WASHINGTON – In an address at the Mortgage Bankers Conference on Tuesday, Sen. Elizabeth Warren (D-Mass.) said there needs to be an “explicit government guarantee” in the housing market to provide assurance that 30-year fixed rate mortgages will remain widely available.
Warren, a member of the Senate Committee on Banking, Housing and Urban Affairs, told her audience at the Washington Convention Center that the implicit guarantee for Fannie Mae and Freddie Mac that existed leading up to the financial crisis should be replaced with an explicit privately funded guarantee for whatever entities replace Fannie and Freddie.
“We have to be realistic. The housing market is so large and so important to ordinary Americans that there is no plausible scenario is which the government doesn’t guarantee at least a portion of it,” Warren said.
“There will always be a government guarantee and in my view it needs to be an explicit government guarantee because an explicit government guarantee is vastly superior to an implicit government guarantee,” she added.
Warren also said that housing finance reform must be “targeted reform that preserves the good things about the old pre-crisis system.”
“The $10 trillion housing market affects every American and its current form is unsustainable,” Warren said.
She also pointed out that lenders are likely to write non-QM loans again when the market begins to heat up.
“The potential liability associated with non-QM loans is relatively small and in good times lenders can compensate for those possible losses with slightly higher rates or with fees,” said Warren.
“So in my view, we need to consider strengthening or supplementing the QM rule so it provides an adequate check on overly risky lending especially during the housing booms,” she added.