By: Mike Calhoun
April 7, 2014
Last month, the Senate Committee on Banking, Housing & Urban Affairs unveiled a proposal to restructure the $10 trillion housing finance market. This system largely determines who is able to get home loans and how much they cost. It also directly impacts one-fifth of the U.S. economy.
Failing mortgages were at the heart of the financial crisis. Banks, investors, insurers, federal regulators and borrowers all played a role in the lead-up to the crisis. Housing finance giants Fannie Mae and Freddie Mac, which finance and guarantee many mortgages, must also share the blame.
Fannie and Freddie have already had their managements replaced and their practices reined in. This latest proposal would replace them with a new finance system.
The goal of fair and responsible mortgage finance reform should be to create a stable housing finance system that provides affordable mortgages to all creditworthy borrowers. As currently written, the new Senate proposal falls short on several counts:
The plan would increase the complexity of the system, adding greater uncertainty regarding broad access to mortgages for creditworthy individuals, including rural, moderate income, and lower-wealth borrowers.
The bill creates a dual mortgage system: one likely to be dominated by large, national banking institutions and another for smaller, community-based lenders. In such a structure, community lenders often lose, as do the people and families served by those lenders.
The plan would make mortgages more expensive. The bill could also block lower-wealth families from obtaining loans by creating a one-size-fits-all down payment requirement instead of a standard that permits flexible safeguards.
Mortgage finance reform is ultimately about homeownership, and the question at hand is no less than this: How can we ensure that all qualified Americans have access to the loans that they need to earn homeownership?
Ensuring that this crucial market will serve all creditworthy families should be the result of housing finance reform. The recent proposal, as written, does not meet this goal.