Cood afLernoon.

l am honored Lo have been asked Lo share a few LhoughLs on Lhe currenL houslng and
economlc challenges faced by many of Amerlca's famllles and communlLles. Slnce Lhe collapse of Lhe
houslng markeL and onseL of Lhe foreclosure crlsls, Lhe ldea of and publlc pollcles Lo supporL
homeownershlp have been under aLLack.
Slx years lnLo Lhe crlsls, Lhe houslng markeL conLlnues Lo sLruggle, and many lnfluenLlal pollcymakers have
made lL Lhelr goal Lo slgnlflcanLly llmlL access Lo homeownershlp for Lhe Amerlcan publlc, ln parLlcular
flrsL-Llme homebuyers, borrowers of color, and low- and moderaLe-lncome famllles. ?eL for more Lhan 60
years, owner-occupled houslng has noL only been a source of prlde and self-esLeem for Amerlca's famllles
buL also Lhe cornersLone of Lhe Amerlcan uream and Lhe mosL slgnlflcanL and rellable source of asseL
bulldlng for Lhe Lyplcal household.
1he assaulL on homeownershlp can be llnked Lo wldespread mlsundersLandlng by many key pollcymakers,
as well as Lhe publlc, on Lhree crlLlcal houslng lssues:
1. 1he reasons for Lhe collapse of Lhe houslng markeL and Lhe foreclosure crlsls
2. 1he governmenL's role ln ensurlng Lhe avallablllLy of Lhe 30-year flxed-raLe morLgage and Lhe Lo-
be-announced markeL
3. 1he currenL sLaLe of Lhe houslng recovery and lLs lmpllcaLlons for famllles, communlLles, and Lhe
overall economy
1. Reasons for the collapse of the housing market and the foreclosure
crisis
ln splLe of a volumlnous amounL of daLa and oLher lnformaLlon on Lhe causes of Lhe foreclosure crlsls,
Lhere remalns subsLanLlal mlsundersLandlng and confuslon abouL Lhe houslng markeL's collapse. 1here
are Lhree domlnanL publlc narraLlves on Lhese causes: (1) A falled experlmenL ln expandlng
homeownershlp Lo households LhaL were noL prepared Lo accepL LhaL responslblllLy, (2) Lhe CommunlLy
8elnvesLmenL AcL, or C8A, forced banks Lo make unsound and rlsky loans, and (3) people Look ouL loans
Lhey could noL afford.
8oLh facLs and common sense easlly dlsmlss all Lhree of Lhese explanaLlons. Accordlng Lo Lhe CenLer for
8esponslble Lendlng, for example, only 9 percenL of subprlme loans, Lhe hlgh-cosL loan producLs LhaL
were aL Lhe cenLer of Lhe houslng markeL's woes, were orlglnaLed Lo flrsL-Llme homebuyers. 1he ma[orlLy
of subprlme loans were uLlllzed for home reflnanclng.
1he argumenL LhaL C8A was responslble ls equally wlLhouL merlL, Lhe lederal 8eserve 8oard concluded
LhaL only 6 percenL of subprlme loans were covered under C8A. 1he vasL ma[orlLy of morLgages were
orlglnaLed and securlLlzed by non-C8A covered lnsLlLuLlons or dld noL oLherwlse meeL C8A sLandards. And
Lhe ldea LhaL loans were orlglnaLed Lo borrowers LhaL flnanclal flrms felL were noL ellglble Lo recelve Lhem
ls, well, slmply llloglcal.
1haL facL ls LhaL ln Lhe decade leadlng up Lo Lhe foreclosure crlsls, Lhe houslng markeL had become
saLuraLed wlLh reckless and unsusLalnable loans LhaL were hlghly proflLable Lo flnanclal flrms yeL hlghly
rlsky Lo consumers. And a ma[or share of subprlme loans were acLually deslgned Lo fall-LhaL ls, Lhey were
deslgned Lo Lrlgger an unaffordable lncrease ln Lhe loan's lnLeresL raLe Lyplcally Lwo or Lhree years afLer
orlglnaLlon. 1haL process was lnLended Lo force borrowers back Lo Lhelr lenders Lo reflnance Lhelr loans
back down Lo an affordable lnLeresL raLe and, ln Lhe process, pay anoLher round of un[usLlfled hlgh
orlglnaLlon fees.
