Soon we will mark the fifth anniversary of the financial crisis that wrecked our economy, left millions of Americans unemployed and from which we have yet to recover.
From a public policy perspective, the great tragedy of the financial crisis was not that Washington failed to prevent it, but that Washington helped lead us into it. The crisis largely started with a noble intention: Every American should own a home. The result was that well-meaning but misguided policies — principally the “Affordable Housing Goals” of Fannie Mae and Freddie Mac — either strong-armed or enticed financial institutions into loaning money to people to buy homes they sadly couldn’t afford. In fact, over 70 percent of the nontraditional mortgages that led to the crisis were backed by Fannie, Freddie and other taxpayer-subsidized programs.
In typical fashion, Washington responded to the crisis by passing a 2,000-page bill that did more to exploit the crisis than solve it.
Today, because it did not solve the problem, taxpayers have been forced to pay for the mother of all bailouts — nearly $200 billion for Fannie and Freddie. That’s unimaginable.
Today, taxpayers remain on the hook for more than $5 trillion in mortgage guarantees, roughly $45,000 per American family. That’s unconscionable.
Today, the federal government has a virtual monopoly on the housing finance system, enabling Washington elites — similar to those at the IRS — to control who can qualify for a mortgage. That’s unfair.
Americans deserve better.
We deserve a system that protects current and future homeowners so every American who works hard and plays by the rules can have opportunities and choices to buy homes they can actually afford to keep.
We deserve a system that protects hardworking taxpayers so they never again have to bail out big government-sponsored corporations like Fannie Mae and Freddie Mac or even those who irresponsibly bought expensive homes they couldn’t afford.
We deserve a system that finally breaks the Washington-induced destructive cycle of boom, bust and bailout.
That’s why the House Financial Services Committee, which I chair, recently approved the PATH Act — the Protecting American Taxpayers and Homeowners Act. The PATH Act creates a sustainable housing finance system by limiting government control, putting private capital at the center of the mortgage system and giving homebuyers more informed choices about their mortgage options.
With the PATH Act, we end the bailout of Fannie and Freddie and phase out their failed taxpayer-backed business model.
The PATH Act also protects the Federal Housing Administration, which is so overextended that it is heading for its own bailout. Today, FHA can use taxpayers to insure mortgages for millionaires and homes valued as high as $729,750. We return FHA to its traditional mission: serving first-time homebuyers and those with low and moderate incomes, as well as ensuring it will be able to insure loans to any qualified borrower if ever faced with another economic crisis.
Finally, the PATH Act removes artificial barriers to private capital to attract investment and encourage innovation.
Others, including some who profit from the status quo, have discussed different reform plans. I welcome them, but all of us must be careful. We cannot allow a plan to become law that simply puts Fannie and Freddie in the federal witness protection program, gives them cosmetic surgery and new identities, then releases them upon an unsuspecting public. We can no longer allow Wall Street investment firms to offload their credit risks on Main Street taxpayers under the guise of promoting homeownership.
No, America needs real reform and a healthier economy. The best housing program is not a subsidy, guarantee or tax credit; it is a good job in a growing economy. The PATH Act will strengthen our economy. It is our path toward real reform and a truly sustainable housing finance system that’s built to last.
Rep. Jeb Hensarling, R-Dallas, represents the 5th Congressional District and is the chairman of the House Financial Services Committee. He may be contacted through hensarling.house.gov.
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