Continued government participation in the secondary mortgage market is essential to ensuring affordable and available home mortgages to qualified consumers when private lenders withdraw from the market, according to the National Association of Realtors®’ recommendations for restructuring the government-sponsored enterprises (GSEs).
The House Financial Services Subcommittee will convene today for the first hearing in a series to debate the future of the government-sponsored enterprises, Fannie Mae and Freddie Mac. NAR’s recommended plan is to restructure the entities as government-chartered, non-shareholder owned authorities that protect taxpayers and ensure continued access to affordable mortgages for consumers who are willing and able to assume the responsibilities of the American Dream of home ownership.
“As the leading advocate for home ownership, NAR believes that the federal government must continue to play a role in the mortgage markets to ensure the steady flow of safe and affordable mortgage funding that middle-class consumers need, and only the government can provide that backing,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I.
NAR believes the previous structure of Fannie Mae and Freddie Mac with private profits and taxpayer loss must never recur; however, without some level of government backing of the most basic, simple mortgages – such as the 30-year fixed rate product – interest rates and mortgage fees will be notably higher for consumers and could severely restrict access to credit, especially during down or disruptive markets. The recent economic downturn, for example, caused private capital to flee the marketplace; government backing of residential mortgages was critical in providing capital to borrowers and without their support the financial crisis could have been far worse.
NAR encourages private market solutions and innovations such as covered bonds for less traditional mortgages. However, a full privatization across all mortgage products will inevitably put taxpayers at risk. Given the very high concentration in the banking industry, the market will be vulnerable to tacit collusion and too-big-to-fail mistakes.
“An efficient and adequately regulated secondary mortgage market is essential to providing affordable mortgages to consumers; without it the availability of safe, reliable mortgage products like the 15- and 30-year fixed rate loans mortgage might not exist, and mortgage rates could increase by as much as 2 percentage points, making home ownership unaffordable for many Americans,” said Phipps.
The restructured GSEs under NAR’s plan would guarantee or ensure a wide range of safe, reliable mortgage products such as 15- and 30-year fixed rate loans. Sound and sensible loan underwriting standards would need to be established.
NAR’s plan would require the entities to be fully self-financing and subject to tight regulations on product, revenue generation and usage in a way that ensures they can accomplish their mission and protect taxpayer dollars.
“It’s essential that borrowers continue to have access to safe and affordable mortgage credit,” said Phipps. “This includes making permanent the higher loan limits passed last year and set to expire on September 30, 2011. Increasing access to credit will better meet the needs of home owners in all parts of the country and lead to a faster recovery in the housing market and faster job creation. Housing recovery and job creation go hand in hand.”
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.