Housing Market

AEI’s Glassman criticizes Johnson-Crapo GSE reform proposal

James K. Glassman

James K. Glassman

In a recent blog post, James K. Glassman, a visiting fellow at the American Enterprise Institute, said the draft proposal for housing reform released by members of the Senate Banking Committee is a “complicated apparatus disturbingly similar to Obamacare.”

Sens. Tim Johnson (D-S.D.), the chairman of the Senate Banking Committee, and Committee Ranking Member Mike Crapo (R-Idaho) released the draft text of the long-awaited bipartisan housing finance reform deal earlier this month.

Among other measures, the proposal includes provisions for the wind-down of mortgage giants Fannie Mae and Freddie Mac, which would then be replaced by a new mortgage insurance entity.

“In going through contortions to reinvent the housing finance system, the senators have avoided the obvious solution: keep the basic platform that has generally served American homeowners well but reform it to reduce risks,” Glassman said, according to The Weekly Standard. “Instead, Johnson and the others have come up with a contraption that resembles the Affordable Care Act in its convolutions and its potential for unintended consequences.”

Glassman said the bill would tempt ratings agencies like Fitch to downgrade government bonds for a second time and “blithely strip” shareholders of their assets, which could lead to a decline in investor confidence.

He said the original bailout deal for Fannie and Freddie required the GSEs to repay the Treasury the $187 billion bailout they received with a 10 percent annual dividend, but the government “unilaterally” changed the terms of the agreement in 2012 to provide for the transfer of all profits to the Treasury on a quarterly basis.

“Fannie and Freddie… are zombies, stripped of their capital, with shareholders hanging on in the hopes that the feds will come to their senses and abide by the rule of law,” Glassman said, The Weekly Standard reports. “What is unacceptable is for the federal government to thumb its nose at the rule of law and treat shareholders with contempt—which is precisely the approach that the new Senate legislation will enshrine in law.”

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