    [Senate Hearing 116-180]
    [From the U.S. Government Publishing Office]

                                                       S. Hrg. 116-180

                       HOUSING FINANCE REFORM: NEXT STEPS

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

                                    HEARING

                                   BEFORE THE

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

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

    RECEIVING AN UPDATE FROM GOVERNMENT AGENCIES ON DEVELOPING A FRAMEWORK
       FOR ADMINISTRATIVE AND LEGISLATIVE REFORM OF THE FEDERAL HOUSING
                                 FINANCE SYSTEM

                                   __________

                               SEPTEMBER 10, 2019

                                   __________

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

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

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

                                  __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    40-380 PDF                 WASHINGTON : 2021

    -----------------------------------------------------------------------------------

                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

                    Laura Swanson, Democratic Staff Director

                              Matt Jones, 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

                                  ----------

                          TUESDAY, SEPTEMBER 10, 2019

                                                                       Page

    Opening statement of Chairman Crapo..............................     1
        Prepared statement...........................................    42

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     2
            Prepared statement.......................................    42

                                   WITNESSES

    Steven T. Mnuchin, Secretary, Department of the Treasury.........     4
        Prepared statement...........................................    44
        Responses to written questions of:
            Chairman Crapo...........................................    53
            Senator Brown............................................    54
            Senator Menendez.........................................    64
            Senator Scott............................................    65
            Senator Warren...........................................    66
            Senator Rounds...........................................    71
            Senator Tillis...........................................    72
            Senator Moran............................................    73
            Senator Cortez Masto.....................................    75
            Senator Sinema...........................................    82
    Benjamin S. Carson, Sr., M.D., Secretary, Department of Housing
      and Urban Development..........................................     6
        Prepared statement...........................................    45
        Responses to written questions of:
            Senator Brown............................................    83
            Senator Menendez.........................................    86
            Senator Scott............................................    87
            Senator Warren...........................................    89
            Senator Cortez Masto.....................................    94
    Mark A. Calabria, Ph.D., Director, Federal Housing Finance Agency     8
        Prepared statement...........................................    49
        Responses to written questions of:
            Senator Brown............................................    99
            Senator Menendez.........................................
            Senator Scott............................................   104
            Senator Warren...........................................   105
            Senator Cotton...........................................   109
            Senator Tillis...........................................   111
            Senator Moran............................................   111
            Senator Cortez Masto.....................................   113
            Senator Sinema...........................................   126

                  Additional Material Supplied for the Record

    Letters submitted by the National Urban League on behalf of
      coalition of civil rights and affordable housing organizations.   128
    Letter submitted by the Credit Union National Association (CUNA).   138
    Letter submitted by the Real Estate Roundtable...................   142
    Letter submitted by the CRE Finance Council......................   143
    Statement submitted by the Independent Community Bankers of
      America (ICBA).................................................   144
    Letter submitted by the National Association of Federally-Insured
      Credit Unions (NAFCU)..........................................   151
    Letter submitted by the National Multifamily Housing Council
      (NMHC) and the National Apartment Association (NAA)............   152
    Statement submitted by the American Bankers Association..........   154

                       HOUSING FINANCE REFORM: NEXT STEPS

                                  ----------

                          TUESDAY, SEPTEMBER 10, 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. This hearing will come to order.
        Today we are joined by the leading voices within the
    Administration on reforming and strengthening our housing
    finance system: the Secretary of the Treasury and the Secretary
    of Housing and Urban Development, both of whom have just
    submitted housing finance reform proposals to the President, as
    well as the Director of the Federal Housing Finance Agency, who
    serves as the regulator and conservator of Fannie Mae and
    Freddie Mac.
        I want to thank each of you for coming to the Committee
    this morning.
        Last Friday marked 11 years since the Government bailed out
    and put Fannie Mae and Freddie Mac into conservatorship, where
    they remain today.
        Prior to 2008, the two Government-sponsored enterprises
    held just 45 cents in capital for every $100 in mortgages they
    guaranteed. Now they hold just 19 cents, after a historic $200
    billion bailout from the taxpayers.
        Eleven years later, these systemically important companies
    continue to be too big to fail and are even more leveraged than
    they were before the financial crisis, and taxpayers inevitably
    remain on the hook in the event of the next market downturn.
        In March, President Trump signed a Presidential Memorandum
    directing the Department of the Treasury and the Department of
    Housing and Urban Development to develop a plan for
    administrative and legislative reform of the Federal housing
    finance system.
        Many of the legislative recommendations in the plans that
    were released on Thursday are consistent with my outline to fix
    our housing finance system, including attracting private
    capital back into the market, protecting taxpayers against
    future bailouts, and promoting competition, as well as
    preserving certain important incremental reforms that have
    already taken place during the conservatorship, including a
    robust transfer of credit risk, the single security and common
    securitization platform, and loan pricing that does not vary
    based on a lender's size.
        The status quo is not and has not been acceptable, and my
    strong preference remains to fix it through comprehensive
    legislation.
        Five years ago, this Committee demonstrated that it is
    possible to come together and advance a comprehensive solution
    on this topic.
        This year, I released my housing reform outline, which
    builds upon many of the same principles of those previous
    efforts.
        It sets out a blueprint for a permanent, sustainable new
    housing finance system that protects taxpayers by reducing the
    systemic, too-big-to-fail risk posed by the current mortgage
    guarantors.
        It preserves the existing infrastructure in the housing
    finance system that works well while significantly increasing
    the role of private capital.
        It establishes several new layers of protection between
    mortgage credit risk and taxpayers.
        It ensures a level playing field for originators of all
    sizes and types while also locking in uniform, responsible
    underwriting standards.
        And it promotes broad accessibility to mortgage credit,
    including in underserved markets.
        Ultimately, only Congress has the tools necessary to
    provide the holistic, comprehensive reform to our system that
    will be durable through any market cycle.
        However, it is important for the Administration to begin
    moving forward with incremental steps that move the system in
    the right direction.
        After 11 years of conservatorship, it is long past time to
    make the hard decisions and address this last unfinished
    business of the last financial crisis.
        Senator Brown.

               OPENING STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Mr. Chairman. Welcome to the
    witnesses. Welcome back to my colleagues.
        We are going to hear from the Trump administration today
    about the ``next steps'' on housing finance reform. It is clear
    from the plan they put out last week what President Trump
    thinks these steps should be: The Trump plan will make
    mortgages more expensive and harder to get.
        We should not have to tell the President we have an
    affordable housing crisis in this country. We all know it; we
    all see it.
        I see it when I talk to residents of a manufactured housing
    community on the verge of losing their homes because they
    cannot afford the rent increase imposed by wealthy private
    equity investors from outside their States who just bought
    their community.
        I see it when I drive past the boarded-up houses that
    belonged to the victims of predatory lending in my home city of
    Cleveland, in my neighborhood of Slavic Village, and it happens
    across the country.
        I see it when I talk to young people in their twenties and
    thirties who want to buy a home, but who drown in student debt
    and cannot save enough for a downpayment or afford a mortgage.
        These are the real crises facing real families all across
    Ohio and across our country.
        They are renters, they are homeowners, and they are former
    homeowners. They all have one thing in common: They cannot
    afford a place to call home.
        We have had productive hearings in this Committee where we
    talked about what it would take for the housing finance system
    to actually work for working families.
        In March, we held two hearings with representatives from
    the home builders, the Realtors, the mortgage bankers, the
    credit unions, the civil rights community, and multifamily
    lenders.
        We heard during those hearings that affordability and
    access are not just components of housing finance. They are the
    whole reason we have a housing finance system. They cannot be
    an afterthought once we have answered other questions about the
    structure of the housing finance system. They have to be built
    into the system.
        We need a housing system built on a mission to serve
    borrowers and renters, no matter who they are, what kind of
    work they do, or where they live.
        That means we need policies that focus on increasing
    service for underserved markets, like rural areas and
    manufactured housing homeowners and borrowers who have been
    locked out of the market for decades because of discrimination.
        And we need a system that helps a wide variety of lenders
    and borrowers participate so that they can meet all families'
    needs, particularly those who have been left behind for
    generations.
        In our March hearings and in the hearings since, we have
    heard housing stakeholders remarkably coalescing around a few
    foundational principles for reform. They have consensus. They
    have said that reform should protect access to affordable 30-
    year fixed-rate mortgages. They have said that reform should
    provide a catastrophic Government guarantee. They have said
    that we should structure loan guarantors like public utilities,
    providing a regulated rate of return. They have said we should
    serve a broad, national market. They have said we should serve
    lenders of all types and sizes equitably. They have said we
    should maintain a duty to serve all markets and all borrowers.
    They have said we should maintain affordable housing goals and
    metrics. They have said we should expand investment in
    affordable housing. And they have said we should maintain the
    GSEs' successful multifamily business models and ensure
    continued or better access for financing of affordable rental
    housing.
        Yet, unsurprisingly, President Trump and his Administration
    missed the point.
        Rather than create a system that addresses the needs of
    working families, the Trump administration has put out half-
    baked proposals that will make mortgages more expensive and
    harder to get.
        In addition to increasing costs, the plan would make it
    harder for small lenders to compete and would gut the existing
    tools we have now to help underserved families finally find an
    affordable apartment or own their first home.
        The President's plans would also roll back consumer
    protections and investor disclosures put in place following the
    financial crisis, and as we know, there has been a collective
    amnesia on this
    Committee and in this Administration to prevent predatory loans
    and toxic securities from building up in our financial system.
        So let us be clear: Whether you are renting and want to buy
    a home or own a home and someday want to sell it, President
    Trump's plan hurts you--all to funnel, no surprise here, all to
    funnel more money to the same Wall Street system that wrecked
    the housing market and wrecked families' lives in 2008.
        I was encouraged when I saw that Treasury's plan had nine
    separate proposals dedicated to ``leveling the playing field.''
        I thought this might mean, maybe hope against hope, might
    mean leveling the playing field for communities of color, young
    households trapped by student debt, or renters who cannot
    afford to save for a downpayment.
        So you can imagine my disappointment when I saw that all
    nine proposals--every last one of them--were about ``leveling
    the playing field'' for Wall Street, which is looking to make
    money off of working families' mortgages.
        Really?
        Of course, we should not be surprised. The White House
    looks like a retreat for Wall Street executives. Only this plan
    is the same as every other Trump administration plan. It is
    about making it easier for Wall Street, in the President's home
    city, making it easier for Wall Street to profit off
    hardworking families.
        These plans come in the midst of a flurry of other
    troubling Administration proposals to weaken fair housing and
    fair lending protections, to gut a bedrock civil rights law,
    the Community Reinvestment Act.
        Taken together, the President has once again--once again--
    decided to betray working families in Youngstown, in Cleveland,
    in Baltimore--Baltimore, Secretary Carson, Baltimore the city
    that the President finds is so beloved--once again decided to
    side with Wall Street wealth over the dignity of work.
        We do not need to make it easier for Wall Street to get
    richer. To quote Secretary Carson, ``news flash, rich people
    are going to get richer anyway.''
        We need to make it easier for every American family to find
    an affordable place to call home.
        Housing should not be optional. It is a basic need. No one
    should go without it in this great country.
        Thank you, Mr. Chairman.
        Chairman Crapo. Our witnesses today are the Honorable
    Steven T. Mnuchin, Secretary of the Treasury; the Honorable
    Benjamin S. Carson, Secretary of Housing and Urban Development;
    and the Honorable Mark A. Calabria, the Director of the Federal
    Housing Finance Agency.
        Secretary Mnuchin, you may begin.

