WASHINGTON, DC - After touting the virtues of homeownership for decades, the federal government finally took a turn toward a more balanced housing policy this winter when the Obama Administration released its 32-page report to Congress on "Reforming America's Housing Finance Market."
Source: Andre Shashaty
The administration is engaging Congress in a political dance that will probably end with Fannie Mae and Freddie Mac closing their doors in several years, and the federal government limiting its role to that of a guarantor of pools of home mortgages to help provide liquidity for a private secondary market.
The impact of the changes could be profound. Most analysts agree that home loans with fixed interest rates and long terms will be harder to get and more expensive. That will mean a reduction in the number of households that can buy homes and an increase in the number who must rent.
The Obama report tilts the government's playing field towards rental housing. The proposal applauds Fannie and Freddie for providing financing to "the middle of the rental market," and says it is "critical to find ways to maintain funding to this segment of the market."
The report also endorses continuation of strong multifamily programs within the Federal Housing Administration (FHA), which as been experience a boom in its multifamily business since the collapse of the commercial mortgage backed securities market.
It goes on to suggest some possible "reforms," such as risk-sharing with private lenders, to reduce the risk to FHA and the taxpayer, and programs dedicated to "hard-to-reach property segments, including the smaller properties."
It remains to be seen whether the Administration is just recycling old ideas or whether it really intends to make significant new efforts in these areas. The Mortgage Bankers Association of America and many other policy analysts believe FHA needs to be more autonomous to be more effective at innovation. One long-standing proposal is to make it a government-owned corporation, free from the staffing and budgeting constraints of the federal government.
The report comes at an opportune time for apartment owners and developers. The decline of homeownership as an appealing investment and the increasing desire of twenty-somethings for urban living is expected to increase demand for apartments. The lack of new construction during the recession could mean that the demand is going to exceed supply for some years.
If the Obama Administration makes good on its proposals to continue a strong government role in financing apartments, it will go a long way to reviving construction. It will also help redirect residential real estate development in a far more sustainable direction compared to the explosion of sprawling suburban single-family construction that lead up to the home mortgage foreclosure crisis.
Andre Shashaty is founder and president of the Partnership for Sustainable Communities, a nonprofit information and research organizations based in San Rafael, CA PSC publishes Sustainable Community Magazine. For information go to www.P4SC.org.
Shashaty was editor and publisher of Affordable Housing Finance and Apartment Finance Today magazines and their related conferences, and was editor and publisher of the magazines and president of their parent company. Shashaty founded the Campaign for Affordable Housing, a nonprofit group organized to promote greater public acceptance of affordable housing. His work has been recognized with national awards from American Business Media, The Association of Business Press Editors and the Western Publishers Association. Shashaty received the 2005 Robert J. Corletta Award for Achievement in Affordable Housing from the Neighborhood Development Collaborative and the National Association of Home Builders.