Hensarling’s Plan To End Fannie And Freddie Overcomes First Hurdle, But Faces Another
The government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac are failed institutions based on failed institutional models, so it shouldn’t come as a big surprise that they’re a massive drain on taxpayer money:
The feds also have $7.5 trillion in housing commitments through Fannie Mae, Freddie Mac, the Federal Housing Administration and other government housing programs.
House Financial Services Chairman Jeb Hensarling (R-TX) recognizes the status quo is unacceptable. Last week, the committee “voted 30 to 27 to advance the Protecting American Taxpayers and Homeowners (PATH) Act (H.R.2767), which would completely dissolve the two housing finance giants, Fannie Mae and Freddie Mac.”
The whole House should follow suit, but Politico reports some hurdles remain:
Since a draft bill was introduced earlier this month, some in the housing industry also have expressed concerns about leaving the housing finance system mostly in the hands of the private sector.
“The historical track record clearly shows that the private sector is not capable of providing a consistent and adequate supply of housing credit without a federal backstop,” National Association of Home Builders CEO Jerry Howard said in his testimony before the Financial Services Committee recently.
And industry concerns are widespread, said Jamie Gregory, deputy chief lobbyist at the National Association of Realtors.
“Basically, all of the stakeholders in the industry — all of the people that actually build houses, sell houses, do mortgage, invest in mortgage-backed securities — basically all of those groups have concerns with the bill,” he said.
These concerns, voiced by special interests that benefit from the status quo at the expense of the taxpayer, are not well grounded. They stem from the erroneous belief that government manipulation and control – all at the expense of the taxpayer – is better than market forces.
Congressional leaders made the mistake of creating Fannie Mae and Freddie Mac and subsidizing their activity in these markets through special access to federal funds and an implicit federal backing prior to federal conservatorship in 2008. It is time that these same leaders wind down these enterprises and establish a U.S. housing finance market free of the distortions that this institutional arrangement creates.
In other words, the very thing that some lawmakers fear losing – explicit taxpayer-backed, government guarantees – is the very think that got us into a bad position in the first place.
We support the Hensarling bill as a much needed step toward market-based reform of housing finance.