Middle Class Borrower Protection Act of 2023
Floor Speech
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Mr. DAVIDSON. 3564.
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Mr. DAVIDSON. Mr. Chairman, I yield myself such time as I may consume.
H.R. 3564, the Middle Class Borrower Protection Act, will undo a bad policy implemented at the worst time. Americans are struggling to afford housing. I am talking about the loan level price adjustments that the Federal Housing Finance Agency, FHFA, put into effect on May 1 of this year. This policy essentially implemented a cross-subsidy to individuals with lower down payments and lower credit scores.
Loan level pricing adjustments are up-front fees which adjust the final interest rate charged on mortgage loans based on different risk characteristics associated with individual loans. The most notable characteristics would be the mortgage's underlying loan-to-value ratio and the buyer's credit score.
While such fees may be necessary for Fannie and Freddie Mac, collectively known as the GSEs, to raise capital and adequately hedge against credit risk, the adjustments announced by FHFA would disproportionately hurt individuals with credit scores of 680 or greater.
To put that into perspective, the average credit score is around 710, and nearly 19 out of 20 Americans have credit scores above 680. The other thing is credit scores alone aren't a proxy for wealth or income. Therefore, most Americans would likely be hurt by these fees.
However, those with a credit score below 680 will benefit from lower rates than the prior LLPA assessments. This fee change violates the fundamental principle of risk-based pricing: Lower-risk borrowers should pay lower prices than higher-risk borrowers for access to the same credit.
Despite the FHFA's opaque approach to assessing LLPAs, the result of their new policies speak for themselves. The Middle Class Borrower Protection Act would reinstate the old LLPA prices that were in effect prior to May 1, while also directing the Government Accounting Office to complete an independent study of the processes and data used by FHFA to change the prices, including the impact of those changes on the safety and soundness of the GSEs, which, I will add, have been in conservatorship under the Federal Government for 15 years. Then GAO would report to Congress within 1 year of the study.
FHFA would be prohibited from changing the LLPAs until 90 days after the report, after which it would be required to: one, follow the basic agency notice-and-comment procedure for making any new changes to the LLPA fee; and two, ensure that future fee adjustments be made based on the actual risk posed by the mortgage.
FHFA would also be prohibited from imposing any new fee on borrowers based on their debt-to-income ratio, which was an idea they considered implementing effective August 1.
Finally, I will acknowledge that over the past weekend, the Congressional Budget Office scored this bill, and they assessed a cost of $1.8 billion for implementing this bill. I believe the fact that CBO says this bill costs a single penny is absurd and exposes a glaring flaw within our legislative process.
Perhaps CBO has a rebuttal, but that would require them to show their work, which they have not. This is why I have long advocated for another bill of mine, the CBO Show Your Work Act.
This past week exemplified just why we need transparent processes when legislating. The reality is these fees aren't even going directly to the Treasury. While the GSEs are in conservatorship, the money is supposed to go to the balance sheet of Freddie and Fannie so that they can accumulate capital.
As this rule is announced, the explicit purpose was to grow capital on the balance sheets of Fannie and Freddie. These were taken over by the Federal Government in the wake of the 2008 financial crisis. They have remained in the conservatorship of the Federal Government. The revenue isn't coming in directly to the Treasury, it is meant to actually free the GSEs from control of the Federal Government.
These revenues were not imposed by Congress, so there really isn't a need for us to replace the revenue that the administration imposed with a really misguided rule. There was no revenue coming in on April 30. On May 1, they implement this policy change, and somehow, we are supposed to come up with the revenue to offset it.
Now, I argued against doing that. I asked the Rules Committee to ignore the misguided advice of the Congressional Budget Office and to not implement a pay-for because it is not our--we didn't cause this expense to occur. Frankly, it is not even a real expense. It is essentially a tax imposed by the administration.
Because of the rules, we offered a manager's amendment which was ultimately incorporated into this bill. We add 1 year to a 10-basis point fee that is assessed on every Fannie and Freddie loan, regardless of your credit, just as a cover. That rule has been in place since the bill passed in 1992. It was set to expire in 2032. Now it will expire in 2033.
