For mortgage lenders--a foreclosure hurricane is coming

For mortgage lenders--a foreclosure hurricane is coming

December 27, 2007

Floor statement of Ranking Member Spencer Bachus on HR 3221MortgagePress.comSpencer Bachus, HR 3221, Housing and Economic Recovery Act of 2008
Mr. Speaker, I rise in opposition to this legislation.
I do so reluctantly, because there are provisions in this bill
that I strongly support. The bill strengthens the GSEs' capital
requirements and enhances the governments receivership authority if
they get into trouble--significant improvements over the current
regulatory regime. Even more important, the legislation contains a
measure I introduced more than a year ago to create a comprehensive
system for the licensing and registration of mortgage originators.
This will do more to protect consumers and prevent many of the
abuses that caused the sub-prime crisis in the first place than
just about any other reform we could make.
The problem, Mr. Speaker, is that rather than bringing a clean
bill to the floor to improve GSE regulation, modernize FHA, and
crack down on rogue elements in the mortgage industry, the Majority
has brought us something else entirely. The bill before us today
includes provisions that would actually undermine GSE safety and
soundness and fiscal discipline, by diverting billions of dollars
from Fannie Mae and Freddie Mac and from homeowners and taxpayers
to pay for three big new government programs. And it does so at a
time when we should instead be doing everything within our power to
stabilize the GSEs and our housing markets to avoid the need for an
even bigger taxpayer bail-out down the road.
Mr. Speaker, the most troubling aspect of this legislation
remains the affordable housing fund, which would siphon $9 billion
from the GSEs over a ten-year period to fund state and local
housing initiatives. One of the primary beneficiaries of these
funds will be political advocacy groups across the country that
claim as some part of their mission the promotion of affordable
housing. When the affordable housing fund was first included in GSE
reform legislation that the House considered in May of last year,
Fannie and Freddies combined market capitalization stood at $106
billion. Today, their market capitalization is roughly $20 billion.
One year and $86 billion in lost market capitalization later, a
plan to divert billions of dollars from the GSEs to fund another
expensive government housing program is not just bad public policy
it is dangerously irresponsible.
Also irresponsible are the provisions in this bill authorizing
$300 billion in new FHA loan guarantees that would have the effect
of bailing out lenders and investors seeking to offload their
riskiest loans on an FHA already close to being overwhelmed by the
larger role it is being asked to play in the mortgage market. Many
of us on this side of aisle have questioned the fairness of asking
the 110 million Americans who are paying their mortgages on time,
renting, or own their homes outright to subsidize those who made
different choices during the run-up in housing prices. The version
of this legislation that the House approved last May at least had
the virtue of being honest: it would have required taxpayers to
foot the bill directly for this ill-conceived government program.
The version that we are considering today purports to protect
taxpayers by imposing the costs of the bail-out on the GSEs through
the affordable housing fund. But as we have found out over the past
couple of days, thats the same thing as asking taxpayers to foot
the bill.
On this point, dont take my word for it. In an editorial last
week, the Washington Post made the exact same argument, and I
The bill would fund the bailout through a fee on Fannie and
Freddie, possibly $531 million in 2009, the CBO says. This is
rather circuitous, given that government backing subsidizes Fannie
and Freddie indirectly (and that they may soon be borrowing
directly from the Treasury). And it contradicts the purpose of the
mortgage bailout, which is to shore up housing prices: Fannie and
Freddie will pass the fee along to their customers, thus decreasing
housing liquidity and depressing the residential real estate
The editorial concludes by asking the question: Wouldn't it be
simpler, and safer, to let a new regulator address the GSEs capital
needs before plunging them ever deeper into the housing quagmire?
Mr. Speaker, I couldnt agree more.
In addition to asking taxpayers to bail out the GSEs and lenders
and investors seeking to rid their portfolios of their most toxic
mortgages, this bill goes one step further. It establishes yet a
third government program, this one a 4 billion dollar grant program
paid for by taxpayers to fund the purchase of foreclosed properties
by states and localities. This is nothing more than a bail-out of
investors and real estate speculators who made risky investments
but who will now be able to dump foreclosed properties onto state
and local governments. This approach invites more not fewer
foreclosures, by providing incentives to lenders to foreclose on
properties rather than attempt to work with struggling homeowners
to keep them in their houses. Besides, setting the government up as
landlord is not my idea of a wise use of taxpayer dollars. What in
the world it is doing in a bill purportedly designed to avert
foreclosures and assist troubled homeowners is anybodys guess.
This legislation, unfortunately, contains yet another
irresponsible provision from the Senate-passed bill, one that
imposes a one-year moratorium on FHAs authority to engage in
risk-based pricing. At a time when we are asking FHA to play a
greater role in assisting troubled homeowners seeking to refinance
into more affordable mortgages, barring the agency from pricing its
product according to risk would be a serious mistake. Not only will
this moratorium prevent FHA from serving more homeowners, it will
lead to higher mortgage costs for everyone, as FHA is forced to
raise its upfront and annual premiums to compensate for its
inability to charge premiums based on risk.
This legislation presents us with extremely difficult choices.
It includes long needed reforms of FHA and the GSEs, but adds
costly and unnecessary programs that make it impossible for many of
us to support it.
• It takes money from the GSEs when they are already in
• It creates two big new government housing programs even
though an abundance of housing programs already exist;
• It places a moratorium on risk-based pricing.
If that weren't enough, the bill now includes a proposal to
support the GSEs with direct government investment of taxpayers
dollars in the common stock of Fannie and Freddie.
When the Treasury proposals were announced last week, we were
told they were essential to avoid a catastrophic failure of Fannie
and Freddie and the turmoil in global capital markets.
Confusingly, at the same time we were told they must have this
blank-check authority, we were assured it would never be used. We
were told it must be voted on immediately, even though the Federal
Reserve had agreed to provide liquidity in the event of an
emergency if there was one.
Those assurances notwithstanding, giving unlimited authority to
a government agency for unprecedented action is a serious matter in
a system based on checks and balances. Deciding this issue without
hearings within a one-week time span with virtually no deliberation
is a surrender of Congressional responsibility. Congress did not do
that with Chrysler, Lockheed or Conrail, which all were extensively
studied and debated before action was taken.
It is likely that the concept of If you build it they will come
applies here. If we give this authority, it will be used; and used
I believe not only to provide liquidity, but to purchase an equity
stake in these private, stockholder-owned companies.
Even a small government investment in Fannie and Freddie is
incremental nationalization, a path our government should not go
down without serious consideration of the consequences. We should
hesitate to saddle taxpayers with losses in tough times that should
be absorbed by those who took the risks and reaped the profits when
times were good.
By raising concerns, those of us who questioned a rush to
judgment on a blank check request were able to delay its
consideration last week and allow time for at least some thought
and analysis. As a result, even Senator Dodd has now acknowledged
that the blank check needs to be examined very carefully.
Mr. Speaker, we can do better than this bill, and given the high
stakes, we must do better. We should reject this legislation, and
immediately substitute it with a clean bill that reforms the GSEs,
modernizes FHA and increases the Treasury lending authority by a
set amount.
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