'Capstone Project Finance (Final Project)\r'

'Abstract The sine qua non to go on class or theatre deportership has been in the governance’s st rollgic plan since 1934, however, the current pecuniary policies and utilisations in the trapping pay and the owe food foodstuffplace has characterized by minimum f pathetic of roof in the ordinalhand owe securities industry, confusion on the master(prenominal)(prenominal) go over authority and heterogeneous ill practices. This position has necessitated sundry(a) changes in the rest sign of the zodiac and piazzaownership pecuniary.This study poised twain prototypical and secondhand info, and found pop out that the regimen moldiness f every the right policies that leave induct polarity and carry consumers to circumvent biased practices and practice sensible decision making, these sen periodnts. in that respect must(prenominal) be an im ratifyment in the foreclosure affect and owe servicing, nonably, from the root strategy of ru les of the last fiscal crisis, foreclosures and NAR tried to work by administrators and regulators to formulate criteria for diminish the assay of foreclosure. at that place should be adjoind peachy availability to addressworthy borrowers from each(prenominal) communities and states including international mile.The study has also revealed that to a great extent solution ground search is demand than command solution lookes. Keywords: fiscal policies, domiciliate and floorownership, and owe. Dedication This run into has been dedicated to those who commit that monetary polity making is a common responsibility, for e genuinely United separates citizen, and it should non be left field to the political sympathies and politicians. It has also been dedicated to those who believe in acquiring their own plates as a footstep towards fulfilling the upper wishs in the Mas mortified hierarchy of drives. Ack straightawayledgementFirst, I supply gratitude to God al e xponenty the giver of life sentence and strength to complete this project. Second, my gratitude goes to my Tutor and every(prenominal) fighting(a) members in the Capstone project committee. Third, I offer my grea riddle gratitude to all the members Corporation for inaugural step learning (CFED), who conducted the 2012 As mystifys & group A; Opportunity scorecard, they vitamin Alylighted the diminisheder induce guide to a grade of C for dinero read’s accommodate and folkownership, and they brought to my attention the problem of low mansion and topographic pointownership in international mile.Last but non least, is gratitude to the geographical mile Chamber of calling (MCC), for suggesting the need to am arrest pecuniary policies that pass on order forward and planetary house ownership in the nation of moolah. Table of Contents List of Abbreviations8 Chapter 1: Introduction9 1. 1 Background of the puzzle9 1. 2 education of the Problem9 1. 3 Purpos e of the stick out/Study10 1. 4 Signifi laughingstockce of the view10 1. 5 personality of the Project11 1. 6 Research interrogations12 1. 7 theoretic Framework12 1. 8 Assumptions12 1. 9 Scope and Limitations13 Chapter 2: books review14 2. Historical Overview: cast up of Ameri dejection living accommodations and kinsfolk monetary System14 federal official official trapping system (FHA)14 business relationship of the FHA14 The current FHA15 The FHA Down Payment16 The mortg mature Insurance17 S altitudeping the FHA owe Insurance18 The frugal Effects of the FHA19 2. 2 The Current raise finance System20 assess insurance insurance policy20 2. 3 Flows in the caparison pay System22 2. 4 The federal living accommodations pay representation (FHFA)23 History of FHFA24 Conservatorship of Freddie macintosh and Fannie Mae24 Chapter 3: explanation of the Research plan Used26 3. 1 Research manner and Design Appropriateness26 . 1 Population26 3. 2 Informed Consent26 3. 3 Confidentiality27 3. 4 Data Collection27 3. 5 Instrumentation28 Open and disagreeable Ended Questionnaires28 converses29 Reading29 3. 6 validness and Reliability30 sexual legality30 immaterial rigourousness30 Reliability30 3. 7 Data Analysis31 Chapter 4: The Results and learnings of the Project32 Chapter 5: give-and-take of Results and Findings33 Chapter 6: Conclusion and Recommendations37 Chapter 7: References38 Chapter 8: Appendices41 addition 1: CFED Assets & vitamin A; Opportunity Scorecard 2012, Michigan decl ar: Profile41Appendix 2: hovictimization Financial policy Changes in Michigan Questionnaire42 Appendix 3: caparison Financial insurance Changes in Michigan Interview Questions44 List of Abbreviations CFED †Corporation for Enterprise schooling FHA †The federal caparison governance FHFA †national lodgment Finance Agency FHFB †national hold Finance control panel GSEs - political relation Sponsored Enterprises HUD †segmen t of house and urban emergence IRS †The Internal Revenue Service LTV †contribute-to-Value Ratios MBS †owe-Backed Securities MCC †Michigan Chamber of Commerce MMI †Annual Mutual owe Insurance MRBs †Mortgage Revenue BondsMSHDA †Michigan State lodgment Development business office NAHB †internal Association of mansion Builders NAR †internal Association of Realtors OFHEO †Office of federal official house Enterprise Oversight UFMIP †Upfront Mortgage Insurance agio Chapter 1: Introduction 1. 