Toomey: Congress Must Address ‘Fundamental Flaws in the System’

The Senate Banking Committee on Tuesday held a virtual hearing titled, "Home = Life: The State of Housing in America," during which, according to a presser from the Banking Committee, members held "a robust discussion on the issue of housing finance reform."

Ranking Committee Member Pat Toomey (R-Pa.), in conjunction with the hearing, released a set of "guiding principles for housing finance reform."

Senator Toomey in said proposal set the framework for legislation "to end the government-sponsored enterprise (GSE) duopoly and foster a liquid secondary mortgage market while protecting taxpayers and promoting equitable access for all lenders."

"The housing finance system remains in urgent need of reform," Toomey said. "The current system exposes taxpayers to risk of future bailouts, fosters excessive risk taking, and crowds out private capital. I hope my colleagues, the administration, and all interested stakeholders will join me in working to implement these responsible reforms to prevent yet another financial crisis."

Here are key points from Toomey's plan for housing finance. He aims to:

• Transition the GSE duopoly toward a competitive secondary market;
• End the conservatorships of Fannie Mae and Freddie Mac;
• Establish a level playing field for other sources of private capital that bear mortgage credit risk;
• Foster a liquid secondary mortgage market that promotes the continued availability of affordable 30-year and other long-term fixed-rate mortgage loans across the United States and throughout the economic cycle;
• Protect taxpayers by ensuring that significant first-loss private capital stands in front of any government support and that taxpayers are appropriately compensated for that support;
• Promote equitable access to the secondary mortgage market by mortgage lenders of all sizes, business models, charter types, and locations; and
• Provide for a smooth transition to the reformed housing finance system by ensuring that reforms are incremental and realistic, leveraging the existing regulatory and market structure.

On behalf of the National Association of Realtors (NAR), Charlie Oppler, a Realtor from Franklin Lakes, N.J., and the CEO of Prominent Properties Sotheby's International, expressed support for Toomey's statement and priorities, saying, "The GSEs now support nearly 80% of the U.S. residential market, and it is more important than ever that Fannie and Freddie's transition from conservatorship be developed collaboratively and deliberately. While some points of disagreement remain, we look forward to working with Senator Toomey and policymakers from both sides of the aisle as these conversations progress over coming months."

In his remarks, Toomey pointed out that the housing market is cyclical.

"It’s a question of when—not if—there will eventually be a housing downturn. The GSEs and the housing finance system are not prepared. FHFA Director Calabria and the last Administration made significant progress in reforming the system. Thanks to their good work, the net worth sweep has been suspended, and the GSEs finally have begun to build capital under a constructive new capital rule."

He added that "more than 12 years after the financial crisis, Congress has still not addressed the fundamental flaws in the system that led to the crisis."

Finally, Toomey says, "I know we have significant differences about the role of government in the housing market, but I believe compromise is possible. There is much that can be productively done on a bipartisan basis in this Congress."

Toomey's entire remarks are recorded at bankingsenate.gov.