[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                     TRANSPARENCY, TRANSITION, AND
                       TAXPAYER PROTECTION: MORE
                      STEPS TO END THE GSE BAILOUT

=======================================================================

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON CAPITAL MARKETS AND

                    GOVERNMENT SPONSORED ENTERPRISES

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 25, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-33











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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

                   Larry C. Lavender, Chief of Staff
  Subcommittee on Capital Markets and Government Sponsored Enterprises

                  SCOTT GARRETT, New Jersey, Chairman

DAVID SCHWEIKERT, Arizona, Vice      MAXINE WATERS, California, Ranking 
    Chairman                             Member
PETER T. KING, New York              GARY L. ACKERMAN, New York
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             RUBEN HINOJOSA, Texas
DONALD A. MANZULLO, Illinois         STEPHEN F. LYNCH, Massachusetts
JUDY BIGGERT, Illinois               BRAD MILLER, North Carolina
JEB HENSARLING, Texas                CAROLYN B. MALONEY, New York
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin
JOHN CAMPBELL, California            ED PERLMUTTER, Colorado
THADDEUS G. McCOTTER, Michigan       JOE DONNELLY, Indiana
KEVIN McCARTHY, California           ANDRE CARSON, Indiana
STEVAN PEARCE, New Mexico            JAMES A. HIMES, Connecticut
BILL POSEY, Florida                  GARY C. PETERS, Michigan
MICHAEL G. FITZPATRICK,              AL GREEN, Texas
    Pennsylvania                     KEITH ELLISON, Minnesota
NAN A. S. HAYWORTH, New York
ROBERT HURT, Virginia
MICHAEL G. GRIMM, New York
STEVE STIVERS, Ohio
ROBERT J. DOLD, Illinois











                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 25, 2011.................................................     1
Appendix:
    May 25, 2011.................................................    57

                               WITNESSES
                        Wednesday, May 25, 2011

Crowley, Sheila, President, National Low Income Housing Coalition    34
DeMarco, Edward J., Acting Director, Federal Housing Finance 
  Agency (FHFA)..................................................     9
John, David C., Senior Research Fellow in Retirement Security and 
  Financial Institutions, The Heritage Foundation................    31
Sanders, Anthony B., Mercatus Center Senior Scholar and 
  Distinguished Professor of Real Estate Finance, George Mason 
  University.....................................................    32

                                APPENDIX

Prepared statements:
    Crowley, Sheila..............................................    58
    DeMarco, Edward J............................................    72
    John, David C................................................    83
    Sanders, Anthony B...........................................    91

              Additional Material Submitted for the Record

Garrett, Hon. Scott:
    Written statement of Americans for Tax Reform................   106
    Written statement of the National Association of REALTORS...   111
Waters, Hon. Maxine:
    List of 7,205 supporters of the National Housing Trust Fund 
      (NHTF).....................................................   116

 
                     TRANSPARENCY, TRANSITION, AND
                       TAXPAYER PROTECTION: MORE
                      STEPS TO END THE GSE BAILOUT

                              ----------                              


                        Wednesday, May 25, 2011

             U.S. House of Representatives,
                Subcommittee on Capital Markets and
                  Government Sponsored Enterprises,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 3:10 p.m., in 
room 2128, Rayburn House Office Building, Hon. Scott Garrett 
[chairman of the subcommittee] presiding.
    Members present: Representatives Garrett, Schweikert, 
Royce, Manzullo, Biggert, Neugebauer, Campbell, Posey, 
Fitzpatrick, Hayworth, Hurt, Grimm, Stivers, Dold; Waters, 
Sherman, Lynch, Miller of North Carolina, Perlmutter, Carson, 
Peters, and Green.
    Chairman Garrett. Good afternoon.
    This hearing of the Subcommittee on Capital Markets and 
Government Sponsored Enterprises entitled, ``Transparency, 
Transition, and Taxpayer Protection: More Steps to End the GSE 
Bailout'' will come to order.
    Without objection, all members' opening statements will be 
made a part of the record.
    I will now yield myself time for an opening statement.
    Today's hearing is another step in this subcommittee's work 
to protect the taxpayers and the ongoing bailout of Fannie Mae 
and Freddie Mac. Before us, we have seven legislative drafts 
which attempt to do just that. And I commend all of the bills' 
sponsors for their hard work and thoughtfulness on these 
important steps.
    Currently, the government is underwriting roughly 97 
percent of the entire housing market, and everyone on both 
sides of the aisle agrees that this number is completely 
unsustainable and must be reduced. These bills continue our 
efforts in beginning to wind down Fannie Mae and Freddie Mac 
and allow private capital to re-enter the mortgage market. The 
drafts--and these are drafts that we are examining today--
increase transparency of the agencies, guarantee taxpayers are 
repaid for the bailout, end off-balance-sheet funding of 
special interests, focus the agencies on their core mission, 
limit taxpayer liability, and ensure new GSEs under the same 
structure are able to be automatically created without 
congressional approval.
    So I look forward to hearing from our witnesses about ways 
to improve these drafts and additional ideas to consider. And I 
am also very hopeful that many of these commonsense measures 
can gain bipartisan support as we go through this and work them 
through.
    And again, I appreciate my colleagues' hard work on the 
drafts that we will see today.
    With that, I will yield to the gentleman from California 
for 2 minutes--2\1/2\ minutes.
    Mr. Sherman. I am glad we are considering other ways to 
improve the GSEs. I think the most important one to consider, 
which unfortunately is not a bill on the official list for this 
hearing, is Gary Miller's bill, along with myself, to make sure 
that the conforming loan limit does not decline in the 10 or 12 
highest-cost areas of this country.
    We can talk theoretically about what the role of the GSEs 
should be. But the fact is, right now, the GSEs and FHA are 
responsible for virtually every middle-class mortgage in the 
country. And in their absence, we would see a precipitous 
second decline in home prices that would doom us to a double-
dip recession.
    I think we should look at ways to make the GSEs better. One 
bill that I don't think accomplishes that--although I have such 
tremendous respect for its author--is the prevent dividend 
payment decrease bill. Ten percent is a very high rate for an 
entity to pay in the real estate area. I don't know many people 
in my district who are paying 10 percent. And it occurs to me 
that if we force the GSEs to pay--not even to consider a 
discussion, enter into discussions with Treasury to reduce that 
10 percent rate on the preferred stock, that this will just 
mean they are going to have to borrow more money, and I don't 
think it profits the taxpayers at all to be getting an illusory 
rate and then have to lend money to the GSEs so that they can 
afford to pay it.
    So I look forward to the GSEs playing an important role at 
this critical time for real estate, and I yield back.
    Chairman Garrett. The gentleman yields back.
    The gentleman from California for 1\1/2\ minutes.
    Mr. Royce. Thank you, Mr. Chairman.
    Briefly, my soon-to-be introduced legislation would 
eliminate the Affordable Housing Trust Fund that was created 
back in 2008. While at the moment the fund is idle, it has 
always been a dream for activist organizations that dabble in 
housing and rental assistance as well as dabbling in political 
activism to establish and to get a revenue source for this 
fund.
    The fund should have never come into existence. Its primary 
source of funding was going to be the GSEs. Because that is no 
longer an option, those groups who would benefit are now 
advocating for a number of different revenue streams. And the 
best way to prevent abuses, the best way to ensure that money 
does not flow to the groups who were actively lobbying Congress 
and the GSEs to weaken lending standards over the years is to 
eliminate this fund before it gets off the ground.
    So that is the intent of the legislation, and I yield back, 
Mr. Chairman.
    Chairman Garrett. The gentleman yields back.
    The gentlelady from California for 2 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman, for holding 
this hearing this afternoon on a set of GSE-related bills. I 
believe that within this package of bills, there are some areas 
where we can agree. In fact, some of the bills we are 
considering today are rather noncontroversial because they are 
verbatim restatements of the existing preferred stock purchase 
agreement between the Treasury Department and Fannie Mae and 
Freddie Mac.
    However, while some of these bills may be unobjectionable, 
I am not sure why we are taking time to consider draft 
legislation that basically reiterates existing policy or 
repeals programs that were never funded.
    Chairman Bachus announced in a press conference at the end 
of March that we would mark up the Hensarling GSE privatization 
bill right after the Easter recess. That bill would render many 
of these piecemeal reforms moot. The Easter recess has come and 
gone, and we are heading into June with no markup of the 
Hensarling bill scheduled. Instead, the subcommittee continues 
to offer bills that kind of pick around the edges of reform and 
appear to be going nowhere in the full committee.
    By delaying consideration of a comprehensive reform plan 
and instead choosing to consider these piecemeal bills, I think 
my friends on the other side of the aisle are acknowledging 
that their privatization plan is kind of a nonstarter for the 
middle class, like the Ryan budget. It seems that many of my 
colleagues are now experiencing buyers' remorse.
    Finally, I would like to make a note on Representative 
Royce's bill to abolish the National Housing Trust Fund, which 
has never actually been capitalized. My colleagues constantly 
and consistently attack the affordable housing goals and the 
HUD affordable housing appropriations. They are moving to 
restrict access to FHA and now are seeking to abolish the trust 
fund.
    To be honest, I would be curious to know what my colleague 
suggests we do about the 7 million households with the worst-
case housing needs, as defined by HUD, because they seem to 
reject every tool we come up with to assist these valuable 
populations--vulnerable populations, which predominantly 
include seniors, individuals with disabilities, and families 
with children. So I would ask unanimous consent to enter into 
the record a list of 7,205 national, State, and local 
organizations that support the National Housing Trust Fund.
    Chairman Garrett. Without objection, it is so ordered.
    Ms. Waters. I thank you very much, and I yield back the 
balance of my time.
    Chairman Garrett. The gentlelady yields back, and the list 
is entered into the record.
    The gentleman from Texas is recognized.
    Mr. Neugebauer. Sorry, Mr. Chairman, I had another thought 
there.
    Thank you for calling this important hearing. It has been 2 
years and 8 months since the taxpayers were put on the hook for 
Freddie and Fannie, and it is time to do something. As a matter 
of fact, it is past time to do something.
    But one of the things that continues to bother me is that 
taxpayers have had to shell out $170 million to defend class-
action lawsuits against Freddie and Fannie and former top 
executives who knowingly and purposely manipulated earnings to 
increase their own compensation and whose actions directly 
contributed to the demise of the GSEs.
    With Freddie and Fannie's bylaws to allow advancement of 
reasonable legal fees, there is no criteria for what 
constitutes ``reasonable.'' I am confident that the American 
people would agree that using $170 million of their hard-earned 
money to defend crooks is not reasonable. My bill would require 
GSEs to essentially define the term ``reasonable'' and have the 
Director of FHFA approve or disapprove such determinations in 
accordance with their role as a conservator of the U.S. 
taxpayers.
    The bill would also require employees accused of fraud or 
breach of fiduciary responsibility to post a bond or other 
collateral so that taxpayers are made whole in the event of a 
conviction. This will ensure that folks like Franklin Raines 
have skin in the game instead of having a blank check from the 
American taxpayer to pay their legal fees.
    Finally, the bill would prohibit the GSEs from taking 
Treasury funds to satisfy any legal settlements or judgments. 
Instead, the GSEs would be required to meet such obligations by 
selling its portfolio or other physical assets.
    Mr. Chairman, thank you for holding these hearings. I think 
the American people are anxious for us to get along with this 
process so that we can get them off of the hook.
    With that, I yield back.
    Chairman Garrett. The gentleman yields back.
    The gentleman from Colorado for 2 minutes, please.
    Mr. Perlmutter. Thank you, Mr. Chairman.
    Mr. DeMarco, it is good to have you back in front of our 
committee. And I just want to alert you that I would like to 
talk to you about cleanup calls a little bit again.
    But I also want to congratulate you. We have come through a 
couple of very tough years, this country has. A lot of people 
have had to roll up their sleeves and really take on some 
difficult issues, one of those being to have some underwriting 
criteria back in connection with our housing stock and our 
housing loans.
    And I guess it has been gratifying to see that, through the 
course of the conservatorship, there has been continued 
improvement by Freddie Mac, due in no small part to the steps 
that have been taken. So even though I want to congratulate 
you, I am also going to pick on you about cleanup calls when it 
is my turn. I think when Americans really do roll up their 
sleeves, they have a certain plan that is implemented, you can 
really change what has been going on before. And I am pleased 
to see those kinds of things going on in your jurisdiction of 
things. So thank you.
    Chairman Garrett. Thank you. The gentleman yields back.
    Mr. Manzullo, for 1 minute.
    Mr. Manzullo. Mr. Chairman, thank you for calling this 
important hearing on GSEs.
    As you know, when the government put Fannie Mae and Freddie 
Mac into conservatorship, the Treasury Department granted them 
an influx of capital in exchange for Senior Preferred Stock, 
which pays a 10 percent dividend back to the Treasury 
Department. Although this dividend rate may be changed at any 
time, the 10 percent rate was designed to guarantee taxpayers 
full repayment, and reducing this dividend could delay or even 
prevent full repayment to the taxpayers.
    The legislation I plan to introduce will protect taxpayers 
from this risk and solidify the 10 percent dividend agreement 
reached by the Treasury Department and the GSEs back in 2008. I 
look forward to discussing this bill as well as the other 
important bills introduced by my colleagues as we continue to 
move forward with the GSE transition. Thank you.
    Chairman Garrett. The gentleman yields back.
    Who seeks time? The gentleman is recognized for 2 minutes--
for 2\1/2\ minutes.
    Mr. Peters. Thank you, Mr. Chairman. The housing sector is 
one of the largest and most important parts of the economy, and 
it requires a fully functioning secondary market to stay 
healthy. The bills that we are debating today, like the bills 
the committee has previously marked up, get rid of the existing 
housing finance system but fail to replace it with anything.
    Almost everyone agrees that the Freddie and Fannie hybrid 
model of privatized gains and subsidized losses must be 
eliminated, and I don't think there is anyone in either party 
who doesn't recognize the Fannie and Freddie model as flawed 
and that reform is desperately needed. The question isn't 
whether we need reform. It is what kind of reform will we have 
and what will replace the existing GSEs?
    The Majority has invited two academics here to testify 
today. But this is not just an academic exercise. It has real-
world consequences for homeowners and for the millions of 
Americans whose livelihoods depend on a vibrant housing sector. 
I believe that if we don't replace the GSEs with a clear and 
comprehensive plan to encourage private capital to invest in 
the mortgage markets, Americans will no longer have access to a 
30-year fixed-rate mortgage at stable and affordable rates.
    But you don't have to take my word for it. I know we are 
going to have later some testimony from Mr. Sanders, who is a 
professor at George Mason University. And after reviewing his 
testimony, I offer a preview of what he is going to say about 
the secondary market.
    He acknowledges that investors may be hesitant to hold 
mortgage-backed securities that don't have a guarantee, that 
this would cause the mortgage market to shrink, and that it 
would be detrimental to the economy.
    He also says that the United States would have fewer 30-
year fixed-rate mortgages and that would shift the risk of 
interest rate changes away from investors. He doesn't say who 
would bear the burden of that interest rate risk, but I can 
tell you who it is; it will be the homeowner.
    For generations, Americans have been able to benefit from 
access to long-term fixed-rate mortgages. Families have been 
able to weather economic uncertainty and interest rate 
fluctuations because their monthly mortgage payment has been 
stable.
    It is important to ask why would we voluntarily move away 
from a system that has been the cornerstone of wealth 
accumulation for generations of American middle-class families? 
I believe that we need an approach that will preserve access to 
traditional mortgage products for responsible homeowners, while 
at the same time bringing private capital into the secondary 
mortgage market and protect taxpayers against future bailouts.
    I worked with my colleague from California, Mr. Campbell, 
on bipartisan legislation that we believe will accomplish those 
goals. And I would hope that before the subcommittee or the 
full committee acts on any GSE reform legislation, that we will 
have more hearings to discuss these issues where a broader 
range of views will be represented. Let's hear from the 
investor community, from the REALTORS and homebuilders, from 
mortgage originators, from economists, whose research is not 
guided by ideology, and most importantly, from groups 
representing the interests of homeowners. Let's make sure that 
we know what the impact of these bills would be on the economy 
and homeowners before we actually act.
    With that, Mr. Chairman, I yield back the balance of my 
time.
    Chairman Garrett. And the gentleman yields back.
    Just a reminder to the gentleman, that we actually have had 
those hearings with the individuals that you indicate might 
want to come to testify, such as the REALTORS and the 
homebuilders and the Financial Services Roundtable as well. So 
I appreciate the interest and what have you, but that is 
exactly why we are having this hearing today and that is why we 
had those other hearings as well in the past, to have those 
people here so their voices would be heard. Thank you.
    Mr. Fitzpatrick for 1 minute.
    Mr. Fitzpatrick. Thank you, Mr. Chairman, for scheduling 
this hearing and for remaining vigilant on the issue of GSE 
reform.
    At this point, the American taxpayers have bailed out 
Fannie and Freddie to the tune of $160 billion, and the 
responsibility for this mess spans decades and, frankly, 
crosses both parties. However, it is the taxpayers who have 
borne the brunt of these mistakes, and that is simply 
unacceptable. We owe it to the American people to ensure them 
that this bailout is not unlimited and that never again will 
they be called upon to bail out bad public policy. I believe 
that the bills before us move us in that direction, including 
my proposal for a liability cap, and I look forward to this 
afternoon's testimony.
    I yield back.
    Chairman Garrett. The gentleman yields back.
    Mr. Carson for 2\1/2\ minutes.
    Mr. Carson. Thank you, Mr. Chairman.
    The National Housing Trust Fund (NHTF) is critical to 
addressing the need for affordable housing among low-income 
Americans. In my home State, low-income Hoosiers are the only 
population facing an absolute housing unit shortage. In my 
district, 91 percent of low-income renters devote over half of 
their income to housing.
    To afford a modest one-bedroom apartment, one of my 
constituents earning Indiana's minimum wage would have to work 
68 hours per week. Clearly, the private market is not 
adequately serving the lowest-income population, which is why 
Congress authorized an NHTF in 2008 and why I support it 
without hesitation.
    If we do not preserve the NHTF, we risk relegating working-
class families to the despair of homelessness and an often 
unforgiving shelter system. We must maintain the opportunity of 
our States and communities to ensure access to affordable and 
sustainable housing for all Americans of all economic 
backgrounds. We often talk in these hallowed halls about 
achieving an education, building better communities, and 
preserving families. I ask my colleagues to be mindful that 
housing stability is the cornerstone on which we build 
stability in employment, schools, communities, and families.
    Thank you, Mr. Chairman. I yield back my time.
    Chairman Garrett. The gentleman yields back.
    Mrs. Biggert for 1 minute.
    Mrs. Biggert. Thank you, Mr. Chairman.
    And thank you to all the witnesses who are here today.
    And welcome. Today, I look forward to a constructive 
dialogue about potential reforms to help shape a stronger 
framework for the future of housing finance. Together, I hope 
we can better determine what role, if any, the government 
should play in housing finance. There is no doubt the GSEs are 
in need of reform.
    However, the reforms we embrace must by every possible 
means avoid disrupting the housing recovery as we allow private 
capital to replace government capital. As always, it is 
critical that we achieve the right balance for taxpayers and 
home buyers. I look forward to working with my colleagues on 
both sides of the aisle to facilitate the private sector re-
entry, eliminate taxpayer risk, and promote a vibrant housing 
finance system that best serves the interests of all Americans. 
Thank you all for being here today.
    With that, I yield back.
    Chairman Garrett. The gentlelady yields back.
    The gentleman from California is recognized for 1 minute.
    Mr. Campbell. Thank you, Mr. Chairman.
    The GSE model has failed us, and we need to wind them down, 
that is clear. But as was pointed out, we cannot replace the 
GSEs with nothing.
    The gentleman from Michigan, Mr. Peters, and I have an 
alternative, something we think could replace the GSEs and 
maintain or create a robust housing market. The gentleman 
mentioned that we have had hearings--or the chairman mentioned 
that we have had hearings with various groups. I would suggest 
to the chairman, although we have had hearings with various 
groups, we have not had hearings with any of those groups when 
bills are before us.
    And now we have both this series of bills, Mr. Peters and 
my bill before us, and we should have additional hearings and 
hear from those people because if we replace the GSEs with 
nothing, we will have higher downpayments, shorter duration 
terms; the housing market will drop dramatically. In the last 
crash, it dropped by 28 percent. We will have a similar crash 
if we get rid of the GSEs and replace them with nothing. We 
cannot have a robust recovery without a recovery in housing, 
and we can't have a recovery in housing without a consistent 
system for housing finance.
    I yield back.
    Chairman Garrett. The gentleman yields back.
    The gentleman is reminded that actually, we have had 
legislative hearings, as I reminded the gentleman earlier. And 
at those hearings, legislation was presented during those 
hearings, and that legislation was discussed.
    I would also remind the gentleman from California that I 
don't think that anyone who has been at that panel or on the 
dais here has ever suggested that we replace the GSEs with 
nothing. I think everyone has suggested that there should be 
something to replace them, and in some cases, it should be the 
private market.
    With that, I yield to Mr. Dold for 1 minute.
    Mr. Dold. Thank you, Mr. Chairman.
    I certainly want to thank Chairman Garrett for his 
leadership and his work on these important GSE issues.
    And I certainly want to thank the witnesses for taking time 
to be with us today.
    The GSEs clearly need serious reform. Right now, we have an 
untenable situation. The taxpayers are subjected to the risk of 
potentially unlimited losses, with $160 billion in losses and 
counting so far.
    Meanwhile, a weakened housing market continues to suffer 
while the private-sector mortgage lending largely remains on 
the sidelines. I am confident both the Democrats and 
Republicans share a common objective, a better, more 
sustainable, more effective mortgage finance system, one that 
protects the taxpayers from future bailouts, that encourages 
the private sector to get back into the mortgage market, and 
that effectively restores long-term stability and strength to 
the housing sector.
    The legislative proposals under discussion today are 
important components of moving us towards that common 
objective, and I look forward to working with the chairman and 
my colleagues on both sides of the aisle to achieve this common 
goal.
    I yield back.
    Mr. Schweikert. [presiding] Mr. Grimm for 1 minute.
    Mr. Grimm. Thank you, Mr. Chairman.
    And thank you, Director DeMarco, for your testimony today.
    There is going to be a lot of discussion about a lot of 
things, and sometimes it seems a little esoteric and it seems 
to be out there in Washington world.
    But I just want to remind everyone that there are real 
people out there. I come from Staten Island and Brooklyn where 
they are struggling, families are struggling to put food on the 
table for their children. And when I think that these people, 
these taxpayers spend $160 billion of money that they don't 
have, it makes me think that we have a lot of work to do.
    These taxpayers own 80 percent of a company that they feel 
that--and some of us feel they are not entitled to know the 
understanding of how the operations of this company works. So 
again, we have a lot of work to do.
    But we can't forget, especially where I come from, New York 
City, 25 percent of our economy is focused around housing and 
the related industries. So we have to get this right. The long-
term solution for these issues that we are discussing, if we 
don't get it right, it is devastating. It is devastating for 
the people back home.
    So I just want to emphasize that. And before I yield back, 
I look at three things when it comes to legislation: Does it 
make the industry compete on a level playing field? Does it 
help protect the general welfare of the public at large where 
applicable? And most importantly, does it promote growth in our 
economy and help produce jobs? I think we need to be looking at 
that as we reform these GSEs.
    I yield back.
    Mr. Schweikert. Thank you, Mr. Grimm.
    Our first witness is Edward J. DeMarco, Acting Director of 
the Federal Housing Finance Agency.
    Without objection, your written statement will be made a 
part of the record. You will have 5 minutes to summarize your 
testimony and then we will move on to questions.
    Mr. DeMarco?

