[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]





                    FEDERAL HOUSING ADMINISTRATION:
                     IMPLICATIONS OF A $1.7 BILLION
                            TAXPAYER BAILOUT

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 29, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-47



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             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            STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia                BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel






















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 29, 2013.............................................     1
Appendix:
    October 29, 2013.............................................    51

                               WITNESSES
                       Tuesday, October 29, 2013

Galante, Hon. Carol J., Commissioner, Federal Housing 
  Administration, and Assistant Secretary for Housing, U.S. 
  Department of Housing and Urban Development....................     8

                                APPENDIX

Prepared statements:
    Galante, Hon. Carol J........................................    52

              Additional Material Submitted for the Record

Maloney, Hon. Carolyn:
    Center for American Progress paper entitled, ``The Federal 
      Housing Administration Saved the Housing Market,'' dated 
      October 2012...............................................    64
Galante, Hon. Carol J.:
    Written responses to questions submitted by Representative 
      Royce......................................................    76
    Written responses to questions submitted by Representative 
      Sinema.....................................................    78
    Written responses to questions submitted by Representative 
      Ellison....................................................    81

 
                    FEDERAL HOUSING ADMINISTRATION:
                     IMPLICATIONS OF A $1.7 BILLION
                            TAXPAYER BAILOUT

                              ----------                              


                       Tuesday, October 29, 2013

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Royce, Capito, 
Garrett, Neugebauer, McHenry, Pearce, Fitzpatrick, 
Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, 
Fincher, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Barr, 
Cotton, Rothfus; Waters, Maloney, Velazquez, Sherman, Meeks, 
Capuano, Clay, Lynch, Scott, Green, Cleaver, Ellison, Himes, 
Carney, Sewell, Foster, Kildee, Murphy, Delaney, Sinema, 
Beatty, and Heck.
    Chairman Hensarling. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    This hearing is entitled, ``Federal Housing Administration: 
Implications of a $1.7 Billion Taxpayer Bailout.''
    I recognize myself for 5 minutes to give an opening 
statement.
    On February 6th, this committee held its very first hearing 
of the 113th Congress on the topic of the declining fiscal 
health of the Federal Housing Administration (FHA). We heard 
from witnesses that FHA was ignoring warnings about its 
solvency, failing to use its existing tools to price insurance 
appropriately, and failing to minimize losses.
    Today, 8 months later, our witnesses have been proven 
correct. The FHA is indeed broke. It is officially bailout-
broke. Twenty-nine days ago, FHA became the recipient of the 
latest Washington bailout, funded courtesy of hardworking 
taxpayers, to the tune of $1.7 billion.
    On February 13th, when our witness, Commissioner Galante, 
came before us to discuss the state of FHA's Single-Family 
Insurance Fund, she testified that FHA was making changes to 
``accelerate the fund's recovery.'' Regrettably, seemingly FHA 
has only accelerated our national bankruptcy by accelerating 
the national debt clock, which can be seen on the monitors to 
both my left and my right.
    When Commissioner Galante last appeared before us, the 
national debt stood at $16.5 trillion. A mere 18 months later, 
the national debt now stands at a staggering $17.3 trillion and 
counting, over $140,000 per American household, on average, and 
$1.7 billion of that is courtesy of the FHA bailout.
    Our spending-driven national debt is the greatest 
existential threat that is facing our Nation today. The former 
Chairman of the Joint Chiefs of Staff has said that the 
greatest threat to our national security is our national debt. 
The Democratic co-chairman of the President's fiscal 
commission, Erskine Bowles, has said this debt is like a 
cancer: ``It will destroy this country from within.''
    Just last month, the Congressional Budget Office warned us 
yet again that our Federal debt is unsustainable. Yet, a number 
of my Democratic colleagues have asked to have the debt clock 
removed, taken out from sight, reflecting a see-no-evil 
attitude. And, in fact, President Obama has said, ``Don't 
pretend as if America is going bankrupt.'' I have but little 
doubt similar words were spoken in both Greece and Detroit.
    Barely a week ago, the Congressional Budget Office (CBO) 
delivered more bad news, reporting that FHA has consistently 
misstated its projected recovery. Specifically, the CBO has 
said mortgages insured by FHA over the past 2 decades have had 
a net cost of $15 billion even though the initial estimates 
from FHA suggested $45 billion in profits. That is a remarkable 
$60 billion swing in the wrong direction--another rosy scenario 
dashed at an agency that, regrettably, has a history of such.
    Whether it was Assistant Secretary Stevens telling us back 
in 2009 that FHA's financial troubles would ``last a short 
period of time'' or Secretary Donovan testifying in 2011 that 
the insurance fund's ``prospects for the future are good,'' or 
Commissioner Galante reporting in 2012 that reforms and 
enforcement efforts under way are ``positioning FHA well for 
the future,'' these assurances today ring a little bit hollow.
    The taxpayer-funded bailout of FHA reinforces everything 
that many have said about FHA for some time: that it is high-
risk to taxpayers; high-risk to the mortgage insurance market; 
and high-risk to our economy. The Government Accountability 
Office (GAO) underscored those points in February when it added 
the FHA to its list of programs considered high-risk due to 
their vulnerability to fraud, waste, abuse, mismanagement, or 
the need for transformation.
    The $1.7 billion bailout of FHA also reinforces the need 
for the Protecting American Taxpayers and Homeowners Act, the 
PATH Act. The PATH Act will achieve needed objectives for the 
Federal Housing Administration. It will put FHA on a sound 
financial footing and keep it there. It clearly defines FHA's 
mission to ensure that the agency is serving first-time home 
buyers and low- to moderate-income borrowers.
    The PATH Act shifts risk away from taxpayers and into the 
private sector by reducing FHA's footprint and making sure the 
industry is complementing the private sector, not competing 
with it. It ensures that the FHA runs its Single-Family 
Insurance Fund according to the basic tenets of mortgage 
insurance. Finally, the PATH Act mandates the insurance of the 
30-year fixed-rate mortgage and retains FHA's countercyclical 
role.
    The American people clearly want to end the destructive 
cycle of boom, bust, and bailout that Washington policies have 
helped foster. They do not want an economy laid low by 
unsustainable levels of debt. Regrettably, the FHA, as it 
operates today, exacerbates both. The FHA has gone from 
backstopping the market to supplanting the market. The time for 
FHA reform is now. We can truly wait no longer.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Scott, for 2 minutes.
    Mr. Scott. Thank you very much, Mr. Chairman.
    Ms. Galante, first, let me thank you for coming down to 
Atlanta to our home foreclosure prevention event, where we 
saved right on that day, as you will recall, 6,000 homes from 
being foreclosed upon. I really appreciate you coming down and 
being with us at that time.
    Now, first of all, I want to say this is not a bailout. It 
is very easy for us to try to use that kind of language. This 
is a required, mandatory appropriation of nearly $1.7 billion 
in appropriations from the United States Treasury that is 
required, that is needed, and is very timely for our recovery.
    Now, to the chairman's point, my facts, just to recall, the 
Federal Credit Reform Act of 1990 requires that at the end of 
each fiscal year, every government credit agency, which 
includes the FHA, must have sufficient reserves to cover 100 
percent of anticipated future losses. The FHA's programs, like 
all Federal Government direct loan and loan guarantees 
programs, are subject to the Federal Credit Reform Act, and 
they can take advantage of permanent and definite authority to 
cover increases in cost for outstanding loans and loan 
guarantees. That is all this is.
    This authority allows the FHA access to U.S. Treasury funds 
without congressional approval for any funds needed to balance 
its books. That is what this is. That is what is in the law. It 
is no kind of bailout. And I think it is very important that we 
be honest with the American people so they know that this is 
codified in the Federal Credit Reform Act of 1990.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Texas, the chairman of the Housing and Insurance 
Subcommittee, Mr. Neugebauer, for 2 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman. And thank you for 
holding this hearing.
    And I think--several points here. One is that everybody 
recognizes that FHA has played a valuable role in helping 
first-time home buyers and low-income families enter into 
homeownership. But also what we understand is that when these 
young couples purchase these homes, it helps them set down 
their roots and begin to raise their families, which is good 
for our neighborhoods and our communities. And that is the 
reason it is important that we have a healthy FHA. FHA plays a 
vital role in that area.
    The problem is that FHA is not on sound financial footing, 
which jeopardizes its ability in the future to provide this 
first-time home buyer or the low-income family financing.
    Now, you are going to hear today that FHA is not broke, but 
that is not the case. What we know is they have a negative 
capital ratio of 1.44 percent. They are supposed to have a 
capital ratio of 2 percent, and many private mortgage insurance 
companies have to have a capital ratio of 4 percent.
    The other is that they have a negative net worth of $16.3 
billion. You are going to hear that they have $48 billion in 
the bank. There are a lot of companies in bankruptcy that have 
money in the bank; they just don't have enough money to cover 
all of their liabilities.
    And so what we need to do is pass the PATH Act. What does 
the PATH Act do? It begins to make sure that we have a strong 
and healthy FHA for the future so they can help these families. 
It also makes sure that the taxpayers don't have to underwrite 
these mortgages in the future and puts them on sound footing. 
It gets FHA back to its original core mission.
    It is important that we have this discussion today, but 
what is more important is we need to know exactly where FHA is, 
because I don't think anybody knows. We are told, every time 
someone comes to tell us about FHA, that things are fine, 
things are getting better. We had people come in and tell us 
the same thing about Freddie Mac and Fannie Mae; things were 
fine, things were great. But that turned out not to be the 
case. And what this Administration has done is missed the mark 
on projection after projection of when this fund is going to be 
back into its statutory limit.
    With that, Mr. Chairman, I yield back the time that I don't 
have.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Connecticut, Mr. Himes, for 2 minutes.
    Mr. Himes. Thank you, Mr. Chairman. And I welcome the 
witness to come before us today and talk about a very important 
question.
    A couple of observations. One, once again, I sit down and 
listen to the majority talk so piously about the need for 
fiscal responsibility and so much concern about the debt that 
most of them, of course, voted last week to default upon, 
questioning, I think, whether we should take any protestations 
of responsibility and prudence coming from those who voted to 
default on the United States debt with, perhaps, a rather large 
grain of salt.
    But to move on to the topic of this hearing, it is 
important that those who are watching this understand that when 
the word ``bailout'' is used, it is not being used terribly 
accurately. What is occurring here is essentially an accounting 
entry.
    And I am not saying that this is an good thing. The FHA, 
like so much of the private housing industry and our banks and 
Fannie Mae and Freddie Mac, is paying a tremendous price for 
the activities of the real estate industry and the government's 
involvement in real estate in the years 2006 and before and 
after that. They are staggering out of what was the most 
significant dislocation we have experienced since the 1930s. So 
it is not shocking that, in fact, they are looking for $1.7 
billion in capital.
    If you believe that the real estate market is destined to 
take another massive downturn, you should be concerned that 
will never be reversed. However, the decades and generations of 
experience with FHA show two things.
    One, this is not cash. This is not cash going to Merrill 
Lynch or Bank of America or any of the other financial 
institutions that received bailouts in 2008. This is an 
accounting entry. This is an accounting entry whereby FHA says, 
we have a call on cash from the Treasury.
    Two things to be pointed out about that. One, it is an 
accounting entry that, if you look at the history of FHA, has 
always been the opposite. As for most of its existence, it has 
actually operated at a surplus and funded important affordable 
housing programs.
    So, as we talk about a bailout, keep in mind that this is 
not cash; this is an accounting entry.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentlemen has expired.
    The Chair now recognizes the gentleman from New Jersey, the 
chairman of the Capital Markets Subcommittee, Mr. Garrett, for 
2 minutes.
    Mr. Garrett. Thank you, Mr. Chairman.
    Thank you, Commissioner, and we appreciate you being here 
today, although, of course, I wish it was under happier 
circumstances.
    But, instead, we are here in the aftermath of what is going 
to be the first taxpayer bailout of the FHA in its 80-year 
history, one which for years we were told would never happen. 
And just earlier this year, we were told, also, that it would 
be about half the size of what it is going to be in fact.
    So I am certainly troubled by what this says about the FHA. 
I am even more troubled now, I am really angered actually, 
about forcing the American people once again to come and rescue 
yet another failed government-backed housing agency.
    But on top of all that, what is even more alarming, in my 
opinion, is the FHA's pattern of underestimating your losses. 
Now, I can only see really two possible explanations for that: 
either FHA is really bad at assessing risk, which is basically 
what your core mission is; or that for years you knew what the 
real risks were and you were simply downplaying it each time 
FHA came to Congress.
    In a stress test conducted earlier this year, a test, I 
might add, the FHA basically tried to cover up, the Federal 
Reserve estimated that in a severe economic downturn, the FHA 
would need not $1.7 billion but $115 billion. And while we 
can't predict whether this will happen or not, it is clear the 
FHA does pose an enormous potential liability for taxpayers.
    One of the most important steps we as Congress could take 
would be to refocus FHA on its core mission of helping low- to 
moderate-income borrowers and first-time home buyers, and we do 
that with the PATH Act. How many times do we have to be burned 
before we learn that government guarantees don't make markets 
safer; they make them more dangerous?
    If you can't actually get someone at FHA to admit that this 
is a bailout, to use that forbidden word here in this town--it 
is only $1.7 billion, and I guess in some people's mind that is 
just pocket change. And on top of all this, we are supposed to 
believe that this is the only bailout that FHA is ever going to 
need. Of course, the Federal Reserve doesn't believe that, and 
neither do I.
    I yield back.
    Chairman Hensarling. The Chair now recognizes Ranking 
Member Waters for 4 minutes.
    Ms. Waters. Thank you, Mr. Chairman.
    Commissioner Galante, I am very pleased you have appeared 
before this committee today. I would like to applaud your work 
in managing the Federal Housing Administration, which has 
provided an affordable pathway to homeownership for hundreds of 
thousands of first-time and low-income home buyers.
    During the worst of the 2008 crisis, when the private 
sector virtually left the market, the Federal Housing 
Administration stepped up and provided the liquidity that kept 
our struggling housing market afloat. This is the 
countercyclical role of FHA as it has been throughout the 
course of its nearly 80-year history.
    Despite corrective action taken in recent years, the 
severity of the financial crisis weakened the help of FHA's 
Mutual Mortgage Insurance Fund. Recently, FHA announced a 
number of changes designed to shore up its finances. Since that 
time, FHA has raised premiums on multiple occasions, 
strengthened downpayment and credit requirements, enhanced 
underwriting, and increased enforcement measures. In addition, 
FHA recently issued mortgagee letters for the Home Equity 
Conversion Mortgage program to help stabilize the segment of 
FHA's business which has accounted for the majority of FHA's 
losses.
    As a result of these reforms, FHA's last two books for 
business, 2011 through 2012, have been the strongest in the 
Administration's history. Moreover, the 2013 book of business 
is estimated to continue that trend.
    Nevertheless, on September 30, 2013, FHA was required to 
take a mandatory appropriation of approximately $1.7 billion. 
Although this one-time transfer of funds from the Treasury is 
legally necessary, it is important to note that FHA is far from 
bankrupt. In fact, the FHA holds over $48 billion in cash on 
hand, and the agency continues to generate revenue.
    This mandatory appropriation is only required because FHA 
is bound by law to hold the revenue necessary to pay any 
potential claims over the next 30 years without taking into 
account future business. Moreover, the calculation used to 
determine whether a mandatory appropriation is required is 
completely outdated, based on assumptions about loan 
performance and recoveries made in December 2012. The number 
does not incorporate recent performance improvements or current 
economic factors.
    These significant changes are likely to have improved the 
underlying financial health of the Mutual Mortgage Insurance 
Fund. For instance, expectations of home price appreciation 
have improved significantly, and, in conjunction with rising 
home prices, FHA policy changes have boosted recoveries on 
foreclosures. HUD has implemented measures including a 10-
basis-point guarantee fee hike earlier this year and more 
aggressive pursuit of put-backs on delinquent loans to shore up 
the Mutual Mortgage Insurance Fund.
    Higher interest rates are likely to reflect positively on 
the fund as existing borrowers prepay more slowly and pay 
mortgage insurance premiums for longer periods. As a result, 
this accounting transfer does not reflect an up-to-date view of 
the Mutual Mortgage Insurance Fund's performance, its long-term 
fiscal health, or its current cash position.
    Above all, we must strive to have a healthy, viable FHA 
that continues to facilitate homeownership for first-time and 
low-income home buyers while standing ready in the unfortunate 
event of another housing downturn.
    I look forward to your testimony today.
    I yield back the balance of my time.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from West Virginia, the Chair of our Financial 
Institutions Subcommittee, Ms. Capito, for 1 minute.
    Mrs. Capito. Thank you, Mr. Chairman.
    And I want to thank our witness for being here with us 
today, and thank you for your service in the housing industry.
    I am very concerned about the bailout of $1.7 billion. I 
have been on the Housing Subcommittee for many years, and I 
have sat through the testimony of witness after witness saying 
that we would never reach this point. Even when red flags were 
raised that we were dipping below the 2 percent MMIF ratio, 
under questioning we were assured that with the housing market 
improving, the decrease in capital reserves, this would return 
to normal levels and we would never need a bailout. Yet, here 
we are.
    So I would say $1.7 billion may be an accounting move, but 
$1.7 billion, in my book, is $1.7 billion. And if we were told 
this would never happen, the question is, how did we get here?
    We would have been here last year had they not made an 
adjustment, and I would like to have you speak to that in your 
testimony. And so, here we are again this year.
    I yield back the time I do not have.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from Ohio, Ms. Beatty, for 2 minutes.
    Mrs. Beatty. Thank you, Chairman Hensarling, and Ranking 
Member Waters.
    And thank you to our witness for being here. Let me join my 
other colleagues in thanking you for all of the work that you 
have done in this industry. And I am looking forward to hearing 
your testimony and having the opportunity to pose a few 
questions.
    Let me be very brief in my remarks and say, certainly, as 
you and our audience today can imagine, there are two sides to 
every story. I have noticed the overemphasis on ``bailout'' 
today, but what I have not heard is all of the good things that 
have happened through your industry in providing low-income and 
affordable housing. Also, what the portfolio looks like today, 
and that those dollars that are being taken from the Treasury, 
I have had the absence of the word ``legal,'' that this is a 
legal way to expend those dollars.
    But let me say what I was most impressed with, as I looked 
through your testimony--and I am sure we are going to hear more 
about that today--is when you said the ultimate health of the 
portfolio is partially a function of the broader economic 
environment, causing me to be reminded of when the government 
shuts down, the default on Treasury's obligations are 
threatened, and the economy performs worse, and the MMIF 
suffers.
    So, hopefully, you will have the opportunity to tell the 
other side of the story and share with us the history, but more 
importantly, where we go from here.
    Thank you, and I yield back.
    Chairman Hensarling. The gentlelady yields back.
    Today, we welcome the testimony of Carol Galante, the 
Commissioner of the Federal Housing Administration and 
Assistant Secretary for Housing at the Department of Housing 
and Urban Development. Ms. Galante appeared on February 13th of 
this year, so I believe she needs no further introduction.
    Without objection, Ms. Galante's written statement will be 
made a part of the record.
    Ms. Galante, you are now recognized for your oral 
presentation. Thank you for being here.

