Magazine article Mortgage Banking

A Viable Way Forward: The Bipartisan Policy Center Housing Commission Has Produced a Balanced Blueprint for a New Housing Finance System

Magazine article Mortgage Banking

A Viable Way Forward: The Bipartisan Policy Center Housing Commission Has Produced a Balanced Blueprint for a New Housing Finance System

Article excerpt

Will 2013 be the year Washington finally begins to repair our nation's broken system of housing finance? While too soon to tell, we are seeing some hopeful signs that housing finance reform is in fact becoming a greater policy priority in the halls of Congress. [paragraph] In recent weeks, key congressional committees such as the Senate Committee on Banking, Housing and Urban Affairs and the Housing Committee on Financial Services have convened forward-looking hearings on the subject. These hearings have provided members of Congress and the public with the opportunity to examine what a new housing finance system might look like beyond today's government-dominated approach. [paragraph] In addition, a bipartisan group of senators--Bob Corker (R-Tennessee), Mark Warner (D-Virginia), David Vitter (R-Louisiana) and Elizabeth Warren (D-Massachusetts)--recently introduced the Jumpstart GSE Reform Act, legislation that would prohibit using the guarantee fees (g-fees) charged by Fannie Mae and Freddie Mac as a piggybank to finance other, non-housing government spending. The legislation would also prohibit the sale of preferred stock in the two institutions without congressional approval and in the absence of broader, structural housing finance reform.

As Sen. Corker explained, "The reality is that if Congress were to spend g-fee revenue from the GSEs [government-sponsored enterprises] on other programs, reforming these mortgage behemoths would become nearly impossible. At the same time, if Treasury were to decide to sell its preferred share investment without Congress having first reformed our housing sector, we would just be returning to a time where gains are for private shareholders and losses are for taxpayers. Neither of these is an acceptable outcome."

These words of caution are right on target. They also echo the views of the Bipartisan Policy Center (BPC) Housing Commission, Washington, D.C., which has been engaged in an intensive 16-month examination of a broad range of housing issues, including housing finance reform.

I am privileged to serve with former Senators George Mitchell and Kit Bond and former Department of Housing and Urban Development (HUD) Secretary Henry Cisneros as one of the four commission co-chairs. In total, the commission has 21 members from both political parties who bring to the table a wide variety of ideological perspectives and professional experiences.

In late February, the commission published Housing America's Future: New Directions for National Policy, a report emphasizing the need for a new housing finance system and offering a blueprint for achieving this goal.

Key objectives of the new housing finance system

The commission recommends that a new system of housing finance be built around five key objectives.

Objective 1

Our first objective is a far greater role for the private sector in bearing credit risk. Nearly five years since the government takeover of Fannie Mae and Freddie Mac, it is clear to liberals and conservatives alike that the dominant position of the government in the market is unsustainable. Yes, private capital is now flowing through the system, but it absorbs very little of the system's credit risk. Instead, much of that risk lies with the government--nearly 90 percent of the single-family homeownership market remains government-supported. Reducing the government footprint and encouraging more private participation will protect taxpayers while providing for a greater diversity of funding sources.

Objective 2

The second objective is a continued, but more limited, role for the federal government as the insurance backstop of last resort. The commission recommends the establishment of an explicit, but limited, government guarantee administered by a new entity that we call the "Public Guarantor" to ensure timely payment of principal and interest on qualified mortgage-backed securities (MES). …

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