Five critical housing questions

Former Secretary of the Navy on what the next president needs to answer

With the 2016 Republican and Democratic national conventions in the rearview window, it is time for the presidential candidates to lay out specific proposals regarding their governing agenda.

The presidential candidates have an opportunity to better protect taxpayers and to help consumers by making housing finance reform a top priority.

It’s time for the presidential candidates to step forward and declare where they stand. The candidates should answer these five questions about how they will reform the housing finance market:

1. How will taxpayers be protected in a future system?

2. How will private capital be brought into the current system?

3. How will the new system enable consistent sources of credit for consumers through the 30-year fixed rate mortgage and similar stable products?

4. What will the transition be from Fannie Mae and Freddie Mac to a new system?

5. How will you build on efforts currently underway to expand credit risk sharing, utilize a common securitization platform and move toward a single security for the secondary market?

So, why is housing finance reform so important to everyday Americans? This issue impacts everyone.

Reform of Fannie Mae and Freddie Mac is one of the major tasks left unfinished from the 2008 financial crisis. Fannie Mae and Freddie Mac — the housing government-sponsored enterprises or GSEs — had a flawed structure, being private companies with special Congressional charters that led the market to view them as fully backed by the government.

The GSEs lacked sufficient capital to support themselves when the housing market failed and the government and American taxpayers were forced to bail them out.

Since 2008, Fannie Mae and Freddie Mac have been in “conservatorship” or under government control. Without housing finance reform, taxpayers continue to be at risk for future losses and without a long-term solution to ensure consumer access to affordable, stable mortgage credit in the future.

An overwhelming majority of mortgage loans in America pass through Fannie and Freddie’s hands, a situation that is widely agreed to be unsustainable. Essentially, the mortgage market no longer functions properly; it is too dependent on the government’s support for the GSEs.

Reforms are needed to encourage and enable private capital to fund the mortgage market, accurately price risk and protect taxpayers from potential losses if there is another downturn.

Comprehensive housing finance reform that gradually winds down Fannie and Freddie and replaces them with a new market structure backed by increased private capital is the best solution to strengthen America’s housing finance system and to protect taxpayers.

In his famous 2007 commencement address at UC Berkley, Nobel Laureate Thomas Sargent explained, “Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always end up working as intended.”

To remedy these unintended consequences, we need a new market structure where the government role would be a “last-resort” backstop instead of the current situation where the government is the only safety net for the mortgage market.

So we hope the candidates will take this opportunity to lay out their plans and answer these five questions.

The American people deserve a response.

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