[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE OBAMA ADMINISTRATION'S
RESPONSE TO THE HOUSING CRISIS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INSURANCE, HOUSING AND
COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
OCTOBER 6, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-69
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72-620 WASHINGTON : 2012
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
Larry C. Lavender, Chief of Staff
Subcommittee on Insurance, Housing and Community Opportunity
JUDY BIGGERT, Illinois, Chairman
ROBERT HURT, Virginia, Vice LUIS V. GUTIERREZ, Illinois,
Chairman Ranking Member
GARY G. MILLER, California MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin BRAD SHERMAN, California
ROBERT J. DOLD, Illinois MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio
C O N T E N T S
----------
Page
Hearing held on:
October 6, 2011.............................................. 1
Appendix:
October 6, 2011.............................................. 41
WITNESSES
Thursday, October 6, 2011
Barofsky, Neil M., Senior Fellow and Adjunct Professor, New York
University School of Law....................................... 24
Calabria, Mark A., Ph.D., Director, Financial Regulation Studies,
Cato Institute................................................. 26
Galante, Carol J., acting Assistant Secretary for Housing/Federal
Housing Administration Commissioner, U.S. Department of Housing
and Urban Development, accompanied by Yolanda Chavez, Deputy
Assistant Secretary of Grant Programs, Office of Community
Planning and Development, U.S. Department of Housing and Urban
Development.................................................... 9
Goodman, Laurie S., Senior Managing Director, Amherst Securities
Group LP....................................................... 28
Jakabovics, Andrew, Senior Director, Policy Development and
Research, Enterprise Community Partners........................ 30
Kingsley, Darius, Deputy Chief, Homeownership Preservation
Office, U.S. Department of the Treasury........................ 10
Trevino, Tammye H., Rural Housing Services Administrator, U.S.
Department of Agriculture...................................... 7
APPENDIX
Prepared statements:
Barofsky, Neil M............................................. 42
Calabria, Mark A............................................. 50
Galante, Carol J............................................. 62
Goodman, Laurie S............................................ 75
Jakabovics, Andrew........................................... 83
Kingsley, Darius............................................. 93
Trevino, Tammye H............................................ 117
Additional Material Submitted for the Record
Biggert, Hon. Judy:
Written statement of the U.S. Department of Housing and Urban
Development................................................ 127
Written statement of the National Association of REALTORS... 139
Letter from the National Low Income Housing Coalition........ 146
THE OBAMA ADMINISTRATION'S
RESPONSE TO THE HOUSING CRISIS
----------
Thursday, October 6, 2011
U.S. House of Representatives,
Subcommittee on Insurance,
Housing and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:30 a.m., in
room 2128, Rayburn House Office Building, Hon. Judy Biggert
[chairwoman of the subcommittee] presiding.
Members present: Representatives Biggert, Hurt, Capito,
Garrett, Duffy, Dold; Gutierrez, Waters, Velazquez, Cleaver,
Watt, and Sherman.
Also present: Representative Al Green of Texas.
Chairwoman Biggert. This hearing of the Subcommittee on
Insurance, Housing and Community Opportunity will come to
order.
We will begin with opening statements, and it is great to
see all of the witnesses back here again. Thank you for coming.
I will recognize myself for 4 minutes.
Today's hearing is a continuation of our subcommittee's
work to examine the Administration's refinancing and
foreclosure mitigation initiatives and efforts to facilitate
the return of the private sector into the housing market, and
we will hear from senior Administration officials and several
private-sector witnesses.
Earlier this year, the House voted to end a number of the
Administration's housing programs because they were
unsuccessful, costing taxpayers billions of dollars, and, in
the case of HAMP, doing more harm than good.
Nearly one month ago, President Obama offered two new
initiatives as part as his jobs speech that he urgently
requested to deliver to a joint session of Congress. These new
housing programs were: one, a modified version of an existing
Fannie Mae and Freddie Mac program to refinance mortgages
called the Home Affordable Refinance Program, or HARP; and two,
a $15 billion program that is a new iteration of the
Neighborhood Stabilization Program, or NSP, which we will
examine.
At a glance, both of these initiatives sound more like
stimulus spending. However, as we have learned, Federal
spending doesn't create jobs. Rather, it increases our deficit.
That said, I look forward to hearing more details about them
from the Administration officials.
As for housing, it isn't clear to me how any of the
Administration's initiatives or proposals have succeeded in
facilitating a market recovery. In fact, the Administration
never achieved its own projections for success of these
initiatives. In short, I think that these programs have failed
to deliver. Housing always leads us out of recession, but the
Administration's housing regulations and policies are expanding
the role of government in the mortgage market and forestalling
our economic recovery.
First, Federal Government programs, FHA, Fannie and
Freddie, monopolize 90 percent of the mortgage market; second,
failed taxpayer- funded housing programs like HAMP are
preventing the market from hitting the bottom and prolonging
our housing, economic, and job recovery; and third, businesses
and the mortgage market are threatened by the Administration's
new costly regulations like the proposed QRM regulations. QRM
will distort competition in the market, limit choice in credit,
and increase costs for consumers and businesses. Businesses
need regulatory certainty, relief, and common sense, not
competition or indecisiveness from Washington.
At today's hearing, we are going to talk about the fact
that Americans need jobs, which is what businesses, not
government, create; and today we have an opportunity to
evaluate the last 3 years of the Administration's response to
the housing crisis through the numerous housing programs. It is
my hope that we will get a better understanding of the lessons
learned before considering new approaches.
I welcome today's witnesses and recognize the ranking
member, Mr. Gutierrez, for 5 minutes.
Mr. Gutierrez. Thank you, Chairwoman Biggert, and thank you
to all the witnesses for joining us this morning.
Once again, we are talking about the continuing housing
crisis, and I have seen this movie before. Millions of families
are still facing default or foreclosure, vacant homes are
dragging down communities, and we are still not sure we have
seen the worst of it; and we are taking another necessary look
at housing programs implemented in response to the crisis, most
of which have failed to live up to our expectations.
While we can talk about these programs all day long, we
cannot refute the fact that we have squandered an opportunity.
We had a chance to force Wall Street banks to take
responsibility for an economic crisis they helped create but
were too easy on them from the start.
To make matters worse, banks have done far too little to
help families stay in their homes. Treasury, HUD, and FHFA
decided at some point that foreclosure prevention could be done
with optional programs and incentives, and then the banks came
back and told us the incentive programs weren't big enough.
Then, mortgage servicers turned their modifications that didn't
work and robo-signing foreclosures and just hoped we weren't
looking.
I can say that I am encouraged by some of the promising new
ideas out there because I still believe there are many actions
that can help. For example, Project Rebuild could give
neighborhood organizations more access to private capital to
stabilize hard-hit communities. The agencies in charge could
all be more creative, careful, and thoughtful in the way they
manage all the foreclosed homes they have on their books.
Changes to HARP could also allow more people to refinance
expensive mortgages.
But as we move forward with the next set of ideas, we must
take a good look and see what we can learn from our past
mistakes. We certainly can't afford to repeat them.
I look forward to the testimony of the witnesses, and I
thank the chairwoman.
Chairwoman Biggert. Thank you, Mr. Gutierrez.
Mr. Hurt, our vice chairman, is recognized for 1 minute.
Mr. Hurt. Thank you, Madam Chairwoman.
Thank you for holding another important hearing in the
subcommittee to conduct oversight of the Obama Administration's
response to the housing crisis. I appreciate your leadership on
these issues and your commitment to responsible policies that
will facilitate the return of private capital to the housing
market.
This subcommittee has conducted a number of hearings
examining the programs that the Obama Administration created in
an attempt to address the housing and economic crises. While
these programs were well-intended, our subcommittee has found
these initiatives have not yielded the results that the
American taxpayers were promised at their inception. Billions
of dollars were committed to these programs. Yet, we have heard
from GAO, the TARP Inspector General, and other experts that
these programs have proven ineffective in assisting homeowners
in an unwise use of taxpayer dollars.
While the subcommittee has demonstrated how misguided this
approach is, the President is proposing to double down on these
flawed initiatives as part of his American Jobs Act. The best
way that we can help the homeowner in the 5th District of
Virginia, my district, and across the country stave off
foreclosures is with a job. Instead of trying to spend our way
to an economic recovery, it is critical that we continue to
focus on supporting policies that remove barriers to job growth
so that our job creators will have the confidence necessary to
put people back to work and move our economy forward.
I thank the witnesses who are here today to share with us
their perspectives, and I look forward to hearing from you. I
yield back my time.
Chairwoman Biggert. Thank you.
The gentlelady from West Virginia, Mrs. Capito, is
recognized for 1 minute.
Mrs. Capito. Thank you, Madam Chairwoman.
I would like to thank you for holding this hearing to
examine the Administration's efforts to ease the housing
collapse that left so many of our Nation's homeowners
devastated. The difficulties currently facing the housing
market are certainly central to the health of our overall
economy.
As we know, the different programs that were created--HAMP,
HARP, NSP, the FHA refinance, and the emergency home loan
program--may have provided relief to some, but they have fallen
woefully short of their goals and failed to right a housing
market which is still struggling.
Earlier this year, after documenting the progress of
homeowner assistance, foreclosure prevention, and community
development efforts, it became, I think, very apparent that too
many taxpayers' dollars are being spent supporting ineffective
programs. Not only are these not reaching homeowners, but in
some cases, the homeowners who did receive assistance have come
out in a worse financial position than before.
This morning we have another--yet another opportunity to
shed light on the failed initiatives and gain insight into how
to proceed in the recovery of our housing system.
Unfortunately, the Administration is interested, I believe, in
implementing new programs that seem to mimic the old ones.
I would like to thank the chairwoman for bringing us
together and I look forward to the testimony of our witnesses.
Thank you.
Chairwoman Biggert. Thank you.
The gentleman from New Jersey, Mr. Garrett, is recognized
for 2 minutes.
Mr. Garrett. I thank the Chair for holding this important
hearing.
At the risk of stating the obvious, our Nation's housing
market is hurting, and it is hurting badly. House prices are
falling, we have delinquencies, default rates are at record
levels, and there is a vast oversupply of properties hanging
over the market.
It is important to remember that we did not get into this
mess overnight, and there is no magic elixir to cure all the
ills. But as policymakers, we can decide to prolong the pain
and continue to kick the can down the road, dragging the
problem out for years to come at a much greater cost to
taxpayers, or we can confront the problem and face it head on
and begin to do the necessary work of what? Clearing the excess
inventory and reestablishing a more sustainable housing finance
system.
Ad hoc plan after ad hoc plan by this Administration has
done absolutely nothing but delay the eventual correction that
our housing market and market participants have to endure. The
current new ad hoc plans being floated by this Administration
appear to be nothing more than a back-door stimulus plan by
forcing the breaking of legal contracts and requiring the GSEs
to basically forfeit their legal standing on claims to the
banks that sold them faulty loans. This would potentially
subject the GSEs to billions and billions of dollars of
additional losses, the bills of which will go directly to whom?
All of the American taxpayers.
Also, CBO has stated that taxpayers will stand to lose
literally billions of dollars through lower coupon payments
that the Fed will receive on its $1.25 trillion of agency
mortgage-backed securities that it purchased through its first
round of quantitative easings. Add that together, then.
As if these concerns were not enough, the most troubling
aspect of these proposals is what? It is the negative impact
that it will have on private mortgage investment from this
point forward. At a time when we are trying to bring more
private investment banks back into our Nation's mortgage
system, actions now being taken by the Federal Government to
reduce the value of investments currently being held by
investors will act as an impediment, if you will, to future
investment. These actions will raise future rates as investors
will have to basically price this into the mix.
Fannie and Freddie are not toys of this Administration to
try out their new social policy. Fannie and Freddie are two
failed companies that have played a leading role in this
financial crisis, and at a time like this, the last thing we
need to do is to give investors another reason not to buy U.S.
mortgage-backed securities.
Chairwoman Biggert. Thank you.
Mr. Dold, the gentleman from Illinois, is recognized for 2
minutes.
Mr. Dold. Thank you, Madam Chairwoman.
Obviously, we have a very serious housing problem in this
country. When serious problems arise, whether they are in the
private sector or in the government, our first priority should
be to thoroughly investigate the problem and correctly define
what the actual problem is. And then we think about possible
solutions, and we try to identify the most cost-effective
solutions while also trying to identify the potential
unintended consequences and risks.
Once we settle on the most cost-effective solution, we need
to think about how best to implement and execute that solution.
Certainly, that is what we do in the private sector. At all
times, we recognize that we are necessarily dealing with
imperfect information, with imperfect institutions, and with
frequently changing circumstances. And at all times, we
recognize that mistakes are possible at any point in the
problem-solving process, and we should expect that future
changes and improvements will be made. So after the
implementation and execution, our next obligation is to
continually reevaluate the results, while looking for necessary
changes and improvements. We don't do that very well.
