This hearing will come to order. Today we are joined by the leading voices within the administration on reforming and strengthening our Housing Finance system. The secretary of the treasury and the secretary of housing and urban development, both of whom have just proposed proposals to the president , as well as the director of the federal Housing Finance industry who serves as the regulator and conservator of fanny mae and freddie mac. Last friday marked 11 years since the government bailed out and put fanny mae and freddie mac into conservatorship where they remain today. Prior to 2008, they held just 0. 45 in capital for every 100 in mortgages they guaranteed. Now they hold just 0. 19. After a historic 200 billion bailout from the taxpayers. 11 years later, these Important Companies continue to be too big to fail, and are even more leveraged than they were before the financial crisis. And taxpayers remain on the hook in the event of the next market downturn. In march, President Trump signed a memorandum directing the department of treasury and housing and urban development to develop a plan for administrative and legislative reform of the federal Housing Finance system. Many of the legislative recommendations in the plans that were released on thursday are consistent with my outline to fix our Housing Finance system. Including attracting private capital back into the market, protecting taxpayers against future bailouts, and promoting competition. As well as preserving certain important incremental reforms that have already taken place during the conservatorship, including a robust transfer of credit risk. The single security and common secureatization platform and loan pricing that does not varavary. The status quo is not and has not been acceptable, and my strong preference remains to fix it through comprehensive legislation. Five years ago this committee demonstrated its possible. We came together to adhavenvanc solution on this topic. I released my outline which builds upon many principles of those efforts. It sets out a blueprint for sustainable new housing financing, a system that protects taxpayers by reducing the systemic too big to fail risk posed by the current mo mortgage guarantors. It establishes protection between risk and taxpayers. It insured a level Playing Field for originators of all sizes and types while also locking in uniform, responsible underwriting standards. And it promotes broad accessibility to mortgage credit, including in underserved markets. Ultimately only congress has the tools to necessarily provide the holistic comprehensive reform to our system that will be durable through any market cycle. However, its important for the administration to begin moving forward. With incremental steps that move the system in the right direction. After 11 years of conservatorship, its long past time to make the hard decision and address this last Unfinished Business of the last financial crisis. Senator brown. Thank you, mr. Chairman. Welcome to the witnesses, welcome back to my colleagues. Were going to hear from the Trump Administration today about the next steps on Housing Finance reform. Its clear from the plan they put out last week what President Trump thinks the steps should be. The trump plan will make mortgages more expensive. We shouldnt have to tell the president we have an Affordable Housing crisis in this country. We all know it t we all see it. I see it when i talk to residents of a manufactured Housing Community on the verge of losing their homes because they cant afford the rent increase imposed by wealthy private Equity Investors from outside their states who just bought their community. I see it when i drive past the boarded up houses that belonged to the victims of predatory lending in my home city of cleveland in my neighborhood. It happens across the country. I see it when i talk to young people in their 20s and 30s who want to buy a home, but who drown in student debt and cant save enough for a down payment or for a mortgage. These are the real crisis facing families all across ohio and our country. Theyre representers, homeowners, former homeowners, they all have one thing in common. They cant afford a place to call home. Weve had productive hearings in this committee where we talked about what it would take for the Housing Finance system to actually work for working families. In march, we held two hearings with representatives from the home builders, the realtors, the mortgage bankers, the credit unio unions, civil rights communities. We heard during those hearings that affordability and access arent just components of Housing Finance, theyre the whole reason we have a Housing Finance system. They cant be an afterthought once weve answered other questions about the structure of the Housing Finance system. They have to be built into the system. We need a housing system built on a mission to serve borrowers and renters no matter who they are, what kind of work they do, where they live. That means we need policies that focus on increasing service for underserved markets like manufactured home owners, manufactured housing homeowners and borrowers who have been locked out of the market for decades because of discrimination. We need a system that helps a wide variety of lenders and borrowers participate so they can meet all families needs, particularly those who have been left behind for generations. In our march hearings and the hearings since weve heard housing stakeholders coalescing around a few principles for reform. They have consensus, they have said reform should protect access to affordable 30 year fixed Rate Mortgages. They should provide a catastrophic government guarantee. We should structure loan guarantors. They said we should serve a Broad National market, we should serve lenders of all types and sizes equitably. They said we should maintain a duty to serve all markets and borrowers. They have said we should maintain Affordable Housing goals and metrics. They said we should expand investment in Affordable Housing. And they said we should maintain the gses successful multifamily Business Models and insure continued or better access for financing of affordable rental housing. Yet, unsurprisingly, President Trump and his administration missed the point. Rather than create a system that addresses the needs of working families, the Trump Administration has put out half baked proposals that will make mortgages more expensive and harder to get. In addition to increasing costs, the plan would make it harder for small lenders to compete and would gut the existing tools we have now to help underserved families finally find an Affordable Apartment or own their first home. The president s plans would roll back Consumer Protections and investor disclosures put in place following the crisis. As we know theres been a collective amnesia unthto preve toxic securities from building up our financial system. Lets be clear, whether youre renting or want to buy a home or own a home and want to sell it, President Trumps plan hurts you. All to funnel, no surprise here, all to funnel more money to the same wall street system that wrecked the Housing Market and wrecked families lives in 2008. I was encouraged when i saw the plan had nine separate proposals dedicated as leveling the Playing Field. I thought it might mean leveling the Playing Field, renters who cant afford to save for a down payment. I saw all nine proposals, every last one of them was about leveling the Playing Field for wall street. Which is looking to make more money off of working families mortgages really . We shouldnt be surprised the white house looks like a retreat for wall street executives. Only this plan is the same as every other plan, making it easier for wall street, the president and the president s home city making it easier for wall street to profit off hardworking families. These plans come in the midst of a flurry of other troubling Administration Proposals to weaken fair housing and lending protections, to gut a bed rock civil rights law. The president is once again decided to betray working families in youngstown, cleveland, and baltimore. Baltimore, the city that the president finds is so beloved. Once again, sides with wall street overthe dignity of work. We dont need to make it easier for wall street to get richer, we need to quote secretary carson, rich people are going to get richer anyway. We need to make it easier for every American Family to find an affordable place to call home. Housing shouldnt be optional. Its a basic need. No one should go without it in this great country. Thank you, mr. Chairman. Our Witnesses Today are the honorable steve mnuchin, secretary of the treasury. Benjamin carson, and the director of the federal Housing Finance agency. Secretary mnuchin, you may begin. Thank you. Chairman, Ranking Member brown and members of the committee, im pleased to be with you today to discuss the Treasury Departments Housing Finance reform plan that will protect taxpayers and foster competition in the market. Id like to thank the chairman and the committee for your work on this important issue. The outline you released in february was an important step. In september of 2008, the Government Sponsored Enterprises were placed into conservatorship. Treasury has provided the gses with over 190 billion in taxpayer assistance. 11 years later, the gses remain in conservatorship and continue to be supported by a treasury commitment to keep them solvent. This has perpetiauated governme influence. It has left taxpayers exposed to future bailouts. The plan includes almost 50 recommended actions. These measures would reduce the role of the federal government, enhance Taxpayer Protection against future bailouts, increase private sector competition in the housing system. As required by President Trumps directive, treasury plan shows the gses can and should be reformed today insure their safety and soundness. No law prescribes a specific end point for the conservatorship, its not meant to be permanent, and that includes the management of the gses. The plan provides a road map to release them from conservatorship. The reform plan takes great care to preserve what works in the system. Each of the treasurys recommended reforms is incremental, realistic and balanced. In particular, the treasury plan would preserve the longstanding Government Support of the 30 year fixed Rate Mortgage loan. That support should be explicitly defined, tailored and paid for. The treasury recommends that congress authorize a paid for guaranteed backed by the full faith and credit of the federal government thats limited to the timely payment of principle and interest on qualifying Mortgage Backed securities. To foster competition, this guarantee should be available to the gses and also to any other approved competitor. Moreover, the environment should be harmmonized. For example, the gses currently have an advantage over other participants over the patch to the Consumer Protection finance bureaus ability to repay rule. In july 2019 it was announced the patch would expire in january 21 or after a short extension. Treasury sports the planned expiration and it supports further revisions to the repay rule to insure that mortgage lenders have a bright line safe harbor after the patch. Finally, i must emphasize, our recommendations make it clear that the administrations preference is to work with congress to enact comprehensive housing reform legislation. Legislation could achieve long lasting structural reform that tailored explicit Government Support of the secondary market and repeals gses congressional charters and other privileges that give them competitive advantage. We believe that reform can and should proceed administratively. Pending legislation, treasury will continue to support the administrative actions to enhance regulation, promote private sector competition, and satisfy the preconditions set forth in the plan for ending the gses conservatorship. Under the leadership of the president , im proud of the work weve done to create conditions for greater economic growth, more and better opportunities for working families, and higher wages for all americans. Today, i look forward to discussing with you the Critical Issues of Housing Finance reform. I truly hope that the committee will work with us on a bipartisan basis to move forward with legislation. Thank you very much and i look forward to answering your questi questio questions. Thank you. Secretary carson. Ranking member brown, and members of the committee, thank you