Committee will come to order. Let me think our witness for your patience. We are now ready to proceed under the five minute rule and i will give myself five minutes to begin the question phase of the hearing. Over the last year, has taken a number of actions to reduce the ability of fha borrowers to utilize down payment assistance programs from governments and cities. To purchase a home and has indicated that it intends to issue a proposed rule affecting down payment assistance in january. Secretary carson testified before this committee in june that he was not familiar with the hud data that identifies which Government Entity is providing down payment assistance and it appears that hud cannot determine which Government Programs are providing down payment assistance for any fha loan. Which is critical before attempting to issue new regulations of government down payment assistance programs. Will you commit to not moving forward any rulemaking or other Administrative Changes related to down payment assistance provided by governmental agencies until god is able to collect data on individual governmental entities and has analyzed a statistically significant amount of data on the performance and the pricing of fha loans with down payment assistance from each specific Government Entity . Can you expand on that mister administrator . Thank you mister chairman. As you know, down payment assistance has a long history at fha. When i was commissioner last time certain types of down payment assistance ultimately cost fha one and 16 and a half billion dollars in losses, according to our independent actuary. 16 or 60 . 16 and a half billion dollars in losses. On down paymentassistance . Tells me how that works. sassistance which is no longer permitted put the down payment on the mortgage and while it was technically called to get it was a gift they end up paying for because as you can imagine the default rate was almost 5 times. Mister administrator, down payment assistance is normally used to help firsttime homebuyers or those who qualify in that manner. To help them into a home. That is not a significant amount but it closes the gap to get cheaper loans so tell me what the problem is. I want to make sure that any down payment assistance providers doing so within what our rules permit, whether its jurisdictional or whether or not theres a financial benefit of the transaction they dont permit so i will commit that any effort to undertake rulemaking will be based on research and facts as we know it. We want to make sure that any gpa is done in the best interest of the borrower, not there to enrich people providing. And i agree totally with that perspective that the dpa should be done in the interest of the borrower and you and i know it goes to close the homeownership gap and there are other benefits to the dpa, so i would wonder if we could reach some kind of accommodation that the data would back up any decision made by the department. I mean, let me ask you one of the first actions the Trump Administration took upon being sworn into office was to suspend the planned reduction in fhas annual premiums by 25 basis points. Which would have saved the average borrower 500,000 first year alone and in response to cost from a lot of premium reduction to be of limited in light of the fhas improved financial help, secretary carson dated keep the rates as low as we can consistent with the loan since then secretary not only maintain a suspension on premium, he has proposed to arbitrarily increase the capital ratio far above what is statutorily required. Secretary carson does he still stand by his original statement that he will keep premiums as low as possible to assist with the law . Thank you mister chairman and in many ways i run a 1. 4 trillion dollar corporation. I have to carefully monitor our cash inflows and cash outlays. We consistently look at premium structure whether, its hard to say this one is too much or too little. Were looking at, we have the right structure in terms of how much is on the up front for how much is on the annual. Something we consistently look at and we will continue to do through this first term. All right, i thank you for your response and i now yield five minutes to my colleague from ohio. You mister chairman, i want to thank you for holding this hearing, its important and theres a number of issues that i want to try to eliminate and work on. Thank you for being here, i appreciate your service and three administrations. Two republicans, one democrat and the fact that youve worked to shore up the Insurance Fund to meet the two percent category capital requirements. Thats a very important, its already not a lot of money but that is the minimum required and i appreciate you getting there and keeping it there at sequoia accomplishment and ive been concerned about a long time. Id like to follow up on these, the first i talked about was whether you might be willing to work with the chairman and i and stakeholders to address the disparity in homeownership by race, is that something you might be willing to work with us on . Absolutely and we convene an internal working group on this several months ago to look at minority homeownership. Particularly your statement is now and the chairman mentioned the statistics in his Opening Statement and that disparity is too great and it leads to a disparity in wealth as well because its the biggest saving vehicle most people have so i want to thank you for your willingness to work with us. We look forward to working on that topic. Its an important topic because the American Dream needs to be accessible by every american. Its something all of us believe, we want to Work Together to find a way figure out whats driving the disparity and figure out how to address disparity i really appreciate common sense approach. We look forward to working with you on that. The second thing i mentioned was the fact that one size all premiums dont give a potential risk based discount for people of lower risk. Would you be willing to work with us and potentially stakeholders and even folks in the private sector because given governments history of mispricing risk, i think theres a lot of privatesector Mortgage Insurance Companies and others that could help in partnership with you as we fight to figure this out. Is that something youd be willing to work with us and maybe some outside private entities to figure out if we can find a way to do Something Like that to make sure people deserve a little bit of a break a little bit of a break evenif we that. Thanks for your question. We just want to make sure intruding on private capital because there are private mortgage insurers out there that work with the gsc. They can be part of the solution, they have elaborate systems and data and one of the other things i didnt mention that we talk about is i am so happy you gave you 20 million to update your it infrastructure. I understand are now using abacus 2. 