Crossing the finish line on housing finance reform

One year ago this week, we unveiled a plan to repair our nation’s broken housing finance system.

Our goal in putting forth this plan was not just to make the case for a new system and detail its essential elements.  We also sought to demonstrate that developing practical, bipartisan solutions is still possible in today’s polarized Washington, even on an issue as complex and fraught with politics as housing finance.

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We believe our efforts have made a difference.

Today, there is a much greater awareness on Capitol Hill that reforming our mortgage system is a necessary step to a stronger housing market and a more robust economic recovery.  There is also widespread consensus that the current system – in which the federal government guarantees nearly 85 percent of all mortgages – is unsustainable:  Risk-bearing private capital must play a far larger role in our mortgage system, not only to protect the taxpayers but to enhance consumer choice.

Many members of Congress support preserving the 30-year fixed-rate mortgage, a unique feature of the U.S. housing market that has greatly benefited consumers, though there are differences on how this objective could be achieved.  The Commission believes the widespread availability of long-term fixed-rate mortgage financing depends on some form of a limited government role in the secondary market to support both borrower access to credit and lending capacity critical to the $11 trillion real estate market.  But, to avoid the costly mistakes of the past, we also believe that any backstop should be explicit, contained and fully funded through actuarially sound insurance premiums.

There is also general acceptance in Congress that the operations of Fannie Mae and Freddie Mac, the two mortgage giants now under government conservatorship, should be wound down over a multi-year transition period.  The mechanics of this transition present some of the most difficult challenges for policymakers, but it is important to move to a new system in a way that promotes housing-market stability, not turbulence.  

As the debate in Congress has unfolded, many have appropriately acknowledged the importance of community banks and other small lenders in meeting America’s mortgage needs.  There is broad agreement that our housing finance system must serve borrowers in all geographic regions through all economic cycles without discrimination, though differences remain over how best to achieve this goal.  And, there is greater recognition of the critical role of multifamily housing, particularly at a time when rental demand is increasing.  

Over the past year, the conversation on the Hill around these issues has been decidedly constructive.  Last June, Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) put forward a thoughtful, bipartisan plan that has received considerable attention.    To their credit, Sens. Tim Johnson (D-S.D.) and Mike Crapo (R-Ida.), the chairman and ranking member of the Senate Banking Committee, have taken a deliberative approach, convening an extensive series of hearings examining virtually every aspect of reform.  They are on the verge of unveiling their own reform proposal.

On the House side, Repr. Jeb Hensarling (R-Texas), the chairman of the House Financial Services Committee, has also moved a bill out of his committee. In a welcome sign, the chairman has said housing finance reform is a top priority and expressed a strong desire to work with his Senate counterparts.  Rep. Maxine Waters (D-Calif.), too, has been hard at work on a Democratic alternative that should be introduced shortly.  More recently, three House Democratic members – Reps. John Delaney (Md.), John Carney (Del.) and Jim Himes (Conn.) – have released a set of reform principles that merit serious consideration.

While there are significant differences among the various reform approaches, these differences are not insurmountable. Compromise broadly acceptable to Members of both parties is attainable.   

So, it is our hope the leadership in Congress will commit itself to sending President Obama a housing finance reform bill this year.  With the legislative clock ticking away, it would be unfortunate if all the momentum that has been generated for reform were squandered through inattention, lack of focus or broader politics.

Many Americans believe our political system is incapable of solving some of our nation’s most pressing problems.  Enacting legislation that puts America’s housing finance system on a more sustainable path would demonstrate that Congress is up to the challenge.  Most important, it would be a win-win for our financial markets, homeowners and future generations of Americans. 

Mitchell served as senator from Maine from 1980 to 1995 and was Senate Majority leader from 1989 to 1995. Martinez served as senator from Florida from 2005 to 2009 and was secretary of Housing and Urban Development under President George W. Bush from 2001 to 2003.

 

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