Financial Services Committee RSS Articles

Dodd-Frank Mortgage Rules Will Harm Home Ownership, Witnesses Tell Subcommittee

Tue, 18 Jun 2013 04:00:00 GMT

Changes to mortgage lending mandated by the Dodd-Frank Act will make it harder for Americans to own a home and undermine an economic recovery, witnesses told members of the Financial Institutions and Consumer Credit Subcommittee at a hearing today.

One witness told the subcommittee Dodd-Frank will make it virtually impossible for his bank to continue a charitable program that has helped hundreds of families achieve home ownership in West Virginia since 1951.

In January, the Consumer Financial Protection Bureau (CFPB) issued a final rule implementing Dodd-Frank provisions requiring mortgage lenders to determine at the time a loan is made whether the borrower has a reasonable ability to repay it. Lenders can presume a mortgage meets the “Ability to Repay” standard — and supposedly be shielded from lawsuits by borrowers — if the mortgage also meets the definition of a “Qualified Mortgage,” or QM.

Subcommittee Chairman Shelley Moore Capito (R-WV) noted that the CFPB has amended the rule in an attempt to address concerns that it would constrict credit, but serious problems remain.

“Mortgage lending can be a highly subjective business, especially in rural and underserved areas. This element of relationship-based decision-making is completely ignored by the premise of the rule. It will be nearly impossible for the CFPB to endlessly amend the rule to accommodate the ability of lenders to make these relationship-based loans. Unfortunately, the end result will be some consumers losing access to credit and the ability to own their own home,” Chairman Capito said.

James Gardill, Chairman of the Board of Wheeling, West Virginia-based WesBanco, testified before the subcommittee that while Dodd-Frank’s Ability to Repay and QM rules may have been well-intentioned, they “will end up restricting mortgage credit, making it more difficult to serve a diverse and creditworthy population.”

Gardill also told the subcommittee that a charitable program administered by his bank to help large families buy homes is threatened by the Dodd-Frank rules.

“We currently have approximately 100 active loans under this program, providing homes to families who otherwise would not be able to afford one. We are concerned that, under the new rules, loans like these will not qualify for QM status, and as a result it will be very difficult to continue this program that has given so much back to the community. Of even greater concern is the fact that some borrowers served by this program would not meet the Ability to Repay standards and thus could not be helped by this or any other bank program going forward,” Gardill said.

Another hearing witness representing an Alaska credit union said the QM “bureaucratic standard” will hamper homeownership. “The unfortunate result will be that some members who would otherwise have qualified for a mortgage from their credit union may not receive loans,” said Jerry Reed, Chief Lending Officer of the Alaska USA Federal Credit Union.

“Congress and the regulators should encourage financial institutions to offer loan products focused more on the individual. Unfortunately, depending upon how the QM rule is interpreted by the prudential regulators and how it is utilized within the marketplace, the QM rule may stop this from happening,” said Reed.

CFPB Lacks Oversight and Accountability

Tue, 18 Jun 2013 04:00:00 GMT

The Oversight and Investigations Subcommittee highlighted the Consumer Financial Protection Bureau’s (CFPB) radical structure at a hearing today, and members continued to express concern that the agency operates without basic oversight and accountability.

The CFPB, created under the Dodd-Frank Act, is controlled by a single individual who cannot be fired for poor performance and who exercises sole control over the agency, its hiring and its budget.

For Fiscal Year 2013, the CFPB estimated that it would spend $541 million and increase its staff to more than 1,200. The CFPB is able to spend this money with no oversight from Congress, the President or the Federal Reserve from which it obtains its funding.

“In the end, this single director can disregard advice and manage as he wishes. He has little accountability to the Administration, and even less to Congress; his budget is secure. As a result, it should come as no surprise that the Bureau has operated with less transparency and less concern for fiscal discipline than is appropriate for a steward of taxpayer funds,” said Subcommittee Chairman Patrick McHenry (R-NC).

With the lack of Congressional control over appropriations to the CFPB, and the lack of Administration control over the CFPB’s budget, the large budget and broad regulatory discretion conferred upon the CFPB present substantial risk of waste, fraud and abuse.

“As a result of this lack of accountability, certain expenditures have been called into question, such as the $55 million that has been set aside for renovating the CFPB headquarters building just steps from the White House. Incidentally, $55 million is more than the entire annual construction and acquisition budget for GSA for the totality of federal buildings,” McHenry added, referencing the General Services Administration.