1he publlc's confuslon on Lhls lssue ls, however, noL happensLance. SubsLanLlal money has been poured
lnLo Lhe developmenL of pollcy papers, medla ouLreach, and conference presenLaLlons dlrecLly deslgned
Lo mlsrepresenL Lhe facLs of Lhe causes of Lhe crlsls. Mlsleadlng Lhe publlc as Lo Lhe real causes of Lhe
crlsls serves Lo deflecL aLLenLlon away from Lhe need for greaLer regulaLlon of Lhe flnanclal markeLs.
2. The government’s role in ensuring the availability of the 30-year
fixed-rate mortgage and to-be-announced market
MosL Amerlcans Lake Lhe feaLures of our houslng flnance sysLem for granLed and assume LhaL Lhe unlque
morLgage producLs avallable ln Lhe unlLed SLaLes are made posslble solely by prlvaLe flnanclal flrms.
Powever, Lhere ls subsLanLlal governmenL lnvolvemenL LhaL dlrecLly supporLs homeownershlp ln Amerlca,
lncludlng lannle Mae, lreddle Mac, Lhe lederal Pouslng AdmlnlsLraLlon, or lPA, Lhe lederal Pome Loan
8anks, Lhe veLerans AdmlnlsLraLlon, or vA, and several addlLlonal programs managed by Lhe ueparLmenL
of Pouslng and urban uevelopmenL and Lhe ueparLmenL of AgrlculLure.
SLrong federal supporL for homeownershlp ln Lhe unlLed SLaLes ls Lhe reason LhaL our naLlon ls Lhe only
counLry Lo offer homeowners a 30-year flxed-raLe loan. ?eL mosL Amerlcans are noL llkely aware of Lhe
connecLlon beLween Lhe 30-year flxed-raLe loan producL and governmenL's role ln houslng. MosL
consumers llkely Lhlnk lL ls slmply a producL of prlvaLe-secLor flnanclal englneerlng and lngenulLy. As a
resulL, proposals Lo ellmlnaLe or severely resLrlcL Lhe federal presence ln houslng do noL appear Lo be of
greaL concern Lo Lhe general publlc.
Moreover, mosL Amerlcans do noL seem Lo be aware of Lhe slgnlflcanL role played by speclal governmenL
programs, such as Lhe lPA, Lo Lhe overall performance of Lhe u.S. economy. Accordlng Lo Moody's
AnalyLlcs, Lhe counLercycllcal role played by Lhe lPA durlng Lhe recenL houslng-markeL collapse helped
Lhe unlLed SLaLes avold a second recesslon, an addlLlonal home-prlce decrease by an addlLlonal 23
percenL, and a slzable lncrease ln Lhe naLlonal unemploymenL raLe.
Clven Lhe slgnlflcance of houslng Lo Lhe well-belng of Amerlca's famllles, communlLles, and Lhe economy,
pollcy debaLes on Lhe lssue of homeownershlp should be a prlorlLy. ?eL Lhe llmlLed degree of publlc
awareness and lnLeresL ls leavlng Lhe fuLure of houslng flnance ln a vulnerable poslLlon. 1he wrong
cholces could have poLenLlally caLasLrophlc consequences for Lhe household wealLh of Amerlca's famllles
and Lhe flnanclal well-belng of Lhe houslng lndusLry.
Access Lo morLgage credlL has rarely been more consLralned, parLlcularly for Afrlcan Amerlcans and
LaLlnos, as well as young households and low- and moderaLe-lncome famllles. lor Lhls reason lf no oLher,
we need Lo reform our houslng flnance sysLem. And Lhe manner ln whlch lannle Mae and lreddle Mac
are resLrucLured or ellmlnaLed wlll slgnlflcanLly lmpacL access Lo home morLgage flnance.
