On the sidelines of this week’s Democratic National Convention, Rep. Michael Capuano, D-MA, predicted non-action on housing policy reform next year and offered an unvarnished summary of his take on the Net Worth Sweep. He said, “Fannie and Freddie are basically being used as a piggy bank by the Treasury, and at some point they will lose the lawsuits being brought on by investors and owe someone an awful lot of money.”
He has a point. When you take something that isn’t yours, you should give it back.
Capuano made his comments during a panel discussion dedicated to housing finance reform at the DNC in Philadelphia. There were several similar issue-specific forums during last week’s GOP convention in Cleveland. Notwithstanding the partisan nature of discussions in the context of party gatherings, it was a candid prediction from a senior member of the House Financial Services Committee.
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Capuano and others acknowledged that many Americans are struggling to afford housing and that this fact should resonate with political leaders. Rep. Brad Sherman, D-CA, who also serves on the Financial Services Committee, said, “It’s homeowners who vote. It’s a salient political issue with homeowners- that’s their net worth.”
Polls show that many Americans continue to find housing security elusive and believe policy changes are needed. However, lawmakers said that these concerns will likely remain secondary to broader angst about the economy, terrorism, immigration and crime unless an actual crisis in housing finance and affordability emerges.
Dr. Susan Wachter, an expert on real estate and a professor of finance at the University of Pennsylvania’s Wharton School of Business, said the plummeting homeownership rates at a time of rising rents is already a crisis for many families that will affect the macro-economy. She said, “If nothing changes, I can see easily a recurrence of a recession.”
It is hard to believe that eight years after the near-collapse of the economy, and following a housing bubble bust, elected officials are predicting more inaction on GSE reform. When Congress adopted the Housing and Economic Recovery Act in 2008 with bipartisan support, it was supposed to be the first step in the process, not the last; by now, one would have expected lawmakers to be jockeying for credit (or scrambling to avoid blame) for a plan that had already been enacted.
As we now know, the GSEs were not in the dire straits feared in 2008. Had their assets been preserved, as the law required, needed reforms could have been implemented to better serve the interests of taxpayers, Americans’ housing needs, and shareholders. Instead, arbitrary moves by the Treasury and hyper-partisanship in Congress have created piggy banks, lawsuits, resentment, and uncertainty.
Fannie and Freddie will have zero in capital reserves by 2018, so the next president and Congress will not be able to postpone consideration of comprehensive reform for very long. Those seeking the public trust this November will have a chance to earn it come January, possibly spurred on by judges.