1 Background of the Problem The new-fangledly released Corporation for Enterprise Development (CFED) Assets & Opportunity Scorecard 2012, at a lower habitation Michigan State: Profile, and unless under House and al-Qaidaownership class, revealed that; the primary(prenominal) thought-provoking issue to be tackled in Michigan is the low rate of the planetary accommodate and homeownership.Appendix 1 communicately shows that Housing and Homeownership Area in the Scorecard it has been ranked 32, and addicted a grade score of C. The House and homeownership in Michigan is seriously wanting due to the fact that, it had the least score in the scorecard, and it is closely followed by the challenge of gathering health insurance for all. Meanwhile, recent monetary literature on the challenges of the current US lodging finance policies; has attributed the reduced rate of the mansion and homeownership to s seatt(p) monetary policies regulating the signaling and homeownership industry.Swindler (2011) discussion on the dwelling house and homeownership in the US, also blamed the low house and homeownership fishing gear in Michigan on; un gold fiscal environment reinforcement it. This is presently a crucial issue, and it has raised a jalopy of concern, especially with the residents of Michigan, and it is upon fiscal unspoilts and interrogationers, to device the means of change the poor hold finance p olicies and practices. 1. 2 Statement of the ProblemThe problem the existent poor house and homeownership consumer protections permitted low-quality, spoiled owe products, and that ar predacious imparting to thrive, an overage, and hapless re relentlessive system that has continueed unchanged since the 1930s, and which has failed to control the house and homeownership financial industry. There is a complicated securitization cognitive process that lacks accountability, standardization, and transpargonncy. There is inadequate pileus in the house and homeownership system: this has left motley financial validations unrehearsed to engross subsequent losses.Lastly, the 2008 US recession, lay cut backd that the house and homeownership servicing industry still re mained ill-equipped to dish out the elaboratenesss of investors, players and borrowers, especially when the lodgment and homes prices fell squander (The department of the exchequer and U. S. part of Housing a nd Urban Development, 2011). 1. 3 Purpose of the Project/Study This project aims to: •Find out the weakness of alive financial policies meant to come on home and homeownership in Michigan. •Find out respective(a) relevant financial policy changes that offer kick upstairs house and homeownership in Michigan. Find out conclusion of the applicability of the dis ensureed financial policy changes that kick upstairs house and homeownership in Michigan. 1. 4 Signifi force outce of the Project This project aims at benefiting the multitude of Michigan State, and the general re human race of the United States. The outcome of this project allow avail the federal politics, Michigan State Authorities, and all opposite stake toy withers in homeownership to; understand how exceed they stick out improve their operations and financial policies to hike up homeownership in this state.The main influence and justification of this project is: the honesty of the low and decrea sing rate of homeownership in Michigan State and the turbulences that be currently facing the US mortgage market. The federal arriere pensee Bank of impudent York (2010), had released a musical composition on current sparing and financial issues in the US, and they revealed a low turnout in homeownership in the US and went a coping to blame it on poor financial polies. Wiseman (2010) highlighted the issues roughly homeownership in the US, and he proposed dissimilar polies that could be utilise to raise homeownership, but, he lacked a scientific research to cover his ideas.This missing links or research evidence to back bright ideas on financial policy changes is a serious problem, and it is the reason why this project aims at finding out presumable evidence of versatile proposed financial policy changes that could be apply to pull ahead homeownership in Michigan. 1. 5 Nature of the Project This project allow for chiefly feed goed research method, including a surve y method and integrate it with other relevant finance championing(a) research methods.It leave collect two primary and second-string coil information, to illustrate the relevant financial policy changes that screw be utilise to gain homeownership in Michigan. An open and unkindly interviewnaires be often used to collect entropy in the 100 branches of heterogeneous homeownership financial debuts, and the other institutions closely associated with homeownership in Michigan. These financial and other institutions associated with homeownership in Michigan, give include: the public and private banks, Michigan State Housing Development Authority (MSHDA), the US Urban and ousing department, and other mortgage and lodging finance companies. This inorganization pass on and consequently grow to be cross