Representatives on the House Financial Services Committee announced the Protecting American Taxpayers and Homeowners (PATH) Act to create a sustainable housing finance system. The proposal ends the taxpayer-funded bailout of Fannie Mae and Freddie Mac while phasing out the enterprises within five years. Additionally, the legislation increases competition by ending the federal government’s domination of the mortgage finance system and gives consumers more options in determining which mortgage product best suits their needs.
The National Association of Home Builders (NAHB) is working with lawmakers to make changes to the PATH Act proposal to ensure that it provides the federal support necessary to maintain a strong and liquid housing finance system. NAHB believes federal support is particularly important to ensure that 30-year, fixed-rate mortgages, the bedrock of the nation’s housing finance system since the 1930s, remain available at reasonable interest rates and terms. As currently drafted, the PATH Act does not provide the federal support necessary to ensure a strong and liquid housing finance system.
There are some positive elements in the PATH Act, and NAHB agrees that private capital must be the dominant source of mortgage credit. However, ensuring the safety and stability of the housing finance system cannot be left entirely to the private sector.
The historical record clearly shows that the private sector is not capable of providing a consistent and adequate supply of housing credit without a federal backstop.
NAHB has recommended to the committee that Fannie Mae and Freddie Mac be gradually phased into a private sector oriented system, where the federal government’s role is explicit but its exposure is limited. Federal support would be limited to catastrophic situations where carefully calibrated levels of private capital and insurance reserves would be depleted before any public finds were employed to shore up the mortgage market.
NAHB cautioned the committee about the important t role of the housing industry in economic recovery and with housing just getting back on its feet; they don’t want to see anything reverse the positive momentum.