By Andre Shashaty
Washington, DC–Watching the white marble halls of government shimmer in the July heat, I would like to think our government can finally begin to reverse the housing market slump.
But it appears policy decisions being made now might only delay a recovery and put homeownership out of reach for millions for a long time to come.
In order to correct for the risky mortgage lending practices during the housing boom, federal policymakers are shoving the pendulum way too far back the other way. Proposed mortgage lending reforms would make it harder for many people to qualify for a loan, and require that the standard loan carry a requirement for a 20% down payment.
The proposal would make homeownership “a lot whiter and a lot richer,” as one knowledgeable housing finance expert put it. In other words, minorities and moderate-income households could find it impossible to become owners.
The other part of the problem is the bipartisan desire to curtail government backing for mortgage lending through the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac.
The Obama Administration has proposed a range of policy options that would curtail the federal role over many years so as not to cause too much disruption in the home lending market. But Republicans are on the warpath against Fannie Mae and Freddie Mac, and want to put them out of business as soon as possible.
While the Republican proposals are not likely to become law, they almost certainly will undermine the confidence and certainty that are crucial to restoring liquidity to the mortgage lending markets.
It’s hard to defend Fannie and Freddie. They were guilty of recklessness and arrogance. They share the blame with banks for making profits privately while “socializing their losses” through federal bailouts.
However, most financing experts say there is a critical need for some form of federal support to facilitate securitized mortgage lending, preferably using new mechanisms that don’t carry as much risk as federal backing for Fannie and Freddie did. But the Republicans don’t acknowledge this reality. They not only want to curtail Fannie and Freddie, they want to block any attempt to create new entities to provide federal credit support.
Neither the Obama Administration nor Republicans in Congress seem capable of calibrating their response to the mortgage crisis and targeting reforms to the actual reasons for the mortgage debacle. Where they should be using a scalpel, they seem intent on employing jackhammers.
In their zeal to prevent another bubble, they seem to have forgotten that encouraging homeownership was and is a good thing – for families, for communities and for the economy.
The government should find ways to curb the excesses of subprime lending and the peddling of extremely risky loan structures. It should not make across the board changes in down payments and income qualification standards, and should not curtail federal support for home mortgage lending in the near future.
At the same time, the government should encourage responsible lending that helps hardworking families become owners and helps clear the “overhang” of properties that have gone through foreclosure or are facing possible foreclosure.