Other areas of concern that the Oversight and Investigations Subcommittee reviewed during its hearing include:

The CFPB spends a substantial amount of money on travel by its employees. In the first half of Fiscal Year 2013, the CFPB spent $5.9 million on travel compared to $68.4 million on personnel compensation, excluding benefits. Of the CFPB’s 1,168 current employees, 299 are examiners, who travel frequently. Assuming that for the balance of the year travel costs continue at the same pace, the CFPB will have spent nearly $12 million by the end of this fiscal year.

This substantial travel expense requires strong procedures and controls to prevent abuse, particularly considering the waste recently revealed at the Internal Revenue Service (IRS) and GSA conferences. However, according to an independent audit of the CFPB performed by ASR Analytics, this is not the case:

“The travel request is approved by the Supervisor without any knowledge of the estimated dollar amount to be expended on the trip. Further, Travel Vouchers are not routed for approval by the traveler’s Supervisor. We recommend that the dollar amount be stated in the initial travel request and approved by the Supervisor. Additionally, CFPB should strengthen internal control by instituting approval of the Travel Voucher by the Supervisor before it is routed to the Approving Official in the Office of Travel for payment.”

The CFPB is not required to follow Office of Management and Budget (OMB) guidelines, rules and regulations. For example, on May 31, 2013, OMB issued a “Controller Alert” related to conference spending by agencies over which the OMB has jurisdiction. This alert related to agency spending in the context of the sequester, and grew out of the discovery of waste and abuse at the 2010 General Services Administration’s Las Vegas conference. Coincidentally, this Controller Alert was issued just prior to news of the wasteful spending at the IRS conference. However, pursuant to its exemption under Dodd-Frank, the CFPB is not required to comply with this OMB alert.

The CFPB’s refusal to participate in the Office of Personnel Management (OPM) Employee Viewpoint Survey. ASR Analytics, in its independent performance audit results reported on November 12, 2012, recommended that the “CFPB should participate in an OPM led, Annual Employee Viewpoint Survey to provide a mechanism for anonymous employee feedback.” Despite this specific recommendation that the CFPB join the OPM’s survey, which 98 percent of executive agencies participate in, the CFPB instead decided to perform its own survey. By taking this action, the CFPB avoided OPM’s independent review of its staffs’ concerns. This lack of independent insight into the CFPB further demonstrates the Bureau’s lack of transparency and oversight.

The CFPB employee survey revealed significant concerns regarding the management of the Bureau’s staff. According to the CFPB’s annual employee survey, only 35.6 percent of employees agree or strongly agree that the CFPB takes steps “to deal with a poor performer who cannot or will not improve.” This statistic reflects that 64.6 percent of the staff do not see the CFPB as ensuring that employees are held accountable. If the CFPB cannot hold its own staff accountable for their failures, it is difficult to believe that the CFPB will be accountable in other areas.

Furthermore, the CFPB claims to “invest in world-class training” for its employees. However, in its own survey when its own employees were asked “how satisfied are you with the training you receive for your present job,” only 38.8 percent agreed that the training they received was sufficient.

The lack of accountability to both Congress and the administration for an agency run by a single director creates enormous risk of abuse through the broad discretion enabled by the CFPB’s Civil Penalty Fund.The director of the CFPB can effectively direct the managers of the Penalty Fund, a repository for funds collected by the CFPB in judicial or administrative proceedings, to follow his particular wishes with regard to compensating victims throughout the United States. It appears the CFPB need not win its own cases – instead the CFPB can identify cases brought by other Federal, State and even private plaintiffs and selectively intervene. Such vast authority demands accountability.

Weekly Rundown

Mon, 17 Jun 2013 04:00:00 GMT

Two subcommittee hearings and a full committee markup make for a slightly lighter week than last. Be sure to check back here on the Bottom Line Blog -- and subscribe to our email lists -- for updates throughout the week.

Here’s what’s happening:

On Tuesday -- as Rep. Capito previewed in our Sunday Video Message -- the Financial Institutions & Consumer Credit Subcommittee will examine how Dodd-Frank hampers home ownership. That hearing will take place at 10 a.m. Later, at 2 p.m., the Oversight & Investigations Subcommittee will review the budget for the CFPB.

Finishing up committee activity for the week on Wednesday, the full committee will mark up the following legislation:

H.R. 1564, the Audit Integrity and Job Protection Act
H.R. 1105, the Small Business Capital Access and Job Preservation Act
H.R. 1135, the Burdensome Data Collection Relief Act
H.R. 2374, the Retail Investor Protection Act

Sunday Video Message | Rep. Shelley Moore Capito

Sun, 16 Jun 2013 04:00:00 GMT

Financial Institutions & Consumer Credit Subcommittee Chairman Shelley Moore Capito delivers this week's Sunday Video Message, the first in our new series. In the video, Rep. Capito previews next week's hearing on the Dodd-Frank Act's negative impact on homeownership.

