), allowing a path for the legalization of undocumented immigrants could mean $500 billion in new real estate transactions. NAHREP explained that of the estimated 11 million undocumented immigrants, 6 million are likely to pursue legalization and possibly citizenship, while 3 million would pursue homeownership. The calculation is based on the patterns of naturalized Latinos. "Foreign-born householders have a high value and strong desire for homeownership," said Juan Martinez, NAHREP president. "They have been here in our midst for years, working and participating in our economy. Legitimizing them through immigration reforms would finally give them the access and the confidence to buy homes." According to NAHREP, up to 3 million of the undocumented immigrants could potentially afford a home that is worth $173,600, which would lead to more than $500 billion in new mortgages. The transactions could also create $28 billion in income within the real estate community when assuming an average of 5.5 percent in sales commissions for the homes sold. The National Association of Home Builders (NAHB) also provided input on immigration reform and asked lawmakers to establish a "fair and workable" E-Verify system during a recent congressional roundtable. NAHB chairman Rick Judson called for a system that is "fair and efficient" but does "not impose significant burdens on employers." The NAHB explained a "fair and workable" E-Verify system should still maintain current law by holding employers accountable for verifying employees' identity and work authorization status, while also forbidding employers from knowingly hiring undocumented workers. In addition to maintaining current laws, the association asked for a "robust" safe harbor for employers when dealing with errors in the E-Verify system and a strong pre-emption clause preventing state and local governments from creating their own version of verification requirements for employers. The NAHB also suggested employers should be able to begin the E-Verify process when a potential employee accepts a position rather than wait until the start date and have access to the system via telephone. NON-AGENCY RMBS MARKET TO MAKE SMALL COMEBACK The stage is set for the private residential mortgage-backed securities (RMBS) market to make a comeback this year, Barclays says in a new research report. The firm forecast new non-agency RMBS issuance at $12 billion to $15 billion at the start of the year, and its latest research shows the market is on track to hit that mark. "After a very cautious start in 2011 and 2012, new issuance picked up in the first few months of 2013, with 13 deals issued so far for a total of [about $6 billion] across four issuers," Barclays reported. "If current execution levels continue in the private market, we estimate that there could be another [$6 billion to $9 billion] of issuance in the rest of the year, comprising 12 to 15 deals from 4 to 6 issuers." Contributing to that forecast are a few factors: First, Barclays notes, the capital costs of holding loans in portfolio will increase for many banks under Basel III, making securitization a more attractive proposition. Second, further hikes in guarantee fees (g-fees)—such as those mandated by the Federal Housing Finance Agency (FHFA)—could make for a more competitive private-label market. On the other hand, with FHFA pushing Fannie Mae and Freddie Mac to shed credit risk, the private securities market could lose its edge. "The main reason why non-agencies are competitive in the cleaner collateral is that the g-fee is higher than what the private market charges. The market efficiency of the GSE credit-shedding process across the buckets could leave the non-agency market at a slight disadvantage," the firm said. "This is because the non-agency market will still lag on the funding front, even if the credit cost equalizes. However, the g-fee add-ons imposed by Congress (10 OBAMA ADMINISTRATION EXTENDS MAKING HOME AFFORDABLE PROGRAM U.S. Secretary of the Treasury Jack Lew announced Treasury is extending the Making Home Affordable program for another two years. The new expiration date is now set for December 31, 2015. The program extension aligns with the Federal Housing Finance Agency's extension of the Home Affordable Refinance Program (HARP) announced in April. VISIT US ONLINE @ DSNEWS.COM [basis points] until 2022) and potentially by the FHFA could equalize these differences." Altogether, Barclays said g-fees must rise "at the very least" by 10 to 15 basis points—or nonagency execution will have to improve by that much—in order for the private market to make any further progress in terms of market share. In a separate study, Moody's Investors Service stressed that improving home values and fewer delinquencies mean the performance of RMBS loan pools will also likely improve. According to analysts from Moody's, rising home prices motivate current borrowers to avoid default, and they increase the proportion of current loans with loan-to-value (LTV) ratios below 100, which are the loans least likely to incur losses. The higher share of current loans with lower LTVs should then prevent new defaults for 2005–2008 RMBS pools, according to Moody's. In addition to rising prices, the analysts state shrinking delinquent loan pipelines also work to lower future pool losses. For example, by liquidating delinquent loans through short sales rather than through foreclosure, servicers are able to reduce loss severities. "A quickening pace of property liquidations will lower eventual pool losses because properties that spend less time in foreclosure and REO accrue fewer expenses and expose the related RMBS to lower loss severities," the report stated. The steady, but slightly faster pace in which servicers are modifying loans also helps to reduce delinquencies and future loan losses, according to Moody's. "[J]udiciously applied modifications can help to reduce loan losses because they keep cash flowing from troubled borrowers who might otherwise have stopped making payments," the analysts wrote. Currently, the delinquent loan modification rate is down from its 2010 peak, but modifications have increased during the past year due to servicers offering second and third modifications, while the 12-month re-default rate on modified loans has actually gone done, Moody's reports. Making Home Affordable offers help to homeowners through a number of solutions, including the Home Affordable Modification Program (HAMP), the Home Affordable Foreclosure Alternatives (HAFA) program, and the Second Lien Modification Program (2MP). As of March, an estimated 1.1 million struggling homeowners received a permanent modification through HAMP and more than 140,000 exited their homes through a HAFA short sale or deed-in-lieu. 37

• Cover