(Washington,
D.C.) – Today, U.S. Senator Patty Murray questioned David Stevens,
Commissioner of the Federal Housing Administration (FHA), at a hearing of the Senate
Appropriations Subcommittee on Transportation, Housing, and Urban Development,
which Murray chairs.
Murray
questioned Stevens on the the slow pace of the Administration’s Home
Affordable Modification Program (HAMP) and called on the Administration to do
more to compel lenders to modify mortgages to allow struggling families to stay
in their homes. Murray also pushed Stevens hard to make sure that taxpayers are
protected from additional losses in the housing markets, and specifically asked
him about the Administration’s plans to deal with Fannie Mae and Freddie Mac.
Key excerpts:
“As
we sit here today, millions of Americans are out of work and many more are
struggling with unaffordable mortgage payments negative home equity, or
foreclosure During the housing boom, millions of Americans achieved the dream
of homeownership. But for far too many Americans, these dreams were based
on false promises and fueled by investors and lenders that were chasing profit
while ignoring risk.”
“The
consequences of these risky behaviors have rippled through the national and
global economies. With mounting foreclosures, a crippled housing market and a
financial sector in turmoil, we continue to clean up the mess created by
predatory lenders and Wall Street greed.”
“I
am pleased that FHA is increasingly using its authority to investigate lenders
that aren’t playing by the rules. It must be absolutely clear to lenders
engaging in fraudulent and risky practices that they are not welcome in FHA
programs, and will not be supported by taxpayer dollars.”
“Americans
trying to get assistance are frustrated, and rightfully so. They watch as
banks have received billions of dollars in taxpayer assistance, and yet many of
these same banks are unwilling to assist homeowners facing foreclosure.
This cannot be tolerated. Servicers must be held accountable. At
the very least, servicers must communicate with those trying to receive
assistance, and provide an explanation if borrowers aren’t approved.”
“I
remain concerned that since this program [HAMP] is voluntary it will still fail
to meet its goal. So, I expect the Administration to compel lenders to
provide real aid to families that want to, and with a fair deal could stay in
their homes.”
“It
is also clear that we must address the future role of Fannie Mae and Freddie
Mac in the housing market. There is no doubt that the GSEs had a hand in
exacerbating the housing crisis. And just as there needs to be
consequences for Wall Street, there must also be consequences for the
GSEs. The spigot of taxpayer dollars flowing into the GSEs cannot stay on
indefinitely. As the Administration debates the future of the GSEs, I, like
most Americans, am growing impatient. And my impatience only increases as
the cost to the American taxpayers grows with no end in sight. The
Administration must put forward a real plan on how to reform the GSEs.”
“As
we try and tackle the complex set of challenges facing the housing market
today, the federal government must play a role in supporting the market, but it
must also protect the taxpayers.”
The
full text of Senator Murray’s opening statement follows
“The
Subcommittee will come to order.
“This
morning we welcome Commissioner Stevens to his first appearance before the Subcommittee
as we examine the Federal Housing Administration and its role in the housing
market.
“As
we sit here today, millions of Americans are out of work and many more are
struggling with unaffordable mortgage payments negative home equity, or foreclosure
“During
the housing boom, millions of Americans achieved the dream of
homeownership. But for far too many Americans, these dreams were based on
false promises and fueled by investors and lenders that were chasing profit
while ignoring risk.
“The
consequences of these risky behaviors have rippled through the national and
global economies.
“With
mounting foreclosures, a crippled housing market and a financial sector in
turmoil, we continue to clean up the mess created by predatory lenders and Wall
Street greed.
The
Role of FHA
“Fulfilling
the same role as it did when it was created during the Great Depression, the
FHA has stepped forward to help provide liquidity and restore stability to the
housing market.
“FHA’s
increased role in the housing market is as critical as it is daunting. As
recently as 2007, when this Subcommittee held the first in a series of annual
hearings on FHA, its share of the market was only 3 percent. Today, FHA
represents nearly 30 percent of all new homes sales.
“FHA
has played a critical role supporting the housing market while private
financing has been nearly frozen.
“However,
FHA has been plagued by long-standing management challenges; challenges that
continue to raise concerns about its ability to manage its outsized role in
stabilizing the market.
