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The financial crisis hit hard throughout the country, but here in New York, and particularly the outer boroughs, we are continuing to feel the damage in a profound and personal way. With Wall Street at our door step, the downward spiral of some of our nation’s largest financial institutions was felt first hand by our families, friends and neighbors who lost their jobs. With decreased government revenues, our health care costs shot up, our schools laid off teachers and the budgets for our first responders were squeezed.
As we clawed our way back from the brink, it was frustrating watching Congress. From the repeated and drawn out negotiations over the debt ceiling, the delay over disaster funds in the aftermath of Sandy to the government shutdown, the constant theme of the last several years is that Congress threatens to derail, not bolster, the nation’s economic recovery. Now the market is on the upswing, and not a moment too soon. Positive economic data fueled the S&P 500 to a new all-time high earlier this month, and forward momentum is palpable.
But yet again, we’re staring down the barrel of another roadblock brought about by Washington. Rather than continue to build on the strength of the recovery, Congress stands ready to threaten the U.S. economy with a dangerous proposal to eliminate the foundation of our rebuilding housing system, Fannie Mae and Freddie Mac, and put the financial security of millions of Americans in jeopardy.
For decades, Fannie and Freddie have made mortgages affordable for Americans by taking on the credit risk from lenders. In reducing the risk posed by risky borrowers, lenders are able to provide lower rates, making the 30-year mortgage the staple of housing finance it is today. In fact, Fannie and Freddie have become even more essential to mortgage financing, owning 68 percent of the $1.9 trillion in single-family mortgages originated in the United States. Fannie and Freddie help promote credible lending options for Americans who have been neglected by conventional lenders, including people of color and families with more limited incomes and wealth.
The U.S. Senate Banking Committee is considering legislation to put taxpayers and private investors on an even bigger hook in the event of another financial crisis. The proposed Federal Mortgage Insurance Corporate guarantee would only cover losses in excess of 10 percent. By comparison, losses during the 2008 financial crisis were estimated at between 3 and 4 percent. The implications of such changes to housing finance would be devastating for the market as a whole. Housing experts estimate the rise in mortgage rates would be from 2 percent to 1.5 percent—an unnecessary consequence with unfortunate implications for potential New York homeowners already facing one of the most challenging markets for homeownership.
Much like New York, Fannie and Freddie were tested, and over the last five years, they’ve done their job, helping to rebuild our once-broken economy. They’ve now repaid their loans in full, generating profits to the Treasury and to taxpayers. Instead of dismantling Fannie and Freddie and wreaking havoc on the economic recovery we’ve fought so hard to sustain, Congress should seek to reform and improve the existing institutions and strengthen them for future generations of homeowners and investors.
Chair of the Bronx South District Council of Presidents