I hope between now and then we can change that, and we can also liberate Fannie and Freddie from their ongoing conservatorship which, I will note, has lasted longer than Britney Spears' conservatorship. The only way that it would cost the Federal Government money is if the conservator is actually raking money out of it and funding their own operation, which is not what is supposed to happen. It is supposed to stay with Fannie and Freddie, so it shouldn't be costing the Federal Government a dime to implement the Middle Class Borrower Protection Act.
Nevertheless, Fannie and Freddie will benefit from one extra year of money being collected under this manager's amendment that was adopted and incorporated in the bill.
Let me return and focus on the bill at hand, the Middle Class Borrowers Protection Act. Let's think about this: A Federal agency acting under its own purview and not subject to the Administrative Procedure Act implemented a politically motivated cross-subsidy through a clear money grab on unsuspecting credit-worthy borrowers. This wasn't a decision by Congress. This was simply the FHFA using its position as conservator of the GSEs to increase the government's baseline.
Now Congress is trying to undo the changes and re-implement a policy that was in place just 8 weeks ago.
However, Congress, as I said, had to pay for this fake shortfall. Like we see time and again, only in Washington, D.C., would math like this make sense.
It is imperative for this body to protect the cornerstone of the American Dream by promoting housing affordability, and H.R. 3564 does just that.
Mr. Chair, I urge all of my colleagues to support this bill, and I reserve the balance of my time.
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Mr. DAVIDSON. Mr. Chairman, I yield myself such time as I may consume.
Mr. Chairman, the gentlewoman points out things that just aren't so. The idea that a loan that has less equity in it isn't riskier than a loan with more equity in it is completely false.
Every business school in the country will teach it, but most people don't need to go to business school to understand that a loan with a lot of equity in it is at much less risk of default. It is rational to price risk, and that is what the market should be doing. Plus, people who have low income and have high credit scores are punished by this foolish policy. This simply will undo it.
The last thing I will say is, right now, there is money that is being taken away from consumers in the marketplace--$1.8 billion over the next 2 years. Once this bill passes, that stops getting taken away. The 10-basis point pay-for that is in this bill is still in effect right now.
In fact, it is scheduled to go out in 2032. In the near term, nothing changes in this bill. It is in 2033 that the pay-for comes in, again, only with the false accounting at the Congressional Budget Office would that even be necessary.
Mr. Chairman, I yield 3 minutes to the gentleman from North Carolina (Mr. McHenry), the chairman of the full committee.
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Mr. DAVIDSON. Mr. Chairman, the gentleman from Missouri is accurate. This does cost money. It costs the 19 out of 20 Americans with 680 credit scores or better who choose to get a Fannie or Freddie mortgage, it costs them money. It takes it out of their hard-earned dollars and transfers it to the GSEs.
Mr. Chairman, I yield 2 minutes to the gentlewoman from Oklahoma (Mrs. Bice).
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Mr. DAVIDSON. Mr. Chair, I yield myself such time as I may consume.
Mr. Chair, I thank the ranking member for recognizing that low-income people do have high credit scores. That is why it is unjust to implement this rule and charge them a higher fee than maybe wealthy people who have low credit scores.
This is an interesting observation. The ranking member on the Subcommittee on Housing and Insurance, Mr. Cleaver, just pointed out that it would be dangerous to require the FHFA to use the Administrative Procedure Act, i.e., to give notice and get comment, before they implement policies that impose costs on the American public. In July 2020, Ms. Waters and the majority at the time sent a letter to Director Calabria--at the time the Director of FHFA--saying: ``Moreover, we urge you to use your powers under title 5 U.S.C. 551- 559, the Administrative Procedure Act, to engage meaningfully with all stakeholders.''
It seems they are not opposed to FHFA using the Administrative Procedure Act. In fact, they asked them to do it, so I wonder why it is selectively.
Mr. Chair, I yield 2 minutes to the gentlewoman from Arizona (Mrs. Lesko).
