[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.

[[Page S8723]]

  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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