Wither housing reform?

Last Tuesday, the president once again addressed Congress and the American people in his annual State of the Union address. After five hard fought years, his tone was more optimistic than others, touting recent economic successes and foreshadowing a return to brighter days.  

As with any speech of this nature, each word is carefully considered and parsed to ensure the totality of a message or topic is reached.  So when President Obama waxed philosophically about the rebounding housing market or more importantly, Congressional action on housing, the implication carried far greater meeting than would appear.

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Quote:  “And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans.”

In essence he is talking about reforming Fannie Mae and Freddie Mac (the GSEs).

With over two-thirds of newly originated loans being backed by the GSEs, and with them in this continued state of uncertainty, it’s time for these entities to be restructured and create a sustainable housing finance system.

A select few would have expected that over five years after the government was forced to place the GSEs into conservatorship their futures would still not be decided.  In fact, given that the housing recovery has been a unique bright spot in an uneven economic recovery, it’s understandable that some remain content with the status quo.

But they can’t remain in conservatorship forever. The status quo is leading us in a dangerous direction and if we hope to have a strong, stable housing market with limited government risk where private capital can flourish, then the time to act is now. After all, housing is 20 percent of GDP and having no certainty about the future system makes no sense.

The GSEs are congressionally chartered. While there are some steps that can be taken without Congressional action, substantive, structural improvements to the current system require Congressional action.  

GSE reform bills that recognize the need to even the playing field, reduce the government’s footprint, insure the availability of a 30 year fixed rate mortgage with a government guarantee, and encourage private capital to fully re-enter the housing market have been introduced in both the House and Senate.

Specifically, as Senators Johnson and Crapo look to build consensus to move legislation through the Senate Banking Committee, the bi-partisan Corker-Warner bill has created a great blue print for those reform discussions. This momentum to craft a bi-partisan, sustainable solution must be maintained, or growth in the housing market will remain slow and uneven.

As the President said in the State of the Union, “This is the America we want for our kids… and where prosperity is widely shared and opportunity for all lets us go as far as our dreams and toil will take us.” 

Restoring a vibrant housing system is a critical path to that prosperity.  

Stevens is the president & CEO of the Mortgage Bankers Association and former Federal Housing Commissioner under President Obama.