In many respects, our housing system is outdated and not equipped to keep pace with today’s demands and the challenges of the imminent future, the Bipartisan Policy Center’s Housing Commission wrote in a report released Monday.
In its ongoing effort to study the key issues that form the basis of a resilient housing system, the Housing Commission proposed a number of goals to ensure the national housing system allows individuals and families to have a say in their living situations.
The BPC Housing Commission believes that by changing our nation’s housing finance system, the range of ownership and rental housing choices will be increased for consumers at all stages of life. The uncertainty in the country’s housing finance system has minimized consumers’ choices, specifically when seeking a mortgage, the report asserts.
To rebuild the housing finance system, the BPC says the private sector must play a bigger role in bearing some of the credit risk. Currently, the government supports more than 90% of single-family mortgages via entities such as Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Housing Administration. The government also supports roughly 65% of the rental mortgage market.
"The dominant position of the government that currently exists is unsustainable," said Mel Martinez, former U.S. Senator and former secretary of the U.S. Department of Housing and Urban Development.
Reducing the footprint of the government and increasing private capital participation will protect taxpayers while providing for a greater diversity of funding sources, the policy report suggested.
“There is widespread agreement that the government’s footprint in housing finance is currently too large," said David Stevens, president & CEO of the Mortgage Bankers Association. "The Commission’s report rightfully highlights the need for a greater role for private capital in bearing credit risk, while also acknowledging the continued desire for a limited government function to ensure sufficient mortgage liquidity for qualified borrowers, particularly in times of market stress."
However, the housing commission says continued government involvement is crucial to ensuring mortgages continue to be available and affordable to homebuyers who qualify.
In rebalancing the nation’s housing finance system, the commission proposed the dissipating and ultimately the elimination of Fannie Mae and Freddie Mac after a five-to-10 year transitional period.
The commission proposed that the GSEs be replaced by an independent, wholly owned government corporation — the "Public Guarantor" — that would provide guarantee investors the timely payment of principal and interest on these securities. The model proposed is similar to Ginnie Mae.
After all private capital ahead of it has been exhausted, the Public Guarantor would provide a limited catastrophic guarantee.
"A strong, vibrant secondary market for these securities is essential," Martinez said.
This proposed entity would put the government in the fourth-loss position following borrowers and their home equity, private credit enhancers, and the corporate resources of the issuers and servicers.
The public guarantor will hold multiple responsibilities including, qualifying institutions to serve as issuers, servicers and private credit enhancers; ensuring the institutions are well capitalized; establishing the guarantee fees to cover potential catastrophic losses; ensuring the actuarial soundness of two separate catastrophic risk funds for the single-family and rental segments of the market and settling standards for the mortgages backing government-guaranteed securities.
“It is important that any secondary market proposal both meet policy objectives, in terms of ensuring secondary market liquidity, and support vibrant, dynamic, and competitive primary and secondary markets for the ultimate benefit of homeowners," Stevens added.