   STATEMENT OF EDWARD J. DeMARCO, ACTING DIRECTOR, FEDERAL 
                 HOUSING FINANCE AGENCY (FHFA)

    Mr. DeMarco. Very good. Thank you.
    Chairman Garrett, Ranking Member Waters, Mr. Schweikert, 
Mr. Miller, and the rest of the members of the subcommittee, 
thank you for inviting me today. It is again a pleasure and an 
honor to be before this subcommittee again.
    My written statement provides an update on the Enterprises' 
financial condition and performance and a summary of four 
distinct initiatives FHFA has under way to improve the 
efficiency of the country's mortgage market.
    In these few minutes though, I will provide some thoughts 
on the seven draft legislative proposals that were recently 
circulated by the subcommittee.
    The discussion draft sponsored by Representative Stivers 
would amend the Housing and Economic Recovery Act to ensure 
that, should Fannie Mae or Freddie Mac be put into 
receivership, an identical replica GSE, or Government-Sponsored 
Enterprise, would not be created to replace it.
    Now under current law, if an Enterprise were to be placed 
into receivership, FHFA would be required to establish a 
limited-life regulated entity which would operate for up to 5 
years. At the end of that time, without congressional action, 
the Enterprise may be re-created under its current charter.
    Mr. Stivers' bill would prevent the conservator from re-
creating the current model of GSE and require that once an 
Enterprise was wound down, no new entity with taxpayer support 
could be set up.
    There does seem to be general agreement that Fannie Mae and 
Freddie Mac should not be reconstituted in their current form.
    The discussion draft sponsored by Representative Manzullo 
would prevent changes to the Treasury Senior Preferred Stock 
Purchase Agreements that would reduce the current 10 percent 
dividend. This proposal is consistent with the current 
Preferred Stock Purchase Agreement. The Enterprises have been 
paying quarterly dividends at this rate, and FHFA has no plans 
to seek a change in the dividend rate.
    The discussion draft sponsored by Representative 
Fitzpatrick provides for a cap on Treasury assistance to each 
Enterprise. It is consistent with what is in place today under 
the Senior Preferred Stock Purchase Agreements.
    The discussion draft sponsored by Representative Royce 
would terminate any requirement that Fannie Mae or Freddie Mac 
make annual allocations to the Housing Trust Fund, the Capital 
Magnet Fund, and the HOPE Reserve Fund. The Enterprises never 
made contributions to these funds as was originally expected 
under the Housing and Economic Recovery Act due to their 
financial condition and status under conservatorships. It would 
be inappropriate for the Enterprises to start making 
contributions to the funds now or at any time while they are in 
conservatorship and in debt to the taxpayer.
    H.R. 463, introduced by Representative Chaffetz, would 
subject the Enterprises to the Freedom of Information Act or 
FOIA. FOIA's core purpose is to enhance public understanding of 
the operations or activities of the government. This core 
purpose is not served by applying FOIA to Fannie Mae or Freddie 
Mac, which are still private companies operating in 
conservatorship.
    They did not cease to be private legal entities when they 
were placed into conservatorship, nor did they become part of 
FHFA. I urge the subcommittee to consider carefully the harm 
that could be done by subjecting the Enterprises to FOIA.
    The discussion draft sponsored by Representative Hurt would 
require the Enterprises to identify non-mission-critical 
assets, which would then be reviewed by FHFA and lead to a plan 
for disposition of such assets. FHFA has already begun to 
fulfill the intent of Mr. Hurt's draft bill regarding the sale 
of non-mission-critical assets.
    Finally, the discussion draft sponsored by Representative 
Neugebauer would limit the advancement of legal fees for 
employees of Fannie Mae, Freddie Mac, and the Federal Home Loan 
Banks. The proposal would require that FHFA establish a process 
for the setting of standards for reasonableness in the amount 
of such fees.
    While certain specific elements of this proposal raise 
issues, none, I believe, is as important as the challenge to 
attracting and retaining employees. An approach to clarify 
tests for reasonableness and for monitoring legal expenses has 
merit, but the implication that employees will not be 
indemnified nor have funds advanced for their legal protection 
would expose them to lawsuits that could potentially bankrupt 
them, even if they are found innocent of any charges. Altering 
common practice for the availability of indemnification merits 
much more attention for its implication and potential 
unintended consequences.
    Thank you again, and I look forward to answering your 
questions.
    [The prepared statement of Acting Director DeMarco can be 
found on page 72 of the appendix.]
    Mr. Schweikert. Thank you, Mr. DeMarco.
    The Chair yields himself 5 minutes. And I appreciate this.
    I want to just put in the record that I appreciate how open 
you have been, particularly with my office, and the number of 
times we have had technical questions and your willingness to 
spend time with us.
    I would love to touch on--we will call it the Hurt draft 
bill, assets that you would have that would be appropriate for 
liquidation. Off the top of your head, what would you say 
there?
    Mr. DeMarco. As I believe most of the members of the 
subcommittee know, under the Senior Preferred Stock Purchase 
Agreement, the Enterprises are required to be shrinking their 
retained mortgage portfolio at a rate of at least 10 percent 
per year, and we are looking to liquidate that at a faster 
rate, as appropriate with safety and soundness and the goals of 
conservatorship.
    Prior to Mr. Hurt's bill, as conservator, I directed a 
careful review of all the assets of both Enterprises to know 
what it was we were conserving, and to examine which things, in 
fact, were non-core--very much germane to his bill--and to see, 
if they are non-core, then should these things be, in fact, 
sold. That has already led to the sale of various non-core 
assets and an ongoing discussion between FHFA and the 
Enterprises regarding assets, whether they are core or non-
core, and developing suitable plans for their liquidation. So 
we are looking to actually liquidate real estate assets as well 
as other non-core things.
    Mr. Schweikert. Mr. DeMarco, you are actually heading 
toward some of my questions.
    If you had a portfolio of nonperforming or underperforming 
debt, loans, but to sell it would require a loss, would you 
still consider putting that up on the--
    Mr. DeMarco. If I felt that holding an asset to maturity 
would increase the net present value recovery to the taxpayer 
of holding that to maturity relative to selling it in the 
marketplace, I would be inclined to hold it.
    There are certain assets for which there is just not much 
depth of liquidity. And so, when you combine that with the 
preferential borrowing rate--
    Mr. Schweikert. Mr. DeMarco, could I ask you to stop just 
on that? But depth and liquidity, for some of us, the ability 
to test it, I have heard some folks say, impaired mortgages 
don't have a lot of buyers. But then every time I see them 
being offered, I see lists of folks bidding in the auction for 
them. So I don't know what tell ultimately--you would obviously 
have more information.
    Let's use impaired mortgages. If you had a portfolio of 
those, yes, you might take a loss, but you would get it at 
current cash value and you would avoid actually some of the 
servicing and foreclosure and other costs that come with that. 
Tell me why or why not that is a good idea.
    Mr. DeMarco. In fact, we are studying the reasonableness 
and opportunities for taking blocks of mortgage assets that the 
Enterprises have, including troubled mortgages, mortgages that 
have maybe gone through a loan modification, and seeing if 
there are market opportunities to sell that. How we would 
execute on that is all part of what is under review and 
discussion. But we are certainly not opposed to the idea--
    Mr. Schweikert. You are putting feelers out in that market?
    Mr. DeMarco. We are looking for ways to effectively do 
that. Yes, sir.
    Mr. Schweikert. And that is obviously, from a personal 
standpoint, something I have a great interest in, because I 
keep being told and have been given tells that there is a 
hunger for product out there. But if you were to sell a product 
like that, would you be selling that paper with the actual 
guarantee?
    Mr. DeMarco. Let's just say that because we are looking at 
a range of possible structures for the sale of assets, it could 
be with and it could be without. And it depends upon the 
assets. The assets that we are talking about, if there were 
guarantees, it would have to, of course, be something that 
advances the cause of conservatorship, which is to protect the 
taxpayer.
    Mr. Schweikert. Mr. DeMarco, in our last 50 or some 
seconds, walk me through some of the assets. You would 
probably, with both GSEs, $250,000, single family residences, 
$300,000, how many properties do you own right now?
    Mr. DeMarco. I am sorry, Congressman, I can't answer in 
terms of the number of properties. Freddie Mac has between $650 
billion and $700 billion in mortgage assets. Fannie Mae has 
more on the order of $750 billion. These are orders of 
magnitude.
    The key thing for members of the subcommittee to understand 
is that the composition of those mortgage assets have changed a 
lot over the last several years in that prior to 
conservatorship, those would be performing whole loans or 
mortgage-backed securities, and today, there is an increasing 
share of that, which are in fact modified loans or 
nonperforming loans that have been pulled out of pools.
    Mr. Schweikert. Mr. DeMarco, I am now out of time, and I do 
hope someone else on the panel--I do have a curiosity of just 
trying to articulate the number of assets that you have that 
might be better served out in--we will call it the market right 
now than with all the things you are having to juggle. Thank 
you for your time.
    Ranking Member Waters, for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I would like to welcome Mr. DeMarco here today.
    I have a few questions that I would like to try to advance. 
My colleagues on the other side of the aisle said they want to 
end the slush fund, that is, the National Housing Trust Fund. 
To be clear, how much money have the Enterprises contributed to 
the fund to date?
    Mr. DeMarco. Nothing.
    Ms. Waters. I didn't hear you.
    Mr. DeMarco. I am sorry, ma'am. They have committed no 
funds to any of these trust funds.
    Ms. Waters. Thank you very much.
    I just want to point out that it is disingenuous to 
characterize the trust fund as a slush fund, given that it 
hasn't even been capitalized yet, and therefore, my colleagues 
cannot point to a single example of abuse or misuse.
    Also, I would like to be clear that trust fund dollars 
cannot be used for political activities, advocacy, lobbying, 
counseling services, travel expenses, or providing advice on 
tax returns.
    Director DeMarco, I appreciate the new servicing alignment 
initiative that you announced in April. It will set some new 
standards of how servicers of GSE loans should perform going 
forward. But I am concerned that the problem of past improper 
servicing hasn't been fully addressed.
    First, do you think that bad servicing of GSE loans has 
cost the Enterprises money and that certain homeowners perhaps 
could have avoided foreclosure had their loan been better 
serviced? I am thinking of a recent analysis from the CFPB that 
said that servicers saved up to $25 billion cutting corners in 
their operations and even failing to comply with the law.
    If so, shouldn't FHFA look into whether this corner-cutting 
also cost the Enterprises money and that certain homeowners 
perhaps could have avoided foreclosure had their loan been 
better serviced?
    The servicing alignment initiative you announced details 
requirements going forward. What about fines or sanctions 
against servicers that performed poorly or broke the Enterprise 
servicing guidelines for the millions of foreclosures that have 
already been completed?
    Mr. DeMarco. Each Enterprise has in fact assessed penalties 
on their servicers for failing to perform servicing as provided 
for under their contracts, and both Enterprises have sent back 
a large number of mortgages as repurchase requests to their 
servicers for either origination, violation of reps and 
warranties, or servicing violations.
    With respect to the servicing guidelines, clearly this is a 
reflection of a rather widespread failure among major mortgage 
servicers in the servicing of mortgages, and their primary 
regulators have undertaken careful scrutiny of this issue and 
as you know are following up with consent to orders and other 
remedies. We are participating in that so that we have good 
alignment between what FHFA is doing with Fannie Mae and 
Freddie and what the bank regulators are doing from their 
regulatory function so that we are tackling this issue 
together.
    Ms. Waters. How much was the settlement that was agreed 
upon that you just referenced?
    Mr. DeMarco. Those are matters of individual contract. I 
don't have an aggregate number for you.
    Ms. Waters. Bottom line, a total number?
    Mr. DeMarco. Pardon me, I am sorry. I don't have figures 
for that.
    Ms. Waters. And do you know how this is to work? Homeowners 
who are in foreclosure, who can point to fraud, 
misrepresentation, etc., etc., or a failure of the servicers to 
follow the agreement, are they individually compensated in some 
way? Or do you know how that works?
    Mr. DeMarco. Under the initiative that we announced, it is 
not reimbursement to the borrower, but servicers will be 
penalized, and they will know how those penalties are going to 
be assessed for failing to service a mortgage properly, that 
is, where the borrower is having trouble with their payment.
    The other thing, if I may, Ms. Waters, is that one of the 
things we are doing here is we are having Fannie and Freddie 
have exactly the same approach, the same set of penalties and 
so forth. So there are the same guidelines for servicing a 
Fannie loan as a Freddie loan, the same penalty for failure, 
whether it is a Fannie loan or a Freddie loan. And I think that 
this is an important development.
    Ms. Waters. I am sorry. I didn't hear what you just said.
    Mr. DeMarco. I believe that this is an important 
development, and it will help to contribute to improving 
service operations for borrowers who are having trouble with 
their mortgages
    Ms. Waters. Do you think that we have enough oversight of 
servicers, or do we have standards that have been developed so 
that we could hold servicers accountable for what they do in 
servicing these loans? Do we need more legislation?
    Mr. DeMarco. I think that at both the State level and at 
the Federal level, there has been a dramatic--not just 
increased awareness, but a dramatic increase in activity in 
terms of the oversight of servicer operations. And there has 
been a great deal of coalescing both among regulators and 
frankly among the servicers themselves on the need to improve 
the operations of mortgage servicers and to develop standards.
    I believe that our servicing initiative, our servicing 
alignment initiative, is an important step towards helping get 
toward consistency and uniformity in servicing standards. But 
we are not doing this in isolation. We are doing this with the 
other Federal banking regulators and so forth that are involved 
in looking at this issue. So we are taking as many steps as we 
can to remedy these problems.
    Ms. Waters. Thank you very much.
    I yield back my time.
    Mr. Schweikert. Thank you, Ranking Member Waters.
    Mr. Royce?
    Mr. Royce. Thank you, Mr. Chairman.
    Let me ask you, Mr. DeMarco, with regard to the GSEs, given 
that the Preferred Stock Purchase Agreements were agreed to 
with the understanding that they would remain in place until a 
clear path to end the conservatorship was agreed upon, and 
given that there is certainly the potential right now for no 
concurrence between the House and the Senate or the 
Administration on this issue--at least for the foreseeable 
future--is it fair to say that cutting the dividend payments 
would violate the spirit of the PSPAs entered into on behalf of 
U.S. taxpayers? And could you fairly say that would 
unnecessarily absolve the GSEs of additional financial 
obligations? Let me just get your thoughts.
    Mr. DeMarco. I believe that, with respect to the dividend 
rate, the way I envision this, Congressman, is that the 
American taxpayer has forwarded the capital that is allowing 
these companies to operate in the marketplace and is providing 
the capital that is the protection to the investors and 
mortgage-backed securities. And that is what is allowing the 
country's secondary mortgage market to operate. If these 
companies were to be operating today with private capital, that 
private capital would be substantial and that private capital 
would expect a return, certainly, of 10 percent or more.
    So, in my view, it is the American taxpayer who is the 
equity holder here, and so that is why I have no plans to be 
seeking any adjustment in that 10 percent dividend rate because 
it is compensation of the taxpayer for providing the capital 
that is allowing our secondary mortgage market to function 
today.
    Mr. Royce. Thank you, Mr. DeMarco.
    The other question I wanted to pursue briefly is on my 
proposed legislation to eliminate the Affordable Housing Trust 
Fund. You mentioned that it would be inappropriate, in your 
words, for the GSEs to start making payments to the trust fund 
while in conservatorship. Do you believe that contributions 
made to this fund could ever be construed as consistent with 
the goals of the conservatorship as we agreed initially in 
that?
    Mr. DeMarco. My view is that while Fannie and Freddie are 
in conservatorship and owe money to the taxpayers, that I have 
an obligation as the Director of the Agency to conserve assets 
on behalf of the taxpayer. And so I do not envision a state in 
which Fannie or Freddie would make contributions to the trust 
fund while they owed money to the taxpayer and these Preferred 
Stock Agreements were there. The liquidation preference in 
those Preferred Stock Agreements require the taxpayer to be 
paid first.
    I would add that the statute itself directs the FHFA 
Director to make judgments about not making contributions to 
the trust fund if that would have a negative effect on the 
financial condition of the Enterprises. I don't have the 
precise language in front of me. But that is also another basis 
why in terms of them making contributions, I don't see that 
happening.
    Mr. Royce. But that leaves some gray areas, maybe not with 
respect to the judgment you have made, but in my mind at the 
moment, it could leave some question in the future and that is 
one of the reasons, just parenthetically, why I want to move 
that legislation because I want to keep with the spirit of the 
agreement that we all entered into. But I appreciate very much 
your testimony here today.
    And I yield back, Mr. Chairman.
    Mr. Schweikert. Thank you, Mr. Royce.
    Mr. Miller?
    Mr. Miller of North Carolina. Thank you, Mr. DeMarco.
    As you and I have discussed before, the guiding principle 
for FHFA in their conservatorship should be reducing, 
minimizing taxpayer loss.
    Ms. Waters asked you about any fines against the servicers. 
There has been a great deal--we have heard a great deal about 
the remarkable deficiency by servicers, the stunning 
sloppiness, the robo-signers, the chain-of-title issues, and on 
and on. You said you had, in fact, imposed some fines on both 
of the Enterprises, but have you calculated what the loss has 
been? The servicing alignment initiative recognizes that the 
more prolonged foreclosure is, the more expensive it is for 
you. Have you calculated how much the losses are as a result of 
delays from the manner in which servicing has been handled?
    Mr. DeMarco. A couple of things. First, the fact that these 
penalties have been assessed is something I have testified 
about before in this subcommittee. And the charges themselves 
are, in fact, assigned on a case-by-case basis based upon the 
Enterprises' estimation of the losses that they have incurred 
as a result of servicing deficiencies consistent with the 
contractual obligations that are in place between an Enterprise 
and a particular seller-servicer. So that has been the basis of 
the calculation of the fine is, it is following the contract 
and it is done on a case-by-case basis.
    Mr. Miller of North Carolina. Would you assess for 
contractual damages?
    Mr. DeMarco. Yes. The assessment is for contractual 
damages.
    Mr. Miller of North Carolina. Okay. There have been studies 
that show that the mortgages actually held in portfolio by 
banks have a better rate--are more successfully modified with a 
lesser loss experience than those held in secured house pools 
and serviced by a servicer that does not actually own the 
mortgages. Have you examined those studies and determined why 
that would be?
    Mr. DeMarco. I am aware of analyses that talk about 
whether--that talk about these differences. My focus is on 
ensuring that the Enterprise loans are being properly serviced. 
And I have found that the performance of modified loans that 
are owned by Fannie and Freddie continues to improve and 
continues to exceed expectations in terms of the low redefault 
rates on modified loans. So I don't have an immediate 
comparison for you with respect to private-label securities. 
But clearly, we have been seeing strong performance, and it is 
certainly consistent with what the Treasury Department is 
reporting on the HAMP program.
    Mr. Schweikert. Forgive me, Mr. Miller.
    Mr. DeMarco, could I beg you to pull the microphone just 
slightly closer? We are losing you a little bit. This room does 
have tough acoustics.
    Mr. DeMarco. Thank you, Mr. Schweikert.
    Mr. Miller of North Carolina. Along the same lines, have 
you looked at whether the proprietary loans, the portfolio 
loans by banks, are more likely to reduce the principal or 
other modifications that have led to their better success rate 
and whether that is something that you could do as well?
    Mr. DeMarco. We are continuing to examine that issue. I 
don't have any information that suggests that there has been 
superior performance on modifications done on a proprietary 
basis because of principal forgiveness. But I would be happy to 
look at such information and assess it just to see whether 
there was value there that we should consider in terms of our 
responsibility to conserve assets.
    Mr. Miller of North Carolina. In addition to the loans that 
you polled, you still have a substantial amount of private-
label mortgage-backed securities. You appear to be pursuing 
possible liability claims with respect to those. But are any of 
