Posted by Jill Norcross on June 15, 2010 at 14:47:26:
CD Digest
by Tom Harman
Bair Questions Whether Federal Policy Provides Proper Affordable Housing Push
Federal Deposit Insurance Corp. (FDIC) Chairwoman Sheila Bair questions whether federal housing policy has provided enough emphasis on affordable housing when compared to providing tax breaks for homeowners.
The comments were made as part of suggestions she is offering to restore health to the mortgage industry and housing markets.
Bair, speaking June 7 to an audience at the Housing Association of Nonprofit Developers (HAND) annual meeting, has been lauded during her time as FDIC chair for being among the first to pursue settlement modifications for at-risk homeowners. She says the need to protect consumers, restart securitization efforts in banking and to re-examine federal housing policy are needed to help end a housing crisis that she says is ongoing.
Bair says the nation needs to take a long look at the full range of housing policies and programs in order to ensure they help the most for the longest period of time. She posed the question of whether federal policy is placing the proper emphasis on increase availability of quality affordable rental housing as opposed to that for homeowners.
"It is estimated that when you add up the mortgage interest deduction, local property tax deductions, and exclusions on capital gains realized on the sale of owner-occupied housing, the taxpayer subsidies for homeowners are about three times the size of all rental subsidies and tax incentives combined," Bair says.
She says the federal homeowners' subsidy may have pushed prices higher over time, making affordability harder for the groups policymakers are trying to serve. "I think we need a better balance," she says.
"Sustainable homeownership is a worthy national goal. But it should not be pursued to excess when there are other, equally worthy solutions that help meet the needs of people for whom homeownership might not be the wrong answer."
Bair prefaced her suggestions by saying she didn't have all the answers, but did make two other ideas on how to improve the mortgage industry. First, she says, consumers must be educated and protected.
"Somewhere along the line, the industry forgot that the ultimate purpose of mortgage finance is to meet the credit needs of the American people,"
she says. Consumers want simpler mortgages they can understand and meet, otherwise, they are increasingly likely to default.
And second, she says providing for improved securitization of conforming and nonconforming loans is necessary. FDIC, she says, will reform securitization because it is writing rules to govern how it handles securitized assets in case of failed bank receivership. "Under our proposal, bank securitization deals would need to meet higher standards for underwriting, disclosure, deal structure, compensation and risk-retention in order to qualify for sale treatment," she says.
The planned reforms complement efforts in the Security Exchange Commission and in Congress. "I believe that these reforms will help restore confidence in these markets, but in a way that promotes long-term sustainable home ownership," she says. -- Thomas Harman
Info: HAND Executive Director Jill Norcross, 703/587-4098