[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


                     THE END OF AFFORDABLE HOUSING?
                           A REVIEW OF THE TRUMP
                    ADMINISTRATION'S PLANS TO CHANGE
                       HOUSING FINANCE IN AMERICA

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 22, 2019

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-61
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                                __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
42-450 PDF                  WASHINGTON : 2020                     
          
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             ANN WAGNER, Missouri
GREGORY W. MEEKS, New York           PETER T. KING, New York
WM. LACY CLAY, Missouri              FRANK D. LUCAS, Oklahoma
DAVID SCOTT, Georgia                 BILL POSEY, Florida
AL GREEN, Texas                      BLAINE LUETKEMEYER, Missouri
EMANUEL CLEAVER, Missouri            BILL HUIZENGA, Michigan
ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut            ANDY BARR, Kentucky
BILL FOSTER, Illinois                SCOTT TIPTON, Colorado
JOYCE BEATTY, Ohio                   ROGER WILLIAMS, Texas
DENNY HECK, Washington               FRENCH HILL, Arkansas
JUAN VARGAS, California              TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey          LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas              BARRY LOUDERMILK, Georgia
AL LAWSON, Florida                   ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam            WARREN DAVIDSON, Ohio
RASHIDA TLAIB, Michigan              TED BUDD, North Carolina
KATIE PORTER, California             DAVID KUSTOFF, Tennessee
CINDY AXNE, Iowa                     TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois                ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts       JOHN ROSE, Tennessee
BEN McADAMS, Utah                    BRYAN STEIL, Wisconsin
ALEXANDRIA OCASIO-CORTEZ, New York   LANCE GOODEN, Texas
JENNIFER WEXTON, Virginia            DENVER RIGGLEMAN, Virginia
STEPHEN F. LYNCH, Massachusetts      WILLIAM TIMMONS, South Carolina
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota

                   Charla Ouertatani, Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 22, 2019.............................................     1
Appendix:
    October 22, 2019.............................................    65

                               WITNESSES
                       Tuesday, October 22, 2019

Calabria, Hon. Mark A., Director, Federal Housing Finance Agency.     8
Carson, Hon. Benjamin S., Sr., Secretary, U.S. Department of 
  Housing and Urban Development..................................     6
Mnuchin, Hon. Steven T., Secretary, U.S. Department of the 
  Treasury.......................................................     5

                                APPENDIX

Prepared statements:
    Calabria, Hon. Mark A........................................    66
    Carson, Hon. Benjamin S., Sr.................................    74
    Mnuchin, Hon. Steven T.......................................    82

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Written statement of the Bond Dealers of America.............    84
    Written statement of the California Association of REALTORS..    87
    Written statement of the Credit Union National Association...    90
    Written statement of the Housing Assistance Council..........    93
    Written statement of the Main Street GSE Reform Coalition....    97
    Written statement of the National Association of Federally-
      Insured Credit Unions......................................    99
Cleaver, Hon. Emanuel:
    Written responses to questions submitted to Secretary Carson.   101
McHenry, Hon. Patrick:
    Article from The New York Times entitled, ``Climate Risk in 
      the Housing Market Has Echoes of Subprime Crisis, Study 
      Finds''....................................................   106

 
                     THE END OF AFFORDABLE HOUSING?
                         A REVIEW OF THE TRUMP
                    ADMINISTRATION'S PLANS TO CHANGE
                       HOUSING FINANCE IN AMERICA

                              ----------                              


                       Tuesday, October 22, 2019

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:08 a.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the committee] presiding.
    Members present: Representatives Waters, Velazquez, 
Sherman, Clay, Scott, Green, Cleaver, Foster, Beatty, Heck, 
Vargas, Gottheimer, Lawson, Tlaib, Porter, Axne, Casten, 
Pressley, McAdams, Ocasio-Cortez, Wexton, Adams, Dean, Garcia 
of Illinois, Garcia of Texas; McHenry, Lucas, Posey, 
Luetkemeyer, Huizenga, Stivers, Barr, Tipton, Williams, Hill, 
Emmer, Zeldin, Loudermilk, Mooney, Davidson, Budd, Kustoff, 
Hollingsworth, Gonzalez of Ohio, Rose, Steil, Gooden, and 
Riggleman.
    Chairwoman Waters. The Committee on Financial Services will 
come to order. Without objection, the Chair is authorized to 
declare a recess of the committee at any time.
    Today's hearing is entitled, ``The End of Affordable 
Housing? A Review of the Trump Administration's Plans to Change 
Housing Finance in America.''
    Before I recognize myself, Members, today is Mr. McHenry's 
birthday.
    If anyone wishes to sing happy birthday, please save it 
until later.
    Mr. McHenry. We all thank you for that, Madam Chairwoman.
    Chairwoman Waters. Happy Birthday.
    Mr. McHenry. Thank you.
    Chairwoman Waters. I now recognize myself for 4 minutes to 
give an opening statement. Good morning. Today, we are here to 
discuss the impact of the Trump Administration's housing 
finance reform plans. We are joined by Treasury Secretary 
Steven Mnuchin, HUD Secretary Ben Carson, and Federal Housing 
Finance Agency Director Mark Calabria.
    Welcome. Let me say upfront that the Trump Administration's 
housing finance reform plan would be disastrous for our housing 
systems. The Trump Administration is threatening to end the 
conservatorship of the Government-Sponsored-Enterprise (GSEs) 
without congressional action to provide an explicit government 
guarantee. If implemented in this way, it is likely it would 
create turmoil in the housing market, prevent many Americans 
from obtaining 30-year fixed-rate mortgages, and block families 
across the country from attaining the American Dream of 
homeownership.
    With this reckless plan for administrative action on the 
table, the Trump Administration also recommends that Congress 
make several harmful legislative reforms. For example, the 
Trump plan would abolish the affordable housing goals which 
help to support affordable homeownership and rental housing, 
and replace them with a mortgage fee for which Trump officials 
have not bothered to spell out the details. The plan would also 
fundamentally undermine the Federal Housing Administration's 
(FHA's) ability to create affordable homeownership 
opportunities.
    The Trump Administration has proven again and again that it 
is not to be trusted. It has consistently pushed for harmful 
housing policies and for slashing and eliminating key housing 
funding for those most in need. This is an Administration that 
has proposed tripling rents on our lowest-income households, 
and slashing HUD's budget by 18 percent.
    This is an Administration that has eliminated protections 
for LGBTQ+ individuals, blocked Dreamers from FHA loans, and 
proposed to make it nearly impossible for victims of housing 
discrimination to obtain justice. This is an Administration 
that reportedly wants to raze homeless camps and round up 
persons experiencing homelessness and force them to live in 
decrepit Federal buildings. By contrast, Democrats on this 
committee have put forth measures to improve the affordability 
and availability of housing. For example, we have bills to end 
the homelessness crisis, make FHA mortgages more affordable, 
and protect Dreamers, LGBTQ+ individuals, families and children 
with mixed immigration statuses, and foster youth.
    When it comes to the housing finance system, I have long 
maintained that any housing finance reform proposal should 
adhere to certain key principles. These principles include: 
maintaining access to the 30-year fixed-rate mortgage; ensuring 
sufficient private capital is in place to protect taxpayers; 
providing stability and liquidity so that we can withstand any 
future financial crisis; ensuring the smooth transition to a 
new finance system; requiring transparency and standardization 
in a way that ensures a level playing field for all financial 
institutions, especially credit unions and community banks; 
maintaining access for all qualified borrowers who can sustain 
homeownership; and serving homeowners of the future and 
ensuring access to affordable rental housing.
    It is clear that the Trump Administration proposal does not 
live up to these principles. Today, this committee will examine 
why the officials who are our witnesses today are supporting 
such a harmful plan.
    I now recognize the ranking member of the committee, the 
gentleman from North Carolina, Mr. McHenry, for 4 minutes for 
an opening statement.
    Mr. McHenry. Thank you, Madam Chairwoman, and I want to 
thank the distinguished panel for being here today. Let me 
begin by saying this: This is a powerful opportunity for 
bipartisan cooperation. We have a willing Administration who 
has engaged in a productive dialogue on housing finance reform 
for the long term. Divided government is not ideal for many 
things, but it is an ideal moment for difficult policy that 
divides both parties. Housing finance reform divides both 
parties. There is not a partisan-only coalition that can 
produce fundamental housing finance reform. Democrats have 
tried it and failed; Republicans, likewise, have tried it and 
failed. In order to have a lasting change to our housing 
finance system, to put it on a sustainable path for our 
taxpayers and for our communities, it is important that we 
legislate in a bipartisan way, and this is an ideal moment to 
do it.
    I am encouraged that Secretary Mnuchin and Secretary Carson 
have proposed a long-term solution. It is a positive first step 
on a multi-year path toward building a housing finance system 
that makes the goal of affordable homeownership more 
achievable. And while by no means perfect, it sketches a path 
forward, and away from the status quo that puts taxpayers at 
risk and prevents competition within the market. Inaction puts 
taxpayers at risk. Let me say that again. Inaction, legislative 
inaction, regulatory inaction, puts taxpayers at risk.
    In January, I reached out to Chairwoman Waters on ideas for 
committee hearings that I thought could be bipartisan. This was 
one of them. I offered that back in January, and 11 months 
later, we are here today, but 11 years ago, we, in the Federal 
Government, placed in conservatorship and nationalized after 
their collapse, Fannie Mae and Freddie Mac, with over $200 
billion in taxpayer bailouts. We don't want to relive that. 
This Administration cannot do it alone and put us on a 
satisfactory path.
    Today, Fannie Mae and Freddie Mac remain a conservatorship, 
unreformed, and without competition. Our current economy is 
strong. This is the time to do housing finance reform because 
of the economic conditions as well. But with an inevitable 
downturn at some point in time, and without congressional 
action in reform of the GSEs, a bailout of these institutions 
is more likely than not. In fact, until Director Calabria took 
over, the GSEs had a capital ratio of 1,000-to-1, meaning that 
even a small dip in the market would guarantee failure. Housing 
finance is too important to be put at that type of risk. Our 
housing market has been trending upward for at least the last 8 
years, so we may be reaching the top of the housing cycle.
    We have serious systemic risk at the GSEs and the Federal 
Housing Administration. It is important that we legislate for 
the long term. We know it is not easy, but it is necessary. We 
can't kick the can down the road. I want to highlight a few 
portions of the Administration's proposal that this committee 
needs to focus on.
    First, a new housing finance system must first set clear 
boundaries between the respective roles of the GSEs and FHA. 
Second, Congress needs to encourage competition by leveling the 
playing field, and creating an open chartering process to 
provide a path for other companies to attain these benefits. I 
think we can work together and achieve a bipartisan outcome 
that creates that competition, that certainty in the 
marketplace, and I think this can make the American people 
proud and put us on firm economic standing for generations to 
come.
    And with that, I yield back.
    Chairwoman Waters. Thank you. I now recognize the gentleman 
from Georgia, Mr. Scott, for 1 minute.
    Mr. Scott. Thank you very much, Madam Chairwoman. Welcome, 
to the witnesses. Madam Chairwoman, as you know,this marks the 
10th anniversary of the passing of the Dodd-Frank Act, and the 
tremendous financial crisis that we went through. But there is 
no more burning point to show the great failure at this point 
than as we look across the country, in every State, in every 
community, and it is filled with homelessness. So we have to 
take a very serious look at this, and we are hopeful in this 
committee that we will do so. We have to focus on certainly 
protecting that 30-year mortgage, and we have to ensure that 
sufficient private capital is in place to protect our 
taxpayers, so there is so much for us to get to. The American 
people are depending on us, and I sincerely hope that you three 
gentlemen will open our eyes to much of what we are now only 
dimly aware. Thank you.
    Chairwoman Waters. I now recognize the gentleman from Ohio, 
Mr. Stivers, for 1 minute.
    Mr. Stivers. Thank you, Madam Chairwoman. As the Members 
are all aware, Fannie Mae and Freddie Mac have now been in 
conservatorship for 11 years. I have been in Congress for 9 
years and I am already on the top row. This is a long overdue 
process that we need to deal with. The committee has seen 
proposals come and go. We have seen House and Senate proposals, 
Democratic and Republican proposals. Our witnesses made it 
clear in their written testimony that they prefer comprehensive 
reform imposed by Congress, but if not, they intend to proceed 
with some administrative reforms.
    It is my hope that we can use this hearing as an 
opportunity to restart our work that we should have completed 
long ago, a bipartisan, comprehensive reform that ensures 
Americans can achieve the dream of homeownership, provides 
stability to the housing system, and that prevents any future 
taxpayer-funded bailouts. This hearing should be the first of 
many aimed at proving the skeptics wrong in achieving those 
goals.
    I yield back the balance of my time.
    Chairwoman Waters. Thank you very much. I want to welcome 
today's distinguished panel. We will first hear from the 
Honorable Steven T. Mnuchin, Secretary of the U.S. Department 
of the Treasury. Secretary Mnuchin has testified previously 
before the committee, and needs no further introduction. 
Welcome.
    We will then hear from the Honorable Dr. Benjamin S. 
Carson, Secretary of the U.S. Department of Housing and Urban 
Development. Secretary Carson has also testified previously 
before the committee, and needs no further introduction. 
Welcome.
    Finally, we will hear from the Honorable Dr. Mark A. 
Calabria, Director of the Federal Housing Finance Agency 
(FHFA). This is Director Calabria's first appearance before the 
committee. He has served as Director of the FHFA since April of 
this year. In recent years, he has served on the Republican 
staff of the Committee on Banking, Housing, and Urban 
Development; worked at the Cato Institute; and most recently, 
he served as as Chief Economist to Vice President Michael 
Pence. Welcome, Director Calabria.
    For purposes of testimony, each of you will have 5 minutes 
to summarize your testimony. And without objection, your 
written statements will be made a part of the record.
    Secretary Mnuchin, you are now recognized for 5 minutes to 
present your oral testimony.

 STATEMENT OF THE HONORABLE STEVEN T. MNUCHIN, SECRETARY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Secretary Mnuchin. Thank you. Chairwoman Waters, Ranking 
Member McHenry, and members of the committee, I am pleased to 
be with you today to discuss the Department of the Treasury's 
housing reform plan. Last month, my colleagues and I testified 
before the Senate Banking Committee after the release of the 
plan. The comments and legislative frameworks we have seen from 
Members of both parties reflect bipartisan agreement on the 
need for legislative action, and on the general principles of 
reform. I am hopeful that with some good-faith discussions, 
Congress and the Administration will act in a comprehensive 
manner to support affordable housing, appropriately tailor the 
Federal Government's influence over the housing finance sector, 
protect taxpayers from future bailouts, and foster a 
competition that will benefit consumers. That is why I was 
surprised and disappointed by the title of this hearing, which 
asked whether the Administration's plan is an end to affordable 
housing.
    To be clear, Treasury does not propose, and indeed opposes, 
reducing or eliminating the Government-Sponsored Enterprises' 
(GSEs') long-standing support for affordable housing. I am 
grateful for the opportunity to clarify Treasury's 
recommendations here today, and explain how our plan will 
preserve support for affordable housing while also improving 
the efficiency, transparency, and accountability of the 
mechanism for delivering that support. Treasury's plan 
advocates for continued government backing for and widespread 
availability of the 30-year fixed-rate mortgage loan. And the 
GSEs, or their successors, should continue helping to fund 
multi-family housing for low- and moderate-income and other 
renters.
    In addition to this general support for affordable housing, 
the GSEs have at least four key statutory mandates to promote 
access to affordable mortgage credit for historically 
underserved borrowers and renters: one, a duty to serve focused 
on three specific underserved markets--manufactured housing, 
affordable housing preservation, and rural markets; two, a 
requirement to make certain periodic contributions to the 
housing trust fund and the capital magnet fund; three, charter 
authority to promote access to mortgage credit throughout the 
United States, including central cities, rural areas, and 
underserved areas; and four, a requirement to purchase FHFA-
specified amounts of certain single-family and multi-family 
mortgage loans that support housing for specified underserved 
borrowers and renters.
    Treasury's plan does not include specific recommendations 
to alter the duty to serve the specified underserved markets or 
the affordable housing contribution. Treasury seeks to preserve 
the national service requirement with some added protections. 
With respect to the fourth mandate, the affordable housing 
goals, Treasury recommends material changes that would 
establish a more efficient, transparent, and accountable 
mechanism for delivering tailored support to underserved 
borrowers.
    Further, the plan recommends that FHFA continue to 
coordinate with FHA and Ginnie Mae, who have the primary 
responsibility for providing housing finance support to low- 
and moderate-income families that cannot be fulfilled through 
traditional underwriting to assure an efficient and appropriate 
Federal role for housing.
    To be clear, Treasury is not recommending a reduction in 
support for underserved borrowers. On the contrary, Treasury is 
recommending a more effective means of delivering the support. 
I look forward to our conversation here today, one that I hope 
will continue after this hearing. We welcome your thoughts and 
suggestions to address the challenges facing underserved 
borrowers and renters nationwide.
    Finally, I must emphasize that our recommendations made 
clear that the Administration's preference is to work with 
Congress to enact comprehensive housing finance legislation. 
Legislation could achieve lasting structural reform, and 
competitive advantages over the private sector. At the same 
time, we believe that reform can and should proceed 
administratively pending legislation.
    Under the leadership of President Trump, I am proud of all 
the work we have done to create conditions for greater economic 
growth, more and better opportunities for working families, and 
higher wages. I look forward to discussing with you critical 
housing finance reform. I hope the members of the committee 
from both parties will work with us on passing legislation.
    Thank you very much. I am pleased to answer any questions.
    [The prepared statement of Secretary Mnuchin can be found 
on page 82 of the appendix.]
    Chairwoman Waters. Thank you.
    Secretary Carson, you are now recognized for 5 minutes.

STATEMENT OF THE HONORABLE BENJAMIN S. CARSON, SECRETARY, U.S. 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Secretary Carson. Chairwoman Waters, Ranking Member 
McHenry, and members of the committee, thank you for the 
opportunity to appear before you today to discuss how the 
Department of Housing and Urban Development is supporting this 
Administration's efforts to reform the nation's housing finance 
system. First, like Secretary Mnuchin, I was taken aback by the 
title of this hearing.
    If we really want to examine the end of affordable housing, 
this would be a field hearing in San Francisco or Los Angeles, 
two cities at the epicenter of the nation's affordable housing 
crisis. Restrictive zoning laws have made the development of 
affordable housing prohibitively expensive there, driving up 
rent and home prices to some of the highest in the country, and 
leading to California being responsible for nearly half of our 
nation's unsheltered homeless population. In fact, HUD's latest 
data found that California's homeless population increased 16 
percent over the past year alone. Were it not for California's 
increase, homelessness would have declined nationally. Contrary 
to what is happening in California, HUD's housing finance 
reform proposal addresses how to best serve affordable housing 
needs, while keeping within the principles outlined by leaders 
of both parties, including Chairwoman Waters.
    We look forward to working with Congress to move this 
legislation forward, but I am very confident that we are 
starting from a place of significant common ground about what a 
future housing finance system should look like. At HUD, we 
support millions of families with affordable homeownership and 
rental opportunities through the Federal Housing Administration 
and Ginnie Mae, providing credit access and liquidity in the 
mortgage market. We ought to allow the private market to work, 
but in those areas where it can't or won't work, we must make 
certain that we continue to target FHA programs to borrowers 
not served by traditional underwriting. Our plan preserves and 
strengthens FHA's and Ginnie Mae's pivotal roles while 
improving the delivery of that support and better protecting 
taxpayers.
    Historically, serving unmet housing need has been FHA's 
most important contribution to the American housing market, 
facilitating entry into financially responsible homeownership. 
Without FHA mortgage insurance as an option, millions of lower- 
and middle-income families would lack access to affordable 
mortgage credit.
    Take, for instance, a typical FHA borrower. Last year, they 
were 39 years old, had a credit score of 666, and purchased a 
home for $221,000. First-time home buyers represent 83 percent 
of FHA's purchase volume, while 57 percent of the mortgage 
endorsements were for low- to moderate-income individuals, and 
34 percent were minorities. In addition to helping borrowers 
buy their first home, we also want them to stay in their homes.
    Our plan calls on FHA to improve its servicing by creating 
more flexible loss mitigation processes. We are also working to 
get a more diverse base of lenders back into the FHA program; 
depository institutions, which represented nearly half of FHA's 
lender base in 2010, today represent just 15 percent. To 
provide regulatory certainty to lenders so that they will 
return to offering FHA loans, we are revising FHA's defect 
taxonomy, updating loan level and annual certifications, and 
clarifying when HUD and the Justice Department will utilize the 
False Claims Act to go after allegations of fraudulent lending.
    Another critical piece of our plan is the need to modernize 
FHA technology. For decades, FHA has operated on antiquated, 
obsolete technology that inhibits its ability to appropriately 
manage risk. As part of our proposal, FHA has undertaken a 
comprehensive, multi-year modernization effort to bring its IT 
infrastructure into the 21st Century.
    This is FHA's opportunity to move generations ahead to a 
state-of-the-art system that will fully digitize the entire 
mortgage process, and align it with industry standards. Our 
plan also calls on Congress to eliminate the statutory cap on 
the Rental Assistance Demonstration (RAD) program which allows 
public housing agencies and owners to leverage private capital 
to preserve properties for long-term affordability. Since its 
launch in 2012, RAD has proven to be an extraordinary success 
story. A report we are releasing this week confirms what we 
have long suspected, that RAD is stimulating billions of 
dollars in capital investments, improving living conditions for 
lower-income residents, and enhancing the financial health of 
these critical, affordable housing resources for future 
generations.
    Madam Chairwoman, housing finance reform is the final piece 
of unfinished business remaining from the financial crisis. It 
is one of the committee's top priorities, and you have an 
Administration committed and prepared to work with Congress to 
enact comprehensive legislation. Let's begin that work today, 
and Happy Birthday, Mr. Ranking Member.
    [The prepared statement of Secretary Carson can be found on 
page 74 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Director Calabria, you are now recognized for 5 minutes.

