The Conference on the Future of Housing Finance is a forum held in Washington D.C. aimed at gathering public input as the Obama Administration continues to develop a housing finance reform proposal for delivery to Congress by January 2011.
“This conference is an opportunity to engage stakeholders and experts with broad knowledge and many perspectives,” said Dr. Raphael Bostic, HUD Assistant Secretary for Policy Development and Research. “It is part of our larger effort to make sure that we have a deep and wide understanding of these issues as we chart a thoughtful, sound path forward in reforming our housing finance system.”
Panelists at the conference include:
- Diana Farrell, NEC Deputy Director
- Treasury Secretary Geithner
- HUD Secretary Donovan
- Barbara J. Desoer, President of Bank of America Home Loans
- Ingrid Gould Ellen, Professor of Urban Planning and Public Policy at New York University’s Wagner Graduate School of Public Service and Co-Director of the Furman Center for Real Estate and Urban Policy
- Bill Gross, Co-founder and Co-chief Investment Officer of PIMCO
- Mike Heid, Co-president of Wells Fargo Home Mortgage
Live Blogging on the Conference on the Future of Housing Finance
12:20PM CST Closing Remarks by Diana Farrell, NEC Deputy Director
This has been a very broad discussion, a very rich discussion.
We heard a broad range of views on the role of the private sector, the public sector. I think, especially in the breakouts, the government role as a regulator was discussed.
We’ve been reminded that housing finance is not just an ownership issue but also a renter one, and we need to keep the scope of family and taxpayers in mind when dealing with the crisis.
There’s been lots of good discussion on how best to align private market incentives across the whole value chain of mortgage origination and distribution.
We’ve heard some good advice on how to manage the transition from today to the, hopefully successful, future.
Biggest takeaway: There’s broad alignment on a bunch of things, probably single most on the need for fundamental reform.
10:23AM CST Discussion Among Panelists About Future of Finance Plans
Seidman: Just relying on existing appropriations is probably not going to result in an equitable and positive solution.
All parts of the system use the government, we have to mainstream the issue of affordability, it can’t be off in a corner.
Stegman: Shared stories of homeowners going into foreclosure by taking on too much house.
“We’ve always in the past been able to turn the crisis into an advantage…If we’re going to spend money, let’s do a rent-to-own program.” There are millions of units turning into abandoned properties. It’s happened before in Texas where houses were sold in rent-to-own to much success.
Zandi: “I hear a great deal of consensus.” There are some significant commonalities, and one of them is that the government will continue to have to play a significant role, at least for the foreseeable future.
9:30AM CST PANEL DISCUSSION TWO – Housing Finance Reform and Broader Housing Policy Goals
HUD Secretary Donovan moderating.
Mark Zandi, Chief Economist of Moody’s Analytics
I think the government should continue to play a large role in the housing market. Government needs to provide a financial backstop…the necessity of that is evident in recent events. Had the government not stepped in, the recession and housing crisis would have been measurably worse.
The government has to provide access to affordable housing especially for low income households. Housing is not a luxury, it’s a necessity. I think we’ve not paid enough attention to rental housing.
The government’s role in housing needs to be pulled back quite significantly compared to where it is today and where it was before the crisis.
“The crisis is still ongoing, house prices are down 30%, we’re going to see more price declines, foreclosures are increasing, REO is going to rise in the next six to nine months…the government can’t exit out now, but longer run it is very important for the government to reduce it’s place in the housing market.
Mike Heid, Co-president of Wells Fargo Home Mortgage
Four key policy areas that require attention:
- Lenders need to have an interest in the underlying quality of every single mortgage they make.
- There needs to be a level playing field for all players across the mortgage business. Regulations need to be consistent with comparable capital requirements. Enforcement of the rules must also be applied across the board.
- The roles and responsibilities of everyone involved in the mortgage loan industry need to be very clearly defined and understood from origination onward.
- Any government guaranty given to a GSE should be very explicit. Wells Fargo believes in the maximum use of private capital but the government is still needed.
Lewis Ranieri, Chairman of Ranieri and Company, Inc.
Gave brief background of where mortgage lending has been, starting in the 1930s and moving up to today.
S.A. Ibrahim, Chief Executive Officer of Radian Group Inc. Private Mortgage Insurer
…is having microphone problems.
Piggy-back loans went beyond sound underwriting and failed.
“How do we incentivize innovation going forward?”
Implementation of new rules must not be so narrow that they choke innovation.
Governance and regulatory framework that scrutinizes new products must be more through.
Prudent limits are needed.
Risk sharing and risk retention mechanisms are needed.
“The art of progress is to preserve order amid change.”
Believes public participation should be limited and private and public sectors must work together.
Ibrahim closed saying, “There is no perfect solution, there was a serpent even in the garden of Eden, and whatever solution we come up with we have to watch out for those serpents and make sure they don’t get too big.”
Ellen Seidman, Executive Vice President for Mission and Strategy, at ShoreBank Corporation, and Chair of the Board of Directors at the Center for Financial Services Innovation
House prices lower than they have been in years, Seidman delivered (rapid fire) some startling statistics.
