Rep Cmte Financial Services
Hensarling: Washington is Repeating Same Mistakes That Caused Financial Crisis
Washington, Jan 27 -
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As Yogi Berra once famously said, “It's déjà vu all over again.” Memories are clearly short among Washington’s ruling class because they are repeating the same mistakes that caused the 2008 financial crisis in the first place.
Contrary to the fable told by the left, the root cause of the financial crisis was not deregulation but dumb regulation. Regulations and statutes that either incented or mandated financial institutions to loan money to people to buy homes they ultimately could not afford to keep. Exhibit one, Fannie and Freddie’s affordable housing goals. 70 percent of all troubled mortgages were backstopped by Fannie, Freddie and other federal agencies.
And contrary to the fable of the left, it ultimately wasn’t Wall Street greed that brought down the system. Of course, there is greed on Wall Street. When hasn’t there been? But there is also something known as Washington greed; greed for power to command and control huge swaths of our economy. Greed to have Washington allocate credit within our society as opposed to “we the people” in a free and competitive, transparent and innovative market. The mentality of this Washington greed is best summed up by Obamacare architect Jonathan Gruber, who famously stated, “The American people are too stupid to know the difference.”
I doubt the American people collectively would have been foolish enough to “roll the dice” on taxpayer backed subprime lending. Clearly Washington was. The dice were rolled, millions lost their homes, the economy was brought to its knees and hardworking taxpayers had to pay for the mother of all bailouts.
Regrettably, Washington appears to be rolling the dice yet again. Within the last 12 months FHFA has announced three different policies that are harmful to transitioning us to a sustainable housing finance system that protects both homeowners and taxpayers.
First, by suspending a previously scheduled increase to fees Fannie and Freddie charge for their loan guarantees, FHFA is leveraging the taxpayer balance sheet -- one that is clearly awash in red ink -- to lock in a near government monopoly.
Next, in a race to the bottom with FHA to become the nation’s largest subprime lender, FHFA has announced that it will begin to allow the GSEs to buy mortgages with as little as 3 percent down. As history repeats itself, historically prudent underwriting standards are yet again being thrown out the window. The data is overwhelming that there is a direct correlation between delinquencies and foreclosures on the one hand and low down payments on the other.
Finally and most recently, FHFA has announced it will begin siphoning off taxpayer funds from Fannie and Freddie in order to begin filling government housing slush funds. All the while Fannie and Freddie remain ridiculously leveraged and continue to threaten hard working American taxpayers.
The best affordable housing program is a healthy economy, not a doubling down on failed Obamanomics, and certainly not more risky housing schemes from Washington. It’s time to grow our economy from Main Street up – not from Washington down. It’s time to get off the boom-bust-bailout cycle. It's time hardworking middle income families have greater economic opportunity to achieve financial independence and the opportunity to buy a home they can actually afford to keep.