Build a housing system to strengthen our future

The Dodd-Frank Financial Reform Act focused primarily on the sweeping regulatory changes that were necessary of Wall Street and much attention will now turn to implementation of that bill.

However, it is important to recognize how the changes in mortgage lending requirements will help protect our housing market going forward and the broader reforms that are still needed.

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With the Dodd-Frank bill, we now have stronger mortgage requirements for improved borrower protections that will increase transparency in mortgage lending and prevent consumers from borrowing more than they can reasonably be expected to repay.  Unfortunately, what seems like a common-sense practice was abandoned by some mortgage originators as adjustable rate mortgages were marketed to unknowing and/or irresponsible borrowers who were told they could refinance their loans before the interest rate adjusted or were not told the interest rate would ever adjust.  

The Financial Reform Act requires lenders to verify that a borrower has the ability to pay back the loan and now tasks the Federal Reserve with promulgating regulations to prevent originators from steering consumers to loans they cannot afford. It also establishes clear appraisal standards to prevent anyone from attempting to influence an appraiser to increase prices and makes resources available to state regulators to oversee appraisers and appraisal management companies.  

For all the strides made by the reform bill, reform of the housing finance market, particularly reform of Government Sponsored Enterprises, was put on hold. As the bill moved forward, the housing market was extremely fragile, making the task of reforming housing finance an even more complicated and precarious undertaking surrounded by a political climate that was more likely to yield itself to election year rhetoric than to a civil and serious debate about solutions.  

With the election season drawing to a close and a new Congress just months away, we will soon turn our focus to the protection and reform of the housing finance market. With a housing market that is still fragile, it is essential that we consider protection and reform at the same time.  

According to the Census Bureau, the homeownership rate in the second quarter of 2010 was 66.9 percent — the lowest homeownership rate since 1999. This might be a return to a more sustainable homeownership rate, but in areas where there is an excess in housing stock, it does nothing for consumer or investor confidence. This surplus and continued volatility in the housing market is a challenge as we begin to implement the necessary reforms to the housing finance market.

For all their faults, Fannie Mae and Freddie Mac provided the framework that allows the 30-year fixed-rate mortgage to exist in the United States. Our housing market and economy rely on the availability of a long-term, fixed-rate mortgage product. It is clear that changes need to be made, and there are varied opinions about how to accomplish reform and what structure the housing finance market should have. When the departments of the Treasury and Housing and Urban Development recently solicited responses to questions on the topic, they received hundreds of responses that encompassed a broad spectrum of ideas.  

When evaluating these ideas, we must be mindful that extended mortgage terms have allowed qualified borrowers to achieve homeownership since the Government Sponsored Enterprises were created. We must also be careful that any changes to the housing finance system do not cause further damage to home prices and home equity by pricing all but the wealthiest Americans out of the mortgage market.  

During the next Congress, we need to explore the priorities for our housing finance system, how other mortgage markets function around the world, whether they have comparable homeownership rates and how those housing markets fared during the 2008 economic meltdown and recovered subsequently. It is our responsibility to be deliberate and thoughtful in the reforms that we make to ensure they do not destabilize the housing market or impede its recovery.    

Housing finance reform will have a huge influence on how well our housing market recovers from the economic crisis and how well it functions moving forward. This is too important to be purely based in partisan politics and will require significant discussion. Let’s explore all of our options and make sure we do the right thing for our economy, renters, homeowners and future homeowners rather than the most politically expedient thing. As a senior member of the Senate Banking Committee, I am committed to finding a path forward that will return transparency, accountability and strength to our housing finance system.

Sen. Johnson is a member of the Banking Committee.