Government Guarantees Called Into Question at Senate Hearing

The Senate Banking Committee held a hearing Tuesday on housing finance reform, the first of three housing-related hearings on the agenda this week. The issue of government guarantees for mortgages came under fire.
Peter Wallison, a fellow with the American Enterprise Institute in Washington, D.C. , noted in his testimony that the Congressional Budget Office (CBO) recently estimated – even after the recent debt extension agreement – that if current policies are pursued the national debt will balloon from $14.3 trillion today to $23 trillion in 2021.

“Virtually all proposals for U.S. government assistance to the housing finance market assume that it will involve an explicit government guarantee, but even if this guarantee is only implicit — as it was with the government sponsored enterprises Fannie Mae and Freddie Mac – it will make no significant difference except in the budget numbers,” Wallison said.

“The bailout of Fannie and Freddie proved beyond question that this debt is every bit a part of the nation’s debt as the securities are issued by the Treasury,” he added

Wallison says without any change in policies and without any further increase in the GSEs’ debt, the national debt will reach $30 trillion in 10 years.

“With this background, it is hard to believe that there is actually a viable campaign to have the government support the housing market once again,” he told lawmakers from the Senate committee.

Wallison said that the housing finance market can and should principally function without any direct government financial support.

Others scheduled to testify with Wallison were Dwight Jaffee, a real estate and finance professor at the University of California-Berkley; Adam Levin, a law professor at Georgetown University; and Richard Green director and chair of the USC Lusk Center for Real Estate, University of Southern California.

In other sessions on Capitol Hill this week, Wednesday the Senate Banking Subcommittee on Housing, Transportation and Community Development is scheduled to hear new ideas for mortgage loan restructuring and refinancing from Mortgage Bankers Association President and CEO David H. Stevens. No other witnesses are currently scheduled.

Also on Wednesday, the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity will examine HUD’s and NeighborWorks America’s housing counseling programs. Peter Bell, president of the National Reverse Lenders Association and a representative from the U.S. Government Accountability Office are scheduled to testify