Posted by on August 19, 2013
Editorial | August 16, 2013
It’s not often that Republican Rep. Jeb Hensarling of Dallas and President Barack Obama read from the same script. We’re pleased they are doing just that when it comes to clipping the wings of Fannie Mae and Freddie Mac.
Fannie and Freddie were created to make sure that the secondary mortgage market is liquid and that Americans can get affordable home loans. For many years, the system worked. But today, Fannie and Freddie have become liabilities to the entire economy.
They were major causes of the mortgage meltdown that hurled millions of families into foreclosure, left others barely able to stay in their homes and placed taxpayers on the hook for about $200 billion in bailouts. And the risks Freddie and Fannie pose to the economy haven’t lessened; they’ve worsened.
It is time to overhaul these government-backed mortgage operations so taxpayers don’t ever again end up on the hook.
Fannie, Freddie and other government housing programs backed more than 70 percent of the subprime mortgages involved in the 2008 crisis and about half of all new mortgages. Now, under government conservatorship since the meltdown, Fannie and Freddie back fully 85 percent of all new mortgages — considerably more than they backed when the crisis began — and nearly all mortgage securitizations. With so much of the mortgage market in so few hands, it is only a matter of time before history repeats itself with devastating consequences.
Hensarling, who chairs the House Financial Services committee, told this editorial board last week that he wants to wind down over five years both Freddie and Fannie to terminate the government’s historic role in housing financing. President Obama also wants to reform Fannie and Freddie, though he favors a bipartisan Senate measure from Republican Bob Corker of Tennessee and Democrat Mark Warner of Vermont to limit, but not totally terminate, government mortgage guarantees. Both measures are headed in the right direction.
Congress mustn’t let this opportunity slip away as it has done so many times in the past. The Dodd-Frank financial reform legislation passed after the real estate crash was supposed to address Fannie, Freddie and other financial institutions deemed too big to fail. However, lawmakers got cold feet and excluded Fannie and Freddie from the landmark financial reform legislation.
Since the real estate crash, we’ve heard arguments that the economy is still too weak for Congress to make significant reforms, or more nonsensical, that no reforms are necessary. These dangerous, naïve objections do nothing to defuse this ticking time bomb and invite another calamitous real estate bust.
Fannie and Freddie once served a laudable purpose of increasing homeownership but now pose such a serious risk to the economy that the mortgage behemoths as we know them should to fade into history.
Rep. Jeb Hensarling, R-Dallas, has proposed the Protecting American Taxpayers and Homeowners Act to end government dominance of the mortgage market. Here are a few key points of his proposal:
Posted by on August 17, 2013
Sen. Phil Gramm and Mike Solon | The Clinton-Era Roots of the Financial Crisis
Affordable-housing goals established in the 1990s led to a massive increase in risky, subprime mortgages.
Caroline Baum | Krugman Tries to Bury Friedman, Buries Himself
It’s good that Milton Friedman is dead, because for the past week Paul Krugman has been trying to kill him off and discredit his monetarist theories.
Confounded Interest | Dueling Housing Reform Bills
The PATH Act is a potential game changer.
Last week, 83 new final regulations were published in the Federal Register. There were 82 new final rules the previous week. That’s the equivalent of a new regulation every 2 hours and 1 minute – 24 hours a day, seven days a week.
Chairman Hensarling Remarks on “The PATH Home” – How to Create a Sustainable Housing Finance System for AmericaPosted by on August 13, 2013
Chairman Hensarling delivered the keynote address today at the Bipartisan Policy Center Housing Commission’s Regional Forum at the George W. Bush Presidential Center.
Posted by on August 08, 2013
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:
Below are excerpts of the Chairman’s comments during the podcast:
On the current state of the housing finance system:
On criticism of the PATH Act:
Posted by on August 07, 2013
House Republicans are hard at work reforming America’s housing finance system so it’s sustainable for home owners, respectful of hard-working taxpayers, and built to last.
Today – more than five years after the financial crisis and three years since the passage of the Dodd-Frank Act – President Obama delivered a speech outlining his principles for housing finance reform. While it’s encouraging that the president is finally engaging in this debate, House Republicans have already taken the lead in moving legislation and consistently called for housing finance reform in order to protect taxpayers, homeowners, and middle-class families from the devastating impact boom-bust housing cycles have on our economy and the lives of millions of Americans.
Homeownership is a cherished tradition that binds families together, builds financial security and strengthens communities. The right to own property is one of the most sacred rights won for us by our Founding Fathers. We want every American who wants to own a home—and is willing to work hard for it and save for it—to have that opportunity to be part of the American Dream. But we have to remember: the American Dream isn’t just buying a home; the American Dream is being able to keep a home.
