NASHVILLE — U.S. Sen. Bob Corker, R-Tenn., is pushing for legislation to create a federal entity to regulate the housing market, six years after the government’s subprime loans nearly tanked the U.S. economy.
Is it a good idea?
Two experts—one a Franklin, Tenn.-based financial adviser, the other a Heritage Foundation research fellow—oppose housing finance legislation from U.S. Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho but for different reasons.
The Johnson-Crapo legislation, which the two call Housing Finance Reform, evolved from legislation previously introduced by Corker.
Tim Pagliara, who said he donated $7,000 to Corker’s Senate campaign and once had direct access to the senator, calls the legislation “residential Obamacare,” which, if passed, would raise mortgage rates.
“I don’t want people to wake up after this legislation has passed and realize their mortgage rates are going to be higher,” said Pagliara, chairman and chief executive officer of CapWealth Advisors.
According to its text, the legislation would eliminate Fannie Mae and Freddie Mac and bring in “a diverse set of private entities to step in and replace most of the functions” of those government sponsored enterprises, or GSEs, as it pertains to home loan financing.
A five-member Federal Mortgage Insurance Corporation, modeled after the Federal Deposit Insurance Corporation that oversees banks, would regulate the new system and include a reinsurance fund to protect taxpayers.
Corker suggested opponents may have ulterior motives.
“There are some entities that are doing everything they can to distort the truth and kill efforts to reform the housing finance system because they benefit more from the status quo at the expense of taxpayers,” Corker said.
Pagliara said Fannie and Freddie need reform, not elimination—particularly given past government pressure for high-risk subprime loans, which led to the 2008 economic collapse.
And Norbert Michel, research fellow in financial regulations at The Heritage Foundation, argues against the legislation for different reasons.
Michel said all GSEs should be eliminated, including Fannie Mae and Freddie Mac, and the government should not replace them:
We don’t believe there should be an explicit guarantee in the market for housing, just as we don’t believe there should be an explicit government safety guarantee for any markets. You’ve already got enough regulators. You’ve already got an FDIC.
