Mr. NEY. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise today in support of H.R. 5121, the Expanding American Homeownership Act of 2006. This is a very important piece of legislation. It proposes comprehensive reform of the Federal Housing Administration, known as FHA, single family mortgage insurance activities. Giving FHA the ability to offer an array of products will allow it to more fairly price its guarantee to the individual borrowers and will allow it to base each borrower's mortgage insurance premium on the risk that the
borrower poses to the FHA mortgage insurance fund.
Under this proposal, the mortgage insurance premiums will consider the borrower's credit history, loan-to-value ratio, debt-to-income ratio, and will be based on FHA's historical experience with similar borrowers.
This change will decrease premiums for many of the FHA's traditional borrowers, thereby increasing their access to homeownership. It will also allow FHA to reach potential homebuyers who for various reasons do not currently qualify for an FHA loan product.
H.R. 5121 would allow FHA to become more efficient and streamlined. Modernizing FHA will improve competition in the prime home loan mortgage industry, and effectively assist the industry in combating abusive and/or discriminatory lending practices. This bill would not create a new government program. Rather, it would significantly modernize the National Housing Act while reforming and empowering the agency, thereby addressing some of the agency's limitations.
More importantly, I believe that, if enacted, this bill will help further increase the country's homeownership rate, especially among low- and moderate-income and minority families. Since its inception in 1934, FHA has played an innovative role in financing homeownership and affordable housing opportunities for all Americans.
Over the past 8 years alone, FHA has financed nearly 8 million homes and over 754,000 units of affordable rental housing. The mortgage market has changed dramatically in recent years, creating what is today the world's most sophisticated real estate finance system.
This system has led to the highest rate of homeownership in U.S. history and to the efficient production of thousands of units of affordable rental housing each year.
However, in more recent times, FHA has been a mortgage insurer of the last resort. Potential homeowners who can participate in the private mortgage insurance market do so. I believe this is because FHA has become costly and the paperwork unmanageable. Thus, only the riskiest borrowers now use FHA for mortgage insurance.
Moreover, while the prime market remained relatively constant, the nonprime market between 2003 and 2005 grew from $118 billion to $650 billion in mortgages, while FHA went from insuring 9.2 percent to 4.1 percent of the Nation's mortgages. It is important to distinguish the difference between subprime lending, which is necessary and critical for nontraditional borrowers, and predatory/abusive lending, which is designed to take advantage of vulnerable Americans pursuing their American dream of
While not predatory, the subprime market is not working for many families. These are the families FHA is really designed to reach. Among other things, H.R. 5121 would allow FHA to provide alternative access as well as standardization of a market niche designed to follow the agency's example.
Moreover, the Federal Government will always have a need for an agency to provide the type of services symbolized by the FHA. While the agency only has a market share of approximately 3 to 4 percent, elimination of FHA will be disastrous if a capital mortgage financial crisis emerges, such as we saw in the United States in the 1980s.
Further, it would be impossible to recreate this agency to respond rapidly to a housing homeownership crisis that could possibly, we hope not, but emerge in the future. H.R. 5121 will allow FHA to fulfill its original mission when similar circumstances exist. In 1934, interest-only and balloon payments were prevalent. Thus, FHA was established to give the private sector avenues to provide long-term fixed-rate financing.
Today, FHA continues to serve its original purpose by giving low- to moderate-income home buyers a safer, more affordable financing option for their homeownership. Mr. Speaker, we have a chance with this legislation to bring FHA back into business and to restore the FHA product to its traditional market position.
American families need safe options when purchasing a home at a fair price. Families need a way to take part in the American Dream without putting themselves at risk. Families, frankly, Mr. Speaker, need FHA.
I just want to conclude my comments for this time by saying this is, in my opinion, one of the most critical pieces of legislation, and if we haven't acted as we have, I wonder where the future of FHA would be, therefore helping so many Americans across this country. [Page: H5739]
Mr. Speaker, I want to thank the gentlewoman from California (Ms. Waters), who stepped up to the plate to address what I consider one of the most important pieces of legislation in quite a few years, of keeping the FHA alive by revitalizing it, by changing it, by streamlining it to help so many people.
I appreciate also Ranking Member Frank, Chairman Mike Oxley, of course, and all of the members of the committee and the staff who have worked on a bipartisan basis to do, I think, a critically needed and wonderful thing. If we did not step up to the plate with this piece of legislation, I wonder what options would be out there for many, many citizens wanting homeownership.
