Transcript: Hearing Q&A with Rep. Ed Perlmutter (D-Colo.) & FHFA Director Edward DeMarco on government conservatorship of Fannie Mae & Freddie Mac

Edited by Jenny Jiang

Partial transcript of Q&A with Rep. Ed Perlmutter (D-Colo.) and Edward DeMarco, Acting Director of the Federal Housing Finance Agency, on the FHFA’s conservatorship of Fannie Mae and Freddie Mac. The House Committee on Financial Services Hearing was held on March 19, 2013:

Rep. Ed Perlmutter (D-Colo.):
…In the last 4 or 5 years as we’ve gone through this, I’ve not heard any complaints about Fannie Mae or Freddie Mac’s role in the multi-housing market as a participant in various loans and obligations. Have you received any complaints on multi-family piece of this?

Edward DeMarco:
I hear lots of complaints, Congressman, so I’m sure I’ve heard complaints about multi-family.

Rep. Ed Perlmutter (D-Colo.):
But that isn’t the area of where there has been substantial requirement by the taxpayers to underwrite some of these loans?

Edward DeMarco:
That’s correct. We’ve managed to keep this business profitable.

Rep. Ed Perlmutter (D-Colo.):
…Speaking of profitability…Freddie Mac has made some money recently?

Edward DeMarco:
Yes, sir.

Rep. Ed Perlmutter (D-Colo.):
How much?

Edward DeMarco:
About $8 billion.

Rep. Ed Perlmutter (D-Colo.):
Fannie Mae – have they made any money recently?

Edward DeMarco:
They have. They’ve not filed their year-end financials but they have indicated in a filing to the SEC that they will report positive income in 2012.

Rep. Ed Perlmutter (D-Colo.):
Well, I just want to congratulate you on that because it hadn’t been going that way for a long time…

A really good description of the $0 to $10 trillion continuum over the last few years the federal role has grown because there was no private involvement in the market because they got clobbered – got clobbered more than Fannie Mae and Freddie Mac.

So the private sector and I appreciate the theory and I agree with a lot of the theoretical statements you’ve made, but the private sector didn’t price it very well when they were pricing it either back in 2005, 2006, 2007, and 2008. Wouldn’t you agree?

Edward DeMarco:
Yes, neither GSEs nor the private sector did a very good job of pricing mortgage credit risks.

Rep. Ed Perlmutter (D-Colo.):
So, but then the private sector more or less withdrew completely from the market in which case there was a vacuum for the Fannie Mae and Freddie Mac and for the role that you’ve been playing at FHFA.

Edward DeMarco:
That’s correct. That’s correct, Congressman.

Rep. Ed Perlmutter (D-Colo.):
I agree with you in terms of the continuum or the dial as you’ve described it we probably are too far in terms of the federal involvement but without it, there would have been no market.

Edward DeMarco:
That’s correct.

Rep. Ed Perlmutter (D-Colo.):
So let’s talk about standards. You were talking about technological platforms in the standards. One of the reasons that we all got into trouble – both the private and the public sector – is the underwriting standards seem to go out the window for several years. Would you not agree to that?

Edward DeMarco:
Yes, sir.

Rep. Ed Perlmutter (D-Colo.):
Okay. So underwriting standards you all have put back into place which have led to the profitability of two of your organizations now.

Edward DeMarco:
Yes, sir.

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