As lawmakers debate how best to reform the secondary mortgage finance market, they must ensure that any new system retains access to safe, secure and affordable sources of mortgage capital for creditworthy consumers in all market conditions or risk a major disruption to the economy, warned the National Association of Realtors (nar) in testimony before the Senate Committee on Banking, Housing and Urban Affairs.
On behalf of the leading advocate for homeownership and housing issues, NAR President Gary Thomas recommended essential reforms to the current housing finance structure that will benefit consumers.
“Realtors support a stable secondary mortgage market with strong, reasonable lending standards and access to credit. We believe that the current system can be transitioned into a marketplace that is bound by an explicit government guarantee and a sustained flow of private capital while protecting taxpayers from unnecessary risk,” said Thomas, broker-owner of Evergreen Realty, in Villa Park, Calif. “We fear that without the government’s backing, the only mortgage products available in the secondary market for the average homebuyer would not be aligned with their best interests.”
NAR supports the bipartisan Housing Finance Reform and Taxpayer Protection Act of 2013, which provides for an explicit government guarantee and includes many of the elements outlined in the association’s principles for secondary mortgage finance reform that NAR presented to the administration in early 2011.
During his testimony, Thomas expressed concern about emerging barriers to homeownership facing middle class and first-time buyers that could potentially derail the housing recovery. “Apprehensive bankers are leery about issuing new loans as a result of proposed risk retention rules and ability-to-repay requirements that are set to go into effect next year. At the same time, rising interest rates and growing student loan debt is limiting consumers’ access to credit and contributing to an already tight lending environment.”
Realtors urged policymakers to prioritize strong underwriting standards over high down payment requirements that would put homeownership out of reach for otherwise creditworthy buyers. Rather than adopt a complex Qualified Residential Mortgage rule, NAR believes the agencies should follow the strong standards set by the Consumer Financial Protection Bureau for the related Qualified Mortgage (QM) Rule.
Thomas warned against other proposals that would restrict lending, such as lowering loan limits and putting private capital in a 10 percent first-loss position, which could inhibit private investors from participating in the secondary mortgage market, especially during periods of economic distress.
“Our goal is to help Congress, and our industry, design a secondary mortgage market model that will serve America’s best interests today and into the future, and ensure a strong housing market and economic recovery,” said Thomas.