[Senate Hearing 116-92, Part 2]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 116-92


                   CHAIRMAN'S HOUSING REFORM OUTLINE:
                                 PART 2

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                                   ON

 DISCUSSING THE FEASIBILITY OF THE CHAIRMAN'S HOUSING REFORM OUTLINE, 
 ASSESSING THE APPROPRIATE LEVEL AND STRUCTURE OF TAXPAYER PROTECTIONS 
                                OUTLINED

                               __________

                             MARCH 27, 2019

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


                Available at: https: //www.govinfo.gov /

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
38-479 PDF                  WASHINGTON : 2021                     
          
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA McSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

                      Joe Carapiet, Chief Counsel

                          Matt Jones, Counsel

                Laura Swanson, Democratic Staff Director

                 Elisha Tuku, Democratic Chief Counsel

           Beth Cooper, Democratic Professional Staff Member

           Megan Cheney, Democratic Professional Staff Member

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                  (ii)
                            
                            
                            C O N T E N T S

                              ----------                              

                       WEDNESDAY, MARCH 27, 2019

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    32

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2
        Prepared statement.......................................    32

                               WITNESSES

Michael Bright, President and CEO, Structured Finance Industry 
  Group..........................................................     4
    Prepared statement...........................................    33
    Responses to written questions of:
        Senator Brown............................................   151
        Senator Moran............................................   152
        Senator Cortez Masto.....................................   152
Robert D. Broeksmit, CMB, President and Chief Executive Officer, 
  Mortgage Bankers Association...................................     6
    Prepared statement...........................................    36
    Responses to written questions of:
        Senator Brown............................................   154
        Senator Menendez.........................................   158
        Senator Moran............................................   159
        Senator Cortez Masto.....................................   160
Lindsey D. Johnson, President, U.S. Mortgage Insurers............     7
    Prepared statement...........................................    55
    Responses to written questions of:
        Senator Brown............................................   166
        Senator Menendez.........................................   168
        Senator Cortez Masto.....................................   170
Vince Malta, CEO and Broker, Malta & Co., Inc., on behalf of the 
  National Association of Realtors...............................     9
    Prepared statement...........................................    66
    Responses to written questions of:
        Senator Brown............................................   177
        Senator Menendez.........................................   177
        Senator Cortez Masto.....................................   178
Carrie Hunt, Executive Vice President of Government Affairs and 
  General Counsel, National Association of Federally-Insured 
  Credit Unions..................................................    10
    Prepared statement...........................................   107
    Responses to written questions of:
        Senator Brown............................................   181
        Senator Menendez.........................................   182
        Senator Cortez Masto.....................................   183
Michael D. Calhoun, President, Center for Responsible Lending....    12
    Prepared statement...........................................   122
    Responses to written questions of:
        Senator Brown............................................   185
        Senator Menendez.........................................   186
        Senator Cortez Masto.....................................   190

              Additional Material Supplied for the Record

Letter submitted by the Credit Union National Association........   194
Letter submitted by the American Financial Services Association..   198
Prepared statement of Diane Yentel, President and CEO, National 
  Low Income Housing Coalition...................................   200
Letter submitted by the National Urban League....................   214
Letter submitted by the Housing Assistance Council...............   217
Letter submitted by the Independent Community Bankers of America.   221
Letter submitted by the Community Mortgage Lenders of America....   228
Letter submitted by America's Homeowner Alliance.................   232


 
               CHAIRMAN'S HOUSING REFORM OUTLINE: PART 2

                              ----------                              


                       WEDNESDAY, MARCH 27, 2019

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:01 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. The hearing will come to order.
    Today, the Committee continues the conversation about the 
state of our housing finance system and how we can set it on a 
permanent, sustainable course, one that protects taxpayers and 
fosters greater competition.
    Yesterday, we received input on my Housing Reform Outline 
from six different stakeholders and thought leaders 
representing a variety of perspectives.
    Former Acting FHFA Director Ed DeMarco stated that the 
outline captures the consensus elements of prior reform 
proposals and serves as a solid workable foundation from which 
to develop legislation.
    Dr. Mark Zandi noted that the housing finance system is in 
critical need of reform, that the framework is an excellent 
place to begin, and that policymakers should use it as a 
framework to finish the job of reform.
    The National Association of Home Builders, meanwhile, 
expressed support for the broad concepts of the outline, while 
also stressing the urgency of reform.
    The National Multifamily Housing Council expressed an 
eagerness to participate in the process, as we move forward, 
and a belief that the outline would ensure a competitive 
marketplace without increasing the cost of multifamily mortgage 
credit.
    Today, we will hear the perspective of six more 
stakeholders, including Michael Bright, President of the 
Structured Finance Industry Group; Robert Broeksmit, President 
and CEO of the Mortgage Bankers Association; Lindsey Johnson, 
President of U.S. Mortgage Insurers; Vince Malta, President-
Elect of the National Association of REALTORS; Carrie Hunt, 
Executive Vice President and General Counsel at the National 
Association of Federally-Insured Credit Unions; and Mike 
Calhoun, President of the Center for Responsible Lending.
    I thank you all for sharing your time and expertise with 
all of us.
    Your input is incredibly valuable as we look to flesh out 
some of the details of a comprehensive plan.
    As I stated yesterday, I consider housing finance reform to 
be my top priority for the Banking Committee this Congress. The 
status quo simply is not a viable option. We have a real 
opportunity to act, and I am committed to getting it done.
    I look forward to working with all of you in the days ahead 
and anyone else willing to join us this long overdue effort.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman. Thanks for the 
witnesses, all six of you, for being here today. Good to see a 
number of you again in front of this Committee.
    As I said yesterday, housing is simply unaffordable for far 
too many Americans. They cannot make rent without working two 
jobs, let alone save enough to get a mortgage and build wealth 
through home ownership through generations.
    American families are the most important part of the 
housing finance system, yet reform proposals and outlines often 
fail to mention them altogether.
    All Americans should be able to afford a safe place to call 
home, whether they live in a Appalachian Ohio or whether they 
live in East Cleveland, whether they are making a salary or 
working for an hourly wage or earning tips.
    Families need access to affordable mortgages from lenders 
of all sizes who compete for their business by offering safe 
products and the best service, and who will be there to help 
families get through if they fall on hard times.
    Last Congress, this Committee heard from six community 
lenders. They represented small banks, credit unions, and 
independent mortgage banks in Idaho, Ohio, South Dakota, 
Georgia, North Carolina, and Illinois that help their customers 
receive those sustainable loans.
    They all agreed on the following four things: that 
preferential treatment be based on the volume of loans a lender 
delivers, whether in the form of volume discounts or 
underwriting exceptions or the cost to retain servicing, hurts 
small lenders and ultimately consumers; two, that we need a 
guarantor that pools costs across the market and that has a 
duty to serve all lenders; three, that small lenders benefit 
from consistency in the secondary market; and four, that the 
system does not need more than two guarantors in the secondary 
market.
    We are hearing from one of those organizations today. 
Several of the associations represented that day have submitted 
statements for the hearings this week reiterating those points.
    I will ask unanimous consent later--I will ask it now, to 
request that statements from the ICBA and the Community 
Mortgage Lenders of America be included in the record.
    Chairman Crapo. Without objection.
    Senator Brown. Thank you.
    Since 2008, the FHFA has implemented policies at the 
Government-Sponsored Enterprises (GSEs) to provide equitable 
treatment to lenders of all types and sizes across all markets.
    FHFA has made sure the GSEs continue to serve a broad 
national market and set market standards.
    We hear time and again the system is working for small 
lenders and their customers. We should not take steps that will 
create uncertainty for small lenders or drive unhealthy 
competition on quality and standards.
    It includes any changes that would allow the largest 
institutions to be one-stop shops for lending, guarantees, and 
securitization with a Government backstop.
    When this Committee last considered housing finance reform 
legislation 4-plus years ago, many market participants made 
clear that allowing a single institution to perform primary and 
secondary market functions would undermine standards and 
competition. I hope we still agree on that point today.
    Any structural changes that we consider must not take us 
backward to a system where lenders and the secondary market 
pump up volume to satisfy Wall Street, with a race to the 
bottom when it comes to protections. We know how that movie 
ends.
    We cannot create a structure where we restrict consumers' 
options by putting local lenders who are serving their 
communities today on an uneven playing field.
    Finally, as we discuss broad changes to our housing finance 
system, we should also consider how any changes would reduce or
increase the hurdles that borrowers and renters already face in 
markets nationwide, and we know that is getting worse.
    Some of our witnesses this morning have focused on the 
growing challenges facing prospective homeowners. For example, 
Mr. Malta's organization, the National Association of 
REALTORS, has studied the burden that student loan debt has 
placed on potential home buyers.
    I have also heard from the Housing Assistance Council and 
the National Low Income Housing Coalition about the unique 
housing needs of rural households and low-income renters, as 
well as we have heard from a coalition of 22 Civil Rights 
groups, affordable-housing advocates, and community development 
organizations on the key elements of my housing finance reform 
proposal, of any one of them.
    I would ask that all of their written statements also be 
placed in the record.
    Chairman Crapo. Without objection.
    Senator Brown. Thank you.
    And, finally, Mr. Chairman, American families are 
confronted with new types of housing challenges, from mountains 
of student debt to increasing rents in communities across the 
country to stagnant wages violating what we should call the 
``dignity of work'' all across the board.
    As I said yesterday, any changes we consider must 
strengthen, not weaken our ability to address the housing 
challenges facing our Nation and make the housing market work 
better for American families.
    Thank you.
    Chairman Crapo. Thank you, Senator Brown.
    And we will now move to the testimony. I remind everybody 
that we have a 5-minute time slow allotted for you. You have 
got those clocks in front of you. Please try to stay with that 
so that we can get more involvement from the Senators and their 
questions, although they are limited to 5 minutes, too. And I 
ask you to help them to stay to their 5 minutes as well.
    With that, let us start. Mr. Bright.

  STATEMENT OF MICHAEL BRIGHT, PRESIDENT AND CEO, STRUCTURED 
                     FINANCE INDUSTRY GROUP

    Mr. Bright. Chairman Crapo, Ranking Member Brown, Members 
of this Committee, my name is Michael Bright, and I represent 
the Structured Finance Industry Group, or SFIG. On behalf of 
SFIG and its thousands of members in the securitization 
industry, I very much appreciate the opportunity to speak to 
you today.
    SFIG was formed in 2013 with the goal of convening the many 
diverse institutions involved in securitization, including 
consumer and commercial lenders, data providers, auto and 
equipment finance companies, rating agencies, law firms, 
trustees, banks, and very importantly, end investors.
    This structure forces SFIG to convene all parties, both 
those involved with the creation of a fixed-income security and 
those who invest in them. When SFIG takes a position, we have a 
broad range of perspectives incorporated into our view. Since 
SFIG represents all participants in a transaction, long-term 
financial stability in the mortgage market as well as other 
markets is a core principle of ours.
    The purpose of today's hearing is to discuss reform of our 
Nation's secondary mortgage market. I thank Chairman Crapo and 
many other Members of this Committee for their continued work 
on this issue. The latest outline touches upon many of the 
principles that are important to SFIG, including creating a 
clear role for private capital, establishing a clear and 
explicitly defined role for the Government, the preservation of 
a liquid TBA market, the preservation of a 30-year fixed-rate 
mortgage, and making use of already existing securitization 
infrastructure.
    There is a substantial ongoing role for Congress to help 
finish the job of housing finance reform for many reasons.
    First, as the former head of Ginnie Mae, I can attest that 
global investors will allocate much more capital and at a much 
lower cost to the U.S. mortgage market if Congress puts a seal 
of approval on a new end-state.
    One major lesson I learned at Ginnie is that when speaking 
to a non-U.S. investor, the first thing they will ask is ``Is 
the law clear?'' Any lack of clarity on the Government's role 
versus private capital's role adds ambiguity, and ambiguity 
adds to costs. These costs are ultimately borne by the 
homeowner.
    There are many additional considerations relating to the 
use of Ginnie Mae, and I am happy to discuss those with you in 
more detail, if you would like.
    Additionally, as I said to this Committee when I appeared 
before it in 2018, we have a housing affordability crisis in 
our Country, both in rental and home ownership.
    Over the past decade, asset prices have increased 
substantially faster than wages. This creates an imbalance in 
our economy that is felt particularly strongly in the housing 
sector. SFIG membership supports, and wants to help provide, 
broader accessibility to mortgage credit throughout the 
country.
    Going forward, SFIG believes that private capital can, and 
should be, productively channeled to further sound public 
policy objectives and to augment the role of the GSEs and FHA.
    Investor appetite for mortgage credit has been growing. 
Insurance companies, for example, had roughly $500 billion of 
residential whole loans on their balance sheet at year-end 
2017, and this number continues to increase.
    CRT transactions have provided roughly $70 billion of 
first-loss private capital to the market. PLS and whole-loan 
transactions are increasing slowly as well.
    The pool of additional private capital available is today 
quite deep. Reform should build upon this dynamic so that 
private capital can help enhance safe and responsible access to 
mortgage credit within the safeguards established by law and by 
the CFPB.
    As we seek to enhance the role of private capital, I would 
like to cite three issues that we suggest Congress address.
    Number one, an event that looms on the horizon is the end 
of the so-called ``QM patch.'' Private capital can absolutely 
help to fill in once this transpires, but some policy changes 
would be very helpful to ensure the continued availability of 
mortgage credit.
    Most importantly, there needs to be a process of 
determining what qualifies for a QM that is independent of 
whether or not the GSEs' underwriting systems accept the loan.
    Number two, policymakers should strive for better alignment 
of regulatory capital requirements between the GSEs and banks. 
For example, the GSEs get substantial capital relief, and 
rightly so, for the credit risk transfer transactions they 
issue. Banks, however, do not. By allowing banks to make a 
loan, hold it on balance sheet, and if they choose, hedge some 
of the credit risk in return for appropriate capital relief, 
bank lending can play a more prominent role in our mortgage 
market and help fill in where sometimes the GSEs cannot.
    Finally, as policymakers look to reduce total reliance on 
Fannie, Freddie, and FHA while ensuring access to home 
ownership, a proper mechanism for allowing REITs to access the 
home loan bank system makes sense.
    There are, of course, many more challenges to discuss. In 
the meantime, Mr. Chairman, I want to thank you again for 
continuing to work on this important issue. We look forward to 
working with you and with everyone on this Committee to ensure 
that our Country's secondary mortgage market can better serve 
all Americans. Thank you.
    Chairman Crapo. Thank you.
    Mr. Broeksmit.

  STATEMENT OF ROBERT D. BROEKSMIT, CMB, PRESIDENT AND CHIEF 
        EXECUTIVE OFFICER, MORTGAGE BANKERS ASSOCIATION

    Mr. Broeksmit. Chairman Crapo, Ranking Member Brown, 
Members of the Committee, thank you for the opportunity to 
testify on behalf of the Mortgage Bankers Association (MBA). My 
over 30 years' experience in real estate finance gives me a 
unique appreciation for the complexity of the housing finance 
system as well as the importance of ensuring that it operates 
in accordance with a well-calibrated regulatory framework.
    On behalf of MBA, I commend Chairman Crapo and his staff 
for developing and releasing the outline being discussed today.
    I would also like to thank Senator Warner and others on the 
Committee for their previous efforts on this topic.
    The housing finance system requires structural reforms that 
will ensure a stable, liquid secondary market to support a 
vibrant, diverse primary market, and comprehensive legislation 
is essential for such reforms. MBA applauds the Committee for 
its leadership in this role.
    The 2008 financial crisis exposed fundamental problems in 
the GSEs' business models as well as weaknesses in the 
regulatory framework under OFHEO. Ten years later, we still 
have not determined how or if the GSEs will be permanently 
reformed. Only by enacting comprehensive legislative reform can 
we provide the confidence necessary for a stable, sustainable, 
and inclusive mortgage market. Reforms should proceed without 
delay.
    Chairman Crapo's proposal highlights the critical features 
that should be included in any reform effort: robust 
competition, access to affordable credit for borrowers, fair 
pricing for lenders of all sizes, liquidity through the credit 
cycle, reliable private capital to protect taxpayers, and 
ongoing secondary market liquidity for multifamily housing.
    Many of the priorities in the Chairman's outline align with 
MBA's principles, as described in my written testimony. In 
particular, the outline recognizes the need for competition in 
the
secondary market, with privately owned, well-regulated entities 
standing before a full faith and credit Federal guarantee. Such 
a guarantee is a critical determinant of investor demand and 
should apply to securities in both the single-family and 
multifamily markets.
    The outline proposes that the explicit guarantee be 
provided and managed by Ginnie Mae. this structure is viable, 
as Ginnie Mae is designed to perform this function and has a 
proven history of ensuring payments on Government-guaranteed 
securities.
    The use of a Ginnie Mae guarantee, however, should not be 
confused with the use of the Ginnie Mae securitization 
infrastructure and processes; that is, a system in which 
lenders issue securities rather than deliver loans to 
guarantors. Based on extensive feedback from our members, MBA 
believes a system that is structured around guarantors 
minimizes transition risk and ensures equal access to the 
secondary market for a diverse set of lenders, consistent with 
Chairman Crapo's principles.
    Market access by lenders of all types and sizes provides 
tangible benefits for home buyers through broader competition 
and availability of credit in all markets at all times.
    In the multifamily market, reform efforts should preserve 
those elements of the GSEs' multifamily businesses that have 
been successful. Any capital framework under which guarantors 
operate should seek to produce comparable treatment of varying 
executions and credit risk transfer structures.
    One of the greatest challenges to enacting comprehensive 
reform has been conflicting views on how best to ensure 
widespread availability of affordable housing, particularly to 
low- and moderate-income (LMI) households.
    Two factors that affect affordability in many parts of the 
country are low inventory and home prices that are rising 
faster than wages.
    In order to best promote sustainable housing for 
underserved segments of the population, any future system 
should generate the necessary funding to address these access 
and affordability challenges. The outline could be enhanced 
with quantitative and qualitative evaluations of the secondary 
market guarantors.
    Another benefit of enacting legislation is cementing 
regulatory reforms that have already taken place over the last 
decade. The Chairman's outline seeks to accomplish this in a 
number of areas, such as a prohibition on volume-based pricing 
discounts, ongoing use of credit risk transfers, and 
significantly smaller investment portfolios.
    If the GSEs were to exit conservatorship without 
corresponding legislation, these reforms could be weakened or 
even reversed.
    Our work with consumer advocates and other market 
participants has revealed a growing consensus on the foundation 
of the future state of housing finance in America. Access to 
affordable, sustainable housing is a necessary for all 
Americans, and as such, it requires a system of financing that 
is robust in all parts of the country through all parts of the 
credit cycle, supporting both home ownership and rental 
housing. Legislative reform of the GSEs offers the best path to 
reach this desired end-state.
    Again, thank you for the opportunity to testify. I look 
forward to your questions.
    Chairman Crapo. Thank you.
    Ms. Johnson.

   STATEMENT OF LINDSEY D. JOHNSON, PRESIDENT, U.S. MORTGAGE 
                            INSURERS

    Ms. Johnson. Chairman Crapo, Ranking Member Brown, and 
Members of the Committee, U.S. Mortgage Insurers (USMI) 
appreciate this opportunity to come before you to discuss the 
housing finance system and opportunities for reform and to 
comment on the Housing Reform Outline released in February by 
Chairman Crapo.
    USMI agrees with the Chairman and other policymakers who 
continue to recognize that meaningful legislative reforms to 
address the structural problems of the GSEs are still 
necessary.
    Importantly, the Chairman's outline recognizes the 
importance of maintaining a system where private mortgage 
insurance (MI) bridges the gap of saving for a 20 percent down 
payment, a requirement that is simply out of reach for many 
home-ready borrowers.
    Private MI, backed by private capital, works in virtually 
every construct for housing finance reform. For over 60 years, 
MI has helped more than 30 million creditworthy borrowers 
achieve home ownership.
    Just last year, USMI members helped more than 1 million 
families become homeowners, nearly 60 percent of whom were 
first-time home buyers and more than 40 percent had annual 
incomes less than $75,000. We are very proud to help these 
hardworking middle-income households achieve home ownership.
    Our members have decades of experience underwriting, 
insuring, and dispersing mortgage credit risk. Private MI is a 
form of permanent private-capital risk protection that is 
available through all different market cycles and specifically 
dedicated to the housing
finance system.
    Following the financial crisis, the industry made 
significant
improvements to the business model, including new capital and 
operational standards, commonly referred to as PMIERs, and new 
master policy contracts that clarify when and how an MI pays a 
claim.
    MI significantly reduces taxpayer risk exposure by assuming 
at origination a substantial portion of credit risk at the 
individual loan level to companies who are backed by private 
capital.
    The credit risk protection attaches on the very first day 
the mortgage is originated, and it travels with the loan 
wherever it goes. According to the Urban Institute, on 30-year 
fixed-rate mortgages, the loss severity on loans with private 
MI is 40 percent lower than without, despite the higher loan-
to-value of mortgages with private MI.
    Chairman Crapo's outline is consistent with USMI's own 
principles for a reform system, which include ensuring access 
for creditworthy borrowers and all lenders, protecting 
taxpayers, promoting stability within the housing finance 
system, and fostering greater transparency at the GSEs.
    We do have several recommendations to both increase 
taxpayer protection and ensure consumers have access to 
affordable, sustainable mortgage credit.
    First, any future system should rely on loan-level credit 
enhancement done at origination by entities who are able to 
actively manage that mortgage credit risk through all market 
cycles.
    USMI commends the approach to use the Ginnie Mae guarantee. 
Just like Ginnie Mae today guarantees securities backed by 
loans that are insured at the loan level through FHA, VA, and 
RHS programs, in a reform system Ginnie Mae could guarantee 
conventional mortgages, backed by private MI to cover all 
expected losses.
    Loan-level credit enhancement is needed to actively manage 
mortgage credit risk. It reduces losses at the individual 
borrower level. It affords lenders the flexibility for 
secondary market execution, and it ensures quality and loan 
manufacturing.
    A Government guarantee should also be conditional on 
private capital covering all expected losses, so that this 
guarantee is only drawn on in catastrophic scenarios.
    Second, to further protect taxpayers and foster greater 
transparency, we must reform the 100 percent taxpayer-backed 
FHA and establish a more coordinated and consistent housing 
policy between the conventional and the Government-insured 
markets.
    Last, to promote stability, we must establish a level 
playing field and increase transparency and accountability by 
separating the issuer and the credit enhancer roles at the 
GSEs.
    In addition to the important role that MIs play in 
providing first-loss loan-level credit protection in the high 
LTV market, mortgage insurers could participate as guarantors 
providing a guarantee to mortgage securities, under Chairman 
Crapo's proposed multiple-guarantor structure.
    To enable true competition, legislation should provide for 
a level playing field and should address the fact that the GSEs 
have decades of Government-conferred advantages that will act 
as barriers to competition.
    Great care should be taken to ensure that the GSE systems, 
technology, and data are made available and maintained through 
an open-access and transparent exchange or utility.
    A simpler approach and perhaps as a means to help 
transition to comprehensive reform is to turn the GSEs 
themselves into highly regulated utility-like entities, with 
transparent capital and pricing, explicit and limited functions 
in the secondary market, and open-access and transparent 
underwriting engines. These steps could be done either 
legislatively or by the Administration.
    I am proud to represent an industry that has helped 
millions of families become homeowners. USMI strongly believes 
in the reform efforts this Committee is undertaking, and I look 
forward to answering your questions.
    Chairman Crapo. Thank you very much.
    Mr. Malta.

