Congresswoman Says Scenario Demands Careful Thinking, Raises Concerns About Protecting Taxpayers

Press Release

Outlining her priorities in the ongoing debate and discussion surrounding a financial rescue plan before Congress, Rep. Shelley Moore Capito (R-WV) released the following statement:

"This continues to be an incredibly fluid situation with high stakes," said Capito. "We're dealing with the prospect of a financial calamity that threatens anything from car loans, to family savings, to the very ability of West Virginia businesses to maintain day-to-day operations. Yet, we're also talking about an enormous commitment of tax dollars, which creates serious reservations about supporting this type of proposal.

"My main concern centers on protecting West Virginia taxpayers. Mountain State families who paid their bills, made smart decisions and played by the rules shouldn't be on the hook to pick up the tab. This can't be about sending Wall Street executives into the sunset on golden parachutes, this has to be about preserving the financial system to protect homeowners, consumers and taxpayers.

"Needless to say, negotiations are therefore a gradual work in progress. While I've been intrigued by the ideas presented by some of my colleagues regarding government backed investment insurance, there's no question that any plan must include strict oversight for the relevant government officials and clear requirements to prevent excessive compensation for executives from the firms involved.

"The ballooning housing market, spurred by excess from government sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, planted the seed for this crisis and misguided investors made it worse. Unfortunately, we had an opportunity to at least mitigate its impact if there'd been more buy-in for increased GSE oversight when we first pushed for and passed reform legislation - which I supported - out of the House back in 2005. We finally got support for FHA modernization and GSE reform from both chambers with this summer's housing bill, but it would have been incredibly helpful to have had these reforms in place years ago."

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Facts on History of Needed Oversight Reforms and Housing Program Modernization

* The subprime market emerged and grew due in part to out-dated regulations that prevented the Federal Housing Administration (FHA) from being able to keep pace with rapidly increasing home prices. Between 2000 and 2007, FHA's market share dwindled significantly, leaving it unable to adequately respond to a ballooning housing market.
* Because the FHA provides mortgage insurance for first time homebuyers - allowing them to put down as little as 3% - and helps place them in a stable mortgage product, it is a key tool for promoting and providing housing stability.
* Therefore FHA's ability to adapt to a changing mortgage environment was incredibly important, making FHA modernization a vital step to better enable federal officials to respond to a shifting market. Rep. Capito, therefore, joined with a majority of the House to enact FHA modernization in 2006, but legislation faltered in the Senate.
* It was also clear that government sponsored enterprises (GSE's) like Fannie Mae and Freddie Mac were also in need of reform with a stronger regulator. This new regulator could have worked with the GSE's to reduce the size of their portfolios and reduce their exposure to risky mortgage products.
* Doing so would have limited their growth and could have limited demand for the types of risky mortgage investments regularly blamed for the current financial and credit situation. Rep. Capito joined with a majority of the House to pass GSE reform in 2005, with the Senate and Administration finally concurring with the inclusion of GSE reform language in housing legislation which passed the House in July.
* Additionally, Rep. Capito was a key House negotiator during work to pass the Mortgage Reform and Anti-Predatory Lending Act of 2007.

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