NAHB Chairman Barry Rutenberg has become the latest proponent for housing finance reform, arguing in an op-ed for a comprehensive overhaul of the current system.
“Our goal is to overhaul the housing finance system to ensure that housing credit is available and affordable in the future and is delivered through a system that is competitive, efficient, safe and stable,” he wrote.
To accomplish that, Rutenberg and the NAHB have recommended a system that balances private, federal and state sources of financing to offer what Rutenberg calls a “menu” of mortgage products, one for both the single-family and multifamily markets that is effectively underwritten and regulated.
They key to achieving that setup, Rutenberg continued in his letter, is the gradual slow-down of Fannie Mae and Freddie Mac, the two GSEs that currently account for a vast majority of new mortgages in the present housing market. Under the NAHB’s plan, Fannie and Freddie would be replaced with a system of private housing finance entities, or HFEs, that would serve the same purpose as the GSEs in buying mortgages and packaging them into securities that are attractive to investors.
“The HFEs would only purchase mortgages that have reasonable risk characteristics, such as standard 30-year, fixed-rate loans,” Rutenberg wrote. “The HFEs would operate under the oversight of a strong independent regulatory agency to ensure all aspects of safety and soundness.”
Federal support would also be present in the conventional mortgage market, where originators wold pay premiums to an FDIC-like insurance fund that would cover any possible losses and ensure payment to investors. That twist, though, represents one of the biggest features of the plan. The government would be the insurer of last resort only for the securities of those originators, not the mortgages themselves, as so happens with Fannie, Freddie and the FHA.
Brian Brunhofer, the president/owner of Meritus Homes, said that for his particular company, he has not confronted the financial irregularities that inspired the NAHB’s mortgage initiative. A builder of upscale properties in the Naperville, St. Charles and Park Ridge neighborhoods, among others, Brunhofer explained that the clientele he serves, which include luxury buyers, move-uppers and down-sizers, does not encounter financing problems for their homes.
“We’re seeing a stability in the system,” he said. “Most of the people that are coming to see us are very well qualified.”
In fact, Brunhofer’s clients often get the “pick of the litter,” as he called it, and are able to shop around through several different mortgage companies for the best mortgage available. Brunhofer does not deny, though, that first-time homebuyers and consumers in more modest markets may encounter tricky financial situations, and he can understand why the NAHB would engage the broader housing financial market like they have.
“The entire industry is dependent upon all those groups,” Brunhofer said, speaking to the importance of that sector.
Among the NAHB’s other recommendations were:
- Restart a carefully regulated, fully private mortgage-backed securities system.
- Continue the role of the federal government housing agencies.
- Enhance the position of state and local housing finance agencies as a source of housing funds.
- Comprehensive reforms to repair the standards, oversight, underwriting, and regulatory flaws that produced the housing boom and bust.
- Adequate oversight of previously unregulated segments of the mortgage and financial markets.
Near the end of his letter, Rutenberg acknowledged that given the legislative debates currently underway in Washington, any significant progress on housing finance reform is unlikely, as least in the short term. And the latest housing reform efforts support his conclusions. After beginning 2012 with a bang, progress toward a GSE-reform effort has stalled, to the point that HUD Secretary Donovan said reform is unlikely “anytime soon.”