NAHB Wants US to Keep Strong Backing of Secondary

LAS VEGAS-The National Association of Home Builders has approved a new policy stating its position for improving the nation's housing finance system, a stance that calls for continued government backing of a secondary mortgage market.

At the politically powerful group's annual convention here, the builders adopted a posture that it believes will ensure a reliable flow of credit at the lowest possible cost "in all geographic areas and under all circumstances."

The NAHB outlined a framework that fails to mention Fannie Mae and Freddie Mac by name, suggesting instead that "a number of entities" should be encouraged to compete in a secondary market "in a manner that creates greater innovation and efficiency."

But the 175,000-member group still wants Uncle Sam to be involved, saying the federal government should establish a fund to guarantee the timely payment of principal and interest to investors in mortgage-backed securities. The fund should be designed to mitigate the government's risk, the policy statement says.

In addition, it backs a requirement that secondary marketing entities benefiting from federal guarantees should pay a fee to capitalize the fund. "The federal government would incur exposure only for catastrophic risk" beyond that covered by the fund, the statement says.

Also, it wants secondary market entities to be required to have enough capital on hand to ensure their safety and soundness, and "meet minimum as well as risk-based capital thresholds."

David Ledford, NAHB svp for housing economics and land development, said during the NAHB's internal debate that capital requirements must be more stringent. "We can't have the federal government on the hook every time some missteps occur."

The NAHB's new position on the future of the secondary market replaces one that was adopted only a year ago but was silent on a number of issues that have since come to the fore.

"Change is coming," said Housing Finance Committee chairman Earl Armiger, a Maryland apartment builder. "We need to be out front with detailed policies."

The policy statement went through a four-day vetting process that required clearance by five different committees before it was approved unanimously by the NAHB's board of directors. During the discussion in the housing finance and federal government affairs committees, members slaved over words and phrases to write a carefully crafted document. "We're trying to decide how to carry a dozen eggs without a carton," said Kerville, Texas-based affordable housing developer Granger MacDonald, the group's outgoing finance committee chair.

NAHB's government relations staff doesn't believe Congress will pass any legislation this year with regards to the secondary market. But they do believe lawmakers will at least begin to debate the fate of Fannie Mae and Freddie Mac, which Mr. MacDonald called "the lifeblood" of his industry.

"The groundwork will be laid this year," senior federal legislative director Scott Meyer told the two panels, which met in an unusual joint session. During the discussion, the committees voted to strike any mention of the Federal Home Loan Banks, agreeing that policies concerning the FHLB System should be kept separate so as not to inflict collateral damage on that GSE. "We need to focus on what needs to be fixed," said Dallas builder Kent Conine. In its final form, the document calls for separate regulatory oversight of the primary and secondary mortgage markets, and says secondary market entities which benefit from government support should stick to securitizing mortgages as their core business.

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