Transcript: Testimony by FHFA Director Edward DeMarco on the government conservatorship of Fannie Mae & Freddie Mac
Edited by Jenny Jiang
Partial transcript of testimony by 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:
Thank you, Mr. Chairman.
Chairman Hensarling, Ranking Member Waters, and members of the committee, I am pleased to be here to testify before.
As required, I submitted a detailed written statement to the committee and I look forward to engaging with you today as there are many important topics to be discussed.
Fannie Mae and Freddie Mac – or the enterprises as I will refer to them – have been in government conservatorship for more than 4.5 years. These lengthy conservatorships are unprecedented and they were never intended to…[Interrupted by shouting in the crowd]
Thank you, Mr. Chairman. And I do understand the pain that this housing crisis has caused for so many families around the country and the tremendous cost it has imposed upon the American taxpayer.
First chapter of conservatorship focused on restoring stability and liquidity in housing finance during the financial crisis in the fall of 2008. We succeeded.
The second chapter focused on foreclosure prevention efforts, which were critical to help borrowers in distress and essential to meeting our conservatorship mandate to preserve and conserve the enterprises’ assets. Efforts to minimize losses on troubled mortgages have been good for borrowers, good for communities, and good for taxpayers.[Interrupted by shouting in the crowd]
The next line in my prepared remarks are – the task has not been easy.
While we’ve not always succeeded, the results are better than frequently recognized. In conservatorship, the enterprises have completed more than 2.6 million foreclosure prevention transactions. Of these, nearly 2.2 million of these transactions resulted in the borrower staying in their home.
The borrowers able to pay their mortgage, the enterprises have refinanced almost 15 million mortgages since conservatorship. More importantly, they have completed almost 2.2 million in HARP refinances.[Interrupted by protest signs in the crowd]
More importantly, we’ve completed more than 2.2 million HARP refinances, which are targeted at borrowers with little or no equity in their homes.
While not without its shortcomings, delays, and other problems, this collection of programs remain a noteworthy response to an unprecedented crisis, and the work to help borrowers continues.
Today, the tools and the processes are much better established than they were a few years ago. A big reason for that is the dedicated work of employees at Fannie Mae and Freddie Mac and my own team of hardworking civil servants at FHFA.
While we continue to refine and improve these programs, last year, we began moving on to another chapter of conservatorship.
A year ago, I sent to this committee a strategic plan for the enterprise conservatorship. That plan had 3 broad strategic goals.
First, build. Build a new infrastructure for the secondary mortgage market.
Second, contract. Gradually contract the enterprises’ dominant presence in the marketplace while simplifying and shrinking their operations.
Third, maintain. Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages.
These goals satisfy our statutory mandate as conservator, are consistent with the administration’s call for a gradual wind down of the enterprises and preserve all policy options for Congress.
Achieving these goals will produce a stronger foundation on which Congress and market participants can build to replace the pre-conservatorship GSE model.
Earlier this month, I announced specific steps I expect Fannie Mae and Freddie Mac to take this year in pursuit of these three goals.
Briefly, we are building for the future by establishing a platform for future mortgage-backed securitization. This platform, while owned by the enterprises, will have its own CEO and board and operate away from either company. Building this platform is an important element to assisting Congress with the transition from the old model to a new one.
We are contracting the enterprises by setting targets to gradually shrink each of their three business lines this year.
And lastly, we are continuing efforts to maintain market stability and liquidity. Areas of focus this year include reps and warrants, mortgage insurance, and forced place insurance.
In closing, the members of this committee have important choices to make. Choices that will define the role of the government in the housing finance system for years to come. These choices will directly affect business decisions of countless financial institutions and investors and help determine the framework for millions of households to borrow money for buying a home.
FHFA looks forward to working with this committee, other members of Congress, and the administration to make these policy determinations and end these conservatorships.
Thank you, again, for inviting me here today and I look forward to discussing this important matter with the committee.