Fannie Mae, Freddie Mac reform heats up…. On Tuesday, May 13, Federal Housing Finance Agency (FHFA) director Mel Watt will make a speech on housing reform priorities at the Brookings Institution.
In the following statement, housing finance expert and distinguished scholar at The Opportunity Agenda, Jim Carr, says the timing “could not be better”. Carr calls on Watt to outline the steps he will take to make access to affordable home loans and housing a top priority:
“The odds of housing finance reform legislation making it to the President’s desk this year seems doubtful, so the list of priorities Mr. Watt will outline on Tuesday, May 13th, at the Brookings Institution will likely represent the most meaningful housing reform actions to occur this year.
“As Americans across the nation know, the housing crisis isn’t over. Mortgage loan originations are at a 17-year low as millions of qualified borrowers are locked out of the conventional loan market. Most negatively impacted are young adults, moderate-income families, and people of color. Moreover, although foreclosures have fallen dramatically since the depths of the crisis, million of households remain underwater with their mortgages. Yet rather than being able to access principal reduction, the FHFA continues to deny this option to struggling owners.
“Further, contributions for the National Housing Trust and Magnet Funds continue to be withheld, despite the fact that the U.S. is facing its worst affordable housing shortage in decades. Payments to the National Housing Trust and Magnet Funds are required by law and should begin given some of Fannie Mae and Freddie Mac’s impressive earnings, especially considering that both Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) have paid the government more than the amount they received in bailout funds.
“FHFA Director Watt should use his authority to institute policy changes that will help improve access to affordable rental housing and homeownership immediately. His leadership can help rebuild communities devastated by massive foreclosures and assist families by helping them access safe, affordable and sustainable conventional mortgage credit.
Fannie Mae, Freddie Mac reform: Limited access to affordable homeownership
Carr highlights several continuing barriers that limit access to affordable homeownership and rental housing, including:
- Conventional mortgage lending is now all but closed to people of color, low-and moderate-income households, and first-time homebuyers. The homeownership rate for young adults has fallen from nearly 50 % to 42 % and mortgage lending to African Americans and Latinos has dropped by over 70% since the housing market collapsed.
- Lack of access to affordable home loans undermines asset-building opportunities for American families and contributes to an ongoing drag on the U.S. economy. It also denies households of color to regain their wealth lost during the Great Recession estimated to amount to 53% and 66% for African Americans and Latinos, respectively.
- Five millions American families cannot find affordable rental housing, which destabilizes household finances, leads families into homelessness, and makes planning for future needs — especially for education and jobs — far more difficult.
“The FHFA’s authority over Fannie Mae and Freddie Mac enables Director Watt to implement comprehensive housing finance reforms immediately — reforms that will make housing access the cornerstone of economic recovery and enable the middle class to become stable once again.
“However, major legislative proposals to revamp the housing finance system — notably the Johnson-Crapo bill — would eliminate Fannie Mae and Freddie Mac and further restrict access to mortgage lending, rather than making homeownership more accessible. This is a grave misstep; Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) have served Americans well and their elimination will shift more decision-making about lending and policy to the banks that created the housing bubble.
Fannie Mae, Freddie Mac: Improve access to affordable homeownership
Carr recommends the following steps that could improve access to affordable homeownership as well as rental housing:
1. Increase access to safe, affordable, and sustainable home loans. This will help stabilize local economies by rebuilding wealth for lower-income families and first-time borrowers.
2. Enforce fair housing and equal credit opportunity law to ensure access for people and communities of color.
3. Begin contributions to the National Housing Trust and Magnet Funds, which were established in the Housing and Economic Recovery Act of 2008 with the intent to help low-income families find affordable rental housing.
4. Improve mortgage servicing standards, specifically prioritize foreclosure prevention practices including the use of principal adjustment, and prioritize the sale of distressed and foreclosed properties to promote homeownership.
5. Continue to support or expand the financing of multifamily housing in order to improve access to affordable rental units for low- and moderate-income families.
More detail on these and other reforms are found in a recent report by The Opportunity Agenda, the National Fair Housing Alliance, and The National Association of Real Estate Brokers entitled “While We Wait for Housing Finance Reform Legislation—Let’s Reform Housing Finance.”
About Jim Carr:
Jim Carr is a housing finance, banking and urban policy consultant. He is also a Distinguished Scholar with The Opportunity Agenda and Senior Fellow with the Center for American Progress. Previously, he served as Chief Business Officer for the National Community Reinvestment Coalition and as Senior Vice President for Financial Innovation, Planning and Research for the Fannie Mae Foundation.
About The Opportunity Agenda:
The Opportunity Agenda was founded in 2004 with the mission of building the national will to expand opportunity in America. Focused on moving hearts, minds and policy over time, the organization works with social justice groups, leaders, and movements to advance solutions that expand opportunity for everyone. Through active partnerships, The Opportunity Agenda synthesizes and translates research on barriers to opportunity and corresponding solutions; uses communications and media to understand and influence public opinion; and identifies and advocates for policies that improve people’s lives.