For Americans, owning a home ranks up there with motherhood and apple pie. Our homes provide us with comfort and shelter. Our homes are where we raise our families. And our homes are typically our most significant and valuable financial asset.
This is one reason that the economic meltdown of 2008 was so devastating and why we continue to feel the effects of the meltdown even today.
The financial crisis erased trillions of dollars of wealth. It put homeowners with mortgages underwater or out of their homes altogether. It ravaged the marketplace, putting major financial institutions on life support and destroying portfolios for families who depended upon the marketplace for their retirements. And it introduced the American taxpayer to seemingly bottomless and never-ending bailouts at a time when we as a nation had already accumulated more than $10 trillion in debt.
Many believe that the so-called government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac — with their implied federal government guarantees — fueled the collapse of the mortgage market with an explosive mixture of private reward for reckless Fannie and Freddie executives and Wall Street investors, and public risk for innocent homeowners and taxpayers.
At the time of the collapse, the GSEs and the federal government were the only game in town when it came to the secondary mortgage market — securitizing more than 85 percent of new mortgages in this country.
Five years later, it is critical that the U.S. Congress thoroughly understands the causes of this meltdown and do all within its power to be sure that this does not happen again.
In response to the financial crisis, in 2010 Congress enacted the Dodd-Frank law, which was offered as the cure to end “Too Big to Fail” financial institutions. However, the Dodd-Frank law failed to address the role of Fannie Mae and Freddie Mac in the financial crisis.
The good news is that it appears that in many places in Virginia and across the United States the real estate and homebuilding markets have stabilized and seem to be slowly recovering. It is our responsibility in Washington to do all we can to support this growth — whether it is through pro-growth policies that encourage sensible domestic energy policies and common-sense regulatory reforms, or whether it is taking an honest and realistic approach to reforming our American home mortgage finance system.
That is why I am encouraged that there are those here in Washington who are engaging in this important debate on a bicameral and bipartisan basis. As we debate the best course, we must remember the real estate and housing markets are fragile and are still recovering.
At the same time, we also must remember that we are facing a growing national debt that is now approximately $17 trillion and that we must do all we can, as soon as we can, to be sure that homeowners and taxpayers do not suffer a repeat of the 2008 meltdown. In short — we must get it right.
As a member of the House Financial Services Committee, I was pleased to see our committee adopt the Protecting American Taxpayers and Homeowners Act (PATH Act) last week and send it to the floor of the House of Representatives for consideration.
I believe this is a good bill that recognizes the inherent flaws in our current home mortgage financing system and takes measured steps toward getting the federal government (and the taxpayer) out of the home mortgage business.
At the root of the flawed system is the implied federal government guarantee, which has harmed homeowners by encouraging unscrupulous lenders to put people in homes that they could not afford, harmed the marketplace by unfairly pushing the private sector out of the secondary mortgage market, and harmed taxpayers by sticking them with a nearly $200 billion bill — the largest bailout of the financial crisis.
The PATH Act does this by removing the barriers to private investment by ending Fannie's and Freddie's unfair, taxpayer-backed government-subsidized competitive advantage by closing their doors. This bill also creates a platform that would attract the private sector to a marketplace guided by standardized underwriting, transparency and disclosure. In addition, this bill would also give much-needed regulatory relief to our overburdened Main Street banks. And the PATH Act achieves this while ensuring that Americans continue to have the choice of the 30-year fixed rate mortgage.
I recognize there are other proposals being discussed about GSE reform, but I believe this approach is best because it goes to the root of the issue: ending the taxpayer-backed federal government guarantee. We have an opportunity to learn from the hard lessons of the past and lead the way to a stronger and more sustainable system of American homeownership — a system that will benefit generations of Americans to come.
Robert Hurt, a Republican, represents Virginia’s 5th District in the U.S. House of Representatives. Contact him at