[Congressional Record Volume 155, Number 161 (Monday, November 2, 2009)]
[Extensions of Remarks]
[Pages E2686-E2687]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
VARIABLE RATE MORTGAGE INSURANCE PREMIUMS: ARE THEY HOLDING BACK
POTENTIAL HOMEOWNERS?
______
HON. DAN BURTON
of indiana
in the house of representatives
Monday, November 2, 2009
Mr. BURTON of Indiana. Madam Speaker, although unemployment, now at
9.8 percent, is expected to keep rising, and consumer confidence is
down, the latest Federal Reserve report on economic activity shows some
small signs that the recession may finally be starting to bottom out.
In particular, I am encouraged that we are starting to see
indications that a rebound in the housing sector may be developing. A
few weeks ago, for example, the Commerce Department said new-home
building rose for the third time in four months during September, and,
the National Association of Realtors announced that demand for
previously-owned homes surged in September.
In late October, the Case-Shiller home-price indexes showed that U.S.
home prices logged their third monthly increase in August. The indexes
showed prices in 10 major metropolitan areas rose 1.3 percent from
July. In 20 major metropolitan areas, home prices were up 1.2 percent
from the previous month.
However, if a housing rebound is starting, it is still very fragile.
For example, applications for home building permits--a key gauge of
future construction--fell in September by the largest amount in five
months. And, according to figures recently released by the Commerce
Department, sales of new homes dropped unexpectedly in September; the
first such decline since March.
The foreclosure crisis all but erased the gains we have made in
increasing homeownership rates in the last 20 years. The financial
gains families thought they had achieved through increases in home
equity also disappeared, as now roughly 20 percent of homeowners owe
more on their homes than they are worth.
[[Page E2687]]
Nevertheless, homeownership remains the single most important wealth-
building tool available to families in this country. In fact, housing
experts are saying that now is the time to buy. A sustained rebound in
housing is therefore absolutely vital to Federal, State and local
efforts to spark a broader economic recovery.
Regrettably, I have spoken to a number of mortgage brokers in Indiana
and they tell me that many first-time homebuyers, who could otherwise
buy a home, are finding themselves locked out of the housing market by
the very rules and regulations we put into place to protect consumers
from the so-called predatory lending practices that created the sub-
prime mortgage mess in the first place.
I am not suggesting that we should return to the unchecked lending of
the last decade, where someone could put no money down, show no proof
of income or employment and walk away with a million dollar mortgage.
But I am suggesting that we need to be vigilant for circumstances
where--either through legislative or regulatory action--the Federal
government may have inadvertently swung the pendulum too far in the
direction of restricting access to the mortgage market in the name of
consumer protection.
There are two letters I received from mortgage brokers in Indiana
that point to one potential example. The issue relates to variable rate
pricing of mortgage insurance for Federal mortgage loans.
These letters show these two mortgage agents both believe that the
Federal Housing Administration's shift in policy from charging a flat-
rate for mortgage insurance to charging a variable rate based on a
person's credit score, has unfairly excluded some qualified buyers from
the dream of home ownership.
I am not a mortgage expert; Madam Speaker, so I will defer to the
experts as to whether the shift from flat-rate pricing to variable rate
pricing is truly preventing would be homeowners from buying a home; but
I would like to cite for the record a 2007 report done by the
nonpartisan General Accountability Office regarding the proposed
changes to the Federal Housing Administration's lending standards,
including the shift to variable rate pricing of mortgage insurance
premiums. The report reads, in part:
``. . . our analysis of data for FHA's home purchase borrowers in
2005 showed that, under FHA's risk-based pricing proposal, about 43
percent of those borrowers would have paid the same or less than they
actually paid, 37 percent would have paid more, and 20 percent would
not have qualified for FHA insurance.''
In other words, GAO's analysis, based on my understanding of the
report, seems to suggest that variable rate premiums, based on
perceived risk, send little extra money into the mortgage insurance
trust fund to protect the funds from increased defaults but deny 20
percent of applicants FHA mortgage insurance--and by extension a
mortgage.
If GAO's analysis is correct, and I have no reason to doubt GAO's
findings, it would seem to support the arguments offered by the
mortgage brokers from Indiana I cited earlier. In that case, Madam
Speaker, I would ask my colleagues on the Finance Committee to give all
due consideration to investigating the policy of variable rate pricing,
in order to ensure that truly qualified borrowers are not being
unfairly pushed out of the housing market.
All Star Mortgage Company,
August 19, 2009.
Congressman Dan Burton,
Rayburn H.O.B.,
Washington, DC.
Dear Congressman Burton: I am writing this letter as a
follow up in regards to our meeting last week. The American
consumer that desires to purchase a new home or refinance
their existing home is at a distinct disadvantage considering
Fannie Mae and Freddie Mac's unfair increased risk based
pricing and mandatory delivery fees. These excessive fees and
higher down payments are stifling the real estate market.
They are overly burdensome to consumers, even those with
perfect payment histories. This is not only stalling the
housing recovery, but also inhibiting the overall economy, as
many industries are housing related. This unfair practice is
excluding many well-qualified borrowers from the dream of
home ownership. It would be my hope that Congress would call
for Fannie Mae and Freddie Mac to revisit their current
policy of charging higher fees and requiring larger down
payments to certain qualified borrowers, than they would
charge an equally qualified borrower based solely upon credit
score without regard to the borrower's actual credit
repayment history.
Sincerely,
Greg Evans,
President.
____
1st Mortgage of Indiana, Inc.,
Indianapolis, IN, August 19, 2009.
Congressman Dan Burton,
Rayburn H.O.B.,
Washington, DC.
Dear Congressman Burton:Many American consumers that desire
to purchase a new home, or refinance their existing home, are
being discriminated against based solely upon their Fico
credit scores. We believe that Fannie Mae and Freddie Mac's
increased risk based pricing, and mandatory delivery fees are
unfair and excessive. These fees are overly burdensome to
consumers, including many consumers with perfect payment
histories. This is stalling the housing recovery and also
inhibiting the overall economic rebound, as many industries
are housing related. This unfair practice is excluding many
well-qualified borrowers from the dream of home ownership.
Please allow me to cite one real life example. We recently
attempted to assist a 1st time home buyer who had a long
credit history. Her re-payment history was perfect! She never
had a single late payment! She had sacrificed and saved for
years to come up with a 20% down payment. However, due to the
type of credit she had established and had utilized (mostly
revolving accounts vs. installment loans), her Fico score was
679. Based on Fannie Mae and Freddie Mac's risk based
pricing, an additional fee of 2.5% of the loan amount would
have been due and payable directly to Fannie or Freddie. With
her loan amount of $250,000, that equated to $6250 in
additional fees. This unfair additional fee caused her family
to delay their dream of homeownership, and also prevented the
would-be seller from selling their home and purchasing
another. Sadly, this scenario is being repeated over and over
nationally. Please call on FNMA and FHLMC to stop charging
these excessive fees!
Sincerely,
J. Michael Strawn,
VP.
Catherine J. Strawn,
President.
____________________