Davidson Delivers Remarks at Hearing on the Current Mortgage Market and Housing Affordability
Washington,
May 17, 2023 -
Today, the House Financial Services Subcommittee on Housing and Insurance, led by Chairman Warren Davidson (OH-08), is holding a hearing entitled “The Current Mortgage Market: Undermining Housing Affordability with Politics.”
Watch Chairman Davidson’s opening remarks here.
Read Chairman Davidson’s opening remarks as prepared for delivery:
“Today’s hearing is entitled ‘The Current Mortgage Market: Undermining Housing Affordability with Politics.’ We will receive testimony from experts in the housing industry to discuss recent actions taken by the Federal Housing Finance Agency.
“Housing affordability is crucial to giving Americans the opportunity to build wealth through homeownership. Homeownership, in turn, paves the way for success in other aspects of life. In essence, housing affordability is a cornerstone for pursuing the American dream.
“The importance of maintaining a fair and undistorted mortgage market cannot be understated. Currently, residential consumer mortgage debt accounts for approximately $12 trillion dollars, which is spread across over 80 million mortgages. Of this $12 trillion, Fannie Mae and Freddie Mac (collectively known as the ‘Enterprises’) guarantee approximately 70 percent of the market.
“The FHFA, the entity charged with supervising the Enterprises and acting as their conservator, must be immune to political agendas, regardless of how much any administration pressures the agency.
“The FHFA therefore retains an exceptional degree of authority to impose rules that shape the entire mortgage market. It is this authority that brings us here today–in light of recent proposals to change the Loan-Level Price Adjustments (LLPAs) set by the FHFA and to be implemented by the Enterprises.
“When created in 2008, the LLPAs, also known as ‘guarantee fees,’ were put in place to allow the Enterprises to charge for the credit risk associated with mortgages they were guaranteeing. These fees are designed to cover the risk of standing behind the mortgages and to protect the solvency of the Enterprises.
“The recent changes to these fees that went into effect on May 1st, however, are alarming because they disproportionately increase fees for borrowers who have higher credit scores. Any way you slice it, prices will go up for consumers who have credit scores above 680, even for some of those with down payments of more than 30 percent of the loan. In other words, this pricing scheme would shift most of the cost burden to more creditworthy borrowers.
“The FHFA contends that the LLPA changes are attributed to higher capital standards imposed on the Enterprises. While this could justify some change in LLPAs, the change we saw imposed on May 1st clearly targeted new homebuyers with average credit scores and above.
“We’ve also heard the FHFA contends that interpreting the new LLPA chart must be coupled with mortgage insurance coverage to paint the full picture for consumers. While those with low credit scores and low down payments are certainly likely to pay more on mortgage insurance given the risk they present, this is an entirely different credit product whose fees cover the cost of the insurance itself. Mortgage insurance payments do not help the Enterprises to build capital or protect taxpayers from risk.
“Make no mistake, these changes to the LLPAs ultimately hurt housing affordability for the majority of homebuyers. Even if it’s a relatively small cost for some, it’s inappropriate to place the cost burden on Americans simply because there is a misguided notion that they can “afford it,” especially with the high cost of inflation that’s plaguing our economy.
“Now, to be fair, we’ve already seen the FHFA reverse course on some components of the LLPA changes, while also issuing a request for input on its method for determining LLPAs. These are positive but small steps in the right direction. While we welcome these changes, they are insufficient. This committee will ensure we have appropriate risk-based pricing and an efficient mortgage market. The witnesses here will be critical to providing insight on how we get that done.
“I thank our witnesses for their testimony today and look forward to the conversation.”
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