At the beginning of the "Oministration," I had a chance to challenge Jared Bernstein at an American Enterprise Institute event by predicting that nothing would be done to reform Fannie Mae and Freddie Mac. Bernstein responded candidly that if this were the result, it would be a policy failure.
He did not have to put this possibility in play, but now, four years later, government-sponsored enterprise reform stands as an ongoing failure for everyone involved. In 2011 the Obama-Geithner Treasury issued a so-called "white paper" that laid out three options, without taking any overt position. However, one could read between the lines and discern, as some critics did, that it would be fine if Fannie Mae and Freddie Mac remained in place indefinitely.
This review of housing finance reform was prompted by the fact that President Obama returned last week to Phoenix, ground zero for the housing boom and bust, where he had spoken on housing during the 2009 bust, to set out his plans for legislation.
Obama declared that the time has come to wind down Fannie Mae and Freddie Mac. If one were born very recently, one would think something is bound to happen "real soon now," because a bipartisan group of senators, led by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., has introduced a bill, and both Senate Banking Committee Chairman Tim Johnson , D-S.D.), and the ranking Republican Sen. Michael Crapo, R-Idaho, have declared their determination to proceed this fall.
In contrast, on the House side, the bill introduced by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, has already been pronounced dead by the ranking Democrat, Rep. Maxine Waters, D-Calif., who complained that Republicans have not spoken to her side about the bill. Waters has invited the Republicans to get in touch whenever they're ready to talk.
Housing and Urban Development Secretary Shaun Donovan and the entire local political leadership were assembled for the theatrical presentation in Phoenix, complete with a group of school children singing "Happy Birthday" to the president, all a bit nauseating for one who is not a true believer, but these were true believers.
Obama graciously shared credit for recent achievements with the American people: "Thanks to the grit and resilience of the American people, we've cleared away the rubble from the financial crisis, and begun to lay a new foundation for stronger, more durable economic growth."
However, he blamed "an endless parade of distractions, political posturing, and phony scandals" for shifting the focus away from helping the middle class. He lamented that a housing bust caused by reckless lending and borrowing caused a housing bust that hit Phoenix harder than anywhere else.
Obama claimed, "We worked with states to force big banks to repay $50 billion to more than 1.5 million families — largest lending settlement in history." That would work out to over $30,000 per month, but the online FAQ site for the Joint State-Federal Mortgage Servicing Settlement estimates the total settlements with the five largest servicers to total $25 billion to $32 billion and states that the checks are capped at $1,480, so at first glance these Obama claims don't check out. What a surprise.
Obama went on to take credit for housing prices rising to their highest levels in seven years — sales are up nearly 50 percent, construction nearly 75 percent and foreclosures down by two-thirds. He crowed that millions of families have been able to come up for air, because their homes are no longer underwater. He crowed about the positive effect all this has on the "oconomy," without mentioning that interest rates have already started to rise, and because they have been held artificially low for years under the Federal Reserve's quantitative easing policy, rates could spike and create unprecedented dislocations in the financial sector.
The president then proceeded to lay out "a bunch of ideas ... to build a housing system that is durable and fair and rewards responsibility for generations to come."
1. Refinancing mortgages at today's low rates.
2. Cutting red tape, to improve access to mortgage credit.
3. Fixing the immigration system. (No kidding.)
4. Rebuilding the communities hardest hit by the crisis, including in Arizona.
5. Helping families that don't buy homes have a decent place to rent.
6. Asserting that, "We can't just re-inflate another housing bubble," lay down a "rock-solid" system of housing finance, beginning with winding down Fannie Mae and Freddie Mac.
Sadly, this idea has four points of its own, for a total of 10. We're almost up to Wilson's 14:
1. Private capital should take a bigger role in the mortgage market.
2. Taxpayers should not be on the hook for bad decisions of the lenders or Fannie Mae and Freddie Mac.
3. Preserve access to the 30-year, fixed-rate mortgage.
4. Keep housing affordable for first-time homebuyers.
Obama endorsed the bipartisan Senate bill, as well as Rep. Mel Watt, D-N.C. to head the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac.
In closing, he declared that the principles he has expounded "will restore not only our home values, but also our common values." He added that his program can "make owning a home a symbol of responsibility, not speculation." (It gets pretty hokey at this point, as it was at the beginning. Cue "America the Beautiful.")
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