GSEs United Behind Strong National Housing Policies
During an address to the NAHB Executive Board and the association’s Budget and Resolutions committees earlier this month in Orlando, Fla., leaders of the government-sponsored enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Bank of Atlanta pledged to work with the nation’s home builders to advance positive GSE regulatory reform in Congress, to oppose any changes to federal tax laws that would harm the industry and to advance the cause of affordable housing.
“In the coming year, two issues in Washington will demand that we stand and stay united,” Daniel Mudd, president and CEO of Fannie Mae, said.
“First, on GSE legislation, let’s help Congress get this done this year,” he said. “We appreciate the incredibly strong, unbending support of the home builders so far in this process. We look forward to working with you this year to bring a bill home for the ultimate benefit of home buyers.
“Second, we need to work together to maintain the mortgage interest deduction. We need to maintain the other ways the tax code helps families afford housing and build communities, such as low-income housing tax credits,” Mudd said.
“These supports are the rebar in the foundation of the American dream. And if you chip at the foundation, you risk a lot. So we need to stand together, stand up and speak out about the impact on housing.”
Freddie Mac Chairman and CEO Richard Syron added that any changes to the tax system ought to meet “some pretty clear and demanding tests.”
Specifically, he said that tax reform should not impair the value of existing homes. “This is the best nest egg America’s families have.” Yet by some estimates, he said the proposals put forth by the President’s Advisory Panel on Federal Tax Reform would reduce the value of houses nationwide by an average of 10-15%.
“Reform should not raise taxes on middle-class home owners and it should not discriminate against home owners who live in high-cost areas,” said Syron. “Finally, we oppose any change that eliminates or impairs the value of the low-income housing tax credit. The reason is simple. This is the largest and most efficient source of low-income rental housing in the United States.”
Referring to GSE regulatory reform, Syron listed several reasons why forcing the housing finance entities to cut back on their retained portfolios (as suggested in Senate bill S. 190), would harm home owners, home builders and the economy.
“If we cannot buy mortgages and issue GSE debt to finance them, then an important source of liquidity for the U.S. housing markets will be compromised,” he said. Our response to Hurricane Katrina is a big recent example of how vital our retained portfolio is for our mission.”
Syron also noted that Freddie Mac’s portfolio is conservatively managed and regulated, its growth is subject to strong market competition and that eliminating the GSE retained portfolios would only further concentrate risk in the financial system.
“Already, just three banks own nearly 40% of all U.S. banks’ mortgage-backed securities. So eliminating our retained portfolios means more concentration of risk, not less,” he said. “This country already tried relying on the banking system to finance housing. The resulting debacle was the S&L crisis. And there’s no good reason to take that risk again.”
Ray Christman, president and CEO of the Federal Home Loan Bank of Atlanta, said the FHLBs would continue to work with NAHB to ensure congressional passage of GSE legislation that will give housing the priority it deserves and that the banks will continue to play a leadership role in the area of affordable housing.
“Federal Home Loan Banks give away more than $250 million annually in grants, making them the largest source of grants for housing,” said Christman, who noted that a number of the banks provided charitable grants to assist Gulf Coast rebuilding efforts in the wake of Hurricane Katrina.
Observing that the Federal Home Loan Banks entered the secondary mortgage business in the past decade, Christman said they “should continue to be an alternative source for selling mortgages in the secondary market.”
A Secondary Market for Construction Loans
In addition, Mudd and Christman cited efforts to support acquisition, development and construction lending.
“A secondary market for construction loans certainly would drive down costs both for home builders and home buyers,” said Mudd. “David Wilson (2005 NAHB president) estimated that a secondary market for acquisition, development and construction loans would reduce the cost of a $200,000 home by $3,000.
“Kent Conine (2003 NAHB president) focused our attention on this issue, and Fannie Mae has been working with the home builders for about two years now on a simple proposition: Shouldn’t home builders have the same range of financing options as home buyers enjoy today? Wouldn’t that mean a better deal for home buyers — and help home builders meet the nation’s demand for housing?”
In seeking ways to expand its advance business lending activities to its members, Christman said that FHLBs are “looking at accepting construction loans as collateral for AD&C lending."
In summarizing the objective in the year ahead, Mudd said that “our challenge is to keep up with the growing demand for homes as the nation grows, and keep homes affordable for working families.”
For more information, e-mail Michael Strauss at NAHB, or call him at 800-368-5242 x8252.
Photos by Oscar Einzig