Weekend Must Reads

Sat, 15 Jun 2013 04:00:00 GMT

Fortune: The Fed's other trillion dollar problem

The amount of money banks have at the Fed recently reached 13 digits, for the first time ever.

Bloomberg: New Home Prices Say What’s Different This Time

Although no two business cycles are alike, most share some common characteristics. The interest-rate-sensitive sectors of the economy -- housing and manufacturing -- tend to lead on the way up and the way down, for obvious reasons. Inflation ebbs during the recession and in the early stages of the recovery. Credit creation drives the upswing.

CNBC: Are Markets Facing a Crisis of Confidence?

The rout in global financial markets that has spared few asset classes extended into Thursday, with Asian stocks plunging across the board, led by a 6 percent fall in Japan's benchmark Nikkei 225 in the morning session.

New York Post: Interest rates getting a lot more interesting

Ben Bernanke has a big problem: The financial markets aren’t behaving themselves any more.

Top Tweets

Fri, 14 Jun 2013 04:00:00 GMT

Follow all our members with the FSC Majority twitter list and check out the highlights below.

Time to get Fannie and Freddie out of housing. Washington elites shouldn't encourage mortgages that people can't afford.
— Rep Robert Pittenger (@RepPittenger) June 12, 2013

House Passes Bipartisan Bill Providing Greater Certainty for American Job Creators http://t.co/Dp9Uc6YLKY
— Rep. Randy Hultgren (@RepHultgren) June 12, 2013

Always a pleasure! RT @RepDennyHeck Glad to work with @RepFitzpatrick on #HR2167. Bipartisanship is still possible in this town!
— Mike Fitzpatrick (@RepFitzpatrick) June 12, 2013

Getting ready to chair a @FinancialCmte Monetary Policy & Trade Subcommittee hearing on the Export-Import Bank & protecting taxpayers #tcot
— Rep. Bill Huizenga (@RepHuizenga) June 13, 2013

Only in America can you find a government that subsidizes housing more, so that We the People can get less. http://t.co/UCKxx4xeye
— Jeb Hensarling (@RepHensarling) June 12, 2013

Chairman Hensarling Announces Remainder of Committee’s June Schedule

Fri, 14 Jun 2013 04:00:00 GMT

Financial Services Committee Chairman Jeb Hensarling (R-TX) today announced the committee’s schedule of hearings and markups for the last two weeks of June.

The committee’s hearing schedule is tentative and will depend upon witness availability and other factors that may require changes. Therefore, each meeting will become official only when the hearing notice is distributed. Hearing notices can be found online at financialservices.house.gov.

Witnesses for each hearing will be announced at later dates. These hearings will take place in Room 2128 of the Rayburn House Office Building.

June 18 at 10 a.m. – The Financial Institutions and Consumer Credit Subcommittee will hold a hearing to examine how the Dodd-Frank Act hampers home ownership.

June 18 at 2 p.m. – The Oversight and Investigations Subcommittee will review and discuss spending by the Consumer Financial Protection Bureau.

June 19 at 10 a.m. – The Financial Services Committee will mark up four bills to relieve some of the federal regulatory burden on investors and job creators. The four bills were the subject of a subcommittee hearing in May: H.R. 1105, the Small Business Capital Access and Job Preservation Act; H.R. 1135, the Burdensome Data Collection Relief Act; H.R. 1564, the Audit Integrity and Job Protection Act; and H.R. 2374, to amend Section 913 of the Dodd-Frank Act.

June 26 at 10 a.m. – The Financial Services Committee will hear the perspectives of past and present Federal Reserve Bank presidents on the persistence of “Too Big to Fail” and the favorable treatment of financial institutions that are deemed “Too Big to Fail.”

June 26 at 2 p.m. – The Housing and Insurance Subcommittee will hold a hearing to examine the effectiveness of HUD’s Moving-to-Work program.

The Bigger Picture: Housing Subsidies and National Economies

Thu, 13 Jun 2013 04:00:00 GMT

A survey of housing finance in other countries sheds light on the distortion that government subsidies for housing can cause in national economies. Professors at New York University’s Stern School of Business have pointed out that one thing that Spain and the United States have in common is a “massive misallocation of their economy’s resources to construction. The oversupply is contributing to the substantial unemployment rate in Spain and the U.S.”

