Posted by on July 28, 2013
Posted by on July 25, 2013
THE POLITICS of housing finance reform are starting to get interesting. On Wednesday, the Republican-controlled House Financial Services Committee passed the Protecting American Taxpayers and Homeowners (PATH) Act, which would wind down Fannie Mae and Freddie Mac and replace the busted entities with — well, nothing, pretty much. For the first time in decades, no “government-sponsored enterprise” would be responsible for bundling most mortgages into marketable securities.
Under PATH, private investors would perform that function; Washington’s only role would be to supervise the quality of securitized mortgages. The Federal Housing Administration (FHA) would remain as a source of government backing for mortgages to low-income first-time homebuyers, albeit to a more limited extent than present law allows. In short, Congress now has before it a fairly pure free-market alternative to the status quo, one that is likely to pass the House if and when the Republican leadership brings it to the floor.
Opponents of the PATH Act argue that the lack of permanent government backing will deprive the market of liquidity and consequently end the 30-year fixed-rate mortgage upon which so many consumers have come to rely.
One answer to that is that some 30-year fixed loans already exist without government help: These are “jumbo” mortgages too big to fit within Fannie and Freddie’s loan limits. Presumably private-sector innovation could create loan products, with 30-year terms or otherwise, appropriate for smaller borrowers as well. Also, where is it written that the U.S. economy must ensure a certain amount of liquidity for housing, of all economic sectors? A lesson of the Fannie-Freddie meltdown was that government probably had been encouraging over-investment in housing.
The PATH Act opponents’ best economic argument is that reducing the supply of government-backed securities would reduce the overall depth of the U.S. financial markets, which is one of this country’s greatest advantages in the competition for the world’s supply of capital.
Still, politics is the least refutable objection to the PATH Act — quite simply, realtors, home builders, bankers and other housing interest groups would exercise their clout to defeat it, or anything like it. Bowing to that perceived inevitability, a bipartisan group of senators offered a bill last month that would also end Fannie and Freddie but keep government in the business of insuring mortgage securities against catastrophic losses, as long as private investors paid a fee and agreed to risk a substantial amount of their own capital.
Unlike the House’s PATH Act, the Senate bill has yet to make it through committee. But between the two proposals, the debate now shapes up as a contest between a nearly pure free market and a continuing role for government that is significantly smaller and more transparent than it was. The old system is being challenged as never before, and that, in itself, represents progress.
Posted by on July 22, 2013
“…if you don't get rid of the permanent, everyday government guarantee in the secondary mortgage market, I fear all you've done is put Fannie and Freddie in the Federal Witness Protection Program. Give them a facelift, give them new names, maybe they come out as Eddie and Annie. And yet they're released on an unsuspecting public.”
Hensarling on the PATH Act – Protecting American Taxpayers & Homeowners – and how it winds down Fannie Mae and Freddie Mac:
“Well, one, it doesn't get the government out of the housing business. What it does is, over a five-year transition period, it does get the government out of having a permanent presence in the secondary mortgage market. The truth is it hasn't worked out too well for us. Today, we have the federal government that is controlling virtually the entirety of our mortgage finance system. I don't think Americans want that to happen.”
“Today, Americans have had to pay over $187 billion to bail out Fannie and Freddie, institutions where everyone knows they manipulated their financial statements in order for their top executives to earn huge bonuses. Today, the American taxpayers are on the hook for over $5 trillion. The American people want out of the bailout business.”
Hensarling on opponents of the PATH Act and why housing finance reform is needed today:
“…these are the same people who also told us there was never a problem with Fannie and Freddie – ‘let's roll the dice’. And so on the one hand people said, well, you can't do anything five years ago because the housing market is too fragile. And now they say the housing market is coming back, why do you want to rock the boat?
“We want to rock the boat because we need a sustainable housing policy. Number one it has to be sustainable for homeowners. We've had federal policies that helped put people into homes they couldn't afford to keep. I mean it was tragic – all kinds of tragedy throughout our nation.”
Hensarling on how the Dodd-Frank Act will reduce homeownership:
“Under current law today CoreLogic has said 52 percent -- 52 percent -- of the Americans who bought homes in 2010 would not be allowed to finance under today's standards.
“Relative to current law, the PATH Act -- Protecting American Taxpayers and Homeowners -- is going to make homeownership more affordable. And it's going to give American home buyers options so that their federal government doesn't steer them into one product that may not be right for them.”