Challenges
at FHA
“Commissioner
Stevens, you have acknowledged the challenges you inherited when you took over
the agency, and have moved quickly to assess and seek solutions to the problems
facing FHA.
“The
most glaring of these are antiquated information technology systems and an
inadequate workforce, both of which are critical to equipping the agency to
meet the challenges it faces. A well-functioning FHA is vital to
maintaining the solvency of the Mutual Mortgage Insurance (MMI) Fund and
protecting the American taxpayers from having to pay for risky or fraudulent
mortgages.
“This
subcommittee provided additional resources to help FHA address its
shortcomings. Both in 2009 and 2010, we provided funding to help FHA
modernize its IT systems and hire additional staff to better manage and oversee
a growing portfolio.
Focusing
on Risk
“Equally
important to these new tools is fostering a culture at FHA focused on
risk. Commissioner Stevens, one of your first actions after taking office
was to appoint FHA’s first Chief Risk Officer. This position was long
overdue and sends an important signal to lenders, borrowers and taxpayers that
FHA understands the risks it faces and is working to mitigate them.
“I
am pleased that FHA is increasingly using its authority to investigate lenders
that aren’t playing by the rules.
“It
must be absolutely clear to lenders engaging in fraudulent and risky practices
that they are not welcome in FHA programs, and will not be supported by
taxpayer dollars.
Proposed
FHA Reforms
“Despite
some important progress, FHA still faces significant challenges.
Foreclosures have taken their toll on FHA’s finances, leaving the capital
reserve fund below the two percent required by Congress. This is a cause
for concern, since any significant setbacks in the housing market could result
in additional and possibly unaffordable losses to the fund.
“In
an effort to strengthen the agency’s finances and protect itself from future
risk, HUD has proposed a series of reforms, including:
- Increasing
premiums: - Setting
minimum FICO scores; - Increasing
downpayment requirements for riskier borrowers; and - Expanding
enforcement authorities.
“Some
of these changes are already underway, but others will require
legislation. Today, I will have questions about these reforms—what they
mean for fulfilling FHA’s mission to provide access to affordable mortgages, as
well as how they impact the solvency of the MMI Fund as we look to the future.
“It
is clear that the solvency of the MMI Fund and the strength of FHA depends on
the recovery of the housing market. This is evident by CBO’s re-estimate
of receipts that FHA is expected to generate in 2011.
“Continued
uncertainty about the housing market, as well as lingering doubts about FHA’s
ability to realistically assess its risks, resulted in CBO’s much more
conservative estimate of $1.9 billion in receipts instead of the $5.8 billion
projected by the Administration.
Continued
Challenges in the Housing Market
“The
concerns expressed by CBO are real. Relatively stable home prices and
increasing home sales suggest that the market is stabilizing. Yet large
segments of the housing market remain fragile, and there are looming problems
that could undermine the progress we have made.
“Over
2 million homes are currently in foreclosure and that number is only expected
to grow throughout 2010.
“To
date, the Administration’s Home Affordable Modification Program has had limited
success in stemming the tide of foreclosures. There have only been
230,000 permanent modifications made under this program—far short of the 3-4
million homeowners expected.
“And
as banks and servicers determine whether a modification is in their best interest,
many families are left waiting as they face the agonizing prospect of losing
their homes. I continue to hear that servicers are unresponsive to
borrowers, and in some cases unwilling to explain why modifications are
denied.
“Americans
trying to get assistance are frustrated—and rightfully so. They watch as
banks have received billions of dollars in taxpayer assistance, and yet many of
these same banks are unwilling to assist homeowners facing foreclosure.
“This
cannot be tolerated. Servicers must be held accountable. At the
very least, servicers must communicate with those trying to receive assistance,
and provide an explanation if borrowers aren’t approved.
Addressing
Unemployed and Underwater Borrowers
“The
success of HAMP was also limited because it failed to address two of the major
problems facing troubled borrowers today—unemployment and negative
equity.
“I
have seen this tragic combination devastating families first hand in
communities across my state.
“In
Clark, Snohomish and Pierce Counties, communities are struggling with both
unemployment and foreclosure.
