Posted by on December 09, 2013
The House is in session Monday through Friday this week -- the last week of session and committee activity currently scheduled for 2013.
Here's what's happening:
On Thursday at 9:30 a.m., Treasury Secretary Jack Lew will testify on the state of the international finance system. The full committee will then meet again at 2 p.m. to rethink the Federal Reserve's many mandates on its 100-year anniversary.
Be sure to check back here on the Bottom Line Blog -- and sign up for our email updates -- for additional information throughout the week.
Posted by on December 08, 2013
Congressman Robert Hurt (Twitter | Facebook) delivers this week's Sunday Video Message on H.R. 1105, the Small Business Capital Access & Job Preservation Act. H.R. 1105 passed the House with strong bipartisan support last week.
Posted by on December 05, 2013
Since 1893, Owingsville Banking Company (OBC) has served the citizens of rural Bath County Kentucky. The bank endured the Great Depression, the stagflation of the 1970s and, most recently, the Great Recession. Today, however, OBC faces a new challenge -- not the difficult market conditions of this tepid economic recovery, but an avalanche of Washington regulations.
In the above video (at the 4:50 mark), fifth generation banker Thomas Richards testified that the "frightening" regulatory environment created by Dodd-Frank and enforced by the Consumer Financial Protection Bureau (CFPB) could wipe OBC out of existence in ten years. Unfortunately, Owingsville Banking Company isn't alone.
Accelerated by the aggressive regulatory onslaught of the Dodd-Frank Act, small community financial institutions across the country are disappearing at an alarming rate while big banks grow even bigger. The Wall Street Journal reported earlier this week that the "number of federally insured institutions nationwide shrank to 6,891 in the third quarter after this summer falling below 7,000 for the first time since federal regulators began keeping track in 1934, according to the Federal Deposit Insurance Corp." That decline, according to the WSJ, comes "entirely in the form of exits by banks with less than $100 million in assets."
Part of this problem stems from the inability of Washington elites to understand the characteristics and unique needs of local communities across America. Consider, for example, an area like Bath County Kentucky -- a county of two stoplights and a large Amish population. No reasonable person would classify this county as anything other than rural. In fact, Charles Vice, the top-banking regulator in Kentucky, testified that Bath County is one of the most rural places in the Commonwealth.
To the CFPB, however, the above map of Owingsville in Bath County could look just as much like a sprawling urban metropolis as it does a rural county seat surrounded by forests and fields. Relying on the “Urban Influence Codes” developed by the Department of Agriculture’s Economic Research Service, which are, in turn, derived from the definitions of “metropolitan” and “micropolitan” developed by the Office of Management and Budget (OMB), the CFPB does not classify Bath County as rural for the purpose of exempting it from Dodd-Frank's Qualified Mortgage rules. Such a misguided classification could leave many in Bath County without access to affordable credit.
That's why the Financial Institutions and Consumer Credit Subcommittee held a hearing on Wednesday focused on legislation introduced by Rep. Andy Barr that would provide relief to financial institutions in rural areas like Bath County, Kentucky. "H.R. 2672 is a simple, pragmatic, and bipartisan solution this problem," said Rep. Barr. "It’s about inviting individuals to participate in their government and provide input on matters of local knowledge. It’s about making the federal government more accessible, more accountable, and more responsive to the people who know their communities best, so we can help create jobs in our local communities."
Posted by on December 03, 2013
Excessive and unnecessary regulations hurt our economy, increase costs and restrict access to private sector capital that our nation’s job creators need to grow the economy and create jobs.
Title IV of the Dodd-Frank Act imposes new registration and reporting requirements on hedge funds and private equity firms. Specifically, Title IV requires investment advisers to private investment funds to register with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. As a result of Title IV’s registration requirements, advisers to private funds must maintain records and file reports with the SEC, which are made available to other regulators, including the Financial Stability Oversight Council (FSOC).
Requiring all advisers to private funds to maintain records and file reports with the SEC does little to improve the SEC’s ability to meet its mission, while weighing it down with unnecessary tasks and stifling rather than promoting capital formation.
A real life example from recent witness testimony (.pdf) shows how The Riverside Company (a private equity firm) nearly quadrupled the earnings of Virginia-based Commonwealth Laminating and Coating (CLC) during the 4 1⁄2 years CLC was owned by Riverside. Together, Riverside and CLC grew jobs by 73% — adding 61 jobs in Martinsville, VA — and provided a significant return to the teachers, firefighters and government employee pensions funds that invested through Riverside.
The Bottom Line:
The Dodd-Frank Act was not written in stone or handed down from Mount Sinai, and Congress has an obligation to amend or repeal those provisions that did not cause or contribute to the financial crisis and whose costs outweigh their purported benefits.