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Mr. DAVIDSON. Mr. Chair, I yield 2 minutes to the gentleman from Virginia (Mr. Good).
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Mr. DAVIDSON. Mr. Chair, I have no additional speakers, and I reserve the balance of my time.
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Mr. DAVIDSON. Mr. Chair, the American people should be angry. They should be upset because the Biden administration did impose a socialist redistribution scheme. The most egregious and obvious part is that they withdrew as we uncovered this and exposed what they were trying to do.
On August 1, their plan was to say that if you have a lot of income and very little debt, then you should pay more, even more than this scheme that took effect on May 1, and you should subsidize the people that have little income and more debt. Now, to be sure, they still would qualify for a mortgage, or they wouldn't get the loan, but that is patently obvious redistribution of wealth.
The component that took effect on May 1 isn't really a redistribution of wealth per se, but it does hit the average credit score of 710. Everyone with a credit score of 680 or above, 19 out of 20 Americans is being hit by a higher fee since May 1 for their mortgages.
It is a redistribution of credit scores, and that is even worse than an idea of redistribution of wealth, in a sense. Because you have responsible people who live within their means, might live just a little bit above paycheck to paycheck, save, scrape together, build up a downpayment, have a mortgage in place, and they are going to pay more now since May 1.
We have to fix this injustice. That is what this bill does. It is time to just move forward in a commonsense way.
First, you study the problem before you implement it. This bill requires the GAO to complete the study, and then it requires FHFA to look at the study, to take 90 days of notice before they implement something else. The part that it bans after the study is over is the real redistribution of wealth, the debt-to-income scheme.
Mr. Chair, I urge all of my colleagues on both sides of the aisle to support this commonsense Middle Class Borrower Protection Act, and I yield back the balance of my time.
Ms. JACKSON LEE. Mr. Chair, I rise to speak against H.R. 3564, a harmful bill which seeks to cancel recent changes made by the Federal Housing Finance Agency (FHFA) to the single-family mortgages' framework.
First, I'd like to applaud the FHFA for their bold and courageous actions that aim to ensure equity and fairness in the mortgage pricing framework.
The title of H.R. 3564 contradicts its content, because in reality, it makes mortgages more expensive for many middle-class American families.
Escalating housing prices in recent years have put many families and hardworking Americans out of the bid for homeownership.
The median U.S. home sales price stands at about $455,800 dollars as of the first quarter of 2023 representing a whopping 32 percent increase from 2020, just two years ago.
In the last 2 to 3 years however, the average American has neither become 32 percent richer nor gained wage increase of 32 percent.
Increasing amounts of homes owned by private equity and Wall Street firms, accompanied by high inflation and rising demand have contributed to these price increases.
Rising rents make it even more difficult for first-time home buyers to save for a down payment.
At an average cost of $455,800 for a home, middle-income American families would need to save roughly $87,500 dollars, an amount which most families simply do not have.
Rather than rescinding their bold and courageous action, we should rather applaud and commend the FHFA in its rightful steps toward making mortgages more affordable for first-time homeowners and many creditworthy borrowers who simply cannot afford a 20 percent down payment.
The eliminated loan level price adjustment fees would actually help these borrowers to save for their monthly mortgage payments.
The upward adjustments in vacation home and investment property mortgages also help to ensure balance, equity, and fairness in the federal housing finance and pricing framework.
The FHFA's actions are in the right direction and help to ensure a more equitable mortgage pricing framework that prioritizes middle class home buyers over investors and second-home owners.
H.R. 3564 is an attempt to rescind the FHFA's more equitable pricing framework and instead require increased fees for many first-time home buyers and those who do not have a 20 percent down payment.
H.R. 3564 will raise the cost of homeownership and make it more expensive for first-time homebuyers and borrowers of color seeking conventional loan.
The FHFA's actions are a step toward remedying this inequity and achieving fairness and equal opportunity.
It is not Congress' job to set mortgage pricing fees for loans purchased by the Government Sponsored Enterprises (GSEs).
This is the role of the government regulator, the Federal Housing Finance Agency.
