It’s 2016, and since 2008, Fannie Mae and Freddie Mac have been in government conservatorship. Does that mean it’s time to give up on reforming the housing finance system? The answer is no.
It is still possible to move away from this government-sponsored enterprise model and create a stronger system that makes affordable mortgages available to consumers, allows more competition and better protects the taxpayer from risk.
Recently, there has been renewed debate about whether housing finance reform simply means turning the system over to “the big banks”. These assertions distort the important policy issues surrounding the future of Fannie Mae and Freddie Mac and the reforms needed to ensure there is a strong housing finance system for the future.
Fannie and Freddie currently hold more than 90% of the mortgages in the U.S., which are 100% backed by the taxpayer. That means if the housing market collapses in the future, taxpayers could have to shell out another $187 billion to keep the GSEs afloat. Taxpayers already paid that tab to bail out the GSEs and preserve the market in 2008. They shouldn’t be exposed again.
Since Fannie and Freddie were placed into conservatorship in 2008, policymakers have been engaged in a serious debate over the structure of the nation’s housing finance system.
The Housing Policy Council, which includes some of the nation’s largest national mortgage lenders, regional lenders and mortgage insurance companies, along with other industry leaders, has contributed to this debate with our proposals for reform.
The proposal supported by HPC, like other serious proposals over the last several years, aims to build a new and stronger secondary mortgage market that would address the flaws inherent in the structure and operations of the GSEs. Those objectives include:
- Encouraging private sector capital to play the primary role in supporting the secondary mortgage market;
- Ensure a steady flow of reasonably priced conventional mortgages to borrowers;
- Limit and define the role of the Federal Government and better protect taxpayers against housing market losses
- Provide strong oversight and regulation of the participants in a new system; and
- Provide a flow of funding to support affordable owner-occupied and rental housing.
A reformed system can include new privately capitalized firms to back the mortgage market and fill the role that Fannie and Freddie currently perform, but at much less risk to the taxpayer.
These privately capitalized entities would not be controlled by large banks and would guarantee mortgages originated by lenders of all sizes. These guarantors would be supervised by a federal regulator and they could not be owned or controlled by another company. These well-regulated private companies would also support owner-occupied and rental housing for extremely-low and very-low income families by contributing to housing funds.
There are still significant differences of opinion among members of Congress about what the appropriate roles should be for the government and the private sector in a new housing finance system. Yet, comprehensive reform remains important and possible.
Congress should not continue to allow the housing market to depend on Fannie and Freddie in government-controlled limbo. Taxpayers remain on the hook for a bailout if there is another economic downturn.
The Housing Policy Council’s goal, like other responsible plans, is to solve these problems for all stakeholders. Reform can create a stronger housing finance system that better protects taxpayers; provides steady access to mortgage credit for consumers; allows institutions and lenders of all sizes to participate and provides support for affordable housing. That is a goal worth pursuing.