Civil rights groups oppose Fannie, Freddie reform planby Marcie Geffner
A coalition of civil rights and other advocacy groups has taken a stand against proposed federal legislation that would revamp the U.S. housing finance system, specifically, winding down government-controlled Fannie Mae and Freddie Mac.
In a joint statement, the groups said they have “serious concerns” that the legislation, as proposed, wouldn’t create a system that was safe and could provide affordable mortgages for all creditworthy borrowers, including minorities and people with modest incomes. Rather, the groups charged, the proposal would make mortgages more expensive and less available to those populations.
‘Legislation widens existing wealth gap’
“As drafted, this proposal makes it extremely difficult for communities of color to participate in the housing market today and in the future,” said the groups in the joint statement. The statement continued, “While expressing appreciation for the Senate’s bipartisan efforts, the groups underlined their concern that the legislation would widen the existing wealth gap and lock out the very borrowers the market needs to operate in a healthy manner. Much more needs to be done, the groups agreed.”
The coalition includes seven groups: the Leadership Conference on Civil and Human Rights, National Association for the Advancement of Colored People (NAACP), National Coalition for Asian Pacific American Community Development, National Council of La Raza, National Fair Housing Alliance, National Urban League and Center for Responsible Lending.
Proposed outline for reform
Earlier this month, Senate Banking Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Senator Mike Crapo (R-Idaho) released a statement that outlined their proposal.
Included in the proposal from the Senate Banking Committee were plans to:
- Wind down Fannie Mae and Freddie Mac
- Transfer certain functions to a Federal Mortgage Insurance Corp. (FMIC), modeled on the Federal Deposit Insurance Corp. (FDIC)
- Require 10 percent private capital in mortgage originations
- Create a securitization platform that would issue a standardized FMIC-wrapped security
- Permit private-label mortgage securities to be issued in a way that would encourage standardization and improved market liquidity
- Require underwriting standards that mirror the qualified mortgage (QM) definition
- Require a 5 percent down payment for homebuyers with a 3.5 percent exception for first-time home purchasers
- “Eliminate affordable housing goals and establish transparent and accountable housing-related funds that would focus on ensuring there is sufficient decent housing available.”
The civil rights groups said today’s mortgage market almost entirely excludes Latinos, African-Americans, Asian American Pacific Islanders and other minorities and the proposal doesn’t provide a way for them to participate in the future housing finance market.
“The bill lacks provisions to ensure that the housing finance system is fair and non-discriminatory. Moreover, the changes proposed in the reform bill may disadvantage smaller and rural lenders that serve already under-serviced portions of the population,” the groups said.