Tuesday’s conference in Washington, D.C., on the future of housing finance could go a long way toward shaping the Obama Administration’s long-range outlook on what role the federal government should play in promoting and financing homeownership.
Over the past several weeks, different political factions have attempted to draw the battle lines for this debate more sharply. Sensing an opening in public discontent over the government’s bailout of the banking and mortgage financing sectors, opponents of Fannie Mae and Freddie Mac—the controversial and financially crippled government-sponsored entities that currently guarantee about 70% of all home mortgages—have been beating the drum for their demise as loud as ever.
“Conservatives are saying the government should be out of the business altogether and they should be privatized to compete in the private market,” Robert Kuttner, senior fellow at research and advocacy group Demos in Washington, told MarketWatch on Monday. Last Friday, the New York Times published an Op-Ed piece titled “Say Goodbye to Fannie and Freddie,” whose author, William Poole, a senior fellow with the Cato Institute, wrote, “It would be an inexcusable mistake to reconstitute them as private companies in anything close to their prior form. Can the home mortgage market stand on its own, without support from federally sponsored mortgage companies? Experience tells us that the answer is an unambiguous yes.”
Regardless of Fannie’s and Freddie’s fates, Jerry Howard, CEO of the NAHB, still believes the government’s role in providing liquidity for the country’s secondary mortgage markets is vital. “Maybe these two companies should go out of business,” he told BUILDER on Monday morning. “But the philosophical reason for their existence hasn’t gone away, and you can’t just leave a vacuum where they were.”
At the administration’s housing conference, NAHB will be represented by Rick Judson, who two years ago chaired the association’s Housing Finance Task Force, which developed NAHB’s policy towards Fannie and Freddie.
Howard sees tomorrow’s conference as a “fact-finding” exercise “to build consensus about what the administration’s policy should be on Fannie, Freddie, and the secondary market.” It’s Howard’s understanding that administration officials—including Treasury Secretary Tim Geithner, who is in favor of continuing the federal government’s role in housing finance—will take the information from this meeting to devise a new policy sometime this winter.
“I honestly believe the administration hasn’t made up its mind yet, and wants to hear from all sides,” says Howard.
What he hopes will emerge from tomorrow’s meeting is a “reconfirmation” that it’s right for the government to promote homeownership and provide liquidity. But Howard also notes that any support of that role needs to be put into a larger context “of the government’s resources as a whole.”
He says NAHB is advocating such “tweaks” to housing finance as more prudent mortgage underwriting and a re-evaluation of the services that rate mortgage-backed securities. “We have to go back to basics,” he says. And those basics, in his estimation, include a robust home building sector to meet future demand. “When households are forming, people overwhelmingly want to own their own homes, which is still part of an American Dream that’s been battered, but not beaten down.”
John Caulfield is senior editor for BUILDER magazine.
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