The House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises held a hearing, “Fannie Mae and Freddie Mac: How Government Housing Policy Failed Homeowners and Taxpayers and Led to the Financial Crisis,” on March 6. The hearing was the first held by the subcommittee this Congress on the topic of housing finance reform. The stated purpose of the hearing was to investigate the causes of the 2008 financial crisis, and the evaluate activities of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac during that period. Several subcommittee members noted that taxpayer support for the GSEs throughout the financial crisis has totaled approximately $187 billion, although the GSEs have also paid the Treasury approximately $50 billion in dividends. Subcommittee Chair Robert Hurt (R-VA) said, “It’s our responsibility to end the bailouts of Fannie Mae and Freddie Mac, and as the committee begins work on housing finance reform, it is important we understand what caused these losses.” However, some witnesses noted that not all housing finance reform proposals are focused on the repayment of taxpayer funds. Joshua Rosner of Graham Fisher & Co. said, “While there are proposals to replace the GSEs with alternatives, many of those seem to transfer many of the subsidies the GSEs received to other private institutions. Besides the other problems embedded in many of the proposals, it is the reality that such an approach does not seek, as a key purpose, the repayment of over $140 billion of funds owed to the U.S. Treasury.” The panelists and subcommittee members did not discuss specific GSE reform proposals. In the last Congress, the subcommittee approved a number of bills to dismantle the GSEs, including one that would abolish the National Housing Trust Fund (NHTF) (see Memo, 7/15/11). Advocates are interested in monitoring GSE reform efforts because the NHTF was originally to be funded through contributions by the GSEs. While the NHTF can also be funded by any other sources determined by Congress, the NHTF remains embedded in the GSE statute. The NHTF Campaign holds the position that now that the GSEs are once again making profits, they should commence their contributions to the NHTF. While several Republican subcommittee members focused on a perceived significant role of the GSEs in causing the 2008 mortgage crisis, the full committee did not consider what Financial Services Committee Ranking Member Maxine Waters said are “several bipartisan reform proposals, none of which have had a hearing in the committee.” Chair Hurt said the underwriting policies of the GSEs contributed to the crisis, and said that if the GSEs had behaved differently in entering the subprime mortgage market, Congress could have avoided and prevented the crisis in 2008. Ms. Waters countered that it is “over simplistic and untrue to suggest Fannie Mae and Freddie Mac caused the financial crisis.” Witness Susan Wachter of the Wharton School at the University of Pennsylvania said, “It would be the Great Depression 2.0 if we simply withdrew Fannie, Freddie, FHA without an alternative.” While no consensus emerged in the hearing, many seemed to agree that a government role is needed in any future system. Lawrence J. White of the Leonard N. Stern School of Business at New York University said, “Large systemic financial institutions, in this case, involved with residential housing finance, must be subject to rigorous prudential regulation, with high capital requirements at the center of this regulation.” Subcommittee Ranking Member Carolyn Maloney asked the witness panel if the GSEs’ multifamily and single-family business should be treated the same way in a reformed or new system. Dr. Wachter responded that the multifamily business of the GSEs is doing well, and noted that the Bipartisan Policy Center Bipartisan Housing Commission is in favor of a continuation of the multifamily functions of the GSEs (see Memo, 3/1). Dr. Wachter also said that the need for clear standards and monitoring, as well as efforts to address issues of affordability are extremely important for “both multifamily and single family as rents continue to rise across America.” Representative Gary Peters (D-MI) noted that as the committee considers GSE reform there are other housing market conditions that must not be ignored. “Rental demand is increasing, but the number of renters spending more than they can afford is high and growing. Our economy cannot afford to have an outdated housing system,” said Mr. Peters. “I believe our committee has a real window of opportunity to meaningfully engage in housing finance reform,” said Mr. Peters. Access an archived hearing webcast and all witness testimony.