Capstone Project Finance (Final Project)

Abstract The involve to embolden family or floor induceership has been in the disposals st set discovergic plan since 1934, however, the on-line(prenominal) pecuniary policies and places in the lodgment pay and the owe mart has characterized by minimum f mild of expectant in the auxiliary owe trade, bewilderment on the main(prenominal) overlook dresser and versatile ill practices. This detail has necessitated unhomogeneous changes in the menage and cornerst hotshot keep back upership fiscal.This withstand collected some(prenominal)(prenominal)(prenominal) prototypic-string and substitute info, and piece out that the authorities mustiness set the dependable policies that impart induct sept and class consumers to circumvent biased practices and practice aw argon decision making, these sen durationnts. on that point must be an remedyment in the foreclosure touch on and mortgage servicing, nonably, from the beginning of the last fiscal cri sis, foreclosures and NAR time-tested to take model by administrators and regulators to fake criteria for decreasing the risk of foreclosure. on that point should be subjoin with child(p) availability to sourceworthy borrowers from whole communities and states including lolly.The study has too revea conduct that practically solution based look for is necessary than universal solution investigatees. Keywords monetary policies, shack and dental plateownership, and mortgage. Dedication This range has been dedicated to those who believe that financial constitution making is a joint responsibility, for ein truth United conjures citizen, and it should not be left(p) to the organization and politicians. It has withal been dedicated to those who believe in acquiring their own homes as a step towards fulfilling the upper unavoidablenesss in the Mas pathetic hierarchy of needs. Ack flatledgementFirst, I offer gratitude to God almighty the giver of deportment and str ength to complete this project. Second, my gratitude goes to my Tutor and all participating members in the finishing touch project committee. Third, I offer my greatest gratitude to all the members jackpot for enterprise Development (CFED), who conducted the 2012 Assets & Opportunity Scorecard, they lavishlylighted the demoralise score leading to a denounce of C for Michigan orders lodgement and Homeownership, and they brought to my attention the occupation of low sign of the zodiac and homeownership in Michigan.Last moreover not least, is gratitude to the Michigan ordinate up of Commerce (MCC), for suggesting the need to amend financial policies that encourage home and home ownership in the State of Michigan. Table of Contents s style of Abbreviations8 Chapter 1 Introduction9 1. 1 Background of the Problem9 1. 2 Statement of the Problem9 1. 3 Purpose of the chthonicstand/Study10 1. 4 Signifi ceasece of the Project10 1. 5 Nature of the Project11 1. 6 look for Questi ons12 1. 7 Theoretical Framework12 1. 8 Assumptions12 1. 9 Scope and Limitations13 Chapter 2 Literature analyze14 2. historical Overview Development of Ameri earth-closet dwelling and Home financial System14 national lodgment Administration (FHA)14 History of the FHA14 The period FHA15 The FHA Down Payment16 The mortgage redress17 Stopping the FHA mortgage Insurance18 The Economic Effects of the FHA19 2. 2 The ongoing caparison finance System20 task Policy20 2. 3 Flows in the Ho victimization pay System22 2. 4 The national lodgement Finance Agency (FHFA)23 History of FHFA24 Conservatorship of Freddie macintosh and Fannie Mae24 Chapter 3 description of the explore Design Used26 3. 1 explore Method and Design Appropriateness26 . 1 Population26 3. 2 In establish Consent26 3. 3 Confidentiality27 3. 4 information Collection27 3. 5 Instrumentation28 Open and shut Ended Questionnaires28 Interviews29 Reading29 3. 6 Validity and reliability30 Internal rigor30 External validity30 Reliability30 3. 7 info synopsis31 Chapter 4 The Results and stickings of the Project32 Chapter 5 Discussion of Results and Findings33 Chapter 6 Conclusion and Recommendations37 Chapter 7 References38 Chapter 8 Appendices41 Appendix 1 CFED Assets & Opportunity Scorecard 2012, Michigan State Profile41Appendix 2 lodging financial Policy Changes in Michigan Questionnaire42 Appendix 3 lodging pecuniary Policy Changes in Michigan Interview Questions44 add up of Abbreviations CFED Corporation for Enterprise Development FHA The federal official mob Administration FHFA federal hold Finance Agency FHFB federal lodging Finance jury GSEs - organization Sponsored Enterprises HUD discussion theatrical role of lodgment and Urban Development IRS The Internal tax in start renovation LTV Loan-to-Value Ratios MBS Mortgage-Backed Securities MCC Michigan Chamber of Commerce MMI Annual Mutual Mortgage Insurance MRBs Mortgage Revenue BondsMSHDA Michigan State lod gement Development government agency NAHB national Association of Home Builders NAR discipline Association of Realtors OFHEO Office of national Housing Enterprise Oversight UFMIP Upfront Mortgage Insurance tribute Chapter 1 Introduction 1. 1 Background of the Problem The recently released Corporation for Enterprise Development (CFED) Assets & Opportunity Scorecard 2012, under Michigan State Profile, and further under House and Homeownership section, revealed that the main gainsay issue to be tackled in Michigan is the low stride of the preindication and homeownership.Appendix 1 intelligibly shows that Housing and Homeownership Area in the Scorecard it has been ranked 32, and given a grade score of C. The House and homeownership in Michigan is seriously deficient due to the fact that, it had the least score in the scorecard, and it is closely followed by the challenge of weeing health redress for all. Meanwhile, recent financial literature on the challenges of the ac cepted US lodgment finance policies has attributed the reduced rate of the mansion house and homeownership to poor financial policies regulating the house and homeownership industry.Swindler (2011) discussion on the house and homeownership in the US, also rap musicd the low house and homeownership turnout in Michigan on un good financial environment going it. This is soon a crucial issue, and it has stimulated a lot of business, peculiarly with the residents of Michigan, and it is upon financial experts and researchers, to device the means of improving the poor living accommodations finance policies and practices. 1. 2 Statement of the ProblemThe problem the existing poor house and homeownership consumer protections permitted low-quality, violent mortgage products, and that be predacious imparting to thrive, an out visualized, and deficient restrictive scheme that has upholded unvarying since the 1930s, and which has failed to control the house and homeownership fina ncial industry. There is a complicated securitization unconscious knead that lacks accountability, standardization, and transp arncy. There is inadequate capital in the house and homeownership governance this has left confused financial inductions unrehearsed to engross subsequent losses.Lastly, the 2008 US recession, prove that the house and homeownership servicing industry dummy up outrideed ill-equipped to assist the requirements of investors, lenders and borrowers, especially when the lodging and homes prices fell down (The Department of the treasury and U. S. Department of Housing and Urban Development, 2011). 1. 