“And
unfortunately, home prices have yet to stabilize in Washington State, so
families are continuing to see the equity of their homes decline. Nearly
16 percent of all Washington homeowners are underwater. Sadly, they are
not alone.
“Over
11 million families across the country are underwater on their mortgages today
as a result of falling home prices and growing debt. That represents
nearly 1 out of every 4 mortgages.
“Just
a few months ago, the Administration announced plans to change HAMP in order to
address these problems. The plans include offering increased relief for
unemployed borrowers as they look for work and get back on their feet, as well
as incentives for lenders to permanently write down the principal of these
mortgages instead of just addressing interest rates.
“These
changes were necessary to more effectively address the foreclosure crisis, but
I remain concerned that since this program is voluntary it will still fail to
meet its goal. So, I expect the Administration to compel lenders to
provide real aid to families that want to—and with a fair deal—could stay in
their homes.
“As
part of these announcements, FHA’s refinance program is also set to be
expanded. This is an important tool that will assist homeowners get into
a truly affordable mortgage through incentives and write downs of both first
and second liens. While these loans will be subject to FHA underwriting
standards, there is still an increased risk associated with these loans.
“In
order to mitigate the effects of these riskier loans on the health of FHA’s
Insurance Fund, the Administration has set aside $14 billion in TARP
funds.
“However,
many of the details surrounding this proposal are still being worked out, and I
am concerned that this could result in additional losses to the MMI Fund—losses
that the fund simply cannot absorb.
“So,
I will have questions today about the design of this program, and how we can be
assured that this program will not cost the American taxpayers anything more
than what has already been set aside from the TARP funds.
Strategic
Defaults and Shadow Inventory
“Amidst
all of these efforts to modify mortgages so families can stay in their homes, there
are a growing number of homeowners deciding to strategically default.
Many of these homeowners can afford their mortgage payments, but because of
their severe negative equity they feel it is in their financial interest to
simply walk away.
“The
potential impact of this on home values and market stability could be
devastating.
“There
is also the very real concern about what is called “shadow inventory”.
These are the houses that are facing foreclosure or have already been reposed
by the bank, but are not yet on the market. Hopefully the impact of these
will be lessened by an increase in permanent modifications. But if a
large number of these homes were to suddenly flood the market, all of our gains
in home values could be erased.
“These
issues demonstrate how fragile the housing market remains. But we are
beginning to test its stability. The Federal Reserve ended its purchase
of mortgage-backed securities at the end of March, and the homebuyer tax credit
ended last month.
“Even
as we watch with some anxiety as these supports are withdrawn, it is clear that
the government cannot continue to play the outsized role in the housing market
that it has taken on over the past two years. The long-term health of the
housing market and the economy depend on the return of the private
market.
The
Need for GSE Reform
“It
is also clear that we must address the future role of Fannie Mae and Freddie
Mac in the housing market. There is no doubt that the GSEs had a hand in
exacerbating the housing crisis. And just as there needs to be
consequences for Wall Street, there must also be consequences for the
GSEs. The spigot of taxpayer dollars flowing into the GSEs cannot stay on
indefinitely.
“As
the Administration debates the future of the GSEs, I—like most Americans—am
growing impatient. And my impatience only increases as the cost to the
American taxpayers grows with no end in sight.
“The
Administration must put forward a real plan on how to reform the GSEs.
“GSEs
currently provide important support to the housing market, and so this plan
must be thoughtfully done, with care not to reverse the hard-won progress made
to date. This plan must include a clear understanding of how any changes
will impact the housing market and Americans’ ability to buy a home for their
families.
“But
it is simply not enough to say that it is complicated and we have a plan
soon. It is not easy, and so it deserves an honest and open dialogue
about its future. But there needs to be a sense of urgency that has thus
far been lacking.
Closing
“As
we try and tackle the complex set of challenges facing the housing market
today, the federal government must play a role in supporting the market, but it
must also protect the taxpayers.
“Commissioner
Stevens, this has been your task since taking over FHA. And I want to
commend your commitment to addressing the challenges at FHA while working to
ease the recovery of the housing market.
“I
look forward to hearing your testimony today, and with that, I turn to my
partner and Ranking Member, Senator Bond.”
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