Third hearing on housing finance reform focuses on increased competition

The House Subcommittee on Housing and Insurance held the third in its series of hearings on housing finance reform this week, focusing on the need for consumer choice.

“Any new housing finance reform system should promote affordability, choice, and innovation,” Subcommittee Chairman Sean Duffy (R-WI) stated. “Consumers should be able to have options as to what type of mortgage product meets their needs. Any reform must be based on market discipline. We cannot leave the taxpayers responsible for digging this nation out of another hole because of the risky bets the previous housing finance system enabled stakeholders to make.”

Witnesses said reform starts with increasing competition.

“Competition in the future system is necessary to ensure that mortgage borrowers are offered innovative loan products with attractive terms and interest rates,” Mark Zandi, chief economist at Moody’s Analytics, said.

Peter Wallison, senior fellow at the American Enterprise Institute, said the government should have no role in housing finance.

“The best and most effective housing finance reform would be to completely eliminate the government’s role in housing finance, and to let private capital and the private sector operate the housing finance system,” Wallison said. “There is nothing about the way the government has managed the housing finance system for the last 50 years that would remotely recommend a continuing government role.”

Theodore Tozer, senior fellow at the Center for Financial Markets at the Milken Institute, would not go that far but said a larger footprint of private capital would help the mortgage market.

Alanna McCargo, co-director, Housing Finance Policy Center at the Urban Institute, said Congress needs to restore trust and certainty to the housing finance system.

“One clear lesson from recent years is that the country needs one solid, interconnected housing finance system that serves all people and protects taxpayers,” McCargo said.