[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                      SUSTAINABLE HOUSING FINANCE:
                     PRIVATE SECTOR PERSPECTIVES ON
                    HOUSING FINANCE REFORM, PART II

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         HOUSING AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 2, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-53
                           
                           
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                  Kirsten Sutton Mork, Staff Director
                 Subcommittee on Housing and Insurance

                   SEAN P. DUFFY, Wisconsin, Chairman

DENNIS A. ROSS, Florida, Vice        EMANUEL CLEAVER, Missouri, Ranking 
    Chairman                             Member
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
STEVAN PEARCE, New Mexico            MICHAEL E. CAPUANO, Massachusetts
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
STEVE STIVERS, Ohio                  STEPHEN F. LYNCH, Massachusetts
RANDY HULTGREN, Illinois             JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DANIEL T. KILDEE, Michigan
LEE M. ZELDIN, New York              JOHN K. DELANEY, Maryland
DAVID A. TROTT, Michigan             RUBEN KIHUEN, Nevada
THOMAS MacARTHUR, New Jersey
TED BUDD, North Carolina
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 2, 2017.............................................     1
Appendix:
    November 2, 2017.............................................    41

                               WITNESSES
                       Thursday, November 2, 2017

Stevens, Hon. David H., President and Chief Executive Officer, 
  Mortgage Bankers Association...................................     6
Howard, Jerry, Chief Executive Officer, National Association of 
  Home Builders..................................................     8
Goodwin, Dan, Director of Mortgage Policy, Structured Finance 
  Industry Group.................................................    10
Edelman, Sarah, Director of Housing Policy, Center for American 
  Progress.......................................................    12
Brown, Kevin, Chair, Conventional Financing and Policy Committee, 
  National Association of Realtors...............................    13
DeWitt, Robert, Chairman, National Multifamily Housing Council on 
  behalf of the National Multifamily Housing Council and the 
  National Apartment Association.................................    15

                                APPENDIX

Prepared statements:
    Brown, Kevin.................................................    42
    DeWitt, Robert...............................................    52
    Edelman, Sarah...............................................    93
    Howard, Jerry................................................   105
    Goodwin, Dan.................................................   117
    Stevens, Hon. David H........................................   136

              Additional Material Submitted for the Record

Duffy, Hon. Sean:
    Community Associations Institute: Private Sector Perspectives 
      on Housing Finance Reform..................................   204
Hultgren, Hon. Randy:
    Written responses to questions for the record submitted by 
      Mr. DeWitt.................................................   216
    Written responses to questions for the record submitted by 
      Mr. Stevens................................................   218
    Written responses to questions for the record submitted by 
      Mr. Goodwin................................................   221

 
                      SUSTAINABLE HOUSING FINANCE:
                     PRIVATE SECTOR PERSPECTIVES ON
                    HOUSING FINANCE REFORM, PART II

                              ----------                              


                       Thursday, November 2, 2017

                     U.S. House of Representatives,
                     Subcommittee on Housing and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:03 p.m., in 
room 2129, Rayburn House Office Building, Hon. Sean P. Duffy 
[Chairman of the subcommittee] presiding.
    Present: Representatives Duffy, Ross, Royce, Luetkemeyer, 
Stivers, Hultgren, Rothfus, Zeldin, Trott, MacArthur, Budd, 
Hensarling, Cleaver, Capuano, Sherman, Beatty, Kildee, Kihuen, 
and Green.
    Chairman Duffy. The Subcommittee on Housing and Insurance 
will come to order. Today's hearing is entitled Sustainable 
Housing Finance, Private Sector Perspective on Housing Finance 
Reform 2.0.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. Without objection, all 
members will have 5 legislative days within which to submit 
extraneous materials to the Chair for inclusion in the record. 
Without objection, members of the full committee who are not 
members of this subcommittee may participate in today's hearing 
for the purpose of making an opening statement and questioning 
the witnesses.
    Now, the Chair now recognizes himself for 3 minutes for an 
opening statement.
    I first want to thank our panel for their participation in 
today's subcommittee hearing. This is our second in our series 
on housing finance reform. For those of you who may have 
watched the hearing last week, I think you might have noticed a 
common theme and that theme was expected from many of us. I 
suspect that you will hear similar themes today and probably 
similar questions from the panel today for all of you. But we 
are looking for your feedback and what is most important to 
your organizations as we craft our vision for housing finance 
reform.
    I want to be clear that I believe that if we are going to 
be successful not just in the House but in the Senate, we have 
to address this on a bipartisan level. And that is why Mr. 
Cleaver and I have been working on scheduling meetings and 
seeing if we can start painting off the same canvas as we look 
at housing finance reform. Obviously, we are better off being 
nonpartisan and actually having a housing finance reform that 
works for the American people.
    In reforming housing finance, we have to figure out how to 
get private capital back into the system. That means we have to 
provide certainty to investors that will track private capital 
by making the rules of housing finance system transparent and 
enforceable.
    I believe the government can help in providing that 
certainty to the marketplace at the catastrophic level. While I 
expect to hear from some of our panelists that the government 
should give an explicit guarantee on mortgage-backed 
securities, we must also ensure that our taxpayers are 
protected. I want to know that your vision of--I want to know 
what your vision of a guarantee is and at what level should 
that guarantee actually kick in. What does it look like?
    I hope that you will all agree with me that any housing 
finance reform should be based on market discipline. We have 
learned from the lessons of the past and need to ensure that 
private shareholders are not able to profit in good times, but 
when times go bad, they leave taxpayers holding the bag. The 
concept that we have capitalism on the way up and socialism on 
the way down, I would argue doesn't work well for anybody. We 
absolutely have to deal with Fannie and Freddie. This is 
consistent with what you have heard, rom both sides of the 
aisle. We can't have these entities exist as they are today and 
continue to grow. Their risk is ultimately borne by the 
taxpayer in the form of a bailout should we see another 2008-
esque crisis.
    And finally, we have to address the FHA (Federal Housing 
Administration). Since the crisis, the FHA has grown from a 
program for helping first-time home buyers and has expanded 
into availability for higher income individuals. Ultimately, 
this is crowding out the private sector.
    So I am looking forward to a vigorous, frank, lively, 
honest discussion today with all of you. This is your 
opportunity to give us your feedback on what you think housing 
finance reform should look like. So we can hit some 30,000-foot 
points. But also, it is nice to get into the weeds on the finer 
points of the housing finance.
    So I thank you all for coming. My time has expired. I now 
recognize the Ranking Member, the gentleman from Missouri, Mr. 
Cleaver, for 4 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman. Thank those of you 
who come to provide us with testimony that will help us 
eventually deal seriously with some of the problems that all of 
us are familiar with. And I think the Chair is absolutely right 
that, if we can continue to work together, I think the two of 
us can for sure, but if we can get partners who are willing to 
work, we can come up with something that would be good for the 
country. And it also gives us the time to hear stakeholders' 
input on housing finance reform.
    It has been 9 years since Fannie Mae and Freddie Mac were 
put in conservatorship. Though a number of reforms have been 
put in place during that time, this arrangement, I can assure 
you, was never intend to be permanent. This hearing will give 
us a chance to assess many of the GSE (government-sponsored 
enterprise) reform proposals that have been offered by you, our 
witnesses. And as I mentioned last week, I remain hopeful that 
this committee will be able to work together in a bipartisan 
manner to reform the housing finance system. At the forefront 
of this conversation should be the need for this subcommittee, 
and Congress, as a whole, to preserve the 30-year fixed 
mortgage. This has played a crucial role in helping families 
purchase homes and in financially muscling up the middle class. 
Any attempt to dismantle it I believe could have a devastating 
impact on our communities and in the housing market.
    The rates for homeownership have already been in decline, 
and we need to take steps to improve access to mortgage credit, 
not just for the wealthy but all. Communities of color struggle 
to gain access to housing market, and our efforts need to 
improve on this.
    As this conversation continues, Mr. Chairman, I look 
forward to working with you, and I would yield the remaining 
time to Mr. Sherman from California.
    Mr. Sherman. Thank you. We are focused on sustainable 
housing finance, the old system.
    Chairman Duffy. Mr. Chairman, could I just interrupt? I 
know you are going to get a minute as well. Maybe we just yield 
all 3 minutes to you at this time so we don't break up your 
opening.
    Mr. Sherman. Oh, thank you.
    Chairman Duffy. So yield the gentleman from California for 
3 minutes.
    Mr. Sherman. Thank you.
    What was not sustainable is the old system where Fannie and 
Freddie had private shareholders and private management, and 
the upside went to the private sector and the downside went to 
the public sector. What is sustainable is what we have now: 
Basically government entities ensuring loans. This will sustain 
our current system of a 30-year fixed-rate pre-payable mortgage 
which is what our constituents expect. It not only is 
sustainable, but it provides a role for the private sector.
    There are trillions of dollars of private sector money 
invested in home mortgages today, most of it where Fannie and 
Freddie are guaranteeing the bond. But keep in mind, it is the 
private sector taking the interest rate risk. And it is this 
allocation where a government agency ensures the debt risk, the 
private sector assumes the risk that interest rates will go up 
but the mortgage will be paid over 30 years. That is working 
and working well. What is not, there are two risks to 
sustainability. The first is the tax bill that was released 
limiting the home mortgage deduction to $500,000 unindexed, 
which means that is 10 years from now, 12 years from now, a 
quarter million dollars. Also, it is deceptive in that it says 
if you have a mortgage now that is over $500,000, you are fine 
except when you go to sell your house. And no one can buy it at 
today's prices, and so the value of that house goes down.
    And that poses a risk not only to home buyers and home 
sellers in communities. But if I can think of any risk to 
Fannie and Freddie, it is the decline in home values that will 
occur if a tax bill takes away the home mortgage deduction from 
a big part of the market, including homes in LA County that are 
below average in price where our median home income is way 
above $600,000.
    Second, we have a system dealing with subprime mortgages 
where we still have the issuer selecting and paying the bond 
rating agency. The last time we tried that, we got bond rating 
agencies giving Aaa to Alt-A, and they will do it again once 
memory fades. We need a system where, if you need a bond rating 
agency to rate mortgage-backed securities that are difficult to 
value, that are not prime, that are not guaranteed, that the 
bond rating agency is not beholden to the issuer, it is not 
selected by the issuer, and does not generate more profits by 
getting more issuers to select them.
    So I look forward to these hearings, and I thank the Chair 
and Ranking Member for the time.
    Chairman Duffy. The gentleman yields back. The Chair now 
recognizes the Vice Chair of the subcommittee, the gentleman 
from Florida, Mr. Ross, for 2 minutes.
    Mr. Ross. Thank you, Chairman, and thank the witnesses for 
being here today.
    We spend a great deal of time discussing things which we 
are divided. But I feel that obscures where we are really all 
in agreement. First, people should be able to afford a place to 
live. Second, homeownership is important not only for home 
buyers but also for communities and businesses that rely on a 
flourishing housing market. Third, losing a home, whether it be 
through a natural disaster or through a financial crisis, is a 
tragedy, the root causes of which should never be the 
consequences of misguided Federal policy. I think we all agree 
on that.
    I think there is even consensus that our current housing 
finance system is unsustainable. The question is how do we 
proceed? We have enjoyed a lot of benefits from the GSEs since 
they were first formed. But the financial crisis revealed a 
massive downside. I believe we can find a path to a more 
sustainable, more robust housing financing policy by steadily 
moving the government away from its historical role in 
rewarding the GSE's risk taking.
    I say it all the time: America should be the home of risk 
takers, but those risks shouldn't be suicidal. Ultimately, I 
would like to see a system which Fannie and Freddie and their 
shareholders are responsible for their own risks and not taking 
those risks with a nudge and a wink at the U.S. taxpayers.
    According to AEI's Edward Pinto and Peter Wallison, in June 
2008, before the crisis, 56 percent of all U.S. mortgages were 
subprime or otherwise low quality. Of these, 76 percent were on 
the books of government agencies or institutions that were 
controlled by government policies with the GSE's holding or 
guaranteeing about two-thirds. The common denominator is 
government policy which means that it is our responsibility as 
legislators to think critically about what needs to change.
    When I ask why we are encouraging these loans, I am not 
denying the need for affordable housing. Rather, I want to make 
sure that we are not committing the moral hazard of putting 
people in a bad situation, one where they have no choice but to 
default. In that circumstance, no one succeeds.
    We all want America to be able to own that slice of the 
American dream. We all want to empower the housing market to 
thrive, and we all want to make sure that no one loses their 
home. But time and again, Americans have seen their Federal 
Government engage or incentivize risky and reckless lending. We 
need to find a better way that doesn't lead people into 
trouble. We need to find a better way to protect taxpayers. I 
believe we can work together toward that solution, and I yield 
back.
    Chairman Duffy. The gentleman yields back.
    Mr. Royce. Mr. Chairman, could I ask unanimous consent for 
1 minute to address the committee?
    Chairman Duffy. Without objection.
    Hearing none, the gentleman from California is recognized 
for 1 minute.
    Mr. Royce. Well, thank you, Mr. Chairman. And thanks for 
this hearing.
    Housing finance reform remains the great undone work of the 
financial crisis. And a nationalized mortgage market, frankly, 
is an unsustainable status quo. Sadly, the situation we find 
ourselves in today was a predictable one. In 2003, I introduced 
legislation and again in 2005 which would have reined in the 
GSEs allowing them to be regulated for systemic risk. Alan 
Greenspan backed my amendment, but it was not enough to 
overcome the outsized political pressure brought by the GSEs 
themselves.
    While claiming that Fannie and Freddie posed no threat to 
the financial markets and the systemic risk was a theoretical 
term, the opponents of my amendment won the day. But they do 
not have to win today. We have a chance to learn from the past 
and to put to rest the model of private gains and public losses 
once and for all. Increasing private sector involvement in the 
secondary housing market through increased credit risk transfer 
and a truly common securitization platform is the first step in 
presenting another bailout paid for by the American taxpayers.
    Thank you, Mr. Chairman.
    Chairman Duffy. The gentleman yields back.
    Mr. Kildee. Mr. Chairman, I also ask unanimous consent to 
speak for 1 minute.
    Chairman Duffy. The Chair now recognizes the Vice Ranking 
Member of the committee for 1 minute.
    Mr. Kildee. Is that right? You can say Assistant to the 
Regional Manager, if you would like.
    Chairman Duffy. Duly noted.
    Mr. Kildee. Thank you, Mr. Chairman. I appreciate it.
    And I just want to raise an issue, and I know this is 
obviously a really important topic. It is the topic that 
attracted me to this committee in the first place, and it is a 
subject that obviously I think we should spend significantly 
more time on.
    The particular point that I want to make is that, when it 
comes to questions around housing finance, I want to caution us 
to keep in mind that even in periods where data might suggest 
that there is a return of functionality to the marketplace, and 
I think we have seen some resettling of the market post crisis, 
that there are particular regions and within communities 
particular--or within regions, particular communities that have 
really yet to recover from not only the crisis, the acute 
crisis that we faced starting in 2007, 2008, but from the long 
slide that those communities had experienced even leading up to 
that crisis.
    The chronic housing crisis in older cities, distressed 
communities, was made worse and, in fact, exacerbated in ways 
that they haven't yet recovered from in--as a result of the 
acute crisis. So if you can address in your comments the 
particular needs in weak markets, I think it would be really 
helpful. And I appreciate the indulgence of the Chairman.
    I yield back.
    Chairman Duffy. The gentleman from Michigan's time has 
expired.
    We now welcome our panel today, which is a large panel for 
this subcommittee. We welcome our first witness, Mr. David 
Stevens President and CEO of the Mortgage Bankers Association.
    Our next witness, Mr. Jerry Howard, CEO of the National 
Association of Home Builders.
    Our third witness, Mr. Daniel Goodwin, is the Director of 
Mortgage Policy for the Structured Finance Industry Group.
    We next have Sarah Edelman, the Director of Housing Policy 
at the Center for American Progress.
    Then we have Mr. Kevin Brown, Chairman of the National 
Association of Realtors, Conventional Financing and Policy 
Committee.
    And finally last but not least, Mr. Robert DeWitt, 
President and CEO of the GID Investment Advisors on behalf of 
the National Multifamily Housing Council and the National 
Apartment Association.
    To all of you, welcome.
    In a moment, the witnesses will be recognized for 5 minutes 
to give an oral presentation of their testimony. Without 
objection, the witnesses' written statements will be made part 
of the record following their oral remarks. Once the witnesses 
have finished presenting their testimony, each member of the 
subcommittee will have 5 minutes within which to ask all of you 
questions.
    I would just note that, on your table, there are three 
lights. The green light means go, the yellow light means you 
have 1 minute left, and the red light means your time is up. So 
I will try to pay attention to the lights up here. But if you 
would help and pay attention from your position, that would be 
helpful. Your microphones are sensitive. So you want to make 
sure that you are speaking directly into them.
    And if I could just make one note to our panel, I believe 
that votes are going to be called in roughly 10 minutes. So we 
are not trying to be rude, but we will have a couple votes on 
the floor. I think we have a House picture that is also going 
to be taken, which can take a lot of time, or it can take not 
much time. But we will get back as quickly as possible. So we 
should be able to get through most of the panel, but we may not 
get through all of it, just for your information.
    With that, Mr. Stevens, you are recognized for 5 minutes.


