Posted on Tuesday, March 15, 2011
On Wednesday a House subcommittee held a hearing to examine private sector involvement in the housing market, in order to determine if the high amount of government participation is a hindrance to the sector’s recovery.
Rep. Judy Biggert, chair of the subcommittee, said, “Government intervention in the housing market reached record levels during the financial crisis, resulting in a cost to taxpayers of hundreds of billions of dollars. Our aim is to explore how the government may be driving private capital away from housing while impeding market recovery. We’ll also examine options for promoting long-term stability and removing barriers to private investment in the housing market.”
The hearing’s intent was to review the state of the housing finance market, benefits of establishing a housing finance market in which private capital is the primary source of financing, and the impediments that are preventing private capital in the mortgage market. Currently, the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac have a combined market share above 90 percent of the mortgage market.
The hearing included testimonies by FHA commissioner David Stevens; Ted Tozer, president of Ginnie Mae; Phyllis Caldwell, chief of the Treasury’s Homeownership Preservation Office; Douglas Hotlz-Eakin, president of the American Action Forum; Michael Farrell, president and CEO of Annaly Capital Management; Faith Schwartz, executive director of HOPE Now; and Julia Gordon, senior policy counsel for the Center for Responsible Lending.
Stevens stated in his testimony that since 2008, FHA support of the development or refinancing of rental units has more than tripled.
“In 2010 alone, FHA supported the development or refinancing of more than 150,000 rental units with a total dollar volume of nearly $11 billion – almost four times the level of two years earlier, and now almost 25 percent of the multifamily market,” he said.
And while Stevens stresses the fact that FHA involvement in the sector has been beneficial and necessary, he says it is also necessary for private capital to play a role in the housing market for the market to be healthy.
“Ultimately … we do not want FHA to have such a substantial share of the market – and we are very aware of the risks this elevated role poses,” he said.
Ted Tozer said in his testimony that the current level of participation of the company in the market is unsustainable.
“The extraordinary growth in volume is challenging for our organization; we approved 43 new issuers last year. Prior to the present economic crisis, we approved five or six new issuers per year,” he said.
President Obama’s 2012 budget proposal allows for increases in salary and administrative expenses for Ginnie Mae, in order to help the company bring more functions in-house.
In her testimony, Phyllis Caldwell noted the important role that the government has played in helping to support the housing market in dire times.
“It is important to remember where the housing market stood just over two years ago,” she said.
According to Caldwell, the industry did not have the capacity to effectively respond to the foreclosure crisis. Servicers were placed in a bind because of their obligation to both homeowners and investors, and the complexity of the situation left many servicers at a loss for what to do with a sudden influx of defaults.
Caldwell’s testimony outlines the various modification programs and initiatives that have been developed since the crisis began, and encourages support of the efforts. Staying innovative is key, she said.
Faith Schwartz of HOPE Now agrees that innovation has inspired the unprecedented 1.76 million permanent modifications completed in 2010. She also stresses the important of bringing private capital back into the playing field.
“Public and private intervention to foreclosure has contributed to record numbers of borrowers seeking help to avoid foreclosure and has assisted millions of borrowers in finding ways to remain in their homes,” she said in her testimony. “These efforts have also contributed to longer timelines and higher costs associated with the foreclosure process.”
She continued, “I hope that the information shared today will assist you as you think about the important issue of bringing private capital back to the market.”
By: Joy Leopold, DSNEWS