STATEMENT OF THE HONORABLE MARK A. CALABRIA, DIRECTOR, FEDERAL 
                     HOUSING FINANCE AGENCY

    Mr. Calabria. Chairwoman Waters, Ranking Member McHenry, 
and distinguished members of the committee, thank you for the 
invitation to appear at today's hearing. Chairwoman Waters, let 
me also thank you for that kind introduction and welcome to the 
committee, as well as thanking you for taking the time to meet 
with me very early in my tenure. I found that a productive 
meeting, that I hope is the first of many.
    Let me also emphasize for the committee, as was mentioned 
in my bio, having worked on the staff of the Senate Banking 
Committee, I am proud that the last piece of legislation I 
worked on for that committee over a decade ago was an update in 
modernization of the McKinney-Vento Act, where we expanded 
homelessness protections for families. I would also note for 
the committee, having been one of the primary staffers on the 
Housing and Economic Recovery Act that was the last major 
housing finance reform, I will remind the committee that we did 
that in a bipartisan way, and we did it in a bicameral way. And 
I believe we can do that again today.
    Let me emphasize that it is my belief that far too many 
Americans today lack what each of us deserves: an affordable 
place to call home, whether it is owned or rented. This is a 
problem across America in many communities in our country, but 
as Secretary Carson pressed upon, it is fundamentally, in many 
ways, a local problem.
    A fundamental cause of the housing affordability problem 
are local policies that make it harder and more expensive to 
build new housing. Examples include zoning, land use 
restrictions, onerous building codes, and permitting 
requirements. These policies disproportionately hurt low-income 
families. Our affordability problems, while they can be 
addressed here in part, will not be solved until local 
governments remove these impediments that limit the supply of 
affordable housing in their communities. We should, of course, 
applaud those many communities, for example, Minneapolis, that 
are upzoning in a responsible manner that will bring more 
density, and I recognize that many areas in California are 
trying to address this problem as well.
    One part of our mortgage finance system can play a role in 
this. In fact, all of the parts of our mortgage finance system 
can play a role, Fannie and Freddie and the Federal Home Loan 
Banks exist to ensure mortgage credit availability throughout 
the economic cycle. This mission is critical to supporting 
sustainable homeownership, and affordable housing, especially 
when the economy is weak and mortgage credit tightens. But in 
their current condition, Fannie Mae and Freddie Mac will fail 
in a downturn.
    As we learned in 2008, when Fannie and Freddie fail, 
housing affordability problems get even worse. Together, Fannie 
and Freddie own or guarantee $5.6 trillion in single and multi-
family mortgages, nearly half of the market. Yet, until very 
recently, they were limited to just $6 billion in allowable 
capital. To do the math for you, this--when I walked in the 
door, the combined leverage ratio at Fannie and Freddie was 
nearly 1,000-to-1.
    Last month, Secretary Mnuchin and I agreed to allow the 
Enterprises to retain capital of up to $45 billion combined. 
This is a significant step forward. Retaining just one 
quarter's net worth has improved their leverage ratio by nearly 
half. I'm proud to say that in my 6 months, we have doubled the 
capital at Fannie and Freddie. But it still stands at nearly 
500-to-1. In contrast, our nation's largest banks have an 
average leverage ratio of 10-to-1.
    Let me put that in perspective. The leverage ratios that we 
see at our largest G-SIBs, Fannie and Freddie are leveraged 50 
times that. Combined with low capital, credit risk has been 
increasing in recent years by the purchases by the Enterprises. 
Some risk factors now exceed the levels observed in the years 
leading up to the crisis. While average borrower credit scores 
are better today, the Enterprises' share of low-down-payment 
and high-DTI mortgages are actually higher than they were pre-
crisis.
    This procyclical pattern of increasing mortgage risk harms 
first-time and low-income borrowers, it makes it easier for 
them to become highly leveraged at the top of the cycle, and it 
makes it harder for them to keep their home when the cycle 
turns. Borrower debt to income is a widely used measure of 
ability to pay; it is actually spelled out in Dodd-Frank. It is 
adversely impacted in a weak economy when incomes tend to 
stagnate or decline, and household debt levels will stay the 
same.
    Between 2006 and 2008, the Enterprises have nearly doubled 
their purchases of loans with debt-to-income ratios greater 
than 43 percent, higher than that spelled out in the Qualified 
Mortgage rule.
    Yes, market wide delinquency serious rates are low today, 
but they were low before the crisis last time. They were low in 
2004. They were, in fact, low well into 2007-2008. Delinquency 
rates today are a function of a strong labor market, and rising 
house prices. If these were to turn, the underlying risk in the 
system would appear, regardless of loan quality, when there are 
defaults when the tide turns. And at the current levels of 
capital, let me be absolutely crystal clear, Fannie and Freddie 
will fail in a downturn in their current condition. Of course, 
it is my objective to get them out of this condition.
    Our housing finance system is supposed to serve homeowners 
and renters while protecting taxpayers. I believe it has failed 
on both accounts. Let me commend my colleagues for coming up 
with what I believe are reasonable, thoughtful plans that 
present a path out of this. Let me say, these plans are broadly 
consistent with my top priorities, which are: first, to cement 
FHFA as a world-class regulator so as to ensure Fannie and 
Freddie operate in a safe and sound condition; second, to end 
the 11-year conservatorships; and third, as required by 
statute, to ``foster a competitive, liquid, efficient, and 
resilient national mortgage finance system.''
    Chairwoman Waters, I share the principles for housing 
finance you laid out at the beginning of this Congress. I look 
forward to working with this committee as we move forward. 
Thank you.
    [The prepared statement of Director Calabria can be found 
on page 66 of the appendix.]
    Chairwoman Waters. Thank you, Director Calabria.
    I now recognize myself for 5 minutes for questions. 
Director Calabria, you recently announced that you expect to 
make a decision very soon about FHFA's proposed capital rule. 
This rule would be a key factor in determining whether pricing 
of GSE loans will work for a broad base of future homeowners, 
or unnecessarily block creditworthy people out of the American 
Dream of homeownership. As you know, civil rights advocates and 
others have raised concerns that this rule would increase 
incentives for Fannie and Freddie to engage in more risk-based 
pricing, which would eliminate cross-subsidies that help 
minorities and other underserved borrowers obtain mortgages at 
affordable rates. There are also concerns that you will require 
up to 5 percent capital, which many analysts believe to be too 
high.
    Will FHA's final rule on capital levels address these 
concerns?
    Mr. Calabria. Chairwoman, thank you for that question. We 
are in the middle of a rulemaking. I hope to be able to 
announce within the coming weeks whether we will have to 
repropose the rule or not. I very much agree with you. I view 
this as perhaps the most important rulemaking that I will 
engage in, in my tenure. I think it is incredibly important to 
get it right. We have been talking to a number of 
constituencies. As you know, there are a number of factors to 
balance. I think we are going to try to do our best, and I 
think we are getting to a point where this will be balanced. I 
feel highly confident that where we will get will maintain 
access in affordability but also protect the system.
    Chairwoman Waters. Thank you very much. At what level of 
capital would you feel that the GSEs are safe to capitalize?
    Mr. Calabria. Since we are in the midst of a rulemaking, I 
think it is appropriate for me to refrain from giving specific 
answers on the rulemaking. Again, we will keep--
    Chairwoman Waters. Do you believe that a higher level of 
capital would affect the pricing of a mortgage?
    Mr. Calabria. I believe that if this happens for all large 
financials--let me start again. I believe all large 
systemically important financial companies, whether it is 
Citibank, or whether it is Fannie Mae, should be well-
capitalized.
    Chairwoman Waters. I want you to understand that you have 
an obligation to the taxpayers, but you also have an obligation 
to ensure broad access to credit for creditworthy borrowers. 
Your job requires you to strike an appropriate balance between 
these goals; however, based on what I can see from your actions 
and comments to date, I am concerned that you are overly 
focused on shrinking the GSE's footprint, even if it comes at 
the expense of blocking hardworking families out of 
homeownership.
    So, I would encourage you to thoughtfully consider the 
feedback that you are receiving from civil rights advocates and 
others about this proposed capital rule, and ensure that these 
concerns are addressed in a final rule.
    Further, Director Calabria, we met at the very beginning of 
your tenure as Director of FHFA. And in that conversation, I 
stressed the importance of working to increase homeownership 
opportunities for minorities. Sometimes, people conflate 
minority homeownership with affordable homeownership, and I 
want to be clear that these are two different things. We have 
made important strides in opening up affordable homeownership 
opportunities, but we still have African-American homeownership 
levels at rates lower than when the Fair Housing Act was passed 
in 1968, and we have an astonishing racial wealth gap that 
reflects this gap in homeownership rates.
    Do you agree that FHFA has the responsibility to address 
the racial homeownership gap, and not just access to affordable 
homeownership generally?
    Mr. Calabria. First, let me assure you on your previous 
point that we will work with and take in all comments for all 
stakeholders, civil rights groups, and others. I can guarantee 
you that we will meet with everybody and talk to everybody who 
wants to meet with us and do our best to see that those 
concerns are addressed. I would emphasize one of the biggest 
drivers of the increase in the racial wealth gap during the 
crisis was that low-income minority households had higher 
leverage ratios going into the crisis and were hurt more in the 
downturn.
    So, I am committed to making sure we do not see a repeat of 
what we went through in 2008, 2009, and 2010. I believe that 
was a devastating time for low-income minority communities, and 
I am committed to making sure that does not happen on my watch.
    Chairwoman Waters. Are you telling me that you have 
specific actions that you have taken, and actions that you plan 
to take to increase access to homeownership for minority 
borrowers?
    Mr. Calabria. Let me first emphasize that our emphasis on 
homeownership will be on sustainable homeownership. I think it 
is critical when we get families into homeownership, that they 
are able to stay in homeownership. I don't believe we do 
anybody a favor if they just are chairing through and they lose 
their house. Foreclosures are devastating--
    Chairwoman Waters. Can you use the word, ``minority?''
    Mr. Calabria. I can use the word, ``minority,'' but I think 
we want to look out for all families, minority people--
    Chairwoman Waters. I know you are, but I specifically asked 
you about the wealth gap and the problems that we have with 
homeownership for minorities. Will you address the word, 
``minority?''
    Mr. Calabria. If your--
    Chairwoman Waters. If it is difficult for you, then I will 
yield my time back.
    And with that, I will call on the gentleman from North 
Carolina, Mr. McHenry, for 5 minutes for questions.
    Mr. McHenry. Safety and soundness. Safety and soundness to 
our financial system, to the footprint that the three of you 
oversee is your primary obligation to us as taxpayers.
    Director Calabria, is safety and soundness your primary 
obligation?
    Mr. Calabria. Correct.
    Mr. McHenry. Financial collapse of these institutions on 
your watch is nothing that the three of you gentlemen would 
seek, I would hope, nor in the interest of American taxpayers. 
Let me begin. We have 116 items of reform from the Treasury and 
HUD, 116 items. They fall into two different baskets: one that 
you can do through administrative action that is within your 
right under law that the Congress has written; and the other 
requires legislative action. Almost a third of all the 
recommendations in the plan were legislative reforms, 18 from 
Treasury, and 17 from HUD, from my count.
    Given the sheer volume of work that needs to be done to 
build a modern housing finance system that the American people 
deserve, how important is it that Congress rolls up its sleeves 
and legislates here? We will just go across the panel. 
Secretary Mnuchin?
    Secretary Mnuchin. I think it is very important, and thus, 
by far, our first choice.
    Secretary Carson. I think it is obviously very important if 
we want to be able to have things that are sustained across the 
Administration that help the American people.
    Mr. Calabria. It's absolutely critical.
    Mr. McHenry. Director Calabria, Federal Home Loan Bank 
membership was reviewed under Mel Watt's directorship, and 
limited. Are you going to seek to have a review of the Federal 
Home Loan Bank membership requirements?
    Mr. Calabria. We are. Given that there is a large number of 
membership questions at different banks dealing with rates and 
CDFIs and captive insurers, we decided that we will soon be 
doing a request for information on the membership issue writ 
large, so we can hear from stakeholders. We can get feedback. 
Depending on what comes out of that request for information, we 
may or may not do a rulemaking clarifying this, but I think it 
is important that we try to solve the membership issue 
holistically.
    Mr. McHenry. Thank you. Director Calabria, there is a New 
York Times piece from September 30th of this year outlining 
work done by researchers at the University of Montreal and 
Johns Hopkins University about flood risk via the portfolios at 
Fannie and Freddie. It outlines that there are some alarming 
trends, according to the study, that institutions are passing 
off increased flood risk to certain mortgage properties. They 
are passing that off to Fannie and Freddie.
    Are you familiar with that study?
    Mr. Calabria. I have read the underlying study, yes.
    Mr. McHenry. Yes. Madam Chairwoman, I ask unanimous consent 
to submit for the record The New York Times piece outlining 
that study.
    Chairwoman Waters. Without objection, it is so ordered.
    Mr. McHenry. Thank you.
    It is an interesting finding that there is a potential six 
$100 billion sets of risks that are pushed off to GSEs from 
institutions. You said you are familiar with this. Do you agree 
with the premise and/or the conclusion?
    Mr. Calabria. While I can probably take some issue with 
some of the methodology, I think the overall point of the study 
is largely correct and really underlines the importance of 
doing effective reform of the National Flood Insurance Program 
(NFIP), because I am concerned that if we don't have a 
functioning, sustainable NFIP, much of that risk will get sent 
to Fannie and Freddie.
    Mr. McHenry. Do Fannie and Freddie currently run 
assessments of the underlying flood risk for their overall 
portfolio?
    Mr. Calabria. Not when there is a case if the NFIP is 
covering that risk. There is generally an assumption, but this 
is something we have started to look at. We are very concerned 
about the impact of natural disasters on Fannie and Freddie's 
risk profile, especially given the fact that they are 500-to-1 
leverage, so even something that goes modestly wrong in the 
environment could leave them underwater.
    Mr. McHenry. Is there a separate assessment done by Fannie 
and Freddie using outside data, or is it only NFIP- and FEMA-
provided data?
    Mr. Calabria. If I could follow up with the committee and 
get some more actual information on what Fannie and Freddie use 
in terms of outside resources, I would be happy to provide that 
information.
    Mr. McHenry. That would be, I think, useful and helpful so 
we understand the risk here if, in fact, there is serious risk. 
And what are you doing to ensure that FHA runs these risks, 
especially given the question of volatility and the relative 
storm sizes that we have had of the last cycle of storms?
    Mr. Calabria. We are looking at a lot of the risks. These 
happened to be coastal areas. There are many that happen to be 
high-priced areas. There tends to be a lot of price volatility 
in these areas. We are trying to make sure at this point, 
particularly given the leverage at Fannie and Freddie, that 
they can withstand any storms that may come.
    Mr. McHenry. Thank you.
    Chairwoman Waters. The gentlewoman from New York, Ms. 
Velazquez, is recognized for 5 minutes.
    Ms. Velazquez. Thank you, Madam Chairwoman.
    Secretary Carson, last week, your Chief Financial Officer 
and your Principal Deputy Assistant Secretary for Community 
Planning and Development admitted before Congress that HUD 
intentionally missed legally required debt lines that would 
have made congressionally appropriated funds available to 
Puerto Rico. Let me ask you, where specifically in Federal law 
is HUD empowered to unilaterally withhold CDBG-DR funds that 
had been appropriated by Congress?
    Secretary Carson. As you know, Congress has specifically 
mandated that the Secretary of HUD makes sure that funds that 
are allocated or provided for certain jurisdictions have the 
resources and the capacity to manage them.
    Ms. Velazquez. Sir, reclaiming my time, please answer my 
question. Your Chief Financial Officer testified before the 
Appropriations Subcommittee on Housing that you withheld funds 
that were federally appropriated by Congress to Puerto Rico. My 
question to you is, where in Federal law you are empowered, HUD 
is empowered, to withhold money that was supposed to go to 
Puerto Rico?
    Secretary Carson. I can't give you chapter and verse, but 
it does exist. Congress has specifically said to the Secretary, 
you may not issue unless you have--
    Ms. Velazquez. Secretary Carson, reclaiming my time, since 
you are not going to answer my question.
    Secretary Carson. It seemed like an answer to me.
    Ms. Velazquez. Reclaiming my time, your staff previously 
claimed--
    Secretary Carson. Are you looking for an answer or a sound 
bite?
    Ms. Velazquez. No, no, no, no, no. Let me give you more 
background. Your staff previously claimed the agency delayed 
grant agreements related to CDBG-DR funds to await an ongoing 
audit byt the Office of the Inspector General (OIG). However, 
the Inspector General wrote to you in mid-September, and she 
stated explicitly, and I quote: ``I did not recommend that the 
Department take any specific actions with respect to Vivienda, 
including withholding funds delaying finalization of grant 
agreements or delaying publishing Federal Register notices.'' 
So if it was not the Inspector General pushing for this delay, 
I wonder if this was politically motivated?
    Did anyone at the White House, including the President or 
the Chief of Staff, ask you to withhold money that was supposed 
to go to Puerto Rico?
    Secretary Carson. Interestingly enough, a lot of what we do 
is dictated by common sense. If you have a jurisdiction in 
which there are three changes of government within a month, and 
which has historically had difficulty with financial 
management, to put an unprecedented amount of money in there 
without the appropriate controls--
    Ms. Velazquez. That is not the question here, sir. Your IG 
said that they have taken oversight steps in Puerto Rico. You 
withheld the money just to Puerto Rico and you know what? The 
simple answer to this is the contempt of this Administration 
toward the people of Puerto Rico. This is an abuse of power. It 
speaks to this Administration's disregard for the people of 
Puerto Rico.
    Three thousand people died in Puerto Rico under your watch. 
And I will ask for your Administration, HUD, to send to 
Congress and to this committee every communication related to 
Puerto Rico. And you know what, sir? We going to find out what 
motivated you to withhold this money for the people of Puerto 
Rico. If this was about corruption, as you claimed in the 
press, deal with your own corruption when FEMA officials were 
arrested in Puerto Rico.
    Secretary Carson. We have nothing to hide, so I would be 
glad for you to get that information.
    Ms. Velazquez. Yes. One way or the other, we going to know 
the truth. My next question to you, sir--well, I will yield 
back, Madam Chairwoman.
    Mr. McHenry. Madam Chairwoman, I query the Chair. 
Unparliamentary language when you are accusing somebody 
testifying of personal corruption is unbecoming of this 
institution, and not appropriate in parliamentary language 
before this debate. Members should be admonished to keep their 
opinions as opinions, but to accuse a panelist and a Cabinet 
Secretary of personal corruption is not becoming.
    Ms. Velazquez. No.
    Chairwoman Waters. Excuse me?
    Ms. Velazquez. Will you yield? I am talking about 
corruption, where two officials of FEMA were arrested in Puerto 
Rico.
    Chairwoman Waters. The time belongs to the gentleman at 
this point. Have you finished your point?
    Mr. McHenry. Yes.
    Chairwoman Waters. The gentleman has finished his point.
    Will you yield to the gentlelady from New York?
    Mr. McHenry. I am happy to yield.
    Ms. Velazquez. Sir, I am referring to two FEMA officials 
who were arrested in Puerto Rico, and the excuse that had been 
used by this Administration is that they will not let the money 
flow to Puerto Rico unless they take steps to make sure that 
the money is used with the intended goals. However, the IG of 
HUD, in a letter that was sent to the Secretary of HUD, said 
that the government of Puerto Rico has complied with everything 
that was asked of them. And yet, of the 17 States and 
localities that got disaster relief funds, Puerto Rico was the 
only one whose money was delayed. Enough is enough. This is 
about--
    Mr. McHenry. I reclaim my time, Madam Chairwoman. Madam 
Chairwoman?
    Chairwoman Waters. The time belongs to the Chair. The 
gentleman has noted his concerns. They have been responded to 
and--
    Mr. McHenry. Madam Chairwoman, they have not been responded 
to.
    Chairwoman Waters. --the gentlelady was referring to the 
agency, and if your concern is about language unbecoming a 
Member, then you should address that to all of the Members at 
any given time. We have all had language that one could 
consider unbecoming.
    Mr. McHenry. Madam Chairwoman?
    Chairwoman Waters. We will move on.
    Mr. McHenry. To accuse a Cabinet Secretary of personal 
corruption, which is what the gentlelady did, is not becoming 
of members of this committee.
    Chairwoman Waters. The gentleman is out of order.
    The gentleman from Oklahoma, Mr. Lucas, is recognized for 5 
minutes.
    Mr. McHenry. It is ridiculous.
    Mr. Lucas. Secretary Mnuchin, let's return to Treasury's 
plan that lays out several conditions to meet before ending the 
conservatorship of the GSEs. We have touched on capital 
requirements here this morning. I think, in an indirect way, we 
have discussed ensuring that there is no market disruption. Can 
you expand for a moment on the timeline the Treasury is looking 
at to meet these conditions, and to, perhaps, end the 
conservatorship?
    Secretary Mnuchin. Thank you. It is a pleasure to have a 
question on this subject. First of all, I think as we have 
addressed, these bipartisan concerns are something that need to 
be addressed before we take these entities out of 
conservatorship. The first step was, Director Calabria and I 
amended an agreement to make sure that the entities could 
retain capital. A critical part is to make sure there is proper 
capital before we would consider ending conservatorship.
    Mr. Lucas. The plan also recommends reforms to protect the 
U.S. taxpayer. Could you expand on what reforms are needed to 