3 Purpose of the Project/Study This project aims to Find out the weakness of existing financial policies meant to encourage home and homeownership in Michigan. Find out versatile pertinent financial policy changes that rouse encourage house and homeownership in Michigan. Find out proof of the pertinency of the ascertained financial policy changes that e ncourage house and homeownership in Michigan. 1. 4 Signifi seatce of the Project This project aims at benefiting the spate of Michigan State, and the general republic of the United States. The out stick with of this project exit assist the federal government, Michigan State Authorities, and all new(prenominal) stakeholders in homeownership to understand how exceed they stool improve their operations and financial policies to encourage homeownership in this state.The main find and justification of this project is the reality of the low and decreasing rate of homeownership in Michigan State and the turbulences that argon shortly facing the US mortgage food merchandise. The Federal Reserve bevel of New York (2010), had released a go bad on current economic and financial issues in the US, and they revealed a low turnout in homeownership in the US and went a head to blame it on poor financial polies. Wiseman (2010) highlighted the issues around homeownership in the US, and he proposed several(a) polies that could be employ to encourage homeownership, but, he lacked a scientific research to nates his ideas.This missing links or research essay to back bright ideas on financial policy changes is a serious problem, and it is the condition why this project aims at finding out credible evidence of various proposed financial policy changes that could be used to encourage homeownership in Michigan. 1. 5 Nature of the Project This project leave alone mainly harbour mixed research method, including a survey method and integrate it with some other(a) relevant finance houseing research methods.It allow for collect both primary and secondary info, to illustrate the relevant financial policy changes that evict be used to encourage homeownership in Michigan. An forthright and closed questionnaires ar often used to collect information in the 100 branches of various homeownership financial institutions, and the other institutions closely associated wit h homeownership in Michigan. These financial and other institutions associated with homeownership in Michigan, leave behind include the public and private banks, Michigan State Housing Development Authority (MSHDA), the US Urban and ousing department, and other mortgage and trapping finance companies. This information result then micturate to be cross examined against various secondary literature, and the current entry and applying admit finance policies that heve been mean to be encouraging homeownership in the US. And the new ideas volition take hold to be filtered, and nettly, financial knowledge nonplus to be provide be utilise to test the applicability of the selected new ideas, before discussing and interpreting them, so that they can be included in the final project document. . 6 question Questions This project aims at settlementing three main questions, namely What are the current weakness of existing financial policies meant to encourage home and homeownersh ip in Michigan? What are the various relevant financial policy changes that can encourage house and homeownership in Michigan? What can prove the applicability of the discovered financial policy changes that encourage house and homeownership in Michigan? 1. 7 Theoretical FrameworkThe NAR issue Analysis (2011) had shop ated the financial policies that empower house and home consumers to escape from biased practices and make fully intercommunicate decisions before engaging in whatever trans put by with(predicate)s aimed at acquiring a house or home, improving foreclosure processing and mortgage servicing, and they also supported the need for guaranteeing that capital is accessible to responsible borrowers allover the join states. These were similar sentiments suggested by the American congress by the Department of the treasury and U. S. Department of Housing and Urban Development (2011) to the congress. . 8 Assumptions This project has false that on that point have been exist ing literature, which go away have to be used as secondary sources of information, since the issuing on assisting US citizen to master houses and homes is as old as the legal financial policies that guide it. The second surmisal is that the sampled replyents, who hail from the tell apartment of various house and home ownership financial institutions empyrean, are a group of financial experts who poses the necessary knowledge on how to change the financial polices to encourage house and homeownership. 1. 9 Scope and LimitationsThe project will have to be special to the respondents from the Michigan State only, and topic coverage wise it will have to be limited to the house financing institutions and policies, which revolves around features, like mortgages policies, and any other policies aimed at assisting US citizens acquire homes, but, it will not touch the wider financial policies which could also influence homeownership in one way or another. Chapter 2 Literature review 2. 1 Historical Overview Development of American Housing and Home Financial System Federal Housing Administration (FHA)National Housing wager of 1934 led to the knowledgeableness of the Federal Housing Administration (FHA), which one of the United States government agency concerned with housing is financing. It watchd house and home opera hatows do by private lenders and banks for a house or home acquire and building. The main goals of FHA are to develop housing conditions and standards, offer a adapted home/house financing system through and through insuring mortgage addwords, and to attain stability in the mortgage securities industryplace. History of the FHAThe history of FHA can be traced back to the quantify of the Great Depression, when the failure of the banking system took place, and as results instigating an radical decrease in houses and homeownership and loanwords. During this time, majority of the home mortgages were under short-term blockage. They were ra nging in the midst of 3-5 classs periods, the inflatable items were tar get toed at LTV (Loan-to-Value Ratios) that were at a lower place 50-60%, and on that point were no amortization (Goldfield, 2007). This banking crisis during the 1930s have all lenders to recover due mortgages.The refinancing services were neer available, and nigh borrowers, who had been unemployed by then, were unable to re lucre their mortgages. Therefore, numerous homes and house had to be foreclosed, making the housing/homes market fall. The banks calmed the foreclosed homes (Loan Collateral), but, the prevailing lower blank space values sheathd a comparative lack of assets. Since thwre had been minimal faith in the U. S. government backing, limited loans were world dispensed and least new homes were universe bought. In the course 1934 the United States federal banking System win its reorganization.Then the National Housing Act of 1934 that brought the creation of the Federal Housing Administr ation was passed, to swot its operation. Its intention was to control the mortgage terms and elicit rates and insure the entire industry. These practices use on the new l endpoint increased the metre of people who could raise a down salary for a house or home, and manage to support the mortgage monthly debt service remunerations, olibanum also raise the size of the single-family owned homes market (Gravin, 2002).The main criteria that the FHA had applied was through various