As Washington, DC, witnesses a changing of the guard, many wonder what to expect in housing policy from the new leadership. Last week, several thought leaders who could influence the incoming regime gathered at the Urban Institute to discuss where housing policy should go in the years to come. Their diversity of views reflected a similar diversity within the Republican party, but several common themes emerged. Most notably, the speakers agreed on the importance of three issues: reforming the Federal Housing Administration (FHA), reforming the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and addressing the affordable housing crisis in the rental market.
GSE reform won’t get floor time, but it’s still crucial in the long term
The panelists agreed that the current structure of the GSEs must change. However, the range of views as to what kind of change is in order reflected the diverse views held by pro-reformers in general.
Mark Calabria, director of financial regulation studies at the Cato Institute, pointed out the two streams of thought within the Republican party on economic policy: the “pro-business” side, which believes that certain financial institutions provide important public benefits that make them worth special support, and the “pro-market” side, which accepts that “failure [of corporations] happens” and believes that, as long as the market is robust and competitive, the economy will be better served without special protections for any particular financial institutions. On the issue of GSE reform, the pro-market side, which Calabria favors, would like to see government support for the system pulled back or withdrawn altogether. Shawn Krause, executive vice president of Quicken Loans, warned of the dangers of such a move, questioning whether private capital would step in without government support.
Despite these differing views, Calabria and Krause agreed that Congress and the incoming administration are unlikely to take up the thorny issue of comprehensive GSE reform in the near term, given everything else on their plate. Michael Bright, director of the Center for Financial Markets at the Milken Institute, added that reform efforts must be led by the White House and the Treasury to get traction: “It’s going to take some leadership, to sell [GSE reform] to the American people, and show them why this matters.”
The FHA needs to be cleaned up
The panelists agreed that reforming the GSEs alone would not do enough to mitigate taxpayer risk and that the FHA must be part of any comprehensive reform effort.
Several operational challenges make reforming the FHA imperative. Krause noted that “systems go down for weeks at a time, so I believe [the FHA] needs more money for technology.” Addressing these challenges will take resources, however, so several panelists expressed the view that it is time to authorize the FHA to use premium revenues to cover administrative expenses, even if premiums increase as a result.
Urban Institute president Sarah Rosen Wartell (L) asked questions of the panelists last Wednesday. Photo by Ralph Alswang for the Urban Institute.
Policy challenges are viewed as no less important. Rick Lazio, a partner at Jones Walker LLP and former Congressman (R-NY-2) argued that the FHA needs to reduce the uncertainty and excessive cost created by clumsy and punitive underwriting and servicing rules. These issues have caused many lenders to pull back from their FHA lending, constraining access to credit among lenders who depend on the FHA. As part of a solution Lazio proposed revising the existing servicing rules and putting FHA’s categorization of loan defects (its “defect taxonomy”) to better use.
Rental housing is a moral crisis nationwide
The speakers were relatively unified around the view that the new regime must take on the growing rental affordability problem. Lazio pointed out that this problem is driven by a shortage of supply nationwide. “This isn’t just an urban issue,” Lazio said. “It isn’t just about New York and California. We hear about these issues in South Carolina, New Hampshire, and Iowa, too.”
“This doesn’t have the political energy of some other issues, but it’s a moral crisis,” Lazio added, to broad agreement.
Overall, the discussion revealed unity on the key housing policy challenges that lie ahead. It will be interesting to see how the philosophical and political differences that came to light in the discussion play out as these thought leaders and others begin to tackle these challenges in the years to come.
See what former Obama administration officials involved in housing policy had to say about their legacy and lessons learned through the housing crisis at the same event.