ensure that shareholders, not taxpayers, bear the losses during 
any potential future downturn?
    Secretary Mnuchin. I think the first issue is, again, to 
make sure we have proper capital, and the second issue is to 
make sure that the Director has appropriate reforms and that 
there is proper underwriting and proper allocations.
    Mr. Lucas. And, again, one more time, you would envision a 
time line of this happening--
    Secretary Mnuchin. I want to be careful in speculating, but 
I would hope that it is over the next 1 to 2 years. And, again, 
it could be quicker or longer, depending upon market 
circumstances.
    Mr. Lucas. Thank you, Secretary.
    Secretary Carson, the HUD plan indicates that actions 
should be taken to remove barriers to further adoption of 
manufactured housing. Like my colleagues here, I am very 
sensitive about my constituents too, and manufactured housing 
is particularly important in the rural communities that I 
represent in Oklahoma.
    Can you elaborate on how HUD can move forward in 
eliminating those regulatory barriers?
    Secretary Carson. Thank you. That has been a subject of 
great concern for us. As you know, in rural communities, 
particularly, manufactured housing accounts for about 20 
percent of all the single-family housing, and yet a lot of the 
regulations that have been in place treat manufactured housing 
as trailers and double-wides, when, in fact, there has been 
tremendous progress made with manufactured housing.
    I think at this stage of the game, in many cases, you would 
not be able to distinguish manufactured housing from a site-
built home, and they tend to be much more resilient. And, 
therefore, it is really an updating that needs to be done and 
we have concentrated a lot of effort on that, and are making 
extremely good progress. And I think it is one of the areas 
where we can make a lot of progress with affordable housing, 
because you are talking about things that cost considerably 
less than site-built homes.
    Mr. Lucas. And for many of my constituents, it is the entry 
level housing opportunity.
    Secretary Carson. Exactly.
    Mr. Lucas. With that, Madam Chairwoman, I yield back the 
balance of my time.
    Chairwoman Waters. Thank you.
    The gentleman from Georgia, Mr. Scott, is recognized for 5 
minutes.
    Mr. Scott. Director Calabria, following the 2008 financial 
crisis, our Financial Services Committee helped enact mortgage 
reforms under Dodd-Frank, and I would like to get an 
understanding from you of exactly where we are. As I mentioned 
earlier in my opening remarks, we are now at the 10-year 
anniversary of Dodd-Frank. It doesn't seem like 10 years, but 
it is about time we kind of look back and see where we are now 
after 10 years in the critical housing area. What is the 
current default risk in each of the GSE's portfolios?
    Mr. Calabria. First, Congressman Scott, let me say how much 
I very strongly agree with you. I think this is an incredibly 
appropriate and important time to take a look back. The most 
serious delinquency rates for Fannie and Freddie are 
respectively 0.67 percent and 0.61 percent. I will note that 
these were similar to what they were at the beginning of 2008. 
So, again, there is an old adage that the worst loans were made 
in the best of times. I think we should keep that in mind 
today.
    Mr. Scott. Let me ask you, how does that risk compare to 
the default risk and the GSE portfolios in the latter stages of 
previous economic growth cycles?
    Mr. Calabria. Certainly over time, there has been a trend 
increase. If one goes back, say, to the 1960s or 1970s, my 
recollection is that the default rates were significantly lower 
than they were in the last previous cycle. Certainly, the last 
cycle was an elevated level of foreclosure, elevated level of 
delinquencies; obviously, in the part of all market 
participants, but also with the GSEs, and hence, my concern 
about if this cycle turns with my concern on whether the GSEs 
are ready.
    Mr. Scott. It is very good to get your points on this as we 
look back after 10 years. Let me follow up with this: There has 
been a lot of focus recently on debt-to-income ratio, given the 
impending expiration of the QM, or qualitative mortgage patch.
    Director, do you feel that the debt-to-interest deal 
profile of the DTI profile of the GSEs portfolios, when taken 
in isolation, is a good measure for us to determine default 
risk?
    Mr. Calabria. I would start out recognizing that the debt-
to-income ratio was explicitly mentioned in Dodd-Frank. It is 
explicitly mentioned. It is, perhaps, the best measure of 
ability to pay, rather than willingness to pay, and so I do 
think it is an important factor. I would, of course, be the 
first to say that borrower credit and loan to value are 
stronger predictors of default, but again, we will note that 
Dodd-Frank specifically lists out a set of factors to be 
considered within the statute.
    Mr. Scott. The very highly respected Urban Institute found, 
in a recent study, that borrowers with DTI ratios above 45 
percent had higher default rates than those below 45 percent. 
Buyers before and during the financial crisis, but--but high-
DTI borrowers have actually had lower default since 2011, as I 
am sure you know. With that in mind, is debt-to-income the 
right measurement of underwriting quality?
    Mr. Calabria. Certainly, with appropriate overlays, I think 
you can offset that risk, and if that is where the gentleman is 
going, I would certainly be very supportive of Congress 
revisiting, having that DTI mandated within the statute. I 
certainly think it is past time to re-evaluate the 
effectiveness of the Qualified Mortgage rule.
    Mr. Scott. Thank you. Secretary Carson, I can't let this 
opportunity escape for you to answer us. Do you have, in your 
own opinion, a full grasp of the impact of homelessness in this 
nation? Do you? And what are you willing to say about it? You 
are the person who is at the point of the sphere in our Federal 
Government to deal with homelessness.
    Secretary Carson. I have had a lot to say about it.
    Mr. Scott. Unfortunately, the chairwoman has brought the 
hammer down, but I certainly look forward to hearing what you 
have to say.
    Chairwoman Waters. The witness is requested to provide an 
answer in writing for the record.
    The gentleman from Florida, Mr. Posey, is recognized for 5 
minutes.
    Mr. Posey. Thank you very much, Madam Chairwoman, and 
Ranking Member McHenry, for holding this hearing today on the 
Administration's plans for reforming Fannie Mae and Freddie 
Mac. It is an important subject, and I regret that it has 
fallen to levels of personally denigrating Secretary Carson, 
asking him questions and not allowing him time to answer them. 
I and many, Secretary Carson, think you have done an 
outstanding job for our country. I have said it before to you, 
I don't know why in the world you would take a job with all you 
have to lose and nothing to gain. And I know it is for the 
betterment of our country and our government and the people and 
how the people live in this country and I am eternally grateful 
to you. I would like to give you a few moments, if you would 
prefer, to respond to the questions that you were not allowed 
to answer when they were asked.
    Secretary Carson. Yes.
    Mr. Posey. You had to be still while they threw some more 
insults your way, but if you would like to take time to respond 
now, you have that time.
    Secretary Carson. Yes. I appreciate that. Obviously, the 
reason I took this job is because I feel that our country is in 
trouble, and we need to do everything we can to provide the 
right kinds of opportunities. HUD, for instance, is an 
organization that was largely focused on just getting people 
into programs, getting people under roof, and that is not a bad 
thing, but I really want to maneuver us to a place where we are 
getting people out of programs, and getting people to a level 
of self-sufficiency, so we have really aimed at that.
    The question that was asked about homelessness, this is a 
very serious problem, and one that I think is solvable in our 
country. If a place like Tokyo, which has more people than New 
York City, can solve homelessness, then certainly we have the 
capacity to do so, too. But we really must understand the 
reasons behind the homelessness. There is a direct correlation 
with the amount of regulatory barriers, home prices, apartment 
prices, and homelessness. And we need to be willing to face 
that.
    We can't solve this problem by just throwing money at it. 
We really have to look at the ideology of the problem and deal 
with the zoning restrictions, deal with the noise restrictions, 
with the density requirements, with all of the many regulatory 
barriers that cause the crisis to go where they are. And this 
is something that is a problem for Democrats, for Republicans, 
for independents, for everybody, and we need to stop making 
everything into a political argument, and fussing and fighting 
like 3-year-olds and spend time actually sitting down and 
talking together.
    I looked at the tenets that the chairwoman has placed. They 
are exactly the same ones that I agree with, the same ones that 
we are working with, and yet we have not been able to sit down 
and talk about it. I think we need to be able to discuss these 
things. We are intelligent people. We can solve these problems. 
Sitting around demonizing each other makes absolutely no sense 
whatsoever, and will not result in any progress.
    Mr. Posey. Thank you.
    You were also--speaking of the word ``demonized''--
demonized for, if I understood the words correctly, making sure 
that the money sent was spent as Congress intended for it to 
be.
    You were cut off before you could explain that.
    Secretary Carson. First of all, I would like to explain 
that in Puerto Rico, they do have access to $1.5 billion, and 
about $2 million of it has been drawn down. So, I don't want 
anybody to be under the impression that they are having a 
crisis that can't be resolved by utilizing the money that is 
already available. Normally, it takes somewhere between a year-
and-a-half to 3 years to spend that much money.
    Having said that, the money for unmet needs and mitigation 
will be gotten to them as soon as possible in a way that is 
safe, with a Federal monitor in place.
    And we would do that for virtually anybody. This is the 
largest amount of money that has been given to any jurisdiction 
in the history of HUD. And I think we have an obligation to the 
taxpayers to make sure that it is properly utilized to impact, 
in a positive way, the people of Puerto Rico.
    Mr. Posey. Secretary Carson, do we have your assurance that 
we are doing everything humanly possible, through your agency, 
to assist the people in Puerto Rico?
    Secretary Carson. Absolutely. And that is one of our 
highest priorities.
    Mr. Posey. Thank you, sir.
    Chairwoman Waters. The gentleman from Missouri, Mr. 
Cleaver, who is also the Chair of our Subcommittee on National 
Security, International Development and Monetary Policy, is 
recognized for 5 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman.
    I, actually, am deviating from the affordable housing 
issue, because I have two people here--and I would like to deal 
with the Opportunity Zones and housing, because I have the 
Treasury Secretary and the HUD Secretary.
    But because of what we have on our agenda tomorrow, an 
examination of Facebook, I am going to deviate a bit. Secretary 
Mnuchin, thank you for the response to my letter. And I thank 
you for proactively probing the issue of Libra. And I want to 
lift just a little section of your letter and ask for a little 
bit more on it.
    Your letter says FSOC's working group on digital assets is, 
``monitoring the development related to the Libra project, is 
working to identify and assess potential risks and gaps in 
authorities that may require more attention.''
    Can you go just a little further on that, Mr. Secretary?
    Secretary Mnuchin. Yes, absolutely. And, first of all, 
thank you for your interest in this subject. I do understand 
the diversion. It is an important subject. And we spent a lot 
of time on this, and we look forward to working with you.
    I have met multiple times with the representatives of 
Facebook. We have told them that we thought that their launch 
was premature, that they had not addressed fundamental issues 
around money laundering, BSA requirements, and other. We have 
set up a subcommittee of FSOC not just to address this, but to 
address other crypto assets, and make sure we have the proper 
regulatory. We are working on an intra-agency basis, I think, 
very effectively. I also concluded meetings last Thursday and 
Friday in D.C. with our International Central Bank governors 
and finance ministers. This is a discussion that is going on at 
the G-20, the G-7, and FSB as well.
    Mr. Cleaver. Thank you.
    Is the FSOC working group going to assess systemic risk and 
apply whatever appropriate regulations are needed?
    Secretary Mnuchin. Yes. That will be one of the issues, 
amongst many, that we will look at.
    Mr. Cleaver. Okay. Your letter implies that the financial 
institutions participating in the Libra network may be an 
avenue through which FSOC regulates Libra.
    Is my interpretation correct?
    Secretary Mnuchin. That is correct.
    Mr. Cleaver. Do you think that financial regulators have 
sufficient tools now to confront the potential systemic risk 
associated with Libra?
    I don't want to be Cro-Magnon man or troglodytic, but this 
kind of frightens me, this whole issue with Libra. It is 
unclear whether U.S. and foreign regulators will have the 
ability to monitor the Libra market and require corrective 
actions, if necessary.
    Secretary Mnuchin. I think right now in the United States, 
we do have the proper tools. But if we need more tools, we will 
come back to Congress.
    My concern is more internationally, and we are working 
through the international organizations to make sure that they 
have the similar standards that we use within the United States 
to combat terrorist financing.
    Mr. Cleaver. Okay. Mr. Secretary, I was excited about the 
Opportunity Zones. I still am semi-optimistic and excited. But 
the response has not been what I thought it would be. And it 
seemed to me that it was perfect for housing because of the 10-
year period when we are talking about capital gains tax being 
forgiven. But it is just not turning out--the activity is not 
turning out at a level that I had anticipated. And I don't know 
what the national picture looks like, but can you address--is 
there a need to tweak it, or what do we need to do to get a 
greater response?
    Secretary Carson. I think one of the things that will be 
helpful is for us to make known to individuals what is actually 
happening. You look at some of the projects that are going on 
in Miami. In your own area, there is a very nice project going 
on across the country, and we are in the process of putting 
together, on the website, information so that that can be 
disseminated.
    Mr. Cleaver. Thank you.
    Madam Chairwoman, I ask unanimous consent to insert this 
letter from the Secretary into the record.
    Chairwoman Waters. Without objection, it is so ordered.
    Mr. Cleaver. Thank you.
    I yield back.
    The gentleman from Missouri, Mr. Luetkemeyer, is recognized 
for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    And welcome, panel.
    I would like to start with Secretary Mnuchin.
    Mr. Secretary, last week, I sent you a letter--I hope that 
you were able to receive that--with a group of 28 bipartisan 
Members of Congress urging you to request a CECLstudy from the 
Office of Financial Research (OFR). The letter outlines the 
statutory requirements of FSOC (the Financial Stability 
Oversight Council) and OFR, which is to examine issues that 
could affect financial stability.
    I have discussed this with many members of FSOC. They tell 
me they are supportive of that position. Every Federal agency 
would do a study, and in order to be able to issue a ruling, it 
is required by the Administrative Procedures Act, and yet FASB 
has not done that.
    To me, this particular accounting standard is probably the 
seminal issue of this committee, I think, for this next several 
months from the standpoint of what it could do, I believe, to 
the economy, the housing industry.
    I guess my question to you this morning is, have you 
received the letter, and are you willing to ask OFR for a 
study?
    Secretary Mnuchin. Thank you. I have received your letter. 
I appreciate your interest in this subject. It is an important 
subject. We have talked about this subject several times at 
FSOC. There are certain delays in implementation. And I will be 
discussing your request at the next FSOC meeting to see if the 
committee thinks we should do this, as you have said. But thank 
you for your interest.
    Mr. Luetkemeyer. I appreciate that. To me, again, I think 
this is an enormous issue. I think it is going to affect these 
other two gentlemen here in the way they manage their agencies.
    Secretary Carson, you stated a while ago that 57 percent of 
the loans that FHA has are low- to moderate-income; is that 
correct?
    Secretary Carson. Yes.
    Mr. Luetkemeyer. What is the total percentage of loans--out 
of the loans that are all made this year, what is the 
percentage that FHA would be involved with?
    Secretary Carson. The total percentage of loans that FHA is 
involved with, did you ask?
    Mr. Luetkemeyer. Of the total loans made this year, what 
percentage would the FHA be involved with? So if there are 100 
loans made this year, how many loans would be FHA-involved?
    Secretary Carson. I think I would maybe see if Director 
Calabria might have the answer to that.
    Mr. Calabria. I don't have the number in front of me, but 
my recollection of the market share, certainly the first-time 
buyer market, particularly FHA, I think is close to half, 40 to 
50 percent. They are probably about a third of the overall 
market, is my recollection. Of course, we can get the data for 
you.
    Mr. Luetkemeyer. Mr. Calabria, what is the percentage of 
low- to moderate-income for you?
    Mr. Calabria. First of all, I think if you want the bigger 
picture, you combine Fannie and Freddie and FHA, you are 
getting between 80 and 90 percent. And this is really a point 
that I would emphasize that is different from pre-crisis. 
Almost all of the mortgage risk in the market today is being 
backed either directly or indirectly by the taxpayer. And let 
me emphasize, I don't believe the taxpayer has ever been more 
exposed to the mortgage market at any other time in American 
history than they are today.
    Mr. Luetkemeyer. Okay. My question, though, is on low- and 
moderate-income. Do you have a percentage--85 to 90 percent of 
the market is through you two individuals and your agencies. 
What percentage of the--Secretary Carson said, well, 57 
percent. What do you think the total would be?
    Secretary Carson. 34 percent of what we do is for 
minorities. And as was mentioned before, low- and moderate-
income, about 57 percent.
    Mr. Luetkemeyer. Okay. Would that be the totality, then, of 
what you are looking at, Mr. Calabria, for your agency as well?
    Mr. Calabria. Yes, although I will certainly emphasize that 
the footprint in low- and moderate-income minorities is much 
higher in FHA than it is for Fannie and Freddie.
    Mr. Luetkemeyer. Okay. What is the source of revenue--what 
is the source of income for Fannie and Freddie, g-funds?
    Mr. Calabria. Primarily, g-fees with some modest portfolio 
earnings. They engage in portfolio activities where, of course, 
they will sell debt, buy assets, and earn interest on that.
    Mr. Luetkemeyer. Secretary Carson?
    Secretary Carson. Our money comes from the financial 
activity, the loans that are made, the fees that are collected.
    Mr. Luetkemeyer. So if you have to increase your capital, 
if you have to increase your ability, especially Mr. Calabria's 
position here, and Secretary Carson as well, I guess--have to 
increase your position to be able to absorb losses, as we just 
said, is 500-to-1--in my world, when I was a banker, I would go 
apoplectic as an examiner. This can't happen.
    If your only revenue source is g-fees or loan fees, it 
would seem to me that you have to raise those fees in order to 
be able to handle the additional reserves it is going to take 
to handle this. Is that correct?
    Secretary Carson. I was just going to say, of the entire 
market, FHA is not 50 percent. It is like 14, 15, 16 percent.
    Mr. Luetkemeyer. Okay. My question, though, is for Mr. 
Calabria. You are going to have to raise g-fees, in my mind, to 
be able to raise your capital, is that correct?
    Mr. Calabria. I will emphasize that we have been setting g-
fees in the past based on, if you will, shadow an amount of 
capital under--
    Mr. Luetkemeyer. Thank you.
    Chairwoman Waters. The gentleman from Illinois, Mr. Foster, 
is recognized for 5 minutes.
    Mr. Foster. Thank you, Madam Chairwoman.
    I would like to actually pick up on this as a question of 
setting the g-fees and the profits we have been--where it goes.
    Now, prior to the changes that you are in the process of 
making for the profits sweep, where did the profits end up?
    Mr. Calabria. They were swept to Treasury.
    Mr. Foster. So, the U.S. taxpayer got the benefit of those. 
Now, after you make the changes, whose pocket does it end up in 
at that point?
    Mr. Calabria. It builds capital at the GSEs.
    Mr. Foster. It is the shareholders of the GSEs that retain 
that?
    Mr. Calabria. No. It builds capital at the GSEs to protect 
the taxpayer, in case the GSEs become insolvent.
    Mr. Foster. And the shareholders of the GSEs will then be 
able to sell those--
    Mr. Calabria. I will note the obligation, so in the letter 
agreement that we recently signed, there was an increase of 
Treasury's liquidity preference at the same time that there was 
an increase in capital. So the taxpayer is being protected 
here.
    Mr. Foster. But where do the profits--I mean, the GSEs are 
very profitable. And depending on where you set the g-fees, 
what the mortgage standards that you eventually settle with, 
that will have a huge effect on their profitability. And so you 
will be in complete control of the profitability of the 
successor GSEs or any new competitors as you privatize the 
business.
    Mr. Calabria. First, let me emphasize, by statute, they 
already are private shareholder corporate entities, so there is 
no privatization. They already are private. That is what the 
law says. I am following the instructions that are given me, by 
Congress, to get them out of conservatorship. That is what the 
law says. That is what we are doing.
    Mr. Foster. Okay. But now when they failed--we all have to 
recognize that these would not exist had the taxpayer not 
bailed them out during the crisis. And during a comparable 
crisis in the future, these entities, or any comparable new 
entities that you are contemplating, will be bailed out simply 
because you can't let the housing market implode in a 
comparable situation, correct?
    Mr. Calabria. Correct, which is why it is important to have 
strong capital.
    Mr. Foster. Right. And it is also why the government has to 
figure out how to charge how much for this guarantee?
    Mr. Calabria. Congressman, let me assure you, I believe in 
the amount of time it would take us to build sufficient capital 
to get out, that this body will have significant time to be 
able to legislate a different path forward, if you so choose.
    Mr. Foster. Okay. My difficulty is that your decision to do 
this and other decisions you are making is having a huge effect 
on the share prices at which they are traded.
    Now, let's talk a little bit about those shares. It was 
well-documented in the Senate's permanent subcommittee 
investigation that hedge funds, such as Paulson and Company, 
designed CDOs and other securitized products to fail and that 
these same hedge funds then blocked shares in the zombie GSEs 
for pennies on the dollar after the government had bailed out 
Fannie and Freddie. And what's more, some of those principals 
at those hedge funds, including John Paulson, have served on 
advisory committees to the President on this very issue.
    My question is, I guess, to Secretary Mnuchin, what sort of 
conflict of interest vetting took place to conclude that that 
was appropriate?
    Secretary Mnuchin. First, let me just explain that the 
