Transcripts For CSPAN3 Treasury Secretary Mnuchin HUD Secretary Carson Testify On Affordable... 20240713

Well come to order. Without objection, the chair is authorized to declare a recess of the committee at any time. This hearing is entitled the end of Affordable Housing, question mark. A review of the Trump Administrations plans to change Housing Finance in america. Before i recognize myself, members today its mr. Mchenrys birthday. If anyone wishes to sing happy birthday, please save it until later. Thank you. We all thank you for that, madam chair. Happy birthday. And i now recognize myself for four minutes to give an Opening Statement. Good morning. Today were here to discuss the impact of the Trump Administrations Housing Finance reform plans. We are joined by treasury secretary Steve Mnuchin, h. U. D. Secretary ben carson, and federal Housing Finance agency director. Welcome. Let me say up front that the Trump Administrations Housing Finance reform plan would be a disaster for our housing systems. The Trump Administration is threatening to end the conservatorship of the enterprise that is the gses without congressional action to provide an explicit government guarantee. If implemented in this way, it is likely it would create turmoil in the Housing Market, prevent Many Americans from obtaining 30 year fixed rate mo mortages and block families from obtaining the dream of the home owners ownership. With this plan on the table, the Trump Administration also recommends that Congress Make several harmful legislative reforms. For example, the trump plan would abolish the Affordable Housing goals, which help to support affordable Home Ownership and rental housing and replace them with a mortgage feel that Trump Officials have not bothered to spell out the details for. The plan would also fundamentally undermine the federal Housing Administrations ability to create affordable Home Ownership opportunities. The Trump Administration has proven again and again that it is not to be trusted. It has consistently pushed for harmful housing policies and for slashing and eliminating key housing funding for those most in need. This is an administration that has proposed tripling rents on our lowest income house holds and slashing h. U. D. s budget by 18 . This is an administration that has eliminated protections for lgbtq individuals. Blocked dreamers from fha loans and proposed to make it nearly impossible for victims of housing discrimination to obtain justice. This is an administration that reportedly wants to raise homeless camps and round up persons experiencing homelessness and force them to live in decrepit federal buildings. By contrast, democrats on this committee have put forth measures to improve the affordability and availability of housing. For example, we have bills to end the homelessness crisis, make fha mortgages more affordable, and protect dreamers, lgbtq individuals, families and children with mixed immigration statuses and foster youth. When it comes at that time Housing Finance system, ive long maintained that any Housing Finance reform proposal should adhere to certain key principles. These principles include maintaining access to the 30 year fixed Rate Mortgage, insuring sufficient private capital is in place to protect taxpayers. Providing stu providing stability and liquidity so we withstand any financial crisis. Requiring transparency and standardization in a way that insures a level Playing Field for all Financial Institutions, especially Credit Unions and community banks. Maintaining access for all qualified borrowers that can sustain Home Ownership and serving homeowners of the future and insuring access to affordable rental housing. Its clear that the Trump Administration proposal does not live up to these principles. Today this committee will examine why the official whose are our Witnesses Today are supporting such a harmful plan. I now recognize the Ranking Member of the committee, the gentleman from North Carolina, mr. Mchenry for four minutes for an Opening Statement. Thank you, madam chair. I want to thank the distinguished panel for being here today. Let me begin by saying this. This is a powerful opportunity for bipartisan cooperation. We have a willing administration who is engaged in a productive dialogue on Housing Finance reform for the long term. Divided government is not ideal for many things. But it is an ideal moment for difficult policy that divides both parties. Housing finance reform divides both parties. There is not a partisan only coalition that can produce fundamental Housing Finance reform. Democrats have tried it and failed. Republicans likewise have tried it and failed. In order to have a lasting change for our Housing Finance system. To put it on a sustainable path for our taxpayers, for our communities. Its important that we legislate in a bipartisan way and this is an ideal moment to do it. Im encouraged that secretary mnuchin and secretary carson have proposed a longterm solution. Its a positive first step on a multiyear path toward building a Housing Finance system that makes the goal of affordable Home Ownership more achievable. Why by no means perfect, it sketches a path forward and away from the status quo that puts taxpayers at risk and prevents competition within the market. Inaction puts taxpayers at risk. Let me say that again. Inaction, legislative inaction, regulatory inaction, puts taxpayers at risk. In january, i reached out to chairwoman waters with ideas for Committee Hearings i thought could be bipartisan. This was one of them. 11 months later were here today. 11 years ago, we the federal government, placing conservatorship, after the collapse of fanny mae with freddie mac, we dont want to relive that. And this administration cannot do it alone and put us on a satisfactory path. Today, fanny mae and freddie mac remain in conservatorship without competition. Our current economy is strong. This is the time to do housing reform because of the Economic Conditions as well. With an inevitable downturn at some point in time and without action and reform of the gses, a bailout of these institutions is more likely than not. In fact, until the director took over, the gses had a capital ratio of 1,000 to one. Even a small dip in the market would guarantee failure. Housing finance is too important to be put at that type of risk. Our Housing Market has been trending upward for at least the last eight years. So we may be reaching the top of the housing cycle. We have serious Systemic Risks with the gses. Its important we legislate for the long time. We know its not easy but its necessary. We cant can tkick the can down road. A new Housing Finance system must first set clear boundaries between the respective roles of the gses and fha. Second, Congress Needs to encourage competition by leveling the Playing Field and creating an open chartering process to provide a path for other companies to attain these benefits. I think we can Work Together and achieve a bipartisan outcome that creates that competition, that certainty in the marketplace. This can make the American People proud and put us on Economic Standing for a generation to come. Thank you. I now recognize the gentleman from georgia, mr. Scott, for one minute. Thank you very much, chairlady. Welcome. You know, chairlady, this marks the tenth anniversary of the passing of dodd frank and the tremendous financial crisis we went through. But there is no more Burning Point to show the great failure at this point than as we look across the country in every state and every community and it is filled with homelessness. So weve got to take a very serious look at this. And we are hopeful in this committee we would do so. Weve got to focus on certainly protecting that 30 year mortgage. Weve got to insure the sufficient private capital is in place to protect our taxpayers. So theres so much for us to get to. The American People are depending on us and i sincerely hope that you three gentlemen will open our eyes to much of what we are now only dimly aware. Thank you. I now recognize the gentleman from ohio for one minute. Thank you, madam chair. As the members are all aware, fanny mae and freddie mac have been in conservatorship for 11 years. This is a long overdue process we need to deal with. The committees seen proposals come and go. Weve seen house and senate proposals, democratic and republican proposals. Our witnesses say they prefer comprehensive reform imposed by congress. If not, they intend to proceed with administrative reforms. Its my hope we can use this hearing as an opportunity to restart this work we should have completed long ago. Comprehensive reform that insures americans can achieve the dream of Home Ownership and provide stability to the housing system and prevents future taxpayer funded bailouts. This hearing should be the fest of many aimed at proving the skeptics wrong and achieving those goals. I yield back the balance of my time. I want to welcome todays distinguished panel. Well first hear from the honorable Steve Mnuchin, secretary u. S. Department of the treasury. Secretary mnuchin has testified previously before the committee and needs no introduction. Welcome. Well then hear from the honorable dr. Ben carson. Secretary carson has also testified previously before the committee and needs no inferoduction. Welcome. Finally, well hear from the honorable dr. Mark a. Callabria. This is his first appearance before the committee. He has served as director of the fhfa since april of this year. In recent years, hes served on the republican staff of the committee on banking, housing and urban development, worked at the Cato Institute and most recently as chief economist to Vice President mike pence. Welcome, director. For purposes of testimony, each of you will have five minutes to summarize your testimony. Secretary mnuchin, youre now recognized for five minutes to present your oral testimony. Thank you. Chairwoman waters, Ranking Member mchenry and members of the committee, im pleased to be with you today to discuss the department of treasurys housing reform plan. Last month, my colleagues and i testified before the senate banging committee mr. Secretary, will you move your microphone a little bit closer and speak directly into it, please. Last month is that better . Thank you. Last month, my colleagues and i testified before the Senate Banking committee after the release of the plan. The comments and legislative frameworks we have seen from members of both parties reflect bipartisan agreement on the need for legislative action and on the general principles of reform. Im hopeful with some good faith Discussions Congress and the administration will act in a comprehensive manner to support Affordable Housing appropriately tailor the federal governments influence over the Housing Finance sector, protect taxpayer and foster competition that will benefit consumers. Thats why i was surprised and disappointed by the title of this hearing, which asks whether the administrations plan, an end to Affordable Housing. To be clear, treasury does not propose and indeed opposes reducing or eliminating the Government Sponsored Enterprises longstanding support for Affordable Housing. Im grateful for the opportunity to clarify treasurys recommendations here today and explain how our plan will preserve support for Affordable Housing, while also improving the efficiencies, transparency, and accountability of the mechanism for delivering that support. Treasurys plan advanced for continued government backing for and widespread availability of the 30 year fixed Rate Mortgage loan. And the gses for their successors should continue helping to fund multifamily housing for low income renters. In addition to the general support for Affordable Housing, the gses have at least four key statutory mandates to promote access to affordable mortgage credit or historically underserved borrowers and renters. One, a duty to serve focused on three specific underserved markets. Manufactured housing, Affordable Housing preservation and rural markets. Two a requirement to make certain contributions to the Housing Trust fund and the capital magnet fund. Three, Charter Authority to promote access to mortgage credit throughout the United States, including central cities, rural areas and underserved areas. Four, a requirement to purchase fhfa specified amounts of certain Single Family and multifamily Mortgage Loans that support housing for specified underserved borrowers and renters. Treasurys plan does not include specific recommendations to alter the duty to serve the specified underserved markets, or the Affordable Housing contribution. Treasury seeks to preserve the national serve requirement with some added protections. With respect to the fourth mandate, the Affordable Housing goals, treasury recommends material changes that would establish a more efficient transparent and accountable mechanism for delivering support to underserved borrows. The plan recommends that fhfa continue to coordinate with those who have primary responsibility for providing support that cannot be fulfilled through traditional underwriting to insure an appropriate low for housing. Treasury is not recommending a reduction in support for underserved borrowers. On the contrary, treasury is recommending a more effective means of delivering the support. I look forward to our conversation here today. One that i hope will continue after this hearing. We welcome your thoughts and suggestions to address the challenges facing underserved borrowers and representers nationwide. Finally, i must emphasize our recommendations made clear that the administrations preference is to work with congress to enact comprehensive Housing Finance legislation. Legislation could achieve lasting structural reform, competitive advantages over private sector. At the same time, we believe that reform can and should proceed administratively pending legislation. Under the leadership of President Trump im proud of the work weve done to create conditions for greater Economic Growth, more and better opportunities for working families and higher wages. I look forward to discussing with you critical Housing Finance reform. I hope the members of the committee from both parties will work with us on passing legislations. Thank you very much, im pleased today answer any questions. Thank you, secretary carson. Chairwoman waters, Ranking Member mchenry and members of the committee thank you for the opportunity to appear before you today to discuss how the department of housing and urban develop associaing committee is supporting this administrations effort. If we really want to examine the end of Affordable Housing, this would be a field hearing in San Francisco or los angeles. Two cities at the epicenter of the nations Affordable Housing crisis. Restrictive zoning laws have made housing sprve theexpensive driving prices to some of the highest of the country and leading to california leading to nearly half of our nations homeless population. The latest data found that californias homeless problem increased 16 over the last year alone. Were it not for california, homelessness would have declined. The proposal addresses how to best serve Affordable Housing needs while keeping within the principles outlined by leaders of both parties, including chairwoman waters. We look forward to working with congress to move the legislation forward. But im very confident that we are starting from a place of significant Common Ground about what a future Housing Finance system should look like. At h. U. D. , we support millions of families with affordable Home Ownership and rental opportunities through the federal Housing Administration providing Credit Access and liquidity in the Mortgage Market. We ought to allow the private market to work, but in those areas where it cant or wont work, we must make certain that we continue to target fha programs to borrowers not served by traditional underwriting. Our plan preserves and strengthens fhas and jenny mays roles while approving delivery of that support and better protecting taxpayers. Historically, serving unmet Housing Needs has been fsas most important contribution to the american Housing Market. Facilitating entry into financially responsible Home Ownership. Without fha, mortgage insurance as an option, millions of lower and middle income families would lack access to affordable mortgage credit. Take for instance a typical fha borrower. Last year, they were 39 years old, had a credit score of 666, purchased a home for 221,000. First time home buyers represent 83 of fhas purchase volume while 57 of the mortgage endorsements were for low or moderate income individuals and 34 were minorities. In addition to helping borrowers buy their first home, we also want them to stay in their homes. Our plan calls on fha to improve its servicing by creating more flexible loss mitigation processes. Were also working to get a more diverse base of lenders back into the fha program. Depository institutions which represented nearly half of fhas lender base in 2010 today represent just 15 . To provide regulatory certainty to lenders so that theyll return to offering fha loans, we are revising fhas defect taxonomy, updating loan level and annual certification and clarifying when h. U. D. And the Justice Department will utilize false claims act to go after allegations of fraudulent lending. Another critical piece of our plan is the need to modern nize fha technology. For decades, fha has operated on antiquated technology. As part of our proposal, fha is taking party in an effort to bring them into the 21st sen century. This system will digitize the entire mortgage process and align it with industry standards. Our plan also calls on congress to eliminate the statutory cap on the rental Assistance Demonstration Program which allows Public Housing agency and owners to Leverage Private capital to preserve properties for longterm affordability. Since this launch in 2012, r. E. D. Has proven to be an extraordinary success story. A report were releasing this week confirms what weave long suspected. Red is stimulating billions of dollars in capital investments, improving Living Conditions for lower income residents and enhancing the Financial Health of these critical Affordable Housing resources for future generations. Madam chairwoman, Housing Finance reform is the final piece of Unfinished Business remaining from the financial crisis. Its one of the committees Top Priorities and you have an administration committed and prepared to work with congress to enact comprehensive legislation. Lets begin that work today and happy birthday, mr. Ranking member. Thank you, very much. I now recognize please, director, youre recognized for five minutes. Chairwoman, water, distinguished members of the committee. Thank you for the invitation to appear at todays hearing. Let me also thank you for that kind introduction, as well as taking the time to meet with me early in my tenure. I found that a productive meeting and i hope its the first of many. Let me emphasize for the committee as was mentioned in my bio having worked on the staff of the Senate Banking committee. Im proud the last piece of legislation i worked on over a decade ago was an update and modernization where we expanded homelessness protections for families. I would note for the committee having been one of the primary staffers on the housing economy recovery act, ill remind the committee we did that in a bipartisan way. We did it in a bicameral way. I believe we can do that again today. Let me emphasize its my belief that far too Many Americans lack an affordable place to call home, whether its owned or rented. Its a problem across america in many communities in our country. Its fundamentally in many ways a local problem. A fundamental cause of the housing and affordability problem are local policies that make it harder to build and own buildings. These policies disproportionately hurt low income families. Our affordability programs will not be solved until local governments remove the impediments that limit the supply of Affordable Housing in their communities. There are many communities, like minneapolis that are upzoning in a responsible manner that will bring more density. I recognize many areas in california are trying to adjust this problem. One part of our Mortgage Finance system can play a role in this, in fact, all the parts of our Mortgage Finance system can play a role. The mission is critical to supporting sustainability Home Ownership, Affordable Housing, especially when the economy is weak and mortgage credit tightens. In their current condition, fanny mae and freddie mac will fail. When they fail, Housing Affordability problems get worse. Together, they guarantee 5. 