Keep Student Loans Affordable Act of 2013--Motion to Proceed--Continued

Floor Speech

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Mr. WARNER. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

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Mr. WARNER. Mr. President, I ask unanimous consent that the Senator from Tennessee and I be allowed to engage in a colloquy and speak as in morning business.

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Mr. WARNER. Mr. President, it is a pleasure to be here today with my friend the Senator from Tennessee to talk about legislation that we and eight--actually now nine of our colleagues--bipartisan legislation that has been recently introduced to reform our housing finance system.

I came into office a couple of years later than the Senator from Tennessee, but I got here in January of 2009 when the entire future of our financial system was uncertain. We members of the Banking Committee rolled up our sleeves and tried to work together to prevent future crises. Well, history will determine whether we accomplished that goal.

The Senator from Tennessee and I worked strongly together on a couple of titles of what has subsequently become known as the Dodd-Frank legislation. While there are problems in that legislation, while there are problems still within our financial system, I think no independent observer would not say that our financial system today, in 2013, is stronger than it was after the crisis.

But one area that did not receive very much attention was the question of housing finance. We also know that in many ways our housing finance system, both from lack of underwriting, the process that then ended up allowing a lot of mortgages to get packaged off, securitized, with the assumption that there would never be a decline in housing prices or a significant decline in housing prices and that these securities would never be in jeopardy, in many ways led to part of that financial crisis. At the end of the day, those institutions--Fannie and Freddie--that had been the core of our housing finance system ended up acquiring $188 billion of taxpayer support to shore up those institutions so that the whole housing system would not collapse.

Well, it is now 5 years later, and we believe it is time to transform the failed model of Fannie and Freddie into a smarter, sustainable system with more private capital. We believe we can better protect the taxpayer and maintain broad access to affordable mortgage credit. But we need to act soon to prevent this issue from falling victim to election-year politics. And everyone--from the administration, to many of us here on the floor of this Senate, to many housing experts--knows the status quo is not sustainable.

So we have two important questions before we get into some of these principles about which I will engage my colleague the Senator from Tennessee: 1. Why do we need to take action now, and the second question is, why does Congress need to act?

I will take the first question. Why is the time now? Well, over the last 5 years since the housing and the overall financial crisis, we have seen--slowly, albeit--the housing market come back to life. Obviously this has been supported by a low interest rate environment that has permitted more refinancing and loan modifications. Rising home values have brought many home owners out from underwater mortgages. Housing prices have been a significant factor in Fannie's and Freddie's recent record profits. But now those very profits have somehow been wrapped into at least some of our colleagues' discussions about our debt ceiling debate.

I speak for this Senator and I think the Senator from Tennessee and, candidly, I think many Senators are not even engaged with us on this debate right now. The last thing we want is for Fannie and Freddie to virtually serve as a piggy bank for the pet projects of either side of the aisle. If we are not careful, that could happen.

Fannie and Freddie have been in conservatorship for 5 years. Before we become even more dependent upon this broken system, it is time for us to move forward. So I would like to ask my colleague the Senator from Tennessee, if now is the time, if he might share with us some of the ideas he feels and we feel about why it is important that Congress be involved in this process and not simply allow this conservatorship to go on ad infinitum into the future.

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Mr. WARNER. Mr. President, I wish to return the same compliments to the Senator from Tennessee. He brought a greater breadth of background in housing finance and the public finance sector than I did. But together, working with our other colleagues, I think we have all built a series of critical points.

Again, echoing what the Senator from Tennessee said, there are always ways to improve on legislation, but the first and foremost point was that we need to make sure there is taxpayer protection. We need to make sure the taxpayers are fully repaid that $188 billion. We need to make sure as well--and we spend a great deal of time working with industry and others--that there continues to be broad access to market credit.

I think one of the challenges we both felt with Fannie and Freddie was there was not only a combination of a private sector gain, public sector loss with this kind of hybrid model, but layered on top of that was a social purpose. I, for one, believe very strongly that we have to make sure there is affordable housing, that there is good access to market credit. But when you layer that on a quasi-private entity, as we did for years with Fannie and Freddie, you end up where you are not sure whether those entities are performing that necessary securitization and financing purpose to maintain the overall housing financing sector or whether they are allowing certain loans that maybe shouldn't have gone into this process because of the social purpose.