0 so that they start, but idlike to make you a little more modern than that. I know we need to work to make sure we continue to give you the resources you need to upgrade the chairman and i had a side where we both acknowledged that we need to help you invest in your technology but i think i want to again acknowledge you can partner with outside industry that have the data and computingsystems to help you as you do this including our private mortgage insurers. There is no need to compete against them when you work withprivate industry to make it a winwin for everybody. Absolutely. Theres certain things are prohibited from doing. The great thing about statutes as we can change them. Are certainly open to that and were very thankful for the down payment on our Technology Upgrades. This is something i tried to get through and i was a commissioner in a Previous Administration so were happy that congress got us on a new trajectory to get us in a better place without technology. I want to mention one other program that sometimes its muchmaligned and let you talk about it a minute because what youve done to make the reverse program work and reverse mortgages are not for everybody but just because theyre not for everybody mina not for anybody and i want to give you a second to talk about what youve done to help make sure that those programs have the right guardrails around them to protect Senior Citizens but also are there for people thatmight need cash flow and have been a saving vehicle. The reverse Mortgage Program provides a great social mission, helps seniors age in place, providing stuff for every senior, depends on the situation but it is obviously like a lot of things is impacted by the housing collapse. It seems to be the very top of the apogee in terms of volume but the time when house prices came down, obviously the program was impacted by the area the Previous Administration made headway in the witness, working with congress on the mortgage stabilization and thankfully because good house price appreciation and other changes that weve made team to be heading a much better place and we were last year and thus being able to help seniors age in place. Thank you mister chairman. The gentleman from texas Esther Greene who is also the chair for the subcommittee on oversight and investigationis recognized for five minutes. Thank you mister chair and i liked about the witness, good to see you again. I am concerned about the role of expanding access to homeownership as well and its good to hear that the chairman and Ranking Member working in this area. One of the things we have been looking at is additional credit story. Im calling it alternative credit story. Have you any intelligence on this, any research has been done, anything youre doing inhouse that might be of benefit . Before that, when i was commissioner last time i may recall that we worked together with your office and from the affinity groups in the real estate but were not quite sure which way to go with alternative trade lines, alternative is for models. It struck me at the time and still today that if we were to do a Pilot Program looking at that, the fha would be the appropriate place to conduct that pilot. Technology has moved substantially since 06, 07 and there were players in the industry and if you look at the statistics, 25 to 35 million americans either have no credit score or somehow credit and i believe my heart and are, i want to back it up, i think theres a way you look responsibly and in the best interest of hours to look at nontraditional credit ways that might open the aperture somewhat. Those who may not understandthe term nontraditional credit, would you give explanation . Theres some that look at traditional credit, credit cards, auto loans. It may be stored differently than others. Theres others that look at cell phone bills, utility payments, rent payments, things of that nature and a factor your payments industry into that as well and theres some that do a little of both so i dont have all the answers today. I just think the prudent approach would be to conduct a pilot and to see where that would take us but as you know sooner wasput into in 2008. But for whatever reasons, the pilot was never limited. And the authorization ran out. I do recall that legislation that i had the good fortune to sponsor. And you did work with me. As you know, we have tried to maintain a traditional model and only add Additional Information, Additional Information about the lights, gas, water, phone, cable and i have to continually emphasize we dont decide that were going to eliminate the traditional model. All that stayed there but there are some people who benefit from having a rich payment history in these other areas that helps them. I find it interesting to note that yesterdays hearing we had representatives from five agencies here including the fed, fdic, actually was three, occ wasnt present but they had a joint communiquc where they have indicated that this is Something Worthy of consideration so it looks like were moving in that direction, its just a question of how long will it take us to have a Pilot Program that youre talking about and im working with my friends on the other side to see if we can collaborate and come to some reasonable conclusion as to how to move forward with this. Would you just respond to the notion of maintaining the traditional model and simply adding additional credit, thats why as a traditional as opposed to alternative causes people to believe that were going to forgo the additional, traditional model that is not at all what were talking about. But your comments please. I think theres a way to do it i think we would both agree should be done responsibly and in the borrowers best interest, but remember that will be a twoway street. Whereas you may have good payment is history and some of those nontraditional trade lines you also begin to pay might , youre going to feel that as well. No different than if you pay your credit card bill late or make your automobile payment late as well. So i just want to make sure the committee understands that if we were to do it we think we should look at ways that are the best for the consumer and it strikes me that fha would be the appropriate vehicle to use to do that and hud in general. Why dont we have an additional conversation but my time is up now but lets have my staff get with you so we can make anappointment and hash this out. We be happy to. Ideal back. The gentleman from missouri mister luke fryer is recognized for five minutes. Welcome commissioner montgomery. I want to start up with the question in regards to the false claims act. Memorandum of understanding, and ou was announced between the department of justice on the use of the false claims act. Im just curious and you give me details on this . What you hope to accomplish and i guess from the standpoint of how the barrier as the false claims act been and what do you hope the mo you, how will it affect the mortgage mortgages to make it more accessible . When i was commissioner last time we had a good balance between the percentage of lenders and nondepositories. We are out of balance now, 13 percent from our origination and that would come from repositories, it was about half and most of them would say they plan to move the claims act as the reason they got out of the program. Some of themgot out of the va program. Its not my intent to pick sides in that argument between independent lenders and depositories. I just think for a lot of reasons we need to find equilibrium there but i also think and allow the consumer advocate groups agree with me on this point, acs hasnt access to credit issue because a lot of families have banking relationships and a large depository for firsttime homebuyers are binding that there depository doesnt offer the fha program which is the nations flagship Homebuying Program is 1935. To me it seems a little odd. Thats not to say we look the other way when fraud or people that dont follow the rules, like the contrary area we just think somewhere between an indemnification and the equivalent of a drone strike on a lender in this case, they just got out of the program, there needs to be something in between and the Justice Departments working with our general counsel, our staff, we found a good place and i think brings a little more focused to the program, gives fha and hud a bigger voice in saying this rises to the level of false claim and therefore we would recommend or concurwith justice looking forward. The other 87 would be from independence after mark. Yes, sir. Credit unions, there depositories. They would fall under depositories. But independent would bethe quicken loans of the world . Yes, sir, lenders like quicken, some are publicly traded. Online lenders and offshore and all that kind of stuff. You have to be approved obviously. Its an amazing statistic. It took me by surprise here. Im not prepared for that. We were happy a