"#$%& "& "'$( )*+ ,*-.$/0 1$/'/2& 3&)*+4 5&0$.

65&(7. 3&)*+4 ,*-.$/0 1$/'/2&

!ames P. Carr

Cn behalf of

1he CpporLunlLy Agenda
naLlonal lalr Pouslng Alllance and
1he naLlonal AssoclaLlon of 8eal LsLaLe 8rokers

november 12, 2013

AfLer Lhe collapse of Lhe houslng markeL, numerous proposals Lo resLrucLure and resLore
our damaged houslng flnance sysLem have been advanced, lncludlng many LhaL aLLempL
Lo flx glarlng weaknesses ln morLgage lendlng ln Lhe years leadlng up Lo Lhe recenL
collapse of Lhe houslng markeL. lundamenLal problems lncluded, for example, Lhe
lmpllclL federal guaranLee of home morLgages LhaL enabled prlvaLe flnanclal flrms Lo
pockeL excesslve earnlngs whlle leavlng Lhe Amerlcan Laxpayers Lo pay Lhe cosLly Lab for
Lhe ballouLs LhaL were requlred followlng Lhe crash of Lhe subprlme lendlng lndusLry.

1he ellmlnaLlon of lannle Mae and lreddle Mac ls aL Lhe core of almosL every ma[or
proposal LhaL alms aL revamplng Lhe morLgage flnance sysLem. Powever, Lhe reallLy ls
LhaL houslng flnance reform LhaL requlres Lhe wholesale replacemenL of Lhe CSLs wlll
Lake many years Lo be approved and lmplemenLed. A flve-year Llme horlzon ls a
reasonable esLlmaLe even under opLlmlsLlc esLlmaLes.

1he convenLlonal houslng markeL cannoL walL for Lhe lengLhy leglslaLlve process Lo run lLs
course. 1here are conLlnulng slgnlflcanL problems LhaL are unnecessarlly llmlLlng access
Lo homeownershlp. ConvenLlonal lendlng ls all buL closed Lo people of color, low- and
moderaLe-lncome households, and flrsL-Llme homebuyers. lndeed, more Lhan 70 percenL
of CSL acLlvlLy ls reflnanclng exlsLlng loans. Whlle reflnanclng helps famllles lower Lhelr
long-Lerm cosL of borrowlng and adds proflLs Lo Lhe boLLom llne for flnanclal flrms,
reflnanclng does noL expand homeownershlp. Lack of access Lo affordable home loans
noL only undermlnes asseL bulldlng opporLunlLles for Amerlca's famllles buL also
conLrlbuLes Lo a conLlnulng drag on Lhe u.S. economy.

Amerlcan homeowners, however, are noL aL Lhe mercy of an lncreaslngly parLlsan and
lneffecLlve leglslaLure. A revlew of Lhe prlnclpal goals for a new houslng flnance sysLem
reveals LhaL many of Lhe ma[or goals of resLrucLurlng Lhe sysLem could be achleved
Lhrough admlnlsLraLlve acLlons. Speclflcally, leglslaLlve acLlon Lo achleve Lhese alms ls noL
requlred. 1herefore, Lhere ls no reason Lo leave Lhe houslng markeL ln llmbo as we walL
Lo secure Lhe ma[or goals of a dramaLlcally lmproved home morLgage markeL. AL a
mlnlmum, admlnlsLraLlve changes LhaL can affecL slgnlflcanL change should be pursued
now as an lnLerlm sLep Loward houslng flnance reform.

1he maLrlx below hlghllghLs Len key goals of houslng flnance reform and Lhe Lype of
acLlon-admlnlsLraLlve versus leglslaLlve--requlred Lo advance Lhese goals. 1hese key
goals draw heavlly on work pursued as parL of Lhe Pome for Cood Campalgn, a mulLl-
pronged, mulLl-year efforL launched by Lhe naLlonal AssoclaLlon of La 8aza and 1he
CpporLunlLy Agenda and [olned by a broad coallLlon of more Lhan 30 nonproflL houslng,
clvll rlghLs and research organlzaLlons lncludlng Lhe naLlonal urban League, naLlonal
CAÞACu, klrwan lnsLlLuLe of 1he Chlo SLaLe unlverslLy, CenLer for 8esponslble Lendlng,
unC CenLer for CommunlLy CaplLal, and Lhe naLlonal lalr Pouslng Alllance. 1he goals also
draw on recenL LesLlmony by !ulla Cordon, ulrecLor of Pouslng llnance and Þollcy for Lhe
CenLer for Amerlcan Þrogress, before Lhe u.S. SenaLe CommlLLee for 8anklng, Pouslng
and urban Affalrs. llnally, Lhe goals reflecL key prlnclples for secondary markeL reform
LhaL were developed by Lhe naLlon's leadlng clvll rlghLs organlzaLlons.

