Republicans Respond to Obama Speech, Dismissing Need for Government Guarantee

Republican members of the House Financial Services Committee claimed leadership in the area of housing finance reform in the wake of President Obama's speech on the subject in Phoenix on Tuesday. In a blog posting on the committees website Wednesday members said, it was encouraging that the President was "finally engaging" in the debate over housing, but "House Republicans have already taken the lead in moving legislation and consistently called for housing finance reform in order to protect taxpayers, homeowners, and middle-class families from the devastating impact boom-bust housing cycles have on our economy and the lives of millions of Americans." 

The blog compared several of the the President's proposals with their own approach as laid out in the Protecting American Taxpayers and Homeowners (PATH) Act that passed the Financial Services Committee in July on the committee website yesterday.

The President proposes that "Private capital should take a bigger role in the mortgage market." 

The PATH Act, Republicans said, frees "America's housing markets from government distortion and control by Washington elites." It implements reforms to increase competition, enhance transparency, and maximize consumer choice.

President Obama would begin housing finance reform by winding down Fannie Mae and Freddie Mac."

Committee members say they could not agree more and criticized the Dodd-Frank Act for "dong absolutely nothing to reform Fannie and Freddie or end their taxpayer-funded bailout." PATH would "End the taxpayer-funded bailout of Fannie Mae and Freddie Mac and phase out these failed Government-Sponsored Enterprises within five-to-seven years. "

The President says we should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage. 

House Republicans say they agree that basic products like the 30-year fixed-rate mortgage play an important role in helping some families who want to buy a home. Section 213 of PATH specifically states that FHA shall provide for a 30-year fixed-rate mortgages and also cuts the regulatory burdens and red tape for more community banks to make these loans and hold them on their own books. It also provides for FHA to use the new public securitization utility to sell those loans into the secondary market as an alternative to Fannie and Freddie.

As Fannie Mae and Freddie Mac have never made a 30-year fixed rate mortgage or any other type of a loan but rather buys loans made by others, mortgage terms are up to the homebuyer and the lender, and phasing out Fannie and Freddie will do nothing to limit financing options, the post said.

Committee members made some general criticisms of the President's statements, particularly his complementary remarks about the Consumer Financial Protection Bureau and the Dodd-Frank Act, saying that "the Administration's own red tape will make it harder for middle-class Americans to buy a home." PATH, they said, will "free America's housing markets from the control of Washington elites by implementing reforms to increase competition, enhance transparency and maximize consumer choice."

One key area in which they disagree with the President, they said, is on the need for a government guarantee to the housing market. "It doesn't matter if it's Fannie Mae and Freddie Mac or a new entity that serves a similar function - if the government is providing that backing it will crowd-out the private sector and again put taxpayers on the hook for Washington's failed policies.  That is not reform - it's the status quo with new packaging." The PATH solution, they said is to end the nearly $200 billion Freddie and Fannie bailout by phasing them out over five years.