           STATEMENT OF THE HONORABLE DAVID H. STEVENS

    Mr. Stevens. Thank you. Thank you, Chairman Duffy. Thank 
you, Ranking Member Cleaver, members of the subcommittee. Thank 
you for the opportunity to testify here today.
    Nine years have passed since the GSEs were placed in 
conservatorship, and yet their long-term status remains 
unresolved. Extending conservatorship is economically and 
politically unsustainable, and it is an unacceptable long-term 
outcome. Without comprehensive reform, borrowers, taxpayers, 
and lenders will all face increased risk and uncertainty about 
the future.
    I will cut right to the chase: The time to act on 
comprehensive legislative reform is now. Despite the positive 
steps FHFA (Federal Housing Finance Agency) has taken as 
conservator, only Congress can provide the legitimacy and 
public confidence needed for long-term stability in both the 
primary and secondary mortgage markets. That is why, to build 
on prior work surrounding GSE reform, and in the hopes of 
spurring legislative action, MBA (Mortgage Bankers Association) 
convened a task force reflecting the full composition of MBA's 
membership: Residential and multifamily, bank and nonbank, 
small, medium, and large. Our task force truly represented the 
full depth and breadth of the entire real estate finance 
industry rather than the narrow interest of any one specific 
market segment.
    We tasked this group with developing a proposal that would 
address the future of the secondary mortgage market and, in 
particular, an end-state model that can also fulfill an 
affordable housing mission. Our proposal, which I have included 
as part of my written testimony, ensures equitable access for 
all lenders to the secondary market, prohibiting special 
pricing or underwriting deals based on loan volume as occurred 
prior to the conservatorship, preserving the cash window, small 
pool execution options, and eliminating the opportunity for 
vertical integration by the largest market participants.
    Our proposal recognizes the need for any comprehensive GSE 
reform plan to balance three major priorities: Consumer cost 
and access to credit, taxpayer protection, and investor 
confidence. To achieve these policy objectives, MBA's plan 
recommends recasting the GSE's current charters and allowing a 
multiple guarantor model that features at least two entities 
and preferably more. Guarantors would be monoline, regulated 
utilities owned by private shareholders operating in the 
single-family and multifamily markets. The core justification 
for a utility style regulation is that privately owned 
utilities attract patient capital and derive certain benefits 
by virtue of their Federal charters. The guarantors would be 
subject to rigorous capital requirements that would provide 
financial stability without unduly raising the cost of credit 
for borrowers.
    These requirements would be satisfied through multiple 
layers of private capital including proven means of credit risk 
transfer. The implicit government guarantee that existed before 
the conservatorship of Fannie Mae and Freddie Mac would be 
replaced with the legislated explicit guarantee only on the 
mortgage-backed securities. The guarantee would be supported by 
a Federal insurance fund with appropriately priced premiums 
paid by the guarantors, much like banks pay for FDIC insurance.
    Our plan explicitly calls for deeper first loss risk 
sharing that is transparent, scaleable to all lenders, and 
capable of limiting taxpayer exposure to only catastrophic 
risk. The task force also developed recommendations in two 
areas that have vexed past reform efforts. One, the appropriate 
transition to a new system, and, two, the role of the secondary 
market in advancing national affordable housing strategies.
    Our proposal specifically notes the importance of 
leveraging the assets, infrastructure, regulatory framework, 
and more of the current system. We also believe that any 
workable transition must utilize a clear roadmap and be 
multiyear in nature. We developed an affordable housing 
framework that covers both renters and homeowners of various 
income levels. Our plan suggests other improvements to better 
serve the full continuum of households including updating 
credit scoring models and better capturing nontraditional 
income. Our framework has outcomes that are transparent, well-
defined, measurable, and enforceable.
    Mr. Chairman, as I noted, FHFA has put in place a number of 
policies and procedures to improve access to the secondary 
market and reduce risk to taxpayers. Now is the time for 
Congress to act and lock in these improvements. Only Congress 
can alter the existing charters, establish an explicit Federal 
Government guarantee, and create a regulatory mandate to 
maintain a level playing field amongst all lenders. We cannot 
go back to a housing finance system that provides private gains 
when markets are strong yet relies on taxpayers when losses 
occur.
    Calls to simply recapitalize the GSEs and allow them to 
operate without further structural changes are misguided. Under 
such plans, the post-crisis administrative reforms already 
achieved could be reversed by regulation. The American people 
rely on a mortgage finance system that enables them to access 
quality, affordable rental housing, buy their first home, or 
build a nest egg for their children. We owe it to them to 
proceed with the hard work of reform without delay.
    Thank you again for the opportunity to testify, and we are 
committed to work with you and the committee as you further 
this endeavor.
    [The prepared statement of Mr. Stevens can be found on page 
136 of the Appendix]
    Chairman Duffy. Thank you.
    Mr. Howard, you are recognized for 5 minutes.


                    STATEMENT OF JERRY HOWARD

    Mr. Howard. Mr. Chairman, Ranking Member Cleaver, members 
of the subcommittee, NAHB (National Association of Home 
Builders) is proud to have the opportunity to appear here 
before you today.
    We applaud you, Mr. Chairman, Mr. Hensarling, and the 
others for the work you have already done in helping to advance 
the debate on housing finance reform.
    NAHB also believes that 9 years in conservatorship is too 
much. And we believe that it is time now to move forward, and 
we are eager to be a constructive partner. While some have 
called on the FHFA director to allow Fannie and Freddie to 
recapitalize in order to avert a need for further draw from 
Treasury, NAHB believes that this would be counterproductive to 
achieving comprehensive housing finance reform. Allowing the 
enterprises to recapitalize would encourage their release from 
conservatorship prior to meeting full reform, and would 
reestablish the failed GSE model.
    To ensure a stable housing finance system that will support 
home ownership and affordable multifamily housing in America, 
Congress must fix the structural flaws inherent in Fannie and 
Freddie's charters, though they contributed so significantly to 
the housing finance crisis. Regulatory solutions or piecemeal 
legislative steps are simply not adequate.
    NAHB believes strongly that a bipartisan legislative 
solution would not only protect the American taxpayer who, 
absent reform, is on the hook for any losses stemming from the 
$6.29 trillion in federally guaranteed mortgages, but the 
legislative fix would also ensure that the housing finance 
market has a reliable and adequate flow of affordable housing 
credit that would not face uncertain availability from one 
administration to another.
    As an organization representing members who construct 
approximately 80 percent of all new housing, single and 
multifamily, NAHB's priority in the system is to ensure 
liquidity for the housing sector in all markets throughout 
every economic cycle. This is only possible if the market 
participants know that there is a Federal Government backstop 
that will maintain stability in catastrophic circumstances.
    While NAHB agrees that the current degree of government 
intervention is unsustainable, an ongoing though more limited 
government role must be maintained to avoid future 
interruptions in the flow of credit to mortgage borrowers.
    Since 2008, numerous lawmakers, housing and consumer 
advocates, academic and industry stakeholders have proposed 
plans for a reformed housing finance system. NAHB members 
themselves have spent countless hours debating reform 
proposals, crafting our own proposal, and generally seeking a 
bipartisan road forward. Many of the early reform proposals 
called for a complete restructuring of the secondary market, 
and several proposed a full dismantling of both enterprises. 
These plans were untested, often complex, and would have 
required a transition that could have been considerably 
disruptive to the housing finance market.
    Thankfully, over the past 9 years in the light of 
regulatory and policy changes throughout the industry, the 
continued functioning of the mortgage market, there has been a 
gradual moderating of the approach to reform. And consensus is 
forming around broad principles. Importantly, recent proposals 
call for legislation that preserves areas of the market that 
are working, including the significant infrastructure and 
resources of Fannie and Freddie themselves.
    Of specific note, many plans include the following key 
elements that are consistent within NAHB's vision. One, an 
insurance fund capitalized by market participants that would 
stand in front of the Federal Government explicit backstop. The 
Federal Government and taxpayers would be at risk only in the 
case of catastrophic loss. Two, the system will rely primarily 
on private capital. Three, the Federal Government backstop 
would apply to mortgage-backed securities but not to the 
private companies themselves. Four, there would be a level 
playing field for lenders of all sizes. Five, the enterprises 
or their successors must have appropriate capital requirements. 
And, six, government-supported securities would be backed by 
single-family loans that meet qualified mortgage requirements 
as well as prudently underwritten multifamily mortgages. 
Finally, number seven, there should be careful transition to 
avoid market disruptions.
    Mr. Chairman, given the significant role that housing 
finance plays in the economy and that housing itself plays, we 
urge this committee and Congress to take a long-term holistic 
approach to housing finance system reform.
    We thank the committee for its leadership on this issue and 
stand ready to work with you to achieve such reforms and 
provide certainty and stability to this critical sector of the 
economy. Thank you.
    [The prepared statement of Mr. Howard can be found on page 
105 of the Appendix]
    Chairman Duffy. Thank you, Mr. Howard.
    Mr. Goodwin, you are recognized for 5 minutes.


