WASHINGTON, DC — Today, Center for Responsible Lending (CRL) President Mike Calhoun testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs for a hearing entitled, “Principles of Housing Finance Reform.” In his testimony, Calhoun argued that any proposed legislation to reform the U.S. housing system must ensure broad access for all creditworthy borrowers and permit equal participation for small lenders and community banks. Calhoun also cautioned that reform has already occurred with the Housing and Economic Recovery Act of 2008, and through the new independent regulator, Federal Housing Finance Agency, that ongoing reform efforts must not interrupt the current market where the GSEs and FHA hold $6.17 trillion in mortgage loans. 

"The goal must be to ensure that the full universe of creditworthy borrowers — regardless of where they live, including in rural areas, or who they are — have access to the credit they need to be able to secure a mortgage so that they can build their American dreams," said Michael Calhoun in his testimony."The system must also continue to offer equal access for lenders of every size, taking special care to serve community banks and credit unions."

CRL has consistently fought to push GSE reform that would benefit all creditworthy borrowers, especially rural residents, low-income families, and communities of color. Early this month, civil rights organizations along with CRL sent a letter to Chair and Ranking member of the Senate Banking Committee to stressed that any efforts for GSE reform must protect and preserve the GSEs' affordable housing goals and statutorily-defined duty to serve obligations; expand access to safe, sustainable, affordable  mortgage credit—particularly for underserved groups; employ risk-pooling measures; and protect taxpayers from bearing the cost of a housing downturn.

Calhoun’s full testimony is available here.

Calhoun’s oral statement as written is available below:

Chairman Crapo, Ranking Member Brown and members of the Committee, thank you for the opportunity to testify on an issue that profoundly affects American families and is also critical to the overall housing industry, which is nearly 20% of the US economy. The Center for Responsible Lending (CRL) is a nonprofit, nonpartisan research and policy organization working to expand economic opportunities. We are affiliated with Self-Help, a community development lender that has provided over $7 billion in financing to more than 130,000 families, individuals and small businesses.

There are three key areas I will address in my testimony:

1. The importance of our housing finance system to rural families and underserved markets;

2. How best to ensure our housing finance system supports community banks and credit unions; and

3. Ways we can move forward from our current status of housing finance reform.

Turning first to rural and other underserved markets, one of the important achievements of our housing finance system is that it created a national market, with affordable thirty year mortgages available across the country, not just in the most lucrative, often urban markets. The GSEs are the largest provider of mortgage funding in rural communities, and this is critical for their economies. Other underserved markets include new households, where the majority are borrowers of color who often bring less generational wealth than other households. This reduces their ability to make large down payments. The challenges of serving this first-time homeowner segment of the market are holding back the overall housing market today, and the need is growing.  

The current GSE provisions requiring broad mortgage access were a bipartisan compromise forged over many years, and enacted in 2008 in HERA by an 80-13 Senate vote. They should not be disturbed. Rather, all who use the federal housing finance system and benefit from its government support, should be required to make their loans available to all credit worthy borrowers, wherever they live. Issuers and guarantors should be required to serve the national market rather than cherry picking select booming markets. And, access must also include affordable pricing.

Similarly, the housing finance system only works if it includes all qualified lenders--especially community banks and credit unions. These lenders are essential to the areas they serve, and often they are the primary financial institution in these locations. Housing market dynamics, though, often drive benefits to the largest lenders, and changes in the housing finance system should not exacerbate this. Smaller lenders require equal pricing and the important ability to sell individual loans and retain the servicing relationship with their customers, as they do under the current system. 

Third, we need to build upon the substantially reformed market and regulatory structure of today, which, thankfully, is far different from the one pre-financial crisis. The Great Recession revealed critical flaws in the GSEs. Congress, through HERA, then established a powerful regulator over the GSEs, one with the duty and tools to ensure adequate capital, approve new products and closely supervise the full activities of the GSEs. Today the GSEs reinsure, or transfer to others, the credit risk on the majority of their loans to reduce the risk that they retain and diversify it in the market. FHFA has also greatly shrunk the GSE portfolios--loans they hold instead of selling to investors, and this too reduces taxpayer exposure. This reform needs to be continued and expanded. The current ban imposed by FHFA on lobbying and campaign activity by the GSEs should be made permanent; and utility type regulation and returns for the GSEs would further prevent excessive risk taking. Much authority already exists to continue advancing this reform while Congress considers GSE legislation.

Finally, it is important to recognize the central role that our housing finance system plays. This system, though, is dependent upon the trust of investors from around the world who buy GSE securities. Undercutting the trust in new GSE securities or the trillions of dollars of existing securities would disrupt the housing market and home values. Therefore, surgery on this system must be done with great care.

Thank you again for your work on this important topic. I look forward to your questions.

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For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at ricardo.quinto@responsiblelending.org.