Hensarling on other housing reform proposals:
Under the PATH Act, “we have a counter cyclical provision in our bill, as well. The FHA is not going away. And so in times of economic stress you have the FHA that can ramp up, should we have another crisis like we've had in 2008.
“Dodd-Frank punted the ball. The administration has punted the ball, so I salute anybody who has a plan... but if you don't get rid of the permanent, everyday government guarantee in the secondary mortgage market, I fear all you've done is put Fannie and Freddie in the Federal Witness Protection Program. Give them a facelift, give them new names, maybe they come out as Eddie and Annie. And yet they're released on an unsuspecting public.”
Posted by on July 21, 2013
Housing & Insurance Subcommittee Chairman Randy Neugebauer (Facebook | Twitter) delivers this week's Sunday Video Message on the PATH Act. The full committee will markup the PATH Act this Tuesday at 10:15 a.m. Read more about the act -- including how it sustains the 30-year fixed rate mortgage and enables FHA to play an expanded role in times of crisis -- on our Bottom Line Blog.
Posted by on July 20, 2013
The Protecting American Taxpayers and Homeowners (PATH) Act provides for comprehensive reform of the government’s role in housing finance.
Heritage Foundation: Dodd-Frank at Year Three: Onerous and Costly
July 21 marks the third anniversary of Dodd–Frank, Washington’s massive regulatory response to the housing market collapse, the failure of major financial firms, and the resulting shock to the economy in 2008. Consumers are facing dramatically higher banking fees and fewer service options because of new government constraints on credit. And for all its vast regulatory scope, Dodd–Frank utterly fails to address some of the principal causes of the 2008 crisis
Fox Business: Dodd-Frank Turns 3: What Has it Wrought?
The 2008 financial crisis laid bare flaws in our financial sector, and the economy suffered severe consequences from those flaws. We can all agree something should have been done to reform the financial sector. But as Dodd-Frank celebrates its third birthday, it’s worth evaluating the costs, the implementation progress, problems created, and consider whether this was really the right reform.
Washington Examiner: Fat paychecks for CFBP officials
Employees of the CFPB may be the most lavishly paid of all federal workers. Hundreds earn more than the Supreme Court justices, senior White House officials, members of Congress, and all 50 governors.
USA Today: Housing recovery leaves Millennials behind
The house needed work — weatherproofing, a new back fence, a basement to transform into a bedroom — but the couple was excited nonetheless. The house would have been their first.
Posted by on July 19, 2013
Rep. Ed Royce hit the nail on the head this week when he correctly pointed out that the PATH Act does not eliminate all government guarantees as some have incorrectly claimed.
Courtesy of Rep. Royce’s office, below is his exchange with Federal Reserve Chairman Ben Bernanke this week on how the PATH Act preserves the FHA’s countercyclical role by allowing it to insure loans to any borrower during period of significant credit contraction.
This means the PATH Act would preserve the FHA’s existing countercyclical role in mortgage lending, which enables the FHA to serve as a backstop to keep mortgage credit flowing, to promote stability in the housing market, and to ensure that middle-class families can still buy homes.
Royce Q&A with Fed Chairman Bernanke
Washington, D.C. - Today at the House Financial Services Committee “Humphrey-Hawkins” Hearing, Rep. Ed Royce (R-CA) asked Federal Reserve Chairman Ben Bernanke about the need for the government to play a countercyclical role in the housing market, rather than the extraordinarily pro-cyclical role the government played during the last crisis.
Specifically, Royce questioned whether provisions of the recently proposed PATH Act - the Protecting American Taxpayers and Homeowners Act – which enable the FHA to play an expanded role in times of crisis, will ensure continued access to the mortgage market for a great majority of borrowers regardless of market conditions. Bernanke responded: “We need to think about the situation where there is a lot of stress in the market and we need some kind of backstop… It seems to me that FHA could be structured to supply such a backstop, it would depend on the details. That would be one way to have the government supply a backstop.”
As you may know, Title II of the PATH Act includes several provisions meant to allow FHA to play that countercyclical role:
Posted by on July 18, 2013
“Fannie Mae will never impose a cost on the American taxpayer…” – James A. Johnson, Chief Executive Officer of Fannie Mae, testifying before the House of Representatives, April 17, 1996
“Under the direction of James A. Johnson, Fannie Mae’s calculating and politically connected chief executive, the company capitalized on its government ties, building itself into the largest and most powerful financial institution in the world. In 2008, however, the colossus would fail, requiring hundreds of billions in taxpayer backing to keep it afloat. Fannie Mae became the quintessential example of a company whose risk taking allowed its executives to amass great wealth. But when those gambles went awry, the taxpayers had to foot the bill.” – Reckless Endangerment, published in 2011
Few issues have united Americans quite like the outrage at taxpayer-funded bailouts – and rightfully so.
