Getting housing right

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When I get asked what it will take to accelerate the recovery, my answer is three-fold:

•    In the short-term, I believe it is critical to end uncertainty about rights and responsibilities between market participants. Simultaneously, we need to work hard to find long-term bipartisan solutions to restructure the housing finance system in America.  
•    Washington did the right thing in setting up HARP – a national program that ensures all servicers know the rules in refinancing underwater loans. We need to give this program – and others – time to work. I would urge caution when considering whether additional housing programs are necessary at this time. 
•    Finally – and perhaps most importantly – regulators need to strike the appropriate balance between risk management on the one hand and giving more consumers a better chance to get loans on the other.

In the short-term, the most visible example of uncertainty at work is the chilling effect that put-back risk is having on extending credit in the market.  Greater clarity from the agency overseeing conservatorship of Fannie Mae and Freddie Mac to ensure utmost clarity of contract provisions would be a real benefit to American consumers looking to purchase a home. 

As we have seen in the past, new programs or program changes also are prone to create confusion for consumers and operational distraction for lenders.  These risks and consequences are very real and deserve serious consideration by policy makers as they debate creating additional short-term steps.

From regulators we need common-sense and workable guidelines that help bring clarity to housing market issues. If overly burdensome regulations create uncertainty and make it harder for lenders to loan money, middle class families – many of whom have recently gotten back on their feet with steady incomes – will be shut out of this market and our housing system will never bounce back.

 Several of my mortgage banking colleagues and I had the opportunity to brief White House, Housing and Treasury officials recently to share these thoughts and trade ideas about how to move forward. We met in the Roosevelt Room, named for the two cousins – a Republican and a Democrat – who played big roles in the development of this nation. How appropriate, because it will take a truly bipartisan effort to create a better answer to the questions posed by Fannie Mae and Freddie Mac: what is the proper role for government in the housing industry?

Idealistic and ideological solutions do not work in the real world of the housing marketplace. What the country needs is a workable and practical set of recommendations that can be acceptable to both Republicans and Democrats. Recommendations that do not unwittingly distort the marketplace. We should seek to do this in the smartest and most balanced way possible, without creating a whole host of unintended consequences that can come from competing and overlapping regulations.

The right regulations and policies can be achieved with much more discussion and the willingness to compromise. I certainly hope our political system is up to the challenge, because if we don’t fix the Fannie and Freddie problem, we won’t fix our economy.    

I have some reasons for optimism that collaboration can work.

For instance, last year, Housing Secretary Shaun Donovan and attorneys general from 49 states, worked with a team of us from the industry to find common ground on a legal settlement that would move our nation’s housing market forward. I know I personally spent nearly 1,000 hours with these groups, meeting many weekends and often late into the night to help find the right solutions.

Working out of the sight of cameras allowed us to come up with solutions to very complex problems. These are not easy problems to understand, let alone solve. But eventually, the industry and a bipartisan array of politicians and regulators found a way to come together to offer relief to homeowners and develop a strong set of National Servicing Standards that give consumers greater transparency, and lenders and loan investors clear rules of the road.

This is just one example of the benefits that true collaborative problem solving can accomplish. We will need that same type of approach to tackle other issues such as redesigning the structure for housing finance in America, including addressing the future for Fannie Mae and Freddie Mac. On this point, there are many, sometimes widely conflicting, viewpoints. What all parties agree on – as do those of us in the industry – is that it is vitally important to get this right.

In my conversations with colleagues in the industry, we all agree that we don’t want to go back to the old days. We are a much different industry than we were before the credit and housing markets crashed. The industry is more mature, more responsive, more transparent, and wiser about the need to dig deep into the nuances of our practices to ensure all are being consistently handled correctly.

Policy makers can gain by working with the industry. The industry, in turn, appreciates that good solutions come when bipartisan efforts are launched so that businesses can continue serving their customers by delivering secure products.

Wells Fargo would welcome the opportunity to be an active participant in a forum the president and Congressional leaders could convene to hammer out common-sense solutions to the next important issues facing our country, such as GSE reform, with a practical number of industry representatives. Those recommendations could then be implemented in the next Congress after the election.

 We understand that 2012 is a political year and that reaching consensus in an election year is difficult. It is often said that good policy makes for good politics. Getting housing policy right is the smart thing for Washington policy makers and those of us in the industry to do. It is essential to building a way forward for our economy and our country.


Heid is president of Wells Fargo Home Mortgage.