Weekly Column

Senator Mike Johanns

A Bipartisan Blueprint for Housing Reform

When government-sponsored mortgage giants Fannie Mae and Freddie Mac failed in the height of the Great Recession, taxpayers were forced to pick up the pieces and the tab. Just as many Americans were coming to grips with the reality that their retirement savings had been all but decimated, the federal government was readying a $187 billion taxpayer bailout of the home finance industry.
While many hard lessons were learned from this economic downturn, the system that led to the collapse of the housing market is still in place today, leaving you on the hook for yet another bailout should the industry falter again. That’s why I’ve teamed with a bipartisan group of colleagues on the Senate Banking Committee to reform our nation’s mortgage system, reducing the government’s footprint in the industry and protecting you and all taxpayers from future bailouts. I’m pleased that legislation based on our proposal is being considered by the Senate Banking Committee this week, and hopeful the reform effort crosses the finish line this year despite the election-year gridlock. It’s important on many levels.
The housing market accounts for 20 percent of America’s total economy, so it’s critical that the new system protects taxpayers while ensuring lenders of all sizes across the nation are able to offer competitive rates to the homebuyers they serve. The bipartisan plan would phase out Fannie and Freddie over five years and replace them with a new entity modeled after the Federal Deposit Insurance Corporation (FDIC), which protects your bank and credit union deposits. It puts an end to the current no-risk, all-reward model by requiring those who invest in mortgages to put more skin in the game. Their money should be on the line first, not yours. Risky business practices will be less likely if they have to pay the price.
The bill goes one step further to take taxpayers off the hook for future bailouts by ensuring those participating in the system contribute to a fund that covers deeper losses. If this legislation would have been in place before the collapse of the housing market, you and other taxpayers would not have been left holding the bag for the failed investments of others.
Reforming our mortgage system also means ensuring access to competitive 30-year mortgages. This legislation allows small and rural lenders equal access to the mortgage market and gets rid of the volume-based discount system, which benefitted the nation’s largest banks.  Local lenders, many of whom serve Nebraska, are the lifeblood of rural communities, so it’s important that they are able to invest in their neighbors without being swallowed up by major lenders.
Now is the time to act on meaningful mortgage finance reform. This legislation is good for the economy, good for taxpayers and good for small lenders and the folks they serve. The window of opportunity is limited as thoughts turn to the mid-term elections, so it is important that the full Senate considers this bill in a timely manner.  I will press my colleagues on both sides of the aisle to achieve these needed reforms for taxpayers before the end of the year.