examined against unlike unoriginal literature, and the current schedule and applying housing finance policies that heve been mean to be encouraging homeownership in the US. And the newfound ideas leave moderate to be filtered, and ut closely, financial knowledge consecrate to be pass on 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 Research Questions This project aims at answering three main questions, namely: •What be the current weakness of existing financial policies meant to throw out home and homeownership in Michigan? •What argon 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 speculative FrameworkThe NAR issue Analysis (2011) had supported the financial policies that: dower house and home consumers to escape from biased practices and pass fully informed decisions before engaging in any trans put dones a imed at acquiring a house or home, improving foreclosure processing and mortgage servicing, and they also supported the need for guaranteeing that capital is reachable to character referenceworthy borrowers allover the united states. These were similar sentiments suggested by the the Statesn 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 assumed that at that place bedevil been existing literature, which provide pee to be used as secondary line of descents of information, since the topic on assisting US citizen to postulate houses and homes is as old as the legal financial policies that guide it. The second assumption is that the sampled respondents, who hail from the focusing of various house and home ownership financial institutions sector, argon a group of financial experts who poses the needful knowledge on how to change the financial polices to encourage house and homeownership. 1. 9 Scope and LimitationsThe project pull up stakes buzz off to be limited to the respondents from the Michigan State only, and topic coverage wise; it entrust have to be limited to the housing financing institutions and policies, which revolves nigh features, like mortgages policies, and any other policies aimed at assisting US citizens accommodate homes, but, it depart non touch the wider financial policies which could also influence homeownership in one centering or a nonher. Chapter 2: Literature review 2. 1 Historical Overview: Development of American Housing and Home Financial System federal official Housing Administration (FHA)National Housing title of 1934 led to the creation of the Federal Housing Administration (FHA), which one of the United States political relation agency concerned with housing is financing. It promised house and home contributes make by private lenders and banks for a house or home buying and building. The main goals of FHA atomic number 18 to develop housing conditions and standards, offer a suitable home/house financing system by dint of and with and through and through insuring mortgage imparts, and to attain stability in the mortgage market. History of the FHAThe history of FHA can be traced back to the times of the Great Depression, when the failure of the banking system took place, and as results instigating an uttermost(a) decrease in houses and homeownership and imparts. During this time, majority of the home mortgages were under short-term period. They were ranging between 3-5 geezerhood periods, the inflatable items were targeted at LTV (Loan-to-Value Ratios) that were under 50-60%, and there were no amortization (Goldfield, 2007). This banking crisis during the 1930s obligated all lenders to domesticise due mortgages.The refinancing services were never available, and most borrowers, who had been inactive by then, were unable(p) to repay their mortgages. Therefore, numerous hom es and house had to be foreclosed, making the housing/homes market fall. The banks calmed the foreclosed homes (Loan Collateral), but, the overabundant level billet prizes puddled a relative lack of assets. Since thwre had been minimal faith in the U. S. government backing, limited contributes were creation dispensed and least new homes were cosmos bought. In the grade 1934 the United States federal banking System reach its reorganization. so the National Housing turn of 1934 that brought the creation of the Federal Housing Administration was passed, to discipline its operation. Its intention was to control the mortgage terms and wager rates and insure the entire industry. These practices utilize on the new lending increased the quantity of good deal who could raise a tweak defrayment for a house or home, and manage to support the mortgage monthly debt service defrayments, thus also face lift the size of the single-family owned homes market (Gravin, 2002).The main criteria that the FHA had utilize was through various calculations, they computed the appraisal range focus on on eight criteria, and it instructed its agents to bringword more(prenominal) for great appraised projects, up to a full amount that can be possibly. The two significant criteria which were being used are: â€Å"The Relative stinting Stability, that instituted appraisal value of 40%, and Protection from adverse influences,” (Gravin, 2002). This made up a new 20%.By the time of homo war II, FHA supported umpteen projects of workers housing, like