America is still dealing with a broad range of issues leftover from the 2008 crisis. Banks are going through the difficult process of global deleveraging and grappling with emerging regulatory bodies, but it may be the U.S. housing market that is still at the epicenter of the fallout of the financial crisis.
Despite the fact that the housing finance system was a fundamental factor in the great recession, according to a recent column penned by Michael Bright and Ed DeMarco of Value Walk, no current reforms are on track to alter the American mortgage market or improve housing access paradigms in a meaningful way.
In the lengthy op-ed article, the two authors reflect upon progress made or not made in the past seven years and lay out the framework of a plan to inform public debates and help lawmakers create more effective reforms.
The first article in a series of upcoming papers merely focused on framing issues and stating why rethinking mortgage market structure reform is necessary. Here are a handful of key takeaways from the introductory column.
Why New Housing Finance Reforms are a Must
Some estimates suggest that housing is responsible for nearly one-fifth of the U.S. economy. Providing access to quality, affordable housing is vital to creating a healthy middle class and for the economy as a whole. Complicating matters is the fact that the system is incredibly intricate.
As the Bright and DeMarco say in their article, this isn’t your grandfather’s housing market. Today, a 20 percent down payment does not characterize a typical mortgage. Down payments are less likely to be funded by community deposits in the local savings and loan the way they once were.
Right now, most of America’s mortgages are created via a highly complex financial infrastructure. Gone is the simple structure of local banks taking deposits and lending money out. Home buyers must now cope with a web of non-bank and bank mortgage providers, non-bank and bank lenders, mortgage insurers, rate investors, credit investors, guaranteed securities, and more. This structure decreased volatility in interest rates, but it also formed a terrain that many find too complicated to navigate.
Preserve Successes, But Move Forward
Bright and DeMarco concede that there have been notable successes within American housing finance reform since 2008. While underlining the importance of preserving any progress made, they also believe that new measures must be taken to lower the likelihood that U.S. financial institutions will require emergency actions from Congress.
For an in-depth look at why further housing reform is so necessary, check out the rest of the Value Walk article.
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