for this opportunity to appear before you today to discuss how the u. S. Department of housing and urban development will support these efforts. Also i want to thank the tremendous team weve assembled at hud. We have the ugleieiest buildingt the best people. In the years since the financial crisis, the government has played an outsized role in the nations Housing Finance system. Its imperative that congress and administration refocus this system that we support appropriate and responsible access to credit and insure Government Programs do not overlap with and crowd out private capital. Im pleased to present an overview of huds Housing Finance reform plan we submitted to the president last week. Hud supports millions of families with affordable Home Ownership opportunities through the federal Housing Administration and Credit Access and liquidity in the Mortgage Markets. During the financial crisis, and because of the policies of the previous administration, fhas Balance Sheet swelled to 350 and 400 between the years of 2007 and 2018. Our reform plan will reduce the federal governments outsized role in Housing Finance and protect taxpayers. To that end, i ask congress to work with the administration on four key pillars. Number one, return fha to its core mission of serving low and moderate income families, including first time home buyers who cannot be served through traditional underwriting. To protect american taxpayers number two, from the risk of bailouts. Number three, provide fha with the tools they need to mask the risk associated with oversized portfolios, and to provide liquidity to the Housing Finance system. Our reform plan continues many recommendations. But for the same of my oral testimony today, let me focus on just a few. First, return fha to its core mission. We ought to allow the private market to work. In those areas where it cant or wont work, we must make certain that we target programs to borrowers, not served by traditional underwriting. Historically, this has been fhas most important contribution to the american Housing Market. Facilitating earlier entry into home oiwnership for these families, particularly first time home buyers. Without insurance, millions of lower and middle income families would lack access to affordable mortgage credit. Refocusing on core mission will strengthen the ability for borrowers to avoid foreclosure. Credit policies should be better coordinated in order to allow qualified borrowers to access responsible and Affordable Credit options. Our plan proposed that hud and fhfa will coordinate to insure they serve defined roles within the marketplace. Hud recommends that congress establish fha, the department of Veterans Affairs and the department of agriculture as the sole source of low down payment financing for borrowers not served by the conventional Mortgage Market. Third, to better protect taxpayers, we need to strengthen fhas Risk Management systems. Fha currently insured more than 1. 4 trillion in mortgage debt. Meanwhile, jenny mae has over 2 trillion in Mortgage Backed securities. Its imperative they conduct their business in a manner that protects american taxpayers. Fha must maintain an appropriate level of capital reserves. Its unacceptable for the agency to ever again require a draw upon taxpayers funds to sustain its business as it did in the previous administration. Our plan strengthens fha governance and fills it well above the 2 minimum to sa safeguard against market decrease. To fulfill this duty to taxpayers and to insure it continues to provide Affordable Access to mortgage credit from mission focused borrowers, fha needs independence from broader hud protocols that govern staffing, procurement and technology. Therefore, our plan is recommended that Congress Enact legislation that would restructure fha as an autonomous Government Owned Corporation within hud. In conclusion, the president ial memorandum provides an opportunity for congress and administration to Work Together to insure fha and jenny mae serve their missions effectively and sustainably. I Welcome Congress participation. These agencies are better able to fulfill their responsibilities to borrowers and to the american taxpayers. Thank you and i look forward to answering your questions. Thank you, secretary carson. Director . Chairman, Ranking Member brown and distinguished members of the committee. Thank you for the invitation to appear at this mornings he hearing. Our housing system is in urgent need of reform. I want to thank secretary mnuchin and secretary carson for their efforts to develop comprehensive Housing Finance reform plans. They lay out a responsible road map to build a more resilient system that protects taxpayers and maintains access. I want to thank secretary mnuchin for the opportunity to have offer commentary on the treasury. These are consistent with my top priorities. First of all, this is a world class relulator. Second to restore fanny and freddie to safe and sound condition by building capital. Building capital would begin the process to end the conservatorships which has lasted by 11 years. The longest bank conservatorship was 18 months. A root cause of the 2008 crisis was lending backed by insufficient capital. This remains unresolved today. Average credit stores have modestly improved, the Enterprises Share of low down payment and high debt to income mortgages are back to their 2004 levels. Fuelling rapidly rising house prices with easy mortgage credit is a mistake and it will end in disaster. In the current financial condition, the enterprises are not equipped to sustain a downturn in the Housing Market. With just 6 billion in allowable capital, the enterprises approach a combined ratio of nearly 1,000 to 1. In comparison, our nations largest Financial Institutions have a leverage ratio of 10 to 1. The most recent test for the gses illustrate this example. In the last crisis, housing prices declined by 27 . The model is a 25 deadlicline. Given that the housing supply might become more inelastic since the crisis, we should expect greater price volatility. Our current Mortgage Finance system undercuts sustainable Home Ownership. They have expanded with the economy recently but maintain risk levels that insure theyll fail in a downturn. This harms low income borrowers, making it harder to keep homes when the economy is weakened. Our system is supposed to serve homeowners while protecting taxpayers. In my view it does neither. The administrations plan aims to address these problems y. Applaud them for their efforts. Congress, however, is the only body that can enact the structure reforms that are needed to fix todays broken system. Compared to the duopoly of the enterprises a fair and competitive market would better serve borrowers and promote longterm stability by insuring that no firm is too big to fail. The Ranking Member mentioned increasing service and access. A goal i share. I think we have witnessed in one industry after another that the best guarantee for increasing access and lowering prices is an open competitive market, not a monopoly, not a duopoly. Some would argue reform should wait for a crisis. This is short crisis. We found in the last crisis its difficult to do reform in a crisis. The time to repair the roof is when the sun is shining. Now is the time for needed reforms because our economy and Housing Market are strong. This will not always be the case. I do believe its my responsibility as a regulator to hope for the best but prepare for the worst. Therefore, i intend to continue with my duties to end the conservatorships. These are critical that protects taxpayers. In the interim, i believe modest reforms could help me do my job. For instance in june i asked congress for the authority to charter new enterprises. The commonsense proposals that other regulators have the powers need not wait for broader reform. In far too many areas of our nation, we face an Affordable Housing crisis. Too often its been the result of misguided local land use and building regulations. In other areas theres a lack of construction labor. For the enterprises to play an Important Role in addressing this crisis they must be fixed. Adding more weight is to invite collapse. Thank you for the opportunity to testify and i look forward to your question. Thank you, director. My first question is to all three of you. This could be a yes or no answer, but feel free to elaborate if youd like to clarify. Do you agree that fanny mae and freddie mac are Important Companies, that they continue to be too big to fail and are even more leveraged than they were before the financial crisis . Secretary mnuchin . Yes, in their current form i do. I would agree as well. Yes, in their current form. Thank you. I think i heard you each say this, but i want to ask you again. Do you agree that the ideal outcome is for congress to reach a comprehensive solution . I absolutely support that. I think that would be the best bepermanent outcome. I believe only congress can reach a comprehensive solution. By saying that, direct, that doesnt need that the administration and the appropriate regulatory agencies cant make significant steps . Absolutely correct. That leads to my next question, as we work to get a solution here in congress, do you also agree that its time for the administration to act and to Start Building the foundation in taking the necessary steps it can take in order to address this issue and actually help congress get to a comprehensive solution . We absolutely feel its our responsibility to work both tracks, but our priority is to work with congress on a bipartisan basis. Well do everything we can to achieve that. Thank you, secretary carson. Housing is obviously, very important to everybody across any political spectrum. And anything that we do is going to be questioned as bias. Yes, working with congress is going to be the best way to do it. Absolutely, mr. Chairman. The administration should move forward. I should move forward. I will tell you as a safety and soundness regulator, when i look at a 3 trillion institution thats leveraged 1,000 to 1 it keeps me up at night. My focus is fixing that. Ill answer that question back to you. I also believe that while its the proper role for congress to solve this and that only congress can give the comprehensive solution that is needed, there are significant reforms that can be accomplished and can help actually move us in the direction of the reform that ive outlined in my outline and that i believe we need to achieve here in congress. And i encourage you to act and to help us to get to that point. In that context and this question really is probably more specifically to treasury and hud id like you to talk a little bit about what the next steps that can be taken should be . In that again, in that context, it seems to me that a couple of the important ones ive identified in your reports and in the discussion are capital and amending the pspas. Whatever your answer to the question is s what do you believe we should start seeing prompt action on . So, our priority is to make sure is that gses have more capital. We are in active discussions with the director and the fhfa about renegotiating our agreements with them, which would allow for removing the significant amount of capital being accumulated. But in return for that make sure that the taxpayers are compensated for the ongoing treasury support. And thats something the director and i hope to achieve very quickly. Secretary carson . I think most important things are, obviously, refocusing jenny mae and fha on a primary mission, which is providing the opportunities for capital. Credit to be extended to nontraditional markets. Also, providing the tools to these two entities that are necessary to deal with the various risks associated with management. Providing liquidity to the Worlds Largest Financial Market and protecting the taxpayers. Thats really what a lot of this is all about. What happened the last time around should never be allowed to happen again. Thank you. In my last 30 seconds, i didnt mean to leave you out, director. Youve got a major role here. Thank you, mr. Chairman. My primary focus is going to be building capital and make sure that fhfa is ready for a post conservatorship world in terms of our separation function and the terms of powers we may need. All right, thank you. I made it with ten seconds to go. Senator brown. I probably wont. The president ial memorandum, we discussed today, the plans were to be submitted to do presideth president. Has the president approved your plan . We have briefed the president and he has accepted the plans. He has approved it . Well accepted, approved . Let me ask the question, has he approved the plan, yes or no . I dont know if he explicitly approved the plan. Well get back to you secretary carson. We briefed the president and he accepted the plans. So you handed it to him we briefed him, the secretary and i, went through an extensively briefed i get it, secretary carson . I agree. So is it possible then to prove the plan because he and his in depth knowledge of finance and all things government knows it will make mortgages more expensive and harder to get perhaps . I just you know, if the gses and fha cut out their most profitable lines of business and still have to cover their costs, theyll have to raise rates on the borrowers who are left. I mean, thats clear. It seems to me that you cant come here and say the president approved the plan, even though he wanted the process. It would be something he approved of. It comes down to trust wall street, trust wall street. It doesnt work these days. Secretary mnuchin, the majority of new households formed between now and 2030 will be headed by people of color. We already have a 30 point gap in Home Ownership between black and white households. 