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GOP Debate Sidesteps Fannie, Freddie Reform

By Brian Summerfield, Online Editor, REALTOR® Magazine

A subject we’ve talked about a great deal here on the Speaking of Real Estate blog got some play during the Republican presidential debate last night in Jacksonville. (Transcripts are available here.) A question was asked of the four candidates about how to phase out government-sponsored enterprises Fannie Mae and Freddie Mac.

However, none of them gave satisfactory answers. Former Massachusetts Gov. Mitt Romney started out by claiming that “we’ve had this discussion before,” then attacked fellow candidate and former Speaker of the House Newt Gingrich for his business ties to Freddie Mac. Romney concluded by saying creating jobs was crucial for improving the housing market — which I believe is true, but that doesn’t answer the question.

In his response, Gingrich defended his involvement with Freddie and charged that Romney had made a fortune off of his investments in the GSEs. The two candidates went on for a couple more minutes trading barbs about who, exactly, had benefitted more from their Fannie and Freddie affiliations.

Rick Santorum, a former Senator from Pennsylvania, said he “stood tall” against the GSEs back in 2006 when he wrote a letter with other senators asking for Fannie and Freddie reform that involved gradually reducing the number of mortgages underwritten by the two. He then criticized both Romney and Gingrich for criticizing each other instead of focusing on the question.

Former Texas Congressman Ron Paul came closest to answering the question when he said the two organizations “should have been auctioned off right after the crash came.” And he offered an explanation of what led to the bubble in the first place: excessive credit and artificially low interest rates, among other things.

As with Romney’s answer, Paul’s response wasn’t necessarily factually wrong, but the question wasn’t really about how the bubble came into existence and what should have been done in 2008. It was about how to phase out the GSEs now. Presumably, Paul is in favor of liquidating them, but what would that look like?

For its part, NAR has argued that the two entities should be replaced with a nonprofit, government-charted organization that continues to back standardized loans, just as Fannie and Freddie do now, but without the profit motive. The goal for NAR is to ensure  a government-based entity that stays in the market at all times rather than rely on private companies only, since when markets slow, they are prone to leave. Also, whatever structure the new entity takes, it shouldn’t crowd out private competitors — NAR wants private companies to return to the market. (Go here for more information on NAR’s position.)

Now I know the format of televised debates doesn’t lend itself to long, detailed answers about policy. But in the wake of the State of the Union address earlier this week — in which Obama discussed housing problems and solutions at length — and with Congress preparing to tackle new approaches to Fannie and Freddie, these kinds of answers just aren’t going to cut it. If the GOP presidential field wants to be taken seriously on housing, they need to offer something more substantial than they did last night.

(Editor’s Note: REALTOR® Magazine does not make endorsements in political races, and this analysis should not be viewed as favoring any party or candidate over another.)

Brian Summerfield

Brian Summerfield is Manager of Business Development and Outreach for NAR Commercial and Global Services. He can be reached at bsummerfield@realtors.org.

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