Housing reforms currently being pondered by lawmakers could potentially cause “major disruption” to the economy if they veer into over-restrictive territory, warned the National Association of Realtors on Tuesday during a congressional hearing and in a separate letter to regulators.
Lawmakers are debating the best way to reform the secondary mortgage finance market, but they need to make sure the new system retains access to secure and affordable mortgage capital for creditworthy consumers, said NAR president Gary Thomas in his testimony before the Senate Committee on Banking, Housing, and Urban Affairs.
“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. “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.”
Emerging barriers to homeownership that middle class or first time home buyers are facing could derail the housing recovery, Thomas warned policymakers during his testimony.
“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,” he said. “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.”
In an Oct. 30 comment letter to regulators, Thomas praised regulators’ alignment of the Qualified Residential Mortgage standards with the Qualified Mortgage rule.
“NAR believes that aligning the QRM definition with the QM definition removes the risky product features and low- or no-documentation lending that led to increased defaults, without excluding those buyers who are unable to afford a high down payment,” he said. “Realtors understand the importance of avoiding unsustainable lending policies and believe that the regulators’ approach promotes responsible homeownership for consumers and is a return to safe and sound mortgage lending.”
However, the association criticized an alternative proposal requiring a 30% downpayment for being “unduly narrow and unnecessary to assure safe and sound mortgage lending,” citing relatively low default and foreclosure rates among Veterans Affairs loans, which have the lowest down payment requirements of federally-insured loan products.
Written by Alyssa Gerace