  STATEMENT OF THE HONORABLE CAROL J. GALANTE, COMMISSIONER, 
  FEDERAL HOUSING ADMINISTRATION, AND ASSISTANT SECRETARY FOR 
   HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Ms. Galante. Chairman Hensarling, and Ranking Member 
Waters, thank you for the opportunity to testify today on the 
recent mandatory appropriation to the Mutual Mortgage Insurance 
Fund.
    First, I want to be clear that while we would have 
preferred to avoid the mandatory appropriation, these funds are 
not a bailout and they are not a failure of the FHA model. This 
accounting transfer is the result of a static assessment as 
part of the annual budget process, and it is based on September 
2012 portfolio characteristics using fall 2012 economic 
assumptions.
    This assessment determines the amount of reserves necessary 
to pay for up to 30 years of potential claims. Today, these 
assumptions are outdated, as demonstrated by the dramatic 
improvements in portfolio performance, including a 15 percent 
drop in delinquencies, a 91 percent drop in early payment 
defaults, a 20 percent reduction in foreclosure starts, and a 
30 percent improvement in recovery rates. These improvements 
cannot be captured by the reestimate calculation. And right 
now, FHA has $48 billion in liquid assets on hand.
    The housing market was crippled by the reckless practices 
of private actors, ultimately resulting in the worst recession 
this Nation has seen in over 70 years. The discussion we are 
having today would be very different were it not for the 
serious losses on legacy books from 2006 to early 2009.
    HUD has testified many times about the clear and 
significant impacts of those years on FHA, especially seller-
funded downpayments and HECM loans--programs that incurred 
serious projected losses because FHA lacked the authority to 
expeditiously make the changes necessary to prevent them. The 
seller-funded program accounts for $15 billion in expected 
losses to the fund, according to last year's independent 
actuarial report. And were it not for HECM losses, our capital 
reserve would have been positive by almost $3.5 billion.
    Throughout the crisis, FHA has played its dual role of 
ensuring access to credit while providing countercyclical 
support to the market, just as it was intended to do. And since 
2009, this Administration has taken aggressive steps to ensure 
the fiscal soundness of FHA. We have raised premiums 5 times, 
reversed the premium cancellation policy, tightened credit 
requirements, and made unprecedented efforts on enforcement 
actions.
    Many of these actions were made possible because of the 
support of Congress. I would especially like to thank 
Representatives Heck and Fitzpatrick for their work on the 
Reverse Mortgage Stabilization Act, making HECM safer for 
borrowers and taxpayers alike.
    To be clear, while these changes cannot erase the adverse 
impacts of the past origination practices or the considerable 
strain the recession placed on the fund, they are ensuring that 
future books are much stronger. We are on the right track. New 
books of business continue to perform well, and just 2 weeks 
ago the Congressional Budget Office clearly noted the 
significant profitability of the 2010 through 2012 portfolio.
    In addition to focusing on ensuring strong new books, we 
have executed on our commitment to reduce losses on past books, 
keeping families in their homes when possible, while protecting 
the fund. Improvements to our loss-mitigation waterfall, 
settlements with lenders, and expanded use of REO alternative 
programs are directly responsible for significant portfolio 
improvements I mentioned earlier. We estimate that the 
improvement and recovery rates alone are worth no less than $5 
billion, far exceeding the amount of the mandatory 
appropriation.
    Actions we have taken since the peak of the crisis also had 
the effect of reducing FHA's footprint. Endorsements have 
declined 27 percent since their peak in 2009.
    No one is more concerned than I am with ensuring FHA 
continues on a trajectory toward rebuilding our capital 
reserve. To be successful in the future, FHA needs the right 
tools and your support. Indemnification authority for all our 
lenders and improved authority to terminate origination and 
underwriting approval will allow us to better identify risks 
and avoid unnecessary losses. Authority when the fund is at 
risk to quickly revise requirements via mortgagee letter while 
rulemaking is under way will improve FHA's ability to respond 
to new risks or urgent needs. Giving FHA more control over its 
resources both administratively and legislatively, such as use 
of the FIRREA wage scale or procurement flexibility, would also 
help.
    I look forward to working with Congress to give FHA the 
additional tools it needs to better protect the housing market 
against another crisis and to make the dream of homeownership a 
reality for generations to come.
    Mr. Chairman, thank you for this opportunity, and I am 
happy to answer questions.
    [The prepared statement of Commissioner Galante can be 
found on page 52 of the appendix.]
    Chairman Hensarling. I thank you, Ms. Galante.
    The Chair recognizes himself for 5 minutes for questions.
    Ms. Galante, I ascribe no malevolent intent to you or your 
predecessors. I have no doubt that you and your staff work very 
hard. But in listening to your testimony, I am reminded of that 
famous line from a Marx Brothers film, ``Who are you going to 
believe, me or your own eyes?''
    And so what I hear from you is, frankly, what I have heard 
from you and your predecessor and the Secretary for many years, 
that all is well. And what I see with my own eyes is a 
Congressional Budget Office report that shows a $60 billion 
swing from what was supposed to be a $15 billion savings 
instead--a $45 billion savings has instead turned into a $15 
billion cost. What I see with my own eyes is a GAO report--
congratulations, FHA has now been added to the high-risk 
series. What I see with my own eyes is your letter, dated 
September 27th.
    I notice that you and many of my colleagues on the other 
side of the aisle use the phrase ``required, mandatory 
appropriation.'' That might be the phrase in Washington. The 
phrase on Main Street is ``bailout.'' And what I have known is 
either you, your predecessor, or the Secretary have been so 
wrong for so long, whether it had to do with the value of the 
MMIF, whether it had to do with your capital ratios, whether it 
had to do with the need for a bailout, and then when you 
finally acknowledged you needed one, it turned out to be almost 
twice the size.
    So, with all due respect, Ms. Galante, why is the testimony 
credible today?
    And I particularly find it quite poignant that in your 
written testimony, one of the last lines you have is, ``FHA 
continues to be a reliable steward of taxpayer dollars.''
    What is different today than all that we have heard for the 
last 4 years of this Administration?
    Ms. Galante. Mr. Chairman, let me be clear. If you look at 
the testimony chart on page 2, which is based on the CBO report 
that just came out a couple of weeks ago, what we did was we 
added to that chart the 2013 receipts. And we broke down this 
chart to show you the changes in the economic value of the fund 
by year based on the actuarial reports, based on the budget 
reestimates.
    This happens every year. There is a--
    Chairman Hensarling. That is kind of the point, Ms. 
Galante, because we have seen these charts before. We have seen 
them for 4 years, and for 4 years, they have been wrong.
    So, again, what is different today? Why should this 
committee believe the testimony today, when it hasn't been 
credible for 4 years running?
    Ms. Galante. Again, Mr. Chairman, since I have been here, 
since the Secretary has been here, what we have reported on are 
the results of an independent actuary, the results of annual 
budget reestimates that are done as part of the 
Administration's budget.
    And the point I want to make here is that in the years in 
which this country was hit by the worst recession in 70 years, 
our portfolio took a significant hit.
    Chairman Hensarling. And I understand that, Ms.--
    Ms. Galante. There is no doubt about that.
    Chairman Hensarling. --Galante. But, again, the housing 
crash came in 2007. It is almost 2014.
    You would acknowledge that for the entire time this 
Administration has been in office, that FHA has failed to meet 
its legal standard of maintaining a 2 percent capital ratio, 
correct?
    Ms. Galante. We have been under the 2 percent.
    Chairman Hensarling. Even though the law says ``shall,'' 
not ``may,'' not ``might,'' not ``could,'' but ``shall.''
    Given that previous predictions, again, have proven so 
wrong for so long--for 4 years running, you have been in 
violation of the law--has anybody in your agency been held 
accountable for this? Has anybody been fired? Has anybody been 
reassigned? Has anybody had a reprimand? What is the level of 
accountability at FHA for these actions?
    Ms. Galante. Mr. Chairman, the 2 percent capital ratio is a 
requirement. We have worked very hard over these 4 years, as I 
have talked about, increasing premiums, changing policies, 
changing credit standards, to work our way past--
    Chairman Hensarling. But did you fully utilize those tools 
to bring your capital ratio up to 2 percent? So maybe the trend 
line could have been in the right direction, but didn't have 
you tools available to you that you could have used further?
    Ms. Galante. Let's be clear. We didn't even have the 
ability to raise premiums until 2010. We had to come back to 
Congress to get the authority to increase premiums. So we have 
used our--
    Chairman Hensarling. My time has expired. So was anybody 
held accountable, yes or no?
    My time has expired. The Chair now recognizes the ranking 
member for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Ms. Galante, again, I appreciate your being here today. And 
I appreciate the fact that FHA has been successful in its 
mission. I appreciate all of the changes that have been made. 
But I appreciate, more than anything else, that FHA was there 
for the citizens of this country who needed them when nobody 
else was.
    And so, would you go over with us what you cited in your 
testimony about the success and the improvements of FHA?
    Ms. Galante. Certainly.
    As I mentioned in my testimony, we have focused on 
tightening the credit box so future loans that we insure are 
the best that they can be. We have increased costs on borrowers 
significantly. And, in fact, there is some concern that is 
restricting access to credit moving forward. But we have been 
balancing that with ensuring that the fund is rebuilt and the 
capital reserves are rebuilt as quickly as possible given 
economic circumstances.
    The last thing I would--
    Ms. Waters. What have those actions resulted in? What kind 
of success have those actions resulted in?
    Ms. Galante. The biggest success is, this past year, we 
have spent significant effort on the existing portfolio and 
reworking the loss-mitigation waterfall to enable more people 
to stay in their home. We have done alternative disposition of 
our REO assets that have significantly improved--the percentage 
is 30 percent improvement in our recovery rate on our defaulted 
loans. That is a success.
    Ms. Waters. That certainly is.
    And would you one more time explain for the chairman of 
this committee, who does not seem to understand, the 2 percent 
requirement and why you had to get that appropriation and the 
fact that FHA is not broke? Would you explain that so the 
committee understands that very well?
    Ms. Galante. Yes. Let me make two points.
    First of all, the requirements for the mandatory 
appropriation, where we had a budget reestimate to pay for 30 
years' worth of potential claims, we were just a little bit 
short of that total requirement.
    And to get to the point of what is the difference between 
the 1.7, this is a static estimate. The 22.4 requirement on the 
reestimate was static; it doesn't change. The only thing that 
makes a difference during this fiscal year of whether we were 
going to meet that reestimate was how much revenue we were 
bringing into the FHA in 2013. And we brought in $17 billion 
worth of revenue. It was just shy of what was needed to fill 
that reserve up.
    Ms. Waters. We may not have time to discuss it today, but I 
have always been concerned about the 30-year requirement. And 
it seems to me, if we were doing our work here in the Congress, 
we would take a look at that and try and understand whether or 
not that makes good sense, whether or not it is realistic, or 
whether or not we should update and take a look at that.
    Again, would you explain to this committee how it is you 
have to have, or you are mandated to take an appropriation when 
you have, what, $48 billion?
    Ms. Galante. That is correct. This is required as part of 
the Federal budgeting process and as part of Federal credit 
reform so that--think about this. You have to take money from 
your savings account to put it in your checking account so that 
it is there, available to pay your 5-year-old child's college 
tuition 10 or 15 years down the road. That is what we are 
required to do.
    Ms. Waters. Let me just say that my chairman here, Mr. 
Hensarling, has talked about the need for somebody to be fired. 
He questioned you about who you have fired, who your 
predecessors fired. And let me just say to you that his eyes, 
as he described, are seeing things; my eyes see things 
differently.
    And I think if anybody needs to be brought to task, it is 
perhaps the Congress of the United States and this committee 
for not doing its oversight responsibility in updating, first 
of all, the 30-year requirement and having an appreciation for 
how you have provided a safety net when everybody else refused 
to participate in the housing market.
    Thank you, and I yield back the balance of my time.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Texas, Mr. Neugebauer, the chairman of the Housing and 
Insurance Subcommittee, for 5 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    I want to make a couple of points.
    One is I agree with the ranking member, in the sense that 
we need to change this antiquated accounting system that we are 
using at FHA. And I would ask her to join me in supporting the 
PATH Act, where we go to GAAP accounting, which is what the 
rest of the world has to use. And those numbers would be more 
negative, in the sense that if you used GAAP accounting, it is 
estimated that FHA would have a negative $26 billion net worth.
    Ms. Galante, I want to point you up there to the chart, and 
it is maybe hard to read, but the dotted lines are previous 
years where FHA has predicted what their progress would be. 
And, as you can see, the red line at the top is at the 2 
percent mandatory requirement for reserve, and the blue line, 
as you can see, is the actual reserve ratio.
    So the question is--and back to, I think, what Chairman 
Hensarling was saying--is why would we sit here--as we listen 
to your testimony today, we have heard similar testimony in 
previous years where the projections are as we see up there, 
but yet what the actual results are are far from that. I think 
it is like going to a doctor and your health continues to 
deteriorate but the doctor tells you you are just fine. Would 
you continue to go to a doctor who told you you were just fine 
if your health continued to deteriorate?
    Ms. Galante. Let me just answer that by saying, the 
actuarial projections are based on economic conditions. If 
economic conditions worsen, if house prices don't go up as much 
as they project, things like that--this recession lasted 
longer, was deeper, was more harmful for families than the 
independent actuary--these aren't our estimates--than the 
independent actuary projected, in the first actuary, for 
example.
    So, yes, these numbers are affected by external events, the 
external events of the shutdown, for example, and those kinds 
of activities affect the economy, affected the economy by $24 
billion, according to Standard & Poor's. If it has an effect on 
the housing market moving forward, that will affect FHA 
negatively. We are very subject to the overall economic 
conditions--
    Mr. Neugebauer. Yes, but--
    Ms. Galante. --and how well the portfolio performs.
    Mr. Neugebauer. --the bottom line, Ms. Galante, is you are 
not currently in compliance with the 2 percent reserve. Is that 
correct?
    Ms. Galante. That is correct, but, again--
    Mr. Neugebauer. Yes.
    Ms. Galante. --this is--the accountability for that--
    Mr. Neugebauer. That was a yes-or-no question. Thank you.
    So, as the chairman said, when you look at the National 
Housing Act, it states that the FHA shall--not may or could or 
should--at all times maintain a 2 percent capital ratio. So, in 
effect, the FHA is not in compliance with the law. Is that 
correct?
    Ms. Galante. That has been reported for the--
    Mr. Neugebauer. No--
    Ms. Galante. --number of years. In our financial 
statements--
    Mr. Neugebauer. --it has been reported.
    Ms. Galante. --we report that compliance.
    Mr. Neugebauer. What is your position? Do you believe that 
you are in compliance with the law?
    Ms. Galante. Again, it is reported that we are not in 
compliance with that particular aspect.
    Mr. Neugebauer. It has been reported, but you are the 
Director of FHA, so I just want you to tell me ``yes'' or 
``no,'' yes, I am in compliance, or, no, I am not in compliance 
with the law.
    Ms. Galante. Again, I think I have answered that question. 
According to--
    Mr. Neugebauer. I didn't understand the response, so--
    Ms. Galante. As a compliance item in our audit, it is 
reported.
    Mr. Neugebauer. It is a yes-or-no question. Yes, you are in 
compliance, or no, you are not.
    Ms. Galante. Again, our report says we are not in 
compliance with that.
    Mr. Neugebauer. Okay. Thank you.
    And so I think the question is, then, if you are not in 
compliance and your projections have not materialized, are you 