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Mr. DAVIDSON. Mr. Chairman, I claim the time in opposition, though I am not opposed to the amendment.
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Mr. DAVIDSON. Mr. Chair, while there has been broad discussion about the fundamental unfairness associated with the Biden administration's new tax on creditworthy borrowers, Congress' oversight role also extends to the process and impact these changes will have on home buyers and the housing market.
Members on both sides share policy concerns regarding this new tax, and it is equally imperative that we promote transparency to the American people on this flawed effort.
The GAO study does just that as the amendment Mrs. Boebert proposed would simply make the GAO study public. Sunlight is the best disinfectant, and in no area is this more relevant than the opaque process with which the FHFA has enacted these and other changes.
This amendment would add to the GAO study included in H.R. 3564 which will play a critical factor toward furthering both Congress' and the public's understanding of this issue that impacts millions of home buyers.
Americans deserve a thorough accounting of the process and deserve to know the significant impact of FHFA'S actions. An agency that virtually controls U.S. housing markets should not operate without appropriate congressional oversight.
Mr. Chair, I urge my colleagues to support this amendment to restore fairness, transparency, and accountability to this process and policy that impacts millions of Americans. Amidst economic uncertainty and a housing affordability crisis, the American people deserve nothing less.
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Mr. DAVIDSON. Mr. Chair, I urge all of our colleagues to support this amendment, and I yield back the balance of my time.
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Mr. DAVIDSON. Mr. Chair, I claim time in opposition to this amendment, although I am not opposed to it.
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Mr. DAVIDSON. Mr. Chair, this is a commonsense amendment to the GAO study, and I applaud the gentlewoman from Nevada for including this comprehensive view on the impact of housing affordability.
It furthers the work of the Housing and Insurance Subcommittee, and I think it is an important addition.
Mr. Chair, I encourage all of our colleagues to support it, and I reserve the balance of my time.
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Mr. DAVIDSON. Mr. Chair, I urge all of our colleagues to support the amendment. I support it, and I yield back the balance of my time.
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Mr. DAVIDSON. Mr. Chair, I claim the time in opposition, and I am opposed to this amendment.
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Mr. DAVIDSON. Mr. Chair, I claim the time in opposition to the amendment introduced by Ms. Pettersen which would make it impossible to repeal the Federal Housing Finance Agency's damaging price increases on creditworthy home buyers. In fact, it will undo the entire point of the bill.
The legislation before us, the Middle Class Borrower Protection Act, would repeal these increases and would require the Government Accountability Office to assess the FHFA's fee structure. That is the point of the GAO's study.
It would also require that any future loan-level fees implemented by the agency adopt a risk-based price framework.
Ms. Pettersen's amendment would set up a sham test so that FHFA would have to keep those unfair fees in place even at the expense of the majority of middle-class borrowers.
So while the gentlewoman's amendment is designed to sound fair, the reality is that it would actually have the opposite effect of what it advertises. Instead of lowering fees for middle-income families, it would doom many of them to higher fees. In other words, a vote for Ms. Pettersen's amendment is a vote against the Middle Class Borrower Protection Act.
I also find it interesting that our friends on the other side of the aisle would support an amendment that essentially says: Don't do this if it makes fees go up, which is exactly what our bill does. It stops the fees from going up or staying up, as the case is on part of the plan that they implemented.
We should be united in saying that deliberately making mortgages more expensive for creditworthy borrowers is a foolish policy. The sting of inflation and higher interest rates are already hurting middle-income families, and this adjustment by FHFA is not fair.
While I cannot support this amendment, I am glad to see the recognition that we need to protect middle-income families looking to purchase a home from unfair pricing. It makes it harder for some borrowers to afford because they pay more just because they have high credit scores.
Ms. Pettersen's amendment would, unfortunately, lock in that unfair system.
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Mr. DAVIDSON. Mr. Chairman, I oppose this amendment. I urge all of our colleagues to oppose this amendment, and I yield back the balance of my time.
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Mr. DAVIDSON. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
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