(Source: NAACP) — The NAACP strongly believes that homeownership is a catalyst for safer and more secure communities, and is an important vehicle for creating and sustaining wealth in communities of color. For decades, the equity in our homes has provided the capital for start-up businesses and college educations for our children.
In the aftermath of the housing collapse in 2007, government policies have focused on helping Wall Street and the Big Banks, not the middle-class or families of color. Minorities lost millions of dollars of wealth from the sharp decline in housing values, yet we are faced with a series of public policies that offer little assistance to troubled homeowners and are now poised to construct new roadblocks on the path to homeownership.
We want to applaud President Obama for not endorsing the Corker-Warner legislation; the Corker-Warner bill is a threat to the middle-class, and to communities of color. It will take us backwards and not forwards.
Before the 1930s, home mortgages were largely short-term loans that only the upper class could afford – only the privileged could purchase a home in America. After the Great Depression, the nation enacted polices and incentives that made the 30-year mortgage, with no pre-payment penalties, the foundation of housing finance. This new standard loan made homeownership affordable to more people, an expansion that would not have been sustained without federal support through Fannie Mae, the Federal Housing Administration, the Federal Home Loan Bank (FHLBank) System, the mortgage interest deduction and other incentives.
With these agencies and policies in place, America’s housing market grew substantially, lifting the economy as well as increasing the wealth of many urban and rural families. From the 1940s until the recent mortgage crisis, homeownership rates rose from 40 percent to more than 66 percent. It changed America, helping build middle-class communities. These policies helped build wealth in working-class families—whites and people of color. Families built solid financial security.
Any restructuring of the housing finance industry must sustain home ownership opportunities so the next generation can have opportunities to prosper.
But what we are seeing are proposals that will make it virtually impossible for many in the middle – class, and particularly people of color, to purchase homes in the future.
In fact, none of the legislation under consideration will assure that there will be low-cost, mortgage financing available for families and individuals that have good credit histories, stable income and want to buy homes. America needs a fair housing finance system that can spur a robust recovery for housing, as well as the overall economy.
Going forward, our nation’s housing financing system must balance the needs of families with the needs of Big Banks and Wall Street. To be blunt, the pending legislation fails to prioritize the needs of working families. Since the housing market crash in 2007, measures have focused on restoring Wall Street and the Big Banks, with not enough attention on Main Street and the homeowners facing foreclosures. By raising interest rates, insurance premiums and down payments, the pending legislation will construct more roadblocks for working families. These measures will represent more failed public policy.
Specifically, here are some of our concerns about the Corker-Warner legislation:
– It fails to mention that the mission of any successor to Fannie Mae and Freddie Mac must include that of ensuring universally available, low cost mortgage credit for working and middle class families. Fannie Mae and Freddie Mac perform that function and are measured by that objective. The Corker-Warner created insurance fund does not have that goal/objective.
– The mission of any successor to Fannie Mae and Freddie Mac must include ensuring that universally available, low cost mortgage credit is available for working and middle class families. Fannie Mae and Freddie Mac perform that function and are measured by that objective. The Corker-Warner created insurance fund does not have that goal/objective.
– The affordable housing entity contained in the Corker-Warner bill will not meet the housing finance needs of very low, low, moderate and middle-income families. Middle and moderate-income families have about $5 trillion in outstanding mortgages today. The fund would have about $250 billion. The fund is necessary to provide rental subsidies and some lower income homeownership gap financing, but it needs to be charged with meeting the credit needs of at a minimum working and middle-income homeowners.
– An explicit on budget guarantee will squeeze funding from other lower income housing programs and FHA. The current implicit guarantee that Fannie Mae and Freddie Mac enjoy is not on budget and thus does not impact FHA funding or funding for other housing credit program. Putting the FMIC on budget could also allow housing opponents to limit the amount of insurance funds available for mortgage finance independent of market demand.
– It allows unlimited guarantee fees to be charged. The mortgage insurance fund would be paid for by its guarantee fee income. The guarantee fees would be largely based upon potential risk, with no caps, and these fees could be passed on to struggling homebuyers because there is no prohibition on the fees being included on the mortgage cost to the homebuyer. Unlimited guarantee fees could also be raised to shift the mortgage backed securities market toward private label mortgage backed securities—the very instruments used to expand the subprime and predatory mortgage markets in the 2004-2008 period.
– Non-depository banks and intermediaries that would be issuing MBS with government insurance would not be required to have solid Community Reinvestment Act (“CRA”) ratings, meet Home Mortgage Disclosure Act (“HMDA”) standards or meet proxy standards for CRA or HMDA (depository institutions would obviously have to be CRA compliant).
– Nothing would ensure that insurance is being provided to entities that serve low, moderate and middle income communities or that meet the race and gender scrutiny of HMDA. Fannie Mae and Freddie Mac as secondary market entities were subjected to ensuring that they provided secondary market access for lower, moderate and middle-income communities.
– It facilitates big institutional intermediaries. There is no requirement for minority participation in the private mortgage insurers or servicers that are eligible to participate. The governing structure of the insurance fund does not include any community representation. The 5-person commission that would govern the FMIC should include someone engaged in community based lending or a policy maker with experience in low, moderate and middle income housing finance.
Our communities need a finance system that provides credit to a broad and diverse population, rather than one in which credit and housing choices are more costly, more limited, and less sustainable, especially for low- and moderate-income households, households of color, and rural households. Without this broad access to credit, neither buyers nor sellers can transact business as they would like, which could once again destabilize home values.
It is critical that the government not withdraw from supporting homeownership. There needs to be sustained public-private partnerships that can provide liquidity for lenders and support the 30-year-fixed rate mortgage, a product that has played a major role in supporting homeownership for America’s families.
(Hilary O. Shelton is the Senior Vice President for Advocacy for the NAACP where he directs the NAACP Washington Bureau. Mr. Shelton has more than 20 years of experience in government relations and federal advocacy.)