doing the right things to get that reserve ratio back to where 
you are not in violation of the law?
    Ms. Galante. So--
    Mr. Neugebauer. Now, you are doing some things, but the 
question is--if you were a private company, you wouldn't even 
be allowed to continue doing business, because in many States 
that regulate private mortgage--or mortgage insurance 
companies, once they get below a certain level, they aren't 
allowed to continue to write insurance.
    And so, what actions--and how can we hold you accountable 
to getting that ratio back so that we are in compliance with 
the law?
    Ms. Galante. We have taken very aggressive action over 
these past 5 years. And--we can repeat them again. But we have 
more than doubled our mortgage insurance premiums, to the point 
where I think anybody would see that continuing to increase the 
mortgage insurance premiums would have a difficult time for new 
borrowers essentially paying for these legacy loans of the 
past.
    We have increased those premiums to the amount that we 
believe we can without totally destroying access to credit in 
this country. So, we have been taking very aggressive action.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlewoman from New York, Ms. 
Maloney, for 5 minutes.
    Mrs. Maloney. Thank you. Thank you, Mr. Chairman, and thank 
you, Ranking Member Waters, for this hearing.
    And as my fellow New Yorker, former Senator Patrick 
Moynihan, used to say, everyone is entitled to their own 
opinion but not their own facts. And the facts are that the FHA 
has succeeded in continuing to meet its mission, to strengthen 
the insurance fund, and to reduce its role as the housing 
market continues to recover. So I want to compliment you, 
Commissioner, and your staff for your hard work.
    I want to point out that there were expected losses 
associated with the worst years of the housing crisis, and the 
crisis hit housing harder than any other sector in our economy. 
And while a $1.68 billion mandatory appropriation was recently 
requested by FHA to ensure that at the end of Fiscal Year 2013, 
the Mutual Mortgage Insurance Fund has sufficient funds in the 
capital reserve account to pay for all of its expected future 
losses, these accounting projections are based on data from the 
fall of 2012.
    And this request is not a bailout, as the Commissioner 
pointed out, and is not a reflection of the FHA's ability to 
pay claims on outstanding loans insured by the insurance fund. 
Rather, the mandatory appropriation is a reflection of old 
information, not the realtime performance of the fund. And the 
improvements and recoveries alone are worth at least $5 
billion, a value that is much higher than the required transfer 
of $1.7 billion.
    Now, the chairman wanted to know if anybody had been fired. 
Well, they weren't fired, but they were certainly furloughed. 
And despite the government shutdown, which forced the FHA to 
operate with a skeleton staff of 64 people out of a total of 
3,000, they continued to perform services for the American 
public. And this was, of course, in addition to the sequester 
cuts, which resulted in 100 percent of FHA employees taking a 
mandatory cut that--and, I would say, an undeserved pay cut, 
compliments to the majority party.
    And, in any event, I would like to ask you, Commissioner, 
about the role, the very positive role, that the ranking member 
pointed out of the countercyclical role that FHA plays in times 
of crisis.
    Now, the charts I looked at is you were this part, and then 
because no one else would do it you went up and helped the 
American people.
    And I would like to put in the record a statement by Mark 
Zandi, an independent economist from Moody's--
    Chairman Hensarling. Without objection, it is so ordered.
    Mrs. Maloney. --which noted that the role of the FHA--
absent the role of the FHA, according to Moody's, the average 
price of a home would have declined an additional 25 percent.
    So I think I would like to thank the FHA for helping to 
preserve housing prices and for coming in and meeting a role 
when the private sector wasn't there and now retreating as 
others are willing to come forward.
    Could you elaborate on the countercyclical role that FHA 
plays in times of crisis, such as the one we just lived 
through?
    Ms. Galante. Yes. Thank you.
    The FHA has helped, since the start of this Administration, 
7 million people become homeowners. The FHA has been 
particularly important to African-American and Hispanic home 
buyers and people with credit scores, for example, that are 
lower than the norm or lower than the private market on its own 
would help. So those credit scores, or those populations had a 
much deeper challenge getting financing during this recession, 
and the FHA was there for those borrowers. It was there for a 
broader group of borrowers who in good times don't need the 
FHA.
    Mrs. Maloney. So I would say that FHA continues to 
accomplish its mission, when it was the same mission that it 
had in 1934, which is facilitating access to sustainable 
mortgage finance, particularly for underserved minority 
communities and borrowers, and being a critical countercyclical 
force on mortgage lending during times of crisis that we just 
lived through.
    Now, if the FHA goes ahead--excuse me, if the FHFA goes 
ahead with its plan to lower the loan limit for Fannie and 
Freddie on its own, without even considering any input from 
Congress, will that force FHA to lower its loan limit, as well, 
to maintain consistency?
    Ms. Galante. Let me just say that, first of all, FHA's loan 
limits will change on January 1st because the special 
legislation for FHA higher loan limits expires on January 1st 
of this year.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from New Jersey, the 
chairman of our Capital Markets and GSE Subcommittee, Mr. 
Garrett, for 5 minutes.
    Mr. Garrett. Again, thank you, Mr. Chairman.
    I think the phrase, ``so wrong for so long,'' will be the 
takeaway from today's hearing. For so long, the FHA has come to 
this committee and has given us wrong information time and time 
again.
    Now, I know the chairman started out with a Marx Brothers 
reference. I will start out with a familiar Einstein reference, 
which is, ``The definition of insanity is doing the same thing 
over and over again and expecting different results.'' And I 
think perhaps that is what we have been hearing from the FHA 
and this Administration for the last number of years, coming 
with positive charts, promises that things are getting better. 
To use your own words, ``We are on the right track.'' I believe 
I have heard those words or similar words year after year after 
year after year after year from this Administration. The track 
is getting pretty short, and now I guess it has gotten to the 
point where it needs a bailout--oh, I'm sorry, not a bailout 
but an accounting irregularity.
    So, first of all, do you believe that the FHA, you and your 
predecessors, have been honest with Congress and the American 
people over the last 5 years?
    Ms. Galante. Yes, I absolutely believe we have been honest. 
We have reported on independent reports, and we have tracked 
the portfolio performance, and we have reported on all those 
activities.
    Mr. Garrett. With regard to those tracks, one of them was 
your estimates of the worst-case scenario. What are your 
estimates, your agency's estimates of the worst-case scenario 
as far as losses?
    Ms. Galante. I don't have those numbers in front of me, but 
I would say--are you talking about in the actuarial report?
    Mr. Garrett. The actuarial study, yes.
    Ms. Galante. In the actuarial study last year, we looked at 
the 95th percent worst path, and I think the negative value is 
somewhere around $65 billion.
    Mr. Garrett. Right. But you are familiar with the Fed's 
study, correct?
    Ms. Galante. I am familiar with a draft of a chart that was 
in an early actuarial, yes.
    Mr. Garrett. You never saw the final Fed results?
    Ms. Galante. The only thing I ever received was a draft of 
a chart.
    Mr. Garrett. So if I told you that their number was not 60-
something, it was 115 billion, that would be new information to 
you?
    Ms. Galante. No. That was in the chart.
    Mr. Garrett. Okay. So why are they so wrong and you are so 
right, with their projections?
    Ms. Galante. Again, it is not whether they are right or 
wrong. It is that the determination was made by the actuarial 
that was not an appropriate stress test. We were already 
doing--the actuarial was already providing 99th or 95th 
percentile worst potential activity, and a Fed stress test is 
meant for a totally different purpose.
    Mr. Garrett. It was reported in The Wall Street Journal 
earlier this year that a senior FHA official said that while 
the agency was familiar with the Fed study, they still wanted 
to present the results of the Fed stress to other government 
agencies but not to the American public.
    I quote from the article: ``We--this is from your agency, 
the FHA--just do not want the analysis to be in the actuarial 
review report.'' And, ``In congressional hearings, it is quite 
possible that we will be required to present this information 
on the record, but that will be well after the actuarial review 
is released and the initial media coverage takes place.''
    It sounds as though the information was available to this 
Administration, but you wanted to wait until after you came to 
Congress, made your presentation here, and the media covered 
it, to present the information. It sounds as though you were, 
in a positive sense, putting a spin on it, or in a worse case, 
trying to cover it up.
    Why do you think that the American public should have any 
confidence after such reports come out?
    Ms. Galante. Let me say a couple of things.
    First of all, that Wall Street Journal report was reporting 
on a congressional oversight by Congressman Issa's committee. 
That is ongoing.
    I just want to say that the actuarial report is an 
independent report. The actuary determines what information 
goes in there. Stress tests aren't even required as part of 
actuarial reports. In conversations between the actuary and our 
staff--
    Mr. Garrett. That is actually not what is reported. Emails 
from the FHA indicated that the FHA did not want the bleaker 
forecast, as they put it, included in your own report. And it 
was the FHA that was withholding that information, and 
preventing it from going into the report.
    So your testimony right now contradicts what came out 
earlier, saying that the FHA knew that the Fed's report was not 
good and was directing that your own actuaries would not take 
the bleaker presentation.
    Ms. Galante. To be--
    Mr. Garrett. Is that not true?
    Ms. Galante. --clear, Congressman, I can't comment on what 
other people's emails--
    Mr. Garrett. They work for you, do they not? Have you 
looked into this?
    Ms. Galante. Just to be clear, I am not going to comment on 
somebody else's email in a group of emails that have been 
turned over to the investigative committee.
    Mr. Garrett. Can I just ask the Chair to--I know at the end 
of the hearing we are able to ask for additional questions in 
writing to the witness--ask her, at this point, to provide 
information in writing after the hearing?
    Chairman Hensarling. Certainly.
    Mr. Garrett. Thank you.
    Chairman Hensarling. Without objection, it is so ordered.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks, for 5 minutes.
    Mr. Meeks. Thank you, Mr. Chairman.
    I just don't understand how my colleagues on the other 
side--if anything, FHA should be given praise and a thank you. 
Because this market, this housing market, but for FHA, would 
have really destroyed this country.
    We forget sometimes that it wasn't this Administration, it 
was the prior Administration that drove us into the worst 
recession since the Great Depression, not this Administration. 
And much of that time is when they were in charge. They had the 
White House, they had the Senate, and they had the House. And 
they drove this country down to where it was. It took a new 
Administration to bring us to a different path, where we are 
now recovering.
    Now, unfortunately, when we have this Great Recession, the 
FHA, which came into existence after the Great Depression to 
help preserve the market--isn't that the original reason why 
the FHA was created?
    Ms. Galante. It is, yes.
    Mr. Meeks. And so now, we have the same situation. The 
Great Recession, since the Great Depression, so we had to 
depend again, as we did going back into the 1930s, on the FHA 
to help save this country. How did you do it? Because you have 
two parts, you are supposed to facilitate, access sustainable 
mortgage financing, particularly for underserved borrowers, and 
act as a stabilizing countercyclical force during times of 
crisis of uncertainty. We had times of crisis and uncertainty. 
By its very nature, therefore, a countercyclical agency that is 
asked to take on more volume, which you did, and more risk 
doing during an economic crisis, will obviously also experience 
cyclical ups and downs in its own financial strength. Wouldn't 
that be correct?
    Ms. Galante. Yes.
    Mr. Meeks. And therefore, isn't it also the very nature of 
a countercyclical institution and why we need them in the first 
place, because that is what you were created for. You did your 
job, the thing that you were created for, isn't that exactly 
what you did?
    Ms. Galante. Yes, sir. Thank you.
    Mr. Meeks. And let me ask this, let's just think about 
this: 40 percent of all first-time home buyers, 50 percent of 
all African-American and Latino home buyers. So if we were to 
do a little cost-benefit analysis, if you will, and assume for 
a moment, even you, this is what it wasn't--but you can assume 
for a moment that you are going to use the term ``bailout'' as 
my Republican friends would like to call it. Even if you use 
that definition, how would you rate the return on investment 
our Nation has benefited for having 40 million of Americans 
able to own their own home, and millions more benefiting from 
affordable, long-term, fixed mortgage rates, are the taxpayers 
getting a reasonable return on their investment, would you say 
that?
    Ms. Galante. Yes.
    Mr. Meeks. And let me also ask, therefore, since we are 
moving in the right direction, and since we are seeing that we 
are starting to move and get past this financial crisis, we are 
doing certain things and the economy is picking up, now, can 
you just tell us what the FHA has been moving and doing certain 
things to increase dollars therein, the model that you have 
since 2009 to ensure that the FHA emerges from this worst 
recession since the Great Depression as a stronger, more 
resilient organization? Can you tell us what is happening 
there?
    Ms. Galante. Yes, we have, with your help, made changes to 
the reverse mortgage program, and frankly, without which, we 
still would have been, even after all of the stress that the 
fund has been under, we would have been in positive territory, 
and not have needed a mandatory appropriation, so we are making 
changes to that program to ensure that going forward, it 
continues to help keep the FHA healthy.
    And as I mentioned earlier, we have been doing everything 
possible to increase recovery on that legacy portfolio loans, 
so that, again, we are bringing in more money on those 
properties to the fund, to get the fund back up as quickly as 
possible.
    We continue investigations and enforcements against lenders 
who brought us fraudulent loans, particularly during this 
crisis when a lot was coming our way, and we could use more 
help on that front from Congress in terms of additional 
authorities.
    Mr. Meeks. With my last 15 seconds, on behalf of the 40 
million first-time homeowners, on behalf of the at least 50 
percent of all African-American and Latino home buyers, we 
thank the FHA for what you do. On behalf of the American people 
for helping keep the market, the housing market strong, we 
thank you for what you do.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from North Carolina, the 
chairman of our Oversight and Investigations Subcommittee, Mr. 
McHenry, for 5 minutes.
    Mr. McHenry. Thank you for being here today and for your 
testimony, and this question about being a countercyclical 
force, you talk about legacy loans that you are dealing with 
now as impacting your fund balance. Now, what years are we 
talking about in particular?
    Ms. Galante. If you look at the chart on page 2 of our 
testimony, it is very small in--
    Mr. McHenry. What years?
    Ms. Galante. 2001 through 2009.
    Mr. McHenry. Okay, so at that period of time, there was a 3 
percent downpayment, no minimum credit scores, and a lack of 
risk-based pricing, is that correct?
    Ms. Galante. I am not trying to herd all three of those, 
but yes.
    Mr. McHenry. Okay, and what is different now?
    Ms. Galante. So what is different now--
    Mr. McHenry. Do you still have a 3 percent downpayment 
requirement?
    Ms. Galante. A 3.5 percent downpayment requirement--
    Mr. McHenry. Okay, so that is similar.
    Ms. Galante. --and 10 percent if you are under a 580 FICO 
score.
    Mr. McHenry. Okay, but under 580. So you are making loans 
to those with FICO scores under 580?
    Ms. Galante. Today, no. Let me just be clear.
    Mr. McHenry. None?
    Ms. Galante. Virtually none.
    Mr. McHenry. Virtually none, or none?
    Ms. Galante. Let me just--this is a really important point. 
If you look at the changes we have made in our credit policies, 
not just downpayments, but overall credit policies and the 
tightening that we have done, a large percentage, 30, 40 
percent of our portfolio in the past was lower FICO band 
scores, and I don't believe a person is--
    Mr. McHenry. So what is the cutoff for FICO scores?
    Ms. Galante. Today, that is not true.
    Mr. McHenry. My time is limited.
    Ms. Galante. Our average FICO score today is--
    Mr. McHenry. Not average, what is the cutoff? If I have a 
550 FICO score, can I get an FHA loan, yes or no?
