[Congressional Record Volume 153, Number 195 (Wednesday, December 19, 2007)]
[Senate]
[Pages S15985-S15986]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         FHA MODERNIZATION ACT

  Mr. SUNUNU. Mr. President, last week, I was pleased to support 
passage of the FHA Modernization Act, S. 2338. This legislation will 
update the FHA program so that it once again is better able to provide 
many low-income and first-time homebuyers another option as they try to 
secure a mortgage for a new home or to refinance an existing mortgage 
under more affordable terms.
  As some consumers experience credit tightening in the home mortgage 
and other financial markets, a byproduct of issues in the subprime 
mortgage market, the availability of stable financing alternatives is 
critically important to reducing the negative effects of the current 
market turmoil.
  While the FHA Modernization Act is not a silver bullet, it represents 
a responsible step the federal government can take to benefit thousands 
of borrowers around the country.
  Additionally, in the last several days Congress passed a measure, 
which I cosponsored, that encourages homeowners and their lenders to 
work out alternative payment plans that prevent individuals from losing 
their homes. The Mortgage Forgiveness Debt Relief Act, H.R. 3648, will 
protect taxpayers from an IRS tax bill in the event they have a portion 
of their mortgage debt forgiven. Under current law, homeowners entering 
foreclosure or refinancing their mortgage at a lower loan value due to 
a drop in housing prices, face an unfair and unwarranted tax. The last 
thing someone struggling to stay in their home needs is a huge tax 
obligation on income that they never saw. I expect the President to 
sign this legislation into law in the coming days.
  In addition to the legislation recently advanced by Congress, the 
Federal Reserve proposed a rule this week that would prohibit lenders 
from making so-called ``no documentation'' loans where a borrower's 
income or assets are not verified; prohibit lenders from engaging ``in 
a pattern or practice'' of lending without considering a borrower's 
ability to repay a loan; restrict prepayment penalties on certain

[[Page S15986]]

loans; and require lenders to establish escrow accounts for property 
taxes and homeowners insurance.
  The proposed rule would also restrict ``yield spread premiums'' that 
exceed the amount a consumer had agreed to in advance; prohibit 
coercion of an appraiser to misrepresent the value of a home; prohibit 
certain deceptive advertising practices; and improve certain truth-in-
lending disclosures.
  While I look forward, as a member of the Banking Committee, to 
reviewing the Fed's proposed regulations in the coming weeks, the 
committee should proceed cautiously as it considers more aggressive 
attempts to address current issues in the housing market. With the 
housing correction already under way and with the restricted credit 
availability that we are now experiencing, some of the proposals that 
have been floated may have the unintended consequence of exacerbating 
reduced credit availability at exactly the wrong time. Others may 
unnecessarily use taxpayer dollars to encourage unwise behavior in the 
future.
  Any further legislation in this area needs to be thoroughly reviewed 
to ensure that it will have a positive effect on homeownership in this 
country, both now and in the future, and not simply rushed through 
Congress for the sake of political expediency.
  One piece of legislation that the Senate Banking Committee should 
address as soon as possible is GSE reform. The House passed legislation 
earlier this year that strengthens the oversight of Fannie Mae and 
Freddie Mac. With the ongoing difficulties in the housing market, now 
more than ever it is imperative that Congress act to guard against 
threats to our capital markets and to protect against any possible 
negative consequences for taxpayers that could arise without proper 
oversight of these institutions. Fannie and Freddie have had a number 
of problems over the past several years and are so centrally important 
to the mortgage market that any further problems could have serious 
repercussions that could spread throughout our financial markets.
  The GSE's regulator needs to be strengthened so that Fannie and 
Freddie can continue their important role in supporting the mortgage 
market. Any efforts to enhance their role in the mortgage market must 
not move forward until fundamental regulatory reform is enacted.

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