Financial Services Committee Responds to PATH Criticism

After a less-than-favorable reception at a hearing last Thursday, The House FinancialrnServices Committee (FSC) continues to campaign for the Protecting AmericanrnTaxpayers and Homeowners Act orrn”PATH.” Those giving testimony were particularly critical ofrnwhat they termed the elimination of government guarantees onrnmortgages securitized into mortgage-backed securities (MBS). Thernproposed law was authored by Committee Chairman Jeb Hensarling (R-TX)rn.</p

Ostensibly in response to the criticism,rnthe FSC blog fired back on Friday, quoting an exchange between Ed Royce (R-CA) and Federal ReservernChairman Ben Baranke at a FSC hearing on another matter. Specifically, Royce questioned whether provisions of PATH,rnauthored by FSC Chairman JebrnHensarling (R-TX), will ensure continued access to thernmortgage market for a great majority of borrowers regardless ofrnmarket conditions.  </p

Bernanke responded: “Wernneed to think about the situation where there is a lot of stress inrnthe market and we need some kind of backstop… It seems to me thatrnFHA could be structured to supply such a backstop, it would depend onrnthe details.  That would be one way to have the governmentrnsupply a backstop.”</p

Thisrnexchange, the blog says, shows how the PATH Act “preservesrnthe FHA’s counter-cyclical role by allowing it to insure loans tornany borrower during period of significant credit contraction.” This would allow FHA to “serve as a backstop to keep mortgagerncredit flowing, to promote stability in the housing market, and tornensure that middle-class families can still buy homes.”</p

The blog goes on to lay our several provisions of Title II of thernAct it said are meant to allow FHA to play that counter-cyclicalrnrole:</p<ul<li

Section 260 provides the authorityrnto suspend the mandatory capital ratio should it be determined that:rn(1) available credit throughout the country has contractedrnsignificantly, as determined by the credit availability measuresrnpublished by the OCC, (2) housing prices have declinedrnsignificantly, or (3) other negative economic conditions exist thatrnimpact the availability of capital in housing finance markets. </p</li<li

Section 232, which governs FHA borrower eligibility, allowsrnfor the income restriction to be waived during an economic downturnrndescribed above.   </p</li

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