Congress needs to take the politically risky but necessary move to reform the government-sponsored enterprises to reduce uncertainty in the housing market, according to a report from the Progressive Policy Institute that lays out a plan to reform housing. PPI lays out a menu of options that it says should be discussed, including calls for “HomeK” accounts to encourage saving for down payments and installment of a permanent homebuyer tax credit. PPI senior fellows Jason Gold and Anne Kim outline a five-part policy framework for getting the market moving again in a report released Friday, “All of the Above: What to Do About Housing — Now.” Even if solutions to reducing the Fannie Mae and Freddie Mac footprint on mortgage finance aren’t readily apparent, Congress needs to at least agree to a process that will lead to near-term certainty, the authors said. They recommended a bipartisan GSE reform super committee, fashioned after a super panel that is looking at deficit reduction options, to get the ball rolling. The panel would be given a six-month timetable to draw up a proposal that would be subject to congressional approval. PPI’s report said the nation needs a multifacited framework and offered a menu of options that the institute said were all worth discussion, some of which are already under consideration. “One solution cannot address all,” the authors said. “A package of variously sized measures, both big and small, could in the aggregate be enough to provide the boost the market currently needs.” But PPI warned that policymakers should be wary of proposals that threaten to dampen demand. Its five-part plan was split up as follows: 1. Do no harm: PPI warned against a qualified residential mortgage definition in Dodd-Frank that would mandate a 20% down payment. It recommended restoring the conforming loan limits that expired Oct. 1. 2. Throw a lifeline to underwater borrowers: The paper recommends encouraging lenders to write down loans in exchange for a share in future appreciation and a mass refinance of GSE portfolio loans to lower rates, a topic under consideration now by the Obama administration. 3. Soak up supply by sparking new demand: A $5,000 permanent homebuyer tax credit would help low- to moderate-income families. It would require a dollar-for-dollar match by the homebuyer. The “HomeK” account would allow employees to segregate up to 50% of their retirement account into a housing specific sub account. Funds could be withdrawn without penalty and applied toward a down payment. The authors also supports a bulk REO-to-rental program and “homeownership vouchers” that would be targeted toward lower-income, first-time buyers. The report cites American University Professor Robert Lerman who proposes converting the current low-income housing tax credit into 1 million homeownership vouchers to help reduce excess inventory and stabilize prices in hard-hit areas. 4. Fix Fannie and Freddie sooner rather than later: GSE reform is complicated, potentially expensive and divisive, but must be tackled, the report notes. Even if Congress doesn’t see an immediate solution, it should get discussions moving. 5. Articulate a new national housing policy: For the last 30 years, housing policy has been driven primarily by the homeownership rate. That thinking needs to be broadened, according to the the PPI paper. The authors suggest appointing a housing policy commission to recommend a national housing policy. “Rethinking federal housing policy cannot be done solely within the confines of (the office of Housing and Urban Development).” The report also suggested creation of a “housing market health index.” The new metrics would supplement the homeownership rate as a means of gauging success of federal policy and would includes things such as stability of the housing finance system and affordability of mortgages. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.
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