Although tempered somewhat by recent backlash from the housing market and investors, there’s no mistaking the fervor in some quarters of Washington to kill Fannie Mae and Freddie Mac. While Senate Democrats are hammering out a plan that would wind down Fannie and Freddie while still providing a government guarantee for mortgage loans, House Republicans are taking a more radical approach.
The Protecting American Taxpayers and Homeowners (PATH) Act passed the House Financial Services Committee in July without a single Democratic vote. Although the bill is a darling among House Republicans, it’s getting flack from industry groups, including the National Association of Realtors.
“The legislation we are actively opposed to currently is Republican legislation known as PATH,” NAR Chief Economist Lawrence Yun said Saturday. “...We don't think that bill will get anywhere, but it passed in committee. We believe that bill is highly ideological rather than practical.”
The PATH Act would essentially eliminate government guarantees on loans and entirely privatize the mortgage industry. Yun, speaking at the National Association of Mortgage Professionals (NAMB) conference in Las Vegas, said the legislation would hurt consumers and possibly strangle business for brokers and smaller banks. With giant banks the only ones with assets plentiful enough to cover the risks involved, mortgage lending would get harder and harder for smaller businesses.
“Mortgage rates will be higher for consumers ... and furthermore, large banks will be in charge,” Yun said. “...Large banks will certainly have the advantage over smaller banks just because of economies of scale. Whether the large banks will try to drive out the smaller banks remains to be seen.”
Meanwhile, the dismantling of Fannie and Freddie under PATH would be ultimately meaningless, Yun said, since taxpayers would still be at least partially on the hook for big banks’ losses through the Federal Deposit Insurance Corporation.
“On the PATH Act, we’re trying to make sure it never gets passed,” he said. “…If PATH is passed and becomes a law, interest rates will rise and the large banks will dominate the market -- and there will still be taxpayer risk because of the FDIC.”