The bipartisan H.R. 1105 – which the Financial Services Committee reported by a 38-18 (.pdf) vote on June 19, 2013, would exempt advisers to certain private equity funds from the new registration requirements imposed by Title IV of the Dodd-Frank Act. H.R. 1105 would exempt from SEC registration advisers to private equity funds that have not borrowed and that do not have outstanding a principal amount in excess of twice their funded capital commitments.
Posted by on December 02, 2013
The House is in session Monday through Thursday this week and will consider one Financial Services Committee bill. Be sure to check back here on the Bottom Line Blog -- and sign up for our email updates -- for additional information throughout the week.
Here's whats happening:
On Wednesday at 10 a.m. the Financial Institutions and Consumer Credit Subcommittee will hold a legislative hearing on regulatory relief bills in 2128 Rayburn. And on Wednesday afternoon, the House will consider H.R. 1105, the Small Business Capital Access and Job Preservation Act.
Posted by on November 27, 2013
Persistently weak job growth, higher taxes on families and record-breaking government debt are the hallmarks of the failed economic experiment known as Obamanomics. It is an experiment made up of many policies, but its core revolves around one central belief: A larger, more powerful, more intrusive government can and should fix every problem.
The fact that you can no longer keep your health insurance, even if you like it, is yet more proof that government today has more control over our lives than ever. Perhaps nowhere is the presence of government more intrusive and dominant than in housing.
Government has maintained an oversized role in housing, based largely on the noble — but ultimately unsound — proposition that everyone should be encouraged to own a home. Tragically, a federal government that lives well beyond its means also encourages Americans to do the same.
What has been the effect of government housing policy? A dizzying cycle of booms and busts, first regionally in places such as California, New England and the western "oil patch" states, culminating finally in the massive national housing bubble that gave way to the financial crisis.
That crisis should have shown the wealth-destruction and significant social costs of exaggerated government intervention in housing. Yet instead of pursuing meaningful reforms, President Obama used the crisis to create a virtual government monopoly of the housing finance system.
At the heart of this monopoly are taxpayer-backed entities like Fannie Mae, Freddie Mac and the Federal Housing Administration, which now guarantee nine of every 10 new mortgages. This puts hardworking taxpayers on the hook for more than $6 trillion in mortgage guarantees, more than one-third the size of our entire economy.
The unfortunate irony here is that the very institutions the administration is relying upon to prop up our housing system are themselves already broken, broke and bailed out. Fannie and Freddie infamously received the biggest taxpayer-funded bailout in history: nearly $200 billion. Now there is a crisis at the Federal Housing Administration, which in good times is used to partially finance the operations of the Department of Housing and Urban Development.
A New Deal creation designed to help first-time homebuyers and those with low and moderate incomes to buy homes, the Federal Housing Administration has experienced extreme mission creep since the start of the crisis. It now insures loans on homes valued as high as $729,750 — far beyond the reach of those with truly low or moderate incomes — and controls nearly 60 percent of the mortgage-insurance market, nearly twice its pre-crisis level.
This untenable expansion finally caught up with the Federal Housing Administration in September when it became the latest recipient of a taxpayer bailout. The agency's $1.7 billion bailout — the first in its history — equals roughly 10 percent of its annual receipts.
To make matters even worse, the agency bailout took place without a vote of Congress. The Federal Housing Administration has a permanent and unlimited direct line to the U.S. Treasury, so taxpayers could be writing blank checks for its bailout indefinitely. Every penny gets added on top of our already staggering $17 trillion national debt.
The bailout occurred despite years of assurances from the Obama administration that "all was well" at the agency. Administration officials repeatedly disregarded warning signs of its deteriorating condition, such as last year's actuarial report that revealed the agency's mutual mortgage insurance fund has a negative economic value of $16.3 billion. In fact, every year since 2008, the agency has been in violation of federal law for failing to maintain reserves equal to 2 percent of the current value of its guarantees.
The Federal Housing Administration's financial decline has been hastened by employing many of the castigated practices of subprime lenders such as small down payments, low credit scores and cheap upfront pricing. As a result, families become trapped in homes they ultimately cannot afford to keep. One in eight agency loans ends in default or foreclosure.
The agency has also refused to make full use of the tools it has at its disposal, such as raising premiums to their maximum or increasing minimum down payments. Commissioner Carol Galante testified recently before Congress that such increases would upset the "balance between strengthening the fund [and] making the cost of credit prohibitive for qualified homebuyers."
However, such arguments miss the fundamental point that a bankrupt Federal Housing Administration helps no one.
Clearly, the Obamanomics approach of more government to fix our housing problems is not working, nor is it sustainable.
That's why Republicans on the House Financial Services Committee, of which I am chairman, have offered a new vision for a sustainable housing system for America called the Protecting American Taxpayers and Homeowners Act. The Path Act is designed to reduce the government's domination of housing and right-size the agency's market share.
