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Washington, DC - Congressman Barney Frank, chairman of the House Committee on Financial Services, today wrote to Keith Hennessey, Assistant to the President for Economic Policy and the Director of the National Economic Council, and to the Assistant to the President for Domestic Policy, Karl Zinmeister, to rebut claims in their letter dated April 9, 2008, to Speaker Pelosi regarding elements of Chairman Frank’s housing rescue proposal.
The text of the letter follows:
April 10, 2008
Dear Messrs Hennessey and Zinsmeister:
First, I would like to express my agreement with the Administration’s recognition of the need to expand the reach of the FHA Secure program. I have been disappointed at the result of the program to date, but I believe that we share the goal of finding ways to avoid unnecessary foreclosures where a viable FHA loan can be made, through current holders accepting a write-down or otherwise. I believe we also agree on the need for broad FHA and GSE reforms, which I continue to seek.
I would like to address one specific point in your letter to Speaker Pelosi. You state that the Administration “opposes legislation that would allow lenders or servicers to sell bad loans to the taxpayers through an auction process, clearinghouse, or other wholesale mechanism.” I agree entirely, and for that reason the discussion draft considered by the Financial Services Committee in today’s hearing does not include such a mechanism.
There have been several proposals for outright purchase of loans by the government, some of which could give rise to the kinds of concerns you express. The authority provided in Title II of our proposal, however, would not result in government purchase of loans, but instead would provide authority to permit a streamlined “wholesale” process to produce refinancing loans that meet FHA insurance standards. Loans under this facility, as with the “retail,” loan-by-loan facility in Title I, would have to be re-underwritten fully with complete documentation of income and appraised property value.
Moreover, the Title II “wholesale” authority is intended as a backstop, and would only be deployed if the proposed Oversight Board (comprised of the Treasury, HUD, and the Federal Reserve Board) determines that such a facility is feasible and would provide an efficient and effective mechanism to reduce foreclosure by refinancing existing loans into performing FHA loans. Refinancing borrowers into loans they can’t pay would not reduce foreclosure, but only shift who is doing the foreclosing.
A bulk refinancing mechanism has the potential to facilitate delivery of larger numbers of refinanced loans, and the proposal gives the responsible agencies ample authority to ensure that such a mechanism is not used unless it can produce good loans. While I believe this should address the concerns you raise, I am willing to consider any additional safeguards you believe would be helpful.
BARNEY FRANK
Chairman
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