    Ms. Galante. Yes, only if you meet the lender underwriting 
and--
    Mr. McHenry. Yes, so why is that called subprime?
    Ms. Galante. --compensating factors.
    Mr. McHenry. No, I'm asking a question, and now I am 
following up with this question, and I would appreciate you 
answering it.
    Ms. Galante. Yes.
    Mr. McHenry. So if I have a 550 FICO score, that is 
considered subprime, right?
    Ms. Galante. Again, you would be required to have a 10 
percent downpayment.
    Mr. McHenry. I understand, but I am asking a different 
question than you are, in fact, answering, and my time is 
limited, so if I have a 550 FICO score, that is subprime. It is 
certainly not a prime mortgage.
    Ms. Galante. You can't just take a FICO score and say that 
is subprime. You have to look at the full--
    Mr. McHenry. Under under Qualified Residential Mortgage 
(QRM) and the Qualified Mortgage requirements, that would not 
be permissible and not within the box. So let me get to the 
point here. If we are talking about FHA as a countercyclical 
force, what, in fact, we saw in the early part of the 2000s, 
and leading up to the crisis, was FHA following the market as--
and racing to the bottom in terms of underwriting standards.
    Ms. Galante. No, that is absolutely not correct.
    Mr. McHenry. Pardon me?
    Ms. Galante. That is absolutely not correct.
    Mr. McHenry. Okay, I ask unanimous consent to offer a 
Washington Post editorial from July 3rd of this year, going 
through the very provisions that I am outlining.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. McHenry. Okay. So can you explain to me, in March of 
last year you testified before the Senate Appropriations 
Committee. You said, ``Thanks to our efforts since taking 
office, I can say that the long-term outlook of FHA and the 
MMIF are now much better than they were in 2009.''
    In 2009, the MMIF capital ratio was .53 percent, today it 
is negative 1.44 percent, and you are drawing over $1.5 billion 
from the taxpayers. So do you still stand by your statement 
that FHA's outlook is improving?
    Ms. Galante. I do believe it is improving. Look at each 
book of business that we have done.
    Mr. McHenry. Improving?
    Ms. Galante. 2010, 2011, 2012.
    Mr. McHenry. So you are saying you are in better shape now 
than you were in March of 2012?
    Ms. Galante. I am not saying we are in better shape. I am 
saying we are rebuilding our trajectory. Again, I want to go 
back to, these are based on economic changes in the 
environment.
    Mr. McHenry. So is the housing market worse today than it 
was in March of 2012?
    Ms. Galante. No.
    Mr. McHenry. No, it certainly is not. So let me go to 
another question here. In February of this year when you 
testified before this committee, you expected a capital reserve 
of $8 billion by the end of 2013. Do you still expect that?
    Ms. Galante. Again, we will have a new actuarial coming 
out. It would have been mid-December--mid-November, but given 
the shutdown, it will be--
    Mr. McHenry. Sure. We are sitting at the end of October.
    Ms. Galante. Yes.
    Mr. McHenry. And let me just take a gander, just take sort 
of a guess, if you will, or take a look over the horizon. Do 
you think you will be close to that $8 billion you projected in 
February?
    Ms. Galante. I am not going to make an estimate, sir.
    Mr. McHenry. Thank you.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair will now recognize the gentleman from Massachusetts, 
Mr. Capuano, for 5 minutes.
    Mr. Capuano. Thank you, Mr. Chairman, and thank you, Madam 
Chair, for being here. I'm sorry, I am feeling a little bit 
under the weather. I am a little cloudy, but haven't we done 
this hearing about 42 times this year? It seems like deja vu 
all over again. And I am just wondering--I know the numbers 
have changed a little bit because numbers change, but am I 
wrong to think, the last I heard you have about $48 billion in 
liquid assets at the FHA? Is that a right number or close to 
it?
    Ms. Galante. That is correct.
    Mr. Capuano. Is there anybody in their right mind who 
believes that absent unforeseen circumstances, but with the 
current market, you would utilize that entire $48 billion in 
the coming fiscal year?
    Ms. Galante. Not that I know of.
    Mr. Capuano. Not that I know of, either. So you have $48 
billion sitting in the bank. And because of some stupid Federal 
law, you have been required to access taxpayer money. By the 
way, are you familiar with H.R. 1028, the End Unnecessary 
Borrowing Act of 2013?
    Ms. Galante. I have seen it, yes, sir.
    Mr. Capuano. Do you think that is a good idea? You don't 
have to say anything--
    Ms. Galante. If you--
    Mr. Capuano. --because I know you do. That Act would stop 
this stupid borrowing and get us off of this treadmill. If you 
were in trouble, I would be happy to jump on you, pound you 
pretty good. You have $48 billion in the bank and you don't 
think you are going to have to use it, and yet, we are having 
another hearing today.
    Friends of mine just bought a $200,000 condo. They put 
$50,000 down. That is pretty good, right? They had to borrow 
$150,000. They have an auto loan, they have some credit cards. 
They owe about $175,000, and they have about $10,000 in the 
bank. Oh, my God, they are $165,000 of negative net worth. Call 
the police. Everybody I know has negative net worth, except a 
few people on the other side, apparently. But if they still get 
loans and things go on, there is no Federal law that I know of 
that would require my friends to make another borrowing simply 
to have money there in case--do you know of any Federal law 
that would require my condo owners to do that?
    Ms. Galante. I do not.
    Mr. Capuano. Yet we have one for you. Is there any other 
agency in the Federal Government or State government that you 
know of that has $48 billion sitting in the bank, that they 
probably won't use, but is required to access the Treasury?
    Ms. Galante. I can't speak to other State agencies.
    Mr. Capuano. I knew I was not feeling well when I got here. 
I am feeling worse now. I just wanted to--I am looking forward 
to the next seven hearings we have on this exact same issue, 
with the exact same answers, that we don't need to borrow this. 
Why don't we just pass H.R. 1028 to stop stupid requirements of 
stupid borrowing that no one needs? But we won't do that 
because it is too simple; it avoids us having these hearings to 
pretend to beat up on people who are doing their job exactly as 
required and that don't need to access Federal taxpayers.
    For the first time in my life, I will actually give back 
the time that I have unused because I can't think of anything 
else that would add any light to this hearing that we haven't 
already said. With that, Mr. Chairman, I yield back the 
remainder of my time.
    Chairman Hensarling. The gentleman yields back. The Chair 
recognizes the gentleman from Missouri, Mr. Luetkemeyer, for 5 
minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. Over the opening 
remarks and some of the things that have been said recently 
with regards to bailouts, I really can't let slide the comments 
about this being simply an accounting entry. I just--this is 
not voodoo bookkeeping here. The comments have been made and 
the testimony has been given many times from Members on both 
sides of the aisle here that there is a $1.7 billion transfer 
of money. That is not an accounting entry. That is a transfer 
of taxpayer dollars to the tune of $1.7 billion. And to 
paraphrase here, if it looks like a bailout, by definition it 
is a bailout. Because what are we doing here? We are paying 
losses and recapitalizing the FHA.
    What did we do in 2008 with all of the banks and the 
financial institutions, and what have you? We paid losses and 
recapitalized their accounts, their institutions. So for us to 
sit here and argue semantics over whether it is a bailout or an 
accounting entry I think is a red herring and really denigrates 
our discussion today.
    Let me move on. I am kind of curious. You made a comment a 
while ago--and the discussion was had--that you make your 
decisions within FHA based on the economic conditions of how 
you adjust your criteria on whether you make loans, on who you 
make them to, and that sort of stuff. Over the last couple of 
weeks here, we have had some discouraging news with regards to 
the number of home housing starts, unemployment stabilized at 
where we are at, but the number of new jobs being created 
actually is probably a little bit less than what it takes to 
maintain our folks with where they are.
    At the beginning of the year, we are going to have a QM 
rule coming out, a QRM rule that is going to be, I believe, 
devastating to the home lending market because of the 
requirements that are in it. And as a result, I am kind of 
curious, what is FHA doing to prepare itself for these things 
that are coming here? If we have a little downturn in the 
economy, are you ready? Do you have any ideas, some plans that 
you are going to put in place to protect taxpayers dollars so 
we don't go back and have to have another $1.7 billion next 
year? And what are your concerns about the QM, QRM rule coming 
here at the beginning of the year with regards to mortgage 
lending?
    Ms. Galante. Let me make a couple of comments. First of 
all, we are not trying to deal with semantics on this 
accounting transfer.
    Mr. Luetkemeyer. I realize you are not, but there are a lot 
of folks who were.
    Ms. Galante. What I want to make clear here is the 
difference between what FHA is doing, and what happened to 
private financial institutions who were making private gains 
and then the government had to come in to ``bail them out.'' 
That is very different than the fact that FHA, every piece of 
revenue, every dollar that we earn, goes back into the Federal 
Treasury.
    Mr. Luetkemeyer. Ma'am, where do you think the money from 
the private sector goes? By definition, when you paid losses 
and recapitalize a business or an institution, that is exactly 
what we are doing right here.
    Ms. Galante. Again, we are transferring dollars--
    Mr. Luetkemeyer. You are arguing over semantics as well.
    Ms. Galante. --so that we have in reserves enough to pay 
our costs. All of our money goes back to the Treasury. I get 
paid the same amount of money, which isn't much, regardless of 
how much money we generate for the Federal Government, and to 
the CBO chart if you add in 2013--
    Mr. Luetkemeyer. Okay, I am running out of time. Please 
answer my other questions if you would, because we are arguing 
semantics here. Can you answer my other questions? Are you 
being prepared, are you looking at a possible downturn and what 
are you doing to prevent that? And what are your thoughts on 
QM?
    Ms. Galante. Again, I don't control what happens in the 
economy. I really hope we don't have another downturn, but we 
are--
    Mr. Luetkemeyer. Ma'am, you just testified that you look 
at, from the economic projections and make changes and 
adjustments to your program. I am asking, what are you doing?
    Ms. Galante. Let me clarify. The economic projections are 
used to value the existing portfolio. What we look at in terms 
of our underwriting criteria is, what do we need to do pricing-
wise, credit-wise to ensure that we are pricing our risk 
appropriately and taking the right risks? And we have done--I 
have listed those out, we have done a number of measures over 
these past 5 years to protect ourselves going forward, and it 
shows in our new books of business. Our current books of 
business are extremely profitable, and very safe.
    Mr. Luetkemeyer. Okay, what are your opinions on QM after 
the first year? How is this going to affect the mortgage market 
and affect you?
    Ms. Galante. FHA has its own QM rule that is out for public 
comment. In fact, public comments are due on the 30th, I 
believe.
    Mr. Luetkemeyer. I see my time has expired. Thank you, Mr. 
Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Georgia, Mr. Scott, 
for 5 minutes.
    Mr. Scott. Mr. Chairman, with all due respect to you, this 
isn't a hearing. This is a sham, and not only is it a sham, it 
is a shameful sham of deceit. First of all, trying to use the 
word ``bailout,'' and ladies and gentlemen, Mr. and Mrs. 
America who are watching this, just coming from this other 
side, my friends on the Republican side just 2 weeks ago shut 
down the Federal Government, shut down the Veterans' Memorial, 
and they were high-fiving, congratulating one another, and then 
going out the next morning right down to that same Veterans' 
Memorial and blaming the poor park rangers for shutting it 
down.
    These are the people who are bringing this shame, and this 
sham, who furloughed 800,000 jobs, shutting down the Federal 
Government when they take, just like we do, that solemn oath to 
uphold the Federal Government, to defend the Federal 
Government, to protect the Federal Government of the United 
States of America, and every act up here in this committee, no 
matter what it is, their sole purpose is to try to destroy this 
Federal Government, and no greater example than right here.
    Because, Ms. Galante, you and the FHA have done a 
remarkable job and under great difficulty. We went through the 
worst recession, coming up almost to the Depression of the 
1930s, but yet, and still, the amount of stability that you 
gave to the housing market, particularly for the lower income 
and middle income and sustainability deserves four stars, or 
five stars, not this. But it is very important that we 
understand where this fiasco of criticism is coming from. There 
is no credibility on that side of the aisle when it comes to 
the financial stability of this country, when it was they who 
took this country to the brink of bringing the entire world 
economy down because they wouldn't allow us to raise the debt 
ceiling to pay the debts that we have.
    Now, Ms. Galante, is it not true that we have an act that 
was passed in 1990, the Federal Credit Reform Act, that you are 
obeying, that you are required to have sufficient funds 
available to meet your obligations, much like the United States 
has. In order to remain strong, it requires you to have this 
over a 30-year period. Is that not true?
    Ms. Galante. That is correct, over the life of the loans.
    Mr. Scott. Over the life of the loans, so that if you were 
to close your door today and be out of business, the law would 
require you to have this mandatory appropriation, to be able to 
carry your duties out for 30 years. And the hurtful feeling to 
me is to see my friends on the other side use the American 
people with this fake language of bailout when we have crossed 
that bridge, when we have written it into statute that no 
taxpayer's money will ever again be used to bail out anything. 
This is required of you by law.
    Now, let me ask you this: Isn't it true that because of the 
interest rates that have risen, because of the mortgage 
insurance premiums that have been increased, that it has 
reduced the FHA's loan volume, and thus revenue that is used to 
offset future losses, and is not that why it is written into 
the law that this $1.7 billion is there to bring you in 
compliance with the law?
    Ms. Galante. That is correct. We have shrunk in volume 
significantly, particularly at the end of this quarter.
    Mr. Scott. Thank you. And let me just say to my Republican 
friends on the other side, let's cut this out and let's move 
this country forward.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, for 5 minutes.
    Mr. Huizenga. Amen, hallelujah. Amen, hallelujah. Except we 
are just sitting here and I have just been told that I am 
trying to destroy the Federal Government, when in fact, I am 
trying to fix it, hold it accountable, and make it more 
efficient. I have just been labeled someone who is taking part 
in a sham because I am asking hard questions. Now, what I am 
curious to know is why this Administration is insistent on 
flim-flam and snake-oil sales? Because that is exactly what we 
are hearing about. But we are going to get righteous 
indignation from the other side who was here. I wasn't here. I 
am in my second term, just starting my second term. I wasn't 
here when a lot of this was all created, but you are seeing 
from the people who wrote the bill, not on a bipartisan 
fashion, with one party who wrote the bill who no longer wants 
to adhere to the language of that bill that they wrote, and who 
are now trying to blame me for coming in and trying to fix it.
    That gets a little frustrating. It gets a little 
frustrating. I think the American people who are watching this 
hopefully should be frustrated, too. My background is in real 
estate and development. And as I am looking at your chart on 
page 2, as you have noted a couple of times, my real estate 
career starts right at about the beginning of your chart, in 
fact a little bit before. And it just strikes me, as I am 
noticing a little bit of blue, a little bit of red, a little 
bit of blue in there. For those of who you don't have the 
pleasure of seeing this on TV, it is positive and negative.
    It is also about market share. It is not about how much or 
how little. Then it starts blowing up in 2000 and you start 
seeing a massive downward slide, and let's explore what 
happened. What happened is, FHA started to expand its footprint 
pretty dramatically, and especially starting in 2003, through 
on to where we currently are. I am a student of history and I 
am kind of reminded of Europe during World War II. We had the 
Allies versus the Axis. Okay, that was a righteous fight. But 
what happened? After the fighting, we had East versus West. And 
at one point the West said, you know what, we liberated 
Holland, we liberated Belgium, we liberated France, we 
liberated Germany, and the Soviets also did that. But guess 
what? We left and they stayed. All right.
    And what I want to know is when are the Soviet troops going 
to withdraw from the territory that you have conquered? The 
massive amount of involvement that the FHA, which is intended 