                    STATEMENT OF DAN GOODWIN

    Mr. Goodwin. Chairman Duffy, Ranking Member Cleaver, and 
members of the subcommittee, thank you for the opportunity to 
testify today. My name is Daniel Goodwin, and I am the director 
of the Mortgage Policy, Structured Finance Group. SFIG is a 
trade association that represents over 350 corporate members 
from all sectors of the structured finance and securitization 
market. A key element of SFIG's mission is to educate and 
advocate on behalf of the structured finance and securitization 
industry with respect to policy, legal, regulatory, and other 
matters affecting the securitization markets.
    I thank you for the opportunity to address the committee 
regarding housing finance reform, including finding an 
appropriate balance of private and public funding for the 
housing finance system.
    The disproportionately large role of the government in 
today's housing finance system is the outcome of many factors, 
but it is inarguably in an unhealthy condition. SFIG believes 
this condition can be remedied but must be done in a manner 
which minimizes market volatility and keeps credit flowing.
    In considering reforms inherently critical to the U.S. 
housing market and the economy as a whole, we suggest there is 
a guiding principle that should be considered. In order to 
provide consumers access to credit at competitive rates, there 
must be a stable, liquid, and efficient market. This market 
must allow responsible lenders to compare funding costs easily 
across competing sources and readily access those same funding 
sources on a level playing field.
    Historically, these funding sources have fallen under two 
broad categories: Publicly supported funding and privately 
supported funding. Any considerations of housing reform should 
encourage a healthy and sustainable mix of both, eliminate 
hidden or implied guarantees or subsidies which may distort 
costs and minimize the risk to taxpayers and the economy.
    We strongly encourage steps to restore the private-label 
securitization market in order to remove risk from the 
taxpayers, diversify economic risk, encourage economic 
innovation, and ultimately reduce borrowing costs. We also 
believe that the continued presence of publicly supported 
funding is essential to act as a source of 30-year fixed-rate 
mortgage credit, support affordable housing goals, provide 
countercyclical stability, and support the TBA (to be 
announced) market.
    As detailed in my written testimony, this smooth 
functioning of the TBA market is critical in that it is the 
cheapest and most efficient way for mortgage borrowers and 
lenders to lock in an interest rate when a mortgage loan is 
approved thereby minimizing the cost of borrowing passed on to 
the consumer.
    The TBA market is dependent on a government guarantee 
making it imperative that any reform legislation include 
provisions that preserve such a guarantee. Also, without the 
backing of the Federal Government, it is unlikely that the 30-
year fixed-rate mortgage would exist in its current state. The 
30-year fixed-rate mortgage is an essential financing tool for 
home buyers. The fixed interest rate provides certainty 
allowing a family to budget their housing costs and make long-
term financial plans without the fear of future interest rate 
swings. While the government guarantee provides significant 
benefits that should be maintained, in some ways, private 
capital has been crowded out. SFIG believes we should strive to 
encourage an appropriate and healthy balance between public and 
private funding to protect the taxpayer, promote competition, 
and drive innovation.
    The GSE's credit risk transfer programs are examples of 
notable success in the reintroduction of private capital into 
the mortgage market. Those programs have clearly demonstrated 
that there is private capital eager to invest in newly 
originated mortgaged credit risk so long as investors feel 
their interests are protected and there is a reasonable amount 
of regulatory and legal certainty.
    We believe that the GSE should build on their success and 
expand their programs to include an even greater percentage of 
their portfolios, perhaps even explore selling more of the 
existing risk they retain on the CRTs (credit risk transfers) 
to further reduce risk to the taxpayer. It is important to note 
that CRT, although reliant on private capital, is not a 
replacement for private label securitization. The PLS market 
once represented a far greater share of the mortgage funding 
ecosystem. Market excesses and bad actors across the mortgage 
market led to the collapse in housing that fed the Great 
Recession. In response to that crisis, legislation and 
regulation were put into place with the goal of preventing the 
kinds of excesses we witnessed a decade ago.
    Despite the imposition of significant regulation, this 
market has not recovered. However, it has begun to show green 
shoots, and we should seek ways to encourage responsible 
growth. Areas for consideration are capital relief for non-GSE 
issuers of credit, paring back certain onerous capital and 
liquidity standards, and reducing conforming loan limits.
    As this committee is considering housing finance reform and 
ways to attract private capital, lawmakers should review 
policies which may have created an uneven playing field or 
inadvertent biases.
    Thank you again for the opportunity to testify, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Goodwin can be found on page 
117 of the Appendix]
    Chairman Duffy. Thank you, Mr. Goodwin.
    Ms. Edelman, you are recognized for 5 minutes.


                   STATEMENT OF SARAH EDELMAN

    Ms. Edelman. Thank you, Chairman Duffy, Ranking Member 
Cleaver, and members of the House Subcommittee on Housing and 
Insurance. My name is Sarah Edelman, and I am the director of 
Housing Policy at the Center for American Progress.
    I am here today to remind you that what matters most in a 
discussion about the housing finance system is whether the 
families you represent can get a sustainable mortgage 
regardless of where they live or whether they are wealthy and, 
until they are qualified to buy, that they can find an 
affordable rental.
    The housing finance system determines who can borrow money, 
what they will pay, and whether financing is available for 
affordable rental housing. As Congress considers how to 
strengthen the housing finance market for decades to come, we 
offer the following three recommendations.
    First, policymakers should build on what has worked. Prior 
to the 1930s, home ownership was only an option to those who 
could make a 40 percent down payment. And even then they had to 
repay or refinance within just a few years. Starting in the 
1930s, the Federal Government began supporting affordable home 
ownership through Federal mortgage insurance programs and 
through the government-chartered enterprises Fannie Mae and 
Freddie Mac. These interventions helped to grow the middle 
class significantly. Going forward, the enterprises or their 
successors should retain their strong mission as well as the 
tools to deliver on a mission that has served America well.
    Second, Congress should support reforms already underway to 
fix what hasn't worked and consider new reforms where 
appropriate. The housing crisis was not caused by Fannie Mae or 
Freddie Mac. As detailed in my written testimony, the problems 
that caused the crisis arose from the private label 
securitization system and predatory lending practices. While 
Fannie Mae and Freddie Mac didn't cause the crisis, though, 
they did stray from their mission in the years leading up to 
it. And as the private securitization market grew, their income 
declined and they made bad business decisions to generate quick 
profits and to please shareholders. These decisions eventually 
landed them in conservatorship.
    Since the crisis, Congress has taken important steps to 
reform the housing finance system. Congress established 
protections for consumers and reined in Wall Street through the 
Dodd-Frank Wall Street Reform and Consumer Protection Act. 
Congress also passed the Housing and Economic Recovery Act 
which established a strong regulator, the FHFA, to oversee the 
enterprises. Left for Congress to address are the shareholder 
incentives that could drive bad decisions at the enterprises or 
their successors. And Congress also needs to decide how to 
ensure that the government guarantee, which was implicit for 
decades, is paid for.
    Finally, as Congress considers reforms, policymakers need 
to make sure that they don't make changes to the system that 
could actually make matters worse for consumers, taxpayers, and 
the housing market. For instance, several of the proposals 
under consideration make the mistake of setting competition as 
a goal of housing finance reform. It was not the lack of 
competition in the secondary market that caused a crisis, and a 
larger number of firms guaranteeing or issuing government-
backed securities will not necessarily make taxpayers safer. As 
finance expert and former SFIG executive committee member 
Andrew Davidson explains in a new paper, even if there are 
multiple guarantor entities, it is likely that if one is 
failing that the others are likely to be under pressure. 
Government might still have to intervene. Further, the risk 
isn't just that they fail but the damage that is done as they 
race toward bottom.
    Our concern is that these proposed structures may create 
conditions for the irresponsible behavior we saw in the 
private-label securitization market in the lead up to the 
crisis, except this time, the securities will be guaranteed by 
the Federal Government. Congress should also help ensure that 
mortgage pricing is relatively stable and homogenous across the 
market. This is important for a healthy mortgage market and for 
ensuring that working families continue to have access to 
fairly priced mortgage credit.
    In recent years, the GSEs have shifted toward pricing risk 
at the loan level which has raised costs significantly for 
borrowers with average credit scores. Instead, the cost of 
ensuring risk should be spread more evenly across all 
borrowers. Any reforms considered by Congress should encourage 
fair pricing and should not solidify the current practices or 
move further toward a market where only the wealthiest among us 
can get a mortgage at a fair price.
    Thank you for the opportunity to be here and for your 
efforts to strengthen the housing market. How you decide to 
proceed will have consequences for America's home buyers and 
renters alike, and we look forward to working together.
    [The prepared statement of Ms. Edelman can be found on page 
93 of the Appendix]
    Chairman Duffy. Mr. Brown, you are recognized for 5 
minutes.


                    STATEMENT OF KEVIN BROWN

    Mr. Brown. Chairman Duffy, Ranking Member Cleaver, and 
members of the subcommittee, my name is Kevin Brown. I am 
currently the Chairman of the National Association of Realtors 
(NAR) Conventional Finance and Policy Committee, and I served 
as a president of the California Association of Realtors in 
2014. I am the broker of Better Homes Realty, Rockridge, in 
Oakland, California, and I have over 39 years of experience 
servicing the cities of Oakland, Berkeley, Albany, El Cerrito, 
and Sacramento in California, and the city of Portland in 
Oregon.
    NAR is America's largest trade association. Realtors are 
involved in all aspects of both the residential and commercial 
real estate industries. I would like to start by thanking 
Chairman Duffy and Committee Chairman Hensarling for your 
leadership on flood insurance. It was a pleasure collaborating 
with both of you and your staff on this important issue. NAR 
looks forward to working closely together on housing finance 
reform as well.
    As part of the comprehensive housing finance reform, 
Realtors believe that it is crucial for Congress to ensure that 
affordable mortgage capital will always remain available in all 
markets for creditworthy Americans. In order to ensure a steady 
flow of affordable mortgage capital in both good times and bad, 
NAR believes that Congress must include an explicit government 
guarantee for the future housing finance system. Moreover, 
Realtors believe the enterprise that should be converted into 
government charted, nonshareholder-owned authorities that are 
subject to tighter regulation on products, profitability in 
minimal retained portfolio practices in a way that ensure the 
protection of taxpayers' moneys.
    Realtors believe that any entity with private profits that 
are implicitly backed by public losses, as enterprises were 
structured before the conservatorship, is flawed and 
problematic. This model allows enterprises to take excessive 
risk, focus on revenue and profit generation based on 
assumptions that taxpayers would step in when the losses begin 
to mount. Additionally, realtors desire a smooth transition 
that will pose the least amount of market disruption.
    As mentioned earlier, realtors strongly support a secondary 
mortgage market model that maintains an explicit government 
guarantee. That guarantee will protect taxpayers by ensuring 
that all creditworthy consumers have reasonable access to 
affordable mortgage capital so that they too can attain the 
American dream of home ownership. Furthermore, NAR urges 
Congress to address the enterprise's declining capital.
    Under the terms of their agreements with U.S. Treasury, the 
enterprise's capital reserves will decline to 0 on January 1, 
2018. It is important to have a buffer between any losses and 
the taxpayer. This is especially the case if comprehensive 
housing finance reform legislation has not yet been adopted. It 
makes sense to build that buffer now while the enterprises have 
positive cash-flows. To address this concern, a prudent 
intermediate step would be to establish a mortgage market 
liquidity fund, or MMLF, through legislation or under existing 
regulatory authority. A portion of the enterprise's profits 
could be deposited into the fund controlled by FHFA director 
which could cover future losses due to market fluctuations as I 
have described.
    The FHFA director could release funds from this account to 
buffer against further U.S. Treasury involvement. As a result, 
some capital will be in place to avoid significant market 
disruption and provides Congress with the necessary time to 
enact comprehensive housing finance reform. Realtors recognize 
that this is an extensive and important conversation regarding 
how we mend and improve a housing finance system that can serve 
us well into the future. Realtors believe that recommendations 
provided today will help commerce and our industry partners 
design a secondary mortgage model that will be in our Nation's 
best interest today and in the future.
    Thank you for the opportunity to testify, and I look 
forward to answering any questions.
    [The prepared statement of Mr. Brown can be found on page 
42 of the Appendix]
    Chairman Duffy. Thank you, Mr. Brown.
    Mr. DeWitt, you are recognized for 5 minutes.


