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October 28, 2013
The House is in session Monday through Wednesday this week and will consider two Financial Services bills. Additionally, the committee will hold two 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 Tuesday at 10 a.m. the Full Committee will hear from Federal Housing Administration (FHA) Commissioner Carol Galante on the FHA's first-ever, $1.7 billion taxpayer-funded bailout. In the afternoon, at 3 p.m. the Financial Institutions and Consumer Credit Subcommittee will discuss legislative proposals addressing much needed reforms at the Consumer Financial Protection Bureau (CFPB). Also on Tuesday afternoon, H.R. 2374, the Retail Investor Protection Act will be considered on the House floor. Rep. Ann Wagner, the author of H.R. 2374, discussed her legislation in yesterday's Sunday Video Message. Rounding out the week on Wednesday the House is expected to consider H.R. 992, the Swaps Regulatory Improvement Act. Rep. Randy Hultgren explained H.R. 992 in a Sunday Video Message last month.
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October 28, 2013
Chairman Hensarling appeared on Fox Business Network earlier today to discuss tomorrow's Full Committee hearing on the $1.7 billion taxpayer-funded bailout the Federal Housing Administration (FHA) received at the end of September.
Hensarling on FHA's current condition:
"Well as you probably know, FHA is about to receive their first bailout ever: $1.7 billion basically for a government agency that for years told us they would never need a bailout." "Regrettably, Congress has been misled for years as to the true fiscal health of the FHA. And so we're going to have the director of the FHA, Carol Galante, before our committee tomorrow [to] try to get to the bottom of this and find out why aren't they using the tools available to them to make FHA more fiscally sound. Because a broke FHA does no one any good." "For years FHA has been making predictions about their fiscal sustainability and they have been consistently wrong and hugely wrong." "The bottom line is at a time when our nation has taken on more debt in the previous four years than in the first 200, I can visualize the national debt clock, which I keep going in our committee hearing room, it's just turning faster and faster, and now part of the problem is the FHA." Hensarling on FHA reform: "We have to have a sustainable housing policy in America. One that is sustainable for homeowners, so we don't put people in homes they can't afford to keep. One that is sustainable for taxpayers, so they never again have to engage in bailouts of Fannie and Freddie and FHA. And then finally [one that is] sustainable for our economy. We've got to get off this boom, bust, bailout cycle."
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October 27, 2013
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October 24, 2013
Update 11/18/13: The full committee will consider six bills to reform the CFPB on Wednesday.
Next week the Financial Institutions and Consumer Credit Subcommittee will hold a hearing to discuss legislative proposals to bring more accountability, reform and transparency to the Consumer Financial Protection Bureau (CFPB). As Chairman Hensarling has pointed out, the CFPB is arguably the single most powerful and least accountable federal agency in American history. Established by the Dodd-Frank Act, the CFPB's radical design is unique among financial and consumer regulators, including those responsible for consumer and investor protection. Not only does it evade the traditional system of checks and balances championed by James Madison in Federalist #51, it also lacks the internal controls Congress built into other regulatory agencies.
As the chart above illustrates, the CFPB escapes congressional budgetary oversight, obtaining its funding directly from the Federal Reserve instead of through the regular appropriations process. This end-run around Congress leaves no check to ensure the CFPB director is spending the people’s money effectively to promote consumer protection, much less efficiently in this time of runaway debt and deficits. In fact, we've already begun to see the result of this lack of oversight in the CFPB's egregious headquarters renovation costs.
Unaccountable to Congress, we see that the CFPB eludes even the power of the president. The bureau's director, once appointed and confirmed, can only be removed by the nation's chief executive for cause. And don't count on the president to enforce spending discipline or regulatory restraint at the CFPB; the bureau is neither subject to the Office of Management and Budget nor the Office of Information and Regulatory Affairs. The most glaring difference between the CFPB and other regulators in the chart above, however, is the bureau's shocking lack of judicial oversight. Section 1022 of the Dodd-Frank Act provides that where the bureau disagrees with any other agency about the meaning of a provision of a federal consumer financial law, a reviewing court must give deference to the bureau’s view under the Chevron Doctrine. Unfortunately, the absence of external checks and balances is only half the story at the CFPB. As the chart below shows, the CFPB is unaccountable even to itself since there is fundamentally no ‘it,’ no ‘they’ – only a he. Be he our credit czar, national nanny or benevolent financial product dictator, the CFPB director's authority is unilateral, unbridled and unparalleled. Without the check of a bipartisan commission, the director can declare virtually any financial product or service as ‘unfair’ or ‘abusive,’ at which point Americans will be denied that product or service even if they need it, understand it and want it.
Finally, the CFPB lacks a dedicated inspector general (IG) to root out waste, fraud and abuse at the bureau. Given the findings by the Housing and Urban Development IG we highlighted last month, taxpayers should be outraged by this complete lack of accountability, oversight and transparency in the way the CFPB spends the people's money. Defenders of this structure claim it's necessary to guarantee the CFPB's freedom to protect consumers without the influence or interference of politics. Agency independence, however, cannot come at the expense of public accountability. The bottom line is this: consumer protection is not having powerful government agencies 'nudge' consumers to make 'correct' choices in the belief they are incapable of making rational decisions for themselves. True consumer protection empowers consumers and respects their economic freedoms to make informed choices free from government interference and fiat.
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October 19, 2013
Forbes | Dodd-Frank’s Costs Will Be Paid For By Low-Income Bank Customers 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. NRO | 10 Questions for Janet Yellen 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. Housing Wire | Industry veteran challenges CFPB’s support of disparate impact 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.
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September 29, 2013
Congressman Randy Hultgren (Twitter | Facebook) delivers this week's Sunday Video Message on his legislation -- H.R. 992, the Swaps Regulatory Improvement Act. H.R. 992 will be considered on the House floor this week.
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September 28, 2013
Mercatus | The Myth of Deregulation and the Financial Crisis 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. Reuters | Fed official blasts White House handling of Bernanke succession 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 on Monday 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.
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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).
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September 24, 2013
Chairman Hensarling Op-Ed | September 24, 2013 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.
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September 22, 2013
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