6 trillion in single and multifamily mortgages. Nearly half the market. Until recently they were lintmid tod to 6 billion dollars. The ratio was 1,000 to 1. Last month, secretary mnuchin and i agreed enterprised to retain capital. Retaining just one quarters net worth has improved the ratio by nearly half. But it still stands at 500 to one. Our nations largest banks have an average ratio of 10 to 1. Let me put that in perspective. The leverage ratios we see at our largest gses, fanny and freddie are leveraged 50 times that. Combined with low Capital Credit risk thats been increasing in recent years, some risk factors now exceed the levels observed in the years leading up to the crisis. Average borrower scores are better today, low down payment are higher than they were precrisis. This cyclical pattern harms first time and low income borrowers. It makes them harder to keep them home when the circle turns. Borrow debt to income is a widely used measure in ability to pay. Its spelled out in dodd frank. Its impacted in a weak economy when Household Debt levels stay the same. Between 2006 and 2008 the enterprises nearly doubled their purchases of loans with debt to income ratios greater than 43 . Higher than that spelled out in the qualified mortgage role. Rates are low today, but they were low before the crisis last time. Th they were low well into 2007, 2008. Delinquency rates are a regardless of loan quality, when theyre defaulted when the tide turns. Fanny and freddie will fail in a downturn in their current condition. Its my objective to get them out of this condition. Our Housing Finance system is supposed to serve homeowners and renters while protecting taxpayers. Its failed on both accounts. Let me commend my colleagues with coming up with what i believe are reasonable plans that present a path out of this. These plans are broadly consistent with my Top Priorities, which are first to cement shfa as a world class regulators to insure freddie and fanny operate. Chairman waters i share the principles for Housing Finance youve laid out at the beginning of this congress. I look forwarding to work ing with this committee as we move forward, thank you. Thank you, director. I now recognize myself for five minutes for questions. Director, you recently announced youre expecting to make a decision very soon about fhfas proposed capital rule. This rule would be a key factor in determining whether pricing of gse loans will work for a broad base of future homeowners, unnecessarily credit people out of their American Dream of Home Ownerships. Civil rights advocates have raised concerns that this rule would increase incentives for fanny and freddie to engage in risk based priecingpricing. There are concerns you were required up to 5 capital, which many analysts believe to be too high. Will fhas final rule on capital levels address these concerns . Chairwoman, thank you for that question. We are in the middle of a rulemakeri rulemaking. I hope to be able to announce whether well have to repropose the rule or not. I view this as perhaps the most important rule making ill engage in in my tenure. Its important to get it right. Weve been talking to a number of constituencies. There are a number of factors to balance. Well do our best and were getting to a point where it will be balanced. I feel confident where well get, well maintain access and affordability. Thank you very much. At what level of capital would you feel they are safe . Since were in the midst of a rule making, its appropriate for me to refrain from giving specific answers on the rule making do you believe that a higher level of capital would affect the pricing of a mortgage . I believe that it happens for all large let me say i believe all Large Financial Companies should be well capitalized. I understand that you have a i want you to understand that you have an obligation to the taxpayers, but you also have an obligation to insure broad access to creditworthy borrowers. Your job requires you to strike an appropriate balance between these goals. However, based on what i can see from your actions and comments to date, im concerned that youre overly focused on shrinking the gses footprint, even if it comes at the expense of blocking hard working families out of Home Ownership. I would encourage you to thoughtfully consider the feedback that youre receiving from civil rights advocates and others about this proposed capital rule and insure that these concerns are addressed. Further we met at the beginning of your tenure, in that conversation i stressed the importance of working to increase Home Ownership opportunities for minorities. Sometimes people conflate minority Home Ownership with affordable Home Ownership. I want to be clear these are two different things. We have made important strides in opening up affordable Home Ownership opportunities, but we still have africanamerican Home Ownership levels at rates lower than when the Fair Housing Act was passed in 1968. We have an astonishing racial wealth gap that reflects this gap in Home Ownership rates. Do you agree that fhfa has a responsibility to address the racial Home Ownership gap and not just access to affordable Home Ownership generally . Let me assure you on your previous point well work in and take in all comments from civil Rights Groups and others. Well meet with everybody and talk with everybody who wants to meet us to see the concerns are addressed. I would emphasize, one of the biggest drivers of the racial wealth gap, a higher leverage ratio is going into the crisis and were hurt more when the downturn so im committed we do not see a repeat of what we went through tin 2008, 2009, 2010. I believe that was a devastating team when low income and minority communities are you telling me you have specific actions that you have taken and actions that you plan to take to increase access to Home Ownership for minority borrow borrowers . Our emphasis will be on sustainable Home Ownership. I think its critical theyre able to stay in the Home Ownership. I dont think we do anybody failure if they use your house can you use the word minority. I can use the word minority but we look out for all families. I know you are, but i specifically ask you about the wealth gap and the problems that we have with Home Ownership for miern minorities. Will you address the word minority . If its difficult for you than ill yield my time back. With that, ill call on the gentleman from North Carolina for five minutes for questions. Safety and soundness. Safety and soundness to our Financial System to the footprint the three of you oversee is your primary obligation to us as taxpayers. Safety and soundness. Director, safety and soundness is your primary obligation. Correct. Financial collapse of these institutions on your watch is nothing that the three of you gentlemen would seek, i would hope. Nor in the interest of american taxpayers. So let me begin, we have 116 items of reform from the treasury and h. U. D. 116 items. They fall into two different baskets. One you can do through administrative action, that is within your right under law, the congress has written. The other requires legislative action. Almost a third of the recommendations in the plan were legislative reforms. 18 from treasury, 17 from h. U. D. From my count. Given the volume of work that needs to be done to build a modern Housing Finance system, the American People deserve, how important is it that congress roll up its sleeves and legislate here. Well go across the panel here. Secretary mnuchin . Its very important. Its obviously very important if we want to have things that are sustained across the administrations that help the American People. Absolutely critical. Director, Federal Home Loan Bank membership, this was reviewed under mel watts. Are you going to seek to have a review of home loan membership requirements . We are given that theres a large number of questions at different banks deal ing with rates, and captive insurers. We decided well soon be doing a request for information on the membership issue at large so we can hear from stakeholders. We may or may not do a rule making to clarify this. Its important we solve it holistically. Director, theres a New York Times piece from september 30th of this year outlining work done by researchers at the university of montreal and Johns Hopkins about flood risk. Via the portfolios that fanny and freddie outlines, theres some Alarming Trends according to the study that institutions are passing off increased flood risk to certain mortgage properties. Theyre passing it off to fanny and freddie, are you familiar with the study . Ive read the underlying study. I would like to submit for the record the New York Times piece of the study. Without objection. Thank you. Theres a set of risks that are pushed off to gses from institutions. You said youre familiar. I think the overall point of the study is largely correct. Really, underlines the importance of doing effective reform of the nfip because im concerned if we dont have a functioning Sustainable National Flood Insurance program that much of the risk will get sent to fanny and freddie. Do fanny and freddie current run an assessment of the underlying flood risks of their overall portfolio . Not if the nfip is covering that risk. Theres generally an assumption. This is something were starting to look at. Were very concerned about the impact of natural disasters on fanny and freddies risk profile. Especially given the fact theyre 500 to 1 leverage. Even something modestly goes wrong it could leave them underwater. Is there a separate assessment done by fapnny and freddie using outside data or is it only fema provided data . If i could follow up with the committee id be happy. That would be useful so we understand the risk here. If in fact there is serious risk. What are you doing to insure that fha runs these risks, especially given the question of volatility and the relative storm sizes that weve had of the last cycle of storms . Well, were looking at a lot of the risk of coastal areas, many are high priced areas. There tends to be price volatility. We are trying to make sure at this point, given the leverage of fanny and freddie that they can withstand any storm that may come. Thank you. The gentle woman from new york is recognized for five minutes. Thank you, madam chair. Secretary carson, last were your chief officer and your assistant secretary for Community Planning and development admitted before congress that h. U. D. Intentionally missed illegally required deadline that would have made phones available to puerto rico. Where specifically in federal law is h. U. D. Empowered to unilateral withhold funds that have been allocated by congress . As you know, congress has specifically mandated that mand secretary of hud make sure that funds that are allocated or provided for certain jurisdictions have the resources and the capacity to manage. Sir, reclaiming my time. Please answer my question. Your chief Financial Officer testify before the appropriations subcommittee on housing said that you withheld funds that were federally appropriated by congress to puerto rico. So my question to you is where in federal law you are empowered, hud is empowered to withheld money that was supposed to go to puerto rico . I cant give you chapter and verse, but it does exist. Congress has specifically said to the secretary you may not secretary carson, reclaiming my time since you are not going to answer my question. Seems like an answer to me. Reclaiming my time. Your staff previously claimed are you looking for an answer . No, no, no. Let me give you more. Your stuff previously claim the agency delay grants agreements related to cdbgdr funds to akuwait an ongoing oig audit. However, Inspector General wrote to you in mid september. She stated explicitly and i quote, i did not recommend that the department take any specific actions. We respect to including withholding funds, delaying finalization of grant agreements or delaying publishing federal register notices. So if it was not the Inspector General pushing for this delay, i wonder if this was politically motivated . Did anyone at the white house including the president or the chief of staff ask you to withhold money that was supposed to go to puerto rico . Interestingly enough, a lot of what we do is dictated by common sense. If you have a jurisdiction in which there are three changes of government within a month and which has historically had difficulty with Financial Management to put an unprecedented amount of money in there without the appropriate controls that is not the question here, sir. Your ig said they had taken oversight steps in puerto rico. You withheld the money just to puerto rico and you know what, the simple answer to this is the disdain and contempt of this administration toward the people of puerto rico. This is an abuse of power. It speaks to this administration, disregard for the people of puerto rico. 3,000 people died in puerto rico on your watch. And i will ask for your administration hud to send to congress and to this committee every communication related to puerto rico and you know what, sir, we going to find out what motivated for you to withhold this money for the people of puerto rico. If this was about corruption, as you claimed in the press, so deal with your own corruption when fema officials went to the rest of puerto rico. We have nothing to hide so id be glad for you to get that information. Yeah, one way or the other, we going to know the truth. So my next question to you, sir, well, ill yield back. Mad dam chair. Unparliamentary language when youre accusing somebody testifying of personal corruption is unbecoming of this institution and not appropriate in parliamentary language before this debate. Members should be admonished to keep their opinions at opinions, but to accuse a panelist and cabinet secretary of personal corruption is unbecoming. Will you yield . Im talking about corruption where two officials of fema were arrested in puerto rico. The time belongs to the gentlemen at this point. Have you finished your point . Yes, maam. Will you yield to the gentle lady from new york . Sir, im referring to two fema officials that were arrested in puerto rico. So the excuse that had been used by this administration is that they will not let the money to flow to puerto rico unless they take steps to make sure that the money is used with the intended goals. However, the ig of hud in a letter sent to the secretary of hud, said that the people, the government of puerto rico has complied with everything that was asked from them. And yet, of the 17, 17 states and localities that got Disaster Relief fund, puerto rico was the only one whose money was delayed. Enough is enough. This is reclaiming my time, madame chair. Time belongs to the chair. The gentleman has noticed his concerns. They have been responded to. And madame chair gentle lady was referring to the saagency and if your concer is about language, then you should address that to all of the members. At any given time, we have all had language that one could consider unbecoming. Madame chair, to accuse a cabinet secretary of personal corruption, which is what the gentle lady did, is not becoming of members of o this committee. The gentleman is out of order. The gentleman from oklahoma ridiculous. Is recognized for five minutes. Secretary mnuchin. Lets return to treasurys plan that lays out several conditions to meet before ending the con serve torship of the gses. Weve touched on Capital Requirements here this morning. Weve discussed ensuring theres no market disruption. Can you expand for a moment on the timeline that treasury is is looking at to meet these conditions and to perhaps end the con serve tor ship . Thank you, its a pleasure to have a question on this subject. First of all, i think as weve addressed these bipartisan concerns are something that need to be addressed before we take these entities out ofship. The first step was director and i amended an agreement to make sure that the entities could retain capital. A critical part is to make sure there is proper capital before we would consider ending con serve torship. The plan also has reformed to protect the u. S. Taxpayer. Can you expand on whats needed to ensure that shareholders, not taxpayers, bear the losses during any potential future downturns . I think the first issue is is to make sure we have proper capital. The second issue is to make sure that the director has appropriate reforms and that there is proper underwriting and proper allocations. And again, one more time. You would envision a timeline of this happening i want to be careful in speculating, but i would hope its over the next one to two years. Again, it could be quicker or longer depending upon market circumstances. Thank you, secretary. Secretary carson. The hud plan indicates that action should be taken to remove barriers to further adoption of manufactured housing. Like my cloeolleagues here, im sensitive b about my constituents, too, and manufactured housing is particularly important in the Rural Communities that i represent in oklahoma. Can you e b b lab b rate on how hud can move forward eliminating those regulatory barriers . Thank you. That has been a subject of great concern for us. As you know in rural community, particularly, manufactured housing accounts for about 20 of all the Single Family housing. And yet a lot of the regulations that have been in place treat manufactured housing as trailers and double wides when in fact this has been tremendous progress made with manufactured housing. I think at this stage of the game, many cases, you would not be able to distinguish manufacture ued housing from a site built home and they tend to be much more resilient. Therefore, its really an update ing that needs to be done and we have concentrated a lot of effort on that and making extremely Good Progress and i think its one of the ys where we can make a lot of progress with Affordable Housing because youre talking about things that cost considerably less than site built homes. Its the entry level housing opportunity. Exactly. With that, i yield back the balance of my time. Thank you. The gentleman from georgia, mr. Scott, is recognized for five minutes. Director, following the 2008 financial crisis, our Financial Services committee helped enact mortgage reforms under dodd frank and so id like to get an understanding from you of exactly where we are. As i mentioned earlier in my opening remarks, were now at the ten Year Anniversary of dodd frank. Doesnt seem like ten years. But its about time we kind of look back and see where we are now after ten years in a critical housing area. So what is the current default risk in each of the gses portfolios . First, let me say how much i strongly agree with you. I think this is an incredibly appropriate and important time to take a look back. Most serious rates are respectively 0. 67 and 0. 