STATEMENT OF VINCE MALTA, CEO AND BROKER, MALTA & CO., INC., ON 
         BEHALF OF THE NATIONAL ASSOCIATION OF REALTORS

    Mr. Malta. Chairman Crapo, Ranking Member Brown, Members of 
the Committee, my name is Vince Malta, and I thank you all for 
your invitation to allow me to speak before this Committee 
today.
    As the CEO and broker of Malta & Company, I have over 43 
years of experience in the real estate industry in California's 
Bay Area.
    I am also the 2019 President-Elect of the National 
Association of REALTORS (NAR). I am here today to testify on 
behalf of 1.3 million members.
    NAR is the Nation's largest trade association. Its members 
are involved in all aspects of the residential and commercial 
real estate industries.
    I want to begin by thanking everyone on this Committee for 
your work toward responsible, bipartisan reform of our Nation's 
housing finance system. In our view, bipartisan congressional 
action on GSE reform is imperative, as is the only way to 
secure an explicit Government guarantee, which is a critical 
component for a robust housing market.
    To this end, REALTORS welcome and applaud Chairman Crapo's 
proactive efforts to initiate these conversations in Congress 
with the unveiling of an outline for reform earlier this year.
    By emphasizing explicit Government guarantee, regulatory 
flexibility, and strong reasonable regulatory authority, this 
outline demonstrates a genuine commitment to ensuring a future 
housing finance system that is both safe and vibrant. These 
elements should be the back bone of any comprehensive housing 
finance reform.
    As the Committee continues to examine prudent ways to 
reform our housing finance system, it is imperative lawmakers 
carefully consider the need for a liquid national mortgage 
market that is resilient to stress and supports the home 
ownership needs of middle-class Americans.
    We also know that middle-class homeowners on the coasts and 
everywhere in between, in cities large and small, communities, 
rural, and urban, all currently benefit from this foundational 
mission of the enterprises.
    Today, a home buyer in Springfield, Missouri, and one in 
Springfield, Massachusetts, have equal access to a mortgage and 
pay nearly identical rates. NAR believes that responsible and 
creditworthy Americans should not pay more for a mortgage, or 
worse, be unable to secure one at all, simply because of where 
they live.
    Recently, NAR proposed its own comprehensive vision for 
housing finance reform. The vision focused on leveraging 
successful
reforms and innovations implemented since the crisis. The 
vision explains essential principles that are designed to 
promote competition in a secondary market, preserve the 30-year 
fixed-rate mortgage, minimize costs to consumers, maximize 
access for creditworthy borrowers, and most importantly, 
protect U.S. taxpayers.
    These NAR priorities are outlined in depth in the official 
testimony submitted to this Committee, and I am happy to 
discuss any of those principles in more detail should the 
opportunity arise during this hearing.
    On behalf of NAR, I again want to thank you for the 
opportunity to testify today. We urge the Committee to consider 
these key principles as you work to develop housing financial 
reform legislation that protects taxpayers and appropriately 
serves middle America.
    Thank you.
    Chairman Crapo. Thank you.
    Ms. Hunt.

     STATEMENT OF CARRIE HUNT, EXECUTIVE VICE PRESIDENT OF 
GOVERNMENT AFFAIRS AND GENERAL COUNSEL, NATIONAL ASSOCIATION OF 
                FEDERALLY-INSURED CREDIT UNIONS

    Ms. Hunt. Good morning, Chairman Crapo, Ranking Member 
Brown, and Members of the Committee. My name is Carrie Hunt, 
and I am testifying today on behalf of the National Association 
of Federally-Insured Credit Unions (NAFCU), where I serve as 
Executive Vice President of Government Affairs and General 
Counsel.
    Thank you for the opportunity to appear before you today 
and talk about housing finance reform and the Chairman's 
Housing Reform Outline.
    A healthy secondary market is of utmost importance to 
credit unions. Credit unions and other small and community 
lenders provide tremendous value to our Nation's economy by 
assisting borrowers to achieve home ownership. NAFCU's members 
use both Fannie Mae and Freddie Mac to sell unsecuritized 
loans. Some of NAFCU members are also approved Ginnie Mae 
issuers. In addition, credit unions are active users of the 
Federal Home Loan Bank system for liquidity.
    Based on the feedback from our members, we have established 
certain principles that are important to any housing finance 
reform plan, and we hope that the Committee considers those.
    Credit unions have to have guaranteed access to the 
secondary market, and that access has to be fair. We do not 
support a pricing structure based on loan volume, institution 
asset size, or any other issue that will put member owners at a 
disadvantage.
    Credit unions have to be able to participate on a level 
playing field, and they have to have access to pricing that is 
focused on quality and not quantity.
    In addition, we believe that an explicit Government 
guarantee should be part of any reform effort.
    As we discuss reform, it is important to note that the 
current system, while not perfect, is working for credit 
unions. Since the financial crisis, credit unions have 
benefited from fair pricing and continued access, and 
ultimately, we believe that narrowly tailored, rather than 
broad reforms to the housing system will likely assist our 
members the most.
    NAFCU and our member credit unions appreciate the work of 
Chairman Crapo in advancing the housing finance reform debate 
by releasing his outline and holding these hearings, and from 
the credit union perspective, there are a number of positive 
proposals in this outline.
    One, we support maintaining a cash window with the 
guarantors, creating an explicit Government guarantee, and 
prohibiting volume-based discounts on pricing.
    NAFCU also supports appropriate regulatory oversight of the 
secondary market, but we do think there needs to be some 
flexibility outside of certain statutory constraints. For 
example, Congress should not be mandating a requirement such as 
a minimum down-payment percentage. This requirement certainly 
can be put in place by the regulator and should be flexible to 
account for economic fluctuations in the housing market.
    Our principles also include the need for a single 
independent regulator that can provide stability and confidence 
in the market, and we have seen those benefits with Fannie and 
Freddie in conservatorship.
    We appreciate the outline's focus on enhancing the FHFA as 
a strong regulator with the authority to establish standards 
for leverage ratios, concentration risk, and capital 
requirements. And, additionally, the outline permits the FHFA 
to approve guarantor
pricing, which provides an essential check on the multi-
guarantor model, should that model ultimately be adopted.
    Relative to the multi-guarantor model, while we support 
competition in general, under the outline, a large number of 
guarantors could enter the market, a situation that could be 
fraught with
increased overall risk and cost to the system if a number of 
guarantors end up jockeying for market share.
    It is unclear also whether new guarantors would actively 
seek out credit union business, and certainly, having access is 
very important to credit union members.
    In addition, all of the guarantors would likely be subject 
to the same financial stressors during an economic downturn, 
and potentially, the benefits of multiple guarantors would be 
lost relative to too-big-to-fail.
    We also have general concerns about overall cost and 
workability, including the transition to any new housing 
finance system. Credit unions have not only invested in the 
infrastructure to interface with the GSEs, but have really 
worked to establish business relationships with them. These 
relationships have been built over years and are hard to 
replicate overnight.
    This example really speaks to how credit unions operate 
with any of these other entities, whether they be the Federal 
Home Loan Banks, whether they be Fannie Mae/Freddie Mac, 
whether it would even be out in the public market. It really is 
a relationship business, and it really is difficult to just 
flip a switch and start in a different direction.
    Credit unions also really value maintaining servicing 
rights on their loans. They are optimistic about the potential 
benefits of the common securitization platform and uniform MBS, 
and we believe that both should be maintained in any future 
housing finance system.
    Last, I will note that NAFCU supports mechanisms to help 
create affordable housing, including the existing Duty-to-Serve
requirements. It is unclear how the new Market Access Fund 
proposed in the outline would be administered or how it would 
function with these existing programs, and we look forward to 
hearing more details on that aspect of reform to understand how 
potentially that would help our consumers.
    We thank Chairman Crapo for offering this outline that 
recognizes the work that has been done in previous Congresses 
to consider reform proposals. From our perspective, there is 
just not one solution to reform our housing system; but, for 
our members, certain solutions will certainly work better than 
others.
    We are pleased that the Banking Committee has always 
approached housing finance reform in a bipartisan manner, and 
NAFCU stands ready to continue this work on this important 
issue.
    Thank you for the opportunity, for your input, and I 
welcome any questions.
    Chairman Crapo. Thank you.
    Mr. Calhoun.