So after we ask whether we correctly defined the problem in
the first place and whether our assumptions were valid, we also
should ask whether we chose the best solution, whether we
properly implemented and executed the solution, and whether we
created unintended negative consequences. Very simply, for any
serious business problem or public policy problem, we must ask
what worked and what didn't work and, more importantly, why.
And then, we are obligated to make the necessary changes and
improvements.
We are not rigidly tied at all costs to previous decisions.
We are not trying to prove at all costs that we were perfectly
correct all along and that nothing ever needs to change or that
more of the same is the only possible answer. Instead, changes
and improvements and corrections are unquestionably a necessary
and useful part of the entire problem-solving process. That is
the problem, and that is why we are here today, to evaluate the
historical results of the Obama Administration's efforts to
solve this very serious public policy problem, which is the
housing crisis in this country, and to identify the possible
changes and improvements to those efforts.
The country is depending on us to do this as we look at the
excess glut of housing that is out there. So I look forward to
having our witnesses help us identify these issues and move
forward for the American public.
And I yield back.
Chairwoman Biggert. Thank you. Just in the nick of time.
Do you have an opening statement, Ms. Waters? Good morning.
The gentlelady is recognized for 5 minutes.
Ms. Waters. Thank you very much. Madam Chairwoman, I would
like to thank you for holding this hearing this morning.
There were a record 2.9 million foreclosure filings in
2010, up from 2.8 million in 2009, and 2.3 million in 2008.
Filings will be 20 percent higher in 2011, crossing the 3
million threshold.
With 3 million families at risk of losing their homes this
year, there is a clear need for programs that prevent
foreclosures and deal with the blight and disinvestment caused
by abandoned and foreclosed properties. The Administration's
response to date simply hasn't been bold enough. This is why I
am pleased that, as part of the American Jobs Act, the
Administration has recommended expanding the highly successful
Neighborhood Stabilization Program, which I authored, to
include commercial properties. Called Project Rebuild, this
targeted assistance to foreclosed and abandoned residences and
commercial properties will alleviate blight and create jobs and
reinvestment in struggling communities. I am looking forward to
learning more about this very promising program.
While I am encouraged by Project Rebuild, I am disappointed
in HUD's failure to properly implement the Emergency Homeowners
Loan Program. I believe that the program was the right solution
to the problems facing unemployed homeowners and shouldn't be
discounted simply because the agency we charged to implement it
dropped the ball. We have to hold HUD accountable for the
mistakes it made in implementing this program, but we can't
punish the millions of homeowners who would have benefited from
this program by abandoning them to unemployment and
foreclosure.
I have also had many issues with HAMP. I will be the first
to admit that I am dissatisfied with its performance thus far.
However, the problem with the program is not its goal of
helping homeowners. The problem is a lack of meaningful
participation by servicers and a lack of enforcement and
willingness to change by Treasury. Those are the problems we
need to fix, and I believe that the Administration is committed
to fixing those problems.
However, the silence from my friends on the other side of
the aisle on how we can fix HAMP to make it work better for
homeowners has been deafening. The Republicans have no answer
on how to fix HAMP and have offered no alternatives because
they are steadfastly unwilling to challenge the servicers.
Instead, my friends on the opposite side of the aisle like to
say, ``The market must bottom out.''
First, we don't even know what the bottom is yet. If we
have learned one thing, it is that foreclosures beget more
foreclosures and a spiral of declining home prices.
Second, letting the market bottom out is simply a euphemism
for letting more people lose their homes, causing children to
have to switch schools, and more families to be uprooted from
their churches, neighbors, and other community institutions.
So, Madam Chairwoman, I would like to thank you; and I
yield back the balance of my time.
Chairwoman Biggert. Thank you.
With that, without objection, all members' opening
statements will be made a part of the record, and I will now
introduce the first panel of witnesses.
First of all, we have Ms. Tammye Trevino, Administrator,
Housing and Community Facilities Programs, U.S. Department of
Agriculture's Rural Development Agency. Thank you for being
here. Second, Ms. Carol Galante, acting Federal Housing
Administration Commissioner and Assistant Secretary for
Housing, U.S. Department of Housing and Urban Development. And,
finally, Mr. Darius Kingsley, Deputy Chief, Homeownership
Preservation Office, U.S. Department of the Treasury.
For the record, I would also like to recognize Ms. Yolanda
Chavez, Deputy Assistant Secretary of Grant Programs with the
Office of Community Planning and Development at HUD. Ms. Chavez
is accompanying Ms. Galante to answer any technical questions
about NSP or Project Rebuild.
I don't see her. Maybe when we get to the questions, she
can move up. That would be fine. Thank you.
Without objection, all of our witnesses' written statements
will be made a part of the record, and you will each be
recognized for a 5-minute summary of your testimony.
And, with that, we will start with Ms. Trevino. You are
recognized for 5 minutes.
STATEMENT OF TAMMYE H. TREVINO, RURAL HOUSING SERVICES
ADMINISTRATOR, U.S. DEPARTMENT OF AGRICULTURE
Ms. Trevino. Thank you, Chairwoman Biggert, Ranking Member
Gutierrez, and members of the subcommittee. It is my privilege
once again to be with you today.
As we discussed last month, the mission of the Rural
Housing Service (RHS) is to create vibrant, thriving rural
communities, a strong housing stock, access to safe, decent,
and affordable rental housing, and access to high-quality
essential community infrastructure. For over 60 years, the
Rural Housing Service has provided essential credit access to
areas in which low population density has hindered capital
formation and infrastructure development. The Rural Housing
Service helps foster the economic stability needed to sustain
rural America, preserving its vital contribution to our
Nation's prosperity, security, and success.
To ensure the effectiveness of efforts to improve capital
access in rural areas, RHS over the past 2 years has
reevaluated programs from both delivery and beneficiary
perspectives and made important enhancements, including:
reengineering the Section 502 Single Family Housing Guaranteed
program such that fees are expected to offset losses, allowing
the program to facilitate rural borrowers' access to credit
while mitigating costs to the taxpayer; increasing flexibility
in lending programs for better responsiveness to changing
economic conditions; and actively emphasizing loan refinance
modifications and workout solutions designed to keep homeowners
in their homes.
Our programs, as you know, are far-reaching. The Single
Family Housing, Multi-Family Housing, and Community Facilities
Services areas are closely integrated through the 47 State
offices and 500 offices that comprise our field structure.
With a budget authority of $1.3 billion, RHS leveraged a
program level of approximately $27.2 billion in loans, loan
guarantees, grants, and technical assistance in Fiscal Year
2011. In undercapitalized rural economies across the Nation,
the significance of this level of commitment can hardly be
overstated. Since Fiscal Year 2008, the program level for the
Section 502 Single Family Housing Guaranteed Program has
increased almost fourfold. The program expanded from $6.2
billion in Fiscal Year 2008 to the current program level of $24
billion.
For the single family housing direct program, in the 3
years from 2009 to 2011, more than 52,000 single family housing
direct obligations totaling $4.79 billion were made to low- and
very low-income rural Americans. For families and individuals
who often could not qualify for single family housing loans
during that period, the Rural Housing Service multi-family
housing programs invested $648.8 million and attracted an
additional $1.74 billion in third-party investments for rental
housing in rural America. These improvements to multi-family
housing stock benefited more than 460,000 Americans living in
Rural Development units, with the majority being our elderly
and persons with disabilities. Actively managing the cost of
the housing and CF programs is more essential than ever, and
the RHS is pursuing several strategies toward that end.
In the area of portfolio management, RHS has compiled a
superior performance record over the past decade. In the area
of efficiencies, through asset redeployment and operational
realignment, RHS is pursuing streamlining initiatives in
several key areas, including our State network and field office
and the centralization of core operations at our central
servicing center in St. Louis.
And in the area of partnerships in the instances of shared
interests, Rural Development has developed various partnerships
with entities, agencies, and private and nonprofit
organizations. Of particular note is the collaboration with my
partners at this table.
RHS has been working with HUD, Treasury, OMB, and other
Federal partners in an effort to better coordinate Federal
rental policy and identify administrative changes.
On September 29th, in Mount Pleasant, Michigan, USDA, HUD,
and the Michigan State Housing Development Authority signed a
three-party MOU to coordinate subsidy layering reviews for
rental housing developments funded by more than one source in
Michigan. The MOU is designed to streamline and clarify the
regulatory process so that transactions can be approved faster
and more efficiently and is the first written agreement in the
Nation. We are expanding these MOUs to North Carolina, Ohio,
Wisconsin, South Carolina, Nevada, Pennsylvania, and Rhode
Island.
The protracted economic downturn has had a profound effect
on poverty rates, and they are rising faster in rural America
than in urban America.
Thank you for the opportunity to address you today. More
information can be found in the written testimony that we have
submitted. Thank you.
[The prepared statement of Administrator Trevino can be
found on page 117 of the appendix.]
Chairwoman Biggert. Thank you.
Ms. Galante, you are recognized for 5 minutes.
STATEMENT OF CAROL J. GALANTE, ACTING ASSISTANT SECRETARY FOR
HOUSING/FEDERAL HOUSING ADMINISTRATION COMMISSIONER, U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, ACCOMPANIED BY
YOLANDA CHAVEZ, DEPUTY ASSISTANT SECRETARY OF GRANT PROGRAMS,
OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT
OF HOUSING AND URBAN DEVELOPMENT
Ms. Galante. Chairwoman Biggert, Ranking Member Gutierrez,
and members of the subcommittee, thank you for the opportunity
to testify today regarding HUD's response to the housing
crisis.
As you know, when this Administration took office, our
economy was shedding 750,000 jobs per month, home prices had
fallen for 30 straight months, and foreclosures were surging to
record levels. Critical to the Administration's response has
been the FHA, which even in the midst of this crisis has helped
some 2 million first-time home buyers realize the dream of
homeownership; and with 60 percent of African Americans and
Latinos using FHA insurance to buy a home in 2010, FHA has been
a particularly powerful pathway to the middle class for
minorities during this difficult time.
In addition, through one million loss mitigation actions
and early delinquency interventions, FHA has played an
important role in keeping families in their homes. Combined
with Treasury's modification programs, including HAMP, we have
set a standard for mortgage modification efforts that is
improving the way private servicers provide assistance to
borrowers. More than 5.1 million families have received
restructured mortgages since April 2009, nearly twice the
number of families who have lost their homes in that time.
Critical to this progress has been housing counseling
resources, which, as you know, were eliminated in 2011. There
is strong evidence that housing counseling works. Indeed,
distressed homeowners who work with a counselor are nearly
twice as likely to receive a mortgage modification than those
who do not. With President Obama's proposal to restore HUD's
housing counseling grant funding and the changes we are making
to get those dollars where they are needed more quickly, we
hope Congress will restore these funds for 2012.
As the underlying cause for most foreclosures has shifted
from bad loans to unemployment, we are now requiring servicers
of FHA-insured mortgages to extend the forbearance period for
unemployed borrowers to 12 months.
In addition, we are helping about 12,000 families who
otherwise might have lost their homes through the Emergency
Homeowners Loan Program. This is significantly less than the
number we had hoped to assist, in part due to the difficulties
of program set-up and the program statutory limitations.
In the face of these challenges, HUD worked closely with
counseling agencies down to the last few hours before the
September 30th deadline to make certain as many homeowners as
possible qualified for assistance. We have learned many lessons
from this process, and we know we could assist more borrowers
if we had more time.
Another key challenge is the overhang of foreclosed
properties, which drag down home prices and destabilize
communities. With about a quarter of a million foreclosed
properties owned by HUD, the GSEs, FHA joined with FHFA and
Treasury to issue a request for information to generate new
ideas for the disposition of this inventory. All three agencies
are now evaluating the comments received.
This effort complements the Administration's Neighborhood
Stabilization Program, which is on track to address more than
95,000 vacant and abandoned properties that comprise about 20
percent of the REO in targeted areas.
Independent research has shown improvements in sales prices
and vacancy rates in communities with targeted neighborhood
stabilization investments. These successes have led President
Obama to propose Project Rebuild as part of the American Jobs
Act. Project Rebuild would create almost 200,000 jobs and
further contribute to the stabilization of neighborhoods and
communities. This reflects President Obama's belief that
rebuilding neighborhoods is essential to rebuilding our
economy.
Obviously, there is still more to do. As the President
emphasized in his recent speech before Congress, a major
challenge is the difficulty homeowners face in refinancing
their mortgages. While FHA has helped 1.5 million families
refinance into safe, stable mortgage products, HUD is now
working with FHFA and Treasury to lower barriers to
refinancing, which will make it possible for more families to
save an average of $2,000 each in the first year, providing a
critical boost to our economy.