They further point out that the government’s programs to subsidize housing—which includes support through the GSEs—come with a significant price:

These programs come at a cost that is overlooked in the public debate: They make housing relatively cheaper and other goods relatively more expensive. This, in turn, leads to more consumption of housing, more investment in housing and construction, but less business investment and less consumption of non-housing goods and services. The consensus among economists is that investment in residential real estate is substantially less productive (at the margin) than is capital investment by businesses outside the real estate sector (e.g., plant, equipment, inventories), investment in social infrastructure capital (e.g., highways, bridges, airports, water and sewage systems), or human capital (e.g., more and better education and training). In other words, every additional dollar that is spent on residential construction instead of on business or other investment reduces economic growth.

And the distortion is substantial: “Careful research has found that all of the incentives for more house has led to a housing stock that is 30 percent larger than would be the case if all of the incentives were absent, and that U.S. GDP is 10 percent smaller than it could be.”

The international context offers a further cautionary lesson on the hazards of subsidizing housing and relying on residential construction as a source of national economic growth. The financial journalist Felix Salmon has contrasted the divergent paths that the Spanish and German economies have taken in recent years, and he traces that divergence to a difference in government housing policy:

The difference between Germany and Spain, when you get down to it, is that Germans work for companies which provide goods and services that the rest of the world wants. In doing so, they make good money, which they save up. That’s how they became rich. The Spanish, by contrast, have massive unemployment, and most of the country’s GDP growth in recent years has come from the construction industry. Their main export is tourism, if that counts as an export, and the main way that Spaniards have become rich in recent years is by sitting back and watching the value of their real estate grow exponentially.

The lesson that he draws from this contrast is that “the U.S., going forwards, needs to be less like Spain and more like Germany. So let’s not subsidize housing. That way lies fiscal disaster.”

Chairman Hensarling: Time to EXIT the EXIM

Thu, 13 Jun 2013 04:00:00 GMT

Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today's Monetary Policy & Trade Subcommittee hearing assessing reforms at the Export-Import Bank:

While I don’t often find myself in agreement with statements coming out of the Obama Administration, I have found occasion to agree with them on the market distorting power of the Export-Import Bank.

In a 2012 Treasury report to Congress the Obama Administration argued “There should be a level playing field for U.S. exporters, allowing them to compete based on the quality and price of their goods and services, rather than on the quality of any officially-supported financing.”

In addition, the President once described the Bank as “little more than a fund for corporate welfare.” I could not agree more.

The Bank picks winners and losers in our economy by providing loan guarantees, export credit insurance, working capital guarantees, and direct loans to American exporters and purchasers of U.S. exports.

Some of those winners have included the likes of Enron and Solyndra – hardly worthwhile investments on behalf of the American taxpayer. A review of the Bank’s top ten recipients includes companies like Boeing, General Electric and Caterpillar. I find it inconceivable that these companies would be in need of the government dole.

Put another way, the Bank ostensibly makes loans backed by taxpayers that the private sector is unwilling to make. If private creditors are unwilling to engage in these transactions, it begs the question why should the American taxpayer?

Some will argue that the Bank is self-sustaining, thus posing little risk to taxpayers. Unfortunately, we need not look past Fannie Mae and Freddie Mac, the National Flood Insurance Program, or the Federal Housing Administration to know that it is perhaps impossible to provide government backing at no risk to hardworking taxpayers.

I believe Ex-Im does pose risks to taxpayers and it could be doing more to mitigate those risks, many of which have been identified by the Inspector General. I want to thank the Inspector General and his team in particular for the important work that they have been doing to identify weaknesses in the Bank’s management of its portfolio.

By inserting political considerations into the market, the Bank’s activities do expose taxpayers to risks while producing a less efficient economy than would otherwise occur in a free market without the Bank’s interference.

I have long believed that many taxpayers feel that it is indeed time to EXIT the EXIM.

Media Buzz: That Time American Exceptionalism Isn’t So Exceptional

Thu, 13 Jun 2013 04:00:00 GMT

Contrary to the Fannie & Freddie defenders’ assertions that America’s unique GSE-model of housing finance is the “envy of the world,” yesterday’s full committee hearing found that the U.S. ranks only 17th in the world in terms of the rate of homeownership. Our 65% homeownership rate puts us behind Australia, Ireland, Spain, and the United Kingdom, all of which provide far less government support for home ownership than does the United States.

Here’s what they’re saying:

POLITICO: Fannie Mae, Freddie Mac move up on Congress’s to-do list

House Financial Services Committee Republicans have spent the past five years battering the administration for failing to produce a formal proposal without presenting one of their own. But under Chairman Jeb Hensarling (R-Texas), the committee is making progress on its own plans and is expected to introduce legislation that aims to reduce the government’s role in the housing market and scales down the FHA, which insures loans for lower-income and first-time home buyers.