Treasury has a giant obligation that needs to be paid back.
    Mr. Foster. I just want you to describe the conflict of 
interest vetting.
    Secretary Mnuchin. I understand. But you are saying a 
premise that these shareholders are getting a benefit of a 
sweep and--
    Mr. Foster. Has the trading share price gone up?
    Secretary Mnuchin. I don't really look at the share price 
one way or another.
    Mr. Foster. All right. Could you get back to us on that in 
case you are unaware of it?
    Secretary Mnuchin. As it relates to any conflicts of 
interest at Treasury, we have full--
    Mr. Foster. Okay. To the entire Administration and everyone 
who is making the decisions about the shareholder sweep, I 
guess that applies, too.
    Director Calabria, do you have anything to say about that?
    Mr. Calabria. Let me first say I very much am on the record 
over the years in saying in 2008, what we should have done is 
wiped out the shareholders.
    Mr. Foster. I agree completely. But that should be your 
guiding principle going forward instead of putting more money 
in their pockets.
    Mr. Calabria. If the circumstances present themselves to 
where we have to wipe out the shareholders, we will.
    Mr. Foster. I look forward to that.
    However, I was concerned that on October 10th, you 
participated in an event at George Mason University where you 
commented that FHFA was looking at ways for Fannie and Freddie 
to increase their return on equity, which would presumably 
increase the amount that was eventually going into the 
shareholders' pockets.
    It is completely unclear to me who you are actually working 
for here, when you make that kind of statement.
    Mr. Calabria. I am working for the taxpayer, sir.
    Mr. Foster. Then why are you concerned about the return on 
equity--
    Mr. Calabria. Because we need to build--
    Mr. Foster. --which ends up in the shareholders' pockets?
    Mr. Calabria. Because these entities are leveraged 500-to-
1. It is essential to build capital now before a downturn.
    Mr. Foster. If you aren't planning on privatizing them. 
Really, I agree completely that we should have and that we 
should still wipe out these shareholders, and I look forward to 
working with you on that.
    Thank you. I yield back.
    Chairwoman Waters. The gentleman from Michigan, Mr. 
Huizenga, is recognized for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman.
    Mr. Calabria, I just wanted to make sure that you were able 
to wrap up what your thoughts were on the g-fees that sort of 
extended over the last two questionings.
    Mr. Calabria. Thank you, Congressman.
    I would really emphasize, and I certainly hope that we 
never see another downturn to the housing market, but I believe 
it is my responsibility as a financial regulator to hope for 
the best, but plan for the worst, and having witnessed the 
devastation that this impacts on families and communities, that 
I think it is absolutely critical to get Fannie and Freddie in 
a condition where they can survive a downturn. And that 
requires building capital as soon as possible.
    Mr. Huizenga. Okay. So, FHA has sort of attempted to grow 
its way out of some of the fiscal problems and displaced 
private capital, and has expanded, really, taxpayer risk, 
correct?
    Secretary Carson or Director Calabria?
    Secretary Carson. We are not trying to necessarily grow our 
way out of risk. FHA really acts sort of as an accordion to 
make capital available and credit available in times of 
economic distress.
    Mr. Huizenga. So it should be countercyclical?
    Secretary Carson. Yes.
    Mr. Huizenga. Okay. But I think we are not seeing that 
right now, are we?
    Secretary Carson. I think we are. I think at the time of 
the height of the crisis, FHA expanded enormously.
    Mr. Huizenga. Sure, yes. I wholeheartedly agree with that.
    What I am concerned about is how do we make sure we get 
private risk back into the system? That is what I am really 
trying to drive at.
    Secretary Carson. Yes, and one of the things that you 
probably noticed in our plan is maybe having some tiered-risk 
type phenomena whereby we make the contracts based on the risk 
factors that are involved, rather than just having a one-size-
fits-all model.
    Mr. Huizenga. I am puzzled by some of my colleagues who 
seem to think that we ought to declare everybody has a 720 FICO 
score and that we should treat all debt and all mortgages the 
same, and there shouldn't be any sort of risk analysis, yet we 
are going to castigate you for having risk in there. And it 
sounds like a have-your-cake-and-eat-it-too kind of a scenario 
in many ways.
    And I guess that is what I am trying to drive at, is what 
are the key components of a market infrastructure that need to 
be in place to incent that additional private capital to enter 
into the marketplace?
    Director Calabria?
    Mr. Calabria. If I could make a point--and I really want to 
emphasize that I think the important question that Congressman 
Scott asked for QM, part of this is getting the rest of the 
regulatory playing field level. So, A, getting to a Qualified 
Mortgage rule that works for all lenders. I think it is also 
important that the SEC gets to a reg AB that works for 
securitization.
    And so, part of the reason that so much of the risk has 
gone to Fannie and Freddie and FHA is that Fannie and Freddie 
and FHA have been exempted from so many of the rules that all 
other market participants have to live under. I think it is 
critical that we get to a level playing field where smaller 
entities, or any entities across the spectrum, can all compete 
in a level, fair playing field.
    Mr. Huizenga. And that takes greater standardization, 
correct?
    Mr. Calabria. Correct.
    Mr. Huizenga. Okay. I am going to quickly--I have about a 
minute-and-a-half here.
    Director Calabria, you have said many times your agency 
needs to be not only a conservator, but a regulator. And just 
how can you accelerate those goals here in the next--because I 
am worried--number of areas that Fannie and Freddie are 
actively engaged in activities, not necessarily served by the 
primary mortgage market and not consistent with what 
congressional charters have laid out?
    Mr. Calabria. Thank you, Congressman. Really, really great 
question.
    Let me emphasize, historically the agency within 
conservatorship has used conservatorship as a substitute for 
regulation. One of the things that we are doing is going 
through, for instance, the directives that have been issued in 
conservatorship, in thinking about what we need to be able to 
do in supervision. We are very close to reviewing and examining 
the supervision team. If we need to bring on more resources, we 
will bring on more resources. But we need to be able to 
strengthen the supervision of the regulatory function at Fannie 
and Freddie before they get out of conservatorship.
    Mr. Huizenga. And so, it is a natural time to do that 
review?
    Mr. Calabria. Absolutely.
    Mr. Huizenga. Okay. One last thing here in my remaining 30 
seconds, just about GSE multifamily lending that Fannie has 
been very involved in, this DUS lender model, which is a risk 
retention model. And I believe you have some rules that have 
been proposed, so I am not expecting answers on that.
    But I am curious, what economic analysis did FHA perform to 
justify the capital requirements?
    Mr. Calabria. There is, as you mentioned, a part of the 
capital rule that applies to the GSE's multifamily business, 
and we are closely looking at that as we make final decisions 
moving forward on what we should do on the capital rule. But as 
you have noted, since we are in rulemaking, I can't go into 
detail on that today.
    Mr. Huizenga. All right. Thank you. I yield back.
    Chairwoman Waters. I would like to announce that I intend 
to adjourn this hearing shortly after votes are called on the 
Floor. That will likely occur around 1:15 today.
    The gentlewoman from Ohio, Mrs. Beatty, who is also the 
Chair of our Subcommittee on Diversity and Inclusion, is 
recognized for 5 minutes.
    Secretary Carson. Madam Chairwoman, I request a 5-minute 
break.
    Chairwoman Waters. You are excused for 5 minutes.
    We will recess for 5 minutes.
    [brief recess]
    Chairwoman Waters. The committee will come to order.
    The gentlewoman from Ohio, Mrs. Beatty, who is also the 
Chair of our Subcommittee on Diversity and Inclusion, is 
recognized for 5 minutes.
    Mrs. Beatty. Thank you, Madam Chairwoman, thank you, 
ranking member, and thank you to the three witnesses today.
    Madam Chairwoman, let me start by saying, I don't know why 
any of my colleagues on the other side of the aisle or any of 
our witnesses or panelists here today are shocked by the title 
of this hearing.
    First, let me say, if I could, affordable housing advocates 
have broadly criticized your plans to overhaul the housing 
finance system, especially the proposal to get rid of 
affordable housing.
    Also, if I look at the statements that you have made, 
starting with you, Mr. Director, that too many Americans lack 
what each of us deserve, an affordable place to call home, 
whether it is rented or owned. The national problem that exists 
in communities across the country is affordable housing.
    You then further say, our housing finance system is 
supposed to serve homeowners and renters while protecting 
taxpayers. Currently, it fails on both counts.
    This Administration says the plan will not raise costs of 
homeownership or decrease access, but affordable housing 
experts disagree with that.
    Secretary Carson, you said far too many Americans who seek 
reasonably priced rental units or sustainable homeownership 
still cannot get their foot in the door. You further say, many 
of our nurses, construction workers, police, et cetera, et 
cetera, simply can't afford to live around the communities they 
serve.
    So you will have to forgive me for taking the side of 
affordable housing advocates and experts over the words of this 
Administration, which has continuously asked to slash the 
budget of affordable housing by more than almost 20 percent 
every year since coming into office.
    Secretary Carson, when the three of you were on the panel 
in the Senate, you stated that you do not believe these plans 
will increase costs of homeownership or decrease access to 
mortgage credit. I can't accept this belief. Because as I have 
said before, I have dozens of organizations who have called my 
office saying this will do the exact opposite of what you 
believe, and will actually raise costs of homeownership and 
make it more difficult for creditworthy borrowers to unlock the 
American Dream of homeownership.
    What analytical data do you have, Secretary Carson? What 
studies, cost-benefit analysis, to back up these beliefs? And 
have you run any other kind of empirical analysis on the impact 
of U.S. mortgage market and the U.S. consumer based on the 
reports?
    Secretary Carson. Okay. Which specific aspect are you 
talking about? Which studies are you looking for?
    Mrs. Beatty. In the studies that you all presented to the 
U.S. Senate, there were documents in response to President 
Trump about your housing proposed plan.
    Secretary Carson. I can tell you that the proposals that we 
are advocating for are to increase the ability, particularly of 
underserved communities, to be able to have housing.
    Mrs. Beatty. And let me reclaim my time. I guess what I 
want to hear is, not your beliefs or not what you feel. What 
did you base it on? Empirical data, analysis? Talk to me in a 
way that this is why we are doing it, because this is what the 
reports, this is what the data shows. It is the same thing, 
that the people were saying the opposite. They come into my 
district, my office, and they give me data showing that we have 
a real problem here, and thus the reason for the title.
    Secretary Carson. The National Association of Home 
Builders, for instance, has data demonstrating that the cost of 
a single-family house, a new one, has had a 25 to 27 percent 
increase.
    Mrs. Beatty. Let me ask you this, only because--and I want 
others to jump in--the Federal Housing Administration is 
responsible, as you probably know, or should know, for nearly 
half of all of the mortgages accessed by African Americans and 
Hispanics.
    Are you recommending moving forward with plans to overhaul 
this agency and its functions without empirical data?
    Secretary Carson. We have plenty of empirical data. We are 
happy to supply that to you. But the point being, one of the 
reasons that there is a big wealth gap is because of housing. 
And we are looking--
    Mrs. Beatty. Do you have a plan that you can submit to me? 
Because my time is going to run out.
    Let me ask you a last question. Is this plan calling for 
GSEs to get out of the business of low-down-payment loans? Yes 
or no? All three of you, quickly.
    Secretary Carson. We are.
    Mrs. Beatty. Yes or no. Just yes or no. My time is 
clicking. Come on.
    Secretary Carson. I can't answer it yes or no.
    Mrs. Beatty. How about you, Secretary Mnuchin?
    Secretary Mnuchin. That is a decision of the Director. I 
don't supervise him.
    Mrs. Beatty. And he refuses to answer or doesn't have an 
answer.
    Thank you. I'm sorry. My time is up.
    Chairwoman Waters. The gentleman from Ohio, Mr. Stivers, is 
recognized for 5 minutes.
    Mr. Stivers. Thank you, Madam Chairwoman.
    And I want to thank you for holding this hearing. We are, 
as I said in my opening statement, 11 years into the 
conservatorship of Fannie Mae and Freddie Mac. We have seen 
reform proposals from the House, from the Senate, from 
Republicans, and from Democrats, and I think it is time that we 
try to do some bipartisan work together.
    I want to ask the witnesses a few questions. Have all of 
you had a chance to see Chairwoman Waters' housing finance 
reforms principles? A couple of you have commented that you 
already support them.
    Secretary Mnuchin. Yes, we do support them.
    Mr. Stivers. You are the only one who hadn't said, Mr. 
Secretary, so thank you.
    All three of you, can you just affirmatively tell me that 
you actually are okay with the principles that the Chair has 
put out?
    Secretary Carson. Very much so.
    Mr. Calabria. Yes.
    Mr. Stivers. Thank you. So, all three of you have said you 
are okay with the principles that the Chair has put out. And, 
again, from your written testimony and what I have seen of your 
previous comments, do all three of you prefer a congressionally 
worked-out, bipartisan housing finance reform proposal to 
administrative action?
    Secretary Mnuchin. That is correct.
    Mr. Stivers. Can you all three comment?
    Secretary Carson. Yes. Obviously, as I said earlier, if we 
have something that is worked out on a bipartisan basis and--
    Mr. Stivers. That was my question, yes, bipartisan.
    Secretary Carson. And since we agree on the basic 
principles, that should be possible if you take the politics 
out of it.
    Mr. Stivers. That is where I am trying to go.
    Director Calabria?
    Mr. Calabria. Let me say yes. And also, I don't envision 
myself doing anything administratively other than carrying out 
the law as it is written today.
    Mr. Stivers. Thank you, Director.
    Would the three of you and your teams be willing to work in 
a bipartisan working group on housing reform, with Republicans 
and Democrats from this committee?
    Secretary Carson. Absolutely.
    Secretary Mnuchin. Not only would we be willing to, we want 
to, both across the House and the Senate, so we can get 
legislation to the President to sign.
    Mr. Calabria. We would be delighted to.
    Mr. Stivers. Thank you. So in 2 minutes, we have 
established that, frankly, you all three agree with the 
principles that the chairwoman has laid out on housing finance 
reform--I also don't have any problem with the principles--and 
that you prefer congressional action, and that you are willing 
to work with us.
    I know that is going to make some of the skeptics around 
town feel like it is not true. But I think really we agree on 
more than we disagree on. We all want to look out for housing 
availability and affordability, and we all want to protect the 
taxpayers, whether that is Republicans or Democrats. Regardless 
of where we are from, we bring our own unique perspectives 
based on the geography we represent, and the people we 
represent, and those economic and housing conditions.
    But I do believe that we can work together to make 
meaningful bipartisan reforms of our housing finance system. 
And this is the only piece is that left undone from the crisis. 
We have an obligation to the citizens of the United States to 
work in a bipartisan, bicameral basis with the Administration 
to actually try to come up with things.
    Like I said, I think the chairwoman's principles are 
acceptable to me. I am willing to start there and work.
    And I would ask the chairwoman to please take this offering 
of trying to work together, and let's see if we can't do 
something, because it is time to make something happen.
    Not only are taxpayers on the hook right now, but we aren't 
doing everything we can do to make affordable housing work for 
people and take away the differences between populations. I 
know that there is, in some minority communities, including the 
African-American community, a lower percentage of homeownership 
than I want, than you want, and than I think these witnesses 
want.
    I think we can and should try to work together. And I am 
hopeful that we can, and I am going to roll up my sleeves as 
the ranking member on the Housing and Insurance Subcommittee--I 
know there is a lot more than in the name, but let's focus on 
the housing piece--and let's try to make something happen. And 
I want to work with the three of you and your teams and the 
Chair and Republicans and Democrats.
    And I appreciate you being here today. I know there are, 
sometimes, tough questions, but I know the three of you believe 
in making the housing system and the housing finance system in 
the United States the best in the world, the most affordable 
and available in the world for the American Dream. And I want 
to work with you and the members of this committee, Republicans 
and Democrats, to make that happen.
    Thank you for your commitment, and thank you for your 
willingness to do that.
    I yield back the balance of my time.
    Chairwoman Waters. Thank you. The gentleman yields back.
    The gentleman from California, Mr. Vargas, is recognized 
for 5 minutes.
    Mr. Vargas. Welcome. And again, thank you very much, Madam 
Chairwoman, for this hearing.
    I do want to again thank the gentleman for his words there. 
I think that they were very appropriate. Thank you.
    I do have to say, though, we do have a little bit of short 
memories around here. I do recall to the ranking member, it 
might be instructive if we go back and take a look at the 
record of some of the comments that were made in previous years 
about the Director of the CFPB from your side of the aisle and 
to take a look at the words that were said and just to make it 
even on both sides. I think that would be--
    Mr. McHenry. And if the gentleman will yield, I think that 
is a fair analysis, a fair and level-headed analysis, something 
that we should all note, including me, and I thank you for 
raising that.
    Mr. Vargas. Thank you.
    And then I would like to ask, talking about both sides, it 
is interesting--I get to walk a lot of precincts, and talk to a 
lot of people. And the American Dream is still the same, most 
people want a safe place for themselves, and for their family. 
They want their kids to do a little bit better than they did. 
And most people want to own a home.
    I think that is changing in California, the type of home. 
Not a single-family detached home, but now an attached product, 
especially millennials, they are looking at different types of 
living arrangements. I think that is all very appropriate. But 
it is still the same. They want a place of their own.
    And they also don't understand why, when things get a 
little rough and tough in the economy, and they have a hard 
time paying for their home, they don't get bailed out and the 
big banks do. Why don't they get the help that the banks got? 
And they don't think that's fair.
    To that point, I am not confident that the administrative 
changes that you want to make here are fair.
    Director, I do want to ask you directly this, if I could 
read it, and if you could comment about it. You talked a little 
bit about it already.
    But this is with regard to your appearance on CNBC. You 
mentioned companies' common shareholders is the GSEs and a part 
of the discussion now underway, a comment that took place while 
they were surprised, I guess, by what you said. And this is 
what I would like you to comment on. ``Director Calabria's 
comments on CNBC on the sidelines of a major industry gathering 
were somewhat rushed as he tried to explain the nuances behind 
the notion of public offering for companies that already have 
shares outstanding. Holders of the common shares were never 
wiped out. Whether we can do some kind of conversion with 
preferreds or whether they would get par, it is way too early 
to figure that out. As a reminder, the plan that rushed Fannie 
and Freddie into conservatorship, as the financial system, 
melted down in 2008, and subsequent amendments gave the 
Treasury Department warrants representing about 8 percent of 
each enterprise payable as senior preferred shares.''
    In other words, they are concerned about who is going to 
get bailed out, once again. And that is my concern, too.
    Could you comment on that? And I will give you some time to 
comment on that.
    Mr. Calabria. Thank you, Congressman.
    And let me very strongly, forcibly say I agree with you. 
None of this is unfair. I would have preferred to have 
inherited a fair situation when I walked in the door. I 
inherited a mess.
    My responsibility under the statute is to fix Fannie and 
Freddie. You have two options in conservatorship: You either 
fix them, get them out, or you take them into receivership. The 
option of endless limbo is not an option under the statute.
    I would prefer that I had a fair situation to enforce. I 
believe Fannie Mae and Freddie Mac got bailed out and 
homeowners did not. That pisses me off to this day. Just as I 
am mad about all of the other bailouts. And I am committing to 
you today that my number one objective is to see that we never, 
ever have to bail Fannie and Freddie out again.
    Mr. Vargas. I would also caution you, though, that Fannie 
and Freddie, the GSEs, have allowed many people to own homes 
who would not have had homes before.
    If you look around the world, the 30-year mortgage with the 
fairly low down payment is what has allowed a lot of Americans 
to own homes. And it is not around the world. Every country 
doesn't have them. In fact, it is very unique almost to our 
country. And I hope we don't destroy that in the process.
    I do want to give the Secretaries an opportunity to comment 
on that if they wish.
    Secretary Mnuchin. First of all, you have my commitment--I 
have been around the housing market for 35 years, and I can 
assure you, I very much support the 30-year market and want to 
make sure we do this.
    But I would also just comment on your previous issue. We 
have made no decision as to whether they would exit by 
conservatorship on receivership. And I would just comment that 
I represent the largest creditor, which is the U.S. Government, 
and we would need to be a part of any decision.
    So, again, we are focused on how to make them safe and 
sound and recapitalize them, and then we can figure out the 
process of raising exterior capital.
    Secretary Carson. I, too, am very much against the whole 
bailout issue and the too-big-to-fail issue, which is why a lot 
of this revision is being done. But also recognize the 
importance of the American Dream and people wanting to be able 
to own a home.
    Mr. Vargas. Thank you.
    Chairwoman Waters. The gentleman from Kentucky, Mr. Barr, 
is recognized for 5 minutes.
    Mr. Barr. Thank you, Madam Chairwoman.
    And the title of today's hearing is revealing. The title 
is, ``The End of Affordable Housing? A Review of the Trump 
Administration's Plans to Change Housing Finance in America.''
    While this suggests that my friends on the other side of 
the aisle believe that any effort by the Administration to 
reform housing finance will increase housing prices and 
disadvantage low- and middle-income borrowers, in reality, the 
