Transcript: Statements by Rep. Carolyn Maloney (D-N.Y.) on government conservatorship of Fannie Mae & Freddie Mac

Edited by Jenny Jiang

Partial transcript of remarks by Rep. Carolyn Maloney (D-N.Y.) on the government conservatorship of Fannie Mae and Freddie Mac. The House Committee on Financial Services Hearing was held on March 19, 2013:

It’s been 4 years since the GSEs went into conservatorship, and we all know how important housing is to our economy. Some economists estimate that housing and its related industries are a roaring 25% of our economy. So until we straighten out housing, our broader economy will not fully recover.

So this is a tremendously important issue to all of us. I applaud the bipartisan efforts on this committee with Mr. [John] Campbell, Mr. [Gary] Peters, Mr. [Gary] Miller, and Ms. [Carolyn] McCarthy and hope we’ll have hearings to focus on their related ideas.

And I look forward to hearing more today about your three-part strategic plan to build, maintain, and contract the GSEs.

In the efforts of – your efforts for a single platform and standardized practices, I believe, is a great step for it – a great development.

And I also believe that your efforts to maintain foreclosure prevention activities and credit availability and to refinance mortgages has been successful.

I also want to applaud the work with HARP – the Home Affordable Refinance Program – to promote foreclosure prevention activities – has had some successes – 1.1 million refinances have been done, which nearly equals the number of HARP refinances over the prior 3 years. That is a success.

And the focus of your office on underwater mortgages with those with greater than 105 loan to value ratios – these refinances represent 43% of the total HARP refinance in 2012 compared to 15% in 2011. So that is a movement in the right direction but we still can do more.

It is in the area of contracting that I have the most questions, including the effect that it will have on multi-family housing and single-family housing.

The GSE’s multi-family housing portfolio picks up on pieces of the housing sector that the private sector has not been interested in. They usually are not interested in providing affordable housing. So I have questions about the effect that it will have on the goal of – the policy goal of affordable housing which I deeply support and the 30-year mortgage.

I also have questions about what contracting will mean both in terms of the guaranteed fees on states that have longer foreclosure times but better outcomes in terms of rates of foreclosures. These states are keeping people in their homes, and shouldn’t we be looking at the result and rewarding states or localities that keep people in their homes as opposed to raising their fees?

Q&A with Edward DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA):

Rep. Carolyn Maloney (D-N.Y.):
Why did Fannie and Freddie get into subprime lending and what steps have you put in place to prevent any entity – whatever is there – from taking that action in the future?

Edward DeMarco:
So complicated story with regard to the enterprises’ participation in subprime lending. But clearly it was driven by what was going on more broadly in the marketplace. There was a sense of Fannie Mae and Freddie Mac were losing market share to private participants. There was a sense of serving more of the borrowers at the margin of the mortgage market and there was a sense that the strength of the U.S. housing was such that home prices were going to continue to rise. So there were a lot of things going into their participation in that marketplace.

With regard to where we are today, we’ve undertaken a couple of pretty important steps. One of them is that the pricing of guarantee fees is much more risk-based today that it was – they were clearly underpricing risks in the marketplace. And the second is that underwriting standards have been improved. And the third is through the discipline on lenders through things like enforcing reps and warrants, we’re getting better discipline in the origination process with regards to ensuring mortgages that are being produced today comply with the standards that Fannie and Freddie have.

Rep. Carolyn Maloney (D-N.Y.):
I’m concerned about the multi-family housing, and I want to quote from your remarks that you gave at the National Press Club on March 7th. And I quote: “We are setting a target of a 10% reduction in multi-family business volume from 2012 levels. We expect that this reduction would be achieved through some combination of increased pricing, more limited product offerings, and tighter overall underwriting standards.”

Given that multi-family housing is a critically important base for affordable housing in our country – well over 15 million people rely on it – seniors, students, low-income, moderate-income families. And I feel that preserving it is very important.

So first I want to know how did you decide on a 10% reduction as an appropriate volume? And have you done any studies to see if the private sector will pick up in this area and continue to help us with affordable multi-family housing?

Edward DeMarco:
Of course. And certainly, Congresswoman, I share your feeling that the multi-family market is critical to the housing, our citizens, and is particularly an important source of housing for low to moderate-income households. With that said, we came to the percent through looking at a variety of things, including the market size, the traditional role of Fannie and Freddie in this market space, expectations about the size of the market in the future and recognizing that we did have a goal of gradually reducing the enterprises’ footprint in the marketplace.

Also paying attention to and mind of – unlike single-family where, as we talked earlier, over 90% of the secondary market activity is through the government, it’s not the case in the multi-family market. The multi-family market retains a good bit of private capital participation and competition in their marketplace. And I’m certainly have been hearing from the banking community concerns about they want to participate in this market; they are active participants in it; and concerned about Fannie and Freddie operating with this kind of government backing having an unfair advantage in that market. So I’m comfortable that there is private capital actively competing in this marketplace. All that said, we intend, I want to assure you – we intend to monitor how this is carried out by the companies and how this market evolves and to be mindful of that. And we’ve reminded the companies of their statutory mission to support affordable housing.

Rep. Carolyn Maloney (D-N.Y.):
And have you consulted with the Treasury Department and FHFA about this target and are they part of this decision?

Edward DeMarco:
Yes. I consulted with both of those departments in advance of announcing this decision.

Rep. Carolyn Maloney (D-N.Y.):
And I also want to question one of your speeches on March 7th on the differences between the single-family businesses and the multi-family businesses. Are you approaching them differently in your approach?

Edward DeMarco:
Yes, we are. And that’s good thing for me to explain the reasoning here. With single-family mortgages, Fannie and Freddie are retaining all of the risks when they buy the mortgage. In multi-family – most of the multi-family mortgages they buy, they are already doing risk-sharing with private capital. I’m trying to get the single-family to look a bit more like multi-family where there’s risk-sharing with private capital.

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