     STATEMENT OF STEVEN T. MNUCHIN, SECRETARY, DEPARTMENT OF THE
                                TREASURY

        Mr. Mnuchin. Thank you. Chairman Crapo, Ranking Member
    Brown, and Members of the Committee, I am pleased to be with
    you today to discuss the Treasury Department's Housing Finance
    Reform Plan that will protect taxpayers and foster competition
    in the market.
        I would like to thank Chairman Crapo and the Committee for
    your work on this important issue. The outline you released in
    February was a productive step toward ensuring the safety and
    stability of our housing finance system.
        In September of 2008, the Government-sponsored enterprises
    Fannie Mae and Freddie Mac were placed into conservatorship by
    FHFA. Treasury has provided the GSEs with over $190 billion in
    taxpayer assistance.
        Eleven years later, the GSEs remain in conservatorship and
    continue to be supported by a Treasury commitment to keep them
    solvent. The continued conservatorships of the GSEs have
    perpetuated far-reaching Government influence over the housing
    finance sector. The lack of reform has left taxpayers exposed
    to future bailouts.
        Treasury's Housing Plan includes almost 50 recommended
    actions. These measures would reduce the role of the Federal
    Government, enhance taxpayer protections against future
    bailouts, and increase private sector competition in the
    housing system.
        As required by President Trump's directive, Treasury's plan
    shows that the GSEs can and should be reformed to ensure their
    safety and soundness. Although no law prescribes a specific
    endpoint for the conservatorships, no conservatorship is meant
    to be permanent, and that includes FHFA's management of the
    GSEs. The plan provides a road map to release them from
    conservatorship.
        Treasury's reform plan takes great care to preserve what
    works in the system. Each of the Treasury's recommended reforms
    is incremental, realistic, and balanced. In particular, the
    Treasury plan would preserve the longstanding Government
    support of the 30-year fixed-rate mortgage loan. That support
    should be explicitly defined, tailored, and paid for. Treasury
    recommends that Congress authorize an explicit, paid-for
    guarantee backed by the full faith and credit of the Federal
    Government that is limited to the timely payment of principal
    and interest on qualifying mortgage-backed securities. To
    foster competition, this guarantee should be available to the
    GSEs and also to any other FHFA-approved competitor.
        Moreover, the regulatory environment should be harmonized
    so that the GSEs and private sector competitors operate on a
    level playing field. For example, the GSEs currently have a
    competitive advantage over other participants under the so-
    called QM patch to the Consumer Financial Protection Bureau's
    ability-to-repay rule. In July 2019, the CFPB announced that
    the QM patch would expire in January 2021 or after a short
    extension. Treasury supports the CFPB's planned expiration of
    the QM patch, and it also supports further revisions to the
    ability-to-repay rule to ensure that mortgage lenders continue
    to have a bright-line safe harbor after the QM patch.
        Finally, I must emphasize our recommendations make it clear
    that the Administration's preference is to work with Congress
    to enact comprehensive housing reform legislation. Legislation
    could achieve long-lasting structural reform that tailors
    explicit Government support of the secondary market and repeals
    the GSEs' congressional charters and other statutory privileges
    that give them a competitive advantage. At the same time, we
    believe that reform can and should proceed administratively.
    Pending legislation, Treasury will continue to support FHFA's
    administrative actions to enhance regulation, promote private
    sector competition, and satisfy the preconditions set forth in
    the plan for ending the GSEs' conservatorships.
        Under the leadership of the President, I am proud of all
    the work we have done to create conditions for greater economic
    growth, more and better opportunities for working families, and
    higher wages for all Americans. Today I look forward to
    discussing with you the critical issue of housing finance
    reform. I truly hope that the Committee will work with us on a
    bipartisan basis to move forward with legislation.
        Thank you very much, and I look forward to answering your
    questions.
        Chairman Crapo. Thank you, Secretary Mnuchin.
        Secretary Carson.

        STATEMENT OF BENJAMIN S. CARSON, SR., M.D., SECRETARY,
              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

        Mr. Carson. Chairman Crapo, Ranking Member Brown, and
    Members of the Committee, thank you for this opportunity to
    appear before you today to discuss how the U.S. Department of
    Housing and Urban Development will support this
    Administration's effort to reform the Nation's housing finance
    system.
        I also want to thank the tremendous team that we have
    assembled at HUD. We say we have the ugliest building but the
    best people, and a special shout-out to Mike Kelley, whose
    birthday is today.
        In the years since the financial crisis, the Federal
    Government has continued to play an outsized role in the
    Nation's housing finance system. It is imperative that Congress
    and the Administration act to refocus this system that we
    support appropriate and responsible access to credit and ensure
    Government programs do not overlap with and crowd out private
    capital.
        I am pleased to present an overview of HUD's Housing
    Finance Reform Plan we submitted to the President last week.
    HUD supports millions of families with affordable homeownership
    opportunities through the Federal Housing Administration and
    Ginnie Mae, providing credit access and liquidity in the
    mortgage market.
        During the financial crisis, and because of the policies of
    the previous Administration, FHA's and Ginnie Mae's balance
    sheets swelled, growing by approximately 350 percent and 400
    percent, respectively, between the years of 2007 and 2018. Our
    reform plan will reduce the Federal Government's outsized role
    in housing finance and protection taxpayers.
        To that end, I ask Congress to work with the Administration
    on four key pillars: number one, return FHA to its core mission
    of serving low- and moderate-income families, including first-
    time home buyers, who cannot be served through traditional
    underwriting; to protect American taxpayers, number two, from
    the risk of bailouts; number three, to provide FHA and Ginnie
    Mae with the tools they need to manage the risk associated with
    oversized portfolios; and, four, to provide liquidity to the
    housing finance system.
        Our Housing Finance Reform Plan contains many
    recommendations, but for the sake of my oral testimony today,
    let me focus on just a few.
        First, return FHA to its core mission. We ought to allow
    the private market to work, and in those areas where it cannot
    or will not work, we must make certain that we target programs
    to borrowers not served by traditional underwriting.
    Historically, this has been FHA's most important contribution
    to the American housing market: facilitating earlier entry into
    home ownership for these families, particularly first-time home
    buyers. Without FHA mortgage insurance, millions of lower-
    income and middle-income families would lack access to
    affordable mortgage credit. Refocusing on its core mission will
    strengthen FHA's ability to help creditworthy borrowers build
    equity and avoid foreclosure.
        Second, a central principle of our plan is that Federal
    mortgage credit policies should be better coordinated in order
    to allow qualified borrowers to access responsible and
    affordable credit options. Our plan proposes that HUD and FHFA
    will coordinate to ensure Fannie Mae, Freddie Mac, and FHA
    serve defined roles within the marketplace. HUD recommends that
    Congress establish FHA, the Department of Veterans Affairs, and
    the Department of Agriculture as the sole source of low-
    downpayment financing for borrowers not served by the
    conventional mortgage market.
        Third, to better protect taxpayers, we need to strengthen
    FHA's risk management systems. FHA currently insures more than
    $1.4 trillion in mortgage debt. Meanwhile, Ginnie Mae
    guarantees more than $2 trillion in mortgage-backed securities.
    It is imperative that FHA and Ginnie Mae conduct their business
    in a manner that protects American taxpayers. FHA must maintain
    an appropriate level of capital reserves. It is unacceptable
    for the agency to ever again require a draw on taxpayer funds
    to sustain its book of business, as it did in the previous
    Administration. Our plan strengthens FHA governance and builds
    its capital ratio well above the statutory 2 percent minimum to
    safeguard the agency against episodes of market decrease.
        To fulfill this duty to taxpayers and ensure it continues
    to provide affordable access to mortgage credit for mission-
    focused borrowers, FHA needs some independence from broader HUD
    protocols that govern staffing, procurement, and technology.
    Therefore, our plan has recommended that Congress enact
    legislation that would restructure FHA as an autonomous
    Government-owned corporation within HUD.
        In conclusion, the Presidential Memorandum provides an
    opportunity for Congress and the Administration to work
    together to ensure FHA and Ginnie Mae serve their important
    missions effectively, responsibly, and sustainably. I welcome
    Congress' participation as this Administration reforms these
    agencies to be better able to fulfill their responsibilities to
    borrowers and to the American taxpayers with that cooperation.
        Thank you, and I look forward to answering your questions.
        Chairman Crapo. Thank you, Secretary Carson.
        Director Calabria.