those--do any of those mortgage-backed securities also have 
private investors who hold the same securities or securities in 
the same family--
    Mr. DeMarco. Right.
    Mr. Miller of North Carolina. --in which any investors are 
pursuing any claims?
    Mr. DeMarco. I am sorry, Mr. Miller.
    The question was, are we working with--
    Mr. Miller of North Carolina. You also own--because in the 
mid-part of the last decade, the Bush Administration set a very 
high affordable housing goal for you but said you could meet it 
by buying private-label mortgage-backed securities and subprime 
mortgages, and you still hold a pretty substantial portfolio of 
private-label mortgage-backed securities.
    Mr. DeMarco. Right.
    Mr. Miller of North Carolina. Are any of those mortgage-
backed securities, private-label mortgage-backed securities, 
MBSs, are any of those subject to any litigation by other 
investors besides--
    Mr. DeMarco. They are.
    Mr. Miller of North Carolina. Okay. Are you participating 
in those?
    Mr. DeMarco. We are involved with certain discussions, 
settlement discussions, reviews with other holders of these 
securities to see what the proper course of action is to 
analyze whether there are problems with what goes into those 
securities and finding an appropriate settlement or outcome 
regarding it.
    Mr. Miller of North Carolina. Apparently, my time has 
expired.
    Mr. Schweikert. Thank you, Congressman Miller.
    Chairman Neugebauer?
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Mr. DeMarco, thank you for coming back over. I think you 
are getting frequent flyer points now.
    I want to go back to something that I think was a little 
bit along the line of questioning to the gentleman from 
California. And you and I have actually had this conversation. 
Your role as conservator--and there are a lot of different 
statuses that you could have. You could be in a 
conservatorship. You could be in a receivership. You can be in 
a bankruptcy. One of the things that I wanted to be clear about 
is, do you believe that your role as conservator is to wind 
down these entities or to perpetuate them?
    Mr. DeMarco. The statutory responsibility of a conservator 
is to conserve and preserve the assets, the property of the 
conserved entity, and return it to a financially sound 
condition.
    As I have reported to the Congress and as my predecessor 
has reported, really the ultimate resolution of these two 
conservatorships can only effectively happen with congressional 
action. So we are limiting the companies to their core 
business. We are shrinking their activity wherever we 
appropriately can, consistent with ensuring the United States 
continues to have a liquid secondary mortgage market. And we 
are anxious to work with the Congress to get to that ultimate 
resolution.
    In the meantime, we are winding down where appropriate. And 
certainly a key aspect of the wind-down for us is reducing the 
retained mortgage portfolio of both companies.
    Mr. Neugebauer. So I believe the answer that you are giving 
me is that you believe that your job is to perpetuate at this 
point in time?
    Mr. DeMarco. My statutory authority does not allow me to 
eliminate these charters.
    Mr. Neugebauer. I am not talking about eliminating. But you 
are either winding down or you are perpetuating. I just want an 
answer. Do you believe you are winding down or you are 
perpetuating?
    Mr. DeMarco. I am winding down the retained portfolio, and 
I am perpetuating their activity in ensuring that there is a 
liquid active secondary mortgage market through securitization, 
both for multi-family and single-family loans.
    Mr. Neugebauer. Was that in the charge that the Congress 
gave you, to make sure that there was a secondary market for 
our mortgages?
    Mr. DeMarco. I believe it is both the charge for the 
companies and my charge at FHFA that there be a stable and 
liquid secondary mortgage market.
    Mr. Neugebauer. Does it make the market stable, that you 
dominate the market?
    Mr. DeMarco. Congressman, as I have testified before, I 
believe that this is not a healthy or long-term situation for 
90 percent or more of the securitization market to be driven by 
companies that are operating with direct taxpayer support.
    Mr. Neugebauer. One of the things in a previous hearing 
that we talked about was that you had the ability--and I think 
your legal counsel said you actually could lower the limits of 
mortgages that the entities could purchase. So if you took 
actions to lower and restrict the levels, the loan limits of 
the GSEs, how would that fit into your charge?
    Mr. DeMarco. Yes. I have certainly thought about that since 
my last appearance here. To be clear to the members, my ability 
to lower the conforming loan limit is derivative as 
conservator. It is because Congress directed FHFA to have 
authority to set what the maximum loan limit was. It gives each 
company the discretion to limit their purchases to some lower 
number. That essentially has never been done.
    And as I testified before, I don't intend to act 
unilaterally in lowering the loan limit because the Congress of 
the United States has been so actively and repeatedly involved 
in adjusting the conforming loan limit. I believe that is an 
important issue of national policy.
    And directly to your question, Congressman Neugebauer, I 
think for me to do this unilaterally would risk some disruption 
in the marketplace. It could be inconsistent with my 
responsibility as conservator.
    I really and truly believe that the Congress of the United 
States is the body that should make the determinations about 
the future path of the loan limit if it is going to be 
something other than what current law provides.
    Mr. Neugebauer. I am going to respectfully disagree because 
I actually believe that the charge that the Congress of the 
United States actually gave you is to minimize both current and 
future exposure to the taxpayers. And as you continue to 
dominate that market, we are not reducing the level of exposure 
to the American taxpayers. I am concerned.
    And if we need to have some additional discussions, but I 
think we need to get into what I consider the conservator mode, 
and that is the conservator mode is beginning to conserve the 
exposure of the American taxpayers, and that as long as you are 
in the mode of continuation instead of wind-down, we are 
impeding the ability to do that. And one of the things that 
people don't realize right now is one of the reasons that you 
have narrowed your losses is somewhat driven by the fact that 
you are--some of those losses--but the fact that your revenues 
are such that--because you are the only game in town, so you 
are getting a lot of volume and are getting a lot of revenues 
from that. But the problem with that model is that we would 
continue to increase the exposure for the taxpayers.
    Mr. DeMarco. May I respond? Just very briefly. I appreciate 
and respect your perspective, Congressman. I would just like 
to, for the record, state that I think it is also a very 
important element of what we are doing is strengthening the 
underwriting standards and improving the loan quality of what 
is purchased and very much improving the risk-based pricing of 
that because that is essential to my responsibility to protect 
the American taxpayer.
    Mr. Schweikert. Thank you, Chairman Neugebauer. Congressman 
Perlmutter?
    Mr. Perlmutter. Again, it is good to have you here. 
Personally, I appreciate the turnaround that I see with the 
organizations over which you have supervision, Fannie Mae and 
Freddie Mac. If I am not mistaken, Freddie reported a $676 
million profit last quarter. And so, Mr. Neugebauer and I have 
debated this thing for several years. But basically, from my 
point of view, you have Fannie Mae and Freddie Mac providing 
liquidity in the secondary market for years, decades. Okay?
    There was a blip in the deep recession of the early 1980s 
where Fannie Mae and Freddie Mac had some losses, and then, 
again, in 2003 to 2007. Since the Congress, led by Mr. Frank, 
made some changes to Fannie Mae and Freddie Mac, and authorized 
the placement of conservatorship or receivership if that was 
required, we have seen underwriting criteria re-established 
with Freddie Mac and Fannie Mae, if you care to respond to my 
statement.
    Mr. DeMarco. Yes, sir. I believe that is certainly fair. I 
would not minimize particularly with Fannie Mae, in the early 
1980s, that they operated for awhile while they were certainly 
insolvent on a market value basis. I don't believe Freddie Mac 
had that same situation. But clearly, underwriting has improved 
substantially at both companies and the credit quality of the 
business that we are doing in conservatorship is meant to be 
safe, sound, and profitable.
    Mr. Perlmutter. Just to sort of come back again to basics, 
it was under the Bush Administration, a lot of losses. Since 
the conservatorship, and if I remember correctly, it was 
Secretary Paulson who was given the authority to choose whether 
Fannie Mae or Freddie Mac were placed into a conservatorship or 
receivership. Am I mistaken on that?
    Mr. DeMarco. Actually, Congress gave that determination to 
the Director of FHFA. What Congress gave to Secretary Paulson 
was the funding authority. They gave the Treasury Department 
the authority to purchase securities from the Enterprises in an 
unlimited amount, so that has been the source of the financial 
support of the Enterprises. So the conservatorship had to be a 
joint effort between the Treasury Department and FHFA because 
of the distribution of responsibilities.
    Mr. Perlmutter. Okay, so the choice, though, was between 
conservatorship and receivership. Conservatorship was chosen 
which, I am a bankruptcy lawyer by trade, and there are Chapter 
11s and there are Chapter 7s. In Chapter 11, you maintain the 
organization, you keep it as a going concern, you try to 
maintain its operations, as opposed to a Chapter 7, in which 
you liquidate. And I roughly liken a conservatorship to a 
Chapter 11, and a receivership to a Chapter 7, one where you 
maintain operations, and the other where you liquidate 
operations.
    And so, for me, I believe we have to have a secondary 
market of some kind to really continue to assist what is a very 
fragile housing market. And it appears to me that is what you 
all have been doing. Whether we come out with a different name 
or there is some other shape to all of this, that may be. But I 
personally believe we have to have a secondary market. And I 
just appreciate, again, all of you rolling up your sleeves and 
trying to right the ship. And it appears that is happening.
    Underwriting criteria, in some respects I can tell you may 
have gone overboard with some underwriting criteria. It is very 
hard to get a loan out there, a housing loan. And so I just 
want to put that on the record.
    The other thing I wanted to talk to you about were these 
clean-up calls and whether you have had any further 
conversations with people at Freddie Mac about the clean-up 
calls that you and I have discussed in the past.
    Mr. DeMarco. Yes, sir. Since you brought this to my 
attention, I have gone back and looked again. While the clean-
up call would come as a benefit to certain holders of 
securities, we continue to reach the conclusion that exercising 
them raises important concerns affecting the security prices of 
Enterprise mortgage-backed securities in a way that could be 
detrimental to the conservatorship.
    So, we can't view the clean up in terms of in isolation 
with respect to the particular security, but need to assess the 
impact on all the securities that are out there trading. So we 
have gone back and analyzed--again, and I am sorry, 
Congressman, but the conclusion we have drawn continues to be, 
and this is based upon past experience because this has been 
tried before by one of the Enterprises.
    Mr. Perlmutter. Don't be surprised if I come and talk to 
you some more about this.
    Mr. DeMarco. That would be fine. I think it is a topic for 
further consideration.
    Mr. Perlmutter. I yield back.
    Mr. Schweikert. Thank you, Congressman Perlmutter. And you 
are open to disclose. I have great interest in that particular 
subject with him.
    Congressman Campbell?
    Mr. Campbell. Thank you, Mr. Chairman. And thank you, 
Director DeMarco. I am going to ask you questions about three 
of the bills that you address that are potentially before this 
committee. In the Hurt bill that is about disposition of 
property, is it your interpretation of that bill that it would 
require disposition and sale of intellectual property as well?
    Mr. DeMarco. It certainly could be read, I believe, to 
cause both the Enterprise and the FHFA Director to consider 
such a thing.
    Mr. Campbell. If that were the case, given that virtually 
no one is making loans for the secondary market other than 
Fannie and Freddie these days, all of the data and information 
and other intellectual property is pretty much not contained 
anywhere else. If that were all sold out in the market and 
purchased by a single purchaser, couldn't that potentially 
create a monopoly issue in the future?
    Mr. DeMarco. I suppose it could. But you have raised the 
question of data. If I may, because I think this is an 
important point. I testified in front of a different committee 
a couple of weeks ago and said that it is on FHFA's agenda that 
Fannie Mae and Freddie Mac move towards loan level disclosures 
in their mortgage-backed securities; that this is something we 
want to get the Enterprise on a path so that their mortgage-
backed securities have detailed loan level information.
    And part it of that is to start getting information out 
into the marketplace so that it can--first of all, so that we 
can work with market participants to figure out what that data 
should be, and so that it starts to get out there. I am also 
aware that it could have value to the marketplace, particularly 
as we think about a transition from a GSE world to something 
that follows it, that there is historical loan data that Fannie 
Mae and Freddie Mac have that it may be in the public interest 
for that information to be put out there. As it is, we already 
disclosed a good bit of public information, but we are going to 
look in terms of whether there is more that we can do.
    Mr. Campbell. Director DeMarco, I totally and completely 
agree with you and applaud you for those remarks. And I agree, 
this data should be made publicly available, and I don't think 
it should be sold, where it potentially is bought by a single 
user. It sounds like you would agree with that.
    Mr. DeMarco. For that, yes, sir.
    Mr. Campbell. Thank you, sir. Going on to Mr. Fitzpatrick's 
bill about the cap at $200 billion, if we were to hit that cap, 
let's say we are in place to hit it tomorrow, in other words, 
with circumstances as they exist today, what would you be 
required to do?
    Mr. DeMarco. I am not sure we would be issuing any further 
securities. But I haven't envisioned the detailed things of 
what we would do tomorrow because I don't see that on my 
horizon.
    Mr. Campbell. Okay. So if you didn't issue further 
securities, you indicated in questioning from Mr. Neugebauer 
that you are issuing securities in order to have a stable 
secondary market. So do you think that we would--potentially 
that hitting that cap would create instability in the secondary 
market?
    Mr. DeMarco. Certainly, if we are speaking hypothetically, 
so we are speaking in a hypothetical world.
    Mr. Campbell. Hypothetically, except that is what the bill 
says.
    Mr. DeMarco. No. I understand but the hypothetical state of 
the world in which--
    Mr. Campbell. As it exists right now, I agree.
    Mr. DeMarco. As you start to run up awfully close to that, 
I believe that there would be, certainly the market would be 
concerned about that. I have no concern that is on my horizon. 
But I think it would have, it could have marked repercussions, 
which is why both the previous Administration and the current 
Administration, in structuring the senior preferred agreements 
and the follow on amendments to it, have sought to have 
adequate protection there so that we don't inject this kind of 
instability into the marketplace.
    Mr. Campbell. Okay. Thank you. And then the last bill I 
wanted to ask you about was one you talked about the end of 
your testimony, Representative Neugebauer's bill, and you said, 
I am concerned these provisions treat these regulated entities 
differently from the regulatory regimes for other regulated 
entities on the legal fees thing. What other regulated entities 
are treated--are not treated this way, or that are treated 
differently, particularly if they are in the financial services 
world?
    Mr. DeMarco. I will confess that the bill--and I understand 
that it is just an early discussion draft--is a bit confusing 
in terms of its applicability as references to the Federal Home 
Loan Banks, which are not in conservatorship, and other 
financial institutions, even though they are regulated, they 
also, they are operating under State law, there are 
indemnification agreements that employees at those companies 
have. And so for example, when a bank goes through the FDIC 
conservatorship or receivership, there are provisions in FDIC 
regulations regarding indemnification. And, in fact, our rules 
on that are following out of the--
    Mr. Campbell. And as you say, those entities are not in 
conservatorship, but they are still government entities, as 
these are.
    Mr. DeMarco. Yes. I am sorry. Yes, they are ongoing 
entities, and so the employees there certainly need that 
protection.
    Mr. Campbell. Thank you. I yield back.
    Mr. Schweikert. Thank you, Congressman Campbell. 
Congressman Peters?
    Mr. Peters. Thank you, Mr. Chairman. Mr. DeMarco, I thank 
you for being here today. We appreciate your testimony. And I 
know that your agency has a great deal of data concerning the 
housing market. You have expertise, economic expertise on the 
housing markets, and I am just wondering if you have had a 
chance, the Agency has had a chance to do any economic analysis 
on the impact of these bills on the market.
    Mr. DeMarco. To that specific question, no, sir. We have 
not had time. We have only had the bills for a few days.
    Mr. Peters. But it is something we need to be doing?
    Mr. DeMarco. In terms of an economic analysis, I believe 
that as legislation such as this goes forward, it would 
certainly be appropriate to undertake appropriate economic 
analysis. But in the time taken, I have been able to provide 
some reflection on the particular provisions in the bill that I 
hope are helpful.
    Mr. Peters. I appreciate that. And now we were looking at 
the Stivers bill, for example, which basically says when 
Freddie and Fannie disappear, nothing to replace them. You 
certainly caution that it is up to Congress to decide what 
should replace them. The package of bills we have here 
basically doesn't replace them with anything to speak of. Are 
you able to make any kind of prediction now today? Do you feel 
comfortable with any kind of prediction of the impact of just 
terminating existing GSEs, what effect that might have on 
interest rates, the availability of mortgage credit or maybe 
the types of mortgage products that consumers would have access 
to if we just get rid of these without anything replacing it?
    Mr. DeMarco. I have not made such a projection as to what 
would happen if that were to happen tomorrow. It certainly was 
one of the considerations when the Enterprises were put into 
conservatorship in the first place is that the country's 
financial system lacked a ready substitute to ensure liquidity 
in the secondary mortgage market, which is why maintaining 
these companies in conservatorship as ongoing concerns was 
important from an economic stability standpoint, certainly for 
the safety and operations of the country's housing system.
    Mr. Peters. So you would say to just basically wind these 
down without any thought to the replacement would be reckless?
    Mr. DeMarco. Congressman, I believe that we should be 
taking steps with the companies in conservatorship to be 
preparing for a housing finance system in the future that does 
not operate with the GSEs. In the meantime, I believe all of 
us, lawmakers, policymakers, and regulators have a 
responsibility to be figuring out what does replace them. So, 
to your point, I certainly agree that we need to be developing 
some sort of infrastructure and answering for private markets 
what is going to be the role of the government and the rules 
that the government puts in place for the future operations of 
the housing finance system, post-Fannie and Freddie.
    Mr. Peters. Right. I appreciate that. On the Manzullo bill, 
you talked about how the Enterprises would have to overcome 
some, in your testimony, significant hurdles to exit from 
conservatorship without further legislative action. Could you 
kind of flesh that out a little bit for us please, some of 
those hurdles that would exist and the legislative action that 
you would anticipate?
    Mr. DeMarco. Currently, the conservatorships have drawn a 
combined $162 billion from the American taxpayer and they don't 
emerge from conservatorship without either congressional action 
or certainly seeing that $162 billion being repaid.
    Mr. Peters. Then, a final point on the bill also before us 
that deals with FOIA; the Chaffetz bill. It is your 
understanding or your belief that if this bill goes forward, 
other private companies would also be subjected to FOIA. This 
is not, would be limited not just to the GSEs but also banks, 
thrifts, bank holding companies, non-bank financial companies, 
that this would open it up to all of those entities as well?
    Mr. DeMarco. No, sir. That is not what I was trying to 
convey in the testimony. What I was conveying is that this 
would be such a fundamental and profound change in the scope 
and intent of the Freedom of Information Act that if this were 
applied to Fannie Mae and Freddie Mac at operating as private 
entities, they are not government entities, if this were 
applied to them it would raise a host of questions for other 
private companies, maybe in particular, financial institutions 
that themselves could be recipients, or have been recipients of 
government assistance or could be in a government 
conservatorship some time in the future, since that is a tool 
that is certainly part of the tool kit of Federal regulators. 
And I think it raises some very substantial questions that 
would need to be considered.
    Mr. Peters. Right. Thank you so much. I appreciate it. I 
yield back.
    Chairman Garrett. Director, thank you. Coming back in, let 
me just start off by going--and some of this may have been 
touched upon. But with regard to g-fees, going back to what we 
did last month we had some legislation there which addressed 
the g-fees. And in that area, I wanted to ask you a question 
with regard to the possibility of raising them. What the 
Administration did with their White Paper, they did, in fact, 
advocate for what, a raising of the g-fees increase, and 
subsequently, this subcommittee passed legislation to do what, 
