Committee Considers Overseas Secondary Mortgage Market Solutions
The full House Financial Services Committee assembled Wednesday for a hearing that examined the mortgage finance systems of other countries that don’t rely upon government-sponsored entities like Fannie Mae or Freddie Mac.
The hearing featured academic witnesses from three California universities, New York University and an American Enterprise Institute fellow.
The hearing was the 1oth so far this year for the full committee or subcommittees that have explored housing policy reform, Chairman Jeb Hensarling (R-Texas) said in his opening remarks.
"Notwithstanding the damage they have caused in their checkered past, many cannot conceive of a housing finance market without a government-guaranteed Fannie and Freddie,” Hensarling said.
He said that while the U.S. is practically alone in the modern industrialized world in having GSEs directly guarantee mortgage securities and the level of government subsidy and intervention in the housing market, the U.S. leads the world in foreclosure rates.
“In other words, only in America can you find a government that subsidizes housing more, so that we the people can get less,” he said.
Hensarling has been publicly vocal with his desire to privatize at least part of the secondary mortgage market. In April, he said the first step to a sustainable housing policy would be the elimination of Fannie and Freddie government guarantees.
Wednesday, he urged his fellow lawmakers to consider alternative models for GSEs.
“We shouldn’t preserve Fannie and Freddie’s federal guarantee just because we have done so in the past. We shouldn’t preserve the federal guarantee just because those who believe they profit from the status quo urge us to continue doing so,” he said.
Predictably, committee Ranking Member Maxine Waters (D-Calif.) disagreed.
“The hearing is titled, ‘Examples of Successful Housing Finance Models Without Explicit Government Guarantees,’” Waters said in her opening remarks. “However, if we are to be honest, it should more properly be titled, ‘Examples of Other Housing Finance Models with Other Forms of Government Guarantees.’”
For example, she said, covered bonds enjoy preferential status in terms of regulatory and capital treatment in Europe. And, while other countries may invest fewer resources in homeownership, Waters said, they also make more significant investments in public and assisted rental housing.
Waters said she supports reform so long as it preserves the 30-year, fixed-rate mortgage in the U.S.
“I think the recent crisis has demonstrated that this is a stable product, which has actually outperformed the exotic mortgages that proliferated in the lead-up to the financial crisis,” she said. “If we eliminated a government role in housing finance, these exotic products would likely again predominate.”
In advance of the hearing, NAFCU Executive Vice President of Government Affairs Dan Berger sent a letter Tuesday to Hensarling and Waters, stressing the need for secondary mortgage market reform that would ensure continued access for credit unions and fair pricing based upon loan quality.
“Along with access to a healthy and viable secondary mortgage market, fair pricing is equally as critical in ensuring community-based financial service providers are not discriminated against based on type of institution, an institution’s asset size or any other geopolitical issues,” Berger wrote in the letter.