We also know that we have a responsibility to restore
private capital to the housing market while ensuring Americans
have access to quality housing they can afford. That is why the
Administration delivered a White Paper to Congress earlier this
year that provides a path forward for reforming our Nation's
housing finance system, and we look forward to working with you
to accomplish this.
We are by no means out of the woods, but with RealtyTrac
reporting 11 straight months of year-over-year declines in
foreclosure activity and crediting the policies that the
Administration has pursued as a major factor for this
improvement, I am confident we are making progress, and I look
forward to working with you and the subcommittee to continue
that progress in the months to come.
Thank you, and I look forward to your questions.
[The prepared statement of Commissioner Galante can be
found on page 62 of the appendix.]
Chairwoman Biggert. Thank you so much.
Mr. Kingsley, you are recognized for 5 minutes.
STATEMENT OF DARIUS KINGSLEY, DEPUTY CHIEF, HOMEOWNERSHIP
PRESERVATION OFFICE, U.S. DEPARTMENT OF THE TREASURY
Mr. Kingsley. Chairwoman Biggert, Ranking Member Gutierrez,
and members of the subcommittee, thank you for the opportunity
to testify today on the Administration's efforts to mitigate
the effects of the most serious housing crisis since the Great
Depression, and specifically Treasury's response to the Making
Home Affordable program and the Hardest Hit Fund.
It is important to remember that when the Obama
Administration took office in January 2009, home prices had
fallen for 30 straight months. Home values had fallen by nearly
one-third. Fannie Mae and Freddie Mac had been in
conservatorship for 4 months, and American families were
struggling to stay in their homes.
Treasury and other Federal agencies responded by taking a
series of aggressive steps. Our strategy focused on stabilizing
housing markets and helping families prevent avoidable
foreclosures. Under the authority granted by the Emergency
Economic Stabilization Act, we launched the Making Home
Affordable Program, of which our first lien modification
program, often referred to as HAMP, is a key component. In
2010, we launched the Hardest Hit Fund.
These programs are designed to provide targeted relief to
homeowners struggling to make their payments due to a financial
hardship but who remain committed to avoiding a foreclosure.
Through August 2011, HAMP has enabled more than 800,000
homeowners to secure permanent modifications of their
mortgages. These homeowners save a median of more than $525 a
month on their mortgage payments.
Today, homeowners who begin a trial plan under the program
have a high likelihood of achieving a permanent modification
and staying in it. Seventy-six percent of homeowners who
started trial modifications in the last 16 months converted to
a permanent modification, with an average trial period today of
just 3\1/2\ months.
HAMP modifications have also performed well over time.
Based on June 2011 data, after 6 months, more than 93 percent
of homeowners remain in those permanent modifications.
For homeowners who do not qualify for HAMP, our guidelines
require servicers to evaluate homeowners for other programs to
prevent a foreclosure, such as the servicer's own modification
programs. Over 2\1/2\ million of these modifications have been
offered to homeowners outside of the program at no expense to
taxpayers.
But HAMP's impact goes far beyond the individual homeowners
it has helped, because it has set new standards and established
key benchmarks. These include placing limitations on the dual
tracking of homeowners by requiring servicers to evaluate
homeowners for HAMP and other mortgage assistance before
starting foreclosure, making servicers give homeowners looking
for help a single point of contact, and providing a resource
for homeowners who are frustrated with their servicer by
supporting both the Homeowners HOPE Hotline and the HAMP
solution center to fix servicer mistakes and resolve conflicts.
To ensure the maximum impact of these programs, Treasury is
committed to making homeowners aware of the resources that are
available to them. That is why Treasury continues to host
events across the country to connect homeowners with HUD-
approved housing counselors and their mortgage servicers. At
these events, homeowners are guided through their options to
prevent foreclosure and can have their questions answered on
site. Treasury continues to host these events across the
country, and we will host our 60th event next week in Phoenix.
Recently, we also launched the second phase of our public
service advertising campaign to reach struggling homeowners
through television, radio, Internet, and billboard PSAs in
English and in Spanish. These ads serve as a call to action for
those homeowners who feel overwhelmed by the challenges they
face and reminds them that free help is available at 888-995-
HOPE.
We also recognize that the housing crisis is local. Through
the Hardest Hit Fund Program, we are empowering State housing
finance agencies to craft new solutions to help homeowners cope
with unemployment and negative equity. Programs are now up and
running in 18 States and the District of Columbia. Seventy
percent of the Hardest Hit Fund dollars are committed to help
unemployed borrowers.
We also know that a modification isn't the right solution
for everyone. That is why we have continued to improve our
short sale program to help those people for whom homeownership
is no longer desired or no longer an option. There is still a
lot more work to do, and the housing market remains fragile,
but, as a result of the Administration's actions, struggling
homeowners today have more viable tools available to avoid
foreclosure than ever before.
Thank you for the opportunity to testify. I welcome your
questions.
[The prepared statement of Deputy Chief Kingsley can be
found on page 93 of the appendix.]
Chairwoman Biggert. Thank you.
We will now proceed to members' questions, and we will try
and stick to the 5 minutes each to ask questions, and with
that, I will yield myself 5 minutes.
My first question is for Ms. Galante: $1 billion was
appropriated for the Emergency Homeowners Loan Program, and the
Administration originally projected that it would help around
50,000 homeowners. Yet my staff indicates that, to date, the
program has helped around 11,823 homeowners. Are those numbers
correct?
Ms. Galante. Thank you for the question.
The 11,820 is an accurate number as far as we know to this
date. I think the original estimate was we would hope to help
about 30,000 homeowners.
Chairwoman Biggert. Not 50,000?
Ms. Galante. That is my understanding.
Chairwoman Biggert. Should the taxpayers continue to
support more programs that don't meet the expectations?
Ms. Galante. Congresswoman--
Chairwoman Biggert. The program has expired.
Ms. Galante. The deadline for obligating the funding was
September 30th, and I would say--and I acknowledge that HUD
could have done a better job to get the program up and running
more quickly. There were many, many challenges to doing that;
and we helped as many families as we could during that period
of time.
We certainly believe we could help more families if there
was some ability to extend the program. We do understand that
in a new fiscal year that that makes--there are some challenges
in figuring out how one might do that, but we have learned a
lot of lessons, and I would just say we have helped a number of
families.
Chairwoman Biggert. Is there any program that has met the
expectations?
Ms. Galante. This is a difficult crisis, Congresswoman, and
I would say that we have tried a number of issues or tried a
number of solutions to these problems, and we are going to
continue to work vigorously at doing that.
Chairwoman Biggert. Have any of the programs met
expectations? Yes or no?
Ms. Galante. Certainly, I would say the emergency home loan
program did not meet our expectations. Whether all other
programs have, I really can't say.
Chairwoman Biggert. Okay. It seems like there is an awful
lot of administrative funds there that have been obligated for
11,823 people or properties. When you are looking at $72
million, it seems like that is an awful lot of money to do
that.
Ms. Galante. If I could just say, again, the final numbers
for what the administrative costs will be are tied to the final
number of families who are served. So there are certain funds
set aside, but the final number--the counseling agencies are
essentially reimbursed costs based on the number of families
assisted.
Chairwoman Biggert. All right. How many foreclosures or
defaults were prevented by the Neighborhood Stabilization
Program?
Ms. Chavez. Congresswoman, the NSP program actually does
not prevent foreclosures. It deals with properties that have
been foreclosed or abandoned. So it actually helps
neighborhoods stabilize after being hit by foreclosures.
Chairwoman Biggert. Okay, thank you. The answer is zero
then?
Ms. Chavez. The answer is that the program expectations are
being met, because expectations are to stabilize neighborhoods,
not to prevent foreclosures, to help neighborhoods recover from
foreclosures.
Chairwoman Biggert. All right. I just wanted a yes-or-no
answer. Thank you.
And then, Ms. Galante, the MMI fund has a mandatory capital
reserve ratio of 2 percent, but the fund was at 0.53 percent in
2009 and then dropped to 0.50 percent in 2010. At this time,
what is the current estimate of the balance in the capital
reserve account and what do you expect it to be by the second
quarter of Fiscal Year 2012?
Ms. Galante. Again, thank you for the question.
The health of the MMI fund is obviously very important to
us. The actuarial for the capital reserve--what the capital
reserve fund requirement will be is due to Congress, I believe,
mid-November, so we are working on that actuarial now.
Currently--
Chairwoman Biggert. Do you think that you will need to ask
Congress then for an appropriation during the next year?
Ms. Galante. Again, currently, that actuarial is under way.
I would say the third quarter report that we delivered to
Congress last week does show the balance in both the financing
account and the capital reserve account at the present time
combined being about the same amount as it was last year at
this time.
Chairwoman Biggert. What has contributed to the capital
ratio drop? Is it the poor performance of the portfolio again,
which was cited in the 2010 annual report?
Ms. Galante. There are a lot of things that go into
calculating the capital ratio, one of which is how much new
business you have done that is added to essentially the
denominator.
Our new book of business is stellar, and the capital
reserve ratio is looking at what are the claim needs over the
entire portfolio for a 30-year period. So we are essentially
needing to contribute to the capital reserve as a result of
problem loans earlier in FHA's--
Chairwoman Biggert. Thank you. My time has expired.
Ms. Galante. Thank you.
Chairwoman Biggert. The gentleman from Illinois is
recognized for 5 minutes.
Mr. Gutierrez. Thank you so much.
I would like to ask Mr. Kingsley, you said that Treasury
created HAMP and the Hardest Hit Fund. I would like to ask you,
did Treasury ever make principal reductions mandatory for
lenders during the HAMP modification when calculations
indicated it was the best for the borrowers or the investors?
Mr. Kingsley. Congressman, thank you. You are absolutely
correct that for many homeowners, getting a principal reduction
on their modification is the best way to achieve a more
affordable and a more sustainable modification. It is one of
the reasons we rolled out the principal reduction alternative
program, which is a component to HAMP.
Mr. Gutierrez. The question is, did you insist?
Mr. Kingsley. Congressman, Treasury is not a regulator.
Mr. Gutierrez. So you agree that--you went on to say it
would have been a good idea, but you didn't insist when you sat
down with them?
Mr. Kingsley. Congressman, Treasury does not have the
regulatory ability to require servicers--
Mr. Gutierrez. I think maybe we should remember that the
next time a Treasury Secretary comes before the Congress of the
United States to ask us to bail out the industry to the tune of
$700 billion, including your boss, Mr. Geithner, who used to be
at the New York Federal Reserve, who came before, I think,
members who are here to ask us for $700 billion, and now you
are saying--
Because I am going to tell you the reason I voted for it
was the HAMP money. The HAMP money that you just took credit
for in your opening statement that you created, really you
didn't create. That was really an Act of Congress, wasn't it,
and part of the negotiation that we entered into? So you are
telling me that, although you think it is a good idea, because
you are not a regulatory agency, you never sat down with
anybody and told them you should reduce?
Mr. Kingsley. Congressman, we don't have the ability to
compel banks to write down mortgages, but I do agree that
negative equity is a really big problem facing a lot of
homeowners. We think it is a very useful tool to help a lot of
homeowners get to a more achievable modification.
Mr. Gutierrez. Let me move forward so I can ask better
questions next time a Treasury Secretary, especially one who
used to work for Goldman Sachs, comes before the Congress of
the United States to ask us for billions of dollars to bail out
his buddies that he then goes back to after he is not Treasury
Secretary anymore.
Because in July 2010, the SIGTARP report says, ``Any
incremental moral hazard implicated by making principal
reductions for homeowners mandatory pales in comparison to the
moral hazard caused by TARP assistance to Wall Street.'' What
do you think of that statement?
Mr. Kingsley. Congressman, I am here in my role as Deputy
Chief of the Homeownership Preservation Office. I am really
here--and I work on programs, modification programs and
refinance programs, ways to help homeowners stay out of
foreclosure, and I think--
Mr. Gutierrez. Let me ask you another question. In your
role--maybe I will ask the gentlelady to invite somebody else
from Treasury who can answer these questions. We have all been
watching and waiting on the settlement--and your boss has been
very involved in it--between the big mortgage servicers who are
doing the robo-signing and the State attorneys general. Now, a
few States are backing out because they thought the banks were
going to get off too easy. Let me ask you again, because I
could be misinformed, is Treasury involved in these
conversations or in any way helping in this litigation?
Mr. Kingsley. Congressman, we are. We are providing
technical advice to the States and the other parties.
Mr. Gutierrez. So what technical advice are you giving
them?
