We’re overdue for housing finance reform

Published 9:41 am Wednesday, January 22, 2014

by Mark R. Warner

After 18 months of work on this issue, I have good news and bad when it comes to Fannie Mae and Freddie Mac. The good news is that the government-backed mortgage companies now have paid back almost all of the $188 million bailout that taxpayers were required to provide when the housing industry cratered in 2008.

The bad news is we still haven’t fixed any of the structural problems at Fannie and Freddie that led to the bailout in the first place.

Fixing the government’s role in mortgage finance is the final piece of unfinished business remaining from the financial crisis. If we don’t fix it now, taxpayers will once again be on the hook the next time the mortgage industry gets ahead of itself.

I have partnered with Tennessee Republican Bob Corker in proposing a responsible and bipartisan blueprint to reform the federal government’s role in mortgage finance to make sure taxpayers will not be asked once again to be the first responders. Enough is enough.

Granted, Fannie and Freddie play an important role in mortgage finance: Their implied government backstop is key to the continued availability of the popular 30-year, fixed-rate mortgage. Our bipartisan proposal will maintain access to this popular home loan product.

Our reform proposal also strengthens access to financing for affordable, multifamily housing, which is a key housing option for many Virginians on their path toward eventual homeownership. And our bipartisan legislation also goes to great lengths to make sure that Virginia’s smaller banks and credit unions will not be shut out by national lenders in offering mortgage loans.

First, we mandate sufficient capital, up front, to protect taxpayers against loss. Our bill requires that private market participants absorb the first 10 percent of losses on any mortgage-backed security that purchases a government reinsurance wrap. If this standard had been in place during the crisis, taxpayers would have taken no losses at all.

Second, we dissolve Fannie and Freddie within five years, and transfer their responsibilities to a more modernized and streamlined agency. All of this is done with a duty to maximize returns to the taxpayer, via the Treasury, as Fannie and Freddie’s assets are sold off.

Finally, we provide support for low-income rental development and affordable homeownership in a more transparent and accountable way. These programs will be paid for not by taxpayers, but through a small assessment on only the loans that go through this improved system.

Sen. Corker and I, along with five Republicans and five Democrats who serve on the Senate Banking Committee, introduced this legislation in the summer of 2012. We believe our reform proposal represents a bipartisan, middle-of-the-road approach that responsibly restructures Fannie and Freddie over a five-year transition period.

Over the past year, the Senate Banking Committee has held 10 public hearings on this important issue, and we are optimistic that our proposal represents a solid framework that can move forward as thoughtful, bipartisan reform.

Over the past months, I also have conducted town hall meetings across Virginia with hundreds of homebuilders, mortgage lenders, realtors and consumer groups. I have heard important questions, and encouragement to get this legislation passed.

Some critics say our proposal goes too far, and others have said it does not go far enough. But regardless of where your political sensibilities are, you cannot believe the existing system is working.

Make no mistake: Time is not on our side. As memories of the 2008 mortgage finance crisis fade, the path of least resistance will be to simply reconstitute Fannie and Freddie as they were. I believe that would be totally irresponsible.

We believe our bipartisan approach is the best opportunity for real reform that protects taxpayers and preserves the 30-year fixed rate mortgage, while moving us toward a modernized, 21st-century housing finance system.

The alternative is to wait and do nothing, which is the equivalent of asking taxpayers to write a blank check for future bailouts.

I believe it is time to end the failed model of private gains and public losses.

MARK WARNER, a Democrat, is a former Virginia governor and co-founder of Nextel. He serves on the Senate’s Banking, Budget, Commerce and Intelligence committees. He can be contacted at www.warner.senate.gov.