October 31, 2013
WASHINGTON – Today, Senate Banking Committee Chairman Tim Johnson (D-SD) held a hearing titled “Housing Finance Reform: Essential Elements of a Government Guarantee for Mortgage-Backed Securities.”
Below is Chairman Johnson’s statement as prepared for delivery:
“I call this hearing to order.
“I would like to thank our witnesses for joining us to explore one of the fundamental questions of housing finance reform – the structure of the government guarantee for mortgage-backed securities. I would like to commend Senators Corker and Warner and the cosponsors of S. 1217 for recognizing in their bill that the housing market as we know it cannot function without a federal backstop for mortgage lending. As we have heard in other hearings this fall, the guarantee must be explicit, appropriately priced, and stand behind private capital that is not guaranteed.
“However, the details of how a new guarantee should be structured is paramount to a well-functioning national market. The government guarantee in the current system ensures that qualifying mortgages are TBA eligible, which allows borrowers to lock in their interest rates and connects loans and MBS with investors from across the country and around the globe. If the structure of the new guarantee is not compatible with TBA execution, a wide range of stakeholders have expressed concerns that access to credit will tighten for borrowers, making mortgages more expensive - especially in rural and historically underserved areas. This outcome is unacceptable.
“Determining who is willing to step in to take the first loss position with private capital is also an important factor when considering the interaction with the TBA market and the stability of the future housing market. During the recent crisis, private capital pulled back and was unwilling to take credit risk except at an extremely high cost to borrowers. If a new system allows a variety of private capital participants, we must make certain that the new system is safeguarded against future boom and bust cycles, like that which recently occurred in the PLS market. It will be essential to create a system that protects taxpayers, but also does not create so many inefficient layers that the mortgage market becomes too expensive for qualified borrowers.
“In previous hearings we explored how the PLS and multifamily markets function, and earlier this week we examined solutions to improve the consumer’s interaction with the mortgage market. The witnesses at each of those hearings recommended changes that would provide market efficiencies and better protect taxpayers. I look forward to hearing from today’s witnesses about their visions for the future structure of the government guarantee for MBS and how different structures would impact pricing and availability of credit.
“This is a complex issue that has broad implications for both the guaranteed mortgage market and the PLS market. As I hope our aggressive hearing schedule demonstrates, Ranking Member Crapo and I are taking this seriously and moving with urgency. However, the housing market represents almost 20 percent of our economy. For the sake of families just getting back on their feet after the housing and economic crisis, we cannot afford to get the details wrong.”