NAR Pushes for Comprehensive GSE Strategy

The National Association of
® supports a secondary mortgage market model with some level of
government participation that would protect taxpayers and ensure that
creditworthy consumers have access to affordable mortgage capital in all markets
at all times.

That was the message
delivered Thursday morning by 2011 NAR President Ron Phipps during a Senate
Banking, Housing and Urban Affairs Committee hearing.

“As the leading advocate for home ownership,
® agree that the existing housing finance system failed and that
reforms are needed; however, those reforms must be done in a methodical,
measured and comprehensive effort based on practical market experience,” said
Phipps. “We applaud the committee’s caution as you continue to discuss this very
important and complex issue.”

In his
testimony, Phipps urged support for comprehensive reform of the
government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which remain
critical to ensuring mortgage liquidity, and expressed concern over recently
proposed legislation that takes a piecemeal approach and could increase
uncertainty in the housing market, which is still struggling to recover.

To ensure a viable secondary mortgage
market going forward, Phipps said that private capital must return to the
housing finance market and the government’s involvement needs to be reduced;
however, full privatization is not a viable option.

“There are strong negative repercussions for relying solely on
private capital to form the foundation of the housing finance system. After the
housing downturn, private mortgage capital became nearly nonexistent, and
without the GSEs, qualified borrowers would not have had access to the funds
required to purchase a home. A government backstop is critical to ensure a
continual flow of mortgage liquidity and the long-term viability of the housing
market,” Phipps said.

He added that in a
fully private market, financial institutions with FDIC-backed deposits would
focus more on optimizing their profits in a noncompetitive banking industry, and
potentially fostering new, risky mortgage products that place taxpayers at risk,
rather than products that would be in the best interests of consumers and the
nation’s economy. That could lead to the end of long-term fixed rate loan
products, like the 30-year fixed rate mortgage, and drastically raise the cost
of mortgage capital for millions of American consumers.

Phipps also testified about another important issue that will
dramatically impact the future of housing finance – the proposed risk retention
regulation under the Dodd-Frank Act, which requires lenders that securitize
mortgage loans to retain 5 percent of the credit risk unless the mortgage is a
qualified residential mortgage (QRM).

poor QRM policy that focuses on high downpayment requirements rather than a
variety of traditional safe, well underwritten products will exclude hundreds of
thousands of buyers from home ownership, slowing economic recovery and hampering
job creation,” said Phipps. “REALTORS
® support a reasonable and
affordable cash investment coupled with quality credit standards, strong
documentation and sound underwriting; but higher down payments do not have a
meaningful impact on default rates.”

also expressed strong support for making permanent the GSE and FHA mortgage loan
limits that are currently in place and set to expire later this year. Phipps
said that in today’s real estate market, lowering the loan limits will restrict
liquidity and make mortgages more expensive for households nationwide. More than
612 counties in 40 states and the District of Columbia will see an average
decline of $50,000 in loan limits in their area.

“REALTORS® look forward to working with Congress and our industry
partners to design a secondary mortgage model that will best serve our nation
today and into the future,” Phipps said.

Source: NAR