lot of the consumer groups were responsible lending, and rc and others were on our side on this topic. I appreciate your explaining that. Also, with regards to the rest in your portfolio, obviously things are going well. Where increasing the capital account, but weve noticed the Credit Scores seem to be going backwards. Theres earlier default and debt income ratios are raising area should we be concerned about that . What are you doing to address that . Is that just the nature of the economy, whats going on . Ill try to boil down an hourlong response that we conduct daily stress tests on our portfolio and we put concern about the number of loans that come in with risk areas is accommodation of high debt income ratio, low Credit Scores and loans that came in from about august 2016 up until we made a change with the total scorecard. We are modeled at about one points per capital ratio. Thats not where we want tobe , congress requires a minimum two percent but we made changes in the total scorecard that went into effect marchof this year. They seem to be having their intended effect area and it seems like we stopped the threeyear slide in Credit Scores. They leveled off and improved one point. One quick question before my time goes away. The concern is even though youre very wellcapitalized right now you apparently have more risk in your portfolio than normal so in order to accommodate more risk are going to have more capital to be a solid entity and have enough reserves to ride this out until you get this or fully back in shape i would assume, how long do you think its going to take to do that. The house appreciations help a Strong Economy and we just want to make sure we call it turning the dial, we want to make sure we have access to credit. You want to make sure that should there be a downturn we have ample amount of reserves to whether that. Its a tricky dance but we think were managing it well. We will be watching, thank you very much. The gentleman from iowa is recognized for five minutes. Thank you chairman and thank you commissioner montgomery for being here. Weve been talking a lot today about increasing homeownership and addressing the shortage of Affordable Housing and one of the issues i want to take a look at his manufactured housing because in many cases it can cost up to 30 percent less for folks to afford that. Soif were going to talk about it though we have to make sure its a way to provide Affordable Housing and truly make sure that is. I dont know if youre aware of what you heard in iowa over the last year or so but id love to give you a brief background. Unfortunately a Company Named even capital which is a fund from utah has bought now seven manufactured Housing Communities in iowa and then they proceeded to raise their lot rents for their residents between 20 and 70 percent they came in and just raise the rates 20 to 70 percent for these families, many of whom are on fixed incomes. I visited one of those communities, midwest Country Estates and saw firsthand the terrible position defaults are being put in and just yesterday i spoke to one of those residents, matt chapman who is about to be paying 70 percent of his income or housing. We know the standard definition of a very cost burden is paying 50 percent of your income on rent and heres a constituents who owns his home outright, has no mortgage have to pay 20 percent more than the 50 percent that we is severely cost burden so he doesnt know what hesgoing to do and many of his neighbors dont know how theyre going to make this happen. Its simply unaffordable for so many residents like him and others across the country. Many of these properties were purchased with federally supported loans so we need to make sure that our constituents arent being taken advantage of because they cant relocate and these are the kinds of predatory practices that unfortunately are being allowed to continue so idlove to ask you commissioner , ive been working on trying to find solutions to prevent that from happening. I would ask you what recommendations do you have that we should be putting in place . Id be happy to follow up but we have more time to discuss manufactured housing is 22 million americans within manufactured housing, we regulate the construction of manufactured housing and throughout the country. This time the technology, construction standards and where having a hard time keeping up with it. Weve also been looking at the financing aspect relative to fha. Theres title i and the title to, not getting to in the weeds here. The title i doesnt have a lot of volume, tends to be more what i call channel loans versus the traditional title ii. Well, we think theres a way to make it more affordable. Because you heard me reference earlier in my Opening Statement the average income of a manufactured homeowner is between 30 and 50,000 a year. And again, its one of the things were looking at and sort of a proconsumer aspect. Ways that we can perhaps get some of the cost of financing down. We have less purview being honest with you on the structure of communities. We get more so the regulation of the manufacturing of it, of the structure. I appreciate that and i would love to see what information you have had at least 30 of the seven properties were blessed with fannie mae loans so its not as if the government is not involved in. We believe they actually overpaid as well for the community i was talking with you about. Im sure they did. And i think that we could have if we have people in place, those owners could have pulled together and purchased it for themselves and been able to stay in their homes and not just to afford it but when we see these kinds of predatory actions theyre asking children to literally give up their dogs because theyre too big for the homes, according to their new rules. They are forcing families to tear down swing sets they dont think are i guess goodlooking enough. But these are people who can afford those 2000, 3000 rainbow sets that some other people can go any help that you can give us, these people truly have been put in a position where they dont know what their answer will be. Many of them will not be able to afford this and will be forced out of their homes including taking their children with them and not being able tofind an affordable option. I appreciate your follow up on some of those things we talked about in any other things you think we might put in place. I look forward to following up with you andyour staff. The gentlewoman yields back and the gentleman from colorado Mister Tipton is recognized. Welcome. The fhas recent report show the fhas recent health is just about the best shape its been since the financial crisis and i appreciate your stewardship on that. People want to follow up on maybe potential areas that could impact that and i want to be able to talk about the test clean energy loan. These loans have been used to turn seniors and other vulnerable citizens into taking a high interest energy loans for green Energy Appliances in their homes as collateral and some of these cases it actually we need americans to the point of foreclosure. Do you believe that the use of these encumbrances on fha insured loans was a risk to the health of the and mif and fhas current policy on pace encumbered loans . What makes us overly concerned as we dont know how many we dont all out on new fha loans, have for several years but its unknown if youre a borrower how many tried to take up base loans. Were not, we think solar power and all that is fine. They step in front of the National Housing act which we would all agree is not a good thing again working with fha as well, we are concerned about how can we Work Together to make sure that doesnt happen. I think theres acrosstheboard agreement that as you know, to be able to have a good sensible energy use, to be able to benefit our people but with there being some benefit in having some national clarity on pace loans . Because we do