        STATEMENT OF MARK A. CALABRIA, Ph.D., DIRECTOR, FEDERAL
                         HOUSING FINANCE AGENCY

        Mr. Calabria. Chairman Crapo, Ranking Member Brown, and
    distinguished Members of the Committee, thank you for the
    invitation to appear at this morning's hearing. I can think of
    few issues in our financial system deserving of more attention.
        Our Nation's housing finance system is in urgent need of
    reform. The status quo poses significant risk to taxpayers,
    homeowners, renters, and the entire financial system.
        I want to thank Secretary Mnuchin and Secretary Carson for
    their efforts to develop comprehensive housing finance reform
    plans. They lay out a responsible road map to build a more
    resilient housing finance system that protects taxpayers and
    maintains access. I also want to thank Secretary Mnuchin for
    the opportunity to have offered commentary on the Treasury's
    plan during its development.
        These plans are broadly consistent with my top priorities,
    first of all to cement FHFA as a world-class regulator; second,
    to restore Fannie and Freddie to safe and sound condition by
    building capital to match their risk profiles. Building capital
    would also begin the process to end the conservatorships, which
    have lasted more than 11 years. I will note by comparison the
    longest bank conservatorship was 18 months.
        A root cause of the 2008 financial crisis was imprudent
    mortgage lending backed by insufficient capital. I believe that
    this fundamental problem remains unresolved today. While
    borrower average credit scores have modestly improved, the
    enterprises' shares of low downpayment and high debt-to-income
    mortgages are back to their 2004 levels. Fueling rapidly rising
    house prices with easy mortgage credit from undercapitalized
    enterprises is a mistake, and it will end in disaster.
        In their current financial condition, the enterprises are
    not equipped to withstand a downturn in the housing market. The
    enterprises own or guarantee a combined $5.5 trillion in
    single-family and multifamily mortgages out of a $12 trillion
    combined market. Yet with just $6 billion in allowable capital,
    the enterprises approach a combined leverage ratio of nearly a
    thousand to one.
        In comparison, our Nation's largest financial institutions
    have an average leverage ratio of ten to one.
        The most recent DFAST for the GSEs I think illustrates this
    example. In the last crisis, housing prices declined by about
    27 percent. The DFAST results modeled a 25-percent decline.
    Under such conditions, the enterprises lose over $40 billion in
    capital.
        Given that the housing supply appears to have become more
    inelastic since the crisis, we should actually expect greater
    price volatility going forward.
        Let me also emphasize that our current mortgage finance
    system undercuts sustainable home ownership. The enterprises
    have expanded with the economy recently yet maintained risk and
    capital levels that ensure that they will fail in a downturn.
    This procyclical pattern harms low-income borrowers, making it
    easier to extend credit when the economy is strong but harder
    to keep those homes when the economy is weakened.
        Our housing finance system is supposed to serve homeowners
    and renters while protecting taxpayers. In my view, it does
    neither. The Administration's plan aims to address these
    problems, and I applaud them for their efforts.
        Congress, however, is the only body that can enact the
    structural reforms that are needed to fix today's broken
    system.
        Compared to the duopoly of the enterprises, a fair and
    competitive secondary mortgage market would better serve
    borrowers and renters and promote long-term stability by
    ensuring that inefficient firms do not survive and that no firm
    is ``too big to fail.''
        The Ranking Member mentioned increasing service and access,
    a goal I share. I think we have witnessed in one industry after
    another that the best guarantee for increasing access and
    lowering prices is an open, competitive market, not a monopoly,
    not a duopoly.
        Some would argue that reform should wait for a crisis. I
    believe that this would be shortsighted. We found in the last
    crisis that it is difficult to do reform in the midst of a
    crisis. To paraphrase President Kennedy, the time to repair the
    roof is when the sun is shining.
        Now is the time for needed reforms because our economy and
    housing market are strong. This will not always be the case.
        While I am, of course, not forecasting a downturn, I do
    believe it is my responsibility as a potential regulator to
    hope for the best but to prepare for the worst.
        Therefore, I intend, fulfilling my statutory duties, to
    strengthen FHFA, enable the enterprises to build capital to
    match their risk profiles, and to end the conservatorships.
    These reforms are critical to building a resilient mortgage
    finance system that protects taxpayers and delivers a diverse
    range of housing options at affordable prices. In the interim,
    I believe modest reforms can help me do my job better.
        For instance, in June I asked Congress for the authority,
    similar to other financial regulators, to develop broader
    capital standards and to charter new enterprises. These
    commonsense proposals that other financial regulators have
    these powers need not wait for broader reform.
        In far too many areas of our Nation, we face an affordable
    housing crisis. Too often this has been the result of misguided
    local land-use and building regulations. In other areas,
    housing supply remains constrained due to a lack of
    construction labor. For the enterprises to play an important
    role in addressing this crisis, they themselves must be fixed.
    Adding more weight to an already cracked foundation is to
    invite collapse.
        Thank you again for the opportunity to testify, and I look
    forward to your questions.
        Chairman Crapo. Thank you, Director Calabria.
        My first question is to all three of you, and this could be
    a yes or no answer, but feel free to elaborate if you would
    like to clarify.
        Do you all agree that Fannie Mae and Freddie Mac are
    systemically important companies, that they continue to be too
    big to fail, and are even more leveraged now than they were
    before the financial crisis? Secretary Mnuchin.
        Mr. Mnuchin. Yes, in their current form, I do.
        Mr. Carson. I would agree as well.
        Mr. Calabria. Yes, in their current form.
        Chairman Crapo. All right. Thank you.
        I think I heard you each say this, but I want to ask it
    again. Do you each agree that the ideal outcome is for Congress
    to reach a comprehensive solution?
        Mr. Mnuchin. I absolutely support that.
        Mr. Carson. I think that would be the best permanent
    outcome.
        Mr. Calabria. I would emphasize that I believe only
    Congress can reach a comprehensive solution.
        Chairman Crapo. So by saying that, Director Calabria, that
    does not mean that the Administration and the appropriate
    regulatory agencies cannot make significant steps?
        Mr. Calabria. Absolutely correct.
        Chairman Crapo. And that leads to my next question, and
    that is, as we work to get a solution here in Congress, do you
    also agree that it is time for the Administration to act and to
    start building the foundation and taking the necessary steps
    that it can take in order to address this issue and actually
    help Congress get to a comprehensive solution?
        Mr. Mnuchin. We absolutely feel it is our responsibility to
    work both tracks, but our priority is to work with Congress on
    a bipartisan basis, and we will do everything we can to achieve
    that.
        Chairman Crapo. Thank you. Secretary Carson?
        Mr. Carson. And I think, you know, housing is obviously
    very important to everybody across any political spectrum. And
    anything that we do is going to be questioned as biased. So,
    yes, working with Congress is going to be the best way to do
    it.
        Mr. Calabria. Absolutely, Mr. Chairman, I think that the
    Administration should move forward. I should move forward. I
    will tell you, as a safety and soundness regulator, when I look
    at a $3 trillion institution that is leveraged a thousand to
    one, it keeps me up at night. So my focus is fixing that.
        Chairman Crapo. Well, thank you, and I will answer that
    same question back to you. I also believe that while it is the
    proper role for Congress to solve this and that only Congress
    can give the comprehensive solution that is needed, there are
    significant reforms that can be accomplished and can help
    actually move us in the direction of the reform that I have
    outlined in my outline and that I believe we need to achieve
    here in Congress. And I encourage you to act and to help us to
    get to that point.
        In that context--and this question really is probably more
    specifically to Treasury and HUD--I would like you to talk a
    little bit about what the next steps that can be taken should
    be. And, again, in that context, it seems to me that a couple
    of the important ones that I have identified in your reports
    and in the discussion are capital and amending the PSPAs. But
    whatever your answer to the question is, what do you believe we
    should start seeing prompt action on?
        Mr. Mnuchin. So our priority is to make sure that the GSEs
    have more capital. We are in active discussions with the
    Director and the FHFA about renegotiating our agreements with
    them, which would allow for removing the net worth sweeps so
    that we would allow a significant amount of capital to be
    accumulated, but in return for that, make sure that the
    taxpayers are compensated for the ongoing Treasury support. And
    that is something that the Director and I hope to achieve very
    quickly.
        Chairman Crapo. Secretary Carson?
        Mr. Carson. I think the most important things are obviously
    refocusing Ginnie Mae and FHA on our primary mission, which is
    providing opportunities for capital and credit to be extended
    to nontraditional markets; also providing the tools to these
    two entities that are necessary to deal with the various risks
    associated with management; providing liquidity to the world's
    largest financial market; and protecting the taxpayers. That is
    really what a lot of this is all about, and what happened last
    time around should never be allowed to happen again.
        Chairman Crapo. Thank you. And in my last 30 seconds, I did
    not mean to leave you out, Director. You have got a major role
    here.
        Mr. Calabria. Thank you, Mr. Chairman. Absolutely, my
    primary focus at first is going to be trying to build capital,
    but also trying to make sure that FHFA as an agency is ready
    for a post-conservatorship world in terms of our supervision
    function, in terms of the powers we have, and in terms of the
    powers we may ask you that we may need.
        Chairman Crapo. All right. Thank you. I made it with 10
    seconds to go.
        Senator Brown.
        Senator Brown. I probably will not, Mr. Chairman. Thank
    you.
        Secretary Mnuchin and Secretary Carson, the Presidential
    Memorandum that directed your agencies to complete the plans we
    discuss today said those plans were to be submitted to the
    President for his approval. A question to the two of you. Has
    the President approved your plan, Mr. Secretary?
        Mr. Mnuchin. We have briefed the President, and he has
    accepted the plans?
        Senator Brown. He has approved it?
        Mr. Mnuchin. Well, I believe----
        Senator Brown. Is accepted approved? Let me ask the
    question. Has he approved the plan, yes or no?
        Mr. Mnuchin. I do not know if he explicitly approved the
    plan. We will get back to you. We briefed the President, and he
    accepted the plans.
        Senator Brown. So you handed it to him and he said, ``Thank
    you for the plan.'' OK.
        Mr. Mnuchin. Not we handed it to him. We briefed him. The
    Secretary and I went through and extensively briefed him.
        Senator Brown. OK, OK. I get it.
        Secretary Carson?
        Mr. Carson. I agree.
        Senator Brown. OK. So is it possible he did not approve the
    plan? Because he and his in-depth knowledge of finance and all
    things Government knows they will make mortgages more expensive
    and harder to get perhaps? You know, if the GSEs and FHFA cut
    out their most profitable lines of business and still have to
    cover their costs, they will have to raise rates on the
    borrowers who are left. I mean, that is clear. It seems to me
    that you cannot come here and say the President approved the
    plan, even though he wanted--the whole process would be so that
    he approved it, because the whole argument comes down to trust
    Wall Street. Just trust Wall Street does not really work these
    days. We should know.
        Secretary Mnuchin, the majority of new households formed
    between now and 2030 will be headed by people of color. We
    already have a 30-point gap in home ownership between black and
    white households, a 25-plus-percent gap between Hispanic and
    non-Hispanic white households. This is not mentioned in either
    of these plans.
        In your press release, you said the Treasury Department met
    with ``a wide range of stakeholders, including affordable
    housing advocates.'' How does your plan reflect the priority of
    civil rights organizations and the need for affordable housing
    and community development and credit access for people of
    color?
        Mr. Mnuchin. Well, let me first just comment we disagree
    that this is going to raise mortgage rates, and that we will
    be----
        Senator Brown. Of course you do.
        Mr. Mnuchin.----very clear that we are very careful, we
    support the 30-year mortgage, and we are not going to do
    anything to jeopardize that for hardworking Americans.
        Also, we very much support the duty to serve as well as
    affordable housing goals, and we look forward to working with
    you and with the Chairman----
        Senator Brown. Not a lot of evidence that you support
    those.
        Mr. Mnuchin. Well, I believe we do. As a matter of fact, we
    specifically say in the report, OK, that we believe in
    affordable housing but we think that they should be replaced
    with something that is more efficient, transparent, and
    accountable. We want to make sure that affordable housing goals
    are met and that the money is being used carefully. And I look
    forward to working with you, so if you have ideas how we can do
    this in a better way, we look forward to working with you----
        Senator Brown. Well, we do. There was consensus, as I laid
    out in my opening statement, and your staff--I do not know how
    much of this you read, but your staff certainly saw this,
    watched or at least is informed of those hearings where there
    was consensus among almost the entire panels and the whole
    industry that we could do these things. And you pretty much
    ignored that in this.
        But go back to this question. Why no mention of people of
    color in this gap?
        Mr. Mnuchin. I think we have referenced the duty to serve.
    That is a very important issue that you have outlined, and this
    is something that we look forward to working with you on.
        I would say our priority is to make sure we maintain
    affordable housing and duty to serve, but also to make sure
    that the taxpayers are not at continued risk and we do not have
    another bailout of these entities.
        Senator Brown. Secretary Mnuchin, your plan calls for
    shrinking Fannie and Freddie's role in the housing market,
    cutting back on their activities, opening up their underwriting
    systems for anyone else to use, giving away their data, giving
    price advantages to their new competitors. You also say the
    GSEs, all three of you said GSEs need more capital, and suggest
    raising capital through an initial public offering, or an IPO.
        You grew up in the private investor world and the Wall
    Street world. You were a private investor. Would you invest in
    GSEs under the Trump administration's plan to shrink them and
    give away their assets?
        Mr. Mnuchin. I would.
        Senator Brown. And to raise the capital you say they need,
    you would have to raise more money than any company in IPO
    history right after the Trump administration has shrunk their
    businesses and given away their most valuable assets in your
    sort of cream-skimming privatization scheme that we have seen
    in other parts of the Government? It just strikes me as highly,
    highly unlikely that they can raise that kind of--they can have
    that successful an IPO, that kind of money, considering what
    you have done.
        Mr. Chairman, before I close, I would like to enter in the
    record a letter from 22 civil rights and affordable housing
    organizations outlining their principles for reform; a letter
    from eight civil rights organizations, the Urban League, the
    NAACP, UnidosUS, Center for Responsible Lending, National Fair
    Housing Alliance, National Community Reinvestment Coalition,
    National Capacity, and the Leadership Conference on Civil and
    Human Rights. These letters outline why these civil rights
    leaders, what they see as the essential elements of a
    sustainable, equitable housing finance system. Few of these
    priorities, as we have seen from Secretary Mnuchin's answers,
    or non-answers, few of them appear in the President's Housing
    Plan.
        Chairman Crapo. Without objection.
        Senator Toomey.
        Senator Toomey. Thank you very much, Mr. Chairman. Thank
    you to our witnesses.
        Mr. Chairman, first of all, thanks for kind of launching
    this conversation with your thoughts recently about how to move
    forward on GSE reform. I think what the Treasury report has
    laid out is a very, very constructive set of ideas that we
    ought to consider very seriously, and I want to thank all of
    our witnesses for contributing to that.
        Let me start by saying it is clear to me that it is a lack
    of housing stock more than a lack of subsidies that is the
    primary cause of an affordability problem, which is a real
    problem. But it is a Government-inflicted problem. Now,
    typically, it is State and local, but housing is not immune to
    laws of physics or laws of economics. If there is not
    sufficient supply to meet the existing demand, then it becomes
    more expensive, and vice versa. And I never ceased to be amazed
    by the jurisdictions with the most severe affordability
    problems and the things they do to exacerbate the problems,
    like San Francisco blocking an affordable housing development
    because it casts a shadow on a park. OK? That is going to make
    affordable housing more expensive. Or California as a whole
    requiring that all new houses have to have solar panels
    installed, thereby raising the cost of houses. And rent
    control, which clearly and obviously exacerbates housing
    shortages where it is imposed.
        So, first of all, I want to thank Dr. Carson for important
    work that you have been doing in identifying impediments to the
    delivery of new affordable housing stock. And I guess I would
    like to direct to Dr. Calabria, if there are things that we
    could be doing in the reform, acknowledging that I think most
    of these obstacles occur at the State and local level, are
    there things we can do to go to the fundamental underlying
    problem, which is inadequate supply?
        Mr. Calabria. First, let me say I could not agree with you
    more strongly that the fundamental problem is inadequate
    supply. And the primary driver of that is State and local
    regulations, and it really does concern me, the damage that has
    been done to our economy and to affordability and to access
    from these barriers. And this truly is causing an affordable
    housing crisis in many parts of this country. And so we have to
    recognize that while the mortgage market and mortgage finance
    does play a role, it cannot fix this problem by itself.
        I think the extent that we can encourage and work with
    localities--and, again, I would applaud as well Secretary
    Carson's effort in this regard to try to bring some focus on
    trying to reform local land use and regulation.
        Senator Toomey. So as I understand, the Treasury report
    acknowledges that there is a statutory role to support
    affordability. But as I read it, the report identifies a flaw
    in the mechanism that the GSEs use, and as I think about it, it
    seems to me that our GSEs use an indirect subsidy. In other
    words, the subsidy does not go directly to people who have a
    low income. The subsidy tends to go to high credit risk loans.
    And you might think that high credit risk is a good proxy for
    low income, but it is really not. A very wealthy person can
    have an extraordinarily high risk loan.
        Mr. Calabria. Absolutely.
        Senator Toomey. And a person of very modest means could
    have a very prudent and low-risk loan. So isn't it true that we
    could design the subsidy in a more transparent, clear, and
    efficient fashion, that if we are going to provide a subsidy,
    it is actually targeting low-income folks rather than sort of
    distorting and arguably encouraging more high-risk
    transactions? And that is really for Dr. Calabria as well as
    Secretary Mnuchin.
        Mr. Calabria. Let me say I absolutely agree. A handful of
    studies have looked at this question, and while the correlation
    between income and credit is positive, it is weak. And so you
    are right, there are plenty of high-income people who have poor
    credit and plenty of low-income people who have good credit. So
    I absolutely do believe we can better target the resources we
    have in a more efficient manner to try to get people home
    ownership that would not be there otherwise and get them in
    sustainable home ownership.
        Senator Toomey. Secretary Mnuchin, it seemed like you were
    alluding to this dynamic a moment ago. Is there anything you
    want to add to that?
        Mr. Mnuchin. Yes, Senator Toomey. I agree with you
    completely. First, we absolutely support wanting to make sure
    there is affordable housing, but we want to do it in the most
    effective way. And I think we would all agree that the previous
    system did not work, and that is part of the reason why the
    GSEs got into trouble.
        So I would hope that this Committee will work with us on a
    bipartisan basis to figure out what is the best way to deliver
    this support in affordable housing.
        Senator Toomey. Thanks very much. I do not have enough time
    to get into my next line of questioning, Mr. Chairman, so I
    will yield my last 13 seconds.
        Chairman Crapo. Senator Menendez.
        Senator Menendez. Thank you. Thank you to our witnesses.
        I would like to start with an important issue for New
    Jersey and many other communities represented by Members on
    both sides of the Committee. As part of your plan, Treasury is
    recommending that FHFA solicit information on whether to tailor
    support for higher principal balance loans, which any
    reasonable person would interpret to mean that Treasury is
    seeking to lower conforming loan limits. Doing so would have a
    seriously negative impact on the housing markets in States like
    New Jersey.
        So, Secretary Mnuchin, why would you recommend that the
    FHFA ``solicit information'' on whether the FHFA should
    effectively lower conforming loan limits if Director Calabria
    asserts that the FHFA does not have the authority to
    administratively change conforming loan limits?
        Mr. Mnuchin. Congress has the responsibility on loan
    limits. Having any changes would require Congress. Having said
    that, we always think it is important to solicit information on
    the markets, and specifically in New Jersey, we do not want to
    do anything to jeopardize the housing markets in New Jersey.
    And I completely understand in the tri-State area the cost of
    living is significantly higher.
        Senator Menendez. It is not just the tri-State area. There
    are many places in the country in which----
        Mr. Mnuchin. There are many, but I was just referring to
    New Jersey and the places----
        Senator Menendez. For me, it is not just simply--it is an
    important local issue, but it is not a parochial issue alone.
    So you do agree then, as Director Calabria said in his
    testimony in his nomination hearing, that he does not have the
    authority to administratively change those conforming loan
    limits?
        Mr. Mnuchin. I am going to defer to him on his legal
    analysis, but I think our legal analysis is that is Congress'
    responsibility.
        Senator Menendez. Your legal analysis, Director Calabria,
    is still the same as when you testified in your confirmation
    hearing?
        Mr. Calabria. Yes, Senator.
        Senator Menendez. Thank you very much. So we have
    established that.
        Now let me turn to the multifamily rental housing, which is
    a critical part of the housing market in New Jersey and across
    the country. More than 18 million households in the United
    States live in multifamily rental housing, including a million
    New Jerseyans. The GSEs play a vital role by ensuring that
    multifamily housing is widely available through the economic
    cycle.
        As you know, the multifamily businesses at Freddie and
    Fannie performed quite well and remained profitable during the
    worst of the financial crisis, a time in which we saw most
    private investors exit this segment of the market entirely.
        Secretary Mnuchin, the Treasury report recommends that
    Treasury and FHFA should consider limiting support of the GSEs'
    multifamily business. We heard from witnesses before this very
    same Committee in the multifamily industry in March that
    private capital alone cannot fill the void that would be left
    without GSE financing, and that would mean aggravating the
    housing crisis that already exists in States like New Jersey
    and across the country, leaving renters with fewer and more
    expensive housing options.
        Have you conducted any analysis on what private sector
    financing for the multifamily housing market would look like if
    the GSEs' capacity to purchase multifamily loans is curtailed
    as described by your plan?
        Mr. Mnuchin. Well, I am not sure we necessarily think it is
    curtailed. I think we just need to look at it in the risk
    context. And I know there are external people who thought the
    GSEs should get out of the multifamily business. I do not agree
    with that. I think that the GSEs absolutely need to be in the
    multifamily business. I would say that, more broadly, there are
    issues given the GSEs' exposure in multifamily. There are
    obviously certain rent control rules and others that have now--
    I am concerned are going to limit the housing stock. So we
    absolutely----
        Senator Menendez. So you did not conduct an analysis here.
    Let me ask you this other question as a follow-up then. What
    makes you confident that the private market can fill the void?
    Or do you not believe that the private market can fill the
    void?
        Mr. Mnuchin. I am not saying that the private market can or
    cannot fill the void, but we are going to continue to do more
    analysis. We are just saying that we want to make sure that the
    GSEs have the appropriate risk. So we very much support
    multifamily lending with the GSEs.
        Senator Menendez. All right. Finally, Secretary Carson, on
    a different but urgent matter, in previous cases where lead was
    found in drinking water systems, Federal assistance was
    critical in helping communities remediate their water systems
    and reduce potential lead exposure. As I am sure you know, the
    city of Newark
    recently discovered elevated lead levels from some limited
    water samples. I have already called on the EPA to provide on-
    the-ground support and technical assistance, but I believe HUD
    needs to be part of the solution as well. In 2016, HUD assigned
    a full-time staff member to assist HUD residents in the greater
    Flint region and provide technical assistance to city and State
    agencies.
        So I want to ask you, Mr. Secretary, as the city of Newark
    and the surrounding communities continue to address this issue,
    would you commit that if HUD-assisted properties are affected,
    you will assign a full-time staff member to assist both HUD
    residents and city and State agencies looking to tailor their
    CDBG funding to mitigate the risks of lead?
        Mr. Carson. Well, thank you, Senator, for your interest in
    this, and thank you for the help that you gave us on the carbon
    monoxide poisoning as well.
        As you have noted in our budgetary request over the last 2
    to 3 years, we have placed a great deal of emphasis on lead and
    on communities that are affected by it. So I will commit to
    continuing to do that and continuing to raise the profile of
    this issue in New Jersey and elsewhere.
        Senator Menendez. I appreciate that, but my specific
    question, Mr. Chairman--and I appreciate your indulgence a
    moment--is: Would you commit, as we did in Flint, to have a
    person who is designated for Newark and the surrounding
    communities that are affected by this to assist them as it
    relates to the flexibility that has been shown in the past in
    CDBG funding?
        Mr. Carson. I will commit to doing everything that we
    possibly can do to alleviate the problem there, and if that
    involves a specific person or a dozen specific people, we will
    do what is necessary.
        Senator Menendez. All right. Thank you, Mr. Secretary.
        Chairman Crapo. Senator Cotton.
        Senator Cotton. Thank you, Mr. Chairman, and thank you,
    gentlemen, for appearing here today. Thank you, Secretary
    Carson, in particular for coming down to Arkansas earlier this
    year.
        I want to return to an issue that Senator Toomey touched
    upon, and that is restrictions on supply in housing, and
    especially local restrictions. It sounded like we had some
    agreement between Senator Toomey, a well-known conservative
    mind when it comes to housing and finance policy, and our
    Republican witnesses. I just want to read from another
    statement about these restrictions and get your response to
    them, in particular, Secretary Carson and Mr. Calabria:

