Dueling Housing Reform Bills: The House’s PATH Bill Versus The Senate’s Corker-Warner Bill

Confounded Interest ^ | 08/14/2013 | Anthony B. Sanders

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House Financial Services Committee Chairman Jeb Hensarling spoke yesterday in Texas on housing reform. Hensarling pointed out that the Protecting American Taxpayers and Homeowners (PATH) Act specifically:

* Ends the costly Fannie and Freddie bailout; * Protects and restores the FHA by defining its mission; * Increases mortgage competition, enhances transparency, and maximizes consumer choice; and * Breaks down barriers for private investment capital.

Here is a markup of the PATH bill.

The PATH bill is superior to the Senate’s Corker-Warner bill that proposes winding down Fannie Mae and Freddie Mac, but creates yet another government insurance corporate (The Federal Mortgage Insurance Corporation or FMIC).

The Federal government LOVES guarantees. Fannie Mae and Freddie Mac provided insurance, the FHA is an insurance agency, the FDIC provides deposit insurance, etc. Guarantees encourage risk taking and are very costly when they go bad. And they WILL drink your milkshake! (Read about the history of the now defunct Federal Savings and Loan Insurance Corporation).

But there are guarantee cheerleaders and they want a guarantee (at taxpayer expense) whether it is an explicit guarantee, a credit wrap, etc.

Take the FHA, the government agency insurance entity. The FHA, which insures mortgages, had a higher debt-to-income average than conventional mortgages.

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The FHA also specialized in low credit score borrowers, although it is improving.

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The FHA also specialized in low downpayment (high LTV loans) at taxpayer expense.

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Although the FHA has an affordable housing mission, allegedly for first-time homebuyers and minorities, its mission was hijacked and it has put taxpayers at risk.

So, Chairman Hensarling is correct. Guarantees are dangerous and the best solution to increasing homeownership is JOBS. And full-time jobs, not part-time.

The pressure is on Congress to do something with the FHA, Fannie Mae and Freddie Mac. But Corker-Warner is not much different than what we already have in place. The PATH act is a potential game changer.

But whatever the legislation is, they have to put a limit on the ability of Congress to pressure risk taking by government proxies.

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The government guarantee goons will be flooding the halls of Congress DEMANDING guarantees for risky lending for low-income households.