Housing Bill
Recently, the House of Representatives considered H.R. 3221, “the Foreclosure Prevention Act of 2008”. The legislation links necessary Government Sponsored Enterprise (GSE) reforms with unnecessary and counterproductive provisions that put both the housing market and taxpayers at risk. The bill, which passed the House, transfers liability from lenders who issued poor mortgages to taxpayers who are already struggling to cope with high gas and food prices. This bill will not solve the underlying issues facing the housing market and because of that, I could not support it.
Our nation has been facing difficult economic times driven in large part by high foreclosures in the housing market and the credit crunch that ensued. Unfortunately, the legislation that passed the House today could undermine the safety and soundness of our mortgage finance system instead of bolstering it, while at the same time forcing taxpayers to assume the risk for bad mortgages. One provision in the bill authorizes the Federal Housing Administration (FHA) to insure an additional $300 billion in refinanced mortgages. This voluntary program creates an incentive for lenders and investors to saddle the Federal government with their riskiest loans.
Additionally, this new FHA program, as well as an Affordable Housing Trust Fund, is funded by a new permanent tax on Fannie Mae and Freddie Mac. Yet this legislation also aims to prop-up the same two Government Sponsored Enterprises (GSE) by giving them unlimited borrowing authority from the U.S. Treasury. If Fannie and Freddie are in financial straits that require a government bailout, then we should not be siphoning off funds to create a redundant housing fund or expecting them to cover the huge losses FHA will incur from the defaults on the newly insured risky mortgages. The bill also provides funding for local governments to buy up foreclosed properties, potentially creating an incentive for some lenders to foreclose on mortgages instead of trying to work out agreements with homeowners. While attempting to shore up the housing market, we are in effect expanding the risk and undermining the system, potentially setting ourselves up for more problems in the future.
