Tight credit is shutting out about 10-15 percent of qualified borrowers who otherwise might be buying homes, according to Housing and Urban Development Secretary Shaun Donovan.
Speaking before an audience this week at the Bipartisan Policy Center, Donovan said that tight credit resulted in 1.2 million fewer purchase mortgages being originated in 2012 when compared with 2001. He called upon Congress to enact housing reform legislation that he said would help bring private capital back into the mortgage market and free up lending.
"We have to make sure that capital reaches all those who deserve it," he said. "We're looking for innovative ways to get credit to those people who are ready to buy. Only legislative reform can provide liquidity to the entire market."
Pushes for Fannie/Freddie replacement
Donovan was pushing for adoption of a bill to replace Fannie Mae and Freddie Mac with a new entity, to be called the Federal Mortgage Insurance Corporation (FMIC) that would provide support for residential mortgages while limited potential losses by the government.
Presently, uncertainty over what is to become of Fannie and Freddie, and of what sort of system will replace them, has been blamed for making mortgage lenders unduly cautious. Knowing what to expect would help stabilize things.
The bipartisan bill is called Johnson-Crapo after its authors, Sen. Tim Johnson (D-SD), chair of the Committee on Banking, Housing and Urban Affairs, and Sen. Mike Crapo (R-ID), the committee's ranking member.
"This is the best chance we have this decade to achieve reform," Donovan said. "This is the time to finally make reform reality. We have a chance in our hands to bring this across the finish line."
Election could be a problem
Prospects for the bill's passage this year are uncertain, however. With the midterm election looming, there isn't much time to get the measure through both the Senate and House before things essentially grind to a halt for campaign season. However, the bill does have bipartisan support and members of Congress may wish to be able to point to doing something positive for the economy this year as they head into elections.
The bill is scheduled for a markup in the committee on April 29, which is the last step before sending it to the Senate floor for consideration.