calculations, they numberd the appraisal value centered on octad criteria, and it instructed its agents to loan more for great appraised projects, up to a full add up that can be possibly. The two significant criteria which were being used are The Relative Economic Stability, that instituted appraisal value of 40%, and Protection from inauspicious influences, (Gravin, 2002). This made up a new 20%.By the time of piece War II, FHA supported numerous projects of workers housing, like the Kensington G ardens Apartment Complex in Buffalo, New York (Gravin, 2002). The current FHA The Federal Housing Administration joined the Department of Housing and Urban Development (HUD) in 1965. As from 1934, the HUD and FHA had managed to insure way above 34 jillion housing and home mortgages, and it has also insure 47,205 mortgages for multifamily projects. Presently, the FHA is insuring approximately 4. million mortgages for single family, and also insuring13,000 multifamily projects in its current portfolio (Monroe, 2002). The Federal Housing Administration is the lone US government agency that is exclusively self- blooded. Arguably, even if it asserts to operate exclusively on its own revenue, without any taxpayers specie, there is an understood assurance that the taxpayer will aid them in hard times of financial need. In the year 2008, the US budget planning HUD had put across high budget allocation bulging at $143,000,000 budget shortfall stanching from the FHA run program.It is the freshman time subsequently 30 years that HUD had disposed(p) an appeal to the recounting for a taxpayer funding. Even though the FHA has been constitutionally obligated to be budget impartial, the relevant agencies are projecting taxpayer financed subsidies of $ 500 million dollars over the coming three years, this is incase there are no changes put in place on the FHA program (Goldfield, 2007). Succeeding the subprime mortgage crunch, the FHA, along with Freddie Mac and Fannie Mae, converted to be the source of ost of the United States housing mortgage financing. The portion of home and houses purchases which were funded with FHA mortgages grew from 2% to over 30% of mortgages in the US as conservative mortgage change could not atmospheric condition the credit crunch. In the absence of the subprime market, a number of the riskiest mortgagors cease up going to the Federal Housing Administration for assistance, and this made FHA suffer from larger-than-life losses (Woodward, 2008). The FHA Down Payment The mortgagors down payment can arise from various sources. This 3. % occur can be fulfilled with the mortgagor using their own money or from a support of a family member, effort union, employers, or a government agency. From 1998, non-profits continues to assist with down payment gifts to mortgagors who deprave homes and the house, where the vendor has approved to repay the non-profit and pay an extra processing fee. In May 2006, the Internal Revenue Service (IRS) had resolved that their idea was not a charitable activity and has managed to revoke that status of supporting non-profit for groups remission down payment support in that way.The FHA has subsequently ceased the down payment support program using third party non-profits. Several bills were beed to the Congress to try to bring-back the non-profit program. The Mortgage Insurance Mortgage amends guards mortgagees from borrowers mortgage quittance default. When a billet or housing/home pur chaser borrows an tally of money greater than 80% of that propertys value, the financier will possibly need the borrower to an acquire a private mortgage insurance policy to cover the financiers risk.Nonetheless, in case the lender had to be approved by FHA and the mortgage amount is within the FHA set limits, the FHA will have to offer the mortgage insurance, which is probably to be more affordable, particularly for borrowers with higher risk. Financiers can characteristically acquire FHA mortgage insurance covering the 96. 5% of the assessed value of the house, home, or any building. These FHA mortgages are being insured using a mixture of UFMIP (Upfront Mortgage Insurance Premium) and MMI (Annual Mutual Mortgage Insurance) premiums.The UFMIP is a whole amount extending from 1 2. 25% of the loan total value (it is dependent on the time and LTV), funded by the mortgagor in whichever way, it can be funded using the loan or cash at closing. The MMI, though is a y premature payme nt, is overally encompassed in mortgage payments in monthly basis and ranges from 0 1. 15% of the loan value (also, this is dependent on duration and LTV).In case a mortgagor has had a credit history rated as poor to moderate, the MMI perhaps is farthest less expensive with an insured loan from FHA, than with a conformist lawful loan irrespective of LTV, this can occasionally go as low as 1/9, as more contingent on the credit score of the borrower approval status, loan size, and LTV. Conventional mortgage rates of insurance increase with the decreasing credit scores while FHA rates of mortgage insurance does not differ per credit score. The conventional mortgage premiums flitter vividly, if the credit score of the borrower is below 620.Owing to a suddenly increased risk, more mortgage insurers do not write their policies, when the credit score of the borrower is below 575. Nonetheless, when they write their policies for mortgagors with low credit scores, the annual premiums mig ht be up to 5% high of the loan amount. Stopping the FHA Mortgage Insurance The FHA insurance payments comprise of two parts UFMIP and the yearly premium paid on a monthly basis referred to as the MMI. This UFMIP is compulsory payment that can be funded into the loan or paid in cash.It increases a certain(prenominal) amount to the monthly payments nonetheless it does not resemble PMI, or the MMI. An case-by-case purchasing a home using an FHA funded loan, he or she pays monthly mortgage insurance up to a 5 year period or till he covers 78% of the assessed amount. The MMI payments are superior to all FHA Acquisition Money Mortgages, Streamline Refinances, and Full-Qualifying Refinances. The idea of canceling or stopping FHA insurance program, concerns only the MMI. It is different from other forms of conventional funded mortgage insurance.The value of UFMIP compiled on a loan by FHA is prorated through a 5 year period, denotation that if a homeowner sells or refinances during the l oans first 5 years, they are permitted to an incomplete refund of the amount of UFMIP paid at the inception of the loan. If he has funded the UFMIP within the loan, he cannot stop this compensation part. The insurance payment on a thirty year FHA loan has to be paid for a minimum of 5 years. The MMI premium has to be terminate spontaneously when the unpaid start balance is exclusive of the pfront premium, and extents to 78% of the last(a) sign property assessed value or sales price. Mortgagors who do pay additional payments to the mortgage principal of the FHA, might have to take the courtesy by using their lender to terminate the insurance by referring to the 78% rule, however, this is possible aft(prenominal) 5 years of consistent payments for loans lasting for 30 year. The PMI termination, nevertheless, can be lessened using extra payments or a fresh assessment to prove that the house or home as added value. The Economic Effects of the FHAThe formation of the Federal Housing Administration efficaciously improved the housing market size. Through, persuading the banks to lend yet again, also through standardizing and changing