At last the Obama administration has laid out a vision for financing housing in the post financial-meltdown world. That vision actually might make sense for us, both as consumers and as taxpayers.
What is most exciting is that the administration offers hope for those with minimal income who rent out of necessity — a long neglected population in federal housing policy. Given recently proposed Minnesota and federal housing budgets, it might be the only hope on the horizon.
“Reforming America’s Housing Finance Market,” recently released by HUD and the Treasury, is a compact 31-page report. It first provides a brief overview of causes behind the explosion of foreclosures and the subsequent international financial crisis; then it provides three strategies for mortgage lending intended to meet the needs of the entire housing market while minimizing taxpayer risk.
Since the federal government currently has a stake in 90 percent of all new mortgages, proposals for restructuring the federal role in mortgage lending are a big deal.
First of the administration’s strategies is to reduce government involvement in the financing of home purchases for most Americans. A better regulated, private financial industry, without government insurance or competition, would provide the bulk of mortgage lending. Those still fuming over the Treasury’s shelling out $130 billion to make good on the guarantees of federally chartered Fannie Mae and Freddie Mac will appreciate the administration’s proposal to put these mortgage institutions out of business (done over a number of years so as not to jar a fragile real-estate market).
The second strategy is to restore trust in the entire industry involved with financing of housing. Here the administration largely relies on effective implementation of the Wall Street Reform and Consumer Protection Act. Passed last year, the act mandates greater disclosures of mortgage terms and requires mortgage investment firms to operate in a less risky manner.
Third, the administration proposes targeted spending to support development of rental housing and ensure mortgages are both available and affordable in rural and economically distressed communities.
To assist home-buyers in these communities — and people everywhere priced out of the rental market — the government will create “dedicated, budget neutral financing mechanisms.” This is a mouthful, and painfully vague, but herein lies the shred of hope for millions of low-income households in desperate need of affordable places to live: A lot of homes can be made affordable by tapping lightly into the trillions of dollars flowing through the nation’s financial markets.
Congress will soon be debating the future of Fannie Mae and Freddie Mac. These debates are expected to last months, if not years. A massive amount of paper will be needed to legislate the administration’s 31-page vision.
Amidst the mind-numbing debates ahead, Congress must not lose sight of this opportunity to restructure the nation’s way of financing housing in a manner that protects taxpayers while moving us much closer to achieving decent, affordable homes for all.
Chip Halbach is the executive director of Minnesota Housing Partnership in St. Paul.
