House subcommittee examines need for housing finance reform

Reform of the U.S. housing finance system was the subject of a House Subcommittee on Housing and Insurance hearing last week.

“We’re holding this subcommittee hearing today because of the fact that while the most important factor in reforming the housing finance system are homebuyers, it is vitally important that the way we reform the housing finance system allows for a transition that provides certainty to those involved in making the dream of homeownership come true,” subcommittee chairman Rep. Sean Duffy (R-WI) said.

Testimony from expert witnesses centered around the idea of ensuring equal market access for all types of lenders, which will lead to more competitive prices.

David Stevens, president and CEO of the Mortgage Bankers Association said it has been nine years since the government-sponsored entities (GSEs), Fannie Mae and Freddie Mac, were first placed into conservatorship. However, their long-term status remains unresolved.

“The financial crisis exposed the structural conflicts and misaligned incentives in the GSE business model, as well as weaknesses in the regulatory framework that was in place at the time,” Stevens said. “The result—a breakdown of the secondary mortgage market, $187 billion in taxpayer assistance, and continuing federal support of almost $260 billion— underscores the importance of moving forward with comprehensive reform now.”

Jerry Howard, CEO of the National Association of Home Builders, said private capital needs to re-enter the mortgage market, but without reforms, there is no incentive to do so.

“The stakes have never been higher for the housing market and the broader economy,” Kevin Brown, chair of the Conventional Financing and Policy Committee at the National Association of Realtors, said. “Yet, there are sizeable challenges and risks associated with the ongoing conservatorships of the Enterprises. Comprehensive housing finance reform enacted by Congress will help address many of these issues.”

Robert DeWitt, chairman of the National Multifamily Housing Council, said policymakers must define the government’s role in a reformed system and the timeline for transition.

“Without that certainty, private capital providers are likely to limit their exposure to the market, which could cause a serious capital shortfall to rental housing,” DeWitt added.