1he key goals also demonsLraLe Lhe lmporLance and power of Lhe leadershlp aL Lhe
lederal Pouslng llnance Agency (lPlA) and ueparLmenL of Pouslng and urban
uevelopmenL, Lhe regulaLors for lannle Mae and lreddle Mac. 1hey furLher hlghllghL Lhe
facL LhaL new leadershlp ls needed aL Lhe lPlA LhaL ls focused on Lhe recovery of Lhe
home morLgage markeL and Lhe reesLabllshmenL of homeownershlp as a cornersLone of
Lhe Amerlcan uream. Maklng access Lo homeownershlp Lhe prlorlLy aL lPlA would
greaLly llfL Lhe economlc forLunes of our naLlon's famllles, communlLles, and overall

!"# %"& '()*+ ,( -./0"1" 2(3+0#4 50#)#." 6"7(89 )#: ,/" 6";308": -:90#0+,8),01" (8 <"40+*),01" -.,0(#+

%"& '()* 6";308": -:90#0+,8),01" -.,0(# 6";308": <"40+*),01" -.,0(#
1. Þrovlde a llquld and rellable source of credlL
for houslng ln all geographles, lncludlng urban,
suburban, and rural locaLlons, Lo all credlL-
worLhy borrowers, lncludlng low-and moderaLe
lncome famllles and famllles of color, as well as
dlverse producLs Lo accommodaLe a wlde range
of houslng Lypes, lncludlng houslng co-ops,
communlLy land LrusLs, manufacLured houslng,
senlor houslng, small renLal sLrucLures, energy
efflclenL dwelllngs, and cohouslng.

8eflne and enhance Lhe underwrlLlng crlLerla of
lannle Mae and lreddle Mac Lo more effecLlvely
serve all houslng markeLs, lncludlng lmplemenLlng
Lhe uuLy Lo Serve rule and expandlng raLher Lhan
conLracLlng Lhe houslng goals. Changes could
lnclude more accuraLe rlsk assessmenL Lools and
models for borrowers wlLh nonLradlLlonal credlL
hlsLorles as well as plloLlng new and lnnovaLlve
morLgage producLs Lo remaln abreasL of Lhe
growlng demographlc dlverslLy of Lhe Amerlcan
publlc. Also, guaranLee fees and relaLed charges
should be reexamlned Lo ensure LhaL Lhey relaLe
only Lo rlsk and are noL belng seL arblLrarlly hlgh
Lo achleve obscure and unproducLlve pollcy or
pollLlcal goals.
2. AfflrmaLlvely furLher falr houslng and equal
credlL access.
Puu and lPlA can work ln Landem Lo ensure LhaL
lannle and lreddle are effecLlvely servlng
communlLles of color and under-served groups.
CurrenLly, Lhe CSLs' markeL peneLraLlon ln Lhese
areas ls lnadequaLely low. 8oLh Puu and lPlA
have acknowledged LhaL Lhe CSLs have an
AfflrmaLlvely lurLherlng lalr Pouslng (AllP)
obllgaLlon and musL comply wlLh Lhe lalr Pouslng
AcL. Accordlngly, Lhe agencles musL perform Lhe
proper analyses Lo ensure Lhe CSLs' compllance
wlLh Lhe lalr Pouslng AcL.
3. Lnsure counLercycllcal sLablllLy for morLgage
credlL ln Llmes of economlc downLurns or
exogenous shocks LhaL cause prlvaLe caplLal Lo
lannle Mae, lreddle Mac and Lhe lederal Pouslng
AdmlnlsLraLlon (lPA) currenLly perform a
counLercycllcal role ln morLgage flnance. 1hls role
could be enhanced lf Lhe agencles were Lo adopL
underwrlLlng and prlclng rules LhaL reflecL
performance rlsks and promoLe healLhy, safe and
sound lendlng.

