With spring training winding down and opening of baseball season days
away, all fans are optimistic that this is the year that their team will be
hoisting the World Series trophy this fall.
Similarly, there is some optimism that housing reform could come
out of the 114th Congress.
Jim Parrott, a Senior Fellow at the Urban Institute’s Housing
Finance Policy Center recently authored a brief examining the current status of
housing finance reform. The brief, entitled “Early Steps Down the Path of GSE Reform,” partly analyzed a speech
given by Michael Stegman, the Treasury
Secretary’s Counselor for Housing Policy at the Goldman Sachs Third Annual
Housing Finance Conference. The brief also discussed efforts by the Federal
Housing Finance Agency and the Obama Administration.
Parrott noted that although it is “easy to be pessimistic about GSE
reform these days,” efforts taken by the Senate in the 113th Congress was “one
cause for optimism since “a relatively broad, bipartisan consensus emerged on
what a future system should look like.” The authored continued that a legislative accord, reached by then-Sen Tim Johnson
(D-SD) and Sen. Mike Crapo (R-Idaho) in 2014, demonstrated that the key parties
agreed that the nation’s housing finance system needs to provide broad access
to affordable, long-term, fixed-rate lending; that the private market should
bear the lion’s share of the credit risk; and that whatever risk the taxpayer
bears must be insulated behind significant private capital.
Using portions of Stegman’s speech, Parrott also laid out:
-
the case for reform;
- what should be done;
- what more can be done; and
- what will not be done.
Parrott concluded his brief by observing “if we largely agree that we stand on unstable ground, and we agree on the direction in which we’ll find the ground more firm, why not begin walking?”
In fact, Congress has begun the “walking” mentioned in Parrott’s brief. The first reform initiative was introduced by Reps. John K. Delaney (D-Md), John Carney (D-Del), and Jim Himes (D-Conn). Their legislation, the Partnership to Strengthen Homeownership Act, would, according to a press release, “combine the private sector’s superior ability to price risk with the federal government’s unique ability to provide capacity.”
The bill would establish an insurance program through Ginnie Mae which maintains the full faith and credit of the federal government, but protects taxpayer investment by requiring adequate private sector capital and accurate pricing of government reinsurance. All government guaranteed single-family and multi-family mortgage-backed securities would be supported by a minimum of 5 percent private sector capital, which will stand in a first loss position. The remaining 95 percent of the risk will be shared between Ginnie Mae and a private reinsurer. Fees paid to Ginnie Mae will be allocated to affordable housing programs. The measure also winds down Fannie Mae and Freddie Mac, and allows them to be sold and recapitalized.
The Financial Services Roundtable said the bill is “a positive step forward” and
urged Congress to enact permanent reform. John Dalton, President of the Housing
Policy Council, a division of the Financial Services Roundtable, added that the
bill demonstrates bipartisan support for change.
For more information about housing finance reform, subscribe to the Banking and Finance Law Daily.