mortgage mathematical operations and instruments, home and house ownership has improved from 40% during 1930s to approximately 68% in the year 2000. In 1938, which is 4 years after(prenominal) the formation of the Federal Housing Association, only a 10% of the value of the house was being required to purchase it, the stay 90% was being funded through a 25 year, FHA-insured, self-amortizing mortgage loan. laterward, the ending of World War II, and the subsequent prevailing condition, made the FHA assist the reverting veterans to acquire homes. When the rising energy exists and inflation endangered the beingness of thousands living in a private apartment during the 1970s, the FHAs taking into custody funding reserved cash-strapped houses afloat. During the 1980s, while the US economy did not fund a growth in the house and homeow ners, FHA assisted to stabilize the move prices, change the probable homeowners to fund as the private mortgage insurers locomote out of states producing oil (Mitchell, 1985).The ultimate effects of the FHA can be effected in cities and by marginal worlds. Almost half of FHAs urban area business is being situated in dominant cities, a fraction that is far higher above the conventional loans percentages. The FHA likewise lends to a greater fraction of Hispanic Americans, African-Americans and younger population, credit restricted borrowers, causation an in homeownership on the named groups, but, that is not enough.As the United States capital markets matured after many years, the FHA shockingly has witnessed a decrease in their impact. In the year 2006, the FHA had a return less than 3% of overall issued loans in the US. afterwards the 2006 FHA failure revelation, the Congress and other interested parties have questioned the role of the US Government in the mortgage insurance business, and how financial policies can be am terminate to encourage house and homeownership and most respondents and analysts advocated for the abolition of the FHA.The consequent weaken in the credit markets and the recent world recession, nevertheless, has fairly formulateed criticism of the FHA. Currently, FHA insures just closely 40% overall new mortgages, but, its impact is still wanting. 2. 2 The Current Housing Finance System Tax Policy It is a familiar knowledge and many financial experts often site, deductibility of housing and home property taxes and mortgage interest as the main source of federal support to encourage house and homeownership.As show in this long quote by the 32nd President of the United States Franklin Delano Roosevelt The movement toward progressive taxation of wealth and income has accompanied the growing diversification and interrelation of effort which marks the industrial society. Wealth in the modern world does not come except from individu al effort it results from a combination of individual effort and of the complex uses to which the community puts that effort.The individual does not create the product of his industry with his own hands he utilizes the many processes and forces of mass production to meet the demands of a national and international market Social unrest and a compound sense of unfairness are dangers to the national life which we must smirch by rigorous methods. state know that vast personalised incomes come not only through the effort or ability or luck of those who receive them, but also because of opportunities for advantage which Government itself contributes.Therefore, this craft rests upon the Government to restrict such incomes by unusually high taxes. (Duclos & Makdissi, 2002). But, we can mention categorically that various literature indicates that encouraging homeownership had been factored in the initial formulation of deductions and taxes, thus the interest expense deduction is not limited to deductions of state and local taxes, and housing mortgage interest, and this is according to the Tariff Act of 1913 and the Revenue Acts of 1864 and 1865 (Arestis, Mooslechner & Wagner, 2010).Numerous analysts interpreted that the real tax subsidy for house and homeownership as an exclusion of homeowners implied rental income put of the taxable income, but not as a deductible on property tax and mortgage interest (Arestis, Mooslechner & Wagner, 2010). The Act of 1997, on Taxpayer Relief, substituted the rollover of capital advantages for homeowners who purchase additional house and the evacuation of up to $125,000 in advantages for owners who are 55 or above with an elimination of advances up to $500,000 for proprietors of some age ? ing for joint returns. It gave a higher incentive for owning a home, but, it eliminated a discouragement for walking out of owning a home or transacting to a lowly priced home. Another tax incentive that is provided by the federal tax syst em after instructing the local and state government agencies to support house and homeownership for those with moderate income and ? rst time buyers was the application of MCCs (Mortgage Credit Certi? cates) and MRBs (Mortgage Revenue Bonds). MRBs are securities for tax-exempt issued by local or state housing ? ance agencies, to increase mortgage capitals for ? rst time house or home buyers (Arestis, Mooslechner & Wagner, 2010). There have also been the temporary housing-related tax incentives amongst others that will have to be discussed as the literature review progresses. 2. 3 Flows in the Housing Finance System There has been a mix up in the housing markets and the policies that were meant to encourage house and home ownership, and it has turned out to be a crisis, various studies have tried to explain this crisis, but, they have not found a perfect cause that can explain it.Baily (2011), had identified that the US housing market was characterized by misjudgments, Misbehavior, a nd missed opportunities, mainly on besiege Street. American people must be protected and encouraged to own houses and homes, but, the discussed below points hinders this achievement * Reduced consumer protections encouraging low quality and risky mortgage products and greedy lending targeted mainly at multiplication of the financiers wealth.The unambiguous presence of unregulated mortgage brokers and inventors encouraged complex mortgage products that ended up increasing sharply, the rates required and down payments. * The outdated and inadequate regulatory regime had been and currently is unsuccessful in controlling the system as a fact especially following the history that was sooner presented, the regulatory boundaries have been largely since the 1930s, they have encouraged the inancial system that were anterior being committed to supporting house and homeownership finance to function with almost no oversight. * The complex securitization procedure lacked accountability, sta ndardization, and transparency The market progressively depends on complex securitization procedure containing securitizes, mortgage brokers, ratings agencies, originators, and investors and they tend to fuel the home prices to increase. * The lacking(p) capital in the housing finance system left financial agencies un nimble to engross losses. The systemically-significant financing agencies were never mandated to hold sufficient capital against the actual mortgage risk reflected in their balance sheets since these institutions were already permitted to have lower capital compared to securities supported by the issued mortgages than if they reserved the equivalent mortgages themselves. * The mortgage servicing industry is ill-equipped as they service the needs of the lenders, borrowers, and investors when the homes prices go down. 2. 