The housing market is heating up, and so are regulatory efforts by Congress to address the fate of Fannie Mae and Freddie Mac—the two government-sponsored enterprises (GSEs) that Congress essentially nationalized during the financial crisis. This week, Senators Bob Corker (R–Tenn.) and Mark Warner (D–Va.) introduced bipartisan legislation that would reform the nation’s housing finance system by replacing the GSEs with a new government agency that would shift more of the risks of mortgage lending to the private sector. A new housing finance system has the potential to help sustain a robust housing market, open up housing opportunities for millions of families, and bolster economic growth for the nation.
Senators Corker and Warner should be commended for their efforts to address this critical issue. However, the proposed bill is inadequate because it focuses on the needs of lenders and investors rather than the needs of families. The goal of a new housing finance system should be to restore balance to the housing market and provide accessible lines of credit to broad and diverse homebuyers. Unfortunately, the Corker-Warner system would offer limited credit and housing options that would be too expensive, especially for minorities, low- and moderate-income households, and rural households.
The National Council of La Raza and the Center for American Progress recently released Making the Mortgage Market Safe for America’s Families, a joint report studying the needs in the current housing market and outlining a set of principles necessary to support a broad, accessible, and affordable housing market. One of our recommendations is to establish a fully funded Market Access Fund (MAF) to promote broader access to mortgage credit and to foster new and safe mortgage products as a way of also increasing access. The MAF would also fully fund the National Housing Trust Fund—a state block grant program administered by the Department of Housing and Urban Development, designed to increase and preserve the supply of rental housing for very and extremely low-income families. Along with adequate funding, a new housing finance system needs a robust regulatory mechanism to monitor for safety and soundness, consumer protection, and access and affordability; we need to protect against the dangerous industry practices that caused the financial crisis and led to so many unnecessary foreclosures.
If policymakers place these principles at the center of any housing finance reform legislation, they can design a housing market structure that treats everyone equally and supports the type of broad, accessible, and affordable mortgage market that will best support American families and the overall economy.