Housing Finance: What Should the New System Be Able to Do?

Testimony Before the House Committee on Financial Services

By Sarah Rosen Wartell | March 23, 2010

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SOURCE:Center for American Progress

CAP Executive Vice President Sarah R. Wartell testifies before the House Committee on Financial Services. Read the testimony (CAP Action).

The financial crisis has demonstrated just how central housing finance is to both our economy and to the lives of American families. The crisis forces us to step back and consider anew first principles—what are the goals of federal housing policy—and what system of housing finance will best accomplish these goals.

The testimony I submit today first describes the traditional goals of the system and argues they remain the right objectives. The missteps that led to the recent crisis represent, not the failure of this vision, but a failure to keep these objectives paramount. History suggests that the private market alone will not achieve these objectives.

It then looks backwards, before it looks forward. An assessment of the past is an important first step in designing the system of the future, as we must make sure we have learned the right lessons from the crisis about how to achieve the system’s goals. So this testimony lays out in some detail, first, an assessment of the origins of the crisis, a tale of failure by regulators to put the brakes on an unregulated system that was demanding the indiscriminate production of unsustainable mortgages and, second, a pointed rebuttal to some common assertions about the origins of the crisis that the evidence shows are unfounded.

Lastly, the testimony offers a caution to those who would act too precipitously or critique the administration for its deliberate step-by-step management of housing markets through the crisis.

CAP Executive Vice President Sarah R. Wartell testifies before the House Committee on Financial Services. Read the testimony (CAP Action).