Accordlng Lo Lhe lederal 8eserve, naLlonwlde morLgage orlglnaLlons for borrowers wlLh credlL scores
beLween 620 and 680 have fallen by 90 percenL slnce Lhe onseL of Lhe houslng crlsls. And a sLudy for Lhe
sLaLe of llllnols, conducLed ln !une 2009 by Lhe WoodsLock lnsLlLuLe, found LhaL ln ZlÞ codes LhaL had 80
percenL or more Afrlcan Amerlcans, 73 percenL of consumers had a credlL score of 699 or less.
lurLhermore, even borrowers who can puL down slzable down paymenLs are belng denled convenLlonal
morLgages. 1he average morLgage appllcanL who was denled credlL ln SepLember 2013 had a down
paymenL of 16 percenL.
8esearch on performlng, Cuallfled MorLgage-conformlng loans orlglnaLed beLween 2004 and 2008
demonsLraLes LhaL 60 percenL of loans Lo Afrlcan Amerlcans and 49 percenL Lo Plspanlcs had down
paymenLs of 10 percenL or less. As we mlghL expecL, Lhe effecL of unnecessarlly LlghL credlL sLandards on
lendlng Lo Afrlcan Amerlcans and LaLlnos has been large: Analysls of Pome MorLgage ulsclosure AcL daLa
by Compllance1ech shows LhaL loans for Afrlcan Amerlcans have fallen from 1.3 mllllon ln 2003 Lo 280,000
ln 2011-a drop of nearly 80 percenL. uurlng LhaL same perlod, loans Lo LaLlnos fell from 1.9 mllllon Lo
442,000, or 76 percenL.
Moreover, houslng pollcles LhaL once were consldered vlrLually sacred, such as Lhe conLlnuaLlon of Lhe
morLgage-lnLeresL deducLlon, cannoL be Laken for granLed glven Lhe conLlnulng dlfflculL baLLles over Lhe
federal budgeL.
WlLhouL a ma[or change ln aLLlLude among pollcymakers and Lhe publlc Loward homeownershlp, Lhe
ablllLy of mllllons of credlLworLhy borrowers Lo access homeownershlp may be losL. And because
homeownershlp ls Lhe slngle-mosL lmporLanL asseL of Lhe Lyplcal Amerlcan famlly, lack of homeownershlp
access means less household wealLh accumulaLlon and furLher reduced economlc moblllLy for
communlLles and Lhe naLlon ln Lhe fuLure. 8eLween 2007 and 2009, Lhe Þew 8esearch CenLer flnds LhaL
LaLlnos ln Amerlca losL an esLlmaLed Lwo-Lhlrds of Lhelr neL worLh, and Aslan and Afrlcan Amerlcan wealLh
has fallen by more Lhan half.
1he mosL effecLlve way Lo help rebulld Lhls losL wealLh ls wlLh adequaLe access Lo homeownershlp
opporLunlLles. Moreover, people of color wlll consLlLuLe 7 ouL of 10 neL new household formaLlons over
Lhe nexL decade. As a resulL, falllng Lo meeL Lhe morLgage-credlL needs of Lhese households wlll noL bode
well for Lhe overall healLh of Lhe houslng markeL.
?eL lL ls noL [usL borrowers of color who are sLruggllng wlLh Lhe houslng markeL and economy. ?oung
adulLs, regardless of race or eLhnlclLy, are also sLruggllng. 1he homeownershlp raLe for young adulLs has
decllned markedly, and Lhe share of young adulLs llvlng wlLh Lhelr parenLs ls aL a 40-year hlgh.
And Lhe poor labor markeL for young adulLs ls compoundlng Lhe asseL-accumulaLlon goals of our nexL
generaLlon. Cver Lhe pasL 12 years, Lhe unlLed SLaLes has fallen from flrsL place Lo lasL place among
wealLhy economles, ln Lerms of Lhe share of employed 23- Lo 34-year-olds.
When comblned wlLh nearly $1 Lrllllon dollars of sLudenL-loan debL, young adulLs are en rouLe Lo
becomlng Lhe flrsL generaLlon of Amerlcans Lo experlence a lower level of economlc success Lhan Lhelr
parenLs. ln facL, recenL research by Lhe urban lnsLlLuLe already bears Lhls ouL. lL flnds LhaL young adulLs
ages 29 Lo 37 have 21 percenL less wealLh Lhan dld Lhelr parenLs aL Lhe same age.
