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Senate Explores Housing Finance Reform — Part IV

By    |   Wednesday, 06 November 2013 01:04 PM

The Senate Banking Committee, chaired by Tim Johnson, D-S.D., held a hearing on Oct. 29 titled "Housing Finance Reform: Essentials of a Functioning Housing Finance System for Consumers," another in the series of hearings the committee plans to hold twice weekly throughout the fall as it struggles to fulfill its promise finally to legislate on the future of the housing government-sponsored enterprises Fannie Mae and Freddie Mac, both of which were placed under conservatorship back in 2008 at a cost of roughly $200 billion.

This hearing was particularly unenlightening, as witnesses representing consumer groups presented agendas generally in accord with that of the industry and of the sponsors of S. 1217, the bipartisan draft that the committee is supposed to mark up when the hearings are finally over.

Once the witnesses had read their statements, the Senators asked leading questions that invited the witnesses to repeat what they had just said, perhaps in a slightly different way. Since two of the witnesses were from North Carolina, the hearing seemed to be designed with Sen. Kay Hagen, D-N.C., in mind, since she is running scared for re-election next year.

Among the six panelists, Eric Stein, senior vice president of the Center for Responsible Lending, set forth six recommendations for the entities that would run securitization under the reformed system, including mutual rather than stock ownership; providing the government guarantee only for agency, not private-label, securities; and not legislating that a minimum down payment of 5 percent must be made by the borrower.

Rohit Gupta, president of Genworth Financial, lauded the fact that the draft bill incorporates a role for private mortgage insurance, which his company offers, and he pointed to the $40 billion his industry paid in claims during the last bust as evidence that this industry can support mortgage finance in the future.

Gary Thomas, president of the National Association of Realtors, repeated the industry case for a government guarantee to support the 30-year, fixed-rate mortgage product, and he also questioned the need for a strict 5 percent down payment requirement. He also opposed reducing loan limits for guaranteed mortgages in high-cost areas.

Laurence Platt, a partner at K&L Gates LLP, a law firm that represents clients in this industry, praised the Consumer Financial Protection Bureau for its decision not to require specific loss mitigation actions on delinquent mortgages, which consumer groups had requested.

Representing consumers, Alys Cohen, a staff attorney at the National Consumer Law Center, and Lautaro Diaz, vice president of the National Council of La Raza, called for a system designed to serve all borrowers.

Cohen, contrary to Platt, argued that loan modifications should be required, consistent with the interests of borrowers and investors, and that foreclosures should be set aside while modifications are negotiated.

She appears to advocate provision of more detailed disclosure of the characteristics of the mortgages than the industry supports. Cohen would empower the new entities to purchase insurance for borrowers under fair terms, and she pointed to the need for a unified recordation system for mortgages.

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The Senate Banking Committee, chaired by Tim Johnson, D-S.D., held a hearing on Oct. 29 titled "Housing Finance Reform: Essentials of a Functioning Housing Finance System for Consumers."
Wednesday, 06 November 2013 01:04 PM
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