[Congressional Record Volume 157, Number 81 (Tuesday, June 7, 2011)]
[Senate]
[Pages S3568-S3569]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    QUALIFIED RESIDENTIAL MORTGAGES

  Mr. ISAKSON. Mr. President, I commend the Senator from Kansas. I had 
no idea when I came to make my remarks that they would be so in keeping 
with a part of his speech with regard to regulation and what the 
regulatory regimen of the current administration is doing to economic 
improvement and economic development in the United States of America.
  I rise for a moment to talk about the Dodd-Frank legislation, to talk 
about the qualified residential mortgage provision, and to talk about 
the six regulators of financial services and a recent decision they 
made.
  Shaun Donovan, Ben Bernanke, Sheila Bair, Edward Demarco, John Walsh, 
and Mary Schapiro were challenged with carrying out and writing the 
rules of intent for Dodd-Frank. When they published, a few weeks ago--
about 2 months ago now--the proposed rule on qualified residential 
mortgages, it created a firestorm and created a number of speeches on 
the floor of the U.S. Senate. It also created a letter from 39 Members 
of the U.S. Senate, which I ask unanimous consent be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                  U.S. Senate,

                                     Washington, DC, May 26, 2011.
     Hon. Shaun L.S. Donovan,
     Secretary, Department of Housing & Urban Development, 7th 
         Street, SW, Washington, DC.
     Hon. Ben S. Bernanke,
     Chairman, Board of Governors of The Federal Reserve System, 
         20th & Constitution Avenue, NW, Washington, DC.
     Hon. Sheila C. Bair,
     Chairman, Federal Deposit Insurance Corp., 17th Street, NW, 
         Washington, DC.
     Hon. Mary L. Schapiro,
     Chairman, Securities and Exchange Commission, F Street, NE, 
         Washington, DC.
     John G. Walsh,
     Acting Comptroller, Office of the Comptroller Of the 
         Currency, E Street, SW, Washington, DC.
     Edward J. Demarco,
     Acting Director, Federal Housing Agency, G Street, NW, 
         Washington, DC.
       Ladies and Gentlemen: We the undersigned intended to create 
     a broad exemption from risk retention for historically safe 
     mortgage products when we included the Qualified Residential 
     Mortgage (QRM) exemption in the Dodd-Frank Wall Street Reform 
     and Consumer Protection Act.
       The statute requires the QRM definition to be based on 
     ``underwriting and product features that historical loan 
     performance data indicate result in a lower risk of 
     default,'' and provides clear guidance on the types of 
     factors that can be used, including:
       Documentation of income and assets;
       Debt-to-income ratios and residual income standards;
       Product features that mitigate payment shock;
       Restrictions or prohibitions on non-traditional features 
     like negative amortization, balloon payments, and prepayment 
     penalties; and
       Mortgage insurance on low down payment loans.
       The proposed regulation goes beyond the intent and language 
     of the statute by imposing unnecessarily tight down payment 
     restrictions. These restrictions unduly narrow the QRM 
     definition and would necessarily increase consumer costs and 
     reduce access to affordable credit. Well underwritten loans, 
     regardless of down payment, were not the cause of the 
     mortgage crisis. The proposed regulation also establishes 
     overly narrow debt to income guidelines that will preclude 
     capable, creditworthy homebuyers from access to affordable 
     housing finance.
       The extensive additional requirements for QRMs in the 
     proposed rule swing the pendulum too far and reduce the 
     availability of affordable mortgage capital for otherwise 
     qualified consumers. Many borrowers would simply be forced to 
     pay much higher rates and fees for safe loans that 
     nevertheless did not meet the exceedingly narrow QRM 
     criteria. Sadly, in many cases, some creditworthy borrowers 
     may not be able to get a mortgage at all.
       Congress included the QRM to exempt safe, well-underwritten 
     mortgages that have stood the test of time from the risk 
     retention requirement. We urge you to follow our intent as 
     you modify the proposed risk retention rule.
           Sincerely,
         Mary L. Landrieu, U.S. Senator; Kay R. Hagan, U.S. 
           Senator; Johnny Isakson,

[[Page S3569]]

           U.S. Senator; Saxby Chambliss; Bob Casey, Jr.; Jeff 
     Sessions; Richard Burr; Chris Coons; Ron Wyden; Mark 
     Pryor; Scott P. Brown; Tom Carper; Robert Menendez; Claire 
     McCaskill; Richard Blumenthal; Mike Enzi; Lindsey Graham; 
     Roy Blunt; John Hoeven; Thad Cochran; Mike Crapo; John 
     Barrasso; Max Baucus; Jeanne Shaheen; Kent Conrad; Joe 
     Lieberman; Sheldon Whitehouse; Daniel K. Akaka; E. 
     Benjamin Nelson; John Boozman; Mark Udall; Bernard 
     Sanders; Michael F. Bennet; Debbie Stabenow; Jon Tester; 
     Herb Kohl; Jeffrey A. Merkley; James E. Risch; Mark 
     Begich.

