housing

MID: Witnesses Say No Cuts Now

      On October 6, 2011, the Senate Finance Committee held another in a series of hearings on tax reform, this time focusing on housing incentives. Five witnesses testified from a variety of perspectives, but they were unanimous on one point: Now is not the time to make any changes to the mortgage interest deduction (MID). Witnesses included representatives from the Pulte Corporation (housing construction), the National Association of Home Builders (NAHB), retired Senator John Breaux (D-LA) and two academic economists.

      Senator Breaux advocated the approach that had been taken by the 2005 Bush Tax Reform Panel, recommending that the MID be gradually converted from a deduction to a 15% tax credit. Pulte and NAHB delivered the same message that NAR provided in a written statement: housing changes should be retained intact. Both economists believed that the MID should be reduced at some future time, but not presently. All five witnesses emphasized that the market is far too fragile and that any changes to housing incentives, especially MID, would cause greater instability and price declines.

      Almost all of the discussion during the Q&A period was about MID. A few references were made to second homes, but the witnesses emphasized that changes to MID for second homes would have serious jobs and revenue impact on second homes communities. NAR and NAHB noted the importance of the $250,000/$500,000 exclusion in written comments, but no Senator made any inquiry related to it. 

Read NAR's press release following the hearing and NAR's written submission.

       For the second time in as many years, St. Tammany Parish voters will decide a referendum that seeks to double the homestead exemption for veterans who are disabled from their military service.

       Last November, voters in St. Tammany and statewide approved a constitutional amendment that gave parishes the option to hold local elections to ask voters if they want to double the homestead exemption for veterans whose service injuries render them entirely unable to work.

       The issue will come before St. Tammany Parish voters again Oct. 22; passage this time would make it the rule in St. Tammany.

       In the metro area, voters in St. Charles Parish have approved the increased homestead exemption for disabled veterans. Like St. Tammany, voters in Jefferson, St. John the Baptist, Plaquemines and St. Bernard parishes will decide the issue in those parishes Oct. 22.

       The St. Tammany Parish Council, at the urging of Assessor Patricia Schwarz Core and council members Marty Gould, Al Hamauei, Steve Stefancik, Reid Falconer and Gene Bellisario, approved legislation this spring to bring the issue to parish voters.

       The measure only affects veterans considered 100-percent disabled by the U.S. Department of Military Affairs due to service-related injuries. If approved, the homestead exemption for these veterans would increase from the usual $75,000, to $150,000. The benefit would extend to spouses after the disabled veterans die.

      Core, a supporter of the measure, said the tax break would affect a small portion of taxpayers and estimated it would cost the parish around $30,000 annually.

"So it won't really cost that much," she said.

       Robin Keller, a spokeswoman for the state Department of Veterans Affairs, said information on the specific number of disabled veterans in St. Tammany is confidential due to privacy laws. She said there are more than 23,000 veterans living in St. Tammany, but that the number of veterans who would be impacted by the referendum, if approved, is "significantly lower."

       The idea for the increased homestead exemption came from the Baton Rouge chapter of the Military Order of the Purple Heart, where the commander wanted to help disabled veterans and saw that Texas offered a tax break.

       Last fall, the government watchdog group Bureau of Governmental Research estimated that 2,500 veterans statewide would qualify. The BGR opposed the constitutional amendment, in part saying it was the federal government's role to provide benefits to veterans and noting that a provision in the amendment prevents local governments from replacing lost revenue through other measures.

       The Northshore Legislative Alliance, a collaboration of the St. Tammany West and East chambers of commerce and the Northshore Business Council, is set to discuss the measure on Wednesday.

       If the vote on the constitutional amendment last November is any indication, the measure is likely to find a sympathetic electorate in St. Tammany. The constitutional amendment paving the way for the local election passed here by a margin of 64 percent to 36 percent.

Click Here for the Source of the Information.

Pittsburgh and New Orleans Among Those Included

The National Association of Home Builders (NAHB) released its first NAHB/First American Improving Markets Index (IMI), a new economic index revealing metropolitan areas that have shown improvement for at least six months in three key economic areas—housing permits, employment and housing prices.