to do just that, which I think there actually was a bipartisan 
vote, if I am not mistaken, as well.
    So there seems to be, as I say, broad support for going in 
that direction. Can you capsulize for me your intention, I 
guess, in the context of a timeframe where you intend to go 
with the rising of the g-fees that you can anticipate?
    Mr. DeMarco. The last time I appeared before the 
subcommittee I, in fact, stated my general support for that 
being done. And since that time, we have been examining the 
pricing structure, and we are working on that issue. I would 
point out that a set of g-fee increases just went into effect 
in March and April, and so I don't have a specific timeline for 
you. But it is certainly something in which I am in very active 
work, both with my staff and with that of the Enterprises, to 
examine the current fee structure and looking at the 
appropriate approach and timing in transparency to bring to 
another, to further increases.
    Chairman Garrett. What is the transparency issue?
    Mr. DeMarco. The transparency issue is a question of 
informing the market in advance about what the intent is and 
the timing, so that it is done in a way that is not disruptive, 
say, to folks who are looking to buy a house, in the process of 
buying a house.
    Chairman Garrett. So your analysis right now, is it 
retrospective? At this point in time, are you looking to see 
what the impact has been of what you did a month ago? Or is 
your analysis now prospective, looking at both--
    Mr. DeMarco. It is prospective, and it is meant to be, as 
was suggested both in the legislation and in the Treasury White 
Paper, to be done with due consideration for, if we had a 
market in which there was private capital, that was backing a 
pool of mortgages, and so there was a private capital assigned 
to it and that capital needed to have a target rate of return, 
that should be input into the benchmarking for what the 
guarantee fee price would be.
    Chairman Garrett. And that is interesting. So on that one 
point, though, is that a chicken-or-the-egg sort of situation 
that you have to analyze as far as, you say, if there is a 
private market, right, for you to make that determination, but 
raising or maintaining the g-fees--let me ask you the question. 
Does raising or maintaining the g-fees have an impact on 
whether there will be a private market going forward?
    Mr. DeMarco. I believe that gradually raising the g-fees 
actually is a useful step not just for conserving assets but to 
prepare for and allow for the return and entry of private 
capital into the marketplace.
    Chairman Garrett. So it is to facilitate a private market?
    Mr. DeMarco. Yes, sir.
    Chairman Garrett. So it is a case where you almost have to 
say, we have to take certain actions to help facilitate the 
market. On another note, I know you have--you can probably list 
the number of criteria that you consider your responsibilities 
as a conservator you have to consider. Is one of them to 
protect the interests of the taxpayers?
    Mr. DeMarco. Absolutely.
    Chairman Garrett. Okay. So in that capacity, earlier, I 
guess the gentleman from Texas was raising the question with 
regard to conforming loans and the levels. And in that area, 
you were saying that as conservator, how do you consider that 
your role in that regard of raising or lowering them?
    Mr. DeMarco. My ability to raise or lower conforming loan 
limits to have the Enterprises purchasing less is derivative of 
what Congress gave the two companies to purchase loans at less 
than the maximum allowed to them. And my response to Mr. 
Neugebauer was that the Congress of the United States has 
legislated on conforming loan limits 5 times in the last 3 or 
so years, and I believe some deference to both longstanding 
practice and the congressional interests here is something of 
which I am mindful.
    Chairman Garrett. Okay. But in the role of conservatorship, 
what would the impact be? And I am looking at the letter from 
the CBO and their analysis of the scoring and the risk basis 
aspect of conforming loans and the valuation. What is the 
impact of keeping them where they are, or basically lowering 
them? If you do lower them, how does that affect your role as 
conservator with regard to the book? Are you in a better 
position, vis-a-vis the taxpayer, and on the risks that are out 
there if the conforming loan limits are lower or where they are 
today?
    Mr. DeMarco. Whether they are lowered or not, if they are 
lowered, obviously there is a smaller pool that is going to be 
eligible to purchase, but everything that Fannie and Freddie 
are purchasing today, we are working to ensure that there is 
strong underwriting and appropriate pricing so that we are not 
booking business at a loss. So one could argue on the one hand, 
there is a loss of revenue to the conservatorship, but on the 
other hand, it creates an opportunity for private capital to 
come in. But the other consideration--
    Chairman Garrett. Since my time is limited, that is one 
analysis. But how does CBO analyze it? How do they score this? 
Do they score it that way, that if you lower it, you are 
actually losing revenue? Or do they score it to say that you 
are actually losing that market risk factor, and that actually 
it is more expensive for you to have and maintain as opposed 
low? Do you know how they score it?
    Mr. DeMarco. I am sorry, Chairman Garrett. I do not know 
off the top of my head how CBO is scoring potential changes in 
the conforming loan limit. I do know how they have been scoring 
the conservatorship is a rather unusual approach to measuring 
subsidy and it is coming not because, when they do their cost 
estimates, it is not because they are projecting further losses 
on business we are booking in conservatorship. It is because 
they are arguing that if these loans are being done in a purely 
private sector, that there would be a higher g-fee being 
charged.
    So it is not that we are losing money, it is that in a 
private world, there would be higher g-fees.
    Chairman Garrett. And it is not because of the market risk 
that they are considering on that higher cost?
    Mr. DeMarco. It is because in the private market, there 
would be a substantial amount of private capital and that 
private capital would be seeking a market rate of return. I 
believe that is a fair summary of the CBO's--
    Chairman Garrett. I appreciate that. We can continue that 
discussion, and I see that my time has expired.
    Mr. Manzullo, for 5 minutes.
    Mr. Manzullo. Thank you, Mr. Chairman. Mr. DeMarco, I want 
to thank you for your openness and your willingness to be with 
us on several occasions, and I appreciate your candor.
    Several of us, going back to 2000, were concerned about the 
easy money. And that was the 2000 GSE reform bill which went 
nowhere. The 2005 reform bill, with the strengthening Royce 
amendment, passed the House. Unfortunately, the Royce amendment 
did not pass. That went nowhere. The Federal Reserve did not, 
until October 1st of 2009, require written proof of a person's 
earnings. And so, a lot of us have really been concerned with 
the sloppy underwriting standards, the sloppy standards for 
documentation, while HUD still keeps nine people working full-
time on the HUD-1 and RESPA.
    And when I closed over 1,000 real estate transactions as an 
attorney, we could close it in 20 minutes with documents a half 
inch high, and now it is 6 inches to a foot and no one reads it 
because if you don't sign whatever they put in front of you, 
you don't get the keys to your house. And so, we have not gone 
very far in this whole issue of financial disclosure so people 
can understand it. I am going to introduce a bill to prevent 
the dividend payment decrease. And I notice on page 7 of your 
testimony that, if I am reading this right, you are going to 
continue paying that 10 percent; that some groups are already 
opposed to it. And I just don't want to go back to the old 
Fannie Mae, Freddie Mac.
    This dog has to die and be reconstructed in a whole new 
form. And one of the things they are trying to do is make sure 
that the taxpayers get back the money that they put in to save 
this thing. Is it my understanding, based on your testimony, 
that you are not only going to continue to pay the 10 percent, 
but not object to the bill that I plan to introduce?
    Mr. DeMarco. Yes, sir, Mr. Manzullo.
    Mr. Manzullo. Good. I yield back the balance of my time.
    Chairman Garrett. Mr. Posey, for 5 minutes.
    Mr. Posey. Thank you, Mr. Chairman. I was going to maybe 
skip comments today just in the interest of moving this thing 
along, but I didn't want to be the only one left out of this 
dialogue.
    The legal fees issue continues to bother me, Mr. DeMarco. 
The fact that the citizens have spent over $162 million already 
with no end in sight on legal fees for people at the GSEs who 
plundered it, quite frankly, and maybe they are innocent until 
proven guilty, but prima facie evidence, to me, indicates they 
deserve to go through the wringer.
    But, anyway, I wonder if there is any other organization in 
America, in the world, in the universe where an organization 
would obligate itself to spend that kind of money defending its 
officers and directors against fraud. Do we know of anywhere 
else that has ever happened in the history of mankind?
    Mr. DeMarco. Yes, sir, Congressman. Frankly, every major, 
any publicly traded corporation in the United States is going 
to be providing indemnification to its employees, and, in fact, 
such indemnification is typically required and stipulated for 
under State law. So this is not unusual at all that Fannie Mae 
and Freddie Mac employees are indemnified by the companies for 
actions they take as employees of the company. And it is quite 
common and it is basically a near universal practice in 
corporate America.
    Whether the companies get actually--so the indemnification 
is to provide legal protection to employees for actions that 
they take. There is a great deal of case law governing this. 
And frankly, companies have tried in the past to not honor 
those indemnification agreements, and there is a good bit of 
case history here. The courts don't look very kindly upon that.
    It may be interesting to you and other members of this 
subcommittee that I testified at length on this topic before a 
different subcommittee of the House Financial Services 
Committee, in which we went through in some detail what the 
legal standards are here and how this is working.
    But to your point, Mr. Posey, it frustrates me that the 
companies are in this situation, but I will respect that this 
is a requirement that is there. It is something that is 
standard practice, and I believe that, while we may be 
concerned about the behavior or practices and actions of past 
officers of these companies and the losses that these companies 
have had, I have a responsibility to respect the law, and the 
legal process that is necessary to be followed here needs to be 
followed, and that is what we are doing.
    So I may not like it, but I believe that this is the right 
thing to do, given current law. And I think to do otherwise 
would, in fact, lead to an overall increase in legal fees for 
both FHFA and the companies, which would drive up costs to the 
taxpayers. So I share the concern about this but I do believe 
that we have looked at this carefully and this is what needs to 
be done.
    Mr. Posey. So it is common practice then for companies to 
obligate themselves to unlimited advance legal fees for 
officers and directors? I mean, $162 million would bankrupt 
most companies. I can't believe that the average, whatever the 
average company is in the United States, or small business, 
could endure that amount of legal expenses. It just--and to be 
totally unlimited, this could go on for 10 years and reach a 
billion dollars. Who knows?
    Mr. DeMarco. I would not expect that, Congressman. But 
there are other very large financial institutions that are 
subject to enormous amounts of litigation by shareholders and 
by others, and this is the practice, that these officers and 
employees are indemnified. There is an advancement of legal 
fees. And I would not expect that, as large as this number is, 
that other major financial institutions that have been subject 
to enormous amounts of litigation don't have similar issues.
    Mr. Posey. And again, I can't think of many private 
corporations that have ever been plundered as bad as these guys 
plundered ours. So there is some context here. Have we taken 
any action, have we asked for any criminal investigations 
against these people?
    Mr. DeMarco. I am sorry, Congressman. Could you repeat the 
question? I didn't hear you.
    Mr. Posey. Have we taken any action for the GSEs to recover 
from these people?
    Mr. DeMarco. If someone who has been indemnified is found 
guilty in an adjudicated matter of fraud or malfeasance or the 
various, whatever the legal standards are, that is a basis for 
recovery of the advancement of legal fees. The indemnification 
itself is, of course--
    Mr. Posey. I understand, obviously, they would be broke by 
then by the time they get the judgments. And I think, given the 
facts, a third grader--
    Chairman Garrett. The gentleman's time has expired.
    Mr. Posey. A third grader could figure out the guilt here, 
and that we are wrong to continue to defend it. And I yield 
back, obviously.
    Chairman Garrett. Mr. Stivers for 5 minutes, please.
    Mr. Stivers. Thank you, Mr. Chairman. Mr. DeMarco, thank 
you so much for coming today. In your opening comments, you 
talked a little bit about the bill I have out for discussion 
draft which deals with, if the GSEs are in receivership. And I 
think a lot of people misunderstand the powers in the Housing 
and Economic Recovery Act with regard to receivership powers. 
Can you explain what the receivership authority is that you 
have under HERA?
    Mr. DeMarco. If a company goes into receivership, we are 
required--it would work as would a FDIC receivership for a 
bank, but the statute goes further and directs FHFA to create a 
limited life-regulated entity that may operate for a maximum of 
5 years, after which there is basically an expectation that the 
charter would have to go back out into the marketplace as it 
existed pre-conservatorship. So it would be recreating Fannie 
and Freddie as they existed pre-2008.
    Mr. Stivers. And you have been quoted as saying that Fannie 
and Freddie, in their current form, should be duplicated. 
Without this bill that I have circulated for discussion draft, 
they would be recreated in their current form, which would put 
the taxpayers on the hook. What my bill does is it again gives 
Congress control of what is created and when it is created. Do 
you have any thoughts on my draft?
    Mr. DeMarco. No, I appreciate that, Congressman. I believe 
that is what it would affect. The only other thing I would 
observe is that the structure of placing Fannie Mae and Freddie 
Mac in conservatorship in the way that Treasury Senior 
Preferred Agreement has been structured is essentially to allow 
them to continue to operate in conservatorship and not create a 
mandatory receivership situation. And the whole reason for 
doing that was to give the Congress of the United States an 
opportunity to be the determiners of where we go from here.
    Mr. Stivers. Thank you. I think that is correct. I will ask 
you a couple of questions while I have you here. Do you think 
there is a benefit to having two GSEs at this point? I read 
your executive compensation report on the GSEs which was 
pretty--offended me at what is going on there because they are 
paying everything in cash, nobody has any incentive to turn the 
places around. Is there a real benefit to having two GSEs at 
this point? One charter, frankly, preserves the ability to do 
something in the future. Is there a reason to have two 
charters?
    Mr. DeMarco. At this point, we still have two very large, 
complex entities, each managing over $2 trillion worth of 
mortgage assets on behalf of the American taxpayer. I don't 
envision in the near term here the added complication and 
operational risk of putting that together. Long term, what I 
would hope is that we have a more competitive and marketplace 
environment than we had prior.
    Mr. Stivers. Great. Thank you. Can you talk a little bit 
about whether you ever see Fannie and Freddie going into 
receivership at this point?
    Mr. DeMarco. I believe what I see at the moment here is 
that the companies will continue to operate in conservatorship 
as long as we are in the environment that we are in and we will 
await congressional action that will determine whether, it is a 
receivership, whether the receivership is to then lead to a 
break-up or a sale or a recapitalization of the companies, some 
transformation of the companies or a liquidation of the 
companies. That really is what we are awaiting Congress to 
decide in view of where we are and the enormous taxpayer 
investment that is already in the two companies, and I look 
forward to working with this committee on that.
    Mr. Stivers. Thank you. And I just want to thank you for 
everything you are doing to conserve taxpayer dollars and to 
try to make sure that we turn the companies around and make 
sure that they are being good stewards of what is now billions 
of taxpayer dollars. I yield back the balance of my time, Mr. 
Chairman.
    Chairman Garrett. Mr. Hurt, for 5 minutes.
    Mr. Hurt. Thank you, Mr. Chairman. Thank you, Mr. DeMarco, 
for being here, and I want to add my thanks to you for your 
leadership on this issue. I apologize for not being here during 
your opening statement, and so I hope I am not retreading on 
things you have covered. But one of the proposals that has been 
submitted to the subcommittee would require that Fannie Mae and 
Freddie Mac account to you or to FHFA, account for the non-
mission-critical assets, account for them and then have the 
FHFA develop a proposal to dispose of them and/or sell them. It 
is my understanding that you all have started this process, and 
I was wondering if you could just talk a little bit about that.
    Mr. DeMarco. Certainly. I am happy to, Congressman. Yes. As 
conservator of the Enterprises, we have the responsibility to 
conserve and preserve the assets and property. And so when I 
became Acting Director, I said we need to make sure we know 
what those assets and property are. And so we have engaged in a 
full review of that and that is now updated on a regular basis 
and my staff looks through that. It has led to the disposition 
of certain assets at the companies, and it has led to us 
directing the companies to develop plans for the disposition of 
additional assets, consistent with the safety and soundness of 
the companies and consistent with our responsibilities as 
conservators, so we are already acting in that way.
    Mr. Hurt. And are you saying that the accounting for the 
properties or assets is complete? That accounting is complete 
and you are saying it is ongoing?
    Mr. DeMarco. Yes. We have, we completed the sort of getting 
the first full set. And now what we do is we regularly update 
that because assets are coming and going in and out of the 
company.
    Mr. Hurt. So that accounting is largely done?
    Mr. DeMarco. Yes. And part of that is we have identified, 
areas of assets where we have engaged now directly with the 
companies in terms of further disposition planning with regard 
to--
    Mr. Hurt. And how do you--you say you have disposed of some 
of the property. Has some of it been sold?
    Mr. DeMarco. Yes, sir.
    Mr. Hurt. Can you just talk a little bit about the 
disposition and sale of some of these assets?
    Mr. DeMarco. These would be, for example, if there are 
investment securities for which there is a market that we sell 
them into the marketplace. There hasn't been anything 
particularly magical about it. These are largely financial 
assets that we are talking about. And we are engaged in a 
prudent disposition.
    Mr. Hurt. So do you all--part of the, at least the way the 
language of the current draft that we are considering talks 
about non-mission-critical assets. Is that something that you 
think that the FHFA is qualified and able to discern the 
difference between critical and non-critical to mission?
    Mr. DeMarco. It may be a gray area sometimes, but I 
believe, in fact, that we can. And I believe that has been one 
of the things that has been part of our consideration as we 
have reviewed the assets of the companies and talked to them 
about disposition. But I am also open to the disposition of 
mission critical assets if there is a market there and we can 
sell them in a way that advances the goals of the 
conservatorship.
    Mr. Hurt. There may be some concern that there is a 
difference between whether you sell something or whether you 
dispose of it in some other way, like the patents. Can you talk 
about that? Because obviously, we don't want to sell something 
that would give an unfair advantage in the marketplace to one 
private entity. Is that part of the decision-making process 
that you are going through or that you go through.
    Mr. DeMarco. Yes, sir. Right.
    Mr. Hurt. I understand that you all have looked at the 
draft that has been submitted and you have some suggestions 
with respect to timing.
    Mr. DeMarco. Yes, I believe my staff has been sharing some 
thoughts with your staff as a technical matter about how this 
might actually work in an operational way.
    Mr. Hurt. And I thank you for that. Finally, one of the 
things that is of great concern to any Member of this body, I 
know, is seeing that the $164 billion that we are up to now 
that is owed the Treasury, how does that get paid back? To what 
extent do you think that this can be directed towards that 
debt, or is that not consistent with what you think is prudent?
    Mr. DeMarco. Certainly, anything, what we have been doing 
and our approach to asset disposition has been driven by our 
conservatorship responsibilities, and so we are looking for the 
disposition of assets in a way that is optimal for the 
taxpayer. So that is part of the answer; $164 billion is a 
tremendous amount of money to try to recoup, and I expect that 
is going to be a challenge.
    Mr. Hurt. Sure.
    Chairman Garrett. The gentleman's times has expired. And I, 
too, thank Acting Director DeMarco for all your testimony here, 
and also for both you and your staff as well for your 
cooperation and assistance to all of our staffs who are trying 
to work our way through all of this and the assistance that 
they and you have provided in that regard. So thank you very 
much and I appreciate your testimony.
    Mr. DeMarco. Thank you, Chairman Garrett.
    Chairman Garrett. And now, a quick transition, as they say, 
to the next panel. I know you folks have been waiting 
patiently, and we will be eager to hear from you. And I think 
we are. I thank the panel, and as you know, your full testimony 
will be made a part of the record. I appreciate your limiting 
your comments to 5 minutes right now.
    And we will begin with Mr. John. I know I threw you off on 
that one, Dr. Sanders. We are just trying to keep you all 
guessing here.

