President Morial Issues Statement on Dr. Mark Calabria's Comments on Affordable Housing
February 26, 2019 -- Honorable Member of the Senate Banking Committee: As President and CEO of the National Urban League, and on behalf of its 90 affiliates in 36 states and the District of Columbia, I write to express my concerns about Dr. Mark Calabria’s recent statements about the affordable housing goals (the goals). Dr. Calabria believes that the goals played an outsized role in the financial crisis, and that the goals are inherently risky.1 His and other’s assertations scapegoating the goals are “weapons of mass deception”, as I described in my testimony before the Senate Banking Committee in 2008.2 Accordingly, if confirmed as the Director of the Federal Housing Finance Agency (FHFA), I fear Dr. Calabria would unnecessarily lower the benchmarks for the goals, based on unfounded assumptions.
Fannie Mae and Freddie Mac (the GSEs) were established “to provide liquidity, stability and affordability to the mortgage market” for everyday Americans.3 The goals were designed to help the GSEs satisfy this mission, by meeting the “nation’s housing needs” and “lead[ing] the market in making mortgage credit available”.4 The GSEs have an “affirmative obligation” to purchase mortgages from low- to moderate-income (LMI) borrowers and in LMI neighborhoods that are often overlooked in the marketplace.5
Contrary to popular belief, the goals did not cause the financial crisis.6The goals helped, and continue to help, responsible borrowers become responsible homeowners.7 Subprime loans and other toxic products caused the crisis.8 According to the Federal Reserve Board’s Office of Financial Stability Policy Research, “single-family mortgage purchases made by the GSEs in response to the goals were not responsible for driving the increase in the number of high-risk borrowers in the mortgage market prior to the crisis.”9 Moreover, the goals did not help borrowers buy homes they could not afford.10 The overwhelming majority of the subprime loans originated between 1998 and 2006, were refinance loans to borrowers who already owned their homes.11
While subprime loans are inherently risky, the goals are not. If the goals were risky, it would be reflected in the default rate for GSE loans. However, the current default rate for GSE loans is approximately, only, two-percent, which is similar to the default rates before the subprime boom, according to the Urban Institute.12 The default rate for subprime loans was nearly 10 times that of prime loans, in the years leading up to the crisis, according to the Chicago Federal Reserve.13
Pursuant to Dodd-Frank, the Qualified Mortgage (QM) rule requires traditional underwriting, precluding the GSEs from purchasing subprime loans.14 As a result, no matter if the loan is made to an affluent or an LMI household, all GSE loans are fundamentally safe and sound.15 The goals do not pose a threat to the system.16 The GSE’s current regulatory structure and capital buffer can sustain the loans made pursuant to the goals.17 Additional capital is not needed.18 The low default rates resulting from QM are a clear indication that the goals are sustainable, and that the goals could be increased in the future.19
19On behalf of the National Urban League, I look forward to working with you to ensure the fidelity of the GSE affordable housing goals and to discourage Dr. Calabria from instituting any efforts that would erode their benchmarks. Please contact Kyle Williams to schedule a meeting with me, or for more information at 202-629-5765 or kwilliams@nul.org.
Sincerely,
Marc H. Morial
President and CEO
National Urban League
Calabria nomination hearing, Senate Banking Committee, February 14, 2019
1https://www.banking.senate.gov/imo/media/doc/MORIALTestimony101608FINAL.pdf
5https://ncrc.org/dont-blame-affordable-housing-goals-financial-crisis/
6https://www.banking.senate.gov/imo/media/doc/Calhoun%20Testimony%206-29-17b.pdf
7https://www.banking.senate.gov/imo/media/doc/Calhoun%20Testimony%206-29-17b.pdf
8https://www.federalreserve.gov/pubs/feds/2012/201225/index.html
9http://articles.latimes.com/2008/jul/05/business/fi-refi5
10http://articles.latimes.com/2008/jul/05/business/fi-refi5
11https://www.urban.org/sites/default/files/publication/99043/september_chartbook_1.pdf
12https://www.chicagofed.org/publications/profitwise-news-and-views/2010/pnv-september2010