Brown Opening Statement at Banking Committee Hearing on Principles of Housing Finance Reform

WASHINGTON, D.C. –- (RealEstateRama) — U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – released the following opening statement at today’s hearing entitled, “Principles of Housing Finance Reform.”

Brown’s remarks, as prepared for delivery, follow.

Senator Sherrod Brown – Opening Statement

Hearing: “Principles of Housing Finance Reform” 

Thank you, Chairman Crapo, for holding today’s hearing.

All three of our witnesses have substantial experience in the housing market, and I look forward to hearing their testimony today.

I hope in a subsequent hearing we will be able to hear more from smaller lenders as well.  For all of its faults, the current system does provide access to small lenders.  Protecting small lender access to the secondary market is an important area of bipartisan agreement.  We should hear directly from small lenders about the best way to do that.

Changes to the housing finance system impact everyone from renters and homeowners to lenders and investors to retirees through their 401(k) plans and pension funds.  As we learned during the economic crisis, not all changes are equal.

The expansion of exotic subprime mortgage products led to a crisis in which 12.5 million homes were in the foreclosure process between 2007 and 2012.  The Federal Reserve estimated that families saw a 39 percent decline in wealth from 2007 to 2010.

In writing about the failures that led to the housing crisis in The Subprime Virus, Kathleen Engel and Pat McCoy concluded, “The avarice of lenders and Wall Street reversed the efforts of cities like Cleveland to revitalize their communities… The federal government must make sure that what’s good for Wall Street is good for Main Street too.”

I would go a step further and say that the federal government should focus on what is good for Main Street, period.  And the way we do that is by finding solutions for homeowners and renters.  I am confident Wall Street will be able to fend for itself.

Some proposals to reform the housing finance system focus more on how to allow private capital or financial institutions to take over for or stand in front of the GSEs than on the cost of that additional private capital to borrowers.  Underrepresenting those costs will have consequences for access to credit and could reduce home values if new borrowers cannot access mortgages at affordable rates.  States like Ohio and Nevada are still struggling with underwater homeowners and how to address the ongoing problem of negative equity.

Proposals do not focus enough on how to break down the barriers that still exist in the mortgage market for communities of color or on providing continued access to credit in rural areas.

As we try to achieve broad bipartisan consensus on a housing finance reform proposal, there are a number of open questions that need to be addressed. How does each proposal avoid the kind of shareholder demand for returns that drove the worst decisions at the GSEs?  How do the proposals prevent predatory mortgage products that targeted and stripped wealth from communities like Cleveland?  How do we do a better job of prohibiting discrimination in the mortgage market?

The Committee also needs to have clear estimates that break down costs for borrowers across the entire eligible credit and down payment spectrums.  We need to learn more about whether and how adding multiple entities with differentiated products or services could change the national market or TBA market.  We also need to explore how each of these proposals would provide continuous access to mortgage credit when private capital flees during a downturn.

There are three opinions represented here today, but they are not the only opinions about this issue.  I would also like to submit for the record a number of plans and principles, including from the Independent Community Bankers of America, and the Main Street GSE Reform Coalition, among others.

As the Committee continues to work on a broad bipartisan plan, I hope we can hear from a wide range of opinions and stakeholders about how the housing finance system could work better for Main Street and not just for Wall Street.

Thank you, Mr. Chairman.

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