Transcript: Hearing Q&A with Rep. Nydia M. Velázquez (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. Nydia M. Velázquez (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. Nydia M. Velázquez (D-N.Y.):
Mr. DeMarco, the FHFA has proposed reducing the mortgage guarantee fees on a state-by-state basis. To determine the new fees, you will look at the length of judicial actions and cost of legal services – two factors that have high correlation to states with robust consumer protection laws. As a result, New Yorkers will see the highest increase in G fees under your proposal. Do you think it’s fair for borrowers in New York to be saddled with higher fees just because the state requires accurate documentation and hold mortgage servicers accountable in the foreclosure process?

Edward DeMarco:
So, Congresswoman, with respect to the state of New York or any other state, the residents of that state get the benefit of that protection and if that benefit carries some costs, this is having the residents of that state also bear the cost that goes along with that benefit as opposed to residents of all the other states paying that cost.

But I would say with regard to the state G fees…

Rep. Nydia M. Velázquez (D-N.Y.):
…So the underlying message that you’re sending to states like New York is that it’s the wrong approach to provide robust consumer protections?

Edward DeMarco:
Absolutely not. That is not the intent of my message at all. My message to the state of New York is that you are 3 standard deviations removed from the rest of the country with regard to how long it takes an investor to secure their security interests in a mortgage after the borrower defaults and that imposes a great deal of added costs on Fannie and Freddie.

Rep. Nydia M. Velázquez (D-N.Y.):
So borrowers will face higher fees?

Edward DeMarco:
Well, we have proposed that. I’ve put it out for public comment…

Rep. Nydia M. Velázquez (D-N.Y.):
And so they will be accountable for the financial crisis that they were not to blame?

Mr. DeMarco, you continue to reject principal reductions that could help underwater homeowners despite analysis that shows that billions of dollars in long-term savings. As you know, the rationale for not participating has been the fear of borrowers strategically defaulting to receive benefits. So you cannot draft rules that will reduce the risk of fraud while also facilitating a faster housing market recovery and taxpayer savings?

Edward DeMarco:
With regard to that issue, Congresswoman, the FHFA spent 6 hard months carefully studying and analyzing the principal reduction alternative under HAMP, which is what the Treasury Department asked us to do. We put out extensive analytics regarding the work we did and the conclusions we drew and the basis for that conclusion, and I think that we have well-documented the reasons why we declined participating in the principal reduction alternative for HAMP.

With that said, we continue on a path of energetic effort to provide foreclosure prevention alternatives to homeowners in Fannie and Freddie loans that get in trouble on their mortgage. And as I went through in my earlier remarks, I think that we have, you know, demonstrated that through over 2 million homeowners in trouble on their mortgage being able to retain their homes.

Rep. Nydia M. Velázquez (D-N.Y.):
Out of how many millions? 11 million?

Edward DeMarco:
It has to be with regard to the number of borrowers that are in trouble.

Rep. Nydia M. Velázquez (D-N.Y.):
Mr. DeMarco, I heard your answer to the Congresswoman from New York about reducing the business volume to 10%. So it doesn’t make economic sense to me that you are going to reduce a 10% volume in one of the most profitable, stable portfolios that they have. Why is that?

Edward DeMarco:
Right, because it’s not they actually – as conservator, we have set out to gradually shrink the enterprises’ footprint in the marketplace so that we can restore the private capital and I believe the multi-family segment needs to be part of that just like the single-family segment does and the retained portfolio does.

Rep. Nydia M. Velázquez (D-N.Y.):
So, we heard that the National Association of Home Builders estimates that up to 400,000 new multi-family housing units will need to be built each year for the next 10 years to keep up with demand…

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