have states where they have authorized programs enacted and an ability to repay laws and licensing requirements for pace letters and other states have not. With that national clarity be of use . We are concerned because of our loan, thats sacred in our world that we have to be in a first loss position so were concerned about it. Its something again we continue to work with fha but welcome the opportunity to work with you as well. I think again we all support the all of the above Energy Policy that we dont want to put people in positions where they do lose their homes. Another topic here, due to the lower fha premiums plus more expensive qualified mortgage definitions are currently in approximately 55 percent of the purchase loans exceed 43 percent that income ratio. An artificially high teeth such as llp a , charged by the gsc and other borrowers drive secure mortgage financing if for no other reason than the loan is cheaper, at least initially. The combination of these policies does create an unlevel Playing Field and advantages 100 percent back around and gives consumers ultimately fewer choices. Would you agree that the inconsistent and sometimes arbitrary differences driving borrowers into the markets . We certainly look at risk characteristics including the use of risk layering. Ddi by itself just like Credit Scores by itself, not necessarily a prime decisioning tool if you will. We look at them in the aggregate reedit as you know touching this issue is the key impasse which is slated to go away in january 2021 which would essentially push a lot more of those higherdpi loans towards us. Not going down that path on the limited time i just say bpi is something we look carefully at. Is not the endall beall in terms of credit risk but it certainly counts for something reedit whether or not we would need to put some sort of residual income testing like the Veterans Administration does are all things were looking at and a total access to credit review of the portfolio. And i guess finally what id like to be able to know is i come from a rural part of america where a lotof our focus is on urban america. On housing issues that are there. What actions has fha taken to be able to help Rural Communities across the country . In terms of low levels communities, you mentioned manufactured housing as a viable opportunity area and multi family , gsc has tended to concentrate inurban areas. The usda focuses more on Rural Communities in terms of evolving multifamily properties. Thank you and i yields back. The gentleman yields back, the gentleman fromflorida Mister Lawson is recognized for five minutes. So i can get a clearunderstanding , what is the average homeowners loan that fha ensures for a family of 2 that are applying for a loan . Looking at the data from fy 19, our average borrower made 62,000 , 183,000 home and more than likely used about 8000 or half of that, you down payment assistance and the average was 8000. Is that require that i think the down payment used to be 10 percent or less. For us its 3 and a half percent. We call it the minimum cash investment. Are those fixed loans . We do we do have an armed product. In areas where there have been a lot of disaster from working and people have an inability to recover right away, what programs have you implemented in order to help those homeowners be able to maintain their property so they can get back into on their feet . The primary thing we want to do is fha assistance comes in later after fema, after sba, after whatever insurance they have on the home and we have any number of products, as i mentioned in my Opening Statement. A product we originally used, we used in puerto rico. The standalone partial claim. Which allows us to immediately go in and assess the homebuyers situation and take any areas they happen with them as a soft second lien on the mortgage and not change the amortization, not change the term of the mortgage or anything and we had some pretty good success using that in new orleans and also in puerto rico. Weve now made that standard as of a couple months ago and forward. We also have a product that at your home is completely destroyed, theres an fha product that allows you to get 100 percent financing if youre apartment or whatever been destroyed. With two individuals, can to individuals who are not married apply for a fha loan how would you handle it if they do . They have to either be married, either commonlaw married. You couldnt ask roommates, your best friend or ever to apply and i think thats more of a bank requirements. Will be fha as in Risk Sharing Program expands jenny mays authority and involvement in Affordable Housing and creates rest to the federal government . The multi family risk care program is a perfect model of the federal government working together with developers and state fhas and the Program Still exists. There was another part of it, the federal Financing Bank if thats where you are headed but thats no longer permitted. But the ideal solution would be for jenny may to sort of to secure those loans that are done using the fha Risk Share Program which has an extremely low default rates. How do you go about calculating the debt. The saving ratio for those who apply. You have what are called frontrent and ratios and backend ratios. Looking at your bills, with or without your mortgage payments, front end is 31 backend is 43. Where compensating factors you can go as high as 57, 58 percent. With that mister chairman ideal back. Gentleman from tennessee mister rose is recognized or five minutes. And mister chairman, commissioner montgomery, for being here with us today. First id like to amend you secretary carson for your work to restore the Financial Health of the fha. I believe we should all be that the mutual mortgage Insurance Fund capital ratio increase of 4. 84 percent last year which is of course well above the statutorily required to process minimum. And the highest it has been since fiscal year 2007. Yesterday, i met with the tennessee housing government agency, the thd agent and discussed a number of housing issues facing tennessee. The hca helps ensure housing is available and affordable to people in every county including many of the rural and often others are counties in tennessee. Six. Providing down payment assistance is an important aspect of what state Housing Finance agency do. But god has legitimately raised concern about the performance of fha mortgages with down paymentassistance. But i believe down payment rams managed through state hfa do considerably better than in those managed by some others. I know in tennessee, the hca has been providing down payment assistance responsibly for over four decades. Commissioner, as contemplates new rules around down payment assistance grants, do you plan to take into consideration these kinds of distinctions rather than trying to implement more sweeping approach . Thank you congressman for that question. When george w. Bush was governor i worked with the texas Housing Finance agency and we were probably the largest at the time that ive met with nch essay, and im meeting with the ed hha on monday while theyre in town and i told them as we look the epa writlarge , the type of epa provided by the state and local fha is not my worry , not my concern. As i referenced earlier when i had a similar question i want to make sure any epa provided by other entities works within our Program Guidelines from a financial benefit perspective which is allowed and from a jurisdictional requirements. And thats what we are carefully looking at you all do this just to help ensure that son with the best interest of the borrower, not enriching someone providing down payment assistance. As ive said before in Previous Committee proceedings, manufactured housing is incredibly important to my district. Others were manufactured homes for 13. 1 percent of occupied Housing Units in my district. Compared to 7. 