By Brandon Moseley
Alabama Political Reporter
U.S. Senator Richard C. Shelby (R) from Alabama released a written statement with his remarks made at a hearing on housing finance reform. Sen. Shelby is the ranking Republican member of the Committee on Banking, Housing and Urban Affairs.
Sen. Shelby said, “Our fragile housing market faces numerous challenges. The uncertainty created by the nearly four-year conservatorships of Fannie Mae and Freddie Mac is one such challenge. The resulting lack of clarity in the secondary market is a major impediment to private capital returning to our housing finance system. Without that capital, it will be difficult to have a sustainable recovery in our housing market.”
Sen. Shelby said that the hearing was focused on the Federal Housing Finance Administration’s (FHA) Home Affordable Refinance Program (HARP). The HARP program was designed to allow borrowers that owe more money than their home is worth to refinance their mortgages with GSE loans.
Sen. Shelby was critical of the Obama Administration’s housing policy. Sen. Shelby said, “FHA has also been woefully neglected. For years, FHA has severely misjudged the risk to which the taxpayer has been exposed making a taxpayer bailout a real possibility.” Sen. Shelby said that the Senate should have a broader debate into housing policy.
Sen. Shelby said that problems have also been created by the many new rules and regulations that are arising from the Dodd-Frank Wall Street Reform and Consumer Protection Act. “The potential consequences of rules pertaining to Qualified Mortgages or QM and Qualified Residential Mortgages or QRM have drawn concerns from industry participants and consumer groups, alike,” Sen. Shelby said.
Under the proposed Dodd-Frank rules the lender that originates a mortgage will have to retain at least a 5% risk in any residential loans that they originate. It had been industry wide practice to write a home loan and then sell the loan this insulated many banks and mortgage companies from risk, thus encouraging them to write risky loans. The new rule would apply to “non-Qualified Residential Mortgages.” In a non-qualified residential loan, the mortgage company or bank could only securitize and package 95% of the loan.
For a residential loan to be considered a “qualified residential loan” under the proposed new rules the borrowers would have to put 20% down, have no loans that ever became 60 days delinquent during the last two years, and must meet strict debt-to income ratios. Many people in the mortgages and real estate industries have objected to the proposed new Dodd-Frank rules.
Henry V. Cunningham Jr., Mortgage Bankers Association board member and chairman of the MBA Residential Board of Governors said, ““This rule hardwires some of the least flexible underwriting standards any of us have ever seen. The hardest hit would be first-time homebuyers, minorities and middle class families for whom the down payment requirement would be nearly insurmountable.”
To read Sen. Shelby’s statement in its entirety: