Speaking Tuesday at an event hosted by the Bipartisan Policy Center, Secretary of the United States Department of Housing and Urban Development Shaun Donovan called on members of Congress to pass housing finance reform now because “this might be the only chance we have to get something done in this decade.”
Donovan threw his and the administration’s support behind the GSE reform measure put forward by Chairman Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, of the Senate Committee on Banking, Housing, and Urban Affairs. “The administration is very pleased with what Johnson-Crapo does,” Donovan said.
One of the key tenets of Johnson-Crapo is ensuring affordability and availability for those who are seeking to rent instead of buy. Donovan said that it was critical to provide affordability across all segments immediately. “This is the worst rental affordability crisis this country has ever known,” he said.
Donovan praised the work done since the financial crisis to aid in the recovery of the housing market, but said that there is still more work to be done. “Since 2012, families have restored $3 trillion in home equity,” he said. “We’ve helped more than 8 million families modify their mortgage. But it baffles me when people say we should keep the current system.”
Donovan said that the Federal Housing Administration is playing a much larger role in the mortgage market than it has in the past. “Traditionally, FHA has been about 15% of the market,” he said. “Right now we’re playing an outsized role. Right now 3% of the loans that Fannie and Freddie make are going to African-Americans and 5% are to Latinos. Half of African-American and Latino borrowers are using FHA.”
Donovan said that the lack of private capital in the market is shrinking the amount of credit available and leaving worthy borrowers out in the cold. “There are 10-15% of borrowers that are being left behind right now,” he said. “We have to make sure that capital reaches all those who deserve it. We’re looking for innovative ways to get credit to those people who are ready to buy. Only legislative reform can provide liquidity to the entire market.”
Donovan said he thinks that there are positive signs that housing finance reform can get done this year, but urged Congress to work through the Johnson-Crapo markup and send the bill to the floor quickly. “I think we all have seen the challenges of getting something big and important done in Washington,” he said. “This is not a question of ‘we’ve got months.’ If we can’t get this bill from markup to the floor quickly, it may not be getting done because of the midterm election.”
Donovan said that the Johnson-Crapo bill isn’t perfect, but that the bill does represent significant progress in a segment that is vital to the economy. “It ends the system that caused so much damage,” Donovan said. “One of the failures of the old model was the implicit government guarantee from Fannie and Freddie so taxpayers were on the hook for their losses.”
Donovan closed his remarks, fittingly as the event was hosted by the Bipartisan Policy Center, with a call for Democrats and Republicans to continue the “grown-up conversation” about housing finance reform. “This is the time to make the status quo a thing of the past,” he said. “This is the time to finally make reform reality. Let’s come together, from all parties, from all sectors, and make this happen.”