accessible explanation of the really profound importance of the court and its decisions in our country. and it includes, which is so important, because so many people have never read it, the united states constitution at the end. so i give it a five tar amazon review. ladies and gentlemen and justice stevens, what an amazing event for all of us to have you here. thank you. >> thank you. [ applause ]

the senate banking committee this morning looks at legislation that would make it easier for some homeowners to refinance and take advantage of record low interest rates. bill co-sponsored by barbara boxer of california and bob menendez of those current on their payment and backed by freddie may and fannie mack. we expect this to get under way in just a moment live on c-span3.

i've called this hearing to order. i'd like to thiank our witnesse for joining us today. recently our committee has explored ideas to expand mortgage financing opportunities. we're here today to discuss one of those proposals, responsible homeowner refinancing act introduced by senators menendez and boxer. the bill seeks to address barriers to refinancing that

continue to exist in the program by fannie mae and freddie mac. fha made some changes to the program last year at the urging of members of congress and the administration and continued to hear from constituents in the housing industry that more could be done to encourage competition in the refinancing market and give homeowners additional opposition options as they navigate current conditions. the housing market continues to struggle with home values far below those seen a few years ago. despite the dramatic decrease in home values since their peak in 2006, many homeowners are upholding their commitments to pay these loans back. however, as we have found in previous hearings, these responsible homeowners are at a

disadvantage when it comes to refinancing the loans at today's record low interest rates. they often have limited options when shopping for the lowest interest rate, because put back risks mean they can only refinance with their current servicer. the gses have not applied benefits in a consistent manner. which puts unnecessary complications for lenders and homeowners. loan level pricing adjustments increase the cost of homeowners even though gse already hold the credit risk associated with the original mortgage. our witnesses today bring a wide breadth of knowledge to

mortgages in the housing market and the economy as a whole. i look forward to hearing your thought on how the responsible homeowner refinancing act will provide homeowners more options for refinancing and encourage competition among lenders to help stabilize their housing market and overall economy. improving the housing market is the first step before we can take up broad housing financial reform and i would ask my republican colleagues to work with me to move this important legislation. with that i'll turn to senator. >> thank you, mr. chairman. welcome to all of you. today's hearing is focused on legislation that would expand federal housing finance association home affordable finance program. the program commonly referred to

as harp is designed to enable the refinancing of mortgages for underwater borrowers with gse loans. while this is an important area, i believe, to explore, it should be only one aspect of a broader debate. our fragile housing market faces numerous challenges. the uncertainty created by the four-year conservatorship of fannie mae and freddie mac is one chal edge. the secondary market is a major impediment to private capital returning to our private finances. without that capital, i think it would be difficult to have a sustainable recovery in our housing market. new statutes and rules created by dodd/frank are also proofing problematic. the potential consequences of rules pertaining to qualified mortgages or qm and qualified

residential mortgages or qrm have drawn concerns from try participants and consumer groups alike. fha has also been woefully neglect. for years fha has severely misjudged the risk to which the taxpayer has been exposed making a taxpayer bailout a real possibility. and despite these past mistakes, we can take steps to help the market move forward if we honestly assess our current situation. i think today's hearing is a first good step, mr. chairman, in that direction. thank you. >> thank you, senator shelby. are there any other members that wish to make a brief opening statement? thank you all. i wish to remind my colleagues the record will be open for the next seven days for any opening statements or materials you would like to submit. now i would like to briefly

introduce our witnesses. mr. emerson is the ceo of cook and loans incorporated, a mortgage lender based out of detroit, michigan. mr. christopher, the managing director at e 21, a nonprofit organization focused on economic research and public policy. the 2012 president of the national association of realtors. lastly, dr. mark sandy as the chief economist. mr. emerson, please commence. >> chairman johnson, ranking member shelby, members of senate committee on banking, housing and consumer affairs. thank you for allowing me to testify at this hearing, responsible homeowner refinancing act of 2012.

