By Brandon Moseley
Alabama Political Reporter
Senator Shelby (R) from Alabama issued a written statement containing his remarks in the Committee on Banking, Housing, and Urban Affairs. Senator Shelby is the Republican on the Committee on Banking, Housing and Urban Affairs. The Committee was hearing from several members of the administration and the U.S. Federal Reserve on the housing crisis.
Senator Shelby said, “Because the President has proposed a new use for the FHA, I also would like Secretary (of Housing and Urban Development Shaun) Donovan to update us on the status of the FHA fund. The President’s budget predicted that FHA would require a taxpayer bailout this year were it not for the funds it will receive from the recent mortgage settlement. Given the repeated assurances from the Secretary and multiple FHA Commissioners as to the strength of the fund, this revelation is troubling, although not unexpected for those of us who have been predicting insolvency for the FHA for quite some time. Hence, today’s discussion should also include what changes should be made to FHA to ensure that the taxpayer is not on the hook for FHA losses.”
“Although having the settlement compensate as many people as possible may make sense politically, settlement funds should compensate homeowners who suffered actual harm and deter future violations of the law. The settlement, however, appears to come up short on both counts. For example, the Administration’s press release indicates that homeowners who were improperly foreclosed upon will receive only about $2,000. As a result, homeowners who were wrongfully foreclosed upon will still likely have to pursue the remainder of their claims in court or through financial regulators. In contrast, many homeowners who suffered no legal harm appear to be eligible for compensation under the settlement as well,” Sen. Shelby continued.
The committee also heard from Federal Reserve Governor Duke. Sen. Shelby said, “Our second panel today will discuss two recent papers by Federal regulators on reforming the housing market. Federal Reserve Governor Duke will be discussing the white paper that was recently sent to Congress by Chairman Bernanke. This paper reviewed numerous proposals, but concentrated on measures to convert bank owned real estate to rental property.”
Sen. Shelby said, “The conservatorship (of Fannie Mae and Freddie Mac) has already lasted three years. The longer it continues, the greater the risk is that taxpayers will suffer additional losses as Fannie and Freddie’s uncertain future erodes their ability to retain high-quality personnel and make essential infrastructure investments.” “Given the FHFA’s limited legal authority as conservator, only Congress can determine the future of Fannie and Freddie. I regret that Congress did not take action with regard to these companies years ago. However, I look forward to learning more about what FHFA intends to do until Congress does act and what additional steps Congress should take to end the conservatorships of Fannie and Freddie.”
New Home prices dropped in 2011 for the third straight year as a massive number of foreclosures have forced prices down. Most of those mortgages were owned by U.S. Government backed Freddie Mac, Fannie Mae, and the FHA. To keep the lenders solvent the Federal government has spent almost a $trillion bailing them out, meanwhile homes in many markets are down 20-30% (or more) from 2007. Even though interest rates have dropped to record lows, many homeowners can not refinance since their home is worth less than their current mortgage. The Obama Administration has proposed using the FHA to guarantee mortgages for more than the house is worth. Critics are concerned that that could expose the FHA and the government to even more losses.
Senator Richard Shelby is the senior Senator from Alabama and has served in the U.S. Senate since 1986.
To read Senator Shelby’s full statement: