Housing Finance Reform Resource Guide
The Housing Finance Reform Act
H.R. 1859: A Brand New System
Thank you for visiting the resource guide I've designed to help you better understand the Housing Finance Reform Act. The purpose of this page is to explain both the need for a completely new housing finance system in this country and introduce you to the plan I've proposed.
Why is housing finance reform so important? Housing is an enormous sector of our economy. We never go into recession without housing leading us in. And, we never come out without housing recovering. Arguably, part of the reason that our current economic recovery is so tepid is because the housing recovery is very weak. When you consider the construction of new houses, the sales of existing houses, the construction and remodel and renting of apartments, the home improvement industry and so forth, it represents a tremendous amount of employment, economic activity and is fundamental to a standard of living. And, none of it moves without adequate financing. Hardly anyone buys, builds or improves a house or apartment paying cash. Pretty much everyone needs to borrow some money.
For these reasons, I've proposed a new system that replaces the unlimited government guarantee of Fannie Mae and Freddie Mac with multiple private companies competing in the marketplace. There would be a catastrophic government guarantee of their securities, not of the companies themselves, moving us away from “too big to fail” institutions. The taxpayers would be protected by the judgment of a highly independent regulator and several layers of private capital. This bill is not only the right way to fix the problem, but also happens to be a solution that falls directly in the political center of the issue, making it very attractive to broad, bipartisan support We know this legislation has the support it needs to become law by the end of this session, but we still have work to do in order to get it there."
Please spend some time reviewing the information below and make sure to use the "Contact John" link at the bottom of the page to send me your questions, thoughts, and ideas.
- Read Economist Phillip Swagel's Bloomberg Op-Ed On How the Campbell-Peters Plan Will Rescue the Housing Market
“Analysts say that the compromise proposed by Rep. John Campbell (R -CA) and Rep. Gary Peters (D-MI) may be the only plan likely to attract sufficient support from both parties on a politically explosive subject, particularly at a time when gridlock looms over issues such as how to curb federal spending.” - Excerpt from “Bill Proposes Mortgage Shake-up”, Wall Street Journal, May 12, 2011
Why Eliminate Fannie Mae and Freddie Mac?
The method under which most people borrowed that money during the last 70 years was through the assistance of the "government sponsored enterprises", Fannie Mae and Freddie Mac. And, it worked pretty well for most of those 70 years. But, as we all well know, both enterprises failed rather spectacularly in 2008 and were a major component of the economic crash that year. The reasons for this failure are beyond the scope of this missive, but suffice it to say that the model broke down, the housing market collapsed and the federal government had to rescue them to the tune of $138 billion to date. Taxpayers now own these entities.
Today, roughly 19 out of 20 home mortgages in the United States are made by and guaranteed by the U.S. government through Fannie, Freddie or FHA. There is a general agreement in Washington that this cannot continue and that these entities must be liquitated. However, there is not agreement on what the proper system should be to replace them.
What's the Solution?
The correct solution, the one that will work, is in the middle. To this end, Congressman John Campbell, along with his lead Democratic cosponsor, Congressman Gary Peters, introduced the Housing Finance Reform Act. This bill will liquidate the failed GSEs, Fannie and Freddie, and replace them with multiple (10, 20 or more) privately held and funded "associations" to guarantee mortgages. These associations will act very much like the public utility that sells you electricity or natural gas. They will be highly regulated by a newly created regulator that will be very independent of political influence. They will not be allowed to be involved in any other business other than guaranteeing mortgages. They cannot be controlled by entities that originate the mortgages. They will be able to purchase a limited, but explicit federal guarantee of the mortgage security, not the association. That federal guarantee is what will allow 30 year fixed-rate mortgages to continue and what will create stability in the market so that mortgages are always available to credit-worthy borrowers. But, the guarantee will be very different than what Fannie and Freddie had. There will be a whole lot of private capital that will have to be lost before any taxpayer money is at risk. As a general rule, 20% down payments will be required. The associations will also hold a lot of capital, which must be lost first. And, the money they pay for the federal guarantee will work like FDIC insurance in that the payment creates a fund to cover losses should one of the associations fail. And, even then the regulator can assess additional money from the associations to fill up the fund, should it be depleted by a failure.
A New System
H.R. 1859: The Housing Finance Reform Act