From Capitol Hill to Cohen Hall, the great mortgage debate came to Penn Thursday afternoon.
Following opening remarks by Wharton Dean Thomas Robertson, Susan Wachter — Wharton professor and co-director of the Penn Institute for Urban Research — led a panel on America’s housing future.
The speakers included 1997 Wharton graduate Barry Zigas, the director of Housing Policy for the Consumer Federation of America; Phillip L. Swagel, a professor at the University of Maryland; 1997 Penn Law School graduate Michael Berman, executive vice president of Walker and Dunlop; and Sen. Johnny Isakson, who is serving his second term representing Georgia in Congress.
The panelists spent much of the session discussing the future of the mortgage industry. They emphasized the importance of private capital, government regulation and a balance between economic dynamism and security.
They also laid out a plan for a gradual return to an industry dominated by private enterprise. This plan included mechanisms that the speakers hoped would prevent the reemergence of the pitfalls that led to the 2007 housing collapse.
Looking to both the past and the future, the speakers traced the development of the mortgage industry back to its roots following World War II and recalled the widespread devastation caused by the 2007 sub-prime crisis.
However, speakers did not deny that the situation remained bleak. They spoke of rising rental prices — higher today than they were at the peak of the economic boom — and the dramatic decline in home value, the sharpest in history.
The panel found room for hope, however, albeit cautious hope. Both Fannie Mae and Freddie Mac have ended the past quarter in the black, but their association with the crisis has irrevocably tarnished their brand names. To restore consumer trust, the panel agreed, a new system must be established.
Much of the talk on this new system focused on a proposed amendment to the Wall Street-reforming Dodd-Frank Act and the Consumer Protection Act — the “QRM,” or qualifying residential mortgage, amendment. Proposed by Isakson, the measure seeks to reward well-structured mortgages in the hopes of encouraging sustainable lending practices.
The panel agreed that the new mortgage infrastructure can take two forms. The industry can embrace competition under a series of government regulations that will enable community banks to compete with larger corporations, or it can unite under a single government-sponsored utility.
Until a solution is agreed upon, Patrick Lawler — chief economist of the Federal Housing Finance Agency — said the nation needs flexible temporary solutions to allow the mortgage industry to continue operating without compromising its ability to adapt to future decisions.
Despite the academic nature of the panel, Zigas hoped the discussion “will lead to an agenda and that the agenda will lead to responsible financial models for housing.”
However, Jessica Morris, a second-year School of Design graduate student at the event, expressed concern that its focus was overly narrow. She worried that the panel failed to consider changing market conditions or the broader economic environment.
“I think it’s good that there’s conversations happening about this, but some important issues were brushed over,” she said.
Robertson summed up the event more broadly.
“It’s a great opportunity to bring together people who’ve spend a lot of time thinking about the future of the housing finance system,” he said. “I think the take-home message is that there’s broad consensus that the federal government has a continuing role it needs to play.”