1 percent in the greater united states. Housing reform plan recognizes that there is a need to update fhas guidelines for its manufactured housing programs such changes have also been pending for a number of years. I want to echo missed axes concern about the changes and for you, what will you do to implement the necessary changes as soon as possible. One thing that is long overdue we need to elevate the status of that office and we like to work with you on that area to make it run by a Deputy Assistant which is not. We want to separate itout. As i mentioned before when i toured a plan when i was commissioner last time and i toured one earlier this year the Technology Upgrades are tremendous in the industry. My affection for the industry was born from my hsa days were at some point there were more new manufactured homes and there were brick homes which is hard to believe but there was a timewhen it happened. I firmly believe its a viable option. Mostly Rural Communities. One thing that continues to concern me is the volume of manufactured home loans supported by fha continues to decline. As you mentioned title i Program Loans are almost nonexistent. Although the vast majority of manufactured homes are financed as capital, fha finance only 526 cattle home loans last year. Without access to fha financing many families are unable to obtain the dream of homeownership through manufactured housing. Commissioner, where our updates to the fha financing programs for manufactured housing on others overall priority list . Part of our is the included spending more time on title i. And entitled to as it relates to manufactured housing. Regarding stairs, garages, carports, even second floors and i think were getting caught up. The committee is moving quickly. We are tied to catch up. Thank you. I yield back. Thank you. The gentleman from missouri who is also the chair for the subcommittee on National Security and the National Development is recognized for five minutes. Thank you, mr. Chairman. Commissioner, thank you for being here today. On tuesday evening congresswoman joyce beatty from this committee and congressman lacy clay from missouri who chairs this committee and i had a midwest summit and we brought people in, and in here for a dinner summit meeting from all over the midwest, the upper midwest and lower midwest. And we talked with them about a number of issues, then we listen to what they thought, and they did not surprise us in the fact they believe that Affordable Housing or the lack there of is in a crisis and doesnt need, theres much need for imagination to see that is the fact the truth. And so in terms of all of the things that we need to be doing to correct that problem, i am a little concerned about how to Reform Program, financial Reform Program, you know, even if you work with the gses unconcerned that if youre trying to reduce hud footprint that the crisis will become even more critical. My belief is that this is a time for us to be more creative. Does it need we need to be more of a thrift, an agency that is only concerned about giving everybody mining and, for them to buy homes if thats not what im saying. We dont want you to be a spendthrift agency. But but i would feel comfortabli think what im saying, millions of other people would as well, if we had programs as youre looking at reform that are trimmed but also sufficient enough to make a difference. Right now were going in the opposite direction, and its difficult to get developers to do something, even do a formal housing, you have to have some kind of subsidy. Municipal subsidy, low income tax credits, you have to have something or just wont work, the numbers dont work. Can you assure me that were not going to start eliminating programs, were not going to start you dont have control of cdbg but many communities need cdbg in order to help Developers Get started with infrastructure. Fill me in on the Reform Program and what you think ultimately will happen. Thank you, congressman. In terms of multi family housing, obviously the program which is helping renovate hundreds of thousands of units around the country, we have now launched a program for new construction for fha with tax credits. We also now are permitting the program to be used with the 202 program. These of all happened in the last year. On the singlefamily side its, theres a not a lot we can do to help build supply, although through the Council Council thd up a few months ago we want to help pull back the curtain on a lot of the local decisionmaking, whether its zoning or set aside scum is trying to get of housing in many communities to where they are building very little entrylevel housing, and the cost to manufacture a mortgage for example, is gone almost twice from what it was ten years ago. Theres a lot of factors present out there that do give us concerned, but decisions made at a state or local level that we have less control over. I agree. I have ten semi district, like he can still, like marshall, like sweet springs, where they have not had a new house built in decades for certainly over a decade. They need help. The they used to be a program cd that didnt come out of your shop but out of hud, and those programs allow for municipalities to help with a developer get started in programs. The hud idle have to become more active and maybe your request for them to become more active would result in that more Affordable Housing. I appreciate the time and wish we had more. I would just add the opportunity zones, we are now seeing them as an excellent to help expand housing and have made some adjustments since, in my Opening Statement i think will help wring more supply, more investment for those opportunity zones. Okay, thank you. The gentle from the judgment from new york is reckless. Thank you for bigger today and thank you for chairman clay and Ranking Member stivers for holding this hearing. Fha loans are a central product for long island femmes looking to purchase a new home that will help them build their own version of the American Dream. Most important way help them stay on the island. Oftentimes these loans are made to firsttime homebuyers. The constituency that often has the means to make the monthly mortgage payments but also often has the most difficult having enough capital for a large down payment. These are middleclass people with good jobs and good Credit Scores that maybe they are not liquid enough to put up a large down payment with some of the ice real estate values in the nation. Over the past several years with a traditional lenders like banks flee the fha market due to overzealous enforcement of the false claims act by the Previous Administration. This law was intended to prevent fraud against the u. S. Government, not for material mistakes like a misplaced punctuation mark on an application. I along with my friend introduce legislation to bring a fix to this frivolous liability. In may i had a great conversation with secretary carson regarding this issue. Since then hud nto jeff entered into an m. O. U. On how to evaluate false claims act cases. Commissioner montgomery, with the recent estimate regarding entering into an m. O. U. With the doj on the use of the false claims act do you expect to see an increase in the availability of formal fha loans . I would think that as more larger traditional depositories reenter the program, i would think thats good for consumers, especially those who already enjoy relationship with that depository institution. I think some of them are concerned about the durability of our m. O. U. , with the justice by the way with our certifications which updated as well. Meaning what happens with the next administration. With what weve done with the m. O. U. And our revised certifications, i think we are addressing that durability issue by giving the hud voice in this process are mortgagee review board which is been run for statute for 20, 30 years or so to help them win justice or when we believe particular circumstance