61. I will note these were similar to what they were at the beginning of 2008. So again, theres an old adage that the worst loans are made in the best of times. I think we should keep that in mind today. When how does that risk compare to the default risk in the gse portfolios and the latter stages of previous Economic Growth cycles. So certainly over time, theres been a trend increase if one goes back to the 60s or 70s, the default rates are lower than they were in the last previous cycles. The last cycle was an elevated level of foreclosure, elevated level of delen gwensies. Hence b about if this cycle turns to whether the gses are ready. It was very good to get your points on this as we look back after ten years, but im going to follow that with theres been a lot of focus recently on debt to income ratio. Given the impending expiration of the qm or quantitative mortgage patch. So director, do you feel that the debt to interest deal profile of the dti profile of the gses portfolios when taken in isolation is a good measure b f for us to determine default risk . I would start out recognizing that the debt to income ratio was explicitly mentioned in dodd frank. It is perhaps the best measure of able l thety to pay rather than willingness to pay and so i think its an important fakih r tor. I would of course be the first to say that borrow and credit and loan value are stronger predictors of default, but again, well note dodd frank specifically lists out u a set of factors to be in the statute. Well, you know the very highly respected irvin institute found in a recent study that borro borrowers with dti ratios above 45 had higher default rates than those below 45 buyers before and during the financial crisis. But high dti borrowers have actually had lower default sense 2011. As im sure you know. So with that in mind, is debt to income the right measurement of underwriting quality . Certainly with appropriate overlays, i think you can off set that risk and if where the gentleman is going, i would be supportive of congress revisiting, having that d theti mandated within the statute. I think past time to reevaluate the effectiveness of the qualified mortgage rule. Thank you. Dr. And secretary ben carson, i cant let this opportunity escape. For you to answer us, do you have in your own opinion, a full grasp of the impact of homelessness in this nation . Do you . And if so, what are you willing to say about it . Youre the person thats at the point of the sphere in our federal government to deal with homelessness. Ive got a lot to say about it. Unfortunately, the chair lady has brought the hammer r dodownt i certainly look forward to what you have to say later on. The witness is requested to provide an answer in writing for the record. The gentleman from florida, mr. Posey, is recognized for five minutes. Thank you very much, madame chair and Ranking Member mchenry, for holding this hearing today on the administrations plans for reforming freddie may and or fannie may and freddie mac. Its an important subject and i regret that it has denigrated to secretary carson, asking him questions and not allowing him to answer him. I and many, dr. Carson, youve done an outstanding job for our country. Ive said it before f, i dont know why in the world you take that job with all you have to lose. Tog to gain. I know its for the betterment of our government and how the people live in this country and im truly grateful to you. Id like to give you a few moments if you would prefer to respond to the questions that you were not allowed to answer when they were asked. You had to be still while, they through more insults your way, but if youd like to take time to respond now, you have that time. I appreciate that. You know, obviously the reason i took this job is because i feel that our country is in trouble. And we need to do everything we can to provide the right kinds of opportunities. At hud for instance, is that organization that was largely focused on getting people into programs, getting people under roof and thats not a bad thing. But i really want the to maneuver us to a place where were getting people out of programs and getting people to a level of selfsufficientsy. The question asked b about homelessness. This is a very serious problem and one that i think is solvable in our country. You know, if a place like tokyo, which has more people than new york city, can solve homelessness, then certainly we have the capacity to do so, too. But we really must understand the reasons behind the homelessness. Theres a direct correlation with the amount of regulatory barriers, home prices, apartment prices and homelessness. And we need to be willing to face that. We cant solve this problem by just throwing money at it. We really have to look at the ideology of the problem and deal with the zoning restrictions, the noise restrictions, with the density requirements. With all of the many regulatory barriers that cause the crisis to go where they are. And this is something that is a problem that for democrats, for republicans, for independents, for everybody and we need to stop making everything into a political argument and fussing and fighting like 3yearolds and spend time actually sitting down and talking together. I looked at the tenants that the chairwoman has placed. Theyre exactly the same ones that i agree with. The same ones were working with, yet weve not been able to sit down and talk about it. I think we need to be b able to discuss these things. Were intelligent people. We can solve these problems sitting around demonizing people makes absolutely no sense whatsoever and will not result in any progress. Thank you, doctor. You were also speaking of the word demon, demonized, if i understood the words correctly, making sure that the money sent was spent as congress intended if r for it to be. Would you you were cut off before you could explain that. First of all, i would like to explain that in puerto rico, they do have access to 1. 5 billion and about 2 million of it has been drawn down. So i dont want anybody to be under the impression that you know, theyre having a crisis that cant be resolved by utilizing the money thats b available. Normally, it takes somewhere between a year and a half to three years to spend that much money. Having said that, you know, the money for unmet needs and mitigation will be got to them as soon as possible in a way that is safe with a federal monitor in place and we would do that for virtually anybody. This is the large amount of money that has been given to any jurisdiction in the history of hud and i think we have an b obligation to the taxpayers to make sure that it is prop rerly utilized to impact in a positive way the people of puerto rico. Do we have your assurances that we are doing everything humanly possible through your agency to assist the people in puerto rico . Absolutely. And thats one f our highest priorities. Zpl thank you, sir. The gentleman from missouri, mr. Cleaver, who is also the chair of the subcommittee on National Security International Development and Monetary Policy is recognized for five minutes. Thank you, madame chair. I actually am deviating from Affordable Housing issue because i have two people here, id like to deal with the zone in housing because i have the treasury secretary and hud secretary, but because of what we have on our agenda tomorrow, examination of facebook, im going to deviate a bit secretary, thank you for the response to my letter and i thank you for proactively probing the issue of libra. Your letter says working group on Digital Access is quote monitoring developments related to the libra project, working to assess risks and gaps that require more attention, b end quote. Can you go just a little further on that secretary . Yes, and first of all thank you for your interest in this subject. I do understand the diversion. It is an important subject and we spent a will the of time on this and we look forward to working with you. Ive met multiple times with the representatives of facebook. Weve told them that we thought their launch was premature, that they had not addressed fundamental issues around Money Laundering, bsa requirements and other. We have set up a subcommittee of f sock not just to address this, but the to address other Crypto Assets and make sure we have the proper regulatory. Were working on an intraagency basis very effectively. I also concluded meetings last thursday and friday with our International Central Bank Governors and finance ministers. This is a discussion thats going on at the g20, g7 and fsb as well. Thank you. Is the f sock working group going to assess Systemic Risk and apply whatever appropriate regulations are needed . Yes, that will be one of the issues amongst many that we will look a at. Okay, your letter implies that the Financial Institution participating in Libra Network may be an avenue through which f sock regulated libra. Is that, is my ininterpretterpr correct . That is correct. Do you think financial regulators have sufficient tools now to confront the potential Systemic Risk associated wd libre ar with libre area . I dont want to be madman or you know, chocolate, but this kind of frightens me, this whole issue with libra and so its unclear whether regulators will have the ability to monitor corrective actions if necessary. I think right now in the United States, we have the proper tools, but if we need more tool, well come back to congress. My concern is more internationally and were working through the International Organizations to make sure that they have the similar standard that is we use within the United States to combat terrorist financing. Okay. Mr. Secretary, miss secretary, i was excited about the opportunities. I still am semi optimistic and excited. But the response has not been what i thought it would be and it seemed to me that it was perfect for housing because the ten h year period when talking about capital dpgains tax being forgiven, but just not turning out, the activity is not turning out at a level that i had anticipated and i dont know what the National Picture looks like, but can you address, is there a need to tweak it or what do we need to do to get a greater response . Well i think one of the things that will be helpful is for us to make known to individuals what is actually happening. You know you look at some of the projects that are going on in miami. In your own area. Theres a very nice project going on. Across the country. And were in the process of putting together on the website information so that that can be dissim nated. Thank you. Madame chair, id like to have f this letter from the secretary part of the record. Without objection. Such is the order. Thank you. Gentlemen yields back. The gentleman from missouri is recognized for five minutes. Thank you. Welcome panel. Id like to start with secretary mnuchin. Last week, i sent you a letter. I hope you were able to receive that. With a group of 28 bipartisan members of congress urging you to request a cecil study from the office of financial research. It outlines the stat choir requirements of f sock and o fehr that could examine issues that could affect financial stability. Ive discussed this with many members of f sock. They tell me theyre supportive of that agency. Every federal agency would do a study and in order to be able to issue a ruling, its required by the administrative procedures act and has not done that. So to me, this particular accounting standard is probably is similar issue of this committee i think or this next several months from a standpoint of what it could do i believe to the economy, to housing industry. So i guess my question to you this morning is have you received a letter and are you willing to ask o fehr for a study . Thank you. I have received your letter. I appreciate your interest in the subject u. Its an important subject. Weve talked about this subject several times. Were pleased at least there are certain delays in implementation and i will be discussing your request at the next f sock meeting to see if the committee thinks we should do this issue, but thank you for your interest. I appreciate that. I think that to me, again, i think this is a ginormous issue. Mr. Carson. You stated while ago that 57 of the loans that fha has are low to moderate income. Is that correct . Yes. What is the total percentage of loans made this year, whats the percentage that fha would be involved with . Well, the total percentage of loans that fhas involved with . Percentage of the total loans made this year, what percentage would be fha would be involved with . So if theres 100 loans this year, how many loans would be fha involved . I think i would maybe see if the collaborator might have the answer to that. My recollection in the First Time Buyer market, i think its close to half. 40, 50 . Probably about a third of the over all market. Of course we can get the data for you. What about for you . First of all, i think if you want to bigger picture, you combine fannie and freddie and f fha, youre getting 80 to 90 . This is different from precise is. Almost all of the mortgage risk in the market today is being backed directly or indirectly by the taxpayer. Let me emphasize i dont believe the taxpayers ever been nor exposed to the Mortgage Market than any other time than they are today. My question was a low and moderate income. 85 to 90 of the market is through you two individuals and your agencies. What percentage would be mr. Carson said 57 , so what do you think the total would be . 34 of what we do is for minorities and as was mentioned before, low and moderate income, 57 . Would that be about the totality for your agency as well . Yes, ill emphasize the footprint is much lower. What is the source of revenue . What is the source of income for fannie and freddie . Primarily g fees with some modest portfolio earnings so they engage in portfolio activitie activities. Theyll sell that, buy assets. Mr. Carson. Our money comes from the financial activity, the loans that are made. The fees. So if you have to increase your capital, your ability, especially in this position here then mr. Carson as well, have to increase your position to absorb losses, 5001, in my world when i was a banker, as a examiner. This cant happen. But so how do you, if youre only Revenue Source g fees are loan fees, it would seem you have to raise those fees in order to be able to handle additional reserves. Is that correct . I just going to say of the entire market, fha is not 50 . Its like 14, 15, 16 . Okay. My question. Youre going of to raise g fees to raise your capital . We have been setting fees to shadow the amount of capital. Thank you. The gentlemen from illinois is recognized for five minutes. Thank you. Id like to actually pick up on this as a question of the setting g fees and the profits weve been, where it goes. Prior to the changes youre in the process of making, where did the profits end up . They were swept to treasury. The u. S. Taxpayer got the benefit of those. Now after you make the changes, whos pocket does it end up in this point . Its, it builds capital. So the shareholders of the gses that retain that. No, it builds capital to protect the taxpayer incase the gses become insolvent. And ends up at the shareholders of the gses will then be able to sell those i will note the obligations in the Letter Agreement that we recently signed, there was an increase in treasurys liquidity preference so the taxpayer is being protected here. But where do the profits, the gses are very profitable and depending on where you set the g fees, what the mortgage standards you eventually settle with, that will have a huge effect on their profitable thety. So youll be in complete control of the profitability of tany ne competitors. By statute, they already are private shareholder entities, so theres no privatization. They already are private. Thats what the law says. I am following the instructions given me by congress to get them out of conservatorship. We like to recognize they would not exist had the taxpayer not bailed them out. In a comparable crisis in future, these entities will be bailed out simply because of you know, the you cant let the Housing Market implode in a comparable situation. Correct . Which is why its Strong Capital. And its also why the government has to figure out how to charge how much for this guarantee. Zpl congressman, let me assure you that i believe in the amount of time it would take us to build sufficient capital to the get out that this body will have significant time to legislate a different path forward if you so choose. My difficulty is that you know, this your decision to do this and other decisions youre making is having a huge effect on the share prices at which they were traded. Now lets talk about those shares. You know, it was well documented the senates perm nance of committee investigativest that such as paulson and company designed products to fail and these same hedge funds bought shares in the zombie gses for pennies on the dollar after the government bailed out fannie and freddie. Some of those principles at those hedge funds including john paulson, have served on advisory committees to the president on this very issue. My question is i guess to secretary mnuchin, what sort of conflict of interest vetting took place to conclude that that was appropriate . Well, first, let me just explain that the treasury has a giant obligation that needs to be paid back or i just want you u to describe the conflict of interest vetting. I understand, but youre saying a premise that these shareholders are getting a benefit of a sweep as has the trading share price gone up . I dont look at it. Can you get back to us on it in case youre unaware of it. It relates to any conflict of interest to treasury to the entire administration and everyone who is making the decisions about the shareholders sweep. I guess that applies to, director, do you have anything to say about that . I very much am on the record over the years in saying 2008 what we should have done is wiped out the shareholders. I agree completely, but that should be your guiding principle Going Forward instead of putting more money in their pocket. If the circumstances present itself to where we have to wipe out the shareholders, we will. I look forward to that. However, i was concerned that on october 10th, you participated in an event at George Mason University where you commented that the federal, fhfa was look ing at way ifs r fannie and freddie to increase their return on eck quity, okay, so that mea that would increase the amount that was eventually going into the shareholders pocket. So its unclear to me who youre working for here. The taxpayer i sir. Then why are you concerned about the return on equity in the shareholders pockets . Because these entities are leveraged 5001. Its essential to build capital now before a downturn. If you are planning on privatizing them, any way i agree completely that we should still wipe out these share ho shareholders and look forward to working with you on that. Thank you. Yield back. The gentleman from michigan is recognized for five minutes. Thank you, madame chair. I just wanted to make sure you were able to wrap up what your thoughts were on the g fees that sort of extended over the last two questions. I would really emphasize and i hope that we never see another downturn in the Housing Market but i believe its mien responsibility to 40e7 for the best but plan for the worst in having witnessed the devastation that has on families and communities that i think is critical to get fannie and freddie in a condition where they can survive a downturn and that requires building capital as soon as possible. So fha has attempted to grow its way out of fiscal problems and displace private capital. Has expanded really taxpayer risk, correct . Secretary, carson or director . Were not trying to necessarily grow our way out of risk. You know, fha really acts sort of as a, an accord yan to make capital and credit available at times of economic disstress. So but were seeing, were not seeing that right now, are we . I think we are. I think at the time of the height of the crisis, fha expanded enormously. Sure. Yes. I wholeheartedly agree with that. What im concerned about is how do we make sure we get private risk back into the system. What im really trying to drive at. Yeah and one of the things that you probably noticed in our plan is maybe having some tiered risk type phenomena where by we make the contracts based on the risk factors that are involved rather than just having a one size fits all model. Its, im puzzled by some of my colleagues who seem to think that we ought to declare everybody has a 720 fico score and we