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62 I N D U S T R Y I N S I G H T / E D W A R D J . P I N T O A N D T H O M A S S . L A M A L F A With Congress once again looking to tackle housing finance reform, will its current roadmap address the challenges that have confronted the industry since the housing crisis? In late January, Sen. Mike Crapo, the Chairman of the Senate Banking Committee, released a Housing Reform Outline. e two over-arching goals presented were: make housing more affordable and protect taxpayers. e outline addresses five topics: guarantors, regulation of the guarantors, Ginnie Mae's (new) role, the requirements necessary to transition to the new system, and a new plan to deal with affordable housing. Before laying out the numerous reasons why the Housing Reform Outline is flawed, a much- abbreviated review of Congress' past efforts to make housing more affordable and protect taxpayers is in order (spoiler alert: they have all failed). Let's start in 1954 when Congress first authorized the Federal Housing Administration (FHA) to insure 30-year mortgages for the purchase of existing homes. Back then, the median home sold for about twice median income, the homeownership rate was about 60 percent, and foreclosures were virtually non-existent. Flash-forward to 1992 when the median home sold for 2.85 times median income, foreclosures were once again common (for example, the percentage of FHA loans in foreclosure was 7 times higher in 1992 than in 1954), and, while the home-ownership rate was up to about 64 percent, this increasingly required two incomes. Why focus on 1992? at was the year Congress passed the Safety and Soundness Act covering Fannie Mae and Freddie Mac (the GSEs). is act instigated a congressionally mandated explosion in leverage. Since 1995, we have had two gigantic housing booms. e first began in 1995 and crashed in 2006. e second began in 2012 and continues to grow. e Affordable Housing (AH) Mandates in the 1992 Safety and Soundness Act forced the GSEs to abandon their traditional role as the secondary market for prime loans and instead required them to go into direct competition with both FHA—then the government's subprime lender—and private subprime lending. In 1992, the GSEs' purchase loan stress event mortgage risk index (MRI) was 36 percent of FHA's MRI in the same year. By 2007, the GSEs' MRI had risen so it was now 80 percent of FHA's 1992 rate. Congress had accomplished its unstated goal—it now had multiple subprime government mortgage insurers, all with the goal of making homes more "affordable." However, Congress' effort to make housing more affordable backfired; it had made them less affordable. e home-price-to-income ratio had risen from a reasonably affordable 2.85 in 1992 to an unaffordable 4.07 in Q1

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