May 14, 2013
Reform for Whom?
David Stevens, the head of the Mortgage Bankers Association, gave an important and revealing speech about the direction of housing finance reform. It contains some good ideas, but also raises an alarm. Because the Administration and Congress are at an impasse, Stevens is leading the private sector in pushing for reform of Fannie and Freddie.
While Stevens is proposing some good ideas, the federal housing finance system should be designed — big surprise here — by the federal government first and foremost. Unfortunately, the private sector can take the lead because the federal government has not. Housing finance policy abhors a vacuum.
Stevens’ prepared remarks provide a “proposal for transition” for Fannie and Freddie. (3) The proposal has three steps:
First, it is imperative in this state of overlapping regulatory confusion that the White House name a Housing Policy Coordinator. This is an immediate need with a simple solution.
Second, we must have absolute transparency. FHFA, Fannie Mae and Freddie Mac must stop making market shifting decisions without the input of consumers or the industry.
Finally, we must have a clear path to transition out of conservatorship. To achieve this goal, we must move toward a single security, encourage additional risk sharing by mandating Fannie and Freddie to accept lower guarantee fees for deeper credit enhancements, and redirect the FHFA platform initiative. (3-4)
The first suggestion — some kind of Housing Czar — is both intuitively right and attractive. Housing cuts across so many arms of the federal government: the FHFA, HUD, FHA, CFPB and on and on. Those arms are frequently at cross purposes. A Housing Czar could seek to rationalize them. The second is also attractive, but given the focus of the housing finance industry, one would assume that “industry” would get a lot more input than “consumers.” And the third suggestion may have merit, but is not the type of decision that we want industry to make — we want the government, the people, to make it.
It is no secret that both parties have punted on housing finance reform. But it will be a tragedy if they do not recover the ball. Otherwise, industry will write the rules for future homeowners. Homeowners will then be playing a game designed for industry to win, not them.| Permalink