Ohio needs a new affordable-mortgage funding system for those who don't yet own.
Ohio’s current housing market has been deemed red hot, record setting, and in the case of Columbus, one of the nation’s five healthiest. Compared with a few short years ago, it’s encouraging to see homes—most families’ primary asset—rising in value.
The situation is not so great, however, for individuals who haven’t yet bought in, and for renters who owe the landlord more than they used to. Limited housing stock is rapidly pricing low- and moderate-income people out of the market—and in the case of some local seniors—out of communities where they’ve lived their whole lives.
Affordable housing is a multifaceted issue. Progress often lies at the intersection of zoning changes, low-income housing tax credits, non-discrimination regulations and other policies. A key consideration is the credit available for home purchases and affordable rental-housing development and refurbishment.
The backbone of that system has long been two quasi-governmental but privately owned companies known by the folksy names Fannie Mae and Freddie Mac. Until the 2008 financial crisis, both enjoyed license to operate as a congressionally chartered duopoly, buying up and reselling affordable-housing mortgages.
For years, Fannie and Freddie leveraged their federal connection for private gain and delivered aggressive returns to shareholders and executives for decades. The housing meltdown exposed fundamental flaws in this structure and resulted in a $187 billion taxpayer-funded rescue. The two have been in temporary conservatorship ever since. The question is, what now? It’s been nine years and Congress still cannot agree on the answer.
With each passing day, the chances that taxpayers will be called on for more money increases. At the same time, lending to first-time homebuyers has tightened, and many institutions have scaled back their mortgage lending or left the business altogether.
For the sake of hard-working Ohioans of modest income, we need to find a way toward a robust affordable-mortgage market that leverages its federal ties in a more responsible manner and delivers stability through all economic cycles. To do so, we must look to institutions with a history of extremely boring success.
And I do mean boring. Using your federal ties to yield aggressive shareholder returns on razor thin capital gets the adrenaline pumping, but it’s not the right model for the affordable housing mission.
Nor can the new structure be wholly government-run. The total mortgage holdings of Fannie Mae and Freddie Mac on the eve of the crisis exceeded $5 trillion. By comparison, the entire federal budget is less than $4 trillion.
Simply put, taxpayers alone cannot shoulder the entire risk of backstopping the market. Private investment is a must.
Fortunately, there are models for engaging private capital in a way that breeds reliable, conservative, long-term decision-making: public utilities. These are the electricity, water and gas companies, among others, whose services are considered vital necessities. Private capital fuels the system, but the regulatory oversight and the nature of the investment—patient and dividend-focused—tends to keep them out of the limelight.
Also informative is our very stable deposit banking system, the savings and checking accounts available from thousands of competing banks, which the vast majority of Americans know and trust. Since the Great Depression, these accounts have been backed by the Federal Deposit Insurance Corporation (FDIC). It combines operations oversight with a fee charged to private banks for insurance reserves, paid out to their customers if the bank fails.
These are models on which a new affordable-mortgage funding system can be built: more competing private entities, strict regulatory oversight, and privately funded insurance against catastrophe. The Mortgage Bankers Association recently released a report fleshing out such a plan. It provides the outlines for a stable, liquid market with room for Congress to color in to their liking. If done right with proper private capital to buffer the taxpayer, the reformed secondary mortgage market, including newer versions of Fannie Mae and Freddie Mac, will provide the best possible outcome for the future of mortgage finance in America.
Now we just need the political will to advance. If we can find it, we’ll soon have the best of both worlds—a hot housing market that’s great for Ohio’s homeowners and a welcome mat for the many thousands more who would like to live that American dream.
Bill’s mortgage banking career began in 1986 as a residential loan officer. In 1994 Mr. Cosgrove joined Union Home Mortgage Corp. and in 1998 was named President. Mr. Cosgrove purchased and became 100 percent stockholder of the company in 1999. The company has grown from 58 million to over 1 billion dollars of loan production during Bill’s leadership of the company.