3. The current state of the housing recovery and its implications for
families, communities, and the overall economy
A flnal fundamenLal challenge faclng homeownershlp ls a lack of publlc awareness of Lhe healLh of Lhe
houslng markeL. 1here ls an lncreaslng percepLlon LhaL Lhe houslng markeL ls recoverlng on lLs own and
LhaL slgnlflcanL publlc pollcy lnLervenLlon may noL be necessary. AfLer all, foreclosures have fallen
slgnlflcanLly from Lhelr peak, home prlces are rlslng, consLrucLlon sLarLs have lncreased, sales of new and
exlsLlng homes are up, and morLgage orlglnaLlons are sLrong. 8uL a closer examlnaLlon of almosL any of
Lhese daLa calls for quallflers.
1ake morLgage orlglnaLlons, for example. lor more Lhan Lhe pasL year, ln excess of 70 percenL of
convenLlonal morLgage orlglnaLlons have been for reflnanclng a home, noL home-purchase morLgages.
1hls Lrend has conLlnued lnLo Lhe currenL year, as roughly Lwo-Lhlrds of convenLlonal orlglnaLlons ln Lhe
second quarLer were Lo reflnance. ln a healLhy markeL, Lhe reflnanclng versus purchase orlglnaLlons
shares would be reversed. 1hls unusually hlgh proporLlon of reflnanclng as a share of all orlglnaLlons ls an
lndlcaLor of a markeL sLlll sLruggllng.
8eflnanclng lowers Lhe long-Lerm cosL of a home for borrowers, and LhaL's good for famllles. And
reflnanclng generaLes earnlngs for flnanclal flrms. 8uL reflnanclng acLlvlLy ls slmply churnlng Lhe same
morLgages-lL does noL represenL an expanslon of homeownershlp, whlch ls essenLlal Lo a healLhy
houslng markeL and expanded asseL accumulaLlon by households. Slmllar weaknesses can be found ln Lhe
good news abouL rlslng home prlces.
AddlLlonally, recenL lmpresslve lncreases ln home prlces are, ln lmporLanL parL, drlven by lnvesLors
purchaslng formerly owner-occupled houslng-ofLen for cash. Some esLlmaLes suggesL LhaL 40 percenL of
lnvesLor purchases ln May of Lhls year were for cash. ln some urban nelghborhoods across Lhe unlLed
SLaLes, 73 Lo 90 percenL of all buyers are lnvesLors. And naLlonally, 68 percenL of ºdamaged homes" sold
ln Aprll wenL Lo lnvesLors, whlle only 19 percenL wenL Lo flrsL-Llme homebuyers.
?eL lnvesLor purchases are a mlxed blesslng for a varleLy of reasons. llrsL, wealLh accrulng from rlslng
home values on lnvesLor properLles, for example, does noL remaln ln communlLles Lo Lhe exLenL Lhe
properLles are owned by absenLee landlords.
Second, a large proporLlon of lnvesLors' purchases ln dlsLressed nelghborhoods are ln slngle-famlly unlLs,
Lhus ralslng poLenLlal managemenL lssues due Lo Lhe scaLLered locaLlons of Lhese lnvesLmenL properLles.
1hlrd, whlle lnvesLors conLrlbuLe Lo rlslng home prlces, helplng sLrengLhen home prlces ln Lhe near Lerm,
Lhey can also dlsLorL Lhe markeL prlces-upward or downward-parLlcularly lf Lhey are buylng for cash,
slnce Lhe homes do noL requlre lnspecLlons or appralsals.
lourLh, lnvesLors may also crowd ouL flrsL-Llme homebuyers, lncludlng Afrlcan Amerlcans, LaLlnos, and
young famllles, because Lhose borrowers generally musL go Lhrough Lhe Llme-consumlng loan-approval
process, lncludlng properLy appralsals and lnspecLlons.
llnally, because lnvesLors purchase homes solely Lo make a proflL, Lhey wlll noL llkely lnvesL ln Lhelr
properLles Lhe same way as do homeowners. llnanclal boLLom-llne conslderaLlons may dlscourage
landlords from lnvesLlng any dollars ln Lhelr properLles beyond lmprovemenLs requlred Lo malnLaln homes
Lo local bulldlng codes.