The list of metropolitan areas includes:

• Alexandria, LA
• Anchorage, AK
• Bangor, ME
• Bismarck, ND
• Casper, WY
• Fairbanks, AK
• Fayetteville, NC
• Houma, LA
• Midland, TX
• New Orleans, LA
• Pittsburgh, PA
• Waco, TX

“Despite the challenging conditions in the national economy and housing sector, there are areas throughout the country where we are seeing pockets of improvement” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. “Housing conditions are local, and do not always reflect the national picture. We created this new index to shine a light on those housing markets across the country that have stabilized and have begun to show signs of recovery.”

“By examining key indicators of home prices, employment and housing permits data, we are using a comprehensive, but conservative method in determining which markets are improving,” said NAHB Chief Economist David Crowe. “Last year at this time, there was not a single market that showed improvement using these criteria, and now we can point to 12 examples of growth.”

“It’s not surprising that many of the states represented are energy rich areas,” Crowe continued. “Those are the regions still experiencing relatively strong employment, supporting housing demand.”

The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac, and single-family housing permit growth from the U.S. Census Bureau. A metro area must see improvement in all three areas for at least six months following their respective troughs before being included on the improving markets list. NAHB uses the latest available data from these sources to generate the list of improving markets.

Please visit www.nahb.org/imi for additional data, tables and a list of 2011 future economic release dates.


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       Here’s a contrarian view for you.  Credit Suisse says the fears about housing are well overdone.  In their analysis they cite 6 different bullish factors that should help to bolster house prices in the USA:

• The government now owns or guarantees about 70% of US mortgage debt ($11.5trn), thus any knock-on impact from a fall in house prices should be much lower than in 2007-2008 and the flow of foreclosure onto the market can be managed well (recall that since April 2009, 3.1 million trial loan modifications have been made).
• Valuation is extremely cheap on all measures (price to income, price to rent, affordability index, rental yields).
• Delinquency ratios, charge-off and foreclosure rates seem to have peaked.
• Housing starts are about 1m below trend demand of housing units – based on household formation and replacement demand. The question is: What is the level of excess inventory? The number of unsold new and existing homes have fallen by 63% and 14% from the peak, respectively; if we then assume half the foreclosed property becomes vacant (i.e. half of the 2.3m homes currently foreclosed), this amounts to 2.7m homes, which should take 2 ½ to 3 years to absorb.
• Distressed sales (short-sales, foreclosures and REO sales) are less than a third of the total, after peaking at almost half in 2009.
• Housing as a proportion of GDP is now just 2.2%, compared with a long-run average of 4.5%.

Click Here for the Source of the Information.

Enough with the doom and gloom about homeownership.

      Sure, maybe there's more pain to come in the housing market. But when Time magazine starts running covers that declare "Owning a home may no longer make economic sense," it's time to say: Enough is enough. This is what "capitulation" looks like. Everyone has given up.

       After all, at the peak of the bubble five years ago, Time had a different take. "Home Sweet Home," declared its cover then, as it celebrated the boom and asked: "Will your house make you rich?"

But it's not enough just to be contrarian. So here are 10 reasons why it's good to buy a home.

1. 1. You can get a good deal. Especially if you play hardball. This is a buyer's market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We're four to five years into the biggest housing bust in modern history. And prices have come down a long way– about 30% from their peak, according to Standard & Poor's Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it's mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You'll never catch the bottom. It doesn't really matter so much in the long haul.
2. Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.
3. 
   
4. 2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What's not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won't see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.
5. 
   
6. 3. You'll save on taxes. You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you'll get a tax break on capital gains–if any–when you sell. Sure, you'll need to do your math. You'll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.
7. 
   
8. 4. It'll be yours. You can have the kitchen and bathrooms you want. You can move the walls, build an extension–zoning permitted–or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You'll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. "You can tell the ones that have been bought," said my local guide. "They've painted the front door. It's the first thing people do when they buy." It was a small sign that said something big.
9. 
   
10. 5. You'll get a better home. In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you're better off buying.
11. 
    