Specifically, the Path Act reforms the agency by returning its focus to its historic role of helping first-time, and low- and moderate-income homebuyers. It also gives the agency a clear countercyclical role to assist borrowers in times of significant credit contraction.
The Path Act removes the Federal Housing Administration from the Department of Housing and Urban Development, establishing it as a separate, self-sufficient agency. It requires the agency to charge minimum annual premiums, limit taxpayer exposure by properly adjusting the agency's maximum insurable loan limit, and maintain a strict 4 percent minimum capital reserve ratio.
The reforms enacted in the Path Act will create a sustainable housing-finance system and end the ruinous cycle of Washington's failed boom-bust-bailout housing schemes once and for all.
Americans deserve and demand a healthy economy. We cannot borrow, spend or bail out our way to prosperity. President Reagan said, "As government grows, liberty contracts." That applies to our economy as well. If government continues to dominate the housing market, we may never have a truly healthy and sustainable economy.
Posted by on November 24, 2013
Posted by on November 21, 2013
Financial Times: Winding down Fannie and Freddie
Editorial | November 20, 2013
It has been five years since Lehman Brothers collapsed and longer since the US subprime bubble burst. Yet plans to reform Fannie Mae and Freddie Mac – the government-sponsored behemoths that underwrite the US housing market – are little nearer to completion. Both Republicans and the Obama administration agree on the need to wind these entities down. Just not quite yet.
Now a group of activist investors are agitating Washington to privatise their key mortgage insurance functions. Last week they raised their equity stakes in the two enterprises. Their business plans no doubt add up nicely – Fannie and Freddie have returned to solid profitability in the past two years. But a sell-off would make little sense from the taxpayer’s point of view. The US has already privatised too many gains and socialised too many losses. It is past time for Washington to start the liquidation of Fannie and Freddie.
The temptation will clearly be to let things drift on for a while longer. Having pumped $187bn into Fannie and Freddie in 2008, the US government has now been more than repaid in dividends and profits. This year alone, dividends from the two GSEs has reduced the US fiscal deficit by almost $100bn. Fannie and Freddie have also helped to underpin the US housing recovery by underwriting roughly two-thirds of new mortgages. Again, the temptation will be to let the apple cart roll on.
Yet the bigger the US government’s exposure to the housing market the more difficult it will be to wind down Fannie and Freddie. Reforming, rather than abolishing, them would be a mistake. Among the plans in circulation is a bill that would replace the GSEs with a smaller agency that would guarantee mortgage lenders against “catastrophic loss” defined as 10 per cent of principal. The Obama administration also wants to continue with the 30-year mortgage loan – a unique feature of the US housing market. Finally, it wants to maintain support for mortgages to low-income borrowers.
The first two goals are unnecessary and risky. There is no reason the US taxpayer should be on the hook for the next housing bubble. If there is a market for mortgage guarantees, then it will emerge. There is no need for Washington to keep inventing one. The Great Depression conditions that led to the agencies’ creation have lost all relevance. Nor should the US government shield borrowers from the effects of monetary policy. No other country allows borrowers to lock in fixed-rate 30-year mortgages and then to refinance their loans when rates fall. Nor should the US. Instead of insuring against risk, it incentivises risk taking. Again, if a market exists for 30-year fixed paper, let it develop. Washington’s role should be confined to regulation.
There is a stronger case for retaining support for low-income home ownership. But Fannie and Freddie are highly imperfect vessels to deliver it. Low-income support should come by targeted and explicit subsidy rather than an implicitly government-backed market. Fannie and Freddie’s 2008 bankruptcy is sufficient testament to how easily others can game the system. By the time the meltdown hit, the two agencies were backing a majority of subprime mortgages. Never again should the US taxpayer have to step in.
Selling the business off to private investors is the worst option of all. Whatever Washington’s protestations, the market would be likely to treat the agencies as implicitly guaranteed. The original design flaws would persist in a new form. Washington should sell off Fannie and Freddie’s assets to the highest bidders. But the core business should be closed down. To avoid disruptions, the process should be gradual and phased. But that is no excuse for waiting. It is time to bring the curtain down on Fannie and Freddie.
Posted by on November 18, 2013
The House is in session Monday through Thursday this week. Be sure to check back here on the Bottom Line Blog -- and sign up for our email updates -- for committee specific information as the week progresses.
Here's what's happening:
On Tuesday morning at 10 a.m., the Oversight & Investigations Subcommittee undertakes a general overview of disparate impact theory. And in the afternoon, at 1:30 p.m., the Housing & Insurance Subcommittee reviews the implementation of the Biggert-Waters Flood Insurance Act of 2012.
Addressing the lack of oversight and accountability at the Consumer Financial Protection Bureau (CFPB), the full committee will markup the following CFPB reform legislation on Wednesday at 10 a.m:
Finally, on Thursday at 9:30 a.m., the Capital Markets & GSEs Subcommittee will consider a legislative proposal to amend the Securities Investor Protection Act.