4 The Federal Housing Finance Agency (FHFA)The Federal Housing Finance Agency (FHFA) is a self-governing federal agency formed as the replacement regul atory agency consequential to constitutional conjugation of the OFHEO (Office of Federal Housing Enterprise Oversight) and the FHFB (Federal Housing Finance Board), and the HUD (U. S. Department of Housing and Urban Development government) sponsored enterprise mission team, engrossing the regulatory authority and powers of the two authorities, with stretched regulatory and legal authority, and, plus the capametropolis to substitute GSEs (government sponsored enterprises) into conservatorship or receivership (Wilshusen, 2010).This is one of the authoritative bodies of interest to this project. History of FHFA The permitting law founding the FHFA is the Federal Housing Finance Regulatory Reform Act of 2008, which is Partition an of the greater Housing and Economic Recovery Act of 2008, (Public Law 110-289), contracted on July 30, 2008 by the then US President George W. Bush. A year afterwards the FHFA and OFHEO went out of existence. Every prevailing, decisions, and regulations, of the Finance Board and OFHEO had continued to be potent until superseded or modified. Conservatorship of Freddie Mac nd Fannie Mae The FHFA manager Lockhart proclaimed that he had put Freddie Mac and Fannie Mae and Freddie Mac under the conservatorship of the FHFA on September 7, 2008 (The Financial Crisis examination Report, 2011). Just to give a brief history the Federal National Mortgage Association is the normally called Fannie Mae, it was created in 1938 when the Great Depression as an effort of spoting with the crisis that faced the mortgage sector. It is a US Government Sponsored Enterprise, nevertheless, it has continueed a publicly traded company from the year 1968.Its main role was to enlarge the tributary mortgage market through securitizing mortgages in using MBS (mortgage-backed securities), enabling mortgagees to reinvest their properties into additional lending and as a result growing the population of lenders in the mortgage market through decreasing the dependen ce on thrifts. The Federal Home Loan Mortgage Corporation, referred to as Freddie Mac, is also a public government sponsored enterprise. It was founded in the year 1970, to enlarge the tributary market for mortgages.Beside other government sponsored enterprise, Freddie Mac purchases secondary market mortgages, merges them, and then sell them to investors as a mortgage-backed security on the open market. The US secondary mortgage market raises the quantity of money obtainable for mortgage lending and raises the money accessible for the new house and home purchases. The previous mentioned action of putting Freddie Mac and Fannie Mae under conservatorship being termed as one of the most sweeping government interventions in private financial markets in decades (The Financial Crisis doubt Report, 2011).This would only commit the highly avoided, employing of taxpayers money into funding GSEs. The cut into is never ending, but, it was a sign of the failing financial power to support ho use and homeownership in the US. The action has brought various challenges to FHFA, which are evident through the number of law suits agents it and other homeownership financial institutions. In 2001, the FHFA sued UBS plus other 17 financial institutes, FHFA accused them of parodying approximately $200 billion as mortgages vended to Freddie Mac and Fannie Mae and many other suits have followed.This signifies the lack of sound control in the market, because there are lots of fraudulent deals in still persisting in this market (The Financial Crisis Inquiry Report, 2011). Chapter 3 Description of the Research Design Used The purpose of this qualitative and qualitative study is to discover to the weakness of existing financial policies, discover relevant financial policy changes in the existing financial policies, and proof of the applicability of the discovered financial policy changes that encourage house and homeownership in Michigan. 3. 1 Research Method and Design AppropriatenessT he mixed research methodology and design, that caters the collection of both qualitative and quantitative data is the most favorable for this project. The mixed research design enables the collection of expert sound judgement when least knowledge is present in respect to a financial problem and the researcher pursues to raise understanding and prospects for resolutions (Creswell & Clark, 2007). This method was appropriate as the project was to improve housing finance knowledge that is present among the US citizens identified through various studies and research (Creswell, 2003). . 1 Population The data will have to be collected from the top management of the sampled financial institutions, which are in straightaway association with financing housing and homeownership in the State of Michigan. All the institutions and their branches will be then listed and then fed to sampling software to come up with randomly selected 100 institutions, a branch of an institution will have to be viewed as an institution. Then two people per institution are interviewed, after filling the questionnaires 3. Informed Consent The sampled institutions will first be contacted through the mail, and, if they confirm their participation in this project, they are presented with an early informed consent form, which they will have to fill. Their respective institutions will also have to issue them with a human subjects approval document, in the form written official document, with a valid letter head and signed, this to allow the sampled staff to participate in this project. 3. 3 ConfidentialityApart from the names highlighted in various official documents concerning this project, there is no other place that the names of the participants will feature the researcher will not disclose the names of the participants and the names of their institutions, despite the fact that they are captured in the questionnaire and the interviews transcript for communication purposes. 3. 4 Data Collecti on First, the primary data is collected using questionnaires and interviews, the sampled institutions are listed according to the geographical location and their availability of the participating respondents.Then, the questionnaires are telecommunicateed to the respondents, and they will have one week to fill them and email them back to the researcher. Thereafter, on the day of the interview the respondents in various institutions are interviewed only if they have successfully filled and submitted the questionnaire. The respondents are then interviewed for about 10 minutes, but, there is no fixed time for the interview duration. Remember they had already been informed about the project requirements during the earlier debriefing, this was to enable them prepare for the actual data collection through the questionnaire and interview.Then, after the data are collected in all the institutions they will be compiled together for data processing and summary. Secondly, after the collection of the primary data, the secondary data are collected through actual reading of various assembled relevant published research literature, highlighted in various textbooks, journals and online sources. They will also be compiled and assembled for data processing and analysis. 3. 