12. 6. It offers some inflation protection. No, it's not perfect. But studies by Professor Karl "Chip" Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That's valuable inflation insurance, especially if you're young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.
13. 
    
14. 7. It's risk capital. No, your home isn't the stock market and you shouldn't view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities–for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy–if it happens–and still managing to sleep at night.
15. 
    
16. 8. It's forced savings. If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won't. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn't a cost. You're just paying yourself by building equity. As a forced monthly saving, it's a good discipline.
17. 
    
18. 9. There is a lot to choose from. There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That's below last year's peak, but well above typical levels, and enough for about a year's worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.
19. 
    
20. 10. Sooner or later, the market will clear. Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed–either deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the "glut" simply won't matter: It's concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won't have any long-term impact on housing supply in your town.

Newly built properties can offer fewer hassles, higher efficiency, and increased customization

       As the mortgage crisis continues to inundate the market with distressed properties, today's house hunter has no shortage of cheap, foreclosed homes to pick through. But despite all those deals in the previously-owned home market, consumers shouldn't overlook the potential benefits of buying a new home. "New homes usually sell higher per square foot then resale homes," says Jack McCabe of McCabe Research & Consulting. "But their selling points, I think, are pretty strong." To help consumers better understand the advantages of new home buying, U.S. News spoke with a handful of experts and compiled a list of 9 reasons to choose a new home over a resale:

1. Customization: Many home builders allow buyers to participate in the process of designing their property, which helps create a living space specifically tailored to the consumer's tastes. New home buyers, for example, can often decide where their bathroom might go, choose their favorite type of flooring, or pick the color of the exterior paint. Buyers moving into a subdivision can sometimes even pick the lot they like best. "There is a lot of flexibility for [new home buyers] to kind of put their personal signature on the product," says Patrick Costello, president of Forty West Builders. "Those kind of things you can't do with a used house—it's just not possible."

2. Building Envelope: Building codes have mandated increasingly higher energy efficiency standards since they began to address the issue in the late 1970s, says Kevin Morrow, senior program manager for the National Association of Home Builders' green building programs. "The most recent International Energy Conservation Code came out in 2009 [and] required roughly 17 percent more efficiency than the codes of three years prior," he says. "So using that as sort of a gauge to how newer homes should perform from an efficiency standpoint compared to older homes, it's pretty clear that just as homes meet code, they are going to be more efficient."

Newly constructed homes use energy more efficiently in two ways, Morrow says. First, they tend to have a tighter-sealed building envelope that helps prevent conditioned air—cool air in the summer, warm air in the winter—from escaping. Features that create this envelope include higher-efficiency insulation, doors, and windows. "Gone are the days of the single pain window … now I think you are starting to see triple- and quadruple-paned windows," Morrow says. "These are windows that are designed to really minimize the transfer of heat either from warm to cold or vice versa, and they of course will help the building envelope."

3. Green Appliances: The more energy-efficient mechanics of the house also help reduce utility bills for new home buyers, Morrow says. Newly-constructed homes often include green systems and appliances—like high efficiency stoves, refrigerators, washing machines, water heaters, furnaces, or air conditioning units—that homes built years ago might not. "The conditioning equipment is usually considered to be one of the larger energy consumption devices, but certainly those kitchen appliances matter," Morrow says. Existing homeowners can always retrofit their property or buy higher-efficiency appliances, but doing so requires a potentially significant expense.

4. Fewer Repairs: The features of newly constructed homes should also hold up better than those of existing homes, which may have experienced years of wear and tear, says Evan Gilligan of Mandrin Homes. "People will buy [previously-owned] houses and then the carpet needs to be replaced or it needs to be repainted, or it needs new appliances, or the flooring is shot," Gilligan says. "When they buy a new home in today's market, it really is new."

5. Less Maintenance: At the same time, today's new homes are engineered specifically to minimize maintenance requirements. For example, Costello says his company uses composite products for a home's exterior trim instead of wood, which could rot or need repainting. "You buy a used house you don't know what you are getting, you might have to do a lot of maintenance," Costello says. "We are trying to look down the road and make things as easy as possible for the homeowner so they can enjoy living there and not have to be saddled with maintenance."

