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Tags: Hensarling | PATH | home | ownership

Chairman Hensarling Pushes Housing Lobby Agenda

By    |   Wednesday, 21 August 2013 01:53 PM

I am indebted to C-SPAN for providing access to a brilliantly staged lovefest between House Financial Services Committee Chairman Jeb Hensarling, R-Texas, and the Housing Industrial Complex (HIC) on Aug. 13 within a few miles of Hensarling's Dallas home. The venue was a regulatory forum at the George W. Bush Presidential Center to consider the local and national impact of the report of the Bipartisan Policy Center's Housing Commission titled "Housing America's Future: New Directions for National Policy."

Hensarling was introduced by Sen. Mel Martinez, R-Fla., former Housing and Urban Development (HUD) secretary, to an audience of the usual suspects of the HIC — realtors, homebuilders and mortgage bankers. As if to stress the bipartisan nature of the event, former Democratic HUD Secretary Henry Cisneros of San Antonio was introduced.

This article comes with a disclaimer that readers should take no comfort from the fact that the sponsorship of the presentation and of the Senate version of proposed reform legislation is bipartisan. Rather, they should bear in mind the words of M. Stanton Evans that when the Evil party and the Stupid party get together, that's bipartisanship. Nor should readers be overly impressed by the fact that the report comes from a "commission." If a group is called a "forum" or a "commission," it not a lobby, right? Think again.

The opening monologue was not as entertaining as that of Evans, recounted in Tuesday's article. Did you hear the one about the congressman who is home on recess and doing kitchen chores when the phone rings and it's The Wall Street Journal. The congressman is starting to think about what he's going to say to a reporter when he realizes that it's the subscription department. That's good for a chuckle, especially from a friendly audience in the congressman's home court.

Having written some speeches for congressmen, this one sounded like it was written by at least a couple staffers who disagree with each other or by a committee. The legislation is, of course, being written by two committees, so it is likely to have even more contradictions as it passes through more stages leading to eventual enactment.

Hensarling admitted as much when he said that he plans to consult further with the industry on H.R. 2767, the bill sponsored by three subcommittee chairmen titled "Protecting American Taxpayers and Homeowners" (PATH) — Reps. Scott Garrett, R-N.J., Randy Neugebauer, R-Texas, and Shelly Moore Capito, R-W.V. — presumably to make further concessions to the industry.

At the outset of his speech, Hensarling declared that housing finance reform is vital to every homeowner and taxpayer and to the future of the economy, and he commended the Bipartisan Policy Center for promoting "respectful and constructive dialogue on what is typically a fairly contentious issue."

He practically pledged allegiance to the HIC when he professed his belief that "home ownership is an especially cherished American tradition far more meaningful than landscaped lawns, picket fences and granite countertops. It can bind families together, build security and strengthen our communities." (Cue "America the Beautiful.")

For Hensarling, however, the American Dream extends beyond homeownership to the ability to control one's own destiny "to the end that our children might have even greater opportunities, greater abundance and greater freedoms than we have ever enjoyed." He then zagged into a rendition of the excesses of the promotion of homeownership when it is done off-budget to subsidize mortgages that buyers cannot afford; entails moral hazard by working through Fannie Mae and Freddie Mac, which enjoy government sponsorship; and boosted further through the accommodative monetary policy of the Federal Reserve, which began lowering interest rates in 2000 to add fuel to a housing market that was already booming.

He also criticized the Community Reinvestment Act (CRA) and the affordable housing goals as factors that contributed to the subsequent housing bust that he said wiped out $50,000 per family accumulated during two decades of financial progress. Hensarling went on a riff decrying the $200 billion spent to prop up Fannie and Freddie, along with mortgage guarantees amounting to $5 trillion, a third of the country's gross domestic product.

Hensarling proclaimed, "The American people deserve a PATH forward to a housing system that is sustainable, fair and preserves the American Dream, that protects current and future homeowners, so that every American who works hard, plays by the rules, can have opportunities and choices to buy homes they can actually afford to keep."

Later he returned to a favorite theme, freedom, assuring his industry audience that "there has never been a better housing program than the American Free Enterprise System" and that the committee bill is "about freedom and opportunity, taking back control, having careers in housing finance without the interference of Big Government. It is time to support the American Dream of home ownership!"

The speech provided a detailed outline of the provisions of the PATH Act and explained that it is supposed to clearly define the role of government, remove artificial barriers to bringing private capital into the housing finance system, provide clear and transparent rules that will foster competition and restore market discipline and enable consumers to make informed choices as to which mortgage products best suit them.

However, Hensarling also pledged to preserve the 30-year fixed-rate mortgage and the "countercyclical role" of the Federal Housing Administration (FHA), policies that have led to the massive losses and risks that he decries. The bill also repeals the requirement under the Dodd-Frank Act that originators of mortgages to be sold into the secondary market retain part of the risk.

One wonders how he is going to protect taxpayers from having to pay again whenever the market blows up due to the same moral hazard that has caused a series of financial crises going back at least to the savings and loan bust of the 1980s.

Hensarling is especially schizoid when he talks about the future of Fannie and Freddie. At the same time that he promised to end the bailouts of these government-sponsored enterprises, he allowed that at the end of the day, there are several arguments for preserving them, on the ground that they can act as standard setters, aggregators of mortgages and conduits for bankers and mortgage bankers.

He also warned that the Senate version of mortgage finance reform, known as Corker-Warner, after Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., could, at the end of the day, leave the taxpayers exposed by doing little more than putting Fannie and Freddie under the federal witness protection program.

That's the best line in the speech. How is Hensarling going to avoid this outcome while pleasing an industry that is eager to restore the flow of fees for originating mortgages, this time with an explicit guarantee by the federal government? There is supposed to be a cushion of private capital behind this guarantee, but where is it going to come from? I hope Hensarling has a help line to Warren Buffett.

The event concluded with a few questions by Martinez that elicited expressions of hope on the part of Hensarling that eventually there will be a conference between the House and Senate on their respective bills. Martinez pointed out that such conferences have been rare, but Hensarling stuck to his view that it could happen.

Readers should not fully discount the prospect that the industry could bang away at Hensarling's bill until it looks more and more like the Senate bill and puts Fannie and Freddie back in business, along with Wells Fargo, as federally backed entities still trying to maintain a market for long-term, fixed-rate mortgages at a time of rising interest rates.

This is why the PATH Act could resemble the Shining Path or Great Leap Forward of authoritarian regimes more than the rebirth of freedom Hensarling foresees.

© 2022 Newsmax Finance. All rights reserved.

I am indebted to C-SPAN for providing access to a brilliantly staged lovefest between House Financial Services Committee Chairman Jeb Hensarling, R-Texas, and the Housing Industrial Complex (HIC) on Aug. 13 within a few miles of Hensarling's Dallas home.
Wednesday, 21 August 2013 01:53 PM
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