“We need to look hard at some of the old assumptions and ask the question is homeownership the right solution for everyone?” Moynihan said today during a speech at the Brookings Institution in Washington.
The reset should include a modified role for government in housing, Moynihan said. He called for an “orderly transition” in the role of Fannie Mae (FNMA) and Freddie Mac and said the Federal Housing Administration needs to return to its original focus on helping low- and moderate-income borrowers.
“FHA has been instrumental in sustaining the market the past few years, but they have come a long way from their original mission,” he said.
The government mortgage insurer said last month it would raise premiums and sell off delinquent loans after disclosing it might need U.S. Treasury aid to balance its books for the first time in its 78-year history.
“Clearly, this is one area where a reset is needed,” Moynihan said.
Lawmakers and regulators should take several years to formulate a plan for overhauling the U.S. housing finance system so that markets are not disrupted, Moynihan said.
“It’s a three- to four-year decision to get it right,” he said. “You’re going to have to give lots of warning to America, lots of warning to the markets. You don’t want confidence to go back.”
Banks also need more clarity from the government on pending regulations to assign liability for risky mortgages and require them to hold capital against such loans before they and other private entities will play a larger role in housing credit, Moynihan said.
“We don’t want to end up with any unintended consequences that prevent private capital from returning or further restrict sound lending and ultimately go counter to the reset we’re trying to achieve,” he said.
The housing market is in the midst of a “real, sustained recovery,” Moynihan said. At the same time, he said, unemployment is limiting the reach of mortgage modification programs and other aid that lenders and the government are providing for troubled borrowers.
Bank of America has provided such aid to about 1.5 million borrowers and has about 50,000 of its 270,000 employees dedicated to working on about 900,000 delinquent loans, down from a peak of 1.6 million delinquent loans at the height of the crisis, he said.
The bank modifies between 30,000 and 40,000 loans and approves about 20,000 short sales every quarter, he said. Bank of America has finished reducing principal on mortgage loans as required in a legal settlement with federal and state authorities over improper foreclosure practices, he said.
Lenders need to carefully underwrite loans and ensure that borrowers have an incentive to maintain their payments. Still, he said, “I don’t think there is anything magic about a 20 percent down payment; 10 percent seems reasonable.”
Lenders need to consider “how do we strike the right balance between prudent underwriting, responsible down payments and access to homeownership?,” he said.
To contact the reporters on this story:
Clea Benson in Washington at email@example.com