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

Lawmakers also heard testimony from the head of the housing agency, this hearing is just under three and a half hours. Will 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 . A review of the Trump Administrations plans to change Housing Finance in america. Before i recognize myself, members, today is mr. Mchenrys birthday. [ applause ] if anyone wishes to sing happy birthday, please save it until later. Thank you. We all thank you for that, madame chair. Happy birthday. Thank you. 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 steven ma shun, ben carson, and mark calabrio welcome. Let me say up front the Trump Administrations housing reform plan would be a disaster for our housing systems. The Trump Administration is threatening to end a conservativeship of the spons sponsored gses with our action to provide a government guarantee. If implemented it is likely it would create tour moil in the Housing Market prevent Many Americans from obtaining 30 year fixed Rate Mortgages and block families across the country from obtaining the American Dream of Home Ownership. With this reckless 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 affordable h ownership and rental housing and replace them with the mortgage fee that Trump Officials have not bothered to spell out details for. The plan would also fundamentally undermine the federal Housing Administration 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 push 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 you households and slashing huds budget by 18 . Eliminating protections for lgbtq individuals, blocked dreamers from fha loans and proposed to make it nearly impossible for victims of housing discrimination to obtain justice. In is an administration that reportedly wants to raise homeless camps and round up persons experiencing homelessly and force them to live in dekrep it federal builds. By contrast democrats on this committee put forth measuring to improve afford ability and availability of housing. For example bills to end the homelessness crisis, make fh. A mortgage affordable and protect dreamers. Lgbtq individuals abfamilies and children with mixed immigration statuses and foster youth. When it comes to the Housing Finance system i have long maintained that any Housing Finance reform proposal should adhere to certain key principles, including maintaining access to the 30year fixed Rate Mortgage. Ensure sufficient private capital to in place to protect taxpayers. Providing lid which hadty and stability to withstand financial crisis. Ensuring a shooting transmission to new finance system requiring transparency and standardization implementing level Playing Fields for all individuals especially credit union and Community Banks, maintaining access for all qualified borrowers sustaining Home Ownership and ensuring access to affordable rental housing. Its clear that the Trump Administration proposal does not live up to the principles. Today this committee will committee why the officials who 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. Oh. Thank you, adam 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 hosing finance reform for the longterm divided government is not ideal for many things. But 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. Republican republicans likewise tried and failed. In order to have it lasting change to our Housing Finance system, to put it on a sustainable path for the taxpayers, communities, it is 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 making the goal of affordable Home Ownership more achievable. And while by no means perfect, it stechs a path toward forward, and away from the status quo putting taxpayers at risk and prevents competition within the market. Inaction puts taxpayers at risk. Let me say that again. Inaction database legislative inaction, regulatory inaction puts taxpayers at risk. In january i reached out to chairwoman waters on ideas for Committee Hearings that could be bipartisan. This was one of them. I offered that back in january and 11 months later we are here today. But 11 years ago we in the federal government placing in conservativership and placed fanny mae and freddy mac with over 200 billion in taxpayer bailouts. We dont want to relive that. This administration cant do it alone and put us on the satisfactory path. Today they remain in conservership unreformed and without competition. Our current economy is strong. This is the time to do Housing Finance reform because the Economic Conditions is well. But within of an inevitable downturn at some point appear without congressional action and reform of the gscs is bailout of the institutions is more likely than not. In fact until connect collector clabia took over the gsh had a ratio of 1000 to one. Meej a small dip in market would guarantee failure. Housing finance is too important to put at that risk. Our Housing Market has been trending upward for the last eight years. We may be reaching the top of the housing cycle. We have serious Systemic Risk at the gscs in the federal Housing Administration. Its important we legislate for the long term. Its not easy but necessary. We cant kick the can down the road. I want to highlight a few portions of the administrations proposal that this committee needs to focus on. One a new Housing Finance system must first set clear boundaries between the respective roles of the gscs and fha. Second Congress Needs to encourage competition by leveling the Playing Field and 80ing an open chartering process to for other companies to attain bchts. I think we can Work Together appear achieve the bipartisan outcome that creates the competition that certainty in the marketplace. And i think this can make the American People plowed and put us on firm Economic Standing for a jermgs to come. With that i yield back. Thank you. I now recognize the gentleman from if a georgia, mr. Scott for one minute. Thank you very much, chair lady. Welcome. You know, chair lady, this marks the 10th anniversary of the passing of doddfrank and the tremendous finance crisis that we went to. But there is no more Burning Point to show the great failure at this point than as we look the country, and every sate, in 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 that we will do so. Weve got to focus on certainly protecting that 30year mortgage. Weve got to ensure the sufficient private capital is in place to protect our taxpayers. So there is 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 mr. Mr. Stivers for one month. Thank you adam kmar as the members of are all aware. Fanny may anded freddy mack have been conservativership eight years. Im in congress night nine years already on the top roe this is a i dont think overslough due process. We have seen proposals come and go. House and the the representative proposal. Democratic and rns. Our members prefer conference reform imposed by congress. But if not they intend to proceed with administrative reforms. Its my hope to use the opportunity as a a opportunity to restart the work we should are completed long ago. A bipartisan comprehensive reforms ensuring americans can achieve the dream of Home Ownership and provide stability to the housing system and prevents future taxpayer funded bailouts. This should be the first of many hearings aimed at prochg skeptics wrong and achieving the goals. I yield back the balance of my time. I want to welcome todays distinguished panel. We will first hear from the honorable steven t. Mnuchin, secretary, u. S. Department of the treasury, secretary mnuchin has testified previously before the committee and needs no introduction. Welcome. We will then hear from the honorable dr. Benjamin s. Carson, secretary, u. S. Department of housing and urban development, secretary carson has also testified previously before the committee and needs no introduction. Welcome. Finally, we will hear from the horpable dr. Mark a. Calabria. Director federal finance housing agency. This is director calabria first appearance before the committee he has serve as director of the fha since april of this year. In recent years he served on the republican staff of the committee on banking, housing and urban development, worked at Cato Institute and most recently as chief economist to Vice President michael pence. Welcome, director calabria. For purposes of testimony, each much you will have five minutes to summarize your testimony. Second mnuchin, you are now recognized for five minutes to present your oral testimony. Thank you. Chairm chairmanwoman waters. Ranking member and members of the committee. I am pleased to discuss today the housingle reform plan. Last month i my colleagues and i testified before. Mr. Secretary will you move your microphone closer and speak directly flew it please. Last month is that better . Thank you. Last month my colleagues and i testified before this 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 good faith Discussions Congress and the administration will act in a comprehensive manner to support Affordable Housing, appropriately tailor the federal government influence over the Housing Finance sector, protect taxpayers from future bailouts, and foster competition that will benefit consumers. That is 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 oh or eliminating the Government Sponsored Enterprises longstanding support for Affordable Housing. I am grateful for the tune to clarify treasurys recommendations here today and explain how our plan will preserve support for Affordable Housing while also improving the efficiency, transparency and accountability of the mechanism for delivering that support. Treasurys planned advances for continued government packing backing for and widespread available of the 30year fixed Rate Mortgage loan and the qgscs or successors should continue helping to fund multifamily housing for low and moderate income and other renters. In addition to the general support for Affordable Housing, the gscs have at least four key statutory mandatories to promote access to affordable mortgage credit for 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 periodic contributions to the housing truss 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. And 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 Service requirement but with some added protections. Wrkt to the fourth mandate, the Affordable Housing goals treasury recommends material changes that would establish a more efficient transparent and accountable mechanism for delivering tailored support to underserved borrowers. Further, the plan recommends that fhfa continue to coordinate with fha and enginemy mae who have primary responsibilities for housing lousing finance support to low and moderate income families that cant be philadelphia through traditional underwriting to assure efficient and appropriate federal role for housing. To be clear, treasury is not recommending a reduction for support for underserved borrowers. On the contrary, treasuredy 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 renters nationwide. Finally i must emphasize that our recommendations make 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, and at the same time we believe that reform can and should proceed administratively pending legislation. Unthe leadership of President Trump, i am proud of all the work we have 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. I am pleased to answer any questions. Thank you. Secretary carson. Chairwoman wertz. Ranking member mchenry members of the committee thank you for the tune to appear before you today to discuss how the department of housing and urban development is supporting in administrations efforts to reform the nations Housing Finance system. First, like secretary mnuchin i was taken aback by the title of the hearing. Process 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 Housing affordable crisis. Restrict of zoning laws have made the development of Affordable Housing prohibitively expensive driving up rents appear home prices to some of the highest in the country and leading to california being responsible for nearly half of our nations unsheltered homeless population. In fact, huds laift found that california homeless he increased 16 over the plaft past year alone. Were in if not for california increase homelessness would have declined nationally. Contrary to whats happening in cay, hud as you Housing Finance reform proposal addresses how to best serve Affordable Housing needs while keeping within the principles outlined by leaders of both parties. Including kwarm wom waters. We look forward to working with congress are congress to move the legislation forward. But im confident that we are starting from a place of significant Common Ground about what a future Housing Finance system should look like. At hud we support millions of families with affordable Home Ownership and rental opportunities through the federal Housing Administration and engineny mae providing Credit Access and liquidity in the Mortgage Market. We ought to lou allow the private market to work. But in those areas where it cant or wont work we must make certain we target fha programs to borrowers not served by traditional underwriting. Our plan preserves and strengthenings fha a engineny maes pivotal rools protecting the support and protecting taxpayers. Inheritically serving unmet housing need has been fha he iss most important contribution to the american Housing Market, facilitying entry into financially responsible Home Ownership. Without fha mortgage insurance as of an option millions of lower appear middle income families would lack access to affordable mortgage credit. Take for instance a typical fha borrowers. Last year they were 39 years old, had a credit score of 666 wsh purchased a home for 221,000. First time home buyers represent 83 of f hcht as 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 the 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. We are also working to get a more diverse base of lenders back into the fha program, depository institutions representing nearly half of fhas lender case in 2010 today just represent 15 . To provide regulatory is certainty to lenders to return to offering fha loans we are revising fha defect tax onmy. Up updating loan level certifications and requiring when hud and go after allegations of fraund lent lending. Another critical piece of the plan to the need to modernize fh technology. For decades the fha the operated on Antiquated Technology inhibiting it ability to appropriately manage risk. As part of our proposal fha is undertaking a comprehensive modernization effort to bring the i. T. Infrastructure flew the 21st century. This is the opportunity to move generations ahead to a state of the art system that will fully digitize the 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 allowing Public Housing agencies and owners to Leverage Private capital to preserve properties for longterm afford ability. Since this launch in 2012, r. A. D. Has been a an extraordinary success story. A report we release this weeks confirms what we have long suspected. Ret is stimulating billions in capital investments. Improving conditions for lower income residents and enhancing the Financial Health of the critical Affordable Housing resources for future generations. Adam chair w 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 workeding with congress to enact comprehensive legislation. Lets begin that work today and happy birthday, mr. Ranking member. Thank you very much. I now recognize myself please, collector calabria. Youre representsed for five minutes. Chair wom water. Ranking member mchenry and members of the committee thank you for the invitation to appear at the hearing. Chairmanwoman waters thank you for the kind introduction and welcome to the committee as well as thank you for meeting with me early in the tenure. I frowned found it a productive meeting. I hope the first of many. Let me emphasize for the committee as mentioned in my bio having skrkd worked on the Senate Banking committee. Im proud the last piece of legislation i worked on for that committee was an update in modernization of mckinnie vendo expandening homelessness protections for families. I would note for the committee haves swrg been a primary staffer on the housing economic recovery act, the last housing reform we did that in a bipartisan way, a bi camera ral way i believe we can do that today. Lechlt let me emphasize that Many Americans lack Affordable Housing whether on the other hand or rented. This is a problem in america and across many contents. But as dr. Carson pressed upon its a fundamentally a local problem. A fundamental cause are the local policies making it harder and more expensive to build new housing. Examples including zoning land use restrictions owner rouse building codes. Permitting requirements. The policies disproportionally knit low income families. Our affordable problems can be addressed here in part but wont be solved until local governments removed the impediment limiting supply of Affordable Housing. We should of course applaud the communities like minneapolis upzoning in a responsible manner bringing more density. I recognize many areas in california trying to address this. One part of our mrj finance system can play a role in fact all parts of the Mortgage Finance company with play a relevant. Fanny and freddy and the Federal Home Loan Banks exist to ensure affordable throughout the economic cycle. This is critical to supporting sustainable Home Ownership, offeredable housing especially when the kme is weak and mortgage credit tightens. But in re current condition fanny mae and freddie mac will fail in the downturn. When they fail, Housing Affordability problems get worse. Together fanny and freddy own on gaerpt 5. 