Fannie Mae and Freddie Mac’s recent weak profit reports coinciding with ominous stress tests are a stark reminder that the American taxpayers continue to be exposed to billions of dollars in risk from the government-backed duopoly.  I supported S. 1217 passage out of the Banking Committee today as an important first step to move the risk of our nation’s housing market off the backs of the taxpayers and onto a firm bedrock of a private capital driven, competitive, and diverse housing finance system.

I would be the first to support a proposal that completely removes the government from the housing market, but those desires must be matched with an honest declaration that such a reform will end the 30 year fixed rate mortgage.  In a body that cannot get rid of tax breaks for race horses, predicating housing finance reform on the abolition of the cornerstone of the U.S. housing market does nothing but keep the taxpayers on the hook for $5 trillion worth of Fannie Mae and Freddie Mac securities and guarantees – an ironic exercise of self-defeat.

Further, S. 1217 does not create a government guarantee on mortgage backed securities.  That guarantee has always existed since Fannie Mae was spun out of the federal government as a budget gimmick in 1968.  Rather, S. 1217 turns the previous implicit government guarantee into an explicit one and outlines that it can only be triggered after a massive amount of private capital losses that would provide more than enough protection to withstand another 2008-type crisis. 

While this bill still needs improvements prior to becoming law, especially reigning in the authority provided to the executive branch under unusual and exigent circumstances, it is past time that Congress stop making excuses and move forward with this long overdue reform.