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Housing Reform Should Create Wealth

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As the Senate Banking Committee prepares to markup the Johnson-Crapo housing reform legislation, which seeks to wind down the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, Democrats on the Banking Committee, including my senator, Kay Hagan, should take into account an initiative called With Ownership Wealth. With Ownership Wealth (WOW), put forth by the Congressional Black Caucus Foundation (CBCF) while I served in Congress and chaired the Foundation's board, aims to help African-American families across the country become homeowners.

Homeownership for millions of middle class families around the country, including rural communities like those in Warren County, North Carolina provides stability and economic security for families and contributes to the effervescence and wealth of communities.

Perhaps we should get rid of any semblance of what happened during the housing bubble by liquidating the GSEs, removing the systemic risk of a new entity, and empowering a stronger regulator with the backing of the Federal Government. Unfortunately, Johnson-Crapo fails to include explicit affordable housing goals, violates the rule of law by wiping out Fannie and Freddie private shareholders -- institutional investors, community banks, pensions and individual investors -- and leaves no room for small lending institutions to play a role in serving markets that the big banks ignore -- markets that tend to be more urban and rural.

Several weeks ago, Congresswoman Maxine Waters (D-CA), ranking member on the House Financial Services Committee, introduced legislation that recognizes and addresses many of the flaws found in the Johnson-Crapo draft. For Democrats on the Banking Committee, the Waters bill should serve as a guide for a policy solution that could help create opportunities for homeownership while simultaneously protecting taxpayers. It's also worth pointing out that the Waters legislation would not punish investors by codifying the third amendment, as Johnson-Crapo does. Affordable housing depends on investors, and investors need certainty.

Unfortunately, conservatives would have you believe that the downturn in the housing market or the bubble's inflation was largely caused by Fannie Mae and Freddie Mac, particularly the affordable housing goals Congress set during the late '90s and early 2000s. However, the facts bare the opposite truth. Yes, subprime loans and the fast and loose way in which Fannie and Freddie bought their own faulty products were a contributing factor to the downturn, but a study from the Federal Reserve Bank of St. Louis found that "affordable housing goals had no observable impact."

Being a champion of homeownership or affordable housing options is not risky policy, it is essential to growing wealth. In fact, homeownership for white families has been noted as a key contributing factor to building a solid white middle class.

For African-Americans, homeownership was around 50 percent pre-economic downtown, or during the housing boom, but now hovers around 44 percent compared to the rates of whites, which at its peak was around 76 percent and is now 73 percent. For Latinos, homeownership is 28 percentage points lower than whites. That stark difference in homeownership rates contributes heavily to the median net worth of white households which is nearly 20 times that of African American households.

The CBCF's idea of homeownership was visionary; ownership is empowering for communities and generations of families. Unfortunately, as pointed out by many civil rights organizations, there are provisions of the Johnson-Crapo discussion draft that will only exacerbate the current disparities in homeownership rates.

Republicans have done the right thing before. In 2002, President George W. Bush pledged to increase African-American homeownership through his single family affordable housing tax credit that sought to spur homeownership opportunities for more than 5 million new African-American homeowners. At the time, the CBCF applauded President Bush's efforts because we agree that homeownership would strengthen the country's middle class.

So why, then, are we here contemplating scrapping entirely a system that has worked? The short answer is that Fannie and Freddie are serving as the last scapegoat from the slump and despair of the post-crisis housing market that was put on the chopping block in populist fervor. While bipartisanship is certainly a rarity in Washington these days, let's hope members of Congress are not rushing to revamp one-sixth of our economy to get the politics right. Serious compromise and commitment is needed to get the policy right too.