6 trillion in the single or multifamily mortgage nearly half the market until recently they were limited to 6 billion in allowable capital. To do the math when i walk in the door the combined leverage ratio at fanny and freddia requests bass nearly a thousand to one. Last we can secretary unusual mnuchin agrood to retain up to 45 billion combined. This is significant. Retaining one quarter net worth improved the leverage ratio by near hi half. Proud to say in the six months ive been there we doubled the capital at fanny and freddy. But Still Standing at nearly 500 to one np contrast the largest banks have archl leverage ratio of 10 to one. In perspective, the referring oish ratios we see at largest gsibs fanny and freddy leveraged 50 times that combined with low capital. Credit risk has been increasing in recent years. Risk factors exceed levels in years up to the crisis. While average borrow Credit Scores with better. The average share of high mortgage are higher than pree crisis. The procyclical pattern of increasing richk harms first time and low income borrowers make it easier for them become high had ily leveraged and harder to keep them hope when the cycle turns. Borrowers debt to income is widely used and spelled out in doddfrank. Its adversarily impacted in a weak economy when incomes stagnate orp decline and Household Debt levels stay the home same between 2006 and 0u the enterprise is sneerly doubled the purchases of loans with debt to income ratios great are than 43 higher than than that seld out in the qualified mortgage role. Yes, marketwide dling delinquency rates are low today but low before the crisis last time. Low in 2004. In fact, low well into 2007, 2008. Dling delinquency rates today are a function of a strong labor market rising houses pricing if these turned, when there are defaults when the tide turns at the current levels of capital let me be clear. Fanny and freddy will fail in adown durn in the current condition. Of course its our abt offive to get them out of the condition. Its spoet supposed to home home owners and taxpayers. Its failed on both accounts. Let me commend my colleagues for coming up up with reasonable thoughtful plans presenting a plan out of this. Its broadly consistent with my Top Priorities. Cementing fha as a working class regulator to ensure fanny and freddy operate in a safe condition. Second to end the 11year conserverships and third as required by and the to fund a efficient opinion system. I share the principles you laid out at the beginning of the congress. I look forward to working with the committee as we move forward. Thank you, director calabria. I now recognize myself for five minutes for questions. Director calabria, you recently announced that you expect to make a decision very soon about fhas proposed capital rule. In rule would be a key factor in determining whether pricing of gsc loans with will work for a broadbase of human home owners or unnecessarily block creditworthy people out of the merp dream of Home Ownership. As you know, civil rights advocates and others raised concerns that this rule would increase incentives for fanny and freddie to engage in riskbased pricing eliminating cross subsidies helping minorities and other underserved borrowers obtain mortgages at affordable rates. There are concern that you require up to 5 capital which many analyst 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 milled of a rule making i hope to be alk to announce in the coming weeks whether we have to repropose the rule or not. I would very much agree with you, i view this as perhaps the most important rule making that i will engage in in my tenure. I think its incredibly important to get it right. Wave been talking to a number of constituentscies a you know there are a number of factors to bam. We are trying to do our best and get to a point where it will be balanced. I feel confident where we will get will maintain access and affordability but also protect the system. Thank you very much. Pap at what level of capital would you feel gnat gsc to be capitalized. In the midst of a ruling rule making i think its appropriate for me to refrain from giving specific answers. Do you believe that a higher level of capital would affect the pricing of a mortgage . I believe that as this hatches for all lebron james let me start again. I believe im large systemically important whether citi bank orphanny mae should be well capitalized. I understand you have i want you to understand that you have an obligation to the taxpayers but you also have an obligation to ensure broad access to credit for creditworthy borrowers. Your job requires to you stiek the strike the appropriate balance between the goals. However based on what i can see, from your actions and comments to date i am concerned that you are overly focused on slrnging the gsc footprint even if it comes at the expense of blacking hard working families out of Home Ownership. I would encourage you to naughtfully consider the feedback that you are receiving from civil rights advocates and others about this proposed capital rule and ensure that these concerns are addressed in a final rule. Further, director calabria we met at the beginning of your tenure at director of fhfa in that conversation i stressed the importance of working to increase Home Ownership opportunities for minorities. Sometimes people condition flate minority home lesson ownership withforded frd aable Home Ownership i want to clear these are 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. And we have an astonishing racial wealth gap reflecting this gap in Home Ownership rates. Do you agree that fhfa has the responsibility to address the racial Home Ownership gap and not just access to affordable Home Ownership generally . First, let me assure you on your previous point that we will work with and take in all compensates for all stake hoerlds and civil Rights Groups and others. I guarantee you we will meet with everybody and talk to everybody who wants to meet with us and do our best to see the concerns are addressed. I would emphasize one of the bygd driver in the increase of the racial wealth gap for the low income minorities household had liar leverage croatia row issuing going into the tries i see krietsds and hurt more. Imcommitted to making sure we dont see a repeat of what we with went through in 2008, 2009, 2010. I believe that was a devastating time. Im committed to making sure that doesnt happen on my watch. Are you telling me you have specific actions that you have taken and action nas you plan to take to increase access to Home Ownership for minority borrowers . Let me first emphasize that our emphasis on Home Ownership lyn will be on sustainable Home Ownership. Its critical in Home Ownership its they are staying in Home Ownership. We dont do anybody if a fif in they chair through appear lose the house. Can you use the word minority. I can use the word minority but we want to look out for all families. I know you are but i specifically asked you about the wealth gap and the problems that we have Home Ownership or minorities. Will you address the word minority . If zboo its difficult for you, then i will yield my time back and wiltzius, i will call on the gentleman from North Carolina for five milepost for questions. Safety and soundness. Safety and soundness to our Financial System, to the footprint that the three of you oversee is your primary obligation to us as taxpayers. Safety and soundness. Collector calabria safety and soundness is your primary obligation. Correct. Financial collapse of the 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 hud. 116 items. They fall into two different baskets, one that you can can do through administrative action, that is within your right under law, that the congress has written. The other requires legislative action. Almost a third of all the recommendations in the plan were legislative reforms. 18 from treasury. 7 from hud from my count. Given the sheer volume of work that needs to be done to build the modern Housing Finance system that the American People deserve, how important is it that Congress Role up the sleeves and legislate her in go across the Panel Secretary mnuchin. I think its very important by far the first choice. I think its obviously very important if we want to to be able to have things sustained across the administration that is help the American People. Absolutely critical. Director calabria, Federal Home Loan Bank membership this was reviewed under mel watts directorship process. And limited are you going to seek to have a review of the Federal Home Loan Bank membership requirements . We are. Given that there is a large number of membership questions at different banks dealing with retises and cdfi and gap ensurer High Pressure we have been asking for a shem. Ship issue we want feedback. Depending on what comes from the request for information we may or may not do a rule making clarifying this. But its important to solve the membership issue holistically. Thank you. Director calabria theres a New York Times piece from september 30th of this year outliningwork done by researchers at university of montreal and Johns Hopkins and about flood risk that fanny and freddy outline, Alarming Trends according to the study that institutions are passing off increased flood risk to certain mortgaged properties. Theyre passing that off to fanny and freddy. Are you familiar with that study. Ive read the underlying study, yes. Adam chair, i asked unanimous submit to submit for the record the New York Times piece outlining the study. Without objection. Thank you. Its an interesting finding there is a potential 60 oh to im sorry 6 to 1,000 billiondollar set of risk push off to gscs from institutions. Are you did you said youre familiar with this. Do you agree with the premise and or the conclusion. While i take some issue with the methodology, itching the overall point of the study is lebron jamesly correct and really underlines the importance of doing effective reform of the nfipp because im concerned if we dont have a functioning Sustainable National Flood Insurance program that machine much of the risk gets sent to fanny and freddy. Do fanny and freddie currently run assessment of the flood risk in their overall portfolio. Not when theres a case when the nfik cops that. But we are concerned about the impact of natural disasters on fanny and freddy risk profile. Especially given the fact that theyre 500 to one leverage. Even something modestly going wrong if the environment could leave them under water. There a separate assessment done by fanny and freddie using outside data or is if only nfip on fema related data. If iktd follow up and get more access to the resources they use id be happy to provide that. That would be helpful and useful to understand the risk here, if in fact there is serious risk. En a what are you doing to ensure 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, we are looking at a lot of risks. These happen to be coastal areaen high minnesota priced areas tend to be price volatility in these areas. We are trying to make sure at this point particularly given the leverage that they can withstand storms that may come. Thank you. The gentlewoman from new york. Ms. Velasquez is recognize the for five months. Thank you adam chair. Secretary carson, last week your financial chief financial and Deputy Assistant secretary for Community Planning and development admitted before congress that hud intentionally missed a legally required deadline that would have made congressionally appropriated Funds Available to puerto rico. Let me ask you, where specifically in federal law is hud empowered to uni laterally withhold cbdgdrb funds that have been appropriated by congress . As you know fwres has specifically mandated that the secretary of hud make sure that funds that are allocated or provided for certain jurisdictions have the resources and the capacity to manage them. Reclaiming my time, please answer my question. Your chief Financial Officer testified before the apprehensions 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 empower to withhold money specied to go to puerto rico. I cant give you chapter and verse but it cases congress specifically said to the secretary you may not. You may no unless. Reclaiming my time since you are not going to answer my question. Seemed like an answer to me. Reclaiming my time, your staff previously claimed. Are you looking for an answer or a sound zblooit no, no let me give you more background. Your staff previously claimed the agency delayed grants agreements related to cbdg did dr funds to await an opging oig audit. However the Inspector General wrote to you in midseptember, stating explicitly and i quote, i do not recommend that the department take any specific actions with respect to the surviveda including withholding funds, delaying finalization of grant agreements or delaying publishing federal register notices. So if 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 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 is dsh zbloosh that is not the question here, sir. Your i. G. 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 that is, that disdain and contempt of in administration toward the people of puerto rico. It gits fits. This is an abuse of power. It speaks to this administrations disregard for the people of puerto rico. 3,000 people die in puerto rico under your watch. And i will ask for your administration, hud to send to congress appear 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. I think that if this was about corruption, as you claimed in the press, so deal with your own corruption when fema officials were arrested in puerto rico. We have nothing to hide so id be glad for you to get that information. Yeah, wayne or the other we going to know the truth. So my next question to you, sir ill yield back adam. Adam chair. Request of the chair. Unparcelliry language when you accuse somebody of testifying of personal corruption is unbecoming of in institution and not appropriate in parliamentary language before in debate. Members should be demon i should to keep their opinions at opinions but to accuse a panelist in cabinet secretary of personal corruption. No. Is not becoming. Excuse me. Will you yield will you yield im talking about corruption where two officials of fema were arrested in kroopgs. The time belongs to the gentleman at this point. Yes, maam. The gentleman had has finished his will you yield. Happy to yield. Sir im referring to two fema officials that were arrested in puerto rico. So the execution that has been used by in 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 i. G. Of hud in a letter that sent to the secretary of hud said that the people the government of puerto rico has complied with everything that were asked from them. And yet of the 17 dsh 17 states and legalities that Government Disaster Relief Fund puerto rico is the only one whose money was delayed. Enough is enough. This is about. Reclaiming my time dpad chair. The time belongs to the chair. The gentleman has noticed his concerns. They have been responded to. And. Adam chair they have not responded to. The gentle lady was referring to the agency and if your concern about language unbecoming a member then you should address that to all members at any given time we have all had language that one could consider unbecoming. Adam chair. With that we will move on. To accuse a cabinet secretary of personal corruption which is what the gentle lady did is not becoming of members of this committee. The gentleman is out of order. The gentleman from oklahoma. Ridiculous. Lucas is recognized for five minutes. Secretary mnuchin lets return to treasurys plan laying out several conditions to meet before ending the conservativership of the gscs. Discussed ensuring that theres no market disruption. Can you expand for a moment on the timeline that treasury is looking at to meet these conditions and, perhaps, end the conservatorship . 