July 20, 2017

Brown Opening Statement at Committee Hearing on Housing Finance Reform: Maintaining Access for Small Lenders

WASHINGTON, D.C. — U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – released the following opening statement at today’s hearing entitled, “Housing Finance Reform: Maintaining Access for Small Lenders.”

Brown’s remarks, as prepared for delivery, follow. 

Senator Sherrod Brown - Opening Statement

Hearing: “Housing Finance Reform: Maintaining Access for Small Lenders” 

Chairman Crapo, thank you for holding this hearing.  I would also like to welcome our witnesses today including a lender from Ohio. 

Tim Mislansky is the Senior Vice President and Chief Lending Officer at Wright-Patt Credit Union, which is headquartered in Beavercreek and serves the Dayton area and communities between Cincinnati and Columbus like Xenia. 

While they are the largest lender on the panel, with $3.5 billion in assets, Wright-Patt covers Dayton’s urban core as well as surrounding suburbs and rural areas. Tim knows how small lenders serve smaller cities and suburban markets. His expertise is a valuable addition to our housing finance reform process.

As we have heard repeatedly in this Committee, small lenders are often the only lenders willing to go the extra mile to underwrite mortgages in areas that are too often left behind by Washington and by Wall Street – in cities’ urban core and in rural communities. Community lenders know their customers and the needs and challenges of the cities and towns they serve. 

During the Committee’s last effort on housing finance reform, the bill S. 1217, included a small lender mutual, but the system created in the bill did not include enough protections to prevent large lenders from controlling the secondary market. Without firewalls between the primary and secondary market, we lose a layer of accountability for underwriting, and create loopholes that permit concentration of risk. 

We saw during the housing crisis how consolidation of primary market and secondary market operations within a single entity can hurt borrowers and hurt entire communities. 

The Financial Crisis Inquiry Commission found that in 2008, private label loans had a delinquency rate of 28.3 percent compared to a delinquency rate of just 6.2 percent for GSE loans. States like Ohio and Nevada are still feeling the impact of those predatory, private loans.

In the same way that the GSEs are prohibited from originating mortgages, originators and their parent companies should be prohibited from any ownership of guarantors.

Proposals for reform range from a complete overhaul of the mortgage market to narrow, surgical changes. Looking at what current and future homeowners and lenders stand to lose in reform is as important as the desire for change.

Looking out for Americans who are trying to buy and stay in their homes, and build better lives for their families, has to be our top priority.

I look forward to hearing from our witnesses about how the housing finance system could and should be improved to better serve small lenders and their customers, as well as what should be preserved and protected. 

While we’re discussing the importance of community lenders, we should also include the important work of housing counselors, CDFIs, and community organizations. 

Their work helped families achieve stable homeownership before the crisis and helped families keep their homes during the crisis. The importance of pre- and post-purchase housing counseling cannot be ignored during this process.  

As we continue to debate the role of the GSEs, private capital, and large financial institutions in providing access to affordable mortgages, we cannot create a system that allows the GSEs or new players to use a business model that serves only the largest lenders, the highest income borrowers, or the well-off pockets of our country. 

We need a model that allows all Americans, in every corner of the country, to become and remain homeowners.

If the government is going to have a role backing the housing market, and I believe it should, then that market must work for everyone, everywhere – not just those with the most lobbyists and the deepest pockets.