     STATEMENT OF DAVID C. JOHN, SENIOR RESEARCH FELLOW IN 
 RETIREMENT SECURITY AND FINANCIAL INSTITUTIONS, THE HERITAGE 
                           FOUNDATION

    Mr. John. Thank you, Mr. Chairman, for allowing us to 
testify on your latest series of bills to resolve the question 
of Fannie Mae and Freddie Mac. Starting about 157 BC, the Roman 
Statesman Cato the Elder began to end all of his speeches with 
the phrase, ``Carthago delenda est,'' which translates to 
``Carthage must be destroyed.'' He did this to keep the focus 
on what he regarded as one of the major issues of his day, the 
elimination of Rome's greatest rival to world domination, etc. 
And about 146 BC, Carthage was destroyed. For the first time 
out of three times, it has been destroyed in the last thousand 
years.
    I mention this because you have started on a process, and 
these individual bills are exceedingly important towards 
reaching the goal, but the goal is not the passage of 15 
individual bills, or 32 individual bills. The goal finally must 
be the elimination of Fannie Mae and Freddie Mac. And I would 
translate that into Latin but out of respect for my 9th grade 
Latin teacher, I won't even attempt that.
    The bills you are considering today are the next step and 
they include some very important provisions here. I am only 
going to mention three, which is not to denigrate by any means 
the other four. It is just that if I mention all 7 of them, I 
have about 10 seconds for each.
    First off, Representative Royce's bill to eliminate the 
Affordable Housing Trust. I want to make it clear that I do not 
oppose all housing finance programs for lower-income workers. I 
strongly support the whole idea of asset building, IDAs and 
things like that. However, the concept of avoiding the actual 
appropriations process by trying to extract money from a 
hypothetically, at the time, private Enterprise seems rather 
ridiculous and seems completely contrary to the way this 
Congress should act. If you wish to do affordable housing 
programs, then they should be structured strictly under HUD and 
they should be appropriated in the usual manner.
    Representative Stivers' proposal to ensure that we do not 
have a new Fannie Mae and Freddie Mac, I believe, is a second 
and equally important move. The very last thing we need to do 
is to repeat the mistakes that we have made over the last 
several years. To my mind, that does not mean that they will 
not be replaced by something. I think that would be incredibly 
irresponsible. There needs to be a very careful process to 
replace Fannie Mae and Freddie Mac with a new private entity, 
or a series of private entities, frankly, smaller ones that can 
compete with each other and can provide many of the same 
services or conceivably a completely different form of housing 
finance system. You have already started on this process. I 
think that the Stivers legislation has an excellent opportunity 
to move that forward.
    I have expressed some concerns in my written testimony 
about Congressman Fitzpatrick's proposal to put in a firm cap. 
As long as that is written in a way--and the most recent 
information I have is that it has been--so that it does not 
cause problems within the housing markets, should that cap come 
close to being reached, which I increasingly doubt, I think 
that also would provide some comfort to taxpayers who are 
finding themselves forced to come up with up ever larger 
amounts of money for companies that were largely mismanaged in 
many different ways.
    The next step is going to be equally important. The fact is 
that Fannie Mae and Freddie Mac are not going to continue as 
private entities, and it is about time to take the next step 
and bring them under a control where, to repeat Mr. 
Perlmutter's comment, bring it under Chapter 7. Let's dissolve 
it. Let's get rid of it. Let's replace it with something else 
here. And one step to do that once that has been taken is to 
take the portfolios out of those entities, to repeat to an 
extent what turned out to be a surprisingly successful 
experiment created by the Resolution Trust Corporation which 
dealt with the S&L assets, and wind up those portfolios. But 
that is a separate issue from the issue of dealing with housing 
finance going forward. Thank you.
    [The prepared statement of Mr. John can be found on page 83 
of the appendix.]
    Mr. Schweikert. [presiding] Thank you, Mr. John.
    Dr. Sanders?

STATEMENT OF ANTHONY B. SANDERS, MERCATUS CENTER SENIOR SCHOLAR 
  AND DISTINGUISHED PROFESSOR OF REAL ESTATE FINANCE, GEORGE 
                        MASON UNIVERSITY

    Mr. Sanders. Chairman Garrett, Ranking Member Waters, and 
distinguished members of the subcommittee, thank you for 
inviting me to testify today. I have been asked to offer 
opinions on transparency, transition, and taxpayer protection, 
more steps to end the GSE bailout. Fannie Mae and Freddie Mac, 
the Government-Sponsored Enterprises in conservatorship are the 
dominant players, along with the FHA, in the residential 
market. With market share of more than 90 percent in terms of 
purchasing and ensuring mortgage losses given that they have 
effectively crowded the private sector out of the secondary 
market, can the private sector offer a less costly alternative 
to Fannie and Freddie that requires less government involvement 
in the housing mortgage markets? The answer is yes.
    I have reviewed seven proposals to facilitate the 
transition from such a dominant role in the mortgage market and 
limit taxpayer losses. These proposals constitute pieces of the 
puzzle in trying to deal with Fannie Mae and Freddie Mac in 
terms of market capture that was accomplished with a government 
guarantee. I want to make four key points: First, these 
proposals make an excellent start to winding down Freddie and 
Fannie, particularly capping the draws for Freddie and Fannie 
to $200 billion, although I don't believe that will even come 
to be an issue unless interest rates suddenly spike upwards, 
and in that case, we are going to have a lot more serious 
problems than just the cap on Freddie and Fannie.
    Second, there is nothing unique about Fannie and Freddie 
that the private sector cannot provide. They both have loan 
underwriting models. They both can purchase loans and they both 
can create mortgage-backed securities, and both offer mortgage 
insurance. The one attribute that Fannie and Freddie have that 
the private sector does not is a guarantee from the Federal 
Government. But this guarantee, as we now know, encourages 
risky loan originations or purchases and exposes taxpayers to 
perpetual losses. So Fannie and Freddie must wind down the 
government guarantee which gives them an inappropriate 
competitive advantage. And in my report, I do not specifically 
call for Fannie and Freddie to be terminated rather, that is 
don't shut off their lights, but at least get them down-scaled 
to the point where they can cause no more mischief.
    Third, we must reintroduce mortgage choice so that we are 
not so heavily reliant on the 30-year fixed-rate mortgage. 
Currently, that mortgage product is so dominant that some like 
the Center for American Progress have called for Fannie and 
Freddie to remain in existence simply to take those loans off 
of banks' balance sheets because, again, borrowers can struggle 
with the interest rate risk. And again, that is a point. But on 
the flip side, perhaps having borrowers have some exposure to 
interest rate risk may cause them to act more responsibly in 
terms of how much house they buy, and what the loan product is.
    And fourth, since the Government-Sponsored Enterprise is so 
dominant, care must be exercised in reducing the conforming 
loan limits, which I was not asked to review. A too-rapid 
decline may freeze housing markets further. I recommend in my 
report that perhaps we start with a 10 percent reduction, and 
just see how the housing market responds. But eventually, we 
really need to get Fannie and Freddie wound down to a very 
small footprint or to exit the market altogether.
    Currently, taxpayers have provided over $160 billion in 
draws to Fannie and Freddie. I doubt that this will ever be 
paid off in our lifetime, even if they reduce the interest rate 
from 10 percent to zero.
    And one of the kind of ironic proposals I thought was that 
since Fannie and Freddie are not really doing any principal 
write downs, I find it odd that we are proposing to give Fannie 
Mae a loan modification, which seems to be kind of the opposite 
of what I would expect.
    On the Freedom of Information Act, I think that, again, had 
Fannie and Freddie been transparent all along, we would not be 
sitting here today because we would have seen the problems 
occurring. Having said that, I want to compliment Mr. DeMarco 
on the fact that the FHFA Web site has really increased greatly 
the amount of information that can be disseminated to the 
population.
    But I also expect and hope this would be taken by the 
private-label mortgage market in their attempts to make a rally 
and come back. On the housing trust fund issue, there are two 
considerations on that one. First of all, we have the FHA 
already, which is very important in terms of housing mission. 
But secondly, a thing that Raphael Bostic at HUD, who is the 
Policy Director of Research, and I agree on, is that we really 
put too many people into homeownership. And Bob Schiller and I 
have both commented on this, that housing prices have remained 
constant over time once you take out inflation. If you used a 
pre-Clinton measure of inflation, housing prices have gotten 
crushed by inflation; that is, they have fallen in real terms. 
Wouldn't we be better off serving many of these households in 
that respect by allowing them to rent, and then perhaps 
encouraging them to take investments like Treasury tips to 
hedge against inflation or some other type of program that 
actually helps them rather than punishes them in the future? 
Thank you very much for letting me share my comments with you.
    [The prepared statement of Dr. Sanders can be found on page 
91 of the appendix.]
    Mr. Schweikert. Thank you, Dr. Sanders.
    And I was told, Mr. John, we have you only till 5:00, and 
it is now five.
    Mr. John. Yes. Sadly, I live in West Virginia and must 
catch a train. Thank you.
    Mr. Schweikert. All right. Thank you.
    Dr. Crowley?