                   STATEMENT OF ROBERT DEWITT

    Mr. DeWitt. Thank you, Chairman Duffy, Ranking Member 
Cleaver, and Ranking Member Waters, and members of the 
subcommittee. It is my privilege to appear before you on behalf 
of the National Multifamily Housing Council and the National 
Apartment Association to provide the multifamily industry's 
perspective on housing finance reform.
    My name is Bob DeWitt, and I am the President and CEO of 
GID, a Boston-based owner/operator/developer of multifamily 
properties. I serve currently as the Chairman of the National 
Multifamily Housing Council.
    The apartment sector is a competitive and robust industry 
that helps nearly 39 million people live in homes that are 
right for them. We help build vibrant communities by offering 
housing choice, supporting local small businesses, creating 
millions of jobs, and contributing to the fabric of communities 
across the country. Today we are experiencing fundamental 
shifts in our housing dynamics as more people are moving away 
from buying houses and choosing to rent apartments. More than 
one in three Americans rent, and 19 million of those households 
are building their lives in apartments.
    In the past 5 years, an average of 600,000 new renter 
households were formed every year. This increased demand will 
generate a need for 4.6 million new apartments at all price 
points by 2030. To meet that demand, we will need to build an 
average of at least 325,000 new apartment units every year. 
Yet, on average, just 244,000 apartments have been built from 
2012 through 2016.
    The apartment industry is extremely capital-intensive; 
therefore, it is critical that housing finance reform provide 
consistent access to debt capital across geographies, markets, 
and product types if we are going to meet the current and 
future demand for rental housing in America.
    Today, private capital dominates multifamily markets. 
Banks, insurance companies, commercial mortgage-backed 
securities, and, to a lesser extent, pension funds and private 
mortgage companies are all key sources of capital for the 
multifamily industry.
    Unfortunately, private capital alone is insufficient. Even 
during healthy times, the private market has been unwilling or 
unable to meet the totality of the multifamily industry's 
capital needs. For example, banks are limited by capital 
requirements and have rarely been the source of long-term fixed 
rate financing. Life insurance companies typically comprise 
less than 10 percent of the market and finance only higher-end 
properties. And CMBS (commercial mortgage-backed securities) 
has also not fully returned to pre-crisis levels.
    As this committee considers housing finance reform, it is 
critical to remember the enterprises have ensured capital 
availability regardless of prevailing economic conditions. They 
have operated with great distinction even during the financial 
crisis, and the committee should build on the success to ensure 
liquidity, stability, and affordability in a growing 
multifamily housing market.
    In this regard, we urge you to consider the following key 
six principles. First and foremost, it is essential that a 
reformed housing finance system maintain an explicit paid-for 
Federal guarantee for multifamily backed mortgage securities 
available in all markets at all times.
    Second, recognizing the inherent differences between the 
single family and the multifamily sectors both in how we 
operate and how they have performed will require different 
solutions to avoid putting at risk the nearly 39 million 
Americans who rely on the apartment industry for their housing. 
The positive performance of the GSE's multifamily programs are 
a direct result of their adherence to prudent underwriting 
standards, sound credit policy, and, most importantly, placing 
private capital at risk in front of the taxpayer.
    Third, we share the view that private capital should 
dominate the multifamily sector wherever and whenever possible. 
Reform should ensure continued private sector participation.
    Fourth, Congress should protect taxpayers by continuing 
risk sharing and private capital participation. Each GSE 
utilizes its own risk sharing multifamily model that protects 
it from losses by placing private capital in the first loss 
position. These models worked effectively through the great 
financial crisis in shielding taxpayers from the bill for 
credit losses.
    Fifth, Congress must maintain the successful components of 
the existing multifamily programs in whatever succeeds them. 
Establishing a new business model for multifamily businesses 
would only serve to disrupt capital flows to the industry. The 
enterprise's technology, processes, and personnel must be 
preserved as the committee evaluates a new housing finance 
system.
    Six, Congress should avoid market disruptions during the 
transition to a new system by clearly defining the government's 
role in a reform system in the timeline for transition.
    Finally, it is critical that the Federal Housing 
Administration continue to be a reliable source of construction 
and mortgage debt. FHA ensures mortgages and is a source of 
construction and long-term debt for affordable and work force 
housing.
    Thank you for the opportunity to testify today, and I look 
forward to answering your questions.
    [The prepared statement of Mr. DeWitt can be found on page 
52 of the Appendix]
    Chairman Duffy. Thank you, Mr. DeWitt.
    And it looks like votes have been pushed back, thankfully. 
So the Chair now recognizes himself for 5 minutes.
    To the mortgage bankers, home builders, and realtors, how 
did your members fare during the 2008 crisis?
    Not well, did they?
    Mr. Stevens. No.
    Chairman Duffy. They lost a ton of people because they went 
under.
    Mr. Stevens. That is right.
    Chairman Duffy. I know a lot of home builders went out of 
business, and a lot of realtors lost their jobs as well. And it 
impacted a lot of my constituents, people all over America.
    So this is an issue that affects, I think, everybody 
equally. And making sure we get reform right is critically 
important, because when we get it wrong you see your membership 
roles drop considerably because it has a huge impact.
    Mr. Brown, would you just take a moment. You have discussed 
a government charter versus government sponsored. Can you 
explain what you mean by that and how you envision that 
working?
    Mr. Brown. The government charter--what we want to do is we 
want to have a government-chartered entity with an explicit 
guarantee. The most important thing is the explicit guarantee 
to preserve the 30-year fixed-rate mortgage. I think out in the 
private market, if the government guarantee wasn't there, the 
30-year fixed-rate mortgage would not exist.
    Chairman Duffy. Does it exist in the jumbo market?
    Mr. Brown. Does what exist?
    Chairman Duffy. Thirty year.
    Mr. Brown. In the jumbo market, does the government 
guarantee--
    Chairman Duffy. Can you get a 30-year mortgage in the jumbo 
market?
    Mr. Brown. Yes. Yes, you can.
    Chairman Duffy. So when you look at having a government 
charter, are you guaranteeing the entity or the security?
    Mr. Brown. The security.
    Chairman Duffy. OK. So it is different in what we have 
right now, where we are guaranteeing the entity, right?
    Mr. Brown. Yes, explicit guarantee.
    Chairman Duffy. Right.
    Mr. Stevens, in regard to your proposal where we are going 
to have an insurance fund to help with losses, what skin in the 
game does the lender have should one of their mortgages go bad?
    Mr. Stevens. If they are selling to a government agency, 
they are on the hook for representations and warranties that 
they met the standards that would be required to be able to 
sell a mortgage backed ultimately by the explicit guarantee.
    Chairman Duffy. So you can come back to the lender?
    Mr. Stevens. Correct.
    Chairman Duffy. And recoup some of those losses?
    Mr. Stevens. Absolutely.
    Chairman Duffy. Have you taken a look at Bright DeMarco by 
chance?
    Mr. Stevens. Yes
    Chairman Duffy. And why is your proposal better than a 
Bright DeMarco-esque proposal where we are looking at--they are 
looking at a Ginnie Mae model as opposed to the insurance fund 
model.
    Mr. Stevens. Honestly, they are very close, and there is a 
lot of similarities between the two proposals, because they are 
both a multiple guarantor model with several consistencies 
around capital requirements and more. Ours does use the CSP 
(common securitization platform) versus Ginnie Mae. And I think 
the critical difference between a Ginnie Mae execution and 
having that be the platform is the lenders act as their own 
issuer. There is, for example, no cash window at Ginnie Mae for 
small lenders.
    And in our view, going forward, if you are going to have 
the customer base that the GSEs have today, which is a couple 
thousand lenders, the regulation and the safety and security 
net is better managed if you have a few guarantors versus a 
couple thousand lenders all issuing through a government 
platform.
    There are many other complexities to that topic which I 
would love to follow up with you on. But, in essence, there is 
a lot of agreement between Bright DeMarco in terms of 
structure, the plumbing differences we talked about, whether it 
is a CSP or Ginnie Mae comes down to a lot of nuance that I 
would love to explore with you beyond the time that is allowed 
here today.
    Chairman Duffy. I welcome that future meeting.
    I asked this in the last hearing, and I don't think that I 
had a really good answer. But does everyone on the panel agree 
there needs to be a government guarantee or a catastrophic 
government guarantee in this space? Anyone disagree with that?
    And so if we are going to offload credit risk, how much 
credit risk can we offload? What does that number look like? We 
can debate how we do it, but--
    Mr. Stevens. Yes. From our view, you are going to offload 
all credit risk except for the pure catastrophic level of 
credit risk.
    Chairman Duffy. And what is that?
    Mr. Stevens. We would have to get in a discussion of what--
in basis points. But let's just assume that you would 
essentially load off the first 50 percent or so of the loan to 
value that is being guaranteed by the government. That would 
break you through all measures of risk modeling, that would 
take into account every recession we have been through, 
including the most recent Great Recession.
    So there would be private capital--multiple layers of 
private capital ahead of that risk so that the government would 
only be on the hook once you burn through all layers, down to a 
very low loan to value that would have withstood the worst 
recessions.
    We have laid it out in detail in our paper. It is another 
one that--of course, it is a bit complicated. But through the 
multiple risk transfer structure that we put in place, you 
ultimately truly put the government in a catastrophic risk 
level, and I would assume that most economists would agree with 
that as well.
    Chairman Duffy. My time is up, but I look forward to having 
a more vigorous conversation with all of you on these topics as 
we move forward. I would just hope that there is going to be 
agreement, one, on a government backstop but also that we want 
market principles at play, because what might feel good today, 
we are all doing well with being this close to the crisis, we 
know that time heals all those memories, and we start to behave 
poorly. And market discipline is a great way to make sure that 
2008 doesn't happen again.
    So my time has expired.
    I now recognize the gentleman from Missouri, the Ranking 
Member, Mr. Cleaver, for 5 minutes.
    OK. I do not recognize the Ranking Member.
    I now recognize the gentleman from Massachusetts, Mr. 
Capuano, for 5 minutes. And I would just note that he has his 
jacket on which means he is going to be well-behaved.
    Mr. Capuano. Thank you, Mr. Chairman. It is because we have 
had this hearing half a dozen times yet and thus far haven't 
heard anybody change your opinions. You like the system the way 
it was before they met their excesses. You like the idea of a 
government backstop to mortgages. And we all agree we ought to 
keep the 30-year fixed mortgages.
    Did I say anything that anybody disagrees with? So anybody 
have any idea why we just can't do this? Why hasn't it been 
done? Anybody know? I can't figure it out.
    Everybody in the world agrees with the real basic premise 
of what we have to do except one or two extreme, out of the 
mainstream whack job think tanks. All of us think it is pretty 
easy. I don't have a clue why we keep doing these hearings, 
except, of course, I love seeing you all. But this is something 
we could just do. And why don't we just do it and stop talking 
about it?
    So I am not going to talk about it, because we all agree. I 
do want to take a second and thank Ms. Edelman for mentioning 
something I thought I was the only one that has ever mentioned 
it, but you did it. What mortgages were like before Fannie and 
Freddie.
    Now, my numbers are just slightly different but not much. 
It was a 50 percent down payment. Fifty percent down payment. 
The rates were about the same rates as we have today except 
there was a 5-year pay back. Five year. Not 30, not 15, 5. 
Which meant your monthly mortgage was about two to three times 
what it is today for the same house. And home ownership was 
close to 0.
    So it is something we need--we have done the private thing 
already. It didn't work out too well. And I don't hear anybody 
who thinks we should change it.
    But I do want to ask my real estate guys here today. Today, 
many of us have been trying to rip through this 400-page tax 
bill trying to figure out what is in it and what it all does. 
And I can't pretend. I haven't digested the whole thing yet, 
and I might be wrong in some of the things I see. But I am just 
curious. All the people in the business, do you think that it 
is a good idea to exclude--to repeal the current exclusion for 
the sale of a principal residence, therefore, make it taxable 
income? Would that help the business? Anybody think that helps 
the business?
    Mr. Brown. I think it is terrible. And I also think 
doubling the standard deductions neutralizes home ownership, 
and I think that is terrible as well. You know, we are a Nation 
of homeowners. Nobody aspires to rent a house. But we are 
afraid. Especially in California, renters are, in another 10 
years, 12 years, there are going to be more renters than 
homeowners.
    And I think that maybe tax reform might even accelerate 
that in its current form if they take the incentives out of 
homeownership.
    Mr. Capuano. I really appreciate that comment, there are 
going to be more renters than homeowners. Again, we are always 
