Reforming the Secondary Mortgage Market

By NAR 2012 President Elect Gary Thomas

So how do we sustain the housing recovery?  That was the question on the table at a forum put together by the Progressive Policy Institute and the American Action Forum.  It drew many people who care deeply about housing, including economists, politicians and public policy experts and media.

As part of the event, I participated in a panel to discuss future reform of government-sponsored enterprises (GSEs). We enjoyed a lively debate among panelists Douglas Holtz-Eakin, President of the American Action Forum; Jason Gold, Senior Fellow for Financial Services at the Progressive Policy Institute; and Christopher Mayer, Professor of Real Estate at Columbia University School of Business.

Most of the policy experts agreed that reforming Fannie Mae and Freddie Mac will be delayed in the near term as lawmakers focus on helping the country recover from the recession.  Ultimately, we think it will be the regulator of the government-sponsored enterprises (GSEs)—the Federal Housing Finance Agency—that raises the issue.  In the meantime, no real progress will be made on GSE reform until the Consumer Financial Protection Bureau and the Federal Reserve craft rules that establish reasonable underwriting and risk retention standards.

The fact is that today the federal government buys or insures 9 out of every 10 mortgages.  In other words, the government provides the capital to keep the mortgage market, and, in turn, the real estate market alive.

Given this reality, there must continue to be a role for government in the secondary mortgage market to ensure the availability of mortgage capital.  Therefore, any restructuring must ensure consumers have access to affordable mortgage capital in all markets, at all times, and under all economic conditions.

At the same time, the institutions must be reformed to ensure the failures of the past do not return.  The structure that privatized profits and made losses public must be changed.

To address these issues, NAR developed a set of eleven principles to help shape reform that ensures a robust financing environment for both residential and multi-family housing. Broadly, these principles call for reform of the secondary mortgage market to:

1. Ensure the viability and affordability of long-term fixed rate mortgage products.

2. Define a clear and explicit role for the federal government

3. Return to strong regulation and oversight

4. Conduct strong underwriting of government-guaranteed products

5. Continue support of multifamily housing and other specialized consumer products

NAR shared these principles with Congress and industry partners.  We have, and will continue to revise these principles to reflect the desires of our members.  You can be sure that NAR will continue to speak up loudly and often on this important issue.

  1. Great article and wonderful to see such strength in the comments of the incoming President of NAR. With the upcoming election under a month away it concerns me that NAR is looking to work towards strengtheing the housing market and the government agencies that support and finance housing while one of the candidates platform and campaign promises was to do just the opposite. Mr. Romney campaigned that if his “tax policy was to pass he would eliminate loopholes and deductions (MID) in order to pay for his tax policy; he would eliminate the HUD; he would eliminate Freddie and Fannie. I’m not comfortable that this radical oratory is in the best interest of the housing industry. Let’s hope that if by chance Mr. Romney is the next leader of the free world that he doesn’t obliverate our industry as we know it today.