Moreover, a focus on flnanclal reLurns could lead lnvesLors Lo dump properLles ln Lhe evenL of an
economlc or houslng-markeL downLurn, Lhus drlvlng down home prlces lf Lhose asseLs fall Lo meeL
lnvesLor expecLaLlons. As a resulL, communlLles where lnvesLors are concenLraLed do noL provlde Lhe
same level of sLablllLy and susLalnablllLy as a homeowner-drlven recovery.
Pavlng sald all LhaL, lnvesLors can play a poslLlve role ln Lhe houslng markeL. 8uL we musL remaln focused
on Lhe share of lnvesLors, as well as Lhe manner ln whlch Lhey parLlclpaLe. lf, for example, lnvesLors
supporLed ownershlp-occupled houslng as equlLy parLners wlLh owners, LhaL would greaLly enhance
lnvesLor parLlclpaLlon ln Lhe homeownershlp markeL whlle helplng lncrease Lhe wealLh of famllles. 1hls
could be accompllshed wlLh shared-equlLy loans, whereln lnvesLors pay some or all of a borrower's down
paymenL ln reLurn for a predeLermlned share of Lhe home's fuLure equlLy value resulLlng from rlslng home
prlces.
unforLunaLely, durlng Lhls houslng crlsls, federal agencles have lnvesLed no Llme ln lnnovaLlng loan
producLs. lnsLead, Lhey have dlsproporLlonaLely focused on flndlng ways Lo sell dlsLressed and foreclosed
properLles dlrecLly Lo lnvesLors.
1hls focus on helplng lnvesLors leverage Lhe currenL low home-prlce and lnLeresL-raLe envlronmenL ls
furLher compoundlng Lhe growlng wealLh gaps beLween Lhe mlddle class and Lhe wealLhy and beLween
non-Plspanlc whlLe households and people of color.
Current state of housing reform legislation
Lack of publlc engagemenL Lo lmprove Lhe funcLlonlng of Lhe houslng markeL may help explaln why Lhe
predomlnanL proposals Lo resLrucLure Lhe houslng flnance sysLem are boLh far off Lrack. 1he ma[or
leglslaLlve proposals before Lhe Pouse of 8epresenLaLlves and SenaLe are Lhe ÞroLecLlng Amerlcan
1axpayers and Pomeowners, or ÞA1P, AcL-lnLroduced by u.S. Pouse of 8epresenLaLlves llnanclal
Servlces CommlLLee Chalrman !eb Pensarllng (8-1x)-and Lhe Pouslng llnance 8eform and 1axpayer
ÞroLecLlon AcL of 2013, a blparLlsan blll lnLroduced by 8epubllcan Sen. 8ob Corker (1n) and uemocraLlc
Sen. Mark Warner (vA), also known as Lhe Corker-Warner blll.
1he ÞA1P AcL was lnLroduced under Lhe banner of brlnglng prlvaLe caplLal back Lo Lhe houslng markeL.
1he blll proposes Lo wlnd down lannle Mae and lreddle Mac over a flve-year perlod and replace Lhem
wlLh a purely prlvaLe morLgage flnance sysLem. Lack of an expllclL federal role Lo supporL flnanclng Lhe
more Lhan $1 Lrllllon of morLgage credlL exLended annually ls [usLlfled as proLecLlng Lhe Laxpayers from
anoLher cosLly ballouL of Lhe flnanclal sysLem.
lronlcally, Lhe lack of an expllclL federal role leaves Laxpayers even more exposed Lo anoLher cosLly
ballouL. 1hls slLuaLlon exlsLs because federal pollcymakers would cerLalnly sLep ln Lo proLecL Lhe flnanclal
sysLem from a poLenLlal collapse lf losses by prlvaLe flrms were large enough Lo pose a sysLemlc rlsk. As a
resulL, Lhe proposed ÞA1P AcL leaves Lhe governmenL lmpllclLly lnsurlng Lhe houslng flnance sysLem, as lL
dld ln Lhe years leadlng up Lo Lhe recenL houslng crlsls, whlle leavlng Laxpayers on Lhe hook for Lhe full Lab
of anoLher poLenLlally cosLly ballouL.
ln facL, Lhe lasL Llme Lhe unlLed SLaLes had a Lruly prlvaLe houslng flnance sysLem was ln Lhe years leadlng
up Lo Lhe CreaL uepresslon-when loans were Lyplcally of a flve-year duraLlon, were nonamorLlzlng, and
had a requlred down paymenL of 30 percenL or greaLer. 1he modern flnance sysLem-ln whlch Amerlcans
en[oy access Lo a 30-year, flxed-raLe, self-amorLlzlng morLgage wlLh Lyplcal down paymenLs of less Lhan 20
percenL-was creaLed as a resulL of Lhe lnherenL lnadequacles of a purely prlvaLe morLgage markeL.
