Transcript: Hearing Q&A with Rep. Gregory Meeks (D-N.Y.) & FHFA Director Edward DeMarco on government conservatorship of Fannie Mae & Freddie Mac

Edited by Jenny Jiang

Partial transcript of Q&A with Rep. Gregory Meeks (D-N.Y.) 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. Gregory Meeks (D-N.Y.):
…Let me refer to the public utility that you proposed. I’m wondering what actions will you take to ensure that the large banks and the investment firms and others who were bad actors, actually, that…contributed to the financial crisis that prohibit them from utilizing these public utilities that you proposed?

Edward DeMarco:
I think that one of the real important things about restoring industry standards from data to the way mortgage securitization is done – by getting that to be a single-industry standard rather than a set of proprietary standards operated by major institutions…I think we make it easier for small and medium sized institutions to continue to be active participants in this marketplace because in the industry – the vendors who serve this industry have to develop the technology just once and that technology is available to all market participants. That’s why I think it’s so important for you to get the standards done, to have standard contracts, standard disclosures, standard data reporting because I think that is what is going to help a lot for small and mid-sized participants to remain active in this marketplace.

Also, what we’re looking for with this platform is it’s very important to me that this operate in such a way that if you’re a local bank in the state of New York or wherever that you have an access to the secondary mortgage market – that you can originate mortgages and sell them, and this platform needs to be designed in such a way that we ensure that kind of access for small and mid-sized institutions.

Rep. Gregory Meeks (D-N.Y.):
And do you think that will exclude the large ones – those have really caused this crisis in my estimation – from also trying to take advantage of this?

Edward DeMarco:
Well, I’m not looking to exclude large institutions from the marketplace. I’m looking to make this marketplace as competitive and transparent as we can make it.

Rep. Gregory Meeks (D-N.Y.):
…What do you think? Was Fannie and Freddie the cause of the financial crisis?

Edward DeMarco:
Well, it’s hard to say Fannie and Freddie have drawn over $100 billion from the American taxpayers and didn’t have anything to do with this crisis. So certainly the business decisions of these companies in the years leading up to conservatorship contributed to the housing crisis and the economic crisis we have there. There were a lot of factors at play and, honestly, Congressman, I am not one to sign up for single explanation for what caused this crisis. There are so many parties that, you know, have a share in the blame here, from regulators to Fannie and Freddie to investors to big financial institutions to borrowers. I mean, there’s fraud out there. There are a lot of contributing factors to what went wrong in this marketplace.

Rep. Gregory Meeks (D-N.Y.):
…You’re suing some major banks for mortgage-backed securities that originated with AAA-ratings that Freddie and Fannie brought…

Edward DeMarco:
It’s consistent with how FHFA’s understood its conservatorship mandate to conserve, preserve the assets of the company. If there are losses being absorbed by Fannie Mae and Freddie Mac that by contractual or legal right should be absorbed by some other party – the responsibility of another party – we are looking with these companies in conservatorship to exercise those rights and to get that compensation on the losses Fannie and Freddie have had. So we see that with regard to the representation warranty…claims that Fannie Mae and Freddie Mac have made. With regard to private label securities, we felt confident that we had grounds to say that some of these securities sold to Fannie Mae and Freddie Mac were misrepresented in terms of what was there and then after seeking other remedies, we resorted to the system that’s in place to resolve these sorts of business disputes. We’ve resorted to the court system to set forth our claim and to seek appropriate compensation for these losses, and that’s part of our responsibility to protect the American taxpayer.

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