The Senate Committee on Banking, Housing and Urban Affairs held a hearing, “State of the Housing Market: Removing Barriers to Economic Recovery,” on February 9. The witnesses, Mark Zandi of Moody’s Economy.com, Christopher Mayer of Columbia Business School, and Phillip Swagel of the University of Maryland School of Public Policy, commented on the February 9 mortgage settlement between private banks and state and local authorities, ideas proposed in a recent white paper issued by the Federal Reserve, and the President’s new housing plan (see Memo, 2/3).
There was broad support among witnesses and Senators for efforts to convert a portion of the real estate-owned (REO) housing stock held by government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and the Federal Housing Administration into rental properties.
“Everyone agrees it is a slam-dunk,” said Mr. Zandi with respect to a REO-to-rental program. However, he said that efforts to set up the program should be moving at a faster pace. Senator Jack Reed (R-RI) noted that he has been urging action on the REO housing stock for more than two years.
The President announced a pilot REO-to-rental program in his housing plan, but details about the program are limited at this point.
Dr. Mayer said that the GSEs, through their conservator the Federal Housing Finance Agency, have not done enough to stabilize housing markets, and argued for a renewed effort for the GSEs to be wound down in their current form. He also proposed ideas on how to stabilize the housing market.
“Legislation should also mandate other steps to move towards attracting private capital into the mortgage market, including ideas such as trial programs for the sale of NPLs to third party servicers, the sale of REO to private investors, and provisions that allow the GSEs to provide reasonable amounts of leverage for owners of single family home portfolios in the rental business on a temporary basis,” said Dr. Mayer in his written testimony.
Senator Bob Corker (R-TN) suggested that states hardest hit by the foreclosure crisis bear the cost of principal write downs, as in his view, “most people in other states played by the rules.” Mr. Zandi disagreed with him, saying that the crisis was widespread, and that federal action must be taken to improve the nation’s economy, as the entire nation has felt the effect of the foreclosure crisis and the recession.
An archived webcast of the hearing and all witness testimony are available at: http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=6677a0f8-3fd3-4faf-a748-c5a3211df0df
The Federal Reserve’s White Paper is available at: http://federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf
Information on the REO-to-rental pilot is available at: www.fhfa.gov/webfiles/23196/REO2112F.pdf