for low- and moderate-income homeowners buying a home for the 
first time, when you are going to actually let that happen, 
because the massive expansion of the footprint of FHA concerns 
me. Because you are now strangling what the private sector 
should be doing, and we are having the Federal Government come 
in, label more requirements, have just additional requirements 
that they are putting in place, and frankly, putting the 
Federal taxpayer on the hook. I want to fix it. I want to fix 
this, and I want to make sure that we are serving those low-
income, first-time home buyers. And by the way, it is not about 
race. It is not about geography, and I have heard that brought 
up by a couple of my colleagues on the other side.
    When I got my REALTORS license, they taught me that people 
aren't black, white, yellow, or red. They taught me that they 
are green. And what I mean by that is, they can either afford 
it, or they can't afford it. They are not black. They are not 
white. They are not yellow. They are not red. They are green. 
Can you afford it or not afford it? And unfortunately, my 
friends on the other side seem to blur that a whole lot and I 
want to fix this.
    It seems to me that the work that this committee has done 
on the PATH Act is one of those things. I would like you to 
comment if you would, please, on that, and whether you believe 
that you are actually serving the low-income, first-time home 
buyer, which is the original intent of this program.
    Ms. Galante. A couple of things, Congressman. First, I 
think that you are conflating the chart which looks at the 
economic value of these books of business, which includes--part 
of the reason the blue charts in the late years are as high as 
they are is because we have increased premiums. So, we are 
bringing in a lot more. They are worth more because we are 
bringing a lot more.
    Mr. Huizenga. And what was your--what has been your 
footprint, though? In 1992--
    Ms. Galante. Let's talk about, I have back to 1999.
    Mr. Huizenga. Great.
    Ms. Galante. And I just want to say, FHA insured 1.23 
million loans in 1999. How many did we insure in 2013? 1.29.
    Mr. Huizenga. And how was--no, no, time out, time out. You 
cannot get away with this, because you have to look at the 
overall market and market share and percentage.
    Ms. Galante. Yes.
    Mr. Huizenga. Market share and percentage. That was back in 
the day, getting an FHA loan was difficult, and frankly, it was 
tough to work with; not so much anymore. That is what we have 
to reverse. That is what we have to go back and we need to put 
FHA back into the box that it was intended for, not to have it 
expanded. My time has expired. I'm sorry.
    Ms. Galante. To be clear, our market share has dropped from 
its peak at 27 percent and it is continuing to drop.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Texas, Mr. Green, 
for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. I thank the witness for 
testifying. And since the indication is that we are talking 
about people who are not red, black, or white, but they are 
green, I assume we are talking about me, I happen to be green, 
Al Green.
    Mr. Huizenga. If the gentleman will yield?
    Mr. Green. Of course, I will. I yield to my--
    Mr. Huizenga. I wish there were more people like you who 
were green, not just in name, but who could afford all of this.
    Mr. Green. Thank you very much, and I have been blessed. I 
tell people all the time that I am better than I deserve to be. 
But let's talk about reality for just a moment. And I would 
like to have you give some testimony today, since you are 
clear, so let's talk about why FHA finds itself in the position 
that it is in. FHA is not a for-profit business. Is this a fair 
statement?
    Ms. Galante. That is correct.
    Mr. Green. And FHA was established more than 80 years ago. 
Would you state what the purpose of FHA was 80 years ago, and 
what it is currently, please? And if those two are the same, 
please make note of it.
    Ms. Galante. As you may know, FHA was established 
immediately after the Great Depression partly to get the 
economy back on its feet again, to get people working again, to 
get homes built, and to get people being able to live in those 
homes at reasonably affordable prices. And it was not just for 
one classification of borrower. There is nothing about it that 
was only for low income, for example.
    Mr. Green. As a matter of fact, when it was established, 
there was no contemplation that it would help any specific 
class, but probably when it was initially established, the 
beneficiaries were rarely--not to a great extent, African-
Americans or Latinos. Is that a fair statement in the infancy 
of FHA?
    Ms. Galante. Not having statistics, I would say that is 
probably a fair statement.
    Mr. Green. So FHA was not established to help African 
Americans or Latinos, but as time has evolved, FHA has been of 
benefit, and it did, after the Great Depression, a good thing. 
Was it of benefit to this country to have FHA after the Great 
Recession?
    Ms. Galante. Yes, absolutely. As you have heard quoted 
before, economist Mark Zandi has said that if the FHA had not 
been in the market during that worst recession, we would have 
had a worse economic crisis by property values dropping 25 
percent more than they did, therefore making the economic 
recession even worse.
    Mr. Green. I, like my colleagues, am of the opinion that 
FHA has served a meaningful purpose. It has done what it was 
designed to do. And I think that we need to continue this 
effort with FHA, so I would like to ask you a question now 
about in-person servicing. FHA seeks to help persons who are 
having some difficulty with their mortgages. In-person 
servicing is an option, and the information that I read on 
this, the intelligence seems to indicate, to connote that you 
get greater results if you can perfect in-person servicing as 
opposed to doing it by way of email or some other form of 
servicing.
    We have a piece of legislation that would allow firms, 
businesses, to work with FHA to perform in-person servicing to 
modify loans, to get engaged in short sales, to refinance, and 
my question to you is, is that something that we can talk to 
you about, this in-person servicing, so that maybe we can save 
even greater numbers of persons from having to go into 
foreclosure?
    Ms. Galante. I would be happy to have more conversation 
with you about that. I do believe that high touch, so to speak, 
helping existing homeowners in any way that we can, if we can 
get them to re-perform, if we can get them to stay in their 
home, that ultimately is going to help the fund as well as the 
homeowner.
    Mr. Green. Thank you. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from South Carolina, Mr. 
Mulvaney, for 5 minutes.
    Mr. Mulvaney. Thank you very much, Mr. Chairman. Ms. 
Galante, I can assure you, this is not where I was going to 
take my original line of questioning.
    I was actually going to ask you about something other than 
the bailout here today. But then you said something that struck 
me, and I have to come back and talk to you about it. You were 
talking about how you get paid the same amount whether or not 
you do a good job or do a bad job, and that you don't make that 
much. How much do you make?
    Ms. Galante. $150,000.
    Mr. Mulvaney. Is that really not that much, Madam? We are 
sitting here talking about a national debt of $17 trillion, and 
the impact on an ordinary family. Is that really how you feel 
about this job?
    Ms. Galante. Let me be clear. I was using that in the 
context of private sector companies with private profits, and 
private compensation plans, that then came to the Federal 
Government, so as a relative--
    Mr. Mulvaney. No, I am less worried about the amount of 
money, Ms. Galante, as I am about the attitude--
    Ms. Galante. Just to clarify--
    Mr. Mulvaney. Excuse me. I am worried less about the amount 
of money, because that is really none of my business. It is 
because it is public, but about the attitude that you get paid 
the same whether you do a good job or a lousy job. What kind of 
job security do you have?
    Ms. Galante. That was not--
    Mr. Mulvaney. What does it take to get you fired?
    Ms. Galante. I serve at the pleasure of the President.
    Mr. Mulvaney. I am sitting here and again, this is not 
where I was going. But I am sitting here, I have been here like 
Mr. Huizenga, my colleague. I have been here for 3 years. In 
the last year, I have seen four people get killed in an embassy 
in Libya and nobody got fired. I have seen an IRS turn on its 
own people and target people based upon their political beliefs 
and nobody has been fired. I have seen us spend half a billion 
dollars on a computer program that doesn't work, and nobody has 
been fired. And then I see stories about somebody who is a 
phone operator making $26,000 a year, who says one wrong thing 
on the radio, and immediately gets fired.
    I have a tweeter--somebody tweeting inside one of the 
agencies who immediately gets fired. And I just want to know 
where the outrage is. I want to know where the even treatment 
is. I want to know why somebody can come into this meeting and 
say, I make the same if I do a good job or a lousy job. But I 
don't make that much. It is only $150,000 a year. But we sit 
here and we have no outrage when ordinary Americans get treated 
poorly by their own government, whether or not they are being 
mistreated by the agency or whether or not they get fired--
$26,000 a year and you get fired for saying the wrong thing on 
the radio.
    Is there no outrage for that type of reaction? People are 
afraid of their government. They are afraid of exactly what Ms. 
Galante has said today, which is we have a faceless bureaucrat 
who doesn't really care if she does a good job or a bad job. 
She is just here to pick up the check. I want to know where the 
outrage is. With that, I will go back and ask my original 
questions.
    There has been a lot of talk in the industry about using 
eminent domain to try and solve the mortgage crisis. Several 
agencies, most recently the FHFA, have taken a very aggressive 
position on this position. They have said: ``On balance, after 
conducting a review of law and markets and considering public 
input, there is a rational basis to conclude that the use of 
eminent domain by localities to restructure loans for borrowers 
who are underwater on their mortgages presents a clear threat 
to the safe and sound operations of Fannie Mae, Freddie Mac, 
and the Federal Home Loan Banks as provided in the Federal law, 
would run contrary to the goals set forth by Congress for the 
operation of conservatorships by FHFA and present a direct 
relationship to their responsibility for overseeing entities.''
    Why haven't HUD and FHA taken a similar position? You were 
asked in June by the Senate if you supported, or what your 
thoughts were on these type of eminent domain proceedings, and 
you said that it was too early to know. To me, that is like 
waiting until somebody gets killed to find out if murder is 
wrong or not. Why aren't you doing the same thing that the FHFA 
is doing and taking a definitive position on this stunning 
development on the West Coast about using eminent domain in 
order to take people's houses?
    Ms. Galante. First of all, Congressman, I want to start by 
saying I am very proud of my Federal service, and I left my 
entire life across the country in California to come here and 
serve this Government and this Administration. And you have 
taken my comments entirely out of context. I was--
    Mr. Mulvaney. Fair enough. It happens to me all the time, 
so I appreciate your concern. Do you want to answer the 
question about eminent domain or not?
    Ms. Galante. Yes. In response to your question, FHA 
continues to monitor the situation.
    Mr. Mulvaney. Monitor the situation. They are already doing 
it. Why does the FHFA not have to monitor the situation and you 
do?
    Ms. Galante. I want to make two points on this. The first 
is that eminent domain is a local and State obligation or 
authority, and--
    Mr. Mulvaney. You will be asked to guarantee and insure 
these loans. What is your position on that?
    Ms. Galante. We don't know that is the case, number one. 
Number two, this was the second point I was going to make. I 
just want to be clear. The FHFA and Fannie and Freddie are in 
an entirely different position than the FHA, because they own 
some of these private label type securities. FHA only insures 
for its own book of business. We didn't buy--
    Mr. Mulvaney. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman. I can't recall the 
day, but like many of you, we all probably studied or became 
familiar with this dawn-to-dusk discussion and debate at the 
beginning of the 19th Century between Albert Einstein and David 
Hilbert. And maybe I am the only person who remembers this kind 
of stuff, but they had a dawn-to-dusk debate on physics, and 
one of the reporters who covered this discussion wrote that 
they were talking past each other, which is kind of the--either 
the beginning of that phrase, although I think it goes back to 
some kind of English theater, talking past each other, and that 
is what is happening here.
    I was speaking to a group of people at the Savoy Club in 
Kansas City, and as we were--during the question-and-answer 
period, they said that they didn't watch C-SPAN, the hearings, 
because they couldn't get anything out of it because the 
Members talked past each other, and that it was so confusing 
that they had made a decision to just not watch.
    And I don't blame them. If they are watching this, I want 
to apologize--where is the camera--for you having to go through 
this. I hate to see it. Alphonso Jackson was Secretary of HUD. 
I met him back when he--I preached, many times, at the St. Luke 
Community United Methodist Church in Dallas which he attended. 
And I didn't agree with him. I would never, ever, ever in this 
committee or anywhere else, accuse him of coming to take his 
check and not caring about his job.
    And I'm sorry that has been said. I apologize. I made all 
of these notes to ask what I thought were reasonably 
intelligent questions concerning HUD. I want to do it. I am 
kind of hurt over the way we have come to treat people here in 
this Congress. So I apologize, and I don't want to participate. 
I yield back.
    Chairman Hensarling. The gentleman is yielding back. The 
Chair now recognizes the gentleman from Florida, Mr. Ross, for 
5 minutes.
    Mr. Ross. Thank you, Mr. Chairman. Ms. Galante, the intent 
of the FHA, of course, is to help those--I apologize, I can see 
l you better this way. The intent, of course, was to make sure 
that we had affordable housing, that low- to moderate-income 
people could have access to the American dream of 
homeownership. To that extent, at the height, I guess, of the 
boom, the market share that FHA had was about 2 percent. Today, 
it is about 56-some percent, which leads one to question a lot 
of things, especially not only how and why it happened which we 
will have that debate for quite some time, but specifically, 
with regard to the future, do you have an opinion as to whether 
there is sufficient private capital, capacity of private 
capital in the market to return to the days where the FHA only 
had 2 percent of the market in mortgage insurance?
    Ms. Galante. Let me just say that FHA had 2 or 3 percent of 
the market, as you said during the ramp up to the bubble. Our 
normal market share ranged over time from 10 to 15 percent; 
that would be kind of the normal market share. We are actually 
at I think 12, 13 percent today. The challenge to the private 
capital that you speak of is that the entire market has shrunk, 
and that private--
    Mr. Ross. But why has the market shrunk? It is not because 
there isn't sufficient capital. Is it because of the rates? Is 
it because they are trying to compete against a monopoly called 
the FHA?
    Ms. Galante. No, I think, sir, this is really important. 
The FHA is not competing with the entire broad market. We--the 
MI companies, for example, I would say their market share over 
the past couple of years has been coming back steadily, and 
their pricing is now--
    Mr. Ross. Is it competitive?
    Ms. Galante. --is better, is competitive for basically 
anybody over a--FICO score today, yes.
    Mr. Ross. Approximately 25 percent of the endorsements that 
FHA has are made up of loans that are considered high to be to 
high-income borrowers, and that shouldn't be the function of 
the FHA, should it? This should be ceded to the market, 
shouldn't it? At one point, it was 16 percent. Now, you are up 
to 25 percent of the high-income borrowers. So that is in an 
area that we should address, shouldn't it?
    Ms. Galante. There are two areas we should address. One is 
the global market, and that is going to take--and I appreciate 
the efforts on the PATH Act--resetting the entire housing 
finance system well beyond FHA so that private capital 
understands how to play and has the right--
    Mr. Ross. If they are given the opportunity to play.
    Ms. Galante. --framework to do that. But FHA, in terms of 
its market share, we ramped up. In 2009, we dropped way back 
down, and--
    Mr. Ross. The maximum mortgage loan value of $729,000, that 
is usually considered for a high-income borrower, wouldn't it 
be?
    Ms. Galante. So again--
    Mr. Ross. In my neighborhood in central Florida, it seems 
like it would be.
    Ms. Galante. That is only for high-cost areas, and to be 
clear, that expires in January of 2014.
    Mr. Ross. It goes down to what?
    Ms. Galante. These were congressional limits that were put 
in place, and FHA has operated within those. They expire in 
January.
    Mr. Ross. Of course, my friends on the other side say this 
is not a bailout. It is just policy and it is an accounting 
function. Regardless of what it is, just because it is policy 
doesn't mean it is good. And I think it is a bad policy that we 
now have to have the Treasury issue a check for $1.7 billion to 
make up for a shortfall.
