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FHA Modernization Act of 2007

Floor Speech

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Location: Washington, DC


FHA MODERNIZATION ACT OF 2007 -- (Senate - December 14, 2007)

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Mr. COBURN. Mr. President, I don't disagree we have to take action to help those people who are in a bind now based on both the economics, as well as probably a pretty severe bubble that has occurred. The real fact is some people are going to lose their homes. I have agreed to this debate, not because I was trying to stop all of the FHA modernization, but because I am markedly concerned that in this component what we are doing has nothing to do with the crisis that we see today, but, in fact, will put the next two generations in obligation for a sum somewhere between $50 billion and $60 billion in terms of reverse mortgages.

Now, the question I would ask, which has not been asked, is where are the metrics to measure the market forces in reverse mortgages in this country? There are none. As a matter of fact, this bill looks at that by asking for a study. But the other intent of the bill is that we ask for a study, but we eliminate the cap which the study is supposed to help us determine.

There are some other concerns the American taxpayer should have, one of which is FHA has what is called a qualified audit. They have two material weaknesses we wouldn't accept from any other corporation in this country in which we would entrust our money or invest our assets. When they are audited, there are two material weaknesses in their ability to control what they are doing, measure what they are doing, and assess what they are doing. We ought to be concerned about that.

We are simply asking with this amendment that before we raise the cap on the noncritical area in the home mortgage market, we, in fact, study to know what we are doing. The idea for the study is great, but the study is going to have limited value if, in fact, we move all reverse mortgages to the Government. That is going to be the ultimate impact of this bill.

The crisis is in the mortgage industry, not the reverse mortgage industry. But we are applying and using that crisis to absolutely ensure that in the future, our children are going to be hooked for the guarantee for all of the reverse mortgages in this country. We are going to limit the private reinsurance equity reverse mortgage in this country by what we do.

I think the other thing we ought to think about as we do this is some ``what-ifs.'' What if we don't get a good handle on this subprime credit and the debt situation that is going on? What if we end up becoming the true guarantor of all of these loans? What if they get to the point where they can't be repaid? It is not going to be the Presiding Officer and me who are going to pay this; it is going to be the next couple of generations.

So this amendment is just designed for prudence. It says, if we are going to study this, let's study it and then make a decision. There is no credible source that says there is a shortage of access of credit for reverse mortgages in this country. It is not in the committee report. It is not in the report. So why are we doing this? Because it works and because people--we are doing it because that is the way everybody will go if you can get a Government-guaranteed loan. The banks make more money on it. It is easier--you evidently have to qualify, but conventional reverse mortgages will go out the window. So what have we done with that? We have shifted the risk for all of the reverse mortgages in this country to our kids. If that was where we had a crisis, then I would be in agreement that maybe we should go there, but that is not where it is.

What we are attempting to do with the FHA Modernization Act is to help those who are in a crisis now. Probably, had we done this 3 years ago, many of the people who are in subprime loans would have been in FHA, and we wouldn't see the extent of the crisis we have today.

So what I would ask is that our colleagues stop for a minute and say: Do we really want at this time to do this? I understand that I am going to be opposed on this by members of the Banking Committee, but I would ask them to show me the data that says there truly is a dent in this aspect of the reverse mortgage market.

Mr. President, I reserve the remainder of my time.

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Mr. COBURN. Mr. President, it is interesting. I will ask a couple of questions. Where is the study that shows the Federal Government ought to be in the reverse mortgage market? It is not there. Where is the study that shows what will happen to the private mortgage market? It is not there. So what we are doing is moving all reverse mortgages and the obligations thereof to our kids.

We ought to let private markets work some. We ought to create that ability. We are going to eliminate that ability. There is no question that reverse mortgages are advantageous for a lot of people. As you heard, there are going to be people preying on widows out there, saying: Here is the FHA, and I can sell you this annuity if you want to reverse mortgage your home. There is not going to be any balance on that.

So we are going to shift an entire industry, which should be private, with FHA reserve, for those who need it to help them, to the Government. The long-term consequence by the auditors' report is that it is going to be $45 billion that is going to get shifted to debt to our kids. That is the exposure there.

I am not against reverse mortgages. I am not against us trying to do everything we can in terms of the real crisis out there, which is associated with the subprime mortgages. This is a totally different category. What we are doing is expanding a program, unlimited. What if the GAO report comes back and says you should not do that, there is a market out there? Every banker in this country, if you give them an option of a conventional mortgage or an FHA-guaranteed mortgage, is going to go to the FHA. What will happen? There is a lower qualification for it. They make more money off of it. Consequently, we are going to direct a whole industry into a Government-backed program by what we are doing in this bill.