should treat all debt and mortgages the same and there shouldnt be any sort of risk analyst yet were going to castigate you for having risk in there and it sounds like a you know, have a cake and eat it, too, kind of scenario in many ways and i guess thats what im trying to drive at is what are the key components of a Market Infrastructure that need to be in place to insent that additional private capital into the marketplace. Director. If i can make your point and i want to emphasize the important question that congressman scott asked on qm. Part of this is getting the rest of the regular tory playing fie level. Getting to a qualified mortgage rule that works for all lenders. Its also important the sec gets to a reg ab. Part of the reason the risk has gone to fannie and freddie and fha, theyve been exempted from so many of f the rules that others have to live under so i think its critical that we get to a level Playing Field where smaller entities can all compete in a level fair Playing Field. And that takes place under standardization, correct . Correct. Got about a minute and a half here. Youve said many times needs to be a conservator, not a regulator. How can you accelerate those goals here in the next, because im worried number areas that fannie and freddie are endpanlg ed in activities not necessarilied by the primary Mortgage Market and not consistent with what constitutional or sorry, charters have laid out. Really fair question. Historically, the agency with a conservatorship has used it as a substitute for regulation. So one of the things were doing is going through for instance the directives that have been issued in thinking about what we need to be able to do to supervision. Were close to reviewing and examining the Supervision Team if we need to bring in more resources, we will, but we need to be able to strengthen the institution before they get out of con ser have torship. So its a natural time. Absolutely. One last thing b about gse multifamily lending. Fannie has been very involved in this dos lender model, which is a Risk Retention model and i know, i believe youve got some rules that have been proposed so im not expegting answers on that, but i am curious what economic angel is did fha perform to justify the Capital Requirements. One applies to the gses and we are looking at that as we make Financial Decisions on what we should do on the capital rule, but since we are in rule making, i cant go into detail on that today. Thank you, yield back. I would like to announce that i intend to adjourn this hearing shortly after votes are tall called on the noor. That will likely occur around 1 15 today. The gentlewoman from ohio, mrs. Beatty, was also the chair for the committee on diversity and inclusion is recognized for five minutes. Madame chairwoman, i need a five minute biological break. Youre excused for five minutes. We will recess for five minutes. So just a brief break in this hearing with treasury secretary Steve Mnuchin and ben carson. As they give testimony before the house Financial Services committee. It will resume shortly. Live coverage will continue. U. S. House is in session today. Members debating nine measures inclouding one to fight Money Laundering and another concerning the dismay of the p. O. W. M. I. A. Flag with the u. S. Flag. You can watch live coverage of the house on cspan and the senate is in session right now. Snrt john kennedy discussing election security. You can watch the senate live on cspan 2. Well come to order. The gentlewoman from ohio, mrs. Beatty, is also chair for the subcommittee on diversity and inclusion is recognized for five minutes. Thank you, madame chair, Ranking Member and to the three Witnesses Today. Madame chairwoman, let me start by saying i dont know why any of my colleagues on the other side of the aisle or any witnesses or panelists here today are shocked by the title of this hearing. First, let me say if i could, Affordable Housing advocates have broadly criticized your plans to overhaul the Housing Finance system, especially the proposal to get rid of Affordable Housing. Also, if i look at statements that you have made starting with you, mr. Director, too Many Americans lack what each of us deserve. An affordable place to call home. Whether its rented or owned. The National Problem that exists in communities across the country. Affordable housing. You then say our Housing Finance system is supposed to serve homeowners and renters while protecting taxpayers. Current ly, it fails on both counts. So this Administration Says the plan will not raise costs of Home Ownership or decrease access, but Affordable Housing experts disagree gree with that. Secretary carson, you said far too Many Americans who seek reasonable price rental units or sustainable Home Ownership still cannot get their foot in the r door. You further say many of our nurses, construction workers, police, et cetera, et cetera, simply cant afford to live around the communities they serve so youll have to forgive me for taking the side of Affordable Housing advocates and experts over the words of this administration. Who is continuously asked to slash the budget of Affordable Housing by more than almost 20 every year since coming into office. So mr. Secretary, mr. Carson, when the three of you were on the panel in the senate, you stated that you do not believe theseincrease costs of Home Ownership or decrease access to mortgage credit. I cant accept this belief because as ive said before, i have dozens of organizations who have called my office saying the this will do the exact opposite of what you believe and will actually raise costs of Home Ownership and make it more difficult for credit worthy b borrowers to unlock the American Dream of Home Ownership. So what Analytical Data do you have, secretary carson, what studies, cost benefit angel is to back up these beliefs and have you ran any imperical analysis on the impact of the u. S. Mortgage market and u. S. Consumer based on the r reports . Which specific aspect are you talking about . Which studies are you looking for . In the studies that you all presented to the u. S. Senate. There was documents in response to President Trump about your housing proposed plan. I can tell you that the proposals that we are advocating for are to inkrecrease the abil particularly of underserved communities to be able to have housing. And you know and let me reclaim my time. Not your beliefs r or what you feel shlg what did you base it on . Empirical data . Analysis . Talk to me in a way that this is why were doing it, this is what the reports, this is what the data shows. Its the same thing the people were saying the opposite. They come into my office and give me data showing that we have a real problem here. We codo. Thats the reason for the title. National association of Home Builders for instance has demonstrating that the cost of a Single Family house, new one, 25 to 27 increase. So let me ask you this only because and i want others to jump in. The federal Housing Administration is responsible as you probably know or should know for nearly half of all the mortgages accessed by africanamericans and hispanics. Are you recommending moving forward with plans to overhaul this agency and its functions without imperical data . We have plenty of empirical data, were happy to supply that to you, but the point being one of the reasons theres a big wealth gap is because of housing. And we are so do you have a plan to submit to me because my time is is going to go up. Let me ask you a last question. Is this plan calling for gses to get out of the business of low down payment loans . Yes, no, all three quickly. Yes or no. My times clicking. Come on. I cant answer it yes or no. How about you, mr. Mnuchin. Thats the decision of the director. He refuses to answer or doesnt have an answer. Thank you, sorry, my time is up. The gentleman from ohio is recognized for five minutes. Thank you, madame chair. I want to thank you for holding this hearing. We are as i said in my Opening Statement 11 years into the conservatorship of fannie mae and freddie mac. Weve seen proposals from republicans and democrats and wink its time to do some by partisan Work Together. I want to ask the witnesses a few questions. Have all of you had a chance to see chairwoman waters principles . A couple of you commented you support them. Yes, we do support them. So youre the only one who hadnt said mr. Secretary, so thank you. So all three of you, can you affirmatively tell you that euro kay with the pins principles the chair has put out. Very much so. Thank you. So all three have said youre okay with the principles the chairs put out and again, from your written testimony and what ive seen of your previous comments, do all three prefer a congressally worked out housing reform proposal to administrative action . That is correct. Can you all three comment . Yes. Obviously as i said earlier, if we have something that is worked out in a bipartisan basis. Yes. And since we agree on the basic principles that should be possible if you take the politics out of it. Thats where im trying to go. Director. Yes and i dont envision myself doing anything administratively other than carrying out the law as it is written today. So would the three of you and your teams be willing to work in a bipart sisan workin ing Group Housing reform with republicans and democrats in this committee . Absolutely. Not only would we be willing, but we want to o we can get legislation to the president to sign. Wed be delighted to. Thank you. So you know, in two minutes, weve established that frankly, you u all three agree with the principles the chairwoman has laid out on Housing Finance reform. I also dont have any problem with the principles and that you prefer congressional action and that youre willing to work with us. I know thats going to you know, make some of the skeptics around town feel like its not true, but i think really we agree on more than we disagree on. We all want to look out for housing b availability and affordability and we want to protect the taxpayers. Whether thats republicans or democrats, regardless of where were from. We bring our own unique per speck ties based on the geography and people we represent and those economic and Housing Conditions, but i do believe that we can Work Together to make meaningful bipartisan reforms of our Housing Finance system and this is the only piece thats left undone from the crisis. We have an obligation to the citizens of the United States to work in a bipartisan, bicameral process with the administration to actually try to come up with things like i said, i think the chairwomans principles are acceptable to me. Im willing to start there and work and i would ask the chairwoman to please take this you know, offering of trying to Work Together and lets see if we cant do something because it is time to make something happen and you know, not only are taxpayers on the hook right now, but we arent doing everything we can to make Affordable Housing work for people and take away the differences between populations. I know that there is in some minority communities including the africanamerican community, a lower percentage of Home Ownership than i want, than you want, and i think you know, these witnesses want. So i think we can and should try the Work Together and you know, i am hopeful that we can and im going to roll up my sleeves insurance and housing subcommittee, i know theres a lot more in the name, but lets focus on the housing piece and lets try to make something happen. And i want to work with the three of you and your teams and the chair and the republicans and democrats. And i appreciate you being here today. I know there are sometimes tough questions but i know you the three of you believe in making the housing system and the Housing Finance system in the United States the best in the world, the most affordable and available in the world for the American Dream. And i want to work with you and the members of this committee, republicans and democrats, to make that happen. Thank you for your commitment and thank you for your willingness to do that. I yield back the balance of my time. Thank you. The gentleman yields back. The gentleman from california, mr. Vargas, is recognized for five minutes. Lost my glasses. Welcome. Again, thank you very much, madame chairwoman, for this hearing. I do want to again thank the general for his words there. I think they were very appropriate. Thank you. I do have to say we do have short memories around here. I do recall to the Ranking Member, it might be instructive if we go back and take a look at the record of some of the comments that were made in previous years about the director of the cfpb from your side of the aisle and take a look at the words that were said and just to make it even on both sides. If the gentleman would yield, thats a fair analysis. Fair and levelheaded analysis, everything we should note, including me. And i thank you for raising that. Thank you. Then i would like to ask talking about both sides. Its interesting, i get to walk a lot of precincts, talk to a lot of people and the American Dream is still the same. Most people want a safe place for themselves, for their family. They want their kids to do a little better than they did. And most people want to own a home. I think thats changing in california in the type of home. Not a Single Family detached home but now a detached product. Especially millenials, theyre looking at different types of living arrangements. I think its all very appropriate. But its still the same. They want a place of their own. They also dont understand when things get a little rough and tough in the economy, why it is that if they have a hard time paying for their home, why they dont get bailed out and why the big banks do. Why dont they get the help that others got . They dont think thats fair. To that point im not confident that the Administrative Changes you want to make here are fair. Director, i do want to ask you this directly, if i could read it and if you could comment about it. You talked about it a little bit already. This is with regard to your appearance on cnbc. You mentioned the Companies Come and shareholders, the g sechlts, and a part of the discussion that took place. Well, they were surprised, you said. This is what i would like you to comment. Calabrias comments director calabrias comments on the sidelines of somewhat rushed as he tried to explain the nuances for Public Offering for companies that have shares outstanding. Holders of Common Shares were never wiped out, he said. If we can do some kind of conversion with prefers or if they would get par, its way too early to figure that out. As a reminder, the plan that rushed the plan that rushed fannie and freddie melted down in 2008 and subsequent amendments gave the Treasury Department about 8 of each enterprise payable as senior preferred shares. In other words, theyre concerned about whos going to get bailed out once again. And that is my concern, too. Could you comment on that . Ill give you some time to comment on that. Thank you, congressman. Let me strongly, forcibly say, i agree with you. None of this is unfair. I would have preferred to inherit a fair situation when i walked in the door. I inherited a mess. My responsibility under the statute is to fix fannie and freddie. You fix them and get out or take them in the receivership. The option of limbo is not an option under the statute. I would prefer i had a fair situation. I believe fannie and freddie got bailed out and homeowners did not. That pisses me off to this day. I commit to you today that my number one objective is we never have to bail fannie and freddie out again. I would caution you, fannie and freddie, gses have allowed a lot of people to own homes that would not have before. If you look around the world, the 30year mortgage with the fairly low down payment is what has allowed a lot of americans to own homes. Its not around the world. Every country doesnt have it. In fact, its very unique to our country. I hope we dont destroy that in the process. I do want to give secretaries an opportunity to comment on that if they wish. First of all, you have my commitment. Ive been around the Housing Market for 35 years. I can assure you, i very much support the 30year market and want to make sure we do this. I would comment to your previous issue. We have made no decision as to whether they would exit by conservatorship or receivership. I represent the largest creditor, which is the u. S. Government. And we would need to be part of any decision. Again, were focused on how to make them safe and sound and recapitalize them and then we can figure out the process of raising exterior capital. I do, very much against the whole bailout issue and too big to fail issue, which is why a lot of this revision is being done. Also recognize the American Dream and people want to own a home. Thank you. The gentleman from kentucky, mr. Barr, is recognized for five minutes. Thank you, madame chairwoman. The title of todays hearing is revealing. The title is the end of Affordable Housing, a review of the Trump Administrations plans to change Housing Finance in america. Well, this suggests my friends on the other side of the aisle believe any effort by the administration to reform Housing Finance will increase housing prices and disadvantage low and middle income borrowers. In reality the proposals set forth by administration lay the groundwork to protect taxpayers, retain the 30year mortgage, improve efficiencies in the Mortgage Market and lower prices for qualified borrowers. By pushing back against common sense reforms to Housing Finance, the democrats are endangering the very low and middle income they claim they want to protect. Unreformed gses will lure americans to buy homes beyond their means and then default with for closure with the result. Thats not helping low income americans at all. Wie seen this train wreck before. Democrats opposition to meaningful house reform will take us right back to where we were prior to the financial crisis. For years the governments policy was to drive up mortgage indebtedness above what the market could naturally sustain. For example, lets rewind the tape. Back in 2003, this Committee Held a hearing on ways to improve Regulatory Oversight of the gses. During that hearing then Ranking Member barney frank said this, i think its clear that fannie and freddie are sufficiently secure so they are in no great danger. He continued, quote, fannie mae and freddie mac do very good work. How wrong he was. Lets not let this conversation end the same way. It is alarming that the enterprise shares of low down payment and high debt to income mortgages are now higher than before the financial krisdz. But i would suggest what is more alarming is that the democrat majority today is defending this state of affairs. Winston churchill said, those who fail to learn from history are condemned to repeat it. The administrations proposal as seek to place our Housing Finance system on a stable, sustainable path and protect us from another housing crisis. And i applaud our panel for their leadership. My first question i want to ask relates to the credit Risk Transfer to secretary mnuchin. The treasury report calls on the gses to continue to engage in a diverse mix of economically sensible credit Risk Transfers. Unfortunately, current capital rules hinder banks willingness to take on more credit risks from the gse. Bank capital rules from basel 3 are grossly misaligned with credit risk. The ssfa was intended to cover all lending, including unsecured debt as basel 3 was trying to make sure banks are not making unsecured subprime loans. The enterprises make secured prime loans and, thus, capital charges can be as high as five times what banks expect to lose in the worst of recessions. With capital charges like that, it does not often make economic sense for banks to take on more risks from the gse despite their desire to do so. Secretary mnuchin, do you agree that International Capital rules adversely affect our private banks willingness to take on credit risks from the