Oct 20 2011

Shelby: 30-Year Fixed Rate Mortgage Needs Fact-Based Analysis

U.S. Senator Richard Shelby, ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, today made the following statement at a Committee hearing on the 30-year, fixed rate mortgage. 

Statement of Senator Richard C. Shelby

Committee on Banking, Housing and Urban Affairs

October 20, 2011

 “Thank you, Mr. Chairman.

“Today’s hearing will examine the pros and cons of the Federal government continuing to subsidize the 30-year, fixed rate mortgage.  During the Great Depression, the Federal government established Fannie Mae, Freddie Mac and the Federal Housing Administration to directly and indirectly subsidize 30-year, fixed rate mortgages.  For many Americans, the 30-year fixed mortgage has made homeownership possible.

“Yet, the failure of Fannie and Freddie and the $169 billion dollar bailout of those institutions demonstrate that the Federal government’s support for the 30-year mortgage comes with a cost.  Accordingly, if this Committee ever decides to undertake housing finance reform, it will need to determine whether the benefits of the government’s support for the 30-year, fixed mortgage outweigh the costs.  In addition, if it decides to continue to subsidize the 30-year, fixed rate mortgage, the Committee will need to find a way to protect taxpayers from having to pay for bailouts in the future.

“Today’s hearing should provide some insight into how the Federal government’s support for the 30-year, fixed rate mortgage impacts consumers and taxpayers.  For instance:

“Is the 30-year, fixed rate mortgage always the best option for consumers? 

“Is the pre-payment option included in these 30-year, fixed rate mortgages truly ‘free’?

“What has the subsidy of this product already cost the American taxpayer and can this product be offered without that subsidy?

“Consumer choice is very important.  Consumers should be able to purchase a 30-year, fixed rate mortgage at the appropriate market rate, if they determine that that product is best for them.  However, we must not create incentives that could push people towards a 30-year, fixed rate mortgage, even when it could be harmful to them.

“I also hope to learn today how subsidizing the 30-year, fixed mortgage impacts our financial system.  For instance:

“Is the claim that the financial crisis could have been averted if only more people possessed the 30-year, fixed rate mortgage a fact or fiction?

“What unintended consequences have been created by subsidizing the 30-year, fixed rate mortgage?

“These are all important questions and there are many more that must also be answered.

“For many, it is assumed that the narrative surrounding the 30-year, fixed rate mortgage has already been written and that there is no need to investigate the facts.  As we proceed with housing finance reform, however, we must seek a full understanding of the facts.  In other words, legislating by anecdote is not acceptable. 

“We need to take a hard look at this product and determine if the preferential pricing resulting from these subsidies truly creates a public good.  Only by doing a thorough, fact based analysis, can develop sensible housing policy. 

“Thank you, Mr. Chairman.”