Testimony before the Senate Committee on Banking, Housing, and Urban Affairs

Download PDF Chairman Johnson, Ranking Member Shelby, and Members of the Committee, thank you for the opportunity to testify on housing policy and the state of the housing market. I am a professor at the University of Maryland’s School of Public Policy and a faculty affiliate of the Center for Financial Policy at the Robert H. Smith School of Business at the University of Maryland. I am also a visiting scholar at the American Enterprise Institute and a senior fellow with the Milken Institute’s Center for Financial Markets. I was previously Assistant Secretary for Economic Policy at the Treasury Department from December 2006 to January 2009.

The continued weak state of the housing market and the toll of millions of foreclosures already, millions more families still at risk of losing their home, and trillions of dollars of lost wealth all reflect the lingering impact of the collapse of the housing bubble and ensuing financial crisis. A range of policies have been undertaken over the past several years aimed at the housing market—a recent summary from the Department of Housing and Urban Development lists 10 separate policy actions.1 These can be grouped into two broad categories. What might be seen as “backward-looking” policies seek to avoid foreclosures on past home purchases through actions such as incentives for mortgage modifications and refinancing. By avoiding foreclosures, these policies both assist individual families and help reduce the supply of homes for sale (and in the overhang of the so-called “shadow inventory”) and thus reduce downward pressures on home prices that in turn affect household wealth and the broad economy. In contrast, “forward-looking” policies seek to boost demand for home purchases, such as with the first time homebuyer tax credit and the Federal Reserve’s purchases of mortgage-backed securities (MBS).