Carper Says Reform Bill Would Restore Lender Confidence
May 20 2008
WASHINGTON - Sen. Tom Carper (D-Del.) today praised the Senate Banking Committee for approving a bipartisan set of housing reforms meant to restore investor confidence in the nation's housing finance system, while also helping at-risk American homeowners struggling with the ongoing mortgage crisis.
The bill, which the committee approved today on a 19-2 vote, includes many reforms Sen. Carper has called for over the past several years, including creating a strong and independent regulator for Government Sponsored Enterprises (GSEs - Fannie Mae, Freddie Mac and the Federal Home Loan Banks). In addition, the bill would create an affordable housing fund to help construct new housing for low-income Americans, as well as create a temporary federal program to help some financially distressed Americans refinance their mortgages.
"We can't solve all the nation's housing problems in one, swift stroke, but we can take steps to strengthen our nation's housing finance system, build more affordable housing, and provide mortgage relief to financially distressed Americans without rewarding bad behavior. This bill is a good, bipartisan compromise that does all three," said Sen. Carper.
The legislation includes three major components - GSE reform, a new affordable housing fund, and a new Federal Housing Administration (FHA) program designed to help distressed homeowners refinance their mortgages.
GSE reform: The bill will increase regulatory oversight of the GSEs, which several years ago were plagued by a series of accounting scandals. This bill would create a strong, independent regulator with broad authority over new mortgage products, as well as the GSEs' investment portfolios and capital requirements. The regulator's primary responsibility would be to ensure the safety and soundness of the GSEs, and the regulator would have the power to take prompt, correction action if necessary, similar to other banking regulators.
"The GSEs are really the backbone of this nation's mortgage system. If they're not healthy, then fewer people will get new home loans. And if people can't get new loans, then our nation's housing industry will suffer immeasurably," said Sen. Carper. "This bill will help restore confidence in our nation's housing finance system so we can start moving homeownership in the right direction again."
Help for Homeowners: To help reduce the number of home foreclosures, the bill creates a four-year, voluntary program within the FHA to refinance distressed homeowners into insured, long-term loans. This measure only helps borrowers who have not intentionally defaulted on their mortgages and do not have a debt-to-income ratio of more than 31 percent. It allows these homeowners to covert to a 30-year fixed mortgage, waives all pre-payment penalties and extinguishes all second liens.
The legislation includes several amendments authored by Sen. Carper, including:
1) A provision authorizing a study of collateral accepted by Federal Home Loan Banks. This amendment requires the regulator to conduct a study to ensure that Federal Home Loan Banks are not accepting predatory loans from their member banks as collateral. Wall Street investors are no longer purchasing predatory mortgage securities so Congress needs to ensure these same loans do not find their way into the system through the Federal Home Loan Banks.
2) A provision granting federal home loan banks the ability to release additional funds to support refinances. This amendment, which would allow Federal Home Loan Banks to use a small percentage of their affordable housing funds to support refinances for two years, can aid at least 5,000 homeowners each year.
Sen. Carper also co-authored an amendment with Sen. Bob Menendez (D-N.J.) that would allow states to use administrative funds from the Affordable Housing Trust Fund to improve financial education programs for homebuyers. Currently, 10 percent of the block grants can be used for administrative expenses, and this amendment will allow states to also use that 10 percent in funds to support financial literacy programs. These programs can help Americans better understand their credit history, develop budgets and start to build savings before they buy homes.
"Many Americans were taken advantage of by unscrupulous lenders, leading to the subprime mortgage crisis we have today," said Sen. Carper. "This bill will help finance more financial literary programs so more Americans are better prepared to purchase and maintain a home."
In addition, the bill includes legislation, cosponsored by Sen. Carper, which would set up minimum national standards for mortgage brokers and lenders, so that they are required to be professional, competent and trustworthy. This language, originally authored by Sen. Mel Martinez (R-Fla.), also creates a database for consumers seeking licensed mortgage brokers and lenders.
This bill must now be considered by the full Senate and then reconciled with similar legislation has already passed the House of Representatives.