8emovlng Lhe federal backlng for houslng would llkely resulL ln Lhe loss of Lhe 30-year flxed-raLe
morLgage, ellmlnaLe Lhe ablllLy of borrowers Lo lock ln an lnLeresL raLe durlng Lhe perlod Lhelr loans are
belng approved, requlre hlgh down paymenLs-mosL llkely 20 percenL or more-and leave Lhe morLgage
markeL vulnerable Lo dramaLlc drops ln Lhe avallablllLy of morLgage credlL as prlvaLe lenders reLreaL
durlng perlods of economlc downLurn.
8eformlng Lhe houslng flnance sysLem musL be based on facL, noL flcLlon, and hlsLory, noL nosLalgla, abouL
Lhe role of prlvaLe caplLal ln morLgage flnance-as well as Lhe lncreaslng dlverslLy of Amerlca's fuLure
poLenLlal homeowners.
1he Corker-Warner blll proposes Lo replace lannle Mae and lreddle Mac wlLh an lndependenL
governmenL agency called Lhe lederal MorLgage lnsurance CorporaLlon, or lMlC. 1he lMlC wlll lnsure
morLgage-backed securlLles lssued by prlvaLe flnanclal lnsLlLuLlons, slmllar Lo lannle Mae and lreddle
Mac. under Lhls proposed leglslaLlon, Lhe federal governmenL would provlde caLasLrophlc lnsurance for
Lhe morLgage markeL LhaL would pay only afLer prlvaLe lnvesLors absorbed Lhe flrsL 10 percenL of losses.
1he Corker-Warner blll would beLLer proLecL Laxpayers Lhan Lhe proposed ÞA1P AcL, yeL lL sLlll falls Lo
lmprove accesslblllLy Lo morLgage credlL. ln facL, Lhe blll, as lnLroduced, would lead Lo an even more
resLrlcLlve lendlng markeL Lhan currenLly exlsLs Loday.
1he Corker-Warner blll esLabllshes a mlnlmum 3 percenL down-paymenL requlremenL and falls Lo lnclude
an expllclL duLy Lo serve credlLworLhy borrowers proLecLed by clvll rlghLs laws. And, as Lhe naLlonal
CommunlLy 8elnvesLmenL CoallLlon, or nC8C, has noLed, Lhe proposed law also lnadequaLely funds Lhe
naLlonal Pouslng 1rusL and CaplLal MagneL lunds.
1he proposed Corker-Warner blll's recognlLlon of Lhe conLlnulng and essenLlal role of governmenL ln Lhe
morLgage markeL and lLs blparLlsan sponsors are ma[or reasons Lhls blll ls consldered a more leglLlmaLe
proposal Lhan Lhe proposed ÞA1P AcL. ?eL revamplng Lhe houslng flnance sysLem wlLhouL meeLlng Lhe
needs of all credlLworLhy borrowers ls a reclpe for fallure.
llnally, nelLher of Lhese pleces of leglslaLlon adequaLely Lakes lnLo accounL Lhe crlLlcal role played by
lannle Mae and lreddle Mac ln Lhe flnanclng of affordable renLal properLles. Slnce Lhe onseL of Lhe greaL
recesslon, lannle Mae and lreddle Mac have backed a very subsLanLlal porLlon of Lhe mulLlfamlly markeL.
Analysls by Lhe naLlonal Pouslng 1rusL shows LhaL close Lo 70 percenL of Lhe renLal unlLs flnanced by
lannle Mae and lreddle Mac ln 2012 were affordable Lo low-lncome renLers. Any resLrucLurlng of lannle
and lreddle musL slmulLaneously esLabllsh a rellable mulLlfamlly-houslng flnanclng mechanlsm.