gses and will you commit to working with the Bank Regulators on fsoc to explore ways to better tailor capital rules so the private sector may assume more credit risk from the taxpayers . Yes and yes. Thank you. Secretary carson. Mi, private mortgage insurance can help borrowers with small down payments and help them prudently get into houses and stay there without putting the taxpayers at risk. What role does your plan contemplate shifting some of the risk from the fha to private mortgage insurers . We very much want private mortgage insurers to become a significant part, particularly after the gses exit conservatorship. And, you know, particularly in smaller communities and in Rural Communities, they can play a very substantial role. And were looking at ways to make it even easier for them. I appreciate that. I think pmi is a good solution for affordability and protecting the taxpayer. Finally, director calabri, private label securitization. In your mind, what is versus portfolio and private lending . I think we need to see more diverse sources of capital. When i studied and i think bringing more competition to this is critical. So, i dont want to say an exact percentage but i think there needs to be a wide range of sources of capital. I think level the Playing Field on regulation to more securitization is the right way to go. I applaud you for moving in that direction. Absolutely. I yield back. Thank you. The gentleman from florida, mr. Larson, is recognized for five minutes. Thank you, madame chair. Welcome to the committee today. And secretary carson, this question goes to you. And you probably understand what im going to say. You had the opportunity to visit in my district with the Housing Condition that exists, especially in the jacksonville area. But my concern has been, one of the things we talked about then and i subsequently filed a bill for setting up housing ras for our young people. Deferred ras so they could save in those iras on a tax deit deductible basis until they cumulate enough capital, 20,000 or more, so they can use those funds for a down payment. The reason why i talk about that, i want you to elaborate on it, so many young people today sometimes dont see buying a home as an option. And i live in an area where a lot up here where a lot of them rent. Get a chance to talk to them, they dont see how they can get ahead with Student Loans and other things that are pressing on them coming out of school. So, what is your opinion on the deferred iras for down payments only, except in emergency situations, but to be used for a down payment on homes . Thank you for your interest. That happens to be a great interest of mine as well. I think we need to entertain all the ideas. This is one of the reasons were really pushing the selfsufficiency programs where people can accumulate money and not be penalized in terms of their rent going up. And then that can go into an escrow and that can be used for a down payment or things of that nature. Iras, whatever mechanism we can use is very much appreciated because, as you know, homeownership is the principal mechanism of wealth in this country. One reason the wealth gap has deteriorated significantly is because a lot of people, particularly in the minority community, particularly in the africanamerican community, had their credit ruined. As a result of that you see the homeownership rate decrease. Were looking at ways to ameliorate that situation. Ill see if the director wanted to comment on that. Absolutely agree. My government did some work with the Consumer Federation of america saves initiative. Im a very big believer. I think it would be appropriate if there were another round of tax reform at some point having a universal savings account, i think, would be very helpful in terms of helping particularly low income households save. And i look forward to continuing to work with you as this legislation is being developed. And with that, madame chair, i yield back. Is. The gentleman from colorado, mr. Tip toton, is recognized fo five minutes. Thank you, madame chair. I would like to speak to the issue of the gses portfolio while theyve been in conservatorship. I appreciate the comments made by my colleague, mr. Scott, as to the passage of dodd frank where prior to it we had loans that were made with no documentation or loans with risk secure product features, such as negative amortization. Director calabria, how can we ensure the gses continue to avoid such products moving forward as fannie mae and freddie mac . I think its important they enjoy the same as other borrows. Thats the most critical. Foremost, making sure theres capital there to support the risk. Obviously, all Financial Institutions, including the gses, exist to take some degree of risk. The real question is, having the capital there to support that risk so they can engage and increase in opportunities and also trying to make sure we have other procedures in place and making sure the underwriting is there and making sure the products dont come back and making sure the safety and soundness is there. That speaks to what you spoke about during your testimony on 500 to 1 leverage ratio . Yeah. Let me emphasize. Even if every single loan fannie and freddie made were pristine, they would still fail at that amount of leverage. Thank you for that. You know the ability of the customer to be able to repay speaks really to the health of our Financial System. We need to be able to make sure the borrowers are taking on only what they can handle in terms of payment. Secretary carson, you mentioned about the loan insurance, to be able to have that as well. But when were talking about your predecessor, mel watt, he made some fairly risky programs during his tenure while he was in office. How would the administrations proceed possessional make the gses more risk averse and how would the risk aversion priorities in place over the long term . Let me emphasize i believe any footprint can be quite modest. Its true with any sort of Insurance Program where its the tale of the distribution and, frankly, any sort of reduction of risk would really be loans we dont want to get families into, particularly at this point in the cycle. I think its important to keep in mind, this has been a long housing recovery. Inc. The vast majority of house price appreciation is behind us. What we really need to be able to focus on is how do we prepare families, how do we prepare fannie and freddie and prepare the economy for the potential turn in the Housing Market . Great. Secretary carson, secretary mnuchin, do you have anything to add to that . Agreement. Okay. Thanks. We have a lot of voices in the industry right now and across the aisle questioning the timing of the administrations proposal and, director, you just noted that right now in terms it of the current default rates, its 0. 67, 0. 61. Weve got a Pretty Healthy economy right now. These are doing good times. Why is the administrations proposal needed now . If i can Vice President kennedy, the time to repair the roof is while the sun is shining. Right now our housing and economy is strong. This is the time to do it. I fear if we dont do it now, we will not be able to make these reforms in time of stress. Do you have any comment on that . No. I totally agree. When is a better time to fix it than when things are good . Absolutely. I appreciate the comments and i appreciate the administrations position in terms of trying to reform fannie mae, freddie mac. Some paths are simply not sustainable. I think every individual we want people to be able to have a home but we need to make sure we arent putting people in homes they cannot afford. To make sure weve got a sustainable system when were talking about being able to build that wealth and the primary residence is obviously the biggest wealth most people are able to accumulate in their lifetime. Its important that we have a system thats not going to be punitive, its not going to put people into a position to where they will lose those dollars in the event of ultimately what will happen in business cycles. We will see economic downturns. They will come. And i wholeheartedly agree. Lets fix the roof while the sun is shining. I applaud the administrations proposals to be able to try and address this. Appreciate you gentlemen being here today. I yield back. Thank you. The gentle woman from michigan, miss tlaib, is recognized for five minutes. Thank you. Detroit found 40 of people in protected classes experience unlawful differences in treatment by Housing Providers. This Unlawful Discrimination is usually hidden. Its not like were going to find signs that are posted on doors of homes that say no you know, dont rent to black families or no muslim families or no lgbtq families allowed. So, yes or no, secretary carson, do you believe landlords or Property Owners or Housing Providers anywhere in the United States have ever engaged in discriminatory practices against protected groups . Of course they have. We strongly oppose that. Yes or no, secretary carson, do you believe there should be some level of protection to prevent or stop discrimination that is rarely explicit nmripol nowadays . Of course there should be. Hud proposed a rule to make substantial rules to desperate impact standards. The rule would make it harder for families facing housing discrimination to seek justice by shifting the burden of proof onto this em. Can you explain why the Agency Charged with enforcing the Fair Housing Act is proposing to make it more difficult for mrchz to brick Forward Housing discrimination claims under the disparate impact standards. I can probably explain it best if i give you an example. If congress decided they want to raise the minimum wage to 15 an hour, the people who would be most impacted would be low skilled individuals. And a lot of those low skilled individuals would be in the minority classes and, therefore, they could bring a disparate impact suit. We want to make sure that obvious cases of discrimination can still be addressed appropriately. In cases where something is not obvious, you know, we want to apply logic and common sense to it. Otherwise, everything could become a disparate impact case. But the burden of proof would be is so much i mean, the complete intention is to show that the impact of the act or the structure thats in place thats discriminatory against the families, like the disparate impact helps with going after those that are going to hide that discrimination. Again, secretary carson, its want like theyre putting signs up anymore. Its not like were going to find emails. Sometimes we do. But disparate impact allows people access to that justice to show housing discrimination. So, the example im disagreeing with your example in that youre showing its because most of the claims coming forward are we still have a huge burden to show that kind of disparate impact. Its not as easy as it claims. Ive had a number of clients and residents that have come forward. We have lost more black homeownership in michigan than any other state. Weve seen shifting of homeownership away from communities that are struggling. We believe it stemmed around housing discrimination. There should be equal access to bring those claims forward. I strongly disagree with the analysis you bring forward and advise your party to push back against getting rid of disparate impact. Almost making it impossible, secretary carson, impossible, to bring a housing discrimination claim. But, director calabria, we know a quarter of the mortgages provided by Government Sponsored Enterprises must be allocated to low income borrowers. The Treasury Department to make housing more affordable, federal housing authorities should bring in private lenders to foster competition in the Financial System. Any time, director, fostering competition is being brought up or used, it results in Enterprises Getting richer at the expense of ordinary people. Director calabria, will these lenders have an obligation to make a quarter of the mortgages they back to low income borrowers . All of the private lenders who originate mortgages and, therefore, the gses are directly impacted by the housing goals. Loans that are bought have to meet the housing goals. Again, lets say youre a lender who sold 100 of your loans to fannie and freddie. You on average would be meeting those housing goals. Indirectly it impacts the originators and servicers who deal with fannie and freddie. What my residents would ask you is about accountability. How can we make sure these private participants are beholden to private home buyers . Thats a great question. We hold the counterparty. I have no ability to regular rate the counterparties. Our accountability is making sure when fannie and freddie meet those goals, they can meet those goals when the entities meet those goals. Lastly, remember youre also creating a structure. Youre creating a structure that allows it, so cautiously appreciate that. Thank you, chairwoman. The gentleman from texas, mr. Williams, is recognized for five minutes. I thank all of you for coming here today. I know ive asked both the secretaries the question when theyve been here in the past. In is the first time ive had the opportunity to ask a third panelist, direct calabria, are you a capitalist or a socialist . Im a pretty ardent capitalist. Thank you for that. I look forwarded to working with all of you as a partner in the Housing Finance reform. There is a problem, however, with the Affordable Housing in this country but it isnt because of any of the recommendations laid out in the last two reports. Its the direct result of excessive state and local regulations. Outdated zoning laws and parking mandates are just a few things that increase the cost of developing new Affordable Housing units. And have prevented supply for meeting demand. Secretary carson, regardless of what is done administratively to the Housing Finance system, will it make a difference to the Affordable Housing stock if state and local governments do not address this root cause of this issue . No. In order to be effective its going to require a combination of federal, state and local jurisdictions. A lot of the problems, obviously, are local regulations. 80 of the regulations are local in nature. And many of them are archaic. Instead of people replacing one regulation with another one, they come up with something better, they just layer it on top. And weve become a very complex labyrinth to get from point a to point b. Each arm of that labyrinth is an expense as well as creating more time lapse. Gses are in a worse financial state now than they were before the financial crisis. Even after the gses retained 45 billion in earning over the next 18 months, they will still be drastically undercapitalized, as weve heard for their 5. 5 trillion in assets. Secretary mnuchin, what do you believe is the appropriate capital standard for the gses and do you think they will be able to raise the amount of capital from the private sector . Well, in regards to the first issue, again, i defer to the directors analysis before we comment on it, but i do believe that the gses can raise a very significant amount of capital from the private sector. So, we do anticipate the combination of retention and thirdparty capital raise. There will be sufficient capital to get to the new standards. Good. The gses clearly have significant market advantages because congressional charges and other statutory privileges. There have been several things the gses have done while in conservatorship that have further increased their competitive advantage over private sector participants. And you briefly touched on this earlier, director, but as we move forward in this process, can we elaborate on how the administration plans to level the Playing Field so potential market entrants can fairly compete with fannie and freddie in a reform Housing Finance system . Thank you, congressman. I think this is critical. I want fannie and freddie to be successful and effective, but i want them to be effective and successful because of good management, Good Business practices not because theyre held to lower standards than anybody else. I mentioned for the qualified mortgage rule, i believe cfpb is making significant progress on that. I believe that was in the treasury report as well. Ive had a number of conversations with regulators, i talked to Bank Regulators about trying to get some relief. Weve really seen difficulty in making Bank Portfolio loans, particularly for community banks. I think Additional Community bank relief is critical to get the Mortgage Market to move again. All this coordination is a number of things were working on. Good. One last question, director. You have stated one of the critical changes needed prior to the end of the conservatorship is strengthening the power of the regularity. What changes are needed to the fhfa to make sure its equipped to be a regulator . One thing thats being discussed within the committee is we all remember, especially post cap 1 the transition to the cloud so the Federal Reserve and other Bank Regulators have significant authority under the bank fannie and freddie are transitioning to the cloud. Having all that mortgage data in one space is concerning to me. I dont have the authority to make sure the Cyber Security threats that may threaten fannie and freddie are not severe. Thats one. I would like charging Authority Like every other regularity. I think its important to bring competition to the marketplace. I would like greater discretion. If you would like to know what i would like, look at section 38 of the federal deposit insurance act. If you could give me that, id be delighted. Competition is good. Absolutely. Ill say astros in six. Madame chairwoman, i yield back. Thank you. The gentleman from illinois is recognized for five minutes. Thank you, madame chair. Secretary mnuchin, i would like to turn to an aluminum company. In 2018 the Treasury Department sanctioned them as part of a targeted strategy oligarchs close to putin and to punish them for subverting western democracies. Treasury department lifted those sanctions in 2018. He was detailed in the Mueller Report on to have financial dealings with paul manafort, who is now in jail. The Associated Press says manafort started collecting 2 million a year. In june 20th of 2016, mr. Manafort was named Trumps Campaign chair. Less than two weeks later, on june 7th, he asked in he asked to pass the following message along, quote, if he needs private briefings, quote, tell him we can accommodate. 