Will GOP play ‘kick the can’ with mortgage market?

Self-imposed deadlines can work wonders, spurring one to finish that garage cleanout before the big summer party.

Other times, they are self-defeating. New Year’s resolutions, anyone?

America is about to see which description fits Fannie Mae and Freddie Mac.

As many will remember, these were the two private entities at the center of the 2008 financial crisis. After the largest bailout in history — a $187 billion cash injection from taxpayers — they now rest in temporary government conservatorship. One with a countdown set to end in 2018.

By design, Fannie and Freddie will run out of capital next year. Lawmakers hoped that the threat of Fannie and Freddie having to draw capital from the Treasury again would be enough to turn the gears of Congress toward a permanent resolution.

Let’s hope they were right. This remains one of the largest pieces of unfinished business from the Great Recession, and average Americans need progress.

Fortunately, the Mortgage Bankers Association has already done much of the heavy lifting. The organization just put out a proposal for a slow, safe transition to a more robust, stable, and competitive market for mortgage securitization.

Of course, mention words like “mortgage securitization” and most consumers wonder, what can that possibly have to do with me?

If you want to buy or rent somewhere to live, the answer is: a lot.

Fannie Mae and Freddie Mac currently guarantee over 60 percent of American mortgages and are a key part of our affordable housing policy. They don’t make loans, but they make it possible for banks to offer 30-year, fixed-rate mortgages and other attractive credit options to first-time homebuyers, modest-income Americans purchasing a house, and developers building and refurbishing affordable rental units.

Although the high-flying bets that shaped mortgage securities in the past were definitely a problem, the restrictive, government-run monopoly that remains isn’t doing the job, either. A telling statistic, first-time homebuyers have declined in recent years from 40 percent to about a third of new mortgages. It’s simply harder today to obtain that initial home loan.

The answer, according to mortgage bankers, is a more open market.

This will invite additional capital to expand the availability of affordable-housing credit. Community banks will have more loan purchasers to work with, so they can find ones with the right service, price, and options and more effectively deliver loans fitting their local customers’ needs. And best of all, the market will not be government-dominated. Competition, not heavy-handed government involvement, will drive positive change.

To be sure, all of this must happen in a well-considered manner. That’s why the market structure should favor dividend-paying investments and create a single, easily regulated mortgage-backed security product.

Additionally, we should create a new insurance fund akin to the FDIC, which has protected Americans’ savings and checking accounts since the Great Depression. Should there ever be a destabilizing event that wipes out private capital, the fee-based insurance, not taxpayers, will pick up the tab and ensure that homebuyers can get a mortgage, even during such a downturn.

There are many more details in the MBA report worth considering, but the main takeaway is the need for urgency. The American dream of home ownership is on the line, so policymakers must act.

There are encouraging signs. The final transition of Fannie Mae and Freddie Mac from government conservatorship made Treasury Secretary Steve Mnuchin’s top 10 list of “must dos”. And we have leaders like our own Texas Congressman Jeb Hensarling eager to begin work.

So let’s not kick the can any further down the road. The time for reform is now.

This story was originally published June 23, 2017 at 5:31 PM with the headline "Will GOP play ‘kick the can’ with mortgage market?."