NAHB Directors on Regulating Housing Government Enterprises - 1/24/2005 - Mortgage Loan Refinance Debt Equity

NAHB Directors Adopt Policy on Regulating Housing Government Sponsored Enterprises

Action on the NAHB board floor was the culmination of a three-month effort by a specially appointed Housing Finance Reform Task Force to investigate how to ensure a reliable and less costly supply of credit for home builders and home buyers and respond to criticism of accounting and financial reporting errors at Freddie Mac and Fannie Mae in 2003 and 2004.

Working with the leaders, membership and staff of NAHB and consulting outside experts from the mortgage and lending industries, Wall Street and government and non-government policy analysts, the task force looked at changes to existing NAHB policy that would enable home builders to respond to proposals for new regulations and operations that would undermine the effectiveness of the GSEs.

“We found that some proposals claiming to seek ‘world class’ regulation of the GSEs actually are attempts to restrict or even do away with the benefits of the GSE system,” said Gary Garczynski, chairman of the task force and 2002 president of NAHB.”

The final report of the task force noted that “the unique connection between the federal government and the private market through the GSEs” has helped shape a housing finance system that is “extremely efficient and liquid.” The report cites studies estimating that the GSEs lower mortgage rates by as much as 50 basis points, creating homeownership opportunities for about 2.2 million households, according to NAHB estimates.

Among the new policies that were recommended by the task force and adopted by the NAHB board:

• The establishment of regulatory authority that would be able to place a GSE into receivership is opposed, along with efforts to privatize the GSEs, withdraw the privileges and the legal exemptions they receive from the federal government or otherwise diminish their ability to provide housing at the lowest possible cost.
• Replacing the current oversight of the GSEs, which is spread over three government agencies, there should be one regulator that is an independent agency, with oversight over all three GSEs and with expertise in housing and a strong commitment to housing and the mission of the GSEs.
• The program approval process for the GSEs should encourage, not inhibit, innovation.
• The GSE regulator would have the authority to temporarily raise minimum capital requirements in situations where there is an “extraordinary” change in the financial condition of a GSE.
• Challenging goals should be set for affordable homeownership and rental housing production and preservation. In addition to their current affordable housing goals, Fannie Mae and Freddie Mac should be required to set aside a reasonable percentage of their profits for affordable housing efforts. The Federal Home Loan Bank Refinancing Corporation (REFCORP) should be restructured to provide additional funding for affordable housing. There should be a level playing field to allow the for-profit sector to participate in these efforts.
• The regulatory framework should promote competition among the GSEs, which could help lower the cost of home financing even further.

In addition to Garczynski, members of the NAHB task force were Bobby Rayburn, NAHB’s immediate past president; and builders Dave Curtis, Joe Landers and Randy Noel.

The task force prepared a lengthy final report, which provides more detail and background to the recommendations. To read the report, which includes an executive summary, NAHB members can click here.

To read the GSE resolution and summary of the other resolutions passed by the NAHB Board of Directors at its meeting in Orlando, visit NAHB Resolutions in the policy section of the NAHB Web site. (This link is accessible for members only.)