The National Association of Home Builders (NAHB) isn't waiting for politicos in Washington D.C. to revamp the federal government's housing finance system.
It has its own idea for transitioning Fannie Mae and Freddie Mac to a new mortgage securitization system for single-family and multifamily conventional mortgages.
The aim is to keep the tap open on affordable housing credit.
NAHB Chairman Barry Rutenberg, a home builder from Gainesville, FL says that means a system of private, federal and state sources of housing capital to generate affordable fixed-rate mortgages, a menu of mortgage products for both single-family and multifamily housing, prudent underwriting standards and adequate oversight and regulation.
NAHB says during a phase-in period Fannie Mae and Freddie Mac would continue to operate but be phased out by private housing finance entities (HFEs) chartered to purchase single-family and multifamily mortgages from loan originators and package the loans into securities for sale to investors worldwide.
NAHB believes the 12 regional Federal Home Loan Banks could serve as HFE and the federal government would guarantee well-packaged, low-risk securities, rather than the mortgages.
Federal conventional mortgage support would consist of a privately funded insurance fund where the government would guarantee its solvency in a manner similar to the Federal Deposit Insurance Corporation's backing of the fund that insures savings deposits.
Under this system, mortgage originators would pay premiums to capitalize the insurance fund, which would cover losses and ensure full payment to investors. The federal government would be required to pay investors only if the insurance fund was depleted.
"The intent is for the government to be in a secondary position and to be the insurer of last resort in order to reduce the risk to taxpayers," said Rutenberg.
Other provisions in the NAHB housing finance plan include:
• NAHB believes reforms are needed in the system for rating mortgage-backed securities and is supporting the development of new securities ratings agencies that would use criteria developed by securities investors to assure objective evaluations and avoid conflicts of interest.
• The housing finance support roles of federal agencies, including Department of Housing and Urban Development, Federal Housing Administration, the Department of Veterans Affairs, the Department of Agriculture and the Government National Mortgage Association (Ginnie Mae) would be preserved.
• State and local housing finance agencies (HFAs), as a source of housing funds, should have a more prominent housing finance role through the development of original programs for new homes and multifamily rental units involving partnering with federal and private providers of housing capital.
• Federal Home Loan Banks (FHLBanks) should continue their current activities to serve as an ongoing liquidity source for institutions providing housing credit. FHLBanks' mortgage purchase programs should be enhanced by allowing the banks to move beyond portfolio purchases to securitization.
• Continue and complete steps to close the gaps in standards and oversight that allowed and facilitated the improper and illegal activities in financial and mortgage markets.