2 1 2 years later sanctions were lifted and shortly after that rusol said it was investing 200 million in a project in kentucky. In april this year you testified that you delisted those sanctions against rusol because, your quote, the company approached us, not the oligarch. The company approached us. A large group of people, unquote. Was senator mcconnell among the people who approached you . Im not really sure what this has to do with housing reform the trust in our Financial System depends on the entire system. Again, im happy to answer it. I dont see the relevance to housing reform. No, ive never spoken to Mitch Mcconnell about that, other than when we briefed the entire senate im saying prior to lifting the sanctions. On the sanctions. Did secretary chow approach you to lift those sanctions . No, he did not. Did any member of congress approach you with regard to lifting though sanctions . Not that i recall, but we had extensive discussions with many people on what we would be doing about lifting the sanctions. Did Craig Brouchard of Brady Industries approach you . Im not sure who that is. A substantial beneficiary of that company in kentucky. Im not aware of who that is. Did anyone associated with Brady Industries approach you about lifting though sanctions . Again, i dont as identv testified before, we lifted these sanctions just a yes or no is fine. I get to that because of the news from this last week. Last week it was reported in december of 2018, largely contemporaneous with your decision to lift sanctions, there was a seizure of documents from tara services ltd, a london based Company Owned by mr mr. Deraposka. That raid was described as, quote, being in connection with the special counsel investigation, that being led by mr. Mueller. This raid is substantially contemporaneous with the Treasury Departments lifting of sanctions. You appreciate, i sure, how bad this all looks. So the question is, did you have any knowledge of the raid or the preparation for the raid at the time you were making a decision to lift those sanctions . Again, i find it interesting when were here to discuss housing reform that youre trying to grill me on something that happened months ago. Sir, i would i would reiterate, sir, that if you could isolate risk in the financial brothers, Lehman Brothers would still be here today. Im concerned about whether or not people trust the Treasury Department is acting in the best interest. Yes or no, did you have knowledge of the raid or preparation for the raid at the time you lifted sanctions . No, i had no basis of knowing the raid or involvement with the special counsel. In any of the answers youve given me, can i assume your lack of knowledge can be applied to the entire Treasury Department . Were there people in the Treasury Department you believe of course you cant assume that. Im not making representations for whats obviously a thousand people within the Treasury Department. Again, were okay. So, then one final concerns. Were happy to discuss them with you at the appropriate time. I appreciate your willingness to share. Will you commit here today to ensure the employees of the Treasury Department under your control will comply with any congressional subpoenas relating to these matters . What i will assure you is that we will follow the law the congressional as reviewed by our general counsel. So, i think as you know, weve already received subpoenas that we did not think were legal. And, again, i will refer them to my general counsel and they will be reviewed. I can assure you we will always follow the law. That is our intent. Lets hope so. I yield back. The gentleman from arkansas, mr. Hill, is recognized for five minutes. Thank you, chairwoman waters. Appreciate secretary mnuchin, secretary carson, director calabria for being here today. You can tell all the interest that we have on this topic and the committee. About a year ago i wrote an oped about how fannie and freddie have been violating this is my view violating their charters, misleading congress, misleading investors dating back to the 1980 pz. So im always very suspicious of reform ideas since the 80s and 90s and 2000s have not delivered very successfully on those. The agencies ventured into new activities, not limited to mortgage insurance, nonbank and mortgage buying services rights. They have raised questions about the proper role in the overall Housing Market, which we talked about today. Additionally the gses increase their footprint by allowing loan limits, increasing caps for multifamily lending. Director calabria, as you look at this issue now that youre head of our regulatory body, how are you going to ensure the gses stay within their charters . Thank you, congressman. Let me emphasize, i think this is always a critical concern. Any time a player in the marketplace has considerable market power, they try to leverage other lines. Thats something we have to be cautious of. Fannie and freddie have the ability to essentially put anybody out of business they can directly compete with. Certainly, a very large concern of mine. The housing economic recovery act in 2008 set up a new structure for product approval. This was a big concern going into the crisis. And we will be doing a rule making im disappointed were 11 years later and there has not been an establish rule making on this before i got there. We will be setting up a rule making to have a very clear process to make sure well, i thank you for that. I thank you should echo mitch daniels, former governor of indianas admonition, if its in the yellow pages, it doesnt need to be done by the government. So, i urge you to be very disciplined in looking at that process. You reference in your testimony on page 3 that your job is to remove the gses from conservatorship by reorganization, rehabilitation or winding up their affairs. I take it from the treasury report and the hud report that theres this bias towards recapping and releasing. Those are my words, be not your words. But it gives the appearance that the implication about whats been said is were going to release these entities. Theyre going to raise capital with reduction of the sweep. Renegotiate the preferred stock arrangement. And then theyre going back out to the marketplace. Director calabria, do you support recapping and releasing fannie mae and freddie mac . I dont support putting them back out there the way they were before the crisis. I heard secretary mnuchins earlier point, no decision has been made on moving forward. I do believe i have i responsibility in the interim to help build capital at these enterprises. Secretary mnuchin, would you like to comment . Yes. I think your characterization of a bias, i dont agree with that. I think as ive testified earlier, we have the option to take them out through conservatorship or we have the option to go through receivership. We have not had any discussion. My sense is what we do agree on is they need more capital. We would hire appropriate advisers to determine whats in the best interest of the taxpayer. Good. And so youre openminded about these various models of substitution that might be proposed . In other words, we have proposals to have a mutual thats a utility, a nonprofit thats a utility, a government thats a utility, or we have the recap and release with competition where the director calabria has Congressional Authority to charter new entities. Youre open to considering all these options . Again, i would say that our number one objective is to make sure we meet the housing goals that have been outlaid and to protect the taxpayers. Well look at whatever the best alternative is for that. Thank you, secretary. Secretary carson, earlier this year, when you testified, i recommended that fha commissioner Brian Montgomery testify before a committee. I still hope our chair will encourage the fha commissioner to come and discuss the fhas book of business. Im concerned its deteriorated in loan quality over the last couple of years. Fico scores are lower, that debt to income ratios are higher, and thats concerning to me. And also director calabria mentioned the gses competing with fha for the same firsttime home buyer market. So, dr. Carson, do you agree that the gses should not compete with the fha first time home buyer market in the secondary market . I think the gses have a different Mission Target than fha does. And can they both, you know, work within that sphere . Of course they can. I think one is more specialized. Its sort of like a cardiac surgeon and a urologist. They both can probably operate on your heart, but i think you probably rather have the cardiac surgeon. Thank you. Well put you down as an Expert Witness on that. I yield back. The gentle woman from virginia, mrs. Wexton, is recognized for five minutes. Thank you, madame chairwoman. Im over here. All the way to the right. Thank you to the distinguished gentlemen for coming to talk to us today about this important topic. Secretary carson, fha currently charges a flat fee for mortgages that it backs, but your plan for Housing Finance reform recommends a riskbased pricing structure for fha loans. Advocates have expressed concerns that this could fundamentally undermine fhas mission to serve underserved borrowers by charging higher premiums to those who can least afford them. Has hud a value waited the effects of riskbased pricing on borrowers throughout the credit spectrum, specifically, what would the effect of tiered pricing be . This has been a subject of great conversation. We have looked at the different scenarios. We feel that if we just have a one size fits all model, it has the tendency to attract the higher risk people into that pool. And in the long run could actually elevate the cost for the low income individuals. You didnt answer this question, but would the premium be higher for higher risk individuals and lower for lower risk individuals . Yes. Has hud conducted a fair analysis would be disproportionally impacted by this new policy . Well, protected classes would also undergo the same type of credit risk analysis and would have the fees appropriately scheduled for them. So, are you saying that it would that the fees would not be based on their risk, it would be based on whether or not theyre a protected class . No. Fees are based on risk, whether youre a protected class or not. So, has hud conducted a fair housing analysis to determine what the impact would be . It would be happy to send that information to you. Did hud conduct such an analysis . Of course we have looked at the various scenarios and we have that information. Is the information that protected classes are disproportionately impacted by these riskbased fees . No, they are not. Okay. Well, if you would share that if you would share that analysis, that would be fantastic. Thank you. Absolutely. Congress establish fha, va and usda as the sole source of low down payment financing for borrowers not served by the conventional Mortgage Market. Are you recommending that fannie and freddie get out of the business of backing low down payment loans . I think it would be good if we have segments of the Housing Finance market focused on particular Mission Targets. Doesnt mean there wont be some overlap. If fha, va and usda essentially have a monopoly on these low down payment loans, wouldnt that crowd out private sector participation in those loans . The private sector could decide which segment of the population they want to specialize in. No one would try to tell them what they could or could not do. And that would probably disproportionately impact some less creditworthy classes as well, would it not . It depends. Some people in the private mortgage Insurance Market might decide they want to focus primarily on low income, highrisk individuals. But, you know, that probably is not going to be the financially the best move for them to make, but maybe they might feel some social obligation to do that. We wouldnt preclude them from doing that if they want to. I have not found social obligation or social desires to be a big motivating factor among most of these forprofit corporations. I think youre right. Now, secretary carson, i only have a minute left so i wanted to give you a chance to apologize for comments you made during a meeting with hud staff last month where you described transgender women as big, hairy men. Well, first of all, i didnt describe transgender women that way. I was relating a story that a womens group told me about big, harry men, who are not transgender women, by the way, coming into their facility and having to be accepted because of the rules that were in place. What was the womens group that told you this story . It was a group from alaska. What was their name . I dont remember. Okay. Could you get that for us, please . And so you dont you dont feel the need to apologize for those comments . No. I think this whole concept of political correctness, you can say this, you cant say that, you cant repeat what someone said is total foolishness and its going to destroy our nation. We need to be more mature than that. Very good. Thank you very much. I yield back. The gentleman from georgia, mr. Loudermilk, is recognized for five minutes. Thank you, madame chair. Thank you all for being here. Dr. Carson, secretary mnuchin, you guys have been here before. Youre aware of the theatrics that go on here, and director calabria, i appreciate you being here. Sometimes i am amazed myself with what happens here. Theres a Popular Television commercial out there about these young people who are in the middle of a horror show and they have an opportunity to run away from this terrible we find ourselves in the middle of a really bad situation. Some of us look for the running car. Others just keep wanting to run to the chain saws to make the situation worse and worse. And i appreciate what youre trying to do with the reforms of the gses. Youre looking for that running car. To me, the economy is that running car that we can jump in and use the strength and the power of this economy to make changes Going Forward. In my hometown of bartow county, georgia, we just posted in august the lowest Unemployment Rate in the history of that county. In 2010, unemployment was 12. 2 . In august of 2018, it was 3. 8 . This year it was 3. 5 . Were seeing manufacturing return. However, we are seeing also some problems associated good problems, but problems associated with a strong economy. One is the jobs that are made available. Just dont have skilled workers getting into those jobs. In fact, i held a skilled jobs fair at the beginning of this month where we brought employers in and we put the invitation out to every high school in our district. Every high school responded. Over 400 showed up to get matched with employers who will do apprenticeship. Were addressing those. The other issue im hearing from employers that is a big problem is the lack of entry level homes for their employees theyre bringing in. And because we in fact, my soninlaw and my daughter are looking for a home, and he said, basically, anything in that starter home level in our area of georgia from 140,000 to 180,000 is sold by the time it hits the market and it sells for more than the asking price of the home. Were trying to find ways to address that. What its doing is push those employees to take long commutes from other communities because they cant find the Affordable Housing in our area let me say entry level housing, or moving into multilevel housing, which is creating a supply and demand issue there, which is causing apartment complexes and other multifamily homes prices to go up. So, my question and i appreciate, dr. Calabria, the efforts to retain capital, because we do need to have that rainy day fund, if and when we do get into the next financial crisis. I think thats Good Business decision. I think thats a good running car to be in. My concern is, and i know this was this rule was proposed by your predecessor, if we make that a permanent rule, things are going again and thats a permanent rule, requirement for multilevel family or multifamily dwellings to be double of that of Single Family. The concern i have is could that actually further impact the availability of these homes that are really needed in our parts of the country . Thank you for that question, congressman. Certainly, we want to make sure fundamentally with a well thought out, Strong Capital rule that means fannie and freddie are there during stress times to provide that credit. Ill remind the committee if you go back and look, 2008, before they failed, 2009, fannie and freddie pulled back from the marketplace. Theyle focused on saving themselves. I think any forprofit enterprise would have largely done the same. We need to make sure theyre strong going into a stressed environment so they can be there. Were not looking to penalize multifamily or Single Family relative to each other, but just make sure the riskbased capital standards reflect the relative risk. Unfortunately, the multifamily portfolios that fannie and freddie largely came through the crisis well, much stronger underwriting there. Again, making sure the risk and the capital there is balanced is where were going. I just want to make sure that by doubling the retainings from the multifamily, it doesnt create an unbalance there to further the crisis. One other quick question in the final seconds i have. Theres been a prohibition against the gses lobbying while theyre in conservatorship. I want to make sure we continue that Going Forward. Will you support a ban on lobbying congress by the gses . I think it depends on how its structured. Even fannie and freddie have First Amendment rights. I just want to make sure we respect those. Thank you. I yield back. The gentle woman from North Carolina, mrs. Adams, is recognized for five minutes. Thank you, madame chair, and thank you, gentlemen, for being here today. Firsttime home buyers have traditionally been the driving force of the Housing Market and these borrowers traditionally rely on low down payment mortgages to purchase their homes. In fact, over the past several years nearly 80 of firsttime home buyers with mortgages purchased homes using low down payment products. Director calabria, can you please speak to how the fha will continue to ensure borrowers have access to prudent, low down payment options. Well continue to make sure they are sustainable, that when we get people in homeownership, theyre there to stay. And i do think, of course, down payment is a part of the question, as is dti, fico, credit number. We want to make sure we get borrowers in to stay and i commit to you thats what well be trying to do. Thank you for that commitment. For each of you, if you can answer yes or no, it would be helpful. Should the federal government play a role in ensuring access to Affordable Housing and affordable loans . Mr. Mnuchin . Yes. Thank you. Yes. Okay, great. And, of course, and we should do it in a responsible manner. Okay. Does the gses play a role in ensuring access to Affordable Housing and affordable loans . Yes. Of course. Yes. Great. Secretary mnuchin, your plan for Housing Finance reform proposes to replace the current Affordable Housing goals with a fee that would fund Affordable Housing programs. While you provide extensive details on other recommendations in your plan, you provide no details on the size of this fee or what kinds of Affordable Housing programs the fee would fund or how you would expect this would be an adequate replacement for the Affordable Housing goals. Its clear that youre pining on your key details of your plan when it comes to Affordable Housing, but Affordable Housing cannot be an afterthought on the debate in finance reform. It has to be at the center. So, can you please tell us why you have decided not to spell out key details of your own plan on Affordable Housing . Well, thank you for that question. First, as i said in my opening testimony, because i wanted to clarify, we want to make sure that there is Affordable Housing. I think its been misinterpreted that were looking to replace the goals with a fee. That is one alternative that has been proposed. Thats not necessarily our only alternative. What we are seeing is Affordable Housing goals, that we want to make sure theyre accountable. We want to make sure the Community Groups and the communities are getting the benefit of that. Its really more about accountability and we look forward to sitting down on a bipartisan basis and figuring out how we dont have less Affordable Housing. If anything, we could have more Affordable Housing and People Better served. So, you do have some details then . We have views, absolutely. But we would sit down on a bipartisan basis and want this resolved. Its not just treasury. Okay. Thank you, sir. Let me move on. Over the summer the gses made several concerning changes to the affordable lending products, previously these programs had income limits of 100 of the area median income. Now the income limits are 80 . Director calabria, are you concerned that these changes will deprive consumers of mortgage options and potentially lock them out of the conventional market . I think its important we make sure fannie and freddies Affordable Housing efforts are well targeted. So, for instance, the statutory framework as Affordable Housing goals built on income. Most of the programs are targeted at credit. Of course, while credit, history and income are positively correlated, theyre actually only weekly. So, were actually in a situation historically where higher credit, lower income borrowers have been crosssubsidizing worse credit and higher income borrowers. One thing were trying to make sure is essentially make sure that the Affordable Housing products that provided are well targeted within