            Locally constructed barriers to new housing development include
            beneficial environmental protections or well-intentioned
            permitting processes or historic preservation roles, but also
            laws plainly designed to exclude multifamily or affordable
            housing. Local policies acting as barriers to housing supply
            include land use restrictions that make developable land much
            more costly than it is inherently, zoning restrictions, off-
            street parking requirements, arbitrary or antiquated
            preservation regulations, residential conversion restrictions,
            and unnecessarily slow permitting processes.

        Secretary Carson, does that sound like a pretty good
    catalogue of local restrictions that reduce affordable housing
    supply?
        Mr. Carson. That sounds like a good catalogue, and,
    interestingly enough, what we have observed, in areas that have
    the greatest affordable housing needs and the largest number of
    homeless people, we have the largest number of restrictions. If
    you look at a place like San Francisco, the median home price
    in the San Francisco Bay Area is $1.6 million, and you look at
    Los Angeles with the requirements for solar paneling, and a lot
    of this, quite frankly, is because of NIMBY-ism, you know, not
    in my back yard. But NIMBY-ism is actually based on archaic
    thinking. They believe that the Federal Government still acts
    the way that it used to, you know, building these gigantic
    complexes with little forethought, afterthought, or an
    immediate thought or support. And that is not what is done
    anymore. Now we are talking about public-private partnerships.
    We are talking about multiple incomes. We are talking about
    conforming to the architectural and cultural issues in the
    area. We are not talking about putting a multifamily house or
    complex in the middle of a single-family neighborhood. People
    have wrong impressions of what we are doing.
        We actually care about what people think, but it can be
    done in the right way so that firemen and policemen and nurses
    can live in the same neighborhood where they work. I think that
    actually enhances the community.
        Senator Cotton. Mr. Calabria?
        Mr. Calabria. Let me say I very fully agree, and I think
    part of the problem is, particularly in places like California,
    the process just has multiple vetoes where people can object
    and object to construction, and you do need streamlining of
    that. That said, I think we should look to cities that have
    done a good job. As Senator Smith is aware, Minneapolis
    recently has upzoned and I think done a very smart maneuver
    there on the local level that will help affordable housing in
    that area. So I think there are good lessons to learn as well
    as some lessons to learn in cities that do not work.
        Senator Cotton. Well, that long catalogue of local
    restrictions that retard the supply of affordable housing comes
    from none other than President Barack Obama's White House
    Housing Plan in September of 2016. So I hope now that we have
    agreement between President Barack Obama, Mark Calabria, Ben
    Carson, and Pat Toomey that we could try to address this
    problem perhaps by looking at ways to condition grants on more
    affordable housing policies at the local level.
        Another local policy, of course, is education policy.
    Anybody who has a child that has been going to school knows the
    pressure of getting in a good school district. I want to read a
    few quotes from a well-known book about the stress on middle-
    class families:

            In the overwhelming majority of cases, a bureaucrat picks the
            child's school, not a parent. The way for parents to exercise
            any choice is to buy a different home, which is exactly how the
            bidding wars started.

            The crisis in education is not only a crisis of reading and
            arithmetic. It is also a crisis of middle-class family
            economics. At the core of the problem is the time-honored role
            that where you live dictates where you go to school. Any policy
            that loosens the ironclad relationship between location,
            location, location and school, school, school would eliminate
            the need for parents to pay an inflated price for a home just
            because it happens to lie within the boundaries of a desirable
            school district. A well-designed voucher program would fit the
            bill neatly. Fully funded vouchers would relieve parents from
            the terrible choice of leaving their kids in a lousy school or
            bankrupting themselves to escape those schools. If a meaningful
            public school voucher system were instituted, the U.S. housing
            market would change forever.

