“NAHB believes that the federal backstop must be a permanent fixture in order to ensure a consistent supply of mortgage liquidity, as well as to allow rapid and effective responses to market dislocations and crises. It has been clearly demonstrated that the private sector, unaided, is not capable of consistently fulfilling this role,” said Robson.

“Fannie Mae and Freddie Mac should be recast, retaining federal backing but limited primarily to providing credit enhancement of mortgage-backed securities,” he added. “Limited portfolio capacity should be permitted to accommodate mortgages and housing-related investments that do not have a secondary market outlet, although Fannie Mae and Freddie Mac should have the flexibility to support the mortgage market in times of crisis, such as the conditions we are currently experiencing.”

NAHB outlined several principles for federal government support and structure of the housing finance system:

• The federal government must provide a permanent backstop to the housing finance system in order to ensure available and affordable mortgage credit in all geographic areas and under all economic circumstances.
  
• Secondary market entities (Fannie Mae, Freddie Mac and the Federal Home Loan Banks) should retain sufficient federal backing to allow them to reduce mortgage rates and fees.
  
• Fannie Mae and Freddie Mac should focus on the core business of securitizing mortgages and limited portfolio capacity should be permitted to accommodate mortgage and housing-related investments that do not have a secondary market outlet, including acquisition, development and construction (AD&C) loans.
  
• Fannie Mae and Freddie Mac must have the authority and ability to provide reliable liquidity to the mortgage markets during times of stress — which requires flexibility in terms of portfolio composition and size over the mortgage credit cycle — or with changing conditions in the secondary mortgage markets.
  
• Secondary market entities must be adequately capitalized.
  
• The secondary market must have a private sector component with risk shared by participants/shareholders, with governance by a board that includes public interest, housing industry and shareholder representatives.
  
• Flexibility in pursuing new mortgage programs and products should be balanced with accountability and safety and soundness.

Robson stressed that these changes should not proceed until the current financial turmoil passes and the markets return to more normal conditions. For more information, contact Scott Meyer at 1-800-368-5242, x8144.

NAHB shared data from our AD&C case studies and OCC expressed interest in our view of mortgage credit availability. NAHB raised the idea of not requiring appraisals on refinances and OCC seemed willing to discuss the concept. OCC ended the meeting by saying they wanted to keep the lines of communication open. For more information, contact David Ledford at x8265. [return to top]