Federal Housing Finance Reform: August 2013 Updates

On August 6, President Obama outlined several key principles of a proposed housing finance reform. While much of the country may have had mixed reactions, the National Association of Realtors seems to be behind the president’s idea – for the most part.

According to a statement by NAR President Gary Thomas, President Obama’s proposition closely resembled the outline presented by the NAR to the Obama administration in early 2011. The President’s plan revolves around four core principles for reform:

1. ensure a limited government role, which encourages a return of private capital;
2. a privatized system with a federal catastrophic reinsurance if private capital proved to be insufficient;
3. preserve widespread access to safe and responsible mortgages like the 30-year fixed rate mortgage; and
4. protect the American dream of affordable homeownership for all qualifying borrowers in every community.

For the most part, the NAR seems to back Obama’s ideas for housing reform. However, Thomas did express serious concern regarding other aspects of the Administration’s proposal.

“Specifically, the Administration favors lower FHA loan limits, which the Obama Administration believes are appropriate changes to give sufficient incentive for the private sector to resume making mortgages without FHA or GSE involvement,” a recent post on the NAR’s website stated.

Additionally, the NAR has said it “strongly opposes” the legislation known as The Path Act, which “eliminates a federal guarantee for a secondary mortgage market and dramatically restructures the FHA.”

H.R. 2767, the Protecting American Taxpayers and Homeowners (PATH) Act, was passed on July 24, 2013 by the House Financial Services Committee. According to the NAR, the bill would “wind down” and eventually eliminate Freddie Mac and Fannie Mae over the course of five years. Instead of GSE’s like Fannie and Freddie, the bill would create a new Utility to promote the securitization of mortgages. However, the NAR says the bill “does not provide for a federal guarantee for the Utility.” The bill is expected to come to the House this fall. As the time draws near, the NAR says it will continue to work with Congress and explain their opposition to the legislation.

“As the leading advocate for homeowners, Realtors® remain steadfast in our efforts to preserve the government guarantee in any restructured secondary mortgage market to ensure the continued availability of safe, reliable mortgages such as 30-and 15-year fixed-rate loans,” Thomas said in a statement. “In a fully privatized market, many middle class Americans and individuals on fixed incomes would be unable to access affordable credit or be forced into adjustable-rate mortgages pinned to interest rate variations after a limited term. These homeowners, faced with potentially dramatic rate increases, could experience payment shocks that rattle their financial stability, which also impacts mortgage markets and the greater economy.”

Thomas went on to explain the NAR’s desire to work with Congress and the Obama Administration to design a secondary mortgage model that will “serve America’s best interests today and into the future…”