FHA Reform Act of 2010

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Mr. LEE of New York. Mr. Speaker, the underlying bill that we have been considering today is an important one, and I support the provisions that are included in H.R. 5072, the FHA Reform Act of 2010. It gives HUD new tools that will allow the FHA to protect taxpayers against fraudulent or poorly underwritten and insured loans.

The goal of H.R. 5072 is for HUD to begin the process of putting FHA back on the road to a program that has adequate capital in reserve to weather whatever problems it encounters down the road. However, H.R. 5072 is not a cure-all. We can do more to ensure that American taxpayers are better protected.

During the past 2 years, FHA's market share has significantly increased from less than 5 percent to more than 30 percent. As FHA's market share has increased, taxpayer exposure has continued to grow day by day. That is why we must do everything we can to ensure that the program is being run in a safe and sound manner and that the taxpayers will not be asked to pay for yet another government bailout.

The motion does two important things. First, it prohibits the FHA from insuring loans from borrowers who have strategically defaulted on previous loans. Second, it prohibits a taxpayer bailout of the FHA program.

According to a study by Experian and management consulting firm Oliver Wyman, from 2007 to 2008, the number of strategic defaults more than doubled to 588,000, and a separate 2009 survey found that more than a quarter of all existing defaults were strategic.

Meanwhile, there are lawyers, scam artists and opportunists touting the financial benefits of walking away from a mortgage and offering to help you do that for a fee. Not a day goes by that we don't read another news article about folks who are making calculated decisions to stop paying their mortgages even though they still have the ability to pay. We are not talking about those families who have fallen on hard times or who simply can no longer afford to make their payments. We are talking about this new trend of people who voluntarily choose to stop paying their mortgages even though they still have the ability to pay.

While these decisions should ultimately be left to the individual, we should put in place more stringent penalties to discourage this irresponsible behavior. If borrowers make decisions to strategically default on their loans, they certainly should not be allowed to benefit from a government-subsidized program.

This motion makes it clear: if you can afford to pay your mortgage and choose not to, you will no longer be eligible to secure an FHA mortgage. This motion calls on the Secretary of HUD to define strategic default and to work with lenders to identify and to prevent borrowers from participating in the FHA program.

This motion also prohibits a taxpayer bailout of the FHA program by requiring HUD to use all available methods at its disposal to ensure that the program is properly capitalized and that the taxpayer is protected, ensuring that mortgage applicants have truly enough skin in the game.

As Ranking Member Bachus said in yesterday's motion to instruct conferees on the financial regulatory reform conference, it is time to end bailouts once and for all. Whether it is $145 billion for Fannie and Freddie or another $60 billion for AIG, Chrysler and GM, the American public has suffered enough from bailout fatigue.

This motion to recommit ensures that the FHA uses its existing authorities to ensure that the program does not need an appropriation and that taxpayers are protected.

While the underlying legislation makes significant improvements to the FHA program and goes a long way to providing HUD with the tools it will need to improve the financial condition of the FHA program, these additional prohibitions on strategic default borrowers and on taxpayer bailouts will ensure that the FHA program stays on a solid financial path and that American taxpayers will be protected from yet another bailout.

I urge the adoption of this motion, and I yield back the balance of my time.

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