In the absence of reform by Congress, FHFA is ‘reforming’ Fannie and
Freddie
Whlle Lhe ÞA1P and Corker-Warner proposals have lnlLlaLed a falr amounL of conversaLlon abouL houslng
reform, mosL observers do noL see houslng reform occurrlng unLll posslbly afLer Lhe mld-Lerm elecLlons ln
2014. ?eL, whlle Congress falls Lo move forward on reform, lannle Mae and lreddle Mac's role ln Lhe
markeL conLlnues Lo change.
1he lederal Pouslng llnance Agency, or lPlA, Lhe currenL regulaLor of lannle Mae and lreddle Mac, ls
already pursulng lLs own verslon of houslng flnance reform. lPlA's acLlons are noL llkely Lo lmprove
access. As Ldward ueMarco, Lhe lnLerlm dlrecLor for lPlA, recenLly sLaLed abouL hls plans, borrowers
who don'L flL neaLly lnLo lannle and lreddle's credlL box should rely on deposlLory lenders and Lhe lPA.
8uL Lhe overwhelmlng share of borrowers of color ln Lhe unlLed SLaLes cannoL flL neaLly lnLo a LlghL and
rlgld credlL box, due Lo a hlsLory of dlscrlmlnaLlon and denlal of economlc opporLunlLy. 1hls hlsLory has
resulLed ln Lhose groups havlng very dlfferenL credlL proflles, as well as lncomes and wealLh, compared Lo
non-Plspanlc whlLe households. As a resulL, dlsparaLe access Lo credlL on Lhe basls of race and eLhnlclLy ls
llLerally deslgned lnLo Lhe new sysLem.
lurLhermore, lPlA, under lLs vlslon for Lhe fuLure, has already announced lLs lnLenLlons Lo begln scallng
back on Lhe backlng of lendlng Lo supporL affordable renLal-houslng developmenL, alLhough Lhere ls no
raLlonale for Lhls curLallmenL. lannle and lreddle's mulLlfamlly buslnesses are boLh proflLable and safe-
wlLh defaulL raLes of less Lhan 1 percenL. And Lhe need for affordable renLal houslng ls growlng, noL
shrlnklng.
Five principles that should drive housing finance reform
1hree years ago, Lhe naLlonal Councll of La 8aza, along wlLh 1he CpporLunlLy Agenda, launched Lhe Pome
for Cood campalgn. 1he goal of Lhe lnlLlaLlve was Lo encourage pollcymakers Lo Lake asserLlve and
poslLlve acLlons Lo successfully address Lhe conLlnulng foreclosure crlsls, rebulld communlLles LraumaLlzed
by Lhe houslng crlsls, and creaLe a sLrong and vlbranL houslng markeL.
1haL efforL was evenLually [olned by more Lhan 20 ma[or nonproflL and publlc pollcy organlzaLlons and
unlverslLy research cenLers, lncludlng Lhe naLlonal lalr Pouslng Alllance, Lhe naLlonal CoallLlon for Aslan
Þaclflc Amerlcan CommunlLy uevelopmenL, Lhe naLlonal urban League, Lhe klrwan lnsLlLuLe aL 1he Chlo
SLaLe unlverslLy, Lhe CenLer for 8esponslble Lendlng, Lhe CenLer for Amerlcan Þrogress, and Lhe unlverslLy
of norLh Carollna aL Chapel Plll CenLer for CommunlLy CaplLal.
Several prlnclples were dlscussed LhaL should be lncorporaLed lnLo any resLrucLurlng of Lhe houslng
flnance sysLem. 1hose prlnclples lncluded Lhe followlng:
1. Lnsure a llquld and rellable source of credlL for houslng ln all geographles, lncludlng urban,
suburban, and rural locaLlons, and dlverse producLs Lo accommodaLe a wlde range of houslng
Lypes, lncludlng co-ops, manufacLured houslng, senlor houslng, small renLal sLrucLures, and
energy-efflclenL dwelllngs.
2. CuaranLee Lhe rlsks lnvolved ln houslng flnance are fully lnLernallzed and pald for by Lhe
sysLem-and noL poLenLlally by Lhe Amerlcan Laxpayer.
