Uh, Hello? GSE Reform?

10871_01clowns Uh, Hello? GSE Reform? BLOG VIEW: During one of the seemingly infinite number of Republican presidential candidate debates, Rep. Michele Bachmann considered the two front-runners as a merged force that she dubbed ‘Newt Romney.’ According to Bachmann, the former Massachusetts governor and the former speaker of the House of Representatives were so much alike that they could be mistaken for a single entity.

Bachmann wasn't far from wrong. In the past few weeks, Mitt Romney has spent endless hours and countless millions denigrating Newt Gingrich's one-time business relationship with Freddie Mac. Gingrich, for his part, turned his oratorical skills and Super PAC funds to questioning Romney's sizable investments in the government-sponsored enterprises (GSEs).

Indeed, the finger-pointing and insult-baiting by the candidates has become such an emetic experience that it is not difficult to wish that one could pull inspiration from the Three Stooges' Moe and clunk the candidates' heads together. By slinging mud about their respective GSE transactions from years past, Romney and Gingrich – and, by extension, the mainstream media that are pumping up this political circus – are ignoring the damaging problems created by today's GSEs.

Lest we forget, Fannie Mae and Freddie Mac have been in federal conservatorship since September 2008. Since then, they have soaked up billions of dollars in taxpayer funds without showing one penny of profit. Even worse, their executives have been pocketing seven-digit compensation for shoddy work.

The Obama administration, after a little more than three years in office, has yet to produce any solution – good, bad or indifferent – on GSE reform. The administration ignored GSE reform for its first two years, only to throw together a few crummy ideas (none of which carried a White House recommendation) for congressional consideration in early 2011. Last week, Treasury Secretary Timothy Geithner stated that the administration was eager to ‘make progress this year in building the foundation for reforms to the mortgage market in the United States, including a path for winding down the GSEs.’ But, of course, this was all talk and no solutions – after three years, Obama, Geithner and the rest of the administration have no clue on how to fix the mess.

Today's secondary market is almost entirely a government-owned and -operated affair. If it weren't for Redwood Trust, it would seem that the private-label market went the way of the dinosaurs.

There is also the question of the GSEs' regulator, the Federal Housing Finance Agency (FHFA), which has not had a director since August 2009. Under the bizarre leadership of Acting Director Edward J. DeMarco, the FHFA has created a unique environment for bipartisan agreement: both Democrats and Republicans agree that he is doing a terrible job. However, the White House is keeping him at the helm – there has been no talk of a new director since Joseph Smith's brief but aborted nomination to fill the post in late 2010.

So what happened to GSE reform as a campaign issue? President Obama, of course, is not going to raise the matter – his State of the Union speech last month made no mention of the GSEs, and maintaining the status quo plays into his political philosophy that bigger government equals better government.

But where is, to borrow Bachmann's line, ‘Newt Romney’? Considering that both men profited handsomely from their previous connections to Fannie Mae and Freddie Mac, it would seem highly peculiar for either of them to come out against the abuses in the GSE executive-compensation program.

And considering that both men have histories of encouraging extensive government participation in the housing market – Gingrich as a partner with President Bill Clinton in the mid-1990s, and Romney in his aggressive advocacy of state-financed affordable-housing endeavors during his single term as Massachusetts governor – they do not seem like the ideal representatives of shrinking government influence in housing.

Of course, there are two other candidates for the Republican nomination – Rick Santorum and Ron Paul – but neither of them are allowed to get a word in. During the contentious Republican primary in Florida, the Romney-Gingrich war became so intense, and the media's fixation on the duo was so overwhelming, that Santorum and Paul often seemed to be gadflies rather than active participants in the presidential race.

Without GSE reform, the housing market will remain inert or worse while taxpayers get soaked for hundreds of billions of dollars. And as long as the housing market is in critical condition, genuine economic recovery will remain an elusive fantasy.

– Phil Hall, editor, MortgageOrb

(Please address all comments regarding this opinion column to hallp@zackin.com.)


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