Next week, the Obama administration is hosting a meeting focused on finding ways to begin addressing the country’s broken housing finance system. For the last year or so, the Treasury Department has been saying that the next big effort following financial regulatory reform would be figuring out what to do with Fannie Mae and Freddie Mac, the two government sponsored enterprises, and this meeting is the first step in that process.
Republicans, of course, consistently go on and on about Fannie and Freddie, concocting an alternate reality where they were the main culprits in the housing bubble (despite the fact that by the time the bubble really started raging, the GSE’s had largely departed from the scene). And they have made no end of hay about GSE reform not being included in the financial regulatory reform effort.
But now that the administration is starting to turn its attention to GSE reform, the GOP is going to have to put its money where its mouth is. But much like the economic “solutions” pamphlet it released last week was short on actual solutions, the housing Policy Brief it released this week — authored by Rep. Mike Pence (R-IN) — is a bit short on actual policy.
It’s not until the very bottom of the document that the GOP’s “solutions” for what to do with Fannie and Freddie are detailed, and though there are three points there, they all come to the same conclusion, which is: “end the current GSE conservatorship by a date certain.”
Now, nobody thinks that the current situation regarding the GSE’s is tenable, and we have to dramatically rethink the way in which we do housing finance in this country. But the Republicans have no vision for what would replace Fannie and Freddie which — like it or not — back more than 90 percent of the mortgages in the country. And setting a date certain for kicking their legs out would not only harm the housing market, but could upset far wider swathes of the global economy:
GSEs are currently essential tools of federal policy, providing an enormous amount of liquidity in support of the federal government’s efforts to stabilize the housing markets. Investor appetite for the MBS issued by Fannie Mae and Freddie Mac helps to finance the significant borrowing of overseas’ capital by the U.S. government, providing an outlet for foreign investors to invest the excess dollars accrued by our significant current account deficit. Any abrupt disruptions could affect the balance of payments and global macroeconomic stability.
The GOP’s brief includes some hand-waving about competition and innovation replacing all of this mortgage financing, but the fact remains that the GOP simply has no idea what it wants the mortgage finance system to look like, and spends the vast majority of its policy statement on the issue trying to score political points off the false notion that government-backed loans to poor people brought the global economy to its knees. I’d say the GOP are a bunch of empty suits on this issue, but that would give them too much credit for getting dressed in the morning.