House Republicans Propose Act to Save Housing Finance

With criticism for the Obama administration and the shortcomings of the Dodd Frank Act, the House of Representatives Financial Services Committee ""announced"":http://financialservices.house.gov/news/documentsingle.aspx?DocumentID=342165 Thursday a new plan to fix housing finance and end the bailout for good.

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The Protecting American Taxpayers and Homeowners Act (PATH) aims to end the federal bailout of Fannie Mae and Freddie Mac within five years; increase competition in the housing finance market; and offer consumers more choices when shopping for mortgages.

""The Obama administration has had five years and has failed to offer any plan at all,"" said Committee Chairman Jeb Hensarling (R-Texas). ""It's time for action.""

After 11 hearings comprised of testimonies from 41 witnesses over the past five months, the committee deems the PATH Act superior to Dodd-Frank and assures it will protect both taxpayers and homeowners.

According to its announcement, the committee hearings revealed ""failed Washington policies,"" fraud among executives, and a government response that causes more harm than good.

Witnesses charged Fannie Mae and Freddie Mac executives with ""financial fraud"" and said the companies ""exploited their government guarantee to take on enormous risk,"" according to Thursday's announcement.

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When congress stepped in to set the housing finance system on the right track with Dodd-Frank, they instead ""compound[ed] the government's disastrous foray into housing policy through onerous regulations that hobble the private mortgage market and lock out thousands â€" if not millions â€" of qualified borrowers who will be unable to obtain an affordable mortgage,"" reads the committee's announcement.

Instead, the PATH Act sets a defined five-year plan for phasing out the GSEs and ending the bailout; encourages private capital in the housing market; and sets goals to redefine the mission and size of the Federal Housing Administration.

At the end of the five years, the GSEs would have their government charter revoked, and they would be liquidated.

In the meantime, the act would require the GSEs to reduce their mortgage-backed securities portfolios by 15 percent per year down to $250 billion.

In addition, at least 10 percent of the GSEs' new business each year would be part of a risk-sharing program in which part of the risk is absorbed by the private market.

The PATH Act also specifies that the FHA should stick to a goal of assisting first-time borrowers and low- and middle-income homeowners except in times of ""significant credit contraction.""

""Our proposals would allow the housing finance market to function without the unprecedented government intervention we have seen in recent years,"" said Rep. Randy Neugebauer (R-Texas). ""We'll also reduce the probability of the boom and bust cycles that have hurt our economy and American families.""

The House Finance Services Committee will meet Thursday to discuss the PATH Act.