Senate Banking on Regulatory Burdens to Mortgage Credit
Senate Banking Committee
“Regulatory Burdens to Obtaining Mortgage Credit”
Thursday, April 16, 2015
Key Topics & Takeaways
- Housing Finance Reform: Given the conflicting approaches from Republicans and Democrats that seek to accomplish the same goal of expanding mortgage credit, Sen. Corker (R-Tenn.) asked if it would make more sense to pursue comprehensive housing finance reform that would create certainty in the market and solve housing problems once and for all. The panelists all agreed on the importance on housing finance reform..
- Credit Scoring Models: Motley stated that updated scoring models do a better job accurately reflecting the credit-worthiness of a borrower and that more should be done to expedite the government-sponsored enterprises’ (GSEs) validation and adoption of the latest validated credit scoring models.
- Common Securitization Platform: Corker noted that several members of the Committee have written to the FHFA about the Common Securitization Platform to ensure that it has enough outside advising, and asked if it would be appropriate for someone from the mortgage industry to participate in its formation. Motley responded that he did think that would be appropriate.
Speakers
- Tom Woods, President, Custom Woods Homes
- Chris Polychron, Executive Broker, First Choice Realty
- David Motley, President, Colonial Savings
- Julia Gordon, Director of Housing Finance and Policy, Center for American Progress
Opening Statements
In his opening statement, Chairman Richard Shelby (R-Ala.) said he believes there is a need to reexamine the effectiveness of housing regulation and that some regulation prevents quality consumers from obtaining loans. He said he was in favor of refining current law to help consumers, but that any changes should not permit irresponsible lending habits.
In his opening statement, Ranking Member Sherrod Brown (D-Ohio) noted the problems in the past with predatory loans and the increased number of foreclosures caused by those loans. He stated that the ability to repay standard was meant to be a base standard, but expanding the Qualified Mortgage (QM) definition limits the ability of families to purchase homes. He warned that laws cannot be scaled back to the point where predatory lenders making loans with excessive fees can put the banking system at risk again.
In his testimony, Tom Woods, President, Custom Woods Homes stated that while there have been some actions taken by the individual agencies to mitigate overly-tight lending conditions, the housing sector is still struggling to return to normal. Woods believes that additional steps can be taken to eliminate some of the barriers to credit availability while still employing balanced reforms to protect the housing market from another crisis.
In his testimony, Chris Polychron, Executive Broker, First Choice Realty stated that the 3 percent cap on points and fees needs to be fixed and stated his belief that underwriting standards should be less constrictive. Polychron noted that 20 [percent of buyers are from rural areas or small towns and commented that the loan process should be accelerated in these specialty markets.
In his testimony, David Motley, President, Colonial Savings noted that recently enacted laws have made the market safer but that the laws have impacted availability and affordability of mortgage credit. Motley believes the QM definition should be adjusted to expand access to sustainable mortgage credit. He stated the changes to QM should be made holistically, and advocated for the expansion of the QM safe harbor, the need to increase the definition for a small loan, and the need to revise the points and fees definition.
In her testimony, Julia Gordon, Director of Housing Finance and Policy, Center for American Progress stated that Congress and the American public supported work to align lending and consumer protection. Gordon warned that more lending without core Dodd-Frank Act measures in place means consumers will be negatively impacted. She suggested that instead of revising the Dodd-Frank Act, the government should find other ways to expand mortgage credit access and not re-open the door to more predatory lending.
Question and Answer
Greatest Restrictions to Mortgage Credit
Shelby asked the panelists for their views regarding the current barriers to mortgage credit. Motley highlighted the restrictive nature of the QM rule and the fact that there only appears to be a market for loans that qualify as safe harbor. He stated that there is not currently a market for rebuttable presumption loans so the expansion of the QM safe harbor definition would help to expand the availability of credit.
Gordon stated that the price of a down payment continues to be a determinate factor for many borrowers since incomes remain suppressed for many borrowers. Gordon stated that low down payment products were not the cause of the housing crisis, and instead pointed to risk layering.
Sen. Robert Menendez (D-N.J.) asked the panelists to discuss obstacles the market faces in regards to adopting newer credit score models. Gordon noted that rent reporting is a big part of the new credit score models which involves a reliance on private “mom and pop” landlords to do the reporting. Gordon stated that reliance on private individuals to report is problematic.
