Chairman Hensarling on Successful Housing Finance Systems without Government Guarentees
June 12, 2013 -
“As lawmakers, it is time to open up our eyes and open up our minds to alternative models and a pathway forward. We shouldn’t preserve Fannie and Freddie’s federal guarantee just because we have done so in the past. We shouldn’t preserve their federal guarantee just because those who believe they profit from the status quo urge us to continue doing so”
WASHINGTON – House Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today’s full committee hearing titled ““Beyond GSEs: Examples of Successful Housing Finance Models without Explicit Government Guarantees.”
“This is the 10th full or sub-committee hearing that we have had on the topic dedicated to forging a new sustainable housing policy for America.
“Clearly all Americans want a healthier economy and they want a fair opportunity to buy a home they can actually afford to keep. It is clearly time to displace a system of false hopes and broken dreams which have arisen from misdirected government policies and subsidies that regrettably incented, browbeat, or mandated financial institutions to loan money to people to buy homes they all too often could not afford.
“We know all too well the legacy of these policies – shattered lives of millions who lost their meager savings ‘rolling the dice’ on a home purchase that Washington encouraged them to make, almost $200 billion of taxpayer bailouts, and a wrecked economy to which this nation has yet to recover.
“Regardless of its relative merits, Dodd-Frank was silent on Fannie and Freddie. Silent as to the existence of a government sanctioned duopoly that was at the epicenter of the crisis. Silent as to their cooked books. Silent as to a system where Wall Street investors offloaded their risk onto Main Street taxpayers. Silent as to their bullying tactics. Thus, the task of reforming them falls upon us.
“Notwithstanding the damage they have caused in their checkered past, many cannot conceive of a housing finance market without a government guaranteed Fannie and Freddie. Thus, our hearing today will examine alternative models and feature undoubtedly a panel of some of the most respected and knowledgeable experts on the subject.
“I believe this hearing will help establish a number of propositions:
“First, the US is practically alone in the modern industrialized world in having GSEs directly guarantee mortgage securities. We are practically alone in the level of government subsidy and intervention into our housing market. We were also practically alone in the level of turmoil in our housing markets as measured by foreclosures and delinquencies. Clearly there is a direct causal link.
“By almost any measure Fannie and Freddie have not propelled the US to housing finance nirvana. When compared to other modern industrialized nations – whether we look at rates of home ownership or spreads between mortgage interest rates and sovereign debt, the US can usually be found either at the middle or bottom of the pack. However, there is one category where the US clearly has led. Regrettably, that category is foreclosure rates.
“In other words, only in America can you find a government that subsidizes housing more, so that we the people can get less.
“Next, I believe this hearing will help remind us that we don’t have to look overseas to see a well-functioning housing market without GSE’s. Indeed, we don’t have to look any further than our own jumbo market that has operated without them. Prior to the housing bust, the jumbo market was approximately 20% of the total housing market. There was capital, liquidity, competition, the 30 year fixed mortgage, consumer choice and innovation, all right here in America. And all of this was delivered for about 25 basis points or a ¼ of 1% interest differential from the GSEs – a modest amount to avoid taxpayer bailouts, government control and economic catastrophe. And I add parenthetically, as we have learned from previous hearings, whatever modest interest rate benefit the GSEs delivered to home buyers was offset by the cost of housing principal they artificially inflated for those very same home buyers.
“Furthermore, I believe it will be established that although the 30 year fixed rate with no pre-payment fees may be the ‘gold standard’ mortgage for some, it is clearly the ‘rusty tin’ standard for others. We again are practically alone in America having public policy assure its dominant role in the mortgage market. For home buyers facing raising interest rates or home buyers who keep their home for the market average of 7 years, it is almost assuredly not the best mortgage product. Successful alternative systems promote more consumer friendly choices.
“Today, our government controls 90% of the housing finance market. Today, Washington elites decide who can qualify for a mortgage and who cannot. Today, taxpayers have bailed out Fannie and Freddie to the tune of $189 billion. Today taxpayers are on the hook for $5 trillion in mortgage guarantees.
“As lawmakers, it is time to open up our eyes and open up our minds to alternative models and a pathway forward. We shouldn’t preserve Fannie and Freddie’s federal guarantee just because we have done so in the past. We shouldn’t preserve their federal guarantee just because those who believe they profit from the status quo urge us to continue doing so.
“Americans deserve a better finance model – one that’s built to last and is sustainable. Sustainable for homeowners, sustainable for taxpayers, and sustainable for our economy.”