The House Financial Services Subcommittee on Housing and Insurance recently held a hearing to discuss the fiscal health of the Federal Housing Administration. The same day, President Barack Obama released his fiscal year 2014 budget, reflecting the FHA’s growing success these past few years, yet also noting the likely need for it to draw more than $940 million from Treasury to cover losses from high-risk loans they insured during the housing crisis.
This budget request reinforced concerns about the FHA’s financial stability and the agency’s role in the housing market.
Dodd-Frank was a game changer in the financial world and the federal regulations that came about as a result have forever altered the real-estate finance landscape. Private capital has for the most part remained on the sideline, stuck in uncertainty in anticipation of the impact of these rules. In the meantime, the FHA has filled the void. The agency has become a far more dominant source of mortgage finance for purchase borrowers, especially for first-time homebuyers, young families and low- and moderate-income homebuyers.
A large FHA role is not a stable or sustainable model and not in the best long-term interest of the housing market or the economy. With housing contributing 20 percent of national gross domestic product, private capital must play a larger part and allow the government to return to a more supportive role.
Congress appropriately seems intent on passing substantive reform legislation not only to address the fiscal issues facing the FHA, but also to balance the agency’s position in the housing market. Most housing stakeholders would welcome this move, if done thoughtfully with balance. Doing so could eviscerate doubt and strengthen the FHA along with many other aspects of the real-estate market, which would help accelerate the housing recovery.
As a former FHA commissioner, I know all too well the limited policy changes the agency can implement without congressional authorization. I went before Congress many times asking for the statutory authority to make changes that would ensure the long-term viability of the program.
During last month’s hearing, and at a similar hearing in the Senate Banking Committee in March, members from both sides of the aisle repeatedly asked for input about what they should do to help the FHA, as well as stimulate the private sector. In both testimonies, I shared with them some of the Mortgage Bankers Association’s recommendations.
We need federal legislation that secures the FHA’s viability and relevancy, reduces uncertainty and promotes a return of private capital to the mortgage market. Specifically, such legislation must balance three priorities: restore the agency’s financial solvency; preserve the FHA’s critical housing mission helping underserved borrowers; and maintain the agency’s countercyclical role ensuring sufficient liquidity for borrowers in times when the private market withdraws from the mortgage market.
However, the FHA is just one component of the housing market that should be addressed if we want this fragile housing recovery to become more robust.
The White House should create a new position, a housing policy coordinator, whose role would be to coordinate among the various agencies and regulators who are making policies that affect housing. This position should not create new programs, rules and regulations, but rather ensure that as new rules are created, they don’t conflict to cause unintended downstream effects. It is imperative that we have someone committed solely to managing the complicated policies and regulations that affect the real-estate finance industry and protect consumers.
Also, we must have a transparent, substantive debate over the future of the government-sponsored enterprises. Fannie Mae and Freddie Mac were placed in conservatorship in 2008, with the goal of winding down their involvement in the housing market. Yet, since then, very little has been done and today they touch two out of every three mortgages in this country. We are way past addressing their future if we want to properly balance the markets. When Fannie Mae and Freddie Mac develop new policies and products, or change existing ones, they have an instant and dramatic impact on the nation’s housing market, and thus they ought to be subject to same transparency and a process similar to those used by other federal government entities.
This is not a partisan issue. Republican and Democrats both want a healthy, prosperous housing market led first by private capital. Reforming the FHA and creating policies that support private capital will only help achieve this goal. Congress took seriously its role to help ease the tension in the financial markets when it passed Dodd-Frank. Now is the time to remove uncertainty in the marketplace so that real-estate finance takes off and housing once again becomes a cornerstone of a vibrant economy.
David H. Stevens is president and CEO of the Mortgage Bankers Association. He previously served in the Obama administration as assistant secretary of housing/federal housing commissioner at the Department of Housing and Urban Development.