my name is bill emerson. i'm ceo of quicken loans. it's 26-year-old retail originator based in downtown detroit. we're the nation's largest online lender and fourth large eretail lender. highest in customer satisfaction for primary mortgage origination in the united states for 2010 and 2011. my testimony will address some of the issues with harp 2.0. it will help more homeowners than 1.0. we applaud the administration, gse and mortgage industries for working together to improve the harp product. however, harp 2.0 is not helping enough homeowners eligible. why will it not help enough of these 4 million homeowners? there are two answers. the difference in repurchase risk versus new originators and same servicers. lack capacity they face. risk born by originators under harp 2.0 are different because guidelines of a new originator

must follow r different. a new originator for a harp 2.0 the same servicer is not required to document incoming ratios, borrowers income or assets. only need to verify the borrower has a source of income. the new originator must calculate a debt to income ratio and document and verify both income and assets. this is where the risk in exposure comes in for new originator. new originator and same service warrant to gse originating and underwriting according to guidelines. if the originator found to be in violation of the warranty the originator is required to repurchase the loan. gse regularly require repurchase based on flaws, however minor, in origination and underwriting process. sometimes flaws are extraordinarily difficult to prevent. for example a borrower that takes out a credit card or auto line. originators required for loans even though they acted

diligently. because originators had more stringent underwriting requirements and therefore more at risk, there's a much higher likelihood they will have to repurchase more loans and incur significantly higher losses. according to -- accordingly prudent originators stay clear where the borrower is under water and for the most part harp 2.0 are from same servicers who bear much less repurchase risk. originators to fully participate in harp 2.0 will limit success. gse mortgages, 70 serviced by firms. because they can originate with greatly reduced risk these services are carrying load of trying the harp 2.0 program. notwithstanding intentions of the servicers they will not help enough borrowers given all the duties these large servicers must perform aside from originating harp 2.0 loans. they can't ramp up and hire fast

enough to help millions of homeowners. additionally some have greatly reduced or eliminated platforms there by reducing access to credit for harp 2.0 borrowers subject to firms. thus capacity, and limited opportunities for consumer to take advantage of lower rates. it's from the windy city so let me make an analogy. if one automaker had to do a recall they wouldn't require the owners to return to the factory to have the vehicle fixed. they would quickly and officialsly use dealer network to solve the problem. harp 2.0 is constructed that it will render the network largely ineffective and instead rely on a handful of servicers to bear the load. gse bear the risk regardless of who originated. no reason to create barriers and block originators to assist homeowners and help gse improve their risk condition.

because harp 2.0 is utilized by a small number of firms, it's dramatically exceeding. supply and demand results in higher prices for new harp 2.0 mortgage than it normally would if competition existed. the responsible homeowner refinancing act of 2012 goes a long way addressing problems. if the responsible homeowners act of 2012 can remain exclusively on 2.0 and avoid complicated detours bo new subject matters, the new version of 2.0 can help millions of underwater borrowers in short order. therefore we support the act as proposed. i thank you for allowing me to testify on this very important topic. >> thank you. please begin. thank you for the opportunity to testify on this legislative

hearing. we aim to advance free enterprise fiscal discipline, economic growth and the rule of law. we are focused on developing public policy research that advances market performance and implementing rules to prevent market malfunction. i'd like to say up front that i continue to see a great deal of stress across both demand and supply dimensions of the housing market. as demonstrated by thousands of borrowers struggling to make payments and stay in their homs. it's important to acknowledge many of the major negative trend that dominated the headlines since the crisis are well off their post crisis peaks. for example the current level of housing supply that's for sale suggests the market is close to equilibrium. in many ways weak demand for single family homes that appears to have eclipsed the supply will chaening. another important market develop to acknowledge lenders are capacity constrained today. ags i detail in my written testimony, i believe that lenders an servicers are

