Congressman Scott Garrett

Representing the 5th District of New Jersey

Federal Debt Not Only Liability Taxpayers On Hook For

May 7, 2014
Opinion Pieces

By Rep. Scott Garrett

It is no secret that Washington's finances are in a dire state. What might come as a shock, however, is that the American people are on the hook for a lot more than just our national debt. Today, nine of 10 new mortgages are insured by you, the taxpayers.

That's right — 90% of all mortgages are backed by the U.S. government. This point becomes even more ominous when you find out that most of the fees that should be saved to protect taxpayers against future losses on these loans are being spent by Congress.

When the next housing downturn comes — and it will — we will have another multi-billion-dollar bailout on our hands. To this day, many Americans are completely unaware of the costs of this bailout and the dangers it poses for America.

But we do not have to keep this current structure. Instead, we can replace this dependent market with a fair, stable and efficient one based on private capital.

This new market would be one in which the hardworking American people are not burdened with billions of dollars of hidden subsidies or obligations for future bailouts.

The best insurance we have against another housing boom and bust is an open, competitive market for mortgages, where lending is a business decision, not a political one, and where actions lead to consequences, not bailouts.

We can break out of our cycle of boom, bust and bailout. But time is short.

The longer we wait to start building a new system, the more addicted Congress gets to Fannie and Freddie's monopoly profits, and the harder it will be to get away from the status quo.

Last summer, Jeb Hensarling of Texas, chairman of the House Financial Services Committee, Rep. Shelley Moore Capito of West Virginia, Rep. Randy Neugebauer of Texas and I put forward the Protecting American Taxpayers and Homeowners Act (PATH Act).

The PATH Act is a comprehensive plan for building a mortgage market that avoids the problems of the past. This legislation would wind down Fannie and Freddie and build a new, more open mortgage market based on private capital, not taxpayer guarantees.

In recent months there have been several other plans put forward outlining structures for a new housing finance system, a welcome development after five years of inaction. The Johnson-Crapo bill introduced last month in the Senate is a particularly positive development for those of us who are determined to replace our dysfunctional and unsustainable housing finance system with something better.

Although the Johnson-Crapo plan and the PATH Act differ, there is enough common ground that I am confident we could reach an agreement if members of both chambers are committed to tackling the difficult work of housing finance reform.

Six years is far too long for us to have left the mortgage market in limbo. Doing so has created uncertainty about the future, and it is holding back both the housing market and the broader economy. The GSE model is fundamentally flawed, and Fannie Mae and Freddie Mac cannot be the way forward.

It's time we end Fannie and Freddie's $187 billion bailout and replace them with something better — a system based on private capital that doesn't recreate the moral hazards and cronyism that caused the previous system to implode.

Growing more difficult with each passing day, it is no secret that the task of reforming our housing finance system will be challenging. Waiting to act will only break the momentum we have now and reduce the likelihood of enacting meaningful reform.

We need to seize this opportunity to fix our broken mortgage system before Americans are subjected to yet another devastating cycle of boom, bust and bailout.

Garrett, a Republican, represents New Jersey's 5th District. He is a senior member on the House Budget Committee and chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises.

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