Speaking at the Bipartisan Policy Center’s 2014 Housing Summit, Department of Housing and Urban Development Secretary Julián Castro spoke in favor passing Crapo-Johnson GSE reform legislation as part of a larger push to expand home ownership in the next few years.
“We need to attract private capital back to the market, establish certainty for lenders and protect taxpayers for the future,” said Castro. “The bipartisan passage of Johnson-Crapo in the Senate Banking Committee was a huge step forward. Now we must keep pushing until housing reform legislation gets over the finish line – once and for all.”
Fannie Mae, Freddie Mac: Crapo-Johnson may be bipartisan, but it still lacks support
Crapo-Johnson, the bill that would have created a common mortgage backed security (MBS) platform regulated by a newly created FMIC, has been one of the few Fannie Mae, Freddie Mac reform proposals to receive bipartisan support, but it still didn’t have enough Democratic support to get a floor vote in the Senate and the bill was widely seen as DOA in the House. Seeing it lose momentum has convinced most people that legislative progress is unrealistic for at least the next year or so.
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Castro makes the standard argument that we need to bring private capital back to the secondary mortgage market, but private capital is still available thanks to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), and Ginnie Mae. Unsurprisingly, there hasn’t been much demand for private label MBS, and Castro’s really talking about replacing one mechanism for bringing private capital to the market (the GSEs) with another (the FMIC).
It’s too hard to get a home loan, says Castro
Castro also thinks we should be pushing back into subprime territory to expand home ownership.
“A few years ago, bad loans and risky secondary market products prompted a housing crisis. There was plenty of blame to go around. Some believe it was too easy to get a home loan. Today it’s too hard,” he said. “It’s time to remove the stigma associated with promoting homeownership.”
Improving home ownership is good for the economy and for working class communities, but tepid statements like ‘some believe it was too easy to get a home loan’ make you wonder if Castro has really absorbed the lessons of the subprime crisis. He mentions extending home loans to people with credit scores as low as 580, and “helping lenders better identify loan defects and determine how serious those defects are.” That sounds a lot like the risk layering that got us into trouble in the first place.