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 of conservatorship. The first step is director calabria 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 conservatorship. The plan also has reforms 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 downturn . I think the first issue to, again, 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 that 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 colleagues 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 elaborate 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 manufactured housing from a sitebuilt 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 areas we can make a lot of progress in Affordable Housing because youre talking about things that cost considerably less than sitebuilt homes. For many of my constituents, its the entrylevel housing opportunity. Exactly. With that, madam chair, i yield back the balance of my time. Thank you. The gentleman from georgia, mr. Scott, is recognized for five minutes. Director calabria, following the 2008 financial crisis, our Financial Services committee helped to 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 tenyear 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, congressman scott, let me say how much i very strongly agree with you. I think this is an incredibly appropriate and important time to take a look back. The most serious delinquency rates for fannie and freddie 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, let me ask a followup, 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, say, to the 60s or 70s. My recollection is the default rates were significantly lower than they were in the last previous cycles. Cycle was an elevated level of foreclosure, elevated level of delinquencies. Hence, my concern if this cycle turns, my concern with whether the gses are ready. It was very good to get your points on this as we look back after ten years but let me followup with that, 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 for us to determine default risk . I would start out recognizing that the debt to income ratio was explicitly mentioned in dodd frank. As mentioned, it is, perhaps, the best measure of ability to pay rather than willingness to pay. And so i do think its an important factor. I would, of course, be the first to say that borrow and credit and loan value are stronger predictors of default but, again, note dodd frank specifically lists out a set of factors to be considered within the statute. Well, you know the very highly respected irvin institute found in a recent study that borrowers with dti ratios above 45 had higher default rates than those below 45 . Buyers before, during, the financial crisis, but high dti borrowers have actually had lower default since 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 offset that risk and if where the gentleman is going, i would be very supportive of congress revisiting having that dti mandated within the statute. I certainly think its 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 spear in our federal government to deal with homelessness. Ive got a lot to say about it. Unfortunately, the chairlady has brought the hammer down, but i certainly look forward to hearing what you have to say later on. The witness 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, madam chair and Ranking Member mchenry, for holding this hearing today on the administrations plans for reforming fannie mae and freddie m mac. Its an important subject, and i regret that it has fallen to levels of personally denigrating secretary carson, asking him questions and not allowing him time to answer them. I and many, dr. Carson, youve done an outstanding job for our country. Ive said it before to you, i dont know why in the world youd take that job with all you have to lose. And nothing to gain. And i know its for the betterment of our country and our government and the people and how the people live in this country and im grateful to you. Id like to give you a few minutes, if youd prefer, respond to the questions that you were not allowed to answer when they were asked. Yeah. You had to be still while they threw some more insults your way. But if youd like to take time to respond now, you have that time. Well, i appreciate that. 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 to maneuver us to a place where were getting peopo people out of programs and people to a level of selfsufficiency. We really aimed at that. The question that was asked 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 tenets 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, demonize, demonized, if i understood the words correctly, making sure that the money sent was spent as congress intended 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 already 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 largest amount of money that has been given to any jurisdiction in the history of hud and i think we have an obligation to the taxpayers to make sure that it is properly utilized to impact in a positive way the people of puerto rico. Do we have your assurances, doctor, that were doing everything humanly possible through your agency to assist the people in puerto rico . Absolutely. Thats one of our highest priorities. 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, madam chair. I i actually am deviating from the Affordable Housing issue because i have two people here, id like to deal with the Opportunity Zone in housing because i have the treasury secretary and the hud secretary, but because of what we have on our agenda tomorrow, an examination of facebook, im going to deviate a bit, and mr. Secretary, thank you for the response to my letter and i thank you for your for proactively probing the issue of libra. And i want to lift just a little section of your letter and ask for a little bit more on it. Your letter says, fsoccs working group on Digital Assets is, and i quote, monitoring develops related to the libra project, working to assess risks and gaps on authorities that may require more attention, unquote. Can you go just a little further on that, mr. Secretary . Yes, absolutely, 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 lot 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 that 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 fsocc not just to address this but to address other Crypto Assets and make sure we have the proper regulatory. Were working on an intraagency basis i think very effectively. I also concluded meetings last thursday and friday and to see with our International Central Bank Governors and finance ministers. This is a discussion thats going on at the g20, g7, and fsa, fsb, as well. Thank you. Is the fsocc 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 at. Okay. Your letter implies that the Financial Institution participating in Libra Network may be an avenue through which fsocc regulates libra. Is that is my interpretation correct . That is correct. Do you think financial regulators have sufficient tools now to confront the potential Systemic Risk associated with libra . You know, im i dont want to be promagma man, but this kind of frightens me, this whole issue with libra. Its unclear whether u. S. And foreign regulators will have the ability to monitor the libra market and require corrective actions if necessary. I think right now in the United States, we have the proper tools, but if we need more tools, 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 standards that we use within the United States to combat terrorist financing. Okay. Mr. Secretary, mrs. Secretary, i was exciting about the Opportunity Zone. I still am semioptimistic 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 of the tenyear period when were talking about Capital Gains tax being forgiven, but its just not turning out. The activity is not turning out as 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 disseminated. Thank you. Madam chair, id like to have this letter from the secretary part of the record. Without objection. Such as you order. Thank you. Gentleman yields back. The gentleman from missouri is recognized for five minutes. Thank you. Welcome panel. Id like to start with secretary mnuchin. Mr. Secretary, 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. Letter outlines statutory requirements of fsocc and ofer which is to examine issues that could affect financial stability. Ive discussed this with many members of fsocc. They tell me theyre supportive of that position. You know, every 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 yet 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 the standpoint of what it could do, i believe, to the economy, to the housing industry. So i guess my question to you this morning is have you received a letter and are you willing to ask ofer for a study . Thank you. I have received your letter. I appreciate your interest in this subject. Its an important subject. Weve talked about this subject several times at fsocc. Were pleased, at least, there are certain delays in implementation. And ill be discussing your request at the next fsocc meeting to see if the committee thinks we should do this, as youve said, but thank you for your interest. I appreciate that. I think that to me, again, i think this is a ginormous issue. Going to affect these gentlemen here, the way they manage their agencies. Mr. Carson, you stated a while ago that 57 of loans that the fha has are low to moderate income. Is that correct . Yes. What does the total percentage of loans out of the loans all made this year 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 director calabria might have the answer to that. My recollection in the First Time Buyer market, i think its close to half. 40 , 50 . Theyre probably about a third of the overall market, is my recollection. Of course, we can get the data for you. All right. Mr. Calabria, what is the percentage of loan moderate income for you . First of all, i think if you want to bigger picture, you combine fannie and freddie and fha, youre getting between 80 and 90 . This is a point i would emphasize is different from precrisis. 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 taxpayer has ever been more exposed to the Mortgage Market at any other time in American History 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 a ygencagencies. What percentage would be mr. Carson said 57 . Do you think the total would be . 34 of what we do is for minorities and as was mentioned before, low and moderate income about 57 . Okay. Would that be about the totality, then, of what youre looking at, mr. Calabria, for your agency as well . Yes. I would certainly emphasize the footprint is much lower in fha than fannie and freddie. What is the source of revenue . What is the source of income for fannie and freddie . Primarily gfees with some modest portfolio earnings. They engage if portfolio activities. Theyll sell debt, buy assets and expand on that. Mr. Carson . Our money comes from the financial activity, the loans that are made. Okay. The fees that are so if you have to increase your capital, you have to increase your ability, especially mr. Calabrias position, mr. Carsons as welt, have to increase your position to absorb losses. As we just said, its 50010. In my world, i was a banker, i go apoplectic as an exame eexam. This cant happen. But so how do you, if youre only Revenue Source gfees 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, though, mr. Calabria, youre going to have to raise gfees, in my mind, to be able to raise your capital. Is that correct . Ill emphasize we have been setting gfees in the past, based on shadow of capital under thank you. The gentleman from illinois, mr. Foster, is recognized for five minutes. Thank you, madam chairman. Id like to actually pick up on this as a question of the setting the gfees and the profits weve been where it goes. Now, prior to the changes that youre in the process of making for the profit sweep, 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, whose pocket does it end up in at that point . It builds capital off the gses. So its the shareholders of the gses that retain that. No. It builds capital to protect the taxpayer in case 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 so in the Letter Agreement that we recently signed, there was an increase in treasurys liquidity preference at the same time there was an increase in capital, so the taxpayer is being protected here. But where do the profits, the gses are very profitable and depending on where you set the gfees, what the mortgage standards that you eventually settle with that will have a huge effect on their profitability. You will be in complete control of the profitability, successor gses or new competitors as you privatize the business. First let me emphasize by statute, theyre already 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. Thats what the law says. Thats what were doing. Okay. But now, when they failed, we all have to recognize that these would not exist had the taxpayer not bailed them out during the crisis. And during comparable crisis in the future, those entities or any comparable new entities that youre contemplating 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 important to have strong capital. Right. Its also why the government has to figure out how to charge how much for this guarantee. Congressman, let me assure you in that i believe the amount of time it would take us to build sufficient capital to get out that this body will have significant time to be able to legislate a different path forward if you so choose. Okay. 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 a little bit about those shares. You know, it was well documented the senates permanent subcommittee hedge fund, 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 principals 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 to describe the conflict of interest vetting. I understand, but youre saying a premise that these shareholders are getting a benefit of a sweep has the trading share price gone up . I dont really look at the share price one way or another. Could you get back to us on that, in case youre unaware of it . All right. As it relates to any conflicts of interest at treasury, we have full okay. To the entire administration and everyone whos making the decisions about the shareholder sweep, i guess that applies, too. Director calabria, do you have anything to say about that . Let me first add, im very much on the record over the years saying 2008 what we should have done is wipe out the shareholders. I agree completely. 