rises to the level of the false claims act, that we make that determination together, not unilaterally which understand mightve been happening previsit. Speak i think you bring some interesting and important points of. Other any legislative reforms needed to complement this administrator action . Again want to make sure we are not going soft on people who violate our rules. Its the false claims act with his civil money penalty stroke some of the largest banks away from our program. Thats been around since the great depression. Just in the edges of access to credit and fairness, again not try to take sides between depositories and the independence, i think its better for consumers, better for us to have depositories back to offering our program. And to the credit, summit signaled a willingness to get back in, which others have not, which disappoints me but we are not going to give up. The important part of modern fha is the fha Information Technology fund. Can you elaborate on a vital funding the fha Information Technology fund is . This is something when i was commissioner last time tried to get funding for, the last administration did as well so we are very ecstatic that we got a down payment of 20 million and hopefully well get the remainder. We need about 80 million together. Were going to completely change the way we conduct business now, which is hardcoded mainframes, heavy reliance on paper, moving the area data centric architecture, moving away from paper, fully electronic single point of entry, and on par with hopefully with what fannie and freddie have done. In fact, the event helpful as with fha in december. We think we realize some economies of scale, not just the ease or the streamlined but to better mind the Data Analytics behind the numbers. Were ecstatic to get the fun will remain optimistic, old lick it everything we need. You have been advocating for fha Modernization Center first commissioner under president george w. Bush, and its important your continuing that effort. I thank you commission both that Housing Market and taxpayers are in good hands with somewhat of expertise and knowledge at the helm of the fha. I yield back. Thank you, sir. Thank you. The gentleman from mr. Tennessee is recognized for five minutes. Thank you, mr. Chairman. Thank you, commissioner for testifying today. We know that hud released the annual report of Financial Health of mutual mortgage Insurance Fund, and in the section detailing the emerging risk within the mmi fund, the report does note that the projected lifetime claim rate for recent origination are at the highest levels in almost ten years, going back to 2009. The report also highlights that this is due in part to early payment default rates increasing and that the average debt to income ratio increased for the sixth straight year. Commissioner, if you could what are some of the drivers that you think are behind the increase in the higher risk credit character rick sis characteristics in recent origination . The maximum dti was 43 come from recent im sure we all recall. The gses were given basically what they call the patch to go above that. I just want to make sure its clear. Dti in and of itself is not a key predictor of how a loan is going to perform. To answer your question when it is been combined other highrisk characteristics, low Credit Scores, that risk layer is what is getting as some pause, what led us to make changes to our total scorecard earlier this year, which seemed to be working. We had seen them slow down the drop in Credit Scores, and thats been going on for about three years. They went up a point for the first time in a while. You think the Credit Scores went up about one point . They were slow declines or steady for almost three years and the changes we put in place appeared to be for the last two months have stopped that. I heard what you just said about the dti ratios. That combined with early defaults, combined with where Credit Scores are now, should those three factors and others concern congress . Well, they concern us which is why we made this changes to the total scorecard in february. To manually refer those loans that have those risky characteristics, which essentially means the lender now has to lift up the hood and look much deeper into the finest before they will approve a loan. A different line. How large a role to cash out refinancings plate in fha endorsement portfolio . We are not anticash on refinance. We were just concerned we were becoming the governments atm when a lot of fannie and freddie borrowers are looking to refinance, move to refinance with fha because of the terms were better. So after again pouring over the data for several months we made the change just to accept the policies that the gses currently use, which is 80 versus 85 . Now all three of us are aligned. Very good. Can you give your opinion about fha can better, strike a better balance in doing business both with depository and nondepository lenders . I can i think getting back to the previous question and others, making sure that durability, that there some longevity to this process with the Justice Department which again use our existing mortgagee review board i think provides an elegant way to provide that durability to make sure it is there to last, and the new administration has come in, m. O. U. S, not much of a shelf life of what we have built into the certifications which i dont want to get to grandeur, we think helps quite a rigor, a more rigorous durability to what were trying to accomplish. Again not to let people walk away when the run afoul of our rules but to make sure the penalty fits the transgression, if you will. Thank you commission. We appreciate your service. I yield back the balance of my time. Thank you, sir. Iq. The gentleman from california are recognized for five minutes. Thank you. I want to focus on pace loans. These loans in every sense of the word, practically but technically they are an increase in your property tax bill. They are used in to help finance Energy Efficient upgrades, often airconditioning systems. As of january 2017 fha no longer ensures Residential Mortgages that have pace loans attached to the property in a first position. This makes sense. Youre in the business of being the first mortgage, and only with great creativity to have a system where first can mean second, because the pace is first and then the first is second. Ive got a discretion of draft im circulating to say that forr a pace loan to be adopted it needs the consent of the underlying mortgage holder. That seems only fair if you bargain or a first position that you get to keep that first position. What do you think should be done with regard to pace loans both to protect the mortgage and or to protect the homeowner . Thanks for bring up the mortgage or as will. Theres not much i can do relative to the terms of how theyre able to get say in this case solar equipment if you will. I know, the cfpb is in a process of writing a role that i think will do an awful lot. We permitted that on new fha mortgages, its the millions of existing ones that we are concerned. If you have some language on a bill or something will be happy to help you in that respect. So new fha mortgage not only cant be issued or underwritten if theres already a pace loan but you have language that permits some new pace loan from being speeded for a new fha mortgage. If someone signs up for fha mortgage today, six months from now they cannot do a pace loan without the approval of there some seizing requirement that i cant remember exactly what it is but our concern again is on existing fha loans, that take up pace loans that we are unaware of, and if something happens we find ourselves now not in a first position. You guarantee mortgages. Others in the mortgagee guaranteed business are not charging a premium when you hit that 78 level. Thats what anderson. You still charge even if the homeowner has an awful lot of equity in