A sound housing finance system that provides a stable and affordable supply of credit for homebuyers and rental housing is essential to ensure a healthy housing market, spur job creation and maintain a strong and resilient economy.
The Federal Housing Administration, Fannie Mae and Freddie Mac currently guarantee or insure more than 90 percent of all home mortgage activity issued by private lending institutions.
But even with the current high level of federal support, fewer mortgage products are available now than in the past, and these loans are being underwritten on much more stringent terms since the economic and housing decline of recent years.
Policymakers are now looking at several proposals to wind down Fannie Mae and Freddie Mac and are weighing several options to encourage increased participation from private financial institutions. The homebuilding industry is concerned that federal legislation approved by the House Financial Services Committee to overhaul the U.S. housing finance system (H.R. 2767, the Protecting American Taxpayers and Homeowners — or PATH Act), would harm many of the 6 million Americans who typically buy homes during the course of a year, making it much more difficult for them to afford the purchase.
If the reduced support for housing drives up mortgage rates by 1 percent, for example, it will price an estimated 4.5 million households out of the market for the median-priced new home, according to research by the National Association of Home Builders. A reduced support for housing would also drive down home values. Moreover, the 30-year mortgage, the most popular and sustainable mortgage in the marketplace, would be far less available to first-time homebuyers and working American families These negative consequences would occur because the PATH Act seeks to remove any government role from the conventional mortgage finance market and drastically reduces FHA’s role.
Legislation introduced in the Senate, the Housing Finance Reform and Taxpayer Protection Act (S. 1217), is far different from the House bill.
It contains several elements recommended by the National Association of Home Builders to restructure the nation’s housing finance system, such as retaining a federal backstop that would only be triggered under extreme circumstances to preserve financial stability, promote investor confidence and limit taxpayer exposure. U.S. Sen. Dean Heller of Nevada was one of the bill’s sponsors.
The Senate bill acts like a disaster insurance plan. Knowing that the government has a limited role in supporting a mortgage market predominantly filled by the private sector will ensure liquidity and stability for homeownership and rental housing.
The nation’s homebuilding industry will continue to work with lawmakers in both chambers to stake out a bipartisan consensus that will result in a robust housing finance system.
Rocky Cochran, vice president of construction operations at Pardee Homes, is the 2013 president of the Southern Nevada Home Builders Association, representing the residential construction industry in Nevada. He is a third-generation homebuilder.