Realtors Hear Input on Role of GSEs in Housing Finance

Realtors® attending the NationalrnAssociation of Realtors (NAR) mid-year legislative meetings and trade expo inrnWashington heard a panel of housing experts lay out the several solutions forrnhousing finance reform.  </p

The six panelistsrndiscussing Fannie Mae & Freddie Mac:rnObama Options and Beyond were Steve Brown, 2011 NAR first vice-presidentrnnominee; James Parrot, senior advisor for housing at the National EconomicrnCouncil; Susan Wachter, a professor at The Wharton School, Universityrnof Pennsylvania; Mark Calabria, director of Financial Regulation Studies at thernCato Institute; David Katkov, executive vice president and chief businessrnofficer at The PMI Group, and Ann Grochala, vice president at the IndependentrnCommunity Bankers of America.</p

Scott Brown laid out the official NAR stance on reforming the housing finance systemrnand the future of the two government sponsored enterprises (GSEs) Freddie Macrnand Fannie Mae.  NAR believes that reformrnis required and taxpayers must be protected from losses, he said.  The federal government must continue to playrna role in the secondary mortgage market to ensure a steady flow of mortgagernliquidity in all markets under all economic conditions.</p

Brownrnsaid “As the leading advocate for home owners, NAR is concerned thatrneliminating the GSEs without a viable replacement is not a reasonable optionrnand will severely restrict mortgage capital and result in higher fees and costsrnfor qualified borrowers.  Reform of thernsecondary mortgage market needs to be comprehensive and undertakenrnmethodically.”</p

James Parrot reviewed the Obama administration’s recommendations which includernvarying levels of government backing. The Administration is looking at both thernnear-term and what steps should be taken to reduce taxpayer risk and make thernhousing market more stable but also to frame the discussion regarding therngovernment’s long-term role in housing finance.</p

“The government’s large presence in the housing finance is unhealthy andrnneeds to be scaled back; however, the steps we take over next few years tornreduce the government’s role and increase private capital will have arntremendous impact on the housing market and economy as well as the availabilityrnand affordability of mortgages,” Parrot said. “The objective isn’t to turn awayrnfrom housing, but to make the housing finance market stronger so that familiesrnand their most important asset are better protected.” </p

Mark Calabria restated the position of the Cato Institute which he has presentedrnto at least one congressional committee: the government should have a veryrnlimited role in the secondary market.  Herntold the NAR attendees that the private capital market has the funds andrncapacity to absorb Fannie Mae and Freddie Mac’s market share and that increasedrngovernment support in the past few decades have only slightly increasedrnAmerica’s homeownership rate. Homeownership rates in other countries, he said, are higher despiterntheir government’s limited involvement. Calabria did acknowledge that somerngovernment backstop was essential in the future, since the housing and financernmarkets are sensitive to booms and busts.</p

David Katkov countered that it would be naïve to move to a purely private market simplyrnbecause it’s been successful in other countries, adding that the U.S.’s housingrnfinance system dwarfs that of other countries and is far more complex.  Ann Grochala also expressed concern that a purelyrnprivate market would work against small lenders and community banks because ofrnthe heavy competition from the big banks.</p

Susan Wachter agreed that private capital needs to return to the housing financernmarket, but that most likely won’t happen until the market has stabilized. “Therernneeds to be more accountability and transparency in the secondary mortgagernmarket,” she said, “so that private investors can best assess their risk andrnsafely get back into the market.”</p

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