the goals to low income families. Great. Thank you very much. I yield back, madame chair. Thank you. The gentleman from ohio, mr. Davidson, is recognized for five minutes. Thank you, madame chairwoman. I thank our witnesses, thanks for the work you do on behalf of our great country and the skill with which you do it. Its been an honor to see you all at work in your roles. And really just for the benefit of folks back home in ohio who are concerned about Affordable Housing as well. Its not just on the coast where Affordable Housing is of concern, in Rural Communities, often we face shortages. Part of that is due to just population density, even though the cost of living is much more manageable in ohio. But when you look at the size of the Balance Sheets that we have within treasury, that we have within the various components, im just curious, what percentage of that Balance Sheet is comprised of things the market would produce, market risk versus essentially subsidized programs that would never actually be produced in the market . Director calabria . Thank you. Let me really emphasize as someone who grew up in Rural America the importance of making sure that credit is available there. Ill also note, i have been going around and seeing the Federal Home Loan Banks and recently visited cincinnati Federal Home Loan Bank and want to make sure i get outside of washington. More directly to the question, were looking closely, whether its the conversation between the gses and fha or private market. We dont want any gaps but we do want to look at where can the private sector pick up this business and provide it so that no one is left out. Thank you. I dont know if well have an easy quantitative answer but that highlights the problem to me. To me, if you think about the composition of the Balance Sheet, we begin with underwriting. And some things just wouldnt pass an underwriting test. They really wouldnt. They only exist because theres a federal program that intentionally targets this. We decided as a country, collectively, you know, to pass a law that said were going to do these things. The market wouldnt produce these things. My concern goes to how those things filter through the Balance Sheet and then wind up on the back end. Perhaps in a credit Risk Transfer. When i look at the efforts to delever the Balance Sheets and put that risk back out into the market, and i think back on the housing crisis, you know, people in the Financial Sector have been demonized because they structured these mortgagebacked Security Products in a way that was full of bad product and not enough good product. And it seems to me that nonmarketbased risk shouldnt enter the market. It should be held on the federal governments Balance Sheet because the only reason it exists because the federal government decided to create it. And as we look to delever that Balance Sheet and we use a product called a credit Risk Transfer, for the benefit of folks at home, director, could you please explain what a credit Risk Transfer is . Certainly. So, what the gses will often do is they will have pool of loans and sell they have over 200 some investors in the marketplace. Some of these insurance companies. Other types of investors. They will essentially take the credit loss, so if this reference pool doesnt perform, the credit loss is transferred to the investor. It does allow us to get some market signals, so, you know, the bids that we see on credit Risk Transfer are an indication of what Market Participants think about the underlying risk of the reference pool. So, i think were learning a lot from that process and having a better insight on risk. Of course, within conservatorship, this was conservatorship, it is a important way to get the risk outside of the gses. So when we are looking at selling the product, my concern is that it is not retained on the federal governments Balance Sheet, and some might propose to me what is an absolutely horrible idea is to protect the taxpayer to sell it off into the, ma, and keep the good stuff on the Balance Sheets, and selectively keep the lean meat on the government and sell the fat and fillers out into the market, and that a recipe for disaster, and this should never en thor the, ma, because the market would not produce it and they would not do the underwriting to let it happen in the first place. So as i am looking through the recommendations, mr. Secretary, i would ask that you consider the structure and the purpose that the entities serve, because even now at 3. 5 unemployment and the economy booming and record low unemployment, and wealth and prosperity on the rise at every income level in the United States of america, we are actually providing bigger housing subsidies, and federal housing subsidies than back at the crisis when we had a shortage of Affordable Housing at a different level, and 10 unemployment, and the trend is not for less federal housing subsidies, but for more, so we are loading up the Balance Sheets with bad product, and i want you to protect the market so that it is not ending up in the credit transfer pool, sond that the people can do sound on the front end and the back end and the government can contain the problem they are in fact creating. Thank you. The gentleman from california mr. Sherman is now recognized. We have the envy of the world, people able to borrow hundreds of thousands of dollars at pretty low rates, and we have a system that has produced 300 billion of profit for the federal government, and more than and has paid back the federal government 109 billion more than what was necessary at the beginning of the crisis. It works. It produces huge profits, and produces low interest rates, and it is a far Better Real Estate finance system than any other than anywhere else in the world, but one giant flaw. There is no way to make 1 billion for a private individual and no way to get Stock Options for the private individual, and so it is working for everybody but the 100th of the top 1 . And this is working so well, thatyearold not get congress who often makes stupid mistakes to approve spinning these entities off, because they are in effect government entities. Secretary mnuchin, do you believe that you can spin the entities off without an act of congress authorizing them . Yes, we do. But let me just make a comment. No, no, i have a limited amount of time, and you have your Opening Statement, and this is my five minute, and i hope very much that you dont, because it would be a terrible mistake, and lets move on. You have said that we are not going to lower the conforming loan limits as part of the plan, and i would like to have so many worries about this. You wouldnt deny the federal government backstop to loans over a certain amount as long as that amount isnt the applicable conforming loan limit, and so in other words, you are not looking to back into the conforming loan limit by saying that certain loans under that limit will still conform, but they wont get a backstop. I shouldnt worry about that, should i . That is not the case. Good. Thanks. Director clabrio, the patch is expected to expire in 2021 and the tendency in my branch is to deal with things like a day before the thing is going to explode. Can i be confident that business will have plenty of advance notice if there is a change in the qm patch . I will certainly endlessly nag pcb to get it done in time. And we had them there and i nagged them, too, so i am helpi helping you out. Okay. We have a federal system, and the decision is whether to have rent control is made by state, and my state delegated to cities. I would hope that we wouldnt try to use the power that you gentlemen have to tell california and various cities what kind of rent control it should have if, especially, you are making the loan at the beginning and you know what the rents are when you make that loan. The loan has to be good loan based on the rents that exist when you make the loan. So the opportunity to raise those rents higher may be beneficial to the real estate investor, but they are not necessary for you 2ker78 that t determine that the rent will pay the mortgage. Secretary mnuchin, is there going to be some effort to penalize multifamily apartment purchasers if they are in a city that allows certain types of rent control. The answer is that rent control has worked for long periods of time, and the real question is that if there are substantial changes to the rent controls really, and this is a directors responsibility that the gses have to properly underwrite the credit of the loans. But itll be an underwriting issue, and not a use of the power of the federal government to go with one system rather than the absolutely not. And as i have pointed out it should not be a Big Underwriting concern, because you are making the loan based on the rentals that exist when you make the loan, and nobody is making a loan and saying, well, this is a terrible impudent loan, but when you raise the rent later it is well, i would comment that there is a credit issue for example if these are 30year loans, and people dont reinvest capital to keep the buildings correct, there could be. I look forward to 30year apartment loans, and i yield back. The gentleman from North Carolina mr. Budd is recognized for five minutes. Thanks to each of you for being here. So, this hearing was entitled by the majority as the end of Affordable Housing. So, to each of you s there anything in the administrations reform housing plan that would call for the end of Affordable Housing, yes or no . Absolutely not. In fact, our highest priority is to provide Affordable Housing. I tried to clarify that in my Opening Statement, and i would give the chair and others the benefit that perhaps they did not understand the certain aspects of the plan. Director . No. And again a yes or no to teach of you. Would the administrations plan lock people out of 30year mortgages or result in loss of the confidence in the investment of housing . No. No. No. So is the goal of Affordable Housing better advanced through todays quo tas and set advanced set asides or a more efficient and transparent and accountable mechanism for delivering tailored support. Bettered. The latter. I have yet to see a Government Program that could not be made better. And director, this is for you, and for the record, i appreciate your hard work as serving as a conservator of fann fannie and freddie, and the regulator of the home loan system and you are very transparent on your intended course, and on every step that you intend to take, and so thank you. So i understand that you are in the middle of the pilots and the concepts there at fannie and freddie and i value this, because i worry that the gses are competing with the primary Mortgage Market. And take for example freddie macs pilot called imagine, and freddies called end me, and so should these compete with the private sector and if not, would you explain to the committee why you are opposed. Inside and outside of the conservatorship, i expect the gses to live within the charters and we will take a direct and if it is not on the page, they are not doing it. That is the way that the law is. And within the conservatorship, the pilots in my opinion is going to be focused on getting out of conservatorship, and that has to be the strength for the companies to be prepared for a potential downturn in the Housing Market. So, could you elaborate on that a little more. I mean, what ways do you see them competing, because i want to drive the opoint home, and if you could help me with that. We will be reviewing all of the existing pilots to make sure they are consistent with the exiting conservatorship. So you would say that the pilot is to get out of conservatorship . Absolutely. And continuing with you, director, with the impact of the home buyers and the taxpayers and the expanded market share since the financial crisis and how is the fhas ability to grow out of the fiscal problems displaced the private capital and expanded the taxpayer risk. So this is the question on the fha . Yes, for fha. Yes. Okay. We want to make sure it is not counter productive and competing, and i would call what the gses have done is the skimming of the cream off of the fha and taking the better risk away from the fha which is forcing them to raise the premiums and threatens the viability of fha and there is a way that i can make sure that my friend across the street is not undermined by what fannie and freddie are doing. Thank you. And the final question, and what in your view is what sort of Counter Cyclical role should fha play in the market . I think it is important to keep in mind that fha and fannie and freddie were all created to be Counter Cyclical, and they should be the support there in the times of the stress and the floor under the market and my view is that they should not be leading the charge of the lemmings over the clip, but the net to catch the market when it is going south. Thank you. And thank you to each of you, and with that, chair, i yield back. Thank you. The gentlewoman from pennsylvania mrs. Dean is recognized for five minutes. Thank you, madam chair, and holding this important hearing on the question again of the lack of Affordable Housing and the need for more Affordable Housing and the reforms that the administration is seeking. I thank the secretaries and the director for being here, and this is something very important if my district suburban philadelphia, and the lack of Affordable Housing across the spectrum of the folks who need Affordable Housing. I know that i am at the end of the line here, and i would like to go back to define the scope of the problem and start with you director calabria, i read your statement with interest, too many lacks what we deserve, a place to call home, whether it is rent ord oed or homes. Can you describe the scope of the problem, the seniors, the rural, the underserved, the scope of the problem . It is across the board. In california, the increase of homelessness which is happening in other cities as well, and the inability to afford rents, and to me, it is broader economic problems as well, the ability to move somewhere, and the ability to move to new york or los angeles and to advance in your career is threatened if you cant find a house to live, and of course, you could talk to any of the junior staff or the interns with the difficulty of finding housing moving to washington, d. C. , and so it is impacting the stability in your life and career and it is difficult to keep a job if you are not stable, and so this is a real crisis that is all encompassing. And core crisis and by the numbers of the data here, we have seen that 1 in 4 people eligible for rental assistance or the low Income Housing assistance actually receives it. Does that match your data. Correct. How do we expect and reach out to other 3 4 of the folks who are suffering under this problem, specifically, how do we do it . To me, three fundamental constraints going on here at the risk of alliteration, land, labor and loans. I think that we do need broadbased reforms in the zoning in areas to speed it up, and second on the labor, we have a distinct shortage of the specialty trade contractors and not enough plumbers or electricians or carpenters and throw money at it, and if you dont have somebody to swing the hammer, it is not built. We have to focus on that, and my responsibility on the loan or the lending side is important piece of the puzzle, but i would like to emphasize we need all three of these. I appreciate that. Is it your ambition to reach out to get the whole host of the folks who need Affordable Housing . Absolutely. Secretary mnuchin, is that your ambition, also, to use government wisely and to reach all of those who need homeownership assistance . Yes, i would, and i think that again, there is appears to be bipartisan support on the need for better Affordable Housing. But nowhere in your testimony did i hear you or secretary carson talk about the gap, the 3 4 of the people of absence of units and housing. I heard all of, and read with interest your issues about the reform and making sure that we are more efficient, and mr. Secretary, you said that you are recommending more efficient means of support, and how about more abundant means of delivering that support, and are you interested in that . I personally think it is a good goal, and we would work with congress to do that, and that would need, and again, that is part of the reason why our preference is to do congressional legislation. And to sit down on the bipartisan basis to agree on these things, and how to do it. Secretary carson, your ambition that we expand our resources to make sure that we get everybody Affordable Housing . It is absolutely one of the highest priority, and that is why this past spring we had the display on the national mall. It is not a lack of innovation. It is not a lack of entrepreneurship, but it is a lack or an abundance of barriers that prevent us from being able to use it, and we need to use all of the resources and Work Together to remove those, because we are smart people, and we do it. My concern is that however it seems to me that the reforms are really an attempt to privatize, and say this is not governments responsibility. Back to the director. Is it your ambition and you said it twice and i heard you twicely that in the current condition, fannie mae and freddie mac are going to fail in the downturn. Is it your ambition to shore them up. To shore them up. Is it your ambition to shore them up or spin them off . Well, it is not able to privatize them . Well, privatize and get them out of conser conservatorship. And this is the ambition and the trajectory, that you are hoping to take, treasury . Affordable housing is part of issue, but it is a broader government issue. I thank you, madam chairman. The gentleman from tennessee mr. Kustoff is recognized. Thank you for convening the hearing, madam chairman and members of the panel. And so i think that earlier today, secretary carson was asked about Affordable Housing which is important in my district of memphis and western tennessee, and in the housing and the economic recovery act of 2008, there is a duty to serve provision that is singling out the availability of credit for manufactured housing as an underserved area that fannie mae or freddie mac are required by statute to make a certain effort to address. As it relates to the duty to serve provision, the administrations Housing Finance plan proposing to replace that duty to serve with a more efficient and transparent and accountable mechanism, and to transfer some of the activities to hud. If you could, could you explain how this is going to work, and in respect to manufactured housing with both real personal property and chattel loans, et cetera. Well, let me emphasize and i will note several years ago i ran the manufactured Housing Program at hud and very familiar wit, and i think that for much of america, manufactured housing is the most affordable option, and we can bring a lot of advancements to bring down the housing costs, and i cant speak to the details of what treasury has envisioned and i will leave it to secretary mnuchin to discuss, but we want fannie and freddie to have an active involvement in the housing and do it where it is safe and sound. And the statutory duty would not be diminished . It is in law today and i have every intent as long as it is remaining in law, we will actively carry it out. Thank you very much, director. Secretary carson, it is good to see you. Absolutely, you, too. We had the honor of you in memphis a few weeks ago as it relates to opportunity zones, and in memphis, we have 32 opportunity zones, and of course, which were created under the tax cuts and jobs act. The area that you visited in memphis is union row which is a 900, 950 million project to include apartments and a Retail Grocery store, and the remarks that you made at the event, you mentioned the importance of the local community involvement, and also added benefits such as rising property values, and can i ask you, how do you see the opportunity zones as a way of addressing the affordable hou housing in