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On Tuesday, April 22, NYU Wagner and the Bipartisan Policy Center hosted Shaun Donovan, U.S. Secretary of Housing and Urban Development, to discuss developments in housing finance reform. The event centered on the recently proposed bill by Senators Tim Johnson (D-SD) and Mike Crapo (R-ID) to dissolve the Government Sponsored Enterprises (“GSE”) Fannie Mae and Freddie Mac.
Ingrid Gould Ellen, NYU Wagner’s Paulette Goddard Professor of Urban Policy and Director of the Furman Center for Housing and Real Estate Policy, and long-time friend of Secretary Donovan’s, opened the event. Pamela Hughes Patenaude, Director of Housing Policy at the Bipartisan Policy Center, introduced the Secretary.
Secretary Donovan pointed out that housing has the unique ability to bring people together, which was in plain sight at NYU Wagner on that day, as housing advocates, financiers, developers, public officials, students, faculty, and relators gathered for the event. The Secretary added that it would be difficult to have more appropriate co-hosts for the discussion about a bipartisan bill, with two organizations that support the discourse of diverse viewpoints on housing issues.
The Secretary explained that the flood of alt-A and subprime mortgages on the housing market, coupled with the securitization of these non-investment grade mortgages by Fannie Mae and Freddie Mac, led to the destruction of the housing market in 2008 –from which the country is still recovering. The Johnson-Crapo proposal received high regard from the Secretary for its bipartisan nature, along with its comprehensive approach towards providing stability to the volatile housing market that has persisted over the past half-decade.
The bill requires greater private sector accountability and prohibits predatory lending practices. Financial corporations will also be required to offer financial access to underserved markets and provide affordable housing funding to local partners in the form of a trust. Of this trust fund, the Secretary mentioned, $400 million could go towards affordable housing in New York City alone. The main feature of the bill, however, involves dissolving the two main GSEs while encouraging private loan securitization with explicit government insurance.
Following the Secretary’s presentation, Richard Smith, Chairman, Chief Executive Officer and President of Realogy Holdings Corp, moderated a conversation. When Mr. Smith asked the Secretary about the deficiencies of the bill, Donovan responded that while it is commendable that this new legislation is requiring private sector involvement in the secondary market, it is difficult to predict how financial institutions will react to this new structure of the financial system. Many predict this will result in a significant increase in mortgages, preventing many families from getting a loan. But he clearly stated that the legislation was a step in the right direction by both sides of the aisle to reform an industry that is so crucial to the lives of millions of Americans.
While researchers have noted the deleterious effects of foreclosure on surrounding properties and neighborhoods, little is known about the effects of foreclosure on children. A new report, Kids and Foreclosure: New York City, just released by researchers at NYU’s Institute for Education and Social Policy (IESP) and Furman Center for Real Estate and Urban Policy begins to address the issue by estimating the number of students in New York City affected by the current foreclosure crisis.“
Few researchers have explored the human costs of foreclosure, and virtually no one has considered the collateral costs on children,” said Ingrid Gould Ellen, faculty co-director of the Furman Center and a professor at NYU Wagner. “This study shows that the number of children living in foreclosed buildings in New York City is large and growing, and the impact falls disproportionately on black children.”