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 looking for ways for fannie and freddie to increase their return on equity. Okay . That means that would increase the amount that was eventually going into the shareholders pocket. So its unclear to me who youre working for here. Im working for the taxpayers, sir. Then why are you concerned about the return on equity in the shareholders pockets . Because these entities are leveraged 5001. It is essential to build capital now before a downturn. If you are planning on privatizing them, anyway really, i agree completely that we should have and we should still wipe out these shareholders and look forward to working with you on that. Thank you. Yield back. The gentleman from michigan, mr. Huizenga, is recognized for five minutes. Thank you, madam chair. Mr. Calabria, i want to make sure youre able to wrap up your thoughts on the gfees that sort of extended over the last two questions. Thank you. I would really emphasize and i hope that we never see another downturn in the Housing Market but i believe its my responsibility as a regulator to plan for the worst. 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. Okay. So fha has sort of attempted to grow its way out of some of the fiscal problems and displace private capital. Has expanded really taxpayer risk, correct . Secretary carson or director calabria. Were not not trying to necessarily grow our way out of risk. You know, fha really acts sort of as an accordion to make capital available and credit available at times of economic distress. So it should be countercyclical. Yes. Okay. So, but were seeing, i think, 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 . Thats 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 risktype phenomena whereby we make the contracts based on the risk factors that are involved rather than just having a onesizefitsall model. Its im puzzled by some of my colleagues that seem to think we ought to declare everybody has a 720 fico score and we should all treat all debt and all mortgages the same and, you know, there shouldnt be any sort of risk analysis, 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 incent that additional private capital to enter to the marketplace, director calabria . If i can make a point, i want to emphasize the important question that congressman scott asked on qm. Part of this is getting the rest of the regulatory Playing Field level. So, a, getting to a qualified mortgage rule that works for all lenders. I think its also important that the s. E. C. Gets to a reg a. B. That works for securitization. Part of the reason the risk has gone to fannie and freddie and fha is fannie and freddie and fha have been exempted from so many of the rules all other Market Participants have to live under. I think its critical we get to a leveling Playing Field where smaller entities, entities across the spectrum can compete on a level, fair Playing Field. That takes greater standardization, correct . Correct. Im going to really quickly, got about a minute and a half here. Director calabria, you said many times your agency needs to be not only a conservator but a regulator. Just how can you accelerate those goals here in the next because im worried a number of areas that fannie and freddie are actively engaged in are activities not necessarily served by primary Mortgage Market and not consistent with what constitutional, or, im sorry, congressional charters have laid out. Thank you, congressman. Really, really great question. Let me emphasize this torically t use conservatorship as a substitute for regulation. So one of the things were doing is going through for instance the directives that have been issued in conservatorship, thinking of what we need to be able too do in supervision. Were close to reviewing and examining the Supervision Team and if we need to bring on more resources, we will. We need to be able to strengthen the institution at fannie and freddie before they get out of conservatorship. So its a natural time. Absolutely. One last thing. Multifamily lending. Fannie has been very involved in this dus lender model which is a Risk Retention model, and i know you i believe you got some rules that have been proposed. Im not expecting answers on that. But i am curious what Economic Analysis did fha perform to justify the Capital Requirements . There is, as you mentioned, part of a capital rule that applies to the gses multifamily business. We were closely looking at that as we made final decisions moving forward and what we should do in the capital rule. As you noticed, since we are in rulemaking, i cant go into detail on that today. Thank you. I yield back. Madam chair i would like to announce the intend to adjourn this hearing shortly after votes are called on the floor, that will likely occur around 1 15 today. The gentlewoman from ohio, mrs. Beatty, also the chair. The subcommittee on diversity and inclusion, is recognized for five months. Madam chairwoman, i need a fiveminute biological break. Youre excused for five minutes. We will recess for five minutes. The gentlewoman from ohio, mrs. Beatty, is also the chair for the subcommittee on diversity and inclusion. Is recognized for five minutes. Thank you, madam chair. Thank you, Ranking Member. Thank you to the three Witnesses Today. Madam 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 further say our Housing Finance system is supposed to serve homeowners and renters while protecting taxpayers. Currently, 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 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 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 affording housing advocates and experts over the words of this administration who has continuously asked to slash 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 these plans would increase 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 borrowers to unlock the American Dream of Home Ownership. So what Analytical Data do you have, secretary carson, what studies, cost benefit analysis to back up these beliefs, and have you ran any other kind of empirical analysis on the impact of u. S. Mortgage market and the u. S. Consumer based on the 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 increase the ability particularly of underserved communities to be able to have housing. And you know and let me reclaim my time. I guess what i want to say, not your beliefs, not what you feel. What did you base it on, Empirical Data . Analysis . So, so talk to me in a way that this is why were doing it because this is what the reports, this is what the data, shows. Is the same thing the people were saying the opposite, they come into my district, my office, and they gave me data showing that we have a real problem here. We do have a and thus the reason for the title. National association of home builders, for instance, has data demonstrating that the cost of a singlefamily 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 Empirical Data . We have plenty of Empirical Data. Were happy to supply that to you, but the point being one of the reasons that theres a big wealth gap is because of housing. And we are looking 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 or no, all three of you quickly. We are yes or no. Yes or no. My times clicking. I cant answer it yes or no. How about you, mr. Secretary mnuchin . Thats the decision of the direct director. He refuses to answer or doesnt have an answer. Thank you, sorry, my time is up. The gentleman from ohio, mr. Stiver, is recognized for five minutes. Thank you, madam 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 bipartisan 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 youre okay with the 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 congressionally 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 that was my question, yes. Bipartisan. 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. Thank you, director. So would the three of you and your teams be willing to work in a Bipartisan Working Group on housing reform with republicans and democrats from 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 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 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 as the Ranking Member on the insurance and housing subcommittee. I know theres a lot more in the name, but lets focus on the housing piece and try to make something happen and i want to work with the three of you and your teams and the chair and 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. Oops. Lost my glasses. Welcome. And again, thank you very much, madam 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 a little bit of 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 the 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 will yield. A fair analysis. Fair and levelheaded analysis. Something we all should note, including me. And i thank you for raising that. Thank you. Then i would like to ask, talking about both sides. It is interesting. I get to walk a lot of precincts, talk to a lot of people. 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 the type of home. Not a singlefamily detached home. But now an attached product, especially millennials, theyre looking at different types of living arrangements but its still the same, they want a place of their own. They also dont understand when things get rough and tough in the economy why it is 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 . And they dont think that thats fair. And to that point, im not confident that the Administrative Changes you want to make here are fair. Director, i do want to ask you directly this, if i could read it. And if you could comment about it. You talked a little bit about it already. This is with regard to your appearance on cnbc. You mentioned the companies common shareholders, the gses, and part of the discussion now under way, a comment that took place, they were surprised, i guess, what you said. This is what i would like you to comment on. Calabrias comments, i would say director calabria, his comments on cnbc on the sideline of a major gathering were somewhat rushed, he tried to explain the nuance behind the notion of Public Offerings for companies that have shares outstanding. They were never wiped out, he said. Whether we can do some type of conversion with preferreds or whether they would get par, its way too early to figure that out. As a reminder, the plan that rushed fannie and freddie into conservatorship as a Financial System melted down in 2008 and subsequent amendments gave 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 very strongly, forcibly, say i agree with you. None of this is unfair. I would have preferred to inherited a fair situation when i walked in the door. I inherited a mess. My responsibility of the statute is to fix fannie and freddie. You have two options in conservatorship. You either fix them, get them out or take them into receivership. The option of endless limbo is not an option under this statute. So i would prefer that i had a fair situation to enforce. I believe fannie and freddie got bailed out and homeowners did not. That pisses me off to this day. Just it does. Im mad at all the other bailouts. Im committing to you today that my numberone objective is to see that we never, ever have to bail fannie and freddie out again. Well, i would also caution you that freddie and fannie gses have allowed many people to own homes that would not have had homes before. You look around the world, the 30year mortgage with a fairly low down payment is what has allowed a lot of americans to own homes. And its not around the world. Every country doesnt have it. In fact, its very unique almost to our country and i hope we dont destroy that in the process. I want to give the secretary an opportunity to common on that if they wish. First, you have my commitment, i have been around the Housing Market for 35 years, and i can assure you i very much support the 30year market. I would also comment on your previous issue. We have made no decision as to whether they would exit by conservatorship or receivership. I would just comment that i represent the largest creditor which is the u. S. Government and we would we would need to be part of any decision. So, 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, too, am very much against the whole bailout issue and the too big to fail issue which is why a lot of this revision is being done. But also reck nice the importance of the American Dream and people wanting to be able to own a home. Thank you. Thank you. The gentleman from kentucky, mr. Barr, is recognized for five minutes. Thank you, madam chairwoman. And 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 that my friends on the other side of the aisle believe that any effort by the administration to reform Housing Finance will increase housing prices and disadvantage low and middleincome borrowers. In reality the proposals set forth by the 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 on common sense reforms to Housing Finance, the democrats are endangering the very low and middleincome citizens they claim they want to protect. Unreformed gses will lure americans to buy homes beyond their means and then default with foreclosure as the result. Thats not helping lowincome americans at all. Weve seen this train wreck before. Meaningful House Finance reform meaningful Housing Finance 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, and during that hearing thenRanking Member barney frank said this i think its clear that fannie and freddie are sufficiently secure so they are in no grave danger. He continued, fannie mae and freddie mac do great work and theyre not endangering the Fiscal Health of this country. How wrong he was. Lets not let this conversation about Housing Finance reform end the same way. It is alarming that the enterprises shares of low down payment and high debt to income mortgages are now higher than before the financial crisis. But i would suggest that what is even 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 proposals seek to place our Housing Finance system on a stable, sustainable path to protect us from another housing crisis and i applaud our panel for their leadership. Now, my first question i want to ask relates to the credit Risk Transfer issue to secretary mnuchin. The treasury report calls on the gses to continue to engage in a diverse mix of economically sensible credit Risk Transfers including by increasing reliance on institutionlevel capital. Unfortunately, current capital rules hinder banks willingness to take on more credit risk from the gses. Bank capital rules based on simplified structure approach are grossly disaligned with gse 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. However, 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 risk from the gses 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, pmi, private mortgage insurance can help borrows 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 . Well, we very much want the 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 both affordability and for protecting the taxpayer. Finally, director calabria, private label securitization. What is the, in your mind, the ideal proportion of mortgages held by gses and fha versus portfolio lending and private label . I do think we need to see more diverse sources of capital. At least when i studied economics, i learned that duopolies and monopolies were not good for consumers. I think bringing more competition to this is critical. So i dont want to say the exact percentage, but i think there needs to be a wide range of sources of capital. I think level the Playing Field on regulations to encourage more portfolio lending and more private securitization is the right way to go and 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, madam chair. And 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 r. A. S for our young people. Defred i deferred iras so they can save in the iras in a taxdeductible basis until they accumulate enough capital which can be capped maybe at 20,000 or more so they can use those funds for a down payment. And the reason why i talk about it and have you elaborate on it is so many of the young people today sometime dont see buying a home as an option. You know, and i live in an area where a