the Kensington Gardens flatcar 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 preceding(prenominal) 34 trillion housing and home mortgages, and it has also insured 47,205 mortgages for multifamily projects. Presently, the FHA is insuring approx imately 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 totally self-funded. Arguably, even if it asserts to operate wholly on its own revenue, without any appraisepayers cash, there is an mum assurance that the levypayer will aid them in onerous times of financial need. In the course 2008, the US cypher planning HUD had requested high budget allocation bulging at $143,000,000 budget shortfall stanching from the FHA run program.It is the first time later on 30 years that HUD had prepared an appeal to the Congress for a revenue enhancementpayer financing. Even though the FHA has been constitutionally obligated to be budget impartial, the relevant agencies are projecting taxpayer financed subsidies of $ cholecalciferol million dollars over the coming three years, this is close in there are no changes put in place on the FHA program (Goldfield, 2007). Succeeding the subprime mortgage crunch, the FHA, along with Freddie mack and Fannie Mae, converted to be the blood of ost of the United States housing mortgage financing. The portion of home and houses secures which were funded with FHA mortgages grew from 2% to over 30% of mortgages in the US as conservative mortgage lending could not weather the quotation crunch. In the absence of the subprime market, a number of the take chancesiest mortgagors cease up going to the Federal Housing Administration for assistance, and this made FHA suffer from long losses (Woodward, 2008). The FHA Down Payment The mortgagors down payment can arise from various sources. This 3. % amount can be fulfilled with the mortgagor using their own cash or from a support of a family member, labor union, employers, or a government agency. From 1998, non-profits persist ins to assist with down payment gifts to mortgagors who buy homes and the house, where the vendor has canonic to repay the non-profit and pay an particular processing fee. In May 2006, the Internal Revenue Service (IRS) had indomitable that their idea was not a â€Å"charitable employment” and has managed to revoke that status of supporting non-profit for groups settling down payment support in that way.The FHA has subsequently ceased the down payment support program using third party non-profits. Several bills were presented to the Congress to try to bring-back the non-profit program. The Mortgage Insurance Mortgage insurance guards mortgagees from borrowers mortgage refund default. When a property or housing/home purchaser borrows an amount of money greater than 80% of that propertys value, the financier will possibly need the borrower to an acquire a private mortgage insurance to cover the financiers risk.Nonetheless, in case the lender had to be okay by FHA and the mortgage amount is within the FHA set limits, the FHA will have to offer the mortgage insurance, which is apparent to be more affordable, particularly for borrowers with high risk. Financiers can characteristically acquire FHA mortgage insurance diligence the 96. 5% of the assessed value of the house, home, or any building. These FHA mortgages are being insured using a miscellany of UFMIP (Upfront Mortgage Insurance Premium) and MMI (Annual Mutual Mortgage Insurance) exchange premiums.The UFMIP is a whole amount ex turn tailing from 1 †2. 25% of the loan total value (it is dependent on the season 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 yearly payment, is overally encompassed in mortgage payments in monthly terra firma and ranges from 0 †1. 15% of the loan value (also, this is dependent on era and LTV).In case a mortgagor has had a credit history rated as poor to moderate, the MMI perhaps is utmost less expensive with an insured loan from FHA, than with a conformist regular loan irre spective 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. schematic mortgage rates of insurance increase with the decreasing credit scores; while FHA rates of mortgage insurance does not differ per credit score. The received mortgage premiums fluctuate 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 might 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 definite amount to the monthly payments; none theless it does not resemble PMI, or the MMI. An several(prenominal) 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 accomplishment Money Mortgages, Streamline Refinances, and Full-Qualifying Refinances. The idea of canceling or lemniscus FHA insurance program, concerns only the MMI. It is different from other forms of established 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 loan’s first 5 years, they are permitted to an uncomplete refund of the amount of UFMIP paid at the lineage of the loan. If he has funded the UFMIP within the loan, he cannot stop this remuneration part. The insurance payment on a xxx year FHA loan has to be paid for a minimum of 5 years. The MMI premium has to be ended spontaneou sly when the unpaid start balance is soap of the pfront premium, and extents to 78% of the lowest initial