What are the most pressing issues in housing policy today?
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The most serious issue in housing policy today is the lack of certainty regarding the secondary mortgage finance market and the regulatory parameters in which it will operate. Investors hate making decisions in a vacuum of information. Looking at the secondary mortgage market three years, five years or more into the future yields a murky view into the crystal ball. The macro philosophical question is what role, if any, should government play in the housing market and secondary mortgage market. The biggest part of this question hangs over the GSE’s. The future of Fannie Mae and Freddie Mac must be defined.
Legislation currently pending in Congress covers the spectrum of possibilities. Some proposals rely totally on the private market while another maintains a government agency to fulfill the role of Fannie and Freddie at a reduced level of activity. Most proposals unwind the GSE’s incrementally over several years. What restrictions will be imposed on them during that phase?
Dodd-Frank and the long regulatory slog toward its implementation has also clogged the gears of the private secondary market. Is the federal government really going to tell hard working American families that they will have to put 20% down on their next home in order to obtain a mortgage outside of FHA? Many believe that the current 20% down qualifying residential mortgage (QRM) requirement currently in Dodd-Frank would be an anchor on any hoped for housing recovery.
And what is the future of the FHA? GAO’s recent audit report showing the Fund’s capital reserve 85% below the level mandated in law has some members of Congress saying flat out that FHA is going to need a bailout, ala Fannie and Freddie. Can, or would, the private market pick up FHA’s portion of mortgagees who are disproportionately first time buyers and/or lower income?
As Acting FHFA Director Edward DeMarco says just about every chance he gets, it is up to Congress and the administration to define the future parameters of the secondary market and provide the certainty going forward that is required to reengage private investors in providing the liquidity that the housing market and America’s economy requires. The road to a housing recovery will not be navigated as long as the highway sign reads “TBD.”
Kevin Igoe is the owner of IGOE/Associates and serves as a legislative consultant to the Bipartisan Policy Center.
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