    STATEMENT OF MICHAEL D. CALHOUN, PRESIDENT, CENTER FOR 
                      RESPONSIBLE LENDING

    Mr. Calhoun. Thank you, Chairman Crapo, Ranking Member 
Brown, Members of the Committee.
    I am the 12th witness this week on this technical and 
incredibly important topic. You have learned a lot from the 
previous witnesses, from their questions and the dialogue, and 
I do not want to repeat any of that covered ground. So my 
remarks will focus on three things.
    First, I will set out the settled part of the landscape of 
where we are on housing finance reform today. Second, I will 
frame the essential question before us; that is, how do you 
best harness the necessary Government guarantee to further the 
public mission that it is intended to accomplish? Finally, I 
will set out a path forward that best serves that public 
mission while protecting taxpayers and the private market.
    A quick description of the Center for Responsible Lending, 
we are the policy arm of a community-based lender that has 
focused on home lending for nearly 40 years. Through our direct 
lending program and our partnership programs with national 
regional banks, we have provided over $5 billion in financing 
for first-time home buyers of modest means. I previously worked 
in and headed those programs.
    First, on where we are on housing financial reform, as you 
heard yesterday, measures have thankfully been put in place to 
make our housing finance system safe and protect taxpayers.
    Mandatory mortgage standards, strict limits on loan 
portfolios, and robust capital standards and g-fees raise 
sufficient funds to date to fully recover a repeat of the 2008 
crisis and far more, we owe thanks to those who did the hard 
work to accomplish that.
    Second, the essential question for housing finance reform, 
we need a Government guarantee in order to preserve the 30-year 
fixed-rate mortgage and enable home buyers to lock into a rate 
when they are buying a home or refinancing a mortgage.
    However, that guarantee can be used by entities to maximize 
revenues by focusing on only the most lucrative market failing 
to serve rural areas, low-wealth borrowers, and community 
banks, and the guarantee can also be used to unfairly compete 
with other parts of the housing market.
    One approach is the multi-guarantor model. It comes up with 
several tradeoffs. It is a major change, as you heard, from the 
current system and injects risk into the transition.
    Also--and this is the key part--multi-guarantors will face 
heavy pressure to fight for the most lucrative parts of the 
market. This doubles down on that conflict between the 
Government guarantee and the use of it to maximize private 
gain.
    Now, specifically on an issue that has come up a lot, 
community banks, it is not enough to simply prohibit volume 
discounts and have a cash window. That does not get the job 
done. It is far more lucrative for a multi-guarantor to buy 
loans by the tens of thousands and securitize them from a large 
lender versus buying a handful of loans from a community bank 
or a credit union.
    Today's system mandates pooled pricing at those windows so 
those are equivalent transactions. That does not happen without 
that substantial intervention, and it is a reason why there is 
a dearth of small-lender support for the multi-guarantor model.
    The multi-guarantor model also frustrates affordable 
housing. It takes away the current level pricing in the system 
at a cost of $4 to $6 billion of affordable-housing assistance 
every year.
    The last thing we need today is more headwinds for 
affordable housing. We need to address the affordable-housing 
crisis and, in particular, correct the decades of housing 
discrimination.
    This leads me to my final and optimistic point, a path 
forward. In order to make sure the Government guarantee is used 
to further and focus on the public mission, the entities need 
to function as utilities, with utility oversight, as you have 
heard from two of the previous witnesses today. That prevents 
misuse of the guarantee and also delivers far lower prices for 
all borrowers and particularly for lower-wealth borrowers.
    A wide variety of organizations have endorsed utility 
regulation. As you have heard today, these include diverse 
groups such as the Independent Community Banks, the National 
Association of REALTORS, a broad array of Civil Rights groups, 
the Mortgage Bankers Association, and more. Some of these 
groups call for one entity, a single utility, some for the 
current two, some for multiple entities. For the reasons I have 
discussed, we believe there is a compelling case to continue 
with the two current GSEs but with utility regulation and other 
reforms detailed in our written testimony imposed before there 
is any release from conservatorship.
    Thank you again for the opportunity to testify today, and 
we look forward to working with the Committee in this important 
project.
    Chairman Crapo. Thank you very much.
    I will begin the questions. My first question is to you, 
Mr. Bright. You have led Ginnie Mae, and obviously, Ginnie 
Mae's role in the outline that I put out is significant, as 
basically the wrap for the guarantors.
    Could you just discuss whether you think that is the right 
approach in reforming our system?
    Mr. Bright. Sure. Thank you.
    Well, definitely, I think that the use of the Ginnie Mae 
brand makes a lot of sense, and it would be very silly to try 
and create a second full faith and credit wrap. That view has 
evolved over the last few years.
    I kind of came into that view watching Ginnie Mae's market 
share grow and then, of course, running the agency.
    So a big part of the job was going and speaking to a lot of 
the investors in the bonds, globally and domestically, and 
especially in places like Japan and China and the Eurozone, 
they have very strict investor guides on what they can buy, 
especially as it relates to the U.S. mortgage-backed 
securities. There is still a hangover in terms of willingness 
to invest, and Ginnie Mae is written into these guides.
    So you do not have to actually do this entire process of 
going around the world and saying there is this new borrower-
backed security. It is full faith and credit. Here is how it 
works. If you say this is a Ginnie and they are all Ginnies and 
they are regulated by Ginnie and Ginnie is the one that is 
going to ensure that you get timely payment and P&I, you are 
shaking hands with Ginnie. Ginnie already has a bunch of MOUs 
in place with these central banks.
    So, yes, I think it is the right thing to do to use them.
    Chairman Crapo. Well, thank you.
    To Mr. Broeksmit, you mentioned that we need--or an 
improvement could be a qualitative and quantitative enhancement 
of the funding for affordable housing. Could you explain a 
little more what you meant there?
    Mr. Broeksmit. Yes. We believe that in addition to the 
funds as envisioned in the outline that some sort of--perhaps a 
scorecard akin to how FHFA is treating the GSEs today with some 
of their requirements, that has both quantitative and 
qualitative elements, and that it is more integrated. It would 
give credit for activities like partnerships and education and 
outreach as well as for purchasing loans because we do believe 
that it is vital that the guarantors serve the full spectrum of 
borrowers and that they would have an obligation by virtue of 
their full faith and credit Government guarantee to do so
    Chairman Crapo. All right. Thank you.
    An issue that has been raised here in this hearing is 
whether we should have more than two guarantors and what role 
they should serve in, whether a utility role versus the 
guarantor role as contemplated in some of the other proposals 
that are available.
    I would invite--I only have 2 minutes left, so I would like 
you to be brief. But I would like to hear the opinion of all of 
our witnesses on this.
    You just have rendered yours, Mr. Calhoun. If you do not 
want to add any to it, fine, but let us start over here.
    Mr. Calhoun. Yes. A utility role in regulation would 
regulate returns for the two current GSEs.
    Chairman Crapo. OK. Ms. Hunt.
    Ms. Hunt. For credit unions, the current system with two 
entities, whether you want to call them utilities or something 
else, in a heavily regulated role works for credit unions.
    Chairman Crapo. All right. Mr. Malta.
    Mr. Malta. A utility model highly regulated and two or 
more. However, we believe the competition belongs in the TBA 
and credit markets and not at the guarantor level, so not too 
many.
    Chairman Crapo. All right. Ms. Johnson.
    Ms. Johnson. So we can appreciate the interesting 
competition. I think we have got concerns about if you can 
really ever strip enough away from the GSEs to allow other 
guarantors into the market, and we think a viable option would 
be to transition the system, either turning the GSEs themselves 
into a utility for the long term or simply as a transition 
step.
    Chairman Crapo. Mr. Broeksmit.
    Mr. Broeksmit. MBA has long held that there should be two 
or more guarantors. We do not know whether private capital will 
come in with the billions of dollars of capital that would be 
required. We think the FHFA capital standards are a helpful 
step so that private--other private entities could decide.
    But we think that just the ability for private capital to 
come in, other than Fannie and Freddie, is helpful and healthy 
for competition in the market.
    Chairman Crapo. Thank you.
    Mr. Bright.
    Mr. Bright. Yes. It is difficult to say what the exact 
right number is. I think as a principle, I agree with Mr. 
Calhoun that the point of all of this is to ensure that all 
markets nationally are served.
    The point again of us being here, the point of the 
Government being involved in this, is to make sure that 
underserved markets are served.
    So I think as a starting principle, you need to make sure 
that whatever system you design, the focus is to make sure that 
you serve underserved markets.
    The net effect of that is that you probably will end up 
with only a few national-type institutions, just because of 
economies of scale.
    There is part of me that hopes that you preserve the idea 
that if an institution wants to specialize in serving an 
underserved market, a designated underserved market, that maybe 
they can do it better than a big national utility could. And I 
do not know that I want to throw away that as an idea, but the 
reality is you probably will get a few large national markets. 
But the point is making sure that all kind of communities are 
served.
    One last thing is it is important to remember that this 
idea of utility and volume for g-fees and all these things, a 
lot of these are constructs right now of conservatorship, and 
so I support codifying them in legislation so that we make sure 
that these gains are kept.
    Chairman Crapo. Thank you.
    Senator Brown.
    Senator Brown. Thank you.
    The witnesses for the Committee yesterday obviously had a 
wide range of opinion on a number of issues, but they did seem 
to agree on a couple of things. They agreed--and I believe all 
of you state in your written testimony--there must be a 
catastrophic Government guarantee to ensure that borrowers have 
access to credit at all times.
    Most of our witnesses--second, most of our witnesses also 
agree that all guarantors must serve a broad national market, 
and I would like to ask, yes or no from each of you, if you 
agree with that, that all guarantors should be required to 
serve a national market. And please give a yes or no, if 
possible.
    I will start with Witness number 12, Mr. Calhoun, and go 
that way.
    [Laughter.]
    Mr. Calhoun. Yes.
    Ms. Hunt. Yes.
    Mr. Malta. Absolutely yes.
    Ms. Johnson. Yes.
    Mr. Broeksmit. Yes.
    Mr. Bright. Yes. I wish I did not have to give yes or no, 
but yes.
    [Laughter.]
    Senator Brown. Well, take a little longer, then, if you do 
not.
    Mr. Bright. Well, what I said is I think the point is you 
have a national market and that all communities are served, but 
if you had a concept of a guarantor that wanted to focus on an 
underserved market, a rural market or Puerto Rico or a place 
that is underserved, it is possible that they could do it 
better and that they could innovate and serve that market and 
then, likely, a national guarantor maybe take over doing that.
    So I think you would end up with national guarantors, but I 
think if they wanted to serve an underserved market that there 
should potentially be some allowance for that.
    Senator Brown. That would be the Puerto Rico that the 
President of the United States does not recognize as part of 
the United States.
    Mr. Calhoun, you have expressed concern that in any system 
with multiple private guarantors, without an affirmative duty 
to serve all markets, guarantors would be motivated to cherry-
pick the most profitable loans in the market.
    We heard similar things yesterday from Mr. Levitin and Mr. 
Shelton and Dr. Zandi.
    The question is this. If guarantors were driven by profit 
and had no affirmative obligations, what borrowers or markets 
do you expect would go unserved, and what would that mean for 
pricing for all borrowers, if you would answer both questions?
    Mr. Calhoun. Yes. This is not casting these multiple 
guarantors as evil entities. It is just the competitive 
pressures that they face. It costs more money to serve 
dispersed rural borrowers. The easiest, most profitable loans 
are in concentrated, robust urban markets with high-wealth 
borrowers and doing it in high volumes that are huge.
    One of the themes you are hearing from us community lenders 
is that this market tilts toward the largest lenders naturally 
because of those huge economies of scale.
    The GSEs are an important counterweight to that because 
they are required to serve small lenders. So the borrowers that 
would potentially go unserved include rural borrowers. It would 
be lower-wealth borrowers in particular, borrowers of color, 
and for institutions, it is very much smaller lenders cannot 
swim in a system that tilts heavily to the large lenders.
    Senator Brown. Ms. Hunt, yesterday we heard from some of 
the witnesses that represent large institutions. They said they 
believe small lenders--they believe small lenders would be 
better off in a multiple-guarantor system. In your testimony, 
you state that NAFCU has concerns about moving our housing 
finance system to a multiple-guarantor model.
    ICBA, CMLA, which represent community banks and community 
mortgage lenders, submitted written testimony that expressed 
concerns about the impact that a multiple guarantor model would 
have on community lender access and on market stability.
    Your last answer to Chairman Crapo's question--or your 
answer to his last question touches on this. So would you 
expand more on--I heard what you said in response to him, but 
would you expand more on why small lenders would or would not 
be better off in a system with multiple guarantors?
    Ms. Hunt. So credit unions and other small lenders are 
focused on making the loan, and the benefit of accessing the 
secondary market is that they have a channel to help them 
mitigate risk, help them work on balance sheet liquidity, and 
knowing that there is an avenue and channel and guaranteed 
avenue and channel helps them make the loan in the first place.
    And when you add additional players into the system and it 
is unclear as to whether or not you are going to have those 
business relationships to actually be able to sell them the 
loan--Mr. Calhoun mentioned that it is likely that it is easier 
to work with a big player who is going to give you lots of 
loans than smaller lenders, and I would reiterate that.
    I think that, ultimately, if we moved to a multiple 
guarantor system, we could see some positives, and likely some 
positives for investors in the good times. But when the economy 
ultimately turns, which it ultimately will because we always go 
in cycles, what happens then? Do those multiple guarantors not 
seek out business of small lenders? Do those multiple 
guarantors constrict? And what happens with all of this 
jockeying for position?
    So for us, a multiple guarantor model creates a lot of 
uncertainty, with not a lot of positives over how things 
operate today.
    Senator Brown. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Kennedy.
    Senator Kennedy. I want to listen a while longer, Mr. 
Chairman.
    Chairman Crapo. Senator Warner.
    Senator Warner. I have been listening for a long time.
    [Laughter.]
    Senator Warner. I want to start with what I think--I 
actually hear more agreement from yesterday and today, 
including all 12 participants, in terms of maybe us inching 
closer. I hear a broad set agreement around a Government 
guarantee. I hear a broad set agreement around additional 
support for low- and moderate-income, and while there are 
challenges with the Chairman's proposal, I think on a factual 
basis, the fact that there is increased support for low- and 
moderate-income on a dollar basis, how we make sure that is 
fair, but I think that is a step in the right direction.
    I think we hear enormous concerns about making sure that--
and I am sure Senator Tester will emphasize this--access for 
smaller lenders, credit unions, rural community.
    I think we still have a lot of questions around how many 
guarantors and enormous fear, even if we got the model right on 
the transition. I particularly think about some of our previous 
iterations with our friends at the REALTORS and the credit 
unions on this.
    I want to come back, and I want to reserve 30 seconds at 
the end to make a final comment. But yesterday, I spent a lot 
of time emphasizing that we are not doing this in a vacuum. The 
new FHFA Director has enormous, broad powers, and when he gets 
put in very shortly--matter of fact, there was a segment from 
Politico today saying that Treasury may start offering 
executive action in terms of an outline as early as today. So 
the notion that this may be taken away from Congress is I think 
a concern.
    Mr. Calhoun, you and I have gone round and round on a lot 
of these ideas. I think we actually share 98 percent of the 
same goals, but I would like you to speak for a moment, though, 
with the new FHFA Director, this Administration coming in, 
taking more control of the housing market. What concerns you 
most? An aggressive new capital regime? Cut back on the 
existing subsidy supports? Getting rid of the patch if we take 
these, the GSEs, arbitrarily out of conservatorship? What are--
you put out some of the challenges, but what are the challenges 
of inaction, particularly if we have an Administration that may 
not share the same goals, particularly for low- and moderate-
income folks?
    Mr. Calhoun. There are certainly risks there.
    As you know, HERA was passed in 2008, and one of the 
fundamental reforms was a bipartisan bill. It was to have a 
very robust regulator to make sure, as we are talking today, 
that the entities pursue the public mission, not just 
maximizing private gain. So there is a lot of discretion there.
    At the same time----
    Senator Warner. But if you can speak to the question of 
what--an FHFA that may not have the same they had in the past--
--
    Mr. Calhoun. They could redo affordable housing. They could 
raise pricing. They could cut back on access to certain kinds 
of mortgages.
    I will say we have worked with Mark Calabria for decades 
now and believe that he comes at this with considerable 
experience and knowledge and a level approach. Also, everyone 
wants a housing market to work and not be disrupted.
    So I think all of us believe that Mr. Calabria will be very 
careful to not come in--and he has said this in conversations--
not come in and disrupt the housing market, and he has also 
voiced explicit support for the affordable-housing goals.
    Senator Warner. Let me just--Mr. Broeksmit or Ms. Johnson, 
one of the questions here is about the national footprint. I 
spent a lot of time with Michael Brighton. I am intrigued with 
some of his ideas about making sure if there was an expertise, 
it could focus on rural or low income. I know it is easy to 
say, hard to prove, but this notion of trying to make sure that 
we have got a national footprint, we clearly do not want LMI or 
rural communities to be cut out of this. If you can both 
quickly--because I am going to add 30 seconds at the end.
    Mr. Broeksmit. Yes. I would agree with that and say that 
the Chairman's outline has quite strong powers for the FHFA to 
regulate these entities in such a way that they could not 
cherry-pick, and there would be no race to the bottom because 
the FHFA would define an eligible mortgage as something like 
the qualified mortgage would govern risk management and 
liquidity and capital.
    Senator Warner. Ms. Johnson, quickly.
    Ms. Johnson. So one of the things that we comment on in our 
written testimony is loan-level credit enhancement, and one of 
the benefits of loan-level credit enhancement is it is done at 
origination.
    So our members, for example, work with 5,000-plus lenders 
across the country to make sure that the credit protection is 
put in place before it ever gets to the GSEs and receives a 
Federal Government backstop. So we think that that is an 
approach that should be taken as going forward as well.
    Senator Warner. Mr. Chairman, can I have 30 seconds?
    Chairman Crapo. Thirty seconds.
    Senator Warner. All right. I have been a strong advocate of 
reform for a long, long time, and I think I understand most of 
the concerns.
    What I am wondering is--and I am intrigued with the 
Chairman's efforts--some of the these are such fundamentally 
large kind of leaps of trust, though. That I wonder whether 
there maybe even possibilities of some interim step where we 
provide more support for LMI, where we strengthen the Common 
Securitization Platform (CSP), and may not get to the full-
utility model. But a lot of those components could be enhanced.
    That we make sure--this is where Mr. Calhoun and I may 
disagree, but we had pretty broad unanimity, bipartisan, 
yesterday that recap and release would simply re-create the old 
status quo, and that does not make a lot of sense.
    So I am a strong advocate of reform, and having tried 
swallowing the whole enchilada a couple times and getting it 
kicked back, we may think in interim steps. But I welcome the 
Chairman's efforts and look forward to working with him and 
folks on both sides of the aisle to try to get this right.
    I think for most of us, this does not come with an 
ideological bend. As I said yesterday, I would never want to 
know this much about housing finance. To me, at the end of the 
day, it is just plumbing, but the plumbing has got to be done 
in the right way, particularly when we have so many people.
    And I share the Ranking Member's view that we have such a 
housing crisis in this country for low- and moderate-income 
folks, and we do not want to do anything to exacerbate that.
    Thank you for the extra time, Mr. Chairman.
    Chairman Crapo. You are welcome.
    [Laughter.]
    Chairman Crapo. We finally found out how to increase the 
time. No, never mind.
    Senator Tester.
    Senator Tester. Well, thank you, Mr. Chairman. That is the 
longest damn 30 seconds I have ever seen in my life.
    [Laughter.]
    Senator Tester. Time is money, though, Warner.
    So I do not want to put words back in your mouth, Mr. 
Broeksmit, but I just heard you say that the Chairman's outline 
would stop cherry-picking. Is that what I heard you say?
    Mr. Broeksmit. It would prevent a race to the bottom, and 
it would also, with the national footprint, require that 
guarantors operate nationally and not just region by region or 
loan size by loan size.
    Senator Tester. And I do not want to put words in your 
mouth, but is not that basically what you said? It would stop 
the cherry-picking? And I am not being critical. I hope it 
does. If it does, then I want to get the other people's input 
to see if they feel the same way.
    Mr. Broeksmit. Sure.
    Senator Tester. Mr. Bright.
    Mr. Bright. Yes. I think that is an objective clearly of 
the outline.
    Senator Tester. OK.
    Mr. Bright. And I think you need to do it in legislation.
    Senator Tester. OK.
    Ms. Johnson. We think that you have got to really address 
the competitive advantages if you are going to have the GSEs in 
the marketplace because lenders--even as Carrie mentioned, 
whether you transfer data and technology in some of those----
    Senator Tester. But if the competitive advantages were 
addressed, it would stop it?
    Ms. Johnson. Yes.
    Senator Tester. OK.
    Mr. Malta. Pretty much the same.
    Senator Tester. OK. Ms. Hunt.
    Ms. Hunt. We would agree.
    Mr. Calhoun. I have spent--part of my background--spent 
several years litigating the kickbacks that market participants 
give to the big lenders----
    Senator Tester. Yes.
    Mr. Calhoun.----on a national basis, and there is a whole 
cottage industry there because that----
    Senator Tester. Do you think there is a way to stop that?
    Mr. Calhoun. That is why I think you are hearing many of 
the smaller lenders say having two utilities is a lot better to 
be able to control than having a dispersed group of multi-
guarantors. It simply is more profitable for them to serve the 
biggest lenders. That is the inherent challenge.
    Senator Tester. I will stick with you, Mr. Calhoun.
    I think you talked about Mr. Calabria about not wanting to 
upset the apple cart on the housing industry, disrupt the 
housing market. Do you believe this Administration will take 
the steps that will make low-income borrowers worse off? Do you 
believe that they will not do that?
    Mr. Calhoun. I think it is yet to be determined. I think 
they recognize that serving those borrowers is a very high 
priority of both this Committee and at least equally so on the 
House side. They are cognizant of that.
    Senator Tester. So would it be fair to say that you are 
just fine leaving things the way they are right now?
    Mr. Calhoun. No. Let me be clear. We support strong, robust 
reform. We want the current GSEs ring-fenced. We do not want to 
turn them loose in their current status or in their prior 
status. We are calling for much more robust conservatorship--
plus----
    Senator Tester. OK.
    Mr. Calhoun.----for GSEs before there would be any release 
from conservatorship.
    Senator Tester. OK. Since--the only proposal we have out 
here--and I think I really do hope--and I have talked to 
Senator Brown about this and Senator Crapo about this--that the 
Ranking Member and Chairman can get together on a reform bill, 
but could you get me a list of the things that are wrong with 
the Chairman's proposal?
    Mr. Calhoun. We would be happy to do that and meet with you 
or your staff.
    Senator Tester. And could I get the rest of you to do that, 
too, and if there is nothing wrong with it, tell me that? And 
if there is a whole bunch wrong with it, make the list long, 
and then we will take it up with Senator Crapo.
    Senator Kennedy. Can we all get a copy?
    Senator Tester. What is that?
    Senator Kennedy. Can we all get a copy?
    Senator Tester. Oh, hell yes--excuse me. Yes, you can.
    [Laughter.]
    Senator Tester. OK. This is for Malta and Hunt. In a reform 
system, is the cash window enough to ensure equal and fair 
access for small lenders?
    Mr. Malta. So it is a start, and we want to make sure that 
that actually happens.
    Senator Tester. But if that happens, is that enough, or do 
we need to do more? And if we do, tell me.
    Mr. Malta. We need to do more.
    Senator Tester. What would it be?
    Mr. Malta. We need to make sure that there are proper 
regulations that even the playing field. That they are not put 
at a competitive disadvantage from the very outset from the 
model. That we have an environment where they can compete again 
in all markets and at all times, and that will create an equal, 
level playing field.
    Senator Tester. Ms. Hunt.
    Ms. Hunt. For credit unions, access to the cash window is 
important relative to maintaining servicing rights, but it does 
not necessarily get us where we need to be relative to fair 
access.
    I mean, there just needs to be an affirmative duty that if 
you are a guarantor or you are a GSE or a utility or whatever 
we are calling these entities, you have a duty to not just 
serve all markets, but serve all lenders. And that will 
hopefully get us where we need to be.
    Senator Tester. Well, look, I think along with the panel 
yesterday, everybody here is going to be really important as 
this process proceeds, and your input is going to be critically 
important. So I want to thank you all for being here today.
    And I just want this to be reflected in the record. Bright, 
you are still my favorite Republican staffer.
    [Laughter.]
    Mr. Bright. I have a lot of favorite Democrat Senators.
    [Laughter.]
    Senator Tester. Very good.
    [Laughter.]
    Chairman Crapo. Senator Jones.
    Senator Jones. Thank you, Mr. Chairman, and I promise to 
hold down the profanity in my questions.
    [Laughter.]
    Senator Jones. I would like to talk a minute about 
addressing the future of the Federal Government's flagship 
housing tool, the FHA, Federal Housing Authority, which plays a 
critical role in helping facilitate mortgage credit.
    In Alabama, where relatively lower-priced real estate, FHA 
still plays a huge role. I think a quarter of all loan 
originations in Alabama are FHA-backed loans. So it is a tool 
that we really cannot do without.
    Clearly, as I understand it, the infrastructure for FHA is 
pretty antiquated. To say the least, it is pretty antiquated. 
We are still dealing with old 8-by-12 calculators versus 
computers, essentially, and there are certain legal impediments 
with FHA.
    Mr. Calhoun and Mr. Bright, I think you might want to both 
address this. How can, as part of this, we modernize the FHA? 
Looking beyond infrastructure, what is the proper role for FHA 
in a reformed housing finance system?
    I will go with you, Mr. Calhoun, first and you, Mr. Bright.
    Mr. Calhoun. FHA plays a critical role for first-time home 
buyers. It should not be the only option. We have seen that 
before, and so there needs to be a conventional market as well.
    In terms of what you need to do to fix it, you nailed them. 
Their computer system is 40-years old. It breaks down for up to 
a week at a time when it cannot take in new loans. They use 
extensive paper products and have warehouses full of paper 
files. It is nuts.
    You all provided funding for the first time in many years 
for upgrading that computer system. It needs to be provided, 
and we have been working with a number of folks on both sides 
of the aisle to provide it more secured on like a 5-year basis 
because it is the 5-year plan that you need.
    Then, finally, what you are alluding to I think on the 
legal grounds, we have got to clean up the unnecessary 
uncertainty and risk from the False Claims Act that has chased 
virtually all of the major banks out of FHA lending.
    I will note that is a challenge also with the Ginnie model, 
and it raises concerns in the market that that False Claims Act 
liability could arise in a Ginnie model that is not present in 
the current model.
    Senator Jones. Thank you.
    Mr. Bright.
    Mr. Bright. I agree with much of what Mr. Calhoun said.
    The False Claims Act thing, as soon as you create an 
explicit guarantee, that False Claims Act enters the picture. 
So just to be clear, it is not just Ginnie, but any time you 
claim an explicit guarantee.
    I definitely agree that for FHA specifically, they need 
more money for technology, so it is a big problem. It would be 
nice if they did not spend all--you know, I was at Ginnie in 
December and January, and we did not work for 35 days. I mean, 
that is not a good process to have for a big part of our 
economy, so we have to stop doing that.
    Then this is a Ginnie plug a little, but they are under HUD 
along with FHA. They need the ability to pay salaries that are 
comparable to other skill sets in this town. Literally, the 
FHFA is three blocks down from Ginnie Mae, and they have a lot 
of overlapping functions, and their pay is 50 percent higher 
than Ginnie's pay. And it was a constant challenge to keep 
talented--these are technical issues--to keep talented folks at 
Ginnie when they could literally go three blocks down and get 
another $50,000.
    And the irony of that is that Ginnie is supposed to be 
serving this very vital part of the market, not borrowers who 
may have otherwise gotten served and now are just getting a 
little bit of a lower mortgage. They are supposed to be serving 
this very important first-time home buyer part, and they were 
all furloughed. And you lose talent all the time.
    So I think that there needs to be pay comparability.
    Senator Jones. Thank you.
    Another issue that I think is a real impediment to home 
ownership right now is the ability to come up with a down 
payment. Clearly, statistics are showing we are not saving the 
money that we should, and even when people do, they do not want 
to give a whole chunk of that savings out to put on a down 
payment.
    How can we address that issue? Is there something that we 
can do? Are there models out there for a down-payment 
assistance program where people can afford--I think if they get 
that first house, they can then use equity, but getting that 
first house is tough. And I would just kind of open that up to 
anybody who wants to chime in the remaining--I got everybody 
raising their hand. That is good.
    [Laughter.]
    Ms. Johnson. So I would just comment we think that is an 
enormous challenge. It is specifically what our industry has 
focused on is bridging that gap between an individual bringing 
20 percent to the closing table and actually having access to 
the conventional market.
    And you think about sort of the time that it takes for an 
individual to save that down payment, we track that data, and 
we found that it takes two decades for a firefighter or a 
teacher in many areas to save that up. For minorities, we know 
that it is even longer.
    Senator Jones. Right.
    Ms. Johnson. So we really have to make sure that there are 
options available in the market.
    Senator Jones. Real quick. I am a little bit over, but does 
anybody got something? Yes, sir.
    Mr. Malta. So, basically, we are always concerns regarding 
arbitrary limits on down payments, et cetera, or requirements 
on down payments, and that there are vehicles out there that 
could assist with lower-down-payment loans that are working 
very well in the marketplace, a combination of private capital 
through MI, sound underwriting standards. Those are the guides 
to home ownership.
    Also, it was brought up regarding student loan debt being a 
real challenge to many first-time buyers, and our research 
indicates that it delays home ownership by at least 5 years.
    Senator Jones. Wow.
    OK. All right. Well, thank you. Thank you, Mr. Chairman, 
and thanks to the Senator from Louisiana for deferring to 
somebody from Alabama. I have been looking over my shoulder 
because of that, but thank you.
    [Laughter.]
    Chairman Crapo. Senator Moran.
    Senator Moran. Mr. Chairman, thank you. Thank you and the 
Ranking Member for your diligence on this topic.
    You and I and others were involved in an effort years ago 
trying to see if we could address this issue in a significant 
way then, and perhaps we can do so now. I certainly want to 
commit to you to work with you to accomplish that.
    A couple of things about rural America, and this is the 
theme of my question here. Mr. Bright, you suggested that there 
could be some advantages to regionalized guarantors. Would you 
expand on that for me?
    And my follow-up question to all of you will be, What 
should I be paying attention to, to make sure that community 
banks, what I call ``relationship bankers,'' have the necessary 
equal access to the secondary market and also to access the 
loan-level credit enhancement?
    Mr. Bright. So the idea that I was sort of suggesting is 
that you want a national market, and there needs to be rules to 
make sure there is a national market. In all likelihood, what 
that is going to mean is national guarantors.
    But if you had a process for designating underserved 
markets and you said if you wanted to be a specialized 
guarantor in an underserved market, there is a potential that 
you could get some helpful innovation and some guarantors that 
say I understand rural lending or I understand lending in this 
particular part of the country. I would not want to completely 
shut off the possibility of doing that, but you would want it 
to be for underserved markets, not so that you could cherry-
pick from the good stuff.
    Senator Moran. If we were listing the underserved markets 
today, what would be on that list? What would come to mind?
    Mr. Bright. That is the communities that have been 
underserved for decades. Urban minority communities, I think 
the NAACP spokesperson yesterday did a very good job of 
explaining that the home-ownership rate in black communities is 
the same as it was when redlining and discrimination was legal 
and encouraged. That means we are failing somewhere, obviously.
    Definitely in rural communities, mortgages are not being 
made right now for under about $50,000 or $60,000.
    So, in a lot of communities, we have an affordability 
crisis, but you can get maybe a small house, but you cannot get 
a mortgage because a lender is not making a mortgage for under 
$50,000 in a lot of communities. So very low income, urban 
communities, minority communities, and rural communities all 
need to be better served.
    Senator Moran. Would there be consensus that rural 
communities fit into that? Is there empirical evidence--
certainly no anecdotal. I see it in my own community, but that 
is true among the industry and the specialists here.
    Mr. Broeksmit. Yes. And I think appraisals are a real issue 
in the real communities, too.
    Senator Moran. That is absolutely the case.
    I cannot see name tags, but others had comments to respond 
to my question.
    Thank you, Mr. Malta. I think you wanted to say something?
    Mr. Malta. So, yes, underserved, and it was brought up 
regarding some of the impediments, the loan amounts, the 
appraisals, et cetera, have been a detriment as well as some 
areas that are dealing with flood, the costs associated with 
that, costs of insurance. There is no silver bullet. It is 
across the board that is affecting these areas.
    Senator Moran. Thank you.
    Ms. Johnson.
    Ms. Johnson. Yes. I would just mention that you mentioned 
specifically loan-level credit enhancement and its ability to 
make sure that there is access for all lenders of all sizes and 
types, and we think that that is one of the benefits, is that 
you could have a guarantee at the national level, either at 
Ginnie Mae or through Federal guarantors, the GSEs, but by 
having loan-level credit enhancement, by private companies who 
are taking on that first-loss risk, who have relationships with 
5,000-plus lenders, you really are able to ensure that there is 
access equally across the country.
    Senator Moran. Mr. Calhoun.
    Mr. Calhoun. The GSEs today are the largest provider of 
home financing for community rural banks.
    In our testimony, we detail extensive research we did using 
HMDA data and large data bases to show that.
    So I would just say as you go forward in housing finance 
reform, you need to preserve those guardrails and requirements 
that have pushed them to continue that lending, even though it 
is not the most lucrative part of the market.
    And I think you have heard that today from the testimony of 
a lot of witnesses.
    Senator Moran. Do any of you have any sense that--I do not 
know whether this is a question that you can answer. But do you 
have any sense that 2155 made a difference in particularly HMDA 
and real estate lending in rural America and community banks?
    Ms. Hunt. Senator, I represent credit unions. In my written 
testimony, I outline how post-financial crisis, credit unions 
were able to use Fannie and Freddie more, were able to use the 
secondary market, and our footprint in underserved areas 
increased.
    So, for in the credit union space, having that channel to 
manage risk at the loan level has been incredibly helpful to 
try to reach as many Americans as possible.
    Senator Moran. I thank you very much.
    I would just ask that if any of you have suggestions, 
please talk to me or my staff about how I can make certain that 
I do the things necessary that enhance the chances that all 
Americans have access, regardless of where they live.
    Thank you.
    Chairman Crapo. Thank you.
    Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman.
    I think we are all grateful to Senator Crapo for bringing 
forth this bill.
    I want to give each of you about 40, 45 seconds to tell me 
with specificity what is wrong and how you would fix it.
    Mr. Calhoun.
    Mr. Calhoun. The two big areas that you should go to, as 
has been suggested by others, you should transition the two 
current GSEs into heavily regulated utilities. That ring-fences 
them so that you get the benefit of a Government guarantee, but 
you do not have them overreaching for private gain, including 
unnecessarily competing and leveraging their position to 
compete with the private market. And that would move us there.
    You should also lock in and expand the reforms under 
conservatorship, which have made huge progress and need to be 
locked in.
    We also suggest things like they should have public 
positions on their boards for the realtors, for the 
homebuilders, to make sure that they stay to the public mission 
and that there is transparency and oversight there, and we list 
other particulars.
    Senator Kennedy. Ms. Hunt.
    Ms. Hunt. For us, it all comes down to fair pricing for 
access and ensuring that we have a Government guarantee.
    There are different variations of various models that 
potentially could work for credit unions but for us, it 
absolutely is having that consistent channel, so that we can 
continue to lend.
    Senator Kennedy. Mr. Malta.
    Mr. Malta. So the importance is the availability to have 
access to credit in all markets at all times. So not enough is 
being put into countercyclical times that we could potentially 
have. That we need a fund to be set aside for those times to 
make sure that we have enough financing for when those 
countercyclical periods happen.
    So, again, with the utility model, highly regulated, a 
fund, we believe that we could accomplish access to credit to 
all markets at all times.
    Senator Kennedy. Ms. Johnson.
    Ms. Johnson. So a lot has been done in the mortgage finance 
system generally, but the GSEs are still quasi-Government 
entities, and we think that that creates a lot of conflict.
    You hear people say all the time public loss and private 
gain, and that still is a reality that we would be faced with, 
especially if they were recapped and released. So we think the 
structure needs to be addressed.
    There is a lot of competition with private market 
participants in the primary market that we think is not only 
unnecessarily but unhealthy.
    And also, just at the end of the day making sure that there 
is a transparent explicit Government guarantee that ensures 
that consumers are going to have steady access to the 
conventional market.
    Mr. Broeksmit. Senator Kennedy, I think the good news is 
that there is a lot of ``me too'' on this panel. You asked for 
specifics. Eliminating the implicit guarantee and making it 
explicit and paid for, codifying the gains that were made 
during conservatorship, which have a lot to do with a level 
playing field, which we, of course, support for all community 
lenders, including independent mortgage banks, credit unions, 
and community banks, and unlocking the private capital that is 
currently on the sidelines pending the resolution of Fannie Mae 
and Freddie Mac structure, so those are all things that should 
be done.
    Senator Kennedy. Mr. Bright.
    Mr. Bright. In urban areas, there is a lack of affordable-
housing supply. That is absolutely something that needs to be 
addressed and be put front and center.
    In rural areas, low-dollar volume mortgages are not being 
made, so there is affordable supply, but the dollar volume is 
not being made.
    And third and importantly, a lot of gains have been made in 
the structure of our housing finance system over the last 10 
years, and without legislation codifying them, they could erode 
either all at once or slowly over time. So all of these volume 
for g-fee discounts and serving small lenders, things that we 
think are working well now could go away if they are not locked 
in.
    Senator Kennedy. Has Duty to Serve worked?
    Mr. Bright. Well, the Duty-to-Serve regs specifically are 
pretty small in their scope. There are three, I think, defined 
areas. I think that as a concept, it can work and be scaled to 
more, and I have suggested to so.
    Mr. Broeksmit. I think duty to serve, with a small ``d'' 
and a small ``s,'' as opposed to the specific rules for Fannie 
Mae and Freddie Mac as it relates to the capital ``D'' Duty to 
Serve can be improved tremendously by having it be a more 
cohesive scorecard-type thing as opposed to just how many loans 
did you buy in which areas. So I think there are lots of 
improvements, as I mentioned earlier, that could be made in 
that regard.
    Senator Kennedy. Anybody else? I got 9 seconds there. Go 
ahead.
    Ms. Hunt. I would say that credit unions exist to provide 
provident credit, so it is in our DNA. It is what credit unions 
try to do every single day. So having a Duty to Serve is 
incredibly important. Whether it be exactly how it is defined 
today or whether it ultimately gets expanded remains to be 
seen, but it all comes down to the lender looking the person 
across the table from them in the eye and trying to help them 
get that loan. And, fundamentally, it is what credit unions do.
    Senator Kennedy. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman.
    First, I just want to say thank you to the Chairman for 
bringing this up. I think it is time that we approach this 
during this time period in which we do not see a crisis on our 
hands, and it is better to do it now than to wait until such 
time as we do have a crisis.
    In looking and trying, a number of us have talked back and 
forth across the aisle about how we build a coalition, part of 
that means that we have to understand what our colleagues on 
the other side of the aisle see as important to them as well in 
this discussion.
    And it has become pretty clear that the price for reform 
for some of my friends on the other side of the aisle is 
keeping the Government guarantee, maintaining the GSEs' Duty to 
Serve, and providing a stream of funding for affordable 
housing.
    My question--and it does not have to be long and extended, 
but just simply, is that price--is that price worth it? If I 
could just go down the line, a yes or a no is fine, but your 
thoughts?
    Mr. Bright. I think so, especially if you bring in more 
private capital ahead of the Government guarantee.
    Mr. Broeksmit. I think with the qualification that Duty to 
Serve, as I just mentioned, has a lot of facets, and if we can 
get a workable scorecard, I do think that is an effective way 
to do it.
    Ms. Johnson. Obviously, it matters what is in the details 
in affordable housing, but I absolutely agree with Michael's 
comment that you have got to have more private capital standing 
in front of that Government guarantee.
    Mr. Malta. Yes, it is, and more private capital, better 
regulatory structure, better than what we have had, and 
ultimately protecting the U.S. taxpayer.
    Ms. Hunt. Ultimately, we all benefit from an extremely 
robust housing market that reaches all different people across 
this country, whether you are in urban areas or not, so very 
important.
    Mr. Calhoun. We are in a deep crisis in affordable housing, 
both home ownership and rental housing. It is really a hardship 
on families, and it is also holding back our whole economy. And 
it has been raised several times here. The housing market is 
also 20 percent of the overall economy, and having this work 
right is really important for a lot of reasons.
    And then, finally, we have to address the history of many 
decades of extreme discrimination in the housing market that 
has led to the greatest--I want to add on to Michael's 
statistic. The housing home-ownership gap today between black 
and white houses is not just equal to--it is far greater than 
it was in the early 1960s. We have got to address that.
    Senator Rounds. Thank you.
    My next question would be directly to Mr. Broeksmit. I have 
worked with my colleague, Senator Warner, on an issue that your 
association has taken an interest in, the Appendix Q patch. Our 
bill on Appendix Q is an incremental step toward GSE reform, 
but it is an important acknowledgement that reform is an issue 
that Congress must tackle long term.
    I would like to ask you basically--well, let me just put it 
this way. Are there additional incremental steps like our 
Appendix Q that could support the Chairman's outline or fill in 
some of the gaps?
    Mr. Broeksmit. Yes. Thank you, Senator Rounds, and thank 
you for your leadership on that bill, which would make it 
easier for self-employed borrowers to get the mortgage credit 
for which they qualify. And in an era where we have more than 
20 percent of the country is self-employed or having some sort 
of additional income through the gig economy through self-
employment, it is an important step that would make 
underwriting those loans much easier.
    And more broadly with Appendix Q and the Ability-to-Repay 
rule, we have an unlevel playing field where the patch says 
that if the loan gets a GSE automated underwriting approval, it 
is in a safe harbor, but if the loan amount is too high for the 
GSEs, then the patch does not apply. So we think that that 
needs to be fixed, and we are working closely with the CFPB and 
others on that. And it would make a big difference.
    Senator Rounds. Thank you.
    I would also like to direct one question to Mr. Bright. Mr. 
Bright, the South Dakota Housing Development Authority stopped 
by my office recently, and one of the recommendations they had 
for promoting affordable housing in rural areas was to 
authorize Ginnie Mae securitization of FHA-HFA risk-sharing 
loans. Given your recent experience as the president of Ginnie 
Mae, I thought you would be uniquely qualified to comment on 
this particular issue.
    Mr. Bright. Yes.
    Senator Rounds. If included in the legislation that follows 
the Chairman's outline, how would Ginnie's securitization of 
these loans support affordable housing?
    Mr. Bright. I will admit I am not an expert on the topic, 
but at Ginnie, several FHAs came through sort of broadly 
proposing the idea. And I think it is the seed of a very good 
idea. So I do think that allowing them access to the Ginnie 
security makes a lot of sense.
    Some have done that in the Ginnie I security. There are 
some technicals about moving it over to the Ginnie II, but I 
think that it could be a very expanded and helpful program. 
They are looking at it right now.
    Senator Rounds. Thank you.
    Mr. Chairman, I think this is one of those areas where we 
might have some bipartisan support on.
    Thank you, Mr. Chairman.
    Chairman Crapo. Good. Thank you.
    Senator Brown has asked for the last word on this in this 
hearing and----
    Senator Brown. Not necessarily the last world, but a final 
word from me.
    On this, this has been helpful. I thank the Chairman for 
convening these 2 days of discussions and hearings.
    I want to highlight a couple of important takeaways, four 
things in particular, that guarantors that must serve a broad 
national market, that guarantors must all serve all lenders 
equitably, and that takes more than a cash window. Third, we 
must preserve a duty to serve, and fourth, having guarantors 
that are regulated utilities with regulated rates of return 
would serve all lenders and avoid a race to the bottom, as many 
of you talked about.
    So thank you, Mr. Chairman.
    Chairman Crapo. Well, thank you, and I will let that be the 
last word.
    Senator Brown. Thank you.
    Chairman Crapo. I do have a little bit of instructions for 
both the witnesses.
    Senator Brown. It is not really the last word.
    Chairman Crapo. Yes, it is not actually.
    [Laughter.]
    Chairman Crapo. It is the last substantive as opposed to 
procedural word, like a regular second and a Warner second.
    [Laughter.]
    Chairman Crapo. What I would like to do at this point, 
Senators do submit questions off the record, and those will be 
due next Wednesday. And we ask that you respond to those 
questions as quickly as you can.
    Again, as many Senators have said, we appreciate the advice 
and frankly the expertise that you bring to this issue. The 
purpose of this in yesterday's hearing was to identify where we 
need to tweak and remove and refine the proposal that I put 
forward and see if we can find bipartisan support and consensus 
on a movement forward.
    As the 2 days have concluded, obviously we have identified 
some areas where there are some needs for further discussion. 
On that note, however, I do not think I have seen anything that 
tells me that we cannot get bipartisan or should not be able to 
get some bipartisan support for a common approach to solving 
this issue.
    I do agree with a number of the comments that have been 
left, that have been made by Senators yesterday and today that 
we need to have reform, that we need to do it, and that now is 
the time for us to do it. And it is Congress that ought to do 
it.
    So let us all try to work together and get ourselves to 
that point.
    With that, this hearing is adjourned.
    [Whereupon, at 11:27 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    Today, the Committee continues the conversation about the state of 
our housing finance system, and how we can set it on a permanent, 
sustainable course that protects taxpayers and fosters greater 
competition.
    Yesterday, we received input on my Housing Reform Outline from six 
different stakeholders and thought leaders representing a variety of 
perspectives.
    Former Acting FHFA Director Ed DeMarco stated that the outline 
``captures the consensus elements of prior reform proposals, and serves 
as a solid workable foundation from which to develop legislation.''
    Dr. Mark Zandi noted that ``the housing finance system is in 
critical need of reform,'' that my framework is ``an excellent place to 
begin,''and that ``policymakers should use it as a framework to finish 
the job of reform.''
    The National Association of Home Builders, meanwhile, expressed 
support for the broad concepts of the outline, while also stressing the 
urgency of reform.
    The National Multifamily Housing Council expressed an eagerness to 
participate in the process going forward, and a belief that the outline 
would ensure a competitive marketplace without increasing the cost of 
multifamily mortgage credit.
    Today, we will hear the perspective of six more stakeholders: 
Michael Bright, President of the Structured Finance Industry Group; 
Robert Broeksmit, President and CEO of the Mortgage Bankers 
Association; Lindsey Johnson, President of U.S. Mortgage Insurers; 
Vince Malta, President-Elect of the National Association of REALTORS; 
Carrie Hunt, Executive Vice President and General Counsel at the 
National Association of federally Insured Credit Unions; and Mike 
Calhoun, President of the Center for Responsible Lending.
    Thank you all for sharing your time and expertise with all of us.
    Your input is incredibly valuable as we look to flesh out some of 
the details of a comprehensive plan.
    As I stated yesterday, I consider housing finance reform to be my 
top priority for the Banking Committee this Congress.
    The status quo simply is not a viable option.
    We have a real opportunity to act, and I am committed to getting it 
done.
    I look forward to working with all of you in the days ahead, and 
anyone else willing to join this long-overdue effort.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Thank you, Mr. Chairman, and thank you to all of our witnesses for 
being here today.
    As I said yesterday, housing is simply unaffordable for far too 
many Americans. They can't make rent without working two jobs, let 
alone save enough to get a mortgage and build wealth through home 
ownership.
    American families are the most important part of the housing 
finance system, yet reform proposals and outlines often fail to mention 
them altogether.
    All Americans should be able to afford a safe place to call home, 
whether they live in a rural community or the center of a city, whether 
they're making a salary or working for an hourly wage or earning tips.
    Families need access to affordable mortgages from lenders of all 
sizes who compete for their business by offering safe products and the 
best service, and who will be there to help families get through if 
they fall on hard times.
    Last Congress, this Committee heard from six community lenders.
    They represented small banks, credit unions, and independent 
mortgage banks in Idaho, Ohio, South Dakota, Georgia, North Carolina, 
and Illinois that help their customers receive those sustainable loans.
    They all agreed on the following:

