This week has been a busy one in Washington and I'd like to share with you some developments concerning housing and home ownership that are worrying me. This week there was much time spent on legislation I fear will be very damaging to consumers, homeowners and potential homebuyers. That legislation is called the PATH Act.
Housing is a familiar topic for me, both in urban and rural communities. As you know, Missouri's Fifth spans the urban core of Kansas City to the farms of Marshall. It truly represents a microcosm of our country. And in the last year, getting to know my rural constituents has taught me how the needs of my constituents differ greatly from region to region. Rural communities have different needs and different concerns than urban and suburban areas. While all residents of the Fifth District need access to affordable housing options, my rural constituents have been well served by the local USDA offices in my district.
If you did not know, the USDA plays a critical role in rural housing by bringing the dream of home ownership within reach, improving the quality of life of rural citizens by helping them purchase homes. The central focus of USDA - Rural Development's work is serving the men and women who live, work, and raise their families in America's rural communities. They know how-- they have been doing it for 150 years. One woman in Missouri, the late Elvira Metz, began working for USDA-RD from the beginning in Benton, and later Sikeston, in 1935. The first office of USDA she worked in was in the basement of a courthouse, full of makeshift cardboard boxes used as furniture, an old-fashioned typewriter, and one bare light bulb hanging from the ceiling. At that time there were no rural housing loans or any of the other forty programs now delivered by the USDA. The beginning loans that were made at that time were to purchase and operate farms. All farm ownership loans included an extra $25.00 for construction of a sanitary privy for the farmhouse. One borrower, she remembered, insisted that the privy be constructed in his front yard as he had never had anything so grand and wanted to show it off to all who passed by!
Things have changed since then, and the USDA, through Rural Development, has adapted, becoming a part of a community that understands issues and complexities that occur in a rural landscape. The USDA provides housing options that do not exist outside of rural America. The guaranteed loan program which offers borrowers an opportunity for homeownership with no money down keeps rural families where they want to be--in rural America. In my own district, 346 loans were administered in FY13. Missouri ranked as 7th in the nation in administering Guaranteed Rural Housing Loans. The Direct Loan Program is the only program in the nation specifically targeted to low and very low income rural families. Given the lack of credit options, the high rates of poverty, and the limited housing choices facing many in our rural areas, we must continue to keep USDA housing programs well-funded and productive.
The PATH Act, the bill marked up in Financial Services this week, would change all this. It would move rural housing programs under a new freestanding Federal Housing Administration. That may seem like a step toward efficiency up here in Washington, but in rural communities where USDA makes a difference, it's a hundred steps back. If this bill succeeds, it will leave rural consumers behind, and rural communities stuck in the past.
Elvira Metz worked for sixty one and a half years at USDA - RD, before she retired in 1996. She passed away in 2008 at the age of ninety one. In her decades of dedicated service, USDA-RD adapted and changed to provide the best programs and best delivery to the customers they serve. This bill would change that. It would send us back, to the basement of a courthouse with a manual typewriter, a bare light bulb, and what amounts to a privy program. That would be a pity.
For all consumers, rural, suburban, and urban, the PATH Act:
* Ends the affordable 30-year fixed rate mortgage: The 30-year fixed rate mortgage is great for consumers but investors are reluctant to offer such long-term financing at an affordable price without a government guarantee. With no government role in the secondary mortgage market, mortgage investors will pick and choose the mortgages that work best for them, and not those that work best for consumers.
* Forces homeowners into risky mortgages: Without the 30-year fixed rate mortgage, America's homeowners will be forced into variable interest rate, short-term loans with massive balloon payments. Homebuyers will be once again subjected to the very same subprime mortgages and tactics that caused the financial crisis and millions of foreclosures.
* Wipes out trillions of dollars in family wealth: Mortgages will become more expensive for those lucky few Americans who will be able to qualify for one. But since these Americans will pay more (through higher fees, debt-to-income levels, and downpayments of up to 30 percent) for mortgages that will have smaller loan amounts, they are probably not so lucky after all. Housing prices could then decrease, and the result will be the loss of trillions of dollars in household wealth for all homeowners. A loss so large it could destabilize the middle class as we know it.
* Puts FHA out of reach: The bill limits FHA to first-time homebuyers and caps eligibility for the program at 115 % of area median income (AMI) and severely reduces its insurance coverage. This means that FHA, which has played a critical role in building middle class homeownership in America, especially during the current economic downturn, will no longer be available to many American families.
The bottom line is, without a government guarantee, homeownership will radically change for middle class families, becoming riskier, more expensive, and, for some families -- it could disappear altogether.