Getting Housing Finance Reform Right

Enrique Lopezlira, Senior Policy Advisor, Economic & Employment Policy

Earlier this month, the Democratic members of the House Financial Services Committee released a set of principles for housing finance reform. These principles come in the wake of recently introduced legislation, in both chambers of Congress, to determine the fate of Fannie Mae and Freddie Mac—the Government-Sponsored Enterprises (GSEs) under conservatorship since 2008.

Many of the Democratic principles released are in line with the principles NCLR and partner organizations have been advocating which will help to ensure equitable and sustained access to affordable credit for Latinos and other communities of color. For instance, the Democratic principles include the need to maintain access to the 30-year fixed rate mortgage. NCLR believes the 30-year fixed rate mortgage is the foundation of affordable homeownership. Long-term financing allows credit to be extended at a price that is affordable to low- and middle-income families. Research shows Latinos will account for 40 percent of net new households within the next 10 years, and these new households are expected to drive future demand for home-ownership. This demand for housing will materialize only if housing finance reform protects the viability of long-term fixed-rate mortgages.

Unfortunately, some of the Democratic principles fall short and could lead to a system that reduces opportunities in housing, especially for very-low and extremely-low income families. For example, Democrats call for funding of both the National Housing Trust Fund and the Capital Magnet Fund. These funds were established during the financial crisis to ensure access to affordable rental housing. But a call for funding for these affordable housing programs is not enough. What is needed is a commitment to fully fund these programs  regardless of whether the economy is growing or in a recession.

In addition, some of the Democratic principles could end up working against one another. Calling for private investors to take mortgage losses ahead of taxpayers could undermine the principle that calls for the availability of capital at times when the credit markets are constricting. A new housing finance system needs to ensure that any credit-risk-sharing requirements between private and public capital result in the adequate funding of a robust and healthy mortgage market, both in good and bad times.

In the end, what matters most is having the right set of core values. We believe a housing finance system will effectively meet America’s housing needs only if it truly supports the core values of access and affordability, enabling families to build wealth, build strong neighborhoods and support both the local and national economy.