proposals set forth by the Administration lay the groundwork to 
protect taxpayers, retain the 30-year mortgage, improve 
efficiencies in the mortgage market, and lower prices for 
qualified borrowers.
    By pushing back against common-sense reforms to housing 
finance, the Democrats are endangering the very low- and 
middle-income citizens they claim they want to protect. 
Unreformed GSEs will lure Americans to buy homes beyond their 
means and then default, with foreclosure as the result. That is 
not helping low-income Americans at all.
    We have seen this train wreck before.
    Democrats' opposition to meaningful housing finance reform 
will take us right back to where we were prior to the financial 
crisis. For years, the government's policy was to drive up 
mortgage indebtedness above what the market could naturally 
sustain.
    For example, let's rewind the tape back in 2003, when this 
committee held a hearing on ways to improve regulatory 
oversight of the GSEs. And during that hearing, then-Ranking 
Member Barney Frank said this: ``I think it is clear that 
Fannie and Freddie are sufficiently secure so they are in no 
great danger.'' He continued, ``Fannie Mae and Freddie Mac do 
very good work, and they are not endangering the fiscal health 
of this country.''
    Well, how wrong he was. Let's not let this conversation 
about housing finance reform end the same way. It is alarming 
that the Enterprises' shares of low-down-payment and high debt-
to-income mortgages are now higher than before the financial 
crisis.
    But I would suggest that what is even more alarming is that 
the Democrat Majority today is defending this state of affairs. 
George Santayana said, ``Those who cannot remember the past are 
condemned to repeat it.''
    The Administration's proposals seek to place our housing 
finance system on a stable, sustainable path and protect us 
from another housing crisis, and I applaud our panel for their 
leadership.
    Now, my first question I want to ask relates to the credit 
risk transfer issue to Secretary Mnuchin.
    The Treasury report calls on the GSEs to continue to engage 
in a diverse mix of economically sensible credit risk 
transfers, including by increasing reliance on institution-
level capital. Unfortunately, current capital rules hinder 
banks' willingness to take on more credit risk from the GSEs. 
Bank capital rules based on Basel III simplified structured 
finance approach are grossly misaligned with GSE credit risk. 
The SSFA was intended to cover all lending, including unsecured 
debt, as Basel III was trying to make sure that banks are not 
making unsecured subprime loans.
    However, the Enterprises make secured prime loans and thus 
capital charges can be as high as 5 times what banks expect to 
lose in the worst of recessions. With capital charges like 
that, it does not often make economic sense for banks to take 
on more risk from the GSEs despite their desire to do so.
    Secretary Mnuchin, do you agree that international capital 
rules adversely affect our private banks' willingness to take 
on credit risk from the GSEs? And will you commit to working 
with the bank regulators on FSOC to explore ways to better 
tailor capital rules so that the private sector may assume more 
credit risk from the taxpayers?
    Secretary Mnuchin. Yes, and yes.
    Mr. Barr. Thank you.
    Secretary Carson, private mortgage insurance (PMI), can 
help borrowers with small down payments and help them prudently 
get into houses and stay there without putting the taxpayers at 
risk.
    What role does your plan contemplate shifting some of the 
risk from the FHA to private mortgage insurers?
    Secretary Carson. We very much want private mortgage 
insurers to become a significant part, particularly after the 
GSEs exit conservatorship; particularly in smaller communities 
and in rural communities, they can play a very substantial 
role. And we are looking at ways to make it even easier for 
them.
    Mr. Barr. I appreciate that. I think PMI is a good solution 
for both affordability and for protecting the taxpayer.
    Finally, Director Calabria, private label securitization. 
What is, in your mind, the ideal proportion of mortgages held 
by GSEs and FHA versus portfolio lending and private label?
    Mr. Calabria. I do think we need to see more diverse 
sources of capital. At least when I studied economics, I 
learned that duopolies and monopolies were not good for 
consumers. And I think bringing in more competition to this is 
critical.
    I don't want to say there is an exact percentage, but I 
think there needs to be a wide range of sources of capital.
    Mr. Barr. I think leveling the playing field on regulations 
to encourage more portfolio lending and more private 
securitization is the right way to go, and I applaud you for 
moving in that direction.
    Mr. Calabria. Absolutely.
    Mr. Barr. I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Florida, Mr. Lawson, is recognized for 5 
minutes.
    Mr. Lawson. Thank you, Madam Chairwoman.
    And I welcome the witnesses to the committee today.
    Secretary Carson, this question goes to you. And you 
probably understand what I am going to say. You had the 
opportunity to visit in my district with the housing conditions 
that exist, especially in the Jacksonville area. But my concern 
has been, one of the things that we talked about then, and I 
subsequently filed a bill, for setting up housing IRAs for our 
young people, deferred IRAs so that they could save in those 
IRAs on a tax deductible basis until they accumulate enough 
capital which can be capped maybe at $20,000 or more so that 
they can use those funds for a down payment.
    The reason why I talk about that and have you elaborate on 
it is so many of the young people today don't see buying a home 
as an option. And I live in an area where a lot of them rent 
and I get a chance to talk to them. They don't see how they are 
going to get ahead with student loans and other things that are 
pressing on them coming out of school.
    What are your opinions on the deferred IRAs for down 
payments only, except in emergency situations, but to be used 
for a down payment on homes?
    Secretary Carson. Thank you for your interest in that. That 
happens to be a great interest of mine as well.
    I think we need to entertain all of the ideas. That is one 
of the reasons that we are really pushing the self-sufficiency 
programs, where people can accumulate money and not be 
penalized in terms of their rent going up, and then that can go 
into an escrow and that can be used for a down payment or other 
things of that nature.
    IRAs, whatever mechanism that we can use, is very much 
appreciated, because, as you know, homeownership is the 
principal mechanism of wealth accumulation in this country. And 
one of the reasons that the wealth gap has deteriorated 
significantly is because a lot of people, particularly in the 
minority community, and particularly in the African-American 
community, had their credit ruined. And as a result of that, 
you see the homeownership rate decrease. We are looking at ways 
to ameliorate that situation.
    Mr. Lawson. I will see if the Director wants to comment on 
that.
    Mr. Calabria. I absolutely agree. I guess I should say, in 
between some of my stints in government, I did some work with 
the Consumer Federation of America's America Saves Initiative, 
and I am a very big believer. I would say I think it would be 
appropriate if there were another route of tax reform at some 
point, having a universal savings account, I think, could be 
very helpful in terms of helping, particularly low-income 
households save.
    Mr. Lawson. Okay. And I look forward to continuing to work 
with you as this legislation is being developed.
    And with that, Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Colorado, Mr. Tipton, is recognized for 
5 minutes.
    Mr. Tipton. Thank you, Madam Chairwoman.
    I would like to be able to speak somewhat to the issue of 
the GSE's portfolios and the guaranteed businesses while they 
have been in conservatorship.
    I do appreciate the comments made by my colleague, Mr. 
Scott, in regards to the passage of Dodd-Frank, where prior to 
it, we had loans that had been made with no documentation or 
loans with riskier product features, such as negative 
amortization.
    Director Calabria, how can we ensure that the GSEs continue 
to be able to avoid such products moving forward as Fannie Mae 
and Freddie Mac exit from conservatorship?
    Mr. Calabria. First, I think it is important to make sure 
that GSE borrowers enjoy the same consumer protections that 
other borrowers have and so that therefore we allow the QM 
patch to expire and replace it with a set of consumer 
protections that works for all borrowers. So, that is the most 
critical.
    Foremost, making sure there is the capital there to support 
the risk. Obviously, all financial institutions, including the 
GSEs, exist to take some degree of risk. The real question is 
having the capital there to support that risk so that they can 
engage in increasing opportunities, but also try to make sure 
that we have better procedures in place and making sure that 
the underwriting is there, making sure the products don't come 
back, and making sure that the safety and soundness is there.
    Mr. Tipton. That speaks a little bit to what you had spoken 
about during your testimony on the 500-to-1 leverage ratio?
    Mr. Calabria. Yes, let me--even if every single loan that 
Fannie and Freddie made were pristine, they would still fail at 
that amount of leverage.
    Mr. Tipton. Great. Thank you for that.
    The ability of the customer to be able to repay speaks 
really to the health of our financial system. And we need to be 
able to make sure that the borrowers are taking only what they 
can handle in terms of payments.
    Secretary Carson, you had mentioned about the loan 
insurance, to be able to have that as well.
    But when we are talking about your predecessor, Director 
Mel Watt, he made some fairly risky programs during his tenure, 
while he was in office.
    How would the Administration's proposal make the GSEs more 
risk-averse, and also, how would preserving the risk aversion 
priorities currently in place over the long term?
    Mr. Calabria. Let me emphasize that I believe that any 
reduction in the footprint could be quite modest where we are 
dealing with--it is true with any sort of insurance program 
where it is the tail of the distribution and quite frankly the 
sort of--any sort of reduction of risk would really be loans we 
don't want to get families into, particularity at this point in 
the cycle.
    I think it is important to keep in mind that this has been 
a long housing recovery. I think the vast majority of house 
price appreciation is behind us, and what we really need to be 
able to focus on is, how do we prepare families? How do we 
prepare Fannie and Freddie? How do we prepare the economy for a 
potential turn in the housing market?
    Mr. Tipton. Secretary Carson, Secretary Mnuchin, do you 
have anything to add to that?
    Secretary Carson. I agree.
    Mr. Tipton. Okay. Thanks. We have a lot of voices in the 
industry right now, and across the aisle, who are questioning 
the timing of the Administration's proposal.
    And, Director, you just noted that right now, in terms of 
the current default rates, it is 0.67, 0.61 percent. We have a 
pretty healthy economy right now, so why is the 
Administration's proposal needed now?
    Mr. Calabria. If I can paraphrase President Kennedy, ``The 
time to repair the roof is when the sun is shining.'' And right 
now, our housing market and our economy is strong. This is the 
time to do it. I fear that if we don't do it now, we will not 
be able to make these reforms in a time of stress.
    Mr. Tipton. Great.
    Do you have any comment on that, Secretary Carson?
    Secretary Carson. No, I totally agree. When is a better 
time to fix it than when things are good? Absolutely.
    Mr. Tipton. I appreciate the comments, and I appreciate the 
Administration's position in terms of trying to be able to 
reform Fannie Mae and Freddie Mac. Some paths are simply not 
sustainable. I think every individual--we want people to be 
able to have a home, but we also need to be able to make sure 
that we are not putting people in homes that they cannot 
afford, to make sure that we have a sustainable system, when we 
are talking about being able to build that wealth. And the 
primary residence is obviously the biggest wealth that most 
people are able to accumulate in their lifetime. It is 
important that we have a system that is not going to be 
punitive, that is not going to put people into a position to 
where they will lose those dollars in--in the event of--
ultimately what will happen in business cycles, we will see 
economic downturns. They will come.
    And I wholeheartedly agree, let's fix the roof while the 
sun is shining. I applaud the Administration's proposals to be 
able to try and address this, and I appreciate you gentlemen 
being here today.
    I yield back.
    Chairwoman Waters. Thank you.
    The gentlewoman from Michigan, Ms. Tlaib, is recognized for 
5 minutes.
    Ms. Tlaib. Thank you, Madam Chairwoman.
    An investigation in metro Detroit found that about 40 
percent of people in protected classes experience unlawful 
differences in treatment by housing providers. This unlawful 
discrimination is usually hidden. It is not like we are going 
to find signs that are posted on doors of homes that say, 
``Don't rent to Black families,'' or ``No Muslim families,'' or 
``No LGBTQ+ families allowed.''
    Yes or no, Secretary Carson, do you believe that landlords 
or property owners or housing providers anywhere in the United 
States have ever engaged in discriminatory practices against 
protected groups?
    Secretary Carson. Of course they have, and we strongly 
oppose that.
    Ms. Tlaib. Yes or no, Secretary Carson, do you believe 
there should be some level of protection to prevent or stop 
discrimination that is rarely explicit nowadays?
    Secretary Carson. Of course, there should be.
    Ms. Tlaib. So, Secretary Carson, under your leadership, HUD 
proposed a rule to make substantial changes to disparate impact 
standards under the Fair Housing Act. The rule would make it 
harder for families facing housing discrimination to seek 
justice by shifting the burden of proof onto them.
    Can you explain why the agency charged with enforcing the 
Fair Housing Act is proposing to make it more difficult for 
plaintiffs to bring forward housing discrimination claims under 
the disparate impact standard?
    Secretary Carson. I can probably explain it best by giving 
you an example.
    If Congress decided that they wanted to raise the minimum 
wage to $15 an hour, the people who would be most impacted 
would be low-skilled individuals. And a lot of those low-
skilled individuals would be in the minority classes, and 
therefore, they could bring a disparate impact suit.
    We want to make sure that obvious cases of discrimination 
can still be addressed appropriately. In cases where something 
is not obvious, we want to apply logic and common sense to it. 
Otherwise, everything could become a disparate impact case.
    Ms. Tlaib. But the burden of proof would be so much--the 
complete intention is to show that the impact of the act or the 
structure that is in place that is discriminatory against the 
families, like the disparate impact helps with going after 
those that are going to hide that discrimination.
    Again, Secretary Carson, it is not like they are putting 
signs up anymore. It is not like we are going to find emails. I 
mean, sometimes we do. But disparate impact allows people 
access to that justice to show housing discrimination.
    I am disagreeing with your example, in that you are showing 
that it is--because most of the claims that are coming forward, 
you still have a huge burden to show that kind of disparate 
impact. It is not as easy as it claims. I have had a number of 
clients and residents who have come forward. And we have lost 
more Black homeownership in Michigan than in any other State. 
We have seen actual shifting of homeownership away from 
communities that are struggling. And we do believe it is 
stemmed around a lot of housing discrimination. And there 
should be equal access to bring those claims forward.
    I just strongly disagree with kind of the analysis that you 
bring forward, and really advise your Department to push back 
against getting rid of disparate impact, almost making it 
impossible, Secretary Carson, to bring a housing discrimination 
claim.
    But, Director Calabria, we know that a quarter of the 
mortgages provided by the Government-Sponsored Enterprises must 
be allocated to low-income borrowers, as I know has been 
discussed.
    The Treasury Department claimed that in order to protect 
taxpayers and make housing more affordable, the Federal Housing 
Finance Agency should bring in private lenders to foster 
competition in the financial system.
    Any time, Director, fostering competition is being brought 
up or used, it results in the Enterprises getting richer at the 
expense of ordinary people.
    Director Calabria, these private lenders also have an 
obligation to make a quarter of the mortgages they back to low-
income borrowers?
    Mr. Calabria. All of the private lenders who originate 
mortgages and, therefore, sell them to GSEs, are indirectly 
impacted by the housing goals, because the loans that are 
bought have to meet the housing goals.
    So, again, let's say you were a lender who sold 100 percent 
of your loans to Fannie or Freddie, you would, on average, be 
meeting those housing goals. Again, indirectly, it impacts the 
originators and servicers who deal with Fannie and Freddie.
    Ms. Tlaib. And what my residents would ask you is about 
accountability. How do we make sure? How can we make sure these 
private market participants are beholden to the American home 
buyers rather than shareholder profits?
    Mr. Calabria. I think that is a great question. I have no 
ability to regulate the counterparties to Fannie and Freddie. I 
regulate directly Fannie and Freddie. And so, our 
accountability is making sure that when Fannie and Freddie meet 
those goals, they can only meet those goals by having the 
entities that they buy from, essentially, on average, meet 
those goals.
    Ms. Tlaib. And just lastly, Director, just always remember 
you are also creating a structure. So even if you don't, you 
are creating a structure that allows it.
    Mr. Calabria. I appreciate that. Thank you.
    Ms. Tlaib. Thank you so much, Madam Chairwoman.
    Chairwoman Waters. The gentleman from Texas, Mr. Williams, 
is recognized for 5 minutes.
    Mr. Williams. I thank all of you for coming here today, and 
I know I have asked both the Secretaries the question when they 
have been here in the past, but this is the first time I have 
had the opportunity to ask the third panelist, Director 
Calabria, are you a capitalist or you a socialist?
    Mr. Calabria. I am a pretty ardent capitalist.
    Mr. Williams. Thank you for that. I look forward to working 
with all of you and to working with you over the next few years 
as a partner in the housing finance reform. There is a problem, 
however, with the affordable housing in this country, but it 
isn't because of any of the recommendations laid out in these 
last two reports. Excessive State and local regulations, land 
use restrictions, outdated zoning laws, and parking mandates 
are just a few things that increase the cost of developing new 
affordable housing units and have prevented supply from meeting 
demand.
    Secretary Carson, regardless of what is done 
administratively to the housing finance system, will it make a 
difference to the affordable housing stock if State and local 
governments do not address this root cause of this issue?
    Secretary Carson. No. In order to be effective, it is going 
to require a combination of Federal, State, and local 
jurisdictions, and a lot of the problems obviously are local 
regulations. Eighty percent of the regulations are local in 
nature and many of them are archaic, and instead of people 
replacing one regulation with another one, they come up with 
something better, they just layer it on top and we have become 
a very complex labyrinth to get from point A to point B, and 
each one of those arms of that labyrinth is an expense as well 
as creating more time lapse.
    Mr. Williams. GSEs are in a worse financial state now than 
they were before the financial crisis. Even after the GSEs 
retain $45 billion in earnings over the next 18 months, they 
will still be drastically undercapitalized, as we have heard, 
for their $5.5 trillion in assets.
    Secretary Mnuchin, what do you believe is the appropriate 
capital standard for the GSEs and do you think that they will 
be able to raise the amount of capital from the private sector?
    Secretary Mnuchin. In regards to the first issue, again, I 
defer to the Director's analysis before we comment on it, but I 
do believe that the GSEs can raise a very significant amount of 
capital from the private sector, so we do anticipate the 
combination of retention and third-party capital raise. There 
will be sufficient capital to get to the new standards.
    Mr. Williams. Good. Okay. The GSEs clearly have significant 
market advantages because of their congressional charters and 
other statutory privileges. There have also been several things 
the GSEs have done while in conservatorship that have further 
increased their competitive advantage over private sector 
participants. And you briefly touched on this earlier, 
Director, but as we move forward in this process, can you 
elaborate on how the Administration plans to level the playing 
field so the potential market entrants can fairly compete with 
Fannie and Freddie in a reformed housing finance system?
    Mr. Calabria. Thank you, Congressman. I think this is 
critical. I want Fannie and Freddie to be successful and 
effective, but I want them to be successful and effective 
because of good management, good business practices, not 
because they are held to lower standards than everybody else.
    I mentioned earlier for the Qualified Mortgage rule, I 
believe CFPB is making significant progress on that, and I 
believe that was mentioned in the Treasury report as well. I 
have had a number of conversations with other regulators. I 
have talked to the SEC about reforming Reg AB, and talked to 
the bank regulators about trying to get some relief. We have 
really seen difficulty in making bank portfolio loans, 
particularly for community banks, so I think additional 
community bank relief is critical to being able to get the 
mortgage market to move again. So, all of this coordination is 
a number of things that we are working on.
    Mr. Williams. Good. One last question, Director, you stated 
that one of the critical changes needed, prior to the end of 
the conservatorship, is strengthening the powers of the 
regulator. What changes are needed to the FHFA to ensure it is 
equipped to be a regulator in a post-conservatorship world?
    Mr. Calabria. One of the powers I have asked for, and I 
know that it is being discussed within the committee, is we all 
remember, especially post-Cap One, the transition to the cloud, 
so the Federal Reserve and other bank regulators have 
significant authority under the Bank Service Company Act to go 
in and look at service providers. Fannie and Freddie are 
transitioning into the cloud. Having all of that mortgage data 
in one space is very concerning to me. I have no authority to 
go in and do the same thing that the Federal Reserve and others 
can do to make sure that the cybersecurity threats that may 
threaten Fannie and Freddie are not severe. So, that is one.
    I would like chartering authority like every other 
regulator. I think it is important to bring competition to the 
marketplace, and I would like greater discretion--if you want 
to know what I would like under capital standards, simply look 
at Section 38 of the Federal Deposit Insurance Act. If you can 
give me that, I would be delighted.
    Mr. Williams. Good. Well, competition is good.
    Mr. Calabria. Absolutely.
    Mr. Williams. And none of you have touched on this, but I 
will go ahead and do it and say, Astros in six.
    Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you. The gentleman from Illinois, 
Mr. Casten, is recognized for 5 minutes.
    Mr. Casten. Thank you, Madam Chairwoman.
    Secretary Mnuchin, I would like to turn to Rusal, an 
aluminum company largely owned by Russian oligarch Oleg 