25 plus percent gap between h hispanic and nonhispanic while households. These are not mentioned in your plans. You said the Treasury Department met with a wide range of stokeholders, including Affordable Housing advocates. How does your plan reflect the will of civil rights organizations and the need for Affordable Housing and the Credit Access for people of color. We disagree this is going to raise mortgage rates. Of course you do. We are very careful, we support the 30 year mortgage and were not going to do anything to jeopardize that for hard working americans. Also, we very much support the duty to serve as well as Affordable Housing goals. We look forward to looking not a lot of evidence you support those. Well i believe we do. We specifically say in the report we believe in Affordable Housing, but we think they should be replaced with something that has more accountability. We want to make sure Affordable Housing goals are met and that the money is being used carefully. I look forward to working with you. If you have ideas, we look forward we do. There was an consensus in the Opening Statement and your staff certainly saw this watched or at least was informed of the hearings where there was consensus among the industry that we could do these things and you pretty much ignored that. Go back to this question. Why no mention of people of color in this gap . I think weve referenced the duty to serve, thats a very important issue that youve outlined. And this is something that we look forward to working with you on. I would say our priority is to make sure we maintain Affordable Housing and duty to serve, but also to make sure that the taxpayers are not at continued risk and we dont have another bailout of these entities. Secretary mnuchin, your plan calls for shrinking fanny and freddies role in the Housing Market. Cutting back on their activities. Opening up their underwriting systems for anyone else to use. Giving away their data, giving price advantages to the new competitors. You say the gses need more capital and suggest raising capital through an initial Public Offering or ipo. You grew up in the private investor world. In the wall street world. You were a private investor. Would you invest in gses under the Trump Administrations plan to shrink them and give away their assets . I would. You think to raise the capital you say they need, youd have to raise more money than any company in ipo history right after the Trump Administration has shrunk their businesses and given away their most valuable assets in your sort of cream skimming privatization scheme weve seen in other parts of the government. It just strikes me as highly, highly unlikely that they can raise that kind of they can have that successful ipo, that kind of money considering what youve done. Mr. Chairman, before i close, id like to put on the record a letter from 22 civil rights outlining the principles for reform. A letter from eight civil rights organizations, the urban league, naacp, center for responsible lending, National Fair housing alliance, National Community reinvestment coalition, National Capacity and the Leadership Conference on civil and human rights. These letters outlines while these civil rights leaders, what they see as the essential elements of a sustainable equitable Housing Finance system. Few of these priorities as weve seen appear in the president s housing plan. Without objection. Senator toomey. Thank you very much. Mr. Chairman, first of all, thanks for launching this conversation with your thoughts recently about how to move forward on gse reform. I think what the treasury report has laid out is a very, very constructive set of ideas. That we ought to consider very seriously, and i want to thank our witnesses for contributing to that. Let me start by saying, its clear to me its lack of Housing Stock more than a lack of subsidies thats the primary cause of an affordability problem. Its a real problem. Its a government inflicted problem. Typically its state and local, but housing is not immune to laws of physics or laws of economics. If theres not sufficient supply to meet the existing demand, then it becomes more expensive and vice versa. And i never cease to be amazed by the jurisdictions with the most severe problems and the thinks they do to increase the problems. Like San Francisco denying Housing Developments because it overshadows a park. Or california requiring that all new houses have to have solar panels installed. And rent control, which exacerbated housing shortages where its imposed. I want to thank dr. Carson for important work youve been doing in identifying impediments to the delivery of new Affordable Housing stock. I guess id like to direct to the doctor if there are things we can be doing in the reform acknowledging i think most of these obstacles occur at the state and local level, things we can do to go to the problem which is inadequate supply. Let me say i couldnt agree with you more strongly, the fundamental problem is inadequate supply, and the primary driver is state and local regulations. And it really does concern me the damage thats being done to our economy and to affordability and access from these barriers. Its causing a crisis in many parts of this country. We have to recognize that while the Mortgage Market and Mortgage Finance does play a role, it cannot fix this problem by itself. I think the extent that we can encourage and work with localities again, i would applaud secretary carsons effort to try to bring focus on trying to reform local land use and regulation. So as i understand, the treasury port acknowledges there is a statutory role to support affordability. But as i read it, the report identifies a flaw in the mechanism that is gses use. As i think about it, it seems to me that our gses use an indirect subsidy. In other words, the subsidy doesnt go directly to people who have a low income. The subsidy tends to go to high credit risk loans. You might think that high credit risk is a good proxy for low income, but its not. A wealthy person can have a high risk loan and a person with modest means could have a low risk loan. Isnt it true we could design the subsidy in a more transparent, clear and efficient fashion that if were going to provide a subsidy, its targeting low income folks rather than sort of distorting and encouraging more high risk transactions . Let me say, agree. Handful of studies have looked test question. While the correlation between income and credit is positive, its weak. Youre right, the ability of high income people who have bad credit and low income people have good credit. We can better target the resources we have in a more efficient manner to give people into sustainable Home Ownership. Secretary mnuchin, it seemed like you were alluding to this a moment ago. I agree with you completely. We absolutely support wanting to make sure there is Affordable Housing. We want to do it in the most effective way. And i think wed all agree that the previous system did not work. And thats part of the reason why the gses got into trouble. I would hope this committee will work with us on a bipartisan basis to figure out whats the best way to deliver this support in Affordable Housing. Thanks very much. I dont have enough time to get into my next line of question, so ill yield my last 13 seconds. Senator menendez . Thank you to our witnesses. Id like to start with an important issue for new jersey h represented by members on both sides of the committee. As part of your plan, treasury is recommending that fhfas solicit information on whether to tailor support for a higher principle balanced loans which any reasonable person would take it to mean its conforming loan limits. Doing so would have a seriously negative impact on the Housing Markets in states like new jersey. So secretary mnuchin, why would you recommend that the fhfa, quote, solicit information, on whether the fhfas should effectively lower conforming loan limits . If the director says that the fmfa does not have the territory to administratively change conforming loan limits . Congress has the responsibility on loan limits. Having any changes would require congress. We always think its important to solicit information on the markets and specifically in new jersey. We dont want to do anything to jeopardize the Housing Markets in new jersey. I completely understand in the tristate area the coast of living is significantly higher. Its not just the tristate area. There are many there are many, but i was referring to new jersey. For me, its not just it is an important local issue. So you do agree, then, as the director said in his testimony in his nomination hearing that he has not had the authority to administratively change those conforming loan limits . Im going to defer to him on his legal signals, but i think our legal signals analysis. Let me turn to the multifamily rental housing, which is a critical part of the Housing Market in new jersey and across the country. More than 18 million households in the United States live in multifamily rental housing. Including a million new jerseyans. The gses play a role by insuring multifamily housing is available through the economic cycle. The multifamily businesses that freddie and fanny perform quite well and remained profitable during the worst of the financial crisis. A time which we saw most private investors exit the segment of the market entirely. The treasury port recommends the treasury and fhfa should consider limiting support of the multifamily business. We heard from witnesses before this very same committee in the multifamily industry in march that private capital alone cannot fill the void that would be left without gse financing. That would mean aggravating the housing crisis that already exists in states like new jersey and across the country, leaving renta renters with fewer and more expensive housing options. Have you conducted any analysis on what the Housing Market would look like if the gses capacity to purchase multifamily loans is curtailed as described by your plan . Well, im not sure we necessarily think its curtailed. We need to look in the risk context. I know there are external people who thought the gses should get out of the multifamily business. I dont agree with that. I think the gses need to be in the multifamily business. I would say there are issues given the gses exposure. There are certain rent control rules and others that have now going to limit the Housing Stock. So we you didnt conduct an analysis here. Let me ask you this other question as a follow up. What makes you confident that the private market can fill the void, or do you not believe the private market can fill the void . Im not saying they can or cant. Were saying we want to make sure that the gses have the appropriate risk. We very much support multifamily lending with the gses. Finally, secretary carson, on a different but urgen matter. In previous cases where lead was found in Drinking Water systems, federal assistance was critical in helping communities remediate their Water Systems and reduce exposure. As im sure you know the city of newark discovered elevated lead levels from limited water samples. Ive called for the epa to provide support, but i believe headli hud needs to be part of the