[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
H.R. 4110--FHA SINGLE FAMILY LOAN
LIMIT ADJUSTMENT ACT OF 2004
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
JUNE 16, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-93
U.S. GOVERNMENT PRINTING OFFICE
96-290 WASHINGTON : 2004
____________________________________________________________________________
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey CHRIS BELL, Texas
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Housing and Community Opportunity
ROBERT W. NEY, Ohio, Chairman
MARK GREEN, Wisconsin, Vice MAXINE WATERS, California
Chairman NYDIA M. VELAZQUEZ, New York
DOUG BEREUTER, Nebraska JULIA CARSON, Indiana
RICHARD H. BAKER, Louisiana BARBARA LEE, California
PETER T. KING, New York MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North BERNARD SANDERS, Vermont
Carolina MELVIN L. WATT, North Carolina
DOUG OSE, California WM. LACY CLAY, Missouri
PATRICK J. TOOMEY, Pennsylvania STEPHEN F. LYNCH, Massachusetts
CHRISTOPHER SHAYS, Connecticut BRAD MILLER, North Carolina
GARY G. MILLER, California DAVID SCOTT, Georgia
MELISSA A. HART, Pennsylvania ARTUR DAVIS, Alabama
PATRICK J. TIBERI, Ohio
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
C O N T E N T S
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Page
Hearing held on:
June 16, 2004................................................ 1
Appendix:
June 16, 2004................................................ 53
WITNESSES
Wednesday, June 16, 2004
Berson, David, Vice President and Chief Economist, Fannie Mae.... 29
Eberhardt, Jon, President-elect, California Association of
Mortgage Brokers............................................... 31
Hellyer, Glenn, Realtor, Yorba Linda, CA......................... 33
Kempner, Jonathan L., President and Chief Executive Officer,
Mortgage Bankers Association................................... 34
Nothaft, Frank E., Vice President and Chief Economist, Freddie
Mac............................................................ 36
Petrou, Basil N., Managing Partner, Federal Financial Analytics,
Inc............................................................ 38
Thompson, Barbara J., Executive Director, National Council of
State Housing Agencies......................................... 40
Weicher, Hon. John C., Assistant Secretary, Housing/Federal
Housing Commissioner, U.S. Department of Housing and Urban
Development.................................................... 11
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 54
Miller, Hon. Gary G.......................................... 56
Berson, David................................................ 59
Eberhardt, Jon............................................... 84
Hellyer, Glenn............................................... 89
Kempner, Jonathan L.......................................... 91
Nothaft, Frank E............................................. 96
Petrou, Basil N.............................................. 102
Thompson, Barbara J.......................................... 113
Weicher, Hon. John C......................................... 117
Additional Material Submitted for the Record
Ney, Hon. Robert W.:
America's Community Bankers, American Bankers Association,
Financial Services Roundtable and Independent Community
Bankers of America, letter, June 16, 2004.................. 122
Petrou, Basil N.:
Supplemental Material Submitted in Response to a Request of
Representative Barney Frank................................ 123
National Association of Home Builders, prepared statement........ 124
H.R. 4110--FHA SINGLE FAMILY LOAN
LIMIT ADJUSTMENT ACT OF 2004
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Wednesday, June 16, 2004
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:11 a.m., in
Room 2128, Rayburn House Office Building, Hon. Robert Ney
[chairman of the subcommittee] presiding.
Present: Representatives Ney, Miller of California, Tiberi,
Waters, Carson, Lee, Clay, Scott, Davis and Frank (ex officio).
Chairman Ney. [Presiding.] The hearing of the subcommittee
on H.R. 4110, entitled ``The FHA Single Family Loan'' will come
to order. Let me say for the record, without objection, all
members' opening statements will be made part of the record.
Hearing no objection, they will be made part of the record.
Today, the Subcommittee on Housing and Community
Opportunity will hold a legislative hearing on H.R. 4110,
entitled, ``The FHA Single Family Loan Limit Adjustment Act of
2004.'' This bill was introduced on April 1, 2004 by our
subcommittee member, Congressman Gary Miller of California. And
its primary cosponsor is the ranking member of the full
Committee on Financial Services, Congressman Barney Frank.
It is my hope that today's hearing will provide the
subcommittee with the variety of perspectives necessary to form
an opinion about the necessity of the legislation. I would like
to note that the issue of FHA loan limits, particularly on the
single family side, have always been a source of heated debate,
as we know in previous congresses.
In fact, the files will reveal testimony dating back to May
5 of 1994, when advocates, some of who are represented here
today, discussed the distinctive real estate markets of very
high-cost areas. Those areas have traditionally been recognized
as California, Hawaii, Alaska, New York and Massachusetts, to
name a few.
Over the past 10 years, Congress debated and later approved
a proposal to index the FHA loan limits and tie them to loan
limits established for the Federal Home Loan Mortgage
Corporation, also known of course as Freddie Mac. It was
clear--then and now--that linking the FHA loan limits to an
established index or process would keep FHA current with
relevant real estate markets.
Today, we are faced with similar challenges raised 10 years
ago. The central question is: how? And what is the proper role
of the federal government to encourage homeownership,
particularly among low-income families and other market
segments that have traditionally been locked out of access to
mortgage capital.
Real estate markets vary. In Morgan County, Ohio--that is
one of the 16 counties I represent--the average home price is
$93,000 for a single family dwelling unit. Yet in Licking
County, Ohio--also in the district--the average home price is
$173,000.
In Mr. Miller's 42nd congressional district in California,
Orange County represents average home values of $357,000. In
our ranking member, Ms. Waters' district, the subcommittee
ranking member, the average Los Angeles home value in the 35th
California district is $309,000.
On the other hand, Richardson County, Nebraska in Mr.
Bereuter's congressional district, is only $59,789. I mention
the variety of loan limits because, as you can tell, geography
most time dictates higher or lower average home values.
Our FHA loan limit for high-cost areas is capped at
$290,000 and the lowest FHA loan limit is $160,000. It is clear
that some areas are not being served, therefore, by FHA.
Whether the private sector is meeting those needs is
something this subcommittee will need to examine as we further
look at homeownership goals.
I am pleased to see today's witnesses. And I look forward
to hearing their views on this proposal.
It is important, I think, to note that there are a host of
policy questions that have to be addressed as we discuss the
merits of the legislation. Those questions or issues include
the following: what is the proper role of FHA?
Can FHA manage its risks and provide adequate oversight of
its underwriting standards? What is the role of the private
sector in encouraging low-income homeownership? And does H.R.
4110 complement or hinder that process?
Finally, given the limited resources of the federal
government, how can we limit as much as possible the federal
government's potential liability? So I am hopeful that today's
panelists will provide us with their perspective on these
issues.
During my chairmanship, I have attempted to include members
as much as possible in the planning and implementation of
housing hearings. As a result, I believe that the 22 housing
hearings we have held to date have been balanced and have led
to good legislation.
And finally, I want to thank my colleague and our ranking
member, Congresswoman Maxine Waters of California, for her
leadership and partnership, which has, I think, resulted in the
creation of very good legislation. I know we have many more
obstacles and challenges that we have to face.
I want to thank Chairman Oxley for his leadership; also our
ranking member, Barney Frank and the members, frankly, of the
Housing Subcommittee, both sides of the aisle. One thing I will
note--and then I will conclude my opening statement--but one
thing I think that has been good that we have all tried to do,
working together both sides of the aisle, is to take pieces of
legislation and try to move them forward, instead of maybe one
omnibus bill that never sees light of day. And I think that has
been one good approach.
And the other is to understand each other's areas in the
country, not just congressional districts, but regions, and the
wide variety of prices. And some of the housing needs in larger
states or larger cities is different and has to be addressed
differently.
So that is why I think this bill by Mr. Miller and
Congressman Barney Frank is an important piece of legislation.
With that, I will turn to our ranking member.
Ms. Waters. Thank you very much. Good morning, Mr.
Chairman. I would like to thank you for holding this hearing on
this bill that was offered by Congressman Gary Miller, with my
support and that of Congressman Frank, to increase the FHA
single family loan limits in high-cost areas.
I am pleased to be a cosponsor of H.R. 4110, which would
increase the single family loan limit to 100 percent of the
area median home price in each locality of the country. This
legislation will be tremendously helpful to residents of Los
Angeles, to residents of many other areas within my state of
California and to residents of high-cost areas throughout our
country.
Obviously, changing the formula from 95 percent of the
median home price also would benefit home buyers in every
community in our country. In many areas in states such as
California, New York, New Jersey, Maryland, Connecticut,
Pennsylvania and Massachusetts, the median home price far
extends the existing FHA loan limit of 87 percent of the
confirming loan limit, which today computes to $290,319.
The FHA loan limit for Los Angeles County is $290,319, the
highest permissible under current law. Twenty-three of
California's 58 counties, which have approximately 85 percent
of California's total population, are currently at this
$290,319 ceiling.
As Mr. Eberhardt, president elect of the California
Association of Mortgage Brokers, correctly observes in his
prepared testimony today, for many home buyers in counties like
Los Angeles, the FHA insured loan programs simply do not work.
The Los Angeles Times recently reported the Los Angeles County
median home price has jumped 20 percent in the past 12 months.
And the new median home price is now $379,000. Much of this
growth is in areas where first-time home buyers choose to
purchase.
Mr. Chairman, I believe that residents of high-cost areas
should have the same opportunity to access FHA insured
mortgages as those who live in other less expensive areas. In
my view, the local median home price, not an artificial
statutory ceiling on cost, should be the benchmark for
determining a person's eligibility for an FHA insured mortgage.
My constituents and all residents of high-cost areas who
are credit worthy should have the same right to obtain an FHA
insured mortgage as residents in other parts of the country. I
know that there are some who contend that the conventional
mortgage market and the GSEs are adequately serving high-cost
areas.
I simply do not agree with that. Whatever one's view on
this issue, I also see this problem as both a consumer
protection issue and an equal protection issue.
Why should someone seeking a mortgage in Los Angeles have
fewer mortgage products available simply because the person
resides in a high-cost area? There is no reason for residents
of high-cost areas to have fewer mortgage options.
As we consider this issue, it is important to remember that
we are not appropriating public funds to support FHA insured
mortgages. The taxpayers do not pay for the FHA program. And
they would not incur any costs if this change were enacted.
In fact, the Mutual Mortgage Insurance Fund currently has a
healthy surplus, as the premiums paid are more than adequate to
cover the costs of defaults under the program, nor would
adoption of this change in the law have any impact whatsoever
on the judgment of a lender as to the creditworthiness of any
proposed borrower.
Those who would be helped by this change in the law would
pay the premiums required by law for their mortgage insurance.
So the Mutual Mortgage Insurance Fund will be fully protected.
Consumers in high-cost areas would simply have more options
when they seek a mortgage. And they would receive the
competitive benefits that almost invariably result from an
increase in the choices available.
Mr. Chairman, it is also clear that when consumers have
more choices available to them, they are far less likely to end
up being victimized by a predatory lender.
Finally, Mr. Chairman, I note that Secretary Weicher
suggests in his prepared testimony that enactment of
legislation to raise FHA's mortgage limits may result in a need
for increased commitment authority. If the demand exists for
this type of financing, why shouldn't we be meeting it?
Mr. Chairman, FHA insured mortgages should be as available
to residents of high-cost areas as they are to persons in less
expensive parts of the country. We can and should raise the FHA
loan limits to 100 percent of an area's median home price and
thereby broaden the housing stock available to FHA borrowers in
many high-cost areas, while maintaining the FHA's focus on
first-time home buyers and the underserved.
I would urge my colleagues to join me in supporting H.R.
4110. And thanks again for scheduling this important hearing.
I look forward to the testimony of our witnesses. And I
yield back, if there is any balance of my time.
Chairman Ney. Thank you.
Ms. Waters. Thank you for your indulgence.
Chairman Ney. The gentlelady yields back the balance of her
time.
Mr. Miller?
Mr. Gary G. Miller of California. Thank you, Chairman Ney.
I want to thank you for convening this hearing today.
Mr. Frank and I have been talking about the situation with
FHA for over a year. And when we did the zero down payment for
FHA, we looked at the disparity amongst different states.
And Mrs. Waters, I want to thank you for cosponsoring this
bill. Mrs. Waters and I share a problem that FHA is just not
available in California. And some say, ``Well, why do we worry
about it? They will be setting a precedent.''
But I would like to point out that FHA currently adjusts
for those high-cost areas of Alaska, Guam, Hawaii and the
Virgin Islands. In those areas, the limits are $435,000. And
nobody is arguing that that is reasonable.
The problem is Alaska and Hawaii are $35,000 less in price
value than California. So if it makes sense in Hawaii and it
makes sense in Alaska, certainly it makes sense in California
and other high-cost areas.
Barney Frank's district is a great example. FHA is just not
available in his district.
And I was talking to Secretary Jackson about 3 weeks ago.
And we discussed the disparity we have in some of these states.
And at that point, he fully understood the concept that we need
to be able to make the programs available in these areas.
And some might say, ``Well, are we just supporting through
subsidies some program in these areas?'' But that is not the
case at all because if you look at the FHA program, it is
estimated that the federal government makes $1.73 off of every
$100 in FHA loan insurance.
So it is a program that pays for itself. In fact, the
federal government makes money off of it.
This is a first stage. We also believe--Mr. Frank and I--
that conforming loan limits need to be adjusted too. Freddie
and Fannie are having difficulty.
Yet we are working with the bankers to come up with a
reasonable limit to place conforming at because we understand
that the conventional marketplace has grown tremendously. But
how do you maintain a fair share of the marketplace for the
private sector in consideration for what Freddie and Fannie
might come into?
And I believe we can also come to reasonable amounts that
those can go to. We do understand that they just are not
working today because they are just far too low.
But this program that we have under FHA, people should not
be discriminated against just because of the area they live in.
And that is the fact we face today.
Just on the Republican side of the aisle--and I did not
bother to do the Democrat side because they are in the same
situation Mrs. Waters and I are in--but just on our side of the
aisle, Mr. Green's district in Door County, the median home
price is $198,000. FHA does not go above $160,000. In Vilas
County, it is $193,000; FHA stops at $160,000.
In Katherine Harris' DeSoto County, it is $211,000 median
income; FHA will go $191,000, which is closer.
But you get down to Walter Jones' district, in Currituck
County, it is $337,000 median income; it is $217,000 on FHA. In
Dare County, it is $297,000 median income; FHA stops at
$160,000. In Hyde County, it is $210,000; FHA stops at
$160,000.
In Peter King's district in Nassau, the median income is
$357,000 and FHA stops at $290,000, which is much closer. In
Doug Ose's district in Alpine County, it is almost $300,000
median income; FHA stops at $160,000.
And we can go on to Mr. Renzi. Chris Shays is really out of
line. His is $411,000 median income. FHA goes to $290,000
there.
In Patrick Tiberi's district in Delaware, it is $259,000.
FHA stops at $208,000.
So we have a program that both conservatives and liberals
alike support FHA because it is a program that has the
marketplace available for people who want to own a home. It
should be available to everybody, especially when it is a
program that does make money. It is not a subsidy to anybody.
Yet this program unintentionally, by the limits we have
placed on it, discriminates on individuals based on where they
live. And our concept is if it is a program that works and it
is a program that is available and it is a program, especially
with the new zero down payment law that is coming into effect,
that is going to make homeownership available to more and more
people throughout this nation, why in the world would we have a
program that is proven to work and we are expanding in many
areas and yet, we are going to say certain people because of
the area they live in are not going to be available to
participate in this program?