Deripaska. As you know, in April 2018, the Treasury Department 
sanctioned Deripaska and Rusal as part of a targeted strategy 
against oligarchs believed to be close to Putin and were 
designed to punish him for subverting western democracies.
    The Treasury Department lifted those sanctions in December 
2018. Mr. Deripaska, as you know, is detailed in the Mueller 
report to have financial dealings with Paul Manafort, who is 
now in jail. Earlier this year, the Associated Press reported 
that Manafort began collecting $10 million a year in 2006 from 
Deripaska to advance Putin's interests in western governments. 
On June 20, 2016, Mr. Manafort was named Trump's Campaign 
Chair. Less than 2 weeks later, on June 7th, he asked an 
overseas intermediary to pass the following message along to 
Deripaska, ``If he needs private briefings, tell him we can 
accommodate him.''
    Two-and-a-half-years later, sanctions were lifted, and 
shortly after that Rusal announced it was investing $200 
million into a project in Kentucky. In April of this year, you 
testified in this committee that you delisted those sanctions 
against Rusal because, ``The company approached us, not the 
oligarch. The company approached us, a large group of people.''
    Was Senator McConnell among the people who approached you?
    Secretary Mnuchin. I am not really sure what this has to do 
with housing reform, so I am--
    Mr. Casten. Sir, the trust in our financial system depends 
on the entire system.
    Secretary Mnuchin. Again, I am happy to answer it.
    Mr. Casten. Okay.
    Secretary Mnuchin. I don't see the relevance to housing 
reform, but no, I have never spoken to Mitch McConnell about 
that, other than when we briefed the entire Senate, Republicans 
and others--
    Mr. Casten. Prior to lifting the sanctions?
    Secretary Mnuchin. --on the sanctions.
    Mr. Casten. Did Secretary Chao approach you to lift those 
sanctions?
    Secretary Mnuchin. No, he did not.
    Mr. Casten. Did any Member of Congress, House or Senate, 
approach you with respect to lifting those sanctions?
    Secretary Mnuchin. Not that I can recall, but we had 
extensive discussions with many people on what we would be 
doing about lifting the sanctions.
    Mr. Casten. Did Craig Bouchard of Braidy Industries 
approach you about lifting those sanctions?
    Secretary Mnuchin. I am not even sure I am aware of who 
that is, so no.
    Mr. Casten. Braidy Industries is the company that is a 
substantial beneficiary of that investment in Kentucky.
    Secretary Mnuchin. Like I said, I am not aware of who that 
is.
    Mr. Casten. Did anyone associated with Braidy Industries 
approach you about lifting those sanctions?
    Secretary Mnuchin. Again, I don't--as I have testified 
before, we lifted these sanctions because we negotiated an 
agreement--
    Mr. Casten. Just a yes or no is fine. I am just asking 
whether you understand. I get to that because of the news from 
this last week. Last week, it was reported that in December of 
2018, largely contemporaneous with your decision to lift 
sanctions, there was a seizure of documents from Terra 
Services, Ltd. This is a London-based company owned by Mr. 
Deripaska, a real estate firm that he controlled. That raid has 
been described as being, ``in connection with the special 
counsel investigation,'' that, of course, being the one led by 
Mr. Mueller. This raid is substantially contemporaneous with 
the Treasury Department's lifting of sanctions and you 
appreciate, I am sure, how bad this all looks.
    The question is, did you have any knowledge of the raid or 
the preparation for the raid at the time you were making a 
decision to lift those sanctions?
    Secretary Mnuchin. Again, I find it interesting that when 
we are here to discuss housing reform, you are trying to grill 
me on something that happened months ago.
    Mr. Casten. Sir, I would reiterate, sir, that if you can 
isolate risk in the financial sector, Lehman Brothers would 
still be here today. I am concerned about whether or not people 
trust that the Treasury Department is acting in the best 
interest.
    Yes or no, did you have knowledge of the raid or the 
preparation for the raid at the time you decided to lift the 
sanctions?
    Secretary Mnuchin. No, I had no basis of knowing about the 
raid or involvement with the special counsel.
    Mr. Casten. And in any of the answers that you have given 
me, can I assume that your lack of knowledge can be applied to 
the entire Treasury Department? Were there people in the 
Treasury Department that you believe would have been 
knowledgeable?
    Secretary Mnuchin. Of course, you can't assume that. I am 
not making representations for what is obviously a thousand 
people within the Treasury Department. Again, we are--
    Mr. Casten. Okay. One final question--
    Secretary Mnuchin. If you have these concerns, we would be 
happy to discuss them with you at the appropriate time.
    Mr. Casten. Okay. So one final question, and I appreciate 
your willingness to share, will you commit here today to ensure 
that the employees of the Treasury Department, under your 
control, will comply with any congressional subpoenas relating 
to these matters?
    Secretary Mnuchin. What I will assure you is that we will 
follow the law--
    Mr. Casten. They are congressional--
    Secretary Mnuchin. --as reviewed by our general counsel. 
So, as I think you know, we have already received subpoenas 
that we did not think were legal and, again, I will refer them 
to my general counsel and they will be reviewed, but I can 
assure you that we will always follow the law. That is our 
intent.
    Mr. Casten. Let's hope so.
    I yield back.
    Chairwoman Waters. The gentleman from Arkansas, Mr. Hill, 
is recognized for 5 minutes.
    Mr. Hill. Thank you, Chairwoman Waters. And I appreciate 
Secretary Mnuchin, Secretary Carson, and Director Calabria 
being here today. This is a very important topic. I appreciate 
you reprising your presentation to the Senate. You can tell all 
the interest that we have on this topic in the committee.
    About a year ago, I wrote an Op-Ed about how Fannie Mae and 
Freddie Mac have been violating--this is my view--violating 
their charters, misleading Congress, and misleading investors 
dating back to the 1980s, so I am always very suspicious of 
reform ideas since the 1980s, the 1990s, and the 2000s have not 
delivered very successfully on those.
    The agencies have entered into new activities and product 
offerings including, but not limited to, mortgage insurance, 
lines of credit to nonbanks, and buying mortgage servicing 
rights. These concerns have raised questions regarding the 
proper role in the overall housing market, which we have talked 
about today.
    Additionally, the GSEs continue to grow their footprint by 
increasing the loan limits, allowing mortgage subsidies for 
second homes and increasing caps for multi-family lending.
    Director Calabria, as you look at this issue now that you 
are our head of the regulatory body, how are you going to 
ensure that the GSEs stay within their charters?
    Mr. Calabria. Thank you, Congressman. Let me emphasize, I 
think this is always a critical concern. Any time a player in 
the marketplace has considerable market power, they try to 
leverage that and other lines and I think that is something we 
always have to be cautious of. Fannie and Freddie have the 
ability to essentially put anybody out of business that they 
could directly compete with, so it is certainly a very large 
concern of mine.
    The Housing and Economic Recovery Act of 2008 set up a new 
structure for product approval. This was a big concern going 
into the crisis and we will be doing a rulemaking. I am 
disappointed that it is 11 years later, and there has not been 
an established rulemaking on this before I got there, but we 
will be setting up a rulemaking to have a very clear process to 
make sure you see--
    Mr. Hill. I thank you for that. I think you should echo 
former OMB Director, and former Governor of Indiana Mitch 
Daniels' admonishment that if it is in the yellow pages, it 
doesn't need to be done by the government. So, I urge you to be 
very disciplined in looking at that process.
    You have referenced in your testimony on page 3 that your 
job is to remove the GSEs from conservatorship by 
reorganization, rehabilitation, or winding up their affairs. I 
take it from the Treasury report and the HUD report that there 
is this bias towards recapping and releasing. Those are my 
words, not your words, but it gives the appearance that the 
implication by what has been said is that we are going to 
release these entities, they are going to raise capital with a 
reduction in the sweep, renegotiate the preferred stock 
arrangement, and then they are going back out into the 
marketplace.
    Director Calabria, do you support recapping and releasing 
Fannie Mae and Freddie Mac?
    Mr. Calabria. I do not support simply putting them back out 
there the way they were before the crisis. I will say I very 
much share Secretary Mnuchin's earlier point that no decision 
has been made yet on moving forward. I do believe that I have a 
responsibility in the interim to help build capital at these 
Enterprises.
    Mr. Hill. Secretary Mnuchin, would you like to comment, 
please?
    Secretary Mnuchin. Yes. I would just say that I don't agree 
with your characterization of a bias. I think, as I have 
testified earlier, we have the option to take them out through 
conservatorship or we have the option to go through 
receivership. We have not had any discussion and my sense is, 
what we do agree on is that they need more capital and we would 
hire appropriate advisers to determine what is in the best 
interests of the taxpayer.
    Mr. Hill. Good, so you are open minded about these various 
models of substitution that might be proposed; in other words, 
we have proposals to have a mutual that is a utility, a 
nonprofit that is a utility, a government that is a utility, or 
we have the recap and release with competition where Director 
Calabria has congressional authority to charter new entities, 
you are open to considering all of these options?
    Secretary Mnuchin. Again, I would say that our number one 
objective is to make sure we meet the housing goals that have 
been outlaid, and to protect the taxpayers, and we will look at 
whatever the best alternative is for that.
    Mr. Hill. Thank you, Mr. Secretary.
    Secretary Carson, earlier this year when you testified, I 
recommended that FHA Commissioner Brian Montgomery testify 
before our committee, and I still hope that our Chair will 
encourage the FHA Commissioner to come and discuss FHA's book 
of business. I am concerned it has deteriorated in loan quality 
over the last couple of years, that FICO scores are lower, that 
debt-to-income ratios are higher, and that is concerning to me. 
And also, Director Calabria has mentioned the that GSEs are 
competing with FHA for the same first-time home-buyer market.
    Secretary Carson, do you agree that the GSEs should not 
compete with the FHA in the first-time home-buyer market, in 
the secondary market?
    Secretary Carson. I think the GSEs have a different mission 
target than FHA does. Can they both work within that sphere? Of 
course, they can, but I think one is more specialized. It is 
sort of like a cardiac surgeon and a urologist. They both can 
probably operate on your heart, but I think you would probably 
rather have the cardiac surgeon.
    Mr. Hill. Thank you. We will put you down as an expert 
witness on that.
    I yield back.
    Chairwoman Waters. The gentlewoman from Virginia, Ms. 
Wexton, is recognized for 5 minutes.
    Ms. Wexton. Thank you, Madam Chairwoman, and thank you to 
the distinguished gentlemen for coming to talk to us today 
about this important topic.
    Secretary Carson, FHA currently charges a flat fee for 
mortgages that it backs, but your plan for housing finance 
reform recommends a risk-based pricing structure for FHA loans. 
Advocates have expressed concerns that this could fundamentally 
undermine FHA's mission to serve underserved borrowers by 
charging higher premiums to those who can least afford them.
    Has HUD evaluated the effects of risk-based pricing on 
borrowers throughout the credit spectrum, specifically what 
would the effective tiered pricing be on the least wealthy 
Americans whose credit scores are below 650?
    Secretary Carson. Yes. This has been a subject of great 
conversation. We have looked at the different scenarios. We 
feel that if we just have a one-size-fits-all model, it has a 
tendency to attract the highe- risk people into that pool, and 
in the long run could actually elevate the cost for the low-
income individuals.
    Ms. Wexton. You didn't answer this question, but would the 
premium or would the fee be higher for higher-risk individuals 
and lower for lower-risk individuals?
    Secretary Carson. Yes.
    Ms. Wexton. Has HUD conducted a fair housing analysis to 
determine if protected classes of borrowers would be 
disproportionately impacted by this new policy?
    Secretary Carson. Protected classes would also undergo the 
same type of credit risk analysis and would have the fees 
appropriately scheduled for them.
    Ms. Wexton. Are you saying that the fees would not be based 
on their risk; it would be based on whether or not they are a 
protected class?
    Secretary Carson. No. Fees are based on risk whether you 
are a protected class or not.
    Ms. Wexton. Has HUD conducted a fair housing analysis to 
determine what the impact of this would be?
    Secretary Carson. I would be happy to send that information 
to you.
    Ms. Wexton. Did HUD conduct such an analysis?
    Secretary Carson. Of course, we have looked at the various 
scenarios, and we have that information.
    Ms. Wexton. Okay. And does the information show that 
protected classes are disproportionately impacted by these 
risk-based fees?
    Secretary Carson. No, they are not.
    Ms. Wexton. Okay. If you would share that analysis, that 
would be fantastic. Thank you.
    Secretary Carson. Absolutely.
    Ms. Wexton. Also, Secretary Carson, HUD's plan for housing 
finance reform recommends that Congress establish FHA, VA, and 
USDA as the sole source of low-down-payment financing for 
borrowers not served by the conventional mortgage market.
    Are you recommending that Fannie and Freddie get out of the 
business of backing low-down-payment loans?
    Secretary Carson. I think it would be good if we have 
segments of the housing finance market focus on particular 
mission targets. That doesn't mean that there won't be some 
overlap.
    Ms. Wexton. If FHA, VA, and USDA essentially have a 
monopoly on these low-down-payment loans, wouldn't that crowd 
out private sector participation in those loans?
    Secretary Carson. The private sector could decide which 
segment of the population they want to specialize in. No one 
would try to tell them what they could or could not do.
    Ms. Wexton. And that would probably disproportionately 
impact some less creditworthy protected classes as well, would 
it not?
    Secretary Carson. It depends. Some people in the private 
mortgage insurance market might decide that they want to focus 
primarily on low-income, high-risk individuals, which probably 
is not going to be the financially best move for them to make, 
but maybe they might feel some social obligation to do that. We 
wouldn't preclude them from doing that if they wanted to.
    Ms. Wexton. I have not found social obligation or social 
desires to be a big motivating factor among most of these for-
profit companies.
    Secretary Carson. I think that is right.
    Ms. Wexton. Secretary Carson, I see I only have about a 
minute left, so I wanted to give you a chance to apologize for 
comments you made during a meeting with HUD staff last month 
where you described transgender women as, ``big hairy men.''
    Secretary Carson. First of all, I didn't describe 
transgender women that way. I was relating a story that a 
women's group told me about big hairy men who are not 
transgendered women, by the way, coming into their facility and 
having to be accepted because of the rules that were in place.
    Ms. Wexton. What was the women's group that told you this 
story?
    Secretary Carson. It was a group from Alaska.
    Ms. Wexton. What was their name?
    Secretary Carson. I don't remember.
    Ms. Wexton. Okay. Could you get that for us, please? So, 
you don't feel the need to apologize for those comments?
    Secretary Carson. No. I think this whole concept of 
political correctness--you can say this, you can't say that, 
you can't repeat what someone said--is total foolishness, and 
it is going to destroy our nation, and we need to be more 
mature than that.
    Ms. Wexton. Very good. Thank you very much.
    I yield back.
    Chairwoman Waters. The gentleman from Georgia, Mr. 
Loudermilk, is recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Madam Chairwoman. And I thank 
all three of you for being here.
    Secretary Carson, Secretary Mnuchin, you have both been 
here before. You are aware of the theatrics that go on here 
and, Director Calabria, I appreciate you being here. Sometimes 
I am amazed myself with what happens here. There is a popular 
television commercial out there about these young people who 
are in the middle of a horror show and they have an opportunity 
to run away from this terrible incident by jumping in a running 
car, but they choose to go behind chainsaws ahead and then run 
to a cemetery.
    I often relate that to Congress as it seems like when we 
find ourselves in the middle of a really bad situation, some of 
us look for the running car, and others just keep wanting to 
run to the chainsaws to make the situation worse and worse. And 
I appreciate what you are trying to do with the reforms of the 
GSEs. You are looking for that running car. To me, the economy 
is that running car that we can jump in and use the strength 
and the power of this economy to make changes going forward and 
make the economy strong.
    In my hometown in Bartow County, Georgia, we just posted in 
August the lowest unemployment rate in the history of that 
county. To give you an example, in 2010 unemployment was 12.2 
percent. In August of 2018, it was 3.8 percent. This year, it 
was 3.5 percent. We are seeing manufacturing return. However, 
we are also seeing some problems associated with a strong 
economy.
    One is the jobs that are made available. We just don't have 
skilled workers getting into those jobs. In fact, I held a 
skilled jobs fair at the beginning of this month where we 
brought employers in and we put the invitation out to every 
high school in our district, every high school responded, and 
over 400 students showed up to get matched with employers who 
will do apprenticeships, so we are addressing those.
    The other issue I am hearing from employers that is a big 
problem is the lack of entry level homes for the employees they 
are bringing in. In fact, my son-in-law and my daughter are 
looking for a home and he said, basically, anything in that 
starter home level in our area of Georgia from $140,000 to 
$180,000 is sold by the time it hits the market, and it sells 
for more than the asking price of the home.
    And so we are trying to find some ways to address that, but 
what it is doing is, it is pushing those new employees to 
either take long commutes from other communities because they 
can't find the affordable housing in our area, let me say 
entry, level housing or they are moving into multi-family 
housing, which is creating a supply-and-demand issue there 
which is causing apartment complexes and other multi-family 
homes prices to go up.
    I appreciate, Dr. Calabria, the efforts to retain capital, 
because we do need to have that rainy day fund if and when we 
do get into the next financial crisis. I think that is a good 
business decision. I think that is a good running car to be in. 
My concern is--and I know this rule was proposed by your 
predecessor--if we make that a permanent rule after we are out 
of conservatorship and things are going again and that is a 
permanent rule, is the requirement for multi-level family or 
multi-family dwellings to be double that of a single family? 
The concern I have is, could that actually further impact the 
availability of these homes that are really needed in our parts 
of the country?
    Mr. Calabria. Thank you for the question, Congressman. 
Certainly, we want to make sure fundamentally with a well-
thought-out, strong capital rule that means that Fannie and 
Freddie are there during stress time so that they can provide 
that credit. I will remind the committee, if you go back and 
look in 2008, before they fell, 2009, 2010, Fannie and Freddie, 
pulled back from the marketplace. They focused on saving 
themselves. I think any for-profit enterprise would have 
largely done the same, so we need to make sure that they are 
strong going into a stressed environment so they can continue 
to be there. We certainly are not looking to penalize multi-
family or single family relative to each other, but just to 
make sure that the risk-based capital standards reflect the 
relative risk and, unfortunately, the multi-family portfolios 
at Fannie and Freddie largely came through the crisis well, 
with much stronger underwriting there, but again, making sure 
that the risk and the capital there is balanced is where we are 
going.
    Mr. Loudermilk. People can add to this, but I just want to 
make sure that by doubling the retainings from the multi-
family, it doesn't create an unbalance there to further the 
crisis.
    One other quick question in the final seconds I have, there 
has been a prohibition against the GSE's lobbying while they 
are in conservatorship. I want to make sure that we continue 
that going forward. Will you support a ban on lobbying Congress 
by the GSEs?
    Mr. Calabria. I think it depends on how it is structured. 
Even Fannie and Freddie have First Amendment rights, so I just 
want to make sure that we respect those.
    Mr. Loudermilk. Thank you.
    I yield back.
    Chairwoman Waters. The gentlewoman from North Carolina, Ms. 
Adams, is recognized for 5 minutes.
    Ms. Adams. Thank you, Madam Chairwoman, and I thank you 
gentlemen for being here today. First-time home buyers have 
traditionally been the driving force of the housing market and 
these borrowers traditionally rely on low-down-payment 
mortgages to purchase their homes. In fact, over the past 
several years, nearly 80 percent of first-time home buyers with 
mortgages purchased homes using low-down-payment products.
    Director Calabria, can you please speak to how the FHFA 
will ensure that borrowers continue to have access to 
affordable, prudent low-down-payment mortgage options?
    Mr. Calabria. We will certainly continue to make sure that 
they are sustainable, that when we get people into 
homeownership, they are there to stay, and I do think, of 
course, down payments are part of the question as is DTI, FICO, 
and borrower credit scores. But we want to make sure that we 
get borrowers in to stay, and I commit to you that is what we 
will be trying to do.
    Ms. Adams. Thank you for that commitment.
    And for each of you, if you could just answer yes or no it 
would be helpful, should the Federal Government play a role in 
ensuring access to affordable housing and affordable loans?
    Secretary Mnuchin?
    Secretary Mnuchin. Yes.
    Ms. Adams. Thank you.
    Secretary Carson. Yes.
    Ms. Adams. Okay, great.
    Mr. Calabria. And, of course, we should do it in a 
responsible manner.
    Ms. Adams. Okay. Do the GSEs play a role in ensuring access 
to affordable housing and affordable loans?
    Secretary Mnuchin. Yes.
    Secretary Carson. Of course.
    Mr. Calabria. Yes.
    Ms. Adams. Okay. Great.
    Secretary Mnuchin, your plan for housing finance reform 
proposes to replace the current affordable housing goals with a 
fee that would fund affordable housing programs, and while you 
provide extensive details on other recommendations in your 
plan, you provide no details on the size of this fee or what 
kinds of affordable housing programs the fee would fund, or how 
you would expect this would be an adequate replacement for the 
affordable housing goals.
    It is clear that you are punting a little bit on key 
details of your plan when it comes to affordable housing, but 
affordable housing cannot be an afterthought in the debate on 
housing finance reform; it has to be at the center.
    Can you please tell us why you have decided not to spell 
out key details of your own plan on affordable housing?
