Washington May Finally Take Up Mortgage Reform

Agenda-Setting Financial Insight.
Dec. 24 2012 3:41 PM

Washington May Finally Take Up Mortgage Reform

Home prices and existing home sales have risen steadily this year while inventory fell to a 10-year low

Photo by Tim Boyle/Getty Images

America’s lawmakers may finally take reforming housing finance seriously in 2013. Assuming Congress settles the deficit debate, sorting out the government’s role in funding home loans should be its next stop. And a number of obstacles are dissolving.

U.S. taxpayers are on the hook for at least 90 percent of the nation’s mortgages through Fannie Mae, Freddie Mac and the Federal Housing Administration – a dramatic increase since 2007. But Frannie’s guarantee fees are now so low that private lenders cannot compete to wrest back market share.


Increasing the fee is the simplest policy fix. But that doesn’t wholly address the future role for Fannie and Freddie, which between them needed $188 billion of taxpayer aid to stay afloat. The general consensus is that they should be wound down – even some Democrats and the Treasury are on board.

But there’s no plan of action because the environment seemed too tricky. That’s now changing. The housing market is recovering. Home prices and existing home sales have risen steadily this year while inventory fell to a 10-year low.

Some regulatory certainty is coming as well. The Consumer Financial Protection Bureau should finalize what constitutes a qualified mortgage in January. This will exempt lenders from certain lawsuits. That will then enable the Federal Reserve and five other watchdogs to define the meaning of a “qualified residential mortgage” that will set standards – such as how much equity a borrower has in a property – for prime loans that lenders won’t need to retain a chunk of. New documentation standards will also improve transparency.

So banks and investors should feel comfortable taking on more mortgage risk. Meanwhile, Congress now has an advocate who wants mortgage reform front and center: incoming House Financial Services Chairman Jeb Hensarling.

Some hurdles remain. Industry lobbyists will make a stink about reform. Lawmakers can still make dumb decisions. And any new financing framework is likely to be implemented over several years to avoid a crash. But if lawmakers don’t realize that 2013 is a prime time to take up housing reform, it’s hard to imagine when they ever will.

Read more at Reuters Breakingviews.


Medical Examiner

Here’s Where We Stand With Ebola

Even experienced international disaster responders are shocked at how bad it’s gotten.

It’s Not Easy for Me, but I Stand With Emma Watson on Women’s Rights

Divestment Is Fine but Mostly Symbolic. There’s a Better Way for Universities to Fight Climate Change.

Subprime Loans Are Back

And believe it or not, that’s a good thing.

It Is Very Stupid to Compare Hope Solo to Ray Rice

Building a Better Workplace

In Defense of HR

Startups and small businesses shouldn’t skip over a human resources department.

Why Are Lighter-Skinned Latinos and Asians More Likely to Vote Republican?

How Ted Cruz and Scott Brown Misunderstand What It Means to Be an American Citizen

  News & Politics
Sept. 22 2014 6:30 PM What Does It Mean to Be an American? Ted Cruz and Scott Brown think it’s about ideology. It’s really about culture.
Business Insider
Sept. 23 2014 10:03 AM Watch Steve Jobs Tell Michael Dell, "We're Coming After You"
The Vault
Sept. 23 2014 10:24 AM How Bad Are Your Drinking Habits? An 18th-Century Temperance Thermometer Has the Verdict
  Double X
The XX Factor
Sept. 22 2014 7:43 PM Emma Watson Threatened With Nude Photo Leak for Speaking Out About Women's Equality
  Slate Plus
Slate Plus
Sept. 22 2014 1:52 PM Tell Us What You Think About Slate Plus Help us improve our new membership program.
Brow Beat
Sept. 23 2014 9:42 AM Listen to the Surprising New Single From Kendrick Lamar
Future Tense
Sept. 22 2014 6:27 PM Should We All Be Learning How to Type in Virtual Reality?
  Health & Science
Bad Astronomy
Sept. 23 2014 7:00 AM I Stand With Emma Watson
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.