So I want to once again applaud Chairman Ney for allowing
this time to hear this bill. Maxine Waters, I want to thank you
for supporting this also. She realizes that California has a
tremendous problem with housing. We are about 10 percent under
the national average in homeownership.
Instead of 69 percent, we are at 59 percent. That is a
problem.
And when we can take a program like FHA that is proven to
work over the years, and it is a very solid program and it is a
good program, we can take that program and implement it in
areas that people are having difficulties getting into homes. I
see no reason why we would not do that and create opportunity
for everybody, instead of just opportunity for a few.
So I look forward to the testimony today.
And again, chairman, I thank you for holding this hearing.
And I yield back the balance of my time.
[The prepared statement of Hon. Gary G. Miller can be found
on page 56 in the appendix.]
Chairman Ney. Thank you.
The gentleman from Massachusetts?
Mr. Frank. Mr. Chairman, I join in thanking you for your
initiative here and the other initiatives you have been taking
in the housing area. We have not done some of the major things
I would like to do in some ways. But whenever we have been able
to act, we have made things better. And your leadership has
helped us, I think, significantly increase housing policy.
This one seems to be very simple. And sometimes, when you
advance something and you hear the arguments against it, you
have to reexamine your position.
But I must say that, having read the testimony that is not
supportive of this bill, I feel reinforced by it. It is a very
simple point.
The United States is not a ``one size fits all'' nation.
The policy of the FHA has been to deal with housing up to the
median. The theory is they are not going to help the upper
income people.
We have in this country today wide variances in that
median. For much of Massachusetts, the FHA might as well be in
Ukraine.
Now the question is: should we have a national program,
supported by the taxes and administered entirely by all the
people in the country, that simply is inapplicable in some
parts of the country? All we are saying is that it should
operate in California and Massachusetts and New York and
elsewhere in exactly the same fashion as it applies in the rest
of the country.
And the notion that you set a dollar limit and ignore
median income flies in the face of every intellectual principal
we know. Now I noticed Mr. Petrou says on page two of his
testimony, ``In my opinion, it is time that FHA became an
income targeted rather than a loan amount targeted housing
program.''
Frankly, our bill moves in that direction because what we
are saying is that one uniform loan limit throughout the
country does not make sense when you have these variances. And
in fact, what we are saying is that people who are at the
income level where they can pay the median price in a
particular locality should not be ruled out because of some
arbitrary national standard.
Now I should point out, of course, the FHA remains a loan
program and not an income targeted one. It is unfair to exclude
people from it.
But I will say if you were concerned about the efficacy of
that, but we are moving in that direction. The testimony of Mr.
Weicher said, ``It is unclear that this is the market the FHA
should serve.''
I must say to Mr. Weicher that I am surprised at his lack
of clarity after his many years in the housing business. My
guess is that he is determined, in this case, to retire
unclear.
But I do not understand what is fogging his vision, to be
honest. It is a fairly simple point.
And the market that we are asking the FHA to serve here, as
in almost every place else in the country, is the median house
price. When did we decide that serving people who are trying to
buy the median price in the community, that that is not the
market we want to serve?
I do note that he says that this may result in a need for
increased commitment authority. As Mr. Weicher knows, we
already need more commitment authority. And one of the things I
think we should be doing, Mr. Chairman, is asking our friends
on the Appropriations Committee and the rest of the
appropriations committees to stop putting the FHA on the kind
of yoyo where we keep running out of commitment authority.
The FHA is making money for this government. And there is
no reason for this kind of commitment authority to be cut back.
And on that point, I would note, by the way, that people
have said: might this squeeze out low-income borrowers? Exactly
the reverse is the case.
Loans at the upper level of what the FHA does make
significant amounts of money. The repayment rate is very high.
And they make a profit.
To the extent that the FHA is internally financial, that
the FHA surplus helps make a case for continued FHA work, this
makes it possible for us to do more for people at the lower
end, not less, because no one suggests that this will cost us.
And as a matter of fact, last year, when the gentleman from
California, Mr. Miller, and I collaborated on legislation,
helped strongly by the gentleman from Ohio, the gentlewoman
from California, the chairman and ranking members of this
committee and the full committee chairman.
And we got the bill enacted. We did this for FHA
multifamily. In fact, we were told by CBO that it was not going
to raise any money because nobody wanted to build any old
multifamily in those areas anyway, really a rather
extraordinarily foolish comment from CBO.
And of course, they turned out not to be the case. And now
we are told it has been so popular, it is putting a drain on
the commitment.
It cannot be that on the one hand, it is not going to be
used because nobody cares and on the other, that it is going to
cause a commitment drain. That is what they said about
multifamily.
So again, this is very simple. And I must say, I think the
arguments against it kind of strange.
The last issue is the Fannie-Freddie question. And we have
two different views here. One from the mortgage bankers, which
says it is okay to raise this--and I appreciate that--but do
not go above the conforming loan limit of Fannie and Freddie.
Freddie says, ``Yes, do this, but let us go up as well.''
Let me make a plea to people. We all know we are in the midst
of controversy over Fannie Mae and Freddie Mac. What the
gentleman from California and I tried to do here was to set
that controversy aside.
He and I do agree that there is a case for increasing their
loan limits as well. But we think there is a very clear-cut
equity case. There is an economic case. There is a
homeownership case.
People who are trying to buy a home at the median price in
Los Angeles and San Francisco and the rest of the California
and in Greater Boston and in New York and in Chicago should not
be turned away by the same federal program that would serve
people similarly situated everywhere else. That is all we are
asking.
The conforming loan limits of Fannie and Freddie, let's
cross that bridge when we get to it, probably now next year.
There will be issues there. But it should not--that controversy
should not--be allowed to stop Americans who pay taxes and
follow the law like anybody else and are as interested in
homeownership from being denied the same access to FHA in real
terms that people get elsewhere in the country.
Mr. Chairman, thank you for giving us a chance to have this
hearing.
Chairman Ney. Thank you.
The gentlelady from California?
Ms. Lee. Thank you, Mr. Chairman. And let me also thank you
and our ranking member, Maxine Waters, and Mr. Frank and Mr.
Miller for this bill and this very important hearing.
As you know, the median housing price in the San Francisco
Bay Area region, including my own district, is about $567,000.
That is $567,000.
So quite frankly, the American dream of homeownership is
quickly turning into a nightmare for many people in California.
As we push for more affordable, quality housing for all, the
issue of FHA loan accessibility in many of our communities
continues to be an issue.
So I just want to thank the sponsors of this bill. I hope
to join as a cosponsor of this bill.
I know that in areas that have not benefited from FHA
mortgages, this bill would certainly help families, individuals
become homeowners, which of course really is the primary
vehicle for the accumulation of wealth for sending one's
children to college, for establishing a small business; really,
for doing whatever an individual or family wants to do with
their life. And so I just want to thank you very much for this
bill.
And just know that we in the Bay Area look forward to the
movement of this bill because it certainly will help turn
things around in terms of homeownership for our families in
California. Thank you very much.
Chairman Ney. Thank the gentlelady.
Gentleman from Georgia, Mr. Scott?
Mr. Scott. Thank you very much, Mr. Chairman. Chairman Ney
and Ranking Member Waters, I want to thank you for holding this
very, very important hearing today regarding single family loan
adjustment act, H.R. 4110. I also want to thank the
distinguished panel of witnesses today for their testimony.
From July 2001 to July 2002, Georgia--my state--ranked
fourth in the nation in housing growth, both in the number of
homes built and the percentage increase in housing. Five of the
top housing growth counties in Georgia are located in my
suburban Atlanta district.
Part of this explosive growth is due to low interest rates
and part is due to the rapid expansion of the south and east
and northern suburbs of Atlanta. And while Atlanta is not
considered as high cost a city as compared to New York,
California and certainly in the State of Massachusetts, I am
concerned with our overall homeownership rates.
The good news is that for the first time ever, the majority
of low-income and moderate-income families are owning their
homes at a rate of 50.8 percent. However, compared to the
national average of 68.6 percent, minority families still have
some catching up to do. And this is particularly true with
African-American families.
Based upon the information recently presented before this
committee from both Fannie Mae and Freddie Mac, all of the
groups are moving along and increasing their homeownership
rates. But there is retrogression only among African-American
homeownership.
So we do have some catching up to do. With interest rates
at historical lows, I believe that we must push even harder to
help increase all homeownership and especially minority
homeownership and, of that, especially African-American
homeownership. And adjusting the FHA home mortgage rate limits
is a very important part of that equation.
And I want to commend Mr. Miller, Representative Frank and
Representative Waters for working on this very, very important
problem. And I would like very much to join with them as a
cosponsor of House Resolution 4110.
Mr. Chairman, given that June is indeed homeownership
month, it is most fitting that this committee, during this
month, is considering this very important policy to expand
affordable homeownership to more individuals.
Thank you very much.
Chairman Ney. Thank the gentleman.
Mr. Davis?
Mr. Davis. Thank you, Mr. Chairman. I will not use anywhere
near my four or five minutes, Mr. Secretary.
But sometimes when I sit here, every now and then you have
a sensation that you are feeling or hearing two ships passing
in the night who really do not have any connection with each
other. And I got a little bit of that sense after listening to
some of the opening statements.
I do not think any of us would take issue with the ranking
member's comments or with Ms. Lee's comments from California
about the need to obviously give FHA more capacity in high-
income areas or high median income areas like California and
parts of Massachusetts. I do not think there is a lot of
opposition to that proposition from anyone here today.
At the same time, it is certainly clear that nothing in
this legislation really speaks to the ultimate issue, which is
really finding ways to expand homeownership opportunities for
families who are nowhere near being able to afford houses in
this range. It is very much two ships passing in the night.
So what I hope you will talk about in your testimony today
or possibly in response to our questions is what we can do in
the related area. How do we find some way to deal with the
nagging homeownership gap that exists in this country between
not just African-Americans and Caucasians but between Latinos
and Caucasians and various other immigrant ethnic groups in the
country?
It strikes me that we are in need for some creativity in
this area. It strikes me that we are in need for some fresh
thinking in this area because we have these arguments and we
have these conversations, but it does not seem that we have
identified any significant manner to really allow FHA or the
thrust of the housing market in this country to reach out there
and sweep a lot of underserved members of the population.
So again, I do not think there is any opposition to this
bill or to the thrust of this bill. But I hope that we are able
to broaden the discussion a little bit to talk about what some
of your goals, the administration's goals might be in the
related area of narrowing the gap that Mr. Scott talked about.
And I yield back the balance of my time.
Chairman Ney. I want to thank the gentleman. And with that,
we will begin with Mr. Weicher, who is of course the assistant
secretary for housing, Federal Housing Commissioner, at the
U.S. Department of Housing and Urban Development. And he has
been in that post since June of 2001.
Prior to his appointment to HUD, Mr. Weicher was the
director of the urban policy studies at the Hudson Institute
and a member of the Millennium Housing Commission. Welcome. And
we will begin with your testimony.
STATEMENT OF HON. JOHN C. WEICHER, ASSISTANT SECRETARY,
HOUSING/FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
Mr. Weicher. Thank you. And good morning, Chairman Ney,
Ranking Member Waters and distinguished members of this
subcommittee and full committee. And thank you for inviting the
department to testify on the subject of H.R. 4110, the FHA
Single Family Loan Limit Adjustment Act of 2004.
We appreciate this opportunity to provide the subcommittee
with the department's comments on this proposed legislation. In
addition, on behalf of the administration, let me express our
thanks for the committee's unanimous approval 2 weeks ago of H.
R. 3755, the Zero Down Payment Act of 2004. In particular, let
me also thank the authors of the proposal under consideration
today, Representative Miller and Ranking Member Frank for their
support of our zero down payment initiative.
The Zero Down Payment Act, if enacted, will help at least
150,000 creditworthy American families buy their first home
each year. And HUD looks forward to continuing to work with the
committee to move the Zero Down Payment Act toward enactment.
The administration and the department are firmly committed
to helping more American families achieve the dream of
homeownership. Today, overall homeownership rates are at record
high levels; 68.6 percent of all American families, almost 72.7
million, own their own homes.
Minority homeownership, as Mr. Scott noted, is also at an
all-time record. For the first time ever, over half of all
minority families, 50.8 Percent, are now homeowners. That is
almost 14.9 million.
This is a good record, but we want to improve on it. There
remains a homeownership gap between non-Hispanic whites and
minorities.
So in June 2002, President Bush announced an aggressive
agenda to clear away the barriers to homeownership and add 5.5
million new minority homeowners by the end of the decade. Since
the President announced that goal, more than 1.5 million
minority families have moved into homes of their own.
Our private sector partners, including the organizations
testifying later this morning, have committed to increasing the
number of loans to low-income families. This includes pledges
to provide more than $1.1 trillion in mortgage purchases for
minority homebuyers this decade.
Congress has passed the American Dream Down Payment
Initiative, which the President signed last December,
authorizing $200 million a year to help homebuyers with down
payment and closing costs.
This administration has doubled the budget request for
housing counseling funds from $20 million to $40 million. And
Congress appropriated the funds. This year, we are asking for a
further increase to $45 million.
The federal government's primary vehicle for increasing
homeownership in America is the Federal Housing Administration,
now proudly celebrating its 70th anniversary. FHA extends
access to homeownership to individuals and families who lack
the savings, credit history or income to qualify for a
conventional mortgage.
FHA pioneered the 30-year, self-amortizing mortgage and has
insured 34 million mortgages during its history. In fiscal year
2003, FHA insured almost $150 billion in mortgages for 1.3
million families.
Over the last 3 years, FHA has taken a number of steps to
reduce barriers to homeownership. Our TOTAL Mortgage Scorecard
is now in place so we can better assess risk on individual
loans.
We have eliminated paper mortgage insurance certificates.
We have eliminated planned unit development approval
requirements. We have modified our minimum distance
requirements between private wells and sources of pollution for
existing properties, which is especially important in rural
areas.
We have simplified the mortgage calculation for streamlined
refinances. And we have provided a low-cost alternative to the
inspection requirements for new homes.
The goal of H.R. 4110, as we understand it, is to raise FHA
mortgage limits in high-cost areas. Currently, the FHA loan
limit is capped at 87 percent of the Freddie Mac limit in the
highest costs areas. This is about $290,000.
In other areas, there is a lower limit, either 95 percent
of the local median single family house price or 48 percent of
the Freddie Mac limit, whichever is greater.
While we recognize the worthy intention behind the
proposal, the department does not support H. R. 4110 at this
time. Our analysis indicates that the proposed changes to the
law would result in the following: the 87 percent limit in
high-cost areas would be removed; instead, the limit in these
areas would be 100 percent of the local area median. In all
other areas of the country, the limit would also be 100 percent
of the local area median.
The statutory floor limit of 48 percent of the conforming
limit would remain intact at about $160,000. As it is now,
nearly 90 percent of all U.S. counties are at the floor and
would not benefit from this legislation.
The effect of removing the cap would be to dramatically
increase the mortgage limits in some extremely high-cost areas
with more modest increases or no increases elsewhere.
Specifically, lifting the 87 percent limit would affect only a
few metropolitan areas, all either in California or in the
Northeast.
For example, the limit would rise to $568,000 in San
Francisco, $374,000 in New York and $433,000 in Boston. It is
unclear that this is the market that FHA should serve or that
is not being served by the conventional market or the GSEs.
