By Harry C. Alford
My time in Washington has given me a real primer on the phrase “flavor of the week.” This week, all of the buzz in the nation’s capital is housing. Specifically, the Senate Banking Committee is set to consider Johnson-Crapo, a significant piece of legislation that would completely reconstruct the housing finance system as we know it, eliminate Fannie Mae and Freddie Mac. In their place, the bill would create a new government-backed mortgage-bond insurer and regulatory agency called the Federal Mortgage Insurance Corporation (FMIC) to oversee the secondary mortgage market.
But since there is no African-American member of the Senate Banking Committee, it is worth reviewing why this issue is so important to millions of current and prospective African American homeowners – and why the current proposal is a dangerous one.
In the past five years, the privately-owned, publicly-traded Fannie and Freddie have been central to bringing stability to the federal housing market, with a full return to profitability earlier this year. But with Johnson-Crapo, Congress is threatening to jeopardize that stability and undo years of resilience from American taxpayers. That’s the wrong direction.
Instead, Congress should be looking to bolster that stability by expanding access to and ensuring affordability of homeownership for all Americans — and especially for underserved communities.
The problems that African American and minority borrowers face obtaining access to mortgage credit are well-documented, and should not be a surprise to members of Congress. According to a report in the Washington Times, home loans have been tough to get for most Americans since the crisis, as banks severely tightened lending standards and caused millions of consumers to go into default and lose their good credit ratings.
The credit crunch has been especially harsh for minority communities hit disproportionately by foreclosures. In fact, only 131,000 Black families obtained mortgages in 2012, compared with nearly 600,000 in 2005 before the crisis, according to the Urban Institute Center for Housing Finance Policy. And overall, the share of Black borrowers dropped from 8 percent to 4.8 percent over the overall market in that time, and Hispanic borrowers dropped from 13.3 percent of purchases to 8.6 percent.
As written, Johnson-Crapo does not address these underlying structural concerns to the housing finance market. And per reporting by the Washington Times, some Democrats on the Banking Committee realize that fact, as they’ve asked to revise the legislation to add mandates that would require private lenders to offer loans to Hispanics, Blacks and other disadvantaged groups. The fact that these requests have been met with resistance is troubling.
At best, this legislation would preserve a status quo that keeps the dream of homeownership out of the grasp of countless middle- and lower-income African American families.
That’s not a real reform effort – it’s an affront to the taxpayers who supported Fannie and Freddie, and who are looking for leadership from Congress to give them an honest shot at pursuing the dream of American homeownership.
The only meaningful reform is one that serves all Americans – especially those who have been locked out of homeownership through no fault of their own. Preserving and strengthening Fannie and Freddie only expands opportunity and brings more qualified borrowers into the system.
It’s a goal that makes sense for borrowers and lenders, builders and brokers, and hard-hit communities looking to come back from a foreclosure nightmare. What’s more, broadening access to homeownership, by encouraging the responsible use of credit, is an important step for driving entrepreneurship – one of the nation’s economic engines, and one the administration has dedicated ample resources to jumpstarting.
When used properly, the mortgage financing process via Fannie Mae and Freddie Mac was a beautiful and productive transaction. As a former real estate broker, let me say that if you follow the rules to the program things were locked tight and guaranteed to work. What happened is that more than a few banks and Wall Street decided to stretch the rules or just break them down right. Sooner or later the “jig” was going to be exposed and the bottom fell out. Tragedy came to many home owners who were persuaded to take these subprime mortgage packages. They have paid the price severely.
Let’s not close the book and kill off Fannie Mae and Freddie Mac. It works if done properly. Let’s clean up the mess and begin to once again do it right. The intent should be to safe guard the process.
Years after the financial crash, our elected leaders surely know they have one chance to get housing reform right. Doing so requires fidelity to two broad principles: expanding opportunity, and ensuring stability of the markets. Johnson-Crapo fails to meet both of these goals, and moving forward with this ill-conceived bill would risk doing more harm than good.