  STATEMENT OF SHEILA CROWLEY, PRESIDENT, NATIONAL LOW INCOME 
                       HOUSING COALITION

    Ms. Crowley. Mr. Schweikert, Ms. Waters, and members of the 
subcommittee, thank you very much for the opportunity to 
testify today. I am Sheila Crowley, the president of the 
National Low Income Housing Coalition. The National Low Income 
Housing Coalition leads the National Housing Trust Fund 
Campaign, which is a coalition of more than 7,000 national, 
State, and local organizations located in every single 
congressional district. We thank Mr. Garrett and Ms. Waters for 
putting that list into the record today.
    Our interest in the hearing today is Mr. Royce's bill that 
would terminate the Housing Trust Fund, and we strenuously 
object to this bill. The Housing Trust Fund was created as part 
of the Housing and Economic Recovery Act of 2008, but it was 
after a multi-year effort that included earlier legislative 
proposals, some of which were unrelated to Fannie Mae and 
Freddie Mac.
    In the United States today, there are 10 million extremely 
low-income renter households and only 6.5 million homes renting 
at prices they could afford. Extremely low-income is household 
income at or below 30 percent of the area median. In Orange 
County, California, it is $26,492 or less. And we have the data 
for every jurisdiction if you would like us to provide that. 
This is the only income group for whom there is an absolute 
shortage of housing nationwide. These are people in the low-
wage workforce, primarily service workers, retail clerks, 
daycare workers, home health aides, the people that the rest of 
us rely on in order to be able to do our jobs.
    They are also people who are elderly and disabled who rely 
on SSI as their source of income. The annual income of an SSI 
recipient in California is $13,000 a year. The most tragic 
manifestation of this housing shortage is the existence of 
homelessness in the United States. And in this very dangerous 
game of musical chairs, the people who are most likely to end 
up with no housing at all are the poorest and the most 
vulnerable.
    So the primary purpose of the National Housing Trust Fund 
is to produce, preserve, rehabilitate, and operate rental 
housing that extremely low-income households can afford. If 
funded at a sufficient level, the National Housing Trust Fund 
would end the shortage of housing for this population. The 
National Housing Trust Fund is a block grant housed at HUD 
which distributes funds to States and territories on a need-
based formula. A chart that shows the State allocations is 
attached to my written testimony. The State has to design an 
allocation plan, create performance goals, and then make grants 
to qualified entities. The statute requires that sub-recipients 
have the expertise and experience to carry out the activities 
they proposed and that they demonstrate financial expertise and 
experience.
    The State is responsible for assuring that all funds are 
used properly and for assuring that any funds not properly used 
are, in fact, reimbursed. HUD must reduce future grants to 
States that are not reimbursed for improperly used funds. Funds 
cannot be used for advocacy, lobbying, political activities, 
travel counseling or preparing of tax returns.
    The State can use up to 10 percent of its allocation to 
administer the program, but no fund can be used for outreach or 
other administrative activities. HUD is required to recapture 
any funds that have not been committed within 2 years and 
reallocate the funds to other States. I hope that these rules 
that will govern the Housing Trust Fund allay concerns about 
how it will be used. The allegations that the funds will be 
used for political purposes by special interest groups are 
simply false. Moreover, they are an affront to the thousands of 
people across the country who work every day to help their 
needy neighbors and who have been the backbone of the company 
to get the National Housing Trust Fund established.
    So why do we need another loan from housing program? There 
is no existing Federal housing program that produces rental 
housing specifically targeted for extremely low-income 
households. More critically, the existing programs are grossly 
underfunded. Low-income rental housing programs only serve 25 
percent of the eligible households, and none of them of have 
dedicated sources of revenue. The legislation that created the 
National Housing Trust Fund was part of GSE reform enacted in 
2008, and that was because it was linked to a proposal for the 
GSEs to be the dedicated source of funding.
    As we know, the contributions have been suspended, and we 
don't see any chance of any contributions ever being made. But 
it was never the intention that the National Housing Trust Fund 
rely solely on contributions from Fannie and Freddie. In fact, 
the amount provided in the legislation was very small relative 
to the need. Therefore, the statute also says that the National 
Housing Trust Fund can be funded by any amount as are or may be 
appropriated, transferred or credited to such trust fund under 
any provisions of law.
    So regardless of what Congress decides for the future of 
housing finance policy, the statutory basis for the National 
Housing Trust Fund should stand alone and unharmed. The 
National Housing Trust Fund campaign does support the creation 
of a dedicated source of funding in whatever form, whatever 
emerges to replace Fannie and Freddie. We also support 
Representative Cummings' bill which provided a billion dollars 
for the trust fund from profits made from the sale of warrants 
that were created in the Emergency Economic Stability Act of 
2008.
    We are looking at tax policies for other ways to fund the 
trust fund, and we welcome other suggestions. In closing, let 
me reiterate that the National Housing Trust Fund is a program 
we must continue regardless of what Congress decides to do with 
the GSEs, and we would urge Mr. Royce to please withdraw his 
bill. Thank you.
    [The prepared statement of Dr. Crowley can be found on page 
58 of the appendix.]
    Mr. Schweikert. Thank you, Dr. Crowley. I now yield myself 
5 minutes. Dr. Crowley, one of the things I love about this job 
is the chance to sort of drill down and learn more about all 
those things that I thought I knew a little bit about. But 
first, sort of a global question. How many different housing 
programs--and this may be almost unknowable--do you believe are 
out there, first from the Federal level, that deal particularly 
with low-income populations? Because even off the top of my 
head, I think I can come up with dozens and dozens.
    Ms. Crowley. Actually, my able staff will give you a sheet 
that tells you exactly what the Federal housing programs are.
    Mr. Schweikert. Do you have just a guess of the total 
number?
    Ms. Crowley. On this sheet for Federal housing programs, we 
have 1, 2, 3, 4, 5, 6, 7, 8, 9, 10: 10 at HUD, and then there 
is a low income house tax credit program, which is administered 
by Treasury. There is the Federal Home Loan Bank Affordable 
Housing Program, and then there are three programs at FHA. 
These are generally the major housing programs that would 
provide any rental housing assistance.
    Mr. Schweikert. I think I came across one list where there 
could be, there are many other sort of subprograms. And part of 
the nature of my question is more, do we damage our, the goal 
of affordable housing or affordable rental properties 
particularly for our lower-income population by sometimes 
having so many programs? If you were to visualize--and I know I 
am a little off topic, but this is one I actually have a great 
interest in--a consolidation of some sorts, would we service 
the population better?
    Ms. Crowley. I think that there are very few housing 
advocates today, and people who provide low-income housing who 
wouldn't say to you that if we were starting over today, or if 
we could wave a magic wand, that we would design a system that 
looks differently than it does. We have multiple programs 
because we have a long history, and programs are developed over 
time responding to those particular needs. They build up, they 
serve a particular purpose, and it is no different than any 
other function of government where Congress responds.
    Mr. Schweikert. I am very appreciative of how our history 
and sometimes--
    Ms. Crowley. But incremental--we are incrementalists. And 
this is how these programs develop and then you develop new 
programs to fill the void of what the existing programs don't 
do. Could we reform some of the programs and do them better? 
Sure. You can always reform. But none of the existing programs 
are going to fill the void that I talked about in terms of 
extremely low-income people.
    Mr. Schweikert. For the education of David up here, your 
opinion on the effectiveness of a classic Section 8 program?
    Ms. Crowley. The Section 8 voucher program?
    Mr. Schweikert. Yes.
    Ms. Crowley. I think the Section 8 voucher program is 
extremely effective. I think it is a program that provides 
really essential assistance to a large number, 2 million 
families in the United States. I think the Section 8 program 
should be doubled.
    Mr. Schweikert. But is it a similar population that would 
be served from the trust fund?
    Ms. Crowley. Yes. But the Section 8 program is only 
effective if there is housing that can be rented with a 
voucher.
    And in many, many places, there is an insufficient supply 
of housing that voucher holders can use. And so in order to be 
able to house everybody, what we need is both a supply, 
contribution to supply, which the National Housing Trust Fund 
would do, and additional operating subsidies. I was just in Mr. 
Hurt's district--
    Mr. Schweikert. My personal experience came from Maricopa 
County, where I know there are lots and lots of properties, and 
they are actually fairly well managed, both the Phoenix and 
then some of the other municipalities also managed. And my 
understanding is there are substantially more available 
properties than there are voucher holders. That may be somewhat 
unique to what has happened in the Phoenix market.
    Ms. Crowley. I think the Phoenix market is unique. But the 
question is, are those properties renting at prices that the 
voucher will cover?
    Mr. Schweikert. Yes. And they have been driving them down, 
and I only know that from having managed some of those 
portfolios. Thank you. But I am down to my last 45 seconds.
    Dr. Sanders, with your look at historical trends, what do 
you think our homeownership percentage averages should be? What 
would be a model percentage?
    Mr. Sanders. Again, one of the problems we are facing now, 
trying to recover from what happened, is by driving up 
homeownership rates and trying to hit 70 percent. Of course, we 
now know--and even HUD has agreed with us--we overcooked it. We 
should have been putting more people in rentals. So it probably 
is going to get down to about 62, 61 percent.
    Mr. Schweikert. Is 62, 61 percent is that a historic 
optimum? Is that the most stable percentage of population in 
ownership compared to population rental?
    Mr. Sanders. Yes, I believe that is about the right answer. 
And one of the things we have to consider is that, once again, 
housing prices had an enormous bubble in it. The collapse has 
dislocated people in rental housing. And I want to just 
supplement one thing Dr. Crowley said is that I was asked in 
Phoenix to speak with Congressman Mitchell, who is I guess no 
longer in the House, and La Raza.
    Mr. Schweikert. I am a little embarrassed you said that. He 
is both our family friend and the person I replaced.
    Mr. Sanders. He was very nice, and he had me speak through 
a group, La Raza. And he said, what is the best way to get 
affordable housing to our constituents? And I said, the market 
solution would be, why don't we do what we did back in the 
1980s and just increase the depreciation deductions on 
apartments, multifamily, and we will create a multifamily 
building wave.
    Mr. Schweikert. Dr. Sanders, I am way over time, but I 
would love to circulate back to that.
    Ranking Member Waters?
    Ms. Waters. Thank you very much.
    I am sorry that Mr. John had to leave because he 
characterized the housing trust fund as ridiculous, and it is a 
good thing Barney Frank was not here. That is a program that he 
initiated and cares an awful lot about and probably would have 
had a few words for Mr. John, calling the program ridiculous.
    But you are here, Mr. Sanders, and in your testimony, you 
note that one of the seven bills we are considering today caps 
the taxpayer loss at $200 billion, and this represents a major 
step toward the curtailment of further taxpayer bailouts of 
Fannie and Freddie.
    Mr. Sanders. That is correct.
    Ms. Waters. Do you understand that this legislation mirrors 
verbatim the language already governing the draws from the 
Treasury available to the Enterprises? The language is included 
in the Treasury Department's Preferred Stock Purchase Agreement 
with the Enterprises. The Treasury Department became legally 
unable to amend this bailout cap as of December 31, 2009. So to 
be clear, would you agree that this legislation provides no new 
authority to limit bailout to the GSEs?
    Mr. Sanders. What I would say is that, yes, one of the 
reasons why I like this is it agrees with the Treasury report. 
But I think this puts into--casts into stone keeping it there 
and not letting it continue to grow.
    Ms. Waters. So it is verbatim and you understand that this 
is not new, that however you want to characterize it, that it 
has already been done. So this is repetitious. Okay.
    Let's go on. In your testimony, you note that you concurred 
that Fannie and Freddie should have the Housing Trust Fund 
contribution eliminated since we already have the FHA. Do you 
acknowledge that Fannie and Freddie have made zero 
contributions to the trust fund to date?
    Mr. Sanders. I am aware of that.
    Ms. Waters. No money, none.
    Mr. Sanders. That is correct.
    Ms. Waters. All right. So what is it you are agreeing that 
should be eliminated?
    Mr. Sanders. What I am saying is that we have the FHA and 
HUD, which should be serving the afflicted households. And I 
don't know why we are putting this over on Freddie and Fannie. 
We already have a big government organization to do this.
    And secondly, again, as I said, there is a free market 
approach to this, which is build more multifamily. That is why 
the Housing Trust Fund, to me--I am not saying it is good or 
bad. I just don't think it belongs in Freddie and Fannie.
    Ms. Waters. Do you realize that the trust fund and FHA have 
vastly different goals?
    Mr. Sanders. Yes.
    Ms. Waters. Do you know what the difference is?
    Mr. Sanders. Yes, I do.
    Ms. Waters. What is it?
    Mr. Sanders. The FHA is primarily for first-time home 
buyers. But a recent report by Robert Van Order--and I forgot 
who the second author is--looking at the FHA low downpayment 
programs has identified that it is more than just first-time 
home buyers. They have actually reached down and provided more 
lending to minority households, etc.
    Ms. Waters. Dr. Crowley, will you tell him--because you 
stated in your testimony--would you restate the goals of the 
Housing Trust Fund for him?
    Ms. Crowley. The Housing Trust Fund is primarily a vehicle 
for expanding the supply of rental housing for the poorest 
people in the United States.
    The statute does provide that some of the funds, up to 10 
percent, could be used for homeownership activities. And up to 
10 percent can be used. The statute says that 75 percent of the 
funds must be used for extremely low-income people. Up to--the 
other 25 percent can be for very low-income people. The 
regulations that are about to be finished would say for the 
first year, it should all go to extremely low-income people 
because that is where the greatest need is. These are not 
people who are in a position to become homeowners today. And in 
fact, we really think that if you create a stable rental 
opportunity for low-income, extremely low-income working 
families and they have the ability to actually stay in one 
place, to pay a reasonable amount for their home, to be able to 
afford the other things that they need in their lives, that you 
know what, they might be able to save money and eventually 
improve their economic circumstances so that they could buy a 
house in the old-fashioned way, making a downpayment.
    But if you don't have a sufficient supply of rental 
housing, getting people into homeownership is a foolhardy 
effort.
    Ms. Waters. Thank you very much.
    Dr. Crowley, let me just mention, if I may, to Dr. Sanders 
that there are still 7 million renter households with worst-
case housing needs, including 1.3 million elderly households 
and nearly 1 million households, including an individual with a 
disability. And to just let you know that given what is 
happening with the housing market at this time and a lack of 
availability of mortgages, that there is going to be a greater 
need for rental housing. And so, the Housing Trust Fund would 
address that data, and it is quite different from the FHA.
    I yield back the balance of my time.
    Chairman Garrett. The gentlelady yields back.
    The gentleman from California.
    Mr. Campbell. Thank you, Mr. Chairman.
    Dr. Sanders, in your testimony, you said that we should 
have a less costly alternative to Fannie and Freddie that 
requires less government involvement. You didn't say no 
government involvement. What government involvement do you 
believe is appropriate or necessary?
    Mr. Sanders. Again, as we have been discussing on the FHA--
and this is a matter of where the Housing Trust Fund, if we had 
that, resides. We will always have a need to help house the 
lowest-income households in the United States. And it is true, 
right now we are suffering from a shortage of that, so there 
are solutions to this. I am just not sure the trust fund is the 
way to do this. But again, there will always be a--and we have 
the FHA to serve that means.
    Mr. Campbell. And that is it? So you don't think there is 
any--as I read through your testimony, you talked about a few 
alternatives you thought for, other than low income and for the 
general housing finance market.
    Mr. Sanders. No, I think that pretty much sums it up. I 
think FHA covers most of it. And for the GSEs, Fannie and 
Freddie--and again, it gets back to a point.
    Mr. Campbell. So, in the absence of the GSEs--or if they 
are just gone, let's say, and so there is no government backing 
whatsoever for any housing market, so will the 30-year fixed-
rate mortgage continue?
    Mr. Sanders. The answer to that is, it depends on what 
would you put in its place. I think covered bonds, for example, 
facilitates, allows the 30-year fixed to be originated, and 
then somebody purchases it and bears the interest rate risk.
    Mr. Campbell. Stop right there. Do you think that covered 
bonds can replace Fannie and Freddie in the marketplace?
    Mr. Sanders. You would have to have a portfolio of things 
to replace Freddie and Fannie. One of them is a better private-
label securitization market. One of them is to get banks back 
into lending--
    Mr. Campbell. What is a better private-label security 
market?
    Mr. Sanders. Again, we were discussing it earlier. I didn't 
really have much of a problem with the private-label securities 
market, other than Fannie and Freddie grabbed off all the least 
risky loans and stuck the private sector with the risky stuff.
    Mr. Campbell. Just like covered bonds do, by the way, since 
they pull all the non-risky things over to the covered bonds, 
and they leave all the risky assets in the bank for the FDIC to 
insure, which is government insurance.
    Mr. Sanders. That is one way of looking at it.
    Mr. Campbell. Okay. Go on. So covered bonds involve 
government assistance and also transfer risk and put it in a 
different place. But go on. Let's talk about the private 
securitization market.
    Mr. Sanders. Okay. One of the things we have discussed in 
previous hearings recently is that while I have no problems 
with it per se, one of the issues we have talked about to help 
the market go forward is standardization of pulling a servicing 
agreement, standardization of other documents, making loan 
level information public.
    Mr. Campbell. But still, is that going to get you 30-year 
fixed-rate mortgages?
    Mr. Sanders. If there is somebody who is willing in the 
private sector to take on the interest rate risk.
    Mr. Campbell. History would indicate both in this country 
and in others that--because they don't just have to take on the 
interest rate risk. They have to take on the interest rate 
risk, market risk, credit risk, and duration risk; four types 
of risk. And certainly the people who participate in that 
market tell me they would have no interest, and history would 
indicate that they have no interest either, because without--
all you have to do is look at what there was in nonconforming 
loans in the past and in other countries so it is not there.
    If a 30-year fixed-rate mortgage went away or was generally 
not available or required a 50 percent downpayment or something 
like that, so instead you had much shorter duration mortgages 
and much higher downpayments required in a private 
securitization market, which I admit could exist, but it would 
exist with shorter duration loans and higher downpayments. 
Isn't that going to have a major negative impact on housing 
prices if people, in order to get the same house, have to have 
a lot more cash and a lot more monthly payment to get the same 
house they do today?
    Mr. Sanders. Again, let me put on my hat from a bank where 
I was a bank officer and actually was head of mortgage-backed 
securities and analysis and modeling. And what I will say to 
you is this, on the one hand, while I hear the people come out 
and say, if there is no government guarantee, the market will 
evaporate; on the other hand, it was always my understanding 
when I would talk to people, is they would always say, boy, we 
love more yield. We want more yield. Hence, that is why we saw 
some alternative mortgage products.
    I would say the following: If we geared down--and notice I 
