Friday, December 14, 2007

U.S. Senator Johnny Isakson (R-GA)
Floor Statement on FHA Modernization Act Of 2007
Remarks as Delivered on the Senate Floor

The first thing the American public needs to understand is the current mortgage crisis in America is not an FHA problem, from a standpoint of poor underwriting or poor loans. FHA does a good job of underwriting, a good job of servicing, a good job of appraising. They have good standards.

The subprime market problem is an irresponsible lending practice in the conventional market, particularly when it comes to the underwriting. However, because that crisis does exist, FHA is going to be looked to as the savior in many cases. As conventional capital restricts and credit is reduced, it is going to be more important than ever for the FHA to be able to meet those demands.

But during the deliberations of this and during the writing of this bill, Senator Shelby and Senator Dodd did some great things the American public needs to understand. They realized one of the problems in the subprime markets was they were starting to make 100 percent loans--interest only--for 3 or 4 years, with a bullet at the end.

This bill specifically ensures that every FHA loan, every FHA loan that is made will have at least a downpayment of 1.5 percent. So there is not going to be any 100 percent lending. You will have some skin in the game.

Statistically, you always know in the housing business when a borrower has to put equity in a house, it is an insurance policy that loan is going to be paid. That is the insurance that ensures FHA they have a very low risk on the taxpayers' money.

Secondly, this recognizes the rising values in America and raises the cap on the amount of an FHA loan that can be made. This is going to allow FHA to meet a lot of demand that is going to be created by failures in the subprime market.

Another point on the subprime market is, FHA loans have not ever been, nor are they now, subprime loans. They are intended to be loans for those entering the housing system of the United States of America.

My dear friend, the Senator from Oklahoma, is going to offer an amendment later on which I will comment on for a second. He and I have had some discussions on it.

There is a section of the bill that deals with what is known as reverse mortgages, and probably most people in here would not know what that is. But basically that means, if you pay for your house and you get in your senior years and you want to draw on the equity and value of that house, then you can take out a mortgage against your house, and instead of making payments every month to pay it off, you receive payments every month up to a percentage of the appraised value of the property.

So for people reaching their latter years or their senior years, who need to be able to supplement their income to exist, they can use the equity in that house to continue to have an income and a cash flow.

FHA can make that loan and insure it. So can the conventional markets. The question the Senator from Oklahoma has is whether the FHA should raise the limit on the number of those loans it makes, which is at $275,000 right now. Talking to FHA, they are at that cap.

There is a provision in the bill that calls on CBO to make a study to determine what that cap should be. But in the meantime, we should not be capping the number of loans. So the bill is appropriate to raise the cap, and it is appropriate to call for the study. I reluctantly oppose the amendment, but I do so mainly because I wish to ensure every American senior who has paid for their home, who has it mortgage free, has the opportunity to leverage that home to have income in their later years, safe and secure by the underwriting process of the FHA.

But I conclude with the way I began: This is a great bill for the United States of America. It is not a reaction to bad practices on the part of FHA, but it is a reaction to say that because of our good practices, because of the capital that is available because of FHA, it is important for us to recognize the demand that will come to us as a byproduct of the subprime market.

I commend Senator Crapo, Senator Shelby, Senator Dodd, Senator Schumer, and all those who have worked on it, and I commend it to my colleagues for a favorable vote.