In an appearance on CNBC’s “Squawk on the Street” on Wednesday, Senator Bob Corker, a member of the Senate Banking, Housing and Urban Affairs Committee, urged Congress to reform the nation’s housing finance system.
“I don’t know of a Republican senator during the crisis that didn’t believe that Fannie and Freddie needed to be wound down,” said Senator Corker. “Now, the government owns them, and we need to reform them.
What’s the purpose of having a Republican majority if you’re not going to deal with the basic issues that need to be dealt with?”
Senator Corker rejected the notion that the administration is actively pursuing efforts to release Fannie Mae and Freddie Mac out of conservatorship but also said that without housing finance reform, hedge funds will “take advantage” of the system and taxpayers will continue to be on the hook for a future bailout.
“If Congress continues to be inept… [the hedge funds] will eventually take advantage of the system… [Fannie and Freddie] will continue to be way too big to fail. The government will back them up again when they fail. Private profits, public losses – we’ll return to that model,” said Senator Corker. “We should do what we were elected to do, and that is to wind [Fannie Mae and Freddie Mac] down and replace it with something that’s much more dynamic and that the American people do not need to stand behind.”
Legislation first introduced by Senator Corker and Senator Mark Warner (D-Va.) in June 2013, the Housing Finance Reform and Taxpayer Protection Act (S.1217), passed the Senate Banking Committee in May 2014 by a vote of 13 to 9. The bill would strengthen America’s housing finance system by replacing government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac with a privately capitalized system that preserves market liquidity and protects taxpayers from future economic downturns.
During the 2008 financial crisis, Fannie Mae and Freddie Mac were taken into government conservatorship and given a $188 billion capital injection from taxpayers to stay afloat. As a result, the private market almost completely disappeared, and nearly every loan made in America today comes with a full government guarantee.