6. Warranty: In addition, builders often agree to take care of the repair work that becomes necessary in your newly constructed home for at least the first year. “A new home is generally fully warrantied by the builder for a minimum of a year and most of all the other components are warrantied for extended periods,” says Jack McCabe. So if your roof starts leaking or the heater breaks during the warranty period, your builder will pick up the tab for the repairs. “When you buy a resale home, even if you have a home inspection done, it still does not turn up hidden defects that you don’t find out about a lot of times for two years,” McCabe says.

7. Fire Safety: Newly constructed homes often include fire safety features that may not be present in properties built years ago, Gilligan says. "We use fire retardant in our carpeting and in our insulation," he says. In addition, all newly constructed homes are required to include hard-wired smoke detectors. These devices can provide better protection than battery-operated smoke detectors, which can fail to perform if their battery runs out, Morrow says. "Hard-wired [smoke detectors] run on the electricity of the house and then have a battery backup for if the house power goes out," he says.

8. Concessions: Especially in today's sluggish housing market, buyers may be able to squeeze more concessions out of a home building company than an individual seller. That's because individual sellers often have an emotional attachment to their property that can blind them to its true value. "People usually think that their home is worth more money than it is," McCabe says. At the same time, builders often have greater financial wherewithal to absorb a loss on a sale than individuals. "I'll put it to you this way: a $30,000 hit [spread] over 30 lots hurts a lot less than a $30,000 hit on one existing house," says Christopher Rachuba of Rachuba Home Builders. "So I think [buyers] may get more bargaining [power] that way."

9. Financing: New home buyers may be able to take advantage of mortgage financing perks made available through their builder. "New home builders, in many cases the larger ones, have their own mortgage companies or they will offer paying points or closing costs and buy down certain rates for you," McCabe says. "The seller of a resale home is generally not going to do that for the buyer."



Click Here for the Source of the Information.

       With the latest extension of the National Flood Insurance Program (NFIP) set to expire on Sept. 30, the House by a vote of 329 to 90 on July 15 approved legislation (H.R. 5114) that would provide a five-year extension for the program.

        Prior to House passage, NAHB sent a letter to members of Congress expressing support for congressional efforts to enact a long-term extension of the NFIP to ensure that the federally backed flood insurance program remains available, affordable and financially healthy.

       “With the NFIP having recently experienced several short-term authorization lapses that have caused severe problems for our nation’s already troubled housing markets, NAHB is pleased that H.R. 5114 provides for a long-term reauthorization through fiscal year 2015,” the letter said. “The five-year extension included in this legislation will ensure that the nation’s real estate markets operate smoothly and without delay.”

       NAHB is urging the Senate to pass a similar long-term extension of the flood insurance program.

       Established in 1968, the NFIP offers affordable flood insurance to home owners and businesses in flood plains and other low-lying areas that otherwise might not be able to obtain coverage.

       More than 20,000 communities nationwide participate in the insurance program, which currently covers about 5.5 million policyholders.

       To view the legislation, click here and type the bill number in the box at the upper center of the page.

For more information, e-mail Scott Meyer at NAHB, or call him at 800-368-5242 x8144.

       Housing has turned the corner of the worst downturn in more than 60 years, but the market is still grappling with high unemployment and sharply lower home prices, according to “The State of the Nation’s Housing 2010,” which was released by the Joint Center for Housing Studies of Harvard University on June 14.

       “The strength of job growth is now key to how quickly loan distress subsides and how fully markets recover,” the report says.

       “If history is a guide, what happens with jobs will matter the most to the strength of the housing rebound,” says Eric Belsky, executive director of the Joint Center. “Right now, economists expect the unemployment rate to stay high, but if employment growth surprises on the upside or downside, housing numbers could too.”

       First-time home buyers drove the improvements that began to be seen by the middle of last year, triggered by improved affordability and the first-time home buyer tax credit, and they were responsible for all of the gains in existing home sales in 2009, the study says.