going to have some renters. I own a two-family home. I live in 
a two-family home. To my knowledge, I am the only Member of 
Congress who does. Why do I do that? Because when I could 
afford to buy a home, I needed the rent to pay the mortgage, 
and I have stayed. And I know that nobody here knows what a 
triple decker is or what a two decker is. In Boston, they are 
pretty common, and they are usually occupied by people trying 
to get into the housing market. It is usually the first house 
you own, because you use the rent to pay it off. And I will 
tell you that in Boston and New York and LA, and Chicago--I 
guess another question, it appears as though they are trying to 
reduce the cap on mortgage interest deduction to homes only up 
to $500,000.
    Does anybody here think that is going to help your 
business? It may not change your business in big chunks of the 
country, because $500,000 homes are kind of big homes in most 
of the country. But $500,000 in Washington, D.C. might get you 
a parking space, maybe, maybe two, but that is about it. So 
does anybody here think that that cap, that reduction of that 
cap would help increase home ownership or help business?
    Mr. Howard. We don't think so, sir. We are very concerned 
about the impact of the tax bill on housing. While we differ 
from the realtors in that we are in favor of the doubling of 
the standard deduction, we think that there are ways--revenue 
neutral ways that the tax bill could solve the problem that it 
creates with housing.
    We have presented some of them to the Republican leadership 
and to Chairman Brady, and we are hopeful that ultimately a 
bill will put something in there, more specifically a home 
ownership tax credit that would be geared toward the middle 
class.
    Mr. Capuano. I appreciate it. There are other provisions of 
this bill too. My time is running out, and they are going to 
call votes. But I will tell you that we need your voices here 
with this tax bill, because even if we finally get around to 
doing the right thing on GSEs, which I think we might some day 
in my lifetime, even if we do that, if we then kill it on the 
other end by making homeownership unaffordable to the entry-
level people because of various tax provisions, not going to 
help you, not going to help us, it might help some people on 
Wall Street.
    It will not help the people building homes. It will not 
help the people selling homes. It will not help the people 
trying to finance those people who want to buy homes.
    So we may help one segment of the economy, but we will hurt 
another big segment of the economy that matters to my 
constituents.
    Thank you, Mr. Chairman, for your indulgence.
    Chairman Duffy. The gentleman yields back. I wish I had 
more time to address the tax issue, but I don't.
    I now recognize the Vice Chairman of the subcommittee, the 
gentleman from Florida, Mr. Ross, for 5 minutes.
    Mr. Ross. Thank you, Chairman.
    I, again, thank the panelists for being here.
    You know, it is interesting, because I agree with Mr. 
Capuano. I think we all believe that there should be a solution 
here with a backstop. As was pointed out earlier, I think 
everybody agrees that a government backstop should be there.
    The problem we have is to what extent the government is 
responsible for that backstop. And I think the details are what 
we are talking about here. Mr. Goodwin, I think, believes that 
there should be a balance between private and government. Ms. 
Edelman, I believe, thinks that on the front end we should have 
the government there. And Mr. Stevens, I think, that you 
believe in a private sector one, which I, of course, support.
    And my first question is, is there anybody here that 
believes that without a government backstop we cannot have a 
sustainable 30-year mortgage, despite the jumbo market? Is it 
necessary to have a government backstop in order to maintain a 
sustainable 30-year mortgage?
    Mr. Stevens. Yes.
    Mr. Howard. Yes.
    Mr. Ross. Would anyone disagree with that? OK. Good.
    Mr. Goodwin, do you agree?
    Mr. Goodwin. Yes.
    Mr. Ross. OK. My concern is where we are crossing lines 
here between the primary and the secondary mortgage. There has 
been an issue about that bright line.
    And, Mr. Stevens, to what degree have there been examples 
of the GSEs kind of crossing that bright line into the primary 
mortgage market?
    Mr. Stevens. Well, thank you for the question. It is a 
great concern to our industry. Freddie Mac and Fannie Mae 
should play a role purely in the secondary market, and in a 
general sense, they do.
    But they have had scenarios that we need to be concerned 
about. Contacting the owners of apartment buildings versus the 
lender lending to the owner of the apartment building, or 
creating pilot programs where the vendors are selected without 
an open and public and transparent process, or giving terms of 
business to select institutions and pilots that ultimately last 
far longer and give advantages to certain lenders in the 
marketplace, or building web capabilities that are focused on 
consumers versus institutions.
    Our view is that they should stay behind the bright line, 
remain as a secondary market participant only, and not compete 
with the private sector.
    Mr. Ross. And you have discussed your utility rate-like 
program. That, in essence, just engages the private market and 
would provide for a stable long-term rate. Is that correct?
    Mr. Stevens. Absolutely. The advantage of the utility model 
versus the predecessor to the conservatorship of the GSEs where 
there was unending pursuit for shareholder gains is utility 
investors tend to be more patient investors, long-term 
investors not expecting the grandiose returns, and therefore 
they put less pressure on the guarantors that are involved in 
the system.
    Mr. Ross. And there is enough capacity out there in the 
private sector to make this happen. Would you agree?
    Mr. Stevens. Absolutely. Yes.
    Mr. Ross. Mr. Brown, how do you feel about that, about that 
particular type of backstop, with the utility rate-type--
    Mr. Brown. You are talking about the bright line?
    Mr. Ross. Yes.
    Mr. Brown. We believe in the bright line and--
    Mr. Ross. Oh, I am sorry. Not the bright line. I apologize. 
But go ahead. Go ahead.
    Mr. Brown. And we think that large financial institutions 
should not be working both sides.
    Mr. Ross. And I appreciate that. But with regard to 
specifically Mr. Stevens' proposal for a government backstop 
that is private shareholders with a rate regulation-type 
environment that is used in utilities, how do you feel about 
that? I mean, do you think that is going to--
    Mr. Brown. What we are calling for is a mortgage market 
liquidity fund. That is the rainy day fund. There is actually a 
lot of private capital in the market now. And they would have 
to, say, if there were losses, for instance, there is the 
downpayment and the equity that a homeowner has in the house. 
There are the G fees, PMI, and--
    Mr. Ross. It would provide the liquidity up front.
    Mr. Brown. Yes, yes. But losses would have to eat through 
all that. And what we are proposing, that this fund, that 
profits can be put into now to establish this fund for 
catastrophic losses.
    Mr. Ross. Ms. Edelman, how do you feel? To what degree 
should the backstop be structured in terms of the homeowner, 
the lender, the government? At what level do each of these 
parties participate?
    Ms. Edelman. So, yes, the home buyer puts up a down payment 
which acts as a buffer. And then we do want a situation where 
the government is really just the backstop.
    Mr. Ross. Market of last resort.
    Ms. Edelman. Yes.
    Mr. Ross. Absolutely.
    Ms. Edelman. But to your question on the private utility, 
we think utility structure is really interesting. The idea of 
capping the returns to get at some of the incentives that get 
messed up with shareholders.
    One of the problems is how do you make sure that the 
regulator stands strong. You look at private utility models all 
over the country and it is a constant battle between the 
utility commission and the regulated entity.
    Mr. Ross. But that is the beauty of the system. It is a 
constant ebb and flow, because of market demands, because of 
consumer demands, because of natural disasters. I mean, utility 
rates are never static. And I don't think that mortgage rates 
would ever be static either.
    Ms. Edelman. I think the greater concern is how much are 
the investors getting paid and how much are the entities 
incentivized to try and create businesses that are going to 
create more returns for the investors. I think that is the 
sticking point.
    Mr. Ross. Thank you. My time has expired. I yield back.
    Chairman Duffy. The gentleman yields back.
    As the panel can see, votes have been called. I would just 
note for your timing, I believe we have three votes and then a 
House function, which is a picture. So I would just guess, it 
is probably going to be 45 minutes to an hour before we resume. 
So you can deal with your time in that fashion.
    So with that, the committee now stands in recess. We will 
reconvene after the beautiful House photo. With that, the 
committee stands in recess.
    [Recess.]
    Chairman Duffy. The committee is recalled to order. The 
Chair now recognizes the gentleman from California, Mr. 
Sherman, for 5 minutes.
    Mr. Sherman. Thank you.
    I believe I usually have a graphic here showing the debt. I 
don't know if staff can put that up. I don't know if staff is 
listening. OK.
    Mr. Brown, in your testimony you support a two-guarantor 
system, a Fannie and a Freddie. You haven't asked for a Mark or 
a Tom. You seem to focus on having two. Why are two guarantors 
optional? And should we only have one? Should we have three or 
four?
    Mr. Brown. We think that having one would not be good. If 
something happened to that entity, there is nobody else in the 
space. Having two we think is a perfect balance. We think that 
that has led to competition and innovation. So that has worked 
out well so far with the GSEs.
    Having more than two, having multiple guarantors, we just 
think it would be a race to the bottom in terms of pricing and 
then we would have liquidity problems in the market.
    Mr. Sherman. Now, we need to have enough capital or reserve 
funds for the GSEs. Sometimes they are going to do better, 
sometimes they are going to do worse. And if they have too much 
capital, that may tempt some to say, well, capitalize--catch 
and release or capitalize and release. And if they have too 
little, they are going to need to draw against the Treasury. 
And that will be a political firestorm, or could be, depending 
upon how it is characterized.
    You have raised concerns about the enterprises drawing on 
their line of credit with the U.S. Treasury. Wouldn't it be 
prudent to, perhaps, when they remit funds to the Treasury, to 
put that in a separate part of the Treasury line item in the 
Treasury so that if it was needed by the enterprises on a rainy 
day, it would be clear that they were just drawing down money 
they had previously transferred to the Treasury?
    Mr. Brown. Mr. Sherman, that is exactly what we want to see 
happen, is that rainy day fund created, a mortgage market 
liquidity fund.
    When the GSEs have that, then they can really focus on home 
ownership. And they can also engage in countercyclical 
activities in weaker markets. It would be a fund for 
catastrophic losses. After the system went through private 
capital, then that would be the fund of last resort, and so it 
would cover the taxpayer from that respect. And that is kind of 
our mantra: What can we do to protect the taxpayer?
    Mr. Sherman. Thank you. And I agree with you.
    Mr. DeWitt, Fannie and Freddie are major sources of 
mortgage capital for the multifamily market. There is a growing 
shortage and increased demand for multifamily rental housing. 
Do you think private capital alone will meet the need to build 
the apartment buildings that people need to rent?
    Mr. DeWitt. Congressman Sherman, no, I don't think that 
that is possible, to have the private market provide all of the 
capital that is required. And just as evidence of that, we 
haven't ever seen the private market be able to provide 100 
percent of the capital that the multifamily industry consumes.
    Certainly during the 2008 to 2010 great financial crisis 
private capital disappeared entirely. And without Fannie and 
Freddie, we would have had a severe liquidity crisis that would 
have put a lot of properties in maturity foreclosures when 
their loans became due and we had no other source of funding to 
refinance those.
    So we don't believe that it is possible. And the rationale 
for that, if you look at the commercial banks who provide most 
of the construction financing, and they provide some short-term 
variable rate financing or floating rate financing, they are 
constrained by the regulations imposed by Dodd-Frank and Basel 
III and others.
    Mr. Sherman. We have certainly heard about those in this 
room.
    I am going to try and sneak in one more question for Mr. 
Stevens.
    Are there risks associated with a rollback or reversal of 
the Federal Housing Finance Agency's policies? Mel Watt will 
not be there forever. I enjoyed sitting next to him on this 
committee for many years. What legislation could mitigate the 
risk of being whipsawed between one set of policies and another 
set of policies?
    Mr. Stevens. With what little seconds are left, yes. Unless 
we lock in some of the reforms that the director has put in 
place, they can always be subject to change. And legislating an 
explicit guarantee, legislating real capital standards, 
legislating the level playing field for all lenders, large and 
small, so that they compete evenly, these are just three of 
several things that Congress can do.
    Mr. Sherman. Mr. Stevens, I am going to give you a homework 
assignment, and that is, can you produce a proposed piece of 
legislation designed to lock in the best of Mel Watt's work?
    Mr. Stevens. Absolutely.
    Mr. Sherman. Thank you.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from California, the 
Chairman of the Foreign Affairs Committee, but also a great 
member of this committee, Mr. Royce, for 5 minutes.
    Mr. Royce. Mr. Chairman, thank you very much.
    Let me start with Mr. Stevens. And, Mr. Stevens, as you 
know, I and Gwen Moore have put forward a bipartisan bill that 
would direct Fannie and Freddie to increase the amount and the 
types of credit risk transfer transactions. And we would do it 
to the maximum level that is economically viable, that is 
commercially viable.
    And when we had FHFA Director Watt here before the 
committee, it was October, he was here in October, and he told 
