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

Edited by Jenny Jiang

Partial transcript of Q&A with Rep. Steve Stivers (R-Ohio) 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. Steve Stivers (R-Ohio):
…First of all, on building the new infrastructure…do you know what timing you have for developing a single security ’cause right now there’s changes on a monthly basis that some of the servicers are having to deal with? And is that single platform that you’re envisioning – are you trying to use that as a foundation or a building block for the reformed housing finance system going forward?

Edward DeMarco:
The answer to your second question is yes. I do think that this could serve as a building block for Congress to utilize in envisioning a future secondary mortgage market. The answer to the first question about how long. So we announced 13 months ago that it was our intention to work with Fannie and Freddie to develop this platform. So we made that clear to the Congress and to the public. In October of last year, we issued a white paper in which we described for the market the potential scope of this platform and how it would actually operate and we solicited public input on this. We’ve been considering that input in going about the next phase of the design of the platform. We expect to continue to reach out to market participants in a formal way to be able to continue to get market input. But overall, this is a multi-year project.

Rep. Steve Stivers (R-Ohio):
Thank you, and I want to thank you for that work. And I think we can potentially use that as a basis for our system moving forward.

…Once that is complete, do we really need two GSEs? I’m not going to ask you to answer that but that’s a rhetorical question.

I would like to ask you some questions with regard to the system moving forward and how it pertains to regional banks and community banks. Do you believe it’s important to maintain a competitive market in mortgage origination, secondary, and servicing markets going forward?

Edward DeMarco:
Absolutely.

Rep. Steve Stivers (R-Ohio):
Do you believe that these markets are more or less competitive than they were 5 years ago?

Edward DeMarco:
Well, interestingly, in some ways perhaps getting a bit more competitive. Some of the largest institutions have actually stepped back a little bit.

Rep. Steve Stivers (R-Ohio):
And do you believe that concentration in those markets – additional concentration in the market share of those markets would be a good thing or a bad thing going forward?

Edward DeMarco:
I’m not a big fan of concentration in our financial system and that’s why the more we can do to keep this competitive and to keep an active role for small and mid-sized players, the better.

Rep. Steve Stivers (R-Ohio):
I agree with you and I think that’s what’s led to some of the too big to fail. And so I guess I’d ask what steps do you take or what analysis do you perform in making changes to the GSEs and market rules to ensure those changes won’t disproportionately affect regional banks or community banks and otherwise lead to more consolidation or concentration of market share?

Edward DeMarco:
I think it’s critically important that we develop standards that define how the mortgage market works.
Just as one very quick thing: If you used to sell a mortgage to Fannie Mae or Freddie Mac and you’re a local bank and you’re selling one loan to Fannie Mae, you had to provide a whole bunch of proprietary coding regarding the characteristics of that mortgage. If you were to take that mortgage and say, “No, wait, I want to sell it to Freddie,” you’d have to provide all that information in an entirely different system with different data definitions and so forth. That was particularly costly for our small and mid-sized institutions. It also degraded the quality of the data that each company was getting. That’s why I think the data standards are important and will really help smaller institutions compete.

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