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Second Mortgages If we really want to restore a safe securitization market, we also need to address second mortgages. One of the significant factors that contributed to the mortgage and housing crisis was the easy availability of home equity loans. Plain and simple, the more equity that a borrower has in his or her home, the more likely that bor- rower will continue to make mortgage payments. Home equity loans often result in the borrower having little or no equity in their homes.

Although the proposed QRM standard will encourage lenders to originate loans to borrowers who have a minimum 20 percent down payment, there is no prohibi- tion against the borrower immediately obtaining a second mortgage to borrow back the full amount of that down payment. We be- lieve any failure to address borrower skin-in-the-game will be very discouraging not only to private-label RMBS investors, but all mortgage investors. To prevent the layering of additional leverage and risk, it is common in other forms of secured lending (including commercial and corporate lending) to require ei- ther the consent need money now Maine of the first mortgage holder to any additional leverage or to limit the new borrowing based on a prescribed formula approved by the first mortgage holder. We recommend extending this concept to residential mortgages. Specifically, we recommend enactment of a Federal law that would prohibit any second mortgage on a residential property, unless the first mortgage holder gives its consent. Alternatively, a second mortgage could be subject to a formula whereby the new combined loan-to-value (based on a new appraisal) does not exceed 80 per- cent. Conclusion Looking ahead to the long-term future of housing finance, I see a number of positives emerging: safer mortgages that borrowers can afford, the return of loan loss rates to historically low norms for newly originated prime loans, and private capital willing to fund residential mortgages at affordable rates for borrowers through responsible, safe securitization. Thank you for the opportunity to testify before the Committee today. PREPARED STATEMENT OF BARRY RUTENBERG First Vice Chairman of the Board, National Association of Home Builders May 26, 2011 Introduction Chairman Johnson, Ranking Member Shelby, and Members of the Senate Bank- ing Committee, I am pleased to appear before you today on behalf of the National Association of Home Builders (NAHB) to share our views on the long-term future of the housing finance system. We appreciate the invitation to appear before the Committee on this important issue. NAHB represents over 160,000 mem- ber firms involved in building single family and multifamily housing (including par- ticipants in the Low Income Housing Tax Credit program), remodeling, and other aspects of residential and light commercial construction. Establishing a finance system that provides liquidity for the housing sector in all markets throughout the economic cycle is a prerequisite to achieving housing policy objectives. The housing finance system currently is under a cloud of uncertainty. Even with the current heavy dose of Federal support, fewer mortgage products are available and these loans are being underwritten on much more stringent terms. In addition, Congress and the regulators are piling on layers of regulations in an attempt to plug gaps in the system of mortgage regula- tion and to prevent a recurrence of the mortgage finance debacle that is still playing out. This is not an arrangement that can continue indefinitely and there is no clear picture of the future shape of the conforming conventional mortgage market. One thing installment loans Ohio need money now Maine that is clear is that the status quo cannot be maintained. Policy discussions are underway on what should become of Fannie Mae and Freddie Mac following the current, still-indefinite conservatorship period, and what, if anything, should change in the structure and operation of the Federal Home Loan Banks (FHLBanks).

A key consideration is how to get from the current structure to a future arrangement with- out undermining ongoing financial stabilization efforts and disrupting the operation of the housing finance system.

NAHB has been actively involved in discussions on changes to the financing framework for homebuyers and producers of rental housing. In the past year, NAHB has developed a detailed plan outlining our thoughts on the future of the housing finance system and shared this extensively with Congress. In the meantime how- ever, Congress has passed the Dodd-Frank Wall Street Reform and Consumer Pro- tection Act of 2010 (Dodd-Frank Act). Regulators are now busy implementing this massive law that has the potential to reduce the availability and increase the cost of housing credit. We cannot go back to the system that existed before the Great Reces- sion, but it is critical that any reforms be well-conceived, orderly, and phased in over time. Short-term proposals to reduce the support Fannie Mae and Freddie Mac provide for the housing finance system represent a piecemeal approach to reform that would disrupt the housing market and could push the Nation back into a deep recession. Do not move forward with policies that would further destabilize a housing market that is already struggling. Housing can be the engine of job growth this country needs, but it cannot fill that vital role if Congress and the Administration make damaging, ill-advised changes to Kansas online payday loans the housing finance system at such a critical time. Housing Market Conditions The housing market has not experienced the same tentative growth path that the rest of the economy is experiencing.

Unlike the last two economic recoveries, when housing grew 25 and 45 per- cent at this point after the end of the recession, housing is still down 18 percent since the end of the recession in June 2009. The early months of 2011 have not provided any positive news for housing. Housing construction has reflected the poor sales performances as total building permits in 2011 have been the lowest on records going back to 1960. Single family housing starts have been among the lowest ever recorded.

House prices continue to fall in many locations as foreclosed and distressed sales continue to absorb what little demand there is.

Oddly, low mortgage rates and very affordable house prices should be a stimulus to home buying, but the consumer re- mains uncertain about future Government moves against housing. Mortgages are af- fordable, but credit standards and down payment requirements are keeping many potential homebuyers out of the market. The Administration stresses that the transition should be a careful and deliberative process that need money now Maine will take several years to implement. During the transition, the Administration proposes a number of steps to reduce Government support including lower loan limits, increased down payment require- ments and higher fees for conforming and FHA-insured mortgages. NAHB believes that changes to the housing finance system should be comprehen- sive, coordinated, and undertaken in a careful and deliberate manner that does not unnecessarily disrupt the struggling housing recovery.