Mr. Kingsley. We have learned a lot from our programs. We
have learned a lot on how to reach homeowners. We have learned
a lot about how difficult it is to modify loans, to help those
homeowners achieve more sustainable modifications.
Mr. Gutierrez. Let me ask you a question. How do you think
things are going since there are States that are now saying
they are withdrawing because the mortgage lenders are getting
off too easy? Because in the beginning, many of us were
heartened that there would be tens of billions of dollars
available, and there was even an indication that the settlement
would be across-the-board.
They did violate the law. It isn't like we are asking them
for something. There is a punishment. I am sure even the other
side agrees that they--maybe they won't agree they should be
punished sometimes, because they should be rewarded. But they
did do this terrible act of robo-signing. And so what do you
think? Are things going well?
Mr. Kingsley. Congressman, you are absolutely right. There
were very serious violations of law that were committed. The
OCC has found that. The State attorneys general have alleged
that.
I think it is a litigation matter, and ultimately it is up
to each individual State to decide the degree to which they
feel they can bring the most relief to homeowners. That may
require--
Mr. Gutierrez. Since you are part of it and it is under
litigation and since you agreed that it was a good idea, in
some cases, that there be principal reductions and
modifications, is Treasury giving technical assistance so that
we can reach that goal of having reductions in the principals
that these mortgages owe?
Mr. Kingsley. We are sharing the lessons that we have
learned through our principal reduction program and our other
thoughts on all of our modification programs, things the States
are learning through the Hardest Hit Funds. We are sharing
those with the State attorneys general.
Mr. Gutierrez. Thank you.
Chairwoman Biggert. Thank you.
Mr. Hurt, you are recognized for 5 minutes.
Mr. Hurt. Thank you, Madam Chairwoman.
I guess the first question is for Ms. Galante.
Ms. Galante, you indicated in response to the Chair's
question that there have been no foreclosures prevented by the
Neighborhood Stabilization Program; is that right? Or I guess
it was Ms. Chavez. I am sorry.
Ms. Galante. Yes. Again, I think I can just echo the
comment that, again, the Neighborhood Stabilization Program is
not designed to prevent foreclosures.
Mr. Hurt. Is it true from what I read that not all the
money that has been authorized, appropriated, and obligated and
so forth and so on of the $7 billion that has been appropriated
over the--since 2009, that not all that money has been used?
Ms. Chavez. $7 billion has been obligated. In terms of
NSP1, that was $4 billion. Seventy-eight percent of that has
been expended. I think you may remember that State and local
governments had an 18-month deadline to obligate. They met that
deadline at 99.7 percent. They have now expended 78 percent of
that money. NSP2, which is $2 billion, has an expenditure
deadline of 50 percent after 2 years. Those grantees are on
track to meet that expenditure deadline in February.
Mr. Hurt. But you have only spent 28 percent, is that what
I--
Ms. Chavez. 2012. No. Again--
Mr. Hurt. For NSP2?
Ms. Chavez. For NSP2, we are at 30 percent expenditure as
of this week.
Mr. Hurt. Okay.
Ms. Chavez. They have to expend 50 percent by February
2012.
I should also make clear that at this point, grantees have
completed over 33,000 properties in terms of acquisition,
demolition, and home buyer assistance, new construction, and--
Mr. Hurt. How much of NSP3 has been spent?
Ms. Chavez. As you know, NSP3 just started. It started this
summer. We obligated the money in, I believe, May, 100 percent
of that, to State and local governments; and they have
obligated 13 percent of that. So they are doing well since the
program was just initiated.
Mr. Hurt. It looks like to me that since the housing crisis
of 2008, we have obligated--we have spent or authorized the
spending of $7 billion. Only $4 billion has been spent. Does
that sound about right, a little over half?
Ms. Chavez. No, I think it is at this point, about a little
over $5 billion.
Mr. Hurt. So out of the $7 billion, $5 billion has been
spent since 2008 when we had the housing crisis, and with that
money we haven't prevented one foreclosure?
Ms. Chavez. Again, I want to stress that the goal of the
program is not to prevent foreclosures. It is to help
neighborhoods recover after they have been hit with
foreclosures.
Mr. Hurt. After the people have been kicked out of the
house?
Ms. Chavez. That is the goal of the program.
There are programs, as Assistant Secretary Galante and our
colleague at Treasury has stated, to prevent foreclosures. This
program is to help communities stabilize. The initial results
in terms of impact of NSP, where there has been investment in
neighborhoods when compared to neighborhoods that do not
receive investment, show reduced vacancy.
Mr. Hurt. But how does that help? By renovating the home
that the homeowner is no longer in, no longer has any interest
in, how does that help the homeowner?
Ms. Chavez. Unfortunately, it doesn't help that homeowner.
Mr. Hurt. Okay.
Ms. Chavez. But it helps new homeowners. It helps that
neighborhood. It helps those neighborhoods prevent further
decline in home prices and value. It creates jobs. It helps
neighborhoods stabilize so that they don't decline further.
Mr. Hurt. Okay. And we--as you know, we are borrowing 40
cents on every dollar we spend in Washington. I am sure you
have heard that again and again, and you are well aware of that
fact. How is it that spending what we have, by my estimate, $3
billion out of $7 billion that we haven't even spent yet, how
on earth can you justify appropriating another--an additional
$15 billion for this program, as the President has suggested to
the Congress?
Ms. Chavez. I think the way we justify it is NSP is on
track to create about 90,000 jobs, it is on track to impact
about 100,000 properties, it leverages private resources, and
Project Rebuild will help--will basically leverage not only
other private resources in the private sector and their
capacity, but it will also really leverage the capacity that
State and local governments--
Mr. Hurt. Ms. Chavez, my time has expired, so let me just
ask you this: Those same promises are the same promises that
were made when the President sold us the first stimulus bill.
Doesn't that sound--the same thing that you are promising now,
doesn't it sound familiar to what the President promised us
when he said that unemployment would not go above 8 percent?
Ms. Chavez. I can tell you the promises of NSP, it has
delivered, and it is on track to deliver the promises that were
made in terms of the outcomes of the program.
Mr. Hurt. Thank you, Ms. Chavez.
Chairwoman Biggert. The gentlelady from California is
recognized for 5 minutes.
Ms. Waters. Thank you very much, Madam Chairwoman.
Let me just say that I am the first to say that I am
disappointed that the legislation that we were able to pass
when we served on the conference committee for Dodd-Frank to
help unemployed homeowners--I am disappointed that we--HUD was
not able to get that money out in a timely way, and because of
that there are some homeowners who are unemployed who could
perhaps have stayed in their homes if we had been able to
implement that program properly.
Having said that, I am sorry that my friends on the
opposite side of the aisle do not understand the Neighborhood
Stabilization Project. It was signed--it is my bill that I
created, and it was signed into law by President Bush, not
Obama but President Bush. It is one of the best things that has
happened in this meltdown that we have had with these
foreclosures.
The gentleman on the opposite side of the aisle keeps
asking, how many people did it help to stay in their homes, and
I think the panel more than one time this morning have said it
was designed to stabilize neighborhoods. That is why it is
called the Neighborhood Stabilization Project.
We recognize that many of these homes were foreclosed on,
and in some communities where you have a lot of houses that
have been foreclosed on and the cities were not able to keep up
those foreclosed housing that it was a big cost to the cities
and their fire departments and their police departments. We
have discovered that the weeds had grown up, animals had taken
over some, on and on and on, and it was driving down the value
of other homes in the neighborhood. And we have been able to
stabilize those neighborhoods and keep those property values up
of those other homes with this Neighborhood Stabilization
Project.
It is a good program. I am glad President Bush signed it
into law, and I am pleased that you have been able to move this
program in a way where you have not only spent the money well
but you have obligated that money, and it is moving well. So I
compliment you on that.
Here is what I want to ask all of you about today. You can
help me. We have people who are coming forward to talk about
spending huge sums of money to buy up large numbers of
properties. They want to invest in these nonperforming assets,
and they have all kinds of ways of talking about what they will
do with them.
What I like about what I am hearing is many of them want to
buy up large numbers of properties, they want to renovate them,
repair them if they need it, and some they would put back on
the market. But others are talking about renting the properties
back to the homeowners who are in trouble before the
foreclosure takes place. Have you heard any of these proposals?
And, if so, what do you think about them? Anybody?
Mr. Kingsley. I can go first, Congresswoman.
Right now, as you may be aware, the FHFA has put out its
proposal for--the FHFA, the regulator of the GSEs for the REO
property on its balance sheets, and it is exploring
opportunities to offer these homes for rental. As you know,
these homes are sitting vacant. That is a wasting asset for the
taxpayer. Meanwhile, there is a lot of--rents are going up, and
it really could be a win-win situation for everybody involved.
Ms. Waters. Excuse me. We know that. But what I am saying
is, I have heard at least 5 or 6 proposals where people wanted
to buy up--100, 200, 300, businesspeople--and renovate them,
put them back on the market. And the way they describe it is
they would maintain some for rentals, they would put together
programs rent-to-own, or they would put them back on the
market. And I don't see anything happening, but you are saying
that FHA is doing this already? They are looking at this
possibility?
Mr. Kingsley. FHFA, the Federal Housing Finance Authority,
the regulator of the GSEs--
Ms. Waters. Yes.
Mr. Kingsley. --with respect to the real estate owned by
Fannie Mae and Freddie Mac. And, absolutely, right now, they
have put out a request for information, for ideas, and they are
evaluating those ideas. We are working together with them on
that. We are evaluating all options. The opportunities you
suggested are certainly some of the options that have been
proposed.
Ms. Waters. If you would get that to my office, I would
like to see what you have put out. Because I would like to
direct people somewhere who are coming up with these proposals.
Could you see that my office gets that information?
Mr. Kingsley. We will be happy to follow up with your
office.
Ms. Waters. Thank you very much.
One other thing before my time is up, Bank of America--
Chairwoman Biggert. Your time is up.
Ms. Waters. Oh, I thought I had--oh, it started over again.
Thank you very much. I yield back.
Chairwoman Biggert. The gentlelady yields back.
The gentleman from New Jersey, Mr. Garrett, is recognized
for 5 minutes.
Mr. Garrett. I thank the Chair.
And I also appreciate--well, the ranking member is not here
right now, but his recognition of the fact, albeit a little
late, that while it was this Treasury Secretary in his former
position over at the New York Fed and then as Treasury
Secretary who was part and parcel with leading up to the crisis
that we are in right now and then, as the ranking member has
now experienced, the fact that he helped author and bring forth
the very same programs which failed in their attempts as far as
recovery from this, through the TARP program and the like.
It is unfortunate that the ranking member only recognizes
now, as Mr. Kingsley points out, that the Treasury is not a
regulator, and they did not have the authority to compel the
banks to do anything with the $700 billion that the TARP
bailout program initiated. The best the Treasury could do is, I
guess, encourage, suggest to the banks to do so, but they did
not have the authority.
Now, for those who supported the TARP, as apparently the
ranking member did, for those who voted in favor of TARP as
opposed--as I imagine the ranking member did, that is something
I guess that they could have included in that legislation, if
they had wanted to, to give the Treasury Secretary or some
other entity in the government that authority to compel the
banks, but it was absent in there.
So it is a little bit disingenuous to say, after the fact,
this is the bill I voted on, and I didn't know what was in it,
and now complain to Mr. Kingsley here or the Department or the
Treasury Secretary for not doing what the legislation did not
give them the authority to do.
To the panel or I guess maybe Ms. Galante, first of all, I
know there are a lot of numbers that have been thrown out
because there are a number of different programs that are out
there, and Ms. Biggert asked some as far as how many were in
this program and that program and what have you, but let me
just give you one.
There was a housing wire story on Tuesday. Today is
Thursday, so day before yesterday, right? They note that there
was an $8 billion FHA short refi program, and in that story it
said it was supposed to help over 500,000 to 1.5 million
people, but it only helped around, according to that wire
story, 301 folks. That is different from what we were talking
about before. Can you comment on those numbers? Are they
ballpark correct numbers?
Ms. Galante. Certainly, Congressman. Those are roughly
correct numbers. I do want to put the short refi, the FHA short
refi program in context, however. It is one program that does
deal with this negative equity problem that we all agree is
severe. But, in addition to that, FHA has refinanced FHA
borrowers through a streamlined refinance program to deal with
some of the FHA borrowers' underwater activities. But I would
say that FHA short refi is for people who are in non-FHA who
want to refi into a sustainable mortgage with FHA.
Mr. Garrett. Okay. I appreciate that. At the end of the
day, the numbers obviously are nowhere near where they
anticipated they were going to, which is obviously a real
problem.
