Builders Urge Congress to Maintain Ongoing Federal Role to Ensure a Healthy Mortgage Market

With some members of Congress actively pushing to abolish Fannie Mae and Freddie Mac and end the federal backstop for housing, the National Association of Home Builders (NAHB) told Congress recently that maintaining an appropriate level of government support is absolutely essential to preserve financial stability.
 
Testifying before the Senate Banking Committee, NAHB first vice chairman Barry Rutenberg, a home builder from Gainesville, Fla., said that absent a federal role to help reassure mortgage market investors, the cost and availability of mortgage credit would be subject to unpredictable volatility.

 
“The historical track record from the 1998 Russian crisis to the tragedy of September 11 clearly shows that the private sector is not capable of providing a consistent and adequate supply of housing credit without a government backstop,” said Rutenberg. “Therefore, as the private market transitions to assume a greater responsibility, there must be a predictable, permanent federal role in order to ensure a consistent supply of mortgage liquidity and to allow rapid and effective responses to market dislocations and crises.”
 
While NAHB strongly supports efforts to modernize the nation’s housing finance system, it is critical that any reforms be well-conceived, orderly and phased in over time.
 
NAHB opposes legislation pending in the House and Senate that would effectively wind down the operations of Fannie Mae and Freddie Mac without offering a clear vision for the future housing system and a non-disruptive transition to a new secondary market framework. Similarly, NAHB believes that more than a dozen short-term legislative proposals offered by House Republican lawmakers to reduce the support Fannie Mae and Freddie Mac provide to the mortgage markets represent a piecemeal approach to reform that would disrupt the housing market and could push the nation back into a deep recession.
 
New legislative efforts would take a very different tack from these proposals. Recent bipartisan legislation (H.R. 1859) introduced by Reps. John Campbell (R-Calif.) and Gary Peters (D-Mich.) would replace Fannie Mae and Freddie Mac with five private companies that would issue mortgage-backed securities that have government backing. Legislation currently being developed by Rep. Gary Miller (R-Calif.) would also include a predictable government role in the secondary mortgage market to preserve financial stability in the market and maintain a stable housing sector.
 
“NAHB views the introduction of H.R. 1859 and Rep. Miller’s draft legislative proposal as very positive developments as debate on the future of the housing finance system moves forward in Congress,” said Rutenberg. “Maintaining a continuing and appropriate level of government support is necessary to promote investor confidence and ensure liquidity and stability for homeownership and rental housing.”
 
Absent a federal backstop for housing, Rutenberg warned that the 30-year, fixed-rate mortgage, the major housing finance tool for most Americans, would become increasingly scarce and much more costly, pricing many creditworthy borrowers out of the marketplace. Similarly, the availability of financing for multifamily housing would fall woefully short of the growing need.