Morning Action: President Obama is Confused About Housing Finance
HOUSING FINANCE. President Obama appears to be quite confused about the role of government in housing finance. He is calling for an end to Fannie Mae and Freddie Mac, but still advocating for further government intrusion in the housing finance market:
Politicians have been promising more than they can deliver since the dawn of democracy. So it’s no surprise that President Barack Obama wants to make housing more affordable, ensure that home prices keep going up, reduce taxpayer support for the mortgage-finance system and prevent future crises — simultaneously. But some of the items on his wish list, as outlined in a speech Tuesday in Phoenix, are contradictory.
Perhaps some of his suggestions for reform are viable, but “some of Obama’s other ideas are worrisome”:
It’s all well and good to say that the government should “cut red tape” and “simplify overlapping regulations” so that “responsible families” have an easier time buying homes. But what does this mean in practice? Should income and down-payment requirements be eased? Lest we forget, lowering lending standards was precisely what got us into the housing mess in the previous decade.
As things stand, the federal government is on the hook for all of the losses on nearly every mortgage issued since 2009. To change this, it makes sense to abolish Fannie Mae andFreddie Mac, the government-owned mortgage financiers that buy loans from banks so they have the money to lend again, and replace them with a more limited entity devoted solely to selling insurance to protect against catastrophic losses.
Heritage’s John Ligon and James Gattuso have also pointed out Mr. Obama’s confusion:
He is right. Broad government guarantees that shifted risk of defaults away from private investors put homeowners and taxpayers at substantial risk, leading to excess debt and leverage to flow to real estate, and instead of protecting against catastrophes in the system, made them more likely.
But the President went on to call for government reinsurance of mortgage securities, payable after private capital is exhausted. Such reinsurance would ostensibly be priced so as to be self-funding. But if a reinsurance guarantee is self-funding, then why is the government needed? This new government guarantee would, like the present system, put taxpayers at risk and weaken the incentives to lend wisely.
The President does make some other recommendations that are worth pursuing, such as reducing red tape for mortgages and reducing local regulatory barriers to new housing development. But these nods to rolling back government barriers to housing are swamped by calls for expanded government. Obama calls for new funding for homeowner refinancing, money for refurbishing vacant properties and “greening” of blighted properties (including a “sizeable” amount for Detroit), new subsidies for rental housing, and funds for programs for the homeless. This wish list of new spending not only threatens taxpayer wallets but distracts from the focus on fixing housing markets.
FHFA. Some of Mel Watt’s Democratic friends are concerned that he may not win confirmation to head up the Federal Housing Finance Agency (FHFA):
Senate Majority Leader Harry Reid (D-Nev.) recently pushed off a vote on Watt’s nomination until after Congress’s August recess, a move that the veteran Democratic House member’s proponents and critics both cite as evidence that he doesn’t have the 60 Senate supporters needed to overcome a Republican-led filibuster. And Democratic insiders now say that a GOP filibuster of Watt alone wouldn’t trigger another showdown over the filibuster.
Obama hardly mentioned Watt in a high-profile housing speech delivered in Phoenix on Tuesday, issuing just a perfunctory call for the Senate to vote on the nomination toward the end of his remarks.
Watt is worried enough about his prospects that he asked fellow Congressional Black Caucus members to lobby their home-state senators on his behalf, prompting the CBC to quietly organize a campaign to cross the Capitol and make the case for his confirmation to Republican senators.
We have noted that several of Watt’s past actions create “unflattering perceptions and create the appearance of impropriety. For example, Watt “proposed tariff waivers worth millions for a textile company whose lobbying firm donated thousands to his campaign.”
IMMIGRATION. The Heritage foundation has 5 questions – and the answers to those questions — that we should ask our representatives over the August recess about immigration and amnesty:
During the August congressional recess, a pro-amnesty coalition of business and union interests is putting the squeeze on members of the House of Representatives to pass a “comprehensive immigration reform” bill similar to the Senate-passed monstrosity. But hard-working Americans also have a voice and can speak up in town halls with House members while they’re in the districts. Here are five questions to remind them of the wisdom and importance of taking a step-by-step approach to immigration reform.
See the questions and answers here.