    Do you think it would be in the best interest of not only 
the FHA, but quite frankly the Treasury as well to have it 
repaid?
    Ms. Galante. Again, over time, everything that FHA earns 
goes back to the Federal Government.
    Mr. Ross. And with regard to your capital standards--let's 
face it, FHA has the best capital standards if they even exist. 
Why wouldn't the private mortgage insurance companies be 
allowed to subject themselves to the same capital standards 
that the FHA has? Would that not, in and of itself, create a 
more viable market of private capital?
    Ms. Galante. FHA exists as a government entity. It is very 
different than a private mortgage insurer.
    Mr. Ross. But it competes against the private mortgage 
insurer, and that is my issue here.
    Ms. Galante. They play different roles. Private mortgage 
insurers are normally guaranteeing a top amount of mortgage 
insurance with--
    Mr. Ross. So you don't think they should have the same 
capital standards?
    Ms. Galante. They are regulated by State agencies, State 
governments.
    Mr. Ross. It is okay to say no. That is okay.
    Ms. Galante. I am just saying, it is a different business 
and it is regulated differently. It is entirely different.
    Mr. Ross. My time has expired.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Minnesota, Mr. 
Ellison, for 5 minutes.
    Mr. Ellison. Thank you, Mr. Chairman. Ms. Galante, this 
term ``bailout'' has been thrown around a lot, and I don't want 
to belabor it, but when I think of bailout, I am thinking about 
AIG, I am thinking about Citi, I am thinking about General 
Motors. These were all privately-owned companies that but for 
our government assistance, would maybe not exist, and probably 
in their collapse would have caused a lot of damage to the 
economy. I guess my question is this: Is FHA in danger of 
imminent collapse?
    Ms. Galante. No, sir. Again, FHA is part of the Federal 
Government.
    Mr. Ellison. So I heard the term thrown around in terms of 
how much liquid cash assets you have and the number I heard was 
$48 billion?
    Ms. Galante. That is correct.
    Mr. Ellison. So to sort of talk about FHA being in a 
bailout situation, when the historic precedent for it is Citi, 
General Motors, AIG, is really misleading. Would you agree with 
that?
    Ms. Galante. I agree with that.
    Mr. Ellison. Thank you. Now, another thing that happened 
that I just would like to shed some light on, you were asked 
about FICO scores, and whether or not a person would be 
eligible for the services of FHA if they had a 550 FICO score.
    I don't believe you were allowed to answer the question 
fully, or fairly. Can you explain the total scorecard and 
manual underwriting process just so people watching this can 
have an accurate idea of exactly how you make decisions.
    Ms. Galante. Yes, thank you. So we have a system where we--
our lenders can look at, underwrite a borrower based on their 
FICO score, based on their income, their projected income over 
time, based on their ability to make the downpayment. All of 
that goes into an automated underwriting system. We also, if 
they don't make it through that underwriting system, the lender 
can look at compensating factors and determine a holistic 
nature of that borrower, and whether they have the ability to 
adequately repay the loan.
    And this is fully documented, unlike the question where we 
were talking about ``subprime,'' where those were in the 
crisis, no documentation, all of that. That is not what FHA is 
about. We ensure that our lenders are fully underwriting these 
borrowers.
    Mr. Ellison. Thanks for that elaboration. And I would also 
just like to say that I think you are a dedicated public 
servant. I know that based on your expertise, you probably 
could be receiving way more money than you are now, but what 
you are doing is a public service, and what you are doing 
springs from your patriotism, your commitment to our country.
    So I want to say thank you for that. And I want to let you 
know that there are literally thousands and thousands of people 
who work for the Federal Government who do it out of love, 
commitment, and passion for our great Nation. So with that, I 
yield back. Thank you.
    Mr. Huizenga [presiding]. The gentleman yields back.
    With that, I am checking just to make sure, my colleagues, 
it is going to be the gentleman from Georgia, Mr. Westmoreland, 
for 5 minutes.
    Mr. Westmoreland. Thank you, Mr. Chairman, and thank you 
ma'am, for coming today. And the first question I want to ask 
is just for informational purposes, and is not related to FHA, 
but you are a Presidential appointee, is that correct?
    Ms. Galante. That is correct.
    Mr. Westmoreland. Are you under the Affordable Care Act? 
Just as--that is--
    Ms. Galante. I don't think so. I have no idea, to tell you 
the truth.
    Mr. Westmoreland. Okay, so you don't know if you would be 
covered under the Affordable Care Act or not?
    Mr. Galante. I am covered as a Federal employee. I get my 
benefits through the regular Federal program.
    Mr. Westmoreland. Okay. So you will remain with the 
insurance that you had compared to the Members of Congress, and 
staff, and stuff?
    Ms. Galante. Correct.
    Mr. Westmoreland. Okay, thank you. I know that Mr. Himes 
has stated that the $1.7 billion was a part of money that you 
had to have. It was a mandatory appropriation to get the level 
up to where you should be in case of another collapse or 
failure. Why don't you have that money, when there has been a 
requirement of a 2 percent fund, and FHA has failed to be able 
to get that reserve even though that you have had permission 
through legislation to increase fees and other things to get to 
that 2 percent level? Is it not true that the reason that you 
are having to get the $1.7 billion is because FHA has refused 
to raise their fees to really comply with the law?
    Ms. Galante. Congressman, we have raised fees. We have 
raised fees 5 times. We have changed our policy to, we have 
reversed canceling mortgage insurance premiums after a certain 
period of time. We have made a number of changes, including 
premium increases, that directly increase our revenue to FHA.
    The challenge is, those are on new loans moving forward, 
and if you put the increase in fees too high on the new loans, 
those will be profitable. As you can see in that chart on page 
2, they are extremely profitable. They can't go back and make 
up for the challenge of the loans that were done well before we 
got here in the midst of the recession, and so the economic 
value of those books of business has continued to be a drag on 
the FHA.
    Mr. Westmoreland. Do you think it is a problem that FHA 
does the insurance on homes up to $729,000, or whatever that 
amount is? Do you think that is a problem rather than--I don't 
know many first-time home buyers who go into that kind of 
house. So do you think that FHA has gotten a little bit out of 
where the original intent of FHA was at when it was started?
    Ms. Galante. We have stated publicly many times that we 
think the loan limits ought to come down. These were, as part 
of the countercyclical role, Congress gave Fannie, Freddie, and 
the FHA the ability to make higher loans during the height of 
the crisis. That higher loan limit expires on January 1st of 
2014, and FHA will go back to the limits that were put in the 
HERA legislation.
    Mr. Westmoreland. What would that limit be?
    Ms. Galante. It will be for high-cost areas, I think it is 
$625,000. But again, FHA loan limits will be a percentage--
    Mr. Westmoreland. Right.
    Ms. Galante. --in most of the country.
    Mr. Westmoreland. I am running out of time, so let me just 
ask one further question. I know that you were talking about, 
do you think that in order for FHA to comply with the law, you 
need to have a reserve fund of 2 percent?
    Ms. Galante. Over time, I absolutely believe we need to get 
it.
    Mr. Westmoreland. If so, how long do you think it will take 
to get to that point?
    Ms. Galante. Again, we have an independent actuary look at 
that each year. I think last year, which is the most recent 
available, it was 2017.
    Mr. Westmoreland. When? 2017.
    Ms. Galante. 2017.
    Mr. Westmoreland. 2017, so that is about 3 years from now, 
to where you can get up to where you are just in compliance 
with the law.
    Unfortunately, most people who aren't in compliance with 
the law have some type of penalty, but it seems like if a 
government agency doesn't comply with the law, there is no 
penalty. So with that, I will yield back.
    Mr. Huizenga. The gentleman's time has expired. With that, 
we will recognize the gentleman from California, Mr. Sherman 
for 5 minutes.
    Mr. Sherman. Thank you. First, in response to the gentleman 
from South Carolina, you are getting paid $20,000 less than we 
are. He is outraged that those in the Administration aren't 
fired often enough for his beliefs, but I would say you are 
doing a good job under trying circumstances. And as to those 
getting fired, I point out that we in Congress shut down the 
U.S. Government. None of us have been fired yet. And if we are 
going to have a list of ways in which Washington has failed the 
American people, I don't think the FHA is on that list, but I 
know Congress is.
    I want to pick up on Ms. Maloney's questions about high-
cost areas as you point out. If we don't act, we are going to 
see a drop. This is a great country, and things vary from one 
area to the other. There are a lot of Members here from places 
where for $729,000, you buy the biggest home in town. I 
represent an area where there that is a middle-class family. 
And I would like you for the record, these loans between 
$625,000, and $729,000, as I understand it, they performed 
well. They have low rates of default, and they are not 
considered to be a weak part of your book of business, is that 
correct?
    Ms. Galante. That is correct. I would also add it is not a 
very--it is like 2 percent of our entire portfolio. It is a 
very small amount that are up at the higher loan limits.
    Mr. Sherman. So it is 2 percent of your business. It is 
absolutely critical to my district and Carolyn Maloney's 
districts, and while it is hard to calculate, you are not 
losing money on this. In fact, you are making money on this 2 
percent, as I understand it, is that correct?
    Ms. Galante. As far as I know, today, yes.
    Mr. Sherman. Okay, so we can increase government costs, and 
cause a spectacular decline in home values in high-cost areas 
by allowing the current limit to expire. I would hope that if 
Congress wants to bring its approval rate above its current 
levels that we would instead authorize you to continue your 
program for high-cost areas.
    As to reverse mortgages, you have indicated that it is not 
a significant strain on the FHA, more specifically, the Mutual 
Mortgage Insurance Fund. If the HECM program, which is 
basically reverse mortgages, was not part of that program--the 
MMIF fund, would you still need the infusion of cash that you 
need?
    Ms. Galante. No, the reverse mortgage program, as you can 
see on the chart on page 8 in my written testimony, clearly 
demonstrates that but for that program, we would have a 
positive capital.
    Mr. Sherman. So you are saying that has been a problem 
for--
    Ms. Galante. The--again, legacy mortgages for the reverse 
mortgage program, we have made changes with the help of 
Congress, but the legacy mortgages--again, they got hit hard by 
the recession as well, have been problematic.
    Mr. Sherman. Have you made changes so that you expect to 
lose money on those programs in the future or not? The reverse 
mortgages?
    Ms. Galante. No, we have made changes so that we will not 
lose money on those in the future.
    Mr. Sherman. Finally, I have one element of agreement with 
the gentleman from South Carolina, as strange as that may seem, 
and that is the eminent domain issue. We now have, unlike most 
countries in the world, non-recourse mortgages, you buy a home, 
and if you want, you can walk away from it. In Europe, you 
still owe the money on the mortgage. And now, there are those 
who say we want to go even further than that and say if you buy 
a home and the price goes up in value, you keep all the profit 
of, course. And if it goes down in value, you keep the home and 
you just tell the lender to write down the mortgage through a 
process called eminent domain.
    If that becomes the norm, what does that do to Fannie, 
Freddie, and FHA solvency if we create a system in which most 
towns in America, if you don't like your mortgage principal 
amount, you just go through a process and it is written down.
    Ms. Galante. Let me be clear, my view is that eminent 
domain is a local tool that can be used by localities. We are 
happy to issue informational guidance if it becomes necessary 
around eminent domain.
    Mr. Sherman. You need to stay out of that.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from North Carolina, Mr. 
Pittenger, for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman. And thank you, Ms. 
Galante, for being here with us today, and thank you for coming 
from California and for your sincere efforts.
    Ms. Galante, as I have been a new Member of the Congress on 
this wonderful committee, I have learned a great deal about the 
impact of the Dodd-Frank Act, the role of the Consumer 
Financial Protection Bureau (CFPB) and its oversight over 
financial institutions, and the fact that if they don't reach 
certain standards, the CFPB can put them out of business and 
penalize them or whatever.
    Given the same sense of accountability, do you feel that 
accountability in your role? Obviously, the capital standards 
haven't been met, but you are able to function, and nobody's 
going to put you out of business. As you said several times, 
you work for the Federal Government and so the taxpayers are 
here. You stated this last month that needed $1.68 billion. We 
heard in 2009 that HUD said FHA was stable and sound and secure 
for the future.
    So this creates a lot of concern with the American people. 
I think they certainly felt the gravity of $17 trillion debt 
and it keeps mounting. You are part of a government that has 
accrued an enormous amount of debt. Peter Orszag, a former 
budget writer, Erskine Bowles, Paul Ryan, they are all saying 
the same thing--that our spending is out of control and 
unsustainable and will collapse like Greece. They have all said 
it in many ways. So I would hope that you would share that 
concern and accountability back to the American people.
    I think as you spoke to us, as you spoke and you appeared 
before the committee in February, you said then that you tested 
the financial health of the FHA, and yet right after that, the 
next day, the Government Accountability Office added your 
agency to the list of government programs that are identified 
as, ``High risk due to their greater vulnerability to fraud, 
waste, abuse, and mismanagement or the need for 
transformation.'' How do you respond to that? What is your--do 
you feel, do you understand the impact of the role that you are 
having and that you would be considered a high-risk agency to 
the taxpayer?
    Ms. Galante. Let me be clear, I take my responsibility 
extremely seriously in terms of running the FHA, and we have 
worked incredibly hard to keep the market going, to keep access 
to credit and rebuild the reserves of the fund. And, we have 
listed out those actions and we continue to work hard every 
single day to make this as strong a fund as possible, and as 
strong an agency as possible. I have read the GAO high-risk 
report, we have regular conversations with the GAO. We are 
working on all the recommendations--
    Mr. Pittenger. Would you admit that these are very strong 
words, ``vulnerability due to fraud, waste, abuse, and 
mismanagement or the need for transformation,'' that is about 
as strong as you can get.
    Ms. Galante. The GAO does recognize there is need for 
transformation, business transformation activities, IT 
transformation activities, I believe is what the quote is 
related to. The quote in the high-risk report I would say, GAO 
acknowledges that we are improving our condition by increasing 
fees and underwriting changes. So part of the reason FHA was 
put on the high-risk list is that the housing finance system, 
without further reform of the entire system, puts all of us at 
risk.
    Mr. Pittenger. Let me ask you, it is imperative that the 
agency use every tool at its disposal to address the budget 
shortfall and protect the taxpayer. Do you believe that the 
agency has used every tool at its disposal to address the 
budget shortfall? If not, I guess I would have to raise the 
question of whether FHA is failing to properly manage its 
portfolio, which places the taxpayer at greater expense.
    Ms. Galante. I believe we have used every tool at our 
disposal and we have made prudent and appropriate policy 
changes, whether that's increasing premiums or the many other 
changes that I have talked about here today. We also have to do 
that in a way that does not do further damage to the economy.
    Mr. Pittenger. Thank you. You do agree that if you were in 
a business, the CFPB would put you out of business?
    Ms. Galante. No, I do not.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Connecticut, Mr. 
Himes, for 5 minutes.
    Mr. Himes. Thank you, Mr. Chairman. And Ms. Galante, thank 
you for being with us today. I have been doing this for about 5 
years, sitting in on this committee, and I don't think I have 
ever been quite as embarrassed as I am today by the tone and 
the substance of this hearing or by the way that you have been 
personally treated. You have been subjected to the entire 
repertoire, from Benghazi to personal queries about your health 
insurance. I think I heard you called a faceless bureaucrat. 
That kind of language and that kind of tone is beneath the 
dignity of this institution and earns us our single digit 
approval ratings, and it is violative of any standard of 
gentlemanliness that anybody sitting back here should presume 
to aspire to.
