By: Marc H. Morial
May 16, 2014
The Senate Banking Committee recently announced that it would indefinitely postpone the markup of the Johnson-Crapo housing finance reform bill. Banking Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, indicated their intention to continue negotiations behind the scenes in the hopes of gaining more support for the bill.
This is encouraging news for those of us who expressed serious concerns with the current state of the housing legislation under consideration in the Senate. But any bill that does not return with provisions that help restore the dream of homeownership for millions of Americans by reinstating affordable housing goals and lowering down payment requirements is still a failure.
As drafted, this bill would broaden the wealth inequality gap, especially in communities of color, by limiting opportunities of the working class to become homeowners. This measure would not be housing reform. It would be retrogression and is a serious threat to the aspirations and financial security of families across the nation.
Since Fannie Mae was created in 1938, the American Dream of homeownership has been a driving force for building wealth, neighborhood stability and social mobility. Studies show that higher homeownership rates equate to better academic performance by children and lower crime rates. Moreover, equity from homeownership is a primary wealth creator and has financed college educations for our children, provided start-up capital for thousands of new businesses and allowed financial security for retirements.
Specifically, the Johnson-Crapo legislation would transfer the mortgage securitization role historically performed by Fannie Mae and Freddie Mac to a new government agency, the Federal Mortgage Insurance Corp. The government would eliminate the affordable housing mandates that encouraged lenders to originate mortgages for low- and moderate-income families - many of whom were Black and Latino.
In part, the legislation enables Wall Street and the big banks, essentially freeing them to determine the extent to which they want to lend in communities of color. It also allows financial institutions to attach higher interest rates, down payments and fees, as well as stricter underwriting, to what they perceive as higher-risk loans. In the past, the perceptions of lenders have led to extensive redlining and other deplorable real estate tactics detrimental to communities of color.
If this legislation is enacted, working families will be hurt once again.
In fact, a February study by the Harvard Joint Center for Housing Studies notes the impact on homebuyers. "The effects of the rate increases would be greatest on the ability of younger households and on minority households to buy homes, since those groups have incomes clustered closer to the minimums required to qualify for mortgages," the study states. "Thus, the effect could be to widen the gap between homeownership rates and housing quality for white middle-aged households and minority and younger households."
This comes on top of recent data showing the imbalance, and perhaps discriminatory nature, of the current mortgage finance system. Home Mortgage Disclosure Act data shows that restrictive loan policies are already taking a toll in communities of color. In 2012, there were 1.3 million conventional mortgage loans originated in the United States, but Asian Pacific Islanders received only 0.2% or 10,611 of the loans, African Americans received 2.3% or 29,405 loans and Latinos received 5.3% or 69,217 loans.
Furthermore, the pending legislation is regressive. It doesn't adequately address this ongoing inequity nor does it provide much future optimism for working-class families seeking to become homebuyers. The legislation will likely fuel an unacceptable trend in which a large percentage of home purchases are being made by investors and hedge funds, not working families. In the long run, this scenario will put more cash in the pockets of Wall Street, while doing little for the families on Main Street and Martin Luther King Blvd.
For decades, the federal government supported homeownership via the government sponsored enterprises. This was good for our nation, as it boosted the economy and a wide range of families enjoyed the benefits of homeownership. The Senate legislation is a fundamental shift and a government retreat from supporting homeownership that will increase the influence of the private market.
America needs housing finance and GSE reform, but it also needs a robust and lasting housing-market recovery with a resurgence of owner-occupant homebuyers - credit-worthy families that want to invest in their future and the future of their communities. Without significant revisions to its current draft, the Johnson-Crapo Senate legislation will not achieve this objective. Instead, it sends a clear signal that homeownership is reserved for the fortunate few - and that's not the America we believe in.
We must, and can, make this bill better - much better. Our future requires it.