say wind down the guarantee--I didn't say obliterate it yet. 
But if you wind down the guarantee and let the private sector 
back in, that means higher yields. I think there is 
approximately $12 trillion of capital around the world sitting 
on the sidelines. And right now, our Treasury rates are so low 
and Freddie and Fannie debt adds a whopping 20 basis points to 
Treasury debt. In other words, yields are so low, they are not 
going to attract--
    Mr. Campbell. My time has expired. But if I can just 
suggest--and I will welcome the conversation going forward. But 
every scenario you have described or describe in this paper 
relative to no government activity results in significantly 
higher payments for the same house in the housing market, which 
is going to reduce housing prices, which is going to cause a 
significant economic withdrawal, which we can't do. I think 
there are ways to protect the taxpayer but yet support the 
market.
    And I yield back.
    Chairman Garrett. The gentleman yields back.
    Mr. Peters, for 5 minutes.
    Mr. Peters. Thank you, Mr. Chairman.
    Actually, I would like to follow some of the questioning of 
Mr. Campbell about the cost of this, Dr. Sanders, with you. I 
am looking at your testimony here, the written testimony. And 
it talks about, if I may quote it, how some investors are 
hesitant to hold anything but Fannie and Freddie. Now with 
this, it also could assume any kind of guaranteed paper, some 
sort of government function of some sort of guarantee. If just 
some investors are hesitant, the mortgage markets will shrink 
in size. Smaller mortgage markets would be detrimental to the 
economy. Explain what you mean. What degree of detriment are we 
looking at for the economy based on your testimony?
    Mr. Sanders. To build on what Mr. Campbell was asking, the 
whole notion is that suddenly if the guarantee just magically 
went away today, investors may be reticent about funding 
further mortgages in Fannie and Freddie or MBS. So we would see 
rates rise. And right now in this perilous market condition, 
with housing markets essentially dead at the moment, that could 
cause further damage. I am talking more of over a 5-year period 
until the housing market recovers, then that is when I would 
recommend we go through and do some of the more private market 
implementation, not right at this moment.
    Mr. Peters. So it would be a rise. And I want to continue 
just for you to clarify some of this. You do talk about 
interest rate increases that would occur without some sort of 
guarantee. But you say these are educated guesses as to what 
this will be. We are talking about a multi-trillion dollar 
market that impacts a lot of people's lives; and most middle-
class families, their principal asset that they have. I am 
hoping that we don't move forward with policy based on educated 
guesses but something more than that. So give me an idea of 
what we need to do to move beyond the educated guesses that you 
have provided for us for us to make the analysis necessary.
    Mr. Sanders. Coincidentally, I have a suggestion which 
could handle this. I wish Mr. DeMarco was here to hear it. I 
would suggest that Fannie and Freddie just attest this because 
I don't want to see the housing market collapse and have 
calamity. I would suggest we do the following: We have Fannie 
and Freddie, with Mr. DeMarco's assistance, create a ring fence 
MBS. What that means is, they take the same loans that Fannie 
and Freddie are buying now, which are generally pretty high 
quality, 20 percent down, high credit score for the most part; 
and we ring fence them, saying that if anything goes wrong with 
these mortgages in terms of default etc., you will not be 
bailed out by Fannie or Freddie, full risk. And just don't do 
this on a huge level. Do this for a few pools and just put them 
out on the market. We don't have any experiment right now. And 
that is why I say, educated guess.
    Nobody knows, if suddenly it went away, how the market 
would respond. This would be an excellent way to test the 
water, put our feet into it, to see how much the international 
market wants the guarantee or it would be fearful of us if 
there is no guarantee.
    Mr. Peters. In your testimony, you talk about ranges of--
new mortgage rates would be in the range of 50 to 100 basis 
points. But there are other studies that have higher rates. I 
mean 50 or 100 basis points; I have mortgage investors who are 
actually in this marketplace, who are saying it would probably 
be 300 basis points or more. Where do you come up with your 50 
to 100 basis points? What is the basis for that kind of 
estimate?
    Mr. Sanders. I have heard the 250 basis points. I haven't 
heard the 300 basis points. But yes, where I am coming from on 
that and the difference is that if you take a look historically 
between Fannie/Freddie loans and jumbos in the past, it has 
generally been about a 30 basis-point pickup. So between a 
guaranteed market agency and the jumbo market, that is 30 basis 
points so that is the starting point. So it is probably going 
to be more than 30 basis points because if the guarantee goes 
away, we will--again, that is why I want to see the ring fence 
test. So it could be 30 basis points, this low. I honestly, on 
the numbers I ran, got probably about 100 basis points or 1 
percent. But my colleague Andy Davidson, with whom I wrote a 
Wall Street training manual on MBS and mortgages, thinks it 
could be 100, but he goes up to 250, depending on what happens 
in the world economy. We just don't know yet.
    Mr. Peters. If it does go up to 250, that could have a much 
more substantial effect on homeownership rates than you are 
anticipating here.
    Mr. Sanders. If the international market is not willing to 
fund mortgages unless it takes 250 basis points, I would say 
that is an indication of how sour the outlook for housing and 
our economy is in the first place. So maybe we are stuck with a 
guarantee.
    Mr. Peters. Okay. I think I am out of time, Mr. Chairman. I 
yield back.
    Chairman Garrett. The gentleman yields back.
    Mr. Hurt, for 5 minutes.
    Mr. Hurt. Thank you, Mr. Chairman.
    Thank you, members of the panel, for appearing.
    I wanted to just switch gears a little bit. It is a related 
subject but perhaps not directly associated with what you all 
have talked about tonight. And that is FHA and the proposed 
reform that we covered a little bit this morning in a hearing 
in another subcommittee. And I assume you are familiar with the 
proposals to reduce the loan limits and increase the 
downpayment?
    Mr. Sanders. Yes, I am.
    Mr. Hurt. I was wondering if you could speak to that. I 
would love to hear from both of you about this. It was 
interesting, we had a very long panel, two of the panelists, 
one was from the REALTORS and was one was from the home 
builders. They had grave concerns about those proposals and 
believe that the short-term effect will be to drive down 
values, real estate values, and make it more difficult, 
obviously, for us to recover in the real estate market.
    I think that if we are serious about trying to get--to 
invite the private sector in, we simply have to do these 
things. But I was wondering if you could comment on that and 
comment especially on the short-term effects that you think 
that we will see and the long-term effects as it relates to the 
goal of many of the people on this committee, which is to try 
to have the private sector come in and take a greater share of 
that market.
    Mr. Sanders. Let me begin by saying in my testimony, I have 
a graph of mortgage interest rates since the Clinton years, 
where it has gone from--I don't know if any of you remember--
the interest rate in the Clinton and early Reagan years was 18 
percent. And it has just gradually fallen almost like this; we 
are down here at 4.5 percent, 30-year fixed.
    So when we did that, we lowered rates--partly market 
pressure, partly Federal Reserve practices, etc. But when we 
lower rates like that and loosen credit and allow lower 
downpayment, we got a bubble. Trying to close the barn after we 
have done this is very difficult. So it is a matter of fiscal 
responsibility, which is tightening credit scores, which on one 
hand, I agree with. But my biggest concern is exactly what they 
are arguing, is that while I want us to be fiscally responsible 
and take the taxpayers off the hook, on the other hand, I 
think, whether you look at Experian or Zillow or some of the 
different companies, they estimate that approximately 50 
percent of households will no longer qualify for a loan. And I 
think even FHFA has done some work in saying that I believe it 
is only 20 percent of households--of Freddie and Fannie loans 
that are held would qualify under QRM standards.
    So we have just gone through and literally strangled the 
credit market. Is this going to help the housing market? No, of 
course not.
    So there has to be a trade-off there between ratcheting 
down some of the stuff. That is why I argue on conforming loan 
limits, don't go too fast. Let's just go down the list and test 
if we don't want to trash the market. There is a fundamental 
tension there: Do it too fast, we are going to have problems.
    Eventually, we have to get more private market 
participation. But at all times--and I don't know how we are 
going to do this--if Fannie and Freddie stick around in a much 
smaller format, we would have to almost lock them in an iron 
box and make sure they just don't expand out of control again.
    Mr. Hurt. Dr. Crowley, I would love to hear your thoughts 
on it?
    Mr. Crowley. The issue of all the structures around 
homeownership is not the area that we focus on. But I would say 
that it seems pretty clear that a 20 percent downpayment 
requirement would exclude large numbers of low- and moderate-
income people from the homeownership market. I also don't think 
we should forgo downpayment requirements altogether. I think 
the era of not having to make an investment, have skin in the 
game, as they say, was unfortunate.
    And so there has to be someplace in between there that 
provides people with the ability to access the market, if they 
can afford it and if they are able to predict that they have a 
reasonable expectation of income that will be able to sustain 
that mortgage and they have been able to assemble some money to 
be able to put it down on that.
    But let me reiterate that in the absence of a robust rental 
housing market for low- and moderate-income people, people 
aren't going to get to that. And see, we are very much out of 
balance now in our housing policy. We have put so much in the 
homeownership, not just in the HUD programs, but in the tax 
subsidies and in the subsidies that went to--in any number of 
ways. And we have seriously neglected the rental housing 
market. We need to rebalance that. And if we do, then you may 
find that people--we will restore it to a time when people 
could, in fact, figure out how to build up to where they could 
get into homeownership.
    Mr. Hurt. Thank you.
    Chairman Garrett. And the gentleman's time has expired. 
Thank you for the questions.
    The gentleman is recognized for--
    Mr. Perlmutter. Ten minutes, 20, 30 minutes.
    Chairman Garrett. Four minutes and 50 seconds.
    Mr. Perlmutter. I thank the chairman.
    And I appreciate the testimony you both have provided today 
and thank you for being with us at this late hour, and it 
actually has been pretty thought-provoking, even though it is 
5:30.
    So here are my questions: First of all, to you, Dr. 
Crowley, in Denver, we have just now hit a 1.4 percent vacancy 
rate, which is virtually no vacancies. Whether it is subsidized 
housing or not subsidized housing, we are down to 1.4 percent, 
and now we are seeing rental rates increase. And hopefully, 
because there are a lot of homes that have been through 
foreclosure, there will be an opportunity to move that way, 
except that Fannie Mae and Freddie Mac have been very tough on 
their underwriting criteria. So how do I now change that 1.4 
percent and get it back to something, 5 percent I think is what 
they always say is kind of a healthy vacancy rate?
    Ms. Crowley. The issue of this tight squeeze in the rental 
housing market while there is a vacant property that has been 
sitting there foreclosed, that comes up a lot. Like, do we need 
more production because we have vacant property? And the 
question is, how do you match those things up? And what is the 
nature of the property? Where is it? Is it convertible into 
rental housing? Can you take that and make it affordable to 
where the subsidies that are provided actually would work?
    And I don't know the particulars in Denver about how to do 
that. Every single market is going to be very different. I know 
that.
    Mr. Perlmutter. I guess what I am saying is, I think we 
have way too few rental units, subsidized or otherwise.
    Ms. Crowley. We have way too few rental units, and we have 
way too few for the lowest-income people. And when you have a 
market like what you have described, what that means is that 
the people with the greatest resources are the ones who are 
going to get into the rental market. The poorest people are the 
ones who are going to be left out. So it gets harder and harder 
for the lowest-income people. And that means that you don't 
have a workforce to do things that are required to keep the 
economy going. So it doesn't just impact the families who are 
struggling to pay rent in that market. It impacts everybody 
else who is trying to operate in that market.
    Mr. Perlmutter. Thank you.
    Dr. Sanders, I guess you reminded me of a couple of things. 
Have you ever heard of a company called the Philadelphia 
Savings Society? I represented them many, many years ago, and 
it was a big operation. They took a lot of fixed-rate mortgages 
and they operated until that timeframe you talked about. You 
said Reagan and Clinton. It was Carter and Reagan when the 
interest rates went sky high to 15 to 18 percent. And anybody 
holding fixed-rate mortgages as an investment got clobbered, 
including the savings and loans.
    So, after that time, because of that experience in the 
marketplace, because these were clients of mine, I started 
seeing them fall by the wayside because they really couldn't 
operate in a variable interest rate space and they were afraid 
to get back into the fixed interest rate space because they got 
clobbered. So my question to you--and I wish Mr. John were here 
with his Latin quote. And my friend Mr. Garrett will know this 
one, ``res ipsa loquitur'', ``the thing speaks for itself.''
    Here we have two organizations that are in conservatorship 
with tremendously tough underwriting criteria right now, Fannie 
Mae and Freddie Mac, yet they are the only guys in town. Where 
is the competition? There should be competition, except that 
other organizations are afraid to get back into this space 
because they have gotten clobbered in the past. How do you 
react to that?
    Mr. Sanders. Thank you. I just want to start off--by the 
way, I want to thank you because at the previous hearing, when 
Mr. Sherman cut me off, you gave me your time to finish the 
question. I always thought that was very nice of you to do 
that.
    Again, I just want to make--I have written about this 
separately. When we created this, whether it was the Clinton 
Administration or the Bush Administration, which Congress, we 
created this, again, desire to have homeownership at almost any 
cost. We created this enormous kind of beast that just moved 
through the market. Okay, what we got was a huge housing 
bubble. There are a lot of contributors to this. But then what 
we did is we did sap out the multifamily market. It kind of 
went by the wayside because we are all pushing homeownership. 
Now that we are kind of over this and we are trying to pare 
back the home-ownership-at-all-costs mentality, we are left 
with a lack of a multifamily which, again, I can say there are 
other market responses, but we have to build more. But getting 
back to the interest rate issue--and I agree with you 
completely. When it was 18 percent, as rates fell, you could 
refinance, and ARMs do present some danger to consumers. But 
again, Fannie Mae almost went belly-up because of interest rate 
changes. Interest rate changes almost took out the entire--or 
did take out the entire S&L industry. My point being is that we 
are the only country in the world with this many 30-year fixed. 
We don't see Denmark, Germany--even France is more liberal than 
us in terms of allowing more ARMs and other types of mortgage 
products. We are short on products.
    What I am trying to say is that this huge obsession--maybe 
rightfully so. I like 30-year fixed myself. I have never gotten 
an ARM. But when I look at that, I also understand that if 
interest rates do go up, which they will, we now have somebody 
who is going to be holding a ton of risk. The risk isn't free. 
Consumers may be less better to manage interest rate risks than 
Freddie, Fannie or the State teachers retirement system of 
Ohio. But I guarantee, there is going to be a lot of pain going 
around when interest rates start going up. Consumers won't feel 
it? They will feel it. They will just feel it in a different 
form. Their pension funds will get clobbered.
    So I am saying, I am just saying, it is a global holistic 
issue; if we could move more towards what other countries are 
doing and try to not have so much concentration, diversify--I 
am not saying get rid of it; I am just saying, just diversify, 
have a little more product in the mix--it would be a very good 
thing.
    Mr. Perlmutter. Thank you, sir.
    Thank you, Mr. Chairman.
    Chairman Garrett. I am sitting over here trying to come up 
with a Latin phrase, and I can't come up with one.
    Ms. Crowley. ``Veni vidi vici.''
    Mr. Perlmutter. There is one right up on the wall, ``e 
pluribus unum.''
    Mr. Campbell. That is the only one I know.
    Chairman Garrett. That is the only one I know. And it goes 
along with the comment that Dr. Sanders was saying, and others 
have mentioned. Aren't there a myriad of programs that are out 
there? You say, well, the gentleman from California said, there 
is FHA. But as Dr. Crowley says, there is the mortgage interest 
reduction. There is the activity of the Fed, the Federal Home 
Loan Banks, there is Ginnie Mae. So you can go down a whole 
list of various programs that are in place right now that have 
somewhat of a track record, good and bad, that no one is 
suggesting too strongly to eliminate all those. So they will 
exist going forward to facilitate the housing market, as both 
of you have said in admirable ways, to provide for rental 
housing and to provide for homeownership as well. And you both 
agree that is a good thing, right?
    Mr. Sanders. Yes.
    Chairman Garrett. Now here to Dr. Crowley's point with 
regard to the housing trust, so I guess, aren't there other 
ways to do it than to look--and maybe you gave this as a 
partial answer to someone else here--to these entities for a 
mechanism to do it. Basically what we have here, the prior 
panel, was that they are basically bankrupt--they didn't say it 
that way, but you are not doing too well--entities, aren't 
there other ways, perhaps on budget ways to actually do what 
you and I and others might want to do than having a trust 
through these entities?
    Ms. Crowley. As I said in my testimony, the current Federal 
housing programs serve 25 percent of the eligible population. 
They have all been constrained over time within the 
appropriations process. If we could magically alter that--
    Chairman Garrett. So they are all confined by the 
appropriations process. And by that, I am guessing what you 
mean is, these items that we are talking about here are on 
budget and there is only x number of dollars to do it. So that 
is what the constraint is? What you mean by constrained by the 
appropriations process?
    Ms. Crowley. Oh, yes. Most of those programs are cost-
based. The voucher program is cost-based. It has to go up every 
year because the costs goes up. The block grant program can be 
held flat or reduced, as is happening now. And the other big--
there is the big three, the voucher program, public housing, 
and the project-based Section 8. The project-based Section 8 
goes up because those are contracted privately. Public housing 
gets held flat, and it is being starved, and that is shameful.
    But there is no existing program that is building new 
rental housing that is affordable to this population. Most 
programs are maintaining what we have.
    Chairman Garrett. So let me just go down two roads real 
quick. And the gentleman from Arizona may have been going on 
his way. He talked to me when he went out. With regard to 
rental housing, one maybe additional way to address it was on 
the depreciation side. Were you talking about that? Or Dr. 
Sanders was?
    Ms. Crowley. Dr. Sanders said that.
    Chairman Garrett. Is that not a way? That is something 
administrative--not administrative, but if we legislatively 
change the depreciation schedule, doesn't that help facilitate?
    Ms. Crowley. It is not clear to me that would help 
facilitate creating housing for the population that I am 
concerned about.
    Chairman Garrett. Why not? If you craft the tax language in 
such a way--I didn't hear your testimony--in such a way that 
you say that depreciation for what category? Not for the super 
wealthy but for whatever category as we define the depreciation 
schedule, that is the incentive to do it. What is the 
depreciation schedule now? Probably 15 years or something like 
that. Whatever it is, you shorten the time, so that for 
investors, they can say I can get a return on it. That just 
seems to be one alternative.
    Ms. Crowley. We are very open to talking about any 
alternatives, but we don't think that is going to solve the 
problem. The cost of building and operating housing in the 
United States today--rental housing or any housing, but rental 
housing--exceeds, just to do basic housing, nothing fancy, 
basic housing, it exceeds what it is that people in the low-
wage workforce and in that population can afford.
    Chairman Garrett. Right.
    Ms. Crowley. So there is a serious gap between--
    Chairman Garrett. I understand that. So in order to do 
that, if somebody is over here and they just can't afford it 
