Bipartisan Policy Center on Housing

Bipartisan Policy Center on Housing

Recent comments of President Obama about getting Federal Government out of the loan guarantee business highlights why the US Housing Finance system needs a major overhaul.   One day the president wants to eliminate the loan grantee program, but before his comments hit the print pages of major news papers he praises the role that 30 year fixed rate mortgages have played in creating wealth for Americans.  

 At a recent conference sponsored by the Housing Commission of the Bipartisan Policy Center (BPC), Lewis Ranieri, a former vice chairman of Salomon Brothers and current chairman of Ranieri Partners offer 3 key points on why the status quo in housing is both unsustainable and unacceptable:

1)The federal government should not “own” the mortgage market as it does today. More than 90 percent of mortgages are touched in some way by the government through the guarantees offered by the government-sponsored enterprises Fannie Mae and Freddie Mac, or by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or Ginnie Mae, which guarantees FHA and VA mortgages. The government’s overwhelming presence in the market not only crowds out private capital that otherwise would be willing to assume much of the credit risk associated with mortgage lending, but also kicks that capital out the door. A government-dominated system places excessive risk on the taxpayers who are ultimately responsible for any payouts in the event of a market decline.

2) The current “credit box” through which mortgage lending decisions are made is eliminating homeownership opportunities for working families across the country. While record-low interest rates and the sharp post-crash decline in home prices have made homeownership more affordable than at any time since the 1970s, too few families have been able to take advantage of these favorable conditions. Higher downpayment, debt-to-income, and credit score requirements are shutting many out of the mortgage market altogether. While no one wants a return to the reckless lending practices that existed in the run-up to the crash, it is clear the pendulum has swung too far in the opposite direction. 

If maintained, a narrow credit box will frustrate the aspirations of millions of families to enter the homeownership ranks and will have major implications for wealth accumulation by minority households. According to Harvard University’s Joint Center for Housing Studies, over the next ten years minorities will account for 70 percent of net new households and a significant proportion of potential first-time homeowners. Yet, many of these new households will lack the resources with which to make large downpayments. Because home equity accounts for a larger share of net wealth among African American and Hispanic homeowners than it does for other population groups, restrictions on low-downpayment mortgages, even if they are prudently underwritten, will block an important means by which minority families have traditionally built household wealth.

3) Tight credit is limiting economic growth. Despite recent gains, spending on single-family home construction remains far below historically normal levels. In the post–World War II era, the United States has suffered through 11 recessions, and new homebuilding and housing-related construction have usually led the way to economic revitalization. A return to the reasonable underwriting standards that existed before the housing bubble, with their focus on the overall creditworthiness of the borrower, will help the housing sector make an even greater contribution to economic growth.

Majority of the points made here are valid, but they are nothing but more than plea to bring back liar loans that cause the housing crash in the 1st place.  Granted the tightening of credit and underwriting requirements from the regulatory agencies have played a role in the current credit crunch, but that’s not the main reasons for small businesses inability to obtain loans.

The banks are simply not interested in taking risks cause there are easier ways for them to make money.    We suspect once the FED’s easing on the monitory policy closes the Discount Window for banks to borrow cheap money with no strings attached to it, the banks will be forced to get back to the normal business of lending.

What do you guys think?!

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