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Bush, Lawmakers Mull Housing Finance, Past and Future

Lawmakers butted heads over their intentions for GSEs ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home and ""Freddie Mac"":http://www.freddiemac.com/ at a hearing Tuesday, with Republican members of the ""Senate Banking Committee"":http://banking.senate.gov/public/index.cfm?FuseAction=Home.Home seeking private-sector solutions while a number of Democrats called the federal government a needed buttress in housing finance. _MReport_ captured a look back by ""former President George W. Bush"":http://www.whitehouse.gov/about/presidents/georgewbush at the federal bailouts orchestrated by his administration during the financial crisis.

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Commenting on the results of the hearing in a statement, ""Sen. Richard Shelby"":http://shelby.senate.gov/public/ (R-Alabama), a known critic of a federal role in housing finance, called any attempt to return Fannie and Freddie to the private sector ""a bold undertaking that will fundamentally reshape how this nation finances homeownership.""

He faulted ""[m]isguided housing policies, pursued by the Federal Government and implemented by the GSEs,"" for their role in the financial crisis, and called on the Senate committee to ""determine whether other models of housing finance are more efficient, more sustainable and less likely to impose losses on taxpayers than the current system.""

Witnesses sworn in by the committee disagreed with his assessment.

Richard Green, director and chair of the ""USC Lusk Center for Real Estate"":http://www.usc.edu/schools/sppd/lusk/luskcenter/index.html at the ""University of Southern California"":http://www.usc.edu/, read from prepared testimony that ""the United States has had a history of providing guarantees"" since ""the origins of the republic.""

He added that ""[i]t is in the best interest of the country to acknowledge the existence of such guarantees,"" referencing the federal conservatorship of Fannie and Freddie.

""Adam Levitin"":http://www.law.georgetown.edu/faculty/levitin/, a law professor with ""Georgetown University Law Center"":http://www.law.georgetown.edu/, said that he would prefer an ideal situation in which ""the U.S. housing finance system [is] financed entirely with private capital.""

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Despite characterizing the role of government in the housing finance system as one that ""carries with it serious concerns of moral hazard and politicized underwriting,"" he said he felt ""opposed to proposals to eliminate any government guarantee from the housing finance system.

""My opposition is based on practical realities, not ideological grounds,"" Levitin said, adding that privatization proposals for the housing finance system ""don't work.""

In a past interview, ""Alex Pollock"":http://www.aei.org/scholar/88, resident fellow with the ""American Enterprise Institute"":http://www.aei.org/home and former president of the ""Federal Home Loan Bank of Chicago"":http://www.fhlbc.com/fhlbc/contactus.asp, advocated for a three-part solution to the federal conservatorship of the GSEs.

The strategy he proposes: outline a five-year transition process that alternately privatizes, continues to federally conserve, and liquidates trusts and government-guaranteed debt associated with the GSEs.

Such a strategy would return the GSEs to private models that ""might be successful or might go broke like any company,"" he told _MReport_, with government-subsidized elements of the company falling under new management at ""HUD"":http://portal.hud.gov/portal/page/portal/HUD.

Ideas for the GSEs continue to float in circles around the country following an unprecedented expansion of federal support during the financial crisis, which came to include billions of dollars in rescue funds for Fannie and Freddie.

Bush explored his decisions to curtail the financial catastrophe with an audience of hundreds of mortgage industry professionals at the ""Five Star Default Servicing Conference and Expo"":http://www.thefivestar.com/fsc-2011/, currently underway at the Hilton Anatole in Dallas, Texas, where he delivered the keynote address.

The former president called the federal buy-up of bank assets under his administration ""a painful decision"" he made in spite of his belief in a restricted role for the government. Controversy arose for his administration when federal officials signed off the decision to shore up the GSEs, bail out financial institutions in danger of bankruptcy, and offer relief programs for underwater homeowners.

Comparing himself to ""the captain of a sinking ship"" at the height of the financial crisis, Bush said that he didn't ""want to gamble with the future"" of the country.

He recounted conversations with ""Federal Reserve"":http://www.federalreserve.gov/default.htm chairman ""Ben Bernanke"":http://www.federalreserve.gov/aboutthefed/bios/board/bernanke.htm and then-Treasury Secretary Henry Paulson, who counseled the president to intervene in the markets or ""face a depression as great as the Great Depression.""

[Note: ""The Five Star Institute"":http://thefivestar.com/ is the parent company of _MReport_.]

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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