Lobbying for the Status Quo

In July, the House Financial Services Committee passed the Protecting American Taxpayers and Homeowners (PATH) Act (H.R. 2767), which Heritage Action supported, because – unlike many other pieces of legislation – it would accomplish what its name implies. It would abolish the failed government sponsored enterprises, Fannie Mae and Freddie Mac, which were largely responsible for the financial collapse in 2008, thereby preventing taxpayers from having to bail Fannie and Freddie out yet again.

But some are reporting this good legislation is in jeopardy. Why?

Rep. John Carney (D-DE) 16%  is working on another competing proposal, apparently a more “centrist approach,” similar to the legislation introduced in the Senate by Sen. Bob Corker (R-TN) 50% and Sen. Mark Warner (D-VA) 7%.

Carney’s effort could amount to another challenge for House Financial Services Committee Chairman Jeb Hensarling as he works to establish his conservative housing policy vision as the Republican negotiating stance in the re-energized debate over what to do with taxpayer-owned mortgage finance giants Fannie and Freddie.

It’s not that a centrist bill would attract support from dozens of GOP House members, but anything that pulls some Republicans away from Hensarling’s bill weakens his hand as the Texas Republican tries to persuade GOP leaders to put his bill up for a floor vote later this year. (emphasis added)

Supporters of the Hensarling bill find themselves facing the same hurdle they did at the end of July.  There are outside parties – stakeholders in the housing industry – that benefit from the status quo and don’t want the government out of the housing business.  More to the point, they want taxpayers to continue padding their bottom line.  At that time we noted:

[Various] concerns, voiced by special interests that benefit from the status quo at the expense of the taxpayer, are not well grounded.  They stem from the erroneous belief that government manipulation and control – all at the expense of the taxpayer – is better than market forces.

Lawmakers seeking real reforms to our nation’s housing market should be unified in their support of the Hensarling plan to end Fannie and Freddie, not simply replace it with another taxpayer-backed agency.

Unfortunately, some folks have some pretty foolish ideas about how to fix the problems Fannie and Freddie have created.  They don’t understand that these instructions are based on flawed institutional models.  And they also don’t seem to mind that taxpayers are stuck with the check when the housing market goes awry as a result of inappropriate government intervention.

There are a number of “alterative” proposals being floated that would not fix the problem.  Among them is a plan by Rep. Maxine Waters (D-CA) 21% of the Financial Services Committee.  According to Politico, “the plan would stress the importance of preserving access to the 30-year fixed mortgage rate and maintaining a government guarantee of the housing market.”

Of course, by government guarantee they mean taxpayer guarantee.

President Obama has been operating according to the same flawed principles; he believes the federal government should still be involved in the housing market.  Heritage noted in August:

President Obama lent his voice today to the growing consensus in Washington that federally sponsored housing giants Fannie Mae and Freddie Mac must go.

While this is a welcome stance, he also called for new government guarantees for the housing finance market, which would only perpetuate the dangerous taxpayer subsidy that helped lead to the housing crisis in the first place.

Federal taxpayers deserve better.  We have already bailed out Fannie and Freddie, “providing some $154 billion in funds that are only now being repaid.”

The guarantee of government backing for whichever institutions replace Fannie and Freddie would be similarly flawed – government backing removes the incentive for lenders to lend carefully.  What is truly needed instead is a “free and fully functioning private housing and housing finance marketplace.”

Republicans should be unified around that approach, for the sake of taxpayers and homeowners.

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