First, President Obama’s selection of Mel Watt to head up the Federal Housing Finance Authority (FHFA) comes out in support of dissolving Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs). Now, House Financial Services Committee Chairman Jeb Hensarling (R-TX) has presented the Protecting American Taxpayers and Homeowners Act (PATH Act), another step to eradicate the GSEs within five years.
"The good news is that a broad consensus has emerged on the direction that our next steps must take us—towards a system driven by private capital that minimizes the risk to taxpayers," Watt told Reuters late last month.
The PATH Act proposes:
►Ending the taxpayer-funded bailout of Fannie Mae and Freddie Mac and phases out the troubled GSEs within five years;
►Increasing competition by ending the federal government’s domination of the housing finance market that has left taxpayers liable for $5.1 trillion in mortgage guarantees; and
►Giving consumers more choices in determining which mortgage product best suits their needs.
“House Republicans are committed to fixing the failed housing finance system that required the biggest taxpayer-funded bailout of all time—nearly $200 billion for Fannie Mae and Freddie Mac," said Sen. Hensarling. "America needs a housing policy designed for homeowners and taxpayers—not for Wall Street and the housing industry. America needs a housing policy designed to give every American who works hard and plays by the rules both opportunities and choices to buy a home they can actually afford to keep."
The PATH Act essentially eliminates most taxpayer support for the housing market, which would most likely result in higher borrower costs for mortgages, while also pushing the government out of the market, allowing for private entities to take control. The bill wouldn’t immediately dissolve Fannie Mae and Freddie Mac, however; the GSEs would be eliminated over the course of five years, with their portfolios and securities dropped by 15 percent each year. Whatever remnants of the two entities would be liquidated.
“Our plan helps taxpayers and homeowners. It gives power and control back to consumers. Under the current broken system, unaccountable Washington elites have more of a say over who gets a mortgage than your local bank,” said Rep. Hensarling. “The current system is a government monopoly run by the same types of Washington bureaucrats who run the IRS. America can do better. Americans deserve better.”
While no bipartisan support has been indicated as of yet, top Democratic members of Congress have expressed disappointment with the GOP’s proposal.
“By presenting such an extreme proposal—with no input from Democrats—the chairman stands in stark contrast with his colleagues in the Senate and has made it clear that bipartisan housing finance reform is not his priority,” Rep. Maxine Waters (D-CA) told Politico.
The PATH Act will most likely undergo a tremendous amount of changes should it go into effect, with Democrats and Republicans both making modifications.
"The National Association of Home Builders (NAHB) appreciates the chairman's [Rep. Hensarling] leadership in this area, and we look forward to working with him and the committee, along with other members of the House, to enact sustainable reforms that ensure liquidity and stability in the financing of homeownership and rental housing,” said NAHB CEO Jerry Howard.