Fiscal Stimulus Starts at Home

Congress, President Bush and the Federal Reserve are working on ways to stimulate the U.S. economy, while global investors and American businesses are battered by stormy markets. But more needs to be done, and the sooner the better. The trouble that started with the housing market must also end with it -- meaning that no stimulus plan will succeed without fixing the housing sector.

Housing is normally a darling and a driver of the economy, producing 9 million jobs and 20 percent of gross domestic product. Americans own homes valued at $23 trillion, nearly $11 trillion of which is home equity wealth. Economic growth cannot resume until housing recovers. A few quick but critical measures would reduce the pain on families, stabilize housing markets and attract investment into the economy.

First, more needs to be done to help borrowers teetering on the brink of default. Part of that burden falls on the consumer. Homeowners who face the oncoming train of a teaser ARM -- an adjustable-rate mortgage with artificially low starting payments that spike after a year or two -- need to quickly refinance into safer, fixed-rate loans before they get hit. Anyone who has missed a payment should contact his or her lender right away. Treasury's Hope Now initiative promotes assistance from federal agencies, industry players and nonprofit groups to borrowers in various stages of distress.

Some families bought homes they can't afford under any terms. Lenders should help them move on, probably into rental housing, with minimal damage to the house, the family or the community. The cost of a relocation stipend is tens of thousands of dollars lower than a contentious foreclosure.

Second, the housing industry is due for a cleanup at the national level. Mortgage brokers are a key link between consumers and lenders, but currently operate under a patchwork of state regulations. They should be licensed, trained and registered, and subject to a criminal background check. Predatory lenders who fleece borrowers should face stiff penalties. The mortgage itself is written in language open to abuse: obfuscated terms such as "discount points," "yield spread premiums" and "acceleration clause" abound. While legalese is part of any contract, every mortgage should have a simple cover page with four numbers: the starting rate and payment, and the maximum rate and payment. Why should consumers buy anything -- least of all a mortgage -- with no price tag attached?

Fannie Mae is not exempt from the housing cleanup. We have spent three years and billions of dollars repairing our accounting and our governance. We are taking our lumps along with the industry, but are now prepared to be part of the solution. The House of Representatives has passed a bill to strengthen our regulator; we support it. An agreement between the House and the Bush administration would temporarily raise our $417,000 maximum loan limit so that borrowers in high-cost areas (like Washington) can benefit from the lower rates we promote; we support that idea. We have also been encouraged to help distressed borrowers -- and we have. Fannie Mae has helped more than 100,000 distressed borrowers by either refinancing their subprime loans or modifying their loans. We are not the whole answer, but we should be part of the solution. That's why we were created in the first place.

Third, we need to get the supply of funds flowing to housing again to meet the demand for good, safe credit that forms the foundation of the housing sector. On the demand side, we should look at those who are locked out of affordable housing. Veterans and members of the military deserve a better shot at the American dream -- the Veteran Administration's housing programs should be modernized. We are also losing ground on minority homeownership, which is 20 percentage points below the national average. After years of slow progress, minorities are now losing ground because the housing crisis is hitting African American and Hispanic homeowners hardest. Reversing that trend and closing the homeownership gap is both a moral imperative and a market opportunity.

New Americans in particular face a tortuous path to homeownership. Over the past 10 years, the Internal Revenue Service has issued more than 8 million tax identification numbers to immigrants. People who pay taxes and reside here legally deserve a chance to own a home. Some lenders use these numbers to verify identity and provide loans; others do not because there is no clear standard. We need one.

Taken together, government actions, private-sector responses and cleanup programs will increase transparency and help restore the confidence of those who want to invest in housing, which requires trillions of dollars of domestic and international funding every year. When balance is restored and housing is on the mend, these investors will again provide the capital for a strong and sustainable economy.

We know the housing market will recover because it has deep underlying strength. Over the next 10 years, the U.S. population is expected to grow by more than 26 million, creating 15 million new households and requiring the construction of 2 million homes every year. If we come together now, and take some simple steps, we can restore housing's health sooner, meet that formidable challenge and get the economy humming again.

Daniel H. Mudd is president and chief executive of Fannie Mae, a District-based mortgage finance company.