    That preferential treatment based on the volume of loans a 
        lender delivers, whether in the form of volume discounts or 
        underwriting exceptions or the cost to retain servicing, hurts 
        small lenders and ultimately consumers;

    That we need a guarantor that pools costs across the market 
        and that has a duty to serve all lenders;

    That small lenders benefit from consistency in the 
        secondary market; and

    That the system does not need more than two guarantors in 
        the secondary market.

    We are hearing from one of those organizations today, and several 
of the associations represented that day have submitted statements for 
the hearings this week reiterating these points. I'd like to request 
that statements from the Independent Community Bankers of America and 
the Community Mortgage Lenders of America be included in the record of 
today's hearing.
    Since 2008, the FHFA has implemented policies at the GSEs to 
provide equitable treatment to lenders of all types and sizes across 
all markets.
    FHFA has also made sure that the GSEs continue to serve a broad, 
national market and set market standards.
    We have heard time and again that this system is working for small 
lenders and their customers.
    We shouldn't take steps that will create uncertainty for small 
lenders or drive unhealthy competition on quality and standards.
    This includes any changes that would allow the largest institutions 
to be one-stop-shops for lending, guarantees, and securitization with a 
Government backstop.
    When this Committee last considered housing finance reform 
legislation in 2014, many market participants made clear that allowing 
a single institution to perform primary and secondary market functions 
would undermine standards and competition.
    I hope we can all still agree on that point today.
    Any structural changes that we consider must not take us backward 
to a system where lenders and the secondary market pump up volume to 
satisfy Wall Street, with a race to the bottom when it comes to 
protections.
    We also cannot create a structure where we restrict consumers' 
options by putting local lenders who are serving their communities 
today on an uneven playing field.
    Finally, as we discuss broad changes to our housing finance system, 
we should also consider how any changes would reduce or increase the 
hurdles borrowers and renters already face in markets nationwide.
    Some of our witnesses this morning have focused on the growing 
challenges facing prospective homeowners.
    For example, Mr. Malta's organization, the National Association of 
REALTORS, has studied the burden that student loan debt has placed on 
potential home buyers.
    I have also heard from the Housing Assistance Counsel and the 
National Low Income Housing Coalition about the unique housing needs of 
rural households and low-income renters, as well as a coalition of 22 
civil rights groups, affordable-housing advocates, and community 
development organizations on the key elements of any housing finance 
reform proposal.
    I would ask that all of their written statements also be made part 
of the hearing record.
    American families are confronted with new types of housing 
challenges, from mountains of student debt to increasing rents in 
communities across the country. As I said yesterday, any changes we 
consider must strengthen, not weaken, our ability to address the 
housing challenges facing our Nation and make the housing market work 
better for families.
    Thank you, Mr. Chairman.
                                 ______
                                 
                  PREPARED STATEMENT OF MICHAEL BRIGHT
          President and CEO, Structured Finance Industry Group
                             March 27, 2019
    Chairman Crapo, Ranking Member Brown, Members of this Committee, my 
name is Michael Bright and I represent the Structured Finance Industry 
Group, or ``SFIG.'' On behalf of SFIG and its thousands of members in 
the securitization industry, I very much appreciate the opportunity to 
speak to you today.
    SFIG was formed in 2013 with the goal of convening the many diverse 
institutions involved in securitization--including consumer and 
commercial lenders, data providers, auto and equipment finance 
companies, rating agencies, law firms, trustees, banks, and--very 
importantly--end investors.\1\ This structure forces SFIG to convene 
all parties--both those involved with the creation of a fixed-income 
security and those who invest in them. When SFIG takes a position, we 
have a broad range of perspectives incorporated into our view. Since 
SFIG represents all participants in a transaction, long-term financial 
stability--in the mortgage market as well as other markets--is a core 
principle of ours.\2\
---------------------------------------------------------------------------
    \1\ ``End investors'' includes firms such as: asset managers, life 
insurance companies, and pension funds.
    \2\ SFIG's governing bylaws go to great lengths to differentiate 
its operating rules from those of other trade associations. A policy 
position is only advocated by SFIG if consensus is achieved by all 
relevant members of a committee, and each committee has representation 
across all relevant aspects of such market. This natural tension is an 
important Governor on SFIG's policy positions and supports longer-term, 
market-wide solutions.
---------------------------------------------------------------------------
    The purpose of today's hearing is to discuss reform of our Nation's 
secondary mortgage market. I thank Chairman Crapo and many other 
Members of this Committee for their continued work on this issue. The 
latest outline touches upon many of the principles that are important 
to SFIG, including: creating a clear role for private capital, 
establishing a clear and explicitly defined role for the Government, 
the preservation of a liquid TBA market, the preservation of a 30-year 
fixed-rate mortgage, and making use of already-existing securitization 
infrastructure.\3\
---------------------------------------------------------------------------
    \3\ The agency and Government mortgage markets both rely on 
securitization, as the basic function of the GSEs and Ginnie issuers 
are to finance operations through the transformation--or 
securitization--of mortgage loans into mortgage-backed securities. 
Building off what already exists the way the Chairman's outline 
suggests is a sensible approach.
---------------------------------------------------------------------------
    There is a substantial ongoing role for Congress to help finish the 
job of housing reform for many reasons. First, as the former head of 
Ginnie Mae, I can attest that global investors will allocate much more 
capital and at a much lower cost to the U.S. mortgage market if 
Congress puts a seal of approval on a new end State. One major lesson I 
learned at Ginnie is that, when speaking to a non-U.S. investor, the 
first thing they will ask is, ``Is the law clear?'' Any lack of clarity 
on the Government's role versus private capital's role adds ambiguity, 
and ambiguity adds to costs.\4\ These costs are ultimately borne by the 
homeowner. There are many additional considerations relating to the use 
of Ginnie Mae, and I am happy to discuss those with you in more detail.
---------------------------------------------------------------------------
    \4\ Global investors account for a larger and larger share of U.S. 
MBS purchases, especially as the Fed winds down its balance sheet.
---------------------------------------------------------------------------
    Additionally, as I said to this Committee when I appeared before it 
in 2018, we have a housing affordability crisis in our country, both in 
rental and home ownership. Over the past decade asset prices have 
increased substantially faster than wages. This creates an imbalance in 
our economy that is felt particularly strongly in the housing sector. 
SFIG membership supports, and wants to help provide, broader 
accessibility to mortgage credit throughout the country. Ultimately, a 
role for Congress here is critical.
    Going forward, SFIG believes that private capital can, and should 
be, productively channeled to further sound public policy objectives. 
Private capital is today very much available to support America's 
housing market and to augment the role of the GSEs and the FHA.
    Today private investor appetite for mortgage credit risk is counted 
in the tens of billions of dollars per month. Insurance companies, for 
example, had roughly $500 billion of residential whole loans on their 
balance sheet at year-end 2017, and this number has been growing. $50 
billion of non-agency PLS \5\ was issued in 2018, and this number 
continues to grow as well. Non-agency whole loan sales have been 
comparable in size. CRT \6\ transactions have also provided roughly $70 
billion of first-loss private capital to the market to-date.\7\ The 
pool of additional private capital is today quite deep.\8\ Reform 
should build upon this dynamic so that private capital can help enhance 
safe and responsible access to mortgage credit within the guardrails 
established by law and the CFPB.
---------------------------------------------------------------------------
    \5\ ``PLS'' is short for ``private label securitization,'' or a 
security that is issued by a company other than a GSE and does not have 
FHA insurance.
    \6\ This includes all credit risk transfer (``CRT'') transactions 
done to-date by the enterprises.
    \7\ This $70 billion in first-loss capital stands in front of 
nearly $2 trillion in total mortgage unpaid principal balance (UPB).
    \8\ For example, see: https://www.wsj.com/articles/private-
investors-encroach-on-fannie-and-freddies-domain-
11552132801?shareToken=st1e2068f01cbd4b87a1595cef380c53ed&reflink=
article_email_share.
---------------------------------------------------------------------------
    As we seek to enhance the role of private capital, I would like to 
cite three issues that we suggest Congress address.
    Number one, an event that looms on the horizon is the end of the 
so-called ``QM patch'' in 2021. Private capital can absolutely help to 
fill in once this transpires, but some policy changes would be very 
helpful to ensure the continued availability of mortgage credit. Most 
importantly, there needs to be a process of determining what qualifies 
for QM that is independent of whether or not the GSEs' underwriting 
systems accept the loan. There are numerous ways this could be done, 
and I would be happy to discuss some of those ideas in further detail 
if you would like.\9\
---------------------------------------------------------------------------
    \9\ See, for example: https://www.urban.org/research/publication/
what-if-anything-should-replace-qm-gse-patch.
---------------------------------------------------------------------------
    Number two, policymakers should strive for better alignment of 
regulatory capital requirements between the GSEs and banks. For 
example, the GSEs get substantial capital relief--and rightly so--for 
the credit risk transfer transactions they issue. Banks, however, do 
not. By allowing banks to make a loan, hold it on balance sheet, and--
if they choose--hedge some of the credit risk in return for appropriate 
capital relief--bank lending can play a more prominent role in our 
mortgage market and help fill in where sometimes the GSEs cannot.\10\
---------------------------------------------------------------------------
    \10\ The ECB has recently made substantial strides on this for 
European banks, and SFIG believes that U.S. regulators should follow 
suit. See: https://eba.europa.eu/regulation-and-policy/securitisation-
and-covered-bonds/draft-guidelines-on-significant-risk-transfer-srt-
for-securitisa-
tion-transactions/-/regulatory-activity/press-release.
---------------------------------------------------------------------------
    Finally, as policymakers look to reduce total reliance on Fannie, 
Freddie and FHA while ensuring access to home ownership, a proper 
mechanism for allowing REITs to access the Home Loan Bank system makes 
sense.\11\
---------------------------------------------------------------------------
    \11\ If properly capitalized, REIT borrowing from the Home Loan 
Banks via collateralized loans represents materially less risk to the 
taxpayer than selling to FHA, Fannie, or Freddie, and the existing 
rules that effectively bar REITs should be re-examined.
---------------------------------------------------------------------------
    There are, of course, many more challenges to discuss. In the 
meantime, Mr. Chairman, I want to thank you again for continuing to 
work on this important issue. We look forward to working with you and 
with everyone on this Committee to ensure that our country's secondary 
mortgage market can better serve all Americans.
    Thank you.
                                 ______
                                 
 [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]	

 RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM MICHAEL 
                             BRIGHT

Q.1. SFIG/MBA/USMI represents organizations that would be 
eligible to be guarantors under the Chairman's outline.

Q.1.a. Would any type of institution in the market today be 
well-suited to being a guarantor?

A.1.a. Large, diversified insurance companies or re-insurance 
companies could probably take on this role. Some MI's who have 
been active and innovative in CRT transactions likely could as 
well.

Q.1.b. Do you believe any of your members would be interested 
in becoming guarantors?

A.1.b. Possibly, but it's hard to know without more clarity on 
what that would require. SFIG does have some members who have 
been active in mortgage credit investing, and this business 
could be a natural extension for them.

Q.1.c. What is it about the mortgage guarantee business that 
appeals or does not appeal to your members?

A.1.c. Quite a few financial institutions feel comfortable with 
their ability to take on and manage mortgage credit risk. A lot 
of evolution has occurred in this market since the financial 
crisis, giving investors some degree of confidence in their 
ability to invest in this asset class.

Q.2. In your testimony before the House Financial Services 
Subcommittee on Housing, Community Development, and Insurance, 
you noted that Ginnie Mae uses contractors in securities 
operations functions and in performing bond administration.
    In addition to bond administration, for what other 
functions does Ginnie Mae rely on contractors?

A.2. As with any large entity, there are quite a few small 
contracts in place. In terms of large contracts, Deloitte helps 
with data aggregation and dissemination. Ginnie also uses 
subservicers Selene and Carrington to service legacy books from 
failed issuers that Ginnie has had to take over.

Q.3. During your testimony, you spoke about the need to make 
permanent improvements that were made to Fannie Mae and Freddie 
Mac during conservatorship.
    What improvements or gains do you believe must be made 
permanent as part of any reform effort?

A.3. G'fee for volume discounts, a focus on underserved 
markets, the need to work together on certain initiatives, a 
regulator that is accountable to Congress, CRT transactions.
                                ------                                


  RESPONSE TO WRITTEN QUESTION OF SENATOR MORAN FROM MICHAEL 
                             BRIGHT

Q.1. In a highly liquid, very efficient market, investors and 
traders are sensitive to any small change in information or 
performance. They are also highly sensitive to less-than-
perfect transparency and information. In the past they knew 
exactly what they were bidding on: either Fannie mortgages or 
Freddie mortgages.
    If the Common Securitization Platform commences, and 
investors and traders are not quite sure what is in the 
security (in part due to the ``to be determined'' nature of the 
security), will they not assume the worst, and thus pay less 
for the assets in order to protect themselves? And could this 
harm, and not help, market pricing to consumers taking out 
mortgages?

A.1. It is absolutely true that all futures contracts--
including the TBA market--typically trade at the ``cheapest to 
deliver'' price. If prepayment speeds differ between seller-
servicers or if the market questions the solvency of either 
Fannie Mae or Freddie Mac (if they were privatized and absent a 
resolution mechanism), the UMBS price would fall, all else 
being equal. I would refer you to SFIG's letter of November 30, 
2018, where we raised these very concerns with the FHFA, as 
well as FHFA's final rule in which they acknowledged such 
concerns and outlined what steps they are taking to reduce such 
instances of ``racing to the bottom'' and remediating them when 
they appear.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                         MICHAEL BRIGHT

Q.1. In its current form, do you think Ginnie Mae could play 
the role the Chairman's proposal envisions?

A.1. As I said on March 27th as well as during my confirmation 
hearing in 2018 for the role of Ginnie Mae President, it is 
important that Ginnie Mae have comparable pay authority so that 
it can compensate employees at similar levels to the FHFA and 
other regulators. This is true even if Ginnie is not tasked 
with a greater role, in my view. If legislation permitted a 
Ginnie full faith and credit wrap on conventional mortgages, 
Ginnie is certainly up to this task, but compensation becomes 
even more critical.

Q.2. Do you have any concerns on the proposed sale or transfer 
of the Common Securitization Platform (CSP) to Ginnie Mae? How 
would such a sale work best in your view?

A.2. I wouldn't say I have concerns, as much as I would say 
that more detail is needed. The CSP (more specifically, the 
entity ``CSS, LLC'') plays a very similar role for Fannie Mae 
and Freddie Mac as does BNY for Ginnie Mae. That is, they both 
perform bond administration, or the calculation of what 
principal and interest (``P&I'') is due each month and to 
whom--e.g., which investor of record--P&I should be paid. It is 
not clear to me that CSS, LLC as built is substantially better 
at performing this function than BNY is, but having the 
platform governed by Ginnie Mae is not a problem, in my view.

Q.3. Is Ginnie Mae's staff adequately trained and compensated 
to take on a large new market?

A.3. Ginnie Mae needs additional pay flexibility to retain the 
requisite talent. The Ginnie staff is very knowledgeable and 
mission focused and administering a full faith and credit wrap 
is a function for which Ginnie is uniquely qualified. But 
employee retention is a perpetual challenge due to pay 
disparity between Ginnie, the FHFA, the GSEs, and other 
regulators in Washington. (Ginnie Mae has quite a bit of 
internal data on this, and I am sure they would be willing to 
share it with you.)

Q.4. Do you support or oppose creating a single utility to take 
on the catastrophic risk? Please elaborate on your response.

   LIf you oppose a single utility model and prefer a 
        single guarantor platform or a multiple guarantor 
        platform, please
        explain what changes should be instituted to ensure 
        that community banks and credit unions are able to 
        access the secondary market easily?

   LHow will small institutions' business practices and 
        compliance costs change under a single utility vs. a 
        single guarantor vs. multiple guarantors?

A.4. I think it would make sense to have an entity like Ginnie 
Mae help to manage catastrophic risk. I do not think that this 
would in any way impact the business practices of small 
lenders, who would remain as seller-servicers to Fannie, 
Freddie, or an approved new entrant. The manager of 
catastrophic risk would be standing behind the enterprises 
taking on first loss and mezzanine credit risk as guarantors.
    Ahead of a catastrophic wrap I do not think that 
competition at the guarantor level is a problem for small 
lenders so long as g'fee for volume discounts are prohibited in 
law. Today this prohibition is a feature of conservatorship and 
is, at times, inadequately enforced.

Q.5. Do you support or oppose Fannie and Freddie selling their 
multifamily housing businesses?

A.5. The GSE multifamily market worked well in large part 
because it requires a great degree of first-loss credit 
enhancement before being backed by a GSE. It's not clear that 
major changes are needed, although separating them is not a 
problem, either.

Q.6. If the multifamily housing guarantee businesses were sold, 
who would buy them?

A.6. I am not sure what ownership structure the Chairman's 
outline envisions, but presumably they would be owned to some 
extent by new shareholders with a Government resolution fund 
and full faith and credit wrap on their securities.

Q.7. How would the new guarantee structure affect the 
multifamily housing market? Please be specific.

A.7. Likely the market would be unaffected, either for the good 
or the bad.

Q.8. What would you recommend Congress do to ensure that a 
housing finance law would provide more wealth-building 
sustainable home-ownership opportunities for Latinos, African 
Americans, Asian Pacific Americans, and Native Americans?

A.8. As I mentioned at the hearing, I think that if we are 
opening the secondary market to some additional competitive 
forces, it would make sense to have the FHFA designate areas as 
``underserved'' and allow/require new entrants to focus their 
attention on these areas. The secondary market currently works 
very well for many Americans, but not for all Americans. As 
demographics change in the coming decades, this will be an 
increasing problem. I do not think the current model will 
achieve the needed creativity to adapt to shifting 
demographics, nor do I think it adequately addresses 
underserved markets today.

Q.9. Do you think Chairman Crapo's housing finance reform 
proposal would shrink the home-ownership gap between white and 
minority households in this country? If not, what would?

A.9. A dedicated revenue stream to the capital magnet fund 
would be helpful, but I hope that as housing reform progresses 
this issue, which is very real, gets more attention.

Q.10. Are there any particular reforms that have stemmed from 
HERA and the creation of FHFA that you feel should be preserved 
or expanded as part of any housing finance reform?

A.10. Absolutely. Limitations on portfolios, limitations on 
lobbying, and a regulator that is stronger than OFHEO are 
largely features of conservatorship. The prohibition of g'fee 
for volume discounts is also a feature of conservatorship, but 
it could cease to exist if the GSEs were privatized absent 
legislation. LLPA grids are today subject to public scrutiny 
and debate. The QM patch would be very awkward if it continued 
to be outsourced to privatized entities; it should reside with 
a regulator or market self-regulatory organization (``SRO'').

