It’s no secret that the elimination of Fannie Mae and Freddie Mac is at the core of most major proposals to reform the housing finance system.
The harsh reality is that a plan to replace the enterprises — a proposition attached to most reform proposals — will take many years to be approved and implemented, explained The Opportunity Agenda and the National Fair Housing Alliance fellow James Carr.
Interestingly enough, Carr pointed out that the principal goals for a new housing finance system could be restructured and achieved through administrative actions — leaving the opportunity for immediate reform without legislative action.
"There is no reason to leave the housing market in limbo as we wait to secure the major goals of a dramatically improved home mortgage market," Carr said. "At a minimum, administrative changes that can affect significant change should be pursued now as an interim step toward housing finance reform."
The biggest piece of the housing reform puzzle that’s missing is improved access and affordability, both of which are goals of the alliance.
"At the end of the day, it’s hard to select one of two goals that should take precedence over the others, since there is no reason for delaying implementation of all goals immediately," Carr stated.
For instance, administrative action can be taken to limit excessive risk-taking as opposed to legitimate innovation given that the Federal Housing Finance Agency already has adequate authority to ensure this goal.
Furthermore, the recently enacted qualified mortgage rule adds an additional level of safety. Presumably, the qualified residential mortgage rule, which has been proposed by the regulators, will provide additional protections.
Meanwhile, administrative action can be taken to guarantee that the risks involved in housing finance are fully internalized within the mortgage finance system, including adequate capital levels for private lenders.
To the extent that the government-sponsored enterprises are not already adequately replenishing risk reserves, the Treasury Department could hold some of the GSE repayments to capitalize this reserve pool rather than passing all profits through to general revenues, Carr pointed out.
The alliance also is in support of a new FHFA leader who would be focused on the home mortgage market and the reestablishment of homeownership as a cornerstone.
The organization believes access to homeownership should be the priority of the conservator, which would greatly lift the economy and market.
The takeaway message here is that the conventional housing market cannot wait for the timeline of the legislative process to run its course.
There are constant issues limiting access to homeownership — given that more than 70% of GSE activity is refinancing existing loans.
"While refinancing helps families lower their long-term cost of borrowing and adds profits to the bottom line for financial firms, refinancing does not expand homeownership," Carr stated.
He continued, "Lack of access to affordable home loans not only undermines asset building opportunities for America’s families but also contributes to a continuing drag on the U.S. economy."