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Public Statements

FHA Reform Act of 2010

Floor Speech

Location: Washington, DC


Mr. FRANK of Massachusetts. I yield myself 3 minutes.

Mr. Chairman, there were several aspects of the debate over housing during the period that led up to the crisis. Part of it was over Fannie Mae and Freddie Mac, but an even bigger part--because it involved Fannie Mae and Freddie Mac--was over sub-prime loans being made largely, although not entirely, on the unregulated banking system, and there were those who defended that. There were those who opposed efforts to rein it in.

In fact, with regard to Fannie Mae and Freddie Mac, I changed my own position with regard to them when in 2004 the administration, without congressional input, ordered Fannie Mae and Freddie Mac to buy more loans from people below the median income. We tried, many of us, during the period of 2004, 2005, and 2006 to get legislation adopted to ban sub-prime loans being granted imprudently. We had, the Congress, given the Federal Reserve the authority to do that in 1994, but Mr. Greenspan refused to do that. He since has apologized for that error.

So the question was not whether or not there was a general lack of discipline but whether there was a particular lack of discipline in containing sub-prime mortgages. The relevance of that is that the FHA doesn't do that. In fact, at a time of general ideological opposition of regulation of the mortgage market outside the banking system, there was very little regulation of sub-prime mortgages being granted to people who couldn't afford them, who made no down payment, who didn't have to document their income. Because of all that, we ran into these problems, and the FHA's percentage went down. That's a major reason why the FHA went down. The FHA has never been guilty of that laxity of practice.

So, part of the reason for the increase in the FHA share is that we have been able finally to cut back on the sub-prime mortgages being granted imprudently, and the FHA has much stricter standards. Yet, I want to stress--and this is a major cause of the Fannie and Freddie problem is that they were pushed into buying sub-prime mortgages that never should have been given in the first place. That's not the FHA.

It's also the case that the FHA has stepped up in recent years, probably at congressional urging. The down payment has gone up. The up-front fee has gone up. The FHA has power now to go up to a 10 percent and has done this, a 10 percent down payment for people with a weak credit score. That's already part of the FHA's proposal.

The gentlewoman from Illinois' amendment just adopted makes it clear they can do even more, but to go beyond that, to the degree the gentleman from New Jersey wants to do, would undercut the ability of people who are capable of paying their mortgages from getting mortgage loans. That's why we have an unusual coalition opposing this amendment. It actually included a majority of the Republicans on the Committee on Financial Services who voted against this amendment, but it includes people on all sides of the housing market.

The Acting CHAIR. The time of the gentleman has expired.

Mr. FRANK of Massachusetts. I yield myself an additional 30 seconds.

We have the Consumer Federation, the Center for Responsible Lending, the people who have distinguished themselves by being opposed to sub-prime lending when others in this Chamber didn't want any restriction, and the Realtors and the home builders, those who are in the business of providing housing, those who are advocates for consumers come together to say this goes too far and would go beyond what is needed for responsible lending.

I reserve the balance of my time.


Mr. FRANK of Massachusetts. First, Mr. Chairman, let me be clear, the FHA has gone beyond the gentleman from New Jersey with regard to borrowers who are risky. For borrowers with a 580 or below credit score, the FHA has already used the authority we have given them to raise the downpayment to 10 percent, so we are talking about people above the 580 credit score.

Secondly, there was a total misreading of history with Fannie Mae and Freddie Mac. Yes, some of us thought earlier there wasn't a problem. After it was in order by the Bush administration in 2004 for them to get to more than 50 percent of purchases or mortgages for people below the median income, many of us changed our position and pushed for reform of Fannie Mae and Freddie Mac.

Unfortunately, that didn't happen, because of a dispute between the Republican House and the Republican Senate, until 2007, when this House took the lead and finally got it done in 2008. But the problem was that throughout that, we had ideological opposition from the deregulators against restricting subprime loans of the sort that led to trouble, and the FHA doesn't do that.

Mr. Speaker, I would submit for the Record letters from the Mortgage Bankers Association, National Association of Home Builders, National Association of REALTORS, Centers for Responsible Lending, the National Association of Consumer Advocates, the National Council of La Raza, Consumer Federation of America who point out not that we don't need restriction but that the FHA already has them. Again, to confuse this with the situation in which ideological opposition to sensible regulation allowed subprime loans to predominate outside the FHA is a confusion of the reality


Mr. FRANK of Massachusetts. Mr. Chairman, I yield myself the balance of my time.

First, I do note a certain irony. I am glad to see my colleagues, the gentleman from New Jersey, the gentleman from Georgia, praise the gentlewoman from West Virginia for a bill which they apparently found severely lacking.

I do note the gentlewoman from West Virginia voted against the prior amendment from the gentleman from New Jersey. I don't know where she is on this one, but it wasn't in the bill that I think she introduced, and for very good reason: A 10 percent cap is wholly arbitrary.

Now, the gentleman says it's going to crowd out the private market, but the leading participants in the private housing market oppose this amendment, including the Mortgage Bankers, as well as Realtors and Home Builders, as well as all consumer groups.

Beyond that, the reason the FHA went down so far from 2001 to 2007--interesting group of years; guess what was happening during that time?--was that there was a resistance to regulation of the subprime market.

The Federal Reserve was ignoring legislation Congress gave it in 1994 to regulate subprime lending. The Bush administration, in 2004, ordered Fannie Mae and Freddie Mac to increase the subprime loans they bought, which is one reason why I changed my position on the need to be tougher in the regulatory field. And the FHA lost out because these imprudent mortgages were being given without regulation. The FHA doesn't do the kind of mortgages that led to problems.

Beyond that, in recent years, towards the end of the Bush administration and with even greater force during the Obama administration, the FHA has been improving. The FHA has on its own said, if you've got a 580 credit score or below, it's a 10 percent downpayment. We mandated that they go from 3 to 3.5 percent downpayment and increase the upfront fees.

In this bill--and the gentlewoman from West Virginia deserves a great deal of credit, along with our colleague, the gentlewoman from California--the FHA is given credit to require lenders who get loans placed with the FHA in violation of the guidelines to take back those loans. So it wouldn't be the taxpayer that would be on the hook for those loans that shouldn't have been granted and that violated the good guidelines of the FHA; it will be the lender.

It also gives them the power to debar people who have a bad record, which is something they haven't had before.

So we are not talking about the old FHA; we are talking about an improved one. And we are talking about an FHA that stands in great contrast to the unregulated subprime market.

Finally, the gentleman says, ``Well, it doesn't take effect until 2012.'' Neither he nor I knows what the housing market will look like in 2012. And if there's a reason not to do it now, that might also be there in 2012. No one can predict whether the housing--and maybe in 2015 it will be back again into trouble.

The housing market we don't believe is going to crash like it did before, but the basic point is this: The FHA has been the alternative to the kind of unregulated, irresponsible subprime mortgages that many of my friends on the other side protected, the kind of mortgages which they prevented us from regulating until 2007 when we were able to pass a bill in the House, over the objection of many of those who have spoken already, to regulate subprime mortgages. And because we did that, the Federal Reserve finally used its authority.

I hope the amendment is defeated.


Mr. FRANK of Massachusetts. Well, I was disappointed that my colleague on the Financial Services Committee wouldn't observe the tradition that we have of yielding to each other. If he had, I could have saved the Members a lot of time because I am going to urge people to vote for it.

I will say that it might need a word or two of improvement. If it had, in fact, been offered at the Financial Services Committee, either provision, we could have accepted it then, but then Members wouldn't have had a chance to make dramatic speeches on the floor, so I suppose that explains why we had to go through this.

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


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