3. AfflrmaLlvely furLher falr houslng and equal credlL access.
4. Þrovlde Lhe anclllary supporL producLs, servlces, and ouLreach needed Lo expand homeownershlp
Lo nonLradlLlonal borrower groups-lncludlng credlL enhancemenL, down-paymenL asslsLance,
and borrower counsellng-as well as lnnovaLlve programs such as home repalr and properLy-
malnLenance lnsurance, and collecL and share wlLh Lhe publlc daLa and lnformaLlon on Lhe
effecLlve reach of loan producLs by borrower and communlLy demographlcs characLerlsLlcs.
3. llnally, ensure an adequaLe avallablllLy of credlL for Lhe developmenL of affordable renLal
houslng for households aL 80 percenL or below area medlan lncomes.
1he remaklng of Lhe houslng flnance sysLem ls Lhe perfecL opporLunlLy Lo sLrucLure fundlng Lo perpeLually
supporL a sLrong houslng-counsellng lndusLry. 1he CenLer for Amerlcan Þrogress has proposed Lhe
esLabllshmenL of a MarkeL Access lund. 1hls fund would supporL Lhe Affordable Pouslng 1rusL lund and
Lhe CaplLal MagneL lund, credlL enhancemenL and down-paymenL asslsLance, and oLher acLlvlLles.
Counsellng should be a core funcLlon Lo supporL.
1he Consumer llnanclal ÞroLecLlon 8ureau's mlsslon Lo purge fraudulenL and oLherwlse reckless
consumer flnanclal producLs should open Lhe door for borrower counselors Lo more effecLlvely enable
consumers Lo prepare a budgeL, lmprove Lhelr credlL scores, safely save for a down paymenL, secure Lhe
proper loans, and deal wlLh posLpurchase flnanclal sLralns.
lf we geL reform rlghL, we can help creaLe a new generaLlon of homeowners whose poLenLlal for success
overwhelms Lhelr llkellhood for defaulL. We can also help Lhe houslng lndusLry rlse from Lhe debrls of Lhe
foreclosure crlsls ln a manner LhaL serves famllles, communlLles, and Lhe naLlon.
Conclusion
ln response Lo Lhe houslng crlsls of Lhe 1930s, federal pollcymakers aggresslvely launched numerous new
lnsLlLuLlons, lncludlng Lhe lederal Pome Loan 8anks, Lhe lPA, and lannle Mae. 1he governmenL's role ln
home lendlng was furLher enhanced afLer World War ll Lhrough Lhe veLerans AdmlnlsLraLlon and, ln Lhe
1960s, wlLh Lhe esLabllshmenL of lreddle Mac.
LlfLlng Lhe houslng markeL from Lhe rubble of Lhe subprlme debacle wlll requlre our secondary markeL Lo
do far beLLer Lhan lL dld leadlng up Lo Lhe bursLlng of Lhe houslng bubble. 1he damage Lo Lhe houslng
markeL as a resulL of Lhe currenL crlsls ls, on some lndlcaLors, worse Lhan Lhe houslng-markeL collapse of
Lhe CreaL uepresslon. As a resulL, now ls Lhe Llme for pollcymakers Lo Lhlnk wlLh a bolder vlslon. now ls
Lhe Llme for houslng proponenLs, parLlcularly advocaLes for moderaLe-lncome famllles, people of color,
young adulLs, and rural communlLles, Lo demand a soluLlon LhaL ls up Lo Lhe challenges presenLed.
1he new secondary markeL musL have Lhe mandaLe, Lools, and resources Lo flrmly relnsLaLe susLalnable,
affordable homeownershlp as a prlnclpal and achlevable cornersLone of Lhe Amerlcan uream. And lL musL
serve Lhe vasL ma[orlLy of famllles who seek lL, whlle also ensurlng an adequaLe supply of decenL, safe,
and affordable renLal houslng Lo worklng famllles who choose LhaL houslng opLlon. ?eL a ma[or
resLrucLurlng of Lhe houslng flnance sysLem, even under Lhe mosL favorable clrcumsLances, would Lake
beLween Lhree and flve years.
ln Lhe meanLlme, Lherefore, acLlon should and can occur aL an admlnlsLraLlve level-wlLhln lPlA-Lo
[umpsLarL homeownershlp and promoLe greaLer economlc moblllLy and flnanclal securlLy for Lhe
Amerlcan publlc. 1he Llme Lo acL ls now.
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