By Stacey Kaper
Rep. Scott Garrett, R-N.J., is frustrated that the House has not lived up to the GOP's 2010 "Pledge to America" to reform Fannie Mae and Freddie Mac, and he is hoping the upcoming elections will generate fresh momentum.
Garrett, who may vie to become the House Financial Services Committee's top Republican in the next Congress (current Chairman Spencer Bachus, R-Ala., is term-limited), currently chairs the Capital Markets and Government-Sponsored Enterprises Subcommittee. He has made privatizing Fannie and Freddie one of his top goals.
"My hope would be to complete the pledge, which is to end the bailouts," he said. "On the politics, there's the danger that we will not have lived up to our pledge, and how many times can you do that before people start saying "we can't trust you'? On the policy side, there's the danger that when the next event occurs, the system will not work and taxpayers will be bailing out another multiple hundreds of billions of dollars."
Since Republicans regained control of the House, Garrett has ushered 15 bills through his subcommittee that would hack away at the mortgage giants. The proposed legislation would force the GSEs to raise capital and shrink their portfolios to reduce their market share, as well as establish some structure for creating a private mortgage market. However, only one bill from Bachus, reducing executive compensation, has cleared the full committee. A key bill from Rep. Jeb Hensarling, R-Texas, of which Garrett is one of 78 cosponsors, would wind down Fannie and Freddie, but it has not come up for a vote.
Despite some progress, it will be a long haul before the conservative objective of disentangling the federal government from the housing market, which it has almost solely propped up since Fannie and Freddie were bailed out in 2008, is achieved.
"I would rather move. Any member with an issue on his plate would rather move sooner than later because other issues will come into the forefront with the next administration," Garrett said. "If things don't happen, we'll be working on it just as hard.... I don't think that reform ever gets easier as you move away from the crisis."
Garrett is determined but must contend with a contingent of House Republicans, such as Californians John Campbell and Gary Miller, who want to maintain some federal support for the housing market to ensure that mortgages are affordable. This runs afoul of the purely private-market approach Garrett and Hensarling back.
"On any piece of legislation, when leadership has an interest in moving it, that helps facilitate moving legislation," he said. "Some of my colleagues have a divergent view. A very few of my colleagues believe that you can actually maintain keeping the taxpayers on the hook--and that's not bad."
But fellow Republicans are not the only roadblock. Overwhelming opposition from the housing industry and lack of engagement from the Obama administration, have only made the effort harder, Garrett argues.
House Republicans are still waiting for the administration to say which of three paths to reducing taxpayer risk that Treasury Secretary Timothy Geithner laid out last year it prefers. "If they came in with something along the lines of the first plan, it would give us something to push back to the housing-industrial complex and say, "Yes, the White House is on board, we're really going to do it.' To any of our own members who may have problems with it, we could say, "Look, we are going to work with the Obama administration to get this done,' " Garrett said.
House Republicans are reluctant to take votes on divisive measures that have no chance of becoming law, particularly those that buck an influential industry like housing.
"It just facilitates it when you can say, "We and the White House are on the same page,' so that you can get something done," Garrett said. "As opposed to the House is again just doing something that is never going to happen. People say, "Well, why do I want to use chits, use resources, go out on a limb?' "
In the meantime, Garrett insists any compromise that would reduce but not eliminate taxpayer risk is unacceptable.
"To be true to the pledge, we have to address the winding down of the GSEs and creating a marketplace that will sustain a non-bailout environment," he said. "There are other ideas that minimize [risk]. They push it off down the road; they create obstacles to it. But at the end of the day, I say, "Is the taxpayer really off the hook? No, because we could end up right back there again.' "