Importance of Housing Finance Reform Focuses on Private Sector
The House Financial Services Housing and Insurance Subcommittee held a hearing on October 25 that focused on private sector perspectives on housing finance reform.
The witnesses spoke about the need for immediate and comprehensive housing finance reform that maintains government guaranteed loans, allows Fannie Mae and Freddie Mac to maintain capital buffers, and ensures access to affordable credit.
Ranking Member Emanuel Cleaver‘s (D-MO) opening remarks recognized the importance of the national Housing Trust Fund in addressing the affordable housing crisis in America. He quoted from NLIHC’s Out of Reach report, sharing that “there is no state, city, or county where a minimum wage worker can afford to rent a modest 2-bedroom apartment.” This fact, he said, is “something that I will probably will not forget while I am here in Congress.”
The witnesses focused on the need for affordable and inclusive access to credit, arguing that lower prices for mortgages would allow more families to buy homes and build wealth.
Nikitra Bailey of the Center for Responsible Lending also spoke to the important role Fannie and Freddie play in closing the homeownership gap between white families and households of color.
Several of the witnesses representing smaller community banks and credit unions stressed that the secondary lending market made possible through government-sponsored entities (GSEs) allowed them to serve their communities, comprised mainly of rural and low-to-moderate income households.
Samuel Vallandingham of the Independent Community Bankers of America said that the largest barriers to credit for those families are a lack of financial education and the ability to make down payments. All witnesses agreed that privatization of Fannie and Freddie would be detrimental to the housing market by decreasing access to and increasing the cost of credit.
The witnesses also spoke about the need for the GSEs to be able to capitalize, or maintain financial buffers. By January 1, 2018, the GSEs will run out of capital buffers under the current terms of their conservatorship because their profits continue to be swept to Treasury instead of retained as operating capital.
This lack of a capital buffer poses a threat to the HTF because the GSEs will at some point almost certainly need to take a draw from the Treasury, which could result in a suspension in their statutorily required payments to the HTF.
The House Financial Services Housing and Insurance Subcommittee will hold a second hearing on November 2 at 2pm ET. Learn more about the second hearing.