hesitating to make the necessary infrastructure investments in the near term because they just don't have a good sense of how profitable the housing, finance and servicing business will be over the medium to long-term. the implication there's a lot of policy and regulatory uncertainty that is holding back a broader housing recovery. i group them into three, servicing, underwriting and gse reform. i believe this backdrop is crucial to understanding the challenges that face the housing market. resolving some of this uncertainty also holds the greatest potential on a comparative basis for positively and responsibly impacting the housing market. on the bill before this committee today, which would further expand harp 2.0 to say 3.0, my summary conclusion is that while i think conclusions behind many of the provisions are admirable, there are potential unintended consequences this committee should consider. for example, changing eligibility date from june 2009 to june 2010 and/or allowing for

harp loans can be reharped would be controversial. some additional borrowers might be helped by this date change. but prize paid by borrowers for harp refinancing and broader agency tba market would go up. when refinancing programs are continually expanded, investors may be forced to adjust their expectations about future prepayment speeds effectively assuming that future mortgages will have an embedded policy risk function that could give borrowers easier access to a lower rate mortgage. while that may sound like a good policy objective in the long run net effect could be participants demand higher yields on mortgage-backed securities. it's worth noting or highlighting harp 2.0 has only been unand running since march. since it's not clear how many additional borrowers could or would be helped under harp 2.0, it's important to recognize a new implementation process may

actually delay harp 2.0 boom on the way. thank you, again, for the opportunity to testify today. i look forward to answering your questions. >> thank you. please begin. members of the committee, thank you for the opportunity to testify on the solutions that will provide relief. the homeowners who continue to be current on mortgage obligations during this prolonged economic recovery. my name is mee veissi i'm president of the national association of realtors. i'm a practicing realtor in miami, florida, a market that experienced downturns during the period of time that we discussed. the responsible homeowner refinancing act removes impediments that allows current borrowers, and i'd like to underline that, current borrowers, whose loans are held by gses to take advantage of

record low interest rates. when i say current i mean these folks are continuing to make their commitment and obligations in a manner they promised to do when they took the loan out. we calculate that it will save borrowers somewhere between 4.5 and $5 billion a year after tax considerations and more than about 45 to $48 billion over a ten-year period of time from 2012. that's a significant impact on local markets. not just simply because those folks may invest a portion of the savings, but because those local markets are the quilt that knits the american fabric of home ownership together across this country. we think it will reduce the family's average annual obligation roughly by about $2800. there are two examples that i want to bring forward. one about four months ago when i was traveling to d.c., i sat down in my seat on the plane and the young lady sat next to me

and she started to recount after some conversation the fact that, one, she's an interior designer, and, two, her husband is a golf pro. they live in southern california in the desert, bought a house in 2007 and severely underwater. i said what are you doing about it? she said continuing to make the payments and we don't have any opportunities to get out from under it. a person like that is exactly the person we're talking about, making sure their obligations are met, knowing they are on point and still under water. the second example is a little more poignant. i got a referral from a college professor in chicago, illinois, who had bought a condo hotel in miami beach and another home which he and his wife anticipated retiring to. the condotel he bought would be an income producer to him in

retirement and the home was a retirement home. he paid 450 for the home and up wards of 650 for the condotel. both those investments turned south. he used up the balance of his retirement income and savings across the board to carry those two investments until he could no longer. he declared bankruptcy. that's the kind of person we need to catch before he gets into those kinds -- or they get into those kinds of severe circumstances. i guarantee he paid as long and efficiently as he could for that length of time. we think that kind of legislation will benefit about 3 million folks who are in trouble today. it eliminates unnecessary consumer fees. it allows refinancing market -- we don't think it will explode but certainly to address those opportunities to exist, legislation establishes penalty

