Members of the Bipartisan Policy Center hosted a forum in Texas on Tuesday to discuss reform of the housing finance system, during which House Financial Services Committee Chairman Jeb Hensarling discussed the Protecting Taxpayers and Homeowners Act.
The PATH Act is designed to end the bailout of Fannie Mae and Freddie Mac and phase out their existence, increase competition by ending the government’s domination of the housing finance market, protect and sustain the 30-year fixed-rate mortgage and allow consumers more choice in mortgage products.
“Today’s system of boom, bust and bailout is retarding economic growth and helping fuel what all acknowledge as unsustainable levels of national debt,” Hensarling said in a press release. “It’s been nearly five years since the financial crisis, which was caused in large part by Washington policies that incented, mandated and browbeat financial institutions to loan money to people to buy homes they ultimately could not afford. It’s been three years since the Dodd-Frank Act failed to do anything about Fannie Mae and Freddie Mac and their record taxpayer-funded bailout. Now it’s time for action to create a sustainable housing finance system – sustainable for taxpayers, for homeowners and for our economy.”
Critics of the legislation maintain that the bill could reduce the number of approved mortgages in coming years, a concern acknowledged by Hensarling’s staff as a possibility, DallasNews reports.
The bill faces stiff opposition in Washington and in Hensarling’s home state of Texas. Business groups like the Mortgage Bankers Association and Independent Bankers Association of Texas have praised Hensarling for bringing the issue to the forefront but indicated support for a measure in the Senate that would replace Fannie and Freddie with backstops that Hensarling maintains are continued government interference.
David Moss, a scholar at the Harvard Business School and an expert in financial risk, said, however, that Hensarling’s proposal would bring private firms back to the market because they would no longer have to compete with the government-sponsored enterprises.
“And competition will breed innovation,” Moss said, according to DallasNews. “Innovation could well mean that mortgage products would be created that more closely fit the needs of individual borrowers.”
Also present at the symposium were Mel Martinez, the former secretary of the Department of Housing and Urban Development and co-chair of the BPC Housing Commission, and Henry Cisneros, another former HUD secretary and co-chair of the BPC Housing Commission.
Both Martinez and Cisneros said Hensarling’s proposal goes too far in eliminating the role of government in the housing finance market.
“Our proposal is very similar to Chairman Hensarling’s proposal on so many fronts,” Martinez said, DallasNews reports. “But the point of departure is that we believe that the U.S. government should remain as the ultimate backstop.”