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From Banking and Finance Law Daily, March 27, 2019

Senate Banking Committee begins examination of housing finance reform

By John M. Pachkowski, J.D.

The Senate Banking Committee has begun the review of an outline to reform housing financing.

The Senate Banking Committee held the first of two hearings to assess an outline put forth by committee chairman Sen. Mike Crapo (R-Idaho) that would be the basis for housing finance reform legislation.

Crapo’s outline, which was released in early February 2019, would establish stronger levels of taxpayer protection, preserve the 30-year fixed rate mortgage, increase competition among mortgage guarantors, and promote access to affordable housing (see Banking and Finance Law Daily, Feb. 4, 2019).

In his opening statement, Crapo noted that after 10 years of market recovery the government-sponsored enterprises, or GSEs, Fannie Mae and Freddie Mac "remain stuck in conservatorship, with taxpayers still on the hook in the event of a housing market downturn." He added, "Approximately 70 percent of all mortgages originated in this country are in some way touched by the federal government."

Top priority. Crapo further stated, "I have long said that the status quo is not a viable option, and I consider it a top priority this Congress to find a comprehensive, legislative solution." He noted that his outline "is the byproduct of over a dozen hearings conducted by this Committee over the past decade" and "incorporates key elements of several housing finance reform plans that have been advanced by thought leaders."

Home equals life. As part of his opening statement, the committee’s Ranking Member Sen. Sherrod Brown (D-Ohio) said that the "housing" part of this Committee’s name "doesn’t get enough attention" and that he looked "forward to the next two days of discussions and to working with the Chairman to address our nation’s housing needs." Brown continued, "Home equals life. That’s how we should all approach this." However, he added, "That’s simply not the reality we live in today, and any changes we make to our housing finance system should be to help working people—not Wall Street. After noting the number of housing-related initiatives that were undertaken since Fannie Mae and Freddie Mac were placed in conservatorship, Brown stated, "Clearly, there is more work to be done to make sure every family can access the homeownership opportunities and rental housing that meets their needs." He concluded, "Any changes we consider must strengthen, not weaken, our ability to address the housing challenges facing our nation and make the housing market work better for families."

The committee heard testimony from:

  • Sue Ansel, President and CEO, Gables Residential, on behalf of The National Multifamily Housing Council and the National Apartment Association;
  • Edward J. DeMarco, President, Housing Policy Council;
  • Greg Ugalde, Chairman of the Board, National Association of Home Builders;
  • Dr. Mark M. Zandi, Chief Economist, Moody’s Analytics;
  • Hilary O. Shelton, Washington Bureau Director and Senior Vice President for Advocacy and Policy, NAACP; and
  • Adam Levitin, Professor of Law, Georgetown University Law Center.

Getting multifamily rental right. Ansel presented the apartment industry’s perspective on the role of Fannie Mae and Freddie Mac. She noted, "One of the foremost priorities of federal policy makers should be getting multifamily rental right in any housing finance reform effort by recognizing its unique characteristics; it is the single most important factor to ensuring that the apartment industry can meet the nation’s growing rental housing demand."

Smooth transition. DeMarco, a former of acting director of the Federal Housing Finance Agency, highlighted actions that the FHFA and the Trump Administration could take to ensure a smooth transition for new guarantors to enter the housing finance system with no competitive disadvantage relative to Fannie Mae and Freddie Mac. He also discussed the opportunity to improve upon the current mechanisms to support affordable housing.

Liquidity and affordability. Ugalde noted that an effective housing finance system must address liquidity as well as affordability and that those two elements are very closely related. He added it is important for the system to provide housing credit at affordable terms as well as address specific housing needs, it also is essential that credit is consistently available on those terms regardless of domestic and international economic and financial conditions.

Essential criteria. Zandi stressed, "The success of any housing finance reform depends on its ability to satisfy six essential criteria, including ending too-big-to-fail, fully protecting taxpayers, providing equal access to the system for underserved communities and lenders of all sizes, maintaining affordable mortgage rates for borrowers under all market conditions, promoting competition, and easing the transition from the current system to the future system."

Extreme caution. Shelton testified, "While not perfect, I would counsel extreme caution when reforming our nation’s housing policy." He added, "it is my hope that when drafting this policy we do not forget the impact our actions have on every American, especially those who, for a multitude of reasons, may be most reliant on a strong mortgage and secondary market: Americans of color and low- to moderate-income Americans."

Deep concern. Finally, Levitin was "deeply concerned about the basic direction of the Chairman’s housing finance reform proposal outline." He added, "Today’s housing finance market is functioning well" and the multi-guarantor system proposed in the outline "would place all of this in jeopardy." However, Levitan noted, "there’s a ready fix to the problem based on one essential change: ensure that guarantors are taking on market-wide credit risk, rather than the credit risk on a segment of the market."

Companies: Fannie Mae; Freddie Mac

MainStory: TopStory FinancialStability GovernmentSponsoredEnterprises Mortgages

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