The American Council on Mortgage Finance says it wants Congress to pass a bill that would impose an insurance mandate on the mortgage industry.
The organization argues that the insurance is necessary to protect against the effects of rising home prices.
The group says that homeownership rates are at historic lows, but that the housing market is currently “in the midst of a historic correction.”
It also warns that “the impact of these financial risks may not be fully realized until much later in the decade.”
The group cites a study from the Federal Reserve Bank of San Francisco that suggests that mortgage insurance will have to cost $1 trillion per year to maintain the level of home prices that prevailed in 2010.
According to the Federal Housing Finance Agency, about 3 million people were foreclosed on in 2011 alone.
But mortgage insurers are making a lot of money off of those people, and the government is subsidizing the insurers, the group said in its statement.
In its statement, the American Council says that the federal government should impose a “one-time levy” on the insurers’ profit to cover the costs of maintaining the mortgage insurance market.
The insurance companies “have been paying millions of dollars annually to the federal Government, through loans, subsidies, and tax breaks,” the group added.
“That taxpayer subsidy should not continue without a clear and meaningful program to prevent and reduce defaults.”
It adds that the government should also “renegotiate the terms of its bailout with the insurers.”
The Federal Reserve is considering its next steps, including what the central bank would like to see as a new mortgage guarantee program, and whether it could buy a stake in the insurance companies.
In the meantime, the government could use its authority under the Troubled Asset Relief Program to provide assistance to homeowners who cannot afford to pay their mortgage.