A new plan introduced by a diverse group of housing experts defines several goals deemed essential to the future housing finance system, and terminating some government-sponsored entities is one of them.
Authored by Ellen Seidman, senior fellow at the Urban Institute; Phillip Swagel, senior fellow at Milken Institute, a nonprofit, nonpartisan think tank; Mark Zandi, chief economist of Moody’s Analytics; and Sarah Rosen Wartell, president of the Urban Institute, “A Pragmatic Plan for Housing Finance Reform” suggests how to reform the housing finance system including Fannie Mae and Freddie Mac.
The authors called for an end to Fannie and Freddie Mac. Instead, they recommend, selling the remaining assets to private investors “to help repay taxpayers for backing these institutions.”
Nonetheless, the authors still see a continued, even more enhanced role for the Federal Housing Administration, which primarily supports first-time homebuyers and affordable rental housing.
The FHA’s new mission is explicitly defined in the paper. The authors suggest FHA’s share of the single-family market needs to “fall back to historical norms of 10%-12% of mortgage originations,” down from today’s share of at least 20%.
The paper does not address changes to the Federal Home Loan Bank System, but defines five features deemed essential to housing finance starting with stability and liquidity, so that housing finance is resilient to crises and attractive to global investors, access to all creditworthy borrowers, affordable housing, including rental housing, limited government role and established incentives for competition, and innovation that would attract a “greater amount of private risk capital” to support the system.
“Significant demographic and economic volatility,” the authors note, require the future housing finance system to use diverse sources of mortgage funding from lending institutions of all sizes and have “explicit, paid-for government guarantees to cover catastrophic losses,” provide access to credit and affordable housing through a Market Access Fund.
Included in the MAF, they note, needs to be a Research and Development Fund to pilot test innovative mortgage products and a Credit Support Fund that would help increase access for sustainable housing.
Another two funds, created in 2008 to be funded by Fannie Mae and Freddie Mac, the authors wrote, could support the future housing finance system.
The Capital Magnet Fund, which would attract private capital investment in affordable housing and community development, and the National Housing Trust Fund, that would function as a block grant program to preserve the supply of rental housing for extremely low-income families.