       “As a result of lower home prices and interest rates, mortgage payments on a median-priced home (assuming a 90% loan-to-value ratio) dropped below 20% of median household income — the lowest level on record dating back to 1971,” according to the center.

       The report notes that in April there were 7.8 million fewer jobs than in December 2007, and “unfortunately, most economists predict that the unemployment rate will remain elevated as discouraged workers reenter the labor force amid slow gains in jobs.”

       The overhang of vacant units for rent, for sale or held off the market is another “serious concern,” the report says.
 
       “Despite production cuts of more than 70% since 2005, the overall vacancy rate hit a record in 2009. In addition, many current owners are effectively trapped in homes that are worth less than the amount owed on their mortgages. If these distressed owners want or need to sell, their only choices are to walk away from their homes or write a check at the closing table. This will inhibit a recovery in repeat home sales.”

       Citing statistics from First American CoreLogic, the center says that falling home prices left 11.2 million home owners underwater on their loans — with no home equity and unable to tap traditional markets — as of the end of the first quarter of 2010. Housing was adding significantly less to the pocketbooks of consumers, as well, with Freddie Mac reporting that total real home equity cashed out at refinancing dropped 25% in 2009 and stood below $80 billion for the first time since 2000.

       The housing market will also have to weather the expiration of the home buyer tax credit, but the report suggests that the improving labor market may enable housing to avoid a dip similar to what occurred when the first round of credits expired in the fall of 2009.

Declining Incomes and Wealth

       At the outset of the recovery, home builders are also having to contend with a noticeable decline in the income and household wealth of their prospective buyers.

       “After at least three decades of progress, real median household income will almost certainly end the 2000s lower than they started,” the study says. “At last measure, the median for all households was $49,800 in 2008, down from $52,400 in 2000. Even at their last cyclical peak in 2007, real median incomes were 1.2% below 2000 levels.”

       The household wealth of households slid from $503,500 to $486,600 over the decade, according to Harvard.

       “While growth in stock wealth has already started to pick up, housing wealth will take a slower path to recovery. Indeed, despite some painful foreclosure-driven deleveraging, mortgage debt has never been higher relative to home equity. After an $8.2 trillion plunge in housing wealth since the end of 2005, mortgage debt entered 2010 at 163% of home equity.”

       Even outside the cyclical decline in income and wealth, the financial wherewithal of prospective buyers will be a concern for the housing market in the period ahead as it becomes increasingly diverse.

       “At last measure in 2007, minorities accounted for fully 35% of first-time home buyers and 20% of repeat buyers even in the middle of the housing bust. The immigrant share of first-time buyers was 19% and of repeat buyers 12%.”

       The report says that “minority households have lower median incomes than white households. For example, the median income for 35-44 year-old minority-headed households was $45,000 in 2008, compared with $72,900 for whites.”

The Return of Household Growth

       The most optimistic news from this year’s report comes from a longer-range assessment of household growth.

       While there has been much discussion of the impact of the recession on household growth, “it is difficult to judge how big those effects have actually been,” according to the center. The cumulative slowdown over the past four years appears to range from 1.0 million to 2.8 million.

       “The reality could, however, be even worse because household growth estimates depend heavily on net immigration, which is particularly difficult to assess in and around an economic recession.”

       The report observes that it is also hard to sort out how much of the slowdown in household formations has been due to reduced immigration and how much to lower household formation rates caused by doubling up.

       The Current Population Survey from the Bureau of Labor Statistics and the Census Bureau shows foreign-born households under the age of 35 declining by 338,400 from March 2007 to March 2009, compared to a drop of only 2,100 native-born households of the same age.

       “On the other hand, the survey also indicates that headship rates among young adults as a whole declined in the late 2000s, consistent with the expected effects of soaring unemployment within that age group. At the same time, the survey also shows some drop-off in headship rates in older age groups,” the report says.

       “In any case, headship rates may not remain depressed for long given dramatic improvements in affordability for first-time buyers who have jobs, softening rents due to high rental vacancies and the expectation that household growth will return to long-term trend levels when employment growth quickens.

