[Congressional Record Volume 147, Number 178 (Thursday, December 20, 2001)]
[Extensions of Remarks]
[Page E2372]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               RECOGNIZING THE GINNIE MAE CHOICE PROPOSAL

                                 ______
                                 

                             HON. BOB BARR

                               of georgia

                    in the house of representatives

                      Thursday, December 20, 2001

  Mr. BARR of Georgia. Mr. Speaker, as a member of Congress, and a 
member of the Financial Services Committee, I share the goal of 
increasing homeownership opportunities for American families. Our 
government and the Congress have made policy choices to support this 
goal. These policy choices have paid off for our nation and for 
American families with more than 67 percent of American families owning 
their own homes today.
  The present system works well and when someone comes up with an idea 
to change to system, we must be very mindful of the maxim ``Do No 
Harm.'' One such proposal to alter this system is called the Home 
Ownership Expansion and Opportunities Act, H.R. 3206 or Ginnie Mae 
``Choice.'' For the first time, this legislation would place the full 
faith and credit guarantee behind conventional mortgage loans.
  Ginnie Mae ``Choice'' would--in effect--create yet another housing 
GSE, but with the difference being that this one would have an explicit 
government guarantee behind all that it does, unlike the current 
housing GSEs such as Fannie Mae, Freddie Mac, and the Federal Home Loan 
Banks.
  The Ginnie Mae Choice proposal would authorize Ginnie Mae (GNMA) to 
guarantee securities backed by mortgages with loan-to-value ratios of 
over 80 percent. Interest and principle payments on these mortgages 
would be insured first by partial private mortgage insurance (PMI), 
second by insurance issued by the United States Department of Housing 
and Urban Development (HUD), and lastly by the GNMA guarantee.
  Private mortgage insurers would assume a minimum first loss position 
that varies from 12 to 35 percent of outstanding principal and interest 
depending on the loan-to-value ratio, and the federal government (HUD 
and GNMA combined) would assume all residual risk. In general, loans 
potentially qualifying for the GNMA Choice program are conforming loans 
that meet the PMI requirements.
  I would like to thank my colleague, Representative Marge Roukema (R-
NJ) for introducing the bill. We share the common goal of wanting to 
increase homeownership, but upon reflection, I am not certain that this 
bill will achieve the stated goal. In contrast to Fannie Mae and 
Freddie Mac, this legislation would impose no housing goals on Ginnie 
Mae. If the goal of the legislation is to increase homeownership among 
low-income families, it would seem logical to have some kind of housing 
targets or loan amounts. Yet, this legislation is silent in that 
regard.
  As a practical matter, I remain unconvinced an agency within HUD has 
the capacity to manage a mortgage volume of some $30 billion per year. 
Granted, private MIs would pick up 12 to 35 percent of losses, but the 
prospect of this agency being able to manage both credit and interest 
rate risk on these mortgages is somewhat dubious. HUD's management 
track record in this regard is spotty at best.
  H.R. 3206 contemplates no Risk Based Capital Standards (RBCS). Fannie 
Mae and Freddie Mac must adhere to strict RBCS imposed from the 1992 
legislation that revised their charters. Both companies are now doing 
business under the RSBCSs from the 1992 legislation. Indeed, under the 
Risk Based Capital Standards applied to Fannie Mae and Freddie Mac, 
GNMA would experience losses in the range of $9.35 billion under severe 
stressful conditions to $1.86 billion under less stressful conditions--
according to an analysis by Pricewaterhouse Coopers.
  In conclusion, it seems H.R. 3206 is uncertain to achieve its stated 
goal of increasing homeownership significantly, while at the same using 
the explicit backing of the United States Government to potentially 
cause losses of several billion dollars to the taxpayers. Therefore, I 
would discourage my colleagues from supporting this bill.

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