The Obama administration is gathering public opinion on how to improve the housing finance system, including the operations of Fannie Mae and Freddie Mac and the federal government’s role in the system.
The Treasury Department released questions last week seeking comment from the public, including market participants, industry groups, academic experts, and consumer and community organizations, in order to achieve a "stronger," "more stable and sound" housing finance system.
Participants will be able to respond to the seven questions online at regulations.gov and at a series of public forums to be held nationwide. The details about these forums haven’t yet been announced.
Inman News asked real estate professionals to weigh in on some of these questions posed in the Treasury Department announcement. Responses to one of those questions follows, and other questions will be addressed in subsequent articles. (See "How to fix housing policy.")
What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?
Judson Voss
President
Roxx Productions LLC
Mooresville, N.C.
At some point the housing market is going to have to stand on its own merits. By providing too much in the way of subsidies, the housing market will be artificially inflated.
I understand that the Obama administration does not want the American people to feel the pain, but the harsh reality is housing prices must take a drop to make it financially viable for investors to prop up the market in the future.
I feel limited involvement via subsidies will help, but I feel they should be focused on the supply side to allow small and large real estate investors and nonprofits to improve neighborhoods (in order) to stabilize them and in the distant future create appreciation again.
Pamela Dela Cruz
Broker-owner
Pamela Dela Cruz & Associates LLC
Walnut Creek, Calif.
The government can’t undo what’s been done. The level of government involvement in requiring loan applications to have "full documentation" is now in play and the elimination of "stated income" loans are non-existent. This weeding-out process will allow buyers to be prescreened for purchases.
However, there are several risks that the government will face in supporting loan modifications under the Home Affordable Modification Program and the time deadlines to approve the short-sale process in the Home Affordable Foreclosure Alternatives (program).
First, I don’t think the financial institutions and their third-party loss-mitigation departments have the manpower and knowledge for such aspirations. In other words, it sounds like a great idea but only time will tell if it is actually effective.
Second, the risks remain high for investors who bought non-owner-occupied properties. There are no current federal government or state provisions in place to release investors who lost homes from liability and deficiency. When a home forecloses or is sold as a short sale, junior-lien holders are still chasing after them for the deficiency. This can go on for up to four years.
William Metzker
Owner and principal broker
Terradigm Real Estate Consultancy LLC
Portland, Ore.
First, Congress needs to consider removing the deductibility of mortgage interest from gross income for tax. Besides such deductibility being unfair, this change would have the effect of disincentivizing gratuitous home purchases and, perhaps, help eradicate the cherished belief that a home is an "investment."
Over time, homeownership would be reduced to a level where activity would be more predictable and stable. I predict that this removal will happen sooner rather than later, as Congress grasps for ways to increase revenue and reduce the nation’s structural deficit.
America’s population will soon double, and not everyone needs to own a house. They need a quality place to live, which can be delivered with rejiggered combination of ownership, leasing and even long-term interval ownership.
The financial markets have to have stability, transparency and safety. There was a time when someone would apply for a mortgage loan with less than 20 percent down, and the bank loan officer would say, "That will never get past the bank examiners." Well, what happened to the bank examiners in the last 10 years?
The feds need to encourage a robust but tightly regulated secondary market. A time date should be set for selling Fannie and Freddie back to the private sector, even if it means discounting the portfolio.
The Federal Reserve and Federal Deposit Insurance Corp. both play roles in regulating banks, and either these or another agency altogether has to similarly oversee the so-called "shadow banking" world of credit default swaps and rating agencies.
If Glass-Steagall is to stay repealed, and I’m not sure it should, then oversight has to come to the securities world, perhaps by an international agency.
High capital requirements have to be required and strictly monitored for lenders and companies who trade in mortgage-backed securities.
James Crumbaugh III
CEO
Allison James Estates and Homes
Lake Suzy, Fla.
As we all know by now the current system is broken. Fannie and Freddie are essentially bankrupt. It doesn’t matter whether it’s government or private sector — we must all go back to the solid and proven lending practices of days gone by.
Without strong fiscal responsibility, we will continue to make the same mistakes that have been made with recent lending practices. I know this sounds overly simplistic, but we know the old system of lending worked for decades.
Steve Wiley
Broker-owner
Smarter Choice Real Estate
Lincoln, Neb.
Predictable and sustainable governmental economic policy, which favors affordable long-term interest rates while keeping inflation under control, are appropriate measures — but we cannot count on those controls to work forever.
The free market of world investment will eventually behave just as water, which will seek its own level — it can only be controlled for a time and to a limit.
Having quasi-governmental organizations (Fannie Mae and Freddie Mac) to stabilize and remove some investor risk in the securitized mortgage loan industry is appropriate, but competing with the private sector and trying to control the marketplace is not the best long-term strategy.
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