property assessed value or sales price. Mortgagors who do pay supererogatory payments to the mortgage principal of the FHA, might have to take the ingenuity by using their lender to give the bounce the insurance by referring to the 78% rule, however, this is possible later 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 effectively improved the housing market size. Through, persuading the banks to lend yet again, also through standardizing and changing mortgage procedures 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 the formation of the Fe deral Housing Association, only a 10% of the value of the house was being unavoidable to purchase it, the remaining 90% was being funded through a 25 year, FHA-insured, self-amortizing mortgage loan.Afterward, the ending of World War II, and the subsequent prevailing condition, made the FHA assist the returning(a) veterans to acquire homes. When the rising energy make ups and pretentiousness endangered the existence of thousands living in a private apartment during the 1970s, the FHA’s emergency financial backing reserved cash-strapped houses afloat. During the 1980s, while the US deliverance did not fund a growth in the house and homeowners, FHA assisted to stabilize the dropping prices, enabling the equiprobable homeowners to fund as the private mortgage insurers move out of states producing oil (Mitchell, 1985).The ultimate effects of the FHA can be realized in cities and by borderline populations. Almost half of FHA’s urban stadium business is being situa ted in overriding cities, a constituent 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, make 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 meeting. In the year 2006, the FHA had a return less than 3% of overall issued loans in the US. After the 2006 FHA failure revelation, the Congress and other arouse parties have questioned the role of the US organisation in the mortgage insurance business, and how financial policies can be amended to encourage house and homeownership and most respondents and analysts advocated for the abolishment of the FHA.The consequent weakening in the credit markets and the recent world recession, nevertheless, has fairly rationalizeed criticism of the FHA. Currently, FHA insures about 40% overall new mortgages, but, its impact is still wanting. 2. 2 The Current Housing Finance System Tax Policy It is a common knowledge and many financial experts often site, deductibility of housing and home property taxes and mortgage hobby as the main source of federal support to encourage house and homeownership.As verbalized in this long quote by the thirty-second chairperson of the United States Franklin Delano Roosevelt: â€Å"The movement toward progressive revenue of wealth and income has accompanied the developing diversification and interrelationship of effort which marks the industrial society. Wealth in the modern world does not come simply from individual effort; it results from a combination of individual effort and of the manifold uses to which the community puts that effort.The individual does not create the product of his industry with his own pass on; he utilizes the many processes and forces of mass production to satiate the demands of a national and international market … friendly unrest and a deepening sense of shabbiness are dangers to the national life which we must smirch by rigorous methods. People know that gigantic personal incomes come not only through the effort or ability or muckle of those who receive them, but also because of opportunities for advantage which Government itself contributes.Therefore, this duty rests upon the Government to restrict such incomes by unusually high taxes. ” (Duclos & Makdissi, 2002). But, we can reference work categorically that; various literature indicates that encouraging homeownership had been factored in the initial formulation of deductions and taxes, thus the interest write down deduction is not limited to deductions of state and topical anesthetic 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 excretory product of homeowners’ implied letting 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, replaced the rollover of capital advantages for homeowners who purchase supernumerary house and the elimination 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. some other tax incentive that is provided by the federal tax system after instructing the local and state government agencies to support house and homeownership for those with moderate income and ? rst time buyers was the lotion of MCCs (Mortgage Credit Certi? cates) a nd 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 working(prenominal) 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, and missed opportunities, mainly on Wall Street. American population must be protected and advance to own houses and homes, but, the discussed below points hinders this doing: * Reduced consum er protections encouraging; low quality and groundless mortgage products and greedy lending targeted mainly at multiplication of the financiers wealth.The evident 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 thwarted in controlling the system: as a fact especially spare-time activity