solution. Hud assigned a full time staff member to assist hud residents in the greater flint region and provide Technical Assistance to city and state agencies. As the city of newark and the surrounding communities continue to address this issue, would you commit that hud assists properties are affected youll assign a staff member to assist city and state agencies looking to tailor their funding to mitigate the risk of lead . Thank you, senator, for your interest in this. Thank you for the help that you gave us on the Carbon Monoxide poisoning as well. As youve noted in our budgetary requests over the last two to three years, weve placed a great deal of emphasis on lead and in communities that are affected by it. I will commit to continuing to do that and continuing to raise the profile of this issue in new jersey and elsewhere. I appreciate that. My specific question was i appreciation your indulgence. Would you commit as we did in flint to have a person thats designated for newark and the surrounding communities that are affected by this to assist them as it relates to the flexibility that has been shown in the past in funding . I will commit to doing everything we possibly can do to alleviate the problem there. If that involves a specific person or a dozen specific people well do what is necessary. Thank you. Senator cotton. Thank you, mr. Chairman, thank you gentlemen for appearing here today. Thank you secretary carson in particular for coming down to arkansas earlier this year. I want to return to an issue that senator toomey touched upon, and thats restrictions on supply in housing and especially local restrictions. It sounded like we had agreement between senator toomey, a wellknown conservative mind when it comes to it comes to housing and finance policy and our republican witnesses. I want to read from another statement about these restrictions and get your response to them, in particular secretary carson and mr. Calabria. It includes the beneficial environmental protections or well intentioned permitting processes or Historic Preservation rules but also laws plainly designed to exclude multifamily or Affordable Housing. Local policies acting as barriers to housing supply include land use restrictions that make the developable land much more costly, zoning restrictions, off Street Parking or antiquated preservation or unnecessary slow permitting processes. Secretary carson, does that sound like a pretty good catalog of local restrictions that reduce Affordable Housing supply . That sounds like a good catalog and in the areas that have the greatest Affordable Housing needs and the largest number of Homeless People we have the largest number of restrictions. You look at a place like San Francisco, the median home price in the San Francisco bay area is 1. 6 million. And you look at los angeles with the requirements for solar panelling, and a lot of this quite frankly is because of nimbyism you know, not in my backyard, but nimbyism is based on archaic thinking. They believe that the federal government still acts the way that it used to. You know, building these gigantic complexes with little forethought, after thought or an immediate thought or support thats not whats done anymore. Now we are talking about Public Private partnership and multiple incomes and conforming to the architectural issues this in the area. Were not talking about putting a multifamily house in the middle of a Single Family neighborhood. People have wrong impressions of what we are doing. We actually care about what people think, but it can be done in the right way. So that firemen and policeman and nurses can live in the same neighborhood where they work. I think that actually enhances the community. Yeah, mr. Calabria . I think i agree. People can reject a construction you need stream lining into that. Thats i think we should look to cities that have done a good job as minneapolis has up zoned and has done a smart maneuver that will help Affordable Housing in the area. I think there are good lessons to learn as well as some lessons to learn in cities that dont work. The long catalog of restrictions that retard the supply of Affordable Housing comes in none other than Barack Obamas housing plan in 2016. I hope we have agreement between barack obama, Mark Calabria and ben carson and pat toomey and we can condition the grants on the more Affordable Housing policies at the local level. Another local policy of course is education policy. Anybody who has a child thats been going to school knows the pressure of getting into a good school. I want to read about the stress on middle class families. In the overwhelming majority of cases a bureaucrat picks the childs school, not a parent. The way for parents to exercise any choice is to buy a different home. Which is exactly how the bidding wars started. The crisis in education if not is not only a crisis in reading an arithmetic, but economics. The time honored rule where you live dictates where you go to school. Any policy that loosens the ironclad relationship between location location and location would eliminate the need for parents to pay an inflated price for a home just because it happens to lie within the boundaries of a desirable school district. A well designed Voucher Program would fit the bill neatly. Fully funded vouchers would relieve parents from the terrible choice of leaving their kids in a lousy school or bankrupting themselves to escape those schools. If a meaningful Public School voucher system were instituted the u. S. Housing market would change forever. Gentlemen, those quotes are from senator warrens book from 2003 in support of a school Voucher Program. I know that you dont do education policy, but do you agree that local education rules can negatively impact Affordable Housing prices . I do and let me also say her passages in that book on housing subsidies are a delightful read that i would encourage members of the committee to take a look at. I know my time is expired but perhaps you can find an ally on the other side of the aisle along with secretary devos, both to improve the quality of education in america and Affordable Housing. Thank you. Thank you. Senator tester . Thank you, mr. Chairman. Ranking member for being here and i want to thank all the folks testifying today. I will tell you at the on set its good to have you in front of the committee. I wish we had you in front of the committee more often. It doesnt happen enough that we have folks in the administration here to visit with us. Dr. Carson, youre always welcome back in montana too. Thank you. You had a chance to see some rural housing. I want to talk about housing in San Francisco or denver or new york city or atlanta or houston. I want to talk about housing in my own city, in plentiwood and in mizzou what and rocky boy. Because quite frankly we are talking about large cities and we have got just as big of a crisis in rural america. If not worse. And nobody is paying attention to it. So i wanted to start with you, secretary mnuchin. When this plan was developed, how much effort was put into getting information from rural frontier america on Affordable Housing . Well, first let me say i enjoyed visiting many of those places during the president s campaign. So yes, you were there. Montana even during my campaign. I dont know if you were with him or not. But yeah. So i very much appreciate and support, this shouldnt be a big city housing plan. This should be a housing plan youre right. But the question is how much information did you gather when you developed this from rural frontier areas . Because rural is the area between baltimore and washington, d. C. And some people in some peoples eyes but we dont have that population in montana even the most populated areas. How much information was gathered from i think we solicited from a variety but ill get back to you on the specifics. But i assure you more importantly i would appreciate that. I understand the point youre trying to say and this should very much help the people in montana not just the people in new york and california. Its critical. I will get into that in a second. But when it comes to regulation of solar panels, rent control, those are really good issues for us to talk about here. But my own city, montana, the only regulation is you cant build in a floodplain. Okay . We still dont have housing. So thats the point. And in your plan, i just wanted to get an idea. You talked about they need to serve they need to serve a national market. But then its also suggested that congress should not require guarantors to serve a National Plan, but an individual market. Where are you on that . And i assume what youre saying is that you want to have a rule that supports National Service but congress should undermine that and make it individual markets. Al. No no. Thats not the case. Tell me what it says. We support the national concept. Okay. But were looking at that and saying it cant be a National Plan, it also has to have specific plans a you said that impact places like montana and make sure that theyre not left behind. So the intent was to promote more access for rural frontier areas. Yes. Could it be used to be the only it is though . Our priority is to work with congress so theres clarity in these issues. We want to make sure whether it thats director or a future director i want to make sure though, secretary mnuchin, that youre saying the right things right now, but the truth is if you have a National Plan and then it can be undermined to serve just individual markets, it looks to me like it would actually money would flow to the bigger areas. Thats not our intent. Again, working with congress we will define these issues. Let me talk about the 30 year fixed for a moment. In the report, it ultimately suggests maintaining the 30 year fixed Rate Mortgage but it also says its possible that the 30 year fixed Rate Mortgage loan could remain widely available and its and at similar prices under a Market Structure that does not depend on Government Support. Can you tell me why this line is in there . Oh, i think theres i think theres first of all, we support the 30 year mortgage and the 30 year mortgage might not be for everybody. There are different i got it. But what i hear when i hear that saying is that a 30 year fixed Rate Mortgage could exist without government backing do you agree with that . No, i dont. There could be parts of the 30 year mortgage ie the large jumbo market that do not need government guarantees and will have a 30 year mortgage. You would agree with that backing that it would have a negative impact on housing whether its regardless . We need an implicit or an explicit government backing. Thats why wed rather have the taxes have an explicit and be compensated. I used yours and toomeys over. I noticed. Senator . Thank you, mr. Chairman. I want to thank you and our panelists. For their hard work on these proposals. Housing finance reform is a difficult one to tackle and i appreciate you ending the decade long gse conservatorship. But there are concerns in the rural areas as my colleague on the other side of the aisle indicated. I dont know if secretary carson, we had a discussion on this the other day. Indian reservations, we have Indian Trust Lands and trying to find a way to move forward so that they can also purchase houses is something thats of real importance in south dakota. The v. A. They do v. A. Loans for native americans who are veterans who now live back on the reservation. Minneapolis office about a year ago received recognition because they had the highest number of those mortgages that had been issued in the previous year. Five in the entire region. Simply not acceptable. So as we look at this, i dont think is a republican or a democratic issue. I think this is a case where we have to find a way forward to fix the challenges. And id like to say to all of my colleagues on both sides of the aisle that i believe that the door should be open when it comes to working on a pathway forward to ending conservatorsh conservatorship. And tim johnson, who was my predecessor about how to unwind the conservatorship on a bipartisan vote. Thats no reason that we shouldnt be able to navigate the same concerns today. Todays hearing should serve as a warning as we all read the Trump Administration is determined to bring the gse conservatorship to an end and clearly defined way to do so. Although my colleagues might object to certain parts of the administrations plan, these objectives are no justification for not attempting to at least find