What Would A Responsible Homeownership Policy Look Like?

Despite the recent performance of the economy and the role of the housing bubble, we know that families will continue to aspire to own their own homes. They will do so for a variety of good reasons. For many, homeownership represents a path to stability, community, and long-term wealth building. But how to we rebuild our housing policy in ways that are constructive and supportive of economic stability rather than economic armagedon.

My perspective on this questions is presented in this recently published peice in Shelterforce magazine. The key is a new policy regime and regulatory framework that mitigates the inherent risks of the process. If done right — by matching buyers with appropriate mortgage products in a transparent and fair manner — we can make homeownership work for a broad range of American families, even those with low incomes and few resources.

Here is a sample of the argument:

The search for a responsible housing policy is likely to take us back to the future. Two of the greatest innovations in American finance are the 30-year fixed mortgage and the creation of mortgage markets with a high degree of liquidity. Fannie Mae and Freddie Mac were initially created to ensure that banks had access to sufficient capital to lend to home buyers. Their subsequent overreach has left them under government conservatorship. They will need to be replaced or reinvented to serve their original purpose. On his way out the door, former Treasury Secretary Hank Paulson proposed replacing Fannie and Freddie with highly regulated utilities. In exchange for a fee, these firms would purchase and bundle mortgages that would be backed by the federal government in case of default. Like other utilities, they would be governed by a public commission that would set the rules for operation, including establishing a fee structure to limit returns and standards to ensure only creditworthy mortgages are guaranteed…

Consumer protections should be at the heart of the system and not an afterthought. Making the transition from a rule-based regulatory regime to a principles-based framework will have real ramifications for developing a sustainable homeownership policy. If this means the housing finance system becomes a low margin business, with limited profit opportunities, so be it. In the near future, we should expect that the housing finance system provides fewer incentives for “innovation” but delivers more “value.” There is no shame in getting back to basics and relying heavily on the old standard 30-year fixed FHA mortgage…

Shoring up the housing finance system is a necessary step, but so is the recognition that homeownership is not for everyone. Accordingly, we need to ensure that there is a sufficient stock of affordable rental housing and consider alternative ownership models, such as shared equity homeownership. In exchange for a public subsidy, families give up a portion of the home appreciation. This makes buying the home easier for the family and preserves affordability for the community over the long term. At the same time, the owner is placed within a community-based support system, such as a land trust or limited equity cooperative, which can mitigate the risks of homeownership. Shared equity housing has the potential to provide an attractive balance of affordability, access, and the opportunity to build up home equity. It has been modeled in a number of the communities across the country and is ready for prime time…