5 Instrumentation Open and Closed Ended Questionnaires The questionnaire will be one comprising both open and closed sections.The instructions on how to fill the questionnaire, and the relevant details on how to send the reply mail of the questionnaire, are captured on the actual questionnaire, which are represented in the Appendix 2. The questions in this section to be answered using yes or no, some sampled closed ended questions are * Does the US house and home financing policies need change? * Do you support increased regulation in the mortgage sector? * cod you been affected negatively by the current the current home financing policies? * Have you been following the debate on housing financial remedy?A nd the questions requiring ticking the preferred option still under the closed ended section are * Which is the most influential institution in the preparedness of the house and home financial assistance? List MSHDA Michigan State Housing Development Authority NAHB National Association of Home Builders FHA Federal Housing Administration FHFA Federal Housing Finance Agency The open ended section will contain one question which is postulation what changes should be made on the house and home financial policies?Interviews The interviews will be used to collect, further opinions and to clarify the data collected earlier on using the questionnaires. The main opinion will be requesting for their opinion on Fannie Mae, Freddie Mac having drawn $170 billion in taxpayer funds, many another(prenominal) Republicans want to end federal backstop in housing and the conform loan limits on governments mortgages expiring Oct. 1 (Virtanen, 2011). Appendix 3 named the Housing Financial Policy Changes in Michigan Interview Questions contain a set of questions that will guide the interview sessions, with the respondents.The main concern will involves the Type of Loan that best suits house and home buyers, the elicit Rate & Annual office Rate that would not burden the house and home buyers, the Discount Points and Origination Fees that would encourage house and homeownership in Michigan, and minimizing Prepayment penalisation that discourages house and homeownership. These key questions will go over that fruitful information is attained on financing housing and homeownership in Michigan. ReadingThis is applied in the secondary data collection, as earlier mentioned various reading skills are to being applied to collected data from the secondary literature. 3. 6 Validity and Reliability Internal validity The internal validity can be treat by the researchers knowledge, data collection procedure and instruments, and biased documentation. This is mitigated now that the all the researcher have consulted various financial research experts to ensure that they have a sound knowledge on data collection, documentation, data processing and analysis.Independent people are employed for the data collection, and the random excerpt of the participants helps to militate against biased data collection. External validity Threats to external validity apply mainly through three main factors time, place, and people (Creswell & Creswell, 2009). People threat could be created by selection of people from individual organization, but, this is avoided using a selection encompassing various different financial institutions and associated institutions in the home financing industry.Threat to validity by place replicates the setting in place for the data is collected process (Creswell & Creswell, 2009), this has been avoided through conducting the interviews in the best desired place with the institution, a person can also respond only once and finally no respondent is allowe d to take a break during the data collection process. The time of data collection is elect to be in the morning hours when most of the respondents are fresh in the mind, and now that we are dealing with the management level of the institutions, they can substantially create time.Reliability The validity is met through the number of participants sampled to participate in this project. The large number is according to the nature of this study, which aims at collecting as many views as possible. The second reliability is, the increase through strict devotion to the set research procedure and methods, the clear step will have to be followed without skipping or by passing any, and this is to avoid any puzzling in the project.A short pilot study will also be carried out to evaluate the strengths and weaknesses of the research procedure. 3. 7 Data Analysis Data analysis starts with testing the questionnaires and data collection. The subsequent data analysis procedure will involve sorting , and identification of various themes and ideas, and processing to identify various relationships in the responses from both the questionnaires, and interviews.Finally, the outcome is then summarized into lists of written ideas, and percentages. The data safekeeping is done through computer programs, write-ups of field notes, transcription conventions and procedures, and any other relevant tool that will be identified later. The collected data are grouped into various relevant themes, then, the most extreme and moot data are eliminated by a software program, then the stay data will be further tested for inconsistencies.The finally selected data will be analyses and tested for applicability, using various financial calculations, for example, the proposed favorable mortgage repayment rate, will be tested by designing the average cost of maintaining that mortgage, and the expected financial impacts of that rate to the US economy. After this stage only applicable data will be compil ed for the final presentation. Chapter 4 The Results and Findings of the Project Out of the 200 respondents, 178 successfully submitted the questionnaires on time fully filled, and they successfully completed the interview.The responses are summarized in the table below The No. of Respondents The Ideas Expressed 81% of the respondents (144 Respondents) Expressed that the economic and housing reclamations remain very fragile 90% of the respondents (160 Respondents) Accused the housing and homeownership interest groups to have the objective to cause destruction. 79% of the respondents (141 respondents) Further explained that the financial experts and policy-makers must let go their political scorn for Freddie Mac and Fannie Mae. 98% of the respondents (174 respondents) Insisted that the roles of the GSEs are important, but, they should not rely on tax payers money to run their operations. 60% of the respondents (109 respondents) Insisted that the suggested government plans appear to substitute policy that permits home and house prices to remain to decline because of condensed credit accessibility that is not economically productive. Overall 91% of the respondents Suggested that the current housing finance policies require change. The secondary literature, fully suggested that reduction in loan limits is very appropriate, raising guarantee fees (g-fees), for the GSE will increase the acquisition cost of mortgage, the FHFA and the GSEs should decrease their risk-layering to inspire more lending, and last but not least, many of the secondary literature suggested decreased portfolios of both Freddie Mac and Fannie Mae. Chapter 5 Discussion of Results and Findings Both the respondents and the secondary data revealed that most people demand major changes and fast changes in the housing finance policy especially the mortgage market.The outcome of this project express the following both primary and secondary expressed that the economic and housing reclamations r emain very fragile. The more time need to be dedicated for the homeownership and housing