Weekly update from the National Housing Conference
June 20, 2019
President's Message I By David M. Dworkin
Dear Friend,

Yesterday, at NHC's offices, a working group of many of the leading experts on reform of Fannie Mae and Freddie Mac met for five hours to discuss, debate and ultimately to reach consensus on how to move forward on comprehensive housing finance reform. As policymakers undertake comprehensive housing finance reform, it is useful to understand the root causes of the financial crisis and identify those causes that have not been addressed in regulation or statute, particularly as they relate to the GSEs. 

It is both convenient and tempting to reduce root causes of the financial crisis into easily understandable, often simplistic explanations. Sometimes these explanations are intended to further a specific form of policy response. These include but are not limited to irresponsible borrowers, consumer mortgage product innovations that spun out of control, serial equity stripping, market share pressure that forced companies to ignore prudent risk management in a race to the bottom, complex financial products designed by greedy Wall Street investment bankers, easy foreign investment money, predatory lenders, government policies meant to create affordable housing opportunities, and government sponsored enterprises pursuing private profits at taxpayer expense. Individually, none of them could have caused the financial crisis, but together, they formed a perfect storm, often leveraging each other in the process. 

Some have suggested that more competition is the answer. More GSEs, under this view, would create more stability. Yet, this ignores the race to the bottom that occurred between Fannie Mae and Freddie Mac, which I wrote about in Housing Wire last July. Our mortgage finance system was designed for 50-80 lenders providing 80 percent of the GSEs' volume. As lenders consolidated, their own competitive pressures led to demanding lower guarantee fees, and ultimately, lower credit standards. By the time Countrywide Home Loans held nearly 30 percent of Fannie Mae’s business, they could dictate any terms, and they did, as did many of Freddie Mac’s largest customers. 

Fannie and Freddie could have said no, but they did not because they had a well-founded fear of losing so much market share they would become irrelevant, possibly even insolvent. It was a choice between jumping off the cliff or drinking the poison and hoping for an antidote. Drinking the poison seemed like the better choice. Today, Countrywide is gone and the top five lenders in today’s mortgage market have learned their lesson, but for how long? In time, as the current generation of mortgage leaders retire, the same pressures for market share may emerge and lenders will press for lower fees and more permissive underwriting. Any new system must recognize this basic dynamic of unhealthy competition. 

Mortgage lending, like all forms of investment, is ultimately an exercise in pricing and managing the risk of giving one’s money to someone else and pricing that extension of credit or capital in a way that ensures the highest risk-weighted return that the market will pay. A healthy competitive system creates natural pressures to reduce price and manage risk of default. It’s not a new idea. “Like water flowing downward, goods will naturally flow forth ceaselessly day and night without having been asked.” Si Ma Qian said that before the Romans had conquered Jerusalem in his book “Tai Shi Gong Shu.” Yet this 2100 year old concept, popularized by Adam Smith in the 18th century, is complicated by human nature. This is precisely what happened during the run up to the financial crisis and its aftermath. 

Ultimately, we will have to find the right mix of speed limits and guard rails to ensure all participants are able to function both efficiently, effectively and safely. That work must rely on a thorough understanding of what went wrong and why. We will have plenty of opportunities to make new mistakes. We don’t need to ignore and repeat the old ones. 

David M. Dworkin
NHC President and CEO
News from Washington I By Tristan Bréaux and
Quinn Mulholland
June Restoring Neighborhoods Task Force meeting

This month's Restoring Neighborhoods Task Force webinar will be on Tuesday, June 25 from 2-3 p.m. EDT. The webinar will feature a presentation from Elena Wilken, the executive director of Housing Colorado. Elena will present on recent housing wins in the Colorado state legislature as well as Housing Colorado's Paycheck to Paycheck report, a supplemental to NHC's 2018 Paycheck to Paycheck report released earlier this year. Register  here.
BRIDGE Housing releases paper on building housing more efficiently

Last month, BRIDGE Housing, an NHC member based in San Francisco, released a report prepared by Stewards of Affordable Housing for the Future, another NHC member, on solutions toward accelerated and efficient affordable housing development. The report focuses on technologies and strategies that can lower labor and materials costs, including off-site construction. “The need for quality affordable rental housing is greater than ever, but the cost of creating and preserving these homes is growing unsustainably,” BRIDGE President and CEO Cynthia Parker said in a statement. “The crisis demands innovative approaches that will help rapidly increase the housing supply. Cost containment is an essential strategy for BRIDGE and other mission-driven developers.”
Habitat for Humanity launches housing affordability campaign

Habitat for Humanity launched its Cost of Home campaign last week to find solutions for housing affordability for 10 million Americans. The campaign, which is the organization’s first ever nationwide advocacy campaign, includes a policy platform that calls attention to four policy areas:

  1. Increasing the supply and preservation of affordable homes,
  2. Equitably increasing access to credit,
  3. Optimizing land use for affordable homes and
  4. Ensuring access to and development of communities of opportunity.

