“Whether they are aware of it or not, some of the most momentous decisions American families make are shaped by how the housing finance system serves them,” said U.S. Department of the Treasury Counselor Antonio Weiss and Assistant Secretary for Economic Policy Karen Dynan in a recent commentary.
But how is Treasury currently helping to shape the housing finance system to better serve consumers and promote homeownership?
One way is through the allocation of $2 billion in the past year of additional funds for foreclosure prevention and neighborhood stabilization through the Hardest Hit Fund. Treasury has also awarded grants through the Capital Magnet Fund (CMF) to promote $900 million in affordable homeownership and rental opportunities as well as worked to create broader loss mitigation standards for borrowers who face hardship and are unable to make their monthly mortgage payment as our Home Affordable Modification Program (HAMP) sunsets at the end of 2016.
However, Weiss and Dynan argue that these targeted improvements and critical additional funds are not sufficient to address the shortfall. Instead, only comprehensive reform will allow a broader range of Americans, including minority communities and middle-class and working families, to further share in the recovery. “The great unfinished business of financial reform is refocusing the housing finance system toward better meeting the needs of American families. How policymakers address this challenge will be the critical test for any model for housing finance reform,” they said. “The most fundamental question any future system must answer is this: Are we providing more American households with greater and more sustainable access to affordable homes to rent or own? It is through this lens that we will assess the performance of the current marketplace and evaluate a set of policy considerations for addressing access and affordability in a future system.”
Treasury acknowledges that currently, there are no national loss mitigation standards for what loan modification options mortgage servicers should provide to borrowers when they are behind on monthly payments, but they believe appropriate modification options can determine whether a borrower gets to stay in his or her home. They also found that a range of housing industry stakeholders have acknowledged the need for broad loss mitigation standards for distressed homeowners similar to the standards established in HAMP.
“We are encouraged by industry efforts to harmonize policies on solutions for delinquent borrowers, including term extensions, rate reductions, principal reduction, and simplifying the documentation needed to complete a loan modification for a distressed borrower,” said Weiss and Dynan.
The department emphasized that they have been working with industry stakeholders to coalesce around national standards and will continue to encourage their development. Particularly, they believe these standards should:
- Protect consumers with fair, transparent, and consistent terms, including those related to housing counseling, loan modifications, and alternatives to foreclosure
- Provide investors with clear, consistent loss mitigation rules so they have certainty when evaluating securities, securitization and servicing agreements, and pools of loans
- Balance the need to protect the solvency of the catastrophic insurance fund that supports securities issued by any regulated guarantor
“Comprehensive housing finance reform provides us an opportunity to reorient the housing system so it better serves all consumers and helps strengthen the broader economy. Addressing the shortcomings of the current system is the most pressing challenge for any model for reform,” said Weiss and Dynan. “Taxpayers’ extraordinary and continuing support for the housing system obliges us to seize this challenge and enact reforms that protect and enhance fair and affordable access to a home.”