Congressional Quarterly - Garrett Pushes for End to Fannie Mae and Freddie Mac

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By Ben Weyl

The House Republican responsible for writing legislation to overhaul Fannie Mae and Freddie Mac reiterated on Monday his desire to pull the government out of the housing market completely.

But Scott Garrett of New Jersey, who oversees the Financial Services subcommittee on Fannie and Freddie, acknowledged that making huge changes to the nation's housing finance system may take some time.

"I am firmly committed to a purely private U.S. mortgage market over time, free of any government subsidy or guarantee," Garrett said at the annual conference of the American Securitization Forum, a securities industry advocacy group, in Orlando. "Now I realize that this will not be easy or immediate, but it is one of the goals that I feel very, very strongly about."

Garrett has long sought to eliminate Fannie and Freddie, and he will use his subcommittee perch to shape the coming debate on what to do with the mortgage giants, which were seized by the George W. Bush administration during the 2008 housing-market collapse.

Known as government-sponsored enterprises (GSEs) because they originally were chartered by the government to reduce the cost of home ownership, the agencies have remained solvent due to a taxpayer investment of roughly $150 billion. The Obama administration is expected to unveil its long-term plans for the GSEs later this month. Garrett's panel will host its first hearing on Fannie and Freddie on Feb. 9.

On Monday, Garrett laid out the broad outlines of what an overhaul would look like under his watch.

While he noted that final decisions are far off, Garrett told conferees that he initially intended to pursue four "overarching objectives": "protect the American taxpayer, end the bailouts, get private capital back in the housing market and mortgage market again and, finally, decrease government exposure to housing."

To reduce the public's exposure to housing risks, Garrett urged the faster dismantling of the GSEs' roughly $1.5 trillion portfolio by selling off more assets. To do away with bailouts, he urged putting the costs of Fannie and Freddie on the federal government's budget to better account for their expense and to pressure lawmakers concerned with the national debt.

In an effort to bring private capital back into the market -- currently the government backs more than nine in 10 new mortgages -- Garrett recommended lowering the upper limit for loans that the GSEs can purchase or guarantee. Currently, Fannie and Freddie can buy home loans worth up to $729,750 through fiscal 2011 in certain high-cost markets.

Finally, as part of his desire to reduce government involvement in the housing sector, he urged abolishing the GSEs' mandate to promote affordable housing.

"It's absurd that these two entities should have affordable-housing goals," said Garrett. "The only goal that these two entities should have right now is to reduce the burden on the American taxpayer.

Many economists worry about withdrawing government support for housing too quickly, fearing it could spark an increase in mortgage interest rates and another sharp downturn in home purchases.

Garrett also used the opportunity to try to swat down some of the more common objections to removing the government from the mortgage market.

He rejected assertions that the commonly used 30-year fixed mortgage would not survive without a government guarantee, noting that the private market still offers financing for some higher-cost loans. He acknowledged that the cost of mortgages would rise and that higher down payments would be required but added, "is that really a bad thing?"

Under the 2010 financial regulatory law (PL 111-203), the administration was required to offer a long-term plan for Fannie and Freddie by the end of last month. The report's unveiling was delayed -- to pointed GOP criticism -- because of the State of the Union address and efforts to finalize the White House budget request for fiscal 2012.

While the administration is expected to call for Fannie and Freddie to be restructured, the plan likely will maintain some government backing of the mortgage market.

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