    Secretary Mnuchin. Thank you for that question. First, as I 
said in my opening testimony because I wanted to clarify, we 
want to make sure that there is affordable housing. I think it 
has been misinterpreted that we are looking to replace the 
goals with a fee. That is one alternative that has been 
proposed. That is not necessarily our only alternative. What we 
are saying is that in the affordable housing goals, we want to 
make sure they are accountable. We want to make sure that the 
community groups and the communities are getting the benefit of 
that.
    So, it is really more about accountability, and we look 
forward to sitting down on a bipartisan basis and figuring out, 
how we do not have less affordable housing, if anything, 
hopefully, we could have more affordable housing and people 
better served.
    Ms. Adams. You do have some details, then?
    Secretary Mnuchin. We have views, absolutely, but we would 
sit down on a bipartisan basis and want this resolved because 
it is not just Treasury.
    Ms. Adams. Okay. Thank you, sir. Let me move on. Over the 
summer, the GSEs made several concerning changes to the 
affordable lending products, Fannie Mae's HomeReady and Freddie 
Mac's Home Possible. Previously, these programs had income 
limits of 100 percent of the area median income, and now the 
income limits are 80 percent.
    Director Calabria, are you concerned that these changes 
will deprive consumers of mortgage options and potentially lock 
them out of the conventional market?
    Mr. Calabria. I think it is important that we make sure 
that Fannie and Freddie's affordable housing efforts are well-
targeted. For instance, the statutory framework as affordable 
housing goes builds on income, most of the programs are 
targeted at credit and, of course, while credit history and 
income are positively correlated, they are actually only 
weekly.
    We are actually in a situation historically where high-
yield credit, lower-income borrowers have been cross-
subsidizing worse credit in higher-income borrowers, and so one 
of the things that we are trying to make sure of is essentially 
to make sure that the affordable housing products that are 
provided are well-targeted within the goals to low-income 
families.
    Ms. Adams. Great. Thank you very much.
    I yield back, Madam Chairwoman.
    Chairwoman Waters. Thank you. The gentleman from Ohio, Mr. 
Davidson, is recognized for 5 minutes.
    Mr. Davidson. Thank you, Madam Chairwoman. And I thank our 
witnesses. Thanks for the work you do on behalf of our great 
country and the skill with which you do it. It has been an 
honor to see you all at work in your roles, and really just for 
the benefit of folks back home in Ohio who are concerned about 
affordable housing as well. It is not just on the coast where 
affordable housing is of concern.
    In rural communities, we often face shortages, and part of 
that is due to just population density, even though the cost of 
living is much more manageable in Ohio. But when you look at 
the size of the balance sheets that we have within Treasury, 
that we have within the various components, I am just curious, 
what percentage of that balance sheet is comprised of things 
the market would produce, market risk versus essentially 
subsidized programs that would never actually be produced in 
the market?
    Director Calabria?
    Mr. Calabria. Thank you. Let me really emphasize, as 
someone who grew up in rural America, the importance of making 
sure that credit is available there. I will also note that I 
have been going around and seeing the Federal Home Loan Banks, 
and I recently visited the Cincinnati Federal Home Loan Bank. I 
want to make sure that I get outside of Washington, but more 
directly to the question, we are looking at it very closely, 
whether it is the conversation between the GSEs and the FHA or 
between the private market. We don't want any gaps, but we do 
want to look at, where can the private sector pick up this 
business and provide it so that no one is left out?
    Mr. Davidson. Thank you.
    I don't know if we will have an easy quantitative answer, 
but that highlights the problem to me.
    To me, if you think about the composition of the balance 
sheet, we begin with underwriting and some things just wouldn't 
pass an underwriting test. They really wouldn't. They only 
exist because there is a Federal program that intentionally 
targets this. We decided as a country collectively to pass a 
law that said we are going to do these things. The market 
wouldn't produce these things and my concern goes to how those 
things filter through the balance sheet and then wind up on the 
back end, perhaps in a credit risk transfer.
    When I look at the efforts to delever the balance sheets 
and put that risk back out into the market, and I think back on 
the housing crisis, people in the financial sector have been 
demonized because they structured these mortgage-backed 
security products in a way that was full of bad product and not 
enough good product, and it seems to me that non-market-based 
risk shouldn't enter the market.
    It should be held on the Federal Government's balance sheet 
because the only reason it exists is because the Federal 
Government decided to create it. And as we look to delever that 
balance sheet and we use the product called a credit risk 
transfer for the benefit of folks at home, Director, could you 
please explain what a credit risk transfer is?
    Mr. Calabria. Certainly. What the GSEs will often do is 
they will have a pool of loans which they end up calling the 
reference pool and they will sell a credit risk into the 
marketplace. They have over 200-some investors in the 
marketplace. Some of these are insurance companies, and other 
types of investors, and they will essentially take the credit 
loss, so if this reference pool doesn't perform, the credit 
loss is transferred to the investor.
    It does allow us to get some market signals, so the bids 
that we see on credit risk transfer are an indication of what 
market participants think about the underlying risk of the 
reference pool. So, I think we are learning a lot from that 
process and having a better insight on risk and, of course, 
within conservatorship, this was an important way to get some 
of the risks outside of the GSEs.
    Mr. Davidson. Thank you for that. When we look at selling 
that product, right now my concern is that this isn't really 
retained on the Federal Government's balance sheet. In fact, 
some might propose what to me would be an absolutely horrible 
idea, which is to protect the taxpayer, to sell it off into the 
market, to keep the good stuff on the government's balance 
sheets and effectively keep the lean meat on the government's--
sell the fat and fillers out into the market and that is a 
recipe for disaster. This should never enter the market because 
the market would never actually produce it. They wouldn't even 
do the underwriting to let this happen in the first place.
    As I look through the recommendations, Mr. Secretary, I 
just would ask that you consider the structure, the purpose 
that these entities even serve, because even now at 3.5 percent 
of unemployment with the economy booming, record low 
unemployment, wealth and prosperity on the rise at every income 
level in the United States of America, we are actually 
providing bigger Federal housing subsidies than back right 
after the crisis when we had a shortage of affordable housing 
at a different level.
    We had 10 percent unemployment, and unfortunately the trend 
isn't for less Federal housing subsidies; it is for more. And 
so, we are continuing to load up these balance sheets with bad 
products. I just ask that you protect the market by making sure 
that doesn't wind up in the credit risk transfer pool so that 
people in the financial sector can do sound on the front end 
and on the back end and the government can contain the problem 
that they are, in fact, creating.
    Thank you.
    Chairwoman Waters. The gentleman from California, Mr. 
Sherman, is recognized for 5 minutes.
    Mr. Sherman. We currently have a system that is the envy of 
the world, with ordinary working people able to buy, who borrow 
hundreds of thousands of dollars at pretty low rates. We have a 
system that has produced $300 billion of profit for the Federal 
Government, and has paid back the Federal Government $109 
billion more than was necessary at the beginning of the crisis.
    It works. It produces huge profits. It produces low 
interest rates. It is a far better real estate finance system 
than any I am aware of anywhere in the world. It has one giant 
flaw. There is no way to make a billion dollars for a private 
individual. There is no way to get stock options for a private 
individual. It works for everybody except the one-hundredth of 
the top 1 percent. This is working so well that you couldn't 
get Congress, not even Congress which often makes stupid 
mistakes, to approve spinning these entities off. They are, in 
effect, government entities.
    Secretary Mnuchin, do you believe that you can spin these 
entities off without an Act of Congress authorizing that?
    Secretary Mnuchin. Yes, we do, but let me just make a 
comment.
    Mr. Sherman. No, no, I have a limited amount of time. You 
had your opening statement; this is my 5 minutes. I hope very 
much that you don't. It would be a terrible mistake and 
anything Congress--but let's move on.
    You have said that we are not going to lower the conforming 
loan limits as part of your plan. I have so many worries about 
this. You wouldn't deny the Federal Government a backstop to 
loans over a certain amount as long as that amount isn't the 
applicable conforming loan limit? In other words, you are not 
planning to back into a decline in the conforming loan limit by 
saying, well, certain loans under that limit will still 
conform, they just won't get a backstop. I shouldn't worry 
about that, should I?
    Secretary Mnuchin. No. That is not the case.
    Mr. Sherman. Good. Thanks.
    Director Calabria, one out of six mortgages relies on the 
QM patch. The patch is set to expire very early in 2021, and 
the tendency, particularly in my branch of government, is to 
deal with things like that a day before the thing is going to 
explode. Can I be confident that business will have plenty of 
advance notice if there is a change in the QM patch?
    Mr. Calabria. I will certainly endlessly nag the CFPB to 
get it done in time.
    Mr. Sherman. We just had them here, and I nagged them, too, 
so I am helping you out.
    Okay. We have a Federal system. The decision as to whether 
to have rent control is a decision made by States, and in my 
State is delegated to cities, and I would hope that we wouldn't 
try to use the power that you gentlemen have to tell California 
and various cities what kind of rent control they should have, 
especially when you are making a loan at the beginning, and you 
know what the rents are when you make that loan, and the loan 
has to be a good loan based on the rents that exist when you 
make the loan.
    So, the opportunity to raise those rents higher may be very 
beneficial to a real estate investor, but are not necessary for 
you to determine that the rent will pay the mortgage.
    Secretary Mnuchin, is there going to be some effort to 
penalize multi-family apartment home purchasers if they happen 
to be in a city that allows certain types of rent control?
    Secretary Mnuchin. I think the answer is that rent control 
has worked for very long periods of time, and I think the real 
question is, if there are substantial changes to rent controls 
that, really--and this is the Director's responsibility--that 
the GSEs have to properly underwrite the credit of those loans.
    Mr. Sherman. But it will be an underwriting issue--
    Secretary Mnuchin. Correct.
    Mr. Sherman. --not a use of the power of the Federal 
Government to go with one system rather than the other?
    Secretary Mnuchin. Absolutely not.
    Mr. Sherman. And as I pointed out, it shouldn't be a big 
underwriting concern because you are making the loan based on 
the rentals that exist when you make the loan. Nobody is making 
a loan and saying, well, it is a terribly imprudent loan, but 
when you raise the rent some future day, it is going to--
    Secretary Mnuchin. I would just comment that there could be 
a credit issue, for example, if these are 30-year loans and 
people don't reinvest capital to keep the buildings correct, 
there could be--
    Mr. Sherman. I look forward to 30-year apartment loans.
    And I yield back.
    Chairwoman Waters. The gentleman from North Carolina, Mr. 
Budd, is recognized for 5 minutes.
    Mr. Budd. Thanks to each of you for being here. This 
hearing was titled by the Majority as, ``The End of Affordable 
Housing.'' So to each of you, is there anything in the 
Administration's housing reform plan that would end affordable 
housing or that would call for the end of affordable housing? 
Yes or no?
    Secretary Carson. Absolutely not. In fact, our highest 
priority is to provide affordable housing.
    Secretary Mnuchin. I tried to clarify that in my opening 
statement and I would give the Chair and others the benefit of 
perhaps they didn't understand certain aspects of the plan.
    Mr. Budd. Director Calabria?
    Mr. Calabria. No.
    Mr. Budd. Thank you.
    And, again, a yes or no from each of you, will the 
Administration's plan lock Americans out of 30-year fixed-rate 
mortgages or result in the loss of investor confidence in our 
housing investments?
    Secretary Mnuchin. No.
    Secretary Carson. No.
    Mr. Calabria. No.
    Mr. Budd. Thank you.
    Is the goal of affordable housing better advanced through 
the convoluted system we have of today's goals, quotas, and 
set-asides, or could it be better served through a new housing 
finance system with a more efficient, transparent, and 
accountable mechanism for delivering tailored support?
    Secretary Mnuchin. It would be better served.
    Secretary Carson. The latter.
    Mr. Calabria. I have yet to see a government program that 
couldn't be made better.
    Mr. Budd. Thank you.
    Director Calabria, this question is for you and, for the 
record, I really appreciate your hard work on serving as a 
conservator of Fannie and Freddie and as a regulator of the 
Federal Home Loan Bank system. You have been exceedingly 
transparent on what your intended course will be and on every 
step you intend to take, so, again, thank you.
    I understand you are in the middle of a comprehensive 
review of pilots and special programs at Fannie and Freddie, 
and I value this work, because in a couple of areas I worry 
that the GSEs are operating in ways that compete directly with 
the primary mortgage market. Take for example, Freddie Mac's 
mortgage insurance pilot called, ``IMAGIN,'' and Fannie Mae's 
mortgage insurance pilot called ``EPMI.'' Should entities in 
conservatorship be operating pilot programs that directly 
compete with the private sector, and if not, would you explain 
to this committee why you are opposed?
    Mr. Calabria. First, let me say as a top line issue both in 
and outside of conservatorship, I fully expect the GSEs to live 
within their charters and we will take a very direct--if it is 
not on the page, they are not doing it. That is the way the law 
is. Within conservatorship, the focus on any sort of pilots or 
efforts, in my opinion, is to be focused on getting out of 
conservatorship, and that has to be the primary focus of 
strengthening these companies and getting us ready for 
potential downturn in the housing market.
    Mr. Budd. Could you elaborate on that a little more? In 
what ways do you see them as competing against the market? I 
just want to drive that point home, if you could help me with 
that?
    Mr. Calabria. We will be reviewing all existing pilots to 
make sure that they are consistent with exits of 
conservatorship.
    Mr. Budd. So the main priority, if you would say it again, 
would be to get out of conservatorship?
    Mr. Calabria. Absolutely.
    Mr. Budd. Thank you. Again, continuing with you, Director 
Calabria, what are the impacts on taxpayers and home buyers of 
FHA's expanded market share since the financial crisis, and how 
has FHA's attempt to grow its way out of fiscal problems 
actually displaced private capital and expanded taxpayer risk?
    Mr. Calabria. Is this question on FHA, can I clarify?
    Mr. Budd. It was for FHA.
    Mr. Calabria. We certainly want to make sure that FHA and 
the GSEs are competing in a way that is not counterproductive. 
I think it is important to keep in mind--I would call what the 
GSEs historically have done is a little ``skimming of the 
cream,'' if you will, off of FHA, taking the better risk away 
from FHA. That forces FHA to have to raise premiums and 
potentially threatens the viability of FHA, so I do think there 
is a way that I can make sure that my friend across the street 
is not being undermined by what Fannie and Freddie are doing.
    Mr. Budd. Thank you.
    Final question, in your view, what sort of countercyclical 
role should FHA play in the market?
    Mr. Calabria. I think it is important to keep in mind that 
FHA, Fannie and Freddie, and the Federal Home Loan Banks were 
actually all created to be countercyclical. They really should 
be the support there in times of stress, they should be there 
to put a floor under the market. My view is they should not be 
leading the charge of lendings over the cliff; they should be 
there to be the net to catch the market when it goes south.
    Mr. Budd. Thank you, and thank you to each of you.
    And with that, Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you. The gentlewoman from 
Pennsylvania, Ms. Dean, is recognized for 5 minutes.
    Ms. Dean. Thank you, Madam Chairwoman, and thank you for 
holding this important hearing on the question again of the 
lack of affordable housing, the need for more affordable 
housing, and the reforms that the Administration seeks. I thank 
the Secretaries and the Director for being here.
    And this is something very important in my district, in 
suburban Philadelphia. The lack of affordable housing across 
the spectrum of folks who need affordable housing, so maybe--I 
know I am at the end of the line here, but I would like to go 
back and just define the scope of the problem. I will start 
with you, Director Calabria. Your second line in your 
testimony, I read with interest: ``Too many Americans lack what 
each of us deserves, an affordable place to call home, whether 
it is rented or owned.''
    Could you help us understand the scope of the problem, the 
specifics, whether it is rental, home purchases, seniors, rural 
areas, or underserved? Give us the scope of the problem.
    Mr. Calabria. It is really across-the-board. We have seen, 
for instance, in California the increase in homelessness and, 
of course, it is happening in many other places as well. We 
have seen an inability to afford rents. This, to me, has 
broader economic problems as well. Your ability to move 
somewhere, your ability to move to a New York or a Los Angeles 
to be able to advance in your career is threatened if you can't 
find a house to live in. Of course, I am sure you could talk to 
any of your junior staff or interns about their difficulty in 
finding affordable housing when they come to Washington.
    So, it impacts your career, it impacts the stability in 
your life. It is difficult to keep a job if you don't have 
stability, so to me, this is a real crisis that is all-
encompassing.
    Ms. Dean. It is a core crisis. By the numbers, some of the 
data that we have seen here show that only one in four people 
eligible for rental assistance or low-income housing assistance 
actually receives it. Does that match your data?
    Mr. Calabria. Correct.
    Ms. Dean. How do we expand and reach out to the other 
three-quarters of the folks who are suffering under this 
problem specifically? How do we do it?
    Mr. Calabria. To me, I think that there are three 
fundamental constraints going on here, at the risk of 
alliteration, my three L's: land; labor; and loans. I think we 
do need broad-based reform and zoning entitlement processes in 
many areas in the country to try to speed that up.
    Second, on labor, we have a distinct shortage, especially 
of trade contractors. We don't have enough plumbers in this 
country, don't have enough electricians, don't have enough 
carpenters. Fill of the money you want out of it, if you don't 
have somebody there to swing that hammer, it is not going to 
get built, and we need to focus on that. Of course, my 
responsibility is the lending side or the loan side, and I 
think that is an important piece of the puzzle, but I would 
really emphasize that we need to fix all three of these.
    Ms. Dean. I appreciate that. Is it your ambition to make 
sure that we do reach out and get the whole host of folks who 
need affordable housing?
    Mr. Calabria. Absolutely.
    Ms. Dean. Secretary Mnuchin, is that your ambition also 
that we would use government wisely and in a limited way to 
make sure that we are reaching all of those who need 
homeownership assistance?
    Secretary Mnuchin. Yes, and I think, again, there appears 
to be bipartisan support on the need for better affordable 
housing.
    Ms. Dean. But nowhere in your testimony did I hear you or 
Secretary Carson talk about the gap, the three-fourths of 
people of absence of units and housing. I heard all of your--I 
read with interest your issues about reform, making sure we are 
more efficient.
    Mr. Secretary, you said you are recommending more efficient 
means of delivering that support. How about more abundant means 
of delivering that support? Are you interested in doing that?
    Secretary Mnuchin. I personally think that is a good goa,l 
and we would work with Congress to do that. Again, that is part 
of the reason why our preference is to do congressional 
legislation and to sit down on a bipartisan basis to agree on 
these things and how to do it.
    Ms. Dean. Secretary Carson, is it your ambition that we 
expand our resources to make sure we get everybody affordable 
housing?
    Secretary Carson. Absolutely. It is one of our highest 
priorities, and that is why, this past spring, we had the 
display on the national mall.
    It is not a lack of innovation, it is not a lack of 
entrepreneurship; it is an abundance of barriers that prevent 
us from being able to use it, and we need to use all of our 
resources and work together to remove those barriers because we 
are smart people. We can do it.
    Ms. Dean. My concern is that it seems to me that a lot of 
the reforms are really an attempt to privatize, to say this is 
not the government's responsibility.
    Back to the Director, you said twice, and I heard you 
clearly, that in their current condition, Fannie Mae and 
Freddie Mac will fail in a downturn. Is it your ambition to 
shore them up?
    Mr. Calabria. That is my ambition, for that not to happen.
    Ms. Dean. Is it your ambition to shore them off or spin 
them off, Mr. Secretary?
    Secretary Mnuchin. Again, it is both. We would never spin 
them off without shoring them up.
    Ms. Dean. So, shore them up and about get rid of them? 
Privatize?
    Secretary Mnuchin. Shore them up and--again, they are 
private, but keep them privatized, yes. Get them out of 
conservatorship and out of receivership.
    Ms. Dean. In the face of three out of four people who need 
efficient, affordable housing, that is your ambition? That is 
the trajectory you are hoping to take Treasury?
    Secretary Mnuchin. Again, I think there are two different 
issues. Affordable housing is part of this issue, but is a 
broader government issue.
    Ms. Dean. Thank you, Madam Chairwoman.
    Chairwoman Waters. The gentleman from Tennessee, Mr. 
Kustoff, is recognized for 5 minutes.
    Mr. Kustoff. Thank you, Madam Chairwoman, and thank you for 
convening today's hearing. And thank you to the witnesses for 
appearing.
    Director Calabria, I think Secretary Carson earlier today 
was asked about manufactured housing, which is also important 
in my district of Memphis and West Tennessee. In the Housing 
and Economic Recovery Act of 2008, there is a duty-to-serve 
provision that singled out the availability of credit for 
manufactured housing as an underserved area that Fannie Mae and 
Freddie Mac are required by statute to make a concerted effort 
to address.
    As it relates to the duty-to-serve provision, the 
Administration's housing finance plan proposes to replace that 
duty to serve with a more efficient, transparent, and 