In an interview for an article released as part of the campaign, NHC President and CEO David Dworkin said, “Families should not have to live in fear of choosing between paying for a roof over their head or paying for food or medicine or clothing for their kids.”
Calabria calls for legislative action on GSE reform

In a meeting with NHC and other housing advocates, FHFA Director Mark Calabria reiterated his support for maintaining Fannie Mae and Freddie Mac’s housing goals, and fully funding the Capital Magnet Fund and Housing Trust Fund “as long as they are making money.” Calabria also met with civil rights leaders in an earlier meeting, and has pledged to maintain open communication with a broad range of housing leaders. In the FHFA’s 2018 Report to Congress, released last week, Dr. Calabria requested Congress give him the authority to charter new GSEs to compete with Fannie Mae and Freddie Mac because their “duopoly undercuts competition in the market,” and to withdraw the charter of a failing GSE without Congressional action. In an interview with the Wall Street Journal, Calabria justified pursuing administrative reform without Congress, saying “If I do nothing and don’t push, then I’m fairly certain Congress will do nothing.” Calabria elaborated on his vision for GSE reform in a speech he gave last week at the 2019 Ginnie Mae Summit, calling for a limited but explicit government guarantee for the GSEs.
House Financial Services Committee approves housing-related bills

Last Wednesday, the House Financial Services Committee held a markup of eight bills, all of which were approved, and several of which were related to housing issues. Two bills would establish new guidelines for FHA mortgages: one that would provide discounted FHA loans to first-time homebuyers who complete a housing counseling program, and one that would limit mortgage insurance payments on FHA-backed loans. Three of the bills would block recent HUD-announced rule changes on transgender people’s access to homeless shelters, mixed-immigration status families’ ability to receive housing assistance, and DACA recipients’ eligibility for FHA-, USDA-, or GSE-backed loans, respectively. Finally, two of the bills concerned the National Flood Insurance Program (NFIP), changing its appeals and litigation process and reauthorizing the NFIP for five years. Both NFIP-related bills were passed unanimously.
Member Highlight
Celebrating National Homeownership Month
by Andrea Nesby

June is National Homeownership Month and NHC members are highlighting the importance of homeownership to individuals and families, communities and the economy. NHC Gold member the National Association of REALTORS® (NAR) Homeownership Matters is an education and advocacy campaign committed to protecting the dream of homeownership. The campaign shares news on issues facing homeowners by state; active state and federal calls to action, including a petition to Congress focused on important homeowner specific programs; and illustrative guides for current and prospective homeowners.

According NAR, the national median price for existing single-family homes was $254,800 in Q1 2019, up 3.9 percent from Q1 2018.

In a news release, NAR called for more construction of affordable housing units. “More supply is needed to provide better homeownership opportunities, taming home price growth and widening the inventory choices for consumers,” said Lawrence Yun, NAR chief economist. “Housing Opportunity Zones could provide the necessary financial benefits for homebuilders to construct moderately priced-homes.”

Learn more about Homeownership Matters here .
USA Today investigates reverse mortgages

In an investigation published last week, USA Today found that reverse mortgages have “become a platform for predatory lending.” The investigation found that almost 100,000 reverse mortgages have failed since the Great Recession, which has disproportionately affected predominantly black neighborhoods. The rate of foreclosure from reverse mortgages, USA Today found, was six times higher in mostly black neighborhoods than in mostly white ones. In an op-ed responding to the investigation, National Reverse Mortgage Lenders Association CEO Peter Bell argued that reverse mortgages “are an important retirement planning tool.”
MBA launches affordable housing initiative

Last week, the MBA announced the launch of a new initiative to promote housing affordability with a specific focus on minorities and low- to moderate-income individuals. The initiative will be led by Steve O'Connor, who will become the MBA’s Senior Vice President for Affordable Housing Initiatives and is also a member of NHC’s Board of Governors. “There is no easy solution,” said O'Connor. “The only way we are going to solve this is by getting lenders together with policymakers, consumer advocates, community leaders, and other stakeholders, and using our collective knowledge and experience to find the answers.”
Castro releases housing affordability plan

This week, Democratic presidential candidate and former HUD Secretary Julián Castro released Parts I, II and III of his housing affordability plan. The plan calls for, among other things, quadrupling the size of the Section 8 voucher program, creating a new tax credit for renters whose rent exceeds 30 percent of their income, starting a $200 billion Green Infrastructure Fund to combat climate change, increasing homeownership and holding Wall Street accountable. In the first part of his plan, Castro wrote, “The rental affordability crisis touches people and situations as diverse as our nation, including seniors on a fixed income, young adults trying to save for their first home, renters of modest means in gentrifying urban neighborhoods, and mobile home owners who rent the land under their homes. Given the variety of these situations, there is clearly no one-size-fits-all approach to resolving this crisis.”
Bill to help with home rehabilitation introduced

On Tuesday, Representatives Mike Kelly (R-Pa.) and Brian Higgins (D-N.Y.) introduced the Neighborhood Homes Investment Act. The bill, H.R.3316, would use federal income tax credits to mobilize private investment to build and substantially rehabilitate homes for moderate- and middle-income homeowners. These tax credits would bridge the gap between the cost of building or renovating homes and the price at which they can be sold, thus making renovation and new home construction in distressed neighborhoods possible. NHC strongly supports this bill and has been working alongside many other organizations to advocate for its introduction and passage.
The National Housing Conference has been defending the American Home since 1931. We believe everyone in America should have equal opportunity to live in a quality, affordable home in a thriving community. NHC convenes and collaborates with our diverse membership and the broader housing and community development sectors to advance our policy, research and communications initiatives to effect positive change at the federal, state and local levels. Politically diverse and nonpartisan, NHC is a 501(c)3 nonprofit organization.
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