Senator Gramm Comments On Current Housing And Community Needs In America
December 13, 2001
December 13, 2001
Senator Phil Gramm, ranking member of the Committee on Banking, Housing and Urban Affairs, made the following statement today at a hearing on housing and community development needs in America:
"Good morning Mr. Chairman. Thank you for holding this hearing, and thank you for inviting the Secretary for Housing and Urban Affairs, Mr. Mel Martinez, to testify here today.
"Next year I will enter my 18th year as a member of the Banking Committee. Although I have been very actively involved in many issues on this committee, housing is an area that I don't feel that either I or this committee has ever really gotten involved with on a truly in-depth level.
"When I first came to Congress I had an intellectual debate with myself as to whether or not it was rational that the American society had decided to provide such heavy levels of subsidy for home ownership. From an economic production point of view, from the point of view of allocating resources to maximize gross domestic product, at least in the short run, I think you can make a very strong case that we grossly over invest in home ownership. I think the problem with that however, is that home ownership has a profound impact in a democracy. It gives people a stake.
"I don't want to turn this into a partisan issue, but I think my colleagues might be interested in hearing this. In 1990, I was running for reelection with a good amount of money, and I didn't have a very well financed or strong opponent. So, I did something very few politicians do. I did a poll of 3,000 thousand samples. I didn't ask a lot of questions about what people thought, but I did ask a lot of questions about people. I think I found 258 people in the poll who said they were on welfare. I looked at a lot of factors, but the thing that struck me is that if you were going to pick one variable to determine whether someone had a favorable impression of me, home ownership was the strongest predictor. Interesting enough, the second strongest predictor was someone working in the private sector of the economy. Even with people who had the same income and same education, when it came down to whether they worked for the government or the private sector, it made a profound difference. So I have been a strong believer that home ownership is vitally important.
"I think that our achievement in the 1990s in expanding home ownership among minorities will pay big dividends in America's future. I believe it can change a family's history when they get a chance to own their own home. And so it is something that I am very much committed too.
"The points I would like to make are the following: Obviously I am interested in what the budget is going to be, but I am far more interested in your effort, Mr. Secretary, to look at all the programs that we have added to the Department of Housing and Urban Development over the years. It would be good to take a look at them and try to determine if we have a rational set of programs, and to see to what extent these programs are efficient and actually help the people we want to help. We need to see if we could consolidate some of the programs, and see to what extent public housing is a way station on the road toward home ownership, and to what extent is it a dead end. These are the things I am interested in, and I know are very difficult problems.
"I know that you are in the process of learning your new job, but one of the things I want to urge upon you is to commit the time, energy and resources to really understand all these programs. We add new programs and we never get rid of old programs. Often they overlap or are contradictory. I think this committee would be receptive to proposals where you could show that we could improve the bottom-line effectiveness in improving housing and improving home ownership. I believe this would require some substantial changes in housing programs.
"I hope as we get into Spring and you have reached the point where you have learned how to do this job and you have your staff in place, that you can make recommendations on how we could help improve the effectiveness of these housing programs. Congress is spending a lot of money, and we want to spend it wisely. Any input you would have would be appreciated, and I can at least commit that we would work to give it serious consideration.
"I know how we can cut the initial, up-front cost of buying a house by between a quarter and a third for people participating in federal programs aimed at lowering the cost of buying a house. And the way to do it is to do something about title insurance.
"Now let me make it clear that I am sure that everyone in the title insurance business is a very fine person. It is not a question of there being any abuse whatsoever. I worked very hard, against a very determined lobbying effort, to open up title insurance in our Financial Services Modernization Act, but that is not going to solve the problem. The problem with title insurance is that the entity that requires it doesn't pay for it. So basically it is costless to the lender who requires the title insurance.
"How it works is when someone buys a house, they have to buy a title policy. The title company thoroughly researches the deed, and then again when those owners sell the house to somebody else and the new owners are closing, the new owners have to buy a brand new policy on the same house that doesn't build on the policy that the previous owners had. We have had some minor reform in this area when people refinanced their note under certain circumstances, but even then, often you have to buy a completely new policy.
"Now I am not saying that title insurance doesn't add value. But I am saying that it doesn't equal the value that it costs. And what has happened is, and I don't know if it is the power of the lobby or inertia, but it seems to me that if a lot of the government programs, as well as Fannie Mae and Freddie Mac, change their policy on title insurance, that the risk involved in not having title insurance is minuscule compared to the cost. I urge you to get your staff to speak with somebody who is getting federal assistance and to look at their closing statements and see the big chunk of money they have to pay for title insurance. This cries out for something to be done about it.
"We could probably do more to promote home ownership by fixing this than by any increase in appropriations for housing that will be made in the next eight years combined. This is a big political item, and you are going to run into a great deal of political opposition in doing it, but it is the right thing to do. I urge you to look at this. It needs to be fixed. This is not a trivial issue. I want you to look at it and see what you could do about this requirement of title insurance. If people want to buy it, great, but your programs are making them buy it. My guess is the social cost of not having it wouldn't be one-tenth, maybe not one-hundredth of the cost of purchasing those policies. I plead with the Department of Housing and Urban Development to do this.
"Thank you Mr. Chairman."
Source: Office of Senator Phil Gramm
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