memphis, and i know that you made an Affordable Housing stop before you went to the row project. Yes, a lot of the opportunity zones across the country, the initial starting point might be for instance like in st. Louis an abandoned foundry. And then as they begin to build out they have to build workforce housing. And with the workforce housing, it is going to be Affordable Housing. And we have tailored some of the programs to be able to take advantage. Or allow the builders to take advantage of the grant program, and so in other words, instead of a single multi family unit, we are using the mixed purpose units to put the commercial units on the first floor. And those are the kinds of the things that are obviously not only provide the housing and provide jobs. And of course, they tend to fertilize the area so that other people want to come in and take advantage. Thank you, secretary carson. Secretary mnuchin, one thing they did not notice is the opportunities in memphis that was created that i just described union row as an area with some degree of light, and in your role, the secretary of the treasury, you are responsible for certifying these opportunity zones, and can you describe if you can, the impact of the blighted communities that we are seeing across the country and how opportunity zones are addressing those . Well, the first of all, the opportunity zones were the states having the ability to designate the opportunity zones and if they fit certain requirements we certified them, and we think that the states are determined to find where these are appropriate and for the areas that you have been describing, they are very beneficial, and not just for housing which is a big part of this, but also for the new businesses and the businesses being relocated. Thank you. I thank the witnesses and i yield back. And the ent j gentleman from illinois is recognized for five minutes. Thank you very much, madam chair, and thank the panelists for being here today. Inadequate Affordable Housing is a major issue that people in chicago face, especially the working class families that i represent on the southwest and the Northwest Side of the city. And rents in america have steadily increased while the working classed people have seen the wages remain stagnant, and the rents in the u. S. Have gone up by 13 while the Median Household Income for the renters went up one half of one percent. The homeownership market is not better for the communities of color who were hit with the hard west the housing collapse, and that is why the roles of the gses and fha is so critical. So if you could answer for the credit. You support Affordable Housing . Yes. Yes. Yes. And you believe that the government achieves the role in Housing Affordability, i take it . Yes, across the board. And in a recent report, from the administration, the fha noted that its plan seeks to quote ensure that the fha and the taxpayers are properly compensated for the riskier loans, and this is raised earlier by representative wexlan, and part of that is to introduce the tierbased pricing and the fha guaranteed loans and so secretary mnuchin, do you share that information to what you committed to the representative wexlan, because we are interested in that also. But secretary carson, the tierbased pricing would constitute a change from fhas current policy which is currently maintains that a flat fee without respect to the Credit Rating of the applicant, correct . Yes. Thank you, but that is disappointing to me. And so that is running counter to the model that has governed fha for decades the cross subs dieization of loan applicants to have with those with a risk pool to provide the fha to provide loan guarantees regardless of the credit. So what you are proposing to the tier based pricing is basically riskbased pricing undermining the entire model that allows fha to back loans for lower income families with less credit. Riskbased obviously means that you take the people who are higher risk individuals and you charge them a bit more. People are low risk and have developed a good credit line will have smaller premium. And so those who have struggled financially, economically are going to be charged more well, it depends how if the credit is reflective of that experience. It depends how you determine the credit and the credit risk. And let me switch gear, secretary mnuchin, the treasury re cently recommended that fha should revisit the underwriting criteria for the multi family loans and in jurisdictions that allow rent control loans, and impediments for loans, and secretary carson, your agency noted that rent control laws interfered with the local Housing Markets. Both of you, you are suggesting that some penalization for the areas that enact the rent control laws, and is that the takeaway, and what other impediments might you be referring to. And i may have commented on this earlier, but first of all rent control has worked in many markets for many periods of time. And the comment is that in certain markets, some drastic changes to the rent control laws, and they may have credit implications for underwriting. So that is the purpose of that. And there are multiple impediments and not just the rent control, and you know, there are wetlands, historical land, and theres height restriction, and density restrictions, and theres zoning restrictions, and i mean, by the time you add all of those up, it becomes extremely substantial, and that is what is increasing the price so much, and in particular when you are looking at renters. Between 2001 and 2017, the number of families who are significantly burdened in terms of renting has gone up by 45 . Generally speaking you can say that, but also the local officials tend to know their communities best. Thank you very much, and i yield back, madam chair. Thank you. I would like to say that the votes have been called and i recognize the following members and then we will adjourn the hearing, mr. Gonzalez and ms. Alexandria Ocasio Cortez and mr. Rose. And the gentleman from ohio is recognized for five minutes. Thank you, madam chairwoman for making a few moments and holding the hearing. I am under no illusion of the challenge that you have to attempt to reform the financing system and the gses and not disrupting the Housing Market. One thing is clear that congress has the obligation to work the administration and forge a bipartisan path to address the challenges being discussed today. And the first question today, director, you have testified about the Current Ratio being 500 1 and the big banks are levered 10 1 and in your view, what is the target for the enterprises toageleveraged . A lot less, but the gses should be in that ball park. Thank you. And then one of the things that we talked about before and that i have frankly read is that there is a concern that this plan could be seen as a bailout for the preferred equity holders and my question would be what is the functional difference of holding the reserves in a dedicated account at the fed where we can watch them, and we know exactly where the cash is and what it is doing and not doing versus having it on the Balance Sheet. And let me first emphasize until they are out of conservativeshcon ser v conservatorsh conservatorship, we are building a buffer to protect the entities in the time of the loss, and secretary mnuchin has said that we have not gotten to point of deciding what the next route is, and again, that could be an option. Okay. But so, i say that, again, what is the functional difference, and what is the difference of your mind of having a dedicated account in your account versus the gse . Although the treasury not paid cash, the amount that we are deferring in cash that is going to be staying in, and the liquidated preference is coming up, so no difference of the cash in the bank and the obligation owed to us. Got you. And then director, you have talked a lot about and this is 100 right that at the Current Ratio no way for the banks to sustain any meaningful downturn. Could you put some clarity around that specifically, and how big of a downturn and what is the stress test that you are running, and where should we be concerned . Well, i think that will is a little bit of the underestimate of the most recent dodd frank showed that if you have a downturn similar to the last one, you have to put in excess of 40 billion and i dont see how you get the money back, and so these are not small numbers that we are talking about. Thank you for that. And secretary mnuchin, when talking to the local stakeholders we have a report of the conservatorship of capital gses and they have expressed concern over the overlap of the gse as and the fha and the specifically low down payment, and the high debt to high value loans and preventing the gses from offering the products could limit consumer choice, and it will shrink the liquidity at bottom of t bottom of the market. Can you talk about how that is going to benefit the taxpayer and the overall economy . We are suggesting these to be looked at. And for instance the cashout refis and not to eliminate the cashout refis, but when the borrowers take cash out, it is a riskier loan, and this is one of the great saving mechanisms so we want to make sure that as the fhfa looks at the credit they are look at the cashout refi differently than the purchase money mortgage. Fantastic. I yield back. The gentlewoman from new york, ms. Carolinalexandria oca cortez is recognized for five minutes. Thank you for coming today. And secretary carson, it is good to see you again. And secretary mnuchin, and releasing freddie and fanly from conservatorship is your top priority . No, i would say that housing reform is my Top Priorities and we have not determined if they go through conservatorship or a conservatorship. And it says that freddie and fannie are on the top ten lists that we will get down according to this article. Yes, that is accurate. And we do believe they belong in the private sector and that could be through conservatorship or through other resolution mechanisms. I understand. Are you aware that the same day that you made those comments fannie maes share price increased by 46 , and freddie macs share prices jumped 43 . I was. It was clear that the market did not understand my comments and what they ims implied and many s there is very limit ed understanding there. And so, mr. Mnuchin have you and your spouse and including the 15 disclosed trusts would they stand to receive any financial gain surrounding your exit of fannie mae or freddie mac from the conservativeship . Noday, no. I have divested the assets, and no, i have no reason to believe that i have anything to gain. Any gain from the increase of that share price in following the remarks . Not aware of it. Okay. Director calabria, you have also made clear your intentions to release freddie and fannie from the conservatorship with or without the Government Action and you have taken steps in that direction by allowing the gse capital and there are serious concerns that if you are proceeding with this plan without congress, there would be a serious loss of investor confidence. Which could result in unforeseeable disruption to the Housing Market, and have you heard of any of the concerns from domestic or Global Investors . Thank you for the question, congresswoman. This is less of the intent of the obligation, which is following the law. The law requires me to fix them and get them out or to put them in the receivership, and we have heard from select wall street firms who would not wish us to do that and the risk is on the choice of one hand to follow the law or dont follow the law, because wall street doesnt like it, i follow the law. Going back to concerns about disruption of the Housing Market. What are some of the disruptions that have been raised . I think that a number of investors particularly the asset side of the Management Market dont want to see the changes of the interest rates, because it is going to undermine their holdings and they want an explicit guarantee, and i should say that my long years of dealing with wall street and i have not heard of anybody on wall street who wants to take the upside and leave the taxpayer with the downside and that is my experience of working in these areas, and so me, i think that wall street has been about taking the upside and the downside. With the information that you provided in the testimony, id like to discuss a matter of rent with you. In new york, the average renter is earning about 20 an hour, but they dont earn enough to afford a onebedroom apartment at the fair market rent, and the families are looking for stability as the housing is not keeping up with the incomes. And so for someone making about 45,000, what do you think is a fair rent for them to pay . Well, if we are using hud standards where it is 30 of the income, that is one standard. And of course, the fair market rents that are at 40 b a and th are hud standards and we can argue if they are too high or low, but if we have a lack of Affordable Housing in new york and many areas of america, but i will note that when we recently changed the multifamily caps we increased the number of i have to grab a number, because i am running out of time. The number of what somebodys rent is. I think that is between them and their landlord. And making 45,000 ball marc. And you know anybody who makes 45,000k and the rent . That is higher than somebody, are you saying income or someone making 45,000 a year. Lets say if you were a friend of mine and you were 45,000 and what i would suggest as me personally and not a Government Official i would say that you should not spend more than 15,000 tops on the rent. Thank you very much. Mr. Rose, you are recognized for five minutes. Thank you, chairwoman, and thank you for calling the hearing. Before i begin, i want to reiterate my colleagues call for absoc to call for a study on cecil. I agree with my colleagues that Housing Finance reform is welcome and long overdue as have been said many times today, the time to reform the Housing Finance system is when it is good and not when the system is in a time of crisis. And one thing they have noticed in the brief ten months here in congress is that too often we let the perfect be the enemy of the good. The proposals put forth by hud and treasury recommend a positive first step on the long path of reforming the Housing Finance system. There are 116 itemized recommendations between the two reports promoting come poe tigs, eliminating redundancies between the gses and the fha and protecting the taxpayers from the future bailouts is good policy. It is responsible governance, and the relatively stable Housing Market that we have right now will not last forever, and we all agree it never does. It stands to reason that members of this committee will not agree on every single recommendation, but we cannot afford the let the perfect be the enemy of the good. I hope that we can put the partnership or the partisanship aside before we reach another crisis. One issue i was pleased to see addressed in the hud housing reform plan was that of manufactured housing. Manufactured housing is incredibly important to the 6th district of tennessee which it is where i represent. Manufactured homes account for 7. 1 of the occupied housing units, and in tennessee they account for 10. 5 , and in my district it is 13 . Dr. Carson, i appreciate your continued attention to the manufactured housing, and your prior testimony about the adjustment fos tiadjust mentes to the title i and title ii parts of the Housing Program. I am troubled that the homes supported by fha does continue the decline however. Of the Administration Reforms in the hud report is the need to publish standards that are burdens to the participatory programs. Dr. Carson, what improvements would help the Title Program and what can be done legislatively or administratively to expedite the updates . We have greatly expanded the manufacturing Housing Office to look at all of the issues that would facilitate not only the construction but the Safety Measures associated with them, and combining the updates to accelerate the process. We will continue do that fully recognizing that this is one of the Major Players when it comes to reducing the cost of housing. Not only in the rural areas, but throughout the nation. That coupled with looking at modular housing and other newer techniques that we have impanelled a group of people to look at the newer techniques and assess those. And manufacturing housing is a huge portion of it. Thank you, dr. Carson. Dr. Calabria, can you give me an update on the chattel programs that the gses included in the dts plans . We are currently reviewing that and the gses have requested modifications to the current duty to serve plans and we will put those out and have some listening sessions and get comment back, but under review for that. What is being done to discourage the cherry picking of the loans so that pilots are not disruptive to the other Market Players . Thank you for that, because it is an incredibly important question. In my experience, pilots grow and they are successful, but it is problematic if they are pilots where the select industry players have access that others dont have, and so they should be open to all that work and if they dont work, end them. And so we have to figure out how this is a program for everybody to participate on a level Playing Field if it makes sense. And finally, director, there is a final concern that i would like to raise with you and one that i hear often back home, and you and i have discussed the issue before and that is to rein in the compensation packages at the gses and especially while they are still in conservativeship, and could you say a word about that . Recently, we made changes to the compensation practices that are better aligned with the conservatorship. Thank you. I yield back. Thank you. Id like to thank the witnesses for the testimony today and without objection, all members will have five legislative days within which to submit additional written questions for the witnesses or the chair, and they will be forwarded to the witnesses for the response and i ask the witnesses to respond as promptly as possible. So without objection, there will be five days to submit extraneous materials for inclusion into the record. This hearing is adjourned. Thank you very much. If you have missed any of the house Financial Services hearing with treasury secretary Steve Mnuchin or ben carter, you can watch it tonight. It is also Available Online at cspan. Org. Tomorrow, Facebook Ceo Mark Zuckerberg is going before the house Financial Services committee and he is going to be asking questions about the libre cryptocurrency products and also free speech on the social media platform. We will have coverage starting at 10 00 a. M. Eastern. And tomorrow, we will have the trump envoy to syria testifying before the Senate Foreign Relations Committee on the troop withdrawal of syria and turkeys action in that region. That is beginning this afternoon at 2 30 eastern and you can watch both of the hearings live on cspan. Org or listen free with the radio cspan app. It is a short week as members of congress pay tribute to the late maryland congressman elijah cummings. He is going to lie in state on the house side of the public where the public can pay their respects. You can watch the ceremony live on cspan thursday morning starting at 10 30 a. M. Eastern and the funeral is friday. Live, friday night, two candidates challenging President Trump including governor bill weld of massachusetts and congressman bill sanford and their strategies and why they are running against the president. This is part of cspans campaign 2020 coverage live friday on cspan and watch any time on cspan. Org or listen wherever you are using free cspan radio app. Members of congress who were in National Security before being elected talk about the role of congress and foreign affairs. The Bipartisan Group is going to discuss leadership in the world, and also asked about the whistleblower complaint in President Trumps decision to withdraw troops from northern syria, also