[Congressional Record Volume 157, Number 194 (Friday, December 16, 2011)]
[Senate]
[Pages S8722-S8723]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
MORTGAGE FINANCING
Mr. ISAKSON. Mr. President, this morning it was announced that the
former officers of Freddie Mac and Fannie Mae are going to be
prosecuted, or cases have been filed, for their misrepresentation of
the liabilities that both of those institutions posed to the American
Congress and American taxpayers.
Last year when we passed the Dodd-Frank amendment on mortgages and on
risk retention, we exempted Freddie Mac and Fannie Mae from the
liability that every other company in the country had to go through. We
find ourselves today in a place where Freddie Mac and Fannie Mae have
cost the American taxpayer at least $171 billion. That number is rising
because of the exemption from Dodd-Frank; Freddie and Fannie, other
than FHA, are the only act in town.
A week ago I introduced a piece of legislation to deal with this
issue. It is a piece of legislation that will terminate Freddie Mac and
Fannie Mae and create a bridge, or a transition, from where we are to a
privatized mortgage securitization and guarantee program.
I want to briefly address how that takes place because in the end it
will pay back the American taxpayer. It will put Freddie and Fannie out
of business, and we will have a robust mortgage market available to the
American people as the housing market begins to recover in this
country.
First of all, the legislation creates a new entity called the
Mortgage Finance Agency. It is an agency with directors that are
appointed by the President with advice-and-consent approval by the
Senate. Its directors are members of the government that deal with
financial institutions and financial regulations. It will have advisory
groups for people affiliated with housing, and it will be established
with the following goals: Within a year it will be up and running so it
can be a guarantor of quality residential mortgages--and I underline
QRM, quality residential mortgages.
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The mortgage disaster America has today was a failure of
underwriting. We didn't make good loans. We made high-risk loans
because they had high coupon paper and securitized it on Wall Street.
People made a lot of money, but America lost and today our economy
suffers because of it.
The new mortgage finance agency would be able to guarantee and wrap
high-quality residential mortgages. In those wraps and in those
guarantees they would receive a fee which would go into a catastrophic
fund to back up the risk on those mortgages.
In addition to that, the QRM requirements would make it essential
that no loan was made 95 percent loan-to-value. Any loan above 70
percent would have private mortgage insurance on the amount up to 95
percent, and within 36 months the agency would be required to have
supplemental insurance coverage to take the risk down to 50 cents on
the dollar.
It would be required by the fifth year to have a game plan
established and a plan of liquidating the asset and privatizing the
guarantee to the private sector. That is a very important process
because it is the bridge to the end of Freddie and Fannie and the
taxpayer guaranteeing of residential mortgages. We would have a
situation with a downpayment of 5 percent, private mortgage insurance
of 25 percent, and supplemental insurance of 20 percent, and the risk
to the government would be 50 cents on the dollar.
In the great recession values fell 31 percent. In this recession they
have fallen 33 percent. So the government's coverage would be 17
percent in addition to the liability that exists today. It is a very
good place to have the government and to build an entity that brings us
back to a mortgage market in the United States of America that is
viable and that works.
I don't like Freddie Mac and Fannie Mae, and I don't like what
happened, but it has happened. I know everybody wants to terminate
them, and I do too. But we have a difficult housing market in America
that will only come back when this robust capital is flowing into the
mortgage markets, and that will only take place when we get ourselves
out of the current dilemma and on a path toward privatization.
The American private sector is a tremendous entity. It has proven in
many ways they can find a solution to most all problems we have, but we
have to create a bridge to that privatization. We have to create an
entity that works, an entity that is self-sustaining, and change some
of the principles of lending back to the way it used to be in this
country so that when people borrow money on their houses, they really
have a job, and it is verified, and their credit score indicates they
can make the payments they are going to be required to make; that their
credit history is a good history, and the house appraises and the
underwriting is sound. Most importantly of all, the borrower has skin
in the game, and there is insurance on the mortgage above 70 percent
and supplemental insurance down to 50 percent. When we do that, we have
qualified residential mortgages, an entity that in the beginning can
secure those and can guarantee those and can, at the end of 10 years,
have an institution that can be privatized.
Here is the real kicker. Upon privatization, the money that is made
by the government on the sale of the entity goes to pay back the
taxpayer for the $171 billion or more they lost, and any excess money,
which more than likely there would be, goes to reduce the national
debt.
So I hope everyone in this body will look at the Mortgage Finance
Agency proposal I introduced last week. When we come back next year,
instead of griping about the problems we have had, let's start looking
to the solutions that will take us back to the America we love
economically and the housing market that is absolutely critical to our
country.
I yield the floor.
The PRESIDING OFFICER. The Senator from Ohio.
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