Tag Archives: minority households

The Republican Housing Platform

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photo by DonkeyHotey

The Republican Party adopted its platform earlier this week.  The short housing platform is worth reading in its entirety:

Responsible Homeownership and Rental Opportunities

Homeownership expands personal liberty, builds communities, and helps Americans create wealth. “The American Dream” is not a stale slogan. It is the lived reality that expresses the aspirations of all our people. It means a decent place to live, a safe place to raise kids, a welcoming place to retire. It bespeaks the quiet pride of those who work hard to shelter their family and, in the process, create caring neighborhoods.

The Great Recession devastated the housing market. U.S. taxpayers paid billions to rescue Freddie Mac and Fannie Mae, the latter managed and controlled by senior officials from the Carter and Clinton Administrations, and to cover the losses of the poorly-managed Federal Housing Administration. Millions lost their homes, millions more lost value in their homes.

More than six million households had to move from homeownership to renting. Rental costs escalated so that today nearly 12 million families spend more than 50 percent of their incomes just on rent. The national homeownership rate has sharply fallen and the rate for minority households and young adults has plummeted. So many remain unemployed or underemployed, and for the lucky ones with jobs, rising rents make it harder to save for a mortgage.

There is a growing sense that our national standard of living will never be as high as it was in the past. We understand that pessimism but do not share it, for we believe that sound public policies can restore growth to our economy, vigor to the housing market, and hope to those who are now on the margins of prosperity.

Our goal is to advance responsible homeownership while guarding against the abuses that led to the housing collapse. We must scale back the federal role in the housing market, promote responsibility on the part of borrowers and lenders, and avoid future taxpayer bailouts. Reforms should provide clear and prudent underwriting standards and guidelines on predatory lending and acceptable lending practices. Compliance with regulatory standards should constitute a legal safe harbor to guard against opportunistic litigation by trial lawyers.

We call for a comprehensive review of federal regulations, especially those dealing with the environment, that make it harder and more costly for Americans to rent, buy, or sell homes.

For nine years, Fannie Mae and Freddie Mac have been in conservatorship and the current Administration and Democrats have prevented any effort to reform them. Their corrupt business model lets shareholders and executives reap huge profits while the taxpayers cover all loses. The utility of both agencies should be reconsidered as a Republican administration clears away the jumble of subsidies and controls that complicate and distort home-buying.

The Federal Housing Administration, which provides taxpayer-backed guarantees in the mortgage market, should no longer support high-income individuals, and the public should not be financially exposed by risks taken by FHA officials. We will end the government mandates that required Fannie Mae, Freddie Mac, and federally-insured banks to satisfy lending quotas to specific groups. Discrimination should have no place in the mortgage industry.

Zoning decisions have always been, and must remain, under local control. The current Administration is trying to seize control of the zoning process through its Affirmatively Furthering Fair Housing regulation. It threatens to undermine zoning laws in order to socially engineer every community in the country. While the federal government has a legitimate role in enforcing non-discrimination laws, this regulation has nothing to do with proven or alleged discrimination and everything to do with hostility to the self-government of citizens. (4)

Here are some of the policy proposals that I think it gets right: abolishing Fannie and Freddie in their current form as hybrid public/private corporations; implementing regulation that promotes responsible underwriting and protects against predatory lending; and banning discrimination in the credit markets.

There is a lot of coded language in the platform, however. And that coded language may be inconsistent with some of those goals. For instance, the opposition to the Obama Administration’s attempts to reduce de facto segregation in the housing markets through such initiatives as the Affirmatively Furthering Fair Housing regulation undercuts the claim that the party opposes discrimination in the housing market.

It will be a long, strange trip to the November election. The direction of federal housing policy must be counted as one of important issues at stake.

Top Ten Issues for Housing Finance Reform

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Laurie Goodman of the Urban Institute has posted A Realistic Assessment of Housing Finance Reform. This paper is quite helpful, given the incredible complexity of the topic. The paper includes a lot of background, but I assume that readers of this blog are familiar with that.  Rather, let me share her Top Ten Design Issues:

  1. What form will the private capital that absorbs the first loss take: A single guarantor (a utility), multiple guarantors, or multiple guarantors along with capital markets execution? How much capital will be required?
  2. Who will play what role in the system? Will the same entity be permitted to be an originator, aggregator, and guarantor?
  3. How will the system ensure that historically underserved borrowers and communities are well served? To what extent will the pricing be cross subsidized?
  4. Who will have access to the new government-backed system (loan limits)? How big should the credit box be, and how does that box relate to FHA?
  5. Will mortgage insurance be separate from the guarantor function? (It is separate under most proposals, but in reality both sets of institutions are guaranteeing credit risk. The separation is a relic of the present system, in which, by charter, the GSEs can’t take the first loss on any mortgage above 80 LTV. However, if you allow the mortgage insurers and the guarantors to be the same entity, capital requirements must be higher to adequately protect the government and, ultimately, the taxpayers.)
  6. How will small lenders access the system? (All proposals attempt to ensure access, some through an aggregator dedicated to smaller lenders—a role that the Home Loan Banks can play.)
  7. What countercyclical features should be included? If the insurance costs provided by the guarantors are “too high” should the regulatory authority be able to adjust capital levels down to bring down mortgage rates? Should the regulatory authority be able to step in as an insurance provider?
  8. Will multifamily finance be included? How will that system be designed? Will it be separate from the single-family business? (The multifamily features embedded in Johnson-Crapo had widespread bipartisan support, but the level of support for a stand-alone multifamily legislation is unclear.)
  9. The regulatory structure for any new system is inevitably complex. Who charters new guarantors? What are the approval standards? Who does the stress tests? How does the new regulator interact with existing regulators? What enforcement authority will it have concerning equal access goals? What is the extent of data collection and publication?
  10. What does the transition look like? How do we move from a duopoly to more guarantors? Will Fannie and Freddie turn back to private entities and operate as guarantors alongside the new entrants? How will the new entities be seeded? What is the “right” number of guarantors, and how do we achieve that? How quickly does the catastrophic insurance fund build? (16-17)

None of this is new, but it is nice to see it all in one place. These design issues need to thought about in the context of the politics of housing reform as well — what system is likely to maintain its long-term financial health and stay true to its mission, given the political realities of Washington, D.C.?

Speaking of politics, her prognosis for reform in the near term is not too hopeful:

The current state of the GSEs can best be summed up in a single word: limbo. Despite the fact that Fannie Mae and Freddie Mac were placed in conservatorship in 2008, with the clear intent that they not emerge, there is little progress on a new system, with a large role for private capital, to take their place. Legislators have realized it is easy to agree on a set of principles for a new system but much harder to agree on the system’s design. It is unclear whether any legislation will emerge from Congress before the 2016 election; there is a good chance there will be none. (26)

She does allow that the FHFA can administratively move housing finance reform forward to some extent on its own, but she rightly notes that reform is really the responsibility of Congress. Like Goodman, I am not too hopeful that Congress will act in the near term. But it is crystal clear that there is a cost of doing nothing. In all likelihood, it will be the taxpayer will pay that cost, one way or another.