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Chairman Duffy and Ranking Member Cleaver:
I am grateful to the Subcommittee for the opportunity to testify today. In its invitation letter, the Subcommittee asked for my “perspective on the need for comprehensive housing finance reform, the legal, statutory or regulatory impediments to the return of private capital to the housing finance system and what factors and metrics Congress should consider to reform the housing finance system.”
My view is that the best and most effective housing finance reform would be to completely eliminate the government’s role in housing finance, and to let private capital and the private sector operate the housing finance system. There is nothing about the way the government has managed the housing finance system for the last 50 years that would remotely recommend a continuing government role.
Later in this testimony, I will show that the government’s policies—and particularly those implemented by the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac—have done nothing to advance home ownership. In fact, they have seriously impeded the growth of home ownership in the United States and continue to do so in the government conservatorship that currently controls them. But first, I want to describe briefly the relationship between government housing policies and the 2008 financial crisis—a genuine catastrophe for the US and world economy that was caused directly by the US government’s housing policies.
In 1992, Congress adopted a program called the Affordable Housing Goals. These required the GSEs to meet an annual quota of low and moderate income (LMI) mortgages when they purchased mortgages from banks and other originators. Initially, the goal was 30%—that is, in any year, 30% of all the mortgages Fannie and Freddie acquired had to have been made to borrowers at or below median income where they lived.
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