    I used to work in affordable housing, and I am familiar 
with your work prior to taking this job. You took this job in 
December of 2012 at the request of the President of the United 
States, did you not?
    Ms. Galante. Yes.
    Mr. Himes. So in 2012, 4 years after the meltdown, you came 
in--you might say that you came in really at one of the most 
difficult times in this Nation's housing and economic history 
because the President of the United States asked to you leave 
the good work you were doing in California with BRIDGE and you 
chose to do this.
    Ms. Galante. Yes, I do want to, just for the record, be 
clear. I started in multifamily in 2009, and I became acting in 
mid-2011 in this position and confirmed in 2012.
    Mr. Himes. Thank you. In the past, you have advised the 
Cities of Richmond, Philadelphia, and Santa Barbara I think, 
and you are also a real estate broker. So is it fair to say you 
could be doing plenty of things other than what you are doing 
here now?
    Ms. Galante. Yes.
    Mr. Himes. Let's talk a little about the people of FHA, 
because I want to transition now to this question of 
accountability which so fascinates the other side. Without in 
any way minimizing the reform that we might ask FHA to 
undertake, I do want to pull on this thread of accountability. 
I don't know the people of FHA the way you do, but I heard the 
chairman and others really demand personal accountability, and 
asked again and again, has anybody been fired, should somebody 
have been fired, why has nobody been demoted? Ms. Galante, have 
the troubles of FHA, in your opinion--is it in any way related 
to individual malfeasance due to witting or unwitting 
performance on the part of the any of the people who work at 
FHA?
    Ms. Galante. Absolutely not.
    Mr. Himes. Do you think anybody at FHA could have done 
anything differently, could have worked harder or have been 
more prudent or been more thoughtful in a way that would have 
prevented you sitting here today with us talking about this 
$1.7 billion capital injection?
    Ms. Galante. No, I do not. I believe we have done 
everything asked of us.
    Mr. Himes. In your agency, you are closely constrained by 
law and regulation that Congress has imposed. We were recently 
treated with the debt ceiling to an example of that where the 
Congress was going demand that the President of the United 
States violate some law. We say tax this, spend this, math--
then requires a certain amount of borrowing, but by the way, 
you may not be able to borrow. So Congress was going to tell 
the President of the United States to violate some law.
    Is it fair to say that under the strictures, the 
congressionally-imposed strictures and regulations of FHA, that 
FHA itself has performed as well as it could have under the 
circumstances?
    Ms. Galante. I believe we have done everything to perform 
as well as we can.
    Mr. Himes. So that leaves the question of why are you here 
asking for a 1.7 billion, as the other side puts it, bailout?
    Let me read you the last line the Majority staff's memo on 
this hearing. The last line, and just to be clear, this bailout 
as it is called is required because the MMIF is at 16.3--
negative $16.3 billion in value, right?
    Ms. Galante. Yes.
    Mr. Himes. Right. The last line of the Majority staff's 
memo reads, ``The MMIF's negative 16.3 billion economic value 
represents a decrease of 17.49 billion from its 1.19 billion 
economic value at the end of fiscal year 2011,'' and here is 
the part I want to emphasize, ``which resulted from further 
declines in national home prices, more loans having elevated 
default potential and uncertain economic conditions.'' This is 
the Republican memo saying that you are sitting here today 
because of the decline in national home prices and uncertain 
economic conditions. Is it fair what the Republicans are saying 
in their own memo? Do you agree with that?
    Ms. Galante. Yes, as I have been saying, the value of the 
fund is greatly affected by economic conditions.
    Mr. Himes. Great. Do you think Congress has done all it 
could in the last 3 years or so? And I know this is beyond your 
purview, but do you think we have done all we can in terms of 
fiscal policy in this institution to actually promote growth in 
the country?
    Ms. Galante. Rather than answering that question, I would 
say I think there is more that Congress could do for FHA in 
terms of giving us some additional authority that would help us 
do our jobs better.
    Mr. Himes. Fair enough. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Indiana, Mr. 
Stutzman, for 5 minutes.
    Mr. Stutzman. Thank you, Mr. Chairman, and thank you, Ms. 
Galante, for being here today and for your testimony. I want to 
kind of follow up on a comment you just made about what could 
Congress do for FHA. We are obviously very concerned about the 
numbers, the direction. I know that back in 2009, you had 
mentioned that you would like to--that the outlook for FHA was 
a concern of yours, but that the numbers today I think as we 
look at them do draw much more--deserve more scrutiny and 
questions to be asked. And you mentioned that if Congress would 
give FHA flexibility, I can't remember the exact terms that you 
used. Do you think that FHA would be better served from being 
outside of HUD as a standalone agency rather than under HUD and 
under its purview?
    Ms. Galante. I think there are tools that FHA needs. I 
don't think that those tools relate to whether we are inside or 
outside of HUD. So there is no reason, from my view, that in 
order to access those tools, we would need to be outside of 
HUD. We are closely aligned with HUD and its mission, and there 
is no reason why that would need to change in order to give us 
the kinds of tools that I talked about, including better 
authority to go after lenders and terminate lenders when they 
are not doing the right thing and following our rules to being 
able to make emergency decisions without going through the full 
rulemaking process. Those are tools that could be given to us 
as examples that would be very, very useful.
    Mr. Stutzman. Could you describe that relationship with HUD 
a little more? What is HUD's involvement in your day-to-day 
operations and how do they influence decisions at FHA?
    Ms. Galante. The Secretary of HUD--as the Commissioner, I 
report to the Secretary of HUD, so it is part of HUD. We have 
separate accounting for the Federal Housing Administration, but 
our staff all follow the same rules that are part of the--
    Mr. Stutzman. So if they were separated, what would change?
    Ms. Galante. I think it depends on what people would impose 
or change specifically, right? There is not just--you are 
either in or you are out. You have to say what else would you 
be talking about?
    Mr. Stutzman. I guess I am trying to find out, does HUD 
influence FHA in certain decision-making, or if you are 
standalone and you could use some tools, some flexibility with 
other tools, how would that be, how would that change things or 
make things work better?
    Ms. Galante. Again, the main thing about being inside HUD 
is that we report up to the HUD Secretary. So that's--
    Mr. Stutzman. What does that matter? Does that change the 
way that you handle your decision-making? Does it--I guess, if 
FHA were a standalone with tools, would we serve the housing 
industry better and would we serve the taxpayer better?
    Ms. Galante. I would just say, I think within HUD and 
working with the HUD Secretary, there is no reason to change 
that. We could have some of these tools that would help us, as 
the fund and as an agency do an even better job, but I don't 
see any reason why it would be necessary to do that outside of 
HUD.
    Mr. Stutzman. Thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. Would you yield back to the chairman?
    Mr. Stutzman. Yes.
    Chairman Hensarling. In the seconds remaining, and as a 
sign of respect to the gentleman from Connecticut, I wanted to 
respond to something that he said, and that is the accusation 
that Republicans were encouraging a violation of the law with 
respect to the debt ceiling. The debt ceiling is the law of the 
land until it is changed. And many of us believe that the 
specter of default on sovereign debt should never happen, it is 
unthinkable, and that is why House Republicans have passed the 
Full Faith and Credit Act to make sure that this never happens. 
I don't recall having any Democrats support that to take that 
nuclear option off the table. I hope perhaps one day they will 
support it. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Foster, for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman. Ms. Galante, I want to 
echo Representative Himes' comments. I have profound respect 
for you and every one of the talented people who choose to 
spend a fraction of your life in service to the people of the 
United States.
    It makes a big difference whether the housing operation in 
this country is well run or not. We are having a hearing about 
a $1.7 billion capital shortfall. In the financial collapse at 
the end of the Bush Administration, families in America lost 
$16 trillion of household net worth, two-thirds which was a 
drop in the value of their house at the collapse of the housing 
bubble, that is a factor of 10,000. So however many hearings 
you think it is worth having on this subject now, we should 
have 10,000 times more hearings on the incompetent management 
of our economy that led to the $16 trillion drop in household 
net worth.
    And we heard also about your $150,000-a-year salary, well, 
that's 10,000 times smaller than the subject of the hearing 
today. And so the difference that you make whether you do your 
job well or not is much larger than your direct compensation.
    I would also remind Members on both sides of the aisle that 
during the last Republican default crisis, family net worth 
dropped by $2.4 trillion, that was the drop the last time we 
went up to the cliff. Could you please hold up your page 2 
graph again, I have a couple of questions on that. So you have 
those colored, now the red--some are red and some are blue. 
Does that indicate the political party that was in charge when 
those mortgages were indicated?
    Ms. Galante. Actually, that's not what it is supposed to 
indicate, no.
    Mr. Foster. So it is an accident that the party normally 
thought of as the blue party was responsible for the blue ends 
of the bar graph, that is interesting.
    Is it fair to think of the approximately $2 billion 
shortfall we are talking about as the difference between the 
$41 billion deficit that you are facing because the mortgages 
originated under Republican-appointed regulation, and roughly 
37 billion that have been recovered since Democrats have taken 
back control? Is that a fair statement of the difference?
    Ms. Galante. It is absolutely true that the legacy books 
that are causing us the substantial problems are from 2006 to 
early 2009.
    Mr. Foster. There was also talk about accountability. So if 
you look at the fact that the party that was responsible for 
running up all the red bar graphs was, in fact, removed from 
power, I think there is accountability, and the fact that you 
are a Presidential appointee is a reflection of that 
accountability.
    Now, I want to change subjects a little bit towards what 
rules could have been in place that might have prevented the 
disaster of 2001 to 2009? And there is a suggestion that has 
been made--there are some research papers on what are effective 
countercyclical capital requirements for you. Are you familiar 
with this general line of research?
    Ms. Galante. A little bit, yes.
    Mr. Foster. Yes. And so the idea would be that as a 
protection of the taxpayer against investing into a housing 
bubble effectively, that you would look, have some effort to 
estimate market conditions. And when you identified that you 
are investing into a bubble that you would hold more capital, 
hold more loss reserves, or--and/or tighten the credit box or 
some combination of both of these effectively asking the 
homeowner to hold more capital reserves against this. I was 
wondering, this is something--first of all, would this, had 
this sort of rule been in place, would that have mitigated your 
financial difficulties today?
    Ms. Galante. I think the challenge with that is you could 
actually be worsening the crisis by making it more difficult to 
increase downpayment requirements for--on individuals, for 
example, in a crisis as--
    Mr. Foster. These are requirements that would have 
tightened the credit box during the bubble years. For example, 
looking at the recent appreciation housing values as one of the 
metrics for tightening the credit box.
    Ms. Galante. So when times are ``good,'' yes.
    Mr. Foster. Right, what we are talking about is an 
automatic punch bowl retractor?
    Ms. Galante. Yes. Sorry, I thought you were talking about 
the reverse.
    Mr. Foster. It is the countercyclical principle on the 
upswing. There was an American Enterprise Institute conference 
on that subject this summer, which I thought presented a number 
of good ideas. I was just wondering if that was under serious 
consideration, or if you might be willing to endorse some 
variant of this?
    Ms. Galante. I would certainly have to look into that more.
    Mr. Foster. Okay. Thank you again for your service.
    Ms. Galante. Thank you.
    Mr. Foster. I yield back.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from California, Mr. Royce, for 5 
minutes.
    Mr. Royce. Yes, I would like to go back to an issue that I 
think Mr. Sherman from California raised with you, and Mr. 
Mulvaney, to try to get your position actually nailed down on 
Richmond, California's proposed use of eminent domain to seize 
performing mortgages.
    A number of times over the last year, I have sent letters, 
and I know Mr. Miller and Mr. Campbell, and my colleagues in 
the Senate as well have tried to get the Administration to 
definitively come out and just state your position on the 
proposed use of eminent domain to seize mortgages. And my 
question is, if you would make that statement?
    Ms. Galante. Yes, I appreciate you asking this question 
again, because I think the former times that I have gotten 
asked it, it was the end of questioning as opposed to the 
beginning which makes it a little hard to give a full answer. 
But what I have been trying to say here is that we do believe 
that eminent domain authority in general is a local and State 
authority and it needs--
    Mr. Royce. Well--
    Ms. Galante. May I just finish this? They need to be able 
to make their decisions and this needs to be played out over 
time in terms of what impact, if any, it will ultimately have 
on lending. So I--
    Mr. Royce. Hold on, hold on. The question that you need to 
answer, if you think it through, is will the FHA insurance fund 
be counted on or not? Do we have a position where the FHA 
insurance fund cannot be counted on by the investment fund 
mortgage resolution partners in Richmond or elsewhere to help 
insure refinance mortgages that are seized through eminent 
domain? This is a question that pertains to your decision.
    Ms. Galante. Yes. And what I was getting to is that when we 
see how this plays out, and we don't know exactly what FHA 
would be asked to do in any particular given situation under 
the use of eminent domain, when we see that, if we need to 
issue additional guidance, FHA will do so. But we don't even 
know exactly what these various programs will look like at any 
given time.
    Mr. Royce. No, we know exactly what the programs look like. 
This isn't a hypothetical. We know what the plan is. MRP has 
made their presentation in California, they made it in Nevada. 
Yes, there could be legal challenges, and they may or may not 
be successful, but why do we need to allow the process to reach 
that point? You can solve a lot of confusion by stating whether 
or not the FHA will be available to refinance any mortgages 
seized under MRP's eminent domain plan, that is the question.
    Ms. Galante. Again, we do not believe we understand the 
exact contours of any of these. There are different proposals 
and different communities, and those proposals could be applied 
differently.
    Mr. Royce. Okay. The FHFA has made a very strong statement 
for a reason--they stated that they would restrict or cease 
business activities within the jurisdiction of any local 
authority or any State employing eminent domain to restructure 
mortgage loan contracts. The question is, why FHA won't do the 
same?
    Ms. Galante. So--
    Mr. Royce. Why will you not state without a doubt that FHA 
will not be used to refinance these seized mortgages?
    Ms. Galante. Again, to be clear, we have made our 
statement, which is that we will look at and see how these 
programs play out.
    Mr. Royce. Okay.
    Ms. Galante. Whether or not there is a necessity for us to 
issue any--
    Mr. Royce. FHA refinance up on the screen there is clearly 
part of the program, that is what is in circulation. And 
getting back to an earlier point, because some of us were 
concerned about over-leverage as we get back to the issue of 
the implosion of the economy brought on by overleverage. One of 
those issues was the role that Congress played. And yes, the 
role that was played by this committee and on the Senate side 
in allowing the over-leveraging, 100 to 1 by Fannie Mae and 
Freddie Mac. And when legislation was brought by me and others 
to the Floor to try to allow the regulatory committee to 
control it, it was opposed by that side of the aisle. So, there 
is a little bit of revisionist history going on here.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from Ohio, Ms. Beatty, 
for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman. Thank you ranking 
member, and again to our witness, thank you for coming.
    Before I ask a few questions, let me just start by saying I 
think we have become all too comfortable with loudly 
interrupting and talking over our witnesses. And while that may 
sometimes be the way it appears that we operate, I think today 
