Income inequality is an issue that we must work diligently to identify balanced policy solutions that reward hard work and determination. Narrowing the income gap and widening opportunity for all is an effort that this administration has focused on in earnest. So much so that the president made it one of his priorities to provide Americans a pathway to the middle class. Nonetheless, income inequality will continue, as it should, to be a key issue in the 2016 presidential elections. Countless Americans do their best to keep food on the table and build a decent life for their family, yet it seems the odds are stacked against them.
President Obama can strengthen his legacy in this area with tools he already has. He doesn't need to magically unlock the logjam in Congress to help ensure the resources for affordable housing for years to come. Under the Housing and Economic Recovery Act of 2008 (HERA), the president can buttress programs to help working Americans access affordable housing and facilitate homeownership. For generations, homeownership was the very definition of the American dream but the 2008 housing crisis turned that dream into a nightmare for many families. Despite the President's support for an array of policies aimed at working families and improving the pathway to the middle class, there is a lot more to do to restore the dream of homeownership.
In 2013, of the 1.6 million mortgage originations provided just 36,903 went to African-Americans. That is a mere 2.3 percent of overall loans, even though African Americans make up 13.2 percent of the U.S. population. Latinos comparably, make up more than 17 percent of the population, yet secured only 71,000, or 4.4 percent, of housing loans in 2013.
The good news is that with decisive action from the White House, access and affordability will not be bogged down by political rancor. The Housing and Economic Recovery Act (HERA) was enacted during the height of the financial crisis and ensuing recession in 2008. A key element of the law was to infuse Fannie Mae and Freddie Mac with funds to prevent their collapse and to put them into a conservatorship under the authority of the Federal Housing Finance Authority (FHFA), a new agency HERA established.
Moreover, the conservatorship was meant to be a temporary arrangement until Fannie and Freddie were in solid enough shape to get back into the business of expanding home finance options. They recovered faster than expected and were doing well enough by 2012 that the Treasury Department began laying claim to all of their profits. This has been a controversial policy change and remains the subject of various lawsuits.
With this dispute playing out in the courts, and no consensus in Washington on the long-term role of Fannie and Freddie, the conservatorship has gone on much longer than intended. Now is the time for President Obama and FHFA Director Mel Watt to use the authority under HERA to end the impasse and lock in place policies that help working families and the middle class pursue their homeownership dreams while safeguarding taxpayers.
Just last week, a coalition of civil rights groups called on the administration to act with haste by "cashing in" on the outstanding warrants. Moreover, they also proposed honoring shareholder claims and requesting a portion of the profits to be dedicated to replenishing the Housing Trust Fund and Capital Magnet Fund -- key mandates of the mission of Fannie and Freddie to facilitate access to housing and homeownership.
Over time, the value of Fannie and Freddie stock could be worth hundreds of billions of dollars. The idea is an interesting one; shareholders would need to contribute only a portion of the shares' value to strengthen these two trust funds for the long-term housing needs of working families. Importantly, allowing Fannie and Freddie to build capital would also benefit taxpayers. As long as they are undercapitalized, there is a chance another infusion of taxpayer money would be needed to keep them solvent, and furthermore prevent funds to the Housing Trust from being activated.
While there are advocates on both sides of the aisle calling for an end to the GSEs, unfortunately, the debate does nothing for the here and now and the future of affordable housing cannot wait for Congress to be compelled to move bipartisan GSE reform legislation. Likewise, even before recapitalization is accomplished, FHFA should direct Fannie and Freddie to issue long overdue "housing goals" and "duty to serve" policies and continue to provide new mortgage products, flexible underwriting, affirmative outreach, and other innovative strategies to overcome common barriers to homeownership for underserved communities.
With these actions, President Obama can establish a legacy befitting his vision for restoring hope and opportunity for working families. This is not only a matter of fairness but a good investment. When more people are well housed and can gain an ownership stake in the economy, the entire country will benefit.
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