Related Document(s):
	Full Statement of David G. Kittle, CMB

In his testimony, Kittle told the committee that proposed legislation to reform the bankruptcy code and allow judges to “cramdown” debt on primary residential mortgages will impose significant costs on consumers by restricting the flow of capital into the mortgage market and increasing the price tag on all mortgages.

“If you chip away at the security created on home mortgages–and this bill is not a small chip, it is a sledgehammer attack—you chip away at the entire core of the mortgage finance system,” said Kittle.  “In order to account for the added risk you will add significant costs to obtaining a mortgage.    If this bill becomes law, we believe mortgage rates would jump significantly, going up 1½ to 2 points for everyone taking out a loan.”

Today’s hearing focused on H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act of 2007.  H.R. 3609 would allow judges under Chapter 13 bankruptcy proceedings to unilaterally mark down the value of a primary mortgage from its full amount down to the fair market value of the home.  The bill would also give judges free reign to change the other terms of the loan, including the interest rate or the length of the loan.

“What does that mean?” asked Kittle.  “Assume you take out a 30 year fixed rate mortgage loan for $300,000 in today’s market.  If you are a prime borrower you will receive a rate of about 6% with no points, giving you a principal and interest payment of about $1800 per month.” 

“If you pass this bill we estimate that the same loan with the same terms could cost as much as 8%,” continued Kittle.  “That increases your payment to about $2,200 per month.  This will be an increase of $400 per month, $4,800 per year, for a total of over $144,000 over the life of the loan. This is a massive back-door tax increase on homeowners.”

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The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 370,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site:  www.mortgagebankers.org.