Mr. Speaker, I reserve the balance of my time.
Ms. WATERS. Mr. Speaker, before I start on my comments, I would like to thank Chairman Ney for his leadership on this legislation. Chairman Ney first envisioned the possibility of this legislation, and despite all of the possible obstacles to getting it passed, he persisted in bringing people together, to dealing with all of those obstacles, and today we are on the floor because of his leadership.
But it certainly could not have happened without my ranking member, Mr. Frank, who has the ability to see things in legislation that no one else sees and to bring it to our attention, and to fix what is wrong, and to give support to what is good and helpful when we are trying to pass a significant piece of legislation.
I would like to thank him, and certainly Chairman Oxley. As Mr. Frank said, he is retiring. He will be leaving us. But he has been a chairman who has been fair, he has provided opportunities for all of the members of our committee. He has worked with the subcommittee chairs and ranking members, and we are certainly going to miss him.
I rise in strong support as an original sponsor of H.R. 5121, the Expanding American Homeownership Act of 2006, which represents a major achievement by the Committee on Financial Services and the Subcommittee on Housing and Community Opportunity.
As I said, the leaders, Mr. Oxley, Mr. Frank, Mr. Ney, and all of the other members of the subcommittees who cooperated, deserve a lot of credit for this bill. But I have to mention the staff. The staff on both sides of the aisle worked so hard into long hours of the night helping to straighten out very complicated problems with this bill, and it is because of their dedication and their concentrated work that we are able to be on the floor today. They were also very
helpful in working with a rather broad-based coalition that supported this bill, who stand in support of this bill including housing, consumer, and advocacy groups, the National Association of Realtors, the Mortgage Bankers Association, the mortgage brokers. We
have a combination of support behind this bill which makes it a strong piece of legislation. This unique piece of legislation is unusual not only because of the combination of support; it reflects a real consensus that FHA can indeed be relevant in today's market.
When Congress enacted legislation in 1934 creating FHA, it intended that the government would make the dream of owning a home a reality for as many Americans as possible. FHA was established under the National Housing Act more than 70 years ago to improve housing standards and conditions. The goal of FHA was to provide an adequate home financing system with access for the average American. FHA pioneered many programs, including the 30-year mortgage. Not only has FHA been a pioneer in housing,
it has been a major tool for first-time home buyers and moderate-income families.
Just imagine 70 years ago in 1934 as America was coming out of the worst depression in its history and the impact that FHA had on homeownership. FHA was a brilliant idea then, as it will be again through passage of this bill.
H.R. 5121 is appropriately named the Expanding American Homeownership Act of 2006 because it will, indeed, expand homeownership opportunities for all Americans. There is unequivocal evidence that, without FHA, many first-time home buyers and low- to moderate-income persons would not be able to afford a home. Americans have grown accustomed to FHA for mortgage insurance, guaranteeing their entry into the coveted arena of homeownership.
FHA had come to rely on first-time home buyers and low- to moderate-income persons to justify its existence. In the last few years, however, FHA watched as its share of the mortgage insurance market dwindle, and the groups it traditionally served disappeared. Between 2003 and 2005, nonprime loans grew from $332 billion to $550 billion, more than a 100 percent increase. As a result of this phenomenon, FHA market share fell dramatically. FHA was forced to become the mortgage insurer of last resort
rather than the preferred insurer. Without viable FHA alternatives, many home buyers, first-time buyers, minority buyers, and home buyers with less than perfect credit fled FHA for the subprime market, leaving many with few affordable options.
Some have been forced to turn to high cost financing and nontraditional loan products. While these are acceptable for certain borrowers, they can have devastating consequences for others. In fact, when we began consideration of this bill, the foreclosure rate for non-prime loans was approximately twice that of prime loans.
By providing consumers with choice, H.R. 5121 will provide FHA the flexibility to set mortgage insurance premiums consistent with the risk of the loan. FHA will use the borrower's total credit score profile when setting the insurance premium. Borrowers who are low credit risk will pay a lower insurance premium, while borrowers who pose a higher credit risk will be charged a slightly higher premium. As such, FHA will reach deeper into the pool of perspective borrowers while guaranteeing the soundness
of the FHA fund.
