A Simple Way to Boost Homeownership – End Conservatorship of Fannie Mae and Freddie Mac | Commentary
By Harold Ford, Jr.
Dec. 18, 2014, 6:19 p.m.
For generations, affordable homeownership has been a pillar of the American dream and the primary driver of wealth creation and social mobility. While Congress has not yet come to a consensus on how to proceed with housing reform, studies have shown the host of positive externalities that stem from homeownership — ranging from better health and education to safer streets and more vibrant communities.
The affordable housing goals of Fannie Mae and Freddie Mac were established with this in mind — and the mandate has played a significant role in boosting homeownership, particularly among minorities and low-income families. But six years after the crisis, Fannie and Freddie’s future remain in limbo, and the debate over the direction of the mortgage giants has cast uncertainty around the future of affordable housing. The conservatorship of Fannie and Freddie was never meant to be permanent, as my former colleague Rep. Maxine Waters has pointed out. But that’s what it has become. Unwinding the conservatorship and restoring Fannie and Freddie to their historical roles, with a strong regulator, deserves serious conversation, especially in light of the housing market’s growing inequities.
The White House has the authority to end conservatorship on its own, without waiting on Congress. And the statistics on minority homeownership create a compelling reason for it to do so. Limited access to credit among minorities remains a serious problem. Even as communities of color are growing faster than their white counterparts, they still make up a shockingly low percentage of the mortgage market. Of the 1.3 million conventional loans made in 2012, Latinos received just 69,217 loans, and African-Americans received only 29,405. This alarming disparity is unacceptable.
The share of the market made up by first-time homebuyers is similarly distressed, currently hovering at its lowest level since 1987. The decline in new homeowners — and the tight credit conditions precipitating it — impact not only those in search of their first home, but the millions of retiring Americans whose ability to sell their homes is reliant on a consistent flow of new buyers.
The need for affordable housing is likely to grow in importance over the coming years. The U.S. Census Bureau and the Center for American Progress have shown that future borrowers will be less economically secure — this includes 62 million millennials in addition to the millions of families currently struggling with income stagnation and job insecurity. Low-wealth borrowers will also make up a larger share of the market in future years, placing increased significance on the debate over down payment requirements, as well as the need to find affordable solutions.
However, despite an overwhelming bipartisan consensus that our housing finance system is in need of repair, the current proposals provide little reason for optimism among Americans struggling to attain homeownership, as most of them scale back affordability provisions.
The bipartisan Senate legislation advanced this summer by Sen. Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, abandons the affordable mandate in its entirety, moving to a flexible fee structure designed to entice firms to reach out to the underserved — a tepid and untested substitute to the original mandate. Furthermore, experts believe the bill will drive up borrowing costs, potentially shutting more individuals out of the market and exacerbating the already-troublesome wealth gap.
This is not to say no progress is being made. The FHFA’s affordable housing goals for 2015, recently outlined by Director Mel Watt — is a move in the right direction after years of restraint following the crisis. Further, the regulator’s recently announced plan to lower down payment minimums is a welcome development, one which could reduce average down payments by $4,000 for some applicants — enough to have a meaningful impact.
Opponents of the mandate are quick to point to the affordable housing goals as a primary driver of the financial crisis. This claim, most recently refuted by the St. Louis Federal Reserve, is simply not supported by the facts. Nonetheless, the political rancor over affordability continues to distract and confuse what should otherwise be an open debate around how to most effectively lend to creditworthy borrowers across all market segments.
We cannot allow sustainable homeownership to become a privilege reserved for the fortunate few. By preserving the affordable housing mandate over the long-term, and by addressing the uncertainty caused by the endless conservatorship of Fannie and Freddie, we can lay the foundation for the housing system of tomorrow, while at the same time boosting homeownership for the millions of creditworthy families eagerly waiting to invest in their future and the future of their communities.
Any new system will undoubtedly have its differences, but it is critical that the government play a supportive role in ensuring affordability and accessibility. By doing so, we will have taken a meaningful step towards restoring the vision of sustainable homeownership for the generations to come.
Harold Ford, Jr. is a former Democratic United States House of Representatives from Tennessee’s 9th District.
He served as a member of the House Budget Committee and the Financial Services Committee.