THE VOICE OF HOUSING IN WASHINGTON BLOG

Since June 1944, following enactment of the Servicemen’s Readjustment Act – more commonly known as the GI Bill of Rights - America’s Veterans have played a unique role in establishment of our Nation’s middle class and more specifically in the development of the Nation’s modern housing economy. But for the GI Bill, which among other things provided guarantees for home loans for WWII Veterans, the dream of homeownership would have continued to elude most average Americans.

Here’s something housing advocates around the country may not be focused on: the connection between the debate over mark-to-market accounting and their own funding needs. With the economic downturn, housing nonprofits are seeing revenues shrink dramatically. One of the last reliable sources is the Affordable Housing Fund (AHP) of the Federal Home Loan Banks. Now those dollars are threatened too.

At least one U.S. Senator seems to think so. According to U.S. Senator John Ensign (R-NV) appearing this morning on CNBC’s Squawk Box, Senate Republicans are considering adding to the President’s stimulus plan a provision that would enable current homeowners to refinance their current loans into new 30-year fixed rate mortgages with interest rates equal to 4%.

Delinquency rates on residential mortgages hover around 7%. It is widely expected that 4 million to 5 million mortgages will enter foreclosure over the next two years if nothing is done. In response, states and large servicers are enacting widespread foreclosure moratoriums to force lenders to negotiate with borrowers more aggressively.

In a recently published editorial in the American Banker entitled "Rewarding Debt Limits Could Revive Housing," I argue that the Department of Housing and Urban Development (HUD) could - and indeed should - play a key role in driving the housing recovery by promoting lending solutions that simultaneously encourage first time home ownership while rewarding borrower responsibility. The Homeowners Responsible Rewards Program is but one of many such options. Unfortunately, this important discussion has been largely preempted by the debate surrounding how to solve the current crisis.

Outgoing Treasury Secretary Paulson has suggested that Congress should replace Fannie Mae and Freddie Mac with one or two private-sector entities. Those entities would purchase and securitize mortgages with a credit guarantee backed by the federal government, and would not have investment portfolios.