Long before the onset of the housing market crisis, the NAHB was advocating reform of many aspects of the nation’s housing finance system.
So it should come as no surprise that the NAHB recently proposed a new comprehensive framework for housing finance system reform.
Our goal is to overhaul the housing finance system to ensure that housing credit is available and affordable in the future and is delivered through a system that is competitive, efficient, safe, and stable.
This new system must include private, federal, and state sources of housing capital and offer a menu of sound mortgage products for both single-family and multifamily housing that is governed by prudent underwriting standards and adequate oversight and regulation. It also must provide a federal backstop to ensure the availability of 30-year, fixed-rate mortgages at reasonable interest rates and terms.
To achieve that goal, the NAHB is proposing that Fannie Mae and Freddie Mac be gradually phased out as a new mortgage securitization system for single-family and multifamily conventional mortgages is implemented.
Under this scenario, Fannie Mae and Freddie Mac would be replaced by private housing finance entities (HFEs) chartered to purchase single-family and multifamily mortgages from loan originators and to package the loans into securities for sale to investors.
The HFEs would only purchase mortgages that have reasonable risk characteristics, such as standard 30-year, fixed-rate loans. The HFEs would operate under the oversight of a strong independent regulatory agency to ensure all aspects of safety and soundness.
Federal support to the conventional mortgage of the future would consist of a privately funded insurance fund where the government would guarantee its solvency in a manner similar to the way that the FDIC backs the fund that insures savings deposits.
Under this system, mortgage originators would pay premiums to capitalize the insurance fund, which would cover losses and ensure full payment to investors. The federal government would be required to pay investors only if the insurance fund was depleted.
To reduce the risk to taxpayers, the federal government would be in a secondary position and would be the insurer of last resort. It would guarantee only the securities, not the mortgages.
The NAHB’s housing finance reform blueprint also proposes to:
*Restart a carefully regulated, fully private mortgage-backed securities system.
*Continue the role of the federal government housing agencies.
*Enhance the position of state and local housing finance agencies as a source of housing funds.
Most important, this plan would require comprehensive reforms to repair the standards, oversight, underwriting, and regulatory flaws that produced the housing boom and bust.
Another essential element would be adequate oversight of previously unregulated segments of the mortgage and financial markets.
With Congress suffering from election year paralysis, we don’t expect to see any productive action on this proposal in the near future.
I encourage members of Congress to study this plan and set the wheels in motion for implementing these reforms.
The housing industry and the American public continue to suffer from the destructive side effects of the housing market meltdown, and the time for initiating action to reform the housing finance system is already long past.
You can view the NAHB’s full proposal at www.nahb.org/GSEwhitepaper.