me that when they are looking to encourage--that in terms of 
the timing, they are looking at encouraging more front-end 
credit risk transfers at Fannie and Freddie. And I am not sure 
when they are going to do that, but I was going to ask you, how 
do you think they intend to accomplish that goal, and do you 
think deeper mortgage insurance is part of the equation?
    Mr. Stevens. Well, thank you, Congressman. And I appreciate 
your leadership on this subject.
    Credit risk transfer is critical to almost every model that 
is being presented going forward. And to date, the credit risk 
transfer model has been mostly in the form of structured 
finance through CRT executions that have taken place.
    We believe to have a truly functioning, deep first loss 
credit enhancement market, you need to utilize both 
institutional risk transfers via mortgage insurance and the 
reinsurance markets, as well as structured, and that FHFA 
should be directed to do this sooner rather than later. Because 
we believe ultimately proving that point will bring more 
capital into the markets through good markets and bad, 
regardless of whether credit spreads are wide or narrow. So it 
is something we encourage FHFA to pursue, and we appreciate 
your efforts to try to do the same.
    Mr. Royce. Well, thank you, thank you.
    And let me ask Mr. Goodwin, in your testimony you 
highlighted the work SFIG has done around the revitalization of 
the private label securities market. Outside of lowering 
conforming loan limits, which you have already spoken to, can 
you highlight some of the recommendations you have that we, as 
legislators, can undertake to help on that front?
    Mr. Goodwin. Sure. Thank you.
    There are three broad areas that I think would need focus. 
One is an industry-focused area of providing alignment of 
interests, clear roles and responsibilities, and that is part 
of the undertaking that SFIG is doing under its RMBS 3.0 
umbrella. So that is an industry self-regulating piece.
    I think we should continue the work that we have been doing 
over the last several years with prudential regulators and the 
CFPB (Consumer Financial Protection Bureau) to clarify 
liability around investors and to tailor regulatory and capital 
rules to better suit the products that we are working with.
    And then finally, we should continue to work to reduce the 
GSE footprint.
    Mr. Royce. Yes.
    And let me go back to Mr. Stevens on another issue, because 
Mr. Brad Sherman and I share some of your criticism of the PACE 
(property-assessed clean energy) loan program. And on the face 
of it, helping homeowners improve energy efficiency is 
certainly a good thing, but the structure of these loans and 
the sales practices really have raised some concerns.
    What role should the GSEs play in addressing these 
concerns, in your opinion?
    Mr. Stevens. Thank you for the question.
    The PACE program we view as a great danger to the average 
homeowner.
    Actually, one of the problems is it is not a loan, it is a 
tax assessment, which means it is not subject to the 
traditional consumer disclosures and consumer protections that 
have been established under the CFPB's consumer disclosure 
requirements.
    And as a result, it creates this opportunity for a cottage 
industry of whoever can invent the next energy enhancement 
without oversight can go sell it to consumers who may have no 
idea whether the value is there. And it also takes first lien 
rights after the fact.
    So our view is that the GSEs should be forbidden from 
allowing PACE loans in their portfolio, as well as the FHA.
    Mr. Royce. Let me let Mr. Brown jump in here, too, if he 
wants to on this.
    Mr. Brown. Sure. I totally agree. I think that there needs 
to be a consumer educational component. I think most consumers 
that get these PACE loans don't really understand what they 
are, and then it takes a first lienholder position. So I very 
much agree.
    Mr. Royce. Thank you, Mr. Brown, Mr. Stevens. Thank you, 
Mr. Goodwin, and the entire panel here. I appreciate it very 
much.
    And I yield back, Mr. Chairman.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the Ranking Member, Mr. Cleaver, 
for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Mr. DeWitt, any time we start talking about dealing with 
the issue of housing, whether we want to or not, it inevitably 
is going to lead to some discussion about FHA. And I am 
wondering what you see as a role for FHA, considering the role 
they played in helping us get beyond the economic crisis of 
2008.
    Mr. DeWitt. Thank you. The FHA, I think they provide some 
construction financing for the apartment sector, and that is 
important for those who can't get the construction financing 
from the commercial banking system. So I think that is really 
the primary role that they are playing for us today, important 
provider of capital.
    Mr. Cleaver. Do you think we still--is there still a need 
for FHA?
    Mr. DeWitt. You know, it depends entirely on what you are 
going to do with Fannie and Freddie. But I think so. I think 
that you would still need that construction lending capability 
which doesn't exist in the two GSEs.
    Mr. Cleaver. Ms. Edelman.
    Ms. Edelman. I just wanted to emphasize how important FHA 
is to both the rental market and the home ownership market. FHA 
traditionally has been how many first-time home buyers, lower-
wealth borrowers, are able to buy homes.
    There are ways that we can strengthen FHA, including giving 
them the funds they need to have the technology systems in 
place to really serve the market well. But proposals that have 
been on the table to either raise prices for consumers or 
narrow the footprint and who is eligible, I think, really could 
undermine what FHA does.
    Mr. Cleaver. Thank you.
    Mr. Stevens, the multifamily housing in our country was 
just blasted into little bits from 2008. What happened? And 
what do you think we need to put in place to create a whole new 
spirit of multifamily housing, understanding that most builders 
are not anxious to do that because they are not going to make 
money? So what do we do, because we know we need it?
    Mr. Stevens. Yes. I was the FHA Commissioner in 2009. And 
actually, there was a line at the door of FHA to finance 
apartment buildings that couldn't get financing everywhere else 
because the CMBS markets had all but disappeared for a period 
of time.
    Multifamily requires a variety of capital sources to 
provide for the varieties of multifamily financing in the 
market. The greatest challenge we have today is the affordable 
entry-level rental housing stock. You can see just here in 
Washington, D.C., that the units that are being built are A-
quality units, but the gentrification process can ultimately 
impact the affordable rental side of the community.
    LIHTC (Low-Income Housing Tax Credit) has been helpful in 
that effort, but there needs to be more focus in being able to 
make sure that we have both consistency of liquidity to the 
apartment markets, and that there are other incentives to 
provide opportunities to build more affordable entry-level 
apartment housing stock as well.
    Mr. Cleaver. Well, in a lot of the urban centers there are 
vacant apartment buildings. In Missouri, both Kansas City and 
St. Louis, you can find many of them. But the rehab cost is 
prohibitive. And so you have the potential, but unless there is 
some gap financing from somewhere, from somebody, those 
buildings will eventually just be knocked down or unless the 
government comes up with something creative to save them.
    Do any of you have any concrete, flawless comments on how 
to preserve these buildings?
    Ms. Edelman. Well, two opportunities. First, the Duty to 
Serve rule, Fannie and Freddie have been instructed to serve 
three underserved markets. One of them is around affordable 
rental preservation, and they should be running with that.
    Another opportunity is for FHFA to set more rigorous, 
affordable goals for multifamily. Fannie and Freddie are 
soaring past the goals that have been set while the percentage 
of the portfolios that is actually affordable has been in 
decline.
    So I think there are a couple of opportunities to really 
push what we have got right now.
    Mr. Cleaver. Thank you.
    Chairman Duffy. The gentleman yields back.
    The gentleman from Nevada, Mr. Kihuen, is recognized for 5 
minutes.
    Mr. Kihuen. Thank you, Mr. Chairman, and thank you, Mr. 
Ranking Member. And thank you all for being here to testify.
    As most of you know, I represent the Fourth Congressional 
District of Nevada, which is one of the most diverse districts 
in the country. Geographically, demographically, it is 
basically a microcosm of the United States of America. We have 
rural, we have urban, suburban, Latino, African American, 
Asian, younger, older. I mean, it reflects what this country 
looks like.
    Now, the question is more for the panel, but according to 
the Urban Institute, among others, mortgage credit standards 
are excluding good credit risks, and this is disproportionately 
impacting minority borrowers.
    Do you agree with this? And if so, what could be done to 
improve access to credit in the GSE space?
    Mr. Brown. You know, the National Association of Realtors 
is very much in favor of alternative credit scoring. We realize 
that a lot of people that are being underserved are being shut 
out of the housing market. And so we are open to exploring 
alternative ways of people having their credit measured so that 
they can get a loan.
    People pay, even though they are renters, they pay utility 
bills, they pay telephone bills. If they are paying those bills 
on time, why can't that be part of their credit score. So we 
are totally open to alternative measures to get more of those 
people in the marketplace.
    Ms. Edelman. Fannie Mae and Freddie Mac have also changed 
their pricing approach in recent years and now they have moved 
toward risk-based pricing. So you pay a higher fee if you are a 
borrower who has a 680 credit score relative to somebody with a 
780.
    So while they have, theoretically, this big credit box that 
they can lend into, it doesn't make economic sense for anybody 
to really get a loan from Fannie and Freddie if you have a 
credit score from really under 700.
    So we think they should move toward how they more 
traditionally price credit across the book of business instead 
of at the individual level. That would be one thing.
    And then another piece, and I will defer to Mr. Howard on 
this, there are serious inventory shortages at the starter home 
level. And so a lot of time folks aren't even coming to the 
door to a bank because they can't find a place to buy.
    Mr. Kihuen. Right. Thank you.
    Mr. Stevens. I would just add that I think it is a really 
important question. This is a precipice that we need to all get 
engaged in. We have families in this country that come from 
oftentimes countries that were unbanked or underbanked, and so 
the trust in the banking system was something that wasn't part 
of the family culture. We have multiple family members living 
together, in some occasions contributing to the mortgage, which 
doesn't fit into the traditional square peg, square hole 
underwriting.
    And to the point made previously, alternative forms of 
credit needs to be something that becomes more main stream. 
Thin-file, creditworthy sustainable borrowers have to become 
underwritten in a way that allows them access to home 
ownership, again, assuming that the rest of their profile is 
sustainable.
    Mr. Kihuen. Thank you.
    And my next question is for Ms. Edelman, and I know you 
have been here before, and thank you for always being 
accessible.
    Now, as you all know, we have a staggering home ownership 
gap between white and minority households in this country. The 
home ownership rate for a white household is 72 percent, while 
it as low as 42.3 percent for black African American households 
and 45.5 percent for Hispanic households.
    Why do you think it is important to acknowledge this 
history and resulting trends in the next context of debating 
housing finance reform?
    Ms. Edelman. Thanks so much for the question.
    When you look back through the history of housing finance 
policy in the U.S., as I mentioned in my opening statement, 
government intervention in the housing market through insurance 
programs, the chartered entities, built the middle class. But 
all that time when they were building the middle class, the 
1940s through the 1970s, black homeowners were shut out, other 
homeowners of color were shut out completely.
    And so since then, we have been trying to make up for that 
deficit, and instead of really expanding sustainable home 
ownership, instead in the early 2000s, we got predatory 
lending, which just stripped wealth from communities of color.
    So the wealth gap is staggering, and the decisions that are 
made about what the housing finance system looks like going 
forward will determine whether home ownership can be a tool to 
help build wealth or whether we are going to continue to 
solidify the trends that are ongoing.
    Mr. Kihuen. Thank you.
    Mr. Goodwin. I would like to make a brief comment from the 
private label security side of things. This is another reason 
to encourage the growth of private capital in the mortgage 
space. Its flexibility in using alternative credit models, in 
providing alternative solutions, especially around nonstandard 
credits and thin-credit files, when done in a responsible way, 
can help expand home ownership.
    Mr. Kihuen. Thank you.
    Thank you, Mr. Chairman.
    Chairman Duffy. The gentleman yields back.
    The Chair recognizes the gentleman from Illinois, Mr. 
Hultgren, for 5 minutes.
    Mr. Hultgren. Thank you, Chairman Duffy.
    Thank you all so much for being here. I appreciate it very 
much.
    I am going to address my first question to Mr. Stevens, if 
I may. I would like to get your opinion on FHFA's somewhat 
recent rules to limit the eligibility of FHLB (Federal Home 
Loan Banks) membership through captive insurance companies.
    As you point out in your written testimony, and I quote, 
``In eliminating this category of members, FHFA removed some 
companies that are active sources of private capital in the 
mortgage market, such as market REITs,'' end quote.
    I absolutely agree that this should be revisited. It is why 
I have been working with my friend and colleague from the other 
side of the aisle, Representative Gwen Moore from Wisconsin, to 
reduce the Housing Opportunity Mortgages Expansion Act.
    As you might know, the two States served by the Federal 
Home Loan Bank of Chicago, Illinois and Wisconsin are arguably 
hardest hit by FHFA's rule. For example, Redwood Trust, one of 
the bank's largest members and an exemplar of private capital 
in the mortgage market, will lose its membership.
