In a prepared statement given to the US House of Representatives Committee on Financial Services, FHFA Director Mark Calabria did not hold back in his comments.
“But in their current condition, Fannie Mae and Freddie Mac will fail in a downturn.”
The testimony of Dr. Calabria before the US House of Representatives Committee on Financial Services was geared around affordable housing goals. Blame is given to local zoning, land use restrictions, environmental regulations, onerous building codes and permitting requirements. According to Dr, Calabria, these safety and soundness requirements are hurting lower income Americans.
Dr. Calabria goes on to state “Our affordability problems will not be solved until local governments remove these impediments that limit the supply of affordable housing in their communities.”
Is Dr. Calabria saying…. Yes Mr and Mrs Low Income American, go ahead, build that structure without proper engineering. We don’t care if it collapses and injures you or your neighbors. Please, install a smog creating heating system; breathing clean fresh air is not that important. Probably not, but one could certainly interpret it that way.
Now for some reality.
“credit risk has been rising in the loans purchased by the Enterprises in recent years, with some risk factors exceeding the levels observed in 2004, the pre-crisis year that is a useful comparison case to today. While average borrower credit scores are better today – 746 in the first half of 2019 compared to 706 in 2004 – the Enterprises’ shares of low down payment and high debt-to-income mortgages are now higher than in 2004. Among 2019 Enterprise loan acquisitions, 20 percent had down payments of 5 percent or less, nearly double the rate in 2004, and nearly 30 percent had high debt-to-income ratios (exceeding 43 percent) compared to 27 percent in 2004.”
This pro-cyclical pattern of increasing mortgage risk harms first-time and lower-income borrowers. It makes it easier for them to buy homes beyond their means when the economy is strong, and harder to keep those homes when the economy is weak. More than a quarter of Enterprise acquisitions in the first half of 2019 were first-time buyer loans compared to just 10 percent in 2004.
Ironic that safety and soundness is being ignored and credit risk is rising.. Who would of thought?
See the entire testimony here.
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