lot of them up here where a lot of them rent and get a chance to talk to them. They dont see how theyre going to get ahead with Student Loans and other things that are pressing on them coming out of school. So what are your opinion on the deferred iras for down payments only except in emergency situations but to be used for a down payment on homes . Well, thank you for your interest in that. That happens to be a great interest of mine as well. I think we need to entertain all the ideals. Thats one of the reasons that were really pushing the selfsufficiency programs where people can accumulate money and not be penalized in terms of their rent going up. And that can go into an escrow and that can be used for down payment or other things of that nature. Iras, whatever mechanism that we can use is very much appreciated because as you know, Home Ownership is the principle mechanism of wealth accumulation in this country. One of the reasons the wealth gap has deteriorated significantly is because a lot of people particularly in the Minority Community and particularly in the Africanamerican Community had their credit ruined. And as a result of that, you see the Home Ownership rate decrease. Were looking at ways to ameliorate that situation. Ill see if the director wants to comment on that. Absolutely agree. In between some of my stints in government, did some work with the Consumer Federation of america saves initiative. Im a very big believer. I would say i think it would be appropriate if there was another tax reform at some point having a universal savings account i think could be very helpful in terms of helping particularly lowincome households save. Okay. I look forward to continuing to work with you as this legislation has been developed. And with that, madam chair, i yield back. Thank you. The gentleman from colorado, mr. Tipton, is recognized for five minutes. Thank you, madam chair. I would like to be able to speak somewhat to the issue of the gses portfolios and guaranteed businesses while they have been in conservatorship. I do appreciate the comments made by my colleague, mr. Scott, in regards to the passage of dodd frank where prior to it, we would have loans that have been made with no documentation and loans with riskier product features such as negative amortization, and director calabria, could you maybe speak, how can we ensure that the gses continue to be able to avoid such products moving forward as Fannie Mae Freddie mac, exit from conservatorship . First, i think its important to make sure that gse borrowers enjoy the same Consumer Protections that other borrowers have, therefore, we allow the qm patch to expire and replace it with a set of Consumer Protections that works for all borrowers. So thats the most critical. Foremost, making sure theres the 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,opportu b the underwriting there, making sure the safety and soundness is there. That speaks a bit to what you spoke about during your testimony, 5001 leverage ratio . Yeah, let me emphasize, even if every single loan that fannie and freddie made were pristine, theyd still fail at that amount of leverage. Thank you for that. 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 payments. Secretary carson, you mentioned about the loan insurance, to be able to have that as well. But when were talking about your predecessor, director mel watt, he made some fairly risky programs during his tenure while he was in office. How would the administrations proposal make the gses more risk averse and also how would it observe the risk aversion prioritiy ies currently in plac over the long term . Let me emphasize i believe any reduction in the footprint could be quite modest. Were dealing with true with any Insurance Program where its the tale of the distribution d and, frankly, any 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. I think the vast recovery of house price appreciation is behind us and what we need to be able to focus on is how do we prepare families, how do we prepare fannie and freddie, how do we prepare the economy for a potential turn in the Housing Market . Great. Secretary carson, secretary mnuchin, do you have anything to add to that . Agreement. Okay. Thanks. You know, we have a lot of voices in the industry right now and across the aisle that are questioning the timing of the administrations proposal, and, director, you just noted that right now in terms 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 paraphrase president kennedy, the time to repair the roof is when the sun is shining. Right now the Housing Market and economy is strong. I fear if we dont do it now, we wont be able to make these reforms in a time of stress. Great. Do you have any comment on that, mr. No, i totally agree. I mean, 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 be able 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 also need to be able to make sure were not putting people in homes that 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, ms. Tlaib, is recognized for five minutes. Thank you, madam chair. An investigation in Metro Detroit found about 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, and 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 nowadays . Of course, there should be. So secretary carson, under your leadership, hud proposed a rule to make substantial changes to desperate impact standards under the Fair Housing Act. The rule would make it harder for families facing housing discrimination to seek justice by shifting the burden of proof onto them. Can you explain why the Agency Charged with enforcing the Fair Housing Act is proposing to make it more difficult for plaintiffs to bring 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 lowskilled individuals. And a lot of those lowskilled 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. I mean, 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. Weve lost more black Home Ownership in michigan than any other state. Weve seen actual shifting of Home Ownership around 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 really advise your department to push back against getting rid of disparate impact. I mean, 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 governmentsponsored Enterprises Must be allocated to lowinkcome borrowers as i know has been discussed. 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 lowincome borrowers . So saul all of the private ls who originate mortgages and, therefore, the gses are directly impacted by the housing goals. The loans that are bought have to meet the housing goals. So, again, lets say youre a lender who sold 100 of your loans to fannie or freddie. You would on average be meeting those housing goals. So, again, indirectly, it impacts the originators and servicers who deal with fannie and freddie. And so what my residents would ask you is about accountability. How can we make sure these private participants are beholden to private home buyers . Rather than shareholder profits . Thats a great question. We hold the counterparty. I have no ability to regulate the counterparties. Our accountability is making sure when fannie and freddie meet those goals, they can meet those goals when the entities they buy from essentially on average meet those goals. Lastly, director, remember youre also creating a structure. Even if you dont, youre creating a structure that allows that. So just cautiously appreciate that. Thank you. Thank you so much, chairwoman. The gentleman from texas, mr. Williams, is recognized for five minutes. I thank all of you for coming here today. And i know ive asked both the secretaries the question when theyve been here in the past. This is the first time ive had the opportunity to ask the third panelist, director calabria. Are you a capitalist or a socialist . Im a pretty ardent capitalist. Thank you for that. I look forward to working with all of you and working with over the next few years 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 recommendation laid out in these last two reports. Its the direct result of excessive state and local regulations. Land use restrictions. 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. So, 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. And a lot of the problems, obviously, are local regulati 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 and each one of those arms 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. So, secretary mnuchin, what do you believe is the appropriate capital standard for the gses and do you think that 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 Third Party Capital raise. There will be sufficient capital to get to the new standards. Good. Okay. The gses clearly have significant market advantages because there are congressional, statutory privileges. Several things gse have done while in concert, conservat conservatorsh conservatorship, that further increased their competitive advantage over private sector participants. 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 markets can fairly compete with fanny and freddie for the 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 successful and effective because of Good Management and practices and not because theyre held to lower standards than everybody else. I believe cfpb is make significant progress on that and i believe that was mentioned in the treasury report, as well. Ive talked to the sec about reforming fab and talked to the regulators about trying to get some relief. Weve seen difficulty in making Bank Portfolio loans particularly for Community Bank relief is critical in being able to get the Mortgage Market to move again. All of this coordination is a number of things that were working on. You have stated that one of the critical changes prior to the end of the conservatorship is strengthening the powers of the regulator. What do they need to ensure to make sure it is, quipped to be a regulator in a postconservatorship world. It is being discussed within the committee is that we remember the postcap one the transition to the cloud so the Federal Reserve and other Bank Regulators have significant authority under the Bank Services act to look at service providers. Fannie and freddie are transitioning into the cloud and having the mortgage data and i have no authority to go in and do the same thing that the Federal Reserve and others can do to make sure that the cybersecurity threats that may threaten fannie and freddie is not severe. Thats one. I would like Charter Authority like every other regulator and i think its important to bring competitioned to t competition to the marketplace. Simply look at section 38 of the federal deposit insurance act. If you could give me that, i would be delighted. Competition is good. Absolutely. None of you have touched on this and i would say astros and 6. Madam chairman, i yield back. Thank you. The gentleman from illinois is recognized for five minutes. Thank you, madam chair. I would like to turn to the Aluminum Company owned by the russian oligarch. In 2013 they were sanctioned as part of oligarchs believed to be close to putin and were punished for subverting western companies. As you know he was detailed in the Mueller Report who worked with manafort who is now in jail. Manafort began collecting in 2006 from parapuska. Less than two weeks later on june 7th, he asked in overseas intermediary to pass along to darapaska, tell him, quote f he needs meetings we can accommodate. Shortly after that russo announced it was investing 2 million into a project in kentucky. In april this year you desanctioned because, this is you, quote, the companies approached us, a large group of people, unquote. Was senator mcconnell among the people when approached you . Im not really sure what this has to do with housing reform. Sir, the trust in our Financial System depends on our entire system. Again, i am happy to answer. I dont see the relevance to housing reform, and no, i have not spoken to Mitch Mcconnell about that other than when we briefed the entire senate prior to lifting the sanctions . On the sanctions. Did secretary chao approach you to lift the sanctions . No, he did not. Did any member of congress, house or senate approach you about lifting those sanctions . Not that i can recall, but we had extensive discussions with many people on on what we would be doing about lifting the sanctions. Did greg brouchard about those sanks. Brady industries is a substantial beneficiary for an investment in kentucky. Like i said, im not aware of who that is. Did anyone associated with Brady Industries approach you about lifting those sanctions . Again, i dont as ive testified before, we lifted these sanctions just a yes or no is fine. Im just asking if you understand. I get to that because of the news from this last week. Last week it was reported that in december of 2018 largely contemporaneous was your decision to lift sanctions there was a seizure of documents from Terra Services ltd. This was a londonbased Company Owned by mr. Darapaska, a real estate tomorrow that he controlled. As that raid has been described that raid was described as being, quote, in connection with the special counsel investigation, that, of course, being the one led by mr. Mueller. This raid is substantially contemporaneous with the Treasury Department lifting of sanctions and you appreciate 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 decisions to lift those sanctions . Again, i find it interesting when were here to discuss housing reform that youre grilling me on something that happened months ago. I would reiterate, sir, if you can limit risk Lehman Brothers would be still be here today. Im concerned whether or not the people in the Treasury Department, did you have knowledge of the raid at the time you decided to lift sanctions . I had no basis of knowing the raid or involvement with the special counsel. And in any of the answers that youve given me, can i assume that your lack of knowledge can be applied to the entire Treasury Department . Were there people in the Treasury Department of course you cant assume that. Im not making representations for whats obviously a thousand people within the Treasury Department. Again, were happy were happy to discuss them with you at the appropriate time. So one final question, and i appreciate your willingness to share. Will you commit here today to ensure that the employees of the Treasury Department under your comply with any congressional subpoenas related to these matters. What i will assure you is that we will follow the law as reviewed by our general counsel. So i think as you know, weve already received subpoenas that we did not think were legal, and i will refer them to my general counsel and theyll be reviewed, but i can a sure 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 and secretary carson for being here today. Very important topic and i appreciate you apprising your presentation to the senate. You can tell all of the interest that we have on this topic in the committee. About a year ago i wrote an op ed about how fannie and freddie have been violating their charters and misleading congress, misleading investors dating back to the 1980s. So im always very suspicious of reform ideases since the 80s, 90s and 2000s have not delivered on those, including and not limited to mortgage insurance, lines of credits and buying Mortgage Servicing rights. These concerns have raised questions regarding the proper role in the Housing Market which weve talked about today. The gses are increasing the loan limits and allowing mortgage subsidies for second homes and increasing caps for multifamily lending. Director, as you look at this issue now that you are our head of the regulatoriy body. How are you going to ensure they stay within their charters. Thank you. I think this is always a critical concern, any time a player in the marketplace has considerable market power and they try to leverage in other lines and i think thats always something we have to be cautious of. Fannie and freddie have the ability to put anybody out of business that they can directly compete with and theyre a very large, conservative mind and the housing recovery act