Legislation to raise FHA's mortgage limits may result in a
need for increased commitment authority. For example, two
mortgages in San Francisco at the higher mortgage limit would
amount to $1.2 million and would require as much authority as
six mortgages in Columbus, Ohio, where I used to teach.
FHA could expend more insurance authority that serve fewer
households under this proposal.
This concludes my statement, Mr. Chairman. And I thank the
subcommittee for the opportunity to discuss this proposed
legislation.
[The prepared statement of Hon. John C. Weicher can be
found on page 117 in the appendix.]
Chairman Ney. I want to thank the assistant secretary for
your testimony. The question I have is on the written, it says,
``It is unclear that this is the market the Federal Housing
Administration should serve and that it is unserved by the
conventional market or government sponsored enterprises.''
So I just want to ask you: who do you think the FHA should
serve, number one? And number two, what should be their role?
Mr. Weicher. Our market, our public purpose, is to serve
first-time homebuyers. And that tends to mean young families,
young first-time homebuyers.
Eighty percent of the business we do is first-time home
buyers. Forty percent of that business is minority households.
We are there to help families that are on the edge of
homeownership to buy a home and to buy a home sooner than they
otherwise would and get started on the path to building assets
and establishing a solid place in our society. And we do serve
that purpose and we serve it well.
Chairman Ney. Wouldn't this bill help you? First of all,
the first-time homebuyers, that is a rule within the
department, right? It is not a statute.
Mr. Weicher. It is neither. But we appeal to first-time
homebuyers. Eighty percent of our business is first-time
homebuyers.
But if someone buying another home, already a homeowner
buying another home, wanted FHA insurance, needed FHA
insurance, was buying a home where the loan was within the FHA
limit in that area, then we would in fact insure that loan.
Someone buying a home under $160,000 in Morgan County, buying a
second home, a home for the second time, would qualify if they
would choose to.
They might not need it because they might have a higher
down payment. They might have improved their credit history.
But the option is there.
Chairman Ney. Taking into account that you do obviously
tend to help the first-time homebuyer--and it does not matter
whether it is a statute or not or regulation or how it just
falls into place--but then how do you help those first-time
homebuyers in California or New York or Massachusetts? And
wouldn't this bill give the ability to help them more? Or would
it?
Mr. Weicher. Well, I think with the limits that I mentioned
that would apply in some of these high-cost areas, in San
Francisco at the ceiling of $568,000, you would need an income
of about $115,000 to buy that home. There are not very many
first-time homebuyers in that income range anywhere. At
$115,000, you are well up in the income distribution for the
United States.
In Boston, the income that you would need to afford a
$433,000 home would be something like $85,000. Again, that is
well up in the income distribution. And there are not very many
families buying a first home in that situation.
Chairman Ney. The gentleman from Georgia, Mr. Scott?
Mr. Scott. Mr. Weicher, would increasing the FHA loan
ceiling limit the ability to insure mortgages in other places
in the country?
Mr. Weicher. It would affect it if we ran into our
commitment authority limit, which Ms. Waters and Mr. Frank
referred to. And as Mr. Frank said, that is a matter that is
under the jurisdiction of the appropriations committees.
And last year, we ran into that limit in the multifamily
programs and had to suspend operations twice. And we almost ran
into the limit on the single family programs.
Given the fact that there is a commitment authority limit,
then there is always the possibility that we will reach that
limit. And we have reached it a couple of times in the last 5
years.
At this point in this year, we are not close to reaching
the single family limit. But there would be no guarantee that
we would avoid it, avoid reaching that limit in future years,
in boom years.
Mr. Scott. So your opposition to this is based on what?
What evidence?
Mr. Weicher. Well, we have had the experience of having to
shut down access to FHA programs because we have reached
commitment authority limits in the past. And that is a matter
of concern.
And, as I was saying in response to the chairman's
question, the income levels needed to afford a home with FHA
insurance, at the ceilings that this legislation would
establish in many areas, are quite high and not really, in our
judgment, are we reaching people who need FHA to buy a first
home. At $85,000 or $115,000, we are well up in the income
distribution.
Mr. Scott. How do you address the concerns raised by Mr.
Frank and Mr. Miller in terms of the inequities of the playing
fields, especially facing states like Massachusetts and
California? How do we handle that? How do we address that, if
not through this bill?
Mr. Weicher. Well, I think the problem is that we have some
areas which have extremely high home prices. And those areas
are not really markets in which first-time homebuyers are
active.
They are active in other parts of those metropolitan areas.
They are not in San Francisco, particularly, but they are in
other areas in the Bay Area, in Oakland and so forth, where
prices are lower.
Mr. Scott. All right. Thank you, Mr. Chairman.
Chairman Ney. Mr. Miller?
Mr. Gary G. Miller of California. Thank you, Mr. Chairman.
Mr. Weicher, I have great respect for you. And some of my
comments I am going to make are not an attack. I see things a
little differently, in some fashion.
I have been a developer for well over 30 years and a
councilman and a mayor, state assemblyman and now a
congressman. And housing is a passion for me.
And we have talked about the regulatory barriers that have
really impacted homeownership in this country. And our goal is
to expand homeownership.
And government's role, in many cases, is just to provide
opportunity, not guarantees or subsidies in my mind, but to
provide opportunity. The fact is that things have changed in
this nation.
There is staff who are sitting behind me now that were able
to buy a home on the Hill here in years past just because FHA
was available to them. That no longer exists on the Hill today,
as you know, they are not available because the housing has
increased in price range so much that FHA does them no good.
And I look at the housing industry as a huge puzzle. And it
is made up of many parts--the lenders, bankers, mortgage
brokers, mortgage bankers, realtors, title companies. And when
we deal with risk and other things, we look and say: how do we
make all these things work? How does it come together?
And you made one statement that kind of opened my eyes. You
talked about the commitment authority limits.
And you said that this year, we have not reached that for
single family, but in a boom year--if it got any boomier, I do
not know if you could be able to get realtors and builders down
to the ground because they think this is wonderful. These are
boom years.
And even during boom years, we are having a problem. Things
have just changed entirely. If you look and you say that you do
not know that this is necessary in some areas, well, it has
been necessary in Alaska, Hawaii, Guam and the Virgin Islands.
And it has worked in those areas. And I do not know why it
will not work in the other areas that are being underserved
today.
And we have a group out there in this nation I call the
``new homeless.'' And that is a husband and wife, they are
working real hard. And they might just be out of school. And
the wife is a schoolteacher and the husband is a fireman or a
police officer.
And combined income, they are somewhere in the $80,000
range. And they are in their early 20s and they are out wanting
to buy a house. And the fact is that in a little place called
Diamond Bar, California, where I am from, which most people do
not think is a real elite, exclusive area--I think it is a very
nice community--but you are paying over $500,000 for a home.
So if you can find a home out there for $400,000 that these
people would love to be able to buy, that they can qualify for
in the $80,000 price range, FHA is not available to them. Zero
down payment is not available to them through the program.
I am not sure what market FHA is trying to serve, based on
some of the statements. Because if we are trying to serve
first-time homebuyers and that is the goal, a homebuyer should
not be discriminated against because they want to own a home in
the community they grew up in.
And the fact of life is beyond their control, the housing
industry has kept this economy fairly strong in recent years
during a recession because it has boomed. And it has put people
to work. They pay taxes. And the governments are operating
because I believe the backbone of this country in the last few
years has been the housing industry and groups associated with
it.
So to tell somebody that we think a program should apply to
first-time homeowners, yet we are going to discriminate against
you because of where you want to live--that you want to live in
Maxine Waters' district or you want to live in Oakland in
Barbara Lee's district or you want to live in Orange County or
L.A. County in my district--we are actually telling those
first-time homebuyers that we have a program that obviously we
believe works because we continue it, yet we are not going to
make it available to you because you happen to have been raised
in an area that the costs have gone so high that you do not
qualify for a program that is proven to work.
And when we talk about commitment on authority for limits,
I always support those type of things. But you know, it might
put a larger smile on my face if those limits were raised and
it benefited the district I represent too.
And I know Mr. Frank has a similar feeling. He has no
problem with raising those limits.
But it would be nice, when we raise those limits, if the
people we represent, who are hardworking people and many first-
time homebuyers, it is just the home they are trying to buy the
first time is more expensive than they would like to pay. Yet
they are stuck with a situation that they have no option but to
pay it if they want to live in the community that they were
raised in, that they understand, that they know the people,
that their friends live in, their family lives in.
And so I guess my main question: if truly FHA's goal is to
help first-time homebuyers and that is their primary focus and
then expanding it past there, how in the world can we say that
a program that the government makes money on, is proven to
work, if it works in Hawaii and Alaska, why will it not work in
New York, in Boston and in California?
Mr. Weicher. Let me start with your first point, Mr.
Miller, about the boom years.
Mr. Gary G. Miller of California. And many want to see
these boom years continue, so I think they are that good.
Mr. Weicher. We certainly want them to continue too. I do
not think there is any disagreement there at all.
The commitment authority limit, we will not reach the
single family commitment authority limit this year for two
reasons. One is last year, Congress did raise that limit very
sharply for this year, compared to what it was the year before.
And second of all, the refinancing boom has finally lost
some steam, as rates have risen a little bit lately. And that
makes a difference.
But last year, we came very close. We came very close to
having to close down the single family programs in late summer
at a time when it would not have been possible for Congress to
increase our commitment authority limit. It does happen.
Chairman Ney. Time is expired.
Mr. Gary G. Miller of California. Thank you, Mr. Chairman.
I will come back to this.
Chairman Ney. We will come back to it.
The gentleman from Massachusetts, Mr. Frank?
Mr. Frank. To begin where you just ended, why does the
department not ask for enough commitment authority so you have
a margin of error? There is no downside whatsoever, it seems to
me, to being somewhat over.
Have you done that? Why not ask for enough so that you will
not be in danger of running out?
Mr. Weicher. It is always a projection, Mr. Frank, of what
commitment authority will be needed for a year that starts 8
months after the President's budget.
Mr. Frank. Once you start, you have not been willing enough
to ask for extensions. Is there a downside if you ask for more
commitment authority than is needed and get more commitment
authority than is needed?
Mr. Weicher. There is no budgetary downside at all.
Mr. Frank. Is there any other downside? Does it hurt your
feelings? What is the downside?
Mr. Weicher. No, I----
Mr. Frank. Then there is no downside.
Mr. Weicher. Not that I see.
Mr. Frank. Okay, given that there is--I am sorry, finish.
Mr. Weicher. I am sorry, if I could respond. It always
takes time for an action when we see a problem.
Mr. Frank. I agree.
Mr. Weicher. And last year, we did in fact, as you know,
have to shut down the GSRI fund.
Mr. Frank. Let me say two things. First of all, since there
is no downside, overshoot. There is no downside, so why not ask
for enough so it is very, very unlikely.
Secondly, I agree that the Appropriations Committee was too
slow and we should push for it. But if in fact you have enough
commitment, the key policy point is that giving you commitment
authority that would handle any increase that would result in
this bill has no downside, correct?
Mr. Weicher. That is right.
Mr. Frank. Okay. So then the question is this: given that--
and that is the only possible thing, you say. And the gentleman
from Alabama said we want to help low-income people. I agree.
I spend most of my time in this committee trying to help
lower-income people get housing. So I have no apology to make
about now being for a bill that focuses only on this.
I would like to have an omnibus bill. We do not have one.
And is there anything in this bill, if we can resolve the
commitment authority issue by you asking for more than enough,
with no downside, is there anything in this bill that would
impinge on our ability to help lower-income people?
Mr. Weicher. There is not anything in the bill which would
limit that. It would simply depend on the willingness of our
lenders who make the loans.
Mr. Frank. I understand that. But would the willingness of
your lenders to make loans to people at the lower end be
somehow negatively affected by this?
Mr. Weicher. I doubt it, Mr. Frank.
Mr. Frank. So do I. Good.
Mr. Weicher. But I do hear that question. I do hear that
comment being raised from time to time when loan limits----
Mr. Frank. Well, you do not believe it and I do not believe
it. So when we find somebody who does believe it, we will talk
to him. Because I think it becomes very clear.
Nothing in this bill has any negative effect on lower-
income people. And as a matter of fact, to the extent that it
affects them, it can help them.
Because if we go forward with this with enough commitment
authority--and there is no good reason not to have a good
commitment authority--the FHA surplus will go up and the FHA
will be in better shape. This improves the status of the FHA.
So then I want to respond to one point you made. Because
all we are asking for is that people who are trying to buy a
median house price anywhere in the country get the same.
If somebody came in and said the fair market value for
Section 8 should be the same dollar amount everywhere in the
country, we would all be outraged because we recognize that
housing prices differ. In fact, many of our housing programs
take into account this differential.
I mean, realtors tell me: location, location, location--
except where the FHA is concerned? The FHA is going to ignore
location.
All we are asking for, again, is the median price. Now I
thought I heard you tell the gentleman from Georgia or that
your response was that there will be certain areas of the
country where first-time homebuyers will just have to be shut
out. I find that really a very inappropriate response.
You say, ``Well, in parts of Massachusetts, parts of
California, we just will not be able to accommodate first-time
homebuyers.'' I do not want to tell people--you know, we are
talking about Boston.
We are talking about big cities. We are talking about
places where minorities live. What is the justification for
saying we are just going to have to accept the fact that you
will not have first-time homebuyers there when we could aid
them with no downside?
Mr. Weicher. My point in response to Mr. Scott was that the
income levels needed to support the ceilings in the highest-
cost areas were very high for any family at that income level
to really be a first-time homebuyer; $115,000 would be what you
would need in San Francisco. And that is way up in the income
distribution for the United States and way up in the income
distribution in San Francisco.
Mr. Frank. It is. And these are, to some extent, where the
median house prices are, the median income is somewhat higher.
It is not always the same. But why do we then walk away from
them?
I mean, what is your reason for saying that people at that
median should not be allowed to take advantage of FHA if they
want to buy a median house price when it has no negative--I
guess, that is? What negative effects will this have from a
public policy standpoint?
Mr. Weicher. Our point is that there are----
Mr. Frank. I did not ask for your point, Dr. Weicher. You
had a chance to make your statement. I am asking my question:
what negative effects would raising the FHA limit to the median
have, from the public policy standpoint?
Mr. Weicher. The public purpose of FHA is to help----
Mr. Frank. Okay, let me try one more time. I am not asking
you for your lecture on the public purpose of FHA. You have
said that. I am asking you what negative effects this would
have.
If the answer is none, then I want you to say ``none'' and
I will be through.
Mr. Weicher. We are here to serve the first-time homebuyer.
And the first-time homebuyer is seldom in this income----
Mr. Frank. Okay, I understand that. Some first-time
homebuyers will not be helped by this. We will not reduce the
incidence of firefighters. It will probably do very little to
cure public health diseases. I understand that.
This is a limited bill that does limited things. If I had
more time, I could join with you in a list of things it will
not do and does not pretend to do.
Now would you please, I am asking you as a personal favor,
answer my question. What negative effects from the public
policy standpoint would this bill have?
Now a negative effect is not the fact that it does not do
what it does not claim to do. A negative effect is something
that it does that would not be useful. Please tell me if there
are any negative effects that will result from passing this
bill from the public policy standpoint.
Mr. Weicher. Our----
Mr. Frank. That is not a hard question. If you want to
evade the question----
Mr. Weicher. Let me try again. FHA is here to do a job that
the private sector does not.
Mr. Frank. Oh, you know better than that. I understand
that.
Mr. Weicher. No, sir. I did not finish my answer.