Q.11. Do you have concerns with the Chairman's proposal? If so, 
please explain why and what amendment you would suggest to 
remedy these concerns.

A.11. Needed improvements include: a deeper focus on finding 
ways to successfully lend in underserved markets, a QM process 
governed by a regulator or SRO instead of a particular company, 
and improvements need to be made to Appendix Q. It's also not 
clear that market share caps are the right approach.

Q.12. Are there any proposed changes in the Chairman's proposal 
you think make our housing finance system better? Please define 
those.

A.12. An explicit guarantee that is transparent and paid for 
and administered by Ginnie Mae, a dedicated funding stream to 
the capital magnet fund, and allowing for new entrants are all 
positive ideas.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM ROBERT D. 
                           BROEKSMIT

Q.1. SFIG/MBA/USMI represents organizations that would be 
eligible to be guarantors under the Chairman's outline.

Q.1.a. Would any type of institution in the market today be 
well-suited to being a guarantor?

A.1.a. Yes, we believe many types of institutions could be 
well-suited to serving as guarantors in a reformed housing 
finance system. Entities that already understand mortgage 
credit risk, such as reinsurance companies, mortgage insurance 
companies, and other financial guarantors would be well-suited 
to be guarantors. The number and type of institutions 
interested in pursuing this option will be dictated by the 
exact contours of any reform efforts.
    It is important that institutions operating as lenders in 
the primary market (including any affiliates, subsidiaries, or 
parent companies of lenders) not be allowed to serve as 
guarantors in the secondary market. Such a scenario would blur 
the lines between the primary and secondary markets, 
potentially allowing institutions to use their presence in one 
market to gain a competitive advantage in the other market. Any 
new system should expressly maintain a distinction between the 
primary and secondary mortgage markets, with the new 
guarantors' allowable activities being limited to the secondary 
market. This would guard against systemic risk concentration 
and would facilitate competition. MBA therefore supports a 
strict prohibition on lenders serving as guarantors in a 
reformed housing finance system.

Q.1.b. Do you believe any of your members would be interested 
in becoming guarantors? What is it about the mortgage guarantee 
business that appeals or does not appeal to your members?

A.1.b. Yes, there is interest from certain of our members in 
becoming guarantors in a reformed housing finance system. There 
is broad demand for investment in mortgage credit risk, as is 
evidenced by the strength of the GSEs' credit risk transfer 
programs. The relative appeal of becoming a guarantor and the 
number of new guarantors will be determined by the details of 
any reform efforts. These details include, but are not limited 
to, market structure, regulatory oversight, capital 
requirements, and access to relevant data and technology.

Q.2. In response to a question from Senator Tester, you stated 
that the Chairman's outline would not lead to cherry-picking, 
but you also noted that guarantors would have to serve a broad 
national market, which is not required by the outline as 
currently written.

Q.2.a. Do you believe guarantors must be required to serve a 
national market to prevent cherry-picking?

A.2.a. Yes, it is critical that guarantors be required to serve 
a national market. Without such a requirement, there can be no 
assurance that all consumers in all parts of the country will 
be served by the conventional market. One of the primary 
purposes for the creation of what is now our established 
secondary market was to smooth credit pricing and availability 
across geographies. This objective should be remembered and 
maintained in any reformed housing finance system.

Q.2.b. What other structural features or requirements are 
necessary in a new system to prevent cherry-picking of risk and 
ensure that all borrowers are served?

A.2.b. Guarantors should have affirmative requirements to serve
a broad array of consumers through all parts of the credit 
cycle,
including those consumers in underserved market segments.
In addition to these requirements, FHFA should establish a 
tangible, achievable set of affordable-housing obligations for 
guarantors that benefit from Federal charters. These 
obligations could include establishing partnerships with 
community organizations that focus on sustainable home 
ownership, housing counseling, community development, and 
development of affordable rental housing, among others.

Q.3. During your testimony, you spoke about the need to make 
permanent improvements that were made to Fannie Mae and Freddie 
Mac during conservatorship.
    What improvements or gains do you believe must be made 
permanent as part of any reform effort?

A.3. Over a decade has passed since the GSEs were placed into 
Government conservatorship, in what was described by then-
Treasury Secretary Paulson as a ``time out.'' Despite the 
intent that conservatorship would serve as a temporary bridge 
to stabilize the GSEs, the conservatorship persists, and the 
GSEs' long-term status remains unresolved.
    During that time, FHFA began implementing some of the 
necessary reforms in its role as conservator of the GSEs. These 
reforms include efforts to prohibit volume-based discounts and 
credit variances only available to certain lenders, new 
mechanisms for credit risk transfer to the private sector, an 
improved infrastructure for the single-family secondary market, 
a substantial reduction in the retained mortgage portfolios, 
and support for continued liquidity in the multifamily rental 
housing market.
    These reforms, while critical, are not sufficient to fully 
address the problems that led to conservatorship. Instead, 
legislative reform is needed--both to bring about the remaining 
structural changes to the GSEs and to ``lock in'' the reforms 
instituted by FHFA through its authorities as conservator. 
Importantly, reform should also modify the FHFA's regulatory 
mission to focus on establishing a utility style of regulation 
that focuses on key principles such as:

   Lensuring a level playing field for all GSE 
        customers,

   Lmaintaining clear distinctions between primary and 
        secondary market activities,

   Llimiting the GSEs' retained portfolios, and

   Limplementing a utility-style regulatory framework 
        for guarantors.

Q.4.a. In your written testimony, you state that ``any capital 
framework under which the Enterprises operate while in 
conservatorship, as well as in a reformed system, should seek 
to produce comparable treatment of the multifamily executions 
of the Enterprises, including the treatment of CRT structures. 
A level playing field and diversification in available 
multifamily executions are vital for a competitive and stable 
market that serves rental households throughout the credit 
cycle.''
    Could you elaborate on this statement?

A.4.a. My testimony notes that, to fulfill their mission to 
increase the liquidity of mortgage investments and improve the 
distribution of investment capital available for multifamily 
mortgage financing, each of the GSEs' respective multifamily 
businesses has developed distinct multifamily executions.
    The existence of multiple executions in the secondary 
mortgage market for multifamily housing enhances the GSEs' 
ability to fulfill their statutory purposes, individually and 
collectively. For example, having two different multifamily 
executions increases liquidity by providing investment vehicles 
that attract different sources of mortgage capital. Also, 
because the different executions may perform differently under 
varying economic circumstances, the diversification effect of 
multiple executions helps bolster the systemic resilience of 
multifamily capital markets--helping to ensure that, 
collectively, the GSEs can provide liquidity throughout the 
credit cycle.
    As a result, a capital framework for the GSEs that produces 
comparable treatment of their differing multifamily executions, 
including the treatment of credit risk transfer structures, 
will be a necessary element of any reformed regulatory 
structure that fosters a level playing field and promotes the 
beneficial diversification of available multifamily executions.

Q.4.b. Do you have any concerns about how the FHFA's proposed 
capital rule treats the Enterprises' multifamily executions?

A.4.b. In light of the public policy benefits of having 
multiple GSE multifamily programs, particularly while the GSEs 
remain in conservatorship, a risk-based capital rule should not 
systematically favor one execution over another.
    The possibility of inconsistent risk-based capital 
treatment exists because of the manner in which the FHFA 
proposal takes credit risk transfers into account when 
calculating required capital levels, and more specifically, 
because the two GSEs employ different approaches to credit risk 
transfer. Specifically, the proposed rule would reduce the 
amount of capital required to be held against credit risk in 
recognition of the extent to which a GSE transfers multifamily 
mortgage credit risk to a third party by applying a four-step 
process: (1) distribute risk across tranches; (2) calculate 
capital relief (e.g., as a result of credit risk transfer) by 
tranche; (3) apply haircuts to reduce the level of capital 
relief for each tranche to account for counterparty credit 
risk, where applicable; and (4) calculate net capital relief 
for each tranche.
    The counterparty credit risk haircuts in Step 3 would be 
based on a combination of a counterparty rating and a 
concentration risk assessment. The resulting haircuts to the 
level of capital that would otherwise result from the credit 
risk transfer would apply to the uncollateralized portion of 
the relevant tranche, after also partially taking into account 
the impacts of GSE contractual control over the lender's 
guarantee fee revenue (e.g., the ability of a GSE to mitigate 
losses by taking control of servicing rights).
    Because Fannie Mae's Delegated Underwriting and Servicing 
(DUS) multifamily program involves counterparty credit risk and 
Freddie Mac's K-Deal multifamily program does not, Step 3 would 
apply only to Fannie Mae's DUS program. As a result, accurate 
and appropriate specifications in Step 3 will be critical to 
calibrating the proposed capital standard across the two GSEs 
as a matter of risk, and accurate calibration will be necessary 
to avoid systematically favoring one execution over another.
    Unfortunately, the methodology underlying Step 3 is not 
entirely clear. For example, the proposed rule does not 
describe in detail the analysis that would underlie the 
counterparty ratings, or the factual or analytical basis for 
the particular haircut values. As a result, there is not enough 
available information to fully analyze and provide feedback on 
this critical element of the proposal, which warrants 
additional information followed by additional opportunity for 
public input. See MBA's comment letter on the FHFA proposed 
capital rule for further details at https://www.fhfa.gov/
SupervisionRegulation/Rules/Pages/Comment-Detail.aspx?Com-
mentId=15307.

Q.4.c. How does diversification of the Enterprises' respective 
credit risk transfer mechanisms benefit the stability of the 
market?

A.4.c. As described in response to Item B above, the existence 
of two primary multifamily executions enhances the GSEs' 
ability to fulfill their statutory purposes, individually and 
collectively, in several ways. For example, having two 
different multifamily executions increases liquidity by 
providing investment vehicles that attract different sources of 
mortgage capital. Also, because the different executions may 
perform differently under varying economic circumstances, the 
diversification effect of multiple executions helps bolster the 
systemic resilience of multifamily capital markets. This 
diversification of capital sources and credit risk transfer 
structures enhances the resilience of liquidity across the 
credit cycle.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM ROBERT 
                          D. BROEKSMIT

Q.1. A fair housing finance system ensures broad affordability 
and access, including for those homeowners in high-cost States 
like New Jersey. Last time the Committee considered reform, 
there was discussion of lowering conforming loan limits. Isn't 
it critical that borrowers in high-cost States maintain fair 
access to affordable mortgage credit?

A.1. Absolutely. The housing finance system needs to reflect 
the vast differences in real estate markets across the country 
and in various types of communities. Borrowers should have fair 
access to affordable mortgage credit, regardless of where they 
live.

Q.2. Would you oppose or have concerns about a system in which 
borrowers in high-cost States faced pricing discrimination?

A.2. Guarantors should be required to serve all markets 
equitably. In a new housing finance model, guarantors must be 
able to appropriately price their guarantee fees based on the 
underlying risk of each loan. To prevent pricing 
discrimination, MBA believes that in any new housing finance 
system, a guarantors' rate of return should be regulated using 
a utility regulation framework, with posted and transparent 
guarantee fee pricing designed to produce a reasonable rate of 
return for investors. The expectation is that the guarantors 
will be low-volatility companies that would pay steady 
dividends over time, not growth companies that aggressively 
seek to expand market share or generate above-market returns.

Q.3. For households who do not have the resources for a 
substantial down payment, lower down-payment products are often 
the only option for otherwise creditworthy borrowers to obtain 
a mortgage. Should the housing finance system continue to 
support programs that provide access to creditworthy borrowers 
who can sustain monthly mortgage payments, but who may not have 
the wealth for a large down payment?

A.3. In many areas of the country, home prices have been rising 
faster than wages in recent years, which makes it all the more 
difficult for many consumers to make substantial down payments. 
Any reformed system should combine the ability for borrowers to 
make down payments below 20 percent with the presence of 
reliable private credit enhancement, such as mortgage 
insurance, on these loans to protect taxpayers.
    MBA supports the continued availability of low-down-payment 
products that can be sold in the conventional secondary market. 
It is also important that loans include proper documentation of 
borrower assets, income, and debts to ensure that they are 
sustainable over the long term.
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR MORAN FROM ROBERT D. 
                           BROEKSMIT

Q.1. In a highly liquid, very efficient market, investors and 
traders are sensitive to any small change in information or 
performance. They are also highly sensitive to less-than-
perfect transparency and information. In the past they knew 
exactly what they were bidding on: either Fannie mortgages or 
Freddie mortgages.
    If the Common Securitization Platform commences, and 
investors and traders are not quite sure what is in the 
security (in part due to the ``to be determined'' nature of the 
security), will they not assume the worst, and thus pay less 
for the assets in order to protect themselves? And could this 
harm, and not help, market pricing to consumers taking out 
mortgages?

A.1. While these are noteworthy concerns that need to be 
addressed, the development of the Common Securitization 
Platform (CSP) and the Uniform Mortgage-Backed Security (UMBS) 
should improve the overall liquidity of the conventional 
secondary market and potentially facilitate increased 
competition in the future.
    It is important to remember that Freddie Mac has been using 
the CSP for issuance, settlement, and bond administration on 
certain securities since November 2016 without any disruptions 
to the market. In the To-Be-Announced (TBA) market as it 
already exists, investors do not know the exact mortgages (or 
even the exact
details of the mortgage pools) underlying the securities they 
are receiving until shortly before delivery. This dynamic is 
already reflected in the ``cheapest-to-deliver'' construct that 
characterizes the market today.
    Investors should realize the benefits of merging two 
already-
liquid markets into a market with even greater liquidity. This
improved liquidity should result in greater demand for these 
securities and, ultimately, lower average mortgage interest 
rates for consumers.
    FHFA and the GSEs have conducted extensive work to better 
align cash-flows across securities issued by Fannie Mae and 
Freddie Mac, including through the recent finalization of a 
rule to implement the UMBS. It is critical that FHFA continue 
to closely monitor these cash-flows and take action, as needed, 
to better align cash-flows if divergences occur.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                      ROBERT D. BROEKSMIT

Q.1. In its current form, do you think Ginnie Mae could play 
the role the Chairman's proposal envisions?

A.1. If the responsibility for guaranteeing securities in the 
conventional market is placed on Ginnie Mae, any legislative 
efforts should also ensure that sufficient resources are 
provided to Ginnie Mae so that it can adequately perform these 
duties. Chairman Crapo's housing reform outline proposes that 
the explicit guaranty be provided and managed by Ginnie Mae. 
This structure is viable, as Ginnie Mae is designed to perform 
this function and has a proven history of ensuring payments on 
Government-guaranteed securities. Ginnie Mae's responsibilities 
in the new system must be carefully defined in order for the 
system to flourish, including determining whether Ginnie Mae 
has the capacity and independence to operate as envisioned.

Q.2. Do you have any concerns on the proposed sale or transfer 
of the Common Securitization Platform (CSP) to Ginnie Mae? How 
would such a sale work best in your view?

A.2. The outline directs Ginnie Mae to operate the 
securitization platform for Government-guaranteed securities, 
which may entail use of the Common Securitization Platform 
(CSP). Over the past few years, as FHFA and the GSEs sought to 
improve the infrastructure of the conventional market, they 
developed the CSP as a modern, scalable platform rather than 
rebuilding the GSEs' antiquated back office securitization 
systems. Freddie Mac is already issuing securities via the CSP, 
and both GSEs will soon be using it to issue Uniform Mortgage-
Backed Securities.
    By contrast, moving the conventional market to the Ginnie 
Mae infrastructure would require an entirely new build, as 
Ginnie Mae's systems are not designed for this purpose, either 
in terms of scale or the structure of the securities. Ginnie 
Mae also currently outsources a significant portion of its 
securitization functions, further calling into question whether 
it maintains the capacity to support the conventional market. A 
reformed housing finance system should therefore leverage this 
considerable investment by requiring the use of the CSP as the 
platform for issuance of conventional securities. Given that 
FHFA has been far more deeply involved in the development of 
the CSP, it is more appropriate that FHFA oversee and regulate 
the operations of the CSP.

Q.3. Is Ginnie Mae's staff adequately trained and compensated 
to take on a large new market?

A.3. As stated above, defining Ginnie Mae's responsibilities in 
the new system is essential to determining how the system will 
perform and whether Ginnie Mae has the capacity and 
independence to operate as envisioned. Ginnie Mae's staff are 
experts in the agency's core activities surrounding its 
guarantee of timely payment on securities backed by Government-
insured loans. In recent years, Ginnie Mae's staff has been 
balancing the need to execute the functions necessary for a 
growing program with ongoing efforts to recalibrate business 
operations and address aging technological systems. Given the 
proper funding, staffing levels and technology, Ginnie Mae 
staff could successfully take on certain new responsibilities, 
such as the catastrophic guarantee functions of a large new 
market.

Q.4. Do you support or oppose creating a single utility to take 
on the catastrophic risk? Please elaborate on your response.

A.4. MBA supports the concept envisioned in the outline of a 
multi-guarantor market that features well-regulated, privately 
owned institutions aggregating loans in a fair, transparent 
manner and issuing securities with a full-faith-and-credit 
Federal guaranty that stands behind substantial private 
capital. These guarantors would be regulated under a ``utility-
style'' framework that prevents excessive risk-taking while 
promoting competition along dimensions such as product 
offerings, technology, and customer service. This competition 
should benefit borrowers, lenders, investors, and taxpayers.
    While the guarantors would be responsible for guaranteeing 
the credit risk of the mortgage securities they issue, the 
losses from a catastrophic stress event would be covered by the 
explicit guaranty on the mortgage securities. Ideally, an 
insurance fund similar to the Deposit Insurance Fund would be 
developed as an additional buffer standing ahead of taxpayers. 
MBA believes that a Federal, full-faith-and-credit guaranty 
would best protect the housing market, investors, and the 
economy from catastrophic risk. This guaranty could be 
administered by a single entity such as Ginnie Mae, as is 
envisioned in the Chairman's outline.

Q.5. If you oppose a single utility model and prefer a single 
guarantor platform or a multiple guarantor platform, please 
explain what changes should be instituted to ensure that 
community banks and credit unions are able to access the 
secondary market easily?

A.5. When considering future models of the secondary market, it 
is important to distinguish between the number of guarantors 
and the manner in which they are regulated. MBA supports a 
multi-guarantor model rather than a single-guarantor model. MBA 
also support ``utility-style'' regulation of the guarantors to 
ensure they are not engaging in excessive risk-taking or other 
behavior that would be detrimental to the primary market, 
investors, or taxpayers.
    In any housing finance system, MBA believes that consumers 
benefit from a large and diverse base of lenders. Smaller 
lenders, including community banks, credit unions, and 
independent mortgage banks, which make up a majority of MBA 
lender membership, play a key role in strengthening the system 
for consumers by focusing on discrete markets and leveraging 
unique knowledge of local consumer needs. Recent post-crisis 
research shows that highly concentrated mortgage markets 
through the 2000s reduced the sensitivity of mortgage rates to 
movements in the secondary market, and that more competitive 
local markets tended to narrow primary-secondary market rate 
spreads and deliver lower rates to consumers.
    To that end, MBA supports several key principles featured 
in Chairman Crapo's housing reform outline: 1) Ensure 
equitable, transparent and direct access to secondary market 
programs; 2) Prohibit g-fee pricing based on loan volume or 
asset size of single-family lenders; 3) Preserve cash window 
and small pool execution options for smaller lenders; 4) 
Maintain a strict distinction between the primary and secondary 
markets to ensure that guarantors do not compete with lenders; 
and 5) Prevent vertical integration by prohibiting lenders from 
owning or controlling guarantors.

Q.6. How will small institutions' business practices and 
compliance costs change under a single utility vs. a single 
guarantor vs. multiple guarantors?

A.6. Again, the number of guarantors and the manner in which 
they are regulated are different elements of any housing 
finance system. Guarantors should be regulated in a manner akin 
to utilities, which would better ensure that they are serving 
the public purposes for which they were created. A multi-
guarantor model would facilitate greater competition, which 
should lead to guarantors actively competing for the business 
of all types of lenders, including small lenders.
    Small lenders should be allowed the opportunity to access 
the secondary market on a level playing field with their larger 
competitors. To do so, guarantors should be required to offer a 
cash window execution, by which lenders can sell them 
individual loans. This execution should not be disadvantaged, 
either through pricing or operational capacity, relative to 
other types of executions.
    In addition, FHFA has worked with the GSEs in recent years 
under the conservatorship to align many of the GSEs' standards 
and requirements, including servicing standards and bond 
administration standards through the CSP and the UMBS. Under a 
utility style regulatory system, alignment on these kinds of 
operational issues should continue in order to reduce 
unnecessary friction and costs for small lenders.
    Because the guarantors would serve as conduits to the 
secondary market, much as they do today, the business practices 
of small lenders (and also larger lenders) should not be 
materially affected under a reformed housing finance system.

Q.7. Do you support or oppose Fannie Mae and Freddie Mac 
selling their multifamily housing businesses?

A.7. The outline suggests that the multifamily businesses of 
the GSEs will be sold and operated as independent guarantors. 
Rather than imposing such a mandate, in order to promote 
competition and diversity across guarantors, MBA recommends 
that all guarantors, including any successors to the GSEs, be 
allowed to operate solely in the single-family market, solely 
in the multifamily market, or in both markets. This flexibility 
should lower barriers to entry, creating more opportunities for 
competition that, in turn, would lead to a more dynamic 
environment, benefiting borrowers, renters, and lenders.

Q.8. If the multifamily housing guarantee businesses were sold, 
who would buy them?

A.8. It is unclear whether Chairman Crapo's outline envisions 
the GSEs selling their multifamily businesses or simply 
creating an independent multifamily guarantor. The details of 
the reformed housing finance system would dictate any interest 
from investors in purchasing these businesses.

Q.9. How would the new guarantee structure affect the 
multifamily housing market? Please be specific.

A.9. Multifamily housing is a critical part of the U.S. housing 
market and is vital to our communities. Capital sources that 
finance the multifamily housing market include Fannie Mae and 
Freddie Mac, life insurance companies, commercial banks, 
commercial mortgage-backed securities (CMBS) issuers, real 
estate investment trusts (REITs), pension funds, FHA and 
others. While all sources play an integral role in supporting 
the multifamily market, each has its own focus, strength, and 
limitations.
    Our Nation's multifamily housing finance system should rely 
on private capital, and it should be a primary source of 
financing for multifamily rental housing. A broad range of 
lending institutions should compete in the multifamily finance 
market and Government policies should maintain this reliance on 
private capital.
    Past experience shows that the Federal Government is the 
only entity that can ensure the availability of liquidity in 
all parts of the credit cycle. MBA recommends that any 
legislation clearly provide that eligible securities backed by 
multifamily loans be subject to an explicit Federal Government 
guaranty. In any new structure, the benefits conferred by such 
a guaranty in terms of investor demand will sustain liquidity 
and stability in the multifamily market.
    Policymakers should protect taxpayers and the mortgage 
finance system through a strong regulatory framework and 
multiple layers of private capital, including the equity in the 
multifamily property itself and the entity-level capital of the 
security-issuing institution and any risk sharing it may 
undertake. Only when all layers of capital are exhausted would 
the U.S. Treasury provide a catastrophic backstop.

Q.10. What would you recommend Congress do to ensure that a 
housing finance law would provide more wealth-building 
sustainable home-ownership opportunities for Latinos, African 
Americans, Asian Pacific Americans, and Native Americans?

A.10. In order to promote wealth building through home 
ownership, the housing finance system should ensure that loans 
are made in a sustainable manner. As such, the underwriting 
guidelines and credit standards of the guarantors in the 
secondary market should reflect this principle. The market 
regulator should use an approach that prevents deterioration of 
underwriting or credit standards, which would ultimately harm 
borrowers.
    More robust competition in the secondary market would 
benefit borrowers and lead to wealth-building opportunities, as 
well. Guarantors should compete on factors such as product 
offerings, technology, and customer service. These are the 
areas in which
competition leads to innovation and/or better execution, which 
then produces more efficient markets, lowers costs, and 
provides
sustainable home-ownership opportunities for a greater number 
of borrowers.
    Finally, borrowers should be able to access mortgage credit 
in all parts of the country, through all parts of the credit 
cycle. To better ensure this outcome, guarantors should be 
well-capitalized and well-managed, such that they are able to 
play a stable role in the market consistently.

Q.11. Do you think Chairman Crapo's housing finance reform 
proposal would shrink the home-ownership gap between white and 
minority households in this country? If not, what would?