in 2009 set up a big product approval and this was going into the rule making progress and im disappointed that 11 years later and theres not been an established rule making, to make sure. I think you should echo former omb director chief daniels that if its in the yellow pages it didnt need to be done by the government. So i urge you to be disciplined in looking at that process. You referenced in your testimony on page 3 that your job is to remove the gses by conservatorship by rehabilitation or winding of their affairs and i take it from the treasury report and the hud report that theres this bias between recapping and releasing and those are my words, but it gives the appearance about the implication about whats been said is that were going to release these entities and theyre going to raise capital with the reduction in the suite and theyre going out to the marketplace. Director, do you support recapping and releasing fannie may and freddie mac. I do not support putting them back out there before the crisis and i very much share secretary mnuchins point that no decision has been made yet on moving forward. I do believe i have a responsibility in the interim to raise the prices. Senator mnuchin . Yeah, i think i would have to say youre the characterization of a bias. I dont agree with that. I think as we testified earlier we have the option to go through receivership or conservatorship and my sense is what we do agree on is they need more capital and we will hire appropriate advisers to determine what is in the best interest of the tax payer . Good. You are open minded about the varyious 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 and a government thats a utility or we have the recap and release where they have congressional october orit to charter new energies and all of these, 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 any to protect the taxpayers and well look at whatever the best alternative is for that. Thank you, mr. Secretary. Secretary carson, earlier this year, when you testified i recommend that fha commissioner brian and montgomery testified before the committee and i still hope that our chair will encourage the fha commission tore come and discuss fhas book of business. Im concerned that its deteriorated in loan quality over the last couple of years that fico scores are lower that the debt to income ratios are higher and thats concerning to me and also the director has mentioned the gses competing with fha for the firsttime home buyer market. Do you agree that the gse should not compete with the home buyer market and the secondary market . I think the gses have a difference Mission Target than fha does, and can they both work within that . They can, but i think one is specialized and its like a cardiac surgeon and a urologist. They can probably operate on your heart, but you would rather have the cardiac surgeon. Well put you down as an Expert Witness on that. I yield back. The gentlewoman from virginia, mrs. Wexton you are recognized. Over here over here. All of the way to the right. Thank you to the distinguished gentlemen for talking to us on this important topic. Secretary carson, fha currently charges a flat fee for mortgages, and your plan for Housing Finance reform with a riskbased for fh alones and advocates have expressed concern that they can undermine fhas mission to serve underserved borrowers by hiring premiums for those who least afford them. They have riskbased pricing on valued borrowers throughout the spectrum and specifically, what would the effect of tiered pricing be on the least waethsy americans whose Credit Scores are below 150. 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 a tendency to attract the higher risk people into that pool and in the long run can elevate the cost for the lowbeiincome individuals. So by your you didnt answer this question, would it be higher for higher risk individuals and lower for lower risk fdas . Yes. Has fha determined if a disproportionate borrowers protected classes will have a risk analysis and would have fees appropriately scheduled for them. Are you saying 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 housing a fair housing analysis to determine what the impact would be . It would be happy to send that information to you. So did did hud conduct such an analysis. Of course, we have looked at the various scenarios and we have that information. Okay. 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. Also, secretary carson, huds plan for Housing Finance reform rec mends that congress establish fha, va and usda as the whole 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 tlit would be good i we have sessigments focused on particular Mission Targets. It doesnt mean that there wont be some overlap. If fha have private 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 protected classes as well, would it not . It depends. Some people in the private mortgage Insurance Market might decide that they want to focus primarily on low income, highrisk individual, but that probably is not going to be the financially the best move for them to make, but they might feel a seshl obligation to do that. We wouldnt preclude them from doing that if they wanted to. If not social obligation or social desires are not a motivating factor for these companies. Secretary carson, i wanted to give you a chance to apologize for comments you made where you described transgender women as big, hairy men. Didnt describe transgender women that way. I was relating a story that a womans group told me about big hairy men who are not transgender women, by the way, coming into the 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. 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 this, you cant repeat what someone said is total foolishness and its going to destroy our nation and we need to be more mature than that. Very good. I yield back. The gentleman from georgia is recognized for five minutes. Thank you, madam chair. I thank all three of you for being here. Dr. Carson, secretary mnuchin, you guys have been here before. Youre aware of the that the ricks that go on here and director cal abria, i appreciate youre here. Sometimes im arc mazed myself of what happens here. There is a. Lar Television Commercial out there about young people in the middle of a horror show and they have an opportunity to run away from this terrible incident theyre in to jump in a running car, but they choose to go behind chain saws instead and then run to a cemetery. I often relate that to congress as it seems like when 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 the running car. To me the economy is the running car that we can jump in and use the strength and power of this economy to make changes Going Forward and the economy is strong and in my hometown of barto county, georgia. We just posted in august the loest Unemployment Rate in the history of the company. In 2010, unemployment was 2. 3 . This year it was three are seeing manufacturing return, and were seeing problems associated with the strong economy. One is the jobs that are made available and we 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 for apprenticeship. So were addressing those. The other issue im hearing from employers which is a big problem is the lack of entrylevel homes for the employees theyre bringing in and because we in fact my soninlaw and daughter are looking for a home and he said basically anything in the starter home level in our area of georgia from 140 to 180,000 is sold by the time it hits the market and it sells for more than the asking price of the home and so were trying to find some ways to address that, but what its doing is its pushing those new employees to either take long commutes from other communities because they cant find the Affordable Housing in our area, let me say entrylevel housing or theyre moving into multifamily 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, i do appreciate the next financial krasis and i think thats a Good Business decision and a good running card to be in, and my concern is i know this rule was proposed by your predecessor. If we make that a permanent rule and things are going again and thats a permanent rule is a requirement for multilevel or multifamily dwellings to be double of that of a 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 . I thank you for that question, congressman. We want to make sure fundamentally with a wellthought out rule that it means that fannie and freddie are there during stress times so that they can provide that credit. If you go back and look. Fannie and freddie pulled back on the marketplace and i think any forprofit enterprise would have done the same. We need to make sure theyre going strong going into a stress environment so we can continue to be there. We dont want to penalize relative to each other and just to make sure that the riskbased capital standards reflect the risk and unfshtsly, the multifamily portfolios largely came to the crisis well and much stronger underrighting there and making sure that the risk there is balanced with what theyre doing. Just by doubling the retainings, and one other quick question in the final seconds i have, weve theres been a pro prohibition of the gses lobing while in conservatorship. Will you support a ban on lobbying congress by the gses. I think it depends on how its structured and fannie and freddie have First Amendment rights and we respect those. Thank you. Iyearold back. The gentlewoman from North Carolina, mrs. Adams is recognized for five minutes. Thank you, madam chair and thank you gentlemen for being here today. Firsttime homebuyers have traditionally been the driving force of the Housing Market and these borrowers traditionally rely low down payment mortgages to purchase their homes. In fact, over the past several years nearly 80 of firsttime homebuyers with mortgages purchased homes purchased homes using low down payment products. Director calabria, can you speak to how the fha will ton heconti help borrowers with options. We will continue to make sure that they are sustainable that when we get people into Home Ownership theyre there to stay and i do think that of course, down payments are a part of the question as is dti, fico or a credit number are these factor, but we want to make sure we get borrowers to stair and i commit that thats what well tray to do. Thank you. For each of you f you can answer yes or no that would be helpful. Should the federal government play a role in assuring federal access to Affordable Housing and affordable loans . Mr. Mnuchin . Yes. Yes. Great. Of course, we should do it in a responsible manner. Do gses play a role in affordal housing and affordable loans . Yes. Of course, yes. Okay. Great, secretary mnuchin, your plan for Housing Finance reform proposes to replace the current Affordable Housing forms with a fee and 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 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 planning key details of your plan, but Affordable Housing cannot be an afterthought in the debate on Housing Finance reform. Its got 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. First, as i said in my opening testimony, we want to make sure that there is Affordable Housing. I think its been misenter prettied that were looking to replaced a goal with a fee. Thats one alternative thats been proposed and thats not necessarily our only alternative. What we are saying is that the aed forable housing goals that we want to make sure theyre accountable and we want to make sure that the Community Groups and the communities are getting the benefit of that so its really more about accountability and we look forward to sitting down on a bipartisan basis and figuring out how we do not have less Affordable Housing. If anything, hopefully, we can have more Affordable Housing and People Better served. So you do have some detauils then . We have views, absolutely and we want want to sit down and want this resolved. Its not just treasury. Thank you, sir. Let me move on. Over the summer the gses have made changes to the affordable lending products and fannie mae and freddie macs homes possible. Previously they had the 7 of the median income. Now the income limits are 80 . Are you concerned that these change would deprive consumers of mortgage options and potentially lock them out of the national market. I think its important that we make sure that fannie and freddies efforts are well targeted and theyre built on income and most of the programs are targeted at credit and 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 subsidizing and higher income borrowers and one of the things were trying to make sure is essentially make sure that the Affordable Housing products are well targeted within the goals to lower income families. Thank you very much, i yield back, madam chair. The gentleman from ohio, mr. Davidson is recognized for five minutes. Thank you. I thank our witnesses and thank you for the work you do for our country and the skill with which you do it. Its been an honor to see you all 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 and part of that is 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 do you think is comprised of things you produce. Market risk is essentially subsidized programs that would never actually be produced in the market. Director calabria . And let me emphasize as someone who grew up in Rural America the importance of making sure credit is available there. I would also note that ive been going around and visiting the Cincinnati Bank and i want to make sure i get outside of washington and more directly to the question. We are looking very closely whether its the conversation between the gses and fha and between the private market. We dont want any gaps and 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 and to me if you look at the composition of the Balance Sheet and we begin with underwriting and some things just wouldnt pass an underwriting test and they really wouldnt and they only exist because there is a federal program that intentionally targets this. We decided as a country collectively, you know, to pass a law that says were going do these things, and my concern goes to how those things filter through the balance, and perhaps in a credit Risk Transfer. So when i look at delever the Balance Sheets and put that become out into the market and i think of the housing crisis and people in the Financial Sector have been demonized because they structured these mortgagebacked Security Products in a way that was bad product and not enough good product. Nonmarketplaced risk should not enter the market and it should be held on the federal market Balance Sheet and the only reason it exists is because the federal government decided to create it. As we look at deleveraging the Balance Sheet and we use the credit Risk Transfer. For the benefits of folks at home, can you explain what the credit Risk Transfer is . They will have a pool of loans which they end up calling a reference pool and theyll sell the credit risk into the marketplace and they have over 200 and some investors in the marketplace and some of these Insurance Companies and other types of investors and they will essentially take the credit loss. So if this reference pool doesnt perform, the credit loss is transferred to the investor. The bids that we see are an indication of what Market Participants think of the reference pool and were learning a lot of the process and having a better insight on risk and this is for the gses. Thank you. Right now my concern is that this isnt really retained on the federal government Balance Sheet. In fact, some might propose what to me would be an absolutely horrible idea is to protect the taxpayer to sell it off into the market and to keep the good stuff on the Balance Sheets and effectively keep the lean meat on the sell the fat and fillers out into the market and thats a recipe for disaster. This should never enter the market because they to let this happen in the first place. As i look through the recommendary, i would consider that you consider the structure and the purpose that these serve, and wkt low unchltment every income level in the