Motley stated that updated scoring models do a better job accurately reflecting the credit-worthiness of a borrower and that more should be done to expedite the government-sponsored enterprises’ (GSEs) validation and adoption of the latest validated credit scoring models.
Compliance Costs for Community Banks
Sen. Ben Sasse (R-Neb.) commented that many community bankers write mortgages that may not seem to make economic sense, but do so as a community service. He denied that such community banks were a major contributor to the financial crisis even if they are “guilty in the eyes of Washington.” Gordon agreed that community banks were not the cause of the crisis and added that much can be done in the area of technology to take down compliance costs. Motley called compliance with new regulations a “tremendously difficult task,” noting that his bank has had to hire additional staff that must then read rules and train for them.
Mortgage Choice Act
Sen. Elizabeth Warren (D-Mass.) said access to mortgages is “painfully tight,” but that while Congress should be looking for ways to increase access, many of the proposals being heard are really meant to let the mortgage industry “dig deeper into consumers’ pockets.” She urged her colleagues not to support the Mortgage Choice Act, criticizing it as a bill to allow bigger lenders to get higher fees from consumers rather than to preserve access to credit.
Common Securitization Platform
Sen. Bob Corker (R-Tenn.) noted that several members of the Committee have written to the FHFA about the Common Securitization Platform to ensure that it has enough outside advising, and asked if it would be appropriate for someone from the mortgage industry to participate in its formation. Motley responded that he did think that would be appropriate.
Corker made the observation that while Republicans are trying to craft legislation to change rules in Dodd-Frank in order to create better access to credit, Democrats are pursing the same end goal by getting the FHFA, Fannie Mae and Freddie Mac to “loosen up on the government side.” Given the conflicting approaches that seek to accomplish the same goal, he asked if it would make more sense to pursue comprehensive housing finance reform that would create certainty in the market and solve housing problems once and for all. The panelists all agreed on the importance on housing finance reform.
Student Debt Impact on the Housing Market
Sen. Jack Reed (D-R.I.) asked how student debt was impacting the market for first time homebuyers. Polychron discussed how the percentage of first time homebuyers has continued to decrease in large part due to younger borrowers carrying student loan debt.
For more information on this hearing, please click here.
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Senate Banking Committee
“Regulatory Burdens to Obtaining Mortgage Credit”
Thursday, April 16, 2015
Key Topics & Takeaways
- Housing Finance Reform: Given the conflicting approaches from Republicans and Democrats that seek to accomplish the same goal of expanding mortgage credit, Sen. Corker (R-Tenn.) asked if it would make more sense to pursue comprehensive housing finance reform that would create certainty in the market and solve housing problems once and for all. The panelists all agreed on the importance on housing finance reform..
- Credit Scoring Models: Motley stated that updated scoring models do a better job accurately reflecting the credit-worthiness of a borrower and that more should be done to expedite the government-sponsored enterprises’ (GSEs) validation and adoption of the latest validated credit scoring models.
- Common Securitization Platform: Corker noted that several members of the Committee have written to the FHFA about the Common Securitization Platform to ensure that it has enough outside advising, and asked if it would be appropriate for someone from the mortgage industry to participate in its formation. Motley responded that he did think that would be appropriate.
Speakers
- Tom Woods, President, Custom Woods Homes
- Chris Polychron, Executive Broker, First Choice Realty
- David Motley, President, Colonial Savings
- Julia Gordon, Director of Housing Finance and Policy, Center for American Progress
Opening Statements
In his opening statement, Chairman Richard Shelby (R-Ala.) said he believes there is a need to reexamine the effectiveness of housing regulation and that some regulation prevents quality consumers from obtaining loans. He said he was in favor of refining current law to help consumers, but that any changes should not permit irresponsible lending habits.
In his opening statement, Ranking Member Sherrod Brown (D-Ohio) noted the problems in the past with predatory loans and the increased number of foreclosures caused by those loans. He stated that the ability to repay standard was meant to be a base standard, but expanding the Qualified Mortgage (QM) definition limits the ability of families to purchase homes. He warned that laws cannot be scaled back to the point where predatory lenders making loans with excessive fees can put the banking system at risk again.
In his testimony, Tom Woods, President, Custom Woods Homes stated that while there have been some actions taken by the individual agencies to mitigate overly-tight lending conditions, the housing sector is still struggling to return to normal. Woods believes that additional steps can be taken to eliminate some of the barriers to credit availability while still employing balanced reforms to protect the housing market from another crisis.
