Following the presentation by Bank of America CEO Brian Moynihan, a panel of experts discussed the issues raised by Moynihan and others concerning the future of housing policy.
Douglas Holtz-Eakin of the American Action Forum cited economic growth and immigration reform as critical factors for the future of the housing market. He referred to work he has done with others at the American Action Forum on Qualified Mortgage (QM), Qualified Residential Mortgage (QRM) and Basel regulations showing that the housing finance system is on track to provide 20 percent fewer mortgages than in 2001, which was before the housing bubble.
He recommended that policy be neutral as to whether housing should be purchased or rented, but he stated flatly that “Americans will not give up their deep love for the 30-year, fixed-rate mortgage,” and that this will require a government backstop. At the same time, he acknowledged that the government-sponsored enterprise (GSE) model is broken, so it is necessary to come up with a different model, but he cautioned that the fiscal position of the country does not allow for the open-ended subsidy of anything.
Janice Bowdler of the National Council of La Raza made three points: 1) changing demographics, with half of new homeowners being Latino by 2020, have huge implications for a wide range of policies, including housing; 2) Hispanic and other minority borrowers have very different credit profiles than those of earlier generations of borrowers, and they are often burdened by student loans before they ever enter the housing market; and 3) the elements of sustainable home ownership are known, but they haven’t been applied to the necessary scale.
Tom Deutsch of the American Securitization Forum presented statistics showing that most credit availability comes from the GSEs. He stated that securitization markets have largely recovered for all assets classes but housing; however, 97 percent of all loans being made in America are guaranteed by the government. Challenges to the current mortgage market include the fact that a quarter of them are under water. He declared that private markets would not lend money to homebuyers at 3.5 percent.
Ellen Seidman, chairman of the Center for Financial Services Innovation and former director of the now-defunct Office of Thrift Supervision, contradicted the notion that a reduction in housing credit is acceptable policy.
She worries about who will buy the 11 million homes baby boomers will be releasing over the next 10 years. Finally, she suggested that more attention be given to the rental market, where demand has grown as the stock of available units has declined. She also expressed support for continued government backing for affordable housing.
Ted Gayer of the Brookings Institution raised questions about the traditional commitment to subsidization of home ownership, and he urged that whatever subsidies are provided be distributed more equitably between ownership and rental housing. He also made several points in contradiction of the widely excepted view that home ownership fosters wealthier and more stable communities.
First, he questioned whether there is empirical evidence to support attributing the observed community stability to home ownership. Second, even if the common view is correct, such stable, rooted communities would tend to reduce the mobility of the labor force. And finally, Gayer stated, existing subsidies, such as the mortgage interest deduction, are clunky and strongly favor ownership over rental.
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