a path forward within this committee. Theres Common Ground that could be had and its unfortunate if we are not able to hold a markup on this approach. Its been 500 days since this committee has held a markup. If your concerns are genuine on the committee, if the members are serious about doing something i think this is the time to find some Common Ground. My first question i would like to direct to secretary carson. Mr. Secretary, i note with great interest huds proposal to transform the federal Housing Administration into an independently chartered government corporation. Now, i agree with hud that this would provide fha with the autonomy it needs to better execute the mission, especially serving first time and low income home buyers while still allowing for hud to have oversight in regulatory authority. I would like to point out to my colleagues on the other side of the aisle that this is not an idea that comes from the radical right. President obamas fha commissioner has proposed the same reform. I have drafted legislation that would do as you proposed, but some of my colleagues have expressed reservations that reforming the fha into the government chartered corporation would impact huds funding for other programs. My view is that the receipts from fha mortgage insurance would still be able to off set the cost of other hud spending. I have offered to give my colleagues on the other side of the aisle an opportunity to rewrite or to have input into this section of the bill. But so far, i have not received any takers. My question is, could you briefly discuss how to achieve a more independent fha without jeopardizing huds funding . Well, thank you for that question. And i did very much enjoy our time the time i spent in your state. Interestingly enough, we have not said anything about the receipts all being swept into any particular area. So that obviously is not going to be a particular problem. The reason that we want to separate it out into the individual corporation very much like ginnie mae is so that they can have the flexibility of doing their own procurement, their open hiring, staffing, being able to respond quickly and with agility to Market Conditions that occur. They would still report to the hud secretary and wed still be able to align our missions. So consider the fact that right now the fha commissioner has to deal with a lot of Housing Assistance needs also. Those really require their own separate entity. So that we can really concentrate on public housing. You know, on multifamily and in a way that it should be concentrated on. Thank you. My time is expired. I would ask for the opportunity to ask several questions for the record that well ask you to respond to. Thank you, mr. Chairman. Senator warner . Thank you, mr. Chairman. Good to see the witnesses. I have spent a lot of time an this subject over the last many, many years and where i want to focus today, secretary mnuchin, particularly less on what you aspire for legislatively, but that potentially might happen administratively. At the outset, im a little concerned that it appears to me from your administrative proposals we can end up with a system that doesnt end too big to fail, and doesnt increase the Affordable Access to credit and that is a grave concern to me. First of all, i want to associate myself with senator menendez who rightfully pointed out in multifamily, was not a problem. Wasnt part of the crisis. But in the administrative component of your proposal youre trying to lower the gse multifamily caps. To me that means smaller support for multifamily, im concerned about that. It also in your administrative proposal, so lets not talk legislatively, we see trying to lower the gse footprint. If we have a lower gse footprint if we have higher capital requirements, just the logic of that would mean you would have a much smaller revenue base and under that assumption wouldnt that mean that the gses would deliver less cross subsidy in this system . First, i want to acknowledge though the work you have personally done on legislation and i truly hope youll work with us. I know you spent a lot of time on this and as i know more about the subject than i ever wanted. Exactly. We hope not to lose all of that knowledge. So, you know, again, i want to when we comment on multifamilies, the gses have gone from 25 to 40 of market share. Which i think is fine. Were not looking to take it back down to 25 . We dont want to see it go but administratively i thought you said you wanted to lower the gse multifamily caps. Again, we want which would lead to slowing down. Go to the other question which is if youre lowering making the footprint smaller, if youre raising capital way is appropriate, isnt that going to indicate a decrease in the cross subsidies . Not necessary. How do we do that . Again, i think cross subsidy is something that we have. As we have talked about some of it is efficient. Some of it is inefficient. I would like to see some more detail on that. I dont respectfully see how you make that happen. Dr. Calabria, if you end up on the administrative and in the net worth sweeps will you continue to fund the Housing Trust funds . As long as the conditions are required, yes. So you sweep all the profits, try to build up capital. But youre committing to fund the Housing Trust fund . As soon as its yes, absolutely. Well, theres a great deal of discussion what the statute says, agreed. Im bound by what the statute says. Now, my sense is, secretary mnuchin, i know you talk about potential for additional entrants into the market but my concern is son the administrative proposal what youre talking about on fannie and freddie is recap and release. Which will keep us with a duopoly and it will put us right back to where we were prior to 2008. I dont know how that gets rid of our too big to fail issue, so one of the things you answered you both addressed from senator crapo when he raised about as currently constituted these entities are too big to fail. If you go forward and this is both for dr. Calabria and dr. Mnuchin, if you go through on your recap and release plan, would you both recommend that the gses be designated as sifis by fsoc . Thank you, thats an important question. We do not believe in the simple recap and release. I want to make that clear. Thats not the way i read your proposal. Well, i just said i wanted to make that very clear. The second thing i would say is we absolutely would expect either in the administrative way or working with congress that we would go to fsoc and before we raised public capital, we would make sure we understood that there was enough capital so that they did not need to be designated. Dr. Calabria . I would agree there. Neither one of you think under the recap and release scheme that the gses will be sifi designated . As a member of fsoc i believe theres more than sufficient information to begin a process. I think its important as a member of fsoc to never start with the presumption that any entity is necessarily systemic until you run the process. I would point out, mr. Chairman, when you and the Ranking Member had a helpful hearing on this i believe every witness across the ideological spectrum thought the sifis should receive that fsoc edesignate nation and we end up with the duopoly. Theyre not going to get sifi designation and i believe were right back in the middle of the too big to fail. Thank you. Senator kennedy . Thank you, mr. Chairman. Mr. Director, as an american, do you believe that i have a right to own a home even if i cant afford it . I think you have a right to own property, yes. Own a home. Now whether you can afford it is opens up to whether you can actually buy that home. I mean, its the same in terms of you have the right you have the right to drive a mercedes, whether you can afford it or not is a separate question. Im not sure where youre going with your question, senator. It would be helpful for me to parse that out. I want to understand your philosophy. Do you think that as an american if i cant afford a home i have a fundamental right to have other americans subsidize me . Thank you for the clarification. The short answer would be no. Okay. I think everybody on this committee i think everybody on this panel believes we ought to do Everything Possible to make homes and mortgages affordable. Absolutely. We can agree on that, right . Absolutely. 100 . Why would a lender make a loan without verifying income . Agreed. Why would they . I think the only reason that a lender would reduce Due Diligence like verifying income is because they can pass that risk along to someone else like the taxpayer. Yes. Yeah. They can sell it to you guys. Absolutely. I mean, isnt that the fundamental problem here . How we got in trouble was underwriting standards . Absolutely. We are the ones holding the bag at the end of the day after everybody else in the process has made money. And walked away. It is the taxpayer holding the bag. Well, what have you done to fix that . Well, senator, we have begun i guess tomorrow were marking five months on the job and we have already started doing a bunch of Due Diligence to make sure that we have the regulatory that wasnt a fair question. What did your predecessor do to fix that over 11 years . I senator, i think that to me, im looking at what needs to be done Going Forward. Obviously, i would have preferred to have inherented a different situation. Excuse me for interrupting but were limited. Have underwriting standards gotten more realistic . They have gotten worse, not better. Certainly at the gses we saw massive expansion in the last two years at least where a whole lot of high dti loans were being done. So underwriters have eroded. Thats what i thought. And it concerns me greatly. Well, this is just one point of view. This whole thing is a car wreck. Its a dumpster fire. We spent 190 billion of taxpayer money and were in worse shape. Agreed. Now, heres what i think we ought to do. Im not in love with every aspect of your plan. But id encourage you to get somebody to put it in the form of a bill if you havent already, get it introduced and lets mark it up on this committee, mr. Chairman. And mr. Ranking member. Lets put it in front of the committee. And let senators be senators. And lets try to put out the dumpster fire. What do we have to lose . I mean, how long have we been talking about that . Doing nothing is hard, you know why . You never know when youre finished. Senator, i couldnt agree more. If that doesnt work, i wont mislead you, it will be like trying to slam a revolving door. Pass a bill through the senate. I would encourage you, mr. Director, to saddle up and go. Tell me what you can do with your Administrative Authority to put out this dumpster fire. Well, the first thing and by that, i mean, encouraging people to make loans to people who clearly cant afford to pay them back. Senator, we will be derisking the gses particularly what does that mean . That means that on one hand if you leverage at 1001 you cant make loans that are guaranteed to go bad so we have to improve the quality of the lending at the gses thats sustainable. If we do nothing, this is going to end very badly. Of course it is. Were going to have a recession at some point. Absolutely. What is the leverage ratio, 19 cents for every 1. Thats my understanding. I have one second left. Lets put this bill in front of this committee, mr. Chairman, and mr. Ranking member. Lets see what we can do. I listened to sharrods comments. He made some good points but i dont agree with all of them. I think we ought to flesh it out. But if if were not, lets just admit that congress will sit on the ice cold lazy butt, do nothing and you need to get started trying to fix this car wreck, mr. Director. Thank you, mr. Chairman. Senator johnson. Thank you, mr. Chairman. Thank you to the witnesses. I want to followup from my friend, senator kennedy. I completely agree. We need to get this in front of the committee and with all due respect to the senator, we need to go further than the housing issue in this committee. We need to get things to the floor of the United States senate. We need to talk about gun violence, we need to talk about health care, we need to talk about election security. Theres a lot of things that this congress of the United States and the senate of the United States need to act as the independent body that the constitution set up and not only there if the president of the United States is going to sign a bill. Thank you, senator, i apologize if i took it a little further than what you