Home Market Reform Must Expedite Return Of Private Money
Richard McNally
While optimism grows in our local housing market with increased housing demand and the return of home values to levels seen before the housing crisis, many real estate finance observers continue to urge swift reform of government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac.
In response to ongoing requests for action, President Obama and both chambers of Congress recently proposed housing finance reforms. The goal of these common-sense, bipartisan reforms — encouraging private investors back to the market, reigning in the influence of the GSEs, and protecting taxpayers — is long overdue, especially since a decline in the housing market will deliver significant losses to taxpayers.
Backed by the federal government, GSEs have reduced competition by squeezing out private capital investments. Just five years after taxpayers bailed out Fannie Mae and Freddie Mac for $188 billion, the two organizations are now larger than ever and enjoy record profits. Meanwhile, many homebuyers have a harder time securing financing. The lack of competition in the marketplace forces many homebuyers to pay higher prices for loan products and prevent smaller banks from competing for loans.
The first proposed GSE reform came out of the Senate. The bipartisan bill, known as Corker/Warner, establishes a path to phase out Fannie Mae and Freddie Mac and replace them with an insurance program similar to the widely popular and well established Federal Deposit Insurance Corp. (FDIC). The plan to create a federal mortgage insurance program, while still lacking details, seems certain to protect private investors in the event of a catastrophic meltdown of the housing market, with premiums paid by investors rather than having federal tax dollars cover the costs.
Everybody should be encouraged by the progress Washington leaders have made toward GSE reform, but observers should not forget the difficulty that comes with getting legislation passed in Congress. It's important that business leaders across the country join the chorus of industry experts, including the Mortgage Bankers Association, who are calling upon Congress and the Federal Housing Finance Agency to take action that brings private capital back to the real estate finance market.
Congress and President Obama agree that putting the housing market back on firm ground requires attracting private investment back to the marketplace and preventing another bailout of Fannie and Freddie. The final version of GSE legislation must expedite the return of private investors back to the housing market, which will bring greater competition for investment dollars and enable more homebuyers to secure affordable financing.
Richard McNally is president of Security First Mortgage Funding LLC, a subsidiary of Millbury Federal Credit Union, in Millbury.
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