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“VARIABLE RATE MORTGAGE INSURANCE PREMIUMS: ARE THEY HOLDING BACK POTENTIAL HOMEOWNERS?” mentioning the U.S. Dept. of Commerce was published in the Extensions of Remarks section on pages E2686-E2687 on Nov. 2, 2009.
The publication is reproduced in full below:
VARIABLE RATE MORTGAGE INSURANCE PREMIUMS: ARE THEY HOLDING BACK
POTENTIAL HOMEOWNERS?
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HON. DAN BURTON
of indiana
in the house of representatives
Monday, November 2, 2009
Mr. BURTON of Indiana. Madam Speaker, although unemployment, now at 9.8 percent, is expected to keep rising, and consumer confidence is down, the latest Federal Reserve report on economic activity shows some small signs that the recession may finally be starting to bottom out.
In particular, I am encouraged that we are starting to see indications that a rebound in the housing sector may be developing. A few weeks ago, for example, the Commerce Department said new-home building rose for the third time in four months during September, and, the National Association of Realtors announced that demand for previously-owned homes surged in September.
In late October, the Case-Shiller home-price indexes showed that U.S. home prices logged their third monthly increase in August. The indexes showed prices in 10 major metropolitan areas rose 1.3 percent from July. In 20 major metropolitan areas, home prices were up 1.2 percent from the previous month.
However, if a housing rebound is starting, it is still very fragile. For example, applications for home building permits--a key gauge of future construction--fell in September by the largest amount in five months. And, according to figures recently released by the Commerce Department, sales of new homes dropped unexpectedly in September; the first such decline since March.
The foreclosure crisis all but erased the gains we have made in increasing homeownership rates in the last 20 years. The financial gains families thought they had achieved through increases in home equity also disappeared, as now roughly 20 percent of homeowners owe more on their homes than they are worth.
Nevertheless, homeownership remains the single most important wealth-
building tool available to families in this country. In fact, housing experts are saying that now is the time to buy. A sustained rebound in housing is therefore absolutely vital to Federal, State and local efforts to spark a broader economic recovery.
Regrettably, I have spoken to a number of mortgage brokers in Indiana and they tell me that many first-time homebuyers, who could otherwise buy a home, are finding themselves locked out of the housing market by the very rules and regulations we put into place to protect consumers from the so-called predatory lending practices that created the sub-
prime mortgage mess in the first place.
I am not suggesting that we should return to the unchecked lending of the last decade, where someone could put no money down, show no proof of income or employment and walk away with a million dollar mortgage. But I am suggesting that we need to be vigilant for circumstances where--either through legislative or regulatory action--the Federal government may have inadvertently swung the pendulum too far in the direction of restricting access to the mortgage market in the name of consumer protection.
There are two letters I received from mortgage brokers in Indiana that point to one potential example. The issue relates to variable rate pricing of mortgage insurance for Federal mortgage loans.
These letters show these two mortgage agents both believe that the Federal Housing Administration's shift in policy from charging a flat-
rate for mortgage insurance to charging a variable rate based on a person's credit score, has unfairly excluded some qualified buyers from the dream of home ownership.
I am not a mortgage expert; Madam Speaker, so I will defer to the experts as to whether the shift from flat-rate pricing to variable rate pricing is truly preventing would be homeowners from buying a home; but I would like to cite for the record a 2007 report done by the nonpartisan General Accountability Office regarding the proposed changes to the Federal Housing Administration's lending standards, including the shift to variable rate pricing of mortgage insurance premiums. The report reads, in part:
``. . . our analysis of data for FHA's home purchase borrowers in 2005 showed that, under FHA's risk-based pricing proposal, about 43 percent of those borrowers would have paid the same or less than they actually paid, 37 percent would have paid more, and 20 percent would not have qualified for FHA insurance.''
In other words, GAO's analysis, based on my understanding of the report, seems to suggest that variable rate premiums, based on perceived risk, send little extra money into the mortgage insurance trust fund to protect the funds from increased defaults but deny 20 percent of applicants FHA mortgage insurance--and by extension a mortgage.
If GAO's analysis is correct, and I have no reason to doubt GAO's findings, it would seem to support the arguments offered by the mortgage brokers from Indiana I cited earlier. In that case, Madam Speaker, I would ask my colleagues on the Finance Committee to give all due consideration to investigating the policy of variable rate pricing, in order to ensure that truly qualified borrowers are not being unfairly pushed out of the housing market.
All Star Mortgage Company,
August 19, 2009.Congressman Dan Burton,Rayburn H.O.B.,Washington, DC.
Dear Congressman Burton: I am writing this letter as a follow up in regards to our meeting last week. The American consumer that desires to purchase a new home or refinance their existing home is at a distinct disadvantage considering Fannie Mae and Freddie Mac's unfair increased risk based pricing and mandatory delivery fees. These excessive fees and higher down payments are stifling the real estate market. They are overly burdensome to consumers, even those with perfect payment histories. This is not only stalling the housing recovery, but also inhibiting the overall economy, as many industries are housing related. This unfair practice is excluding many well-qualified borrowers from the dream of home ownership. It would be my hope that Congress would call for Fannie Mae and Freddie Mac to revisit their current policy of charging higher fees and requiring larger down payments to certain qualified borrowers, than they would charge an equally qualified borrower based solely upon credit score without regard to the borrower's actual credit repayment history.
Sincerely,
Greg Evans,President.
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1st Mortgage of Indiana, Inc.,
Indianapolis, IN, August 19, 2009.Congressman Dan Burton,Rayburn H.O.B.,Washington, DC.
Dear Congressman Burton:Many American consumers that desire to purchase a new home, or refinance their existing home, are being discriminated against based solely upon their Fico credit scores. We believe that Fannie Mae and Freddie Mac's increased risk based pricing, and mandatory delivery fees are unfair and excessive. These fees are overly burdensome to consumers, including many consumers with perfect payment histories. This is stalling the housing recovery and also inhibiting the overall economic rebound, as many industries are housing related. This unfair practice is excluding many well-qualified borrowers from the dream of home ownership. Please allow me to cite one real life example. We recently attempted to assist a 1st time home buyer who had a long credit history. Her re-payment history was perfect! She never had a single late payment! She had sacrificed and saved for years to come up with a 20% down payment. However, due to the type of credit she had established and had utilized (mostly revolving accounts vs. installment loans), her Fico score was 679. Based on Fannie Mae and Freddie Mac's risk based pricing, an additional fee of 2.5% of the loan amount would have been due and payable directly to Fannie or Freddie. With her loan amount of $250,000, that equated to $6250 in additional fees. This unfair additional fee caused her family to delay their dream of homeownership, and also prevented the would-be seller from selling their home and purchasing another. Sadly, this scenario is being repeated over and over nationally. Please call on FNMA and FHLMC to stop charging these excessive fees!
Sincerely,J. Michael Strawn,
VP.Catherine J. Strawn,
President.
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