On Jan. 20, 2017, four military aides will accompany the sitting president and vice president (and their successors) on a one-way motorcade to the U.S. Capitol. After the Oath of Office has been administered, a seamless handover of military power will occur, and the combined military command will report to President Donald Trump. Americans can be comforted by the near-perfect transfer of the commander-in-chief role from the outgoing, to the incoming president.
To the detriment of the nation’s homebuyers, no such unified and detailed plan involving our nation’s housing finance system currently exists. The Executive Office of the President should create a new office, aptly named the Office of National Housing Policy, to be tasked with developing a unified and collaborative approach to our nation’s housing policy, including homeownership and subsidized rental housing.
The prevailing view within the mortgage industry is there is little collaboration within the federal government in relation to housing policy and rules promulgation.
Despite the government controlling 90% of the residential mortgage market (and almost the entire subsidized rental market), the next president will inherit a tangled web of agencies that provide market liquidity, offer mortgage insurance and ensure regulatory oversight.
Roles and responsibilities of the current, disparate housing-related agencies are distinct and exist in silo-based structures. No unified command in our housing sector exists; to the contrary, one portion of the government heaps new rules onto the lending community, while others wait in the wings ready to pounce and prove their enforcement prowess.
To address competitive overlap amongst government entities this country could use a Housing Policy Czar — a person (and office) charged with developing, disseminating and enforcing a coordinated, collaborative housing policy and finance strategy that considers the capabilities and strengths of each independent agency.
The creation of policy experts known as “czars” with a singular focus began as far back as the Woodrow Wilson administration, but was greatly expanded during World War II under President Franklin D. Roosevelt (and subsequent presidents).
The ever-expanding regulatory burden has resulted in notable market contraction — with fewer small, community-based banks and fewer borrowers served — a predictable outcome. The government’s fragmented approach to regulatory reform and consumer protection in the aftermath of the housing crisis has today resulted in homebuyers with higher credit scores, who have higher income and are disproportionately white.
Rather than a well-synchronized plan for active warfare, the mortgage market battle plan offers a variety of competing, overlapping entities. Perhaps developing a well-coordinated “plan of attack” could start with the obvious intersection between the Federal Housing Administration and the government-sponsored enterprises.
At some level, the GSEs and FHA compete for the same customers with the ultimate risk either borne through Ginnie Mae, Fannie Mae or Freddie Mac, and at some level the private mortgage insurers. Yet, alignment of the capital standards, which would appropriately establish more appropriate pricing levels for the distinct entities to best serve their target consumer markets, doesn’t occur.
Of primary concern is to determine the future role of the GSEs since conservatorship is not a permanent state. Of equal importance would be a review of the impact of regulatory compliance on mortgage lenders which has pushed the cost of originating a mortgage loan in 2015 to $7,046 (up from $4,500 in 2008).
Of equal concern is the use of the False Claim Act by the Justice Department to punish FHA lenders for what were often administrative errors. The overreach of the FCA by the Department of Justice has driven FHA’s top producing lenders such as JPMorgan Chase, Bank of America and Citi Mortgage largely out of the nation’s flagship home buying program.
A prudent reassessment of Dodd-Frank, the future of the GSEs, fair housing, increasing homeownership rates and addressing rental housing demand all warrant a comprehensive strategy and definitive performance metrics. An independent ombudsman-type approach to housing policy, specifically denationalizing housing finance and promoting risk-sharing with the private sector, is needed and long overdue.
The objective of this approach would be to monitor systemic risk, reduce uncertainty, end competitive overlap and eliminate the duplication of efforts among agencies. The existing disjointed structure is antiquated and has not worked well.
Brian Montgomery is vice chairman of business advisory firm The Collingwood Group.