A.11. Access and affordability should serve as a key foundation 
for any reforms to the housing finance system. We believe that 
comprehensive reform, as envisioned in Chairman Crapo's 
proposal, should include an improved national affordable-
housing strategy that meets the needs of the full continuum of 
households. This strategy should focus on three goals: 1) 
expanding access to affordable mortgage credit; 2) preserving 
and developing affordable rental housing; and 3) improving 
liquidity for underserved segments of the mortgage market.
    We also believe that there are many other potential 
improvements that can be made in a new housing finance system 
that would responsibly increase access to affordable housing. 
These include updating credit-scoring models to leverage 
changes in technology, data, and analytics, as well as updating 
documentation and derivation of income requirements to better 
capture self-employed or nontraditional household income.
    More broadly, housing finance reform efforts should seek to 
address the concentration of intergenerational wealth that is 
attributable to many factors, including historical Government 
policies. As household income increases at a rate that is 
slower than the
increase in home values, the home-ownership gap will only grow. 
Responsible policies that make first-time home-ownership more 
affordable, such as tax credits or HUD-approved down-payment
assistance, as well as increased flexibility in local land use 
policies to expand affordable rental housing, can all 
contribute to closing that stubbornly persistent gap.

Q.12. Are there any particular reforms that have stemmed from 
HERA and the creation of FHFA that you feel should be preserved 
or expanded as part of any housing finance reform?

A.12. One of the contributing factors to the near-collapse of 
the GSEs in 2008 was the weak regulatory and supervisory 
framework under which they operated prior to the crisis, and 
HERA and the creation of FHFA was a direct response to that 
crisis. Any comprehensive reforms to the housing finance system 
must include mechanisms to provide stronger oversight 
authorities for the secondary market regulator.
    MBA believes that an appropriate regulatory and supervisory 
framework for secondary market guarantors would be akin to a 
utility-style framework, in which guarantors operate as low-
volatility companies with regulated rates of return that pay 
steady dividends over the long term. Private ownership would 
better encourage ongoing investment to keep pace with market 
demands and technological developments, but the regulator must 
have the authority to ensure the companies do not engage in 
excessive risk taking.
    The outline provides a number of measures by which such a 
regulatory framework would more effectively be realized. FHFA 
would be granted authority to charter, regulate, and supervise 
guarantors, as well as to develop and enforce the prudential 
standards to which guarantors are subject. These standards 
include requirements pertaining to risk-based and minimum 
leverage capital, liquidity, credit risk transfer structures, 
stress testing, and resolution planning.

Q.13. Do you have concerns with the Chairman's proposal? If so, 
please explain why and what amendment you would suggest to 
remedy these concerns.

A.13. Chairman Crapo's housing reform outline represents a firm 
foundation from which to build consensus and legislative text. 
As the Committee begins to move from an outline to legislation, 
many details and policy choices will affect the feasibility of 
the proposed reforms. MBA stands ready to provide assistance 
and support to resolve any issues, questions, or concerns as 
they arise during this process. We feel confident, however, 
that any challenges will not be insurmountable to producing a 
bipartisan legislative reform package.

Q.14. Are there any proposed changes in the Chairman's proposal 
you think make our housing finance system better? Please define 
those.

A.14. Numerous ideas, proposals, and bills have been put 
forward on housing finance reform, and in recent years there 
has been significant convergence toward a future housing 
finance system featuring well-underwritten loans securitized in 
the secondary market with ample private capital provided by 
tightly regulated entities standing ahead of an explicit, full-
faith-and-credit Federal Government guaranty. The Chairman's 
outline supports such a structure.
    MBA has considered and analyzed the critical elements of 
housing finance reform for many years. In particular, much of 
this work was undertaken by our Task Force for a Future 
Secondary Mortgage Market. The Task Force, composed of members 
covering a broad cross-section of the real estate finance 
industry, developed a comprehensive set of recommendations for 
an improved secondary market.
    Chairman Crapo's housing reform outline shares many of the 
core principles identified by the MBA Task Force, such as the 
need to:

   LPreserve the 30-year, fixed-rate, prepayable 
        single-family mortgage, as well as long-term financing 
        for multifamily mortgages;

   LMaintain a deep, liquid to-be-announced (TBA) 
        market for securities backed by conventional single-
        family loans;

   LAttract global capital and preserve liquidity 
        during times of economic stress through an explicit 
        Government guaranty for eligible mortgage-backed 
        securities collateralized by single-family and 
        multifamily mortgages;

   LLimit the explicit Government guaranty to the 
        eligible mortgage-backed securities, while prohibiting 
        the extension of the guaranty to institutional debt;

   LRequire an effective national affordable-housing 
        strategy that helps meet the needs of low-income and 
        underserved households and communities;

   LSupport a competitive and diverse primary market 
        for lenders of all sizes and business models;

   LEnable a robust, innovative, and purely private 
        mortgage market to exist alongside the Government-
        backed market;

   LPreserve existing multifamily financing executions 
        and permit new options;

   LEstablish a strong, transparent regulatory 
        framework that promotes liquidity while protecting the 
        taxpayers;

   LEnsure that private capital assumes significant 
        amounts of the credit risk;

   LEnsure liquidity in the event of a full-blown 
        systemic crisis; and

   LMinimize risks to the liquidity and stability of 
        the mortgage markets during the transition.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM LINDSEY D. 
                            JOHNSON

Q.1. SFIG/MBA/USMI represents organizations that would be 
eligible to be guarantors under the Chairman's outline.

Q.1.a. Would any type of institution in the market today be 
well-suited to being a guarantor?

A.1.a. To best promote stability and ensure that the 
Government's exposure to mortgage credit risk is remote, 
entities that guaranty or insure mortgages should have the 
expertise and capital/operational capacity to actively manage 
long-tail credit risk. USMI firmly believes that it is 
essential for credit protection to be loan level and provided 
at the time of origination by entities available through all 
economic cycles. Further, the Federal Housing Finance Agency 
(FHFA) should set comparable standards for market participants 
(including all guarantors) using a transparent Administrative 
Procedure Act (APA)\1\ process. Further, entities assuming 
mortgage credit risk must be able to onboard and manage that 
risk during all market cycles, not only when yields are high 
and credit quality is pristine. To best protect taxpayers from 
mortgage credit risk and to facilitate access to affordable 
mortgage finance, guarantors should not be entering and exiting 
the housing finance system based on yield and appetite. For 
example, private mortgage insurance (MI) is required to be a 
monoline form of insurance because, unlike other forms of 
capital markets executions and reinsurance, policymakers wanted 
to ensure a dedicated form of credit enhancement would be 
available across all housing market cycles.
---------------------------------------------------------------------------
    \1\ 5 USC  553.
---------------------------------------------------------------------------
    Private MI is a time-tested and sophisticated form of 
private capital exclusively dedicated to the housing finance 
system that has provided taxpayer protection and facilitated 
borrower access to low-down-payment mortgage credit for more 
than 60 years through all market cycles. USMI members have 
decades of experience independently underwriting, insuring, and 
dispersing mortgage credit risk to the global reinsurance and 
capital markets. MI reduces taxpayer exposure by transferring, 
at origination, a substantial portion of mortgage credit risk 
to MI companies backed by private capital.

Q.1.b. Do you believe any of your members would be interested 
in becoming guarantors?

A.1.b. Yes. USMI members could be guarantors in a future 
reformed system. Private MIs are uniquely situated and possess 
the institutional knowledge to actively manage--including 
underwriting and/or reviewing, holding appropriate capital 
against, and distributing single-family mortgage credit risk to 
other credit risk takers such as reinsurers and capital 
markets. Contrary to the idea that credit risk transfer (CRT) 
began in 2013 with the GSEs, private MIs have decades of 
experience managing their risk exposures by dispersing mortgage 
credit risk to the global markets. MIs participate in 
reinsurance contracts in the normal course of business to 
disperse risk and manage capital efficiency and, in recent 
years, MIs have used credit-linked notes to further lay off 
credit risk to other private market participants. In fact, 
since 2013, USMI members have transferred to the global 
reinsurance and capital markets $34 billion of risk, covering 
$160 of primary risk written.
    As previously stated, USMI members firmly believe that it 
is essential that credit protection be loan level and provided 
at the time of origination by entities available through all 
economic cycles. USMI also believes that a reformed system 
should address conflicts of interest and establish a level 
playing field. The best way to accomplish those goals and 
ensure that the broadest swath of home ready borrowers is 
served by a reformed system is to expressly limit guarantors' 
activities to secondary market functions and prohibit them from 
engaging in other lines of business.\2\ In this regard, USMI 
believes the separation of issuer and credit enhancer roles is 
a critical first step that should be applied to the GSEs post-
conservatorship. While the Outline does prohibit ``insured 
depositories'' from becoming guarantors it does not prohibit 
the guarantors from originating or servicing loans. Further, 
the Outline leaves open the possibility of a guarantor, 
including the GSEs, being the issuer for the mortgages it 
purchases through the cash window, which should also be 
addressed in a reformed system.
---------------------------------------------------------------------------
    \2\ Private mortgage insurers are monoline entities that are only 
permitted to insure mortgage credit risk, meaning that MIs are sources 
of private financial and human capital dedicated exclusively to 
residential mortgage markets and available across market cycles.
---------------------------------------------------------------------------
    In order to truly enable fair competition among guarantors 
and encourage new entrants, the GSEs' numerous Government-
conferred advantages, including lower borrowing rates, 
thousands of existing lender relationships, intellectual 
capital, historical loan performance data, and proprietary 
technologies (much of which was developed during 
conservatorship), would need to be addressed and made 
transparent and available to the private market. All of these 
represent significant barriers to entry for new guarantors. To
reduce the GSEs' duopolistic market dominance and clear the way 
for fair competition, many stakeholders, including trade 
associations, consumer organizations, and think tanks, have 
proposed a utility-like concept whereby the GSEs would have 
transparent pricing, capital requirements, open-access 
underwriting engines, and industry access to historical data.

Q.1.c. What is it about the mortgage guarantee business that 
appeals or does not appeal to your members?

A.1.c. Private mortgage insurers are designed and solely 
dedicated to facilitating sustainable low-down-payment mortgage 
finance to home-ready borrowers while also protecting lenders, 
the GSEs, and taxpayers against mortgage credit risk. Private 
MI is required to be a monoline form of insurance because, 
unlike other forms of capital markets executions and 
reinsurance, policymakers wanted to ensure a dedicated form of 
credit enhancement would be available across all housing market 
cycles. MI is a source of permanent private capital--capital 
provided through all market cycles--that does not rely on 
Government backing. Throughout our 60-year history, including 
through the Great Recession, the private MI industry never 
stopped paying claims, never stopped writing new insurance, and 
never received a ``too big to fail'' Federal bailout. In fact, 
the MI industry has covered more than $50 billion in claims 
since Fannie Mae and Freddie Mac, the GSEs, entered 
conservatorship in 2008.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM LINDSEY 
                           D. JOHNSON

Q.1. For households who do not have the resources for a 
substantial down payment, lower down-payment products are often 
the only option for otherwise creditworthy borrowers to obtain 
a mortgage. Should the housing finance system continue to 
support programs that provide access to creditworthy borrowers 
who can sustain monthly mortgage payments, but who may not have 
the wealth for a large down payment?

A.1. It is critical that borrowers continue to have access to 
low-down-payment mortgage products. This is especially true for 
first-time home buyers, 80 percent of whom relied on low-down-
payment mortgages to purchase their homes in 2018.\1\ Consumers 
routinely cite down payment as one of the chief barriers to 
home ownership and Americans' capacity to save for a 20 percent 
down payment is hindered by rising rents, high home price 
appreciation, and student debt.
---------------------------------------------------------------------------
    \1\ Genworth Mortgage Insurance, First-Time Home Buyer Market 
Report--4Q2018 (February 28, 2019).
---------------------------------------------------------------------------
    Furthermore, the demographic landscape of U.S. home 
ownership is forecasted to look significantly different than in 
past decades, with the share of minority households projected 
to increase from 30 percent in 2010 to 38 percent by 2030 \2\ 
and account for approximately 80 percent of household formation 
for 2015-2035.\3\ Minority families tend to overwhelmingly rely 
on low-down-payment mortgage options to secure mortgage 
financing due to limited assets and savings for a large down 
payment. USMI strongly supports policies, both legislative and 
administrative, that support prudently underwritten low-down-
payment mortgages and promote sustainable home ownership.
---------------------------------------------------------------------------
    \2\ Urban Institute, ``Can the mortgage market handle the surge in 
minority home ownership?'' (July 1, 2015).
    \3\ Harvard Joint Center for Housing Studies, Updated Household 
Projections, 2015-2035: Methodology and Results (December 12, 2016).
---------------------------------------------------------------------------
    Conventional mortgages with private MI are one low-down-
payment mortgage product that, for over 60 years, have enabled 
families to purchase their homes with less than 20 percent down 
payments.
    MI has helped millions of Americans become homeowners 
sooner in both a prudent and affordable way by assuming a 
portion of the credit risk on their loans. According to 
research from USMI, it could take approximately 26 years for 
the average firefighter or nearly 22 years for the average 
middle school teacher to save for a 20 percent down payment 
plus closing costs.\4\ Research by the National Association of 
REALTORS' suggests that Americans continuously cite 
saving for a down payment as one of the biggest hurdles for 
attaining home ownership and first-time home buyers on average 
have a down payment of 7 percent.\5\
---------------------------------------------------------------------------
    \4\ U.S. Mortgage Insurers, Private Mortgage Insurance: A State-by-
State Report (June 2019).
    \5\ National Association of REALTORS', 2018 Profile of 
Home Buyers and Sellers (October 29, 2018).
---------------------------------------------------------------------------
    Private MI is a reliable and prudent option to enable many 
of these low-down-payment borrowers achieve home ownership 
sooner. In the past year alone, our industry has helped more 
than one million families purchase or refinance their mortgage 
with less than a 20 percent down payment.\6\ Nearly 60 percent 
of purchase borrowers who had private MI were first-time home 
buyers \7\ and MI is focused on low- to moderate-income 
borrowers with more than 40 percent of borrowers with MI having 
incomes below $75,000 per year.\8\
---------------------------------------------------------------------------
    \6\ GSE Aggregate Data.
    \7\ GSE Aggregate Data.
    \8\ USMI member data.

Q.2. A key focus of the housing finance reform discussion 
should be expanding access to home ownership among underserved 
communities. One responsible method to increase home ownership 
would be to expand access to pre-purchase housing counseling. 
Should pre-purchasing counseling be used as a risk reducing 
---------------------------------------------------------------------------
tool for low down-payment loans?

A.2. Purchasing a home is one of the biggest decisions and 
investments for most Americans. Obtaining mortgage financing is 
also a complex transaction and consumers can benefit from 
housing counseling and home-ownership education programs. While 
MI is a business-to-business industry, all USMI members provide 
educational resources including access to HUD-approved housing 
counselors for pre-purchase counseling options for consumers. 
Links to all of these services can be found at; Essent 
Guaranty, Genworth Mortgage Insurance, MGIC, NMI, and Radian.

Q.3. Pre-purchase counseling reduces risk of default, helps 
underserved communities access home ownership, and promotes 
self-sufficiency by teaching families how to take charge of 
their finances. How can we ensure that the future housing 
finance system fully
integrates housing counseling as part of any effort to expand 
sustainable home ownership, especially through low-down-payment 
mortgages?

A.3. USMI believes pre-purchase counseling can be effective for 
many first-time home buyers. As previously mentioned, while MI 
is a business-to-business industry, all USMI members provide 
educational resources including access to HUD-approved housing 
counselors for pre-purchase counseling options for consumers. 
Links to all of these services can be found at; Essent 
Guaranty, Genworth Mortgage Insurance, MGIC, NMI, and Radian. 
Further, for programs that aim to expand access to borrowers, 
counseling is even more important. For example, as the GSEs 
have looked to expand access to credit through their HomeReady 
(Fannie Mae) and Home Possible (Freddie Mac) programs, both of 
these programs require the borrower to complete financial 
literacy education. Efforts like those of MI--and any future 
guarantors should be maintained.
    Further, it is also essential that counseling programs 
exist for those homeowners who run into trouble paying their 
mortgage--so that these borrowers understand their options. One 
of the benefits of private MI as loan-level credit enhancement 
is that MIs can more easily work with lenders, the GSEs and the 
end investor, and MIs have strong business incentives to help 
borrowers achieve a workout to stay in their home when 
possible.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                       LINDSEY D. JOHNSON

Q.1. In its current form, do you think Ginnie Mae could play 
the role the Chairman's proposal envisions?

A.1. USMI commends the Outline's approach to use the Ginnie Mae 
platform and believes that Ginnie Mae could play an important, 
and even larger, role in a future system. As stated in USMI's 
testimony, the Chairman's Outline promotes stability within the 
marketplace by incorporating parts of the mortgage finance 
system that exist and work well--notably by using the existing 
infrastructure of Ginnie Mae, preserving the requirement for 
loan-level credit enhancement, and ensuring market access to 
tools and systems that support a large and liquid secondary 
market for housing. Further, it is possible that the Ginnie Mae 
wrap (guaranty by Ginnie Mae) could also instill stability and 
help ensure liquid and stable markets.
    In addition, Ginnie Mae has long recognized through their 
existing Government insurance programs--Federal Housing 
Administration (FHA), Veterans Affairs (VA), and Rural Housing 
Services (RHS)--that loan-level credit enhancement is needed to 
actively manage credit risk. After this loan-level protection 
is provided by FHA, VA, or RHS, then Ginnie Mae serves to 
guaranty the securities. Loan-level insurance reduces losses at 
the individual borrower level, affords lenders the flexibility 
for secondary market execution, provides borrowers with easier 
access to workouts/modifications, and ensures quality in loan 
manufacturing. A reformed system could modify Ginnie Mae's 
current operating model by substituting private capital/
entities for the FHA, VA, or RHS as the primary insurers for 
conventional mortgages.

Q.2. Do you have any concerns on the proposed sale or transfer 
of the Common Securitization Platform (CSP) to Ginnie Mae? How 
would such a sale work best in your view?

A.2. If playing a larger role in a future system, Ginnie Mae 
would need additional resources--including staff and tools--to 
accommodate supporting the conventional market in addition to 
the Government-insured market. However, with these resources 
Ginnie Mae can provide a seamless transition to a reformed 
system due to its globally recognized brand and a scalable 
platform.

Q.3. Is Ginnie Mae's staff adequately trained and compensated 
to take on a large new market?

A.3. In order to attract and retain personnel that would be 
tasked with operating and overseeing a significantly larger 
market, Ginnie Mae would need the ability to increase its 
compensation capabilities. For 2018, the median total 
compensation at Fannie Mae and Freddie Mac were approximately 
$148,000 and $140,000, respectively.\1\ Further, five named 
executives at Fannie Mae and four named executive officers at 
Freddie Mac each made more than $1.75 million in 2018 (all four 
at Freddie Mac made over $3 million).\2\ Ginnie Mae employees, 
however, are compensated at lower levels and for fiscal year 
2017, the average salary was approximately $128,000.\3\ Even 
within the Government, Ginnie Mae's average compensation is 
markedly lower than other financial Federal agencies, including 
the Securities and Exchange Commission ($186,000), FHFA 
($174,000), and Commodity Futures Trading Commission 
($163,000).\4\ The current pay disparity between Ginnie Mae and 
the GSEs and other Federal agencies puts Ginnie Mae at a 
significant disadvantage for attracting and retaining the best 
talent.
---------------------------------------------------------------------------
    \1\ Fannie Mae and Freddie Mac 2018 10-K Filings.
    \2\ Fannie Mae and Freddie Mac 2018 10-K Filings
    \3\ https://www.federalpay.org/employees/government-national-
mortgage-association.
    \4\ https://www.federalpay.org/employees/agencies/2017.

Q.4. Do you support or oppose creating a single utility to take 
---------------------------------------------------------------------------
on the catastrophic risk? Please elaborate on your response.

A.4. USMI supports a utility for purposes of providing the 
platform, infrastructure, standardization, and data collection 
for conventional secondary mortgage market execution. USMI 
believes that highly regulated entities backed by private 
capital could assume all expected mortgage credit risk ahead of 
any governmental exposure. The utility--whether it is the GSEs 
or Ginnie Mae can provide the explicit guaranty, covering all 
unexpected losses.
    Given that recent proposals in both the Senate and House 
envision some role for the GSEs going forward, USMI offers two 
observations. First, the GSEs have clearly been Government 
instrumentalities since their inception, having been chartered 
by Congress in 1938 and 1968. Over the years, the GSEs have 
developed additional public policy objectives and functions. 
Second, during their more than 10 years in conservatorship, the 
GSEs have made significant investments in proprietary systems 
and technologies that have made the mortgage finance system 
even more reliant on the GSEs. As more proposals envision the 
GSEs existing in a future state, a utility construct has 
emerged as a reform option.
    Several recent legislative proposals \5\ envision a role 
for the GSEs in a future housing system that supports an 
explicit Government guaranty at the security level, calls for 
the GSEs to ensure access for smaller lenders, and includes 
affordable-housing requirements. These proposals signify that 
Congress feels there are critical functions at the GSEs and 
deem these functions/features necessary in a future housing 
finance system--either within the GSEs or placed in a separate 
utility of public exchange such as the CSP or within Ginnie 
Mae.
---------------------------------------------------------------------------
    \5\ ``Bipartisan Housing Finance Reform Act of 2018'' discussion 
draft (Hensarling-Delaney-Himes) and Chairman Crapo's Housing Reform 
Outline.
---------------------------------------------------------------------------
    Further, Congress benefits from the multitude of proposals 
from both progressive and conservative organizations on housing 
finance reform. And, while different reform proposals may call 
it different things and rely specifically on different 
infrastructures to achieve it, many of the leading legislative 
and administrative proposals for GSE reform have leaned on some 
utility-like secondary mortgage market function to reduce the 
GSEs' current duopoly and market power in the mortgage finance 
system. One approach--and as a means to help transition to a 
comprehensively reformed system--is to turn the GSEs into 
highly regulated utility-like entities, with transparent 
capital and pricing, explicit and limited functions in the 
secondary market, and open-access and transparent underwriting 
engines and systems. These steps could be taken by incremental 
legislation or by administrative actions.

Q.5. If you oppose a single utility model and prefer a single 
guarantor platform or a multiple guarantor platform, please 
explain what changes should be instituted to ensure that 
community banks and credit unions are able to access the 
secondary market easily?

A.5. USMI does not oppose a highly regulated open-access 
utility-like construct for the GSEs (or Ginnie Mae).
    While a multiple guarantor construct can work for a future 
housing finance system, there are significant challenges that 
would need to be addressed. The primary rationale provided for 
using a ``multiple guarantor'' model has been that it decreases 
the GSEs' duopoly by increasing competition with other FHFA-
approved and regulated private guarantors. USMI supports the 
free market and competition, but it must be done on a truly 
level playing field. There are significant challenges to 
enabling competition in a system that allows the GSEs to exist 
in a future state and simultaneously allows for or requires 
more competition. The GSEs have decades of Government-conferred 
advantages, including lower borrowing rates, thousands of 
lender relationships, intellectual capital, historic loan 
performance data, and proprietary technologies--all creating 
significant barriers for new guarantors into the market. Since 
being placed in conservatorship, the GSEs have made substantial 
investments, at the expense of tax payers, in technology and 
systems to support their business operations and the broader 
housing finance industry. These include the Common 
Securitization Platform (CSP), the Single Security Initiative, 
and Day One Certainty/Loan Product Advisor. USMI agrees that 
all GSE technology and systems should be made available to 
Ginnie Mae (or whatever successor entity provides the 
Government guarantee). However, even after sharing access to 
the GSE ``infrastructure'' there will be questions about a 
level playing field given the decades of experience and 
relationships that reside in both GSEs.

Q.6. How will small institutions' business practices and 
compliance costs change under a single utility vs. a single 
guarantor vs. multiple guarantors?

A.6. While there are advantages and disadvantages to both 
approaches, one possible disadvantage of a having multiple 
guarantors in the marketplace is the lack of standardization 
that exists with the GSEs today, and that could exist with a 
utility-like system in the future. A reformed system that 
relies on multiple guarantors creates the possibility for each 
guarantor to possibly compete on different credit standards, 
and to create and implement distinct requirements/guides/
handbooks for lenders who would in turn be required to dedicate 
resources--time, money, personnel--to ensuring compliance with 
each set of requirements. While many aspects of guarantors' 
requirements would likely be harmonized, there would still 
exist the potential for significant discrepancies in 
requirements and processes.

Q.7. Do you support or oppose Fannie Mae and Freddie Mac 
selling their multifamily housing businesses?

A.7. Private mortgage insurers operate exclusively in the 
single-family residential mortgage market and, as such, USMI 
and our member companies have neither the expertise nor data to 
opine on this matter.

Q.8. If the multifamily housing guarantee businesses were sold, 
who would buy them?