Over the past few years, we’ve seen how easy it is for Washington’s misguided policies to turn the American Dream into a nightmare. That’s why House Republicans are fighting for a better, fairer and sustainable housing finance system.
In his speech today, the president outlined principles for reform that are all addressed in the Protecting American Taxpayers and Homeowners (PATH) Act that passed the Financial Services Committee in July.
President Obama: “Private capital should take a bigger role in the mortgage market.”
House Republicans agree that private capital should take a bigger role in the mortgage market. Currently, the government insures nearly 90 percent of all mortgages. This dominance of the mortgage market is crowding out private sector capital sitting on the sidelines. These artificial barriers must be removed to attract investment and encourage innovation.
The PATH Act solution: Free America’s housing markets from government distortion and control by Washington elites. The PATH Act implements reforms to increase competition, enhance transparency, and maximize consumer choice.
President Obama: “[Housing finance reform] begins with winding down the companies known as Fannie Mae and Freddie Mac.”
Mr. President, we couldn’t agree more. That’s why it is so disappointing that the Dodd-Frank Act that was passed in response to the housing crisis does absolutely nothing to reform Fannie and Freddie or end their taxpayer-funded bailout.
Nearly everyone agrees that Fannie and Freddie were at the epicenter of the financial crisis. Misguided Washington policies pushed financial institutions to lend money to people to buy homes they couldn’t afford to keep. The result was an economic cataclysm. Washington cronies were installed in lucrative jobs at Fannie and Freddie. They fleeced the GSEs, cooked the books, doctored earnings, and bought riskier mortgages to meet their earnings targets and collect hundreds of millions of dollars in bonuses. Taxpayers picked up the nearly $200 billion tab.
The PATH Act solution: End the taxpayer-funded bailout of Fannie Mae and Freddie Mac and phase out these failed Government-Sponsored Enterprises within five-to-seven years.
President Obama: “[W]e should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage.”
House Republicans agree that basic products like the 30-year fixed-rate mortgage play an important role in helping some families who want to buy a home. That’s why the PATH Act sustains and protects the 30-year fixed-rate mortgage for those borrowers who want that option.
Under the PATH Act, the 30-year fixed rate mortgage will continue. The PATH Act won’t change that. What will change is this: Washington won’t steer homebuyers into products that they do not want and that cost more than they want to spend. All Americans will benefit from a sustainable housing finance system that offers more choices and opportunities.
The PATH Act solution: More opportunities and more choices, including the 30-year fixed-rate mortgage, for those who want to buy a home.
Other Key Points:
The Administration’s Own Red Tape Will Make It Harder for Middle-Class Americans to Buy a Home
Think that Dodd-Frank or the Consumer Financial Protection Bureau (CFPB) it created will help put more middle class families into homes they can afford? Think again. Dodd-Frank Act rules that are being implemented by the CFPB could make homeownership more difficult and more costly. This powerful agency has been given unprecedented power over housing finance, giving Washington elites more of a say over who gets a mortgage in this country than your local bank.
The PATH Act solution: The PATH Act will free America’s housing markets from the control of Washington elites by implementing reforms to increase competition, enhance transparency, and maximize consumer choice.
Creating a New Government Guarantee is Simply a Fannie-Freddie Do-Over
One key area of disagreement is the need for Washington to provide a taxpayer-funded government guarantee to the housing market. It doesn’t matter if it’s Fannie Mae and Freddie Mac or a new entity that serves a similar function – if the government is providing that backing it will crowd-out the private sector and again put taxpayers on the hook for Washington’s failed policies. That is not reform – it’s the status quo with new packaging. And a look at housing finance in other countries show that for all the costs and market distortions, a government guarantee doesn’t provide any real benefit to our housing finance system and middle-class families.
The PATH Act solution: The PATH Act will end the nearly $200 billion Fannie Mae and Freddie Mac bailout by phasing them out over five years.
Posted by on August 04, 2013
Posted by on August 03, 2013
Wall Street Journal | Just Another Bureaucracy
The Consumer Financial Protection Bureau likes to portray itself as a virtuous, upstart and independent agency focused on helping the little guy. In reality it's just another big bureaucracy that rolls out thousands of pages of new rules every year, generating lucrative business opportunities for lawyers and the agency's well-connected alumni.
The American | Big Bureaucracy: The CFPB Turns 2
The Consumer Financial Protection Bureau is everything that both proponents and critics thought it would be, and that’s not a good thing.
Washington Times | Bank robbery in California
With the threat of eminent domain lying in wait, banks and other lenders will look for businesses in other places, where property rights are respected. Finding buyers will become difficult, depressing the price of houses.
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.”