House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said this week that while a healthier economy is the end goal, misdirected government policies and subsidies mandating who financial institutions may loan to are hindering the process.
“This is the 10th full or sub-committee hearing that we have had on the topic dedicated to forging a new sustainable housing policy for America,” Hensarling said. “Clearly all Americans want a healthier economy and they want a fair opportunity to buy a home they can actually afford to keep. It is clearly time to displace a system of false hopes and broken dreams which have arisen from misdirected government policies and subsidies that regrettably incented, browbeat, or mandated financial institutions to loan money to people to buy homes they all too often could not afford.”
Hensarling said Dodd-Frank, which remained silent on Fannie Mae and Freddie Mac, has failed to reform the system and a new approach is called for.
“First, the U.S. is practically alone in the modern industrialized world in having GSEs directly guarantee mortgage securities,” Hensarling said. “We are practically alone in the level of government subsidy and intervention into our housing market. We were also practically alone in the level of turmoil in our housing markets as measured by foreclosures and delinquencies. Clearly there is a direct causal link. By almost any measure Fannie and Freddie have not propelled the US to housing finance nirvana. When compared to other modern industrialized nations – whether we look at rates of home ownership or spreads between mortgage interest rates and sovereign debt, the US can usually be found either at the middle or bottom of the pack. However, there is one category where the US clearly has led. Regrettably, that category is foreclosure rates. In other words, only in America can you find a government that subsidizes housing more, so that we the people can get less”
Hensarling warned that the government controls 90 percent of the housing finance market and that taxpayers bailed out Fannie and Freddie in the amount of $189 billion, leaving taxpayers on the hook for $5 trillion in mortgage guarantees.
“As lawmakers, it is time to open up our eyes and open up our minds to alternative models and a pathway forward,” Hensarling said. “We shouldn’t preserve Fannie and Freddie’s federal guarantee just because we have done so in the past. We shouldn’t preserve their federal guarantee just because those who believe they profit from the status quo urge us to continue doing so. Americans deserve a better finance model – one that’s built to last and is sustainable. Sustainable for homeowners, sustainable for taxpayers, and sustainable for our economy.”