PATH Act “Enables FHA to Play Expanded Role in Times of Crisis”Posted by on July 19, 2013
Rep. Ed Royce hit the nail on the head this week when he correctly pointed out that the PATH Act does not eliminate all government guarantees as some have incorrectly claimed.
Courtesy of Rep. Royce’s office, below is his exchange with Federal Reserve Chairman Ben Bernanke this week on how the PATH Act preserves the FHA’s countercyclical role by allowing it to insure loans to any borrower during period of significant credit contraction.
This means the PATH Act would preserve the FHA’s existing countercyclical role in mortgage lending, which enables the FHA to serve as a backstop to keep mortgage credit flowing, to promote stability in the housing market, and to ensure that middle-class families can still buy homes.
Royce Q&A with Fed Chairman Bernanke
Washington, D.C. - Today at the House Financial Services Committee “Humphrey-Hawkins” Hearing, Rep. Ed Royce (R-CA) asked Federal Reserve Chairman Ben Bernanke about the need for the government to play a countercyclical role in the housing market, rather than the extraordinarily pro-cyclical role the government played during the last crisis.
Specifically, Royce questioned whether provisions of the recently proposed PATH Act - the Protecting American Taxpayers and Homeowners Act – which enable the FHA to play an expanded role in times of crisis, will ensure continued access to the mortgage market for a great majority of borrowers regardless of market conditions. Bernanke responded: “We need to think about the situation where there is a lot of stress in the market and we need some kind of backstop… It seems to me that FHA could be structured to supply such a backstop, it would depend on the details. That would be one way to have the government supply a backstop.”
As you may know, Title II of the PATH Act includes several provisions meant to allow FHA to play that countercyclical role: