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

Edited by Jenny Jiang

Partial transcript of Q&A with Rep. Robert Hurt (R-Va.) 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. Robert Hurt (R-Va.):
…After many long years, the GSEs are beginning to turn a profit and I guess I’d like to hear from you what are the advantages and disadvantages of their return to profitability for you as conservator and has it led to any changes in tactics to accomplish this reform on your part and what are things that perhaps we would be wise to be looking out for with this positive turn of events but also recognizing that we really do need fundamental reform and that the taxpayers have ponied up north of $180 billion?

Edward DeMarco:
Well, it’s hard to see any negative to Fannie Mae and Freddie Mac’s starting to show a profit because that’s what we’v been working towards all along. So I think that’s certainly good news. I think one of the key drivers here is house prices. That has a huge impact on the profitability of Fannie Mae and Freddie Mac so it’s an indication that the country’s housing markets really are starting to stabilize and show some sign of recovery – also a very positive thing. And the fact that they are making money now gives us more flexibility to undertake these important steps of selling off some portion of the credit risks. It gives us the opportunity and resources to do things like invest and building this platform. And because we’ve worked through a good bit of the legacy, we can start to free up resources to these future-looking goals that we have.

Rep. Robert Hurt (R-Va.):
Are there any disadvantages that you can think of?

Edward DeMarco:
I can’t think of any disadvantages to them earning money.

Rep. Robert Hurt (R-Va.):
Okay. In your speech that you gave on March 4 to National Association of Business Economics, you stated that one of the effects of the housing crisis has been a shift in consumer demand patterns away from home purchases towards renting. And I was wondering if you’d comment on your view as to whether or not this shift is a rational phenomenon of consumers and investors adjusting to new market realities versus a normalization of demand that’s a distortion of an over-subsidized government mortgage market are reduced?

Edward DeMarco:
I would expect that it has elements of both, Congressman. I mean, households have reassessed at the margin how they want to manage their balance sheets, what the risks are of being a homeowner and that has certainly come into play. The weakness of the economy and even for those still employed if they have lack of certainty, if they fear that their job could be at risk or their hours could be at risk, that’s going to make them less likely to want to buy a home at this time. So these are all contributing factors. And I think there is perhaps a natural re-adjustment. We had reached a homeownership rate far above what we had ever seen before and if that is above some concept of a natural rate, then one might expect to see a modest decline in it.

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