U.S. Senator Richard Shelby, ranking Republican on the Committee on Banking, Housing and Urban Affairs, today made the following statement at a hearing to examine the state of the housing market.
Statement of Senator Richard C. Shelby
Committee on Banking, Housing and Urban Affairs
February 28, 2012
"Thank you, Mr. Chairman.
"This is the second hearing this Committee has held this year to examine the nation's weak housing market. Each witness before us today has a proposal to revive the housing market and help struggling homeowners. Some of these proposals would require Congressional action. As I stated during our last hearing, I believe that this Committee should come together and craft common-sense legislation to address the serious problems weighing on the housing market. Hopefully today's witnesses will identify some potential solutions to these problems and give the Committee some options for its consideration.
"Our first panel will be HUD Secretary Shaun Donovan, who will discuss the President's most recent housing proposal. The centerpiece of that plan would allow underwater borrowers, with loans held in the private sector, to refinance with an FHA loan. To subsidize the additional risk placed on the FHA fund, the President has proposed using money from a bank tax. As we have not yet received many details or any analysis of this plan, I look forward to hearing more from the Secretary as to who this plan may help and the Administration's estimate of its impact on the housing market as a whole.
"Because the President has proposed a new use for the FHA, I also would like Secretary Donovan to update us on the status of the FHA fund. The President's budget predicted that FHA would require a taxpayer bailout this year were it not for the funds it will receive from the recent mortgage settlement. Given the repeated assurances from the Secretary and multiple FHA Commissioners as to the strength of the fund, this revelation is troubling, although not unexpected for those of us who have been predicting insolvency for the FHA for quite some time. Hence, today's discussion should also include what changes should be made to FHA to ensure that the taxpayer is not on the hook for FHA losses.
"We also need to learn more about the settlement that is providing these funds to the FHA. To date, Congress and the public have been given only the broad outlines of the terms of the settlement. As a result, there are many unanswered questions about how the settlement was reached and how it will operate. The most important question is: how will this money be distributed? In particular, is there a connection between how much harm a homeowner suffered and the amount of compensation a homeowner receives?
"Although having the settlement compensate as many people as possible may make sense politically, settlement funds should compensate homeowners who suffered actual harm and deter future violations of the law. The settlement, however, appears to come up short on both counts. For example, the Administration's press release indicates that homeowners who were improperly foreclosed upon will receive only about $2,000. As a result, homeowners who were wrongfully foreclosed upon will still likely have to pursue the remainder of their claims in court or through financial regulators. In contrast, many homeowners who suffered no legal harm appear to be eligible for compensation under the settlement as well. Accordingly, I hope Secretary Donovan can provide more clarity today on how the Administration will determine who will be compensated under the settlement and for what.
"Our second panel today will discuss two recent papers by Federal regulators on reforming the housing market. Federal Reserve Governor Duke will be discussing the white paper that was recently sent to Congress by Chairman Bernanke. This paper reviewed numerous proposals, but concentrated on measures to convert bank owned real estate to rental property.
"FHFA Director DeMarco will be discussing the new strategic plan he recently released outlining the future of the conservatorships of Fannie Mae and Freddie Mac. The conservatorship has already lasted three years. The longer it continues, the greater the risk is that taxpayers will suffer additional losses as Fannie and Freddie's uncertain future erodes their ability to retain high-quality personnel and make essential infrastructure investments.
"Given the FHFA's limited legal authority as conservator, only Congress can determine the future of Fannie and Freddie. I regret that Congress did not take action with regard to these companies years ago. However, I look forward to learning more about what FHFA intends to do until Congress does act and what additional steps Congress should take to end the conservatorships of Fannie and Freddie.
"The testimony of all three of today's witnesses reveals that there is a great deal to be done to both revive the housing market and reform the GSEs. Again, it is my hope that this Committee does not delay any further in moving bipartisan legislation to help struggling homeowners and to reform our housing market.
"Thank you, Mr. Chairman."