[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.
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