Mr. Chairman, I move to strike the requisite number of words. Let me just say this very briefly, that I believe that the issue of the solvency of Social Security is significantly an important issue. And I appreciate your comments on…
Mr. Chairman, I move to strike the requisite number of words.
Let me just say this very briefly, that I believe that the issue of the solvency of Social Security is significantly an important issue. And I appreciate your comments on germaneness. But I appreciate the opportunity for our constituents at home to be able to hear this debate and this discussion with regard to how we see it as important and doing everything humanly possible to make sure that it is solvent and there for our seniors in the future.
I yield my time to the gentleman from Illinois.
I yield.
Mr. Chairman, reclaiming my time, I yield to Mr. Roskam.
Mr. Chairman, I offer an amendment.
Mr. Chairman, this amendment seeks to refocus the GSEs on what is their congressionally mandated responsibility, and that is, providing for and promoting affordable housing.
The amendment would direct the new regulator to require the enterprises to only hold mortgages and mortgage-backed securities that exclusively support affordable housing. That is, those mortgages that are extended to households falling below the area's median income in their retained portfolios.
Mr. Chairman, the GSEs were created by Congress to do a couple of things. First of all, to create liquidity in the secondary market, and, very importantly here, to provide affordable housing for low and moderate families. Now, to effect this worthy goal, Congress granted these enterprises a number of advantages over private firms, including exemptions from State and local taxation, and also the ability to borrow at lower rates. In fact, Mr. Chairman, Fannie and Freddie used these advantages to borrow at interest rates barely above the Treasury rate. They then buy mortgages from originators and do one of two things; either they package these securities into MBSs, that's mortgage-backed securities, and securitize them, or they retain the purchased mortgages on their own portfolio.
Interesting, the combined GSE portfolios have increased from $130 billion in the early 1990s, today it is over $1.5 trillion. The current practice of the GSEs buying derivatives to hedge against the interest rate risks created by these huge portfolios creates an enormous risk for us. And there should be some commensurate level of return on that risk to the taxpayer in the form of lower housing prices for low and moderate homeowners.
Federal Reserve studies, however, and those conducted by other organizations, have concluded, and this is important, that consumers receive no direct benefit from the GSE's expansive portfolio holding. Although GSEs as business enterprises should return a profit to their investors, they really can't lose sight of the purpose for which they were created and the additional people to whom they answer, given their special status. They are not simply another business entity.
Currently, GSE shareholders receive all of the benefits for the portfolios and none of the risk. In contrast, low and moderate income families bear all the risk and receive few of the benefits. By buying mortgages from banks that are part of the CRA requirement or holding more low income mortgages on their portfolios that might be difficult to securitize, this amendment will help the low and middle income American buyer buy their home and give low and middle income homeowners the benefits comparable to the risk.
Let me just end with this quote. Federal Reserve Chairman Bernanke, ``Tying portfolios to a purpose that provides measurable benefits to the public would help ensure that society in general, and not just the shareholders, receive a meaningful return in exchange for accepting the risk inherent in the portfolios. Moreover, defining the scope and purpose of the portfolios in this way would reduce the potential for unbridled growth in those portfolios, while avoiding the imposition of arbitrary caps.''
Mr. Chairman, this is a commonsense, good government amendment that will provide the taxpayers, particularly low and middle income taxpayers, more benefits for the risks they bear by helping Fannie and Freddie refocus their job, which is affordable housing.
I ask my colleagues on both sides of the aisle to support this commonsense amendment.
Will the gentleman yield?
As many Members have said when they have come to this microphone in the past, that when you come to the floor, we can all have our own opinion on these matters, but we can't have all our own facts. To use the gentleman from Georgia and also Florida, too, I think said when it comes to the expression of squeezing all the juice out, that's maybe an appropriate expression, but then the question is where did that juice go to and what should it be used for?
Well, my suggestion is that the juice should not necessarily always be used for the benefit of the stockholders, but the juice should be basically used for, what was the intent here, to provide for affordable housing for low and moderate income. And as the gentleman from Louisiana just indicated, as we've heard from all the testimony in the committees, the GSEs have not been doing the job that we wanted them to do. And one of the reasons I believe that we now see a bill before us to put on this new housing fund is in part because they have not been doing their job. Had they been doing their job as Congress directed them to some time ago, we may not have come to this position today where we have to be debating the issue of the housing fund, which is a separate issue.
The point, though, as far as where the juice goes to and what the real facts are, we also heard testimony of Chairman Bernanke when he came to the floor, and there are also GAO studies that have looked at this as well, and what do they say? Where does the juice really go to when the portfolios expand to this level? And they include not just the low and moderate income, but the higher ones, since the low moderate income is so small. Where does the juice go to now? The juice goes to the stockholders. That is not what I am interested in making sure happens. I am interested in making sure that the juice ends up with affordable housing.
Will the gentleman yield?
Will the gentleman yield now?
I appreciate that argument. But your argument before, if I heard you correctly, when we had a little dialogue before, was that it is your intent with the overall housing fund and where the money would come from is not from the homeowners. Your intention, if I understood correctly, was from the stockholders, from the investors.
My bill would do the exact same thing and say that it would not be coming from the homeowner or the investor as far as any burden on them.
I only stated it once. How can it be four times?
Mr. Chairman, I thank the gentleman.
To the point of the chairman, I am a little bit confused. He said that I have repeated his position four times differently. I have only been on the microphone three times now. But I am also confused on his position as to whether or not there really is an MTI, a mortgage tax increase, because initially he said it is going to be on the homeowners and it is not going to be on the stockholders. Now he says that money is fungible so it really can come from either place.
So, at the end of the day, I guess my original assertion was that there is an MTI, there is a mortgage tax increase, because they can come from the homeowners.
