Home Builders Announce Housing Finance System Reform PlanMarch 5th, 2012 by DWM Magazine
The National Association of Home Builders (NAHB) announced a new framework for housing finance system reform designed to transition Fannie Mae and Freddie Mac to a new mortgage securitization system for single-family and multifamily conventional mortgages.
“Our plan seeks to overhaul the housing finance system to ensure that housing credit is available and affordable in the future and is delivered through a competitive, efficient, sound, safe and stable system,” says NAHB chairman Barry Rutenberg, a home builder from Gainesville, Fla.
According to the NAHB, replacing Fannie Mae and Freddie Mac with a new securitization system for conventional mortgages backed by private capital and a privately funded federal mortgage-backed securities fund must be done in an orderly fashion over time. During this phase-in period, Fannie Mae and Freddie Mac would remain operational until the alternative system is fully functioning.
Under this scenario, Fannie Mae and Freddie Mac would be gradually replaced by private housing finance entities (HFEs) that would be chartered to purchase single-family and multifamily mortgages from loan originators and package the loans into securities for sale to investors worldwide, reports the NAHB, adding the federal government would guarantee the securities, not the mortgages.
The HFEs would only purchase mortgages that are well understood and have reasonable risk characteristics, such as standard 30-year fixed-rate loans. The HFEs would operate under the oversight of a strong independent regulatory agency to ensure all aspects of safety and soundness. NAHB believes the 12 regional Federal Home Loan Banks could serve as HFEs.
Federal support to the conventional mortgage of the future would consist of a privately funded insurance fund where the government would guarantee its solvency in a manner similar to the Federal Deposit Insurance Corporation’s backing of the fund that insures savings deposits.
NAHB’s housing finance reform blueprint also proposes to:
• Restart a carefully regulated fully private mortgage-backed securities system;
• Continue the role of the federal government housing agencies;
• Enhance the position of state and local housing finance agencies (HFAs) as a source of housing funds;
• Expand the role of the Federal Home Loan Banks (FHLBanks) in the housing finance system; and
• Repair flaws that produced the housing boom and bust.
The full white paper can be viewed on the NAHB’s website.