October 29, 2013
WASHINGTON – Today, Senate Banking Committee Chairman Tim Johnson (D-SD) held a hearing titled “Housing Finance Reform: Essentials of a Functioning Housing Finance System for Consumers.”
Below is Chairman Johnson’s statement as prepared for delivery:
“Good morning. I call this hearing to order.
“For many Americans, homeownership is a life-long dream and is often the biggest purchase a consumer will ever make. However, as became clear during the financial crisis, consumers face a complex housing finance system that may stack the odds against them. From steering consumers into higher-cost products in the ‘originate to distribute’ model to poor servicing practices leading to improper foreclosures, the crisis exposed major flaws in the system for consumers.
“The Wall Street Reform Act included key reforms to protect consumers from abusive mortgages – one being the creation of the Consumer Financial Protection Bureau. The CFPB has worked hard to address these problems and, this year, finalized rules on mortgage servicing and defining how a lender should evaluate a consumer’s ability to repay a mortgage. However, as the ongoing foreclosure settlements and recent CFPB report show, issues remain for consumers.
“Consumers today face tight credit conditions, as only borrowers with pristine credit histories are able to receive loans. Yet, history has shown that a substantial share of first-time homebuyers has lower credit scores, and that the majority pay on time. We must be mindful of the impact that strict underwriting standards will have on the ability of creditworthy borrowers to access the mortgage market, particularly in rural or underserved areas, and on the economic recovery. Many factors feed into an individual’s ability to repay a loan, and no one factor will guarantee repayment.
“Last week, five federal agencies released guidance to lenders on making loans in compliance with fair lending laws, and the Federal Reserve released a report showing that a high number of minorities may be impacted by stricter underwriting standards. These actions highlight the importance of being thoughtful in constructing new standards to ensure that the mortgage market is accessible to all responsible borrowers.
“I look forward to hearing our witnesses explain the home-purchase process for consumers—including their interaction with the realtor, underwriting of the mortgage, pre- and post- purchase counseling, and servicing. They will also discuss the current challenges in each area and their recommendations for clearer standards and better consumer protections in the housing finance system.
“Most consumers are not experts in mortgage lending, but our witnesses here today help them navigate the complex process. I believe their testimony will help inform the Committee as we decide how to best ensure access to credit for creditworthy borrowers. As we’ve learned in recent hearings, current reform proposals do not fully address important topics, such as multifamily, PLS, and as we will explore today, making sure a new system will function better for consumers purchasing homes. Any bill moving forward must seriously consider these issues. With that, I turn to Senator Crapo for his opening statement.”