Across the political spectrum, there is near unanimous agreement that the current housing finance system, in which Fannie Mae, Freddie Mac and other agencies are guaranteeing or insuring nearly 90 percent of all home loans, is unsustainable.
Competitive mortgage, rates affordable home prices and pent-up demand should be spurring a robust housing market, but tight credit conditions stemming from a flawed housing finance system are hurting the housing and economic recovery. Uncertainty regarding the future funding of rental housing is also hampering that portion of the market.
To keep housing and the economy on track, it is absolutely vital to revamp the nation’s housing finance system to achieve a permanent and efficient framework that ensures a stable, reliable and affordable supply of credit for single-family and multifamily housing.
Senate Banking Committee Chairman Tim Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho) have offered bipartisan legislation that would achieve these aims and help the housing sector to boost job and economic growth.
The Housing Finance Reform and Taxpayer Protection Act of 2014 would wind down and replace Fannie Mae and Freddie Mac with a system of private mortgage aggregators and securities guarantors, who would then produce mortgage-backed securities that are ultimately guaranteed by the federal government. The government backstop would only come into play if significant required levels of private capital are first exhausted.
In essence, the Senate bill acts like a disaster insurance plan. Providing a federal backstop that would only be triggered under extreme circumstances would preserve financial stability, promote investor confidence, provide incentives to firms that buy and sell mortgage securities to manage risk more carefully, and limit taxpayer exposure.
Further, it will ensure that the 30-year, fixed-rate mortgage — the major housing finance tool for most Americans — remains readily available and affordable.
Fixing our nation’s housing finance system will provide an important boost to our state economy. Last year, there were 16,500 single-family building permits in Pennsylvania. Setting the 2000-2003 period as a baseline benchmark for normal housing activity, single-family building permits in the state should be running more than 33,800 per year, more than twice the current rate.
As Pennsylvania moves back up to a normal level of housing production, those added homes can produce nearly 52,000 additional jobs, increase business activity and generate millions of dollars in added tax revenues for local schools, police and firefighters.
Kevin Coutts, CGB, CGP, GMB, is the 2014 president of the Pennsylvania Builders Association and the president and owner of Forest Homes of Lake Wallenpaupack.