Builders Testify on Housing Finance System Reform
NAHB testified before the Congress on March 15 on several solutions to enhance H.R. 1427, the Federal Housing Finance Reform Act of 2007, legislation that would strengthen the regulation of the housing government-sponsored enterprises (GSEs) Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The proposals would ensure the ongoing financial safety and soundness of the GSEs, while preserving the vitality of their government-sponsored status for the fulfillment of their vital housing mission.
“With the introduction of H.R. 1427, NAHB is pleased to see a continuation of the ongoing bipartisan movement towards comprehensive GSE regulatory reform legislation,” Jerry Howard, NAHB CEO and executive vice president, told members of the House Financial Services Committee.
Howard outlined NAHB’s position on six key elements of GSE reform:
- Capital requirements. NAHB agrees with the approach taken in H.R. 1427 that would give the GSE regulator full authority to establish and adjust risk-based capital standards. NAHB believes that the regulator should have the latitude to adjust minimum capital requirements, but these adjustments should only be taken in response to issues related to the safety and soundness of the GSEs. Further, the minimum capital level should be returned to the statutory amount once the problem is resolved.
- Portfolio limits. NAHB believes that any GSE legislation must not hinder the important portfolio functions of Fannie Mae and Freddie Mac, which have been critical to sustaining liquidity in the mortgage markets during periods of financial market stress and in developing innovative programs to address affordable housing needs. Therefore, NAHB is pleased that H.R. 1427 contains no specific limits or criteria mandating huge reductions in the GSEs’ portfolios. However, NAHB would like to see revisions to H.R. 1427’s portfolio criteria language to ensure that it could not be broadly interpreted by a new regulator as requiring massive portfolio cuts that could severely disrupt the mortgage markets and impede the enterprises’ pursuit of their housing mission. During the hearing, committee chairman Barney Frank (D-Mass.) agreed with NAHB’s position on this point, noting that language should be clear to balance priorities of safety and soundness and mission.
- Affordable housing requirements. NAHB believes that the GSEs should do more to accomplish their affordable housing mission and supports the proposed revisions outlined in H.R. 1427 that would toughen the affordable housing requirements for Fannie Mae and Freddie Mac, including the establishment of an Affordable Housing Fund. NAHB believes that the allocation mechanism for the new fund should be based on how well a project meets a community’s housing needs rather than on the tax status of the sponsor. “In other words, it is important that the allocation of affordable housing fund resources occur on a playing field that is level for both for-profit and non-profit sponsors to maximize the effectiveness of any new housing production programs,” said Howard.
- Program approval. “NAHB is concerned that the product approval provisions in H.R. 1427 could open the door to unneeded interference with the development of products and activities that are within the GSEs’ charters,” said Howard. “The net effect of this burdensome process will be to slow or impede the enterprises’ ability to respond to changing market needs.” NAHB supports the program approval approach in the 2005 House bill, which retained the current law definition of new program and did not require a market impact test. NAHB is pleased, however, that H.R. 1427 does not establish a “bright line” boundary between primary and secondary market activities. Bright line language, such as that contained in legislative proposals in the 109th Congress, would be disruptive to the operation of the secondary market, stifle innovation and lead to higher mortgage costs, said Howard.
- Conforming loan limits. NAHB supports the provisions in H.R. 1427 that would allow the conforming loan limit in high-cost areas to be equal to the median home price up to 150% of the national loan limit. “This provision recognizes that special consideration should be given to mortgage borrowers who live in areas that have relatively high house prices,” said Howard.
- Regulatory structure. NAHB agrees with a provision in H.R. 1427 that would establish a stand-alone structure outside of any Cabinet or government unit. However, NAHB would like to see a greater emphasis on housing mission and expertise in the composition of the advisory board.
“We believe that Congress can establish a strong, effective and credible regulatory structure for the GSEs without undercutting their housing mission if several core principles are followed,” said Howard.
“One, balance housing with safety and soundness concerns; two, employ capital as a precise instrument of risk management; three, preserve GSE portfolios as tools for achieving liquidity and affordable housing mission; four, maintain the GSEs’ flexibility to respond promptly, within their charters, to market needs; five, raise the conforming loan limit in high cost areas; and six, focus and enhance GSE benefits to expand affordable housing opportunities,” he said.
Frank indicated that the House Financial Services Committee would like to mark up the legislation before the end of the month and bring the bill to the House floor in April.
To read the legislation, click here and enter H.R. 1427 into the box at the center of the page.
For more information, e-mail Scott Meyer at NAHB, or call him at 800-368-5242 x8144.