Speaking with a single voice, the CEOs of VAR, the Virginia Bankers Association, and the Home Builders Association of Virginia sent a letter to Virginia’s congressional delegation asking that the members use “care, circumspection, and deliberation in dealing with a number of significant policy issues related to housing.”

The letters were sent to the state’s 11 congressmen and both senators. You can read the entire thing by clicking “Read the rest of this entry” or click here to read a PDF of what was said. (It happens to be the one sent to Rep. Bobby Scott, but the letters are identical.)

May 9, 2011

The Honorable Bobby Scott
United States House of Representatives
1201 Longworth House Office Building
Washington, DC 20515

Dear Representative Scott:

As the chief executives of three trade associations representing Virginia bankers,
REALTORS®, and home builders — whose members employ thousands of Virginians,
and serve many more Virginia consumers — we are writing to urge care, circumspection,
and deliberation in dealing with a number of significant policy issues related to housing.
Congress and various federal regulatory agencies currently are considering a number of
proposals that could well make it more difficult for Virginians to sell or buy homes. The
handling of these issues — as well as interaction between the issues and any proposed
solutions — has implications not only for the recovery of the country’s real estate and
mortgage markets, but for the U.S. economy as a whole.

Among our deep concerns are proposed reforms to eliminate government underwriting
of mortgage capital markets, proposals to eliminate or curtail mortgage interest
deductibility, and proposed regulations to decrease FHA loan limits and increase fees on
mortgages. A misstep on any one of these issues could further depress already struggling
housing and credit markets; a misstep on more than one of them could be catastrophic
for property ownership in our country.

That is why we urge caution against taking any hasty action. While individually these
issues are serious, together they represent a fundamental threat to American
homeownership. And as housing goes, so goes our economy. Building, buying, financing,
upgrading, and maintaining a home creates jobs and stimulates economic activity at
every turn, and it is the reason we cannot and should not make it more difficult for
people to sell or buy homes.

The mortgage interest deduction
America’s neighborhoods and communities need homeowners and need home buyers,
especially now. For almost a century, the mortgage interest deduction has been the
government’s single most powerful tool to encourage home ownership and a robust
market, while supporting families, protecting values, and putting more money in
consumers’ pockets.

The MID is one of the few significant tax deductions for ordinary Americans; the vast
majority of families who claim it earn less than $100,000 per year. In a real sense, it
demonstrates the federal government’s continued commitment to the American Dream,
and to the civic pride and responsibility homeownership engenders.

Yet there is talk of reducing or eliminating the MID — talk that, in itself, has hurt
housing sales and real property values. Research indicates that actually eliminating MID
could reduce home values nationwide by an additional 15 percent, putting countless
more property owners “underwater” and reducing assessed values to the point that local
governments would have no choice but to raise property taxes to make up for the lost
revenue. Considering the current economic climate, we believe this is the worst possible
time to contemplate any meddling with the MID.

Fannie Mae and Freddie Mac reform
In the wake of the housing bubble collapse, the credit market remains restrictive — more
so because of the confusion and uncertainty about the future of Fannie Mae and Freddie
Mac. In fact, some in Congress have proposed eliminating Fannie and Freddie in as few
as two years, while others want to cut those enterprises back significantly in favor of the
private secondary mortgage market.

But, as we’ve seen firsthand, while the private capital market is robust when economic
news is positive, during fiscal crises that private capital heads to the sidelines. Without
the backing of Fannie Mae and Freddie Mac, the secondary mortgage market — and with
it the entire housing market — could dry up whenever the economy weakened,
compounding any existing downturn. Further, it could concentrate home loans in the
hands of a few large lenders, working against the more competitive market that has
served our country and millions of borrowers so well for decades.

While we agree that Fannie and Freddie must be reformed (the abuses of recent years
are evidence of that), we also believe that there is a continued, if more limited, role for
the federal government in guaranteeing a consistent flow of mortgage capital for prime
mortgage loans.

Restrictive loan limits, requirements, and fees
While we understand the need for the federal government to protect taxpayers from
overly risky decisions by lenders, we are concerned that the quest for ‘safe’ loans will lead
to requirements so stringent they effectively become roadblocks to home ownership for
the majority of moderate-income families.

Regulators’ current proposals for these Qualified Residential Mortgages — notably the
requirement of a 20 percent down payment — would put affordable loans out of reach of
too many American families, and create a subclass of more-expensive loans for those
who don’t have tens of thousands of dollars on hand. Further, it would do little to protect
taxpayers: Down payment size does not determine the performance of a loan, sound
underwriting does.

Meanwhile, on October 1, FHA is expected to lower its maximum loan limit, making
purchasing homes within more expensive markets — the markets that are hurting the
most, in many cases — that much more challenging.

The combined effect
We understand and support the need for fiscal responsibility, and the challenges of
reducing the federal debt and reforming our housing finance infrastructure. However, we
strongly urge you to consider the aggregate effect of all these changes. Combined, they
create a perfect storm for potential homebuyers:

  • Without the mortgage interest deduction, property values decrease,
    neighborhoods decline and a major incentive to buying is gone.
  • If the government pulls out of the secondary mortgage market completely,
    mortgage rates are likely to increase, a consistent source of housing capital will
    disappear and loans will become even harder to qualify for, especially during
    economic downturns.
  • If Fannie and Freddie remain, but the bar is set too high for Qualified Residential
    Mortgages, hard-working families that could previously afford a home will
    effectively be denied the opportunity to purchase one.
  • And with FHA possibly boosting its down-payment requirements, that option will
    also be harder to come by.

In short, changing these critical aspects of the mortgage environment is a potential
minefield, with a myriad of likely downsides for home buyers, home sellers, and the
thousands of people whose income depends on a stable housing market.

Given all these factors, we urge you to proceed with caution — to avoid the temptation of
quick fixes and short-term solutions, and to consider all the potentially significant
ramifications of the proposed changes that are on the table.

On behalf of 29,000 Virginia REALTORS®, 50,000 Virginians employed by banks and
4,100 Virginia homebuilders — and their employees, affiliates and families — we thank
you for your attention to these vital matters, and for your continuing support. We stand
ready to participate in this very important dialogue.

Sincerely,

R. Scott Brunner, CAE
Chief Executive Officer
Virginia Association of REALTORS®

Bruce Whitehurst
Chief Executive Officer
Virginia Bankers Association

Michael L. Toalson
Chief Executive Officer
Home Builders Association of Virginia