HousingWire: Academics push for return to GSE-free mortgage finance

The majority of academics pointed out that while there is no ideal housing finance system, most developed countries have proven that private capital can fund the vast majority of demand for housing finance, as it did in this nation before the credit crisis. The comments should come as no surprise. Chair Jeb Hensarling (R-TX) is a noted conservative known for pushing limits on government involvement in the nation's financial actives.

Mortgage News Daily: Housing Finance Should Take Cues From Other Countries

According to Jeb Hensarling (R-TX), committee chairman, "The hearing will examine the mortgage finance systems of other countries to determine whether a sustainable system of housing finance is possible that does not rely on government-sponsored enterprises or government subsidies."

Fiscal Times: Are Fixed-Rate Government-Backed Mortgages Over?

In his opening statement, committee chairman Jeb Hensarling (R-TX) claimed that Fannie and Freddie had not “propelled” the county to home ownership “nirvana,” saying that the guarantees had increased home prices and pushed millions of Americans into loans that were bound for foreclosure. Fixed rate mortgages are a “gold standard” for some, but a “rusty tin standard” for others, he said.

“The U.S. is practically alone in the modern industrialized world in having GSEs,” Hensarling said.

It’s the rare example of a Republican claiming the United States should be more like Europe. A higher share of people in Singapore, Italy, the United Kingdom and Canada own homes than in the United States, where the rate is 65 percent, according to the Census Bureau.

Hensarling has made no secret of his desire to end the guarantee. At an April hearing, Hensarling said his first goal is to “gradually reduce and eventually eliminate the government guarantee of Fannie and Freddie.”

According to committee staff, “much work remains” on finalizing “sustainable” reforms for housing finance legislation that would eventually come out of the House.

Credit Union Times: Committee Considers Overseas Secondary Mortgage Market Solutions

The hearing was the 1oth so far this year for the full committee or subcommittees that have explored housing policy reform, Chairman Jeb Hensarling (R-Texas) said in his opening remarks.

"Notwithstanding the damage they have caused in their checkered past, many cannot conceive of a housing finance market without a government-guaranteed Fannie and Freddie,” Hensarling said.

He said that while the U.S. is practically alone in the modern industrialized world in having GSEs directly guarantee mortgage securities and the level of government subsidy and intervention in the housing market, the U.S. leads the world in foreclosure rates. “In other words, only in America can you find a government that subsidizes housing more, so that we the people can get less,” he said.

Hensarling has been publicly vocal with his desire to privatize at least part of the secondary mortgage market. In April, he said the first step to a sustainable housing policy would be the elimination of Fannie and Freddie government guarantees. Wednesday, he urged his fellow lawmakers to consider alternative models for GSEs.

“We shouldn’t preserve Fannie and Freddie’s federal guarantee just because we have done so in the past. We shouldn’t preserve the federal guarantee just because those who believe they profit from the status quo urge us to continue doing so,” he said.

Perhaps America’s exception to the norm in housing finance isn’t so exceptional.

Assessing the Madoff Ponzi and the Need for Regulatory Reform

Mon, 05 Jan 2009 19:00:00 GMT

FHA Oversight of Loan Originators

Fri, 09 Jan 2009 15:00:00 GMT

Priorities for the Next Administration: Use of TARP Funds under EESA

Tue, 13 Jan 2009 19:00:00 GMT

Financial Services Committee to Meet to Organize Committee Membership for the 111th Congress

Tue, 27 Jan 2009 15:00:00 GMT

Resolution Adopting the Rules of the Committee on Financial Services and Subcommittee Assignments

Tue, 27 Jan 2009 15:00:00 GMT

Promoting Bank Liquidity and Lending Through Deposit Insurance, Hope for Homeowners, and other Enhancements, 111-1

Tue, 03 Feb 2009 07:00:00 GMT

Assessing the Madoff Ponzi Scheme and Regulatory Failures, 111-2

Wed, 04 Feb 2009 14:00:00 GMT

H.R. 786, to make permanent the temporary increase in deposit insurance coverage, H.R. 787, to make improvements in the Hope for Homeowners Program, H.R. 788, to provide a safe harbor for mortgage servicers who engage in specified mortgage loan modifications, and for other purposes

Wed, 04 Feb 2009 19:00:00 GMT

An Examination of the Extraordinary Efforts by the Federal Reserve Bank to Provide Liquidity in the Current Financial Crisis, 111-3

Tue, 10 Feb 2009 18:00:00 GMT

TARP Accountability: Use of Federal Assistance by the First TARP Recipients, 111-4

Wed, 11 Feb 2009 15:00:00 GMT