BPC Report: Eliminate GSEs, Rethink Appraisal Processes
A Bipartisan Policy Center report released Feb. 25 primarily focused on reducing the government’s role in the nation’s housing finance system, but it also proposed changes to current appraisal policy.
Appraisal-specific recommendations contained within the 136-page report, titled “Housing America’s Future: New Directions for National Policy,” focused on banning the use of distressed home sales as comparables by appraisers, a practice the BPC said was helping to depress local home values and impacting buyers’ ability to secure financing.
The report suggested that Fannie Mae, Freddie Mac and the Federal Housing Administration should refuse to accept distressed sales as valid comps, which would force a reassessment of non-distressed properties.
The report stated that “distressed property sales continue to be recorded and used as comps in appraisals of non-distressed (retail) properties, a practice that depresses local home values and impacts would-be homebuyers’ ability to secure financing. In some markets, demand for multiple reappraisals, sometimes just days before closing, also introduces substantial uncertainty into the home-buying process and can derail sales and disrupt the plans of homebuyers and sellers.”
The BCP’s recommendations for a reduced government role in housing included phasing out the government-sponsored enterprises and replacing them with a public guarantor that would oversee a new mortgage market. Banks and other private firms would originate loans and issue mortgage-backed securities through the new market.
Such a proposal would require private insurance companies to guarantee the mortgages and cover losses in the event of default. The public guarantor only would come into play in the event that private insurers were wiped out. A fee paid on each issue of mortgage-backed securities would fund that public guarantor’s federal insurance pool.
The public guarantor also would determine what mortgage products would be eligible for government backing. BPC suggested limiting mortgage loans eligible for backing to $275,000 rather than the current national limit of $417,000.
The BPC proposal also supported the idea that the government should continue to play a role in housing by allowing borrowers access to low-cost, 30-year fixed-rate loans. The proposal acknowledged that the government would still step in in the event of a bust, but not to the degree of the 2008 crisis. The BPC called it a “guarantee of last resort.”
The BPC said its report could serve as an outline for the U.S. Department of the Treasury to create its own proposal for a housing market overhaul.
The BPC Housing Commission is led by former U.S. Sens. George Mitchell, a Democrat, and Mel Martinez and Kit Bond, both Republicans, as well as former U.S. Housing and Urban Development Secretary Henry Cisneros.
Read the Bipartisan Policy Center report below.
~ Source Appraisal Institute (AI)