A.8. Private mortgage insurers operate exclusively in the 
single-family residential mortgage market and, as such, USMI 
and our member companies have neither the expertise nor data to 
opine on this matter.

Q.9. How would the new guarantee structure affect the 
multifamily housing market? Please be specific.

A.9. Private mortgage insurers operate exclusively in the 
single-family residential mortgage market and, as such, USMI 
and our member companies have neither the expertise nor data to 
opine on this matter.

Q.10. What would you recommend Congress do to ensure that a 
housing finance law would provide more wealth-building 
sustainable home-ownership opportunities for Latinos, African 
Americans, Asian Pacific Americans, and Native Americans?

A.10. It is critical that borrowers continue to have access to 
low-down-payment mortgage products. This is especially true for 
first-time home buyers, 80 percent of whom relied on low-down-
payment mortgages to purchase their homes in 2018.\6\ Consumers 
routinely cite down payment as one of the chief barriers to 
home ownership and Americans' capacity to save for a 20 percent 
down payment is hindered by rising rents, high home price 
appreciation, and student debt.
---------------------------------------------------------------------------
    \6\ Genworth Mortgage Insurance, First-Time Home Buyer Market 
Report--4Q2018 (February 28, 2019).
---------------------------------------------------------------------------
    As entities with more than 60 years of experience of taking 
first-loss mortgage credit risk, private MIs are acutely aware 
of the need to balance taxpayer protection with enabling 
borrowers to access affordable mortgage financing. The private 
MI industry is dedicated to helping borrowers, many of whom are 
first-time home buyers and low- or moderate-income household, 
purchase homes with low down payments and enable them to begin 
building the long-term wealth that is associated with home 
ownership. In fact, in the past year alone, our industry has 
helped more than one million families purchase or refinance 
their mortgage with less than a 20 percent down payment.\7\ 
Nearly 60 percent of purchase borrowers who had private MI were 
first-time home buyers \8\ and more than 40 percent of 
borrowers with MI had incomes below $75,000 per year.\9\
---------------------------------------------------------------------------
    \7\ GSE Aggregate Data.
    \8\ GSE Aggregate Data.
    \9\ USMI member data.
---------------------------------------------------------------------------
    Furthermore, the demographic landscape of U.S. home 
ownership is forecasted to look significantly different than in 
past decades, with the share of minority households projected 
to increase from 30 percent in 2010 to 38 percent by 2030 \10\ 
and account for approximately 80 percent of household formation 
for 2015-2035.\11\ Minority families tend to overwhelmingly 
rely on low-down-payment mortgage options to secure mortgage 
financing due to limited assets and savings for a large down 
payment. USMI strongly supports policies, both legislative and 
administrative, that support prudently underwritten low-down-
payment mortgages and promote sustainable home ownership.
---------------------------------------------------------------------------
    \10\ Urban Institute, ``Can the mortgage market handle the surge in 
minority home ownership?'' (July 1, 2015).
    \11\ Harvard Joint Center for Housing Studies, Updated Household 
Projections, 2015-2035: Methodology and Results (December 12, 2016).

Q.11. Do you think Chairman Crapo's housing finance reform 
proposal would shrink the home-ownership gap between white and 
---------------------------------------------------------------------------
minority households in this country? If not, what would?

A.11. USMI appreciates that Chairman Crapo's Outline recognizes 
the value of and need for borrowers' continued access to low-
down-payment mortgage options. First-time home buyers and 
borrowers of color disproportionately rely on low-down-payment 
mortgages, either conventional mortgages with private mortgage 
insurance (MI) or mortgages insured by the Federal Housing 
Administration (FHA). Private MI's more than 60 years of 
experience in underwriting and insuring mortgages is a 
testament to the conventional market's ability to prudently and 
sustainably enable access to low-down-payment mortgage finance.
    As the Senate Banking Committee continues to work on 
legislation to strengthen the housing finance system, it is 
worth exploring how to safely expand low-down-payment mortgage 
options, including through the use of products that use deeper 
cover MI to reduce the credit risk associated with individual 
mortgages. The utilization of deeper cover MI on low-down-
payment conventional
mortgage would allow for greater transparency, provide for more 
product options across market cycles, ensure that lenders of 
all types and sizes could offer low-down-payment mortgages, and 
reduce taxpayer risk.
    Federal policymakers could also examine underwriting 
guidelines and make modifications to better analyze 
nontraditional sources of income and utilization of credit. 
Borrowers of color tend to have higher rates of nontraditional 
income, including self-employment, supplemental income (non-W-
2), and multi-generational pooled income/assets, and use cash 
rather than credit for household expenses. Both of these 
characteristics are often not fully appreciated/accommodated by 
underwriting guidelines currently in use.\12\
---------------------------------------------------------------------------
    \12\ National Association of Hispanic Real Estate Professionals, 
2018 State of Hispanic Home-Ownership Report (April 2019); National 
Association of Hispanic Real Estate Professionals, testimony before the 
House Committee on Financial Services Subcommittee on Housing, 
Community Development and Insurance for hearing entitled ``A Review of 
the State of and Barriers to Minority Home Ownership'' (May 8, 2019).

Q.12. Are there any particular reforms that have stemmed from 
HERA and the creation of FHFA that you feel should be preserved 
---------------------------------------------------------------------------
or expanded as part of any housing finance reform?

A.12. The Housing and Economic Recovery Act of 2008 (HERA)\13\ 
established the FHFA as an independent agency with supervisory 
and regulatory authority over the GSEs and the Federal Home 
Loan Bank System. Further, HERA authorized FHFA to act as 
conservator or receiver for a regulated entity and the agency 
currently serves as the regulator and conservator of the GSEs. 
In its role as regulator, it is critical in a reformed system 
that the FHFA (or successor Federal regulatory agency) be the 
entity that sets standards for market participants, rather than 
the GSEs and any new guarantors--as this prevents the system 
that exists today where a quasi-regulator (i.e., the GSEs) sets 
standards, including capital and operational standards and then 
competes with the industries for which they've set standards. 
The FHFA should promulgate prudential standards for guarantors 
and establish capital and operational standards for GSE 
counterparties, most notably first-loss credit enhancement 
providers. FHFA should issue these requirements only after 
following Administrative Procedure Act (APA)\14\ guidelines for 
public notice and comment. It is important that the FHFA create 
uniform and transparent standards that promote a level playing 
field.
---------------------------------------------------------------------------
    \13\ Pub. L. 110-289, 122 Stat. 2654 (July 2008).
    \14\ 5 USC  553.

Q.13. Do you have concerns with the Chairman's proposal? If so, 
please explain why and what amendment you would suggest to 
---------------------------------------------------------------------------
remedy these concerns.

A.13. The Chairman's Outline represents an important marker in 
the discussion on housing finance reform and we strongly 
encourage Members of the Senate Banking Committee to continue 
to work toward bipartisan legislation to strengthen the housing 
finance system. There are some areas, however, that we believe 
warrant further discussion and modifications.

   LGuarantor Structure: While the Outline prohibits 
        insured depositories from being guarantors, it is 
        unclear whether affiliates of insured depositories 
        (including bank-holding companies) can be guarantors. 
        Further, insured depositories may not become 
        guarantors, but the Outline does not expressly prohibit 
        them from originating or servicing mortgage loans. It 
        leaves open the possibility of a guarantor being the 
        lender and /or servicer for mortgages it guarantees. 
        This vertical integration would constitute a major blow 
        to the decades-long ``bright line'' separating the 
        primary and secondary mortgage markets.

   LCompetition: The Outline's multi-guarantor system 
        envisions (and requires) new guarantors to enter the 
        market but allows the GSEs to retain their significant 
        Government-conferred competitive advantages and thus 
        prevents a true level playing field for fair 
        competition between guarantors. Also, the Outline's 
        proposed statutory caps on guarantor market share could 
        lead to regional guarantors which would be more 
        susceptible to localized housing trends and credit risk 
        events. In its current form, the Outline does not 
        require guarantors to serve a national market, 
        something that USMI believes should be a characteristic 
        of any reformed system.

   LCredit Enhancement: The Outline calls for ``private 
        mortgage insurance as currently required by GSEs'' on 
        >80 LTV mortgages. USMI strongly encourages that 
        legislation require that credit enhancement attach at 
        the time the loan is originated as this facilitates 
        active risk management, allows the credit risk 
        protection to follow the loan (securitize, hold in 
        portfolio, sell to another market participant, et 
        cetera), and increases loss mitigation opportunities 
        (workouts and loan modifications for borrowers who 
        become late on their payments).

   LComprehensive Reform: The Outline limits reforms to 
        the GSEs and does not address the FHA and other 
        Government-backed programs. Rather than reforming the 
        GSEs in a vacuum, housing finance reform should take a 
        holistic approach and include FHA Reform. Without 
        simultaneously addressing the conventional and FHA 
        markets, the Outline could distort the market and 
        arbitrarily drive borrowers to a specific market--this 
        would merely shift, rather than reduce, the 
        Government's exposure to mortgage credit risk.

Q.14. Are there any proposed changes in the Chairman's proposal 
you think make our housing finance system better? Please define 
those.

A.14. With the aim of strengthening the country's housing 
finance system, the Chairman's Outline rightly acknowledges the 
need to limits the GSEs' market power, better shield taxpayers 
from mortgage credit risk, and incentivizes prudent and 
sustainable mortgage lending. More specifically, the Outline 
recognizes the value of private MI in bridging the down-payment 
gap for borrowers while simultaneously protecting lenders, 
GSEs, and taxpayers from mortgage credit risk.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM VINCE 
                             MALTA

Q.1. During the hearing, some witnesses suggested that 
guarantors might not be required to serve a broad, national 
market if they were serving specific underserved markets.
    Do you believe that private market guarantors are likely to 
specialize in rural markets, an underserved area, or any other 
types of underserved markets?

A.1. NAR firmly supports competition in the housing finance 
system. However, NAR believes that the best place for 
competition is among lenders, servicers, and the investors in 
credit risk and mortgage-backed securities. A guarantor(s) may 
in fact be willing to specialize in underserved markets, but 
without the large scale of guarantors with a national 
requirement, they may not be able to provide the cross-
subsidization needed to support access to these markets in good 
times and in bad. Furthermore, guarantors specializing in 
facets of the market will not be able to diversify risk, in 
both regional and economic dimensions, the way investors in 
mortgage pools expect and demand.

Q.2. If a guarantor specialized in an underserved segment of 
the market, would you expect their business costs to be higher 
or lower than the costs for guarantors serving a national 
market? If the costs were higher, how would any specialized 
guarantors offer competitive pricing and remain economically 
viable?

A.2. The costs to a guarantor that specializes in an 
underserved market would likely be higher than to a more 
diversified guarantor. As a result, assuming a fixed return for 
investors, the cost would be passed onto consumers. Likewise, 
as risk rises over a typical economic cycle, those costs would 
increase. This pattern would undermine the intent and/or push 
borrowers in this space to the Federal Housing Administration's 
program.

Q.3. Do you have any concerns about allowing guarantors to 
specialize in certain segments of the market?

A.3. NAR is concerned that allowing guarantors to specialize in 
certain market segments would undermine the national market for 
housing finance, placing the GSEs in clearer competition with 
Government programs like the RHS, VA, and FHA, and undermining 
the homogeneity and diversification of mortgage pools in the 
current GSEs system that are demanded by investors. 
Furthermore, specialized guarantors exist in the private sector 
such as verticals like Angel Oak, which originate, guarantee, 
service, and securitize certain underserved markets, but on a 
smaller scale, and which do not fit as easily in the GSE's 
homogeneous footprint.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM VINCE 
                             MALTA

Q.1. Do you agree that conforming loan limits should be 
retained as Congress contemplates changes to the housing 
finance system?

A.1. NAR firmly agrees that the conforming loan limits as 
defined under HERA should be maintained in the future, with 
reformed guarantors.

Q.2. A fair housing finance system ensures broad affordability 
and access, including for those homeowners in high-cost States 
like New Jersey. Last time the Committee considered reform, 
there was discussion of lowering conforming loan limits. Isn't 
it critical that borrowers in high-cost States maintain fair 
access to affordable mortgage credit?

A.2. Middle class America is not restricted to small towns. 
Middle class America is in every town from coast to coast. 
Middle class Americans should not be punished with higher costs 
and limited access based on where they live and preserving the 
conforming loan limits and high cost limits as defined in HERA 
is critical to prevent this.

Q.3. Would you oppose or have concerns about a system in which 
borrowers in high-cost States faced pricing discrimination?

A.3. NAR believes that credit-worthy borrowers in all markets 
and at all times should have access to affordable credit and 
the conforming and high-cost limits are central to this 
providing this.

Q.4. For households who do not have the resources for a 
substantial down payment, lower down-payment products are often 
the only option for otherwise creditworthy borrowers to obtain 
a mortgage. Should the housing finance system continue to 
support programs that provide access to creditworthy borrowers 
who can sustain monthly mortgage payments, but who may not have 
the wealth for a large down payment?

A.4. NAR believes that down payment is not the primary 
indicator of ability to repay. Creditworthy borrowers with the 
ability to repay their mortgage, but lacking significant 
resources for down payment should have access to affordable 
credit also. NAR is supportive of our housing finance system 
that provides programs buttressing responsible Americans with 
the ability to sustain monthly mortgage payments, but may not 
have the wealth for a large down payment.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                          VINCE MALTA

Q.1. In its current form, do you think Ginnie Mae could play 
the role the Chairman's proposal envisions?

A.1. NAR is concerned that Ginnie Mae (GNMA) does not currently 
support the role as outlined in the Chairman's proposal and it 
may not be able to scale up to the task. Furthermore, the 
counter-party risk to GNMA would increase dramatically and it 
would need to work in collaboration with the regulator of 
future guarantors, much as the GSEs do today, to continually 
update and maintain measures to counter that risk.

Q.2. Do you have any concerns on the proposed sale or transfer 
of the Common Securitization Platform (CSP) to Ginnie Mae? How 
would such a sale work best in your view?

A.2. Placing the CSP at GNMA would greatly expand its duties 
beyond current operations, stressing both its current staff and
resources, while also raising questions as to its ability to 
scale-up operations to support and sustain such programmatic 
needs. It would need to be appropriately resourced if 
transferred.

Q.3. Is Ginnie Mae's staff adequately trained and compensated 
to take on a large new market?

A.3. An ongoing concern is the small in-house staff of GNMA and 
the low pay that limits the ability to attract the highly 
technical candidates needed to staff the GNMA envisioned in 
this plan.

Q.4. Do you support or oppose creating a single utility to take 
on the catastrophic risk? Please elaborate on your response.

A.4. NAR is opposed to a single utility. Competition is a 
critical part of creating aligned incentives and enforcing 
market responses. While true competition is unlikely to occur 
in the market for guarantors, having a minimum of two allows 
for competition on products and services to lenders, servicers, 
PMIs, and reinsurers, as well as investors in MBS and CRTs, 
while incentivizing the GSEs to monitor each other and hold 
accountable for any deviations of the rules and regulations.

Q.5. If you oppose a single-utility model and prefer a single-
guarantor platform or a multiple-guarantor platform, please 
explain what changes should be instituted to ensure that 
community banks and credit unions are able to access the 
secondary market easily?

A.5. As discussed in question 4, NAR favors a minimum of two 
utilities at the guarantor level to incentivize a level of 
competition in the secondary market and responsiveness to their 
customers; lenders, servicers, front-end insurers, as well as, 
credit and rate investors. However, the temptation to expand 
guarantors must be tempered by the understanding that adding 
guarantors could reduce diversification of mortgage pools, 
create regional guarantors and reduce access to credit, and 
drastically increase the difficulty to maintain the critical 
oversight that forced transparency and accountability in the 
secondary market under conservatorship.

Q.6. How will small institutions' business practices and 
compliance costs change under a single utility vs. a single 
guarantor vs. multiple guarantors?

A.6. As envisioned in NAR's proposal for secondary market 
reform, the GSE would be converted to Systemically Important 
Mortgage Market Utilities (SIMMUs), essentially transitioning 
parts of the current system with additional, stronger 
regulations. All of the functions and public mission would 
continue, but with private capital at risk operating the 
companies. These operations include a cash window, providing 
equal access and services for small lenders, and dynamically 
responding to the needs of small lenders as they arise. What's 
more, the funding for the cash window would be structured to 
maintain low costs for small lenders in both normal times and a 
crisis. In short, small lenders would be as well off if not 
better under NAR's vision.

Q.7. Do you support or oppose Fannie Mae and Freddie Mac 
selling their multifamily housing businesses?

A.7. NAR believes that the multifamily business should remain 
with the GSEs after they are converted to SIMMUs under the NAR 
plan. The GSE's diversification of product areas helps ensure 
for a more robust multifamily and housing market, especially 
during economic downturns.

Q.8. If the multifamily housing guarantee businesses were sold, 
who would buy them?

A.8. N/A.

Q.9. How would the new guarantee structure affect the 
multifamily housing market? Please be specific.

A.9. N/A.

Q.10. What would you recommend Congress do to ensure that a 
housing finance law would provide more wealth-building 
sustainable-home ownership opportunities for Latinos, African 
Americans, Asian Pacific Americans, and Native Americans?

A.10. NAR supports access to credit in all markets, at all 
times, and for all credit-worthy home buyers. NAR believes that 
home ownership is an integral part of the American Dream that 
shouldn't be out of reach for low-income, rural, and minority 
borrowers who lack access to traditional forms of credit. Under 
NAR's proposal, the SIMMUs would be chartered by Congress with 
a public mission to support underserved markets as part of 
their mission. Their charters would be coupled with HERA and 
stronger oversight to make sure that the SIMMUs continue to 
research and develop new methods of extending credit to 
underserved markets in the future.

Q.11. Do you think Chairman Crapo's housing finance reform 
proposal would shrink the home-ownership gap between white and 
minority households in this country? If not, what would?

A.11. NAR applauds the Chairman for his effort to include a 
market mechanism to support low- and moderate-income borrowers. 
However, NAR is concerned that there is not enough information 
on this part of the proposal to answer the question. The GSE's 
mission to support underserved communities and its 
countercyclical role is important to the market, the economy, 
and the aspirations of homeowners across the country. 
Furthermore, the mission extends to supporting small- and mid-
sized communities in all markets, including regional recessions 
and natural disasters. A rigid, undersized, and/or untested 
system could jeopardize that.

Q.12. Are there any particular reforms that have stemmed from 
HERA and the creation of FHFA that you feel should be preserved 
or expanded as part of any housing finance reform?

A.12. HERA created strong oversight, clear guidelines for loan 
limits, and tools to support underserved groups. HERA should be 
maintained and potentially improved to include regional support 
and other points of clarification around the public mission.

Q.13. Do you have concerns with the Chairman's proposal? If so, 
please explain why and what amendment you would suggest to 
remedy these concerns.

A.13. NAR firmly supports competition in the housing finance 
system. However, NAR believes that the best place for 
competition is among lenders, servicers, and the investors in 
credit risk and mortgage-backed securities. As discussed in 
question 5, NAR believes that raising the number of guarantors 
could still result in an oligopoly that could undermine the 
system. Rather, competition in the primary market and among CRT 
and MBS participants should be maximized. The strong regulator 
can enforce pricing and quality at the guarantors, while the 
guarantors compete to provide services and value to the primary 
market and CRT and MBS investors.
    Second, NAR shares the Chairman's concern that oversight of 
the entities must be strong in order to maintain quality and 
standards for the benefit of the primary, CRT, and MBS markets, 
but also to protect the Government guarantee. Too many 
guarantors could undermine these concerns or a weak oversight 
structure could undermine competition in other markets, so 
additional discussion and structure in this area would help.
    Finally, support for underserved markets should be fluid 
and inclusive enough to support the needs of today's market as 
well as demographic, income, and economic challenges in the 
future. To this end, the outline would benefit from more 
clarity on how it would support all groups and economic 
circumstances.

Q.14. Are there any proposed changes in the Chairman's proposal 
you think make our housing finance system better? Please define 
those.

A.14. We appreciate the Chairman's stipulation of an explicit 
Government guarantee, strong and flexible oversight, as well as 
protecting taxpayers with appropriate private capital. 
Furthermore, NAR believes any future guarantors must have an 
explicit mission to serve middle America and the underserved.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM CARRIE 
                              HUNT

Q.1. During your testimony, you spoke about the need to make 
permanent improvements that were made to Fannie Mae and Freddie 
Mac during conservatorship.
    What improvements or gains do you believe must be made 
permanent as part of any reform effort?

A.1. The fair pricing and guaranteed access to the secondary 
market that credit unions have enjoyed during conservatorship 
must be made part of any reform. We do not want to see a 
regression to the previous aggregation model used before 
conservatorship, where market share agreements with the largest 
lenders created underwriting exceptions and lower guarantee 
fees based on volume, not on the underlying loan risk. This 
priced out smaller lenders and forced them to sell to larger 
lenders, instead of directly to the GSEs. These practices 
created huge volumes of underpriced risk that were a part of 
the predatory culture that precipitated the financial crisis. 
Instead, we want a system that ensures equal market access for 
lenders of all sizes and business models and maintains a deep, 
liquid market for long-term options. Furthermore, the functions 
of the cash window at the GSEs (as a single loan execution 
process and best-efforts loan commitments) are also vital to 
many credit unions and should be maintained in any new system. 
The cash window serves as a quick and efficient means of 
liquidity for credit unions that would otherwise be unable to 
sell to the GSEs.
    Access to such technology and underwriting programs for 
small lenders must be preserved in any new model. The GSEs' 
tools provide critical benefits to small lenders.

Q.2. During the hearing, some witnesses suggested that 
guarantors might not be required to serve a broad, national 
market if they were serving specific underserved markets.
    Do you believe that private market guarantors are likely to 
specialize in rural markets, an underserved area, or any other 
types of underserved markets?

A.2. It is unclear how this would work without some type of an 
incentive. They could start with that goal, but it would seem 
to be unrealistic given the volume and scale they would likely 
need to reach to succeed.

Q.3. If a guarantor specialized in an underserved segment of 
the market, would you expect their business costs to be higher 
or lower than the costs for guarantors serving a national 
market? If the costs were higher, how would any specialized 
guarantors offer competitive pricing and remain economically 
viable?

A.3. It would seem reasonable to expect that business costs 
would be higher as they would have to price for the risk of a 
more homogenous portfolio. Remaining economically viable could 
be challenging.

Q.4. Do you have any concerns about allowing guarantors to 
specialize in certain segments of the market?

A.4. In theory, having specific guarantors focus on certain 
segments of the market is a noble concept. However, in 
practice, it would seem reasonable to expect that business 
costs would be higher for them. This could lead them to drop 
their specialization and chase more profitable segments of the 
market, or create risk for the system if they fail.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM CARRIE 
                              HUNT

Q.1. An important element of the current system that helps 
small lenders to participate is FHFA's cash window, which 
allows small lenders to sell individual loans directly to 
Fannie Mae and Freddie Mac receiving competitive pricing with 
the securities option. For small lenders to continue to 
maintain access to the housing finance system, is it necessary 
to maintain competitive pricing for loan sales with the 
securities option, or some other comparable pricing parity 
option?

A.1. Yes, fair pricing for loans based of quality and not on 
volume is a key principle of NAFCU and must be maintained in 
any reform.

Q.2. In order to facilitate competitive pricing, does the 
housing finance system need guarantors that can pool costs 
across the market and that have a duty to serve all lenders?

A.2. We believe a statutory protection for fair pricing for 
small lenders must be included in any reform. In order to 
maintain a competitive pricing for small lenders, it is 
reasonable to expect that guarantors would need to pool costs 
across the market and have a duty to serve all lenders.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                          CARRIE HUNT

Q.1. In its current form, do you think Ginnie Mae could play 
the role the Chairman's proposal envisions?

A.1. NAFCU is concerned about the rate at which Ginnie Mae's 
systems, processes, and procedures can be brought up to the 
standards envisioned under the bill. The outline proposes a 
new, much more extensive role for Ginnie Mae in the secondary 
mortgage market, yet Ginnie Mae currently lags behind Fannie 
Mae and Freddie Mac in its technological capabilities and focus 
on services available to lenders. Although Ginnie Mae, in 
recent years, has made substantial efforts to conduct outreach 
and provide more service to credit unions, it is important to 
note that asking Ginnie Mae to step in and fill such a major 
role in the market would be a huge challenge requiring 
significant transition time, oversight and flexibility.

Q.2. Do you have any concerns on the proposed sale or transfer 
of the Common Securitization Platform (CSP) to Ginnie Mae? How 
would such a sale work best in your view?

A.2. Although use of the CSP could simplify the transition to 
Ginnie Mae as well as reduce barriers to entry for new market 
participants, other technological improvements would still be 
necessary GSE for an efficient and effective transition given 
our concerns outlined above. We have not taken a position of 
the specifics of any sale. However, as the Committee considers 
questions of how to ensure a smooth transition to a future 
state, NAFCU would like to stress the importance of getting it 
done right, versus getting it done quickly.