the house and really dont need mortgage insurance. Planning on changing that . Well, i appreciate your question but i dont know of a mortgage insurance into the around continues 100 coverage unless you quit paying your premiums. Which would be the case if that were to happen. Fha loans are also fully assumable which is a great feature a lets just say its beyond the 78 threshold, some could assume an fha mortgage, get 100 coverage yet not be paying speeded could you develop a system to reduce the amount the homeowner has to pay when the homeowner has a whole lot of equity in the property . Thats the right question, and so weve been lucky as a reference earlier, sort of, premiums writ large. These are based on however long the average fha mortgage is. Is there way to find lamour ballots . I would maintain would maintain even though the gses base for private mortgage insurance goes away, there is a gfee in place for the life of the loan. We are talking about a much lower rate when you have a lot more equity. What to move on to one other, in the aftermath of the disaster, services , services frequently place loans in forbearance providing time for the consumers to assess damages and recover. If the forbearance exceeds beyond 60 days the loan is in reported as being in default and is recorded against the originating lender on the fha neighborhood. Regardless of whether the home is in a disaster area, particularly with small lenders even handful of mortgages can lead to a Significant Impact on their default rate. How can fha insured lenders are not penalize for providing appropriate forbearance for borrowers struggling to make payments in a disaster . Thank you, sir. Weve been careful to strike that balance between what we believe was an industry Loss Mitigation Program that worked well in the housing crisis. But translate that over into disasters, its in something we are looking long and hard at, especially as a relates to disasters which is why we made a recent announcement of a standalone partial clip. Perhaps you could spend on the edge in the record. The happy to. Thank you. The gentleman from wisconsin is recognized for five minutes. Thank you, mr. Chairman. I want to start by commending you for leaving fhfas mutual mortgage Insurance Fund to its best position in recent years. Fha insures it different from private mortgage insurance that remains for the life of the loan whereas private Insurance Falls off as a borough reaches a certain amount of equity in their home. 78 . You agree the ongoing nature of the risk of default to mans life of the loan premiums for fha products . I believe so. As a reference to the previous question if we will maintain whenever coverage, then we have to keep taking premiums. So is a reduction of life of the loan covered simply the same as a premium reduction in your eyes . If i understand your question correctly, the private mortgage insurance may go away at 70 but theres a gfee included in that. Less talked about so the still comes but its something that is not what is a gfee. As understand its supposed to help people maintain mortgages, by filling a gap in the mortgage, in the market for mortgage insurance. As you know there are several private insurance competing in this market place which weve been discussing. Can you elaborate as how the fha premium pricing currently compares to private mortgage insurance and how that competition is playing out in your eyes . Thank you. Its almost two different types of coverage you reference when there is false offer ours stays in place for the life of loan providing you keep paying the primus. Theres his partial coverage versus ours is 100 . But ive caution that, when making sure we are available in good times and bad, its not our goal to supplant private capital what private mortgage injures are doing. We both perform necessary functions. Want to say dont we are not dare to compete with them, if you will. We want to make sure bars are ready to be borrowers if the circumstances that fit our profile. Achy. Im going to shift gears slyly. How to respond to calls to change policies in such a way that would increase the riskiness of fhas portfolio . We are to what a specific example or broadly speaking. Thats part of my comment earlier about we are 1. 4 trillion corporation with a social mission. Requirements set forth by us from congress. That said we want to make sure we can help borrowers that need the program. This is something look at and deal with every day. What is a delicate balance between risk, defined many different ways, between the right premium structure, between Market Dynamics where theres not a lot i can do on that respect but making sure we are there when need us. I will say this, the technology will help us get a much better place in terms of looking at that more robust and faster and we are able to do today. I appreciate you being here today and i yield the balance of my time. Thank you. The gentleman from texas is recognized for five minutes. Thank you. I yield my time to mr. Steiger. I think the gentleman for yielding and commissioner, thank you so much for being here. I dont think you got a lot of questions about Housing Finance reform, have you . Did i miss a few questions . Maybe there was one but there hasnt been done. I wanted to just tell you i was pleased that hud have some as a finance reform proposals that you issued earlier this year. They focus their attention on how fha will continue its mission, although reform mission. Mission. Did talk about fha continuing to effectively serve credit were the first time low income homebuyers, is that correct . Yes, sir. One of the recommendations listed included restructuring fha as an Autonomous Government Corporation within hud. Would you be able to expand on how this restructure would allow fha to better either address Personnel Technology or contracting issues which would allow you to continue that mission . Thank you very much for the question. To be clear, fha would still be part of the hud and to report to the hud secretary might would have more autonomy. It would be a wholly owned corporation so much what fannie mae is. We would have more speedy tell us what that would do. Help anybody understand the benefits of that. I think have a little more flexibility in terms of procurement and hiring. We are the largest mortgage insurance entity ever, and we look at critical, ability to pay some of our staff more as well. So beyond procurement, personnel we think having more flexibility would be very helpful. One area also be very helpful to make sure well find ourselves in a predicament that we had to do in terms of our technology. Obviously the receipt would still be controlled by this body but helping it sure we had some consistent level of funding for our assistant to go along with help ensure we dont have a similar problem where counter today that we are of course desperately trying to fix. I think thats thank you for that. I think that would be a helpful way to give you a little more authority and autonomy to do some things, including keeping your technology and modern which weve already talked about the 20 million down payment on 100 milliondollar problem. I want to give you a chance to expand on that a little bit. I dont know if you had a chance to review Maxine Waters principles for Housing Finance reform. Have you seen them . I think parts of them. I will like a few of them out just so we are all on the same sheet. One of her principles is maintaining the 30 year fixed income mortgage im sorry, the 30 year fixed Rate Mortgage option. Is that something you support as a principal . Maintained for 30 a fixedRate Mortgage in the market, yes, absolutely. Great. Second one is ensuring that private capital in place to protect taxpayers. Do you think thats a good idea . Yes. Another one is providing stability and liquidity so we can withstand a future financial crisis. Do you think that the greatest . Thats something we work