Calls for housing market reform continue to grow louder, with the reduced influence or elimination of government-sponsored enterprises Fannie Mae and Freddie Mac at the center of almost all proposals.
But it's not necessarily that simple, even as the GSEs who have dominated the mortgage finance market for the better part of five years complete the repayment of debts to the U.S. Treasury. Any plan for their replacement - whether entirely or gradually - would take time to implement and develop. According to James Carr, fellow for The Opportunity Agenda and the National Fair Housing Alliance (NFHA), gaining congressional approval for any significant measures could take years.
A different route
Carr recently said that the goals of many reform proposals could actually be achieved without legislative action, according to HousingWire. A new housing finance system could be structured and realized through administrative maneuverings, but in order for it all to work, certain agencies need to take initiative.
"There is no reason to leave the housing market in limbo as we wait to secure the major goals of a dramatically improved home mortgage market," Carr said. "At a minimum, administrative changes that can affect significant change should be pursued now as an interim step toward housing finance reform."
Most of the conversations regarding broad-scale reform revolve around the continued transfer of mortgage capital from Fannie and Freddie - which currently control more than 90 percent of all securities - into the private market. However, a more immediate concern is the issue of affordability. For many lower- and middle-class Americans, buying a home remains a pipe dream, especially as government regulations force banks and lenders to tighten their standards for approval by placing a renewed emphasis on risk assessment and loss mitigation. Loans from the Federal Housing Administration may not be as viable an option going forward either, as the amount of recession-induced risk taken on by the FHA has forced it to increase its rates and down payment requirements.
"At the end of the day, it's hard to select one or two goals that should take precedence over the others, since there is no reason for delaying implementation of all goals immediately," Carr said, noting that action from the likes of the Federal Housing Finance Administration could effectively tackle both issues at once. The FHFA already has the authority and the motivation to make risk transfer and increased loan availability simultaneous realities.
Carr's alliance supports the proposed qualified residential mortgage rule, which would theoretically provide additional protections for homeowners and a new wave of prospective buyers. But his group and others contend that further action needs to be taken in order to ensure that the risks inherent to the housing finance system are confined to the lenders who issue the mortgages. In order for that internalization to take effect, private lenders need to be equipped with adequate capital.
That's happening - Fannie and Freddie each recorded strong third quarters and have nearly repaid their bailout-induced debts - but Carr suggested taking it a step further. In holding some of the GSE earnings in a reserve pool, the Treasury Department could replenish the risk reserves rather than transferring all the funds through more traditional avenues.
Refinancing remains another hot topic, as more than 70 percent of GSE activity continues to come in the form of refinancing existing loans. While distressed property sales, delinquencies and foreclosure starts are all down nationally, providing increased services to existing homeowners doesn't further the long-term goal of reestablishing homeownership as an attainable benchmark for all Americans.
"While refinancing helps families lower their long-term cost of borrowing and adds profits to the bottom line for financial firms, refinancing does not expand homeownership," Carr said. "Lack of access to affordable home loans not only undermines asset-building opportunities for America's families but also contributes to a continuing drag on the U.S. economy."
Ultimately, Carr's alliance and others believe homeownership should be the driving motivation for the administrations and conservatorships involved. A broader range of homebuyers granted greater access to affordable home loans generally lends itself to a more viable and sustainable housing market as well as a growing economy. A balance must be found in maintaining the same risk assessment standards, having enough capital on hand and making homeownership a real possibility for more people.
The gradual movement away from GSE influence is a good start, but the growing sentiment is that there's no need to further delay the process. Especially as the Federal Reserve's plans to taper its quantitative easing program take shape and grow nearer, it's a pivotal time for the housing market. Mortgage interest rates remain affordable by traditional standards, but that likely won't last once the Fed decides to reduce its spending rate. The lack of federal funding will force private lenders to compensate.
It all adds up to calls for action that are growing in number and volume, saying that the time for housing finance reform is here and now.