Q.3. Is Ginnie Mae's staff adequately trained and compensated 
to take on a large new market?

A.3. I can't speak to the specific qualifications of Ginnie Mae 
staff, but we have the general concerns that are outlined 
above.

Q.4. Do you support or oppose creating a single utility to take 
on the catastrophic risk? Please elaborate on your response.

A.4. NAFCU members supports a path to reform that creates as 
least disruption to the current secondary market system as 
possible. Of all of the models that have been currently 
discussed, a utility model seems to provide the least 
disruption. There are other models that could work, such as the 
multi-guarantor model, but without specific details, the 
unknowns and uncertainties with such a move are concerning.

Q.5. If you oppose a single utility model and prefer a single 
guarantor platform or a multiple guarantor platform, please 
explain what changes should be instituted to ensure that 
community banks and credit unions are able to access the 
secondary market easily?

A.5. N/A.

Q.6. How will small institutions' business practices and 
compliance costs change under a single utility vs. a single 
guarantor vs. multiple guarantors?

A.6. Maintaining existing technologies and processes will be of 
benefit to credit unions. The more dramatic the change to the 
current system, the more costs will likely increase.

Q.7. Do you support or oppose Fannie Mae and Freddie Mac 
selling their multifamily housing businesses?

   LIf the multifamily housing guarantee businesses 
        were sold, who would buy them?

   LHow would the new guarantee structure affect the 
        multifamily housing market? Please be specific.

A.7. NAFCU has not taken a position on the multifamily aspect 
of GSE reform.

Q.8. What would you recommend Congress do to ensure that a 
housing finance law would provide more wealth-building 
sustainable home-ownership opportunities for Latinos, African 
Americans, Asian Pacific Americans, and Native Americans?

A.8. NAFCU supports the Duty-to-Serve requirements of the 
Federal Housing Enterprise Financial Safety and Soundness Act 
of 1992, as amended by HERA, and appreciates the inclusion of a 
new Market Access Fund (MAF) in the Chairman's outline to 
account for the difficulties in providing financial services to 
underserved and low-income communities. However, there are a 
number of unknowns about the proposed MAF that would need to be 
addressed. For credit unions, providing provident credit to 
those who need it is why credit unions exist. Providing 
additional flexibility to credit unions to reach underserved 
and rural areas will help our overall housing problem. Credit 
unions have been seeking a legislative change to the Federal 
Credit Union Act to clarify the ability of all credit unions to 
add underserved areas to their field of membership.

Q.9. Do you think Chairman Crapo's housing finance reform 
proposal would shrink the home-ownership gap between white and 
minority households in this country? If not, what would?

A.9. As noted above, without more details about the MAF (and 
the bill itself) it would be hard to speculate. Credit unions 
are trying to reach more underserved areas and populations and 
serve those individuals.

Q.10. Are there any particular reforms that have stemmed from 
HERA and the creation of FHFA that you feel should be preserved 
or expanded as part of any housing finance reform?

A.10. The fair pricing and guaranteed access to the secondary 
market that credit unions have enjoyed during conservatorship 
must be made part of any reform. We do not want to see a 
regression to the previous aggregation model used before 
conservatorship, where market share agreements with the largest 
lenders created underwriting exceptions and lower guarantee 
fees based on volume, not on the underlying loan risk. This 
priced out smaller lenders and forced them to sell to larger 
lenders, instead of directly to the GSEs. These practices 
created huge volumes of underpriced risk that were a part of 
the predatory culture that precipitated the
financial crisis. Instead, we want a system that ensures equal 
market access for lenders of all sizes and business models and 
maintains a deep, liquid market for long-term options. 
Furthermore, the functions of the cash window at the GSEs (as a 
single loan execution process and best-efforts loan 
commitments) are also vital to many credit unions and should be 
maintained in any new system. The cash window serves as a quick 
and efficient means of liquidity for credit unions that would 
otherwise be unable to sell to the GSEs.
    As you consider reform, it is important to note that there
are many key elements to the current system. Credit union 
partnerships with the GSEs play an important role in their 
mortgage lending functions. Programs such as Fannie Mae's 
Desktop Underwriter' platform and Freddie Mac's Loan 
Prospector' are important tools for credit unions. 
They help ensure conformity and
consistency across portfolios, whether credit unions sell the 
loan or not. Using these tools provides credit unions with a 
level of efficiency that they might not otherwise achieve. 
Additionally, it enhances the member experience by automating 
and expediting parts of the loan process. If comprehensive 
housing finance reform includes any significant changes to 
these programs, it could have widespread adverse effects on 
credit union operations.
    Access to such technology must be preserved in any new 
model. The GSEs' tools provide critical benefits to small 
lenders.

Q.11. Do you have concerns with the Chairman's proposal? If so, 
please explain why and what amendment you would suggest to 
remedy these concerns.

A.11. I outline NAFCU's thoughts in detail on pages 10-14 of my 
written testimony, but we have some level of concerns about the 
multi-guarantor model, the use of Ginnie Mae, the lack of 
clarity for credit unions retaining servicing rights, statutory 
down-payment requirements, and the overall transition to a new 
housing finance system, among other things.

Q.12. Are there any proposed changes in the Chairman's proposal 
you think make our housing finance system better? Please define 
those.

A.12. NAFCU also recognizes a number of strengths of the 
outline, including the requirement of strong capital standards, 
a guaranteed cash window for small lenders, the prohibition of 
volume-based discounts, and the preservation of credit risk 
transfer transactions.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM MICHAEL D. 
                            CALHOUN

Q.1. During your testimony, you spoke about the need to make 
permanent improvements that were made to Fannie Mae and Freddie 
Mac during conservatorship.
    What improvements or gains do you believe must be made 
permanent as part of any reform effort?

A.1. Reform should include continuing and expanding permanent 
utility-type oversight and regulation of the GSEs, their 
products, and pricing; the prohibitions on lobbying and 
political contributions; the reductions and limitations on 
portfolios; and strong capitalization of the GSEs. The GSEs 
should also continue and expand their credit risk transfer 
programs to reduce and diversify their risk. Finally, 
affordable-housing measures must be dramatically increased, 
preserving current programs and significantly adding to them. 
Section 4 of the testimony provides the details for improving 
affordability for home ownership and rental housing (see pages 
15-28).

Q.2. During the hearing, some witnesses suggested that 
guarantors might not be required to serve a broad, national 
market if they were serving specific underserved markets.
    Do you believe that private market guarantors are likely to 
specialize in rural markets, an underserved area, or any other 
types of underserved markets?

A.2. It is unlikely that private market guarantors will 
specialize in serving underserved markets. Rather, it is likely 
that guarantors would be strongly incentivized to ``cream'' the 
market, serving the wealthiest housing markets and borrowers, 
and avoiding places like more dispersed rural markets and 
borrowers of modest means in many regions across the country.

Q.3. If a guarantor specialized in an underserved segment of 
the market, would you expect their business costs to be higher 
or lower than the costs for guarantors serving a national 
market? If the costs were higher, how would any specialized 
guarantors offer competitive pricing and remain economically 
viable?

A.3. Business costs would likely be higher for guarantors 
serving an underserved segment of the market. The easiest and 
most profitable loans are in concentrated urban markets with 
high-wealth borrowers in coastal regions. It would be difficult 
for a specialized guarantor to offer competitive pricing and 
remain economically viable. The current GSEs lower costs for 
all borrowers by providing access to a national market and by 
pooling risk.

Q.4. Do you have any concerns about allowing guarantors to 
specialize in certain segments of the market?

A.4. Yes. It is likely that specializing in underserved 
segments of the market could put guarantors out of business, as 
they could not effectively compete with private guarantors that 
are able to purchase the most lucrative loans from the 
wealthiest borrowers. It costs much more to serve dispersed 
rural borrowers, for instance. Thus, pooling of loan risk must 
be maintained to ensure broad access to affordable mortgage 
loans.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM MICHAEL 
                           D. CALHOUN

Q.1. For households who do not have the resources for a 
substantial down payment, lower down-payment products are often 
the only option for otherwise creditworthy borrowers to obtain 
a mortgage. Should the housing finance system continue to 
support programs that provide access to creditworthy borrowers 
who can sustain monthly mortgage payments, but who may not have 
the wealth for a large down payment?

A.1. Yes. Removing regulator flexibility in establishing down 
payments in housing finance reform and mandating down payments 
would unnecessarily restrict access to credit for lower-wealth 
families. These mandates overlook the fact that borrowers must 
also save for closing costs--roughly 3 percent of the loan 
amount--on top of any down payment required. The mandates would 
increase the number of years that borrowers would need to save 
for a down payment. An analysis by the Center for Responsible 
Lending demonstrates that it would take the typical family 17 
years to save for a 10 percent down payment and 11 years to 
save for a 5 percent down payment. This timeframe is greatly 
expanded for African American and Latino borrowers. Considering 
that many of these households have limited wealth due to 
historic discrimination in the housing finance system and 
broader society, down-payment mandates could significantly 
reduce the number of future first-time home buyers. Harvard's 
Joint Center for Housing Studies predicts that 7 out of 10 
future first-time buyers will be families of color, mostly 
Latinx families. Limiting access for families of color harms 
them and injects safety and soundness risk to the entire 
market, which can have a dampening impact on the overall 
economy.
    Not only is there a huge cost to legislatively mandating 
down payments, but there is also a limited benefit in terms of 
reducing default rates. When looking at loans that already meet 
the product requirements for a Qualified Mortgage, a UNC Center 
for Community Capital and CRL study shows that these 
requirements cut the overall default rate by almost half 
compared with loans that did not. Layering on a down-payment 
requirement on top of these protections produces only a 
marginal benefit.

Q.2. A key focus of the housing finance reform discussion 
should be expanding access to home ownership among underserved 
communities. One responsible method to increase home ownership 
would be to expand access to pre-purchase housing counseling. 
Should pre-purchasing counseling be used as a risk-reducing 
tool for low-down-payment loans?

A.2. Yes, CRL supports pre-purchase counseling to reduce risk 
for low-down-payment loans. The primary protections for these 
loans are fully documented underwriting and stable, fixed-rate 
prime loans. Even through the crisis, these loans performed 
well.

Q.3. Pre-purchase counseling reduces risk of default, helps 
underserved communities access home ownership, and promotes 
self-sufficiency by teaching families how to take charge of 
their finances. How can we ensure that the future housing 
finance system fully
integrates housing counseling as part of any effort to expand 
sustainable home ownership, especially through low-down-payment 
mortgages?

A.3. CRL supports further integrating housing counseling into 
the home purchase process. There are several ways that this 
counseling can be more fully utilized. Programs that provide 
reduced rates or other financial benefits for borrowers who 
complete counseling have shown to be attractive to borrowers 
and effective. Notably, FHA attempted to implement such a 
program, but was blocked from doing so. Counseling can also 
help prepare families to become ready for home ownership when 
it is not immediately a suitable option.

Q.4. It is clearly not in our public policy interest to allow a 
future housing finance system to break into distinct pieces, 
with one guarantor serving real estate markets in New York and 
DC, another serving California, and no one making loans to 
underserved borrowers in Newark or Paterson, New Jersey. Is it 
necessary to have a mandate on guarantors to serve a national 
market to promote affordable and sustainable home-ownership 
opportunities for creditworthy borrowers, including those in 
urban and rural underserved areas of the country?

A.4. Yes, guarantors must be mandated to serve a national 
market. The GSEs' charters currently state that they must 
``promote access to mortgage credit throughout the Nation 
(including central cities, rural areas, and underserved areas) 
by increasing the liquidity of mortgage investments and 
improving the distribution of investment capital available for 
residential mortgage financing.'' By bundling and securitizing 
mortgages with an implied Federal Government guarantee, the 
GSEs have increased the flow of credit to all parts of the 
Nation. We now have a national mortgage market, investor 
confidence, increased loan volume, and widespread use of the 
30-year fixed-rate mortgage. This, in turn, has resulted in 
more affordable loans for consumers. Without a duty to serve a 
national market, guarantors will be able to serve only 
particular regions or borrowers.

Q.5. Without a mandate to serve a national market, is there a 
risk guarantors will cherry pick regions, borrowers, and 
products, inevitably leaving some borrowers without any options 
for mortgage credit?

A.5. Yes. Without a duty to serve a national market, guarantors 
would be strongly incentivized to serve the wealthiest housing 
markets and borrowers, and avoid more dispersed rural markets 
and borrowers of modest means in many regions across the 
country. Without this duty, guarantors would also focus on the 
largest, most profitable lenders, disadvantaging community 
lenders, such as community banks. This makes it harder for 
community banks to provide mortgages and to be successful 
overall. In many areas, especially rural communities, these 
banks are often the only financial institutions present to 
serve residents.

Q.6. Too many communities around the country, including in my 
home State of New Jersey, are still recovering from the 
foreclosure crisis. Part of the problem is that our current 
system still does not incentivize servicers to do everything 
they can to keep borrowers in their homes. In consideration of 
any housing finance reform proposals, should Congress consider 
a requirement for servicers to offer struggling homeowners 
affordable loan modifications that are in the best interests of 
borrowers, investors, and taxpayers?

A.6. Yes. CRL is in favor of standards that ensure servicers 
offer homeowners affordable loan modifications. There are also 
opportunities to require the GSEs or other guarantors to pool 
the risk and cost of distressed loan servicing. This would 
ensure that qualified special servicing would be provided and 
that the cost of this servicing would be pooled across the 
system rather than imposed on small lenders who are less able 
to spread such costs and thus may place credit overlays on loan 
standards and applicants.

Q.7. While the CFPB has made marginal progress on dual tracking 
issues, we continue to hear from struggling homeowners that 
they can't get their mortgage companies to pause foreclosure 
proceedings while they are being evaluated for loan 
modifications. Do you believe that this is another area where 
we should consider stronger standards?

A.7. The Real Estate Settlement Procedures Act prohibits 
mortgage lenders from conducting foreclosure proceedings while 
a loan modification application is under consideration. If a 
lender fails to follow the rules, the borrower may bring a 
lawsuit. However, the onus should not be on the borrower to 
stop the lender's unlawful actions. CRL welcomes stronger 
standards that ensure the lender is unable to foreclose on a 
homeowner while a potential loan modification is pending.

Q.8. What, if any, other mortgage servicing standards or 
requirements should Congress consider as it contemplates 
reforming the housing finance system?

A.8. A major area of dysfunctional servicing is with FHA loans. 
While the GSEs buy loans out of the pools, FHA servicers are 
required to do this themselves and bear the loss of reductions 
in the value of a restructured loans. This and other current 
FHA requirements discourage lenders from pursuing 
modifications, and the result is much poorer outcomes for 
borrowers and the FHA insurance fund. This could be corrected 
by matching the FHA requirements to the reformed GSEs loan 
modification requirements, which perform much better. 
Additionally, FHA's antiquated technology makes servicing much 
more difficult for lenders and borrowers alike.

Q.9. Many of the housing finance reform proposals put forward 
call for a system with multiple guarantors--something which has 
the potential to spark a race to the bottom where guarantors 
chase volume by eroding underwriting standards or pricing, 
ultimately harming both borrowers and the market. How can we 
create a system where guarantors can compete in a healthy and 
productive manner, but where we eliminate or mitigate the risk 
of any potential race to the bottom?

A.9. In CRL's view, utility regulation appropriately focuses 
the GSEs' activities on safely meeting their mission and 
prevents incentives to maximize revenues by serving the most 
lucrative borrowers and lenders or take unnecessary risks. This 
also prevents unfair competition with private market companies. 
The Housing and Economic Recovery Act of 2008 and Federal 
Housing Finance Agency actions under conservatorship embody 
much of this type of regulation. It should be continued and 
expanded upon.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                       MICHAEL D. CALHOUN

Q.1. In its current form, do you think Ginnie Mae could play 
the role the Chairman's proposal envisions?

A.1. No. Expanding Ginnie Mae's role would substantially 
increase costs. Ginnie guarantees the servicing performance of 
the issuer and not the underlying collateral. It has a full 
Government wrap on the loans that it insures. Extending this 
wrap is likely to drive up fees as the market will respond to 
the increased number of participants in the Ginnie program with 
anxiety. Further, smaller lenders are disadvantaged with this 
model as Ginnie has inherent operational complexities that 
could deter smaller lenders from becoming issuers.
    The servicing within the Ginnie program is also far more 
complex than the existing system and puts enormous financial 
pressure on servicers, especially in times of economic 
distress. Ginnie servicers are required to advance missed 
payments to investors for an unlimited amount of time until the 
loan is resolved or buy it out of the pool using the servicer's 
resources. This buyback scenario requires servicer financing in 
times of economic distress when loan defaults are heightened. 
In addition to these structural problems, as discussed below, 
Ginnie does not have the resources or systems to meet the 
operational and infrastructure needs of the system.

Q.2. Do you have any concerns on the proposed sale or transfer 
of the Common Securitization Platform (CSP) to Ginnie Mae? How 
would such a sale work best in your view?

A.2. The best structure for the CSP is for it be structured and 
operated as a utility through its ownership by the GSEs, which 
themselves should be reformed as utilities. This preserves the 
public mission of the CSP and would provide the transparency 
and level playing field needed for the CSP.

Q.3. Is Ginnie Mae's staff adequately trained and compensated 
to take on a large new market?

A.3. Ginnie already faces difficulty suitably overseeing its 
large roster of issuers and servicers, which are mostly 
nonbanks. A recent HUD Inspector General report details these 
concerns and found that Ginnie was not prepared for the rise in 
nonbank lending and did not respond to the changes in its 
lender base. Further, Ginnie does not currently evaluate credit 
risk. Currently, Ginnie relies on FHA, VA, and Rural Housing to 
determine that program underwriting standards are met. Under 
Chairman Crapo's approach, Ginnie would take on the role of 
determining underwriting and risk on privately guaranteed 
mortgages along with having to determine and manage the 
counterparty risk of the many issuers (it has a limited amount 
of risk today on VA loans, which do not have 100 percent 
insurance, but the counterparty risk is small).

Q.4. Do you support or oppose creating a single utility to take 
on the catastrophic risk? Please elaborate on your response.

A.4. CRL supports making the two current GSEs utilities. The 
catastrophic risk of a repeat of the 2008 crisis should be 
managed by well capitalizing these entities, using CRTs and 
other risk-sharing measures to reduce the risk held by the 
GSEs, and having a paid for back up guarantee provided by the 
Federal Government.

Q.5. If you oppose a single utility model and prefer a single 
guarantor platform or a multiple guarantor platform, please 
explain what changes should be instituted to ensure that 
community banks and credit unions are able to access the 
secondary market easily?

A.5. CRL supports the safeguards in the current system. Small 
lenders are disproportionately dependent on the GSEs' cash 
window, which provides lenders the option of selling individual 
loans. This means that smaller institutions do not have to 
trade their loans for securities or sell their loans to other 
large banks. To provide pricing parity to smaller lenders, the 
guarantor/issuer must have the ability to pool costs across the 
market and must provide equal pricing for cash and security 
transactions. This makes it essential that guarantor/issuers 
serve a national market and have a duty to equitably serve all 
lenders. Otherwise, if some guarantors/issuers can choose to 
cream the market, serving only the large lenders and the most 
lucrative markets, the remaining guarantors will not have 
sufficient loans from the full market to be able to provide 
pricing parity to small lenders and still compete in the 
overall market. Also, since security transactions are more 
profitable for guarantors than small cash window transactions, 
equal pricing for these transactions must be required by the 
regulator.

Q.6. How will small institutions' business practices and 
compliance costs change under a single utility vs. a single 
guarantor vs. multiple guarantors?

A.6. A multi-guarantor model imposes higher costs on the 
housing finance system. There is a distinct risk that multiple 
guarantors would require a significantly higher rate of return 
than the more constrained current GSEs or the GSEs structured 
as utilities. Furthermore, expanding the number of new 
guarantors is likely to
increase operating and marketing costs compared to the current 
system. The guarantors in the new system would also carry more 
risk due to their smaller and less geographically diversified 
pools of loans, further adding to their cost and volatility. A 
single utility would limit lenders to a single option and would 
not provide as much incentive to innovate as structuring the 
two GSEs as utilities.

Q.7. Do you support or oppose Fannie Mae and Freddie Mac 
selling their multifamily housing businesses?

A.7. The GSEs play a critical role in the multifamily market. 
Selling this business creates unnecessary risks that would be 
easily managed with the GSEs structured as utilities.

Q.8. If the multifamily housing guarantee businesses were sold, 
who would buy them?

A.8. There have been proposals to spin the GSEs' multifamily 
business off to a new entity or to have it be the sole business 
of one of the current GSEs. Preserving the role of both GSEs in 
this market with utility oversight would appropriately support 
the market while providing the necessary limits to ensure that 
the LMI market was supported, but that the GSEs did not have an 
excessive footprint.

Q.9. How would the new guarantee structure affect the 
multifamily housing market? Please be specific.

A.9. A new guarantee structure would add unnecessary risk to a 
currently strong market. As others have noted, the GSEs' 
multifamily business performed well, including through the 
financial crisis. Substantially changing this structure could 
impact both access and costs, especially in crisis conditions, 
when private capital withdraws from the market. Enhanced 
utility regulation of the GSEs and these multifamily programs 
would maintain and enhance the performance of the programs and 
target it to the appropriate multifamily housing.

Q.10. What would you recommend Congress do to ensure that a 
housing finance law would provide more wealth-building 
sustainable home-ownership opportunities for Latinos, African 
Americans, Asian Pacific Americans, and Native Americans?

A.10. First, Congress must maintain current protections, 
including the duty to serve a national market and the 
affordable-housing goals. The current leveling of g-fees must 
be preserved and expanded. Additionally, substantial new 
resources are needed to provide for sustainable home-ownership 
opportunities for underserved communities. For example, one 
idea is to provide down-payment assistance for home ownership 
reentry by families wrongfully harmed by the subprime lending 
crisis. Communities of color lost trillions of dollars during 
the foreclosure crisis, and evidence shows that many of those 
borrowers were steered into toxic mortgages even when they 
qualified for safer and more responsible loans with cheaper 
costs. The scale of this down-payment assistance program must 
match the huge harm inflicted on these families and 
communities. Furthermore, the Government should fund down-
payment assistance for first-time home buyers with lower wealth 
and/or credit scores in recognition of the Federal Government's 
historic role in fostering mortgage lending discrimination, an 
effort that will start addressing the resulting racial wealth 
gap.

Q.11. Do you think Chairman Crapo's housing finance reform 
proposal would shrink the home-ownership gap between white and 
minority households in this country? If not, what would?

A.11. No, and in fact the proposal would likely widen the home-
ownership gap between white households and households of color. 
Substantial resources and bold ideas are needed to address the 
centuries of discrimination against communities of color in 
this country and the resulting racial wealth gap. To start, CRL 
encourages Congress to consider the ideas discussed in our 
testimony (see pages 19-28).

Q.12. Are there any particular reforms that have stemmed from 
HERA and the creation of FHFA that you feel should be preserved 
or expanded as part of any housing finance reform?

A.12. Further reform should include continuing and expanding 
permanent utility-type oversight and regulation of the GSEs, 
their products, and pricing; the prohibitions on lobbying and 
political contributions; the reductions and limitations on 
portfolios; and strong capitalization of the GSEs. The GSEs 
should continue and expand their credit risk transfer programs 
to reduce and diversify their risk. HERA also carried forward 
the GSEs' public interest obligations and they must be 
preserved.

Q.13. Do you have concerns with the Chairman's proposal? If so, 
please explain why and what amendment you would suggest to 
remedy these concerns.

A.13. Although we are glad to see the prohibition on volume 
discounts and the preservation of the cash window in the 
Chairman's outline, these protections are not enough to ensure 
small lenders have equal access to the secondary market. 
Furthermore, we
oppose eliminating the affordable-housing goals and the broad 
duty-to-serve mandate. The proposed market access fund is not a 
sufficient replacement. We oppose minimum down-payment 
requirements, as well as turning FHFA into a commission rather 
than a single director. We are glad to see a provision on FHFA 
approving guarantor pricing. However, this is insufficient to 
prevent guarantors from only serving the most profitable areas 
or wealthy borrowers. A national duty-to-serve mandate is 
necessary to ensure broad access to credit across the United 
States.

Q.14. Are there any proposed changes in the Chairman's proposal 
you think make our housing finance system better? Please define 
those.

A.14. CRL supports the prohibition on volume discounts, the 
preservation of the cash window, and regulator approval of 
pricing. However, as stated above, we do not believe these 
provisions are sufficient on their own.

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