The Obama administration is urging housing advocates to stand behind legislation to overhaul the housing finance market, ahead of a Senate Banking Committee vote scheduled for the end of April.
Secretary of Housing and Urban Development Shaun Donovan defended the plan to unwind government-sponsored enterprises Fannie Mae and Freddie Mac at an event Wednesday hosted by the National Council of La Raza, a Hispanic civil rights organization, arguing that it would be an improvement over the status quo.
Some housing advocates have criticized the bill, which would provide a government guarantee for the secondary market in the event of catastrophic losses, for failing to ensure access to low-income and minority families.
“Despite its imperfections, this bill represents real progress,” Donovan said. “Do we as a nation accept the status quo, do nothing and allow a system that wiped out the majority of wealth in communities of color to endure? Do we allow the current system that’s clearly not serving communities of color to continue? Or should we engage, do all that we can to get reform done and help shape a future worthy of our greatest ideals and hopes? The answer is clear: we must take action.”
The remarks come several days into a two-week congressional recess preceding the April 29 committee vote, though rumors are circulating that the date could slip.
Senate Banking staffers, industry officials and the White House are said to be working hard behind the scenes to rally additional votes for the legislation. The bill—introduced in March by committee Chairman Tim Johnson, D-S.D., and Sen. Mike Crapo of Idaho, the panel's ranking Republican—has attracted bipartisan support, but it will need a strong vote out of the committee to have enough momentum to reach the Senate floor this year.
The more liberal members of Senate Banking are the biggest hurdle to passage. Some of them are said to share the concerns of housing advocates that the new system will make mortgages too expensive and reduce access for low-income and minority families.
A coalition of housing groups, including the NCLR, publicly criticized the Johnson-Crapo bill after its release, though they indicated that they would continue working with lawmakers on the plan. The bill includes a broad mandate to ensure fair access and would provide a new funding stream for some affordable housing and rental programs.
Donovan said that he, too, has suggested improvements.
“Johnson-Crapo needs to preserve our existing authority in regards to the Fair Housing Act at HUD, as it pertains to the secondary market, so we can continue to fight for a color-blind housing market,” he said. “I know all of you have suggestions as well, from integrating housing counseling to insuring an incentive-based fee system that provides access to the underserved.”
But he also pushed back on several criticisms of the legislation, including those over new downpayment provisions. The Johnson-Crapo bill would require a 3.5% downpayment for first-time homebuyers and 5% for other borrowers, which some advocates have warned should not be set in statute.
“While I understand the concerns about putting a 3.5% minimum for first-time buyers in the legislation...you could argue that depending on who the regulator is, if they have full flexibility on downpayments, they could be setting 10% or 20% requirements,” Donovan countered, noting that before the financial crisis, just 1% to 2% of loans backed by GSEs carried downpayments lower than 5%.
The HUD secretary also defended the bill’s efforts to ensure access for smaller institutions, pointing, for example, to a measure that would build a mutual organization for community banks and credit unions.
“As you all know, the largest traditional lenders haven’t always served minority communities well. So what I think we need to make sure that we’re encouraging is a system both where there may be large lenders, but also smaller, targeted lenders—lenders that have figured out how to better serve, whether it’s language needs or others, the traditionally underserved markets,” he said. “That’s where I think the lender mutual and a number of other provisions in Johnson-Crapo are very important to pay attention to.”