Transcript: Statements by Rep. Maxine Waters (D-Calif.) on government conservatorship of Fannie Mae & Freddie Mac

Edited by Jenny Jiang

Partial transcript of remarks by Rep. Maxine Waters (D-Calif.), Ranking Member of the House Committee on Financial Services, on the government conservatorship of Fannie Mae and Freddie Mac. The House Committee on Financial Services Hearing was held on March 19, 2013:

We’re at a pivotal moment in our housing recovery, having staunched the bleeding caused by the 2008 financial crisis.

After large declines in home prices in 2007 through 2011, prices in many markets bottomed out in early 2012 and are now starting to rise. Housing construction is, likewise, increasing, and a record 1.1 million households were able to refinance under HARP last year.

Freddie Mac posted $11 billion in income in 2012, and Fannie Mae expects to report significant net income when they file their annual report.

But headwinds remain in the market with many homeowners still struggling to negotiate loan modifications, refinance their mortgages, and understand the terms of the many mortgage settlements that have been negotiated.

Principal reduction modifications also, unfortunately, remain rare, and the private sector continues to be largely unwilling to offer mortgage credit even to qualified borrowers due to investor skepticisms over lingering problems in the private securitization market.

Acting Director DeMarco, who is here to testify before us today, finds himself at the center of this tremendously complex and important market as the conservator of Fannie Mae and Freddie Mac.

Now, I appreciate that this is a tough job and that it is not easy serving in an acting capacity for nearly 4 years. But having said that, I’m concerned that Mr. DeMarco has used his wide latitude in regulating Fannie Mae and Freddie Mac to make a number of controversial decisions during his tenure, including refusing to move forward with principal reduction modifications even when they would benefit the taxpayers and raising fees in states with strong consumer protection laws.

While I have agreed with some of Mr. DeMarco’s decisions, I’m concerned about his lack of accountability, particularly since many of the choices being made will impact the future of the secondary mortgage market.

I’ve been urging my colleagues to begin the work of reforming the GSEs because without actions from this committee, Acting Director DeMarco will have to continue to take it upon himself to do the work of re-shaping Fannie Mae and Freddie Mac outside of public scrutiny and without the input of the Congress of the United States.

This committee should begin the job of considering the many bipartisan reform proposals on the table so that we can give the market certainty, guarantee the continued availability of the stable mortgage products – like the 30-year fixed rate loan –
and ensure that institutions of all sizes, including community banks and credit unions are able to participate in the secondary mortgage market.

Moreover, I’m implore my colleagues in the Senate to support the next nominee selected by the President to head the FHA.

Finally, as we consider the testimony today, let us remember that the issues we’re discussing reach beyond specific policies regarding the GSEs. Our purpose is not only to put the GSEs on solid footing but to create the conditions to help bring our economy back to full strength.

Mr. Chairman, I hope this is a priority of the committee going forward. Republicans are in charge. We have not seen a proposal come forward. I would hope that this committee under your leadership would provide the leadership that is necessary to reform the GSEs. We know of your longstanding concerns and the criticisms that you have launched constantly about the GSEs, so I’m hopeful that you will be in charge of reform for us.

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

Rep. Maxine Waters:
…Mr. DeMarco, as conservator, what are the cost of doing nothing?

Edward DeMarco:
The cost of doing nothing are that we are continuing to risk the taxpayer support of Fannie Mae and Freddie Mac and we’re making it harder for investors to return to this market and have confidence about what the rules of the road in mortgage lending are going to be going forward.

Rep. Maxine Waters:
In the absence of legislation, however, it seems – and I’ve this discussion with you – that you have broadly interpreted your mandate to not only act as a conservator but to aggressively wind down the GSE’s market presence and entirely reform the secondary mortgage market. In your testimony, you proposed winding down the investment portfolio at a faster rate than agreed to with the Treasury, reducing the GSE’s participation in the multi-family market even when it is unclear that private lenders would fill the affordable rental housing space and increase the cost of single family housing by offloading credit risks and raising guarantee fees even higher. Given that you’re not presidentially appointed permanent director, where do you draw the line in terms of what you’re able to do? Hypothetically, could you raise G fees an unlimited amount? Could you wind down retained portfolios to zero? How are your decisions being informed by Congress and the administration?

Edward DeMarco:
Ranking Member Waters, I would welcome as much congressional direction and legislation on these matters as we could get. For my part, what motivates me and what constrains me is the statutes that Congress has enacted that provide the guard rail about what it is FHFA is supposed to do both as regulator and as conservator. I’m also informed by observing that within the Congress of the United States while there have been a number of proposals for housing finance, none of them involve restoring Fannie Mae and Freddie Mac to their pre-conservatorship corporate form. I’m mindful that the administration has repeatedly discussed its intent to wind down the enterprises and I’ve tried to take a transparent process with Congress in explaining what it is we are doing and why. And with this strategic plan over a year ago laid out for Congress my thoughts about where FHFA found itself as conservator and how it then viewed its statutory responsibilities and the gradual steps we plan to take under that strategic plan. And so I’ve tried to be transparent about this and move in a thoughtful but gradual manner.

Rep. Maxine Waters:
The Treasury and the FHFA agreed to an increased portfolio reduction of 15% per year last summer. Why do you feel it is necessary to require the GSE to exceed this target as selling less liquid assets? How will you ensure that such sales will not result in reduced returns to the taxpayer?

Edward DeMarco:
One of the requirements we placed on them is that these transactions be economically sensible. But I would point out that within the 15% reduction that’s under the Treasury agreement, Fannie Mae and Freddie Mac can achieve that over the next couple of years by doing nothing – simply by absorbing the natural runoff of their retained portfolio. I am trying to shrink their operations. I’m trying to de-risk the company so that we can some of this risk off the back of the American taxpayer and we’re trying to take a gradual approach to doing that by encouraging sales of certain non-liquid assets on their portfolio. This will also ease the job for Congress in terms of thinking about a transition away from Fannie and Freddie in conservatorship to a future model. The more we can simply their operations and gradually shrink them, that makes the transition easier.

Rep. Maxine Waters:
In the multi-family space, you’ve set a target of 10% reduction in multi-family business new acquisitions in 2012. What would be the impact of this reduction on rental prices?

Edward DeMarco:
I would not expect there to be any meaningful impact. Fannie Mae and Freddie Mac in the early years of the conservatorship their share in the multi-family mortgage market increased substantially. In 2012, it decreased. In 2013, what I want is to see that decrease continue. And we also have reasonably that the size of the multi-family is going to gradually decline. So what I’m trying to avoid is Fannie Mae and Freddie Mac operating with this government backing taking on a greater share of the market than should be the case.


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