So we have said: Well, we have to make sure there is the appropriate private sector taxpayer protection: 10 percent capital--very important. We also said: Let's go ahead and split off that public sector role, clearly identify it, make sure that for those loans that get securitized, a small transaction fee--not a tax, a small transaction fee--is charged. Those funds are then set aside to promote rental housing, access to credit, low-income housing. Have that audited, stand alone, perform that important function.

As we said as well, doing this, as the Senator from Tennessee has mentioned--he has been quite strong on this--we are going to make sure the government role is clearly defined but much more limited. There are some who say we can do this totally on the private sector side. Well, we hope there can still continue to be the 30-year fixed-mortgage product that I think the American public has come to expect. We can privatize more, but not having the ability to have the government backstop would remove that very essential component of our current housing financing system. So a more limited government role but still the ability for our American consumer to have the kind of access to the financial products they have come to expect. Again, it has been mentioned--making sure that we expand private sector capital and make sure that they take care of that underwriting and credit assessment that, quite honestly, the old model did not really provide.

I would like to ask the Senator from Tennessee this because this is one on which we went around and around. I again thank him and his staff and my staff and the staff of our now nine cosponsors of this legislation. One thing that was quite important to us was that if you are going to create this new model, how do we make sure that--while we want more competition, private sector competition, while we want institutions to be able to go ahead and provide this important issuance and securitization function, how do we make sure that those small banks--that community-based bank or that credit union, that small bank in Knoxville or that small bank in Martinsville, VA--still gets access to the same kind of ability to issue mortgages, have those mortgages securitized, and not be at a disadvantage of some of the mega-institutions?

So I would ask my colleague, the Senator from Tennessee Mr. Corker, why doesn't the Senator speak to that issue because it did take us a lot of work to try to get this right, and there may be even further refinement. But I think this is an area--again, with the reaction we have seen from the credit unions, the community-based banks--where I think we have made a great first step.

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Mr. WARNER. Mr. President, I know our time is about up, but I want to close and then I will turn it back over to the final comments of my colleague, the Senator from Tennessee.

I want to say to my colleagues and their staff and those interested in this issue that this was the one piece of unfinished business in our financial system reform. While there are some today who say: Well, things have gotten better, we should allow the status quo to continue--well, I don't think, from the administration on down, there is anyone who thinks the status quo simply continuing--with private sector gain and public sector losses--is the right model.

We ought to take the lessons we have learned over the last 5 years--some of the very good work in terms of the standardization that is being done at the FHA right now--and set up a new model. As the Senator from Tennessee said, make sure we get that taxpayer protection.

I would simply add that housing is a critically important part of our overall economy, and on any piece of legislation--and let me not say all these groups have endorsed this legislation but they have all been generally supportive, they all have had areas they wanted to see improvement in--when you have realtors and homebuilders and mortgage bankers and large and small banks and community organizations and groups who are concerned about low-income housing and rental housing all saying we are in the ballpark in an area that is so important to our economy and so complex, I think we have taken a great first step. So I would urge colleagues to join with us.

The Senator and I will be happy to come and make presentations. We have found, as we have sat down with many Members and walked them through all the processes and all of the kinds of protections we have built into this legislation, that the presentations have been one of the reasons we have had such success with nine members of the Banking Committee--almost half of the Banking Committee, without all of them even having had a full presentation--pledging their support.

I again thank my colleague, the Senator from Tennessee, for his great work and leadership. He has been the lead sponsor. I am proud to be his wing man on this as we continue to work through it.

My sense, though, is this is the time. It is my hope the Banking Committee will take up this piece of legislation and make their improvements on it. It would be a huge mistake, with interest rates at this kind of record low, with this housing market coming back, and with us putting in place a 5-year appropriate transition time, not to act now. If not now, then when would be the right time to do the kind

of meaningful housing finance reform that I think so many experts across the ideological spectrum have all called for?

I look forward to working with my colleague, the Senator from Tennessee, and I thank him for his good work, and I am happy for him to close out our comments today.

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