Fannie, Freddie and the future

Recently, our friends at Annaly Capital Management blogged about the future of our housing finance system - a subject that many of us at MAHA are more than a little interested in.

You can read the full Annaly post here (http://annaly.com/blog/2011/01/07/AKindWordForHomeowners.aspx). It is a thoughtful and balanced analysis of our current system and offers the view that a housing finance system without a government guarantee would be "smaller, more expensive, and less liquid. "

They also offer the following - "The current housing finance system, certainly the one that prevailed until underwriting standards started to slip around 2004, is the most efficient credit delivery system in the world."

We agree! That's why the upcoming debate about what to do about Fannie and Freddie is so interesting - and important. On one hand, most everyone agrees that the current GSE's are as toxic politically as those subprime, negative amortization, pick-a-payment mortgages of just a few years ago. No elected official is likely to take to the floor of the Congress and defend Fannie and Freddie - not this year or in the near future.

However, millions of Americans have benefited from our federal government's role in the mortgage market. Lower rates and provisions for making sure Fannie and Freddie responsibly serve all communities are some of the benefits that everyone enjoys with the current system. Admittedly, the current system is flawed and regulations to protect against investing in high-risk mortgages either weren't there or weren't adequately enforced - or both.

Tea Party-types will undoubtedly call for letting an unfettered Wall Street firm(s) be our secondary market but we expect that cooler heads will prevail. From investors to lenders to real estate brokers to homebuyers and owners, we all have a stake in that government guarantee.

As someone who works for a non-profit that seeks to educate buyers and owners and connect them to affordable and sustainable mortgages, the real question from our perspective is whether the new housing finance system will provide for the under-appreciated success story of the last twenty years.

Since 1990, tens of thousands of homebuyers across the country have achieved the American Dream of owning their own home with a combination of aggressive pre- and post purchase community-based education and counseling efforts and an affordable mortgage. These mortgages are usually originated at slightly-below market interest rates, often because of a Community Reinvestment Act agreement between banks and community organizations.

In Massachusetts alone, we have seen over 15,000 low and moderate income purchase their home this way. Delinquency rates are below statewide averages for all mortgages and are equal to delinquency rates for owners with prime, fixed rate loans. Nearly half of the loans are to borrowers of color whose homeownership rates lag behind those of whites. 40% of the loans in recent years have been in communities with the highest rates of foreclosure - ensuring that these neighborhoods still have a good shot at recovery even when some lenders are reluctant to lend.

Will Congress acknowledge the vital role that these affordable products play in under-served communities? A recent proposal by the Center for American Progress (http://www.americanprogress.org/issues/2011/01/responsible_market.html) calls for creating a Market Access Fund to "develop and establish a market for these innovative products." Too much progress has been made in the last twenty years to take a step back. We know how to do homeownership the right way for lower income buyers. The housing finance system just needs to provide the right tools to make it happen in the future.

• Untrack
• Track
• Share
• Blacklist
• Don't link to my nickname
• Your profile
• Logout
• Login
• Register
• Learn more