  Mr. ISAKSON. These 39 Senators wrote specifically to these regulators 
to express their concern with the possible effects of the proposed 
regulation that the regulators were proposing on qualified residential 
mortgages. I am pleased to say that a few days ago the six regulators 
extended the comment period from June 20 now to August 1. I have not 
talked to them, but I hope it is because they have been listening to 
speeches, they have been reading the comments, they have been seeing 
the testimony, and they understand, if left uncorrected, and if put in 
place, the current rule on qualified residential mortgages will be a 
second hit to what is already a very fragile U.S. housing market.
  Just last week, the reports for the most recent month in terms of 
residential home sales saw the beginning of a second dip in residential 
housing. This morning the Wall Street Journal reported 40 percent of 
the homes in America that contain a second mortgage or an equity line 
of credit are now under water--40 percent.
  One of the reasons they are is because prices are continuing to 
decline. One of the reasons prices are declining is the buyers are not 
there. It is a seller's market, we have too many foreclosures, and too 
many short sales.
  The impact of the qualified residential mortgage amendment to Dodd-
Frank was an amendment offered by Mrs. Hagan, Ms. Landrieu, and 
myself--all with experience in housing and knowledge about the 
marketplace. We put it in because the original Dodd-Frank legislation 
said mortgage people making mortgages were going to have to hold risk 
retention of 5 percent in that mortgage, which basically would put most 
everybody in the mortgage business out of the mortgage business, except 
a handful of people. We put in the qualified residential mortgage 
amendment the specific parameters by which a mortgage could be exempt 
from risk retention, which were a downpayment of at least 20 percent 
or, if the downpayment was less than that, it had to carry private 
mortgage insurance to insure the effect of an 80 percent loan; second, 
qualified ratios that demonstrated the couple could pay back the 
mortgage under any reasonable assumption; third, the house had to 
appraise; fourth, the credit worthiness of the individual had to 
demonstrate they could pay for the mortgage.
  Those were all the reasonable underwriting criteria that existed 
before the financial collapse of mid 2006-2007. The rule that was 
proposed by the six regulators, on which now they have extended the 
commentary time, completely avoided and made no mention of the private 
mortgage insurance requirement and said for a qualified residential 
mortgage to exempt risk retention, the buyer would have to put down at 
least 20 percent. Most buyers in America do not have at least 20 
percent, and under current economic times and what has happened, they 
have a lot less than that.
  But for years--and I was in the housing business for 33 years--the 90 
and 95 percent conventional loans made in this country were the 
backbone of the loans that helped support the housing market, and those 
loans required a private mortgage insurance policy on any amount of 
loan exceeding 80 percent, up to 95 percent. We need the ultimate rule 
coming back from these regulators, by August 1, to contain that 
provision so as to exempt from risk retention any mortgage that meets 
the underwriting criteria, including private mortgage insurance on any 
amount above 80 percent, and up to 95 percent.
  If we do not do it, I want to tell you what will be the outcome, and 
it is without question. You will remember, Mr. President, when we got 
into trouble in housing it was because we directed Freddie and Fannie 
to buy affordable housing loans, which became a consumer of subprime 
packages that were generated on Wall Street. Subprime packages were 
loans that had high coupon rates, and they were made to risky 
borrowers. They were intended to get more people into housing, but they 
became an abused process.
  Because we directed Freddie and Fannie to buy that type of paper, it 
created a demand for that type of paper, which Wall Street fulfilled. 
So, in other words, you had a premium pricing on the coupon, which made 
the security attractive, but the risk was greater because the loans 
were to people with less good credit.
  We have now gone the other way. The pendulum has swung 180 degrees 
the other way. With the pending rule being circulated, upon which this 
commentary time has been extended, if it goes into place, you will 
create 90 and 95 percent loans being priced just like loans that were 
subprimer priced because very few people will make those loans--only a 
few large lenders. They will price the interest rate on those loans 
high because of scarcity. In other words, a borrower borrowing 95 
percent or 90 percent with private mortgage insurance will end up 
paying a premium--a premium in interest rate or discount points--in 
order to get that loan because there will not be a wide distribution or 
availability of that type of conventional financing.
  The unintended consequence of the rule being proposed--which we, 
fortunately, have an extension on comment time--would create another 
ability for lenders with the capacity of risk retention to price a loan 
at such a rate that it is too high for the average consumer.
  The other thing it is going to do is a lot of consumers who cannot 
get a qualified residential mortgage of 90 or 95 percent will be out of 
the housing market.
  What is the result of that? The result of that is an extension of 
what the most recent figures demonstrated: lower demand, declining 
housing prices, and a protracting continuance of the worst housing 
recession in the history of the United States of America.
  So I come to the floor today, first of all, to say thank you to the 
six regulators for extending the comment period; second, to urge my 
colleagues to urge the lending institutions, the real estate industry, 
the consumer interest groups, the housing advocacy groups, to have 
their input with these regulators on the proposed qualified residential 
mortgage rule, because if left unamended--as it currently is proposed 
by the regulators--it will make housing less affordable in America; the 
access to conventional credit less available in America; it will 
decline the demand that exists already, which is historically too low; 
it will protract the continuing decline of housing values in America; 
and it will cause our economy to continue to slide in an even deeper, 
deeper depression.
  It is critically important what the Senator from Kansas said be 
recognized: Be sure when you pass a regulation that the unintended 
consequence does not cause a bigger problem than the problem you are 
trying to correct.
  I admire our regulators. I appreciate the hard job we have given 
them. I appreciate the fact they have extended the comment time. I hope 
now they will also listen to the comments being made, come back, and 
make a qualified residential mortgage rule that includes the provision 
for private mortgage insurance on loans in excess of 80 percent and no 
more than 95 percent.
  Mr. President, I yield the floor.

                          ____________________