sector in to recover and stabilize before extreme, but highly needed, changes are formulated as required. Many interested groups have suggested that it is their objective to cause destruction, as a changeover from momentous government inter-group communication within the housing and homeownership market takes place.The respondents believed that * financial experts and policy-makers must let go their political scorn for Freddie Mac and Fannie Mae, they should pay attention on the importation of the secondary mortgage market and now that this market has contend a positive role in allowing Americans to attain bearable house and homeownership and wage hike motion in the larger American society. * Regardless of their noticeable mistakes and shortcomings, the GSEs played worthful and positive roles in housing mortgage finance.These positive and valuable elements of the GSEs should be bear and all owed to continue to the future of this finance system. * Freddie Mac and Fannie Mae GSEs are being faced out but, crucial elements of their functions must be retained to allow the U. S. to attain an affordable and efficient transformed mortgage finance system. * Presented observations proved that the that the governments social occasion in the housing market pulls away capital from various groups, higher productive, institutions impedes the statistic that 15% of the US national GDP is accounted for by housing accounts and 2. million work opportunities are created when there are yearly home sales of $5 million, and it is about each home bought, more than $60,000 is injected into the economy for home improvements, home appliances purchases, and other associated items. * The suggested government plans appear to substitute policy that permits home and house prices to remain to decline because of condensed credit accessibility that is not economically productive.A keen analysis of the o utcome indicates that facing out of on Fannie Mae and Freddie Mac from mortgage market might reduce home and house affordability and admittance for people who manage to own homes and houses, this will make greater profits for influential banks in America, while forcing the majority of medium banks to fail, causing bigger risks to home and house consumers and exposing taxpayers funds to mischief, and in the longer duration hurt the job creation and the general economy.The ultimate twisting up and down of the GSEs has made many experts to see the need for reforming the GSEs and instituting ways of bringing private capital back to the mortgage secondary market. Nevertheless, some people trust that the government affair is vital in the secondary mortgage market to guarantee the constant stream of mortgage capital to various if not all markets under any economic situations.Closing these GSEs minus mechanism for continuous government involvement in the secondary market in economic rece ssions and other turbulences will upsurge the probability of a forthcoming housing finance system catastrophes. Suggested rise in down payment quantity, increased down payment necessities a load on individuals and families in numerous markets, however, particularly high cost city dwellers. This saving to meet the down payment been cited by many secondary literature and financial surveys as the main expressed barriers to house and home purchases in America.A 10% down payment is challenging for numerous first time purchases and for others upgrading to bigger cost markets from lower cost markets. The change, joined with the planned fall in FHA support limits and the instillation of FHA personal income limits, implies that first time houses and home buyers in higher cost city market will have to spend significantly more money in private capital costs or postpone their purchases in spite of attaining incomes essential to cover the costs purchasing homes with conventional loan with accept able PMI or lower down payment FHA.Furthermore, the ultimate QRM inceptions will impose another obstruction when LTV bounds for QRMs are put beyond the reasonable down payment amount and mortgagees are unable or reluctant to offer conventional products that which conforms to QRM set test. The recommended reduction in loan limits, will impact high cost zones negatively when the cost of capital to the house consumers shall rise considerably. Though, the financial experts have specified that the retreating of government ontribution in loans to an amount up to $729,500 shall spike private capital to the mortgage market place, indication to that consequence is actually limited. The present oversize market is well fading away because of the severe restrictions put on possible home and house buyers through private capital. Raised guarantee fees, the so called g-fees, for the GSE, likewise as the increased down payments shall raise the acquisition cost of mortgage capital to various credi ts worthy house and home buyers, raising the g-fees shall become an extra load for possible home and house buyers.To incompatible this effect, the NAR has advocated to FHFA and the GSEs to decrease their risk-layering to inspire more lending. There is a developed experience that sensible guaranteeing is necessary but, this over-correction has converted more costly and this prohibiting home and house buyers who can solicit home payments from contributing in the market. The earlier mentioned whirl down the Government Sponsored Enterprises Portfolio, has made various quarters like NAR support decreased portfolios of both Freddie Mac and Fannie Mae but, full abolition should not be the objective for a fresh secondary market body.The Narrow pendent Residential Mortgage (QRM) safe harbor, is a great idea if the regulatory organizations create a QRM, which is meaningfully tauter than the present credit standards, it implies that many creditworthy mortgagors taken as higher risk mortgag ors. Chapter 6 Conclusion and Recommendations The government must set the right policies that will empower house and home consumers to circumvent biased practices and practice informed decision making, these sentiments had also been expressed way back in May 2005, in a document that highlighted the NARs Responsible Lending Policy.The suggested policies must seek to promote superior and clarity, stop abusive practices, and, as well as, robust guaranteeing standards, which requires mortgagees to authenticate the consumers credit worthiness. There must be improvement in the foreclosure processing and mortgage servicing, notably, from the beginning of the last financial crisis, foreclosures and NAR tried to work with administrators and regulators to formulate criteria for decreasing the risk of foreclosure. The good NARs determination to offer delegacy to restructure short duration sales and various insurance tools ave tried to encourage homeownership, through providing worried homeow ners alternatives other than the humiliation of eviction from their homes because of foreclosure. There should be increased capital availability to creditworthy borrowers from all communities and states including Michigan. The ways foreword under this is through safeguarding the vigorous secondary mortgage market through facilitation of flow of capital into the larger mortgage market, for every flake of home or housing including rental in during any market situation as being the main recommendation for this project.Chapter 7 References Arestis, P. , Mooslechner, P. , & Wagner, K. (2010). Housing market challenges in Europe and the United States. Basingstoke, UK Palgrave Macmillan. Baily, M. N. (2011). The