anticipated. But i completely agree with it. Second thing, a quick comment. Secreta secretary mnuchin, i believe you testified i could be wrong that the duty to serve the very low, low and moderate income families in this country was maintained in this report. I dont read this that way. I see on page 23 and 24 of the report where youre talking about reforming that and taking rid of that mandate and replacing it with something that would involve assessments and congressional appropriations which is a slippery slope to try to do. As much as i like senator leahy and senator shelbys approach to appropriations that may not always be the case and subject to the whim of the congress or the administration. So ill follow up with a question for the record. The one area i want to talk about with dr. Carson, mr. Secretary, while i appreciate the administrations efforts to move forward on housing reform, i do believe that overall these reforms are going to make make it harder for working class families to get the and put the dream of Home Ownership out of reach. My view is open to discussion on that, and while these reforms are being discussed today i think we have to talk about some other socalled reforms that the administration making to housing in america. We havent seen you here for a few months. A year and a half as a matter of fact. I dont know if were get to see you again in any time of the future. So i want to ask you about a recent hud proposal regarding rules that i believe are going to dramatically undermine the ability to enforce the Fair Housing Act. I have talked time and time again in this committee and others that housing discrimination in 2019 is persistent, but often subtle. Not always direct. And years of legal doctoring including the Supreme Court made it clear that if policies and practices of businesses unintentionally discriminate against minorities it is illegal. It is called dispirit impact and the new rules i think make it nearly impossible to bring forward a discrimination case based on dispirit impact. Fair housing is only as fair as it can be in being enforced and it aint fair. And i have concern about this. Every single major rights advocate agree this is a major blow. Across the board, this rule introduces new hurdles before for plaintiffs including a new fivepart test. Mr. Secretary, i think we can all agree that housing discrimination is still it still exists in this country. Black Home Ownership rates are down to 40 . Thats not just because of discrimination. I get that. We are still pulling out of a recession but the fact is theyre down to 40 and black Home Ownership is lower now than it was in 1968 when the Fair Housing Act was passed. I want to point out that you have the ability to bring secretary initiated complaints. President obama did it an average of ten times a year. President bush did it an average of five times a year but in the 2 1 2 years of the Trump Administration we have zero that you have initiated. So a cynic would say that this this new rule is in part to justify the inaction of hud in bringing these complaints when we know that they exist. So my question to you, sir, my question is simply explain this to me. Explain why we need this rule. Why its important . Why do we need this when we know it exists. Give me an opportunity. Give us an opportunity to explain why youre going to make it nearly impossible for people to bring dispirit impact statements. Let me just mention the fact that our record stands for itself. The fact of the matter is, you know, we have initiated the facebook complaint. We have gotten an agreement out of los angeles after almost ten years of not taking care of disabled peoples housing needs. We have launched one against San Francisco for discriminating against low income people for housing. If you look at our list of suits that have been brought, i think they would compare favorably with anyone else. As far as dispirit impact is concerned, we are trying to bring it into alignment with the Supreme Court ruling for oh, come on, mr. Secretary. Im a lawyer. That dog is not going to hunt. Its just not. This is not the Supreme Court barely rolled back this. What youre doing is making i have been practicing law for 40 years. What youre doing is making it just damn near impossible for a plaintiff to bring a dispirit impact statement. It is not in line with the Supreme Court. The Supreme Court has affirmed this time and time again. In fact, we have brought a complaint against San Francisco on dispirit go back and read it. Ill be happy to do that. But if congress were to raise the rate minimum wage rate to 15 who would be disproportionately affected . Low skilled or unskilled workers, primarily minorities in that area. That becomes a dispirit impact against congress. You begin to see that im talking about here. No. Dispirit impact in almost anything so what we want to do is clarify the way that its done. To save the taxpayers a lot of money. My time is up, sir. I may followup with the record. It has been offered out for Public Comment. I want to make sure that my Public Comment is recorded right now if i need to do it in writing with a black sharpie im happy to do that. But this is wrong. This is absolutely wrong, mr. Secretary. This discrimination still exists in this country. We need to be doing something about it and not making it more difficult. Id love to discut it with you. Both the hud and the treasury proposals suggest theres a distinct difference between those who use gse financing. How would this be achieved and how would you how would this separation help home buyers . Dr. Calabria . Thank you for that question, senator. I think the objective here which dr. Carson talks about in his testimony is to try to reduce that competition at the margin which is historically driving down credit standards. We saw before the crisis where the gses aggressively tried to grab fha market share and reduced their standards and many of the loans unfortunately turned out unsustainable and people lost their homes so trying to keep the Home Ownership viable and traditionally the fha focused on the first time home buyer, low down payment part of the market. The objective here is not to have any gaps in the market but the objective is to reduce the competition which eroded the standards in the past. So it seems to me that our goal is to have a multiple guarantor system and that is to boost the accountability to the taxpayers. I assume that you all could tell me there are things that go on at the gses that deserve our attention in regard to accountability to taxpayers. We want financial innovation. We want Greater Consumer choice through competition. When we separate the gse and the fha, does that help achieve those goals . Whos that for . Whoever has the answer that is one that i can understand. And succinct. I can speak for the fha and what our goals are and what our principal focus is in this reorganization is so that we can concentrate on those first time home buyers on minorities, on people who frequently dont have access to traditional credit markets. And this plan actually facilitates that, rather than takes away from it. One of the things that seems to me that gses have been able to accumulate in the time frame we are in is greater access to technology and information. So if we have a new system, how do we force the sharing of the benefits in data and technology that those already established in the business have . Well, i can tell you that the gses were able to significantly upgrade their i. T. Performance while they were in conservatorship thanks to the taxpayer. Therefore, what they have achieved in that area they should be willing to share and i think they recognize that and i think congress should recognize that. So you would see an increased transparency in sharing thats go that gse data and could be that be a release from the conservatorship . I think thats really the question for the fhfa. But i would agree with what youre alluding to, that these are one of the issues we should be looking at. Tell me where we are in regard to capitalization and where we need to be. What level of capitalization do you see as necessary, maybe this is for you, mr. Secretary. At the gses to operate efficiently and most importantly to withstand any future significant financial downturn . I think they need a lot of capital. Let me just say, you know, were looking at now 3 billion and each is irresponsible in terms of the amount of capital that they have and theres no way they could operate if it werent for the fact they could draw on the treasury or lines and act as a capital back stop today. So we really see two things. One, retaining earnings. Thats one way to accumulate capital and raise third party capital. If i were to give you a range of a number, its more like 100 billion than it is 6 billion. Whats the capitalization today compared to where we were before the crisis of 2007, 8 . Its minuscule today. So were in worse shape going into any kind of economic downturn than when the gses could not operate today if not for the treasury lines. Thank you. Senator smith . Thank you, mr. Chair and Ranking Member brown and thank you for being here today. You know, my office has been doing a whole series of meetings around housing all across minnesota and small towns and rural areas and big cities too. I want to just do a note to senator rounds and senator tester for bringing up this issue and how it affects rural areas and especially tribal areas. You know what i heard in the meetings is if you dont have a safe, affordable place to live, then nothing else in your life works. Your job doesnt work. Your schooling doesnt work. Your health doesnt work. Your companies dont work because your employees dont have a place to live. So thats the way that i am looking at these really complex questions about what we do about the gse. So i want to start with this. Dr. Calabria, you and i had a chance to talk about this in july when you came to visit my office. In july you indicated that you thought that the treasury report might be flexible enough to accommodate the gses operating like a utility with a regulated rate of return. You thought youd be open to considering that utility model rather than a multiguarantor model to make sure we have the equity in all the places, for all the families that we need equity for. So my question is after reviewing the treasury plan, do you think that a utility model would work . Senator, let me first say i think under circumstances it can work. I think it would be helpful for members who want to see the model to start fleshing that out. What i take away when people suggest utility they mean a regulated rate of return and then regulated rate of pricing. In conservatorship we regulate the pricing of the gses and i would welcome having such flexibility outside of conservatorship. As senator brown said as we have been looking at this idea of a utility type model there seems to be a lot of consensus around. Like i think its important that we continue that conversation because what were seeking here is a way of making sure that we get at the equity that we need in order to fulfill that dream that people in this country can own a house. Absolutely. Yeah. I want to comment on that as well. We actually had very specific conversations with the chairman about this and with the director and myself. We support working with this committee on what you may consider to be a utility model. And again, i would just say there are plenty of utilities where the pricing of the utility is regulated. And we do think that fhfa should maintain regulation and oversight of the pricing of the guarantee. So we look forward to working with this committee on meeting objectives that go down that. Well, id be interested in continuing that conversation and i think thats good. Secretary mnuchin, i have to take this opportunity since i have a chance to see you, i dont think we have had a chance to meet before. You know, i just got back from minnesota, i spent the spent august in minnesota. As you probably know, in minnesota agriculture is really the bedrock of our economy. And as agriculture goes, so goes small towns and rural areas and i talked to a lot of farm families at the state fair and in halak and in east grand forks, all over the place. And, you know, minnesotans we dont like conflict. Were not like my colleague from louisiana. We are pretty low key, but minnesota farmers are telling me that they are devastated that is their word. They are devastated by the president s tariffs, his tariffs on china. The head of the Minnesota Farm Bureau said it has already driven some farmers off the farm. Which not only hurts the farming community, but it hurts rural, small town communities. It has been devastating to rural america. So mr. Secretary, yesterday on fox news you talked about the chinese tariff war and you said, quote, we have not yet seen any impact on the u. S. Economy. And i just dont see how you can say that. You know, in 2017, china imported a little over 19 billion in usag products. In 19, 9. 