Mortgage principles

guest commentary by Ethan Nobles, writing for the Mortgage Bankers Association of Arkansas

Anyone who has kept an eye on the housing market over the past few years knows that reform is coming.

The question, of course, is what will that reform look like?

We got a hint back in February when President Barack Obama’s administration released a plan that, if adopted, would phase out Fannie Mae and Freddie Mac in five to 10 years. While some critics have said that particular plan would make it more difficult for some Americans to take out mortgages, here are a couple of facts that are hard to ignore – those two government sponsored enterprises control over half of the nation’s $11 trillion mortgage market and have cost taxpayers $150 billion since federal regulators took control of them in 2008.

The Obama administration reasons that asking taxpayers to foot the bill when home owners default on their loans isn’t sustainable. It’s hard to argue with that. It’s also hard to argue against the notion that it is desirable for the government to play some role in the mortgage market so as to make it possible for some buyers to take out mortgages.

The national Mortgage Bankers Association is one of 16 industry groups that released a set of principles related to mortgage industry reform. Some of the other groups that signed off on that set of principles are the American Bankers Association, National Association of Home Builders and National Association of Realtors.

What are those principles?
• A stable housing sector is essential for a robust economic recovery and long-term prosperity. Housing, whether through homeownership or rental, promotes social and economic benefits that warrant it being a national policy priority.

• Private capital must be the dominant source of mortgage credit, and it must also bear the primary risk in any future housing finance system.

• Some continuing and predictable government role is necessary to promote investor confidence and ensure liquidity and stability for homeownership and rental housing.

• Changes to the mortgage finance system must be done carefully and over a reasonable transition period to ensure that a reliable mortgage finance system is in place to function effectively in the years ahead.

In short, those principles do away with the current government-dominated mortgage system and rely on private investors. However, there is still room for some government involvement in the system so that people who can buy homes but have trouble securing completely privately-backed mortgages have financing options.

The coalition, then, is hoping to strike a balance – get more private investors involved in the mortgage industry, but don’t completely close the door on the very government involvement that has helped millions of deserving Americans purchase homes.

That’s not a bad balance at all. No one wants to return to the heady days of 2007 when the subprime mortgage industry tanked, left taxpayers on the hook for billions of dollars and came close to shoving a good chunk of the national economy over the edge.

Defending against that nightmare while putting together a system that allows some government involvement may be just the thing to keep risk in check but allow room for some deserving lower and middle-income Americans to purchase homes.