us of america, we are actually providing bigger federal housing subsidies than back right after the crisis when we had a shortage of Affordable Housing at a lower level. We had 10 unemployment and unfortunately its not for less subsidy, thats for more. If we have bad product, im just saying protect the market so that doesnt wind up in the credit Risk Transfer pool so people in the Financial Sector can do so on the front end and the back end and that government can contain the problem that they are in fact creating. Thank you. The gentleman from california, mr. Sherman is recognized for five minutes. We currently have a system thats the envy of the world. Ordinary working people able to buy, borrow hundreds of thousands of dollars at pretty low rates. We have a system thats produced 300 billion of profit for the federal government, more than and has paid back the federal government 109 billion more than was necessary at the beginning of the crisis. It works. It produces low Interest Rates and it is a far Better Real Estate finance system than any im aware of anywhere in the world. It has one giant flaw. Theres no way to make 1 billion for a private individual. Theres no way to get Stock Options for a private individual. It works for everybody except the 100th top 1 . This is working so well that you couldnt make congress, not Even Congress which often makes stupid mistakes to spinning these entities off. They are, in effect, government entities. Secretary mnuchin, do you believe that you can spin these entities off without an act of congress authorizing that . Yes, we do, but let me just make a comment. No. I have a limited amount of time. You got your Opening Statement and this is my five minutes. I hope very much that you dont. It would be a terrible mistake and anything but lets move on. Youve said that were not going to lower the conforming loan limit as part of your plan. I just want to ive got someone that 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. Youre not playing thing back into a decline in the conforming loan limit. Certain loans will still not conform. I shouldnt worry about that, right . . Thats not the case. Director calabria. One out of six mortgages relies on the patch and the patch is set to expire very early in 2001 and the tendency, particularly my branch of government is to deal with things like a day before the thing is going to explode and can i be confident that business will have plenty of advanced notice if theres a change in the qm patch . I will endlessly nag cfp to get it back in time. Im nagging them, too. So im helping out. Okay. We have a federal system and the decision as to whether to have rent control is a decision made by states and my state delegated to cities. And i would hope that we wouldnt try to use the power that you gentlemen have to tell california and various cities what type of rent control they should have. If especially when youre making a loan in the beginning you know what the rents are when you make that loan. The loan has to be a good loan based on the rents that exist when you make the loan. So the opportunity to raise those rents higher may be very beneficial to a real estate investors, but not necessary for you to determine that they rent that the rebnt will pay the mortgage. The effort to penalize the multifamily apartment and the home purchasers if they happened to be in a city that allows certain types of rent control . I think the answer is that rent control has worked for very long periods of time and i think the real question if there are substantial changes to rent controls that really, and this is a directors responsibility that the gses have to properly underwrite the credit of those loans. But it will be an underwriting issue correct. Not a use of the power of the federal government to go with one system rather than the other and as i pointsed out it should be a Big Underwriting concern because youre making a loan based on the rentals that exist when you make the loan. Nobodys making a loan and saying its a terrible imprudent loan, but when you raise the rent some future day i would just comment, there could be a credit issue, for example, if these are 30year loans. I look forward to 30year apartment loans. I yield back. The gentleman from North Carolina, mr. Bud is recognized for five minutes. Thanks to each of you for being here. The hearing was entitled by the majority as the end of the Affordable Housing. Is there anything in the housing reform plan that would end Affordable Housing that would call for Affordable Housing. The highest priority is Affordable Housing and i would give the chair and others the benefit of perhaps they didnt understand the aspects of the plan. Director calabria . . No. Yes or no to each of you and would the administrations plan block the 30year fixed Rate Mortgages and the loss of Investor Confidence. Thank you. Is the goal of Affordable Housing and goals, quotas and set asides and the new Housing Finance system with more efficient, transparent and accounting mechanism for delivering tailored support. And the latter, and i have yet to. For the record, i appreciate your hard work in serving as a conservator of fannie and freddie and as a regulator of the Federal Home Loan Bank system and youve been exceedingly transparent on every step you intend to take. Thank you. Youre in the middle of a comprehensive review of pilots and special programs at fannie and freddie and i value this work because i worry that the gses are operating in ways that compete with the primary Mortgage Market. Freddie macs pilot called imagine and should entities and conservatorship operate programs that directly compete and if not, would you explain why youre opposed. First, its a top line issue both in and outside of the conservatorship to expect them to live within their charters and we will take a very direct and if theyre not on the page theyre not doing it and thats the way the law is. Within conservatorship, the focus any of pilots and efforts in my opinion is about focused to be out of conservatorship and thats the primary focus of these companies and getting us ready for potential downturn in the Housing Market. Could you elaborate more . In what way do you see them competing and i dont want to drive that home. If you can help me with that. Well be reviewing pilots to make sure theyre consistent. So the main priority, would be to get out of conservatorship . Absolutely. Thank you. Again, continuing with you, director clab ri director calabria, what are the expanded market share since the financial crisis and how has fhas attempt to grow its way out of pickal problems displaced private capital and expanded taxpayer risk . Is this a question on fha . To clarify. It was for fha. I certainly want to make sure that fha and the gses are competing in a way thats counterproductive. I think its important to keep in mind, i would call what the gses have done off of fha and given the better risk of fha and that forces fha to have to raise premiums and threatens the viability of fha and i do think theres a way that i can make sure that my friend across the street has not been undermined by what fannie and freddie are doing. Thank you. Final question. What sort of Counter Cyclical role should play in the market . Fha, fannie and freddie are all created to be Counter Cyclical. They really should be the support there in times of stress. They should be there to put a floor under the market. My view is they should not be leading the charge over the cliff. They should be there to be the net to catch the market when it goes south. Thank you. 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 thank you for holding this important hearing on the question again on the lack of Affordable Housing and the need for more Affordable Housing and the reforms that the administration seeks. I thank the secretaries and directors for being here and this is something very important in my district, suburban philadelphia and the lack of Affordable Housing across the spectrum of folks who need Affordable Housing and i know im at the end of the line here and i would like to go back and define the scope of the problem and i will start with you, director calabria. Your second line in the testimony i read with interest. Too Many Americans lack what each of us deserves, an aed forable place to call home whether it is rented or owned. Can you help us understand the scope of the problem, the specific wls its rental, home purchases, seniors and rural areas and underserved and give us the scope of the problem . Its across the board and weve seen for instance in california and the homelessness and whats happened in other cities, as well. This to me has broader economic problems and your ability to move to new york or los angeles to be able to advance in your career and thats threatened if you cant find a house to live and im sure you can talk to your junior staffer and find Affordable Housing when they come to washington. It impacts your career and it impacts the stability in your life and its difficult to keep a job and thats allencompassing. Its a core crisis. By the numbers some of the data that weve seen here that only one in four people eligible for rental assistance or lowincome Housing Assistance actually receives it. Does that match your data . Correct. How do we expand and reach out to the other threequarters of the folks who are suffering under this problem specifically . How do we do it . To me. I think there are three fundamental constraints going on here and at the rick of i r illiteration, land, labor and loans and we need broadbased reform and processes in many areas to speed that up. We have a distinct shortage with trade contractors and we dont have enough plumbers and throw the money at one at it and if you dont have anyone to swing the hammer and it will not get built and my responsibility as a lending side or the loan side and thats an important piece of the puzzle and i would emphasize we need to fix all three of these. Is it your ambition to make sure that we do reach out and represent the whole host of folks who need Affordable Housing. Mr. Secretary mnuchin, is that your ambition also that we would use government wisely and in a limited way, to make sure we are reaching the Home Ownership assistance. There 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 threefourths of people of absence of units and housing. I heard of of your your interests about reform and making sure youre more efficient and the efficient means of delivering that support. How about more abundant means of delivering that support. Are you interested in doing that . I personally think thats a good goal and we would work with congress and thats part of the reason why our preference is to do congressional legislation and to sit down on a bipartisan basis to agree on these things and how to do it. Secretary carson, is it your ambition that we expand our resources to make sure we get everybody Affordable Housing . Absolutely. Its one of our highest priorities and thats why this past spring we had the display on the national mall. Its not a lack of innovation. Its not a lack of entrepreneurship. Its a lack or afternon abundan barriers and we need to use our resources to remove those because were smart people. We can do it. My concern, however, is it seems to me that a lot of this, the reforms are an attempt to privatize. To say it is not governments responsibility and back to the director. Is it your ambition, you said twice and i heard you clearly, in their current condition, fannie mae and freddie mac will fail in the downturn. Its your ambition to shore them up . Or spin them off, mr. Secretary . Again, its both. We would never spin them off without shoring them up . Shore them up and get rid of them. Privatize. They are private and keep them privatized. Keep them out of conservatorship. In the face of three out of four people who need efficient, Affordable Housing. Thats your ambition and the trajectory youre hoping to take treasury . I think there are two different issues and Affordable Housing is part of this issue, but is a broader government issue. I thank you, immediate am chairman. The gentleman from tennessee is recognized for five minutes. Thank you, madam chair and thank you for convening todays hearing and thank you to the witnesses for appearing also. Director calabria, if i could, i think if secretary carson earlier today was asked about manufactured housing which is also important in my district of memphis and west tennessee, in the in the housing and economic recovery act of 2008 theres a duty to serve provision that single out the, availablity of manufactured housing and its an underserved area that fannie mae and freddie mac acquired by statute to make a concerted effort to address as it relates to the duty to serve a provision and the administrations housing feignance plan to replace that duty to serve with the more efficient, transparent and accountable mechanism and to transfer some of these activities to hud. If you could, could you explain how this would work in respect to manufactured housing with both real, personal property chats alone . Et cetera. Ill note several years ago i ran the manufactured Housing Program at hud, very familiar with it, and i do think for much of america manufactured housing, and committed to that. I cant speak to the details and ill leave that to secretary mnuchin to discuss, but i can continue to make sure that fannie and freddie have an active involvement in manufactured housing and do it in a way that its safe and sound. The duty would not be diminished . Its in law today and i have every intent as long as it remains a law we will actively carry that out. Thank you very much, director. Secretary carson, its good to see you again. You, too. I had the honor to have you in memphis just a few weeks ago as it relates to Opportunity Zones, and in femme face, we hmemphis Opportunity Zones and the areas that you visited in memphis was a development called union row which is a 900, 950 million project thats going to include apartment, hotel, retail, grocery store, and remarks that you made at that event, you mentioned the importance of local Community Involvement and also added benefits such as rising property values. Can i ask you, how do you see Opportunity Zones as a way of addressing Affordable Housing in memphis and of course, i know Affordable Housing and you made an Affordable Housing stop in memphis before you went to the union row progress. A lot of the zones across the country, the initial starting point might be, for instance, in st. Louis, and then as they began to build out they have to build Workforce Housing. A lot of the Workforce Housing will be Affordable Housing and we have tailored some of our programs to be able to take advantage or allow builders to take advantage of some of the grant programs. So instead of just, for instance, a single multifamily unit, we use mixed purpose units so that they can put, you know, commercial units on the first floor. Those are the kinds of things that obviously not only provide housing, but also 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, the opportunities memphis that was crow aide, what i just described union row with some degree of light versus the secretary of the treasury and youre responsible for certifying these Opportunity Zones. Can you describe, if you can the impacts of the communities that were seeing across the country and how Opportunity Zones are addressing those . First of all, the Opportunity Zones where the states had the ability to designate Opportunity Zones and if they fit certain requirements we certified them. We think that the states are better determined where these are appropriate, but yes, i think for the areas that you described theyve been very beneficial and not just for housing which is a big part of this, but also for new businesses and businesses being relocated. Thank you. I thank the witnesses and i yield back. The gentleman from illinois, mr. Garcia is recognized for five minutes. Thank you very much, madam chair. The thank the panelists for being here today. Inadequate housing is a major issue that people in chicago face especially the workingclass families that i represent and the southwest and northwest sides of the city. Rentses in america have steadily increased while working class people have seen their wages remain stagnant. Rents in the u. S. Have gone up 13 while the median household for renters went up 1. 