There's a framed editorial cartoon hanging in my district office in Jefferson City that depicts a couple - the husband is labeled Freddie Mac and his wife is labeled Fannie Mae - telling a man behind a desk who is labeled "taxpayers" the following: "We need to apply for a loan." I've had that piece of artwork since the housing collapse in 2008 and the nearly $200 billion bailout for Fannie and Freddie that ensued, and it has served as a stark and constant reminder of the kind of chaos government created in the home lending market that has yet to fully recover.
That artwork was in the back of my mind recently when I had the opportunity as a member of the House Financial Services Committee to support the Protecting American Taxpayers and Homeowners (PATH) Act of 2013, a comprehensive piece of legislation that focuses on ending the costly Fannie and Freddie bailout; right-sizing the Federal Housing Administration (FHA) and clearly defining its mission; implementing market reforms to increase mortgage competition, enhance transparency, maximize consumer choice; and breaking down barriers for private investment capital.
Currently, our system of housing finance is dominated in large part by the two housing Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, and other government guarantees supplied by the FHA and its loan securitizer, Ginnie Mae. Combined, the GSEs and the FHA guarantee more than 85 percent of all new mortgage originations and were responsible for more than 99 percent of all mortgage securitizations in 2012.
Such a system is unsustainable, and continuing to expose taxpayers to liabilities that are measured in the trillions of dollars is unacceptable. Moreover, this unprecedented level of government involvement is crowding out private sector capital, investment, and innovation. I believe that you deserve a better housing finance model - one that's sustainable and built to last. It needs to be sustainable for homeowners so they can keep their homes; sustainable for you the taxpayer so that you are never again forced to fund another multi-billion dollar Washington bailout; and sustainable for our nation's economy so we avoid the boom-bust housing cycles that have hurt so many in the past.
At its core, the housing market is no different from the market for any other asset - housing is not immune to the laws of supply and demand or risk and reward. Thus, any plan to reform our housing finance system must advance four fundamental goals essential to the development of any free market.
First, the role of government must be clearly defined and limited to protect taxpayers, prevent the crowding out of private sector participation, and eliminate moral hazard. Second, artificial barriers to private capital must be removed to attract investment and encourage innovation. Third, market participants must have clear, transparent, and enforceable rules for transactions to foster competition and restore market discipline. Lastly, consumers must be afforded choice in determining which mortgage products best suit their individual needs, free from arbitrary government restrictions that ban options or steer consumers to certain government-preferred products over others.
I believe the PATH Act is the first step in making responsible home ownership more attainable for hard-working Americans, like you, while at the same time providing safeguards from government lending chicanery.
U.S. Rep. Blaine Luetkemeyer, R-Mo., represents the 3rd District, which includes Jefferson City. His local office call be reached at 573-635-7232.
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