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The Future of the Mortgage Market and the Housing Enterprises
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The Future of the Mortgage Market and the Housing Enterprises

Testimony Before the Senate Committee on Banking, Housing, and Urban Affairs

CAP Action's Andrew Jakabovics testifies before the Senate Committee on Banking, Housing, and Urban Affairs on the future of the mortgage market and the housing enterprises.

A foreclosure sign is seen on the lawn of a home for sale in Stockton, CA.
A foreclosure sign is seen on the lawn of a home for sale in Stockton, CA.

CAP Action’s Andrew Jakabovics testifies before the Senate Committee on Banking, Housing, and Urban Affairs . Read the full testimony.

Any discussion of the housing finance system’s future should start from a clear sense of what we want the system as a whole to accomplish. The recent GAO report considers the range of roles historically played by the housing enterprises, specifically Fannie Mae and Freddie Mac. But if the Committee restricts its analysis of the past and prescriptions for the future to simply the GSEs, it will miss the most significant origins of the current crisis and produce a system that is inadequate to support the essential role of housing finance in our economy. The real question for the Committee’s consideration is what are the goals of the system and what combination of public, private, and hybrid arrangements, if any, will deliver those objectives.

My goal for today’s testimony is to therefore lay out a series of principles that describes the essential functions that the housing finance system must serve. In short, the specific principles are: access to credit and liquidity, countercyclicality, risk management and oversight, standardization, transparency and accountability, systemic stability, and consumer protection. I hope that these principles are useful as a starting point for reform of the housing finance system, particularly with respect to the secondary market and its participants—both public and private. I will also touch upon important lessons to be learned from the past so that we do not learn the wrong lessons from the subprime crisis, as some may be inclined to do. In short, the systemic failures stemmed from the proliferation of poorly underwritten mortgages channeled through the so-called shadow banking system of unregulated private label securities.

The principles that I present today are the result of the collaborative efforts and discussions of a group of experts and stakeholders in mortgage finance convened by the Center for American Progress that have been meeting for more than a year. The group is known as the Mortgage Finance Working Group, or MFWG. These principles, which are available on the Center for American Progress’s website, were publicly released at an event in March. While we at CAP have tremendously benefited from MFWG members’ insights and expertise over the past year, my remarks this morning should not be construed as their personal or institutional endorsement of my testimony. Needless to say, any errors herein are my own. Looking at any proposal that is made going forward, based on these principles, the Committee should ask the following questions:

  • Will institutions of any size in any market have access to capital and liquidity in all markets at all times?
  • How well will it do in ensuring a steady supply of 30-year fixed rate mortgages?
  • How well will it do in ensuring a steady supply of finance for affordable multifamily house?
  • Will it support and speed innovation? Will it support and encourage transparency?
  • Will all our communities, especially those devastated by this crisis, have access to credit on fair and nondiscriminatory terms? 
  • How can we transition to a new system without disruption?

Read the full testimony. (CAP Action)

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