Mortgage Finance Reform: An Examination of the Obama Administration's Report to Congress

Congresswoman Maxine Waters (D-Calif.), a senior member of the Financial Services Committee and Ranking Member of the Subcommittee on Capital Markets and Government Sponsored Enterprises, delivered the following opening remarks today during a hearing entitled ‘Mortgage Finance Reform: An Examination of the Obama Administration's Report to Congress'. Treasury Secretary Timothy Geithner was before the committee:

"Thank you, Mr. Chairman, for holding this important hearing this morning. 

"Today, we will have the opportunity to explore in more detail the Administration's white paper to Congress on reforming the housing finance market.  As you know, this paper doesn't lay out a specific recommendation, but is a general discussion of the principles we must consider and tradeoffs we must balance as we craft an overhaul of Fannie Mae and Freddie Mac.

"Though I didn't agree with everything in the report, I think that it at least provides a framework and a starting point for us to begin to fix the housing finance system in this country, which we all agree needs reform. 

"And frankly, though we're here today to hear from the Treasury Secretary, I am just as curious to hear what the Republican plan is moving forward.  The other side of the aisle demanded rapid and immediate privatization when they were in the minority, and now they have the opportunity to act.

"In the meantime, I think that hearings like these are very important to spell out exactly how the borrower experience of obtaining a mortgage would change under the rapid and complete privatization model proposed by both the other side of the aisle, and under at least one option of the Administration plan.

"For example, with no government involvement:

•           Would the 30-year, fixed-rate mortgage be available to the typical median income borrower in this country? 

•           If not, what would that mean? 

•           Would we return to an era of 50 percent downpayments, which were the norm prior to the 1930s?  

•           Would adjustable rate products, and products with huge balloon payments at term, become typical?

•           How would this affect new household formation, the ability of families to build wealth, and our broader economic recovery?

"These are all important questions that need to be addressed before we can move forward.  And importantly, we must also consider precisely why the private market hasn't returned yet.  Is it because government is "crowding out" private investment?  Or is it that investors are reluctant to return because of how badly they were burned on the private label securitization deals during the years leading up to the crisis?  I think the ever-growing list of investor lawsuits against originators, and investor complaints about servicer practices, tells us something about why investors remain skittish.

"So I think we need to move slowly and deliberately and acknowledge the fact that solutions that seem simple – like complete privatization – may very well have disastrous and unintended side-effects.

"We also need to consider reform comprehensively, including looking at the implications of reform on the multifamily market, considering this country's impending demographic changes. And we need to thoughtfully look at any reforms to the Federal Home Loan Bank system.  It is important that Congress have the ability to weigh in on changes to the Home Loan Bank system, as some have suggested that changes such as limiting advances could have consequences for the 30-year fixed rate mortgage.

"As I've said, I think that there is a lot of room for us to work together on this issue, across both sides of the aisle, and I look forward to exploring these issues more fully both in full Committee and on the Capital Markets Subcommittee.

"Thank you, Mr. Chairman. I yield back."

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