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» VISIT US ONLINE @ DSNEWS.COM 61 credit and inhibiting economic growth. "With affordable housing, the discussion is certainly developing. We're seeing some new ideas emerging about how to encourage sustain- able homeownership that's affordable to folks," DeMarco said. "e members of HPC see this as an opportune time to address three critical issues in Housing Finance." ose issues are housing finance reform, improving the FHA program, and creating more opportunity for innovation and the use of technology in mortgage lending. "Each of these issues, dealing with them would enhance economic growth and expand opportunity for consumers," DeMarco said. "ey are enacting housing finance reform." Ending the conservatorships, giving market participants certainty about the role of govern- ment and the market structure in which they'll compete. Second, modernizing FHA so that lenders may have confidence in how the program operates and can judge and manage the risks involved. Lastly, more significant opportunity for in- novation and the use of technology in mortgage lending. at would improve risk management. It would lower cost to borrowers. It would enhance product offerings. And, according to DeMarco, reduce the long and uncertain time- lines many families face today in applying for a mortgage. So in sum, the current focus remains on Housing Finance reform, improving the FHA program and creating more opportunity for in- novation and the use of technology in mortgage lending. Making dramatic changes to the housing finance system could cause concern for some. During a November 2017 hearing, Ginnie Mae Acting President, Michael R. Bright, spoke before the House Financial Services Commit- tee, where he presented a paper he co-wrote with DeMarco in September 2016 titled, "Toward a New Secondary Mortgage Market." In response, Rep. Brad Sherman (D-California) stated, "I don't buy the idea that 'if it's not broke, don't fix it,' because sometimes you can make things bet- ter. But if it's not broke, don't break it." Sen. Elizabeth Warren (D-Massachusetts) has vigorously opposed some of the administra- tion's attempts to make changes to the Con- sumer Financial Protection Bureau and various Dodd-Frank regulations, but in the past she has indicated openness to GSE reform. During that same June 2017 Senate Banking Commit- tee hearing, Warren said, "I am all for ending government conservatorship, but I can't be for reform if it doesn't address the affordable hous- ing crisis in the country." As for the government involvement with the housing finance system, Murin believes that as long as the system establishes a secure govern- ment backstop, cost of liquidity can maintain it- self. According to Murin, moving housing to the private markets will cause the cost of liquidity to go up. So there has to be a consistent abundance of credit available for all levels of borrowers in the marketplace at all times. However, with a fair credit loss responsibil- ity and accountability system that allows the government backstop to stay in place, Murin believes in the creation of a mortgage finance system that can meet the needs of every level of borrower in the marketplace. Tim Rood serves as Partner of e Collin- gwood Group, which he co-founded in 2009. Rood brings more than two decades of mortgage industry and entrepreneurial experience to e Collingwood Group. He advises organizations to optimize the business opportunities and to mitigate and manage the risks in and around Washington, D.C. Rood advises that the housing finance reform proposed is an "old wine in a new bottle" ap- proach. "We need to look no further than the hous- ing crisis to see how private label securitizers with similar product sets, pricing, and capital standards found themselves all rising together during the boom times, and then all crashing to the ground when the rug got pulled out from underneath them," Rood said. "I fear that some of the things being proposed would set us up for that sort of outcome." ere is a need to take into consideration that the GSEs are designed to be counter-cyclical, which, according to Rood, is critical to the housing market. In bad times, the GSEs will be in every market, every day, with competitive pricing, a facet that comes from their borrowing advantage and implicit guarantee by the federal government. e GSEs can be borrowing com- petitively, freely all the time. Conversely, some argue that the newly proposed guarantor model would be pro-cyclical. Meaning that the model will work great during strong markets, but when there's a shock to the system, the GSEs will find themselves chal- lenged to borrow and effectively compete and provide financing. "e things that we're trying to accomplish in terms of insulating tax payers, insuring democratizing access for lenders to the financial markets and that gives pricing parities, already exists and that a couple modifications to the con- servative share of the GSEs to make them look more like government utilities, seems to be far less risky than radical reform or wholesale reform that includes essentially hand-grenading these two institutions that have been profitable for years and are serving the market well, under the hopes that a new system will somehow at best be as competitive and as available as the current market system is today." STANDING FOR CHANGE In Wallison's view, most things outside of en- suring access to housing can be taken care of by the private sector, for example, automobiles and food. When looking at how the private sector operates in the United States in a very competi- tive way, most of the things that people want have very stable prices without the government's involvement at all. "is is an amazing thing that our market produces because of the competition that is in- volved in the private market," Wallison said. "So why do we introduce the government into the housing finance system when almost everything else of importance in this country is run by and priced by the private sector?" Wallison strongly urges that taking the government out of the housing system will stabilize housing prices and will provide more opportunity for housing while reducing the risk of another housing bubble. e competition between Fannie Mae and Freddie Mac competing with the FHA has been driving down underwriting standards so they can allow more low-income people to buy homes. However, Wallison believes that the result has been much higher home prices for everyone; especially low and moderate-income families who have been priced out of the market when they're trying to buy their first home be- cause prices have risen faster than their wages. e private sector in this country produces goods and services at prices people can afford. According to Wallison, there is nothing about housing that is any different from any other private sector. Housing is simply a product. "Let's see how the housing finance system works without the government and the distor- tions the government introduces. If we then find that low and moderate income families cannot afford homes, we should rely on some kind of narrow government program that applies only to those families and is run by the FHA," Wallison suggests. According to Murin, there can be room for an independent Fannie and Freddie that has a catastrophic backstop with the government but that also is fully responsible for the credit losses. "We can't merge the two, if Fannie and Freddie's going to stand independently, then they're going to have to be responsible for their own credit losses if they expect to have a gov- ernment guarantee," Murin said. "e explicit guarantee by the federal government is critical, I believe, in our mortgage lending environment. COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT INDUSTRY INSIGHT INDUSTRY INSIGHT

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