Tomorrow, the House will consider a massive housing bill that not only forces taxpayers to guarantee over $300 billion in new home loans for troubled borrowers, but also includes an unprecedented bailout for the trillion dollar mortgage giant Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. This package is being rushed to the floor without having any hearings or markups on the matter, and will likely come up under a rule that limits debate and precludes amendments.
Many opposed the core housing bill because it would bailout big banks that made risky bets in housing by forcing 95 percent of Americans (those who rent, own their own homes outright, or are on time with their mortgages) to bail out the other 5 percent (those who are near or in foreclosure). The bill now also contains $4 billion in new CDBG spending for local communities to buy foreclosed properties, which would do nothing to help struggling homeowners, as well as imposes a backdoor home mortgage tax to fund a housing slush fund for leftist housing activist groups, like ACORN and La Raza.
Most troubling, though, is a GSE bailout that could put taxpayers on the hook for as much as $5 trillion dollars worth of risk – an amount larger than the economy of every single country in the world except the United States or China. The bailout would give Fannie and Freddie an unlimited line of credit from the U.S. Treasury and force the taxpayer to buy equity in the companies to help further prop up their stock prices. In the worst case scenario of these companies completely failing, taxpayers would see the $9.5 trillion national debt explode by 50 percent in an instant. Though a complete implosion is unlikely, all of the so-called experts have said the same thing about every other aspect of the current housing market turmoil. In essence, we are now being asked to allow the GSEs to privatize their profits but socialize their losses.
Newspapers across the political spectrum have questioned the desirability of this kind of GSE bailout, from the Wall Street Journal to the New Yorker. Even the Washington Post has editorialized that the bill would “potentially increase the very risks [the] plan is intended to mitigate,” and asked “wouldn't it be wiser to revamp the whole GSE structure, rather than construct an increasingly elaborate apparatus to address -- or conceal -- the fact that it no longer works very well?”
Given their massive market exposure, I don’t believe that we can allow Fannie and Freddie to fail. However, the fact remains that there are other alternatives out there. If Congress is forced to use taxpayer funds to bail Fannie and Freddie out today, we must take all the necessary steps to make sure we never, ever force taxpayers to do it again by making sure they are not too big to fail tomorrow and in the years ahead. To do that, the only true reform is to transition Fannie and Freddie – over a reasonable time period – to truly private companies without special government privileges by phasing out their GSE charters and exposing them to the discipline of a competitive marketplace in the conforming loan area.
I will be introducing legislation that does just that, winding down the charter of either GSE over a five year period pursuant to their accessing any expanded borrowing authority by the Treasury or at the Fed’s discount window. My bill will also call for either company to be placed into receivership if they are unable or unwilling to make the tough choices and get their financial house back in order.
Instead of simply rubber stamping this flawed bill, there are alternative legislative vehicles that would help address the problems we are facing in the housing markets Financial Services Committee Ranking Member Spencer Bachus introduced the “Homeownership Protection and Housing Market Stabilization Act,” which contains language to create a new GSE regulator, modernize the FHA, and combat mortgage fraud. Rep. Scott Garrett has introduced, the “Federal Housing Finance Regulatory Reform Act,” which is a standalone version of the Senate-passed GSE reform bill to ensure the safe and sound operations of the GSEs minus the bailout, the troublesome Housing Trust Fund, and some additional spending unrelated to the GSEs. Additionally, many Members have chosen to support the RSC’s Economic Growth Act, which would add needed liquidity to the market and promote long-term economic growth by allowing full and immediate business expensing, reducing the top corporate income tax rate from 35 percent to 25 percent, ending the capital gains tax on inflation, and simplifying the capital gains rate structure.
There are five trillion reasons why we ought to take our time to consider this bill and all of the possible alternatives to it instead of hurriedly cramming it through on top of an already flawed housing bill. Taxpayers have the right to expect a serious, long term solution rather than a quick fix that puts them on the hook today and keeps them there tomorrow.