4. CuaranLee LhaL Lhe rlsks lnvolved ln houslng
flnance are fully lnLernallzed wlLhln Lhe
morLgage flnance sysLem, lncludlng adequaLe
caplLal levels for prlvaLe lenders.
1o Lhe exLenL LhaL Lhe CSLs are noL already
adequaLely replenlshlng rlsk reserves, Lhe
1reasury ueparLmenL could hold some of Lhe CSL
repaymenLs Lo caplLallze Lhls reserve pool raLher
Lhan passlng all proflLs Lhrough Lo general
3. LlmlL excesslve rlsk-Laklng (as opposed Lo
leglLlmaLe lnnovaLlon).
lPlA already has adequaLe auLhorlLy Lo ensure
Lhls goal. lurLher, Lhe recenLly enacLed Cuallfled
MorLgage 8ule (CM) adds an addlLlonal level of
safeLy. Þresumably, Lhe Cuallfled 8esldenLlal
MorLgage 8ule, whlch has been proposed by Lhe
regulaLors, wlll provlde addlLlonal proLecLlons.
6. Lnsure LhaL underwrlLlng and documenLaLlon
sLandards are LransparenL, clear, and
conslsLenL so LhaL consumers, lnvesLors, and
regulaLors can accuraLely assess and prlce rlsk
and regulaLors can hold lnsLlLuLlons
1he ClÞ8, lPlA, lederal 8eserve 8oard, CCC,
Puu, nCuA and Lhe lulC already have adequaLe
and approprlaLe auLhorlLy Lo proLecL consumer,
lnvesLor and lender lnLeresLs. 1he lPlA and Puu
could work wlLh all of Lhese agencles Lo furLher
enhance consumer proLecLlons and provlde useful
daLa and lnformaLlon for lmproved publlc

7. Lmploy more sophlsLlcaLed measures of
credlL rlsk approprlaLe Lo varlous underserved
borrower groups and lnvesL ln and share
publlcly daLa and lnformaLlon on Lhe effecLlve
reach of loan producLs by borrower and
communlLy demographlc characLerlsLlcs.

lPlA ls already parLnerlng wlLh Lhe ClÞ8 on Lhe
naLlonal MorLgage uaLabase, whlch wlll enable
reachlng Lhls goal. lPlA and Puu could also work
Lo achleve a more robusL dlsclosure of CSL plans
and performance daLa as well as enhanced PMuA
updaLes. lnformaLlon should be made wldely
avallable Lo Lhe publlc ln language LhaL ls easy Lo
undersLand and ln a formaL LhaL empowers
nonproflLs, clvlc organlzaLlons and local agencles
Lo beLLer undersLand lendlng paLLerns ln Lhelr
8. LsLabllsh and enforce servlclng rules LhaL
balance Lhe flnanclal lnLeresLs of lnvesLors wlLh
Lhose of borrowers and LhaL guaranLees
conslsLenL and hlgh quallLy servlclng
performance across lnsLlLuLlons.

lPlA has already esLabllshed hlgh servlclng
sLandards for companles LhaL work wlLh Lhe CSLs.
lPlA should work wlLh Lhe ClÞ8 Lo furLher
LlghLen Lhose sLandards Lo more effecLlvely
balance consumer and lnvesLor lnLeresLs Lo
promoLe home reLenLlon, avold unnecessary
foreclosures and ensure proper malnLenance of
vacanL and abandoned properLles.
9. CaplLallze Lhe naLlonal Pouslng 1rusL lund
and CaplLal MagneL lund as requlred by
lPlA ls already requlred Lo fund, and should be
conLrlbuLlng Lo, boLh programs, buL uses Lhe
conLlnulng conservaLorshlp sLaLus of Lhe CSLs as
Lhe [usLlflcaLlon Lo avold dolng so.
10. SupporL affordable renLal houslng, lncludlng
LesLlng new flnanclal producLs for renLal as well
as renL-Lo-own and shared equlLy
homeownershlp. Also promoLe comprehenslve
houslng rehablllLaLlon and developmenL,
parLlcularly Lo leverage foreclosed and vacanL
and abandoned properLles Lo creaLe affordable
owner-occupled and renLal houslng for Lhe
beneflL of moderaLe and lower-lncome famllles
and communlLles.

