October 29, 2013


WASHINGTON – U.S. Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, today delivered the following remarks during a Banking Committee hearing entitled, “Housing Finance Reform: Essentials of a Functioning Housing Finance System for Consumers:”
"Thank you, Mr. Chairman.
"Today’s hearing will focus on the consumer experience in a reformed housing finance system.
"Homeownership is central to our nation’s economy, offering financial and social benefits for families, communities and the country as a whole.
"The policies we choose to adopt during this process will determine not only the sustainability of a robust housing market, but also the future economic opportunities for millions of families and individuals.
"A reformed housing finance system can help consumers achieve their dream of homeownership, but this must be done responsibly. 
"Doing this in a sustainable manner requires strong underwriting, as well as real estate contracts which can be expected to protect the rights of all parties.
"Failing to meet these two critical objectives will increase the risks and costs to both taxpayers and consumers.
"One of the major causes of the financial crisis was a significant deterioration in underwriting standards. 
"Many mortgages turned out to be unaffordable, and a large number of these mortgages were guaranteed by Fannie Mae and Freddie Mac.
"Staggering mortgage losses were ultimately paid for by taxpayers after the federal government bailed out Fannie and Freddie in July of 2008.
"In addition to the lessons of Fannie’s and Freddie’s failures, the Federal Housing Administration (FHA) has further demonstrated the importance of returning to responsible underwriting.
"Last year’s actuarial report found that the FHA insurance fund’s net worth was negative $16 billion, and last month the FHA required a nearly $2 billion federal bailout, the first in its history.  
"With these experiences in mind, if we are going to consider options for reforming the housing finance system that include a taxpayer guarantee, we must ensure that the taxpayer is only guaranteeing mortgages that meet strong, basic underwriting standards.   
"A bipartisan coalition of Banking Committee Senators has introduced S. 1217.
"This legislation required a number of compromises to secure support from members from both sides of the aisle.
"One important compromise is that in exchange for including an explicit government guarantee of mortgages, private capital would take a strong first loss position and loans would need to have a minimum down payment of five percent while meeting the Consumer Financial Protection Bureau’s (CFPB) Qualified Mortgage (QM) definition.
"Fannie’s and Freddie’s current underwriting standards for guaranteeing loans are generally more difficult to meet than a QM loan with a five percent down payment. 
"Further, to my knowledge, no one is proposing to prohibit lenders from making loans that do not meet this standard; existing proposals merely affirm that taxpayers will not be on the hook if those loans fail.
"In addition to protecting taxpayers, it is important that the future housing system ensures there is adequate liquidity in the market so that qualified borrowers have ample access to mortgage credit.
"An essential element of ensuring that credit availability is preserving our system of secured lending in which a borrower’s home is seen as adequate collateral for the mortgage the borrower seeks.
"Some have proposed very proscriptive laws and regulations regarding how a mortgage can be serviced, including numerous restrictions on how the collateral could be obtained in the regrettable event that a borrower could not maintain his or her obligations.
"Currently, servicing reforms are already being implemented.
"The CFPB issued new servicing rules earlier this year, and the National Mortgage Settlement last year established new standards for the nation’s largest servicers.  
"None of us like the idea of any borrower losing his or her home, and none of us have forgotten, nor excuse, legal and contractual violations of the past.
"However, if we take actions that call into question whether mortgage contracts are viewed as adequately secured lending, homeowners across the board could pay considerably higher rates.
"I look forward to hearing from today’s witnesses and working with the Chairman and the other members of the Committee as we address these critical issues. 
"Mr. Chairman, thank you."