The report, titled “A Responsible Market for Housing Finance: A Progressive Plan to Reform the U.S. Secondary Market for Residential Mortgages,” recommends developing a new housing finance system that ensures funds for mortgages will be available every day and in every community; is structured to prevent the boom and bust cycles that lead to our current economic problems; provides transparency and standardization so that consumers, investors and regulators understand the mortgage products being offered and can assess their risk; ensures access to reasonably priced financing for both homeownership and rental housing; and protects the consumer against predatory practices.
Included in these principles are three specific goals: preserving the availability of 30-year fixed-rate mortgages; rebalancing U.S. housing policy so that private markets are the primary source of decent affordable rental housing, with public support where deep subsidy is needed; and ensuring that a broad array of large and small mortgage lenders have access to secondary market finance.
The report calls for replacing the current system with one that will provide explicit government support for a standard type of mortgage product. Under this new system, the federal government will provide guarantees through private entities, called chartered mortgage institutions (CMI), to investors in a standardized mortgage backed security (MBS). This guarantee will be fully paid for by fees on the MBS and will only come into play when the capital and other resources of the CMI are depleted.
To meet market needs the private sector is unlikely to address, such as mortgage credit for underserved borrowers and communities and for small multifamily loans, the CAP proposal would place a fee on all mortgage backed securities, both those guaranteed by the CMIs and those developed and sold without any government backing.
This fee would be used to capitalize a Market Access Fund (MAF) to provide credit enhancements and research and development funding to support innovative solutions to better serve underserved markets. The fee would also be used to provide an ongoing stream of revenue for the NHTF and the Capital Magnet Fund (CMF), a Department of Treasury-run fund that provides grants to community development financial institutions and nonprofits for lower income housing and related activities. Both the NHTF and the CMF were created in the Housing and Economic Recovery Act of 2008 and both were to be funded from contributions from Fannie Mae and Freddie Mac.
The CAP report estimates that, after a ramp-up period, this fee could generate $4 billion for every $1 trillion of securities issued each year. The report does not specify what portion of this fee would be used for the MAF, the NHTF or the CMF.
A copy of the report can be found at: http://www.americanprogress.org/issues/2011/01/pdf/responsiblemarketforhousingfinance.pdf