        Gentlemen, those quotes are from----
        Mr. Calabria. Elizabeth Warren.
        Senator Cotton.----Senator Warren's book from 2003 in
    support of a school voucher program. I know that you do not do
    education policy, but do you agree that local education rules
    can negatively impact affordable housing prices?
        Mr. Calabria. I do, and let me also say her passages in
    that book on housing subsidies are a delightful read that I
    would encourage Members of the Committee to take a look at.
        Senator Cotton. I know my time has expired, but perhaps you
    can find an ally on the other side of the aisle, along with
    Secretary DeVos, to both improve the quality of education in
    America and affordable housing. Thank you.
        Mr. Calabria. Thank you.
        Chairman Crapo. Senator Tester.
        Senator Tester. Thank you, Mr. Chairman and Ranking Member
    Brown, and I want to thank all the folks who are testifying
    today. I will tell you at the onset it is good to have you in
    front of the Committee. I wish we had you in front of the
    Committee more often. It does not happen enough that we have
    folks from the Administration here to visit with us.
        Dr. Carson, you are always welcome back in Montana, too.
        Mr. Carson. Thank you.
        Senator Tester. You got a chance to see some rural housing.
    And I do not want to talk about housing in San Francisco or LA
    or Denver, New York City or Atlanta or Miami or Houston. I want
    to talk about housing in Miles City and Plentywood and Great
    Falls and Billings and Missoula, in Pablo, in Rocky Boy,
    because, quite frankly, we are talking about large cities, and
    we have got just as big a crisis in rural America, if not
    worse, and nobody is paying attention to it.
        So I want to start with you, Secretary Mnuchin. When this
    plan was developed, how much effort was put into getting
    information from rural/frontier America on affordable housing?
        Mr. Mnuchin. Well, first, let me say I enjoyed visiting
    many of those places during the President's campaign, so I put
    Montana----
        Senator Tester. Yes, you were there, and even during my
    campaign. I do not know if you were with him or not, but----
        [Laughter.]
        Mr. Mnuchin. So I very much appreciate and support this
    should not be a big-city housing plan.
        Senator Tester. Right.
        Mr. Mnuchin. This should be a housing plan that impacts----
        Senator Tester. Right, but the question is: How much
    information did you gather when you developed this plan from
    rural/frontier areas? Because, you know, rural is the area
    between Baltimore and Washington, DC, in some people's eye. We
    do not have that kind of population in Montana, even in our
    most populated areas. So how much information was gathered
    from----
        Mr. Mnuchin. I think we solicited from a variety, but I am
    going to get back to you on the specifics.
        Senator Tester. I would appreciate it.
        Mr. Mnuchin. But I assure you, more importantly, I
    understand the point that you are trying to say, and this
    should very much help the people in Montana, not just the
    people in New York and California.
        Senator Tester. Well, it is critical, and I will get into
    that in a second. But when it comes to regulation of shadows
    and solar panels and rent control, those are really good issues
    for us to talk about here. But Miles City, Montana, the only
    regulation is you cannot build in a floodplain. OK? And we
    still do not have housing. So that is the point. And in your
    plan, I just want to get an idea, you talked about they need to
    serve--the guarantors need to serve a national market, but then
    it is also suggested that Congress should not require
    guarantors to serve a national plan but in individual markets.
        Where are you on that? And I assume what you are saying is
    that you want to have a rule that supports national service,
    but Congress should undermine that and make it individual
    markets.
        Mr. Mnuchin. No, no, that is not the case.
        Senator Tester. Tell me what it says then.
        Mr. Mnuchin. We support the national concept, but we are
    looking at that and saying it cannot just be a national plan;
    it also has to have specific plans, as you said, that impact
    places like Montana and make sure that they are not left
    behind.
        Senator Tester. So the intent was to promote more access
    for rural frontier areas.
        Mr. Mnuchin. Yes.
        Senator Tester. Could it be used to do exactly the
    opposite, though?
        Mr. Mnuchin. Well, that is not our intent, and as I said,
    our priority is to work with Congress so that there is clarity
    in these issues. We want to make sure, whether it is this
    Director or any other future Director, it does not change----
        Senator Tester. I just want to make sure, though, Secretary
    Mnuchin, that--you are saying the right things right now, but
    the truth is if you have a national plan and then it can be
    undermined to serve just individual markets, it looks to me
    like it would actually--money would flow to the bigger areas
    where there is more population.
        Mr. Mnuchin. That is not our intent. And, again, working
    with Congress, we will refine and define these issues.
        Senator Tester. OK. So let me talk about the 30-year fixed-
    rate mortgage for a second because in the report it ultimately
    suggests maintaining the 30-year fixed-rate mortgage, but it
    also says it is possible that a 30-year fixed-rate mortgage
    loan could remain widely available and at similar prices under
    a market structure that does not depend on Government support.
        Can you tell me why this line is in there?
        Mr. Mnuchin. Well, I think there is--first of all, again,
    let me just emphasize, we very much support the 30-year
    mortgage, although I will say the 30-year mortgage might not be
    for everybody, and there are different products----
        Senator Tester. I got it, but what I hear that saying is
    the 30-year fixed-rate mortgage could exist without any
    Government backing. Do you guys believe that?
        Mr. Mnuchin. No, we do not. There could be parts of the 30-
    year mortgage market--i.e., the large jumbo market--that do not
    need Government guarantees and will have a 30-year mortgage.
        Senator Tester. So you would agree, without that Government
    backing of a 30-year fixed-rate mortgage, that it would have a
    pretty negative impact on housing, whether it is--regardless?
        Mr. Mnuchin. We need either an implicit or an explicit
    Government backing, and that is why we would rather have the
    taxpayers compensated for explicit support
        Senator Tester. I used your and Toomey's over, so thank
    you.
        [Laughter.]
        Chairman Crapo. I noticed. Thank you.
        Senator Rounds.
        Senator Rounds. Thank you, Mr. Chairman, and I want to
    thank you and our panelists for the hard work on these
    proposals. Housing finance reform is a difficult issue to
    tackle, and I appreciate their dedication to ending the decade-
    long GSE conservatorship.
        There is something else as well I would like to just add at
    this time. There are challenges within housing within the
    United States in rural areas, as my colleague on the other side
    of the aisle has just indicated. I am just going to give an
    example, and I know, Secretary Carson, we had a discussion on
    this the other day. Indian reservations, Native Americans, have
    a real challenge because we have Indian trust lands, and trying
    to find a way to move forward so that they can also purchase
    houses is something that is of real importance in South Dakota.
        Just as an example, the VA, they do VA loans for Native
    Americans who are veterans who now live back on a reservation.
    The Minneapolis office about a year ago received recognition
    because they had the highest number of those mortgages that had
    been issued in the previous year--five in the entire region.
    Simply not acceptable. There has got to be a way forward.
        And so we look at this, I do not think this is a Republican
    issue or a Democrat issue. I think this is a case of where we
    have to find a way forward to fix the challenges.
        I would like to say to all of my colleagues on both sides
    of the aisle that I believe that the door should be open when
    it comes to working out pathway forward to ending
    conservatorship of the GSEs.
        Chairman Crapo was able to come to a consensus with then-
    Chairman Tim Johnson, who was my predecessor, about how to
    unwind conservatorship in a bill that passed out of Committee
    on a bipartisan vote. There is no reason that we should not be
    able to navigate those same concerns today.
        Today's hearing should also serve as a warning. As we have
    all read, the Trump administration is determined to bring the
    GSE conservatorship to an end, and it has clearly defined ways
    that it can do so. While my colleagues might object to certain
    parts of the Administration's plan, these objections are no
    justification for not attempting to at least find a path
    forward within this Committee. There is common ground that
    could be had, and it is very unfortunate if we are not able to
    hold a markup on this approach.
        It has been 500 days since this Committee has held a
    markup. If your concerns are genuine in this Committee, if our
    Committee Members are serious about doing something, I think
    this is the time in which we can perhaps find some common
    ground.
        My first question I would like to direct to Secretary
    Carson. Mr. Secretary, I note with great interest HUD's
    proposal to transform the Federal Housing Administration into
    an independently chartered Government corporation. Now, I agree
    with HUD that this would provide FHA with the autonomy it needs
    to better execute its mission, especially serving first-time
    and low-income home buyers, while still allowing for HUD to
    have oversight and regulatory authority.
        I would like to point out to my colleagues on the other
    side of the aisle that this is not an idea that comes from the
    radical right. President Obama's FHA Commissioner, Carol
    Galante, has proposed the same reform. Nonetheless, Mr.
    Secretary, I have drafted legislation that would do just as you
    proposed, but some of my colleagues have expressed reservations
    that reforming the FHA into a Government-chartered corporation
    would impact HUD's funding for other programs. My view is that
    the receipts from FHA mortgage insurance would still be
    available to offset the costs of other HUD spending.
        I have offered to give my colleagues on the other side of
    the aisle an opportunity to rewrite or to have input into this
    section of the bill, but so far I have not received any takers.
        My question is: Could you briefly discuss how to achieve a
    more independent FHA without jeopardizing HUD's funding?
        Mr. Carson. Thank you for that question, and I did very
    much enjoy our time I spent in your State. Interestingly
    enough, we have not said anything about the receipts all being
    swept into any particular area. So that obviously is not going
    to be a particular problem. The reason that we want to separate
    it out into an individual corporation very much like Ginnie Mae
    is so that they can have the flexibility of doing their own
    procurement, their own hiring, staffing, being able to respond
    quickly and with agility to market conditions that occur. They
    would still report to the HUD Secretary, and we would still be
    able to align our missions.
        So consider the fact that right now the FHA Commissioner
    has to deal with a lot of housing assistance needs also. Those
    really require their own separate entity so that we can really
    concentrate on public housing, you know, on multifamily, in a
    way that it should be concentrated on.
        Senator Rounds. Thank you, Mr. Chairman. My time has
    expired. I would ask for the opportunity to ask several
    questions for the record that I would ask you all to respond
    to.
        Senator Rounds. Thank you, Mr. Chairman.
        Chairman Crapo. Senator Warner.
        Senator Warner. Thank you, Mr. Chairman. And good to see
    the witnesses.
        I have spent a lot of time on this subject over the last
    many, many years, and where I want to focus today, Secretary
    Mnuchin, is particularly less on what you aspire for
    legislatively but what potentially might happen
    administratively. And I have to say at the outset I am a little
    concerned that it appears to me from your administrative
    proposals, we could end up with a system that actually does not
    end too big to fail and does not increase affordable access to
    credit, and that is of grave concern to me.
        First of all, I want to associate myself with Senator
    Menendez, who I think rightfully pointed out that in
    multifamily, not a problem, was not part of the crisis, but in
    the administrative component of your proposal, you are trying
    to lower the GSE multifamily caps. To me, that means smaller
    support for multifamily. I am concerned about that.
        Also in your administrative proposal--so, again, let us not
    talk about legislatively--we continue to see this theme around
    trying to lower the GSE footprint. If we have a lower GSE
    footprint, if we have higher capital requirements, just the
    logic of that would mean you would have a much smaller revenue
    base, and under that
    assumption, wouldn't that mean the GSEs would deliver less
    cross-subsidy in the system?
        Mr. Mnuchin. First, I just want to acknowledge the work
    that you have personally done on legislation, and I truly hope
    that you will work with us because I know you have spent a lot
    of time on this. And as----
        Senator Warner. I know more about this subject than I ever
    wanted to know.
        [Laughter.]
        Mr. Mnuchin. Exactly. And we hope not to lose all that
    knowledge.
        So, you know, again, I just want to--when we comment on
    multifamilies, the GSEs have gone from 25 to 40 percent of
    market share, which I think is fine. We are not looking to take
    it back down to 25 percent. We just do not want to see it go
    higher than----
        Senator Warner. Administratively, I thought you said you
    wanted to lower the GSE multifamily caps.
        Mr. Mnuchin. Again, we want to----
        Senator Warner. Which I would read as slowing down. Go to
    my other question, though, which is if you are lowering--making
    the footprint smaller, if you are raising capital, which is
    appropriate, isn't that going to mean de facto a decrease in
    the cross-subsidies that take place?
        Mr. Mnuchin. No, not necessarily.
        Senator Warner. How do we do that?
        Mr. Mnuchin. Again, I think that cross-subsidy is something
    that we have. As we have talked about, some of it is efficient;
    some of it is inefficient. Again, our priority----
        Senator Warner. I would like to see some more detail on
    that. I do not, respectfully, see how you make that happen.
        Dr. Calabria, let me ask you this: If you end up on your
    administrative and in the net worth sweeps, will you continue
    to fund the Housing Trust Fund? Just give me a yes or no.
        Mr. Calabria. As long as the conditions in the statute that
    require it, yes.
        Senator Warner. So you will sweep all the profits and try
    to buildup capital, but you are committing here to continue to
    fund the Housing Trust Fund?
        Mr. Calabria. As long as the conditions in statute are met
    for funding it, then yes, absolutely.
        Senator Warner. There is a great deal of discussion about
    whether----