Hardworking taxpayers should never forget: The nearly $200 billion bailout of Fannie Mae and Freddie Mac is the biggest, costliest taxpayer-funded bailout in history.
Nor should taxpayers ever forget that Fannie and Freddie were at the epicenter of the financial crisis that destroyed millions of jobs:
While Fannie and Freddie’s role in the financial crisis is widely acknowledged, what some may have forgotten is how rank cronyism, Enron-style accounting and outright financial fraud made these GSEs so powerful and unaccountable that they were able to wreck our economy.
Beginning in the late 1990s, executive pay at Fannie Mae and Freddie Mac became tied almost solely to earnings growth. So in order to trigger maximum bonus payouts for themselves, top management at the firms cooked the books to make it appear the companies were producing enough corporate earnings.
And meeting the “affordable housing” goals mandated by Congress also enabled these executives “to keep their lush government perks and pay packages.” (See Reckless Endangerment, Pg. 247)
When the fraud was finally detected, the Office of Federal Housing Enterprise Oversight (OFHEO) issued a scathing report calling the corporate culture created by the executives “unethical.” The report noted:
OFHEO issued a separate report detailing numerous examples of improper accounting practices at Freddie Mac and pointed to improper trades designed to mislead investors and trigger big bonuses for top executives. The report noted Freddie Mac executives had an “obsession” with earnings growth that came “at the expense of proper accounting policies and strong accounting controls.”
The PATH Act (Protecting American Taxpayers and Homeowners) makes sure this never happens again.
Under the PATH Act, Americans will have a sustainable housing finance system that works for the 21st century.
The PATH Act includes major reforms to fix the broken GSE model that hurt our economy, including reforms that:
Unless we take bold and decisive action, Americans will never have the sustainable housing finance system they deserve. Unless we take bold and decisive action, the GSEs will remain a threat to our economy. The PATH Act is our opportunity to end the bailout, end the troubled and costly GSEs, and build a housing finance system that’s sustainable for home owners, respectful of hardworking taxpayers and built to last.
Posted by on July 17, 2013
UPDATE: After releasing details of the PATH Act, the full committee held a hearing entitled “A Legislative Proposal to Protect American Taxpayers and Homeowners by Creating a Sustainable Housing Finance System” on July 17, 2013, bringing the total to 12 hearing and more than 50 witnesses on this subject since January.
We've blogged before about the importance of holding in-depth hearings with leading experts and stakeholders before advancing important legislation. That's why we've held 11 hearings this year to gather a wide variety of ideas and opinions on how to best reform America's government-run housing finance system.
The product of the hearings below is the PATH Act -- the Protecting American Taxpayers and Homeowners Act. We'll hold a full committee hearing on the PATH Act tomorrow at 1 p.m. but you can read the discussion draft (.pdf) as well as a section-by-section summary (.pdf) of the proposal in advance.
Posted by on July 16, 2013
Housing & Insurance Subcommittee Chairman Randy Neugebauer talked about the Protecting American Taxpayers and Homeowners Act on Fox Business's The Willis Report yesterday evening.
He also spoke about the housing reform plan on KFYO’s Lubbock First News. The full committee will hold a hearing on the PATH Act discussion draft this Thursday at 1 p.m.
Posted by on July 15, 2013
This week we'll hold two major full committee hearings. Be sure to check back here on the Bottom Line Blog -- and sign up for our email updates -- for more information throughout the week.
Here's what's happening:
On Wednesday, the full committee welcomes Federal Reserve Chairman Ben Bernanke at 10 a.m. for the July Humphrey-Hawkins hearing. The Fed Chief's testimony, as well as his accompanying semi-annual Monetary Policy Report, will be released at 8:30 a.m. on Wednesday by the Federal Reserve. This is a change from earlier practice when the testimony and report were not released until the scheduled start of the hearing.
On Thursday, the full committee meets again at 1 p.m. to review the discussion draft (.pdf) of the Protecting American Taxpayers and Homeowners (PATH) Act. Committee leaders released details of the PATH Act last week. The legislation would end the taxpayer bailout the GSEs, protect and reform the FHA, and create a sustainable housing finance system.