Mar 15 2011

Shelby: Will We Seize or Squander the Opportunity for Reform?

U.S. Senator Richard Shelby, ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, today made the following statement at a Committee hearing on the Administrations Report to Congress regarding America’s housing finance market.

Excerpts of Shelby’s statement are immediately below in bold, followed by the full text of his prepared remarks:

“I am pleased, however, to see that the Administration is beginning this debate by at least recognizing the serious structural flaws of the GSEs.  This is a good place to start…

…The report, however, is not without its flaws.  First, it is a mere 31 pages.  Given the vast resources of Treasury and HUD and the importance of this issue, the American people deserved a more thorough and detailed study…

…Second, the report is vague on exactly how the Administration thinks the housing finance system should be reformed…

…Finally, the report is narrowly focused on reforming Fannie Mae, Freddie Mac, and the Home Loan Banks.  It says nearly nothing about the numerous other housing programs operated by the Federal government….

…I would encourage the Chairman to promptly set forth such a plan that provides for a comprehensive examination of housing finance and the Federal government’s role in housing… 

…For far too long our housing finance system has been distorted to benefit special interests.  Hopefully, the collapse of Fannie and Freddie means that Congress now has an opportunity to enact reforms that will correct our past mistakes.  The question remains, however, will we seize the opportunity, or squander it?”

 

 STATEMENT OF SENATOR RICHARD C. SHELBY

Committee on Banking, Housing and Urban Affairs

March 15, 2011

 “Thank you, Mr. Chairman.

“Last month, the Treasury Department and the Department of Housing and Urban Development presented a report to Congress on options for ending the conservatorships of Fannie Mae and Freddie Mac and improving our housing finance system.  During the debate over Dodd-Frank, Republicans insisted on dealing with the failed housing enterprises.  In response, the Democrats refused to even discuss the GSEs.  Ultimately, they included a reporting requirement so that they could not be accused of completely ignoring the issue.  It is that report we will be discussing today.

“The joint report contains several positive items.  First, the report recognizes many of the failures of the existing structure of the GSEs.  It notes that Fannie and Freddie were undercapitalized, were poorly regulated, and took on excessive risks to maximize profits for their shareholders. 

“These views are in sharp contrast to the position of Fannie and Freddie’s defenders who for years denied that there was anything wrong and aggressively fought reform until it was too late.  The consequences of their actions have cost the American people more than $150 billion.

“I am pleased, however, to see that the Administration is beginning this debate by at least recognizing the serious structural flaws of the GSEs.  This is a good place to start.  The report also concludes that the housing finance system must be reformed, and that the goal should be to scale back the government’s role in mortgage finance and promote the return of private capital to a healthier, more robust mortgage market.  This is a goal we must all embrace.

“The report, however, is not without its flaws.  First, it is a mere 31 pages.  Given the vast resources of Treasury and HUD and the importance of this issue, the American people deserved a more thorough and detailed study. 

“Second, the report is vague on exactly how the Administration thinks the housing finance system should be reformed.  The report presents three options for long-term reform.  However, subsequent statements by the Treasury Secretary suggest that the Administration really only sees its third option, which resembles the status quo, as a viable path forward. 

“While I appreciate the willingness of the Administration to be flexible on the details of reform, it would have been helpful to know which items the Administration believes should be included in a reform bill.  For example, should there be any form of housing goals?  Or, should there be minimum down payments for any government backed mortgages?  It is impossible to tell what the Administration’s priorities are for reform.  Accordingly, I hope to learn today exactly what the Administration believes is the best way to reform our housing finance system. 

“Finally, the report is narrowly focused on reforming Fannie Mae, Freddie Mac, and the Home Loan Banks.  It says nearly nothing about the numerous other housing programs operated by the Federal government.  Each year, the Federal government spends billions of dollars on housing programs aimed at ensuring that every American has access to quality housing.  From Section 8 to ­­­­­­­housing tax subsidies, these programs usually receive little scrutiny from Congress.  However, they are an important part of our housing finance system.  Accordingly, they should be included as part of the Committee’s consideration of housing finance reform. 

“So far, the Majority has yet to lay out a plan on how the Committee will develop its reform proposal.  I would encourage the Chairman to promptly set forth such a plan that provides for a comprehensive examination of housing finance and the Federal government’s role in housing. 

“The Committee has before it a very difficult task.  The vast subsidies the Federal government presently provides to the housing industry, Wall Street, and special interest groups means that real reform will face an uphill battle.  In 2005, when the Senate considered reforming our housing finance system, politics and special interests triumphed.  Millions were spent to lobby against reform.  Ultimately, the anti-reform effort cost the American taxpayer billions in bailouts. 

“For far too long our housing finance system has been distorted to benefit special interests.  Hopefully, the collapse of Fannie and Freddie means that Congress now has an opportunity to enact reforms that will correct our past mistakes.  The question remains, however, will we seize the opportunity, or squander it?

“Thank you, Mr. Chairman.”