2 billion a 50 drop and minnesota farm families are like they dont want to be told to be patient. Theyre afraid theyre going to lose their farms so my question is do you believe this tariff war, the president s tariff war hasnt had an effect on our economy . First, let me say i look forward to coming and spending time with you, so ill have my office reach out. Thank you. My comment was on a broad impact on a 22 trillion economy. I went on to say that there clearly are specific situations, some of which where we have given waivers and i want to acknowledge on the farm area, we spent a lot of time even on trying to get an interim agreement to have china buy agriculture. So i very much appreciate whats going on. I never thought id become an expert on soybeans and other agricultural products. I have been accused at times of wanting to sell soybeans thats not what were trying to do, but we want to make sure that china treats our farmers fairly and doesnt retaliate against the farmers in an unfair way and the way we have been doing it i can tell you thats top of the agenda for the conversations were having this month. Well, i think minnesota farmers, soybean farmers in northwestern minnesota have seen their sales drop by 75 . They feel like theyre Collateral Damage in this trade war. And i think its urgent that we i understand that. And i can also tell you there were specific commitments made in the oval office from the chinese that they did not follow through on and that has been of grave concern on us for u. S. Farmers. Thank you. Senator mcsally . Thank you, mr. Chairman. Thank you gentlemen for your testimony. Im from arizona and in the last housing crisis i was serving in the military. And ill share with you so many of my neighbors lost their homes. In the middle class neighborh d neighborhood, of hard working families and this crisis hit arizona really hard. The home costs, the home prices dropped about 56 and in the five years after 2006 in the five years before that, home prices had, you know, nearly doubled. What youre describing today sounds even more dangerous than the conditions that we had prior to the last crisis. I havent been here that long, thank god, sorry, i shouldnt have said, but im honored to serve arizona. But the point is im in this new role people are expecting the government to work for them. We had the last crisis, so many people lost their homes that modifications and changes would be made in order to make sure that we prevent this from happening again. But what youre describing today if we do nothing, if none of the changes youre offering are what Congress Needs to do, moves forward, it was just the status quo were at a similar or a higher risk. Were at a similar crisis. How is it that we didnt learn things from the last crisis that brought us to the better place as far as how the government is functioning to protect home buyers and hard working arizonians . How did we get here . The 1,0001 ratio is scary. It is. I very much recognize arizona was ground zero for the crisis and we certainly want to avoid that. Let me also assure you i have begun internally a review of servicing practices and to me one of the real problems in the last crisis, these things changed weekly. Very little guidance to borrowers so im committed to making sure when we have the next downturn and hope is a long ways away. When we get there, i want to make sure that borrowers, government, lenders, we know that people are going to be treated fairly. Perhaps im a Glass Half Full guy. I will say having been on the staff of this committee before the crisis if you were in 2006, 2007 to even suggest housing prices might decline and there would be problems you were kind of laughed at. So i think we have made progress. Is theres a broad recollection we dont want to repeat the crisis and we can repeat the crisis if we dont have make make positive changes. Trying to get through the crisis the point is preventing the crisis in the first place. It seems like were in similar conditions. How is it that reforms havent been made in order to prevent us being in similar conditions . I mean, thats what you know, my constituents would be hope hoping the government would be doing. I share that frustration. Its noted tomorrow it will mark five months for me. Im frustrated that we are 11 years later still have Fannie Freddie conservatorship, this is not a safe situation to be in. I commit to you we will be working as fast as we can to turn this ship around. Any other yeah, i would just say, you know, at fha the early defaults are at the lowest rate that they have been. So changes have been made. We have recognized what happened before with the manipulation of debt to income ratios and credit scoring possibilities. And heres the key factor. You know, putting people in a home that they cant afford doesnt do them any favors. They lose their home and they lose their future possibilities. Thats playing into whats going on today. For instance in the Africanamerican Community we have fewer homeowners today because their credit is ruined. They were people who had good credit before. Were looking at that to see how we can help with that situation but we want to make sure that we do learn from those things and we have made substantial progress. Great. Thanks. I want to share that in my i took a tour of all 15 counties of arizona in my first 90 days and Affordable Housing i want to associate myself with my colleagues, Affordable Housing whether thats rental or buying, is something thats a real challenge for many communities in arizona. To include rural communities. I know this is not all just a federal issue but this is something thats really impacting the people i represent. I think putting down as many barriers as we can to provide better access is really critical for arizonians so thank you. Senator reed . Thank you, director, thank you for being here today along with your colleagues. We have all talked about Affordable Housing. In fact, this is the most i think unanimous sort of sense of the criticality of Affordable Housing i have heard in this committee. There are two programs that directly aid Affordable Housing and thats the Capital Magnet Fund and theyre funded through assessments on the agencies, not through the appropriation process. Will you commit to ensuring these are fully funded and will continue to support Affordable Housing . Within the constraints of the statute, absolutely, yes. Id like to direct the question to all of the panelists. Three questions. Ill start first with the secretary of the treasury, you have done analysis of the impact of the program i presume. Can i ask you and can you give a categorical or a general sense who will not be able to get a mortgage under your proposal . I dont think thats anybody who wont get a mortgage other than there there may be certain people today who shouldnt get mortgages because they really cant afford them. But affordable mortgages are what we want. So you have not identified any group or group of individuals that would be disadvantaged by the proposal . The only thing is as the director has said, hes looking at the gses which is his responsibility of there may be certain high risk loans the gses that are making they shouldnt, but thats his responsibility. Ill ask him, thank you, mr. Secretary. Secretary carson, from your analysis, do you see any groups that would be left out . Certainly there are some people who probably should not be mortgage holders, and in many cases very disabled people, elderly people, people who are drug addicted. Who are not going to be able to make the payments. We have other programs for individuals like that. And dr. Calabria, your analysis . Well, senator, its the administrations plan and me being an independent regulator we havent done an analysis of the plan. Okay. Going back to the analysis, will it cost more to get mortgages under your analysis . Have you done some data runs to show that rates will remain relatively constant . We dont think it will cost more. But again on the first question what i was saying is there may be people who have giant cashout mortgages today that are creating big risks to the gses that there shouldnt be. Thats what i was implying when if there are people who wont get mortgages. But its a supposition, not an analytical analysis . We would do an analytical analysis as part of this. But we havent done that today. Any comments, dr. Carson . We dont have any analysis to dictate or that suggests that the prices would be raised. We are doing things to try to lower the prices, working with the servicers and making sure they do the appropriate things especially before foreclosures. I can offer some commentary. Its important to keep in mind that the plan i have called for will increase competition. Again, its been a few years since i was in grad school but the economics i learned is that that competitive markets provide lower costs, more access than monopolies and duopolies and its hard to believe that bringing competition in the market will result in anything but lower prices. Again, i think its a strong amount of evidence of that. Again, we look at other sectors across the economy. Again, theres pretty good evidence for that. Well, again, conceptually, you make a point. If you get that evidence and in an analytical fashion wed love to have it. I certainly would. Thank you. And then another question. How about Community Banks and Credit Unions will they fare better or worse . We would make sure that they did not fare worse and we want them to be treated fairly. Thats an important part of making sure of any plan. Dr. Carson . Theyre absolutely key, we have been working with them and their ability particularly to provide education to people about Housing Finances is critical. It was mentioned earlier the control of the prices such as the model. One of the things we have done in conservatorship is eliminated the volume discounts that fannie and freddie did. And i think its important post conservatorship to have the authority to limit fannie and freddies ability to drive consolidati consolidation. Theres been a lot of discussion about the lack of capitalization of fannie and freddie and the fact they rely upon the treasury to survive. Its interesting though, because since i was here and senator crapo was here, since this crisis began i think we invested 191 billion in fannie and freddie and the treasury has received about 400 million i believe. Excuse me . 