Three years after the Dodd-Frank Act failed to address the need for housing finance reform and end the record taxpayer-funded bailout of Fannie Mae and Freddie Mac, the Financial Services Committee today approved legislation to end their bailout and create a sustainable housing finance system for America.
The bill -- the Protecting American Taxpayers and Homeowners Act, the PATH Act --
ends the largest bailout in history -- the nearly $200 billion taxpayer-funded bailout of Fannie Mae and Freddie Mac -- and phases out the troubled Government-Sponsored Enterprises within five years;
increases competition by ending the federal government's domination of the housing finance market that has left taxpayers liable for $5.1 trillion in mortgage guarantees; and
gives consumers more choices in determining which mortgage product best suits their needs.
"The PATH Act creates a housing finance system that's designed for homeowners so every American who works hard and plays by the rules can have opportunities and choices to buy homes they can afford to keep. It creates a housing finance system that's designed for hardworking taxpayers so they never again have to bail out corrupt financial government enterprises like Fannie Mae and Freddie Mac, whose top executives engaged in accounting shenanigans to trigger huge bonuses for themselves," said Chairman Jeb Hensarling (R-TX). "With the reforms in the PATH Act, Americans will finally have a housing finance system that is worthy of them."
Rep. Scott Garrett (R-NJ), lead sponsor of the PATH Act and Chairman of the Capital Markets and Government Sponsored Enterprises Subcommittee, said, "The passage of this legislation today is a critical step in reforming our nation's housing finance system and ensuring the American taxpayers no longer have to fund $200 billion bailouts. Now that the Financial Services Committee has acted, I look forward to continuing to work with Chairman Hensarling and House Leadership to ensure that this bill passes both Houses and is quickly advanced to the President's desk."
Rep. Randy Neugebauer (R-TX), Chairman of the Housing and Insurance Subcommittee, said, "Today we passed legislation to make our housing markets healthy, stable, and strong. Reducing the government footprint in our mortgage industry not only gets taxpayers off the hook for costly bailouts, but it also provides families with more flexibility when they purchase a home. We had an open debate on the PATH Act, and I think we've developed a strong bill to bring to the full House for a vote. I'm looking forward to getting this signed into law so we can get our housing markets back on track."
Rep. Shelley Moore Capito (R-WV), Chairman of the Financial Institutions and Consumer Credit Subcommittee, said, "Americans deserve a better housing finance system, one that is sustainable and moves towards the private sector. I am proud to be part of that process with the PATH Act, and our work to deliver that goal to the American people. We need a sustainable system that puts the interest of taxpayers and homebuyers first, and our bill does just that."
Rep. Patrick McHenry (R-NC), Chairman of the Oversight and Investigation Subcommittee, said, "By effectively diagnosing why Fannie and Freddie helped fuel the financial crisis, the PATH Act accomplishes what Dodd Frank abdicated three years ago: comprehensive GSE reform that protects U.S. taxpayers from reoccurring bailouts to the tune of $200 billion and outstanding liabilities well over $5 trillion. The Committee's approval of the PATH Act institutes policies that responsibly wind-down the taxpayer-owned giants, concentrate on FHA's core mission to help low-to-moderate income home buyers, and cultivate private market interest in the secondary mortgage market. I will continue to work with my colleagues to advance this legislation that fixes our broken housing finance market, fulfilling a five-year-old promise to the American public."
The Financial Services Committee held 12 hearings since January and heard from more than 50 witnesses on the need to create a sustainable housing finance system for America and approved the PATH Act reforms after a 10-hour markup on Tuesday.
Opponents Claims Refuted
Some opponents of the bill claimed it would end the 30-year fixed rate mortgage, but phasing out Fannie Mae and Freddie Mac will not end the 30-year fixed rate mortgage since the government-sponsored enterprises are not lenders and such mortgages exist today without a government guarantee.
Some opponents of the PATH Act also claimed it would raise cause a rise in interest rates. But, in fact, relative to current law, the PATH Act will make homeownership more affordable.
Chief economist Mark Zandi of Moody's Analytics has testified that one single mortgage-related regulation of the Dodd-Frank Act could cause mortgage interest rates to increase 1-4%. Likewise, the American Securitization Forum stated that a Dodd-Frank regulation "could double the interest rate" and the National Association of Homebuilders has warned that proposed Dodd-Frank regulations "could grind the housing finance system to a halt."
CoreLogic, a firm that analyzes markets, reports 52% of the Americans who bought homes in 2010 would not be able to finance a mortgage under requirements in the Dodd-Frank Act.
The non-partisan Congressional Research Service has also stated in a report that Dodd-Frank's mortgage provisions are likely to "reduce access to mortgage credit" and "increase barriers to homeownership for both creditworthy and disadvantaged borrowers."
"The PATH Act helps taxpayers and homeowners. It gives power and control back to consumers. Under the current broken system, unaccountable Washington elites have more of a say over who gets a mortgage than your local bank. The current system is a government monopoly run by the same types of Washington bureaucrats who run the IRS. America can do better. Americans deserve better," said Chairman Hensarling.