on everyday. Great. Another one is maintaining access for all qualified borrowers so they can achieve homeownership, the dream of homeownership it is that something you agree with . Absolute. We want to make sure borrowers are ready for homeownership and get the tech mortgage that is appropriate for the circumstance. I asked you this question because i asked chairman mnuchin and the ship sorry, secretary mnuchin and secretary carson, they also agree with those principles. The point of bringing this up is even though we have not made any progress on Housing Finance reform, since the financial crisis which was now 11 years ago, there is a lot we all agree on. Chairwoman waters, you, i, the three principles i spoke about, all agree on those principles. I think its time to roll up our sleeves and pursue bipartisan Housing Finance reform and i would like to work with you on that. Thats the 30 operative did i would work with you on so i hope we can Work Together on that. Is that something you do willing to work with us on. Was absolutely and ive never admitted this public with but a sick today, thats one of the reasons i can expect great. Glad youre here. Thank you for everything youve already done. Im very much looking forward to working with you on many things, including trying to do some real Housing Finance reform. Thank you and i yield back. I think the gentleman from. I look forward to working with you and the administrator. On how we get to a place in this country where people can share in the American Dream of homeownership. At this time i recognize that gentleman from arkansas, mr. Hill, for five minutes. I think the chairman and thank the recommend for allowing an interloper on the subcommittee today. Thank you for that. Mr. Montgomery, thank you to come back to fha. Thank you, dr. Carson, for doing a terrific job representing the taxpayers at hud. Theres been talk today about amendment fi fund and its health being well amendment f i fund, now over 4 , so congratulations on that. Philosophical hope youll let that capital continue to grow. I remember vividly in the early 2000s in the Bush Administration when the fdic began to rebate and no longer take deposit Insurance Premium saying that cogs had already capped it. And we know how that ended. We were all asked to pay three years of deposit Insurance Premiums in 2008 in one quarter because of that imprudent decision alleging the statute at only required like. I like seeing a bigger number. I want to start out by asking you, how do you stress test that capital inadequacy number . Sure. We have a contractor, and actuarial contractor, actually two of them however independent actuary, who looks at their work his will. We have a risk team that works with them. We put into any number of stress tests that includes falling housing prices or no appreciation . Absolutely. Lookee at extreme economic situations. And that includes a discount rate on the net present value of counting future cash flows which normal people dont do in capital but you do. That could work both ways. Of course it does. Yes, sir. We put it through dozens of different stress tests. Good. And those are all available in our annual report. I just was interested in is that done annually by the contractor . It is and is at ongoing . It is ongoing. As we know the economy changes and we are always trying to stay ahead of that. Theres a lot of data after that helps us as well. A lot of conversation today about nonbank originators now shockingly according to chairman luetkemeyer up in over 80 of your originations now here you talked about false claims today, and he claimed that into detail. Im in your present in a different point of view which is the quality of the underwriting between a depository that initiates an fha loan versus a nondepository. Is her big, big difference in the underwriting . I i would speak for our criteria obviously. Understand. Our stays the same. I dont want to speak for depositories or none depositories as i think they strive to follow our guidelines and stay within the bounds. When you look at your underwriting which you have on the board and find you, its been talked about today but you have seen, as you said an increase in reduction of Credit Scores, and lets go to the next one. Increase in debt to income ratios, pretty substantially. I wonder, you reference it a few minutes ago but fha has looked at residual income test like the v. A. Has been is a something are actively considering . Well, it is something were looking at. I think its been very helpful for the Veterans Administration especially the fact it varies from region of country. Were looking at, get what you stress, its not the true indicator but when coupled with other factors speedy when you see them all going up it cost me some concern. I was glad to see your capital where it was. I know youve taken changes only recently in fy 19 though i understand that but when i i sw all of the major indicators of underwriting deteriorating, it certainly got my attention but if you like youve covered that today pretty well. Yes, sir and we had a fantastic risk team. We now rot a retiree over from one of the gses was chief risk officer there. Let me shift to one final point, and thats the issue of Distressed Asset Stabilization Program selling assets to boost the mnfi. It depends on where they are sold and in the process. As you know speedy if you taken a property back in your selling it, as a net conservation . Yet. If it goes reo. Those sales, yes, but those are different from reo sales. You would want anything to encumber your belly to build capital, would you . I think one thing the previous initiation did and we continue to do is to find other alternatives to reo because the carrying cost of those are borne by us. The time they will sit there is also borne by us. We are contractors we have to pay certainly it the ability of these claims, the title ill followup with you. Mr. Chairman, thank you for for indulgence. Thank you. The gentleman yield specter i i would like to thank eyewitness for his testimony today. And we appreciate you sharing with this committee your thoughts in the future when we go of housing policy of this nation. And before i i close out, and t me finish some housekeeping first. Without objection, all members will have five legislative days within which to submit additional written questions for the witnesses to the chair which will be forwarded to the witnesses for the response. I ask our witnesses please respond as probably as you are able. And without objection all members will have five legislative days in which to submit extraneous materials to the chair for inclusion in the record. And now i will take a point of personal privilege to say congratulations to mr. Goodman of texas, to you and your wife on the addition of a new family member. Your daughter, so congrats to you. [applause] ideal. Thank you, mr. Chairman. I appreciate very much and look forward to bring her here some decent to me joe. What is her name . [inaudible] thank you. Congrats again. Thank you. This hearing is adjourned. Thank you very much. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] lunch or property theft is an important issue for the Technology Industry but china has of the policies that make it in a most difficult for u. S. Companies to compete fairly and effectively in china in the weight we dont make it difficult for them difficult to compete Financial Services companies, Card Networks cannot issue cards, cannot offer service in china by Chinese Companies can do here in the u. S. Crossborder data flows are very restrictive in china and places restrictions on business without a local partner if you will in the Chinese Government maintains the ability to take information at will. All of these fundamental issues need to be addressed. Jason oxman, president and ceo of the Information Technology industry council. Tonight at eight eastern on the communicators on cspan2