Posted by on October 19, 2013
A whole segment of society is losing access to mainstream banking that allows them to safely save and invest for the future. They are being pushed into nontraditional financial arrangements not by choice, but because of Dodd-Frank.
With Janet Yellen now seemingly on course to be the next Fed chairman, it’s time to find out what she thinks about some very important questions of monetary and regulatory policy.
If the CFPB intends to pursue discrimination caused by policies that have a discriminatory effect, it may want to start by looking at its own policies.
Washington Examiner | GM got bailout, now ships jobs to China
President Obama quietly released GM from a bailout requirement that it increase its U.S. production. Now, GM is spending billions of dollars building up its production capacity in China.
Posted by on September 29, 2013
Posted by on September 28, 2013
Did “deregulation” cause the financial crisis? Our conclusion was that there was no measurable, net deregulation leading up to the financial crisis.
Omaha World-Herald | Mortgage lending at risk if rules not delayed, banker says
Without a delay of onerous Dodd-Frank mortgage regulations, some banks will stop or cut back on mortgage lending.
The White House has handled the process of picking the next chair of the Federal Reserve "terribly," a top official at the U.S. central bank said in an unusual public critique of the delicate, and traditionally discreet, selection process.
Daily Caller | CFPB accused of violating transparency law
A Mississippi man is threatening to sue the Consumer Financial Protection Bureau for denying him entry to the proceedings of one of its advisory committees, a move he claims is a breach of federal transparency law.
Posted by on September 26, 2013
Update: Chairman Hensarling Comments on Obama Administration’s Confirmation of $1.7 Billion Taxpayer-Funded Bailout for FHA
The Hill | FHA may need $1 billion bailout
Washington Times | Rising mortgage defaults may force FHA to request bailout from Treasury: report
Bloomberg | Federal Housing Administration Said to Take Taxpayer Subsidy
How Did We Get Here?
While FHA has historically served targeted populations, like first-time homebuyers and credit-worthy low and moderate income Americans, it has strayed far from this historical and well-intentioned goal. Today, FHA can insure loans as high as $729,750. Such a home purchase is far beyond the reach of those truly earning low and moderate incomes. This mission creep has enabled FHA to crowd out its private sector competition and seize control of more than 56% of the mortgage insurance market, all the while leaving homeowners with fewer choices and exposing taxpayers to excessive risk.
America deserves better than this. Hardworking taxpayers are sick and tired of having to bail out Washington’s failed housing policies, whether it’s the nearly $200 billion bailout of Fannie Mae and Freddie Mac or a bailout of the FHA. That's why the PATH Act includes critical reforms to right-size the FHA. These reforms include:
You can find more information on these and other FHA reforms in our Executive Summary of the PATH Act (.pdf).
Posted by on September 24, 2013
By Rep. Jeb Hensarling
Pundits and politicians, including President Obama, used the recent anniversary of the Lehman Brothers collapse to once again blame a lack of government regulations for causing the financial crisis.
The great tragedy of the financial crisis, however, was not that Washington regulations failed to prevent it, but instead that Washington regulations helped lead us into it.
Federal policies designed to expand homeownership in an "off-budget" fashion encouraged lending to people who bought homes they could not afford to keep. Perhaps not surprisingly, a federal government which lives beyond its means tragically encouraged American families to do the same.
One of the most damaging of those initiatives has been the Community Reinvestment Act, which was undertaken with good intentions but is today in need of repeal. Proponents of CRA-like mandates have maintained that only a small portion of subprime mortgage originations are related to the CRA. However, though they may be small in volume, CRA loan mandates remain large in precedent. They inherently required lending institutions to abandon their traditional underwriting standards to comply with this government mandate. CRA implicitly put the government's "Good Housekeeping Seal of Approval" on such loans.
Along with CRA, no one should forget the central role Fannie Mae and Freddie Mac played in sparking the crisis. These private companies were awarded monopoly powers by Congress in exchange for meeting certain affordable housing goals. Fannie and Freddie exploited their congressionally-granted charters to borrow at discounted rates and ultimately dominated the secondary mortgage market. They wildly inflated their balance sheets and personally enriched their executives via implicit (now explicit) government backing – not to mention via the "cooked books" that allowed politically-connected executives to make off like bandits with what their regulator described as "ill-gotten bonuses in the hundreds of millions of dollars."
Given their prominence in the market, investors and underwriters came to believe that if Fannie or Freddie touched a loan, it was safe, sound, secure and most importantly, "sanctioned" by the government.
More than 70% of subprime and Alt-A mortgages that led to the crisis were backed by Fannie and Freddie, the FHA and other taxpayer-backed programs. If anyone is looking for a root cause of the financial crisis, this is it.
Yet, despite the inherent dangers in such transactions, Fannie and Freddie's congressional supporters encouraged them to "roll the dice a little bit more". Well, they did, and the result was the mother of all bailouts – nearly $200 billion – and the worst financial crisis since the Great Depression.
