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Carson Says 30-Year Mortgage May Not Need a Government Backstop photo: Brendan Hoffman/Getty Images

Carson Says 30-Year Mortgage May Not Need a Government Backstop

(Bloomberg)—Ben Carson, President-elect Donald Trump’s nominee for the top U.S. housing-policy job, told lawmakers that he questions the need for a government backstop of the market for 30-year mortgages, saying the private market could take on much of the responsibility.

Carson commented in response to a question Thursday at a Senate confirmation hearing where some Democrats questioned his qualifications to lead the Department of Housing and Urban Development, which has responsibilities ranging from insuring low-down-payment mortgages to administering rental assistance for low-income home owners. The housing industry has defended the federal backing as essential in keeping down mortgage costs.

Some Banking Committee Democrats, including Ranking Member Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts, used the hearing to again raise concerns about conflicts of interest that Trump -- a real estate billionaire -- could face as president.

Warren, who on Monday introduced a bill that would require Trump to divest his business holdings, asked Carson if he could vow that no HUD funding would benefit Trump. In response, Carson said he would focus on whether policies benefit those who need help.

“I can assure you that the things that I do are driven by a sense of morals,” Carson said, adding that he wouldn’t get in the way if there “happens to be an extraordinarily good program that’s working for millions of people and it turns out that someone that you’re targeting is going to gain $10 from it.”

Private Companies

Carson also said he believes private companies should play a greater role in the mortgage market. He said he supports a government backstop in the market, but also said he believes the 30-year fixed-rate mortgage could continue to exist if that backstop ceased to exist.

“You can’t do it overnight. It has to be a gradual change,” Carson said. “We can’t do it in a haphazard way.”

Fannie Mae and Freddie Mac, which are controlled by an independent agency, along with the Federal Housing Administration, which is administered by HUD, backstop the vast majority of the mortgage market. Many economists say the support allows lenders to offer relatively inexpensive 30-year fixed-rate mortgages, which are rare in other countries.

At the hearing, Carson also said he wasn’t briefed by the Obama administration before its decision on Monday to cut premiums the FHA charges by a quarter of a percentage point. Many Republicans lambasted the move as fiscally irresponsible, while some Democrats and housing-industry advocates said the move would help first-time home buyers.

Revisiting Decision

Carson said that he was surprised the administration made the decision on its way out the door and that he would revisit the policy, which takes effect on Jan. 27. He didn’t say whether he would reverse the change.

In written testimony released earlier on Thursday, Carson said he believed some housing regulations increased inequality. Local land-use rules that limit density in segregated neighborhoods have slowed integration, he said in the prepared remarks.

“Overly burdensome housing regulations are bad for everyone and are increasing income inequality,” Carson said. “When land use for local housing supply is less regulated, workers of all skill types will choose to move to the productive locations.”

Carson, a retired neurosurgeon with no prior government experience, was asked by lawmakers why he wanted to run HUD, an agency with about 8,300 full-time employees and a budget of more than $47 billion.

Healing ‘Divisiveness’

“I want to help heal America’s divisiveness, and I think HUD is positioned to help in that healing,” he said. “One of our biggest threats right now is this political division, racial conflict, and class warfare.”

Carson, in his prepared remarks, raised concern that banks are reluctant to participate in low-down payment loan programs for fear of getting sued if borrowers default. The wealthy have “their pick of loans” while those without good credit are “locked out,” he said.

In making his case to lead HUD, Carson pointed to his personal experience rising from a struggling, single-parent household and professional experience as the head of pediatric neurosurgery at Johns Hopkins University and as a board member of Kellogg Co. and Costco Wholesale Corp.

Some Democrats questioned whether he believed in the mission of HUD, which insures low-down-payment mortgages, administers rental assistance for low-income families and grants federal funding to help community development. Brown, in his opening remarks, quoted from some of Carson’s past writings that he said cast doubt on his commitment to the assistance programs.

“Dr. Carson has repeatedly commented that government assistance programs are harmful,” Brown said.

In December, shortly after Trump announced the nomination, Democratic Representative Maxine Waters of California called Carson a “frightening” choice to lead the agency. Carson “may be a brain surgeon but he is not qualified to run HUD,” Waters wrote in a statement.

Trump Adviser

Carson, 65, went from being Trump’s rival in the Republican presidential primary to a trusted adviser. Trump often mocked his rival on the campaign trail. After Carson dropped out of the race, he endorsed Trump and the two publicly praised each other. Waters and other critics have used Trump’s own words against Carson.

Four former HUD secretaries, who served under presidents Bill Clinton and George W. Bush, threw their support behind Carson’s nomination in a letter earlier this week.

“Some of us came in with deep housing experience while others had to learn it,” said the letter, signed by Henry Cisneros, Mel Martinez, Alphonso Jackson and Steven Preston.

Industry groups, including the National Association of Home Builders and Mortgage Bankers Association, also sent letters giving Carson their support.

‘Significant Disruption’

“While clearly we need to find ways to get more private capital back into the housing system, the role of a government guarantee behind a segment of the mortgage system is critical to insuring a steady flow of capital in good economies and in bad,” MBA president David Stevens wrote in a statement after the hearing. “Pulling the rug out could result in a significant disruption to housing,” Stevens said.

In financial disclosures released this week, Carson said he owned between $8 million and $23.5 million in assets. Those included between $1 million and $5 million each in shares of Kellogg and Costco. The federal forms only require nominees to report asset values and income in ranges. Carson also reported hundreds of thousands of dollars in income from speaking fees and royalties earned from selling books.

To contact the reporter on this story: Joe Light in Washington at [email protected] To contact the editors responsible for this story: Jesse Westbrook at [email protected] Justin Blum, Gregory Mott

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