5 . The Home Ownership market isnt any better particularly for communities of color who were hit hardest by the housing crash and had the most foreclosures and devastation to recover them. Thats why the role of gses and fha are so critical in helping communities regain wealth and Home Ownership. So i think were on the same page, but for the record if you could answer yes or no, the three of you. You are promoting Affordable Housing, correct . Yes. Yes. And you believe that government plays a role in achieving Housing Affordability. Yes. Across the board . Thank you. In a recent report the administration from the administration, the fha noted that its plan seeks to, quote, ensure the fha and taxpayers are properly contemplated for risk year learns and earlier by representative wekston and the tearbased pricing and the fha guaranteed loans and i would like to ask secretary mnuchin if you would share the information that i think you committed to representative wexton with me because were interested in that also. Secretary carson, chairbased pricing would constitute a change from fhas current policy which currently maintains that a flat fee without respect to the Credit Rating of the applicant, correct . Yes. Thank you, but thats disappointing to me. That seems to run counter to the model that the govern that has governed fha for decades. The cross help subsidization of loan applicants with stronger credit with these without creates a risk pool that enables fha to provide loan guarantees regardless of credit. So what youre proposing tierbased pricing is basically riskbased pricing undermining the entire model that allows fha to back loans for lower income families with less credit. Risk based obviously means you take the people who are higher risk individuals and you charge them a bet more. People who are low risk and have developed a very good credit line would have a smaller premium. So those who have struggled financially, economically are going to be charged more . If their credit is reflective of that credit and the credit risk. Let me switch gears. Secretary mnuchin. The secretary recently and the treasury recently recommended that fha should revisit the gses underwriting criteria for multifamily loans in jurisdictions that adopt rentcontrol laws or other impediments to housing development. Secretary carson, your agency noted that rent control laws interfered with local housing marke markets both of you are suggesting that some type of i may have commented on this earlier, first of all, i think rent control has worked in many markets for long periods of time. I think the comment was in certain markets there are some very, very drastic changes to the rent control laws and they may have credit implications for underwriting. So that was that was the purpose of that. And there are multiple impediments, not just the rent control. You know, there are wet lands, historical lands theres height restrictions and theres density restrictions. And there are zoning restrictions. I mean, by the time you add all of those up it becomes extremely substantial and thats what is increasing the price so much and particularly when you look 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 local officials tend to know their communities best. Thank you 37 i yield back. The votes have been called and i intend to recognize the following members and then we will adjourn the hearing. Mr. Gonzalez, miss ocasiocortez and mr. Rose. The gentleman from o i had owfr recognized. Thank you, madam chairwoman, i am under no illusion of the difficult challenges that you all face in attempting to successfully reform the finance system and gses and all the while not disrupting the Housing Market. One thing is clear though. Congress has the obligation to work with the administration to forge a bipartisan path to address the challenges discussed today. Director. My first question is o director calabria being about 500 to one and there are now about ten to one. In your view what is the target for the enterprises to be leveraged . I think ultimately, the gsa represents the same Financial System and i think they should be in that ballpark. Thank you. One of the things that we talked about before is that there is a concern that this plan could be seen as a bailout. I guess my question would be, what is the functional difference between putting the reserves with the fed which is where we can watch them and know exactly where the cash is and what is doing and whats not doing versus having it on the Balance Sheet . First of all, let me emphasize that until they are out of conservatorship, dividends are being paid and theyre not just outs to shareholders and i want to be very clear about that. Were the buffer to protect these times of loss and secretary mnuchin as an got to the point of deciding what the next route is so that could be an option. What is the functional difference and whats the difference in your mind between a kid with the secretary and gst. Although the treasury is not being paid cash the amount we are deferring in cash is a liquidated preference so theres no difference from my standpoint between having cash in the bank and having something thats owed to us i. Director calabria, at the current leverage ratio theres no way the banks could sustain any meaningful boundary. Could you put some clarity around that specifically on how big of a downturn im a kind of a stress test are you running and should we be concerned . Theres a bit of an underestimate in our most recent stress test that were performing and showed up yet a downturn similar to the last one we have to put in the access of 40 million and these are not small numbers were talking about. Thank you for that. Secretary mnuchin, i stakeholders have expressed support for the conservatorship and capitalized gfs sees but have expressed some concerns about their ability to cash out in some Investment Properties and overlap between the gsez and with the lowdown and with income in value loans and loan offering these products could they limit Consumer Choice and the overlap to put it in the market but can you talk about why you recommend these changes and these proposals would benefit the consumer and the taxpayer and the overall economy . Were suggesting these be look at and were not saying to illuminate cash out revise but when they have to take cash out there is a risk of loan and this is one of the great savings mechanisms so we want to make sure that the fhfa sets credit of a cash out refined than they look at a purchase Rate Mortgage. Fantastic. Thank you and i yield back. They gentlewoman from new york miss ocasiocortez is now recognized for five minutes. Thank you madam chair and thank you to our way this is her coming today. Secretary carson, its good to see you again. Secretary mnuchin, releasing freddy is one of your Top Priorities, correct . I would say housing reform is one of my Top Priorities at again, we have not predetermined whether to go through conservatorship or receivership. I see here from a Washington Post article, freddy mac should be privatized and secretary of the nominee says and its stated privatizing freddy mac is right up there on the top ten list of things were going to get done. Do you recall that . I do and thats accurate. I was referring to with they belong enough private sector and either resolutions. Are you aware that the same day you made those comments fanny may share price increase by 46 and freddy max sharing prices jumped to 43 . I think it was clear the market didnt understand the comments in how they applied and there is very little in the markets are not efficient. Icy. Just to clarify for the record for the confidence of the American People mr. By newton, have you your spouse or any beneficiary of their assets including the dccc closed trust stand to receive any financial gain from your plan on fani may and freddy mac . I have divested all my assets and ive divested all my assets and no reason to believe ive anything to gain. Was there any gain from the increase of that price following those remarks. Im not aware of it. Okay. Director calabria, you made clear ear intentions to relieve fatty may and freddy mac with over the congressional action to provide explicit government guarantee. We have taken steps in that direction by allowing the gst capital and there is serious concern that if you proceed with this plan without congress that be a serious loss of Investor Confidence which could result an unforeseen destruction to the Housing Market. Have you heard for many of those concerns from other investors. Thank you for that question. This is less my intent than obligation and im following the law and it requires me to get them out and put them within receivership and we heard from a select number of firms i would not like us to do that at all i want to be very clear, if the choices on one hand i follow the law and because wall street doesnt like it that i will follow the law. With disruption of the Housing Market, what are some of those disruptions that have been raised. A number of investors in the assets inside the Management Market dont want to see changes cars that would undermine their holdings and it would be an explicit guarantee and my long years of dealing with wall street ivan met anyone on wall street rules will i take the upside with the downside and that is my consistent experience in working in these areas. Wall street is taking the upside and downside. With the information you provided id like to discuss a matter of rent with you. In the 14th district of new york and average renter is 20 dollars an hour but they dont earn enough to afford a one bedroom apartment at fair market rent. Families are looking for stability as Household Incomes cant keep up with the rising cost of rent. First and foremost, i want to ask for someone making 45,000 dollars, what do you think is fair read for them to pay . If we use the hug standards its 30 of your income and that is a one standard and theres rent thats at 40 in these are hud standers whether or not its too low or too little and i degree of the overall premise we have a lot of Affordable Housing in new york but in many areas of america. I will note when we change the multi family accounts we increase the percentage. I just need our numbers im running out of time. You want to number . I think that ultimately between making 45,000. I dont think i should be deciding that. Do you know anyone that makes 45 k and what the rent is. Somebody paying 45 somebody making 45,000 dollars a year. If you are a friend of mine and making 45, what i suggest you personally. Not as a Government Official id be saying we should spend more than 15 grand on yearend. Thank you very much. Mr. Rose, you recognized for five minutes. Thank you chairwoman waters. Before i began i want to reiterate my colleagues mr. To ask her a study on cecil. I agree with many of my colleagues that housing and financial form is welcome and long overdue. It has been said many times that the time to reform our finance system is when times are good and when our system is in a time of crisis. One thing i noticed in my brief ten months here in congress is that too often you left the perfect be the enemy of the good and those recognized by hug i have a long path towards reforming or Housing Finance system. There is 116 reformed recommendations between these two reports. The competition and eliminating redundant scenes from the gse an f h a from bailouts is good philosophy and the relative stable Housing Market we have right now will not last forever and i think we all agree it never does. It stands to reason with members of this committee will not agree on every single recommendation but we cannot afford to be the enemy of the good and i hope we have partisanship aside so that we can make our housing system more resilient before we reach another crisis. One issue i was pleased to see and the housing financial reform plan was the manufactured housing it is incredibly important in the district of tennessee which im proud to represent. According to the Manufacturing Housing Institute the manufacture homes account for 71 of these units and in tennessee they count for 10. 5 in my district, 13 . Doctor carson i, appreciate your attention the Huddle Program and he manufactured housing and the comments you have made in prior testimony about the need to making adjustments to title i entitled to programs to serve manufactured housing. Im concerned that the volume of manufacture loans being supported by f a. J. Declines however. Among the reforms mentioned and hugs report we need to have standards that address regulatory burdens in the program. Doctor carson, what updates would improve the title i program and what can be done either legislatively or administratively to expedite these updates . Weve expanded the Housing Office to look at all the issues that we facilitate and not only the construction but the Safety Measures with combining the updates as well as accelerating the process and we will continue to do that and fully recognizing that this is the one of the Major Players when it comes to reducing the cost of housing and not only in rural areas but throughout the nation. That couple looking at modular housing and other newer techniques that a group of penal people will look and to assess and manufacturing housing is a huge portion of that. Thank you doctor carson and dr. Or director calabria can, you give me an update on the Pilot Program that the gst as included in their plans . Gore currently reviewing that and they have requested modification so we are going to put this out as we will get some comment back but were under review for that . Whats being done to ensure that the Pilot Program is discouraged cherrypicking the best homes so pilots are not significantly disrupted with other Market Players . Its incredibly important question in my objective is that they need to prove themselves to be successful and they grow or its problematic if you have pilots who are in the select industry players and who do not have and they should be open if they work and if they dont we tend to end them. I agree that where we need to go is to figure out how this is a program that everyone else can participate in on a level Playing Field if it makes sense. Doctor calabria, theres one final concern id like to raise with you and its one that i hear often back home. New and i have discussed the issue before and that is to rain in excess of conversation packages at the gse edge while theyre still there. Can you say a word about that . We made some changes to competition practices at gse and is better in line. Thank you and i yield back. Id like to thank our witnesses for their testimony today, without objection all members will all five legislative days to submit additional questions for the witnesses to the chair which will be reported to that response. I ask are witnesses to please respond as promptly as youre able and without objection all members will have five legislative days to submit, extraneous materials for the chair for inclusion in the record. This hearing is adjourned and thank you very much. Good morning, everyone. The committee will come to order. First, we will examine federal revenues generated from Energy Development on federal lands, indian lands, and federal offshore areas. Secondly, we will explore how that is distributed and shared with state, local, and tribal governments. Then we will hear testimonies that will both revenue sharing from onshore renewable and onshore developments. Both bills under consideration are sponsored by members of this committee. Senator cassidy, introducing in s14 the coastal act, and senator mcsally, introducing the energy reproducing act. Thank you for introducing legislation that would bring revenuesharing for coastal producing states into parity with onshore development. Congress lay the foundation for offshore revenuesharing through the passage of the gulf of Mexico Energy s