18.6 million households are spending more than half their income on housing, that was in 2008, it’s undoubtedly worse now.
In 28 states and the District of Columbia, more than two full-time minimum wage jobs are needed to rent an apartment.
These situations are all significantly worse in low-income housing.
I don’t think you can leave it to the FHA alone especially with all the calls for a level playing field that certainly means it’s not going to be the FHA alone.
There’s virtually no finance now in lower income communities, communities of color and rural communities.
“With respect to rental housing…it has more than a third of all Americas.” There’s insufficient financing available for rehabilitation of small rental housing units. UNless we really pay some attention to it we’re going to lose huge amount of important housing stock.
Michael A. Stegman, Director of Policy and Housing for the Program on Human and Community Development of the John D. and Catherine T. MacArthur Foundation
I think the housing finance system has become…a much more dominant shaper of housing policies than it was in the past, and this is especially true of rental policies. We’ve gone from financing low-income rental housing…to a system of layering a variety of rental subsidies that come from spending programs and tax credit on to market rate debt.
“The GSE’s have actually outperformed the commercial mortgage-backed market.” There seems to be a growing sense that even if we do have GSE’s we don’t need portfolio investment.
Going forward the secondary market and the housing finance system needs to secure and preserve low income housing.
“We can’t rebalance national housing policies and reform mortgage finance without expressing the market and government disproportionate support of homeowners versus renters.” The ratio is around $4 supporting homeowners for every $1 support for low income renters.
9:00AM CST Panel Debates Government Involvement
Treasury Secretary Geithner moderating.
Morial: “We do not want to create a nation of renters.”
Desoer: I do believe that the FHA should be retained. There has to be a secondary market providing liquidity.
Gross: It’s an $11 trillion secondary mortgage market…so to suggest that there’s a large place for private financing in the future of American finance is unrealistic. The only way to provide liquid financial mortgages is to provide a government guaranty…with adequate supervision.
“I say this unfortunately, the government is part of our housing future.”
Geithner: What qualifies for a new conforming mortgage in this brave new world?
Debate over whether they should be countercyclical elements or not.
Wachter: I think it’s asking a lot to raise down payments standards during a housing boom. From my perspective, even keeping the rules so that they are not pro-cyclical is the critical place we need to be.
8:32AM CST PANEL DISCUSSION ONE – Housing Finance Reform and Broader Financial Markets
Speaks for two minutes on what would you change and what would you preserve?
Susan Wachter Richard B. Worley Professor of Financial Management, Professor of Real Estate, Finance and City and Regional Planning at the University of Pennsylvania’s Wharton School
“For me the key factor is information, and the lack of information…Markets took on risk that was not understood, markets failed to price risk, to control risk or recognize risk. Correcting the information market failure will require disclosure, transparency and standardization”
“We will need to have transparent information and databases that investors and regulators can realtime track. In short I do think we should preserve standardization.”
Alex Pollock, Resident Fellow at the American Enterprise Institute
Housing system of the future must have countercyclical elements to avoid profits which feed booms and bubbles.
In the future market the government should withdraw in a large part from the subsidization of bulk loans.
Third we should have no GSE’s, Freddie and Fannie should no longer be a GSE. You should either be a private company or a government agency.
If counter to my recommendations, the GSE does survive we must make sure the double leverage through the banking system must be fixed. The biggest fault of the system was excessive leverage.
Ingrid Gould Ellen, Professor of Urban Planning and Public Policy at New York University’s Wagner Graduate School of Public Service and Co-Director of the Furman Center for Real Estate and Urban Policy
I think the key challenge is how to do this careful design of the guaranty how to restructure the guaranty to liquidity is maintained.
- Limit the scope of the guaranty. Limit it to the mortgage-backed securities
- Any guarantee should be explicit and the government should charge a fee to create a reserve fund
- The government should place limit on the amount the mortgage could go to the securities.
- The guaranty should only kick in to over catastrophic losses. Private market insurers would cover the first losses.
Marc H. Morial, President and Chief Executive Officer of the National Urban League
Five key points:
- “I believe that we should keep expanding and strengthen the community reinvestment act, strengthen our commitment to affordable housing and not allow this discussion to be governed by the undertone of the weapons of mass deception.”
- We must not allow the myth that loans made to minorities and low class families caused this housing crisis.
- I think we must preserve a dynamic role for both the government and the private sector. We need to move to a new system for 21st century America “the market as it exists today is not what Adam Smith had in mind.”
- Any discussion about what we do has to weigh the impact of decision making and the structure on main street America and back street America.
- Counseling works. I think that any system going forward has to look at how we structure the demand side. Housing counseling may need to be mandatory.
“We have to fix what’s broken, but not throw out things that work.”
Barbara J. Desoer, President of Bank of America Home Loans
In terms of recommended changes, the role of the government must be transparent and clear.
There is no long term need for the GSE’s to hold mortgage or mortgage-backed securites.
The important outcomes we believe are responsible lending, greater transparency and a level playing field for all participants.