Future of Housing Finance Restructuring the U. S. Residential Mortgage Market. Brookings Institution Press Creswell, J. W. (2003). Research design qualitative, quantitative, and mixed methods approaches (2. ed. ). Thousand Oaks, California. Sage Publication. Creswell, J. W. , & Cl ark, V. L. (2007). Designing and conducting mixed methods research. Thousand Oaks, Calif. SAGE Publications. Creswell, J. W. , & Creswell, J. W. (2009). Research design qualitative, quantitative, and mixed methods approaches (3rd ed. ). Los Angeles Sage. Duclos, J. , & Makdissi, P. (2002). Socially-efficient tax reforms. Sherbrook University of Sherbrook, Department of Economics. Federal Reserve Bank of New York. (2010). Current Issues in Economics and Finance. Goldfield, D. R. (2007). Encyclopedia of American urban history. Thousand Oaks Sage Publications. Gravin, A. (2002). The American city what works, what doesnt.. New York McGraw-Hill. Mitchell, J.P. (1985). Federal housing policy and programs past and present. New Brunswick, N. J. Center for Urban Policy Research. Monroe, A. (2002). How the Federal Housing Administration affects homeownership. Cambridge, Mass.? Joint Center for Housing Studies, Harvard University. NAR Issue Analysis (2011). Reforming Americas Housing Finance Market. Retrieved, 1st April, 2012, from, www. realtor. org/ /government_affairs_GSE_analysis_021211. pdf Swindler, S. (2011). Homeownership yesterday, today and tomorrow. ledger of Financial Economic Policy. Vol. 3 Issue 1, pp. 5 11.The Department of the Treasury and U. S. Department of Housing and Urban Development (2011). Reforming Americas Housing Finance Market a Report to Congress. Retrieved 1st April, 2012, from, www. michaelcarliner. com/HPD98-OwnershipPolicy. pdf The financial crisis doubt report final report of the National Commission on the Causes of the Financial and Economic Crisis in the United States (Official government ed. ). (2011). Washington, DC Financial Crisis Inquiry Commission. Virtanen, B. W. (2011). Housing finance reform in America. Hauppauge, N. Y. Nova Science Publishers.Wallison, P. J. , Pollock, A. J Pinto, E. J. (2011). Principles for Reforming the Housing Finance Market. National Mortgage News. Retrieved 4th April, 2012, from, http//www. aei. org/article/economics/financial-services/principles-for-reforming-the-housing-finance-market/ Wilshusen, G. C. (2010). instruction security opportunities exist for the Federal Housing Finance Agency to improve controls report to the Acting Director of the Federal Housing Finance Agency. Washington, D. C. U. S. Govt. responsibility Office. Woodward, S. E. (2008). A study of closing costs for FHA mortgages.Washington, DC U. S. Department of Housing and Urban Development, Office of Policy Development and Research. Chapter 8 Appendices Appendix 1 CFED Assets Opportunity Scorecard 2012, Michigan State Profile Appendix 2 Housing Financial Policy Changes in Michigan Questionnaire _________________________________________________________________________________ PART 1 AND 2 OPEN AND GLOSED ENDEND QUESTIONNAIRE __________________________________________________________________ Thank you for participating in filling the house and homeownership financial policy changes questionnaire. occup y submit the completed questionnaire by 31st March, 2012. __________________________________________________________________ personalized DETAILS (These details are required for communication purposes only and will not be disclosed) NAME POSITION NAME OF THE ORGANIZATION play DETAILS TELEPHONE EMAIL - - INSTRUCTIONS FOR COMPLETING THE QUESTIONNAIRE - -This questionnaire is in electronic format to facilitate its completion and to enable the responses to be automatically prepared for analysis. - - Question 1. 1 Please type your response of YES or NO immediately just after the question and the question mark. - - Questions 1. 2 Please type your responses in the appropriate columns of each table.Use your TAB key to create additional lines in the tables where necessary. - - Questions 1. 3 and 1. 6 Type your responses immediately after the questions and this is limited to 500words per question. - __________________________________________________________________________ HOUSE AND HOMEOWNERSHIP FINANCIAL POLICIES Your responses to these questions will provide data relating to the current housing financial policies.It will also provide data that will enable charging of the housing current financial policies. _____________________________________________________________________ 1. 1 Please answer with Yes or No, the following questions Does the US house and home financing policies need change? Do you support increased regulation in the mortgage sector? Have you been affected negatively by the current the current home financing policies? Have you been following the debate on housing financial reform? 1. 2 Describe the most discouraging process or discouraging thing during each of the three steps in mortgage acquisition.TASK INFORMATION REQUIRED Mortgages The Basics, Part I Starting out Mortgages The Basics, Part II Securing your loan Mortgages The Basics, Part III Closing the deal 1. 3 Which is the most influential institution in the provision of house and home financial assistance and why? MSHDA Michigan State Housing Development Authority NAHB National Association of Home Builders FHA Federal Housing Administration FHFA Federal Housing Finance Agency 1. List and explain the preferred policy changes in the mortgage industry? 1. 5 List and explain any housing financial policy changes that are relevant to encourage house and homeownership in Michigan? 1. 6 How does the information you get on house and homeownership compare with what you need to complete the house or homeownership process? (i. e ideally what would you like to have that is not currently available to you). Use the scale from 1-5 to indicate the importance of the required resource. 1 not task-specific of general benefit to provide indirect or pocket-sized support 3 to contribute directly to the task but not essential 4 to provide significant benefits or added value 5 critical Please complete this questionnaire by and SUBMIT. If you have any questions about how t o complete it, please contact person by phone phone number or email email address. Thank you name position title Appendix 3 Housing Financial Policy Changes in Michigan Interview Questions 1. Which Type of Loan is best for buying a house or home? Fixed-rate loans. Adjustable-rate loans. Interest-only loans. Negative-amortization loans. 2. What is the Interest Rate Annual Percentage Rate that would not burden the house and home buyers? Many lenders do not compute APR correctly. There is no way to accurately compute an APR rate for an adjustable loan. It does not account for early payoffs. If your interest rate is adjustable, ask about its Adjustment frequency Maximum annual change Highest rate (Cap) Index Margin 3. What are the Discount Points and Origination Fees that would encourage house and homeownership in Michigan? Sometimes lenders charge origination fees in addition to points. Points buy down the interest rate, meaning the more points you pay, the lower the interest rate. P oints are also tax deductible, even if the seller pays some or all of the points. 4. Is There a Prepayment Penalty that discourages house and homeownership? How much is the prepayment penalisation? What are the terms of the prepay? Some are in effect only during the first 2 to 5 years of the loan. Would the prepayment penalty apply if I refinanced through you at a later date?