Mr. Frank. Excuse me. Your answer is----
Mr. Weicher. FHA is here to do a job that the private
sector does not do. The private sector does serve families with
incomes of $85,000----
Mr. Frank. And what negative effects? I mean, you know
better than this. What game are you playing here? If the answer
is none, if you are saying it does not do anything negative,
but we do not want to do it because that is not the purpose of
the FHA, kind of teleological, glad.
But I am asking you a question that I really would like you
to answer honestly. I am really getting frustrated here.
What negative effect is there? The fact that the FHA has
this purpose or that purpose, you know that is not a negative
effect. What negative effects would it have, if any?
Mr. Weicher. Mr. Frank, I am sorry. I have tried to answer
the question.
Mr. Frank. No, you have not. Do you know what a negative
effect is? A negative effect is something that makes something
worse. How does this make a situation worse? What would be
worse in terms of public policy if we pass this bill, in terms
of societal effect?
Mr. Weicher. We do not think FHA should be serving markets
that are served by the private sector.
Mr. Frank. I understand that.
Mr. Weicher. Because we have an advantage because we have
the full faith and credit of the government of the United
States.
Mr. Frank. So this would be unfair to the private sector,
is that what you are saying?
Mr. Weicher. Yes.
Mr. Frank. Why didn't you say that first? You think that
the reason not to do this is it would be unfair to the private
sector for the FHA to cover median prices in this regard?
Chairman Ney. With this point, the time has expired. But we
are going to get to Mr. Davis and then back, if you would like
to----
Mr. Frank. He will not answer it in the next five minutes.
But I understand that we cannot have the median house price in
high-cost areas because you think it would be unfair to the
private sector?
Mr. Weicher. Yes.
Chairman Ney. Mr. Davis?
Mr. Davis. Mr. Weicher, let me shift direction a little
bit, but not too far from the thrust of what Mr. Frank is
asking you. Your assertion, as I understand it in response to
Mr. Miller's comments and Mr. Frank's comments, was something
to the effect that if we expand the limit from 87 percent to
100 percent, that we frankly will not really be impacting a
whole lot of people; that the FHA somehow does not really have
the ability, as a general rule, to really serve a San Francisco
or a Boston because as a practical matter, the cost in those
markets is out of the range of the average FHA customer. That I
understand to be your point.
Let me try to introduce a little bit of evidence into the
abstract argument that we are having here. The 87 percent
level--and I am not a mathematician--but if you look at San
Francisco, if 100 percent level would be $500,000 or if the
median price is $568,200, 87 percent of that would be somewhere
around $540,000 or $530,000.
Right now, does the FHA play in the San Francisco market?
Does the FHA play in the New York market where 87 percent would
be presumably around $340,000 and Boston where 87 percent would
be around $410,000? Does the FHA currently play in those
markets?
Mr. Weicher. We do not do very much business in those
markets because the limit, as----
Mr. Davis. But do you do any business in those markets?
Mr. Weicher. A little.
Mr. Davis. Okay, so if you do any business in those
markets, then wouldn't it be obvious--I mean, it seems that Mr.
Frank's point would probably be if you do any business in those
markets, you will do a little bit more business in those
markets if the cap goes up. So doesn't that serve the ultimate
public policy purpose of the FHA?
Mr. Weicher. I think the point is the current limit in all
of those areas is $290,000 because that is the national cap. We
do not go over $290,000 anywhere.
And in those markets, we do a little bit of business at
$290,000. Going to $568,000 or $374,000 is a big increase. It
is not simply moving up to the national conforming loan limit
of $333,000. That, I think, is the answer.
It is not 87 percent of the current median----
Mr. Davis. I see.
Mr. Weicher.--when you get above $290,000.
Mr. Davis. Well, let me ask this question then. What I
expected you to say to Mr. Frank was that the negative impact
or the perverse impact of this change is that it would somehow
limit the FHA's ability to serve areas that are very much
within the intended coverage--low-income areas or areas that
are generally underserved by the market that exists--whether it
is the GSEs or the regular market.
That is the answer I would have expected you to give to Mr.
Frank's question. So I guess I want to spend a little bit of
time figuring out why you did not give that answer.
You have 100----
Mr. Frank. Will the gentleman yield briefly?
Mr. Davis. Not until I finish the round of questions. You
have $165 billion in last year's fiscal year for FHA
commitment. Is that about right? Is that the number in your
opening statement, around $165 billion?
All right. Now it seemed that your initial point was
because the number is a finite number--let's say it goes up to
$190 billion this year; it will be a finite number--if the FHA
is having to make more of a commitment in upper income areas, I
suppose logically one could ask that that would mean that
somewhere you are going to have to lessen the commitment. Does
that mean that you are going to have to say, ``I am going to
take something out of this pot to put it over in this pot?"
That is not the answer that you gave. So I am trying to see
what it is that I am missing about the way this program works.
Right now, there are no regional quotas in the way the FHA
administers its program, right? There are no State by State
quotas?
Mr. Weicher. That is correct.
Mr. Davis. So what I am trying to do is to understand your
position and understand the way the program works. If you have
a finite number--$190 billion--and the FHA is having to make a
larger commitment in high-income areas, why doesn't that
somehow pull from the pot of money that is available in more
traditional areas?
Mr. Weicher. We have a national commitment authority. But
within that limit, we are a demand program. If a mortgage meets
our standards, we approve it. We approve them in the order in
which they come in.
The commitment authority limit only bites when we get close
to it late in the fiscal year. If the commitment authority
level were high enough, as Mr. Frank said and as I said also,
this would not be a problem.
Mr. Davis. Is there a way that you could--I am going to cut
you off for a second--is there a way that you can carve out a
portion of the commitment level that will meet underserved
areas specifically or low-income areas specifically? So that if
there is any additional amount of money that has to be put on
the table, it is only coming from what is serving a San
Francisco or a Boston already?
The number you give in your opening statement is that two
mortgages in California might amount to six mortgages in Ohio.
I understand that. Not all parts of Ohio are underserved areas.
If the goal of the FHA is to target a particular class of
individuals, those whom you have defined as those outside the
reach of the normal market, is there any way that a carve out
could be set up or that some kind of ceilings could be set up
within the FHA to guarantee that you are not pulling from that
pool, but you are only pulling from the pool in relatively
high-income areas anyway?
Mr. Weicher. Not without substantial resources being
devoted to trying to estimate demand in each market and manage
the program within each market on a day-to-day basis. We do not
have those resources. You all have not appropriated those
resources to us and we have not asked for those resources.
Mr. Davis. Let me ask this question. Going back the last 3
or 4 fiscal years--I guess the whole life of the Bush
Administration--how many times has the FHA exceeded its
commitment level in the last 4 years?
Mr. Weicher. Twice on the GSRI fund, which includes
condominiums and home equity conversion mortgages. It includes
some single family mortgages. And we have come very close once
in the Mutual Mortgage Insurance Fund, which is the basic
homeownership program.
Mr. Davis. And did you respond to that gap by coming back
to Congress and asking for a supplemental appropriation?
Mr. Weicher. Yes.
Mr. Davis. Okay.
Mr. Weicher. And we received it in one case and not in
others.
Mr. Davis. Okay.
Mr. Weicher. In the single family case, we managed to avoid
it.
Mr. Davis. In the 4 years, the 4 fiscal years of the Bush
Administration, has the FHA asked for a larger commitment level
each year?
Mr. Weicher. Yes, I believe that is accurate. We have two
programs. And I believe that is accurate. We have never asked
for a reduction. I might have to answer the specifics for the
record.
Mr. Davis. Okay. Well, that is not that hard a question, I
mean whether or not the FHA has sought a higher number. You
just happen to not know that.
Mr. Weicher. I just do not have the four-year numbers in
mind.
Mr. Davis. Okay. All right. I think my time is expired.
Mr. Frank. Mr. Chairman?
Chairman Ney. What I am going to do, if the gentleman could
yield, I am going to come back to Mr. Miller and another round
over here and then we will move on to panel two.
Mr. Miller?
Mr. Gary G. Miller of California. Okay, thank you, Mr.
Chairman.
Let us make a few assumptions: first of all, that we will
acknowledge the buyer has to qualify for a loan. So it does not
matter what the person wants to buy. If it is $400,000,
$435,000, $500,000, you have to qualify. So we will set that
aside.
And I think I can speak for Mr. Frank and I and probably
every member of this committee, we will do everything in our
power to make sure that if this becomes law, that we are going
to give you more authority to be able to accomplish that. So
let's set that aside too as an issue.
I guess the question is: how will the current FHA program
be negatively impacted if this bill becomes law?
Mr. Weicher. I do not think the program will be negatively
impacted.
Mr. Gary G. Miller of California. Thank you. I think that
is what Mr. Frank was trying to get to. And we agree with you.
We do not think it will be either.
I mean, we understand that if we do not set parameters,
there could be things that go wrong. But if we say that the
buyer has to qualify, we have to provide authority and if that
happens, the FHA program really will not be impacted in a
negative fashion.
The problem we face and I guess the reason this bill is
here, if you take the average increases in home prices in not
high-cost areas throughout this nation, from 1992 to 2002, it
was 52.7 percent or 4.3 percent annually. And based on those
type of increases, I am sure that FHA works in many of those
areas. Not a problem.
The problem we face is in the areas we are talking about,
in high-cost areas--Mr. Frank's State and my State, New York
and some others and many of the members of this committee, if
you look at individual counties within their states--the home
prices have increased by 169.7 percent or 10.4 percent
annually. That is the problem.
It is not that the program does not work. It is not that
Congress is not trying to provide authority. It is not that we
would ever assume anybody should be made a loan who does not
quality for a loan.
The fact is that if you are willing to buy entry level
housing in these high-cost areas, you did not increase 4.3
percent in costs over the 10 year period. You increased 10.4
percent.
That puts those people who want to be first-time homebuyers
out of the equation. And that is something that is absolutely
beyond their control. I mean, if it could be controlled, they
would control it.
If the local housing market could control it, they would
control it. The problem is with the regulatory barriers, the
demands on these areas, the basic costs associated with the
Endangered Species Act in California that we have that really
impacts our marketplace and other things, we have created a
situation or the situation has been created whereby a good
program--FHA--is just not available because of change.
And that is what we are trying to do here. We are saying
things have changed. Now we need to change to accommodate that
change.
We are not trying to do something that is unreasonable. We
are not trying to create an impact on the program where it will
not be solvent in the coming years.
We are saying that things have changed. And when you go to
Congress and you say we need to increase authority for the
amount you can lend, it is based on change. And we can say,
based on this bill, how that will change the situation to
expand the program to create equality and equity throughout
this nation for first-time homebuyers. It is going to take more
authority.
I do not think you are going to have a problem at all
having Congress come back and say, ``We are going to give you
more authority.'' The problem is if we do not change things, if
we do not look realistically at this, if we do not look
realistically at conforming loan limits--and understand that
the private sector, the bankers and stuff, have to be
safeguarded on the conventional market--if we do not start
looking at some of these things, the situation we have in this
country for housing is going to become worse.
The goal is to provide available, ready financing that
makes sense to people. The zero down payment that Mr. Tiberi
introduced, I think it makes a lot of sense.
I am just envious. I am envious. And even Mr. Tiberi is
going to be envious when he looks at the fact that Delaware
County, the median income--the median home price is $259,000
and FHA only goes to $208,000, so that will not even work in
his district and he is the author of the bill.
So we are trying to say we do not want to do anything that
has a negative, detrimental impact on FHA. I do not want to do
that. That is not my goal. I am not trying to create a subsidy.
I am not trying to create anything other than a program that
works.
And I believe when you take the issues off the table that
need to be taken off--like that yes, you have to qualify; yes,
we need to increase loan authority--what we are trying to do
has no negative impact on FHA. In fact, we believe that it
enhances FHA and it goes in the direction we want HUD to go.
And I saw the red light come on. So I am going to have to
yield back the balance of my time.
But I know Mr. Frank wants to expand on that. But I think
we got our answer, Mr. Frank. It has no negative impact, I
think, aside the couple of issues that we have set aside that
we know are understandable.
And I would love to talk to you about this further
privately. We are going to run out of time. And with that, I
yield back the balance of my time.
Chairman Ney. The gentleman from Massachusetts?
Mr. Frank. I just want to return to the argument we got,
which is that the negative is that it somehow is unfair to the
private sector. But the private sector is a differentiated
group.
One very important part of the private sector in the
housing areas is the realtor profession, a very important
profession when it comes to single family homes. They are very
much in favor of this bill. The realtors are pretty private
sector.
The mortgage bankers are in favor of some increase. They
have a question about the interaction with the conforming loan
limit.
The home builders similarly think we should raise the
limit, although they do not want it to go without limit, they
said. They want it to be above the current ceiling but less
than the median house price.
So we are talking about at least three important groups
here--the mortgage bankers, the realtors and the home
builders--who are supportive of some increase. The realtors are
very enthused.
Which--and let me also ask you this because in other parts
of the country where the FHA lends to the median, where the
median is within range, is the existence of an FHA lending to
people who are buying homes within the median income unfair to
the private sector in Kansas and Nebraska and Kentucky and
places? Do you think it is unfair to the private sector in
those places?
Mr. Weicher. We do not quite go to the median. We go to 95
percent of median.
Mr. Frank. Okay.
Mr. Weicher. But----
Mr. Frank. Do you think it is unfair to the private sector
in those places where you go to 95 percent of median?
Mr. Weicher. No, I do not think it is unfair. I do think
that the----
Mr. Frank. Why not?
Mr. Weicher.--the institutions, the segments of the
industry that I am referring to are the lending side.
Mr. Frank. Okay, just the lenders.
Mr. Weicher. Not the builders and realtors. We do not
compete with them.
Mr. Frank. So the question is: why is it unfair to the
lenders to have the FHA lend to the median in Boston?
Mr. Weicher. The median in Boston----
Mr. Frank. But why is it unfair to them?
Mr. Weicher.--carries you so far into the high end of the
income distribution that you are really not serving the first-
time homebuyers that we are there to serve.
Mr. Frank. No, no. I did not ask you what----
Mr. Weicher. In other areas, we are serving----
Mr. Frank. You understand English better than you pretend.
Why is that unfair? You just restated the point. Why is that
unfair to the private lender?
Mr. Weicher. Why is it unfair to serve up to $430,000 in
Boston?
Mr. Frank. Why is it unfair? No, you said the harm was that
it was unfair to the private sector. And you said you meant the
lenders. I am listening to you and I am trying to ask: what is
unfair about that to the private lender, having it be FHA
eligible?
Mr. Weicher. Our purpose----
Mr. Frank. What is unfair about it for the private lender?
Mr. Weicher. Our purpose is to serve first-time homebuyers.
And that is who we try to serve. And in those ranges, we are
not reaching first-time homebuyers.
Mr. Frank. Okay, Dr. Weicher----
Mr. Weicher. We are reaching people who the----
Mr. Frank. You are being deliberately evasive.
Mr. Weicher. I am not trying to be, sir.
Mr. Frank. You keep restating that. I understand that. I
asked you what the harm was in that. And you said it is unfair
to the private sector. You said that. Do you remember that?
Mr. Weicher. Yes, certainly.
Mr. Frank. And I am asking you now, I want to understand
the mechanism by which it is unfair in the Boston area or in
parts of California. How is it unfair if the FHA guarantees the
loan? How is that unfair to the private lender?
Mr. Weicher. Private lenders serve that market. And they
serve that market----
Mr. Frank. So if there is a market that is being served by
the private lender, it is unfair to the private lender for the
FHA to step in?