I am not even opposed to reverse mortgages through FHA. I am opposed to us overreacting and creating only one market, taking the private market totally out of it and putting our kids on the hook for it.

Nobody answered the questions about FHA in their audit. No large corporation would still be on the New York Stock Exchange, NASDAQ, or any other exchange, if they had three significantly qualified areas to their financial statements. They have two of the three that are material weaknesses, inability to even watch the programs we have. We are going to ignore all that today. I understand that. We are going to ignore the fact that there are no metrics, no study to tell us what we are doing is right. But we are going to do it.

Somebody has to protect and think about the future. So this amendment is common sense. It says, wait--we can wait a short period of time; it will not take GAO all that long. What is the pressure on this? The pressure is the money generation. We are going to collect $1.5 billion from these same elderly people in insurance, who are going to be scammed by people who will sell them annuities. So they are going to get less money out of their reverse mortgage than they would have gotten in the private sector. They are going to get less.

And then we are going to say we did something.

I am surprised it has not been raised, but what we are doing is a credit card scam. We are being the credit card scam. We are going to enable people to get scammed. We don't know what we are doing. The study is important to do.

I will work with the authors of the bill to raise the cap somewhat, but to raise it unlimited, never to have a cap regardless of what the GAO report says? When are we going to come back and fix it? What if they say: You shouldn't be doing this; maybe this ought to be in the private market. There isn't a need for our children to take on the additional risk of these reverse mortgages.

What are we going to do? There is no mechanism for what we are doing in the FHA Modernization Act if that comes to fruition. The reason for the amendment is to pause and ask the question: Where are the metrics that say we need to do it? Where is the market failure that says the Federal Government ought to be doing it?

This was a pilot. We are now converting a pilot into a full-grown program. Shouldn't we know what we are doing? Shouldn't we assess whether there is a true market failure in reverse mortgages before we do this? No. 2, shouldn't we consider some of the safeguards for a lot of the people who are going to be taken advantage of through this program? Finally, No. 3, with our debt growing $1 million a minute, $1.3 billion a day--and every child now who is born in this country is inheriting $400,000 in unfunded liabilities--do we have an obligation to be maybe a little more prudent and say: Wait a minute, let's fix the subprime, but let's be more prudent on this issue until we really know what we are doing.

I understand it is a good idea. For me, it will be great when I retire. I probably will do a reverse mortgage. But we don't know what the markets are. We don't know where they are. And we don't know the 5-year future right now, especially given the subprime crisis in front of us, and we are going to add more to that?

What if somebody comes to their elderly mother and says: I want you to do a reverse mortgage on your home so I cannot default on my private one? Is that why we are doing this? Or what if somebody says: I want to sell you the best thing you ever had; I am going to give you an annuity. Sounds good. You have a home, you are an elderly female, no husband, and you buy it, only to find out later you could have bought an annuity that would have given you $300 or $400 more a month if you had been in the private market with checks and balances rather than be scammed.

I ask unanimous consent to have printed in the Record a summary of the independent auditors' report--Urbach Kahn & Werlin--from this past year on the Federal Housing Administration.

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Mr. COBURN. Mr. President, I will note for my colleagues' benefit that I do not plan to ask for a recorded vote on this amendment. I also will not demand a recorded vote on the bill itself, so colleagues would not have to come to the floor.

Let me summarize. What we are trying to do with FHA modernization is good. We have a crisis. There is no crisis in reverse mortgages. As a matter of fact, there is not hardly any private sector anymore. The reverse mortgages that are growing, I would advise the Senator from Florida, are growing at 60 percent a year at FHA. That is not slow growth. If we take 60 percent a year over the next 10 years, instead of 109,000, we will have 800,000. So that is why GAO estimates that we are talking about $56 billion in new obligations that our kids are going to have to come up with if anything happens.

So, again, nobody has answered the question: Is there a crisis in reverse mortgages? There is not. Nobody has answered the question: Where are the metrics in terms of the marketplace, saying there is not adequate credit out there in the private marketplace, not guaranteed by our children? We are not going to guarantee it, our children are. Nobody has answered those two questions. And nobody has said: Here is what the data shows on the market now that we are going to do 130,000-plus, I believe, this year, and how does that impact with the total number of mortgages that are out there this year in the very difficult market that we find ourselves in with the tight credit.

So I would ask for a voice vote on this amendment, and then I will not object to a voice vote or a consent after that on the underlying bill.

Mr. President, I yield the remainder of my time.

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