    So I wondered, in general, can you comment on the role that 
mortgage REITs (real estate investment trusts) play in 
contributing private capital to the housing market and how 
permitting FHLB membership for mortgage REITs augment their 
ability to contribute private capital to the housing market?
    Mr. Stevens. Well, thank you for the question, and thank 
you for your leadership on this issue.
    As we have learned over these past several years, the 
distribution of capital sources has gone beyond just banks to 
nonbanks and a variety of other capital sources. Real estate 
investment trusts are critical providers of capital and 
liquidity to the mortgage finance markets. Many were members of 
the Federal Home Loan Bank System for many, many years prior to 
the modification of the rule by the director. And the Federal 
Home Loan Banks provide an important source of liquidity to the 
real estate investment trusts that can ultimately be 
distributed to communities across the country.
    We strongly support the effort to allow those, at minimum, 
the real estate investment trusts that had access to the 
Federal Home Loan Bank system prior to the rule, that they 
should be allowed to be retained in the program. They provided 
no risk to the Federal Home Loan Bank model whatsoever and 
brought a lot of private capital and liquidity to the 
marketplace.
    Mr. Hultgren. Thank you.
    Mr. Goodwin, if I could address the next few questions to 
you, if that is all right.
    I believe I share the view of most when I say that the 
government should not be subsidizing homes with values around 
half a million dollars. The role of government is to help those 
who need it the most. Your testimony suggests private capital 
can step in with no or negligible increase in the cost of the 
mortgage if conforming loan limits are reduced.
    I wondered, how much can these limits be reduced and how 
quickly? For example, 5 percent a year, 10 percent a year? What 
do you think?
    Mr. Goodwin. I hesitate to put a specific number on it. I 
think you are absolutely right, that it can be done. We see now 
the difference between mortgage rates offered in the jumbo 
space and mortgage rates offered in the agency space are very, 
very close, which indicates the fact that there isn't a 
substantial difference in financing cost to the consumer.
    I think that it should be done in a measured way. I think 
that there is enough private capital which has shown interest 
in the mortgage space, as evidenced by the health of the CRT 
market and the fact that other mortgage yields are clearing out 
there, points to the fact that there is liquidity. But I think, 
like in everything, that things should be done in moderation 
and in a measured way.
    Mr. Hultgren. Following up, do you have any recommendations 
for updating conforming loan limits to maximize private capital 
without impairing affordability? And also, do you believe there 
are any issues with tying conforming loan limits to average 
housing prices?
    Mr. Goodwin. I don't--membership doesn't have an opinion on 
tying it to home limits. I think that is something that is 
worth discussing with membership, and that I would be happy to 
come back at another time and discuss with you.
    Mr. Hultgren. That would be great. Let me move on with my 
last minute here, a little bit about the QM (qualified 
mortgage) patch. As you know, all agency loans are deemed to be 
qualifying mortgages, providing lenders more legal certainty. 
It also provides an unlevel playing field with private capital. 
This QM patch is set to be phased out at the earlier of the 
GSEs' existing conservatorship or January 10, 2021.
    How significant is QM status for lenders and what does this 
mean for the cost of financing for the mortgagees?
    Mr. Goodwin. Thanks for bringing this up. I think this is 
an important point that does not get as much attention as it 
should.
    The QM patch provides the GSEs with an advantage over the 
rest of the originating institutions out there, basically gives 
them a pass on a lot of the rules that other lenders are 
subject to. And with it expiring in the earlier end of 
conservatorship or 2021, I think we need to begin the work of 
transitioning to the time when that patch is no longer 
available.
    And whether that means that we begin the work of 
standardizing QM across all lenders, GSE or non, or bringing, 
expanding the non-QM patch to other lenders, I think the work 
needs to start happening to get us so that we avoid a 
disruption in the marketplace when it expires and we avoid a 
situation where it drives up our end cost.
    Mr. Hultgren. Thank you. My time has expired. I have more 
questions. I may follow up in writing, if that is all right. 
Thank you all so much.
    I yield back.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the witnesses for appearing.
    And I thank the Ranking Member for all of his services to 
this committee as well as to his country. Same to you, Mr. 
Chairman.
    Friends, I am concerned about the housing market, and I am 
concerned about the mortgage interest deduction. As you know, 
there is a move afoot to move it from $1 million to $500,000. 
Does that cause anybody else concern? If so, would you raise 
your hand?
    OK.
    Let me tell you why it causes me some consternation, and 
then you give me your indications. It causes me consternation 
because if we lower it from a million to 500,000, we will 
probably lower it to 250,000, and we will probably lower it to 
something else.
    My fear is that this is the next step in elimination of the 
home mortgage interest deduction. I don't support that. I don't 
support elimination. And I am concerned that this is a step in 
that direction.
    So let me ask my friend who is with the National 
Association of Home Builders your position on it as tersely as 
you can state it, please, sir.
    Mr. Howard. We are angry. That is about as tersely as can I 
put it. We think it is very bad policy. We think it picks 
geographic winners and losers. We think it is going to lower 
house values, and it could lead to a housing recession. We 
think it is a very misguided proposal.
    Mr. Green. And if I may go to Mr. Brown, who is with the 
realtors, please.
    Mr. Brown. We feel the same way. We feel that--in fact, 
our--the comments came up with a number, with the repeal of the 
SALT (State and Local Tax), as well as doubling the standard 
deduction, and we feel that it is going to be like a 10 percent 
drop across the Nation, nationwide.
    As far as the $500,000 deduction, we don't know how much, 
if you throw that in, how much it will--or the $500,000 cap, we 
don't know how much that would reduce the housing market 
further, but it is significant, especially in the high-priced 
States.
    Mr. Green. The question now becomes whether or not this 
will be allowed as a part of a Christmas package. There seems 
to be an indication that this is something that should be done 
by Christmas. A sad Christmas for a lot of people who are 
hopeful and want to buy homes. I know that $1 million to 
$500,000 may not seem like a lot, but when you understand that 
that is only one step and there can be a lot more, I think it 
is going to cause some heartburn.
    But I appreciate what you have said in terms of how it will 
impact the market. And my hope is that we will find reason to 
let people know that we have this consternation. You are doing 
a great job here today, but we may have to do more.
    Now, with reference to the alternative credit scoring, we 
were talking about that just a moment ago, I believe. We have a 
bill, H.R. 123, that addresses this question to a certain 
extent. But we found it better to call it additional credit 
scoring as opposed to alternative, because we are adding more. 
We are not taking one thing or another thing. We are adding 
more.
    It is my belief that people should have additional credit 
scored if it really is credit. And if you pay your light bill, 
your gas bill, your phone bill, your water bill, why not have 
it scored if you pay it timely, if it can make a difference in 
your credit score.
    In examining this, we found that a good many people would 
benefit. In fact, there are people who are paying more for rent 
than they would pay to purchase a home if we had additional 
credit scoring.
    So it is H.R. 123. I would commend it to you and ask that 
you review it for your consideration. H.R. 123.
    This passed the House, by the way. It is not something that 
is new to us. And we had with HUD (Housing and Urban 
Development) to develop an automated system for us to examine 
and see how it worked. And we had a 5-year window and it didn't 
get done. This is in the interest of full disclosure.
    So my hope is we will get it passed again and this time we 
will get the automated system.
    There are some institutions that do this on a case-by-case 
basis, so it is not anything new, additional credit scoring, it 
is just that we would like to see it done so that a good many 
more people can benefit from it.
    I greatly appreciate your time. I have 6 seconds left. So 
thank you.
    And I will yield back to the Chair 1 minute--1 second, 
excuse me.
    Chairman Duffy. The gentleman is over by 1 second but 
yields back none the same.
    We are now going to go into a second round of questions, 
and the Chair recognizes himself for 5 minutes.
    Just to follow up on Mr. Green's point. I think it was--Mr. 
Ellison and I were partners in the alternative credit scoring 
issue. I agree with it. We want to look at all factors to make 
sure if you are qualified to get a home you can actually 
purchase a home.
    Mr. Green. Would the Chair be so kind as to yield for a 
positive comment?
    Chairman Duffy. No, because I only have 5. I will give you 
5 minutes, though, if you stick around.
    Mr. Green. That works for me.
    Chairman Duffy. What concerns me is Mr. Stevens comes out 
and says, ``Listen, those lenders who might make a bad loan, 
they might have some skin in the game.'' You are OK with them 
having skin in the game.
    Mr. Stevens. Yes.
    Chairman Duffy. On the realtor front--which, by the way, 
the realtors and I get along well. My dad was a realtor. We 
have worked well on FUD together. But once you get your 6 
percent, you are out. You have no skin in the game after the 
sale. That shouldn't taint the remarks, but as we look at 
housing finance, I think those are considerations, as we talk 
about policy, we have to consider.
    We have had a lot of conversations about tax. Now I want to 
get to that as well.
    Mr. Howard, so we have gone from the mortgage interest 
deduction, this proposal, from $1 million down to $500,000. In 
your world actually what should it be? If you are able to write 
the bill, it should be unlimited?
    Mr. Howard. Prior to 1986, it was unlimited, sir. So I 
think we have been operating fine for the last 30 years at the 
million-dollar level.
    Taking it down to $500,000 and not indexing it for 
inflation I think is a policy mistake.
    Chairman Duffy. How many middle-income folks do you know 
are buying a house for $1 million.
    Mr. Howard. It depends on where you live, sir. Middle 
income here is different than middle income in Wisconsin.
    Chairman Duffy. Do you know what the mean home cost in D.C. 
is?
    Mr. Howard. I don't know off the top of my head.
    Chairman Duffy. $538,000.
    Mr. Howard. That is mean.
    Chairman Duffy. That is right. But my concern is, you have 
heard a debate: No tax breaks for the rich. This is economic 
warfare.
    But then when, you know--listen, a million-dollar home? A 
million-dollar home and we have people who go, ``Oh, my gosh, I 
don't want to give tax breaks to the rich.'' But when there is 
a reduction in write-offs for the wealthy, they are the first 
ones to grab the microphone and go, ``Whoa, whoa, whoa, this 
isn't fair, this isn't right. We have to make sure the SALT is 
still in place so I can to write off my mortgage interest.''
    And, by the way, I don't disagree with you. But as a matter 
of policy and the debate that happens here, you have people 
talking out of both sides of their mouth.
    Mr. Howard. Mr. Duffy--
    Chairman Duffy. ``I want to go after the rich.''
    Mr. Howard. Mr. Duffy--
    Chairman Duffy. Until you go after the rich, and then they 
are like, ``Well, those are my people.''
    Because guess what? Do the rich live in my district? No. Do 
they live in Boston? In New York? In San Francisco? Yes. And 
who represents those districts? The very people who are arguing 
to raise their taxes, and the very people, when we meet the 
call to raise their taxes, they complain about it. And I find 
that to be rich and frustrating.
    If you want to give tax breaks to the rich, say it. Let's 
all go, ``You know what, if you buy a $2 million home, we want 
to let you write off that interest.''
    Mr. Howard. Mr. Duffy, are you aware of the alternative 
proposal that the National Association of Home Builders brought 
to the Ways and Means Committee and the House leadership?
    Chairman Duffy. No. I am on Financial Services, not Ways 
and Means. But if you want to send it my way, I will be happy 
to look at it.
    Mr. Howard. We would be happy to do that, sir.
    Chairman Duffy. But to Mr. Brown, I want to throw another 
question by you.
    Mr. Brown. Can I comment, Chairman, on--
    Chairman Duffy. Let me give you a question and I will give 
you time to respond.
    Mr. Brown. OK, OK. All right.
    Chairman Duffy. Because I think I heard you say that the 
realtors are in a position where we go, ``You know what, I want 
to make sure that Americans are itemizing for their mortgage 
interest deduction.'' And that is a good thing for home 
ownership.
    I am going to give you some pushback, because I have to 
tell you what I think. Most people in my district go, ``I don't 
want to itemize for that. If you give me a standard deduction 
of $24,000 and I don't have to go to my accountant and itemize 
my taxes, I am applauding.''
    So I think we have to be cautious. Is this good for 
realtors or is this good for Americans? And I think most 
Americans go, ``I don't want to itemize, and I want the 
deduction.''
    And if you come in--and I think you are in the hardest 
place. I told you this before, we had this conversation. I 
think you are in a hard place arguing that you want Americans 
to itemize their mortgage interest deduction. That is a hard 
place to be because they don't want to do it. It is 
complicated. They want our plan to go, ``Right here, baby, one 
sheet, you can put it on all there.''
    You can go, Mr. Brown.
    Mr. Brown. Chairman Duffy, I disagree with you.
    Chairman Duffy. You can go to both things, too, if you want 
to hit me on both of them.
    Mr. Brown. What we are in favor of is home ownership, and 
