Patrick McHenryChairman

“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: 

 
In 2008, more than 70% of subprime and other low-quality mortgages were on the books of the federal government, primarily the “Government Sponsored Enterprises” Fannie Mae and Freddie Mac.  The GSEs bought these riskier mortgages to meet the politically-motivated “affordable housing goals” that Congress assigned to them.  As Peter Wallison, who served as on the Financial Crisis Inquiry Commission, said, when these mortgages defaulted, they drove down housing prices, weakened most large financial institutions and caused the financial crisis.

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:

 
"Senior management manipulated accounting; reaped maximum, undeserved bonuses; and prevented the rest of the world from knowing."

"The combination of earnings manipulation, mismanagement and unconstrained growth resulted in an estimated $10.6 billion of losses, well over a billion dollars in expenses to fix the problems, and ill-gotten bonuses in the hundreds of millions of dollars."

"As a government-sponsored enterprise, Fannie Mae has a unique position among American corporations ... It is also the second largest borrower in the world, only behind the U.S. government. As such, Fannie Mae has a special mandate and position of public trust. The previous management team violated that trust and did serious harm to Fannie Mae." (OFHEO Report: "Fannie Mae Facade," 5/23/06)

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 21^st century. 

The PATH Act includes major reforms to fix the broken GSE model that hurt our economy, including reforms that:

• End the taxpayer-funded bailout of Fannie Mae and Freddie Mac
• Put these corruption-plagued enterprises on the road to extinction within five years
• Repeal Fannie and Freddie’s misguided affordable housing mandate
• Liquidate the GSEs and sells off any remaining assets

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.

1. “Examining the Proper Role of the Federal Housing Administration in our Mortgage Insurance Market” (Full Committee on February 6, 2013 | What we learned)


2. “Bailout, Bust, or Much Ado About Nothing?: A Look at the Federal Housing Administration’s 2012 Actuarial Report” (Full Committee on February 13, 2013 | What we learned)


3. “Fannie Mae and Freddie Mac: How Government Housing Policy Failed Homeowners and Taxpayers and Led to the Financial Crisis” (Capital Markets & GSEs Subcommittee on March 6, 3013 | What we learned)


4. “Mortgage Insurance: Comparing Private Sector and Government-Subsidized Approaches” (Housing & Insurance Subcommittee on March 13, 2013 | What we learned)


5. “Sustainable Housing Finance: An Update from the Federal Housing Finance Agency on the GSE Conservatorships” (Full Committee on March 19, 2013 | What we learned)


6. “Sustainable Housing Finance: Perspectives on Reforming the FHA” (Housing & Insurance Subcommittee on April 10, 2013 | What we learned)


7. “Building a Sustainable Housing Finance System: Examining Regulatory Impediments to Private Investment Capital” (Full Committee on April 24, 2013 | What we learned)


8. “Sustainable Housing Finance: The Government’s Role in Multifamily and Health Care Facilities Mortgage Insurance and Reverse Mortgages” (Housing & Insurance Subcommittee on May 16, 2013 | What we learned)


9. “Qualified Mortgages: Examining the Impact of the Ability to Repay Rule” (Financial Institutions & Consumer Credit Subcommittee on May 21, 2013 | What we learned)


10. “Beyond GSEs: Examples of Successful Housing Finance Models without Explicit Government Guarantees” (Full Committee on June 12, 2013 | What we learned)


11. “Examining How the Dodd-Frank Act Hampers Home Ownership” (Financial Institutions & Consumer Credit Subcommittee on June 18, 2013 | What we learned)

Leaders of the Financial Services Committee have proposed the PATH Act – the Protecting American Taxpayers and Homeowners Act (.pdf) – to create a sustainable housing finance system for the 21^st century. The proposal:

• Ends the taxpayer-funded bailout of Fannie Mae and Freddie Mac that has cost taxpayers nearly $200 billion – the largest bailout in history;
• Increases competition by ending the federal government’s domination and control of the housing finance market; and
• Gives consumers more choices in determining which mortgage best suits their needs.

The biggest myth we are hearing about the PATH Act is that it will make the 30-year fixed rate mortgage disappear. The 30-year fixed rate mortgage will continue to exist. The PATH Act won’t change that. 

“Many people who don't follow the financial markets might assume that lending money for that long a period at a fixed rate would be too risky for the private sector… However, anyone can prove this assumption is wrong, simply by going to Google and typing in "30-year jumbo fixed rate mortgage." The word "jumbo" is mortgage market jargon for loans that are too large to be bought by Fannie or Freddie, or insured by the Federal Housing Administration. That means a jumbo mortgage is not backed in any way by the government. Still, a Google search will return many offers of jumbo fixed rate loans.”

“One thing I would say about 30-year mortgages, it is not necessarily the best mortgage product for a homebuyer, especially a first-time homebuyer.  If you look at statistics and see that the first-time homebuyers in this country tend to own their first home for 4 years or for 5 years, it may not be the best for their circumstance if they buy that house with that kind of timeline, you know, is what they expect, there may be a different mortgage product in which they can build equity at a faster rate than a 30-year fixed rate mortgage.”    
  

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, and all Americans will benefit from a sustainable housing finance system that offers more choices and opportunities.

The House GOP moves to revive the private home mortgage market. 

New York Times: Diverging Debate at Fed on When to End Stimulus

Federal Reserve Chairman Ben Bernanke said on Wednesday that the Fed was likely to extend the centerpiece of its campaign to bolster the economy — keeping short-term interest rates close to zero — even as it prepares to wind down another key stimulus program that faces mounting internal opposition.

Washington Examiner: Costs spiral for CFPB’s lavish new headquarters as Congress fumes

Renovation costs for the Consumer Financial Protection Bureau’s new headquarters building have doubled, soaring from $55 million to $95 million.  Such costs are at least twice the typical renovation expenses for the most luxurious commercial office space available in downtown Washington, DC, according to architectural experts.

Washington Post: Fed leaders knew they were blowing it at their last meeting, and other tidbits from the FOMC minutes

The Federal Reserve released minutes of its June 18-19 meeting Wednesday afternoon. You may remember the meeting itself as a humdinger. There was no substantive policy change, but the reaction to Chairman Bernanke’s press conference afterward, where he discussed the Fed’s likely pathway toward ending its program of quantitative easing, prompted a huge global selloff of stock and bond markets (and a week of Fed officials trying to walk back any perception that the Fed will be raising interest rates anytime soon).

CNBC: Mortgage Rates Rising, But There Are Plenty of Alternatives for Home Buyers

Rising rates are a worry: 30-year fixed rate mortgages have gone from 3.5 percent to about 4.5 percent in the past month. That's not great, but concerns that the housing recovery may be choked off by this is a bit premature.

Mercatus Center: Regulation, Growth and Labor Market Recovery

It has now been a full four years since the end of the Great Recession. Unfortunately, the US labor market is far from recovery. We are looking at a decade before the labor market is close to being fully recovered. Our primary focus should be on encouraging the economic growth that we need to push our labor market into full recovery mode.

An article highlighting Rep. Bill Huizenga’s Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act of 2013