Access for mortgage credit

She reported that borrowers who took out mortgages in the past five years are better at paying their mortgages than any other group of mortgage borrowers in history, putting real data to talk about the credit box being too tight.

In light of the current situation, the second blog post in the Treasury Department’s series on reforming the housing finance system focuses on the need to preserve access to mortgage credit through the U.S. economy’s ups and downs.

The first blog discussed the need for housing finance reform to provide access to affordable housing for all Americans.

In the coming weeks, the Treasury said it will also address the need to create a level playing field for financial institutions of all sizes and to promote robust regulatory oversight to protect the broader housing system.

Jane Dokko, deputy assistant secretary for Financial Economics, and Sam Valverde, a counselor in the Office of Domestic Finance, start the blog off saying, “A clearly defined government role in the housing finance system is necessary to protect families from this harm. The specific tools can be incorporated across a range of frameworks for housing finance reform. By ensuring access to safe and responsible mortgages in good and bad times, countercyclical policy tools can also help mitigate housing sector weakness during downturns.”

The blog states that the economic security of millions of families would be better served with stronger countercyclical policy tools in the housing finance system. However, the blog cautions that the absence of an explicit government role in a future housing finance system would not prevent the government from supporting the housing market during a downturn.

The blog breaks down how this can be done and details three key features of a reformed housing finance system that would help smooth access to affordable credit in good and bad times:

  1. A catastrophic mortgage insurance fund (MIF) to provide stability to the secondary market through the economic cycle
  2. Countercyclical regulatory tools to ensure access to safe and responsible mortgages in good and bad economic times
  3. Broad-based modification and refinancing authority so that homeowners can readily access lower monthly mortgage payments during a downturn.

The blog intricately breaks down each of these three points, which can be found here. For now, check out a snippet of the first blog point from the Treasury below:

As we noted in our previous issue brief, and as the president articulated in 2013, a reformed housing system must ensure access to safe and affordable mortgages in all economic conditions. A stable supply of affordable mortgage credit to borrowers depends on investors having confidence in the stability of the secondary market. To this end, the administration supports an explicit government guarantee on a defined class of mortgage-backed securities (MBS).