Mr. Weicher. It is unfair to use the full faith and credit
of the government of the United States----
Mr. Frank. Which is the FHA.
Mr. Weicher.--where there are private alternatives that
serve the market.
Mr. Frank. In Kansas and Nebraska and the Dakotas, does the
private market serve people who are trying to buy homes at 95
percent of median?
Mr. Weicher. The private market serves them. But it is also
true----
Mr. Frank. No, no. Just answer my question.
Mr. Weicher. It is also true that we serve them. And we
have no protection from competition.
Mr. Frank. Okay. You want to evade the question here.
Mr. Weicher. No.
Mr. Frank. Does the private market--I am talking now only
about the unfairness element--does the private market fail to
serve 95 percent of median in those states that I have been
talking about?
Mr. Weicher. Those are the markets we serve.
Mr. Frank. Excuse me, does the private sector----
Mr. Weicher. Those people we serve. The private sector,
which has no bar to serving, to competing with us in those
markets, does not compete with us.
Mr. Frank. If there was no FHA, do you think there would be
a failure to serve people at 95 percent of the market in those
areas?
Mr. Weicher. I think there would be a failure to serve many
of the people we now serve or they would be served at
substantially higher costs than they are being served.
Mr. Frank. Okay, so that is the issue.
Mr. Weicher. Well, either could----
Mr. Frank. Either way, right. So that you think it is
unfair to the private sector if, as a result of the FHA, some
people who would be served would be served at lower costs. And
I think that is right.
But what you are telling people who happen to live in an
area where they are already penalized because the home price--
median home price--is so high that, to the extent that they can
get some help with the cost, we will not give it to them even
though there is no harm. And that is my problem.
I think the fact that, even without the FHA, yes there
would be private lenders who would help people in these 95
percent median areas. They would have to pay more.
And what you are saying is that people who live in high-
cost areas, they should have to pay more, even though, as we
said, no harm is being done.
Mr. Weicher. Again, we are trying to serve the first-time
homebuyer.
Mr. Frank. I do not care. But you keep saying that. And
that is not the answer--do you really not understand the
difference between a statement as to what the purpose of the
program is and then a question as to what harm is being done?
Let me put it to you this way. It will make you feel
better.
Given that this is the purpose as you see it, what harm is
done from deviating from the purpose. I guess that would be the
way to put it. You really cannot answer that by just restating
the purpose, can you?
Mr. Weicher. FHA is not harmed, to our knowledge, by
serving people who are buying homes in this price range.
Mr. Frank. Who is harmed?
Mr. Weicher. We are----
Mr. Frank. Who is harmed?
Mr. Weicher. We are----
Mr. Frank. Who is harmed?
Mr. Weicher. The private lenders who would serve that
market are at a disadvantage.
Mr. Frank. Okay. So your basic point is that we should not
give FHA coverage of median prices in our high-cost areas
because it would harm the private lenders who would otherwise
be able to make more money than they make.
Thank you.
Chairman Ney. Thank you.
Mr. Miller?
Mr. Gary G. Miller of California. Thank you, Mr. Chairman.
Expanding on what Mr. Frank is getting to--and I agree--I am
very concerned that whenever we do something, we are not
cutting into some private sector marketplace. And I have talked
to the bankers about this.
When we are talking about conforming loan limits, my first
meeting was with bankers saying, okay, the conventional market
has grown tremendously because the cost of housing has risen so
much that many of the programs are not available that currently
were available. And FHA is one of those.
If you look at what marketplace FHA has in some of these
areas, like in Orange County, only 9.2 percent of the loans
would have been available for FHA. In Santa Clara County, only
two percent of the loans made would ever qualify for FHA.
In Ventura County, only 7.7 percent of the loans made would
qualify for FHA. And that is just qualifying; not saying they
got it, but they have qualified for it.
And that is the problem today. I would never propose a bill
to come in and cut into the private marketplace. But the
problem is the market has grown to such a degree that we are
going out of the marketplace because we are not trying to keep
up with it in having a share that we normally have historically
had in the past.
I mean, the conventional marketplace has grown
tremendously, percentage-wise, from what it used to be. I am
not looking at impacting bankers and lenders. That is not my
goal.
The goal is: how do you keep up with change? Things are
changing. I believe it is our responsibility to try to keep up
with change. And this bill, I believe, goes a lot in that way.
And maybe we need to look at something on tying this in
some way back into conforming, as the process goes through. But
I think conforming has to be addressed too, which we are not
doing today.
So Mr. Frank and I are not closed to the concept of: we
will look at FHA; let us look at something with conforming so
there is some rationality here. But conforming is not where it
should be today.
But I am not willing to move that until we come to some
agreement with the private sector on where it should go to. And
that is a process we are undergoing.
And I am well aware of that. And I do not want to infringe
upon their fair share of the market. So we need to go there. It
is not ready today. But I think we are ready with this in some
fashion. Maybe it is a modified fashion. But we do need, I
believe in all fairness, to move this. And at that, I thank you
for your time, Mr. Secretary.
Chairman Ney. I want to thank the members of the committee.
I want to thank Mr. Weicher for participating in the energetic
give and take of public debate in the U.S. Capitol. Thank you.
Mr. Weicher. Thank you, Mr. Chairman.
Chairman Ney. With that, we will move on to panel two. Give
a minute for panel two to come forward.
I want to thank the panel. The first witness on the panel
is David Berson. And he is Fannie Mae's vice president and
chief economist. He is responsible for managing the economics
department at Fannie Mae, including forecasting and analyzing
the economy, interest rates and housing and mortgage finance
markets.
Mr. Berson also advises Fannie Mae's chairman and operating
committee on finance, economic, tax and housing policy issues.
Welcome.
The next two witnesses I will defer to Congressman Miller
for introductions.
Mr. Gary G. Miller of California. Thank you, Mr. Chairman.
There are two individuals I would like to introduce. John
Eberhardt, first, it is my pleasure to introduce him today. He
is president-elect of the California Association of Mortgage
Brokers. Mr. Eberhardt has been a mortgage broker for over 13
years. And after moving from Wisconsin to California, he opened
Prime Equity Management, which is located in Torrance,
California, with this father-in-law, Fred Barth.
He is very active in this company. He is no stranger to the
political arena. He had civil involvement where it began in
Wisconsin when he served as legislative aid to then-governor
Lee Dreyfus.
More recently, in 2002, Mr. Eberhardt was selected by the
National Association of Mortgage Brokers to their task force to
formulate recommendations for change to the good faith
estimate. So I am really looking forward to your testimony
today.
The next one is Glenn Hellyer, who I have known for years.
He is from my home district. Mr. Hellyer is a realtor,
providing real estate services in Southern California for over
25 years.
For the past 4 years, Mr. Hellyer has operated an
independent real estate broker and realtor in Yorba Linda,
California, offering residential and commercial real estate
services. Owing to his vast accomplishments at promoting
homeownership, Mr. Hellyer was appointed honorary director for
life of the California Association of Realtors and served as
president of the Anaheim Board of Realtors.
And I welcome both of you here today. And the panel, it is
good to have you here.
Chairman Ney. I want to thank the gentleman and also thank
the witnesses today.
Next is Jonathan Kempner. And he is president and chief
executive officer of the Mortgage Bankers Association. Prior to
assuming his present role in April of 2001, Mr. Kempner was
president of the National Multihousing Council for 14 years.
Welcome.
Next witness is Frank Nothaft. And he is Freddie Mac's
chief--did I say it correctly? Thank you. He is Freddie Mac's
chief economist, where he is responsible for primary and
secondary mortgage market analysis and research, macroeconomic
analysis and forecasting. He is also involved in the analysis
of affordable lending activities and policy issues affecting
the housing industry.
Welcome.
Next is Basil Petrou, who is a principal and managing
partner of Federal Financial Analytics, Incorporated. The
company provides financial analytical services on legislative
and regulatory issues to non-bank financial institutions such
as insurance companies and mortgage corporations.
Welcome.
And last, but not least, is Barbara Thompson, who is the
executive director of the National Council of State Housing
Agencies, a national, non-profit organization committed to
advancing the interests of lower-income and underserved people
through the financing, development and preservation of
affordable housing. Ms. Thompson also serves as vice president
of the National Housing Conference.
And we will begin with our first panelist, Mr. Berson.
STATEMENT OF DAVID BERSON, VICE PRESIDENT AND CHIEF ECONOMIST,
FANNIE MAE
Mr. Berson. Thank you, Chairman Ney and members of the
committee. My name is David Berson. I am vice president and
chief economist for Fannie Mae.
I want to thank you for inviting me to testify about this
important issue of homeownership affordability in high cost
areas. I commend the members of the subcommittee for your
attention to and leadership on this issue.
By most national statistical measures, the past 3 years
have been the best in history for American housing, homeowners
and mortgage finance. The housing boom has reached most regions
in the country, including central cities, suburbs and rural
areas.
Low mortgage rates and overall record affordability have
combined to create 3.2 million more homeowners since 2000,
benefiting families and helping energize the nation's economy.
And homeownership has been a sound investment. Since 2000,
house prices have appreciated on average by about 26 percent
nationally.
However, in a growing number of areas, strong housing
demand and limited supply has generated even more dramatic
price appreciation. Combined with a relatively slow pace of
income growth, this is putting homeownership increasingly out
of reach for working American families, especially now that
interest rates are rising.
Mr. Chairman, in addition to my testimony, I am submitting
data for the record that demonstrates this effect and
highlights some of the specific areas that are impacted most.
To summarize briefly, home price gains closely track income
growth in the long run. If home prices rise consistently faster
than income, homes will become unaffordable and demand will
drop. Over the past 3 years, home prices nationwide have
appreciated on average by 7.6 percent per year, significantly
above the rate of income growth, which has averaged 4.5 percent
over the same period.
So far this year, home price gains continue to be strong.
In several markets, particularly in the East and West Coasts,
double-digit home price appreciation has dramatically outpaced
income growth. These areas may be susceptible to sharp declines
in housing demand, especially when mortgage rates rise.
Although housing affordability remains high nationally, it
has become a serious issue for some states. For example,
between February and March of this year, the share of
households in California able to afford a median-priced home
declined by three percentage points to 21 percent.
The California Association of Realtors has recently
reported that affordability in the state has fallen to an all
time low. Monterey, Northern Wine Country, Orange County and
Santa Barbara regions were the least affordable in the state,
with only 14 percent of households being able to afford the
median-priced home.
The problem is most acute in California, New York and
Northeast states such as Massachusetts, Maine, Delaware, New
Hampshire and a few others. House prices in California
increased more than 14 percent last year, while incomes rose by
just over two percent.
In New York and New Jersey, house prices increased by over
12 percent in 2003, while incomes rose by just under 2.5
percent. And in Massachusetts, where home prices went up by
over 10 percent, incomes increased by about two percent.
But the problem is even wider than that. We see similar
trends in Florida, Maryland, Virginia, Minnesota and even
Nevada.
Currently, the median home price in nine metropolitan
Statistical areas is above the conforming loan limit. In 1999,
that was true in only three MSAs.
These affordability problems emerged in a period of 45-year
low interest rates, which helped to offset some of the negative
affordability effects of higher prices. The period ahead is
likely to be marked by higher interest rates which will erode
affordability further even if incomes rise.
Over the long run, home prices and incomes have moved
together, and that is our expectation going forward as well.
Mr. Chairman, I recently participated in writing a paper
for the Homeownership Alliance entitled, ``America's Home
Forecast: The Next Decade for Housing and Mortgage Finance,''
that discusses this in greater detail. I will also submit this
paper for the record.
In the short run, however, recent increases in interest
rates in response to stronger economic growth and signals from
the Federal Reserve of tighter monetary policy will only make
affordability an even greater problem. We are already seeing
families shift to adjustable rate mortgages or ARMs, especially
interest-only ARMs, in order to be able to afford the purchase
of a home.
These loans expose homebuyers to greater risk once the
initial period of payment stability is over. With short-term
interest rates at 45-year lows and likely to rise over the next
several years, these homeowners are most exposed to interest
rate risks going forward.
Fannie Mae is a private, shareholder-owned company with a
public mission to promote and expand homeownership. Our mission
is to tear down barriers, lower costs and increase the
opportunities for homeownership and affordable rental housing
for all Americans.
We take our mission very seriously. Lenders, especially
small community banks, depend on us to develop new mortgage
products, processes and technology solutions so they can serve
more families, serve them better and make the mortgage process
faster, easier and cheaper for all involved.
Our investments in technology have increased underwriting
flexibilities, expanded markets for our lender partners and, by
reducing the cost of originations, enhanced affordability for
the home buyer. This January, Fannie Mae took its mission
commitments one step further. We launched our Expanded American
Dream Commitment, pledging to help 6 million families--
including 1.8 million minority families--become first-time
homeowners over the next decade.
With this pledge, we set a goal of raising the minority
homeownership rate from the current 49 percent to 55 percent by
2014, with the ultimate goal of closing the gaps between
minority homeownership rates and non-minority homeownership
rates entirely.
Addressing the needs of borrowers in high-cost areas will
be crucial to meeting our corporate objectives.
Mr. Chairman, we are very glad to have this opportunity to
discuss the very real problems of families living in high-cost
areas who do not have access to the benefits provided by Fannie
Mae and Freddie Mac. As you know, the families who find
homeownership unaffordable in these areas are not just low-or
moderate-income families, but also middle-income families.
Many two-earner households cannot afford homes in some of
these high-cost areas in the country today. Congress chartered
Fannie Mae to expand access to mortgage credit for all of these
households--low-income and middle-income.
In 1992, Congress complemented that mission with explicit
requirements----
Mr. Gary G. Miller of California. [Presiding.] You will
need to wrap this up. Your time is expired.
Mr. Berson. All right. I will wrap it up.
Mr. Gary G. Miller of California. So much to say; so little
time, right?
Mr. Berson. Exactly.
Mr. Chairman, thank you for holding this hearing
highlighting the critical issues for millions of families
around the nation.
Let me conclude, Mr. Chairman, by stating that Fannie Mae
is in favor of legislation that helps homeownership
opportunities, especially for underserved populations.
Thank you, Mr. Chairman.
[The prepared statement of David Berson can be found on
page 59 in the appendix.]
Mr. Gary G. Miller of California. Well, you have done a
wonderful job. Thank you, Mr. Berson.
Mr. Eberhardt?
STATEMENT OF JON EBERHARDT, PRESIDENT ELECT, CALIFORNIA
ASSOCIATION OF MORTGAGE BANKERS
Mr. Eberhardt. Mr. Miller, Mr. Frank, thank you for having
me here today.
My name is Jon Eberhardt. And I am the president-elect for
the California Association of Mortgage Brokers, a state
affiliate of the National Association of Mortgage Brokers,
NAMB. And NAMB is the largest organization of individual loan
originators in the country.
NAMB has a membership of over 24,000 originators and
affiliates and supports consumer education and a code of
ethical conduct by its members. Like my NAMB colleagues, I
originate loans for a living and have done so since 1991.
My company, Prime Equity Management, located in Torrance,
California, is a medium-sized shop with 10 originators. We are
certified to originate FHA insured loans as an FHA
correspondent.
I am here today to speak in support of H.R. 4110.
The Los Angeles Times recently reported that Los Angeles
County's median home price jumped 20 percent in the past 12
months to $379,000. Entry level houses in Los Angeles County
that traditionally sold for $280,000 are now selling anywhere
between $360,000 and $380,000 at the entry level. Yet the FHA
loan limit for L.A. County is $290,319.
