Purely Private Mortgage Finance Market Is Achievable

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WASHINGTON, DC – March 1, 2011 – (RealEstateRama) — Rep. Scott Garrett (R-NJ), Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, delivered the following opening statement today at a hearing to examine the Obama administration report on mortgage finance reform:

“Thank you, Mr. Secretary, for your testimony.  I also want to thank you for your report entitled: Reforming America’s Housing Finance Market.  I have read it thoroughly.

“While it is somewhat light on specifics and without a concrete position on a way forward, I believe it comes to a number of conclusions that will be very helpful for members to grasp as we move forward with this debate.

“The first conclusion is that the federal government’s housing policy played a significant and leading role in the financial crisis of 2008.  The ongoing bailout of Fannie and Freddie is over $150 billion and counting, and dwarfs the other bailouts that occurred during the crisis.

“The second conclusion is that the specific entities, Fannie Mae and Freddie Mac, must be terminated and should never come back to life.  This is important for everyone – members, industry, community groups, and taxpayers – to comprehend.  I agree with the administration that these entities need to be put on a responsible path to dissolution and I will work closely with them to see this accomplished.

“The third, and perhaps most important conclusion, is that a purely private mortgage finance market is a very serious and achievable goal.  Many supporters of the status quo preach doom-and-gloom for the U.S. housing market without a government guarantee.  They would have us believe that any discussion of a purely private mortgage finance market is completely without merit and would return our housing market to its depression era status.

“I believe the administration’s plan ends this argument once and for all.  No one serious in this debate believes our housing market will return to the 1930s and I applaud the administration for taking this ridiculous rhetoric off the table.

“Now that there in consensus on these issues, we need to decide what exact steps to take next.  Here, I see a number of areas of continued agreement between the administration and myself.

“The first is a gradual increase of the guarantee fees.  This is an important component of bringing more accurate risk pricing into the market.  Any increase in this fee must also correspond with an increase in FHA premiums in order to not push greater risk there.  I look forward to working closely with Treasury on specific legislation to accomplish this goal.

“The next area of agreement is on the need to reduce the portfolios of the GSEs.  Currently, at roughly $1.5 trillion, these portfolios pose a significant risk to the American taxpayer and don’t serve any actual real purpose.  I believe these portfolios can be wound down at a faster pace without jeopardizing the fragile mortgage markets and I look forward to discussing with the Secretary in greater detail how we best shape legislation to achieve this goal.

“A third area of agreement is on Treasury’s support for higher down payments.  While I do not believe down payments are the only factor that should be used to determine credit quality, I am pleased to see that we both recognize that they play an important role in the underwriting process.

“Fourth is an agreement on reducing the current conforming loan limits.  To be able to afford a $729,000 house, a couple must make roughly $250,000.  This is the same level that the administration and my democratic colleagues believe is “rich.”  So I am glad that the administration has finally decided that the government should not be in the business of subsidizing “rich” homeowners.

“And finally, an area that we have strong agreement on is the need to create a U.S. covered bond market.  While not a cure all, a covered bond market could provide significant liquidity benefits and help bring private capital back to our mortgage market.

“So, as Ranking Member Frank so eloquently stated repeatedly during the former administration’s tenure, I find it odd that I am defending the current administration on so many fronts from his own party.  I believe there is an opportunity for us to reach broad based consensus on all of these issues I list above.

“One final point of agreement that I failed to mention above but that might be the most important is that we must never put the American taxpayer on the hook again for failures in our private mortgage market.”

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