Politics & Policy

Protective Measures

Looking at the big housing picture.

There’s nothing like the suggestion of a crisis to give Congress an excuse to rush through far-reaching and risky legislation — whether the legislation actually addresses said crisis is beside the point. All that matters is seizing the window of political opportunity to shuttle through bills that have languished on a Wish List for years. And so it is with the current crisis surrounding Fannie Mae, Freddie Mac, and our mortgage markets.

To be clear, I support shoring up our housing market and helping struggling homeowners. But we should seize this opportunity to make long-term changes to Fannie and Freddie, not just to address short-term problems.

These two government-sponsored entities are in need of a strong new regulator. We also must take steps to ensure the future soundness of the mortgage market, and limit any systemic risk by defining the appropriate level of their portfolios.

But such a focused and responsible approach is not up for discussion right now. Instead, Democratic leaders in Congress are moving forward with a massive housing bill consistent with their long-held desire to expand the federal government’s role in the housing market.

The details of the bill aren’t pretty. For one, it’s expected to funnel as much as $4 billion to state and local governments for the purpose of buying homes — even though the government has proven to be a terrible manager of stand-alone, single-family housing.

The bill will also likely include a $300 billion bailout of mortgage lenders, allowing them to offload their worst loans onto the Federal Housing Administration. American taxpayers will be left paying the bill. The majority also wants to establish a permanent new housing trust fund, set up with a dedicated revenue stream exceeding $700 million a year, paid for by Fannie and Freddie. Every year. Forever. While the Department of the Treasury provides them with an unlimited line of credit.

What’s more, the way this legislation is written, the larger Fannie and Freddie get, the larger the proposed trust fund will become. Perhaps that is why Speaker of the House Nancy Pelosi and House Financial Services Committee Chairman Barney Frank want to increase the size of loans Fannie and Freddie can back. Half of our mortgage markets already rely on these two entities, and this will encourage them to take on more risky obligations with the full backing of the federal government.

The problems with this package don’t end there. Some of the $700 million in new spending in the bill will be used to provide down-payments for new homebuyers, without any safeguards to ensure the borrowers can actually afford the houses over the long term. Recall that zero-down-payment loans were a major factor leading to the current foreclosure crisis.

Even the $4 billion for state and local government to buy foreclosed homes may result in worsening the crisis, as it provides an economic incentive for lenders to foreclose rather than work out agreements with struggling homeowners.

Given the current turmoil in the housing and mortgage markets, the American people expect and deserve better out of this Congress than they’re getting. We should immediately set aside work on the bailout, the affordable-housing trust fund, and all the new spending being pushed in the name of responding to this crisis. Only then can we come to together with a bipartisan bill to strengthen the regulation of Fannie and Freddie, reform these entities going forward, and return some stability to the market.

My Republican colleagues and I have offered these ideas to the Democratic majority. Time will tell whether they’re interested in using this current downturn as an opportunity to stabilize the housing market, or as an opportunity to push through a slate of bills that without this crisis would’ve otherwise never seen the light of day. And deservedly so.

  Roy Blunt represents southwest Missouri and is the House Republican Whip, the second-ranking Republican in the House of Representatives.

Members of the National Review editorial and operational teams are included under the umbrella “NR Staff.”

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