PERSON OF THE WEEK: The first one-third of this year is coming to a close, and 2012 has already become a time of significant change. From the landmark foreclosure-related settlement involving the nation's five major banks, to the Federal Reserve's push to transform surplus real estate owned (REO) properties into rentals, to the controversial recess appointment of Richard Cordray as head of the Consumer Financial Protection Bureau (CFPB), the industry has been facing considerable changes. To look back on the last four months and to look ahead for the near future, MortgageOrb spoke with Rick Sharga, executive vice president of Santa Ana, Calif.-based Carrington Mortgage Holdings.
Q: In your view, what is the current state of the housing market? Are things getting better, worse, or staying the same?
Sharga: While the housing market is still far from being healthy, it does appear to be stabilizing, and even getting better in some markets. The most likely scenario is that home prices should stabilize sometime this year and stay relatively flat for another 12-18 months. Assuming that we've moved through enough of the distressed inventory that's weighing down prices and sales by then, home prices should begin to appreciate in a more sustainable manner.
Q: Earlier this year, the Federal Reserve recommended an REO-to-rental program as a way of helping the housing market. What is your opinion of the Fed's proposal?
Sharga: This is one of the best ideas to come along relative to the housing market in a long time. Converting REOs to rental properties fills a growing market need for rental units (apartment occupancy rates are over 95% nationally) while simultaneously removing vacant, depreciating homes from the sales inventory.
If the program is done at a large enough scale, it will help stabilize home prices and slow down the acceleration of rental rates. It will also result in an economic lift for neighborhoods and municipalities due to the injection of capital from investors who will purchase and rehabilitate the homes.
Q: What is your view of the $25 billion foreclosure settlement, and what impact will it ultimately have on the housing market?
Sharga: The $25 billion settlement will likely be an agreement that won't make any of the constituencies completely happy.
Consumer advocates don't think it goes far enough. Lenders and servicers are still vulnerable to civil and criminal prosecution and consumer litigation, except in very narrowly defined areas. Investors may foot a higher-than-planned part of the bill for principal-balance reductions – which, in turn, could lead to a wave of strategic defaults by borrowers who are upside down and decide that they'd like to have their debt reduced as well. And the dollar amount, while significant, is far too small to make a significant difference in the overall housing market.
Q: This July will mark the first anniversary of the launch of the CFPB. How successful, to date, has the CFPB been as a federal agency?
Sharga: It's much too early to judge the CFPB as a success or a failure. CFPB Director Richard Cordray has certainly injected a lot of energy into the organization, and he has begun to establish his vision of the CFPB's charter.
The challenge for the organization will be to protect consumers from questionable lending practices without ‘protecting’ them so well that no one will ever be able to qualify for or afford a mortgage. It will be interesting to see if the CFPB moves toward creating a better, safer environment for borrowers and lenders to do commerce, or if it focuses all of its energies on punishing past behavior, which, for the most part, has already been corrected by the industry.
Q: To date, housing-related issues have not dominated the presidential race. Why has this issue not become a focus of presidential political attention?
Sharga: Housing is likely to take on a more prominent position in the general election than in the primaries, which often focus on less-complex issues. You can make an argument that the Obama administration has already begun the campaign, with recent announcements about lower rates for Federal Housing Administration refinancing, version 2.0 of the Home Affordable Refinance Program, a proposal for a mass-market re-finance program and the formation of a task force headed by New York Attorney General Eric Schneiderman to investigate the behavior of lenders and servicers.
Fixing the housing market, unfortunately, has proven to be a frustratingly complicated challenge, and these sorts of challenges tend not to translate very well into bumper sticker slogans. That – plus the very localized nature of real estate, which is still legislated at the state and local level – will make it interesting to see how both parties attack the subject in the fall.