Debate rages over PATH Act

by MPA23 Jul 2013

Debate is intensifying over the Protecting American Taxpayers and Homeowners (PATH) Act, which supporters portray as a path toward a healthier housing market, and critics portray as the highway to mortgage hell.

The PATH Act would phase out Fannie Mae and Freddie Mac over five years and require that the FHA play a substantially reduced role in the mortgage market.  After hearing testimony on the bill last week, the House Financial Services Committee will meet again Tuesday to consider and begin voting on it.

“The PATH Act increases competition, enhances transparency and maximizes consumer choice,” said Rep. Randy Neugebarger, a Texas Republican who helped draft the legislation.  The act will “ensure our housing markets are healthy, strong and stable,” he said in a statement.

Critics say the act would have devastating consequences for the mortgage and housing industries.  If fully implemented, the PATH Act would “lead to significantly higher mortgage rates, particularly in tough economic times, and would put 30-year fixed rate mortgage loans out of reach for most Americans,” said Mark Zandi, chief economist for Moody’s Analytics, testifying before the committee.

The housing-finance system needs reform, Zandi said, but any successful approach will balance the roles of the private market and federal government.  The PATH Act doesn’t strike a proper balance, he said, adding that the “housing finance system it envisages is largely privatized, providing no government backstop under any economic circumstances.”  

Committee Chairman Jeb Hensarling, a Texas Republican, said in statement that the bill would end government domination of the housing-finance market, give consumers more choices and ensure that taxpayers “never again have to bail out corrupt government-sponsored enterprises like Fannie Mae and Freddie Mac.”  



  • by Bill in Florida | 7/23/2013 10:56:09 AM

    Talk about ignorant people trying to shut the barn door after the horses got away. There was no problem with Fannie and Freddie until congress pushed them into making more mortgages to expand the percent of home ownership from the 64-65% to nearly 70%. On top of that they allowed them to earn huge bonus' on their mortgage genration. Neither apply today. Guidelines are more ridged now than when I started in the business in the mid 70's or the S&L crises in the 80's. They are finally showing nice profits but have to direct deposit it to the Fed's. I'm so sick of politics impacting my industry I can't see straight. We don't need to get rid of either one...we need to get rid of congress with term limits!

  • by Larry in NJ | 7/23/2013 11:37:06 AM

    I recall the liquidity crisis of 1966, times when there were no available mortgage funds at the institutions, controlled FHA rates bringing about an 8 to 10 point FHA market that prompted the creation of FNMA and later FHLMC. The GSEs need to run a businesses, not as political tools; they can and should be instrumental in the correction and reformation of a normalized housing market and industry

  • by Wm Matz | 7/23/2013 2:34:14 PM

    The real problems with FNMA/FHLMC are well detailed in the book, Reckless Endangerment [Morgenson/Rosner]. It was not Congressional pressure but greed that led the GSE execs to use Enron-type accounting to maximize bonuses. The execs should be in jail, but they were all politically well-connected.

    Probably no surprise that borrowers received very little benefit from the imlicit Gov't guarantee of the GSE's. Most of the benefit went to the execs. Just more crony capitalism.


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