Issues in Housing Finance Reform

At a REALTOR® University Speaker Series held on August  12, 2015, Dr. Ed DeMarco shared his thoughts on housing finance reform for the secondary mortgage market, including the role of appraisals and reforms that will help borrowers achieve true homeownership through equity-building. Dr. DeMarco discussed the administrative progress to repair the housing market and attract private capital while reducing the risk the government bears in the housing finance market. He cited measures such as the standardization of loan appraisal data, strengthening underwriting and pricing, credit risk transfer transactions to capital market investors, and the development of a Common Securitization Platform that aligns the business and investment disclosure practices of Fannie Mae and Freddie Mac. Notwithstanding the progress made administratively, Dr. DeMarco noted the need to move the reform at the legislative level to attract back private capital and reduce the government’s risk in the housing market.

He outlined the areas for future reforms to ensure the flow of capital and create “true homeowners”:

• Standardizing the data disclosed to investors about the credit characteristics underlying the loan.
• Improving the appraisal and valuation methods that take greater account of economic factors in property valuation.
• Policy reforms and products that help homeowners build equity faster.

Dr. Ed De Marco is currently a Senior Fellow in Residence at the Milken Institute Center for Financial Markets. From September 2009 to January 2014 DeMarco served as Acting Director of the Federal Housing Finance Agency (FHFA), the conservator for Fannie Mae and Freddie Mac and regulator of those companies and the Federal Home Loan Banks.