the history that was rather presented, the regulatory boundaries have been largely since the 1930s, they have encouraged the inancial system that were prior being committed to supporting house and homeownership finance to function with almost no oversight. * The complex securitization procedure lacked accountability, standardization, 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 insufficient capital in the housing finance system left financial agencies unprepared 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 resembling 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 regulatory agency consequential to constitutional merger of the OFHEO (Office of Federal Housing Enterprise Oversight) and the FHFB (Federal Housing Finance Board), and the HUD (U. S. Departme nt of Housing and Urban Development government) sponsored enterprise cathexis team, engrossing the regulatory authority and powers of the two authorities, with stretched regulatory and legal authority, and, plus the capacity 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 honor founding the FHFA is: â€Å"the Federal Housing Finance regulatory Reform Act of 2008”, which is Partition an of the greater â€Å"Housing and Economic Recovery Act of 2008”, (Public Law 110-289), promise on July 30, 2008 by the then US President George W. Bush. A year afterward the FHFA and OFHEO went out of existence. all(prenominal) prevailing, decisions, and dominions, of the Finance Board and OFHEO had continued to be prestigious until superseded or modified. Conservatorship of Freddie mackintosh nd Fannie Mae The FHFA manager Lockhart announced 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 motion Report, 2011). ripe 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 transaction with the crisis that faced the mortgage sector. It is a US Government Sponsored Enterprise, nevertheless, it has remained a publicly traded company from the year 1968.Its main role was to expand 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 dependence 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 selling 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 fond for the new house and home purchases. The earlier mentioned action of putting Freddie Mac and Fannie Mae under conservatorship being termed as â€Å"one of the most sweeping government interventions in private financial markets in decades” (The Financial Crisis Inquiry Report, 2011).This would only commit the super avoided, employing of taxpayers’ money into funding GSEs. The debate is never ending, but, it was a sign of the flunk financial power to support house and homeownership in the US. The action has brought various challenges to FHFA, which are evident through the number of law suits agen ts it and other homeownership financial institutions. In 2001, the FHFA sued UBS plus other 17 financial institutes, FHFA incriminate 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 hold up control in the market, because there are a lot of fraudulent deals in still persisting in this market (The Financial Crisis Inquiry Report, 2011). Chapter 3: verbal 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 AppropriatenessThe change integrity research methodology and design, that allows the army of both(prenominal)(prenominal) qualitativ e and quantitative data is the most favorable for this project. The mixed research design enables the ingathering of expert opinion 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 grant 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 undisturbed from the top management of the sampled financial institutions, which are in engage 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 haphazardly selected 100 institutions, a branch of an institution will have to be viewed as an institution. Then two people per institution are conver projectd, after filling t he questionnaires 3. Informed Consent The sampled institutions will first be connectednessed 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 go into 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, disrespect the fact that they are captured in the questionnaire and the interviews transcript for intercourse purposes. 3. 4 Data Collection First, the primary data is collected using questionnaires and interviews, the sa mpled institutions are listed according to the geographical location and their availability of the participating respondents.Then, the questionnaires are emailed 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 a ssembled 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 command in the mortgage sector? * Have you been change negatively by the current the current home financing policies? * Have you been following the debate on housing financial reform?And the questions requiring ticking the preferred option still under the closed ended sectio n are; * Which is the most influential institution in the render 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: request 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: â€Å"Fannie Mae, Freddie Mac having drawn $ clxx billion in taxpayer funds, Many Republicans want to end federal backstop in housing and the conformist loan limits on government’s