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Bipartisan group suggests reforms to revive housing market

This article first appeared in the St. Louis Beacon, Feb. 25, 2013 - WASHINGTON – Federal housing aid programs should be revamped and the government’s role in the housing finance system scaled back to help revive the housing market, suggests a bipartisan panel including former U.S. Sen. Christopher “Kit” Bond.

“Six years after the collapse of the housing market … the problems in housing remain both severe and urgent,” said former Senate Majority Leader George Mitchell, a Democrat who co-chaired the Bipartisan Policy Center commission with Bond and two former federal housing secretaries.

“Today, far too many credit-worthy families are unable to obtain a mortgage,” Mitchell continued. “The credit pendulum has swung from one extreme to the other, blocking the path to homeownership and delaying a robust housing recovery.”

At a news conference Monday, the panel released a 133-page report, which was developed after a series of hearings, including a forum in St. Louis last June, and 16 months of deliberations.

“There is tremendous relevance because Missouri has need for housing in urban and rural areas,” Bond said in an interview. He asserted that commission’s suggestions would help “people who want to buy homes, people at the low end of the poverty scale who need help in renting apartments and are really strapped.”

Among the 21-member commission’s recommendations are that Congress:

  • Replace the government-controlled Fannie Mae and Freddie Mac mortgage finance firms with a corporation to take over losses in catastrophic circumstances. Its main role would be to guarantee principal and interest payments on mortgage-backed securities issued by private lenders. Today, those two government-sponsored enterprises (GSEs) buy mortgages from lenders and repackage them as securities for investors, which they guarantee. They have drawn nearly $180 billion from the Treasury since the federal government took them over in 2008 to avert insolvency.
  • Expand the low-income housing tax credit and shifting existing resources to target more Section 8 federal aid to the most vulnerable households – replacing the current “lottery” system that divvies out housing aid to only about a quarter of those who qualify. “It’s an outrage that only one out of four eligible Americans actually get housing assistance,” Bond said in an interview. “That’s why we’re putting tremendous emphasis on focusing our dollars on rental assistance for people who need it most.”

The commission suggests a new “performance-based” system to deliver federal rental assistance, with state and local providers taking on more responsibility. “We never have enough Section 8 housing in the St. Louis area,” Bond said. “If vouchers are not available, the lowest-income people are the least able to take care of their housing needs.”
Revamp the Federal Housing Administration to make it more efficient and avoid what experts refer to as a “crowd-out” of private loans.

  • Support more housing counseling and education services for first-time homebuyers.

“For homeowners who have unexpected financial difficulties – they lost their job or a medical emergency or some other crisis – housing counseling can help them identify options before they fall behind on their payments,” Bond said at the news conference. In addition, “pre-purchase counseling” helps families gauge if they have the finances in place to buy a home.
Beyond Housing “does a tremendous job” in advising people about housing options. At the St. Louis forum last summer, Beyond Housing’s president, Chris Krehmeyer, discussed the group’s public-private partnership in which 24 municipalities in north St. Louis County work together to provide a range of housing services.

Former HUD Secretary Henry Cisneros, a commission co-chair, said major demographic trends in this country will lead to “a powerful transformation” in housing priorities.

“The aging of baby boomers, the formation of new households by millions of young ‘echo boomers’ and the increasing diversity of the population will present new challenges and opportunities,” said Cisneros – noting that about half of the new homeowners in the market over the next seven years will be Hispanics.

Despite the burst of the housing “bubble” in 2008, efforts to reform the federal housing finance system have not yet progressed on Capitol Hill. Part of the problem is that Democrats and Republicans tend to disagree on the correct solutions.

Up until 2008, Fannie Mae and Freddie Mac did not have explicit government backing, but they were taken over that year after it was discovered that risky loans had led them to the brink of insolvency. At present, taxpayers assume the risk on about 90 percent of new home loans, either through those two GSEs, the FHA or the Veterans Affairs department.

“A greater federal intervention was necessary when the housing market collapsed, but the dominant position of the government, which currently exists, is unsustainable,” said panel co-chairman Mel Martinez, a former HUD secretary and Republican U.S. senator.

Bond, responding to a question about the need for community bankers to play a bigger role in mortgages, said part of the problem is that new regulations from the Dodd-Frank financial reform law are causing red-tape problems with small and medium-sized firms.

“I hear a lot from community bankers in St. Louis,” Bond said. “If it is a fair playing field [with big banks], the community banks are in much better shape to meet the needs of potential borrowers and banking clients in their community.”