In the 35th Congressional District in California that I serve, 2,064 loans were insured by FHA in 2001, but only 74 loans were made in 2005. Similarly, FHA programs have been seriously curtailed in just about every region of the country, resulting in fewer and fewer home purchases supported by FHA programs. H.R. 5121 will increase FHA home limits. In many areas of the country, the existing FHA loan limits are lower than the cost of new construction or the median home price. In other areas, FHA
had been priced out of the market. As indicated in the committee report that we filed with this legislation, in 1999, FHA insured 127,000 loans in California, while a mere 5,000 loans were insured by FHA in 2005, representing less than 5 percent of the 1999 level. Because
FHA business diminished dramatically during this period, in my view, American homeownership did not expand as much as possible. The FHA loan limit of $362,790 in Los Angeles, California indicated that FHA was essentially no longer relevant in that housing market.
Mr. Speaker, I reserve the balance of my time.
Mr. NEY. Mr. Speaker, I do not have any other speakers.
I did want to take this time to say that I want to also thank Commissioner Brian Montgomery of the FHA. He is really one of those people when he started this, he came into the offices and talked to everybody, he really should probably take off his tie and have a t-shirt that says, ``I'm from the government, I'm here to help you.'' He has a lot of enthusiasm and a lot of belief in this program, and cooperated so much for this important bill. I just want to say that, again, I want to thank the
gentlewoman from California, Mr. Frank, Mr. Oxley, both sides of the aisle, and the staff. A wonderful staff.
We present a bill today, it looks kind of easy. A lot of hours were put into it. And also some wonderful, thoughtful suggestions came from Ms. Waters, from Mr. Frank, to take a good bill and I think help improve and make it better, and we appreciated those changes in working with all of you on this issue.
I can't stress, Mr. Speaker, how important a bill this is. If we didn't step [Page: H5740]
up to the plate now, I really wonder where the FHA would be.
Mr. Speaker, I reserve the balance of my time.
Ms. WATERS. Mr. Speaker, I yield 5 minutes to the gentleman from Massachusetts, who was singularly responsible for helping to negotiate many of the difficulties in this bill and made it possible for us to form a consensus.
Mr. FRANK of Massachusetts. Mr. Speaker, I thank my colleague. And I must say, I am very pleased that, having worked together, that the relationship of ranking member of the full committee and ranking member of the subcommittee or chairman of a full committee and the chairman of a subcommittee, nobody planned that to work as smoothly. You have to work at it, and with kind of overlapping responsibilities. I am very proud of the very constructive work we have done together, along with our counterparts
on the other side.
I agree with what has been said about this bill. It takes the FHA and makes it a more important entity.
On one issue, the high cost loan limits, for much of the district that I represent in Massachusetts, the FHA might as well be on the moon because the median house prices in my district are beyond what the FHA could do. And I was glad to work with my colleague, the gentleman from California, who has joined us, Mr. Miller, to make it realistic. People have said, well, you are creating homes for the wealthiest. No. What we have is a situation where, if you don't do it by median house price,
middle income borrowers are priced out of the market because of the price of the house.
And, of course, people said, well, you are going to be squeezing out lower income people. No. When the FHA makes those loans to people at the median income in the high-cost areas, that makes money for the FHA. And I want to stress that. This is a money maker bill. This is a bill that expands housing, but it will make money for the Treasury. The FHA, in our accounting term it is called a negative subsidy. A negative subsidy means you put money in. And, the FHA is a net contributor. I think at
some point we might look at expanding some of what we do at the FHA without further increasing the cost to the Treasury. But this is a bill that expands housing opportunities and makes money for the Treasury.
There is one particular part I want to address, and the gentlewoman from California generously mentioned it and the gentleman from Ohio was helpful on this. We do, in this bill, extend FHA's authority to lend to people who have lower credit scores, people who are bigger risks. And when that happens, you have to worry about higher defaults.
I did not think we, the Federal Government, should be in the position of saying that, as we lend to people who are bigger risks, we should take that risk pool and make those people who are higher risks who meet their obligations pay for the people who are higher risks who don't. In other words, yes, we understand that. As you reach down into a lower credit sector, and there is a correlation with income there, obviously, you are going to have more defaults and we have to pay for the defaults.
But it is not fair, and we the Federal Government should not set the principle that one low-income person or 10 low-income people who meet their responsibilities are the ones who have to make up for the low-income person who isn't able to.