You heard my testimony also when I asked, aren't a lot of
these programs where you are either encouraging or forcing the
breaking of legal contracts going to have an implication with
regard to the GSEs for the loans that go through them and the
claims that they have outstanding and for the investors on the
other side of those deals, where what their return will be in
those situations? It will hurt them presently. It will hurt the
Fed, because the Fed owns a lot of these securities, upwards to
the tune of $1.25 trillion, so it will hurt the Fed's balance
sheet, and it will hurt future investors and therefore
discourage future investors to get into this marketplace. So
there are one, two, three, three different problems that could
be caused by these programs. Do you want to comment?
Ms. Galante. I will comment again. With respect to short
refi, it is a voluntary--it goes back to one of the other
questions, it is a voluntary program. The lenders do need to
take some principal reduction essentially in order to avail
themselves or avail the borrowers of the short refi program,
and they wouldn't do that if they didn't feel as if that were
ultimately the best solution and the best resolution
economically both for the borrower and for the investor lender.
Mr. Garrett. I have 7 seconds. Really quick, the FHA is
supposed to be helping home buyers start out, usually at very
bottom of the rung of the economic ladder. Isn't it best to
only help out first-time home buyers though as opposed to those
who want to buy second or larger homes after the fact?
Shouldn't that be the focus of the FHA, first-time home buyers
only?
Ms. Galante. The focus of the FHA is first-time home buyers
and new buyers, but refinancing existing borrowers in today's
low interest rates to help them achieve a more sustainable
monthly payment is certainly also--
Mr. Garrett. Exclusively to first-time.
Ms. Galante. It is not exclusively.
Mr. Garrett. Shouldn't it be?
Ms. Galante. I don't think so, no.
Chairwoman Biggert. The gentleman's time has expired.
The gentlelady from New York is recognized for 5 minutes.
Ms. Velazquez. Mr. Kingsley, in your opinion, would full
utilization of every program have been enough to stabilize the
housing market and stop the crisis, and where would we be today
if it wasn't for those programs?
Mr. Kingsley. Congresswoman, thank you. And I think you
have hit upon a great point, which is where we were in 2007,
2008, and 2009 when the housing crisis started and where we are
today are vastly different. In 2007, when the subprime loans
started to melt down and rates started to reset, servicers were
completely unprepared. They didn't have the staff, they didn't
have the resources, they didn't know how to engage homeowners.
There was really nowhere homeowners could go for help. They
would call up their servicer and receive an answering machine.
They would send in documents, which would be lost. We
recognized those problems.
In 2009, when we rolled out HAMP and other modification
programs started, we faced those very challenges. We have
worked very hard at them. Where we are today is vastly
different. As I mentioned in my oral testimony, 76 percent
today of the people who get a trial modification convert to a
permanent.
Ms. Velazquez. Ms. Galante, regarding the Emergency
Homeowners Loan Program to unemployed homeowners at risk of
foreclosure, what specific steps are you taking to make sure
that you maximize the participation in the program during the
extension period?
Ms. Galante. Congresswoman, we did a number of things in
the waning days before the September 30th deadline for
applicants to ensure that as many potential borrowers as
possible could get into the program. We worked very closely
with the housing counseling agencies on the ground. We are now
in the process of beginning the process of actually closing on
those loans that are being made to borrowers, and we will work
vigorously to do that as quickly as possible.
Ms. Velazquez. Are you satisfied with the outreach and
response?
Ms. Galante. I would say this. We got tremendous response
for the program. The pull-through rate, as we call it, the
number of folks who were ultimately eligible, was not nearly as
high as we would have liked and we didn't assist as many people
as we would have wanted to. But we are helping approximately
12,000 unemployed homeowners, and we think that is positive.
Ms. Velazquez. Mr. Kingsley, the Hispanic community faces a
foreclosure rate that is nearly double the national average,
and this is especially troubling in New York, where we have 56
percent of Hispanic and African Americans at risk for
foreclosure. Have any of the Administration programs been
successful in helping Latinos and other minority groups?
Mr. Kingsley. Congresswoman, through our HAMP outreach
events, as I mentioned, we have had 59 them, we have one in
Phoenix next week, we launched a PSA campaign, and we actually
have a lot of Spanish materials, Spanish radio advertisements.
We have staff who have appeared on--
Ms. Velazquez. Give me numbers.
Mr. Kingsley. Congresswoman, I can have my staff follow up
with you. We have had, like I said, 59 outreach events. We have
had more than 60,000 homeowners come to those outreach events.
A lot of those have been in cities such as Phoenix or in Texas,
where there are large Latino communities.
Ms. Velazquez. I didn't hear New York.
Mr. Kingsley. I believe we had an outreach event in New
York, Ms. Velazuez. I can follow up with you.
Ms. Velazquez. You could have a second one.
Mr. Kingsley. I apologize?
Ms. Velazquez. You could have a second one.
Mr. Kingsley. We are going to continue those outreach
events all into next year.
Ms. Velazquez. Thank you.
Chairwoman Biggert. Thank you.
I recognize the gentleman from Illinois, Mr. Dold. This
will be the last question, because we have pesky votes coming
up. So with that, then we will dismiss this panel and be ready
to start the next one when we come back.
Mr. Dold. Thank you all for being here. Thank you, Madam
Chairwoman.
Ms. Galante, if I could, just looking at the Emergency Home
Loan Program, certainly I have some statistics in front of me,
the States, in terms of how they are administering these loans
and also how it is done through the Federal Government. And I
am just looking at some statistics from Connecticut, Delaware,
Idaho, Maryland, Pennsylvania--I don't have Illinois in front
of me, which is where I am from.
But the thing troubling to me coming from the private
sector is just actually the costs of administering these. I
look at Connecticut. They have done about 1,000, a little over
1,000 home loans, basically to the tune of about $45,000 that
are being put in there. In terms of how it is administered,
they are administering each and every one of those at about
$2,600 worth of administrative cost. If I move that down on
administrative cost to Pennsylvania, it is about $2,800. But
yet when I look at what HUD does, those average costs,
administrative costs, are about $7,400, almost $7,500, almost 3
times what they are doing in Pennsylvania.
Can you give me an idea why the American taxpayer shouldn't
be extraordinarily frustrated with the cost that HUD is doing
this, when other government agencies and the States are doing
it for a fraction of the cost?
Ms. Galante. Congressman, let me respond in a couple of
different ways. First, the State program was set up for
agencies. They were allocated funding because they already had
substantially similar programs up and running in their States,
and so they were allocated this funding so that they could--
Mr. Dold. But they are doing it for a fraction of the cost.
Per loan, they are doing it at almost a third of the cost.
Ms. Galante. Yes. So to my point, because they already had
programs up and running, this was an additive pot of funding
for them. On the HUD side, we were starting from ground zero
with all the other States and counseling agencies and
contracting, so there were startup costs for--
Mr. Dold. So we should see next year this drop
precipitously to fall in line then, because it has been going
on for a period of time? Am I correct in saying that? Up-front
costs have been taken care of, so next year it should fall back
in line?
Ms. Galante. Unfortunately, the program ended. There is no
additional funding, unless there is some kind of extension of
the program. If there were an extension, then, yes, the up-
front costs have been taken care of.
Mr. Dold. Excluding the up-front costs though, other
administrative costs. And that is part of the complaint that I
hear from taxpayers all the time, is that the government is
just inefficient in how it does things. And certainly having to
deal with the government from a previous life, I would
certainly concur.
Let me switch gears, if I may, Ms. Galante, and go over to
the FHA refinance program. To what extent--certainly when we
look at the amount of activity, does the lack of activity
within the FHA refinance program speak to the practicality or
the usefulness of the FHA refinance program?
Ms. Galante. I guess I would want to make sure I understand
your question. Are you talking about the FHA short refi?
Because the FHA global refinancing for FHA borrowers, FHA
streamline financing has helped 700,000--
Mr. Dold. I am talking about the program that basically has
had about 242 applications and about 44 loan remodifications in
a period of about 8 months. That, to me, would be dismal.
Ms. Galante. Thank you. So that is the FHA short refi
program, which as I mentioned earlier is a program for non-FHA
borrowers to have the opportunity to refinance into FHA
mortgages. It is a voluntary program on the part of lenders.
Mr. Dold. We have obligated $8 billion for it. My question
is, is this program one we should scrap, according to HUD?
Ms. Galante. I would say absolutely not. This is a program
we want to build on. My colleague from Treasury can talk about
how the $8 billion works. We have not--there have been no
losses under this program and there have been no direct
expenditures on loan losses for the program at this time.
Mr. Dold. I have under a minute, so please excuse me on
that one. I am going to shift over.
Ms. Chavez, you talked before about the NSP, talking about
how it has created or stabilized an additional 90,000 jobs and
100,000 properties, is that correct?
Ms. Chavez. It will. That is the goal when the $7 billion
are expended. We are a third of the way there in terms of
properties.
Mr. Dold. I just want to make sure that those who are tuned
in and watching this thing, because back in the private sector,
we will look at this thing and say, I am going to go 90,000
jobs and 100,000 properties. So you know what I am saying? It
is almost one job per one property, almost a one-to-one. It is
a little bit less than that. Is that an effective use of our
dollars? Are we getting the most out of it?
Ms. Chavez. Yes, we are. We can give you the data on the
jobs that are--
Mr. Dold. You and I might disagree in terms of how we are
effectively using that. But I want to make sure you think that
is an effective use.
Ms. Chavez. Yes, it is. And early results in terms of
impact of vacancy reduction and stabilizing home prices are
very positive.
Mr. Dold. Madam Chairwoman, I know that I am running out of
time, but I want to just follow up if I could for Mr. Kingsley,
just food for thought on this, why should taxpayers continue to
support additional programs that don't meet expectations? That
would be just a general thing that I have not only for this
panel, but for panels across the government coming again.
Taxpayers are looking for the Federal Government to make the
biggest bang for the buck, because we desperately need to make
sure we are stretching those dollars because we are in a
financial crisis right now.
I thank you all for your time.
Chairwoman Biggert. This concludes our first panel. The
Chair notes that some members may have additional questions for
this panel which they may wish to submit in writing. Without
objection, the hearing record will remain open for 30 days for
members to submit written questions to these witnesses and to
place their responses in the record.
I would like to thank you all for being here, and we will
dismiss this panel. When we will come back, as soon as votes
have ended, we will start with the second panel, which will
probably be around 11:30, 11:25. I hope sooner than that.
[recess]
Chairwoman Biggert. The hearing of the Subcommittee on
Insurance, Housing and Community Opportunity will come to order
and resume. Thank you for your patience for those votes, those
pesky votes that seem to come up when we don't expect them.
Thank you to the second panel. I would now like to
introduce you: Mr. Neil Barofsky, senior fellow, New York
University School of Law, and he was our former SIGTARP Special
Inspector General, so it is nice to see you back on the witness
stand: Dr. Mark Calabria, director of financial regulation
studies at the Cato Institute, thank you for being here; Ms.
Laurie Goodman, senior managing director, Amherst Securities
Group, LP.; and Mr. Andrew Jakabovics, senior director of
policy development and research, Enterprise Community Partners.
Without objection, your written statements will be made a
part of the record and you will each be recognized for 5
minutes to present a summary of your testimony. We will start
with Mr. Barofsky. You are recognized for 5 minutes.
STATEMENT OF NEIL M. BAROFSKY, SENIOR FELLOW AND ADJUNCT
PROFESSOR, NEW YORK UNIVERSITY SCHOOL OF LAW
Mr. Barofsky. Thank you. It is always a privilege to be on
a panel where I don't have the hardest-to-pronounce name. It is
rare, but it is kind of nice.
Madam Chairwoman, members of the subcommittee, it is truly
a privilege and an honor to be back testifying before this
committee once again on the Administration's foreclosure
mitigation efforts.
When I was last here a little bit more than 7 months ago,
the state and outlook for HAMP and its related programs was
quite bleak, and at that time I pleaded with the Administration
to make the wholesale necessary reforms so that Treasury could
keep the promise it made to Congress and the American people
that TARP funds would be used not only to generously bail out
the largest Wall Street financial institutions that caused the
crisis, but also struggling homeowners.
Unfortunately, 7 months later, my plea, along with many
others and members of this committee, have been flat out
ignored. Rather than change, we have the status quo. Rather
than seeing a meaningful increase in the number of participants
in the HAMP program, it continues to trail off, with just about
13,000 new trial modifications in the last month. And rather
than being candid about the problems and committing to reform,
we see the type of obfuscation that we saw in this morning's
session, with Treasury continuing to declare success against
ever-changing and meaningless goals. HAMP has failed, and with
it, it has crushed the hopes of millions of homeowners.
Due to the ongoing foreclosure crisis, there is now
consideration of potential new programs or expanding old
programs, and I thought I would share some very basic lessons
we have learned from HAMP's failure.
