GOP Rep.: Government should stop trying to prevent foreclosures

A top Republican on the House Financial Services Committee said Monday that the government should abandon its efforts to save homeowners from foreclosure.

Rep. Randy Neugebauer (R-Texas), the chair of the committee's Oversight Subcommittee, told housing experts that government attempts to prevent foreclosures is prolonging the inevitable for many struggling homeowners and impeding the private market.

"All these foreclosure mitigation initiatives we're taking need to stop," he said, speaking at an event co-hosted by the University of Maryland's Robert H. Smith School of Business and the NYU Stern School of Business.

Neugebauer said the private market should be allowed to work through the problems in the housing market without "administration pressure" to avoid foreclosures.

"Markets aren't kind, but they're very efficient," he said. "There were people who were put in their homes that probably never should have been there before."

The Obama administration has sought to help homeowners modify their mortgages to avoid foreclosure primarily through the Treasury Department's Home Affordable Modification Program (HAMP). As of December, however, the program had completed just 490,000 permanent loan modifications despite being allocated resources to process 7 to 9 million mortgages.

Neugebauer also advocated Monday for a new housing finance system that relies on a robust private market, with the government serving simply a regulatory role in the process.

"We need to let the market determine the risk premium and not the government," he said. "We've got to get the government out of the way here … [and] let the market do what it needs to do."

While some housing watchers have suggested any effort to reform the housing finance system is going to be a long process, Neugebauer said the sooner Congress can lay down new rules for that market, the better.

"Nobody ever thinks there's a good time for change, but everybody thinks there needs to be a change," he said. "I believe we establish the principles and rules now and let the market build on the new rules."

Rep. Jeb Hensarling (R-Texas) said on Jan. 20 that he would re-introduce legislation that would wind down Fannie Mae and Freddie Mac within five years.

Neugebauer said it was impossible to know whether that timeframe is reasonable, but he said Hensarling’s bill could provide a blueprint going forward.

"I think we need to get started. … Let's set a template," Neugebauer said.