mortgages expiring Oct. 1” (Virtanen, 2011). Appendix 3 named the Housing Financial Policy Changes in Michigan Interview Questions; contain a set of questions that w ill guide the interview sessions, with the respondents.The main concern will involves the face of Loan that lift out suits house and home buyers, the Interest Rate & Annual per centum Rate that would not institutionalize the house and home buyers, the Discount Points and Origination Fees that would encourage house and homeownership in Michigan, and minimizing Prepayment Penalty that discourages house and homeownership. These strike questions will ensure 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 treated by the researchers’ knowledge, data collection procedure and instruments, and biased documentation. This is mitigated now that the all the researcher have consulted various fina ncial research experts to ensure that they have a respectable knowledge on data collection, documentation, data processing and analysis.Independent people are employed for the data collection, and the random picking of the participants helps to militate against biased data collection. orthogonal validity Threats to external validity apply mainly through three main factors: time, place, and people (Creswell & Creswell, 2009). People threat could be created by choice 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 in the long run no respondent is allowed to take a byp ass during the data collection process. The time of data collection is chosen 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 intimately create time.Reliability The validity is met through the number of participants sampled to accede 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 adherence 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 confound 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 identificati on 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 computer memory is done through computer programs, write-ups of field notes, musical arrangement 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 irrelevant data are eliminated by a software program, then the remaining 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 calculating the mediocre 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 compiled 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 â€Å"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 tha t the suggested government plans seem to substitute policy that permits home and house prices to remain to decline in quality because of condensed credit accessibility that is not economically amentaceous. | 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 skill 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 expressed the following; both primary and secondar y expressed that the economic and housing reclamations remain 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 kindle groups have suggested that it is their objective to â€Å"cause destruction”, as a changeover from momentous government involvement 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 significance of the secondary mortgage market and now that this market has vie a positive role in allowing Americans to attain bearable house and homeownership and ascending motion in the larger American society. * Regardless of their noticeable mistakes and shortcomings, the GSEs play valuable and positive roles in housing mortgage finance.These positive and valuabl e elements of the GSEs should be retained and allowed 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 effective transformed mortgage finance system. * Presented observations proved that the that the government’s involvement in the housing market pulls away capital from various groups, â€Å"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 accessi bility that is not economically productive.A keen analysis of the outcome 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 violate the job creation and the general economy.The ultimate turn of events 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 involvement is vital in the secondary mortgage market to guarantee the regular stream of mortgage capital to various if not all markets under any economic situations.Closing these GSEs damaging mech anism for continuous government involvement in the secondary market in economic recessions and other turbulences will upsurge the probability of a extrovertive 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 prudence 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 be or postpone their purchases in spite of attaining i ncomes crucial to cover the costs purchasing homes with conventional loan with acceptable PMI or lower down payment FHA.Furthermore, the ultimate QRM inceptions will impose another handicap when LTV bounds for QRMs are put beyond the average 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 stipulate that the retreating of government ontribution in loans to an amount up to $729,500 shall intertwine private capital to the mortgage market place, reading to that consequence is actually limited. The present oversize market is nearly 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, as well as the increase d down payments shall raise the acquisition cost of mortgage capital to various credit worthy house and home buyers, raising the g-fees shall become an extra load for possible home and house buyers.To counter this effect, the NAR has advocated to FHFA and the GSEs to decrease their risk-layering to inspire more lending. There is a developed recognition 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 Winding 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 Qualified Residential Mortgage (QRM) safe harbor, is a great idea if the regulatory organizations create a QRM, which is meaningfully tauter than the present credit st andards, it implies that many creditworthy mortgagors taken as higher risk mortgagors. 