If there is a fundamental question facing Congress, it can be summed up like this: How can the U.S. advance our most important objectives without digging a bigger budgetary hole for future generations? It’s a tough one, especially when it comes to affordable housing.
The Department of Housing and Urban Development (HUD) alone spent over $40 billion on the affordable housing mission last year. Much of that money goes to worthy programs, yet many low- and moderate-income Wisconsinites are still struggling to lease an apartment or buy a home.
Taxpayers can’t ante up more funding, and some are even arguing for deep cuts. Either way, we need to look to outside solutions to help every American put a roof over their family’s heads.
One necessary task is to overhaul Fannie Mae and Freddie Mac. These two companies buy, repackage, and resell mortgages for affordable housing. They are the primary vehicle by which capital for affordable-home loans is funneled back to banks so they can lend again.
Fannie Mae and Freddie Mac have been under government control since September 2008, as a result of the financial crisis that impacted their stability. There was no other choice following a $187 billion bailout, but the conservatorship was intended to be temporary.
Nearly a decade in and we’re nowhere close to a final resolution.
This is having a negative impact on mortgage availability for modest-income Americans and developers interested in constructing or refurbishing affordable rentals. And the problem is coming to a head.
Housing markets in Wisconsin and other states have reached record highs. We urgently need more affordable rental units, especially in rural and underserved areas, and we need to empower more people to become homeowners.
Homeowners bring substantial benefits to families and communities. Homeowners are more likely to have close ties to his or her community. They’re more likely to volunteer and give back. It is also a more stable environment for families. Research shows that children of homeowners do better in schools.
The Mortgage Bankers Association has a plan to get this done. Their model promises to draw additional private capital into the housing system. It would do so by transitioning Fannie Mae and Freddie Mac out from under complete government control and by opening the market for other, fully vetted companies to compete with them on an even footing.
Competition is good. It will give community banks and other mortgage lenders more options when securitizing the loans they make. That will improve service, drive innovation, and control prices—all benefits that will ultimately help consumers.
The proposal also maximizes stability so we avoid another financial meltdown. It includes sensible regulatory oversight and a robust, fee-based insurance fund similar to the Federal Deposit Insurance Corporation (FDIC).
Most importantly, the market would be structured to attract conservative investment. Participating companies would issue a single, well monitored type of security. Average investors, pension funds, and others would be able to buy or trade that security, like they do today with municipal bonds for water projects and other public needs. The end result will be a much more diverse, sound market than we had before the housing crash.
With this plan, the guideposts for reform are in place. Now we just need elected leaders to seize this once-in-a-generation opportunity to transform affordable housing for the better.
Fortunately, the chance to increase working families’ housing access and to build safe, vibrant communities should provide a compelling reason for Republicans and Democrats to work together. If they can do so on this issue, they’ll notch an impressive victory for the American Dream.
Scott Fletcher is president - risk and compliance for Madison-based Fairway Independent Mortgage Corp., which has multiple locations throughout Wisconsin.