The Government Is Needed to Ensure Affordable, Safe Loans
A government backstop is necessary to ensure affordable, safe loans
August 13, 2013
Americans take great pride in our homes. We understand intrinsically that stable, affordable housing is central to our success, our health and our children's futures. The collapse of the housing market and the recession's continuing impacts on families and communities across the country shook our confidence in our financial system and in our own economic futures. The housing crisis continues to hurt people across the United States, homeowners and renters alike. It's a problem we need to work together as a nation to fix.
One clear lesson from the housing crisis is that everyone involved in single-family and multifamily housing – from private lenders to government agencies to residents – must understand and respect their rights and responsibilities in the housing market. The rules and regulations governing the primary and secondary mortgage markets should ensure adequate consumer disclosures and protections and provide for effective counseling to prospective and current homeowners to help them make the good financial decisions that will keep them in their homes.
There should also be incentives for sound underwriting; strong, enforceable limits on abusive lending practices and inappropriate mortgage terms and a meaningful sharing of risk. A limited government role in the housing finance system is vital to creating the kind of public structure that ensures responsible lending, adequate liquidity during up and down economic cycles and accessibility to those entering homeownership.
The private sector's role in mortgage finance is clear and central. A market-driven environment where competition provides an incentive to lower prices, increased productivity, innovative practices and improved customer service is key to the success of our housing finance system. But families don't decide to buy or sell a home based just on market conditions; they buy and sell when life circumstances demand it. We must remember that for most Americans, housing is not primarily an investment vehicle – it's a home.
The mortgage finance system needs an explicit government backstop behind private capital to guarantee affordable and safe home loans when Americans need them, even during a crisis when private capital flees. Without, we would likely find ourselves in a marketplace with little room for the safe, sustainable, 30-year mortgage that provides an entry into homeownership, stable housing and a way for American families to build wealth.
Finally, while homeownership is the aspiration of the majority of Americans, about a third of us are renters. Federal housing policy should balance its support for both homeownership and rental housing options. This balance is critical for a healthy housing market in every community. The nation's housing finance system must support rental housing finance and make it possible to build and maintain quality rental homes that are affordable to our neighbors who need them and available to our neighbors who simply choose them.
Five years on from the federal takeover of Fannie Mae and Freddie Mac, Congress finally has the momentum to get housing finance reform done this session. From the Senate and House proposals, to the president's goals for housing, to recommendations from my own organization and from the Bipartisan Policy Center's Housing Commission, we have a good foundation upon which to build a system that includes an appropriate role for the federal government in mortgage finance. That new system must have a core public purpose, not just of creating a well-functioning mortgage market, but also of safeguarding housing affordability for all. I hope you will join me in urging elected leaders to use this opportunity to ensure decent, affordable housing is available to all in America.
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