WASHINGTON, DC—In weighing housing finance reform, it's important not to recognize the differences between single-family and multifamily and to not paint in broad-brush strokes, industry associations testified before Congress on Thursday. Speaking before the House Financial Services Subcommittee on Housing and Insurance, chairman Robert DeWitt of the National Multifamily Housing Council told lawmakers that reform needs to provide “consistent access to debt capital across geographies, markets and product types if we are to meet the current and future demand for rental housing in America.”

Representing both the NMHC and the National Apartment Association, DeWitt cited six key principles that Congress needs to consider. Among these are the following:

A reformed housing finance system must maintain “an explicit, paid-for federal guarantee” for multifamily-backed mortgage securities available in all markets at all times;
There are inherent differences between the single-family and multifamily sectors, both in how they operate and how they have performed;
Private capital should dominate the multifamily sector “wherever and whenever possible,” and reform should ensure continued private-sector participation;
Congress should protect taxpayers by continuing risk sharing and private capital participation.
Lawmakers must retain the successful components of the existing multifamily programs in whatever succeeds them; and
Congress should avoid market disruptions during the transition to a new system by clearly defining the government's role in a reformed system and the timeline for transition.

“The bursting of the single-family housing bubble exposed serious flaws in our nation's housing finance system,” DeWitt said in prepared testimony. “Yet those shortcomings were confined to the single-family residential sector.” Unfortunately, he added, the losses experienced in the GSEs' single-family divisions “have overshadowed the strong mortgage financing and credit performance of the multifamily programs.”

He noted that the GSEs' multifamily programs “were not part of the meltdown, and have generated over $31 billion in net profits since the two firms were placed into conservatorship.” He added that this profitability hasn't occurred “at the expense of market discipline, quality underwriting or taxpayer exposure.”

Also testifying at Thursday's hearing was David H. Stevens, president and CEO of the Mortgage Bankers Association, who touted the association's own proposal for the secondary mortgage market, issued this past spring. As reported by GlobeSt.com in April, the plan would replace the implied government guarantee of Fannie Mae and Freddie Mac with an explicit guarantee at the MBS level only, supported by a newly instituted Mortgage Insurance Fund with appropriately priced premiums. It would also bring an element of competition into the picture with multiple guarantors that would compete on operations and systems development, customer service, product parameters and innovation, and pricing and execution.

“Nine years have passed since the GSEs were placed in conservatorship, and yet their long-term status remains unresolved,” Stevens testified Thursday. “Extended conservatorship is economically and politically unsustainable, and it is an unacceptable long-term outcome. Without comprehensive reform, borrowers, taxpayers and lenders will all face increased risk and uncertainty about the future.

Stevens told lawmakers “the time to act on comprehensive legislative reform is now. Despite the positive steps FHFA has taken as conservator, only Congress can provide the legitimacy and public confidence needed for long-term stability in both the primary and secondary mortgage markets.”

Instant Insights /

NMHC, NAA Urge 'Consistent Access' to Debt

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