In his testimony, Chris Polychron, Executive Broker, First Choice Realty stated that the 3 percent cap on points and fees needs to be fixed and stated his belief that underwriting standards should be less constrictive. Polychron noted that 20 [percent of buyers are from rural areas or small towns and commented that the loan process should be accelerated in these specialty markets.
In his testimony, David Motley, President, Colonial Savings noted that recently enacted laws have made the market safer but that the laws have impacted availability and affordability of mortgage credit. Motley believes the QM definition should be adjusted to expand access to sustainable mortgage credit. He stated the changes to QM should be made holistically, and advocated for the expansion of the QM safe harbor, the need to increase the definition for a small loan, and the need to revise the points and fees definition.
In her testimony, Julia Gordon, Director of Housing Finance and Policy, Center for American Progress stated that Congress and the American public supported work to align lending and consumer protection. Gordon warned that more lending without core Dodd-Frank Act measures in place means consumers will be negatively impacted. She suggested that instead of revising the Dodd-Frank Act, the government should find other ways to expand mortgage credit access and not re-open the door to more predatory lending.
Question and Answer
Greatest Restrictions to Mortgage Credit
Shelby asked the panelists for their views regarding the current barriers to mortgage credit. Motley highlighted the restrictive nature of the QM rule and the fact that there only appears to be a market for loans that qualify as safe harbor. He stated that there is not currently a market for rebuttable presumption loans so the expansion of the QM safe harbor definition would help to expand the availability of credit.
Gordon stated that the price of a down payment continues to be a determinate factor for many borrowers since incomes remain suppressed for many borrowers. Gordon stated that low down payment products were not the cause of the housing crisis, and instead pointed to risk layering.
Sen. Robert Menendez (D-N.J.) asked the panelists to discuss obstacles the market faces in regards to adopting newer credit score models. Gordon noted that rent reporting is a big part of the new credit score models which involves a reliance on private “mom and pop” landlords to do the reporting. Gordon stated that reliance on private individuals to report is problematic.
Motley stated that updated scoring models do a better job accurately reflecting the credit-worthiness of a borrower and that more should be done to expedite the government-sponsored enterprises’ (GSEs) validation and adoption of the latest validated credit scoring models.
Compliance Costs for Community Banks
Sen. Ben Sasse (R-Neb.) commented that many community bankers write mortgages that may not seem to make economic sense, but do so as a community service. He denied that such community banks were a major contributor to the financial crisis even if they are “guilty in the eyes of Washington.” Gordon agreed that community banks were not the cause of the crisis and added that much can be done in the area of technology to take down compliance costs. Motley called compliance with new regulations a “tremendously difficult task,” noting that his bank has had to hire additional staff that must then read rules and train for them.
Mortgage Choice Act
Sen. Elizabeth Warren (D-Mass.) said access to mortgages is “painfully tight,” but that while Congress should be looking for ways to increase access, many of the proposals being heard are really meant to let the mortgage industry “dig deeper into consumers’ pockets.” She urged her colleagues not to support the Mortgage Choice Act, criticizing it as a bill to allow bigger lenders to get higher fees from consumers rather than to preserve access to credit.
Common Securitization Platform
Sen. Bob Corker (R-Tenn.) noted that several members of the Committee have written to the FHFA about the Common Securitization Platform to ensure that it has enough outside advising, and asked if it would be appropriate for someone from the mortgage industry to participate in its formation. Motley responded that he did think that would be appropriate.
Corker made the observation that while Republicans are trying to craft legislation to change rules in Dodd-Frank in order to create better access to credit, Democrats are pursing the same end goal by getting the FHFA, Fannie Mae and Freddie Mac to “loosen up on the government side.” Given the conflicting approaches that seek to accomplish the same goal, he asked if it would make more sense to pursue comprehensive housing finance reform that would create certainty in the market and solve housing problems once and for all. The panelists all agreed on the importance on housing finance reform.
Student Debt Impact on the Housing Market
Sen. Jack Reed (D-R.I.) asked how student debt was impacting the market for first time homebuyers. Polychron discussed how the percentage of first time homebuyers has continued to decrease in large part due to younger borrowers carrying student loan debt.
For more information on this hearing, please click here.