300 billion in terms of dividends you have taken out. Couldnt you correct the capital discrepancy by relenting on the dividends youre taking out . The taxpayers should be and have been compensated for the risk that they have had historically and the risk they have Going Forward. Have the taxpayers put the money in the stock market they would have earned multiples of this so the answer is this isnt just if we took tomorrow we got our money back, well rip up our guarantees these entities couldnt exist. So as long as taxpayers are at risk, we expect the taxpayers to be compensated. But just a final point. Isnt your model Going Forward to allow these individuals these entities to keep their capital, basically keep their dividends . Two different things. So from a cash flow and a capital standpoint, yes. Our intent is they will keep the cash and it will increase their capitalization. What were negotiating with the director right now is in return for that, we do expect that the taxpayers are compensated. One way may be to increase our liquidated preference and thats what were discussing now. Senator . First of all, let me thank chairman and Ranking Member of Affordable Housing in this discussion is key. It is something we have been talking about but it is a major issue that we need to address in this country. In nevada it is outside of the cost of health care the number one issue. So i appreciate you gentlemen being here. But let me just kind of also kind of introduce you to nevada because some of the discussion is not pertinent to what im hearing in the impact of nevada when it comes to Affordable Housing. I have had roundtable discussion for the last to years in nevada in the urban and rural areas if you dont know anything about nevada you know the 17 counties, 15 are rural. And i can tell you right now rent control is not causing the Affordable Housing crisis in nevada. Nevada does not have any type of laws that mandate any rent control and theres actually only five states with rent control. I would like to point out that yes streamlining state and local permitting and improving local zoning will help but it will not solve the problem and its not the main impact to the Affordable Housing issue in our state. I can promise you this. Around the roundtables that i have, local and State Government have been at the table with our private sector as well as so many of the other people and some of the folks that work for you as well. So please know that. Im looking for answers and i think we can come together can r to address this issue if we Work Together. But let me start, secretary carson, with you. Im curious, does hud support the continuation of the Housing Trust fund . The purpose of the Housing Trust fund, we certainly support that. You do support it . So you would support keeping the Housing Trust fund intact the way it is now . I dont know if i wouldnt be happy with some changes to it, but what type of changes would you make . Well, you know, we really want to take a more comprehensive look when it comes to how do we get people into Affordable Housing situations. That including everything in our society. And id like, you know, to be able to provide a little more flexibility, not only for the agency but for localities. Im not sure what that means. But let me ask you this. Right now the changes youre making, how will it affect the 3 million or more that all states use to address extremely low income families . We may have Better Solutions for extremely lou housing income people. Do you have those yet or is that something youre looking to work with congress on those solutions . Of course we want to work with congress on those solutions, but i just want to make it clear that traditionally just throwing money at the problem has not solved it. This has been going on for several decades. We want to look at some of the deeper issues that cause their problems and address those. I absolutely agree this needs to be addressed, but weve got to have substance. We have to have details. Thats what were looking for. Secretary mnuchin. What i was going to comment on, one thing thats clear today, there is bipartisan support on the issue of Affordable Housing. There may be differences in views in how we can get there. I just want to be clear in the report, maybe there should be more money put for Affordable Housing. When we talk about the Housing Trust funds, i would say if there were a more efficient and accountable mechanism and congress wanted to put more money for Affordable Housing, thats something the administration would be very much open to working with this committee on. I agree theres bipartisan support. Which does not imply more money. Whats your definition of Affordable Housing. How do you define it . It depends on the market. I think theres both Affordable Housing, both to own as well as to rent. But if you are setting parameters how the funding goes towards Affordable Housing, how do you know where to send it if you dont know how to define it . We would have to work with this committee you havent defined it yet. Theres traditional whats traditional . You should spend less than 30 on Household Income on housing and if you spend more than 50 thats distress. Thats the parameter youre looking at when you focus on the needs of those that fall within the Affordable Housing definition that you just defined, is that correct . I think so thats generally acceptable. Are there any other identifiers to for Affordable Housing. Ill open that up for all the panel. Director . You certainly have a number of different formulas. The cbdg has a different formula. I would probably allocate it across states based on poverty. Tax credit is done on per capita basis. That to me is probably not well targeted. Again, we have a number of formulas across states. This is something certainly the committee has dealt with on multiple occasions. Let me change. I just have a few minutes. Manufactured housing is very important to nevada, and particularly our rural communities. So, secretary carson, let me ask you this. Hud includes manufactured housing in your proposal without any specifics. What protections from manufactured housing home buyers would you ensure remains in any change policy . Well, thank you for bringing that up. Manufactured housing has changed dramatically. Almost 10 of single families are in manufactured housing. People think about trailers and double wides. Were talking about tremendous Technological Progress that has been made in that area. And what remains really is removal of a lot of the regulations. I know you dont think regulations are everything. But they have severely impeded the ability to utilize this very excellent solution. Regulations at the federal level . Regulations at the state and state and local levels. If the state and local levels are willing to address those issues, which theyre working on in my state, to what extent are you looking at having an impact on manufactured housing as it comes to federal role . Well, hud obviously is the regulator of the rules regarding manufactured housing. And we have now taken manufactured housing and made it a separate entity. With a designation. So, we have paid a lot of attention to this. This is an area where i think we can solve a lot of the problem. Let me ask you this. You can agree to preserve the protections for manufactured housing as we move through this process of looking at various changes . We will preserve them and expand on them as necessary. Thank you. I know my time is up. Thank you. Senator holland. Thank you, chairman. Secretary carson, i wanted to follow up on some of the questions senator jones asked with respect to the proposed rule that hud put forward in august that would gut the ability of people who are victims of housing discrimination, to prove that discrimination using a disparite impact analyses. In your response to senator jones you said the purpose of the rule was to, quote, bring the rule in alignment with the Supreme Court decision, unquote. Is that your testimony . Thats correct. So, im confused, mr. Secretary, because i have in my hand here an april 20, 2017 filing where youre the defendant in the case. Huds being sued. In the u. S. District court for the Northern District of illinois eastern division. And the plaintiff is alleging that the existing rule 213 is not in compliance with the Supreme Court decision. In this pleading you took the opposition position. I quote from your own brief here. Stating, quote, the Supreme Courts holding in Inclusive Communities is entirely consistent with the rules reaffirmation of huds longstanding interpretation that the fha authorizes disperate impact claims, unquote. Which is it, mr. Secretary, you have taken a position in court fueling that rule 2013, as is, is consistent with the Supreme Court case . And your testimony today is just the opposite. No, it is not. We uphold the principles of disparate impact. Weve used that in a recent complaint mr. Secretary, let me ask you this. Is your testimony today remain, though, that rule 213 is consistent with the Supreme Courts holding in Inclusive Communities, which is the position that you took in this filing in april 2017, is your position today on that question the same as it was in 2017 . My position yes or no. This is a Pretty Simple question. My position i dont do yes and no. My position is that we want to be consistent with the idea of the Supreme Court, which is not to have this be so overly burdened that we drag discrimination into virtually mr. Secretary, you took the position in this filing that the existing rule complied with the Supreme Court decision in Inclusive Communities. Now as i understand it youre using that decision as a pretext to rewrite the rule to make it much harder to file a discrimination case. Is that what youre saying . No. Why are you rewriting the rule that you said was consistent with the Supreme Court decision . If your purpose was, as you testified earlier today, to bring the rule in alignment with the Supreme Court decision . What id like to do is actually talk about solutions to problems. Mr. Secretary, really, you say you dont answer yes or no questions but this is a Pretty Simple question. You took a position, you as secretary took a position in this court filing in 2017 that said the existing rule, rule 213, is compliant, is consistent with the Supreme Court decision in Inclusive Communities. Yes. So i was surprised earlier today to hear you say that the reason for your new proposed rule, which you just filed in 2013, was because you wanted to bring it in compliance with the Supreme Court decision, which you earlier stated it was already the previous rule is compliant with. My question is, which is it . There are aspects of the rule that can be reinterpreted in many different ways. It depends on which circumstance youre talking about. You know that. Mr. Secretary, youre clearly in this latest proposed rule going way beyond what the Supreme Court required in terms of proving discrimination. In fact, you took the opposite position in 2017. Sew it does were not going if i can show you a proposed rule change that is consistent with the Supreme Court decision but does not make it as difficult to file a discrimination case, would you accept that change as part of your new rule . What i would say is lets talk about what makes sense and whats logical and what helps us to solve the problem. What were trying to do is allow people to prove discrimination where it exists. The Supreme Court has upheld the disparate Impact Analysis because they understand that discrimination can be subtle. People dont jump up and saying, im denying you this loan because of your race. Senator thats the whole purpose of this, mr. Secretary. You took a position in support of the earlier rule in 2017. You appear to have flipped on it today. I hope we can Work Together during this Comment Period to get to the bottom of this. I would be happy to work with you. Id ask you to look at our record in pursuing cases against people who have discriminated against protected classes. You brought some of those cases under the existing rule 213. Now youre changing that rule. Some of dispa rat impact and i dont disagree with disparate impact. Its the way you interpret it. Lets interpret it the way so people can bring discrimination cases where it exists. It still can. That concludes our questioning. Mr. We quk regulatory barriers to fair and Affordable Housing like zoning rules. I was plentily surprised because several years ago he cosponsored huds ending fair housing rule because he said it would give hud too much say in local zoning. That amendment failed. Secretary carson has recently suspended that rule on his watch. Fha would help communities and remove those barriers. Ill ask senator cotton to join me in asking you, mr. Carson, to reinstate that rule. The other comment id like to make is secretary mnuchin and director, thank you for your comments on the utility model. I look forward to working with you on this and figuring out how we can flesh out details. I will ask the staffs of both of you to provide Technical Assistance on a utility model with regulated rate of return. Thank you, mr. Chairman. Thank you. That does conclude the hearing. For senators wishing to submit questions for the record. Those questions are due in one week, on tuesday, september 17th. As for the witnesses, we ask that you respond to those questions as promptly as you can. Again, we want to thank you all for being here today and look forward to our continuing Work Together on this important topic. This hearing it adjourned. Y you. Today the House Judiciary Committee convenes to consider a number of gun violence prevention bills. Watch live at 2 00 eastern on cspan3, online at spon. Org or listen life on the free cspan radio app. President trump yesterday honored 11 Police Officers and civilians that responded to recent Mass Shootings during a ceremony at the imphous. Six Police Officers from dayton, ohio, were presented with the medal of honor and five citizens from el paso, texas, who helped save lives at a
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