First, the necessity for comprehensive planning. Too often,
the Administration's response has been to rush out a program
that promises great results and looks great on paper but ends
up being a failure. This ``ready, fire, aim'' approach has
problems that are still ricocheting through the system. For
example, in the HAMP program, which was originally announced to
help up to 4 million homeowners get the benefit of permanent
government-sponsored mortgage modifications, here we are 2\1/2\
years later with the program limping along with fewer than
700,000 ongoing modifications, a program that has been plagued
by bad planning, rushed implementation, and incompetent
management.
But that program actually looks great compared to the FHA
short refinance program. That was supposed to help up to 1.5
million homeowners. And here we about a year later after
implementation with 301 families helped. Good planning matters,
and the poor planning for these programs has had devastating
effects and lost opportunities.
Second, it is a basic and good tenet of good government,
any program, that you have clear articulable goals, you measure
performance against those goals, and then you change the
program if it is not working to meet those goals. What Treasury
has done is the exact opposite--changing its goals to meet
performance no matter how anemic it is and declaring it a
success. They have convinced no one. All they have really done
is further damage the already impaired credibility of Treasury.
And, third, these programs generally rely on third parties,
like the mortgage servicers in the HAMP program, so it is
essential to have the right balance of incentives and
penalties. Secretary Geithner testified in February of this
year that the incentives in HAMP were, in his words, not
powerful enough. And by that, I take it he is referring to the
conflicts of interest that are baked into the HAMP model by the
way Treasury designed it.
But rather than address that problem, Treasury has ignored
it. Even worse, they have given a free pass to the mortgage
servicers who have had just an abysmal performance, in their
words, with not complying with the program's rules and
regulations. Rather than having a meaningful penalty regime,
they backtrack and really come up with a bunch of political
gimmicks and tricks that give them a free pass for having
really committed egregious abuses on homeowners through the
implementation of this program.
Part of me still believes that the government should have a
role in foreclosure mitigation, if for no other reason than
that this was the necessary promise that Treasury made in order
to get TARP passed in the first place. But it is becoming
harder and harder to support these measures. Whether it is
through sheer incompetence, undue deference to the banks or
just missed opportunities, the Administration has demonstrated
itself to be an incompetent manager of these programs, and it
is a real question of whether they can effectively manage any
mitigation program. And when they come out as they did this
morning and suggest that they have had success in completely
unrelated areas, it really raises a question of whether we can
trust them to do so.
Madam Chairwoman, members of the committee, again I thank
you for this opportunity and I look forward to answering any
questions that you may have.
[The prepared statement of Mr. Barofsky can be found on
page 42 of the appendix.]
Chairwoman Biggert. Thank you very much.
Dr. Calabria, you are recognized for 5 minutes.
STATEMENT OF MARK A. CALABRIA, PH.D., DIRECTOR, FINANCIAL
REGULATION STUDIES, CATO INSTITUTE
Mr. Calabria. Chairwoman Biggert, distinguished members of
the subcommittee, to evaluate the effectiveness of the
Administration's response to the housing crisis, I believe one
first must look to the conditions of the housing market.
Intentions are one thing; outcomes are quite another.
The first market condition to keep in mind is that despite
large price declines, housing in many parts of the country
still ranks expensive relative to income. Historically, median
home prices tend to be 3 times the median incomes. We are close
to this relationship at the national level. Many cities, such
as San Francisco for instance, still have median home prices
almost 8 times median income. Such prices remain out of reach
for the typical family.
We should also recognize that new home prices still remain
well above construction costs. Over the long run, in a
competitive market, prices fall to meet the price of
production. Up until about 2003, this was the trend in the
housing market. This relationship is likely to reassert itself
over the next few years.
It is also worth noting that existing home sales in 2010
were only 5 percent below their 2007 level, while new home
sales remain almost 60 percent below their 2007 level. The
primary reason for this difference in my opinion is that
existing home prices have declined by a much greater degree,
more than twice that of new home prices. I believe this clearly
illustrates that housing markets work like every other market.
If you want to eliminate excess supply, you have to allow
prices to drop.
As prices have continued to slowly decline, sales activity
has slowly increased. On a seasonally adjusted basis, existing
home sales for the first half of 2011 were 12 percent above
home sales for the second half of 2010. I am expecting further
minimal price declines at the national level. And while none of
us have a crystal ball in terms of sales activity, I believe we
have come close to hitting bottom and are slowly working our
way towards a recovery in the housing market.
That said, it is important to keep in mind, I believe, we
are years away from seeing anything like the activity of 2005
and 2006.
I believe there is some consensus that there is a
considerable pent-up demand for housing, perhaps as much as 2
million units. The question is, what it will take to elicit
that demand? As we have tried a variety of incentives, such as
the home buyer tax credit, with I believe at best mixed
results, I believe this pent-up demand will not really show
itself until we see further price declines, even if those price
declines are small.
So, again, to emphasize one of the points that I am trying
to make, we should not be afraid of further price declines. We
should actually welcome that as a way of trying to clear the
housing market.
I will say as an aside that I look at shelter, housing, as
one of life's basic necessities, so not only should we see
price declines as helping to clear the market, we should also
see price declines as helping to make one of life's basic
necessities actually more affordable, cheaper.
To get to this point touches on what I see as the central
flaw in most of the Administration's response to the housing
crisis, which is rather than accept the fact that perhaps we
built too much housing, perhaps we encouraged buyers to get
into homes they could not afford, the Administration has
consistently viewed the housing market through a Keynesian lens
of lack of adequate demand, and it is just one policy after
another trying to create artificial demand in the housing
market through one stimulus after another, rather than actually
allowing the market to clear via prices reflecting
fundamentals.
We must also recognize that owners' equity or lack thereof
has little to do with their ability to pay their mortgage, but
simply impacts their willingness to pay their mortgage. The
primary driver of mortgage delinquency is job loss. Putting an
artificial floor under housing prices will not turn the labor
market around. I cannot overemphasize this point. I think the
primary driver of the housing market at this point is the labor
market, and turning the labor market around will be the best
thing we can do to get the housing market moving again.
It is also important to keep in mind that subsidizing the
unemployed to remain in place will not turn around either our
mortgage market or our housing market. Current foreclosure
policies as well as the elevated rate of homeownership entering
the crisis in my opinion have injected significant rigidities
into our labor market.
It should also be recognized we do not have a national
housing market. We have lots of regional and local housing
markets. The housing vacancy rate, for instance, is a useful
gauge of excess supply and illustrates this point. At one
extreme, Orlando has a owner vacancy rate approaching 6
percent, whereas on the other extreme, cities like Allentown,
Pennsylvania, have owner vacancy rates of about 0.5 percent.
So, again, vast differences across the country. Even vast
differences within the same State. If one looks at Riverside
compared to San Jose in California, the differences in market
conditions are dramatically different.
One point to keep in mind, because of these dramatic
differences, markets react differently to the same Federal
policies. Markets where supply is tight and building is
difficult react very differently than markets where it is
relatively easy to bring forth additional supply. The
importance of this distinction is that policies that attempt to
increase demand are likely to increase prices in tight markets
rather than increase volumes, where in looser markets such as
Phoenix, these demand things will actually add additional
supply and result in further pricing declines. So, again, we
need to make sure that we are not making the most expensive
markets more expensive by making those with a glut have
additional gluts.
I will end by saying that it is also important to keep in
mind that so much of the discussion among policies in our
housing market has focused on the middle class and those better
off. We should not forget those who don't have homes at all.
While the quality of data on homelessness is not what it is in
the rest of the housing market, every indicator seems to
suggest that we have seen a tremendous increase in homelessness
over the last couple of years, particularly among families. And
so again, I think because our traditional assistance programs
have focused on individuals and focused on central cities, I
would suggest to the committee to reevaluate the current
structure of our McKinney-Vento Homeless Assistance Act
programs in light of current market conditions.
I thank you for your indulgence and welcome your questions
and comments.
[The prepared statement of Dr. Calabria can be found on
page 50 of the appendix.]
Chairwoman Biggert. Thank you.
Ms. Goodman, you are recognized for 5 minutes.
STATEMENT OF LAURIE S. GOODMAN, SENIOR MANAGING DIRECTOR,
AMHERST SECURITIES GROUP LP
Ms. Goodman. Chairwoman Biggert and members of the
subcommittee, thank you for your invitation to testify today.
My name is Laurie Goodman and I am a senior managing director
at Amherst Securities Group, a leading broker-dealer
specializing in the trading of residential mortgage-backed
securities. I am in charge of strategy and business development
for the firm.
We perform data intensive research as part of our efforts
to keep ourselves and our investors informed of critical trends
in the residential housing market. That work has shaped our
view of the housing crisis and I will share some of our results
with you today.
The Obama Administration has pursued a number of measures
to try to stabilize the housing market. In February 2009, the
Administration announced the Home Affordability and Stability
Plan. This plan included both HAMP, the Home Affordable
Modification Program, a loan modification program designed to
help at-risk borrowers; and HARP, the Home Affordable
Refinancing Program, a program designed to eliminate frictions
to refinancing and allow existing GSE borrowers to take
advantage of lower mortgage rates. I would like to focus on the
success of these two programs.
The HAMP program was originally estimated to reach 4
million borrowers. As of the end of July, there have about been
1.66 million trial modifications extended. Of these, there are
now 675,000 active permanent modifications and another 106,000
in active trial. So even if all these active trial
modifications were to become permanent and there were no
further defaults, the success rate on this program would have
been less than 50 percent. To date, the program overall has
achieved less than 20 percent of the original stated goals.
The HAMP program has done a good job reaching eligible
borrowers. The problem is the program's success rate is
relatively low. The largest reason for the failure of HAMP has
been the fact that the borrower has not been re-equified.
Our research has shown that redefault rates are
significantly lower when principal reduction and not just
payment reduction modifications have been made. To improve
modifications for success, we would suggest making the
principal reduction alternative under HAMP mandatory, as long
as it represents the highest net present value alternative.
Exclusions would apply only if that action is expressly
prohibited by either the pooling and servicing agreement or the
ultimate holder of the risk. In addition, treating the second
lien pari-passu to the first is a subversion of the lien
priority and a hindrance to successful modification as it
impedes the re-equification of the borrower.
In recognition of the fact that a disproportionate number
of delinquent borrowers have second liens, we suggest that if
the first lien is modified, second liens should be eliminated
or at the minimum take a disproportionate writedown. However,
modification activity alone is insufficient to bridge the
supply-demand gap in the housing market. It is necessary to
encourage investor activity. The FHFA-HUD-Treasury request for
information acknowledged this and asked for the best way to
design the program. In our view, this can best be done by
conducting bulk sales of real estate-owned properties and of
nonperforming loans owned by the GSEs and FHA. Providing
conservative financing would raise the sale price on these
assets even further.
The Home Affordable Refinance Program was created to
facilitate the refinancing of Freddie- and Fannie-insured
mortgages. This program was originally supposed to reach 4 to 5
million borrowers with GSE mortgages. In fact, the number of
HARP refinances is actually 838,000 through June 30th. Why the
limited reach?
In this case, it was not one factor, but a bunch of
different factors. The real issue is that the GSEs are not the
only bearer of risk on a defaulted GSE loan. Many of these
loans have mortgage insurance. Moreover, the GSEs have the
right to put back the loan to the originator if it contained a
violation of the representations and warranties that were made
at the time when the GSE initially insured the loan.
The three largest impediments to the success of HARP are,
first, the mortgage insurance (MI) issue. If the loan is
refinanced by a different servicer, the mortgage insurer will
lose the reps and warrants they have with the old servicer.
Thus, loans with MI tend to refinance more slowly than loans
without, as loans with MI are dependent solely on same servicer
refi's.
Second, the rep and warrant issue. Many lenders are
reluctant to refinance high LTV, low FICO borrowers as the new
lender must bear the rep and warrant risk on the refinance
loans.
Third, capacity constraints. With the drop in interest
rates, mortgage lenders face capacity constraints, but they are
not adding capacity. The result is, they are reaping excess
profits and keeping mortgage rates to the borrower consistently
higher than they should be.
To make HARP successful, we believe it is important to
introduce competition by reducing the frictions to different
servicer refinances. Other actions that have been discussed to
improve HARP effectiveness include the elimination of loan
level pricing adjustments, the elimination of the 125 ceiling,
and the elimination of all appraisals on HARP refinancing. We
believe these actions will have a limited impact.
Again, thank you for the opportunity to appear before the
subcommittee. We look forward to working with you on practical
solutions to ease the housing crisis, promote housing market
stability, and allow homeowners to take advantage of lower
rates to refinance.
[The prepared statement of Ms. Goodman can be found on page
75 of the appendix.]
Mr. Hurt. [presiding]. Thank you, Ms. Goodman.
