Federal Housing Finance Reform Act of 2005
FEDERAL HOUSING FINANCE REFORM ACT OF 2005 -- (House of Representatives - October 26, 2005)
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Mr. GARY G. MILLER of California. Mr. Chairman, Chairman Oxley and Ranking Member Frank have worked very hard to come up with a very good bill. The goal is to make sure we find liquidity in the secondary marketplace so people in this country have a home. The more liquidity we have in the marketplace, the more stability we have in the marketplace, the better it is for the Nation and the overall vibrant housing market.
GSEs have been at the forefront of creating affordable housing opportunity throughout our Nation for American families. There is an amendment that is coming up later that guts something we tried to do in this bill, and that is to make sure that GSEs can adequately provide loans in the markets throughout this country. And people who happen to live in certain areas that are considered high-cost areas, such as California; New York; Massachusetts, Mr. Frank's State, currently are not able to acquire Freddie and Fannie loans because the housing market has grown so much and the costs have grown so much that they have exceeded the limits that GSEs can lend in. And it is a shame that if people live in Hawaii, Guam, and places like that, they can still get a Freddie and Fannie loan, yet in California they cannot. And what we have done through this bill, thanks to Chairman Oxley, is provide for those needs and turned out a very good bill.
I strongly urge my colleagues to support this bill.
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I rise in strong support of H.R. 1461, the Federal Housing Finance Reform Act of 2005.
I commend Chairman OXLEY and Ranking Member FRANK for their tireless efforts to produce a balanced bill, that ensures that the housing GSEs are adequately regulated without disrupting our nation's strong and vibrant housing markets.
Government Sponsored Enterprises (GSEs) have been at the forefront of creating affordable housing opportunities for American families.
In my district, for example, Fannie Mae has created employer-assisted housing programs for the City of Brea Police Department to allow police officers to live in the communities they serve.
They have helped to finance affordable housing initiatives in Anaheim, California.
Across the district, they have been able to offer innovative programs to allow those with blemished credit to afford the dream of homeownership, to help seniors convert the equity in their homes into cash to help them meet their needs, and to help families and individuals with special needs become homeowners.
All of this, in partnership with lenders, is intended to meet the ever-growing needs of our communities.
As we have addressed deficiencies in GSE supervision, we worked hard to ensure H.R. 1461 does not lose sight of Congress' original goal in chartering GSEs.
The mission of Fannie Mae and Freddie Mac is to provide stability and on-going assistance to the secondary market for residential mortgages, and to promote access to mortgage credit and homeownership in the United States.
While we make these regulatory reforms, we are also unwavering in our commitment to help Americans achieve the dream of homeownership.
H.R. 1461 seeks to improve regulation of the GSEs while continuing to ensure the accessibility of mortgage funds at the lowest cost.
While there is no question that regulatory changes must be made to ensure the safety and soundness of the secondary mortgage market, H.R. 1461 recognizes that strong regulation provides a means to achieve our ultimate goal of expanding the supply of affordable mortgage credit across this nation.
For generations, the goal of owning a home has been the bedrock of our economy and a fundamental part of the American Dream.
The bill we consider today is about homeownership in this country.
Homeownership benefits our communities and national economy. Indeed, it is the key to promoting long-term economic stability for our citizens and nation. That is why this bill is so important.
H.R. 1461 provides for a strong regulator for the GSEs so that investors and the markets are assured that these companies are sound and that their investments in America's housing markets are safe.
LOAN LIMIT LANGUAGE
I am especially grateful that the bill includes language that recognizes that housing costs differ widely throughout the country.
While GSEs are chartered to operate in every district across the country, their effectiveness in certain areas has been seriously hindered because high housing prices have caused fewer and fewer mortgages to fall within the conforming loan limit.
Those who live in high-cost areas of the country should be able to participate in federal efforts to provide affordable housing opportunities.
This is a simple issue of fairness. It is unacceptable for the federal government to tell my constituents that federal programs exist to increase homeownership in America, but they cannot qualify simply because of where they happen to live and work.
The language in the bill increases loan limits in high cost areas to the median home price of the area, not to exceed the limit for Alaska, Hawaii, Guam, and the Virgin Islands (150 percent of national loan limit). This does not impact the portfolios of the GSEs as all loans made in high-cost areas must be securitized.
By adjusting conforming loan limits in high-cost areas, we can create nearly 250,000 new homeowners at no cost to taxpayers.
I urge my colleagues to support this important provision and reject efforts to remove it during the amendment process.
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Mr. GARY G. MILLER of California. Mr. Chairman, this amendment basically is unnecessary. It interferes with the GSEs' ability to provide stability and liquidity to the residential mortgage market, including during times of crisis, which is mostly important.
The bill already allows the regulator to address safety and soundness concerns through risk-based capital, minimum capital, and portfolio powers. Adding this systemic risk language would likely add uncertainty and instability into the secondary-mortgage market, ultimately resulting in a negative impact on the housing markets.
H.R. 1461 gives the new regulator the same powers and authority that bank regulators have, and more, including the authority to limit the growth of the housing GSEs for safety and soundness reasons.
Bank regulators do not have the authority to limit growth of banks for undefined systemic risk reasons. The Royce amendment goes beyond the bank-like regulation.
Similar to bank regulatory authority, H.R. 1461 gives the GSE regulator the discretion to increase a GSE's capital requirement, particularly the minimum capital requirement, which effectively empowers the regulator to limit the growth of a GSE's portfolio.
