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Congressional Quarterly - On Housing Overhaul, Democrat and Republican Find Room for Common Ground

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With Washington at a political impasse on seemingly every major policy question, two rank-and-file lawmakers are hoping their work together on one particularly polarizing issue can provide an example to lawmakers for how to build productive relationships and find common ground.

Republican Rep. John Campbell and Democratic Rep. Gary Peters have teamed up on legislation to overhaul Fannie Mae and Freddie Mac, the government-sponsored enterprises bound up in the housing market's troubles and the targets of scorn from conservatives who say their role distorts the market.

Campbell and Peters would not at first glance look like the ideal partners to bridge the gap between Democratic and Republican views on the government's place in the housing market. Campbell, a conservative devotee of free-market icon Ayn Rand, represents wealthy Orange County, Calif. Peters, a centrist Democrat who is weighing a run for the Senate, represents a district that includes part of inner-city Detroit.

But both men hail from regions hit hard when the housing bubble burst, both are on the Financial Services Committee, and their mutual interest in restructuring the housing finance system brought them together.

After a hearing two years ago on Fannie and Freddie in which members of each party staked out their standard positions, Campbell and Peters recognized that they largely agreed on how to move forward.

"You came to me after the hearing, and said, "It sounds like we could work together,' " Campbell said in an interview seated next to Peters.

The mortgage market has been in regulatory limbo since the federal government seized Fannie and Freddie in September 2008 amidst the financial crisis. Although both parties generally agree that the government needs to eventually phase out the mortgage giants, there is no consensus on what role the government should play in the market in the near term.

Many conservatives want to eliminate all government backing, arguing that such support raises the specter of future bailouts. Liberals are inclined to have larger government involvement to ensure that homeownership remains broadly affordable.

With the home sales market stagnant at best since the financial collapse of 2008-09, which was fed partly by a meltdown in the housing market, Congress has mostly steered clear of making fundamental changes to a fragile sector.

Now, with the housing market on firmer footing, Campbell and Peters believe they have found a new model to rebuild the financing structure behind homeownership. Their proposal would replace Fannie and Freddie with several private companies that would issue mortgage-backed securities explicitly guaranteed by the federal government.

Fannie and Freddie had an implied government guarantee that became explicit when the government swept in during the crisis to keep the mortgage market afloat. So far, the firms have relied on more than $180 billion in public funds.

"Freddie and Fannie were a failed model," said Peters, "a government-sponsored organization that can make a lot of profit, but if they failed, all of us as taxpayers are picking up the pieces."

Under the approach Campbell and Peters describe, the government's current role in the mortgage market would be reduced considerably. Private capital would be the first line of financing, but in the event of a crisis, the government would ensure that loans would be repaid, even if the companies could fail.

The existence of a government backstop is seen by both the mortgage industry and community advocates as crucial to keeping homeownership affordable for the middle class, and for maintaining the existence of the popular 30-year fixed rate mortgage.

"I don't think we sought to find the ideological center," Campbell said. "I think we sought to find a solution that worked."

Timetable for Change

Campbell and Peters introduced legislation on housing in the last Congress, but it didn't advance. The greatest opposition is likely to come from conservative Republicans on the Financial Services Committee, including Chairman Jeb Hensarling of Texas. The pair plan to unveil a new version in the near future, after the panel holds further hearings on housing finance.

The measure will largely resemble their previous bill, but it will have some tweaks. Campbell said the new bill would include a mechanism to reduce the government's backing of the mortgage market. Currently, the government guarantees roughly nine out of 10 new mortgages.

"You kind of don't want to do that on a timetable or something, because you don't know when it will be right," said Campbell. "So we're going to put in a mechanism which will ramp [down] the government. It will actually have some market triggers that essentially show when the market is ready to take additional risk."

Although Congress and the administration have been reluctant to tackle an overhaul of Fannie and Freddie, both men are optimistic that will change in the 113th Congress. Peters noted they had met with high-ranking Treasury Department officials who were interested in their proposal. The Bipartisan Policy Center recently proposed something similar as part of a major housing report.

But Peters and Campbell say there are broader lessons in their work together on housing legislation.

They have not crafted their agreement by returning to an idealized era in which friendships forged after working hours somehow yielded legislative action. In fact, Peters and Campbell say they don't socialize together much outside of the Capitol, and they said it hasn't been a necessary ingredient to their partnership.

"It's not the sort of thing over a fourth beer or something like that," Campbell said. "I think it's generally by the desire to get something done."

Identifying what it is they want to get done and working on that, free of broader political agendas, has been the key. "I think the crux of it is, we take off our ideological hats and put on our practical, problem-solving hats," said Peters.

Working together on housing issues has led to other cooperation. After Peters was asked to co-chair the bipartisan House Automotive Caucus, he called on Campbell, a former automobile industry executive, to serve as the group's GOP co-chairman.

Peters and Campbell still disagree with each other on a vast majority of issues. But they say their work on housing can offer lessons for President Barack Obama and congressional Republicans negotiating on other matters.

"One of the things the president is working on is trust," Campbell said, nodding to Peters. "This place needs to work on trust, and I trust this guy."


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