Transcript: Hearing Q&A with Rep. Randy Hultgren (R-Ill.) & FHFA Director Edward DeMarco on government conservatorship of Fannie Mae & Freddie Mac

Edited by Jenny Jiang

Partial transcript of Q&A with Rep. Randy Hultgren (R-Ill.) 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. Randy Hultgren (R-Ill.):
…Mr. DeMarco, as has been noted, currently 90% of new mortgage origination are supported by the federal government through either GSEs or Ginnie Mae while either the GSEs owned or guaranteed of 61% of all new residential mortgage loans made in the United States. If the development of a sustainable housing finance system based on private capital is to be successful, what issues should policymakers consider regarding the appropriate role of the FHA and Ginnie Mae moving forward and how can we prevent leakage from the wind-down of GSEs from driving business to FHA and expanding taxpayer liability?

Edward DeMarco:
So with regard to FHA, while obviously this is not a program that I’m responsible for, I would in response to your question offer a few observations. First, Congress could give FHA greater clarity with what Congress expects FHA’s targeted market to be. All right? Is this to serve first-time homebuyers? Is it based on certain communities? Is this really meant to help people get into their starter home, their first home, and then after that you’re expected to go to the conventional market or not? Right now, the only sort of real parameter or limit is the loan limit that FHA operates under. So that’s one way Congress could express some guidance to the role of FHA. There are things that could be done with FHA to give it greater flexibility in terms of pricing risks and being able to resource itself as an agency to carry out a mandate. In other places we set up these sorts of guarantee functions as independent government-owned corporations and give them more flexibility in terms of how they manage their business, what resources, greater flexibility in their human capital, the people they hire to do the job, and greater flexibility with regard to pricing. These are all things that Congress could consider in the context of FHA’s role in the marketplace going forward.

Rep. Randy Hultgren (R-Ill.):
…How you think increasing G fees will affect the FHA? Will increasing G fees push businesses to FHA? Will there be more explicit government guarantees there? How do you see this all playing out?

Edward DeMarco:
FHA and FHFA certainly keep an eye on what the other’s G fees are. We’ve both been gradually increasing G fees in the marketplace. Another critical component here that shouldn’t be lost – this is not just Fannie and Freddie’s G fees that matters in this matrix but it’s also the mortgage insurance premium, the private mortgage insurance companies are assessing for this risk. That’s also an important price element when one is looking at the decision of a borrower to go FHA or go conventional. But we’re well aware that increasing our G fees, everything else constant, could tend the margin of this risk to go over to FHA. But the point is whether it’s Fannie or Freddie buying the mortgage or FHA buying the mortgage we all should be operating with appropriate risk-based pricing mechanisms so that we undertake this business in a way in which we are adequately pricing for the risk that we’re undertaking.

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