for mortgages second liens and mortgage insurers that thwart the refinance market that exists today. the nation's housing sector remains in a precarious state as chairman johnson indicated. there's no question this is a fledgling recovering housing market. six of the last eight recessionary periods have come out of recession because of a strong real estate market, mostly housing and peripheral industry steps. any steps that can do that and create a better housing market is something we can continually support. and any fees that exist should not be used for the purpose related to housing such as paying for extensions of payroll taxes and relief. applauds the menendez boxer legislation to not utilize the g fees to pay for. home ownership is inextricably linked to a healthy community and a healthy american economy. this is why the national

association of realtors supports any and all efforts that support the ownership in investment and real estate and we so say. >> thank you. doctor, please begin. >> thank you, chairman johnson, senator shelby, corker, goob to be here. >> i'm chief economist at moody's and these are my views. i'm on the board of directors of ngic, a large mortgage insurer in the company. i'll make four points in my remarks. first, policy steps to facilitate more refinancing, i think, are among the most trait forward ways to help the housing market and the economy. both the economy and the housing market are making progress. we're moving in the right direction. but clearly conditions are still very weak and the risks are significant. the threat from europe, fiscal

cliff, lots of threats to this very fragile recovery. i think it is important that policymakers continue, think about ways about supporting the housing market in particular and the economy more broadly. the second point is that the key policy effort to facilitate more mortgage refinancing harp has to this point been a disappointment. if you look at the numbers according to fha, there's been 1.2 million harp refinancing since the inception back in 2009. a little over 100,000 of those are for homeowners in negative equity positions. expectations were for something much more significant than that. so i think it's fair to say it hasn't lived up to expectations. the changes proposed last year and now implemented appear to be quite good. they seem to be working well. if you look at some of the data from the mortgage bankers

association from refi more efficiently. obviously time to finance. i think what harp has done, harp changes have been very, very good and very therapeutic. my expectation for the harp 2.0 program if the policymakers do nothing going forward we'll get 2.5, 3.5 million for harp at the end of the day. third point, given how well the harp changes seem to be going i think makes logical sense to extend those guidelines and rules to all fannie and freddie loans. i don't see any good reason not to do that. and i think we should do it quickly because mortgage rates are very low and this is such a good time to refinance. this is clearly a significant benefit to borrowers. i agree with all the arithmetic realtors put forward, save the

average homeowner between 2500, $3,000 for the year. for the economy as a whole, it will save $6to $7 billion not considering the tax consequences, $6to $7 billion. that's not -- it's small in the grand scheme of things but very helpful. i should point out it's going to be very, very helpful for those markets under a lot of stress. so florida, atlanta, arizona, nevada, california, new jersey, these are hard pressed areas and areas where refinancing money could be quite helpful. this comes at no cost to taxpayers, the way this is designed at the end of the day not going to cost gses anything, taxpayers anything. from a homeowners' perspective, broader economic perspective, taxpayers' perspective, this seems to make a lot of sense to me. third point, there is a loser in this, the investor, mortgage

securities investor. very simply if homeowners are paying less in interest, investors are collecting less in interest, so they do lose. make points about that first, federal reserve is now the largest mortgage securities investor because of qe they have 1.25 trillion on their balance sheet. they are the biggest investor. second qe action was a windfall to those investors. mortgage security investors have been tremendous beneficiaries of government policy. one might argue no bigger beneficiary from government policy throughout the mortgage crisis than financial investors. finally i would say these investors in most cases thought they would get prepaid out already. if the market was well functioning, wasn't these problems in the marketplace, then all the models would say and all the investors have these models, that they would already gotten paid out of these mortgages a long time ago.

in a sense benefiting from the failure in the marketplace. this legislation, menendez market addresses that failure in a reasonable way. i think this legislation is good legislation and should be passed. thank you. >> thank you all for your testimony. as we begin questions, i will ask the clerk to put five minutes on the clock for each member. p mr. emerson, your testimony describes the problems you face when working with homeowners seeking to refinance a mortgage. fha continues to deny that there are different requirements for new business compared to refinancing current customers under harp. so we are clear about how this program works in practice, we do describe the differences again,