Appearing as panelists in a discussion at the Bipartisan Policy Center this week titled "Housing Finance Reform: A Status Report," U.S. Congressmen Randy Neugebauer (R-Texas) and John Delaney (D-Maryland) both agreed a major reason why such reform has not happened is because the White House has not made it a top priority.
The size of the government's footprint in housing has been a much-debated topic in the last year as the Federal Housing Finance Agency (FHFA)'s conservatorship of Fannie Mae and Freddie Mac will reach its seventh anniversary in September. While many lawmakers on both sides agree that GSE reform is necessary, the debatable issue is what, if anything, should replace them.
Legislation has been introduced, including a bill co-sponsored by Senators Bob Corker (R-Tennessee) and Mark Warner (D-Virginia) in 2013 to eliminate Fannie Mae and Freddie Mac and replace them with a private insurance company system with a government backstop. The bill, known as the Housing Finance Reform and Taxpayer Protection Act of 2014 (S.1217), passed in the Senate Banking Committee by a vote of 13 to 9 in May 2014 but has made little progress.
"We've been getting mixed signals from this White House," Neugebauer said during the panel discussion. This is a big lift, if you start down this road, whether it's a Senate bill or a House bill, just to get those out of those chambers and into a conference, you have to get some help from the White House to make that happen. I've had the conversation with the current Treasury secretary and the former Treasury secretary, and everybody talks about, 'Yeah, we need to do this,' but when you say, 'Is there a commitment from the White House to participate in this process,' I don't think they've sent a positive signal."
Fannie Mae and Freddie Mac required a $187 billion bailout from taxpayers in 2008 to stay afloat; at that time, they were taken into conservatorship by FHFA. The FHFA released the results of a stress test in late April indicating that the GSE could possibly need another bailout of up to $157 billion in the event of certain adverse economic conditions.
Discussion moderator Nick Timiraos, National Economic Correspondent with The Wall Street Journal, compared the lack of action on GSE reform to a famous New Yorker cartoon in which an executive was on the phone saying, "No, Thursday's out. How about never? Will never work for you?"
Delaney said he believes the current system is "unsustainable," but has been sustainable lately because of macrodynamics, notably strong housing recovery.
"I don't think the White House has made this a top priority," Delaney said of GSE reform. "I hope that's changing. When you think about what happened in the Senate, where they did make a pretty decent run at a bipartisan proposal, I think a lot of the Democratic Senators working on that turned around and expected to see the White House behind them and there was no one there.
"This is a big lift to fix this, and you have to get it right. It involves a lot of thought, and there's been a big ideological divide about the role of the government with, respectfully, many of my Republican colleagues thinking there is no role for government, and many of my Democratic colleagues thinking government should have an even bigger footprint. I think both of those are flawed at some level, and there is a role for smarter government to be involved in housing, but in a more disciplined way."
Neugebauer said he doesn't believe the government should be able to "manipulate a particular industry, particularly one that is so important to American families. I still believe that we can accomplish something, but it will take everybody committed to coming up with some solutions."
To watch a video of the panel discussion, click here.