From the gentleman from Georgia, when he says there is a cross- subsidization from the larger portfolio, I would like to see the evidence of that. The evidence that we heard in committee on that point was from Chairman Bernanke and from the studies was there was not that cross-subsidization, and that in fact all the benefit comes not to the homeowners, the benefit comes to who? It comes to the shareholders.
In fact, under Chairman Bernanke's testimony, it would be better if the portfolios would be limited to this. Why? Because then they would do better than what the gentleman from Louisiana said, there is a fractional amount of work they are doing as far as helping the low income homeowners, and instead they would be holding those in their portfolios, those mortgages, as he said ``difficult to securitize.'' That would help out. That is giving real juice to the low and moderate income homeowner.
Well, it is a good question, but it was a question that was essentially raised during the committee and answered by Chairman Bernanke at the time.
If Chairman Bernanke said, yes, there was with regard to the portfolios held by the GSEs a cross-subsidization of the market and therefore a benefit to the low and moderate income mortgages that they have, then the chairman's argument would be a correct one. But Chairman Bernanke did not say that.
The gentleman, first of all, misstates the actual language of the underlying bill when he says that the housing fund is a tax on profits of the GSEs. It is not a tax simply on the profits of the GSEs. It is a tax of the overall activity.
Just one final point, and I do believe that the gentleman was saying that it was a tax on the profits of the GSEs as opposed to that. But be that as it may, remember, to the point the gentleman from Georgia made, the GSEs, even with this amendment, would still be allowed to securitize those larger loans.
This doesn't preclude them from doing that. It simply says that they should not be holding them in their portfolios, whereas the gentleman from Texas reiterated the point of Chairman Bernanke, that raises the overall risk to the overall functioning of the GSEs.
Finally, since they are able to continue to issue those large loans and therefore securitize those loans, the overall market of the GSEs is not hurt in one sense, and the profitability at the end of the day, as far as the money going to the low and moderate incomes, is not impacted.
Low and moderate income families are benefited by this bill. Taxpayers are benefited by this bill inasmuch as we reduce the risk of the GSEs on the one hand and we address and make sure that the GSEs return to their basic function of providing liquidity to the marketplace and providing access for low and moderate income housing in this country.
I thank the gentleman from Florida and the gentleman from Mississippi, although I cringe when Members on the
other side of the aisle characterize what our motivation is and our interest in these things.
I wonder whether the gentleman from Mississippi heard the gentleman from Louisiana speak about the dismal job that the GSEs have done so far with regard to what I believe both of us agree should be their intention which is to provide for low and moderate-income housing, such as the gentleman from Mississippi was talking about. A dismal job.
Part of the reason they do that dismal job, their explanation is, these loans, some of these loans are difficult to securitize. If you can't securitize the loans, they are not going to take them. That is their record. The numbers were given before that they hold in their portfolio. A very small percentage of these type of loans, which is the type of loans that the gentleman from Mississippi was talking about holding.
All this amendment does is this. It says GSEs, you are supposed to be doing everything the gentleman from Mississippi says we should be doing, and that is providing for housing for low and moderate-income individuals. You are not doing a good job right now. We are going to focus your attention on it. If you are having a problem securitizing these lower loans, fine, don't securitize them, but hold them in your portfolio and make that the crux of your business. Your business should not be, as it has been in the past, simply making larger profits than normal, the raises and salaries given to the top executives. Your business is helping the people in Mississippi and Louisiana.
Mr. Chairman, I demand a recorded vote.
Mr. Chairman, I offer an amendment.
Mr. Chairman, I come to the floor at this late evening time now to offer this amendment and, in essence, what we're trying too do here is to, bottom line is to help protect middle class American home owners as we move forward with this legislation with the housing fund in it, with the world class regulator, and to protect the American taxpayer from what we heard not only on the floor tonight, but going all the way back to testimony when this bill was being first considered from Chairman Bernanke, the potential for an MTI, a mortgage tax increase.
We know how the underlying bill works. H.R. 1427 takes 1.2 basis points of the GSE's total annual business, not their profit, but the total annual business and directs those funds to help in an appropriate manner, some would say, to provide for low income housing.
What this amendment does not do, and I know we have heard from the other side every time we tried to make any improvement to this legislation, that we characterize our efforts to improve the legislation to try to kill the underlying fund in this bill. Anyone making a clear reading of this amendment would realize this amendment does not do that in any way shape or form. This does not kill the fund. It improves the fund and it does so in a manner consistent with what the chairman said he has intended for the underlying bill in the first place, and that is to say that the increased tax would not hit those who we're trying to help, the low and moderate income earners.
How does it do that? Well, if you just look to the text of the amendment, section 4, prohibits pass through of costs of allocation. The director shall by regulation prohibit such enterprises, the GSEs from treating the cost of enterprises of making allocation required under paragraph 1 as regular business expenses. In essence, what the amendment does is says it cannot pass those costs down the line to the originator and to the home owners. It has to be just where the chairman has said he intended it to be all along, on the stockholders and the investors in the GSEs.
So I would hope that this commonsense amendment which basically effectuates what the Chairman said he intended for this legislation would seek unanimous support.
Thank you. Would the gentleman, by chance, have at your fingertips there the language from the CBO?
I'm not looking for a yield. I'm looking for a moment.
I'm not looking for that either. Just for a moment.
I would agree with the gentleman's comments. And we can proceed with the procedural matters.
Parliamentary Inquiry
Mr. Chairman, I ask unanimous consent to modify my amendment by striking lines 4 through 7, which would be paragraph A, and I guess appropriately renumbering or relettering paragraph line A, paragraph B to correspond.
That's why I say to appropriately reflect the change and deletion of that.