Chairman Hensarling said taxpayers will “never ever, ever again be called upon to bail out Washington for irresponsible housing policies” if the Financial Services Committee’s sustainable housing finance reform bill becomes law. The Chairman’s comments came during a discussion of the bill – the Protecting American Taxpayers and Homeowners Act (the PATH Act) – on “Speaking of Taxpayers,” the podcast of the National Taxpayers Union.
America needs “a sustainable housing finance system, and that’s what we’re trying to create here,” Chairman Hensarling said during the interview. “Number one, it has to be sustainable for taxpayers. Taxpayers should never ever, ever again be called upon to bail out Washington for irresponsible housing policies. Now second, it needs to be sustainable for homeowners, current and would-be. And what the federal government has done is essentially help put people into homes that they couldn’t afford to keep. That doesn’t do them any good at all.”
Chairman Hensarling said the housing finance system would also be “sustainable for our economy” with the PATH Act. “We’ve got to end the boom-bust cycles in housing because of all the damage it does to the economy.”
The PATH Act will end the current system where taxpayers are liable for $5.1 trillion in mortgage guarantees – “that’s about $42,000 for every household in America,” said Chairman Hensarling. “So when taxpayers are struggling to pay their own mortgage, they’re having to insure the guy across the street as well.”
The PATH Act, which was approved by the committee on July 24, creates a sustainable housing finance system for taxpayers, homeowners and the economy by:
- Ending Fannie Mae and Freddie Mac and their nearly $200 billion taxpayer-funded bailout;
- Right-sizing the FHA and clearly defining its mission of serving first-time homebuyers and low- to moderate-income Americans;
- Implementing market reforms to increase competition, enhance transparency and maximize consumer choice; and
- Breaking down barriers to private capital investment.
Below are excerpts of the Chairman’s comments during the podcast:
On the current state of the housing finance system:
Today, Fannie and Freddie represent the single largest taxpayer bailout in history, weighing in at a $189 billion dollars.
Today, the federal government has a virtual monopoly on mortgage finance. They purchase 99% of all new mortgages.
Today, the Federal Housing Administration is going broke—bailout broke. Today, the Federal Housing Administration -- that was originally designed for first-time homebuyers; low and moderate income people -- has a bad case not only of bailout bankruptcy but also a bad case of mission creep. And now, hardworking taxpayers are being forced to insure the mortgages of millionaires.
Today, if you add it all up, taxpayers are on the hook for $5.1 trillion, which I figure more people can comprehend -- that’s about $42,000 for every household in America. So when taxpayers are struggling to pay their own mortgage, they’re having to insure the guy across the street as well. That’s just not fair.
And then last but not least, today Washington elites are deciding who gets a mortgage and who doesn’t. Think Dodd-Frank. Think the Orwellian-named Consumer Financial Protection Bureau. The rules that are coming out under Dodd-Frank essentially do this. Half of all mortgages today would no longer meet the requirements of Dodd-Frank. And Moody’s Analytics has said one provision of Dodd-Frank could raise interest rates one to four points. So, in short, under today’s regime Dodd-Frank could cut the number of mortgages in half and make the remaining ones twice as expensive. That’s how bad things are today.
On criticism of the PATH Act:
Now some will say, the detractors of the PATH Act, that the 30-year fixed mortgage will disappear. I have two answers to that. That is, you can Google 30-year fixed today and in the tiny space that government doesn’t operate, known as the jumbo market, the 30-year fixed is alive and well. It was alive and well prior to the demise of our housing market in 2008. And free market capitalism, you know, if people want the 30-year fixed mortgage my guess is someone is going to supply it.
The second point I’d make is I want people to have the 30-year fixed mortgage if they want it. But it’s not the right product for everybody and our government shouldn’t be steering people into it. The average first-time homebuyer, I believe, keeps their home for about 7 years. And after 7 years, you have almost no equity in your home. It’s kind of like you’re almost a renter and you had to pay closing costs and you’re the guy in charge of the maintenance. So for a number of people, you know, again, I want the 30-year fixed to be there for people who want it, for who it’s the right product for. But I don’t want our federal government to be steering people into a product that may not necessarily be right for them.
So that’s what you hear from detractors. People say that you know, interest rates are going to go up. But I’ve got to tell you, relative to current law, where we know that Dodd-Frank could almost double interest rates, the PATH Act will take interest rates lower than what they would otherwise be. But I want to make it clear that ultimately interest rates are going to be determined by the supply and demand of money, and right now the Federal Reserve is pretty well pressing on the gas of the supply side of that. Sooner or later we all know that interest rates are going to have to rise.