accountable mechanism and to transfer some of these activities 
to HUD. Could you explain how this would work with respect to 
manufactured housing with both rural personal property, chattel 
loans, et cetera?
    Mr. Calabria. Let me emphasize, and I will note that 
several years ago, I ran the manufactured housing program at 
HUD, so I'm very familiar with it, and I do think for much of 
America, manufactured housing is the most affordable option, 
and I think we can make a lot of advancements to bring down the 
cost of housing via manufactured housing, so I'm committed to 
that.
    I can't speak to the details of what Treasury's envisioned. 
I will leave that to Secretary Mnuchin to discuss, but I do 
think that we can continue to make sure that Fannie and Freddie 
have an active involvement in manufactured housing and do it in 
a way that is safe and sound.
    Mr. Kustoff. In other words, the GSEs' statutory duty would 
not be diminished?
    Mr. Calabria. It is in law today, and I have every 
intention, as long as it remains in law, to actively carry it 
out.
    Mr. Kustoff. Thank you very much, Director.
    Secretary Carson, it is good to see you again.
    Secretary Carson. Absolutely. You, too.
    Mr. Kustoff. I had the honor to have you in Memphis just a 
few weeks ago as it relates to Opportunity Zones, and in 
Memphis we have 32 Opportunity Zones, of course, which were 
created under the Tax Cuts and Jobs Act.
    The area that you visited in Memphis was a development 
called Union Row, which is a $950 million project that is going 
to include apartments, hotels,and retail and grocery stores. In 
the remarks that you made at that event, you mentioned the 
importance of local community involvement and also added 
benefits such as rising property values.
    How do you see Opportunity Zones as a way of addressing 
affordable housing in Memphis and, of course, I know you also 
made an affordable housing stop in Memphis before you went to 
that Union Row project.
    Secretary Carson. Yes. A lot of the Opportunity Zones 
across the country, the initial starting point might be, for 
instance, like in St. Louis, an abandoned foundry, and then as 
they begin to build out, they have to build workforce housing 
and a lot of the workforce housing, of course, is going to be 
affordable housing. And we have tailored some of our programs 
to be able to take advantage or allow builders to take 
advantage of some of our grant programs.
    Instead of just, for instance, a single multi-family unit, 
we used mixed-purpose units so that they can put commercial 
units on the first floor. Those are the kinds of things that 
obviously not only provide housing, but also provide jobs, and 
of course, they tend to fertilize the area so that other people 
want to come in and take advantage.
    Mr. Kustoff. Thank you, Secretary Carson.
    Secretary Mnuchin, one thing that I did not mention, the 
Opportunity Zone in Memphis that was created that I just 
described, Union Row, is an area with some degree of blight. Of 
course, in your role as Secretary of the Treasury, you are 
responsible for certifying these Opportunity Zones. Can you 
describe, if you can, the impacts on the blighted communities 
that we are seeing across the country and how Opportunity Zones 
are addressing those?
    Secretary Mnuchin. First of all, the Opportunity Zones 
were--the States had the ability to designate Opportunity 
Zones, and if they fit certain requirements, we certified them. 
We think that the States are better able to determine where 
these are appropriate, but yes, I think for the areas that you 
have described, they have been very beneficial, not just for 
housing, which is a big part of this, but also for new 
businesses and businesses being relocated.
    Mr. Kustoff. Thank you.
    I thank the witnesses, and I yield back.
    Chairwoman Waters. The gentleman from Illinois, Mr. Garcia, 
is recognized for 5 minutes.
    Mr. Garcia of Illinois. Thank you very much, Madam 
Chairwoman. And I thank the panelists for being here today.
    Inadequate affordable housing is a major issue that people 
in Chicago face, especially the working-class families that I 
represent on the southwest and northwest sides of the City.
    Rents in America have steadily increased, while working-
class people have seen their wages remain stagnant. Rents in 
the U.S. have gone up by 13 percent while the median household 
income for renters went up one-half of 1 percent. The 
homeownership market isn't any better, particularly for 
communities of color who were hit hardest by the housing crash 
and had the most foreclosures and devastation to recover from. 
That is why the role of the GSEs and FHA are so critical in 
helping communities regain wealth and homeownership.
    I think we are on the same page, but for the record, if you 
could answer yes or no, the three of you, you also support 
promoting affordable housing, correct?
    Secretary Carson. Yes.
    Mr. Calabria. Yes.
    Mr. Garcia of Illinois. And you believe that government 
plays a role in achieving housing affordability?
    I will take it across-the-board.
    Secretary Carson. Yes.
    Mr. Calabria. Yes.
    Mr. Garcia of Illinois. Across-the-board, thank you. In a 
recent report from the Administration, the FHA noted that its 
plan seeks to, ``ensure the FHA and taxpayers are properly 
compensated for riskier loans,'' and this is something that was 
raised earlier by Representative Wexton. Part of that plan 
involves introducing tier-based pricing and FHA-guaranteed 
loans.
    I would like to ask Secretary Mnuchin, if he would also 
share the information that I think you committed to 
Representative Wexton with me, because we are interested in 
that also.
    But Secretary Carson, tier-based pricing would constitute a 
change from FHA's current policy, which currently maintains a 
flat fee without respect to the credit rating of the applicant, 
correct?
    Secretary Carson. Yes.
    Mr. Garcia of Illinois. Thank you.
    That is disappointing to me. That seems to run counter to 
the model that has governed FHA for decades. The cross-
subsidization of loan applicants with stronger credit with 
those without creates a risk pool that enables FHA to provide 
loan guarantees regardless of credit.
    So what you are proposing, tier-based pricing, is basically 
risk-based pricing undermining the entire model that allows FHA 
to back loans for lower-income families with less credit.
    Secretary Carson. Risk-based obviously means you take the 
people who are higher-risk individuals and you charge them a 
bit more. People who are low risk and have developed a very 
good credit line will have a smaller premium--
    Mr. Garcia of Illinois. So those who have struggled 
financially, economically, are going to be charged more--
    Secretary Carson. It depends on how--
    Mr. Garcia of Illinois. --if their credit is reflective of 
that experience?
    Secretary Carson. It depends on how you determine the 
credit and the credit risk.
    Mr. Garcia of Illinois. Let me switch gears.
    Secretary Mnuchin, the Treasury recently recommended that 
FHFA should revisit the GSEs underwriting criteria for multi-
family loans in jurisdictions that adopt rent control laws or 
other impediments to housing development.
    Secretary Carson, your agency noted that rent control laws 
interfere with local housing markets. Both of you are 
suggesting some type of penalization for areas that enact rent 
control laws, is that the takeaway, and what other impediments 
might you be referring to?
    Secretary Mnuchin. I may have commented on this earlier. 
First of all, I think rent control has worked in many markets 
for long periods of time. I think the comment was, in certain 
markets, there are some very, very drastic changes to the rent 
control laws, and they may have credit implications for 
underwriting. So, that was the purpose of that.
    Secretary Carson. And there are multiple impediments, not 
just the rent control. There are wetlands, historical lands, 
height restrictions, density restrictions, and zoning 
restrictions. By the time you add all of those up, it becomes 
extremely substantial. And that is what is increasing the price 
so much, particularly when you look at renters. Between 2001 
and 2017, the number of families who are significantly burdened 
in terms of renting has gone up by 45 percent.
    Mr. Garcia of Illinois. Generally speaking, you can say 
that. But also, local officials tend to know their communities 
best.
    Thank you very much. I yield back, Madam Chairwoman.
    Chairwoman Waters. Thank you. I would like to announce that 
votes have been called.
    I intend to recognize the following Members, and then we 
will adjourn the hearing.
    Mr. Gonzalez, Ms. Ocasio-Cortez, and Mr. Rose.
    The gentleman from Mr. Ohio, Mr. Gonzalez, is recognized 
for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman. I 
certainly appreciate you holding this hearing.
    I am under no illusion about the difficult challenges that 
the witnesses face in attempting to successfully reform our 
housing finance system and GSEs, while not disrupting the 
housing market.
    One thing is clear, though: Congress has an obligation to 
work with the Administration and forge a bipartisan path to 
responsibly address the challenges being discussed today.
    Director Calabria, you have testified about the current 
leverage ratio being around 500 to 1, while big banks are now 
levered around 10 to 1. In your view, what is the proper target 
for the Enterprises to be leveraged?
    Mr. Calabria. A lot less. But I think ultimately, the GSEs 
represent the same sort of risks to the financial system as 
other SIFIs, and I think they should be in that ballpark.
    Mr. Gonzalez of Ohio. Thank you.
    One of the things that we have talked about before and that 
I frankly read, is there is a concern that this plan could be 
seen as a bailout for the preferred equity holders. And I guess 
my question would be, what is the functional difference between 
holding the reserves, let's say, in a dedicated account at the 
Fed versus--where we can watch them, we know exactly where the 
cash is, what it is doing and what it is not doing, versus 
having it on the balance sheet?
    Mr. Calabria. First of all, let me really emphasize that 
until they are out of conservatorship, dividends aren't being 
paid. These aren't payouts to shareholders as we retain 
earnings. I want to be very clear about that. We are building a 
buffer to protect these entities in times of loss.
    Secretary Mnuchin has said, we haven't gotten to the point 
of deciding what the next route is, so again, that could be an 
option.
    Mr. Gonzalez of Ohio. Okay. Again, what is the functional 
difference? What is the difference, in your mind, between 
having a dedicated account at the Fed versus at the GSEs, 
Secretary Mnuchin?
    Secretary Mnuchin. I just want to clarify, again, although 
the Treasury is not being paid cash, the amount that we are 
deferring in cash that will stay in our liquidated preference 
will go up. So there is no difference, from my standpoint, 
between having cash in the bank and having an obligation that 
is owed to us.
    Mr. Gonzalez of Ohio. Gotcha. And then, Director Calabria, 
you have talked a lot about--and I think is 100 percent right--
that at the current leverage ratio, there is no way these banks 
could sustain any sort of meaningful downturn.
    Could you put some clarity around that? Specifically, how 
big of a downturn, what sort of stress tests are you running, 
and where should we be concerned?
    Mr. Calabria. Sure. I think that they are a bit of an 
underestimate. Our most recent Dodd-Frank DFAST stress test 
that was performed for Fannie and Freddie showed that if you 
had a downturn similar to the last one, you would have to put 
in, in excess of $40 billion. And again, I don't see how you 
get that money back. So, these are not small numbers we are 
talking about.
    Mr. Gonzalez of Ohio. Yes. Thank you for that.
    And then, Secretary Mnuchin, when talking with local 
stakeholders, they have expressed support for responsibly 
ending conservatorship and efforts to capitalize GSEs. However, 
they have expressed some concern about limiting Fannie and 
Freddie's ability to offer cashout refis, second homes, 
investment properties, and reviewing overlap between the GSEs 
and FHA, specifically low-down-payment, high debt-to-income, 
and high loan-to-value loans.
    Preventing the GSEs from offering these products could 
limit consumer choice and specifically, in regard to FHA, 
overlap will shrink liquidity at the bottom of the market.
    Can you talk about why you recommend these changes and how 
you view these proposals would benefit the consumer, the 
taxpayer, and the overall economy?
    Secretary Mnuchin. Again, we are suggesting these be looked 
at. Just as an example, to take cashout refis, we are not 
saying to eliminate cashout refis, but obviously when borrowers 
take cash out, it creates a riskier loan. It used to be this 
was one of the great savings mechanisms. So, we want to make 
sure that as the FHFA sets credit, they look at a cashout refi 
differently than they look at a purchase money mortgage.
    Mr. Gonzalez of Ohio. Fantastic. Thank you.
    And I yield back.
    Chairwoman Waters. The gentlewoman from New York, Ms. 
Ocasio-Cortez, is recognized for 5 minutes.
    Ms. Ocasio-Cortez. Thank you, Madam Chairwoman.
    And thank you to our witnesses for coming today.
    Secretary Carson, it is good to see you again.
    Secretary Mnuchin, releasing Fannie and Freddie from 
conservatorship is one of your top priorities, correct?
    Secretary Mnuchin. I would say housing reform is one of my 
top priorities. And, again, we have not predetermined whether 
they go through conservatorship on receivership.
    Ms. Ocasio-Cortez. Okay. I see here from a Washington Post 
article, ``Fannie Mae and Freddie Mac should be privatized, 
Secretary of the Treasury nominee says.'' And it says here that 
you stated that privatizing Fannie Mae and Freddie Mac is, 
``right up there on the top 10 list of things we are going to 
get done.''
    Do you recall that?
    Secretary Mnuchin. I do. That is accurate. Again, I was 
just referring to--we do believe they belong in the private 
sector. That could be through conservatorship or through, as I 
said, other resolution mechanisms.
    Ms. Ocasio-Cortez. I see. I understand.
    Are you aware that the same day you made those comments, 
Fannie Mae's share price increased by 46 percent and Freddie 
Mac's share price jumped by 43 percent?
    Secretary Mnuchin. I was. And I think it was clear the 
market didn't understand my comments and what they implied. 
Many times, there is very little liquidity and markets are not 
efficient.
    Ms. Ocasio-Cortez. I see.
    Just to clarify for the record and for the confidence of 
the American people, Secretary Mnuchin, would you, your spouse, 
or any beneficiary of your assets, including your 15 disclosed 
trusts, stand to receive any financial gain from your plan 
surrounding the exit of Fannie Mae and Freddie Mac from 
conservatorship?
    Secretary Mnuchin. Today, no, I have divested all of my 
assets. And other than--no, I have divested all of my assets. I 
have no reason to believe I have anything to gain.
    Ms. Ocasio-Cortez. Okay. Was there any gain from the 
increase in that share price following those remarks?
    Secretary Mnuchin. I am not aware of it.
    Ms. Ocasio-Cortez. Okay.
    Director Calabria, you have also made clear your intentions 
to release Fannie Mae and Freddie Mac from conservatorship, 
with or without congressional action, to provide an explicit 
government guarantee. And you have already taken steps in that 
direction by allowing the GSEs to build capital.
    There are serious concerns that if you proceed with this 
plan without Congress, there would be a serious loss of 
investor confidence, which could result in an unforeseeable 
disruption to the housing market.
    Have you heard any of those concerns from domestic or 
global investors?
    Mr. Calabria. Thank you for that question, Congresswoman.
    Let me clarify, this is less my intent than my obligation. 
I am following the law. The law requires me either to fix them 
and get them out or put them in receivership.
    We have certainly heard from a select number of Wall Street 
firms that would like us not to do that. To be very clear, if 
the choice is on one hand, I follow the law, or on the other 
hand, I don't follow the law because Wall Street doesn't like 
it, I am going to follow the law.
    Ms. Ocasio-Cortez. Going back to concerns about disruption 
of the housing market, what are some of those disruptions that 
have been raised?
    Mr. Calabria. I think a number of investors, particularly 
on the asset side of the management market, don't want to see 
changes in interest rates, because that would undermine their 
holdings. I think they would like an explicit guarantee.
    I guess I should say that in my long years of dealing with 
Wall Street, I haven't met anybody on Wall Street who doesn't 
want to take the upside and leave the taxpayer with the 
downside. That is my consistent experience in working in these 
areas.
    So, to me, I think Wall Street is about taking the upside 
and the downside.
    Ms. Ocasio-Cortez. With the information you provide in your 
testimony, I would like to discuss a matter of rent with you. 
In the 14th District of New York, an average renter earns about 
$20 an hour, but they don't earn enough to afford a one-bedroom 
apartment at fair market rent. Families are looking for 
stability as household incomes can't keep up with the rising 
costs of rent.
    First and foremost, I want to ask, for someone making about 
$45,000, what do you think is fair rent for them to pay?
    Mr. Calabria. If we use the HUD standards, where it is 30 
percent of your income, that is one standard. Of course, there 
are fair market rents that are set at 40 percent. Again, these 
are HUD standards. We can argue whether those are too much or 
too little. I would fully agree with the overall premise of, we 
have a lack of affordable rental housing, not only in New York 
but in many areas of America. I will note that when we recently 
changed the multi-family caps, we increased the percent of 
affordable--
    Ms. Ocasio-Cortez. I'm sorry. I just need to grab a number, 
because I am running out of time.
    Mr. Calabria. You want a number of what I think somebody's 
rent should be? I think that ultimately should be between them 
and their landlord.
    Ms. Ocasio-Cortez. Making about $45,000-a-year, ballpark.
    Mr. Calabria. I don't think I should be deciding--
    Ms. Ocasio-Cortez. Do you know anyone who makes $45,000, 
and kind of what their rent is?
    Mr. Calabria. That is a little more higher income than 
somebody paying 45--are you saying 45 in income or 45 in rent?
    Ms. Ocasio-Cortez. No, somebody making $45,000 a year. What 
is a ballpark--
    Mr. Calabria. Let's say if you were a friend of mine and 
you were making $45,000, what I would suggest to you 
personally--not as a government official--is I would be happy 
to say that you probably shouldn't spend more than $15,000 tops 
on your rent.
    Ms. Ocasio-Cortez. Thank you very much.
    Chairwoman Waters. Mr. Rose, you are recognized for 5 
minutes.
    Mr. Rose. Thank you, Chairwoman Waters. And thank you for 
calling this hearing.
    Before I begin today, I want to reiterate my colleague, Mr. 
Luetkemeyer's, call for FSOC to ask for a study on CECL. I do 
believe that would be important.
    I agree with many of my colleagues today that housing 
finance reform is both welcome and long overdue. As has been 
said many times today, the time to reform our housing finance 
system is when times are good, not when our system is in a time 
of crisis.
    One thing I have noticed in my brief 10 months here in 
Congress is that too often, we let the perfect be the enemy of 
the good. The proposals put forth by HUD and Treasury represent 
a positive first step on the long path towards reforming our 
housing finance system.
    There are 116 itemized reform recommendations between the 2 
reports. Promoting competition and eliminating redundancies 
between the GSEs and FHA and protecting taxpayers from future 
bailouts is good policy. It is responsible governance.
    The relatively stable housing market we have right now will 
not last forever. I think we all agree it never does. It stands 
to reason that members of this committee will not agree on 
every single recommendation, but we cannot afford to let the 
perfect be the enemy of the good.
    I hope we can put partisanship aside so we can make our 
housing finance system more resilient before we reach another 
crisis.
    One issue I was pleased to see addressed in HUD's housing 
finance reform plan was that of manufactured housing. 
Manufactured housing is incredibly important to the 6th 
District of Tennessee, which I am proud to represent. According 
to the Manufactured Housing Institute, in the United States, 
manufactured homes account for 7.1 percent of occupied housing 
units. In Tennessee, they account for 10.5 percent, and in my 
district, 13 percent.
    Secretary Carson, I appreciate your continued attention to 
the HUD programs that serve manufactured housing, and comments 
you have made in prior testimony about the need to make 
adjustments to the Title I and Title II programs to better 
serve manufactured housing.
    I am concerned that the volume of manufactured home loans 
being supported by FHA continues to decline, however. Among the 
Administration reforms mentioned in HUD's report is the need to 
publish updated Title I standards that address regulatory 
burdens of participating in the program.
    Secretary Carson, what updates would improve the Title I 
program and what can be done, either legislatively or 
administratively, to expedite these updates?
    Secretary Carson. We have greatly expanded the manufactured 
housing office to look at all of the issues that would 
facilitate not only the construction but the safety measures 
associated with them, combining some of the updates to 
accelerate the process. And we will continue to do that, fully 
recognizing that this is one of the major players when it comes 
to reducing the cost of housing, not only in the rural areas 
but throughout the nation.
    That, coupled with looking at modular housing and other 
newer techniques, we have impanelled a group of people to look 
at all of the newer techniques and assess those. And 
manufactured housing is a huge portion of that.
    Mr. Rose. Thank you, Secretary Carson.
    Director Calabria, can you give me an update on the chattel 
loan pilot program that the GSEs included in their Duty to 
Serve (DTS) plans?
    Mr. Calabria. Thank you. We are currently reviewing that. 
The GSEs have requested modifications to their current DTS 
plans. And so we are going to put those out, have some 
listening sessions, and get some comments back. But we are 
currently under review for that.
    Mr. Rose. What is being done to ensure that the pilot 
programs discourage cherrypicking the best loans so that the 
pilots are not significantly disruptive to the other market 
players?
    Mr. Calabria. Thank you for that. I think it is an 
incredibly important question.
    My objective over time is that either pilots prove 
themselves to be successful and then they grow--I think it is 
problematic if you have long-running pilots to which select 
industry players have access that others do not have. I think 
they should be open to all if they work. If they don't work, 
then we intend to end them.
    So, again, I would agree that I think where we need to go 
is to figure out how this is a program that everybody else can 
participate in on a level playing field, if that makes sense.
    Mr. Rose. Finally, Dr. Calabria, there is one final concern 
I would like to raise with you. And it is one that I hear often 
back home. You and I have discussed the issue before, and that 
is to rein in excessive compensation packages, especially at 
the GSEs, and especially while they are still in 
conservatorship.
    Could you say a word about that?
    Mr. Calabria. We recently, I guess a couple of months ago, 
made some changes to compensation practices at GSEs to better 
align them to be in a conservatorship.
    Mr. Rose. Thank you. I yield back.
    Chairwoman Waters. Thank you. I would like to thank our 
witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is adjourned.
    Thank you very much.
    [Whereupon, at 1:32 p.m., the hearing was adjourned.]

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