Wall Street Journal: Hensarling’s GSE reform is the wrong move

Wall Street Journal, September 12, 2018: Hensarling’s GSE reform is the wrong move 

House Financial Services Committee Chairman Jeb Hensarling proposes GSE reform, but doesn’t mention the most important challenge facing our housing policy makers—the crisis of affordability (“Fannie and Freddie, Make Way for Ginnie Mae,” op-ed, Sep. 5). He promises to enhance competition and reduce the risk of institutions “too big to fail.”

His proposed compromise abolishes the affordable-housing goals, which have made homeownership possible for millions of creditworthy Americans since they were mandated in 1992. Almost 40% of renters are rent burdened. The African-American homeownership rate is near a 50-year low. Why would Congress support a plan that places the economic ladder of homeownership even further out of reach?

Any GSE reform that abolishes or weakens affordable-housing goals will be disastrous for millennials. It will extract a lifetime of rent from families who currently qualify for mortgages. Meanwhile, millions of lower-income Americans are paying 70% or more of their incomes for shelter. In 2017 homelessness rose in America for the first time since 2010. The GSEs didn’t cause the 2008 financial crisis. They aren’t costing taxpayers money and are profitable. But the U.S. Treasury has absorbed those profits when they should be reinvested in homeownership opportunities.

Jesse Van Tol, CEO of the National Community Reinvestment Coalition says,

“With all due respect, Rep. Hensarling’s criticism of low-down-payment loans is wrong. From 2007 to 2010, low-down-payment-loan (0% to 3.5%, VA and FHA) delinquency rates only increased from 6.49% to 7.96%, while large-down-payment subprime loans at Fannie and Freddie rose from 13.77% to 25.69%. The larger-down-payment loans went bad because Fannie lowered minimum FICO scores from 650 (subprime) to 530 and introduced stated-income loans (liar loans), whereby borrowers’ incomes were no longer verified. Low-down-payment loans are the first step of the ladder into homeownership, and we are having enough problems getting young couples into the market as it is. In my opinion, low-down-payment loans are safer because incomes of couples increase rapidly when they are young. The risk to the lender is: Will they pay (FICO score) and can they pay (income-qualifying formula)?

The income-qualifying formula requires that the monthly income be at least three times their mortgage payment, including taxes and insurance. Lenders can’t see the increased quality of their low-down-payment loan, but I certainly do—when the young couple’s income leaps after they buy their first home and they call me to buy a larger one.”

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