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Policy

12:40pm May 25, 2013

Time to Modernize Housing Finance

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By Rep. Carolyn Maloney (D-NY)

President Obama has nominated Rep. Mel Watt (D-N.C.) to head the Federal Housing Finance Authority (FHFA). I applaud the president for his decision.

Watt will be an outstanding FHFA director, and I hope the Senate confirms him as soon as possible. Congressman Watt’s nomination also provides our country with an opportunity to debate one of the most important things we can do to improve our economy: housing finance reform.

In April, housing prices posted their largest annual increase in nearly seven years, according to the Standard & Poor’s/Case-Shiller Home Price Index. While on the surface this increase may seem like a healthy economic indicator, a deeper examination of the housing market reveals a more complicated picture: Housing inventory is at historic lows; Fannie Mae and Freddie Mac remain in government conservatorship and guarantee nearly 90 percent of new mortgages; mortgage origination levels are below what they should be in a healthy economy; and the homeownership rate is on the decline.

All of these trends represent real drags on economic growth. As Mark Zandi of Moody’s Analytics has stated, spending around housing accounts for nearly 25 percent of gross domestic product. This means that even small changes in the housing marketing can have a big change on our economy.

Consider these facts. Before 2000, the U.S. homeownership rate was approximately 64 percent. Then from 2000-2008 it shot up to over 69 percent.

Today, the homeownership rate is back down to 65 percent. The problem in the near term is that we have approximately 6 million Americans severely delinquent on their first mortgages and at or near the foreclosure stage. Those individuals represent a 2 percent drop in the homeownership rate. That kind of drop puts our economic recovery further at risk.

Some have suggested that a growing economy will help lift us out of the housing crisis. Yet it’s been nearly five years since the housing crisis began, and with 2.5 percent increase in GDP in the first quarter of 2013, we can no longer wait for this theory to play out. Rather, we need a focused and sustained effort on both growing the economy and protecting homeownership to get us back on a healthy economic footing. We needed it four years ago, and we still need it today.

Congress is currently deliberating the future of the FHA loan program and GSE (Fannie and Freddie) loans in the mortgage market. I, for one, believe that approach looks at the “sum of its parts” and not the whole. The question we really need to ask is: “How do we structure a housing finance system where both private capital and government backed mortgages can co-exist and not compete for the same customer?”

The status quo is not a long-term solution. And despite the fact that the GSEs have been profitable over the last two quarters, Congress and the Obama administration clearly have to institute reforms. The House Financial Services Committee (and my Capital Markets and GSE subcommittee, in particular) and the Senate Banking Committee are in the information gathering phase before we begin to draft legislation.

Homeownership is an important component of our economy and essential to our country’s social fabric and culture. If the American middle class wants to feel hopeful about the future, we have to get a modern housing finance market system in place very soon.

Maloney is a senior member of the House Financial Services Committee and serves as ranking member on its Capital Markets and Government Sponsored Enterprises subcommittee.

 



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