Housing Reform Is Finally Here!

April 5, 2019 at 9:33 am Leave a comment

Okay, I’m exaggerating a little to get your attention. To be totally truthful, the housing reform debate that is finally here.

I know inside baseball puts many normal people to sleep but now that the Senate has confirmed Mark Calabria to head the Federal Housing Finance Agency, all the pieces are in place for there to be a high-profile debate on how the housing market should be structured in this country. It’s a debate worth having and one that presents both dangers and opportunities for credit unions.

The FHFA was created following the conservatorship of Fannie and Freddie to oversee the GSE’s as well as the Federal Home Loan Bank system. As a result, its director has a direct impact on the terms and conditions under which mortgages will be purchased by Fannie and Freddie. I would argue that whoever heads the FHFA is the single most important person in housing. By handing the keys to Calabria, the Trump Administration has chosen a housing expert with a long track record of advocating for GSE reform. After all, before working for Vice President Pence, he worked for the Libertarian Cato Institute where he wasn’t afraid to argue for privatization of the housing market.

For example, in this testimony I pulled up this morning he argued that Fannie and Freddie and its shareholders should have to absorb more of the losses caused by their bankruptcy. He also noted in passing that he was “comfortable with believing that the remainder of the financial services industry could quickly assume the functions of Fannie Mae and Freddie Mac.”

The confirmation of Calabria comes shortly after President Trump issued a memo directing the Treasury Secretary and other officials to begin to take legislative and regulatory steps to reform the housing market. In the memorandum the President notes that the GSE’s are still the dominant force in the housing market and calls for officials to  come up with proposals and regulations for allowing more free market competition.

As followers of this issue know, the overwriting concern of credit unions is that all financial institutions, regardless of size, must continue to have cost-effective access to the secondary market. Many small to medium-sized credit unions don’t have the size or risk tolerance to hold a large number of mortgages in their portfolios. If housing reform goes wrong, regulators need to know consumers across the country will have less choices when shopping for a mortgage.

So I understand where the industry is coming from completely but there is also part of me that is curious about steps we could take to bring more of the free market into the housing industry. It just makes no sense to me that a country which has thrived on capitalism has a quasi-socialist housing market.

Does this mean that fewer people should own a home? No politician would ever say this but the answer is yes. The reality is as long as we have a system which subsidizes homeownership to the extent that ours does, we are going to end up with a housing system that is always at risk of another mortgage crisis. On that curmudgeonly note, enjoy your weekend.

 

Entry filed under: Mortgage Lending, Political, Regulatory. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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