Now, this bill doesn't entirely meet my desires in this respect, but it does set this important principle. Yes, it says if you are of a low credit score, you will have to pay some more. But after 5 years under this bill, if you have been meeting your obligations, you then no longer have to pay more on the annual basis. Thus, it seems to be both an incentive for people to keep their payments but also a matter of fairness. I don't see why, if I am someone with a low credit score and I am making
my payments in a responsible way, I should have to shoulder the burden of those people who aren't able to make their payments any more than anybody else.
Now, as I said, this doesn't go as far as I would like, but it sets that important principle. And the other thing I would note is this: We give FHA the authority to go up to certain levels for the borrowers with lower credit, but they are not mandated. And I would urge my friends in the FHA, and they have worked with us and I appreciate it and some of them are here today observing, as is fitting given the cooperative effort we had here.
As we go forward, given that the FHA makes money, let's refrain from penalizing the responsible low credit people. And they are the great majority, by the way. Nobody thinks that you are going to have a majority of them default. Let's say to those lower credit borrowers who meet their obligations that we are not going to try to make them be held responsible for others who can't make it. That is something, if it has to be done, could be more fairly done across the board.
So I am very appreciable of the things in the bill, the increase in the loan limits, the reaching out to other entities to be able to function and reaching out to give people an alternative to predatory lending, and it is important that we set the principle. As we give people an alternative to what might be predatory loans in the purely private sector, we do it in a way that will give people of lower credit recognition that if they are responsible and meet their payments, they will no longer
be put under the gun. I think we have further to go there, and as experience works out, I will be pushing for that.
But it is very important that we set that principle, and I am grateful to the gentleman from Ohio, to my good friend from California who has done such great work in the housing area, and to the people in the administration who worked out an agreement with us to get this principle set forward.
Mr. NEY. Mr. Speaker, at this time, I would like to yield 5 minutes to the gentleman from California (Mr. Gary G. Miller), the vice chairman of the Housing Opportunity Subcommittee who has done unbelievable work in so many areas to help with the housing bills.
Mr. GARY G. MILLER of California. Mr. Speaker, I want to thank Chairman Ney and Mike Oxley for their help in this area. That is an issue that Barney Frank and I have worked on for quite a few years. We started out with a GSE, government sponsored enterprise, which is Fannie and Freddie, trying to reform that concept in high-cost areas.
We found out that many people in high-cost areas, such as Mr. Frank's district and my district in California and Maxine Waters' district, because of the rising costs of houses, people could not qualify for conforming loan limits. We had to raise the conforming rates in the high-cost areas, and the same problem once we completed that was realized in FHA.
Barney and I took this on a few years ago, trying to take a system that has been up and running for 70 years and conform that system to today's marketplace. It has basically become so antiquated that many people in high-cost areas could not qualify for an FHA loan. In fact, I would talk to brokers and lenders in my district that have not been able to process an FHA loan in years because the system is so structured and the costs have gone up so high in housing marketplaces, that you have
taken a situation where first-time and low-income buyers could not qualify; or if they had to go to a conventional loan because of the high loan-to-value ratios, they couldn't get those loans. And because of the payment-to-income ratios, they couldn't qualify for conventional. That is why FHA is an extremely viable option for these people.
When I say ``these people,'' I am talking about the people who work in our districts: teachers, nurses, firemen, policemen. They live in areas that they often travel in California an hour and a half to 2 hours just to get to work because they cannot afford to buy a home within the city within which they work. Their reasons might be lack of downpayment or other reasons that in the past have been figured to qualify for a conventional loan.
That is why if we can bring FHA up to today's standards, we can provide loans for these individuals who need to buy housing where they work, who can make the payment, and they can qualify for an FHA loan if we raise it in high-cost areas.
A situation many of my conservative friends, and I am extremely conservative on the Republican side, we had [Page: H5741]
the argument over is this a government program that is taxing people and basically providing a subsidy for somebody else, and it is really not. The people who qualify for FHA and get the FHA loans pay for the insurance. As a matter of fact, it makes a profit for the Federal Government.
Some people say, well, we need to raise the amount of premiums and the percentage based on what they are borrowing, and some still believe that is appropriate. If it is proven that the system is not breaking even, which it is today, then let's look at it; but there is no reason to raise premiums on a loan that we are basically trying to expand for more people the opportunity to qualify for.