we are against anything that diminishes home ownership.
    You know, the Federal Reserve just came out with some 
numbers not long ago, and what they said is the average net 
worth of a renter is falling, from $2,900 to $2,100.
    The average net worth--since 2010. Since 2010, the average 
net worth of a homeowner has gone from approximately $168,200 
to $232,000.
    That information is from the Federal Reserve. We believe in 
home ownership. If you take the incentives out of home 
ownership, people will not buy homes.
    Chairman Duffy. Mr. Brown--
    Mr. Brown. And people have, if I can just finish.
    Chairman Duffy. Sure.
    Mr. Brown. I will make it quick.
    You know, there are so many tangible and intangible 
benefits of home ownership. I mean, people use their equity to 
invest to send their kids to school, to invest in their family. 
It is security. I mean, those people that are building equity 
and not throwing it away, they could care less about a 
postcard. They care about that equity in the home.
    Chairman Duffy. Home ownership is the American Dream. 
People want to own a home. And I am telling you what, maybe 
where you come from in California it is different from 
Wisconsin, but no one says, ``I want to buy a house because I 
get to itemize my taxes and get a mortgage interest 
deduction.'' They don't talk about that. What they say is, ``I 
want to buy a house. What is it going to cost me? What is the 
impact on me?''
    And if you are saying that they really think about their 
taxes and itemizing the deduction, I think you are absolutely 
wrong. My dad, my best friend, some of my best supporters, they 
are all realtors, and I love you guys. But I think you are 
wrong on this one because that is not what people are thinking 
about.
    Mr. Brown. And I strongly disagree with you, because I 
think that is what--that is exactly what many people are 
thinking about. If those incentives are taken away, why buy a 
house? Why not just rent?
    Chairman Duffy. Because you own your house. It is an equity 
builder. And it is like yours. That is great.
    I mean, I love Mr. DeWitt, but people want to go and rent 
or they want to go buy? I want to buy a house, and I want Mr. 
Howard to build it for me, because it is mine. I don't do it 
for taxes.
    And I am way over my time. But I think we can't--we have to 
be honest about this conversation.
    Mr. Brown. I am being honest.
    Chairman Duffy. And, again, I come at this with a pure 
heart, and I love you guys, but I think on this issue you are 
playing a set of cards that I don't think benefit most 
Americans. Maybe the industry, but not most Americans.
    My time is up by 2 minutes.
    Mr. Brown. Mr. Duffy.
    Chairman Duffy. I am going to give it to Mr. Cleaver.
    Mr. Brown. Chairman Duffy, can I say one more thing?
    Chairman Duffy. My time has expired. The Ranking Member, 
Mr. Cleaver, is recognized for 5 minutes.
    Mr. Brown. Can I say just one more thing, Chairman?
    Mr. Cleaver. Take 45 seconds to finish your response.
    Mr. Brown. What I was going to say is that, don't forgot 
the impact that home ownership has on the economy. If you take 
real estate and all the ancillary services and businesses that 
are involved in real estate, the construction and so forth, 
multifamily, it is a huge part of the economy. It is perhaps 
16, 17, 18 percent. In some States, like California, it is even 
higher. It is closer to 20 percent.
    Tinkering around with tax laws could jeopardize that. That, 
in and of itself, could push us back into recession. Some 
economists feel it could push us back into recession.
    So I am just saying, be careful what you wish for in terms 
of changes with the tax law. We don't want to do anything that 
is going to negatively impact the housing market and home 
ownership.
    Mr. Cleaver. Mr. Goodwin, are you--are any of you--
concerned that next year the capital buffer will drop to zero? 
Does that cause any of you to tremble a bit?
    Mr. Goodwin. Speaking for membership, we really don't have 
an opinion on whether there is--money is--a small amount of 
capital is set aside to GSEs or if they draw on the Treasury 
line. I think the only concern that we would have is that to 
the extent that that then leads to a recapitalization and 
relief, our concern is the absence of the guarantee under that 
scenario would cause the markets some serious concern.
    Mr. Cleaver. Yes, Mr. Stevens.
    Mr. Stevens. Congressman, what concerns us about the dialog 
on capital is it takes our focus off reform. These two entities 
have been in conservatorship for 9 years. They have a line of 
credit in excess of $260 billion. If you talk to investors 
globally, they have no concern about this capital question. 
They have full faith that the MBS, that these institutions put 
into the market, are backed by the extensive line of credit.
    And our goal is to have Congress work on the real job of 
GSE reform. And our worry, quite frankly, is if there is 
something arbitrarily done on retention of capital, that that 
could cause even more consternation in the political arena that 
could cause even greater damage.
    So again, our goal is not to talk about capital because it 
is not an issue when they have $260 billion-plus and a lot of 
credit protecting them today.
    Mr. Cleaver. All right. Because time is running, I may have 
to move around a bit.
    And to Ms. Edelman, you are familiar with 202 and 232 HUD?
    Ms. Edelman. Uh-huh.
    Mr. Cleaver. You know, we have this affordable housing 
issue. What do we need to do with the 202 project--I mean, why 
do you think we are not doing more 202 projects? Is it we don't 
have enough Federal money going into it, we are not able to get 
adequate rental payments from the seniors?
    Ms. Edelman. Ranking Member Cleaver, I would love to think 
about this more and get you a more robust response. But in the 
short term, I will say that one thing that--the budget 
proposal, the President's budget proposal, for instance, would 
be very bad for the 202 program.
    And I think that as Congress moves toward a budget in the 
coming--before the end of the year, or another CR, that the 202 
program be prioritized because we don't want to go further 
backward. But I will get you a more robust response on how to 
improve it.
    Mr. Cleaver. And 232. One final question. I am preoccupied 
with multifamily housing. Put on your creative hats right now. 
What can we do, either in terms of Federal participation, 
trying to put some kind of attraction so that we can get 
public-private participation? Do any of you have any ideas on 
what we can do to trigger some affordable housing projects, 
affordable housing projects all over the country?
    Mr. DeWitt. If I might, Ranking Member Cleaver.
    So the National Multifamily Housing Council is strongly in 
favor of almost anything that we could do to enhance the supply 
of affordable housing. And we recognize that the cost to 
develop new affordable housing and the State and local 
impediments to being able to develop affordable housing make it 
very difficult to do so.
    We do have, obviously, scarce Federal resources, and how we 
deploy those scarce Federal resources most efficiently to 
create more housing, affordable housing. Two ways that we 
currently have, one, obviously the LIHTC program. So to the 
extent--and I know that NMHC has advocated for additional funds 
to flow through the LIHTC program, in fact, to expand that to a 
MIHTC program for middle-income tax credits.
    But to get the credit to the builders who have found land 
and found a community that is willing to accept affordable or 
middle income housing would be a terrific start.
    On the rent side, of course, we have Section 8, which can 
be used to subsidize the income levels of people who can find 
housing in other neighborhoods.
    But I would say utilizing the two avenues that we currently 
have and just expand them makes the most amount of sense to us.
    Mr. Howard. Mr. Cleaver, the Low Income Housing Tax Credit 
Program is the subject of a bill introduced by Mr. Tiberi, 
which would make several changes to it to make it more 
efficient. That is one way to go.
    Another thing to be aware of is that the recently proposed 
tax bill also does away with a State's ability to issue private 
activity bonds for housing. Those bonds are very important 
because they are generally combined with the Low Income Housing 
Tax Credit Program to produce affordable rental housing.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, for 5 minutes. And I will just note that we have 7 
minutes on the clock to vote.
    Mr. Green. Thank you, Mr. Chairman. I will speak quickly.
    Let me go back to you, Mr. Howard. You had something that 
you wanted to say about the tax credit?
    Mr. Howard. Yes, sir. Going back to the question of home 
ownership, we disagree with our friends the realtors on whether 
the standard deduction should be raised. We think it should be 
raised. We think putting money into the pockets of the American 
people is a good thing.
    What we proposed is a revenue-neutral--revenue-neutral by 
tax standards--tax credit to be taken in addition to the 
standard deduction to promote home ownership. If the value of 
upper-income housing is being diminished by changes in the Tax 
Code, one way to stop a housing recession from coming is to put 
money in the pockets of the American middle class so that they 
push the value up from the bottom, from the entry-level rung 
up.
    We proposed that credit to the House Ways and Means 
Committee and we are proposing it to the leadership. And I look 
forward to the opportunity to explain it to all of you 
gentleman as well.
    Mr. Green. Well, just remember that I support the home 
builders. And nobody can accuse me of favoring you because you 
support me.
    So now let's talk about what I think is important here, 
this is the home mortgage deduction. I said at the genesis of 
my commentary that I am afraid we are going to lose it. And, 
Mr. Howard, you indicated that before 1986 it was unlimited. 
Now it is a million dollars. If we pass this bill, it will be 
$500,000.
    Where does the decline end, is the question.
    Mr. Howard. Mr. Green, I agree with you that the tax bill--
    Mr. Green. Just saying you agree with me is enough for me.
    Now let's go on to Mr. Brown. Mr. Brown, you sell property. 
Where are you located currently?
    Mr. Brown. Oakland, California.
    Mr. Green. In Oakland, California, a $500,000 house, is 
that a mansion?
    Mr. Brown. No.
    Mr. Green. Tell us, generally speaking, what you can get 
for about $500,000.
    Mr. Brown. I really don't know what you can get for 
$500,000. You can get a starter home in probably a less 
desirable area. A lot of people would not want to live in some 
of the areas where you can buy a $500,000 home. I mean, our 
median price in the East Bay is $868,000-some-odd thousand 
dollars, I believe.
    Mr. Green. Well, for the record, I am trying to protect the 
home mortgage interest deduction. I want to maintain it. And to 
maintain it, I am afraid we cannot continue to diminish it. At 
some point, it will go to zero.
    And by the way, for edification purposes, when we started 
this debate, there were my friends across the aisle who wanted 
to eliminate it completely. So somewhere along the way, they 
have made a compromise at $500,000.
    I am not a part of the compromise because I see that as the 
next step in the elimination of it. Nothing to do with 
millionaires. Everything to do with hardworking Americans who 
don't have the benefit of all of these lawyers to help them so 
that they can have a deduction that will be a benefit to them.
    And finally this, on the H.R. 123, the bill that I called 
to your attention. I am honored to know that Mr. Duffy has 
worked on a similar bill. And I would love to work with him and 
anyone else so that we can try to get this done so that persons 
who pay all of their bills can have this additional credit 
scoring.
    And finally this. My heart is pure. And you are right. My 
heart is pure, too. So thank you very much.
    And I will give you back a minute and 15 seconds, Mr. 
Duffy. I will yield to you, Mr. Duffy. I think after having 
said my heart is pure, I will yield you the rest of the time.
    Chairman Duffy. I appreciate the gentleman with the pure 
heart yielding.
    Anyone else want to respond to it? My time was up and I 
shut you all down. So if you want to respond to what I was 
saying.
    Or, Mr. Stevens, you have your hand up.
    Mr. Stevens. Yes. Actually, MBA and our membership, which 
has a Tax Policy Committee, is open-minded to and looks forward 
to working on tax reform, because we agree with you it is 
complex. And there are benefits to MID (mortgage interest 
reduction), but for entry-level home buyers, many of them don't 
itemize. So are there better solutions? The tax credit concept 
suggested by the Home Builders is something that goes along 
those lines.
    As we analyze the initial--the proposed tax legislation, it 
is the combination of factors that ultimately is something that 
we are looking closely at. It is the impact to capital gains, 
it is the cap on property tax deductions, and it is the MID 
deduction, the collective potential impact to real estate. We 
are not going to be dogmatic on the issue. We just want to make 
certain that we don't create a disincentive for real estate 
that ultimately--
    Chairman Duffy. If I can reclaim the gentleman's time.
    What is unique is we can fight about a lot of stuff, but we 
agree that home ownership is a good thing. We want to make sure 
that people can afford a house, they can get a loan when they 
have the right credit, that the realtors and the home builders 
and the mortgagers, I mean, this is a good American issue. And 
I think we just have to think through it as a group of folks 
who care about it, are in the policy weeds on this stuff.
    And so I appreciate the gentleman from Texas yielding to 
me.
    I want to thank our witnesses for their testimony today. 
And what I would just ask all of you, as this committee is 
working through these issues, we look for your partnership and 
your insight and your expertise to make sure we get this right 
and, again, do what is best for the homeowner as we go through 
this process.
    And so with that, without objection, all members will have 
5 legislative days within which to submit additional written 
questions to the Chair, which will be forwarded to our great 
panel of witnesses.
    I would ask the witnesses to please respond as promptly as 
possible should we have questions that are submitted to you.
    And with that, and without objection, this hearing is now 
adjourned with 1 minute on the clock for votes.
    [Whereupon, at 5 p.m., the subcommittee was adjourned.]


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