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Congress Members, Experts Weigh Tough Question of FHA, GSE Reform

Housing specialists and market experts weighed in on new legislation introduced by members of the House Financial Services Committee that outlines major changes to the housing finance system in the U.S. 

Largely, they agreed the legislation needs improvement, with congressmen and witnesses expressing mixed views on the bill during a committee hearing Thursday. 

The Protecting American Taxpayers and Homeowners Act, introduced last week, spells change for the housing market including winding down of Fannie Mae and Freddie Mac over the next five years; increasing competition by ending the domination of the Federal Housing Administration; and giving consumers more choices in mortgage products. 

One item also calls for repeal of the FHA’s Home Equity Conversion Mortgage program as of two years from the passage of the act, should it be voted into law. 

Some opposed the legislation outright, but all panelists agreed the bill needs work.

“I think this is a significant piece of work,” said Moody’s Chief Economist Mark Zandi, but he continued to express several cautions. “The vision in the PATH of the private mortgage finance system is not viable,” Zandi said, referencing mortgage rates that will likely rise for the typical buyer, leading to the 30-year fixed rate mortgage becoming marginal under a market governed by PATH.

“We have to get this right,” Zandi said. 

Experts agreed reform for Fannie Mae and Freddie Mac is important, though there is not yet a clear cut solution as to the path that reform should take. 

Most agreed there should be less participation on the part of the FHA in favor of private capital returning to the market. 

“[The plan] creates a much more prudent FHA,” said Peter Wallison, Arthur F. Burns Fellow in Financial Policy Studies for the American Enterprise Institute. “…so it is only covering low income, first-time buyers of homes. That would be exactly the right thing we ought to permit through this system. If we can encourage people like that to make their first purchase so we then bring them into the housing market, that would be FHA working best without the taxpayers.”

The reverse mortgage topic was not discussed. 

The legislation was introduced during the same week as a Senate bill that works to reform FHA specifically, including language that would reform the HECM program by granting FHA additional authority to make program change. 

Written by Elizabeth Ecker