        Mr. Calabria. What the statute says, agreed. But I am bound
    by what the statute says.
        Senator Warner. Now, my sense is, Secretary Mnuchin, that--
    you know, I know you talk about potentially for additional
    entrants coming into the market, but my concern is on your
    administrative proposal that what you are really talking about
    on Fannie and Freddie is recap and release, which is going to
    keep us with a duopoly, even with higher capital standards,
    which it is going to put us right back to where we were prior
    to 2008. I do not know how that gets rid of our too-big-to-fail
    issue.
        So one of the things you answered, you both addressed when
    Senator Crapo raised about as currently constituted, these
    entities are too big to fail. If you go forward--and this is
    both for Dr. Calabria and Secretary Mnuchin. If you go ahead
    and go through on your recap and release plan, would you both
    recommend that the GSEs be designated as SIFIs by FSOC?
        Mr. Mnuchin. Thank you. I think that is an important
    question. So, first, let me just say we do not believe in a
    simple recap and release. I want to make that very clear.
        Second----
        Senator Warner. That is not the way, respectfully, I read
    your proposal, but continue.
        Mr. Mnuchin. I just said I want to make that very clear.
        The second thing I would say is we absolutely would expect,
    either in the administrative way or working with Congress, that
    we would go to FSOC, and before we raised public capital, we
    would make sure we understood that there was enough capital so
    that they did not need to be designated.
        Senator Warner. Dr. Calabria?
        Mr. Calabria. I would agree with the Secretary's statement
    there.
        Senator Warner. So neither one of you think under your
    recap-and-release scheme that the GSEs will be SIFI designated?
        Mr. Calabria. Senator, as a member of FSOC, while I believe
    that there is more than sufficient information to begin a
    process, I also think it is important as a member of FSOC to
    never start with the presumption that any entity is necessary
    systemic until you have actually run the process.
        Senator Warner. The only thing I would just point out, Mr.
    Chairman, is that when you and the Ranking Member had, I
    thought, a very helpful hearing on this, I believe every
    witness across the ideological spectrum thought that the GSEs
    should receive that FSOC SIFI designation. And, again, this
    concerns me gravely that we could somehow end up with a scheme
    where we end up with a duopoly, somehow they are not even going
    to get SIFI designation, and I believe we are right back in the
    middle of too big to fail.
        Thank you, gentlemen.
        Chairman Crapo. Thank you, Senator Warner.
        Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman.
        Mr. Director, as an American, do you believe that I have a
    right to own a home even if I cannot afford it?
        Mr. Calabria. I think you have a right to own property,
    yes, own a home. Now, whether you can afford it opens up to
    whether you can actually buy that home. I mean, it is the same
    in terms of you have the right to drive a Mercedes. Whether you
    can afford it or not is a separate question.
        Senator Kennedy. Right.
        Mr. Calabria. So I am not sure where you are going with the
    question, Senator. It would be helpful for me to parse that
    out.
        Senator Kennedy. I just want to understand your philosophy.
    Do you think that as an American, if I cannot afford a home, I
    have a fundamental right to have other Americans subsidize me?
        Mr. Calabria. Thank you for the clarification. The short
    answer would be no.
        Senator Kennedy. OK. I think everybody on this Committee, I
    think everybody on this panel believes we ought to do
    everything possible to make homes and mortgages affordable.
        Mr. Calabria. Absolutely.
        Senator Kennedy. OK. We can agree on that, right?
        Mr. Calabria. Absolutely, 100 percent.
        Senator Kennedy. Why would a lender make a loan without
    verifying income?
        Mr. Calabria. Agreed.
        Senator Kennedy. Why would they?
        Mr. Calabria. I think the only reason that a lender would
    reduce due diligence like verifying is because they can pass
    that risk along to someone else----
        Senator Kennedy. Yeah.
        Mr. Calabria.----like the taxpayer.
        Senator Kennedy. Yeah, because they can sell it to you
    guys.
        Mr. Calabria. Absolutely.
        Senator Kennedy. I mean, isn't that the fundamental problem
    here, how we got in trouble, was underwriting standards?
        Mr. Calabria. Absolutely. We are the ones holding the bag
    at the end of the day. After everybody else in the process has
    made money and walked away, it is the taxpayer holding the bag.
        Senator Kennedy. Well, what have you done to fix that?
        Mr. Calabria. Well, Senator, we have begun--I guess
    tomorrow will mark 5 months in the job. We have already started
    doing a bunch of due diligence internally, try to make sure
    that we have the regulatory----
        Senator Kennedy. That was not a fair question. What did
    your predecessor do to fix that over 11 years?
        Mr. Calabria. Senator, I think that, to me, I am looking at
    what needs to be done going forward. Obviously, I would have
    preferred to have inherited a different situation than I did,
    but----
        Senator Kennedy. Excuse me for interrupting, but, you know,
    we are limited on time, Mr. Director. Have underwriting
    standards gotten any more realistic?
        Mr. Calabria. They have gotten worse, not better. Certainly
    at the GSEs, we saw a massive expansion the last 2 years, at
    least, where a whole lot of high-income, high DTI loans were
    done that were not previously being done. So underwriting
    standards have eroded.
        Senator Kennedy. Yeah, that is what I thought.
        Mr. Calabria. And it concerns me greatly.
        Senator Kennedy. Well, this is just one point of view. This
    whole thing is a car wreck. It is a Dumpster fire. We spent
    $190 billion of taxpayer money, and we are in worse shape.
        Mr. Calabria. Agreed.
        Senator Kennedy. Now, here is what I think we ought to do.
    I am not in love with every aspect of your plan, but I would
    encourage you to get somebody to put it in the form of a bill,
    if you have not already, get it introduced, and let us mark it
    up in this Committee, Mr. Chairman and Mr. Ranking Member. Let
    us put it in front of the Committee, and let Senators be
    Senators, and let us try to put out the Dumpster fire. What do
    we have to lose? I mean, how long have we been talking about
    that? Doing nothing is hard. You know why? You never know when
    you are finished.
        [Laughter.]
        Mr. Calabria. Senator, I could not agree more.
        Senator Kennedy. Now, if that does not work--and I am not
    going to mislead you--it is going to kind of be like slamming--
    trying to slam a revolving door, to pass a bill through the
    Senate. I would encourage you, Mr. Director, to saddle up and
    go. Tell me what you can do with your administrative authority
    to put out this Dumpster fire.
        Mr. Calabria. Well, the first thing we----
        Senator Kennedy. And by that I mean encouraging people to
    make loans to people who clearly cannot afford to pay them
    back.
        Mr. Calabria. Senator, we will be de-risking the GSEs,
    particularly in the----
        Senator Kennedy. What does that mean?
        Mr. Calabria. That means that, on one hand, if you are
    leveraged a thousand to one, you cannot make loans that are
    almost guaranteed to go bad. So we have to be able to improve
    the quality of the lending of the GSEs in a way that is
    sustainable, that does not end up--I 100 percent agree. If we
    do nothing, this is going to end very badly, and----
        Senator Kennedy. Well, of course it is. We are going to
    have a recession at some point.
        Mr. Calabria. Absolutely.
        Senator Kennedy. What was the leverage ratio, Mr. Chairman,
    19 cents for every $100?
        Chairman Crapo. That is what I understand.
        Mr. Calabria. A thousand to one at Fannie Mae.
        Senator Kennedy. Now, let me say it again. I have got 1
    second left. Let us put this bill in front of this Committee,
    Mr. Chairman and Mr. Ranking Member, and let us see what we can
    do. I listened to Sherrod's comments. He made some good points.
    I do not agree with all of them, but I think we ought to flesh
    it out. But if we are not, let us just admit that Congress is
    going to sit on its ice-cold lazy butt, do nothing, and you
    need to get started trying to fix this car wreck, Mr. Director.
        Thank you, Mr. Chairman.
        Chairman Crapo. Senator Jones.
        Senator Jones. Thank you, Mr. Chairman. Thanks to the
    witnesses.
        I want to follow up on my friend Senator Kennedy. I
    absolutely agree with that, completely agree. We need to get
    this in front of this Committee. We need to get it, and we need
    to hash it out. But with all due respect to the Senator, I
    think we need to go farther than just this housing issue in
    this Committee. We need to get things to the floor of the U.S.
    Senate. We need to talk about gun violence. We need to talk
    about health care. We need to talk about election security.
        There are a lot of things that this Congress of the United
    States and the Senate of the United States need to act as the
    independent body that the Constitution set up and not just
    somebody that is there only if the President of the United
    States is going to sign a bill. So thank you, Senator, and I
    apologize if I took it a little further than what you
    anticipated. But I completely agree.
        The second thing, a quick comment, Secretary Mnuchin, and I
    will follow this up for the record. I believe that you earlier
    testified that--and I could be wrong, but I thought I heard you
    testify that the duty to serve the very low-, low-, and
    moderate-income families in this country was maintained in this
    report. I do not read this that way. I see on page 23 and 24 of
    the report where you are talking about reforming that, getting
    rid of that mandate, and replacing it with something that would
    involve assessments and congressional appropriations, which I
    think is a really slippery slope to try to do. As much as I
    like Senator Leahy and Senator Shelby's approach to
    appropriations, that may not always be the case and subject to
    the whim of a Congress or the Administration. So I will follow
    up with a question for the record.
        Senator Jones. There is one area I do want to talk about
    with Dr. Carson. Mr. Secretary, while I appreciate the
    Administration's efforts to move forward on housing reform, I
    do believe that overall these reforms are going to make it
    harder for working-class families to achieve home ownership and
    potentially put the dream of home ownership out of reach. In my
    view, open the discussions on that.
        But, more importantly, while these reforms are being
    discussed today, I think we also have to talk about some other
    so-called reforms that the Administration is making to housing
    in America. We have not seen you here for a few months--a year
    and a half, as a matter of fact. I do not know if we will get
    to see you again at any time in the future, so I want to ask
    you about a recent HUD proposal regarding our rules that I
    believe are going to dramatically undermine the ability to
    enforce the Fair Housing Act. I have thought time and time
    again in this Committee and others that housing discrimination
    in 2019 is persistent, but more often than not subtle, not
    always direct, and years of legal doctrine, including the
    Supreme Court, made it clear that if policies and practices of
    businesses unintentionally discriminate against racial minority
    or protected classes, it is illegal. It is called ``disparate
    impact,'' and the new rules I think make it nearly impossible
    to bring forward a discrimination case based on disparate
    impact. Fair housing is only as far as it can be enforced, and
    if we cannot bring disparate impact housing by very nature, it
    ain't fair. And I am concerned about this; every single major
    housing rights and civil rights advocate agreed that this rule
    is a major blow. Across the board, this rule introduced new
    hurdles for plaintiffs, including a new five-part test.
        Mr. Secretary, I think we can all agree that housing
    discrimination still exists in this country. Black
    homeownership rates are down to just 40 percent. That is not
    just because of discrimination. I get that. We are still
    pulling out of a recession. But the fact is they are down to 40
    percent, and black home ownership is actually lower now than it
    was in 1968 when the Fair Housing Act was passed.
        I would also like to point out that you have the ability to
    bring Secretary-initiated complaints. President Obama did it an
    average of ten times a year. President Bush did it an average
    of five times a year. But in the 2 \1/2\ years of the Trump
    administration, we have zero that you have initiated. So a
    cynic would say that this new rule is in part to justify the
    inaction of HUD in bringing these complaints when we know that
    they exist.
        So my question to you, sir, my question is simply: Explain
    this to me. Explain why we need this rule. Why is it important?
    Why do we need this when we know it exists? Give me an
    opportunity, give us an opportunity to explain why you are
    going to make it nearly impossible for people to bring
    disparate impact statements.
        Mr. Carson. Well, first of all, let me just mention the
    fact that our record stands for itself. The fact of the matter
    is, you know, we have initiated the Facebook complaint. We have
    gotten an agreement out of Los Angeles after almost 10 years of
    not taking care of disabled people's housing needs. We have
    launched one against San Francisco for discriminating against
    low-income people for housing. And if you look at our list of
    suits that have been brought, I think they would compare
    favorably with anyone else.
        As far as disparate impact is concerned, we are trying to
    bring it into alignment with the Supreme Court ruling for----
        Senator Jones. Oh, come on, Mr. Secretary. I am a lawyer.
    That dog is just not going to hunt. It is just not. This is
    not--the Supreme Court barely rolled back this. What you are
    doing is making--I have been practicing law for 40 years. What
    you are doing is making it just damn near impossible for a
    plaintiff to bring a disparate impact statement. It is not in
    line with the Supreme Court. The Supreme Court has affirmed
    this time and time again.
        Mr. Carson. In fact, we brought a complaint against San
    Francisco on disparate impact. You should go back and read it,
    and----
        Senator Jones. I will take a look. I am happy to do that.
        Mr. Carson. But the fact of the matter is, if Congress, for
    instance, were to raise the minimum wage rate to $15, who would
    be disproportionately affected? Low-skilled or unskilled
    workers, primarily minorities, in that area. That becomes a
    disparate impact against Congress. You begin to see what I am
    talking about here. You can have a disparate impact in almost
    anything. So what we want to do is clarify the way that it is
    done that would save taxpayers a lot of money.
        Senator Jones. All right. My time is up, sir, and I may
    follow up for the record. Let me just say this: It has been
    offered out for public comment, and I want to make sure that my
