Housing Market

Banking Committee Chairman Johnson voices concerns about underwriting standards

Tim Johnson

Tim Johnson

Senate Banking Committee Chairman Tim Johnson (D-S.D.) expressed concerns last week during a committee hearing on housing finance reform related to the availability of affordable mortgages under stricter underwriting standards.

“The government guarantee in the current system ensures that qualifying mortgages are TBA eligible, which allows borrowers to lock in their interest rates and connects loans and MBS with investors from across the country and around the globe,” Johnson said. “If the structure of the new guarantee is not compatible with TBA execution, a wide range of stakeholders have expressed concerns that access to credit will tighten for borrowers, making mortgages more expensive – especially in rural and historically underserved areas. This outcome is unacceptable.”

Ranking Member Mike Crapo (R-Idaho), however, pointed to lax underwriting standards as a key cause of the financial crisis, saying if the federal government does provide a guarantee for mortgages, it should be based on strict underwriting standards.

Crapo also pointed to the first ever bailout of the Federal Housing Administration, which took an approximate $2 billion draw from the Treasury to cover losses resulting from the financial crisis.

“With these experiences in mind, if we are going to consider options for reforming the housing finance system that include a taxpayer guarantee, we must ensure that the taxpayer is only guaranteeing mortgage that meet strict, basic underwriting standards,” Crapo said.

The committee heard testimony from six witnesses, including Eric Stein, the senior vice president of the Center for Responsible Lending; Rohit Gupta, the president of Genworth Financial; Gary Thomas, the president of the National Association of Realtors; Laurence E. Platt, a partner at K&L Gates; Alys Cohen, a staff attorney for the National Consumer Law Center; and Lautaro Diaz, the vice president of housing and community development at the National Council of La Raza.

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