Twenty-three of California's 58 counties are currently at
this $290,319 FHA ceiling, with another six counties
approaching the ceiling due to the latest jump in home prices.
These 29 counties represent approximately 85 percent of
California's population.
California is not alone. High-cost areas exist in states
across the country.
Maryland, for instance, has five of 24 counties currently
at the $290,319. They have another seven counties that are
approaching the limit.
These counties represent a great majority of the population
of Maryland. States that currently feature counties at or
approaching the maximum FHA loan limit include Pennsylvania,
Connecticut, Massachusetts, New York, New Jersey, among others.
If you go just south of Washington, D.C. into Virginia, I am
sure you would find that they would be in a similar situation.
Recognizing high-cost areas with regard to FHA loan limits
is not new to this legislative body. Congress already
recognizes high-cost areas in Hawaii, Alaska and various United
States territories.
These areas feature an exception that takes their available
loan limit to 150 percent of the current FHA ceiling.
The United States now boasts homeownership in excess of 60
percent. Minority homeownership is over 50 percent. Both of
these numbers are the highest in history.
Home prices are driven by an increased demand for homes
which outpaces sales of existing homes and new development. I
would like to make the observation that if we put five million
new homebuyers in homes before the end of the decade, that
probably home prices will continue to increase.
To facilitate the demand for homes, certain steps should be
taken to accommodate buyers, particularly first-time
homebuyers. FHA insured loans are more accommodating to first-
time homebuyers than other types of loan programs, as they are
designed to include flexibility for debt ratios, income and
credit history. Such flexibility is not included in
conventional lending guidelines.
FHA insured loan programs should serve as a permanent
backstop for all first-time homebuyer programs. By creating the
ability for FHA loan programs to float up and down, matching
100 percent of the local median home price, the legislation
seeks a logical loan limit that will benefit both the housing
industry and the consumer.
Why is this particular solution needed? I am going to skip
down, because I am going to miss my five minutes.
So currently purchases of new homes are restricted through
a legislatively mandated ceiling derived from a complicated
formula. H.R. 4110 simplifies the process by instead tying the
FHA loan limit to the local area median prices. The working
families that live in areas that exceed the FHA ceiling, yet
need and qualify for an FHA insured loan, should not be
penalized because of where they live.
This committee has already approved beneficial legislation
in H.R. 3755, the Zero Down Payment Act of 2004. However, one
must ask the question: how many homebuyers are not going to
have access to the zero down program due to the current FHA
ceiling?
Finally, over the past several years, I have averaged three
to four FHA deals a month. The last FHA insured loan that I did
was in October of 2003. That is 9 months ago.
In my experience, minority first-time homebuyers are often
the hardest hit. The type of loan that has replaced the FHA
insured loan has a higher incidence of default.
Mr. Gary G. Miller of California. You need to wrap up.
Mr. Eberhardt. Before I conclude, I would like to thank Mr.
Miller for noting that this bill would not just serve high-cost
areas. His remarks contained a list of counties across the
country where the FHA loan limit is well below the median home
price in those counties. I am thinking of Delaware County in
Ohio, Door County in Wisconsin.
This legislation has the support of mortgage brokers
throughout the country.
Mr. Gary G. Miller of California. You will need to wrap up,
sir.
Mr. Eberhardt. H.R. 4110 is an essential tool to further
increase homeownership. Thank you.
[The prepared statement of Jon Eberhardt can be found on
page 84 in the appendix.]
Mr. Gary G. Miller of California. Thank you, Mr. Eberhardt.
Mr. Hellyer? Yes, you may proceed.
STATEMENT OF GLENN HELLYER, REALTOR, YORBA LINDA, CA
Mr. Hellyer. Sir, it is an honor that you invited me to be
here today. And I appreciate your invitation.
My thanks to Chairman Bob Ney, Vice Chairman Mark Green,
Ranking Member Maxine Waters and all the members of the
subcommittee for inviting me here today to testify on H.R.
4110.
This bill will enable more prospective homebuyers to
achieve the American dream of homeownership.
My name is Glenn Hellyer. And I have been a realtor in
Orange County, California for over 25 years. I have represented
homebuyers and homeowners all throughout Orange County and the
neighboring counties.
In years past, I have used FHA loans to help first-time
homebuyers, low- and moderate-income buyers and buyers who
could not qualify for conventional loans because of high loan-
to-value ratios or high payment-to-income ratios. FHA loans are
no longer a useful product for prospective homebuyers in high-
cost areas of the country like my area because its maximum loan
limits are restrictive.
As a result, working families such as teachers, police
officers, fire fighters, nurses and others have all been left
behind just because of their location, their geographic
location. H.R. 4110 would correct this inequity.
Housing prices in California, Massachusetts, New Jersey,
New York, Connecticut and I am sure other states, have
experienced tremendous growth over the past few years.
Unfortunately, the FHA loan limits have not grown in a manner
to mirror the growing cost of homeownership in these areas.
Another burden that has not been discussed today has been
those workers who may only qualify under FHA loan guidelines
but are restricted by the current loan limits we find on our
already overcrowded roads, having to commute long distances
every morning and evening.
FHA has played an enormous role in helping families realize
the dream of homeownership at no cost to taxpayers. However,
there are many Americans who are not able to realize this
dream. Those who happen to live in communities with high
housing costs are not afforded the benefits of FHA simply
because of the current loan limits.
H.R. 4110 would eliminate the current loan limit ceiling
and allow FHA limits to rise to the median home price in each
locality. Working families who need and qualify for FHA should
not be penalized because of their geographic location. H.R.
4110 would correct this disparity and make FHA loans available
to all prospective homeowners nationwide.
I appreciate the opportunity to provide you this testimony.
And I will be happy to answer any questions you may have.
[The prepared statement of Glenn Hellyer can be found on
page 89 in the appendix.]
Mr. Gary G. Miller of California. Thank you, Mr. Hellyer.
Mr. Kempner?
STATEMENT OF JONATHAN L. KEMPNER, PRESIDENT AND CEO, MORTGAGE
BANKERS ASSOCIATION
Mr. Kempner. Thank you.
Good morning, Congressman Miller. I am Jonathan Kempner,
president and CEO of the Mortgage Bankers Association. Thank
you for inviting MBA to share its views on H.R. 4110.
We believe that H.R. 4110 highlights the critical and
unique role of FHA in expanding homeownership opportunities for
those families that are unserved or underserved, especially
first-time, low- and moderate-income and minority homebuyers.
To this purpose, FHA has a tremendous track record.
Over the past 70 years, MBA and our members have worked in
close partnership with FHA to deliver affordable, long-term
financing. Today, MBA members originate and service the vast
majority of FHA loans each year.
Nowhere inside or outside the Beltway will you find a
stronger advocate for FHA than the Mortgage Bankers
Association. In 1998, MBA strongly advocated for the successful
increase in FHA's maximum mortgage limits that raised the
minimum limit to 48 percent and the maximum limit to 87 percent
of the Freddie Mac conforming loan limit.
This incremental change broadened the housing stock that
was available to FHA borrowers and allowed FHA to serve a
larger number of high-cost areas. H.R. 4110 proposes to adjust
the FHA mortgage limit from 95 percent of an area's median home
price to 100 percent.
Additionally, H.R. 4110 would remove the 87 percent ceiling
on FHA mortgage limits. This latter provision would result in
FHA mortgage limits in certain areas of the country exceeding--
and in some cases, far exceeding--the conforming limit.
We support raising FHA's mortgage limits to 100 percent of
an area's median home price, but believe it best to cap these
mortgage limits at the conforming limit. We believe that
aligning FHA's loan limits with the conforming limit will
appropriately broaden the housing stock available to FHA
borrowers in many high-cost areas without shifting FHA from its
stated mission of serving first-time homebuyers and the
underserved.
MBA bases our position on the following three principals:
first, FHA's core mission should stay squarely focused on the
modest end of the mortgage market. Fannie Mae and Freddie Mac,
as federally charted enterprises, define the conforming market
that includes the majority of first-time and low-income
homebuyers, which are FHA's primary target. FHA's primary
mission should be to operate within this conventional market
and not exceed it.
Second, the benefits of FHA mortgage limits in excess of
conforming loan limits are unclear. Currently, the jumbo
mortgage market is robust, with private lenders providing a
wide range of jumbo products throughout the country. Greater
analysis is necessary before it is clear whether FHA could
develop a product that would bring improvement to the jumbo
mortgage market.
Finally, FHA may not be well positioned to step outside its
core mission and manage a jumbo loan program. Currently, FHA is
focused on providing homeownership opportunities for those with
less income, poorer credit or no credit. While FHA has had
success with these borrowers, it has not been without
management challenges. It is unclear whether or not FHA, in its
current structure, has the capacity to appropriately identify
and manage the risks of jumbo mortgage products.
In closing, I would like to reiterate MBA's support for an
incremental approach in raising FHA's mortgage limits by
benchmarking mortgage limits to 100 percent of an area's median
home price and capping the maximum FHA mortgage limit at the
conforming limit.
Thank you for giving MBA the opportunity to testify on H.R.
4110. We look forward to working with Representative Miller,
Representative Frank and the subcommittee on this important
legislation.
[The prepared statement of Jonathan L. Kempner can be found
on page 91 in the appendix.]
Mr. Gary G. Miller of California. Thank you, Mr. Kempner.
Mr. Nothaft? Is the correct, Nothaft?
STATEMENT OF FRANK E. NOTHAFT, CHIEF ECONOMIST, FREDDIE MAC
Mr. Nothaft. Yes, that was pretty good.
Thank you, Chairman. I am Frank Nothaft, vice president and
chief economist of Freddie Mac.
Mr. Gary G. Miller of California. Excuse me, you need to
turn your microphone on.
Mr. Nothaft. Thank you. I welcome the opportunity to be
here today to discuss H.R. 4110, the FHA Single Family Loan
Limit Adjustment Act of 2004. Freddie Mac supports efforts by
Chairman Ney, Congressmen Miller and Frank, Congresswoman
Waters and other members of the committee to help meet
affordable housing needs in all neighborhoods, and especially
in high-cost markets.
We believe that these needs are best served by a higher
loan limit for FHA, coupled with a higher loan limit for
Freddie Mac and Fannie Mae, in high-cost markets. This will
expand the market, provide more access to credit and lower
homeownership costs.
H.R. 4110 is an important vehicle to focus congressional
attention on meeting the urgent need for affordable housing.
Housing affordability is an issue in all high-cost markets
across the nation. As an example, in March, the median sales
price of a single family home was $428,000 in California and
was $560,000 in San Francisco.
In 2003, the median price of a home in Boston was $413,000.
In these and other high-cost markets around the nation, a
higher FHA loan limit and a higher loan limit for Freddie Mac
and Fannie Mae would be vehicles for bringing low-cost,
accessible mortgage credit to more families.
Today, I will first discuss general effects of an FHA loan
limit increase upon the overall mortgage market and then
provide some specific comments on H.R. 4110.
There are two effects of raising the FHA loan limit on the
overall mortgage market. First, a higher limit will draw
additional borrowers into the market, expanding the overall
size of the home purchase origination market.
Second, by providing an alternative source of mortgage
insurance, it will draw some borrowers from the conventional
market. We have conducted analysis at Freddie Mac to parse out
both effects with market data. Our analysis was focused on the
previous jump in FHA loan limits that was enacted in 1998.
What we found was that the higher FHA limits increased
overall home purchase for the population of loans that fell
within the new, higher FHA loan limits. The number of
conventional loans and the number of privately insured loans
was reduced.
We estimated that the overlap with the conventional market
was between 22 percent and 49 percent of the new volume of FHA
loans. The midpoint of this range, or 35 percent, is very close
to the estimate of the overlap computed by the General
Accounting Office in a 1996 report.
I will now describe some observations I have on H.R. 4110.
H.R. 4110 alters the FHA loan limit in two respects. First, it
eliminates a maximum loan limit by decoupling the link to the
Freddie Mac loan limit. Second, it sets the FHA loan limit at
100 percent of the median house price, up from 95 percent.
Eliminating the maximum loan limit means that the FHA limit
will exceed the Freddie Mac and Fannie Mae loan limit of
$333,700 in a number of markets. In Manhattan, the median value
of owner-occupied single family homes is in the neighborhood of
$1.5 million. Likewise, the FHA loan limit in the San Francisco
metropolitan area would approach $750,000.
Congress should consider carefully what it wants the FHA
program to accomplish and how best to achieve its policy
objectives. Currently, there are 82 counties that are at the
FHA maximum loan limit, including the New York, San Francisco
and Boston metropolitan areas.
Maintaining a maximum loan limit, perhaps linked with the
Freddie Mac loan limit, would assure that FHA continues to
serve its intended borrower population, while assuring families
greater access to a wider alternative of housing finance
options.
A second part of H.R. 4110 increases the loan limit for
those areas where it is currently set at 95 percent of the
median house price. The proposed increase to 100 percent of the
median house price will affect 539 counties in the nation.
The families who will benefit from FHA's lower down payment
requirements and higher payment-to-income ratios will tend to
be lower-income, have less savings and be first-time
homebuyers. However, some of these borrowers would also have
qualified for a conventional, privately insured loan.
We estimate that several thousand lower-income and minority
homebuyers, who otherwise would have qualified for and taken
out a conventional mortgage, will opt for the FHA insured loan.
Because the FHA program touches so many aspects of the
mortgage market, it is also important to look at how the
overall strength of the FHA insurance fund could be impacted by
the legislation. Increasing the FHA loan limit would also have
an impact on our ability to meet the affordable housing goals
proposed by HUD.
HUD's market analysis was completed months ago and did not
factor in an FHA loan limit increase. Thus, the FHA loan limit
increase will make it more difficult for us to make the
proposed goal levels.
Dick Syron, Freddie Mac's new CEO, has defined a mission-
centric focus to our activities. Included within this is a new
product development to help meet the affordable housing needs
in all neighborhoods.
Congressional action to support affordable housing
throughout the nation, and especially in high-cost markets, is
well justified. And we support your efforts to ensure that
America's families have affordable housing in the cities in
which they work.
Mr. Gary G. Miller of California. You will have to wrap up.
Mr. Nothaft. As I have stated, we believe that these
families are best served by a higher loan limit for FHA,
coupled with a higher loan limit for Freddie Mac and Fannie
Mae. This will expand the market, provide more access to credit
and lower homeownership costs and make home possible for more
of America's families.
Thank you.
[The prepared statement of Frank E. Nothaft can be found on
page 96 in the appendix.]
Mr. Gary G. Miller of California. Thank you, sir.
Mr. Petrou?
STATEMENT OF BASIL N. PETROU, PRINCIPAL AND MANAGING PARTNER,
FEDERAL FINANCIAL ANALYTICS, INC.
Mr. Petrou. Thank you. Discussion of the FHA loan limits
usually fail to address a key fact. Raising the FHA loan limits
only serves those borrowers who already have the high income
necessary to otherwise qualify for the loan.
Uncapping the FHA loan limit will not allow a borrower with
a $50,000 income to qualify for a $300,000 FHA insured, 30-
year, fixed rate mortgage, even at today's low rates. If
interest rates rise, the larger FHA loan is placed that much
further out of the reach of the moderate income borrower.
Mr. Weicher addressed some of these income classification
issues. But no matter how one looks at these income
requirements for the new, higher FHA loan limits that would be
resulting from this bill, they target the very top of
individual income taxpayers.
