Crapo's reform act for mortgages is the right move

GUEST OPINION TOPICKY GUEST OPINION HOUSING LEGISLATION

April 20, 2014 

The tenuous housing recovery now underway in Idaho should be cause for concern for our state's congressional delegation. Fortunately, Sen. Mike Crapo, R-Idaho, is taking a leadership role as the Senate gets ready to consider important housing legislation.

Revamping the nation's flawed housing finance system in a sound manner that would reduce the unsustainable federal role and encourage private lenders to get into the game would go a long way to ensure a stable and adequate supply of credit for homebuyers and providers of rental housing. It also would help maintain a liquid secondary market without exposing taxpayers to unnecessary risk. Senate Banking Committee Chairman Tim Johnson, D-S.D., and ranking member Crapo have offered bipartisan legislation that would achieve these aims and help the housing sector to boost job and economic growth.

The Housing Finance Reform and Taxpayer Protection Act of 2014 would wind down and replace Fannie Mae and Freddie Mac - which have historically owned or insured more than half of all home mortgages - with a system of private mortgage aggregators and securities guarantors who would produce mortgage-backed securities that are ultimately guaranteed by the federal government. The government backstop would come into play only if significant required levels of private capital are first exhausted. This new system would be overseen by a powerful new regulator called the Federal Mortgage Insurance Corp. (FMIC).

Just as the federal government guarantees deposits at federally insured banks, the FMIC would manage a mortgage insurance fund to protect taxpayers against future bailouts. To encourage that they have "skin in the game," private lending institutions would be required to put 10 percent of their capital up front, as the FMIC would guarantee losses only in excess of 10 percent.

By limiting the federal government's role in insuring mortgage-backed securities and better defining the risk that investors must assume, these reform proposals would encourage more thorough, consistent and responsible mortgage underwriting; increase private capital in the marketplace; and promote stable and liquid mortgage markets for single-family and multifamily housing.

Further, it would ensure that the 30-year mortgage, the primary housing finance tool for most Americans, remains readily accessible and affordable.

Fixing our nation's housing finance system will provide an important boost to our state economy. Last year, there were 7,100 single-family building permits in Idaho. Setting the 2000-2003 period as a baseline benchmark for normal housing activity, single-family building permits in the state should be running at more than 10,300 per year.

As Idaho moves back up to a normal level of housing production, those added homes can produce 9,600 additional jobs, increase business activity and generate millions of dollars in added tax revenues for local schools, police and firefighters.

Sen. Crapo should be commended for championing this vital housing finance reform legislation, which will be considered by the Senate Banking Committee on April 29. His fellow committee members can take a strong stand for housing and a robust economy by voting to advance this important bill.

Schaffner, of Schaffner Fine Homes, is the 2014 president of Idaho Building Contractors Association.

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