But when it came time for Congress to address the crisis, the Democrats produced a bill that failed to tackle its root causes. Nowhere in the Dodd-Frank Act's 2,300 pages will you find one single reform to Fannie or Freddie. Instead, Dodd-Frank leaves them in a state of perpetual federal conservatorship. As a result, hardworking taxpayers today back nine of every 10 new residential mortgage securitizations and taxpayers are on the hook for more than $5 trillion in mortgage guarantees.
What you will find in Dodd-Frank, however, are provisions that make bailouts permanent, enshrine "too big to fail" into law and give Washington bureaucrats more power, more authority and more control over personal financial decisions that Americans should be making for themselves. Dodd-Frank will prove to be every bit as far-reaching in its harmful consequences as the Democrats' radical plan for "fixing" the nation's healthcare system – Obamacare.
While Democrats were voting for Dodd-Frank and its 400 new regulations, they were voting against the alternative put forth by House Republicans: the Consumer Protection and Regulatory Enhancement Act. Our proposal would have ended taxpayer bailouts and restored market discipline. It would have put the GSEs on the path away from taxpayer reliance and transitioned our secondary mortgage market toward free market competition and it would have streamlined the complex regulatory structure for enhanced enforcement of consumer protection laws and safety and soundness.
So five years after the crisis and three years after the passage of Dodd-Frank, where do we go from here?
For starters, both parties and the president should work together to create a sustainable housing finance system, end the bailout of Fannie and Freddie and phase out their failed business model. That's exactly what House Republicans have proposed to do with the PATH Act, which stands for Protecting American Taxpayers and Homeowners.
The PATH Act passed the Financial Services Committee in July. It creates a sustainable housing finance system by limiting government control of the mortgage market, putting private capital at the center of the mortgage system and giving homebuyers more informed choices about their mortgage options. The PATH Act includes reforms to save the FHA from insolvency and preserves the 30-year fixed rate mortgage. In fact, for the first time the FHA would be specifically required to offer a 30-year fixed rate insurance product under the PATH Act.
The PATH Act is our best chance to create a housing finance system that is sustainable for homeowners, taxpayers and our economy.
Posted by on September 22, 2013
Posted by on September 17, 2013
Last week, the Oversight and Investigations Subcommittee questioned the Department of Housing and Urban Development's (HUD) Inspector General, David Montoya, about reducing waste, fraud, and abuse in the department’s housing programs. All totaled, the latest IG report identified more than $770 million in questionable costs and included recommendations for putting $739.5 million in HUD funds to better use.
In the above exchange with Rep. Ann Wagner, however, the IG raised another concern: the egregious length of time it takes HUD to implement audit findings. In one case related to now largely prohibited seller-funded downpayment assistance, Mr. Montoya said HUD delayed implementation of IG recommendations for nearly a decade, impacting the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance (MMI) Fund on the order of $15 billion.
The MMI Fund (the “fund” as Mr. Montoya calls it in the clip) is at the center of the FHA’s business, backing more than $1 trillion worth of home mortgages on behalf of American taxpayers. An actuarial report released by HUD in November 2012 revealed the MMI Fund had a negative economic value of $16.3 billion, dropping the fund’s capital ratio – a measure of the fund’s health – below the 2 percent minimum required by law. That decline in the health of the MMI Fund also prompted the Government Accountability Office (GAO) to add FHA to its list of "high risk" government programs earlier this year.
This level of waste, fraud, and abuse at HUD reinforces everything our committee has been saying about the FHA for some time now – it is a high risk to taxpayers, it is a high risk to the mortgage insurance market and it represents a high risk to our economy. That's why reforming the FHA is a critical step in the path to a sustainable housing finance system. Toward this end, the PATH Act would make FHA operate more like a private mortgage insurer, requiring it to issue quarterly financial reports based on Generally Accepted Accounting Principles (GAAP), and maintain a capital reserve ratio of at least 4 percent – up from the 2 percent currently required.
Posted by on September 16, 2013
The House is in session Tuesday through Friday this week and the committee has two scheduled hearings. Be sure to check back here on the Bottom Line Blog -- and sign up for our email updates -- for more information throughout the week.
Here's what's happening:
On Wednesday at 10 a.m. the Capital Markets & GSEs Subcommittee will examine the SEC's money market rule proposal.
And on Thursday the full committee holds a legislative hearing on The Terrorism Risk Insurance Act of 2002. That hearing also beings at 10 a.m.
Both hearings will be held in 2128 Rayburn HOB and will be streamed live on our website.
Posted by on September 15, 2013
Financial Institutions & Consumer Credit Subcommittee Vice Chairman Sean Duffy (Twitter | Facebook) delivers this week's Sunday Video Message on our recent hearing with Consumer Financial Protection Bureau (CFPB) Director Richard Cordray and his own legislation to curb the CFPB's collection of Americans' personal financial data.
Posted by on September 12, 2013
Consumer Financial Protection Bureau Deputy Director Steve Antonakes appeared before the Subcommittee on Financial Institutions and Consumer Credit in July to discuss the CFPB’s data collection efforts. Below are just a few of the simple questions Mr. Antonakes was unprepared to answer:
At today's hearing on the CFPB's Semi-Annual Report, Chairman Hensarling played the above video of Mr. Antonakes's repeated offers to respond to those and other important questions for Director Richard Cordray.
We're still waiting on the answers.