Only the top 8.5 percent of all individual income tax
returns in 2001 had adjusted gross income of over $100,000. And
only the top two percent were above $200,000, where some of the
high limits would take us. Furthermore, 77 percent of the tax
returns between $100,000 and $200,000 reported a deduction for
home mortgage interest, indicating the filer already owned a
residence.
In short, if FHA starts targeting loan amounts where
borrowers are required to have incomes of $135,000 to $200,000
or more, then it can safely be said that these borrowers are at
the very top income categories and are almost assuredly not
first-time homebuyers. In my view, this is not and was never
meant to be the target market for FHA single family mortgage
insurance.
Additionally, uncapping FHA limits in high-cost areas may
act to push some housing further out of reach of low- and
moderate-income borrowers. There is some evidence from previous
FHA loan debates that higher FHA limits may serve to raise the
cost of new housing that is made available to FHA-eligible
borrowers in an area subject to the higher limits.
Moreover, the higher FHA loan limit does nothing for the
moderate income borrower who qualifies for a loan amount below
the old FHA limit. While that borrower gains nothing, he or she
may well suffer as the market focuses on the new availability
of FHA insurance at the high end.
Implicit in H.R. 4110 is the assumption that the current
way FHA sets area loan limits falls short of matching the
area's true median house price. In fact, just the opposite is
the case.
The current system ties the calculation of the median house
price for an MSA to the median house price in the highest-cost
county within the MSA. The result is that the FHA limit for the
MSA is clearly not reflective of the true median house price
for the entire MSA. It is higher.
Shifting the FHA area limit calculation from 95 to 100
percent of the calculated amount will only aggravate the
current distortion. It is commonly assumed that borrowers with
higher incomes are for, some reason, safer credits than low-
and moderate-income borrowers.
Evidence from private industry shows that this is not the
case when considering low down payment borrowers during periods
of regional economic stress and falling home prices. Past
experience with regional downturns in house prices has shown
that houses at the upper end of the house price distribution
scale are likely to suffer more serious declines in property
values than more moderately priced houses.
During a period of economic stress and falling home prices,
the lack of liquidity at the higher end of the house price
market will be felt to the detriment of the holder of these
mortgages. Since FHA insures 100 percent of the loan amount,
the FHA stands to lose a great deal in this situation.
Just as new borrowers paid the higher FHA loan premiums
needed to return the single family mortgage fund to economic
solvency in the early 1990s, so too will future moderate income
borrowers bear the higher cost associated with the losses
resulting from defaults on larger FHA loans in the event of a
future regional decline in house prices.
Will there be a regional house price decline that will
result in higher losses to FHA? We do not know. But we do know
that low- and moderate-income borrowers gain nothing and may
well lose from retargeting FHA to higher-income borrowers.
Why would Congress want to run that risk when so much more
needs to be done to provide affordable housing for minorities
and low- and moderate-income borrowers and renters? Unlike the
current process of targeting borrowers by setting FHA loan
limits, targeting FHA to borrower income would ensure the
program promotes homeownership for those borrowers whose needs
remain unmet by private markets.
Income targeting would enhance homeownership even in high-
cost areas without creating a subsidy for higher-income
borrowers or an incentive for higher home prices that may cut
lower income borrowers out of homeownership. Income targeting
does not mean that every area of the country must have the same
top limit--be it 80 percent, 100 percent or even 120 percent of
area median household income.
However, it is critical to set the income limits in a way
that puts taxpayer-supported programs to work for those
potential borrowers in the neighborhood who need them the most.
Income targeting the FHA single family program also assures
that the insurance subsidy remains with targeted borrowers
during periods of rising interest rates. As mortgage interest
rates rise, the amount of income needed to qualify for a given
FHA loan amount also rises.
In other words, the FHA loan limit approach of targeting
borrowers leaves low- and moderate-income families behind
during periods of rising interest rates. In my opinion, the FHA
program should do just the opposite. During periods of rising
rates, it should assure that its subsidy remains targeted to
the low- and moderate-income borrower and first-time homebuyer.
Income targeting the FHA single family program will assure
that this happens. If we increase the----
Mr. Gary G. Miller of California. You will need to wrap up
your testimony, sir.
Mr. Petrou. If we increase the scope of FHA without
focusing it on the real needs of underserved borrowers, we run
the risk of undercutting the program and its ability to serve
those who need it at the time when they need it the most.
[The prepared statement of Basil N. Petrou can be found on
page 102 in the appendix.]
Mr. Gary G. Miller of California. Thank you, sir.
Mrs. Thompson?
STATEMENT OF BARBARA J. THOMPSON, EXECUTIVE DIRECTOR, NATIONAL
COUNCIL OF STATE HOUSING AGENCIES
Ms. Thompson. Thank you, Representative Miller and Ranking
Member Frank. I am Barbara Thompson, executive director of the
National Council of State Housing Agencies. Thank you for this
opportunity to testify on behalf of NCSHA in support of H.R.
4110.
NCSHA represents the housing finance agencies of the 50
states, the District of Columbia, the Commonwealth of Puerto
Rico and the U.S. Virgin Islands. State HFAs issue tax-exempt
private activity bonds, allocate the Low-Income Housing Tax
Credit and administer HOME funds to finance affordable
homeownership and rental housing for lower-income and moderate-
income families.
I want to thank you, Representative Miller, and Ranking
Member Frank for introducing H.R. 4110, which will help many
more families in this country achieve homeownership.
FHA Mortgage Insurance is essential to the success of the
Mortgage Revenue Bond first-time homebuyer program, which HFAs
operate in every state. MRBs have made homeownership possible
for more than 2.4 million low- and moderate-income families.
Another 100,000 families become homeowners each year with MRB
mortgages.
In 2002, nearly 60 percent of all MRB loans financed by
state HFAs were insured by FHA. In some states, including Ohio,
Utah, and Mississippi, that percentage was 90 percent.
MRB borrower use of FHA insurance is widespread for many
reasons. FHA is frequently less expensive for the borrower than
private mortgage insurance. FHA down payment requirements are
generally lower. And, FHA is often the best option--sometimes
the only option--for homebuyers with low credit scores.
Unfortunately, in some high-cost areas of the country, FHA
insurance is not as useful as it might be because its maximum
mortgage limits lag median home prices. As a result, some
working families have limited or even no access to FHA
insurance, making it difficult for them to buy homes in the
communities where they live and work.
Current FHA limits constrain the availability of MRB first-
time homebuyer loans in some metropolitan areas of many states.
The maximum mortgage limit is simply too low in some high-cost
areas for MRB borrowers to purchase MRB-eligible homes with FHA
insurance.
In Boston, for example, a family earning the maximum income
allowable under the MRB program could afford a home priced at
78 percent of the median purchase price. However, this family
could not buy that home with FHA insurance because the FHA
maximum mortgage limit is 71 percent of the median purchase
price.
In Oakland, an MRB-qualified family earning the maximum
allowable income could afford a home priced at 67 percent of
median purchase price but could not buy that home with FHA
insurance, which in that area is limited to 59 percent of the
median purchase price.
FHA limits also constrain MRB borrowing in places you might
not think of, like Madison, Wisconsin, Minneapolis, Minnesota
and Ann Arbor, Michigan.
H.R. 4110 would enable families living in these and other
high-cost areas to access FHA-insured MRB loans and a larger
universe of moderately priced homes.
Before closing, I want to thank you for your continued help
and ask for your continued help in removing another serious
constraint on the MRB program, the Ten-Year Rule. This rule
each year prevents tens of thousands of first-time homebuyers
from benefiting from MRB mortgages. It forces states to use
payments on MRB mortgages to retire bonds outstanding, rather
than fund new mortgages to low- and moderate-income families.
The Ten-Year Rule will cost states $3 billion in MRB
mortgage money this year. Massachusetts loses $288,000 a day;
Ohio, $450,000; and California, $1 million a day to the Ten-
Year Rule.
The Housing Bond and Credit Modernization and Fairness Act,
H.R. 284, would repeal this rule. It has 348 House cosponsors.
The corporate/jobs tax legislation passed by the Senate last
month and reported by the Ways and Means Committee just this
week appears to be the only possible vehicle for passage of
Ten-Year Rule relief this year.
The House bill does not contain the relief. The Senate bill
includes a one-year repeal of the rule and prospective repeal
for bonds issued after the bill's date of enactment.
Please help us ensure the survival of the Senate Ten-Year
Rule relief provisions in conference. Please communicate your
support for it to Ways and Means Chairman Thomas and House
leaders.
Thank you for this opportunity to testify.
[The prepared statement of Barbara J. Thompson can be found
on page 113 in the appendix.]
Mr. Gary G. Miller of California. Thank you, Mrs. Thompson.
Mr. Nothaft, you made a couple of good points, I think. You
talked about the median income home in certain areas. And you
talked about in some areas it goes to $1.5 million and whatever
and somewhat tying the maximum in with conforming in some way.
Not a bad concept, I think. Maybe Mr. Frank and I would look at
that as this bill proceeds.
You had a concern with FHA's capacity to manage this new
program. I would like you to expand on that and then would you
give me an idea on the cost of a conventional versus FHA to a
buyer?
Mr. Nothaft. I do not have the information on the price.
Mr. Gary G. Miller of California. Is your microphone on?
Mr. Nothaft. I think so.
Mr. Gary G. Miller of California. Okay. Yes, that is
better.
Mr. Nothaft. I do not have the information on the pricing
at my fingertips. But as I recall, let's say comparing FHA
Mortgage Insurance with private mortgage insurance, they are
very competitive for loan-to-values of around 95. FHA becomes a
little less expensive relative to private insurance when you
get up to about 97 LTV. When you are below a 95 loan-to-value
ratio, generally the private mortgage insurance is less
expensive than FHA Mortgage Insurance.
I do not recall mentioning any concerns I had about
capacity. I think the capital markets are actually very broad.
And the FHA loans are financed primarily through the Ginnie Mae
mortgage-backed securities program.
Ginnie Mae mortgage-backed securities are issued into the
broader capital markets, which are very deep. So I do not think
there would be any capacity concerns.
Mr. Gary G. Miller of California. The new zero down payment
we are hopefully going to be able to start through FHA, if we
somewhat had a cap on this thing so it just did not go through
the roof, you know, to conforming or whatever, wouldn't you
think this would be a beneficial program to have an increase
in, to provide that opportunity for people who are working real
hard, but they are renting right now? They do not have
discretionary 20 percent down or whatever would be required.
Wouldn't you think that would be a tremendous benefit?
Mr. Nothaft. There are parts of the bill that are very much
aligned with the objectives that Freddie Mac has too, such as
the increased homeownership.
Mr. Gary G. Miller of California. The limit is the main
concern. Okay, thank you.
Mr. Nothaft. Absolutely. Absolutely.
Mr. Gary G. Miller of California. Mr. Petrou, you talked
about the concern that you had with difficult situations in the
economy or whatever, if FHA was in the marketplace. During the
1990s recession--you do recall that one; I recall it well as a
developer--that was as severe as I have seen, for a more
protracted time even than most.
I mean, if the 1980s recession was a good hit because prime
went up to 24. I mean, that made it really tough so people
could not sell their home to buy a home. It was a different
type. We recovered from that much quicker.
The 1970s was the same way. We had to move past that when
the marketplace finally came back in the 1990s. It has been
really, really strong since then.
But even during those difficult times of the 1990s, there
was no congressional appropriation to FHA for losses. I mean,
they revamped the program somewhat.
Generally, FHA makes money for the federal government.
Before that, it was even giving money back to people.
Don't you think the system is strong enough to deal with
those?
Mr. Petrou. You are right. There was no congressional
appropriation during that time. And in part, it was because of
FHA loan limits in California and Massachusetts, when both of
those states incurred significant losses as home prices
collapsed.
The FHA loan limits were set at such a low level that FHA
did not experience the kind of significant losses on high LTV
properties in those states as did the private sector did.
Mr. Gary G. Miller of California. Loan rates are relative
to market addition. The home value in 1989 is not what the home
value in the overall marketplace is today. I mean, it has grown
tremendously. The upper end is nowhere near what it was in
March of 1990.
So based on the given marketplace is still relative. FHA is
still going to be, if we do put some kind of a cap on it, it is
still going to be at the bottom end of the market. And the
bottom end of the market is safe because it is like in a
marketplace where the economy goes bad, you are going to sell a
whole lot more Fords than Mercedes.
And we have a bigger market for Fords than Mercedes. And if
anybody is going to take a big rebate, it is going to be
Mercedes, rather than Ford because most people could not afford
it.
The homes we are talking about in the FHA price range are
the homes that most people can afford and even people in the
upper ranges, if they get in difficult situations, can afford
that one. Don't you think there are safeguards built on in just
the change in the economy alone, where it does not create a
different situation than we faced earlier?
Mr. Petrou. No, I do not. I think actually what happened
was that the indexing of the FHA loan limit has moved FHA into
the market you are talking about. I think this current bill
would move FHA further into the market I was talking about,
which suffered serious losses in the late 1980s and early 1990s
in New England and in California.
Mr. Gary G. Miller of California. In California, FHA had a
larger share of the market in 1990 than it does by far today
because we have priced FHA out. So FHA is not even there.
Mr. Eberhardt, I guess the other question would be: what is
the implication on working families that are working real hard
out there if you do not have that access to an FHA program?
Mr. Eberhardt. If I am buying a home in Wilmington or
Carson or Long Beach and I am a first-time homebuyer and the
home price there is probably $380,000 or so, and I want to buy
that home, currently I have to take a look at other options
opposed to or aside from FHA. I look at conventional.
If I do not have a conventional type credit score, I cannot
get a conventional loan. So then I would probably go backwards
and take a look at sub-prime. Sub-prime loans----
Mr. Gary G. Miller of California. So you are going the
wrong direction?
Mr. Eberhardt. Yes, you are going the wrong direction.
Mr. Gary G. Miller of California. That is exactly what I
thought and what I wanted to hear.
Glenn, what do you think--Mr. Hellyer--would be the typical
loan that replaces FHA? Is this back on the same line?
Mr. Hellyer. It is more expensive, Mr. Miller. And that is
the problem. You have those folks that may not have the FICO
requirements to get a conventional loan, may not have the down
payment. They have to now try to save. They have to work their
credit up in order to get in to qualifying.
I will give you an example as to how impossible that is in
Orange County. Last month, the Orange County Register ran an
article that said that the median price rose over the last year
in an amount equal to--wait for it--$323 a day. Nobody can save
that much. There is no way.
And there are first-time buyers in the $400,000 range.
There are those that can qualify on the payment, I mean with
the current interest rates.
But no conventional loan product that I know of enables
those folks to buy, at least not buy in their marketplace in
Orange County. We see--and I reference this in my earlier
remarks--that we see people having to drive away from the
employment center, crowd the freeways.
And it is because they want to own. They want that
opportunity to gain equity. But they do not have it in their
locale.
Mr. Gary G. Miller of California. So we are actually
hurting the people that we are trying to help most by driving
them to sub-primes instead of giving them the option they
should have, basically?
Mr. Hellyer. Sure.
Mr. Gary G. Miller of California. Thank you.
Mr. Frank?
Mr. Frank. Mr. Petrou, you said that there was evidence
that higher FHA area loan limits push up area home prices.
Could you tell me about that evidence?
Mr. Petrou. During the debates of the early 1990s, what it
was--and it was anecdotal evidence. That is all.
Mr. Frank. Oh, okay. Thank you. Just anecdotal. So there is
nothing in writing you can send me?
Mr. Petrou. I have to go check in the testimony.
Mr. Frank. All right, would you? Because if it is just
anecdotal evidence----
Mr. Petrou. Okay.