Limiting the FHA's complicated downpayment calculation and traditional cash investment requirement is provided in this loan. It was a very cumbersome process. It was complicated. It did not need to be that way, and providing FHA the flexibility to set insurance premiums commensurate with the risk of the loan is in this bill, and that is most appropriate. They are basically saying that we are going to base the premium on how risky the loan is we are making to the individual, rather than coming
up with some matrix that just says we are going to raise premiums overall for no proven reason.
This says, let's look at the risk based on the individual, and let's base the premium on that. It is a reasonable approach. It takes FHA and brings it up to the level it should be today. It takes a system that worked 70 years ago, worked 20 years ago, but today it does not because of the inflation in housing, the costs have gone so high, that FHA loans are so low, you could basically not provide that opportunity to people who really needed it.
I want to thank Maxine Waters who has been very helpful in this. We have had a lot of fun working together. There are some issues we don't agree on. This is one we are absolutely in lock-step on. In fact, it is amazing, between Maxine and Barney Frank and Chairman Ney and myself, the issues we have come together on in housing, trying to provide and meet the needs of our communities, and just by changing the rules offering expanded opportunity, we have come
a long way to helping people get into a new home, both first-time home buyers and police and firemen who might be in their second or third home, but they just have trouble with the conventional marketplace because it puts them into a jumbo loan when you get up into these areas.
Savings to an individual for this type of a loan might be $170 a month. That is tremendous. It provides an opportunity that does not exist today, and it is a very good bill, and I ask for an ``aye'' vote
Mr. INSLEE. Mr. Speaker, I would like to address a very important part of this bill that increases Americans' access to reverse mortgages.
Reverse mortgages are a tremendous vehicle by which Americans can get access to the equity in their home to make it available for health care, for assistance, for travel, for education; and now this bill will take three big steps forward to make reverse mortgages more available.
First, it will do so by having a uniform national cap so that it will remove this cap in a lot of areas in the country that have prevented Americans from having reverse mortgages.
Secondly, it will make it available for, essentially, homeownership, which might be in the best interests of senior citizens.
Third, it will remove the cap on the number of reverse mortgages that essentially can go through the FHA home equity conversion program, which now issues 90 percent of the reverse mortgages in the country.
So this is a fantastic opportunity, particularly for our seniors to be able to have access to the equity in their homes. It is a big stride forward. I know a lot of seniors are going to take advantage of it to make sure they can stay in their homes, to use their equity to finance having health care and assistance in their homes to give them their liberty.
I want to thank the bipartisan effort to put this together. I also want to thank noted author Tom Kelly who has been a great advocate for getting these reverse mortgages used by more Americans.
Ms. JACKSON-LEE of Texas. Mr. Speaker, let me thank the chairman, Mr. Ney, and his ranking member, Ms. Waters, for their constant enhancement of opportunities for homeowners, and allow me to congratulate the Congress who I hope will vote to add to the American Dream.
I come from a community where under 50 percent own homes. So we are still striving in Houston, Texas, to provide those opportunities. There are three elements that I think are very crucial in this legislation that would help expand that opportunity.
One, the risk-based pricing is a great step up. I have always argued that there needs to be some flexibility. Credit scoring has denied many of our hardworking taxpayers getting homes. This at least allows a risk assessment to be made on the homeowner's credit standing, and then if they emerge and do better, they can get out from under this assessment, and the ability for downpayment can range from high risk to low risk. That is good.
In addition, including the 100 percent financing for FHA is outstanding because in all of our jurisdictions, the costs of housing is going up. One hundred percent is far better than 87 percent. Even Houston is a high-dollar market as more competition comes in for housing.
I would also say that reverse mortgages is something that is an innovative tool. However, I hope in the legislation there is information to seniors so that they understand, and others who would partake of a reverse mortgage, what the pros and cons are so that, in essence, it is a positive and not a negative. You keep your house; you do not lose it. You are, in fact, given expanding opportunities.
So I congratulate my colleagues for answering the question, Is the American Dream of homeownership for everyone? Yes, it is. It is for Houstonians who have less of a 50 percent ownership. Yes, it is, and the Expanding American Homeownership Act of the Financial Services Committee is a good start.
I congratulate and ask my colleagues to support this particular legislation.