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Problems Facing The Secondary Mortgage Finance Market

Lawmakers in Washington have been painstakingly deliberating on the prospects of how to best reform the secondary mortgage finance market. However, the process is not as straightforward as one may assume. According to the National Association of Realtors (NAR), any reform must retain access to safe, secure and affordable sources of mortgage capital for creditworthy consumers in all market conditions. Failure to do say may result in a devastating blow to the U.S. economy. It is absolutely critical that the middle class retains the ability to actively participate in the housing sector.

In a testimony before the Senate Committee on Banking, Housing and Urban Affairs; NAR president Gary Thomas spoke of the precautions that must be taken.

“Realtors support a stable secondary mortgage market with strong, reasonable lending standards and access to credit. We believe that the current system can be transitioned into a marketplace that is bound by an explicit government guarantee and a sustained flow of private capital while protecting taxpayers from unnecessary risk,” said Thomas.

Thomas continued to acknowledge that the NAR fears “that without the government’s backing, the only mortgage products available in the secondary market for the average homebuyer would not be aligned with their best interests.”

Therefore, the NAR supports the bipartisan “Housing Finance Reform and Taxpayer Protection Act of 2013.” The passage of this particular reform would provide a government guarantee, in association with the elements outlined in the NAR’s principals for secondary mortgage finance reform introduced in 2011.

According to his testimony in front of the Senate committee, Thomas is very concerned about the speculative obstacles that may emerge between prospective homeowners in the middle class and obtaining an affordable mortgage.

“Apprehensive bankers are leery about issuing new loans as a result of proposed risk retention rules and ability-to-repay requirements that are set to go into effect next year. At the same time, rising interest rates and growing student loan debt is limiting consumers’ access to credit and contributing to an already tight lending environment.”

As per his concern, Thomas expressed the need to prioritize strong underwriting standards over high down payment requirements. Creditworthy buyers, if faced with higher down payments, may never be able to acquire a home. Their participation within the housing sector will diminish significantly, essentially hurting the economy on a national level.

Rather than adopt a complex Qualified Residential Mortgage rule, the NAR believes the agencies should follow the strong standards set by the Consumer Financial Protection Bureau for the related Qualified Mortgage Rule.

“Our goal is to help Congress, and our industry, design a secondary mortgage market model that will serve America’s best interests today and into the future, and ensure a strong housing market and economic recovery,” said Thomas.

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