    public comment is recorded right now. If I need to do it in
    writing with a black Sharpie, I am happy to do that. But this
    is wrong. This is absolutely wrong, Mr. Secretary. This
    discrimination still exists in this country. We need to be
    affirmatively doing something about it and not making it more
    difficult.
        Mr. Carson. I would love to discuss it with you.
        Senator Jones. Thank you. Anytime. My door is wide open.
        Chairman Crapo. Senator Moran.
        Senator Moran. Mr. Chairman, thank you.
        Both HUD and Treasury proposals suggest that there be a
    distinct separation between the borrowers that use FHA
    financing and those that use GSE financing. How would this be
    achieved, and how would this separation help home buyers? Dr.
    Calabria?
        Mr. Calabria. Thank you for the question, Senator. I think
    the objective here which Dr. Carson talks about in his
    testimony is to try to reduce that competition at the margin,
    which has historically driven down credit standards. We
    certainly saw before the crisis where the GSEs aggressively
    tried to grab FHA market share and did so by reducing their
    standards. And, of course, many of those loans unfortunately
    turned out unsustainable and left homeowners in a position
    where they lost their homes. So, again, trying to encourage
    responsible, sustainable home ownership is the objective.
        To echo what Dr. Carson again has said, traditionally FHA
    has focused on the first-time home buyer, low-downpayment part
    of the market. And I think, first of all, I want to emphasize
    the objective here is not to have any gaps in the market, but
    the objective is to reduce some of that competition which has
    eroded standards in the past.
        Senator Moran. So it seems to me that our goal is to have a
    multiple guarantor system, and that is to boost the
    accountability to taxpayers. I assume that you all could tell
    me there are things that go on at the GSEs that deserve our
    attention in regard to accountability to taxpayers. We want
    financial innovation. We want greater consumer choice through
    competition.
        When we separate the GSE and the FHA, does that help
    achieve those goals?
        Mr. Carson. Who is that for?
        Senator Moran. Whoever has the answer that is one I can
    understand.
        [Laughter.]
        Senator Moran. And succinct.
        Mr. Carson. Well, I can speak for the FHA, and what our
    goals are and what our principal focus is in this
    reorganization is so that we can concentrate on those first-
    time home buyers, on minorities, on people who frequently do
    not have access to traditional credit markets. And this plan
    actually facilitates that rather than takes away from it.
        Senator Moran. One of the things, it seems to me, that the
    GSEs have been able to accumulate in this timeframe that we are
    in is greater access to technology and information. So if we
    have a new system, how do we force the sharing of the benefits
    in data and technology that those already established in the
    business have?
        Mr. Carson. Well, I can tell you that the GSEs were able to
    significantly upgrade their IT performance while they were in
    conservatorship thanks to the taxpayer. Therefore, what they
    have achieved in that area they should be willing to share, and
    I think they recognize that, and I think Congress should
    recognize that.
        Senator Moran. So you would see an increased transparency
    in sharing that GSE data and other information with the
    industry. Could that be a precondition to release from the
    conservatorship?
        Mr. Mnuchin. I think that is really the question for the
    FHFA, but I would agree with what you are alluding to, that
    these are one of the issues that we should be looking at.
        Senator Moran. Tell me where we are in regard to
    capitalization and where we need to be. What level of
    capitalization do you see is necessary--maybe this is for you,
    Mr. Secretary--at the GSEs to operate efficiently and, most
    importantly, to withstand any future significant financial
    downturn?
        Mr. Mnuchin. I think they need a lot of capital, let me
    just say. You know, what we are looking at now, $3 billion in
    each, is irresponsible in terms of the amount of capital that
    they have, and there is no way they could operate if it were
    not for the fact that they could draw on the Treasury lines,
    which, in essence, act as a capital backstop today.
        So we really see two things. One, retaining earnings, that
    is one way we will accumulate capital. And then, two, we will
    have to raise third-party capital. But, you know, again, if I
    were to give you a range of a number, it is more like $100
    billion than it is $6 billion.
        Senator Moran. What is the capitalization today compared to
    where we were before the crisis of 2007-08?
        Mr. Mnuchin. It is minuscule today.
        Senator Moran. So we are in worse shape going into any kind
    of significant major economic downturn than we were when we had
    the catastrophic consequences----
        Mr. Mnuchin. The GSEs could not operate today if it were
    not for the Treasury lines.
        Senator Moran. Thank you.
        Chairman Crapo. Senator Smith.
        Senator Smith. Thank you, Mr. Chair and Ranking Member
    Brown, and thank you all very much for being here today.
        You know, my office has been doing a whole series of
    meetings around housing all across Minnesota, small towns and
    rural areas and big cities, too. And I want to just do a note
    to Senator Rounds and Senator Tester for bringing up this issue
    and how it affects rural areas, and especially tribal areas.
        You know, what I have heard in these meetings is that if
    you do not have a safe, affordable place to live, then nothing
    else in your life works. Your job does not work. Your schooling
    does not work. Your health does not work. Your companies do not
    work because your employees do not have a place to live. So
    that is the way that I am looking at these really complex
    questions about what we do about the GSEs.
        And so I want to start with this: Dr. Calabria, you and I
    had a chance to talk some about this in July when you came to
    visit my office, and in July, you indicated that you thought
    that the Treasury report might be flexible enough to
    accommodate the GSEs operating like a utility, with a regulated
    rate of return. And you even thought that maybe that you would
    be opening to considering that kind of a utility model rather
    than a multi-guarantor model in order to make sure that we have
    got the equity in all the places and for all the families that
    we need equity for.
        So my question is: After reviewing the Treasury plan, do
    you think that a utility model would work?
        Mr. Calabria. Senator, let me first say I think under
    certain circumstances a utility model could work. I think it
    would be helpful for members who want to see a utility model to
    start fleshing that out.
        What I take away when people suggest utility is they mean
    regulated rate of return and, therefore, regulated pricing. As
    you know, currently in conservatorship we do regulate the
    pricing of the GSEs, and I just really would welcome having
    such regulatory flexibility outside of conservatorship.
        Senator Smith. Well, as Senator Brown said, as we have been
    working on this and looking at this, this idea of a utility-
    type model has emerged as something that there seems to be a
    lot of consensus around, and so I would like to--I think it is
    important that we continue that conversation, because what we
    are seeking here is a way of making sure that we get at the
    equity that we need in order to fulfill that dream that people
    in this country can own a house.
        Mr. Calabria. Absolutely.
        Senator Smith. Secretary?
        Mr. Mnuchin. I just want to comment on that as well, and we
    have actually had very specific conversations with the Chairman
    about this and with the Director and myself. We support working
    with this Committee on what you may consider to be a utility
    model. And, again, I would just say there are plenty of
    utilities where the pricing of the utility is regulated. And we
    do think that FHFA should maintain regulation and oversight of
    the pricing of the guarantee. So we look forward to working
    with this Committee on meeting objectives that go down that----
        Senator Smith. Well, I would be interested in continuing
    that conversation, and I think that is good.
        Now, Secretary Mnuchin, I just have to take this
    opportunity, since I have a chance to see you, I do not think
    that you and I have had a chance to meet before. You know, I
    just got back from Minnesota, spent August in Minnesota, and as
    you probably know, in Minnesota agriculture is really the
    bedrock of our economy. And as agriculture goes, so goes small
    towns and rural areas. And I talked to a lot of farm families
    at the State fair and in Hallock and East Grand Forks and all
    over the place. And, you know, Minnesotans, we do not like
    conflict. We are not quite like my colleague from Louisiana. We
    are pretty low key. But Minnesota farmers are telling me that
    they are devastated. That is their word. They are devastated by
    the President's tariffs. His tariffs on China.
        Gary Wertish, who is head of the Minnesota Farmers Union,
    says it has already driven some farmers off the farm, which not
    only hurts the farming community but it hurts rural small town
    communities. It has been devastating to rural America.
        So, Mr. Secretary, yesterday on Fox News, you talked about
    the Chinese tariff war, and you said, ``We have not yet seen
    any impact on the U.S. economy.'' And I just do not see how you
    can say that. You know, in 2017, China imported a little over
    $19 billion in U.S. ag products. That was in 2017. In 2018,
    $9.2 billion, a 50-percent drop. And Minnesota farm families
    are--they do not want to be told to be patient. They are afraid
    they are going to lose their farms.
        So my question is: Do you really believe that this tariff
    war, the President's tariff war, has not had an effect on our
    economy?
        Mr. Mnuchin. First, let me say I look forward to coming and
    spending time with you, so I will have my office reach out.
        Senator Smith. Thank you.
        Mr. Mnuchin. My comment was on a broad impact on a $22
    trillion economy. I also went on to say that there clearly are
    specific situations, some of which where we have given waivers.
    And I want to acknowledge on the farm area, we spent a lot of
    time even on trying to get an interim agreement to have China
    buy agriculture. So I very much appreciate what is going on. I
    never thought I would become an expert on soybeans and other
    agricultural products. I have been accused at times of just
    wanting to sell soybeans. That is not what we are trying to do.
    But we want to make sure that China treats our farmers fairly
    and does not retaliate against the farmers in an unfair way in
    the way we have been doing it, and I can tell you that is top
    of the agenda for the conversations we are having this month.
        Senator Smith. Well, I think Minnesota farmers, the soybean
    farmers in northwestern Minnesota have seen their sales drop by
    75 percent. They do not have any place to store the beans
    anymore. They feel like they are collateral damage in this
    trade war, and I think it is urgent that we----
        Mr. Mnuchin. I understand that, and I can also tell you
    there were specific commitments made in the Oval Office from
    the Chinese that they did not follow through on and that that
    has been a grave concern on us for U.S. farmers.
        Senator Smith. Thank you.
        Chairman Crapo. Senator McSally.
        Senator McSally. Thank you, Mr. Chairman. Thank you,
    gentlemen, for your testimony.
        I am from Arizona, and in the last housing crisis, I was
    serving in the military, and I will just share with you that so
    many of my neighbors lost their homes in a middle-class
    neighborhood of hardworking families. And this crisis hit
    Arizona really hard. The home costs, the home prices dropped
    about 56 percent in the 6 years after 2006. In the 5 years
    before that, home prices had, you know, nearly doubled.
        What you are describing today sounds even more dangerous
    than the conditions that we had prior to the last crisis. I
    have not been here that long, thank God, but--sorry. I should
    not have said that, but I am honored to serve Arizona. The
    point is, you know, as I am in this new role looking at this,
    people are expecting the Government to work for them. They are
    expecting--when we had the last crisis, we had so many people
    lose their homes--that modifications and changes would be made
    in order to make sure that we prevent this from happening
    again.
        But what you are describing today, if we do nothing, if
    none of the changes you are offering are what Congress needs to
    do moves forward, if it is just the status quo, we are at a
    similar or higher risk. I do not want to put words in your
    mouths, but a similar crisis. So how is it that we did not
    learn things from the last crisis that brought us to a better
    place as far as how the Government is functioning to protect
    home buyers and hardworking Arizonans? How did we get here? The
    thousand to one capital ratio is scary.
        Mr. Calabria. It absolutely is, and let me say first I very
    much recognize Arizona was ground zero for the crisis, and we
    certainly want to avoid that.
        Let me also assure you I have begun internally a review of
    servicing practices, and to me one of the real problems in the
    last crisis, these things changed weekly. There was very little
    guidance to borrowers. And so I am committed to making sure
    that when we do have the next downturn, which, again, I hope is
    a long ways away. But when we get there, I want to make sure
    that borrowers, lenders, Government, that we all know the rules
    of the game, that we know that people are going to be treated
    fairly.
        Perhaps I am a glass-half-full guy. I will say, having been
    on the staff of this Committee before the crisis, if you were
    in 2006, 2007, to even suggest housing prices might decline and
    there would be problems, you were kind of laughed at.
        So I think we have made progress. There is at last a broad
    recognition I think across the Committee that we do not want to
    repeat the crisis and that we can repeat the crisis if we do
    not make positive efforts.
        So having tried to do this once before, I feel like we are
    at a better spot than we were then.
        Senator McSally. Yeah, as opposed to trying to get through
    a crisis, the point is preventing the crisis in the first
    place. So it seems like we are in similar conditions. How is it
    that reforms have not been made in order to prevent us being in
    similar conditions? I mean, that is what my constituents would
    be hoping the Government would be doing.
        Mr. Calabria. I share that frustration. As noted, tomorrow
    will mark 5 months for me. I am frustrated that we, 11 years
    later, still have Fannie and Freddie in conservatorship, and
    again a thousand to one leverage for Fannie. This is not a safe
    situation to be in. I commit to you that we will be working as
    fast as we can to try to turn this ship around.
        Senator McSally. Any other--Secretary?
        Mr. Carson. Yeah, I would just say, you know, at FHA our
    substantial delinquency rates or early defaults are at the
    lowest rate that they have been. So changes have been made. We