because they are working, but they are the working poor, 
someone has to help them. And if the government is going to 
help them, fine. But then shouldn't we be transparent about 
that? You are saying that you have this list of programs over 
here that are cost constrained. Why? Because they are on 
budget. And some go up. Some go down. Some just stay their way. 
But the solution to that is not simply saying, let's go over 
here because I think Dr. Sanders says, there is a cost, is 
there not, to risk. And so there is a cost to the risk that 
Fannie and Freddie have incurred.
    Right now, we can quantify that cost. It is not, as Mr. 
Peters was saying, guessing. We can quantify that cost to the 
tune of around $150 billion, and we can quantify it even 
further, that the cost is going to be upwards to the tune of 
$400 billion. Right now, that is not cost constrained? Why? It 
is not on budget. You are not suggesting that to solve the 
problem of these cost-constrained areas, let's not be 
nontransparent about it and--
    Ms. Crowley. Oh, I think we should be extremely 
transparent.
    Chairman Garrett. Do you support then putting the GSEs, 
while they are existing right now, on budget so we can really 
see what the cost is, right? That is fair.
    Ms. Crowley. No.
    Chairman Garrett. Why not?
    Ms. Crowley. I don't know enough to answer that question.
    Let me just say that the reason that the GSEs were the 
source that we went to around funding the National Housing 
Trust Fund is that the GSEs in their current form, as they 
existed until September 2008, and what we expect will emerge, 
depending on what Congress decides, are entities that are going 
to be--they are going to have a substantial backing of the 
Federal Government.
    Chairman Garrett. But that backing right now is a cost to 
the Federal Government that is not constrained.
    Ms. Crowley. It is a benefit to the GSEs. It is a benefit 
to them, and it is a benefit to whatever may replace them. They 
get some benefit from that. In exchange for that benefit, they 
ought to do something that they aren't going to do in the 
marketplace. They ought to do something in order to help where 
it is that the housing market will not go. So that was the 
logic behind a contribution from them to the National Housing 
Trust Fund. In order to--
    Chairman Garrett. But it is a benefit that they are 
receiving that they are not putting on the budget, so it was 
and is a nontransparent benefit because you are not seeing--you 
are asking for them to give something to this community, to 
this program, because they are getting a benefit from the 
taxpayers, but we are not seeing that benefit--correct me if I 
am wrong--we are not seeing the benefit, we are not seeing the 
actual cost.
    Ms. Crowley. I think the benefit should be very clearly 
calculated. There are many people who over time said that the 
GSEs were getting a benefit for what they did. That was the 
basic rationale for doing it. And anything that replaces them, 
in the absence of--I am not going to predict what is going to 
happen. But anything that replaces them that has any kind of 
government guarantee, they have a responsibility to also then 
make a contribution to do things that they won't do otherwise.
    Chairman Garrett. And my time has expired.
    The gentlelady from California.
    No?
    Okay.
    So, at this time, without objection, I am going to put into 
the record letters from Americans for Tax Reform with regard to 
today's hearing, dated May 25th, and also from the National 
Association of REALTORS.
    I appreciate the full panel, even the one who is not here, 
for their testimony.
    Oh, I don't know. I think we will take a vote to see 
whether Mr. Green gets his 5 minutes.
    No, I am just kidding.
    So the record will remain open with regard to additional 
questions.
    But since Mr. Green is here and he came in under the 
gavel--
    Mr. Green. Thank you, Mr. Chairman. I have always 
appreciated your generosity and your kindness.
    Mr. Chairman, I am here because--and I apologize for being 
tardy because I have been in other meetings. But I am here 
because of the National Housing Trust Fund, and I am here 
because I believe that we should preserve it. If you have no 
poor people in your district, then obviously this is not of 
concern to you.
    But to my friends on both sides of the aisle, if you happen 
to have some poor people, this may be of interest to you. We 
have, at long last, managed to codify a methodology by which 
poor people can have rental housing funded such that we know 
that at least in difficult times, there will still be a program 
available to poor people. I think that in a great country such 
as ours, wherein we can subsidize oil companies--and I am from 
an oil State, and I understand the need for it--we subsidize 
industries that provide our food, we subsidize people who are 
losing their jobs by way of an auto industry--and I thought it 
was a good idea, by the way, to bail out the auto industry. I 
think that is one of the great accomplishments of this 
President and of our tenure.
    But if we can subsidize those who have had great benefits 
from the country and who are in need at a given time, it seems 
to me that we can subsidize poor people. There are some who 
would say that it is not a subsidy, but I say it is, and we are 
helping people. We are helping people who are very poor. Thirty 
percent of the area median income--which is not a lot--but they 
still need housing.
    So my appeal today to my colleagues is to, please, let's 
find a way to maintain the program. Let's not end it before it 
has a chance to do what it was designed to do. These funds will 
go to States and block grants. The States have to submit a plan 
to the Secretary, which has to be approved. And only with an 
approved plan will the moneys be spent.
    These moneys are not simply passed on to entities to do 
with as they please. My hope is that my friends will engage in 
a colloquy with me with the time that I have left. As you know, 
I enjoy talking to my friends. So, Mr. Garrett, it looks like 
you and I--can you give me some rationale for--
    Chairman Garrett. These two guys.
    Mr. Green. Get me some rationale, Mr. Chairman, for why 
would we end a program to help poor people, given all that we 
are doing to help people who are well-off, well heeled, and 
well-to-do? Why would we do this to poor people, Mr. Chairman?
    Chairman Garrett. I appreciate that. And before you came 
in, I made the comment--I think that we are on the same page.
    Mr. Green. You and I?
    Chairman Garrett. No. I was talking to them. Before you 
came in, I was speaking to and asking the panel, and I said we 
are on the same page, saying that there are certain needs that 
you just elaborated on for a certain segment of society that we 
need to figure out what is the best way to facilitate that 
getting done. One of the suggestions was thrown out--I guess 
this was by Dr. Sanders with regard to facilitating rental 
housing in the area of the Tax Code maybe. I was suggesting 
that maybe the best way to do it was through direct assistance.
    My overarching theme in all of these is that they be clear 
and transparent so that they be on budget. And I will just 
close on this. The President of the Federal Reserve--and where 
is he from, Richmond--said these issues are laudable social 
goals, but if that is the objective, we should be subsidizing 
housing equity and not housing debt. In other words, we are 
subsidizing the debt through the programs that we have 
facilitated over the past. Let's not do that. Let's be honest 
to the public and let's do it in a transparent way and let's do 
it in a direct way.
    Mr. Green. If we may, Mr. Chairman, I beg that you would 
allow our colloquy to continue for just a moment, given that we 
are it right now. And I know that we both have great things to 
do, but helping poor people is a great thing to do.
    Chairman Garrett. We are on the same page with that.
    Mr. Green. Let's do this, Mr. Chairman. Let's look at it 
from this point of view: I find that when it comes to helping 
the poor, we always--not just you now, but I am including 
myself--we always work toward getting around to doing it. We 
rarely get the opportunity to actually do it. In Texas, we call 
this ``fixing to.'' We are fixing to do it, but we don't ever 
get to the actual fixing. We just get to the ``fixing to do'' 
part. Mr. Chairman, this is a program that cannot bankrupt this 
country. Helping poor people with this program will not 
bankrupt America.
    Chairman Garrett. But is it the question that when we are 
talking about helping any segment of society, especially the 
poor people, shouldn't we be honest with them in saying that 
the programs that we establish are really for them and not for 
all other classes of people as well? So when we had programs 
like the GSEs and we say, well, we are going to try to help the 
poor, as you describe, and where we have the mortgage interest 
rate deduction that we have we try to help the poor be able to 
start out and get that first house and what have you, shouldn't 
we really be honest with them that we are really not just 
helping the poor. In those programs that you are advocating 
that we are doing, continuing on, that we are actually helping 
the middle class, the upper middle class, and the wealthy as 
well because that is where a large part of the cost goes, so 
shouldn't we be honest with those people?
    Mr. Green. Let's be honest. Let me reclaim my time for just 
a minute, Mr. Chairman.
    Chairman Garrett. Your time was over a minute ago.
    Mr. Green. Let me reclaim the time that I don't have that 
you are sharing with me. You have said a lot. And I need for 
you to explain to me what you mean by, ``we are helping the 
wealthy.'' How are we helping the wealthy by helping poor 
people with rental?
    Chairman Garrett. What I am talking about is if we are 
talking about various ways here, as we have been talking about 
over the last hour, on facilitating various programs to help 
the poor. And my response back to you was that many of the 
programs that have been advocated to help the poor, the ones 
that I just gave you a list of--what did I just say, the GSEs, 
the mortgage interest rate deduction, something else, the 
Federal Home Loan Banks, those are all programs that people 
come here and say, we have to do them because we are helping 
the poor. And I am just saying, let's be honest with the poor; 
poor, we are trying to help you, but you know what, we are also 
trying to help the guy who is making over $250,000, too. We are 
also trying to help the guy who is making $350,000 with these 
litanies of programs. So, you have to be honest.
    Mr. Green. I am going to be honest. But let's do this: 
Challenge me if you ever think that I am not being honest. No, 
listen now. Challenge me and let me respond. Because I am going 
to be honest. I simply believe that--
    Chairman Garrett. So do you tell people that when you 
supported the GSEs that you say, we are out there helping--
    Mr. Green. What does that have to do with this program? 
Because I think the mortgage interest--I agree with you. That 
helps middle-class people, and that helps wealthy people. But 
this is not mortgage interest deductions.
    Chairman Garrett. So, with this program, my position is 
that if we are truly trying to facilitate helping the poor, 
shouldn't we also be honest with them as to what the cost of 
the program is? As the testimony was that there is a risk cost 
to the underlying program that is facilitating this--which is 
what? The GSEs--which is not on budget, and we understand, Dr. 
Crowley is saying, well, if they are getting this benefit--
    Mr. Green. Mr. Chairman, if I may now, the GSEs did not--I 
don't know, I am picking up a disjointed syllogism here because 
I don't see how the GSEs play a role in this one. We are not 
getting the money from the GSEs currently for the program. And 
the GSEs did not--listen now, this program did not bankrupt the 
GSEs. There were some other things that we have a nice name 
for. We call them exotic products that went into the GSEs. But 
this program didn't bankrupt the GSEs.
    Chairman Garrett. My understanding is that this program was 
established with the GSEs principally intended to be the main 
funding source.
    Mr. Green. That they never got around to funding.
    Ms. Crowley. First funding source, not the main funding 
source.
    Chairman Garrett. So do you think that was being honest 
with the poor segment of the population that you were trying to 
help, saying, we are creating a new program? And they will say, 
how are you funding it? Our first source of funding is going to 
be from the GSEs. That is what was said. But did you then go on 
to say that those two entities that we are going to list as the 
first source of funding are basically bankrupt?
    Mr. Green. Let me respond. It is only fair to give me a 
response. Not only did we not say it, I am not sure that a lot 
of people knew it at the time we were working with this 
program. This program was not something that was designed to 
satisfy the needs of poor people as a result of the GSEs going 
bankrupt. We weren't designing a program to hurt the GSEs. The 
GSEs didn't go bankrupt because of the program. Tell me the 
amount of money the GSEs spent on this program.
    Chairman Garrett. No one was saying that the GSEs went 
bankrupt because of these programs. What we are saying is, if 
you are going to be as honest as you are that when you created 
this program through the HERA program and you are going to 
enlist as the primary or the first funding source being then 
the GSEs in 2008--
    Mr. Green. But that was not esoteric. That wasn't esoteric.
    Chairman Garrett. Did you understand at that time in 2008 
what the status and the quality and the sustainability was of 
the GSEs?
    Mr. Green. Absolutely not, Mr. Chairman. I did not know 
that the GSEs--most people didn't realize that we were 
approaching the economic crisis that we approached. I think 
that had I known, if you would let me be king, we wouldn't have 
had this happen. But it wasn't this way. And these programs had 
nothing to do with the bankruptcy of the GSEs.
    Chairman Garrett. No one is arguing that. So let's agree on 
one point then.
    Mr. Green. What is the point?
    Chairman Garrett. The point is that we should be 
transparent and honest, and so, so long as they are coming from 
this program or have the potential to come from this program, 
the program's potential funds--I know it is not getting a 
dollar yet--potential funding should be on budget so that they 
can actually see what it would cost.
    Mr. Green. Let me ask you this, Mr. Chairman: Are you 
saying that as though there is a move afoot to hide this or 
secret this?
    Chairman Garrett. I don't know. Have you sponsored my bill 
to put it on budget? I don't know.
    Mr. Green. I don't know about putting them on budget in 
terms of your bill, but I don't have a problem with 
transparency and knowing the source of revenue. There is no 
problem with that. My concern has to do with the elimination of 
them. We have had Members from your side talk about eliminating 
the program totally, eliminating the trust fund. That is what I 
am addressing, elimination of the trust fund. I don't have a 
problem with transparency. Poor people don't have a problem 
with it being known that they are getting money from some 
source or given source. And I represent a lot of poor people. 
So I will speak for them and tell you that poor people are okay 
with people knowing where the money is coming from. But here is 
my question to you, though, Mr. Chairman, why are we 
approaching a vote to end the program?
    Chairman Garrett. Because they are--we are not being 
transparent. We are not being honest with--
    Mr. Green. Okay. Let's be transparent. Let's be honest. And 
keep the program.
    Chairman Garrett. There was legislation to put the GSEs on 
budget. So I would appreciate your signing on to that. That is 
the first step of that. Second step--
    Mr. Green. The GSEs don't have to be the funding source for 
the programs, Mr. Chairman. There can be other funding sources. 
The point is, this country needs a National Housing Trust Fund 
to help poor people get rental housing. And I would love for 
the source to be the GSEs in better times. But if the GSEs are 
not available to fund, then I don't want to conclude that we 
won't have any funds.
    Chairman Garrett. Then let's look--and Dr. Crowley was 
listing some of the various programs that are out there. Let's 
take a look and say that the GSEs are not the source of the 
funding of this. And let's look to the other programs that are 
in existence. Let's put it over under HUD and put it on budget 
and then consolidate with the other funding over there. Then 
you can say, we are going to provide this service, and this is 
what it is going to cost.
    Mr. Green. Let's say this: Rather than you and I conclude 
conclusively right now what would be done, let's agree that we 
would save the program and that we will work on the funding 
source. I think the funding source is something that we can 
resolve if we have the will to say that we will save the 
program.
    Chairman Garrett. We can agree that we can address the 
problem, which is the issue of multifamily housing and rental 
housing and the like and also for first-time homeowners and the 
like, all the issues for the four. But until we come to an 
agreement of where the funding source is for this program, I 
think we are being disingenuous to that very class of people 
who are trying to help.
    Mr. Green. I still haven't ascertained where this 
disingenuousness is coming from.
    Chairman Garrett. You haven't ascertained as to where you 
want to get the money from to pay for this.
    Mr. Green. I am saying to you, if we agree that we can keep 
the program, I think we can agree that we can find the money to 
take care of the program.
    Chairman Garrett. And I look to you for that first hurdle.
    Mr. Green. Do we agree that we keep the program?
    Chairman Garrett. I look to you for the first hurdle as to 
where you want to start getting the funding for housing 
assistance programs. There is a litany of those programs that 
are out there. I look to you also to say which ones are 
beneficial, and which ones are superfluous.
    Mr. Green. Let me share this with you.
    I will do that right now. I say to you that we have the 
courage to say to poor people in this country that Congress 
will appropriate the funds and that we will do it from sources 
that we will determine at a later time. But Congress can 
appropriate the funds for the program. Why can't we make a 
commitment to poor people? We are committed to oil companies. 
We were committed to the big banks. We have been committed to 
farmers. We have been committed to people who have really 
benefited from what we have done. What is wrong with committing 
to poor people?
    Chairman Garrett. What is wrong with being honest with 
them--when you make a commitment--when my kids make a 
commitment to somebody--
    Mr. Green. I am saying, I will be honest. I am willing to 
be as honest as I can if you will just help me.
    Chairman Garrett. And I am glad to help you.
    Mr. Perlmutter. If I might, gentlemen--and I am with my 
friend from Texas. We have now gone 15 minutes over the 5 
minutes. We have votes. These people have been here for like 5 
hours. That is all I am saying.
    Mr. Green. Let me apologize to the two people who have been 
here and encourage you to go and vote.
    Let's do this. We welcome you, and we thank you. But I am 
committed to poor people for as long as it takes.
    Mr. Chairman, listen, this will be my last word. I regret 
that the Congress of the United States of America can subsidize 
the well-off, well-heeled, and well-to-do and turn its back on 
poor people because that is the way I see it, Mr. Chairman. And 
we should not do this. We should not do this. It is so easy to 
draw a line through something that benefits poor people. It is 
very difficult to draw a line through subsidies for oil 
companies. It is very difficult to draw a line through 
subsidies for banks. But when it comes to poor people--
    Chairman Garrett. I will close on this. It is very 
difficult to draw a line through other housing policy that 
you--Members on your side of the aisle support in the name of 
poor people who actually support the middle class and the upper 
middle class on various issues.
    Mr. Green. Mr. Chairman, I will work on those. Let's just 
talk about this one. What you are doing now is you are 
confusing other issues with this one.
    But listen, you have been generous. And thank you for the 
colloquy. I thank you. You have been generous. God bless you. 
Thank you very much. You know I love you.
    Chairman Garrett. Very good. Likewise.
    Dr. Crowley, Dr. Sanders, I appreciate your sitting there. 
I bet you have a whole bunch of comments you want to throw out.
    Ms. Crowley. This was fascinating.
    Chairman Garrett. It was a good discussion.
    I will digress for 30 seconds more. One of the interesting 
things, when the former chair of this subcommittee in the last 
year was Paul Kanjorski, and if you ever sat in, oftentimes, 
just like what happened now, everybody leaves, except for like 
three or four of us, and it would be Paul and I and just one 
member on the other side, and we would get into some of these 
later sort of roundtable--not 12 minutes as we just did with a 
dialogue like this. But it was one of the better things that we 
worked out in the last Administration with Paul here. And I am 
glad I was able to do it and continue on.
    Again, thank you both for waiting patiently for us before 
and through the first panel. Thank you both very much for your 
testimony and your expertise that you bring to this issue. I 
think I have already said it, but I will repeat it that the 
record is open for another 30 days for additional questions. 
And I had better put the gavel down before someone else walks 
into the room. Thank you.
    [Whereupon, at 6:10 p.m., the hearing was adjourned.]




                            A P P E N D I X



                              May 25, 2011







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