Mr. Jakabovics is recognized for 5 minutes.
STATEMENT OF ANDREW JAKABOVICS, SENIOR DIRECTOR, POLICY
DEVELOPMENT AND RESEARCH, ENTERPRISE COMMUNITY PARTNERS
Mr. Jakabovics. Thank you. That was excellent
pronunciation, by the way. That rarely happens.
Congressman Hurt, thank you so much for having me here
today and providing me the opportunity to testify, to discuss
mechanisms and policy options to facilitate bringing the
private sector back into the housing market in a supportive and
sustainable way.
I act as senior director for policy development and
research at Enterprise Community Partners, which is a national
nonprofit organization that creates opportunities for low- and
moderate-income people through affordable housing and diverse
thriving communities. For nearly 30 years, Enterprise has
provided financing and expertise to organizations around the
country to build and preserve affordable housing and to
revitalize and strengthen communities. Enterprise has invested
more than $11 billion and created more than 280,000 affordable
homes in hundreds of American communities by bringing public
and private capital together to meet local needs.
In addressing the housing crisis, the solutions we must
talk about must address the needs of individual borrowers and
their families. But a comprehensive approach to stabilizing the
broader housing market must include preventive efforts as well
as remedial ones. The old adage, ``An ounce of prevention is
worth a pound of cure'' certainly applies here.
The cost of providing counseling or offering foreclosure
mediation, both of which have proven successful in keeping
borrowers in their homes compared to individuals navigating the
complicated and often frustrating modification process without
help, is far, far less than the cost of foreclosure borne by
families, communities, municipalities, lenders, and investors.
A theme that will recur through my testimony is that
successful interventions in the housing market require
deliberate coordination. There are too many moving pieces and
too many overlapping interests to act unilaterally.
Collaboration is key. So while I am going to focus most of my
testimony on the pressing need to continue minimizing the
impact of foreclosures, I would be remiss if I did not mention
that the best option for avoiding a costly foreclosure is to
provide a distressed borrower with an affordable mortgage
payment, as we have heard up till now.
With better coordination in mind, however, bulk note
purchases by entities or consortia with the capacity and
flexibility to restructure notes where possible, including
through principal reduction, and the ability to transition
properties with minimal disruption or vacancy, either through
negotiating a deed for lease with the current owner or quickly
repairing and renting to new tenants into affordable rental
portfolios may yet hold the most promise for stabilizing the
Nation's housing markets.
You have already heard about changes that could improve
HARP, so without going into that again, I would point you to my
written testimony on that.
But if we consider that refinancing is one end of the
mortgage process, REO disposition is at the other end.
Stabilizing the housing market means more than being effective
in keeping people in their homes. It means dealing with the
impact that foreclosures have on communities across the
country.
Vacant and blighted properties have terrible effects on
neighbors of foreclosed properties and whole communities.
Research has found the contagion effect with price declines
increasing with each additional foreclosure in an area. The
impact of a foreclosed property increases the longer that
property sits unsold.
The Neighborhood Stabilization Program was designed
specifically to address that contagion. Through targeted
interventions to acquire properties in hard-hit communities,
NSP has created jobs when houses are restored to good quality
and helped put families back into formerly distressed
properties. The most successful programs have been those that
have brought private capital into their efforts to stabilize
neighborhoods, and in places like New York, Cleveland, and
Sacramento, those funds have been leveraged more than one-to-
one with private capital.
Those programs, however, focused on narrow communities in
small areas in order to maximize the potential impact. But to
address the need of foreclosed properties across the country,
we have to bring responsible private capital back into the
housing market for broader stability.
There are issues with the NSP recipients being able to
revolve their funds when they cannot sell homes because lenders
are not lending even to creditworthy borrowers, and this has
significantly limited the potential scope of NSP's efforts to
restore those communities.
We heard a little bit this morning from the first panel
about Project Rebuild and the fact that it is intended to
create or support 190,000 jobs and addressing 80,000
foreclosed, vacant or abandoned properties nationwide. But the
problem is much, much larger than just those 80,000 properties.
As we have heard, based on the RFI put forward by FHFA, HUD
and Treasury, we need to find a better way of disposing of
properties that the GSEs and FHA acquire in foreclosure. The
current REO disposition process for everybody, both the private
sector and public agencies, is designed to treat individual
properties one at a time, assigning it to a broker for sale and
then writing off the losses after closing.
The process rarely takes into account how any individual
property might impact other properties, and we have to be far,
far more strategic, again both on the individual side as well
as on the private side, as to how best approach the process. So
by removing REO properties from the forced sale inventory by
converting them to rental in bulk, there is an opportunity not
only to quickly increase the supply of rental homes, most of
which will be affordable, but downward pressure on prices from
excess forced sale inventory for owner occupants would also be
alleviated, allowing for a faster housing market recovery.
To be successful, an REO rental program must address the
initial sales process, buyer qualifications, post-purchase
treatment of properties, and ultimately excess strategies for
the buyer. I point you to my written testimony for
recommendations. But very, very briefly, buyer qualifications
are absolutely critical. You have to ensure that the buyers
have sufficient capital to acquire and maintain the properties
and that asset managers are in place to treat the properties
with the respect that those properties and their tenants
deserve as well as the communities in which they are found.
I look forward to taking any questions you might have.
[The prepared statement of Mr. Jakabovics can be found on
page 83 of the appendix.]
Mr. Hurt. Thank you, Mr. Jakabovics. I recognize myself for
5 minutes.
I am glad that you talked a little bit about the
Neighborhood Stabilization Program. Maybe my question, I really
have one question for everybody, but I would like to start with
you since you spoke about it.
Obviously, foreclosure mitigation is something that I think
as far as everyone here is concerned, is something that we want
to achieve. We want to prevent people from being put out of
their homes under these circumstances. I guess the Neighborhood
Stabilization Program comes to our attention, particularly
because expanding that program is part of the President's jobs
plan, as you call it, Project Rebuild.
I think from my standpoint, the fact that the Neighborhood
Stabilization Program has not prevented any foreclosures, and I
understand that is perhaps not the primary purpose, but at a
time when we are borrowing 40 cents on every dollar that we
spend and we have to prioritize what money we do have coming
into our Treasury in order to maximize the return, I wonder
about the efficiency, the efficacy of this program. One of the
things that I also note is that the Neighborhood Stabilization
Program since 2008 has been given $7 billion. It appears to me
from my math that it has only used between $4 billion and $5
billion of that, and that is since the crisis in 2008, and it
has not mitigated any foreclosures.
So I guess my question for you is, how do we justify
another $15 billion into this program when it is not mitigating
foreclosure? And I also wanted you to speak to the fact that it
is my understanding that the President's proposal would extend
this to commercial properties as well.
Could you talk about that? And then, I would like to maybe
go to Mr. Barofsky, Dr. Calabria, and Ms. Goodman.
Mr. Jakabovics. Sure. I think it is important to recognize
the sort of flow of ways properties end up in foreclosure. And
what NSP is really designed to do is address post-foreclosure,
minimize the impact on everybody else around them. So one of
the things that--the way I think it has been incredibly
successful--and we have seen this in a number of places--is
that as those properties get rehabilitated, they are no longer
blights on the community. They don't drag down neighboring
prices.
On the one hand, job loss is certainly a critical component
in terms of ultimately delinquency, default and then--
delinquency and then default. The probability of a property
going ultimately through to foreclosure is very, very closely
tied to the value of that property relative to how much the
homeowner owes on that mortgage. And so, as homes go into
foreclosure, the more foreclosures that are in an area and the
more properties are sitting on the market that are vacant and
abandoned and blighted, the less value everybody else
associates with those properties. The idea is that by bringing
those properties back into productive use, getting people into
properties--it is not designed at all to address pre-
foreclosure issues.
Mr. Hurt. And I get that. But I guess if you are dealing
with a limited amount of resources, would it be wiser to use
those resources to prevent that in the first place and keep
somebody in the home? That would be the question. But maybe--
Mr. Jakabovics. Optimally, you want to keep everybody in
their homes. But if people don't have jobs, and can't make
mortgage payments, there is very little that we can do. People
are not finding jobs, so at some point foreclosures do happen.
And the idea behind NSP specifically is very, very closely
targeted to dealing with the impact of those foreclosures that
are going to be inevitable.
Mr. Hurt. Thank you.
I would like to just give the other panelists the
opportunity to answer briefly, if you can.
Mr. Barofsky. Sure. One of the things that is striking, as
you said, it sounds like it has been about $4 billion to $5
billion out of a projected--
Mr. Hurt. $7 billion that has already been allocated.
Mr. Barofsky. $7 billion. So, once again, you have these
very strong predictions of a wide application of a program that
fall short. Now, compared to other programs, that is remarkably
good. When you look at HAMP, which had $50 billion allocated,
and we spent $2 billion, and that was supposed to help 4
million people. Or the $8 billion allocated to FHA short
refinance, and I think it spent $50 million, helping 301 people
out of the 1\1/2\ million.
So I think it is very important to sort of, before
allocating money or obligating money, to look at whether or not
that money can actually be spent in an effective manner. It is
not just in housing programs. We had the small business lending
fund, $30 billion was needed, and they ended up spending $4
billion. So I think it goes back to my original point of having
good, comprehensive planning so we are not just putting money
into a program that can maybe go elsewhere if it is not
actually going to be spent and used.
Mr. Hurt. Thank you.
Dr. Calabria?
Mr. Calabria. There are a couple of assumptions buried in
NSP that I think are worth pointing out. Because this is where
I would have a disagreement. One assumption, of course, is that
cities and nonprofits are going to be better landlords, with a
better ability to get these properties back on the market than
private investors.
To me, that is a questionable assumption, certainly one
that hasn't been proven. I think if you let prices fall far
enough, you will have investors out there. A tremendous amount
of the sales now are cash anyhow, so I am not sure that I think
it makes a good use of taxpayer funds to put cities, localities
directly in competition as buyers with private investors who
will themselves get these properties back onto the marketplace.
And again, the desire is to get these properties back onto the
marketplace.
I also again question the intention that we have to be able
to prop up prices. What you want to be able to do is get sales
volume. You want to get buyer confidence. To get buyer
confidence, we need to get to a point where buyers simply
believe that prices will go no lower.
Mr. Hurt. Right.
Mr. Calabria. Another assumption in this, again, much of
NSP is aimed at rehabilitating existing properties. In the
Detroits and the Buffalos and the Clevelands of the world, as
well as the Phoenixes of the world, the problem is not a lack
of supply.
Mr. Hurt. Right.
Mr. Calabria. The problem is excess supply. So adding to
that supply only further does that. If we are going to spend
this sort of money, perhaps we should be looking at destroying
properties, rather than rehabilitating properties in excess
markets.
Mr. Hurt. Thank you, Dr. Calabria.
Without objection, I would like to recognize Ms. Goodman
just for an additional 60 seconds.
Ms. Goodman. Okay. If no further actions are taken, about
10\1/2\ million borrowers could be in danger of losing their
homes. I think it is very, very important to keep focus on the
few actions that can help the most: first, keeping borrowers in
their home by doing principal reductions and by explicitly
recognizing the second lien issue; and second, to close the
supply-demand gap, you have to do bulk sales to get investors
involved in the market. Those are the things that will really,
really help; and I think we need to focus on doing fewer
programs well.
Mr. Hurt. Thank you, Ms. Goodman.
Now, it is my pleasure to recognize the gentleman from
Wisconsin, Mr. Duffy, for 5 minutes.
Mr. Duffy. Thank you, and I appreciate the panel for coming
in.
I just want to make sure the record is clear, Mr. Barofsky.
I heard in your testimony you said that, with the FHA
refinance, the goal was for 1.5 million homeowners to be
helped, and I think you actually said there were 301 actual
people helped. Did you mean to say 301,000 people helped or 301
actual people helped?
Mr. Barofsky. No, no, it is 301. It was about 254 when I
stepped down, so I think they have added about 50 in the last 6
or 7 months.
Mr. Duffy. So those who were helped from this program could
actually fit in this room?
Mr. Barofsky. It might be a little tight, but, yes, I think
so.
Mr. Duffy. Yes. Okay, I wanted to be clear on that, that I
didn't misunderstand your testimony. I think under the backdrop
of Solyndra right now, the American people look around and ask,
is my government effectively using my tax dollars or are they
effectively using the money they are borrowing from China on my
behalf and my kids' behalf? And then they will ask, if you are
not using my money effectively, are you still accomplishing the
goals that you are setting out when you are wasting my money?
And I think with Solyndra they would say, no, you wasted our
tax dollars, number one, but, number two, you didn't even
accomplish the goal you told me you were setting out to
accomplish, which was giving seed money for good, green start-
ups.