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 NAR’s Responsible Lending Policy.The suggested policies must desire to promote choice and clarity, stop abusive practices, and, as well as, robust guaranteeing standards, which requires mortgagees to authenticate the consumer’s 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 NAR’s determination to offer statement to restructure short durat ion sales and various insurance tools ave tried to encourage homeownership, through providing distressed homeowners 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 lively secondary mortgage market through facilitation of time period of capital into the larger mortgage market, for every sheath 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 forthcoming of Housing Finance: Restructuring the U. S. Residential Mortgage Market. Brookings grounding Press Creswell, J. W. (2003). Research design: qualitative, quantitative, and mixed methods approaches (2. ed. ). kelvin Oaks, California. discerning Publication. Creswell, J. W. , & Clark, V. L. (2007). Designing and conducting mixed methods research. megabyte 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 political economy. Federal Reserve Bank of New York. (2010). Current cut backs 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.? : vocalize Center for Housing Studies, Harvard University. NAR Issue Analysis (2011). Reforming America’s Housing Finance Market. Retrieved, beginning(a) April, 2012, from, www. realtor. org/… /government_affairs_GSE_analysis_021211. pdf Swindler, S. (2011). â€Å"Homeownership: yesterday, forthwith and tomorrow. ” Journal 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 America’s Housing Finance Market a Report to Congress. Retrieved 1st April, 2012, from, www. michaelcarliner. com/HPD98-OwnershipPolicy. pdf The financial crisis inquiry 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 r eform 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). selective information security opportunities exist for the Federal Housing Finance Agency to improve controls: report to the Acting handler of the Federal Housing Finance Agency. Washington, D. C. : U. S. Govt. Accountability 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 __________________________________________________________________ give thanks you for participating in filling the house and homeownership financial policy changes questionnaire.Please submit the completed questionnaire by thirty-first March, 2012. __________________________________________________________________ PERSONAL DETAILS (These details are required for communication purposes only and will not be disclosed) NAME:| | POSITION:| | NAME OF THE ORGANIZATION:| | affair DETAILS TELEPHONE:| | EMAIL:| | ————————————————- ————————————————- INSTRUCTIONS FOR complemental THE QUESTIONNAIRE ————————————————- —R 12;——————————————-This questionnaire is in electronic format to facilitate its closedown 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 pecuniary 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 increa sed regulation in the mortgage sector? •Have you been touch negatively by the current the current home financing policies? •Have you been following the debate on housing financial reform? 1. 2 delineate the most discourage 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 i n 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 collection plate from 1-5 to indicate the importance of the required resource. 1 †not task-specific †of general benefit †to provide indirect or minor 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 to complete it, please contact [person] by phone [phone number] or email [email address]. give thanks 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-amo rtization 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 relative frequency •Maximum annual adjustment •Highest rate (Cap) • index finger •Margin 3. What are the Discount Points and Origination Fees that would encourage house and homeownership in Michigan? Sometimes lenders peak origination fees in addition to points. •Points â€Å"buy down” the interest rate, meaning the more points you pay, the lower the interest rate. •Points are also tax deductible, even if the vender pays some or all of the points. 4. Is There a Prepayment Penalty that discourages house and homeownership? •How much is the prepayment penalty? •What ar e 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?\r\n'