       “But assuming headship rates remain at their slightly lower 2008 levels and that net immigration recovers to its 2000-2005 pace, household growth will average about 1.48 million annually in 2010 to 2020. Even if immigration falls to half the Census Bureau’s currently projected rate, household growth will still average about 1.25 million annually.

       “This low-end estimate puts household growth in the next 10 years on par with the pace in 1995 to 2005, and should support average annual housing completions and manufactured home placements of well over 1.7 million units. The higher-end estimate would likely support production exceeding 1.9 million units per year on average over the coming decade.”

       The study also indicates that builders should be on the lookout for retiring baby boomers, the oldest of whom are just turning 64, with millions soon to follow.

       “Despite their losses in wealth caused by the correction in home and stock prices, the baby boomers will drive demand for senior housing suited to active lifestyles as well as for assisted living facilities,” the report says.

      NAHB and the National Housing Endowment were among the organizations providing funding for the report.

Click Here for the Source of the Information.

       As Congress begins to debate how to reform government-sponsored enterprises (GSEs) Fannie Mae, Freddie Mac and the Federal Home Loan Bank System, NAHB on April 14 called on lawmakers to ensure that the federal government continues to provide a backstop for the housing finance system to ensure a reliable and adequate flow of affordable housing credit.

       Testifying before the House Financial Services Committee, NAHB Third Vice Chairman Rick Judson, a builder and developer from Charlotte, N.C., said the need for this support is underscored by the current state of affairs — with the GSEs, Federal Housing Administration and Ginnie Mae acting as the primary conduits for residential mortgage credit.

       “NAHB feels the federal backstop must be a permanent fixture in order to ensure a consistent supply of mortgage liquidity as well as to allow rapid and effective responses to market dislocations and crises,” said Judson.

       Related to the future of Fannie Mae and Freddie Mac, NAHB recommended policy changes to restore and improve the secondary mortgage market and housing finance system:

• Degree and structure of government support. While government support is needed to ensure that mortgage credit is available and affordable in all areas of the country under all economic circumstances, support for the conforming conventional mortgage market should not be provided directly to private companies. Instead, the federal government should explicitly guarantee the timely payment of principal and interest on securities backed by conforming conventional mortgages, in the same way that Ginnie Mae now provides guarantees for investors in its securities.
  
• Operation of the conforming conventional mortgage market. NAHB envisions private companies — conforming mortgage conduits (CMCs) — being chartered to purchase conforming conventional loans originated by approved mortgage lending institutions such as banks, savings and loan associations, mortgage banking companies and credit unions and then issuing securities backed by those mortgages.

      CMCs would guarantee the timely payment on the mortgages that are pooled in the government-guaranteed securities and would be required to be well-capitalized and to maintain reserves at levels appropriate for their risk exposure. However, CMCs and the mortgages backing their securities would not have implicit or explicit support from the federal government. A fund would be established by the government to provide a guarantee of timely payment of principal and interest to investors in the securities. The CMCs would pay a fee to capitalize the fund, which would be designed to mitigate the federal government’s risk so that it would only be exposed in the case of a “catastrophic” occurrence.

• Conforming conventional mortgages. Mortgages eligible for inclusion in securities receiving an explicit federal guarantee should have well-understood risk characteristics. This would include fixed-rate and standard adjustable-rate mortgages and selected multifamily mortgage loans.

       NAHB is in the process of updating its policy on the future of the Federal Home Loan Bank System and believes that policymakers must take into account its significant structural and operational differences from Fannie Mae and Freddie Mac when considering the future make-up of the housing finance system.

       With Fannie Mae and Freddie Mac now operating under conservatorship and experiencing severe financial pressures, NAHB urged Congress to proceed with caution as lawmakers take steps to transition to a new housing finance system.

“Any changes should be undertaken with extreme care and with sufficient time to ensure that U.S. home buyers and renters are not placed in harm’s way and that the mortgage funding and delivery system operates efficiently and effectively as the old system is abandoned and a new system is put in place,” said Judson.

Click Here for the Source of the Information.