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Groundhog Day on Capitol Hill

In the 1993 comedy Groundhog Day, Phil Connors (Bill Murray) is stuck in an endless loop, hearing the same things, and repeating the same day. At one point, he asks a friend, “What would you do if you were stuck in one place and every day was exactly the same, and nothing that you did mattered?” His response? “That about sums it up for me.”

And that about sums it up for Thursday’s hearing before the House Financial Services Subcommittee on Housing and Insurance, the second hearing in just a few weeks on sustainable housing finance. As anticipated, Mortgage Bankers Association (MBA) President Dave Stevens testified and brought up many of his same points supporting the MBA’s GSE reform plan. Those same tired points we’ve heard over and over.

He started off with a line we can all agree on:

“Nine years have passed since the GSEs were placed in conservatorship, and yet their long-term status remains unresolved. Extended conservatorship is economically and politically unsustainable, and it is an unacceptable long-term outcome. Without comprehensive reform, borrowers, taxpayers, and lenders will all face increased risk and uncertainty about the future.”

But as usual, he left some important points out.

Stevens failed to recognize that while reforms have been made to the GSEs, thousands of everyday investors have been harmed in the process. From the Net Worth Sweep to failing to allow Fannie Mae & Freddie Mac to build up a capital buffer, the group his organization’s plan purports to protect – taxpayers – is instead put at great risk of footing the bill for another giant bailout. Simply put, this is a risk that can be avoided by planning ahead while Fannie Mae and Freddie Mac are enjoying success. Or as Vice President Pence’s chief economist Mark Calabria put it at an Urban Institute event on Wednesday:

“A modest decline in the housing market could result in an injection of billions of taxpayer dollars [to the GSEs]… I think we need to have a mortgage finance system that takes into consideration that you will have cyclical effects in the housing market, not one based upon the dream of ever increasing prices.”

Calabria is right. As someone who was embedded in housing policy throughout the financial crisis as a senior staffer on the Senate Banking Committee when HERA was crafted, we should heed his warning. The ultimate goal of GSE reform should be to not only return to investors their hard-earned money, but protect taxpayers in the long run. And while it’s certainly true parts of the MBA plan would have positive impacts on promoting affordable rental housing and the goal of home ownership, it would also create a huge risk to taxpayers. Investors Unite and others have continued making this point, and it’s beginning to seem like a scene from Groundhog Day.

But unlike the movie, the impacts of these decisions have real world consequences. Fannie Mae recently announced its third quarter income of around $3 billion, almost all of which will be returned to the Treasury. That’s a total of $114.8 billion that’s already been returned, far more than was used to bailout Fannie Mae following the financial crisis.

What does this mean for everyday Fannie and Freddie investors? Less money in their pockets, more cash for the feds. After nine years of conservatorship, it’s time to push real solutions to this endless loop, otherwise we’re doomed to repeat the same story.