1he CSLs already have sLrong and very successful
mulLlfamlly flnance programs, and Lhe lPlA can
easlly permlL furLher lnnovaLlon and expanslon.
lPlA currenLly has Lhe auLhorlLy Lo work ln all of
Lhese areas buL has noL yeL exerclsed LhaL
auLhorlLy Lo lmprove homeownershlp and houslng
opporLunlLles for low and moderaLe lncome

All 10 of Lhese goals can be lmplemenLed now and no furLher Llme should be delayed ln
achlevlng Lhem. Moreover, whlle mosL of Lhese goals are achlevable, Lhey wlll noL necessarlly be
easy Lo accompllsh. Achlevlng a greaLer level of affordable and susLalnable lendlng, for example,
would requlre Lhe CSLs Lo work closely wlLh lenders Lo address lssues such as credlL overlays and
lender concerns abouL buybacks under reps and warranLs. lL would requlre assurances of Lhe
CSLs Lo work wlLh lenders Lo expand Lhe markeLs ln a safe, sound, and proflLable manner. 8uL
agaln, a lack of slmpllclLy should noL be reason Lo fall Lo acL.

llnally, Lhls paper ls noL lnLended Lo suggesL LhaL more slgnlflcanL leglslaLlve changes should noL
be pursued. ln facL, Lhls proposal Lo acL admlnlsLraLlvely assumes Lhe conLlnulng conservaLorshlp
sLaLus for lannle Mae and lreddle Mac. 1haL sLaLus ls, however, noL a preferred long-Lerm
soluLlon and should be addressed ln some fashlon as soon as posslble.

"#$%& &'( )%&'$*+
!lm Carr ls a houslng flnance, banklng and urban pollcy consulLanL. Pe ls also a Senlor lellow
wlLh Lhe CenLer for Amerlcan Þrogress and ulsLlngulshed Scholar wlLh 1he CpporLunlLy Agenda.
Þrevlously, he served as Chlef 8uslness Cfflcer for Lhe naLlonal CommunlLy 8elnvesLmenL
CoallLlon and as Senlor vlce ÞresldenL for llnanclal lnnovaLlon, Þlannlng and 8esearch for Lhe
lannle Mae loundaLlon.

"#$%& &'( ,-$.,$*,+
1he CpporLunlLy Agenda launched ln 2006 wlLh Lhe mlsslon of bulldlng Lhe naLlonal wlll Lo
expand opporLunlLy ln Amerlca. locused on movlng hearLs, mlnds, and pollcy over Llme, Lhe
organlzaLlon works wlLh soclal [usLlce groups, leaders, and movemenLs Lo advance soluLlons LhaL
expand opporLunlLy for everyone.

1he naLlonal lalr Pouslng Alllance (www.naLlonalfalrhouslng.org) was founded ln 1988, Lhe
naLlonal lalr Pouslng Alllance ls a consorLlum of more Lhan 220 prlvaLe, non-proflL falr houslng
organlzaLlons, sLaLe and local clvll rlghLs agencles, and lndlvlduals from LhroughouL Lhe unlLed
SLaLes. PeadquarLered ln WashlngLon, u.C., nlPA, Lhrough comprehenslve educaLlon, advocacy
and enforcemenL programs, provldes equal access Lo aparLmenLs, houses, morLgage loans and
lnsurance pollcles for all resldenLs of Lhe naLlon.

1he naLlonal AssoclaLlon of 8eal LsLaLe 8rokers (nA8L8) was formed ln 1947 by Afrlcan-
Amerlcan real esLaLe professlonals ouL of a need Lo secure Lhe rlghL Lo equal houslng
opporLunlLles, regardless of race, creed, or color. lor more Lhan 63 years, nA8L8 has
parLlclpaLed ln meanlngful legal challenges and has supporLed leglslaLlve lnlLlaLlves LhaL ensure
Lhe avallablllLy of falr and affordable houslng for all Amerlcans.