If you look at what is happening, say, with HAMP, if
Treasury was a private corporation, would they be fired? Would
they continue to exist in the private sector if they have
accomplished the goals--if we are reviewing their
accomplishments per the goals they set out at the start of the
mission?
Mr. Barofsky. I think there is no question they have fallen
embarrassingly short of the goals. If there is any silver
lining to this incredibly dark cloud, it is that at least they
haven't spent a lot of money on it. They have obligated a lot
of money for it--$50 billion was supposed to be spent, and not
to say that $2 billion isn't a lot of money, but in comparison
this hasn't been a sinkhole because it has been such a failure.
So that is the one silver lining to all this. At least it
hasn't cost as much money in not accomplishing their goals as
just throwing money at the problem with similar results.
Mr. Duffy. And similarly, broadly speaking, if we are
looking at these programs, I would guess that many of you would
agree that many of them are underperforming, to say the least?
Mr. Barofsky. Failing.
Mr. Duffy. Failing, yes, okay, that is a little more
aggressive. Are any of the programs working? Can you sit here
and say, listen, we have some hope; there is a little light out
there shining that can help?
Tuly, Americans who are in some very difficult times and I
think to find some programs that can help them out, are any of
these possibly going to get that job done, helping the American
homeowner?
Mr. Barofsky. Again, I think, rather than just do opinion,
you just look at the numbers. So HAMP is supposed to help 4
million, 691,000 ongoing, almost 900,000 fails. The FHA program
we talked about, the principal reduction program which was
rolled out as part of HAMP, which we heard about in the
testimony this morning, that has helped 10,000 people. Second
lien modification is such a huge problem, as Ms. Goodman
described, 35,000. The HAFA program to help people leave with
dignity through short sales, 16,000. Unemployed program, this
is supposed to help the millions of unemployed with our
tremendous unemployment, 14,000. It is not just for me to say
that it's a failure. These numbers are unambiguous. They are
failing.
Mr. Duffy. And are there programs the government can--oh, I
am sorry?
Ms. Goodman. Yes, I just wanted to mention, the one thing
that could potentially help a lot which has been introduced is
Treasury, HUD, and FHFA did a joint request for information on
bulk sales to investors, sort of a deed for lease; I think that
a program facilitating bulk sales to investors with the express
purpose of renting out those properties could potentially help
a lot. I think that is the most important initiative that has
been taken, and should be definitely encouraged.
Mr. Duffy. It could work?
Ms. Goodman. And that could work. You could actually put
stipulations on it like investors can't sell those properties
for a number of years or can only sell 20 percent of those
properties in the first 3 years or whatever to make it even
more effective, and I think that program should be pushed.
Mr. Jakabovics. If I may, also, I think that a lot of the
reasons for failures that have been identified both by Mr.
Barofsky and Ms. Goodman are largely private-sector failures. I
think part of the problem has been an overreliance on the
private sector to act as agents for the government without
sufficient oversight and sufficient sticks to ensure
compliance.
So to put the blame entirely at the feet of government for
coming up with efforts to help homeowners, I think if you would
ask those nearly 700,000 people who have been able to stay in
their homes as a result of the modification efforts or the
communities where the blighted property next door has not only
created a job for them but also made the neighborhood a little
bit more attractive, I think from that perspective--there is
enough--there is certainly enough blame to go around, but I
think it would be a mistake to write all of this off as a
failure simply because it hasn't met potentially outsized
expectations from the get-go.
Mr. Hurt. Do you want more time?
Mr. Duffy. Could I have--
Mr. Hurt. Without objection, the gentleman is recognized
for an additional 2 minutes.
Mr. Duffy. Thank you.
I think as we sit back and look, Mr. Calabria, you have
indicated that, if I am understanding your testimony, if we
just step back and let the market work, maybe the market could
more effectively find a floor so then we have sufficient demand
to step in and see the market then take off again. Is that your
position?
Mr. Calabria. That is very much the case. I would
characterize a lot of the actions as somehow trying to get back
to 2005-2006. That was not a sustainable situation. We need to
accept we built too much housing. We need to accept that the
way that works going forward is you try to clear the market by
prices coming down.
I want to draw out a point that I think was implicit in
something you said earlier about tax dollars. So much of the
reaction has been that we need to maintain housing wealth, we
need to maintain housing values because that is people's
wealth. We need to keep in mind that homeowners and taxpayers
are the same people. Taking a dollar out of my left pocket and
putting it into my right pocket does not make me better off
just because you switched it around on my balance sheet. So it
is important to keep that in mind.
If we can find ways, like bulk sales, which I do think is
one of the things that can be done effectively, something I
would add, maybe a little of the difference is I think we do
need to resist the temptation of micromanaging those bulk
sales. If we put too many restrictions like, you have to have
income requirements or so much of it needs to go to nonprofits,
you will make the process more cumbersome.
I think all you need to do is look at, for instance, FHA's
asset control area program they have been running for over a
decade. It has been a disaster, in my opinion. So, again,
resist the temptation to micromanage. Get the properties out
there in the market.
Mr. Duffy. Right. And if we have a philosophy of letting
the market work, but then, also, if someone is going to say
Congress should also try to do something to move the process
along, do you have any ideas on where we would go if we are
relying on the market but also a little Miracle Gro as well? I
don't know--
Mr. Calabria. I think there are a number of areas you need
to look at. The bulk services is one area. I think we need to
parse out some of the discussions on foreclosures. The
Administration, the President himself has said this. We can't
save everybody. We need to be more honest about that. I think
you need to have essentially a two-tiered process--
Mr. Hurt. Thank you, Dr. Calabria.
Mr. Calabria. Those homeowners who can be saved, move
forward, those who can't--
Mr. Hurt. Thank you, Dr. Calabria.
It is now my pleasure to recognize the gentleman from
California for 5 minutes, Mr. Sherman; and we will certainly
give him more time if he needs it.
Mr. Sherman. Okay. I don't think what the American people
want is to get into this room and have a shouting match, less
filling--what is the other side of that--better tasting or
whatever? Or ``government's at fault, private sector's at
fault.''
The fact is, Americans are mad because the system isn't
working. They know that the private sector either caused it
and/or hasn't solved it. They know government either caused it
and/or hasn't solved it or, as some of our witnesses have
pointed out, has solved it for tens of thousands of people at a
time when we wanted to solve it for hundreds of thousands of
people.
I would point out that the fact that the various programs
adopted in the last Congress have helped a lot fewer people
than anticipated also means they have cost an awful lot less
than anticipated. And so those who oppose those programs should
regard that as an unintentional compromise, halfway between
what Democrats wanted both in terms of number of people helped
and cost to the Federal Government and what the other side
wanted.
People have been urging compromise on me for a long time.
Things being ineffective and too slow is probably not the way
they wanted to achieve that compromise.
As to bulk sale, Ms. Goodman, what do we need to do
governmentally to facilitate investors buying these homes in
bulk and renting them out?
Ms. Goodman. We basically have to make the program
available on a scale that works. So, basically, my
recommendation would be that you get together, say, 200
properties in a given MSA, and you sell it as a bulk sale, and
you will get excellent execution. Because basically what you
have to do is encourage large investors to build out an
infrastructure for renting out these properties, for managing
these properties, and they are going to pay more for bulk. If
you can accumulate five properties in Indianapolis, that
doesn't allow you to build out a structure. If you can
accumulate 200 properties, it does. You don't need legislation.
You have to basically put the program into place.
Mr. Sherman. You need a program. What is the matter with
the private sector, Wells Fargo and Bank of America saying,
``Hey, let's get together. You have 100 homes in Indianapolis,
I have 100 homes in Indianapolis, we will put them up for
bid.''
Ms. Goodman. Because most of the properties--or at least
half of the loans in the United States are either Freddie,
Fannie, or FHA/VA properties; and so the government actually
has to be willing to dispose of these properties in bulk and
put a program into place to do so. You don't need legislation.
You need action.
Mr. Sherman. And this bulk sale idea is the only thing I
have seen at least three witnesses, if not four, testify in
favor of, and it is consistent with what I see in my district,
which is there is a surplus of homes for sale or will be as
soon as they grind through their foreclosure process and a
dearth of rental housing. And in fact, many of the people who
want to rent would prefer a single family home since that is
what they bought back when they could afford to buy it.
Ms. Goodman. Very well said.
Mr. Sherman. The focus here in part is, how do we maintain
home values without costing the Federal Government a lot of
money?
One of the ways to do that is to, in my area, which is a
high-cost area, is to maintain the $729,000, $750,000
conforming loan limit. Ms. Goodman, what do we expect to happen
to homes that were selling for $800,000, $900,000, even a
million dollars now that the conforming loan limit has dropped
to $625,000?
I know the homes that sell for $20 million down in Malibu
aren't going to be affected. If you buy one of those, you
probably own a bank. But for those homes which, believe it or
not, in my area are called middle-class homes but sell for over
$700,000, what is this decline in the conforming loan limit
going to do to home values and the ability of buyers to
purchase?
Ms. Goodman. It is important to realize that credit
availability is constrained across the spectrum to begin with.
Freddie and Fannie's average FICO score is 762 for recent
origination. The average LTV is 67. Bank portfolios have
similar origination standards.
Mr. Sherman. The LTV is 67?
Ms. Goodman. On average.
Mr. Sherman. That is a one-third downpayment? Wow.
Ms. Goodman. Yes, yes. Credit availability is very, very
limited as it is, and what that will do is constrain credit
availability even more.
Taking a step back, you have this huge supply and demand
gap. As you pointed out, you have a lot of homes that haven't
been foreclosed on but will be. The borrower just can't afford
to be in that home. You have to transition to someone. Your
choice is you either transition to another owner occupant who
has less good credit because he couldn't make the payments on
his prior home or you are going to have to transition to
investors.
So it just makes a case that at the margin, the loan
limits--the recent decrease in the loan limits makes credit
availability tighter for that sector.
Mr. Hurt. Without objection, the gentleman is recognized
for an additional 2 minutes.
Mr. Sherman. I appreciate that.
Is there any evidence that the private sector is ready
without any kind of government guarantee to make the loans of
$700,000, $725,000 to middle-class or upper-middle-class
families trying to buy homes?
Mr. Calabria. If I could add to that for a second, and I
will start with--I am always loathe to generalize from
anecdote, but I will use myself.
I was just qualified for a jumbo loan in Washington, D.C.,
that would have been below that limit if it had not been
changed; and I will say the difference in cost to me is 25
basis points of what I would have gotten otherwise. But I did
get the loan, and again, that is just one example.
Mr. Sherman. With all due respect, some Republicans would
say that Washington, D.C., because it's bleeding the rest of
the country dry, is the only hot housing market in the country,
and you have qualifications in terms of your ability to manage
your finances that the average constituent or Member of
Congress does not have.
The next issue is with regard to homes where people just
want to refinance. That will enhance their equity. They are not
able to refinance because they are underwater. At least, they
don't have a huge amount of equity in the property.
It has been proposed that we allow these people to
refinance because the Federal Government is already on the hook
for the loan. You have a $500,000 loan at 8 percent interest,
and the government is on the hook, and there is no equity in
the property. And you convert that into a $500,000 loan, nobody
is allowed to take out any money--$500,000 loan, the government
is still on the hook, and it is 3 percent interest or 4 percent
interest.
Ms. Goodman, what do we have to do to allow people to
refinance? Won't we reduce the government's risk if the
interest rate is 4 percent instead of 8 percent, and obviously
we enhance a life for the homeowner who is able to refinance?
Ms. Goodman. Absolutely. Where Freddie and Fannie already
own the risk, there is absolutely no reason other than the
series of frictions I delineated why the borrower shouldn't be
able to refinance to take advantage of lower rates. Almost
everybody is better off. It should be able to happen.
Mr. Sherman. And if I can just comment, what you have now
is an unjustified profit where the current holder of that loan
is earning 8 percent, government guaranteed, at a time when, if
you buy it from Mr. Bernanke, he will pay you a quarter of a
point--well, 2 percent.
I yield back.
Mr. Hurt. Thank you, Mr. Sherman.
I ask unanimous consent to insert the following material
into the record: the October 3, 2011, letter from the National
Low Income Housing Coalition; the October 6, 2011, statement
from the National Association of REALTORS; and the October 6,
2011, statement from Mercedes Marquez, Assistant Secretary for
Community Planning and Development, U.S. Department of Housing
and Urban Development.
The Chair notes that some members may have additional
questions for this panel which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for members to submit written questions to these
witnesses and to place their responses in the record.
I would like to thank the witnesses for joining us today;
and, without objection, this hearing is adjourned.
[Whereupon, at 12:35 p.m., the hearing was adjourned.]
A P P E N D I X
October 6, 2011
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