As a community banker in Tyler, Texas, I have an unobstructed view of how the mortgage market is working, and not working, for average Americans.
From my vantage point, I can tell you unequivocally that it is high time Congress take up housing finance reform.
Why should Congress tackle this colossal endeavor now when it has so much else on its plate? It's simple: the housing market anchors the entire U.S. economy. When it's healthy, the economy hums and Americans feel secure. When it falters, it drags consumer confidence and the economy down with it, which is what happened during and after the financial crisis.
I know the latest numbers indicate the housing market is recovering, and that is certainly welcome news. But we cannot mistake short-term improvement for the long-term cure our housing finance system desperately needs. The housing market is far too important to every American's financial wellbeing to turn a blind eye to problems that lay just beneath the surface.
The housing market is only as strong as the finance system that supports it. Without a system that can efficiently provide credit to Americans looking to buy, sell or refinance their home, the housing market will deteriorate.
Unfortunately, our housing finance system is on life support. It's being kept alive by a series of emergency-room procedures conducted at the height of the financial crisis that are simply not sustainable.
This is a problem that's long on controversy and short on simple solutions, which is why Congress is content to “let the patient lie.” But as someone in the business of originating home loans and supporting economic needs in my community, I know the market badly needs positive signals from our lawmakers that provide certainty about the future of housing finance.
Our customers, despite some lingering reticence about the mortgage process, still value homeownership and continue to seek credit to achieve and maintain the American dream. But it is getting harder and harder to serve the needs of these Americans in an uncertain environment and within a frail system.
Congress has a big role to play to nurse the system back to health. Thus, to get started, lawmakers must first recognize what ails the system, and then identify the policy solutions around which they can find common ground.
Any debate about the future of housing finance has to start with these questions:
- How do we resolve Fannie Mae and Freddie Mac? Much has been said and written about these government-sponsored enterprises. Regardless of one's point of view, the fact remains that without a government vehicle to guarantee mortgage-backed securities, liquidity for mortgages would dry up and the housing market would suffer. Ask yourself: Would the Federal Reserve be buying $40 billion of mortgage-backed securities a month if the securities had no government guarantee? Everyone with a stake in housing – borrowers, lenders, homebuilders, suppliers and developers – needs certainty and clarity on this. Let's decide, if Fannie and Freddie remain, are there changes planned? And, if not, what is the plan to replace them?
- How do we bring private capital back to the market? Most experts agree this is critical to the system's future. But we know there are obstacles to overcome, including lingering wounds from the recent housing crisis, historically low returns, and non-competitive pricing from the GSEs. If we're honest with ourselves, we'll acknowledge that without some type of government support, attracting private capital as a meaningful percentage of the mortgage market will be a slow and gradual process.
- How do we preserve the parts of the system that work? Many aspects of the system functioned efficiently during the crisis and are continuing to play vital roles. One example is the Federal Home Loan Bank system. These 12 banks, strategically located across the country, provide more than 7,000 local financial institutions with the liquidity they need to serve the credit needs of their communities. They performed admirably during the heart of the crisis, doubled the amount of advances to their members when other forms of liquidity dried up, and never needed a penny of government money to carry out their mission. Banks need to know that the FHLB System that was there for them in the last crisis will be there in the future.
- How do we strengthen the Federal Housing Administration? The FHA's primary mission is to serve first-time homebuyers, and taxpayers should demand that the agency refocus its efforts accordingly. This will ensure that it doesn't continue to interfere with efforts to get private capital sources to return to the mortgage market. The first step might be to determine the agency's desired loan limits and future desired percentage of the market.
- How do we encourage additional public-private partnerships that support rental housing, fight homelessness and address other important housing needs? Housing is critical to our economy and it happens along a continuum. Those who aspire to homeownership but cannot yet qualify deserve a safe, decent and affordable living arrangement. Through the decades, the best means of accomplishing these goals have been remarkably bipartisan and nonpartisan, especially at the local and state levels.
I'm sure ideologues on both sides of the aisle can take issue with some of these items, but as a reasonable observer, I firmly believe the above questions need answers in order to return our housing finance system to health and give Americans a modern mortgage market capable of meeting their housing needs.
Lee R. Gibson is the senior executive vice president and chief financial officer of Southside Bank in Tyler, Texas. Southside Bank has $3.2 billion in assets and 48 locations in Texas.