Once again Democrats failed to offer a plan for rationalizing Fannie Mae and Freddie Mac after the House Financial Services Committee held another hearing Wednesday on the mortgage monsters. Chairman Barney Frank, D-Mass., explained breathlessly that because the congressional session was being cut short by seven days, the committee would not have the time to fully explore reform of the government-backed mortgage lenders. That's a ruse. Frank has repeatedly ducked and dodged on the problems of Fannie and Freddie. The two "government-sponsored enterprises" managed to lose $400 billion and $1 trillion in the financial crisis, and taxpayers will be tapped to repair the damage. After dispensing with the GSEs, Frank's committee spent the remainder of the day on trivial legislation -- the "Inclusive Home Design Act" that mandates compliance with new "accessibility guidelines" in federally assisted housing.
The Dodd-Frank financial reform bill, which bears the congressman's name, also ignored the wayward GSEs. Democratic Pennsylvania Gov. Ed Rendell acknowledged Wednesday that failing to include the GSEs "was a weakness [that] lies on the shoulders of the Democratic Party." And while Frank himself has admitted that they "ought to be abolished," he sees no reason to rush because "money is not being lost by anything they are doing now."
According to the American Enterprise Institute's Peter Wallison, these organizations, with the implicit backing of the federal taxpayer, were required by Congress to back high-risk subprime and Alt-A mortgages. As the housing bubble deflated in 2007, "Fannie and Freddie suffered massive losses. By late 2008, they were insolvent and the government took them over; at that point, they held or had guaranteed 12 million high-risk loans, with an unpaid principal of $1.8 trillion." When a bubble deflates, residential mortgages shouldn't create a systemic crisis -- that is, unless the loans are themselves of bad quality.
This is the system that Frank has preserved through inaction during his four-year tenure as chairman of this committee. Meanwhile, House Republicans have promised in their "Pledge to America" to end the "government takeover" of Fannie Mae and Freddie Mac and to begin "shrinking their portfolios." It may not be the all-out call for privatization that some feel is necessary, but it's more than Democrats have offered.