The Official Online Weekly Newspaper of NAHB
Advocates of reducing the government’s support for housing are a growing concern for the nation’s home builders as the Obama Administration moves forward to develop a comprehensive housing finance reform proposal that it plans to deliver to Congress at the start of next year.
Among the diverse perspectives provided by panelists at the Aug. 17 Conference on the Future of Housing Finance, there were those who offered the view that housing has been too heavily subsidized by the government, to the detriment of the performance of the U.S. economy, reported NAHB Third Vice Chairman Rick Judson, who was a participant at the day-long meeting in Washington, D.C.
Criticism was also heard that housing subsidies should be shifted to rental housing from homeownership and from higher-income to low-income beneficiaries.
“There should be strong concern over the number and diversity of voices seeking reductions or redirection of subsidies going to housing in the tax and mortgage finance systems,” said Judson.
The mortgage interest deduction and other homeownership tax advantages will come up for debate over the next year, he warned, and “NAHB will need to marshal statistics and other research to counter these attacks, which were not well supported factually during the conference discussions.”
The direction of the discussions on what should be done with government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac was more reassuring, he noted, with panelists reaching the general consensus that the government should continue to provide some degree of support to the housing finance system, and that guarantees should be explicit instead of implicit, as they were in the past.
“This crisis — where we saw a full retreat by private financial institutions from many forms of mortgage and consumer lending — provided a compelling illustration of why private markets, left to their own devices, find it hard to resolve financial crises,” said U.S. Treasury Secretary Tim Geithner in his opening remarks to the conference.
“As I have said in the past, I believe there is a strong case to be made for a carefully designed guarantee in a reformed system, with the objective of providing a measure of stability in access to mortgages, even in future economic downturns,” Geithner said.
“The challenge,” he said, “is to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure.”
He went on to acknowledge the importance of getting the private sector back into the business of providing mortgages.
“As we go through this transition, it is important that consumers maintain access to credit at attractive rates,” Geithner said. “The planned wind-down of the GSEs’ portfolios should be done in a careful way. And we need to make it absolutely clear that we will make sure the GSEs have the resources to meet their financial commitments” during the transition to any new secondary mortgage market structure.
As Housing and Urban Development Secretary Shaun Donovan later pointed out, “the government’s footprint in the housing market needs to be smaller than it is today — where FHA and the GSEs collectively guarantee over 90% of all mortgage loans.”
A number of areas will require further debate, according to Judson:
- The degree of federal government support to the housing finance system, particularly the secondary markets. Many felt the government should be less involved than in the past, with some suggesting that the government protect only against catastrophic risk. It was unclear, however, what would trigger government support or how catastrophic conditions would be defined.
- Mortgage products and underwriting standards in a government-supported system. Panelists reached no conclusions on the mortgage products and underwriting that should be available in relation to market liquidity, innovation and safety and soundness.
- The extent to which a government-supported mortgage market should be required to meet affordable or low-income financing needs.