Bill Gross, Co-founder and Co-chief Investment Officer of PIMCO
I think we need to recognize that for decades America has been over housed.
Rental housing plays an important part and Americans should be well-housed.
“PIMCO advocates 100% public finance. To never again permit American taxpayers to subsidize a black hole.”
I think we should have one agency. We need one national agency with sufficient backing, down payments and guarantees.
Without government guarantees, mortgage rate would be hundreds of base points higher.
There should be refinancing opportunity for homeowners that are current on their payments. This home financing…basically will provide a stimulus of $50 to $60 million as well as a potential lift of 5% to 10% in housing prices.
8:25AM CST HUD Secretary Donovan
U.S. mortgage market second largest security market in the world.
Today’s discussion is critical to ensure that we have a balanced national housing policy.
A healthy and robust financial system is key to a healthy housing market. Housing is the most expensive and important purchase a family will ever make “and few will be able to take that step without a strong housing finance system” Donovan said.
“We need to ask ourselves what role the government should be playing in that market. To be clear, the government’s role needs to be smaller than it is today.”
Donovan gave a quick speech more centered on why affordable housing is necessary for Americans. He spoke about how families able to move around and get housing is beneficial to companies looking to attract the best talent. Donovan also went into how it is important for families to have a choice in where they live and not feel trapped.
8:15AM CST Treasury Secretary Geithner
What went wrong and what are the important flaws we need to fix?
Several problems directly involved government sponsored Freddie Mac and Fannie Mae, Geithner calls Freddie and Fannie loaning reckless.
$1.6 trillion in loans were made without money to back those losses, an effort “made possible by combination of perceived government guarantee and absence of effective oversight.” Geithner called these “avoidable failures”.
“Our responsibility,” he said, “is to create a system not vulnerable to these failures again.”
There is no clear consensus on how to design a new system at this time, but Geithner says “we will not support returning Fannie and Freddie to the role they played.”
This challenge of reform has many different dimensions
Four key policy choices:
- What role should the government play in the housing finance system?
- What role should the government play in financial support to improved access in affordable housing?
- What we do about the security markets more generally. Deals with reforms on housing finance market, including new disclosure requirements and more consumer protections.
- How is it best to manage the transition to the new financial system?
Missed perception about Fannie and Freddie:
Myth: Taking the time to get reform right causes greater losses for taxpayers.
Loans before the crisis are what we are feeling now, there is nothing we can do to reduce the significant losses that have already accrued. “Reform is more than designing an elegant funeral for Fannie and Freddie.”
“The failures that have occurred were bipartisan and the solution must be as well,” Geithner said.
8:05AM CST Things should start shortly with opening remarks by Treasury Secretary Tim Geithner.
Good panel, I agree that Freddie and Fannie should not be gov’t institutions
I think that the best situation is that people need to continue to invest in the housing market, whether it be buying your first home or investing in homes, fixing them up and then renting them out to people. Especially since both mortgage rates and house prices continue to drop across the country. On a different note, I do agree that government institutions need to stay out of the financial sector.
I agree with Susan Wachter where she says we need, “transparent information and databases that investors and regulators can realtime track.” I would rather spend money renting than get caught up in a bad mortgage or high interest rates that would eventually lead to my foreclosure.
From what I can make sense of this whole financial meltdown, authority with no accountability is the most dangerous serpent in the grass. Whichever organization helps me obtain a proper home, I hope its sole motive is not profit, and oversight is mandatory.
Even after reading this, I am still confused on the whole housing market. Even if I were in the housing market, which I’m not, I would not be inclined to purchase at this moment because the situation still seems unstable.
It sounds like there are a lot of different opinions on how to go about fixing the housing market. It will be interesting to see what the government decides to do from here, both in the short and the long run.
Thanks for the information
Leave it to Bill Gross to come up with a simple idea that simultaneously serves as a strategy to ‘prop up’ the ‘sure to collapse’ bond market if something isn’t done. PIMCO shareholders and others hold their breath. I still wonder what the 7+ million home loans that are currently non-performing and in default 6+months but not yet foreclosed will mean to the market when the hatchet finally drops. At least his plan would sure up the healthy ones.
Is it me or do I miss the big important factor? I love how programs want to help those who are not needing help? This is going to help ‘performing loans and what about the people that actually NEED the help?!
Mortgage, credit card, no matter what the program; the people who need the help still do not receive it. What a great democratic society and yet we still don’t get it.
At least a straightforward plan was brought about compared to the thousands of convoluted ones that exist.
I think that is a good idea. I was forced to retire because of health reasons and am struggling to pay my house note. I am using my retirement and ss to do so. My retirement money is dwindling fast. I am considering walking away from my mortgage even tho i am not behind in payments. By the time the housing market is fixed , i wil be living on the street because i will be out of money
My wife and I have tried to refinance our performing fixed rate loan (6.650%) to no avail. We have excellent credit (800) and never had late payments. We have a fixed retirement income in excess of $60,000.oo per year. The main reason we don’t qualify is that the value of our home has dropped nearly 25% in one year. A government refinance to 4% would certainly save us money, and give us more cash to put into the economy.