we took it a little too far, ``faceless government worker, 
questioning your public service.''
    So let me use three words that I was always taught, and 
they are very powerful words: ``I am sorry.'' I join my 
colleagues, Representatives Cleaver and Himes, in extending 
their apologies because sometimes I think we forget. When we 
talk about challenging your commitment to public service and 
putting that in question today, I find it very ironic that some 
of my colleagues who question your integrity are the same 
people who furloughed some 800,000 Federal employees, which 
cost the government some $24 billion, and certainly reduced job 
growth of some 120,000 jobs because of our shutdown.
    Now, how does that tie in today? I think when we look at 
the housing market and we look at growth and we look at the 
economy, and we look at jobs, there is direct linkage. But my 
memo said that today we were going to talk about and ask you 
questions so we could share and learn more about the FHA's 
recent announcement about the MMIF.
    I read something that I would like for you to answer for me 
if this is factual in truth, because in hearings, I think we 
have an obligation to the people who are here and to America to 
speak the facts and the truth, and then look at how we dissect 
that to come to some end resolve.
    What I have before me says that the Federal Credit Reform 
Act of 1990, or FCRA, requires that at end of each fiscal year, 
and as part of the closing annual financial statement, every 
credit agency, including the FHA, must have sufficient reserves 
to cover all anticipated loss. For FHA, this requirement means 
that the MMIF must have sufficient reserves to cover the amount 
that would be needed to meet all expected claims over the next 
30 years, if FHA closed its doors tomorrow and had no new 
business to offset those claims, such as an appropriation is 
not a bailout. Would you agree with that statement?
    Ms. Galante. I agree.
    Mrs. Beatty. Thank you. We have heard it said loudly that 
this would be a bailout. So, thank you for clarifying that it 
isn't a bailout.
    I guess my next set of questions would be, would you say 
that there has been an economic shock this year by the fiscal 
cliff, or sequestration, or the government shutdown, or the 
threat to default on our Nation's debt, would you say that 
impacted the fund's performance in any way?
    Ms. Galante. To be clear, the shutdown caused economic harm 
in general, according to economists. I can also tell you that 
in that very short period of time while FHA kept its doors open 
and continued to ensure mortgages, we did see a substantial 
drop in our application volume, as did other partners or other 
agencies given the lack of confidence in home buying, for 
example, during that period of time.
    Mrs. Beatty. Lastly, let me just make a comment because we 
have had so many comments that have attacked the FHA. I think 
the American people also like to hear good or positive news, 
especially when we are talking about housing and putting a roof 
over their head. So let me just say I am from the great State 
of Ohio, and in my district, through the American Recovery and 
Reinvestment Act in 2009, through your operation, we were able 
to provide housing credit assistance, and that tax credit 
assistance and the tax credited change was a way to offset 
declining investors interest in housing tax credits, and that 
was done by some of my Democratic colleagues, and I wanted to 
thank your office for working with us on that.
    Ms. Galante. Thank you.
    Mrs. Beatty. Thank you, and I yield back.
    Chairman Hensarling. The gentlelady yields back. The Chair 
now recognizes the gentleman from Wisconsin, Mr. Duffy, for 5 
minutes.
    Mr. Duffy. Thank you, Mr. Chairman. I want to be clear at 
the outset that FHA has helped a lot of my constituents, first-
time home buyers and low-income home buyers, to achieve the 
American dream of homeownership. It has been incredibly helpful 
for them. And so I don't want to underestimate how important 
the program has been for people who live in central and 
northern Wisconsin. It has been a very helpful program.
    I think you picked up a little bit of concern on our side 
of the aisle, and I think our frustration here is that whenever 
we have testimony, we continually bring up concerns about the 
capital reserve ratio. It hasn't been that, we are concerned 
about bailouts. And it seems that every time we get testimony 
from the agency, we are told that it is sunshine and roses and 
tulips and unicorns; everything is great. And we look at the 
numbers and say, that is not true. We think it is far worse 
than you are telling us. And it is always no, no, no, no. It is 
all fine. And lo and behold, we were right, our concern was 
well-warranted because we now know that we are going to have 
almost $1.7 billion going from Treasury to FHA. And I know that 
you said it is not a bailout. First of all, would you agree it 
is actual money, this is an accounting. We have actually had 
$1.7 billion go from Treasury to FHA; that is correct, right?
    Ms. Galante. It all stays in Treasury accounts, but yes.
    Mr. Duffy. But it has been moved to FHA, right?
    Ms. Galante. To our accounts at Treasury, yes. It is 
intergovernmental.
    Mr. Duffy. --balance sheet, the transfers has been made?
    Ms. Galante. Correct.
    Mr. Duffy. And so these are real dollars, yes?
    Ms. Galante. Yes.
    Mr. Duffy. Okay. And I just want to be clear on the 
bailout. If this isn't a bailout, what do you consider a 
bailout?
    Ms. Galante. Congressman, let me say two things, because I 
do think this whole conversation about bailout or no bailout is 
really beyond the point. I want to go to the fact that your 
earlier statement about we have said its roses and then it is 
not, what we have been saying all along is that we have an 
independent actuary, and we have an independent budget 
reestimate that is made by the budget process. And as a result 
of changes in condition and changes in portfolio, those numbers 
change. And we have always been honest about that.
    In fact, the conversation we are having here today, we had 
this conversation when the President's budget came out and said 
that we were looking at a $943 million shortfall. I really just 
want to get this on the record because the only difference 
between then and today is that our volume was a little bit less 
in the last quarter than we had anticipated as part of the 
President's budget. I admit that circumstances change, and that 
is what caused the additional--
    Mr. Duffy. But this underscores the point of the testimony 
that we always get. It is a bailout. If it looks like a 
bailout, it walks, it quacks, it is a bailout, just call it a 
bailout. Let me ask you this: What are the terms of repayment 
of the $1.7 billion?
    Ms. Galante. This is exactly why it is not a bailout, 
because again, this is all within the government agency--
    Mr. Duffy. What are the terms of the repayment of taxpayer 
money of $1.7 billion?
    Ms. Galante. The terms are every nickel we ever earn goes 
back to the Federal Government.
    Mr. Duffy. No, no. So are there terms of repayment? No, you 
don't have to repay it, do you? It is a bailout. There might be 
a point in the future where we make a little bit of money and 
we turn it over. But there is no requirement that you pay the 
$1.7 billion back to the American taxpayer, not at all. And so, 
I think the transparency and honesty, stop splicing words, this 
is a bailout, call it what it is.
    Ms. Galante. No, what I am saying is--
    Mr. Duffy. Repay it to a taxpayer.
    Ms. Galante. We have prepaid on this, we pay every year on 
an ongoing basis.
    Mr. Duffy. I only have 15 seconds left. In the PATH Act, we 
discussed a risk-sharing pilot program, is that something you 
would consider at FHA, a risk-sharing pilot program?
    Ms. Galante. I would just say that I think it is worthy of 
looking at, risk sharing, how it is structured, counterparty 
risk, there are a lot of challenges in risk sharing but we 
certainly are willing to look at the parameters.
    Mr. Duffy. I yield back.
    Chairman Hensarling. The time of the gentlemen has expired, 
and to notify our very patient witness, we anticipate two more 
Members to ask questions. The Chair now recognizes the 
gentleman from Washington, Mr. Heck, for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman. Ms. Galante, thank you 
very much for your presence here today. Thanks to the FHA for, 
I believe 40 years ago this very month, enabling me to buy my 
first home, and thank you as well for your kind comments about 
both my role and that of Congressman Fitzpatrick in the earlier 
effort to reform the reverse mortgage market. Indeed, I would 
like to flip that around a little bit and take this opportunity 
to express my gratitude to Congressman Fitzpatrick for his 
exceptional advocacy, and to the members of the industry, the 
reverse mortgage industry, who really stepped up to be a 
constructive part of this, and to you personally as well.
    I don't happen to think your reputation as a public servant 
needs a whole lot of defense, because I frankly think it speaks 
for itself. And if my experience working with you on the 
Reverse Mortgage Reform Act is any indication, it is beyond 
reproach and exceptional, and I thank you for it.
    I thank you as well for the speedy way in which the agency 
moved to implement the Reverse Mortgage Reform Act. I think it 
helps a lot and speaks volumes about the FHA. I think sometimes 
here we, to coin a verb, ``complexify'' things beyond what they 
need.
    So let me see if I can reduce this to its basic elements. 
Do I understand correctly, Ms. Galante, that in the table on 
page 8, as Congressman Sherman was getting at, we could say 
that the accounting transfer was triggered and/or required 
almost entirely as a result of the performance in the HECM 
program?
    Ms. Galante. That is correct.
    Mr. Heck. And is it also true that the accounting transfer 
of $1.7 billion was calculated based on data prior to the 
enactment of the Reverse Mortgage Reform Stabilization Act and 
its implementation?
    Ms. Galante. That is a little more difficult, because I 
would just say that the 1.7, there is an element of the 
receipts that are a little bit less, as I was saying, to an 
earlier question.
    Mr. Heck. And when will an actuarial projection be 
predicated on a full recognition of the implementation of the 
Reverse Mortgage Stabilization Reform Act--I am getting the 
title screwed up, but I think you know what I am referring to.
    Ms. Galante. Just to be clear, the next time you will see 
numbers like this is when the President does the reestimate 
that will be probably, the dates shift a little bit again, 
partly because of the government shutdown, but I would expect 
though reestimates to be available in February or so of next 
year.
    Mr. Heck. And to what degree will that reflect any 
experience for implementation?
    Ms. Galante. It will reflect the projections of what the 
future experience will be, yes.
    Mr. Heck. So do I also understand correctly that when you 
all make money, you transfer back to the Treasury; is that 
correct?
    Ms. Galante. That is correct.
    Mr. Heck. Have you done that in the years leading up to the 
Great Recession?
    Ms. Galante. Yes.
    Mr. Heck. Can you give me some kind of a range of estimate 
about how much money?
    Ms. Galante. I don't have that, we keep it all in the 
capital reserve. The capital reserve went well above the 2 
percent up to I think 8 percent in earlier years.
    Mr. Heck. It does not literally get transferred to other 
accounts?
    Ms. Galante. Again, they are all sitting at Treasury, all 
these accounts are at the Treasury.
    Mr. Heck. Okay. So just to summarize, and please do correct 
me if I am oversimplifying, the requirement for the accounting 
transfer was triggered, in large part, by the experience in the 
Home Equity Conversion Mortgage Program, a problem you 
identified and sought legislation from this Congress, which 
responded with your able assistance, and which you immediately 
implemented, and projections about how FHA's balance sheet will 
be affected by all of that are not going to be made available 
until some time in the winter or spring reflecting the 
corrections to that single program that was dragging you down. 
Do I have that all correct?
    Ms. Galante. Yes, you do, sir.
    Mr. Heck. I think that about says it all. Thank you again 
for your service. With that, Mr. Chairman, I yield back the 
balance of my time.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from Ohio, Mr. Stivers, for 5 
minutes.
    Mr. Stivers. Ms. Galante, I appreciate your willingness to 
be here today, and I appreciate what you do on behalf of the 
Federal Government at FHA. What I want to look at is how FHA 
might be able to improve its performance so that any additional 
infusion of capital--taxpayer capital, whether you want to call 
it a bailout or accounting transfer, it doesn't matter what you 
call it, I want to try to figure out how we can improve your 
performance to avoid it in the future.
    You said during your testimony that you thought FHA had 
taken every reasonable action to improve its risk management. 
And so, I want to look at a few areas. You talked about REO 
real estate that you own. Are you familiar with the GAO report 
from June of 2013--
    Ms. Galante. Yes, I am.
    Mr. Stivers. --that reviewed your practices? And on--page, 
the page number is not here--in one of the highlights here, it 
said that if you had dealt with your dispositions on timelines 
the same way as the Government-Sponsored Enterprises, both 
Fannie and Freddie, that you would have been able to save as 
much as $600 million a year in your cost such as taxes, 
homeowner association fees, maintenance fees, and others, and 
you would have increased your proceeds by up to $400 million. 
It has taken you about a year, taken them about 200 days to 
dispose of their REO real estate.
    Tell me what you have done with that to improve your 
performance going forward. I am not here to blame you, I just 
want to see how we are going to fix it.
    Ms. Galante. Yes, so just to be clear, we changed how we do 
government contracting for those who take responsibility for--
    Mr. Stivers. Have you seen results from that yet?
    Ms. Galante. So, yes. Let me just give you one example. We 
now do an REO alternative disposition called Claims Without 
Conveyance of Title, so not requiring the property to come all 
the way back to us and it enabling our--
    Mr. Stivers. Can I ask you, instead of just one example, 
have you seen your average length of disposition shorten in any 
significant way, or do we not know yet?
    Ms. Galante. Again, in this Claims Without Conveyance of 
Title--
    Mr. Stivers. That will speed things up. I am looking for 
how it moves your average.
    Ms. Galante. Yes, so again our recoveries have improved by 
more than 10 percent on our--by these new recovery strategies 
that we have been going through, both REO and alternatives to 
REO disposition.
    Mr. Stivers. I guess I just ask that you to continue to 
monitor that.
    Ms. Galante. Absolutely.
    Mr. Stivers. And move forward as quickly as you can.
    I would like to you look at the slide up there which shows 
that your capital ratio has continued to worsen, and you did 
talk about premiums and some things had you done. Let's move to 
the next slide really quickly, no, next slide.
    So there were some things that you could have done to 
change your premium, both your up-front premiums and your 
annual premiums, and let's go to one more slide. Look at what 
has happened to interest rates over time, we are at still with 
an uptick over the last few months pretty historically low 
interest rates. You have the ability to--go back one slide, to 
increase your annual fees by another 25 basis points which 
would be a rounding error on the amount that interest rates 
have come down over the last few years. Why have you chosen not 
go ahead and max that out and require less taxpayer infusion, 
whether you call it a bailout or you call it something else?
    Ms. Galante. We have spent an enormous amount of time 
balancing, bringing the fund back as quickly as possible with 
ensuring continued access to credit. And, by the way, just when 
you take a look at what happened when we made our latest 
increases in June and not just premium increases, but our 
policy changes, you saw a huge amount. Our application volume 
dropped off by 50 percent.
    Mr. Stivers. And my time is limited. Let's go back to that 
again.
    Ms. Galante. By the way, I can't see this.
    Mr. Stivers. When you look at how much interest rates have 
come down, and we are talking about rounding errors for those 
25 basis points. And it could have helped you significantly and 
I would ask you to look at that again. And this is, I think, 
the fifth time you have come to testify before the committee in 
my 3 years here, and every time I ask you, so I am going to ask 
you again, why hasn't FHA instituted risk-based pricing yet, 
being that you have had the authority since 2010?
    Ms. Galante. Again, I believe I said this before that FHA 
believes that the way we do pricing and the way we do risk-
based underwriting but not risk based pricing and we do that 
because we think that is in the best interest of the borrowers 
and access to credit. And again, we are always balancing--
    Mr. Stivers. I have limited time. I would argue that you 
should do both. Thank you for your time.
    Ms. Galante. Thank you.
    Chairman Hensarling. The time of the gentleman has expired. 
There are no other Members in the queue, so I would thank Ms. 
Galante again for her testimony and patience today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place her responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    This hearing stands adjourned.
    [Whereupon, at 12:55 p.m., the hearing was adjourned.]










                            A P P E N D I X



                            October 29, 2013




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