March 16, 2021

Toomey: Housing Finance System in Urgent Need of Reform

Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) today argued that the state of housing in America affirms the urgent need for reform. In his opening statement during today’s Senate Banking Committee hearing, Senator Toomey said that Congress’ most recent move to spend more taxpayer money on housing and rental aid even as the economy is in full recovery was bringing the country closer to socializing housing.

Senator Toomey also highlighted the housing finance reform principles he released yesterday, reaffirming his commitment to work with his colleagues in Congress and the Biden administration to fix the housing market.

Ranking Member Toomey’s opening remarks, as prepared for delivery:

Chairman Brown, thank you for calling this hearing. And thank you to our witnesses for testifying today.

Last week, we took another step toward socializing housing.

With the nearly $2 trillion stimulus bill, Congress nearly doubled the $40 billion in housing support it had already appropriated since the pandemic.

Calls for additional assistance were being made before almost any of the December spending bill was ever distributed to households.

Billions in stimulus checks, unemployment insurance—often exceeding work income—and other welfare meant most households at risk of homelessness had already received more than was lost in income.

We’ve likely exceeded the point where someone who has worked hard, made sacrifices, paid their bills, cared for their families but received none of this government largess, is saying to themselves, “how is any of this fair?”

Last week’s bill added to an already vast government role in housing. 

The number and cost of the housing subsidies boggles the mind: Mortgage interest deduction; capital gains exclusion on home sales; tax deduction on property taxes; FHA, VA, and USDA mortgage insurance and Ginnie MBS guarantees; government-induced down payment assistance; LIHTC.

An overlapping array of HUD programs, including: Project-Based Rental Assistance; Tenant-Based Rental Assistance; public housing funding; Section 202 housing for the elderly; Section 811 housing for persons with disabilities; Section 521 rural rental housing; CDBG; HOME Block Grants; and homelessness assistance.

And then we have the GSEs, which have historically subsidized mortgages.

Government is the problem, not the solution.

50 years and many hundreds of billions of dollars in federal housing assistance have had no meaningful impact on homeownership rates––64% in 1970 compared to 65.8% in 2019.

As one of our witnesses will testify, Black homeownership levels are similar to when the Fair Housing Act was passed in 1968—38% in 1960 compared to 42% in 2019.

Government policies just make housing more expensive.

Local zoning laws restrict the supply of housing, which drives up home prices and rents.

The GSEs, FHA, and VA subsidize the debt-financing component of home purchases, with those subsidies passed through into higher home prices.

Subsidized debt also encourages people to take on more debt than they can handle, and we saw how badly that turned out in 2008.

The state of housing in America affirms the urgency of reform.

As we will hear today, the housing market is cyclical. It’s a question of when—not if—there will eventually be a housing downturn. The GSEs and the housing finance system are not prepared.

FHFA Director Calabria and the last Administration made significant progress in reforming the system. Thanks to their good work, the net worth sweep has been suspended, and the GSEs finally have begun to build capital under a constructive new capital rule.

More than 12 years after the financial crisis, Congress has still not addressed the fundamental flaws in the system that led to the crisis.

The system is still dominated by the GSE duopoly. The $6 trillion behemoths actually have an even larger market share than they had before the crisis. They remain “too big to fail.”

The GSEs and the system also remain gravely undercapitalized.

Just as before the financial crisis, these flaws in the system continue to encourage excessive risk-taking, risk future taxpayer bailouts, and threaten financial stability.

And just as before the financial crisis, these flaws also continue to undermine the availability and affordability of housing in America.

The solution is not to double down on the old ways by simply easing underwriting standards, lowering FHA premiums, or further subsidizing mortgage debt. We need to try something new. We need to scale back the role of government and leverage the power of free enterprise to promote housing for all Americans.

For more than 30 years, Chairmen and Ranking Members from both sides of the aisle have worked together on an ongoing basis to improve our housing markets. I am committed to working with you and other members of this Committee to continue that tradition into this Congress.

In that spirit, yesterday I released principles for reforming the housing finance system. These principles build off the bipartisan efforts of current members of this Committee from both sides of the aisle.

Mr. Chairman, these principles also share some overlap with the principles you laid out in September 2019.

We need to end the “too big to fail” GSE model of privatizing the gains and socializing the losses by permitting the chartering of competitors to the GSEs.

We need to re-capitalize the GSEs and end the conservatorships.

These reforms should be done in an incremental and realistic manner that continues to foster a liquid secondary mortgage market and the continued availability of the 30-year mortgage while promoting equitable access for mortgage lenders of all types.

These reforms also should respect the rule of law and the rights of the GSEs’ shareholders that were infringed by the Third Amendment.

I know we have significant differences about the role of government in the housing market, but I believe compromise is possible. There is much that can be productively done on a bipartisan basis in this Congress.

As part of that work, I also look forward to hearing from Treasury Secretary Yellen as soon as required by the latest changes to the PSPAs.

Then, I hope we will act.