Washington Update 4/16/2010
 

Builders Offer Proposals to Mend Housing Finance System

As Congress begins to debate how to reform government-sponsored enterprises (GSEs) Fannie Mae, Freddie Mac and the Federal Home Loan Bank System, NAHB on April 14 called on lawmakers to ensure that the federal government continues to provide a backstop for the housing finance system to ensure a reliable and adequate flow of affordable housing credit.

Testifying before the House Financial Services Committee, NAHB Third Vice Chairman Rick Judson, a builder and developer from Charlotte, N.C., said the need for this support is underscored by the current state of affairs — with the GSEs, Federal Housing Administration and Ginnie Mae acting as the primary conduits for residential mortgage credit.

“NAHB feels the federal backstop must be a permanent fixture in order to ensure a consistent supply of mortgage liquidity as well as to allow rapid and effective responses to market dislocations and crises,” said Judson.

Related to the future of Fannie Mae and Freddie Mac, NAHB recommended policy changes to restore and improve the secondary mortgage market and housing finance system:

Degree and structure of government support. While government support is needed to ensure that mortgage credit is available and affordable in all areas of the country under all economic circumstances, support for the conforming conventional mortgage market should not be provided directly to private companies. Instead, the federal government should explicitly guarantee the timely payment of principal and interest on securities backed by conforming conventional mortgages, in the same way that Ginnie Mae now provides guarantees for investors in its securities.

Operation of the conforming conventional mortgage market. NAHB envisions private companies — conforming mortgage conduits (CMCs) — being chartered to purchase conforming conventional loans originated by approved mortgage lending institutions such as banks, savings and loan associations, mortgage banking companies and credit unions and then issue securities backed by those mortgages.

CMCs would guarantee the timely payment on the mortgages that are pooled in the government-guaranteed securities and would be required to be well-capitalized and to maintain reserves at levels appropriate for their risk exposure. However, CMCs and the mortgages backing their securities would not have implicit or explicit support from the federal government. A fund would be established by the government to provide a guarantee of timely payment of principal and interest to investors in the securities. The CMCs would pay a fee to capitalize the fund, which would be designed to mitigate the federal government’s risk so that it would only be exposed in the case of a “catastrophic” occurrence.

Conforming conventional mortgages. Mortgages eligible for inclusion in securities receiving an explicit federal guarantee should have well-understood risk characteristics. This would include fixed-rate and standard adjustable-rate mortgages and selected multifamily mortgage loans.
NAHB is in the process of updating its policy on the future of the Federal Home Loan Bank System and believes that policymakers must take into account its significant structural and operational differences from Fannie Mae and Freddie Mac when considering the future make-up of the housing finance system.

With Fannie Mae and Freddie Mac now operating under conservatorship and experiencing severe financial pressures, NAHB urged Congress to proceed with caution as lawmakers take steps to transition to a new housing finance system.

“Any changes should be undertaken with extreme care and with sufficient time to ensure that U.S. home buyers and renters are not placed in harm’s way and that the mortgage funding and delivery system operates efficiently and effectively as the old system is abandoned and a new system is put in place,” said Judson.

National Flood Insurance Program Extended Through May
After weeks of delay, Congress this week approved a package of short-term extensions of several federal programs, including a provision that reauthorizes the National Flood Insurance Program (NFIP) effective retroactively to March 28 and extends the program until May 31, 2010. President Obama signed the measure into law on April 15.

The short-term legislation also extends unemployment benefits through June 2 and COBRA health insurance subsidies for the unemployed through the end of May. The bill also includes a provision to block scheduled cuts in Medicare payments to doctors.

Before adjourning for its spring recess last month, Congress failed to extend the NFIP, resulting in the program’s expiration on March 28. In the interim, no flood insurance policies could be issued or renewed and existing policyholders were unable to increase their coverage.

Established in 1968, the NFIP offers affordable flood insurance to home owners and businesses in flood plains and other low-lying areas that otherwise might not be able to obtain coverage.

More than 20,000 communities nationwide participate in the insurance program, which currently covers about 5.5 million policyholders.

NAHB will continue to work with members of Congress to craft a bipartisan measure that will provide for a long-term extension of the NFIP and ensure that federally-backed flood insurance remains available and affordable.

Home Star Bill Recognizes HBI as Certified Workforce Program
The House Energy and Commerce Committee this week approved H.R. 5019, the Home Star Energy Retrofit Act of 2010. In a victory for NAHB, the legislation, also known as “Home Star,” recognizes the Home Builders Institute (HBI) as a certified workforce program. The legislation could provide up to $6 billion in rebates to home owners who hire contractors to install new heating and air conditioning units, replace old windows and water heaters and make other energy-efficient upgrades.

NAHB economists estimate that every $1 billion in remodeling and home improvement activity generates 11,000 jobs, $527 million in wages and salaries, and $300 million in business income — making these incentives a boost for the economy as well as energy efficiency.

Prior to the vote by the House panel, NAHB sent a letter to the bill’s sponsor, Rep. Peter Welch (D-Vt.), stating that inclusion of the language to ensure that the HBI workforce program is provided a path to approval by the Department of Energy is extremely important for the bulk of the residential construction and remodeling industry. “We believe the inclusion of the HBI program will improve access to the Home Star program for highly-trained and qualified workers that will transfer career-path skills in weatherization into jobs that will ultimately outlast the short-term incentives of a Home Star program,” the letter said.

The program, which has the strong backing of the Obama Administration, would run for two years and be administered by the Energy Department. It is uncertain when the bill will come to the House floor for a vote.

 

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