Access to Credit Is Key in GSE Reform
Placing the Federal Housing Administration inside the proposed Federal Mortgage Insurance Corp. would provide singular oversight for balancing the post-GSE mortgage market and a fully federal guaranteed market for specified market segments.October 7
As Congress takes up GSE reform, the issue of access to credit is a critical one. And it's time for a reality check on the topic. There is a real disconnect in what people are saying about GSE reform, and the realities of the future of the housing market.
In a recent op-ed, Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., claim that their GSE reform bill, which has garnered considerable support, would " maintain and improve existing efforts to help creditworthy Americans access homeownership." But this is a completely empty claim. The Corker-Warner GSE reform bill would, in fact, shrink the mortgage market, cut out tons of creditworthy borrowers and badly impede access to homeownership. This is because the bill lacks a tangible affirmative obligation to serve, and contains unnecessary barriers to access.
The National Community Reinvestment Coalition recently released a proposal for an incentive model, which would allow for lower guarantee costs for institutions that do a good job serving the whole population of qualified borrowers. This model could be added to the Corker-Warner bill, and would be a win for everyone: secondary market entities would have the opportunity to lower their costs, creditworthy consumers would have access to conventional home loans, lenders would benefit from the availability of credit for a broad group of consumers, and the economy would grow.
According to the Harvard Joint Center on Housing Studies, minorities will account for seven out of ten net new households in the United States in the next decade. Only 25% of African Americans and 34% of Latinos who received loans in 2012 received conventional loans. Absent the GSE affordable housing goals, conventional lending to minorities would be even lower. When one considers these numbers it is eminently clear that there needs to be a mechanism to ensure that the market serves those borrowers with conventional lending.
Some have said that we should "let the Federal Housing Administration worry about affordable housing needs." This would mean an entirely bifurcated mortgage market where the less well off would be cordoned off into more expensive FHA loans. That scenario would create serious fair lending concerns, and badly damage homeownership opportunity. And of course under FHA, the American taxpayer would be guaranteeing 100% of each mortgage, as opposed to the GSE model.
It's simple. A government guarantee must be accompanied by an obligation to responsibly serve creditworthy borrowers. Corker-Warner includes the guarantee. What is missing is a mechanism to ensure that taxpayers will have fair access to conventional mortgage credit. Without that mechanism, many creditworthy taxpayers will be left with no access. And that is bad for everyone.
John Taylor is president and CEO of the National Community Reinvestment Coalition.