Mr. Frank. I was skeptical, to be honest, because it
sounded to me like the kind of argument you throw in. If you
have, I would be willing--I take it back. Send me your
anecdotes. I will even be prepared to look at those.
Mr. Petrou. Okay.
[The following information can be found on page 123 in the
appendix.]
Mr. Frank. I will not even put them at the bottom of the
page, like the Reader's Digest. I will read them up on the top.
But I am skeptical that there is any significant evidence
of the FHA loan limits pushing up home prices.
You also say that, quite correctly, these higher loan
limits will not do anything to help low- and moderate-income
families obtain mortgages. As I said, I agree.
It will not combat cancer. And it will not clean up the
rivers. And it will not make America more secure against
enemies foreign and domestic.
I freely concede, most bills do not do most things. They
tend to do one thing.
But I am interested in your interest--I infer from this--in
helping low- and moderate-income families obtain mortgages.
Could you tell me some of the previous proposals you have put
forward that would be helpful here? I mean, since you have
raised the subject, what have you recommended or would you
recommend that we do to help low- and moderate-income families
obtain mortgages?
Mr. Petrou. I actually testified in front of this committee
a few months ago on the zero down payment program.
Mr. Frank. Okay, we have already done that one. As you
know, the committee has already voted that. And we are going to
do that.
So anything else besides that?
Mr. Petrou. Well, I have worked with my clients on a
variety of private sector affordable housing programs.
Mr. Frank. Well, I understand. But you are here testifying
in Congress. Are there other things we could do to help them?
I mean, I welcome your interest in this. I spend a lot of
time on it. I appreciate that you were for the zero down
payment, which we have done. Are there any other proposals you
would make to help low- and moderate-income families obtain
mortgages?
Mr. Petrou. I actually do believe that if you income
targeted FHA, you would see, when the lenders and the builders
and the realtors realize that it is in a particular area income
targeted, there will be some creative work on the part of
programs.
Mr. Frank. Well, let's see how that works. When you income
target, at what level would you income target?
Mr. Petrou. That would vary to the area. I would let
community groups and others determine and come and testify and
talk to HUD about what the income target----
Mr. Frank. That is a fascinating legislative process we
have here. Congress would pass a statute with different income
limits in different parts of the country?
Mr. Petrou. Yes.
Mr. Frank. Would they be different income limits--you were
talking before--as percents of the median. Obviously, you have
different median incomes. But would you have varying
percentages of the median in different parts of the country.
Mr. Petrou. I think there are several ways you could do it.
Mr. Frank. But you would have different percentages of the
median?
Mr. Petrou. Yes.
Mr. Frank. How will the areas be? Will there be standard
metropolitan statistical areas or states or counties?
Mr. Petrou. I would do it on median area income. You can do
it on census tract if you wanted to get down to that area.
Mr. Frank. So you would have FHA have different percentages
of median incomes by census tract?
Mr. Petrou. Well, right now they have different loan
amounts tied to home price. And that is dramatically different.
Mr. Frank. I understand. But what is the political body by
census tract? You said we would have community groups decide.
Would Congress sign off on this?
We have not been that busy lately. You have given us a lot
of work to do. I am just fascinated.
Mr. Petrou. Congress also did not--you know, they told HUD
to go to 95 percent.
Mr. Frank. No, let's not change the subject. I welcome your
interest in helping low- and moderate-income. I have to be
honest with you. I mean, a lot of people, when we were talking
about this bill, who said, ``Well, what about the poor people?"
To be honest with you, much of the time when I am trying to
help the poor people, a lot of these people are not around. So
now that they have dropped in and now that they have this
somewhat fortuitous interest in helping the poor people, I want
to make hay while the sun shines. So I would like you to tell
me how we do that.
You are not seriously suggesting that by census tract, we
have local groups recommend there would be 85 percent of the
median in one census tract and 95 percent in the adjoining
census tract?
Mr. Petrou. Well, as you know, in some areas of the
country, gentrification is an issue, especially in the inner
city. And there are community groups that are very concerned
that if you raise limits, if you target higher income people,
you destroy the nature of the----
Mr. Frank. So you would allow people in the census tract to
tell the federal government to keep the income level for FHA
down in that area and not in other areas? See, here is the
problem. What about people who want to gentrify? They would be
allowed to go up?
Mr. Petrou. I think basically you could have a situation in
which you would have a standard--you know, targeted to the MSA
median income, but with exceptions for areas where people come
in and appeal to HUD. I would think an affordable housing group
should be allowed to appeal to HUD.
Mr. Frank. To lower the percentage of income in a
particular area?
Mr. Petrou. Yes.
Mr. Frank. Okay. And what would the general level be,
percent of median?
Mr. Petrou. That would be something for Congress to
determine.
Mr. Frank. Well, excuse me, but you are here recommending
to Congress. That does not work.
Mr. Petrou. Okay.
Mr. Frank. I mean, you cannot come here as a witness to
tell Congress what to do--which is a privilege of American
citizens--and then say, ``Oh, but you do it.'' It is your idea.
Because we have very radical differences. You have 70
percent of median, 80 percent, 100 percent. I mean, this is not
a detail. This is the heart of the issue.
Mr. Petrou. I would start at 100 percent of area median
income.
Mr. Frank. Okay. But now let me just ask you a last
question--100 percent of area median income, but would there
then be a limit at 100 percent of median income on the price
that they could get of the house? Or would you----
Mr. Petrou. No, it is totally determined by the market.
Mr. Frank. So you would just leave that? So at 100 percent
of median income, if they can sort of work it out, they could
go as high as they could show someone they could afford.
Mr. Petrou. Exactly.
Mr. Frank. Okay. Thank you, Mr. Chairman.
Mr. Gary G. Miller of California. Mr. Clay?
Mr. Clay. Thank you, Mr. Chairman. And I guess this
question would be for the entire panel. Earlier today, HUD
testified that the passage of this bill would be unfair to
private sector lending institutions.
And I just wanted to know: do you share? I mean, do you
agree or disagree with this position? And explain for me in
detail, if you could.
We will start with you, Mrs. Thompson.
Ms. Thompson. We are all for competition. And we think that
it will not be harmful to the private sector. In fact, the very
lenders you are talking about are the lenders that make the
Mortgage Revenue Bond loans that our agencies issue bonds to
finance. So we are not concerned about that.
Mr. Clay. Okay. Thank you.
Mr. Petrou?
Mr. Petrou. Actually, I would probably say it probably
would, as currently written, harm some lenders. I am more
concerned about the harm it would do to the FHA insurance
program in the event of an economic downturn.
Mr. Clay. Thank you.
Mr. Nothaft. No, it is not unfair. It gives more options,
more loan products for consumers to choose from. And anything
that does that, I think helps to expand the market.
Mr. Clay. Thank you.
Sir?
Mr. Kempner. I would not use the word ``unfair.'' We are
very sympathetic to the bill. But we want to make sure that we
know all of the consequences, especially of raising the limit
above the conforming line.
As all of you know, especially Congressman Frank, a key
issue now in the GSE debate is the affordable housing goals.
And there are all kinds of cross currents, ripples. A term that
keeps coming up is ``unintended consequences.''
So as the mortgage bankers, we are quite comfortable going
up to the conforming limit 100 percent. But after that, in our
institutional gut, we start getting a little concerned that we
do not fully understand, fully appreciate what those ripples
are.
Mr. Frank. Will the gentleman yield to me? I think the
chairman would give him an extra minute, if he would.
Let me just follow up with this. This is a legitimate
concern. But I really have a serious question here. Is your
concern about our going above the conforming loan limits the
FHA effect or the bootstrapping effect it might have and then
the conforming loan limits might come up after it?
If you knew that we were going to do this and never raise
the conforming loan limits for Fannie and Freddie to catch up,
would you have the same concern?
Mr. Kempner. The honest answer is that we do not know.
There is a lot swirling around.
Mr. Frank. That is not only an honest answer, it is the
most honest answer I ever got.
Mr. Kempner. Well, the fact is that our notion is that we
would like to study it more. And we do not mean that as a way
of just pushing this away because we are very sympathetic to
the bill and we applaud you for proposing it. But there is so
much going on here, especially in that, the interplay between
the GSEs, affordable housing and FHA and the consequences on
FHA.
We cannot give you an honest answer at this point.
Mr. Frank. Excuse me? And I think the chairman will
accommodate me.
But there is an interplay between theoretically the jumbo--
the conforming loan limits at Fannie and Freddie and Fannie and
Freddie's housing goals. I do not see an interplay between the
FHA loan limit and the affordable housing goals for Fannie and
Freddie, unless you implicitly assume that the conforming loan
limits are going to follow the FHA limit up.
What is the interconnection between the FHA limit and the
affordable housing goals of Fannie and Freddie?
Mr. Kempner. My understanding is depending on how
aggressive those goals are, it will have definite possible
rippling effects on FHA and its health. The jumbo market is
quite different.
And as people know, jumbo by definition is above
conforming. It has definite characteristics that are not the
same as the conventional market.
And again, our honest answer, we have spent hours on this.
We wanted to come forward and help the committee.
Mr. Frank. I understand that. But just to pursue this a
little, by definition we are talking about loans that would be
above what Fannie and Freddie could do.
And I do not understand how the FHA guaranteeing loans that
are above what Fannie and Freddie can do can have an affect on
the affordable housing goals of Fannie and Freddie, especially
when they are expressed in percentages. I mean, they are just
off their charts.
That does not mean there are not issues here. But I do not
see how they interact with the affordable housing goals.
Mr. Kempner. I appreciate that. And again, I cannot tell
you definitively what those are. But I can tell you that there
are consequences.
And our feeling is that the more time we would have to
study it, in our institutional gut, we felt very comfortable
coming up and applaud you coming up to 100 percent. But when
you start going into by definition the jumbo market, we start
getting queasy and at least want to spend time understanding.
There are all kinds of cross currents. I can give you a
couple of bullet points.
Mr. Frank. No, I am talking only about the affordable
housing goals, not general ones. That was my only question.
Mr. Kempner. I understand that.
Mr. Clay. Mr. Chairman, reclaiming my time.
Mr. Gary G. Miller of California. Mr. Clay, you have an
additional four minutes, sir.
Mr. Clay. Thank you, Mr. Chairman.
Mr. Hellyer, I will ask the same question: would this bill
be unfair to private sector lending institutions?
Mr. Hellyer. No, I appreciate the opportunity to respond to
that. I was wrestling with what I wanted to say while I was
listening to the other witnesses here.
And I think if I took that notion back to my realtor
friends in Orange County, that we ought not have this bill
because it would do harm to the lending community, they would
find that amusing. Because the fact of the matter is there is
not a product there right now that enables buyers in our area
to do that. There is no existing product.
Maybe if FHA provided it, maybe there would be more
competition. But absent that, there is not. They are going
elsewhere. They are having to commute to own a home.
Mr. Clay. Thank you.
Mr. Eberhardt?
Mr. Eberhardt. Two answers. First of all, I fully agree
with Glenn. It is important that you note that FHA is a
guarantee. It is a guarantee of private mortgage insurance or
mortgage insurance, not private, by the government.
So if you are talking private sector versus public sector,
the only real people that FHA is competing against is the
private mortgage insurance companies. That is the private
sector they are talking about because the money is being loaned
by the lender irregardless.
To answer Gary Miller's question to Mr. Nothaft, .25
percent is the difference between Fannie, Freddie and FHA. FHA
is probably that much more expensive.
Mr. Clay. Okay, thank you.
Mr. Berson?
Mr. Berson. I think we would welcome the opportunity to
compete head to head, in a fair manner. I do not see unfairness
in this at all, as long as the limits are similar between the
conforming market and FHA.
Mr. Clay. Okay, let me start with you.
Mr. Gary G. Miller of California. So we did ask the
mortgage private group to come and testify. So they were
invited, but they were not able to attend today for some
reason.
Mr. Clay. Thank you, Mr. Chairman.
Housing prices in the past few years have exponentially
increased, faster than the increase in the number of low-income
households. Would not the passing of this legislation result in
relief for homebuyers in high-cost areas? And doesn't the
current FHA ceiling preclude potential homebuyers in high-cost
areas from participating in the zero down payment legislation
that recently passed this committee?
I will start with you, Mr. Berson.
Mr. Berson. We are in favor of policies that increase
homeownership. Because in high-cost areas, prices have gone up
so much faster than income, you have excluded--and not just in
the FHA market, but in the conforming market as well--a
substantial number of households from participating in the
market. Proposals that would reinclude them we think would be
good policy.
Mr. Clay. Thank you.
Anybody else on the panel want to take a stab at it?
Mrs. Thompson?
Ms. Thompson. Yes. This proposal would only help. And I
just want to emphasize, because I think it is so very
important, that the greatest single producer of homeowners from
a federal program perspective--the greatest two--are the
Mortgage Revenue Bond and the FHA insurance program that often
goes with it.
So here you have a federal program, the Mortgage Revenue
Bond program, that allows a certain income level person to
participate and buy a home up to a certain level, but the
insurance does not extend to that level. That just does not
make sense.
I mean, to say that first-time homebuyers do not benefit
from this, as the assistant secretary said, is simply wrong.
The MRB program is only available to first-time homebuyers. It
won't work everywhere, as you point out, Mr. Frank. There are
places where homes are just unaffordable to MRB qualified
first-time homebuyers.
But there are many states--we think more than a dozen--
where qualified MRB borrowers cannot buy the homes that
Congress said they could buy--they are within the MRB limits--
because they cannot get the other federal help, the FHA
insurance. It is absurd.
Mr. Clay. Anyone else? Yes, sir?
Mr. Petrou. I would like to address two points. The MRB is
targeted to 115 percent of median family income in an area. And
this is one of the issues you would get when you start talking
about going over 100 percent of median family income.
It is a special program. And whether or not there is a
match, this is exactly the kind of thing where people could
discuss with HUD whether 100 percent is appropriate or 115, et
cetera.
The second thing I would like to point to is the zero down
payment program. I testified in favor of that program. But I
made it quite clear that I thought it should be targeted only
to low- and moderate income borrowers.
I think the concept of the FHA insuring a $600,000 mortgage
with no borrower equity is a pretty scary thought.
Mr. Clay. Thank you.
Mr. Frank. Would the gentleman yield? The zero down payment
program does that, correct?
Mr. Petrou. Correct.
Mr. Frank. Yes, not this though.
Mr. Petrou. No, not this.
Mr. Clay. Yes, that is on the zero down payment. Anyone
else? If not, thank you very much for your answers.
Mr. Gary G. Miller of California. Are there any more
closing questions, Mr. Frank or Mr. Clay? We will wrap this up.
Mr. Frank. Mr. Clay generously accommodated me and you he,
so I am through.
Mr. Gary G. Miller of California. We are even. Okay.
Well, I want to thank the witnesses today. You have
provided a lot of good information. And this was a hearing for
that purpose, to bring in the information. I have heard some
very good points that I think Mr. Frank and I will take into
consideration before this bill comes to markup.
I would like to ask for unanimous consent that a statement
be introduced in the record from the National Association of
Homebuilders. Without objection.
The chair notes that some members may additional questions
for this panel, which they may wish to submit in writing.
Without objection, the hearing record will remain open for 30
days for members to submit written questions to these witnesses
and to place their responses in the record.
Thank you for attending our hearing. Meeting is adjourned.
[Whereupon, at 12:35 p.m., the subcommittee was adjourned.]
A P P E N D I X
June 16, 2004
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