H.R. 1461 also gives the regulator the authority to adjust risk-based capital, which provides a risk-related measure by which the regulator evaluates all aspects of a GSE's business.
H.R. 1461 already provides an unprecedented level of authority over the enterprises' portfolios.
The bill gives the regulator broad authority over the size and competition of the GSEs' portfolios.
The regulator could force an enterprise to dispose of any asset or liability if the regulator determines that doing so would be consistent with safety and soundness.
Let me quote from the bill itself. H.R. 1461, page 53: ``Notwithstanding the capital classifications of the GSE, the director may by order require an enterprise, under such terms and conditions as the director determines to be appropriate, to dispose of or acquire any asset or liability, if the director determines that such action is consistent with the safe and sound operation of the GSE.''
By harming the GSEs' ability to support our Nation's mortgage market, the Royce amendment would endanger housing.
Reducing the size of the GSE portfolios for reasons other than those affecting the safety and soundness of the company could negatively impact home buyers and the mortgage market in the following ways: one, increasing mortgage rates for customers; two, limiting the liquidity available to small lenders to sell their mortgages, and many more.
I strongly encourage a ``no'' vote for this amendment.
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Limiting the GSEs' ability to sustain the market in time of crises and keep mortgage rates stable.
Reducing new mortgage product innovation--limiting the GSEs' ability to reach underserved populations and achieve their housing goals.
Conclusions
GSEs are essential to housing market. The GSEs' mortgage investment activities are crucial to fulfilling their mission to provide liquidity, stability and affordability in the residential mortgage market.
Banks are not obligated to provide liquidity, stability or affordability to the mortgage market. They are free to enter or leave the market at any time. When market conditions become less favorable, they will shift into other, more profitable investments.
Royce will reduce liquidity. Arbitrarily forcing the GSEs to reduce their mortgage investments would reduce liquidity in the mortgage market, hinder the GSEs' ability to stabilize the market, and make mortgage credit more expensive.
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Mr. GARY G. MILLER of California. Madam Chairman, I yield myself such time as I may consume.
GSEs have been at the forefront of creating affordable housing opportunities for American families.
While nationally the homeownership rate is at a record high of 69.2 percent, many high-cost metropolitan areas across the Nation lag behind this national rate. In the second quarter of 2004, the national average was 69.2 percent. Yet in New York, New York it was 36.6; Los Angeles, California, 51.6; Orange County, California 61.4; and Boston, Massachusetts, 59.4.
The high-cost area designation takes median home prices into account, but would be capped at 150 percent of the statutory loan limit, the same limit that now applies to Alaska, Hawaii, Guam, and the Virgin Islands. If it is good enough for Alaska, Guam, Hawaii, and the Virgin Islands, it should also be good enough for California; Michigan; New York; Connecticut; New Jersey; Nevada; Virginia; Washington, D.C.; Pennsylvania; Florida; New Hampshire; and many more. For example, in the North New Jersey Metropolitan Statistical Area, the median home price is $435,200. It this amendment passes, it would drop to $359,650 under the loan limits.
The conforming loan limit provision in this bill will make a meaningful cost difference for home buyers. Based on the current interest rate environment, the current monthly payment difference between a conforming loan and a jumbo loan can save a homeowner up to $171 per month. In high-cost areas a significant majority of entry-level homes exceed the national conforming loan limit. The conforming loan limits language in H.R. 1461 will help nearly 245,000 first-time home buyers. In fact, in the gentleman from New Jersey's (Mr. Garrett) district alone, it helps 42,987 first-time buyers.
There is broad-based opposition to this amendment. National Association of Realtors oppose it; National Association of Home Builders, National Association of Mortgage Brokers, Independent Community Bankers of America, National Alliance of Independent Bankers. I just received a call from HUD Secretary Jackson, who also opposes this amendment.
There are three parts in section 123. The Garrett amendment deletes all three in this section. I think that is an error on his part.
This section sets conforming loan limits and requires the agency to make annual adjustments to the limits based on increases or decreases in a housing price index maintained by the agency.
Two, the accuracy of the housing price index is required to be audited by the GAO.
And, three, for high-cost metropolitan statistical areas, the conforming loan limit is raised to the lesser of 150 percent of the statutory limit or the median home price in the area.
The Garrett amendment does not just strike the high-cost area provision, it completely strikes the entire conforming loan limits section of the bill: One, how the loan limit is calculated. Two, it creates uncertainty on who is supposed to set the new loan limit every year. Three, it eliminates flexibility in loan limits to reflect market fluctuations, and the GAO study to develop loan limit is deleted by this amendment entirely.
This basically is to make sure that high-cost areas are provided the same flexibility that Guam, Alaska, Hawaii, and Virgin Islands are currently benefiting from. The housing costs are going up across this Nation. This bill was worked in a fashion to allow for that, to allow systematic review yearly of these high-cost areas so GSEs can go out and compete in the jumbo marketplace, decreasing the cost of loans to individuals, decreasing their payments, allowing more individuals in the first-time marketplace to own a home and get the best possible home they can buy, especially during bad times.
When the economy starts to fail, banks sometimes pull out of marketplaces. GSEs at that time pull into them in a heavier fashion to make sure there is liquidity.
There is ample overview within this bill to make sure safety and soundness are taken into consideration. These loans are securitized. These loans just are just not sitting out there floating in the marketplace. These are good, sound loans based on people who need that.
Madam Chairman, I reserve the balance of my time.
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