    recognize what happened before with the manipulation of debt-
    to-income ratios and credit-scoring possibilities.
        And here is a key factor. You know, putting people in a
    home that they cannot afford does not do them any favors. You
    know, they lose the home, they lose their credit, they lose
    their future possibilities. That is playing into what is going
    on today.
        For instance, in the minority community, particularly in
    the African American community, we have fewer homeowners today
    than we had before the crisis because their credit was ruined.
    And in some of these cases, they were people who had good
    credit before. We are looking at that to see how we can help
    with that situation, but we want to make sure that we do learn
    from those things, and we have made substantial progress.
        Senator McSally. Great. Thanks. And I want to also share
    that, you know, I took a tour to all 15 counties of Arizona in
    my first 90 days, and affordable housing--I want to associate
    myself with my colleagues as well. Affordable housing for the
    workforce, whether that is rental is buying, is something that
    is a real challenge for many communities in Arizona, to include
    rural communities. And I know this is not all just a Federal
    issue, but this is something that is really impacting the
    people that I represent.
        So I think breaking down as many barriers as we can to
    provide better access is something that is really critical for
    Arizonans.
        Thank you.
        Chairman Crapo. Senator Reed.
        Senator Reed. Well, thank you.
        Director Calabria, thank you for being here today along
    with your colleagues. We have all talked about affordable
    housing. In fact, this is the most, I think, unanimous sort of
    sense of the criticality of affordable housing that I have
    heard in this Committee. There are two programs that directly
    aid affordable housing, and that is the Capital Magnet Fund and
    the Housing Trust Fund. They are funded through assessments on
    the agencies, not through the appropriations process. Will you
    commit to ensure that these are fully funded and will continue
    forward to support affordable housing?
        Mr. Calabria. Within the constraints of the statute,
    absolutely, yes.
        Senator Reed. Thank you very much.
        Now, I would like to direct a question to all the
    panelists--three questions, and I will start first with the
    Secretary of the Treasury. Secretary Mnuchin, you have done an
    analysis of the impact of this program, I presume. So can I
    just ask you to give a categorical sense or a general sense of
    who will not be able to get a mortgage under your proposal?
        Mr. Mnuchin. I do not think there is anybody who will not
    get a mortgage other than there may be certain people today who
    should not get mortgages because they really cannot afford
    them. But affordable mortgages are what we want.
        Senator Reed. So you have not identified any group of
    individuals that would be disadvantaged by the proposal?
        Mr. Mnuchin. The only thing is, as the Director has said,
    he is looking at the GSEs, which is really his responsibility.
    There may be certain high-risk loans that the GSEs are making
    that they should not, but that is his responsibility and not--
    --
        Senator Reed. I will ask him. Thank you, Mr. Secretary.
        Secretary Carson, from your analysis, do you know of any
    groups that would be left out?
        Mr. Carson. Yeah, well, certainly there are some people who
    probably should not be mortgage holders. For the cases of very
    disabled people, elderly people, people who are drug-addicted,
    who may be at risk of not making their payments, we have other
    programs for individuals like that.
        Senator Reed. And, Dr. Calabria, your analysis?
        Mr. Calabria. Well, Senator, I will note it is the
    Administration's plan, and being an independent regulator, we
    have not done an analysis of the Administration's plan.
        Senator Reed. OK. Again, going back to kind of the analysis
    underlying the proposal, will it cost more to get mortgages in
    your analysis? Have you done some data runs to show that rates
    will remain relatively constant?
        Mr. Mnuchin. We do not think it will cost more. Again, on
    the first question, what I was saying is there may be people
    who have giant cash-out mortgages today that are creating big
    risk to the GSEs that there should not be. That is what I was
    implying when--if there are people who will not get mortgages?
        Senator Reed. But it is a supposition; it is not an
    analytical analysis?
        Mr. Mnuchin. We would do an analytical analysis as part of
    this, but, no, we have not done that part yet today.
        Senator Reed. Dr. Carson, any comments on the cost?
        Mr. Carson. We do not have any analysis to dictate or that
    suggests that the prices will be raised. We are doing things to
    try to lower the prices, working with the servicers and making
    sure that they do the appropriate things, particularly before
    foreclosures.
        Mr. Calabria. Senator, if I could offer some commentary?
        Senator Reed. Yes, please.
        Mr. Calabria. I think it is important to keep in mind the
    plan suggests, and I have called for as well, increased
    competition. Again, it has been a few years since I was in grad
    school, but the economics I learned is that competitive markets
    provide lower cost and more access than monopolies and
    duopolies. So it is just hard for me to believe that bringing
    competition into this market will result in anything but lower
    prices. Again, I think there is a strong amount of evidence of
    that. Again, we look at other sectors across the economy.
    Again, there is some pretty good evidence for that.
        Senator Reed. Again, conceptually you make a point. If you
    get that evidence in an analytical fashion, we would love to
    have it. I certainly would. Thank you.
        And then another question. How about community banks and
    credit unions? Will they fare better or worse under this
    arrangement, in your view or in your analysis?
        Mr. Mnuchin. We would absolutely make sure that they did
    not fare worse. We want them to be treated fairly, and that is
    a very important part of any future plan.
        Senator Reed. Dr. Carson?
        Mr. Carson. They are absolutely key. We have been working
    with them, and their ability particularly to provide education
    to people about housing financial matters is essential.
        Senator Reed. And, Dr. Calabria?
        Mr. Calabria. Senator, it was mentioned earlier the control
    over pricing, such as a utility model. One of the things we
    have done in conservatorship is eliminate the volume discounts
    that Fannie and Freddie gave to large lenders. As you know,
    pre-crisis Countrywide paid a lower price than community banks.
    Fannie and Freddie pre-crisis drove consolidation in the
    origination side.
        I think it is important post-conservatorship for me to have
    the authority to limit Fannie and Freddie's ability to drive
    consolidation.
        Senator Reed. If I can just for a moment, there has been a
    lot of discussion of the lack of capitalization of Fannie and
    Freddie and the fact that they just rely upon the Treasury to
    survive. It is interesting, though, because since--and I was
    here and Senator Crapo was here--since this crisis began, I
    think we have invested $191 billion in Fannie and Freddie, and
    the Treasury has received about $400 billion, I believe--excuse
    me? $300 billion in terms of dividends you have taken out. So
    couldn't you correct this capital discrepancy by just relenting
    on some of the dividends you are taking out?
        Mr. Mnuchin. The taxpayers should be and have been
    compensated for the risk that they have had historically and
    the risk they have going forward. So had the taxpayers put the
    money in the stock market, they would have earned multiples of
    this. So the answer is this is not just about--if we took
    away--tomorrow if we said we got our money back, we will just
    rip up our guarantees, these entities could not exist. So as
    long as taxpayers are at risk, we expect the taxpayers to be
    compensated.
        Senator Reed. But just a final point. Isn't your model
    going forward to allow these individuals, these entities to
    keep their capital, keep their dividends?
        Mr. Mnuchin. Two different things. So from a cash-flow and
    a capital standpoint, yes, our intent is they will keep the
    cash and it will increase their capitalization. What we are
    negotiating with the Director right now is in return for that,
    we do expect that the taxpayers are compensated. One way may be
    to increase our liquidation preference, maybe commitment fees,
    but that is what we are discussing now.
        Senator Reed. Thank you, Mr. Chairman.
        Chairman Crapo. Senator Cortez Masto.
        Senator Cortez Masto. Thank you. First of all, let me just
    thank the Chairman and Ranking Member. Affordable housing and
    this discussion is key. This is something we have been talking
    about, but it is a major issue that we need to address in this
    country. In Nevada, it is, outside of the cost of health care,
    the number one issue. So I appreciate, gentlemen, you being
    here.
        But let me just kind of also introduce you to Nevada,
    because some of the discussion is not pertinent to what I am
    hearing in the impact in Nevada when it comes to affordable
    housing. I have had roundtable discussions on this issue for
    the last 2 years in Nevada, in our urban and rural areas. If
    you do not know anything about Nevada, of the 17 counties, 15
    are rural. And I can tell you right now rent control is not
    causing the affordable housing crisis in Nevada. In fact,
    Nevada does not have any type of laws that mandate a type of
    rent control, and it is my understanding there are actually
    only five States that have rent control.
        I would also like to point out that, yes, streamlining
    State and local permitting and improving local zoning will
    help, but it will not solve the problem, and it is not the main
    impact to the affordable housing issue in our State. I can
    promise you this: Around those affordable housing roundtables
    that I have had, local and State government have been at the
    table with our private sector, as well as so many other people,
    and some of the folks that work for you as well. So please know
    that. I am looking for answers, and I think we can come
    together to address this issue if we work together.
        But let me start, Secretary Carson, with you. I am curious.
    Does HUD support the continuation of the Housing Trust Fund?
        Mr. Carson. The purpose of the Housing Trust Fund, we
    certainly support that.
        Senator Cortez Masto. You do support it?
        Mr. Carson. The purpose of----
        Senator Cortez Masto. So you would support keeping the
    Housing Trust Fund intact the way it is now?
        Mr. Carson. I do not know if I wouldn't be happy with some
    changes to it, but----
        Senator Cortez Masto. What type of changes would you make?
        Mr. Carson. Well, you know, we really want to take a more
    comprehensive look when it comes to how do we get people into
    affordable housing situations. That includes everybody in our
    society, and I would like, you know, to be able to provide a
    little more flexibility not only for the agency but for
    localities.
        Senator Cortez Masto. I am not sure what that means, but
    let me ask you this: Right now, the changes you are making, how
    will it affect the $3 million or more that all States receive
    every year to address acute housing needs for extremely low-
    income families?
        Mr. Carson. Well, we may have better solutions for
    extremely low-income people.
        Senator Cortez Masto. Do you have those yet--or is that
    something you are looking to work with Congress on those
    solutions?
        Mr. Carson. Of course, we want to work with Congress on
    those solutions, but I just want to make it clear that,
    traditionally, just throwing money at the problem has not
    solved it. This has been going on for several decades, and we
    want to look at some of the deeper issues that caused their
    problems and address those.
        Senator Cortez Masto. OK. I absolutely agree that this
    needs to be addressed, but we have got to have substance. We
    have to have details.
        Mr. Carson. And we would be happy to----
        Senator Cortez Masto. And that is what we are looking for.
    Yes, Secretary Mnuchin?
        Secretary Mnuchin. What I was going to comment on is one
    thing that is clear today is there is bipartisan support on the
    issue of affordable housing. There may be differences in views
    in how we can get there. I just want to be clear in the report.
    It may be there should be more money put for affordable
    housing. So when we talk about the Housing Trust Fund, I would
    say if there were a more efficient and accountable mechanism
    and Congress wanted to put more money for affordable housing,
    that is something the Administration would be very much open to
    working with this Committee on.
        Senator Cortez Masto. Right, and I agree there is
    bipartisan support.
        Secretary Mnuchin. The report does not imply less money for
    affordable housing. That is what I wanted to make clear.
        Senator Cortez Masto. Thank you. What is your definition of
    ``affordable housing''? How do you define it?
        Mr. Mnuchin. It depends on the market. What is affordable
    in one market is not affordable in a different market, and I
    think there is both affordable housing both to own as well as
    to rent.
        Senator Cortez Masto. Right, but if you are setting
    parameters about how the funding is going to go toward
    affordable housing, how do you know where to send it if you do
    not define it first?
        Mr. Mnuchin. Well, we would have to work with this
    Committee. So, I mean----
        Senator Cortez Masto. So you have not defined it yet?
        Mr. Carson. Well, there are traditional----
        Senator Cortez Masto. What is the traditional?
        Mr. Carson. Traditional is you should spend less than 30
    percent of your household income on housing, and if you spend
    more than 50 percent, then that is severely distressed.
        Senator Cortez Masto. OK. And so that is a parameter that
    you are looking at when you are deciding how you are going to
    focus on the needs of those that fall within the affordable
    housing definition that you just defined. Is that correct?
        Mr. Carson. I think that is generally acceptable.
        Senator Cortez Masto. Are there any other identifiers for
    affordable housing? And I will open that up for all the panel.
    Director?
        Mr. Calabria. Well, you certainly have a number of
    different formulas. I mean, CDBG has a different formula.
    Personally, I would probably allocate it across States based on
    poverty. Obviously, on one extreme, the low-income housing tax
    credit is done on a per capita basis. That to me is probably
    not well targeted. So, again, we have a number of formulas
    across States. This is something certainly the Committee has
    dealt with on multiple occasions.
        Senator Cortez Masto. OK. Let me change--I have just got a
    few minutes. Manufactured housing is very important to Nevada,
    and particularly our rural communities. So, Secretary Carson,
    let me ask you this: HUD includes manufactured housing in your
    proposal without any specifics. What protections for
    manufactured housing home buyers will you ensure remain in any
    changed policy?
        Mr. Carson. Well, thank you for bringing that up because
    manufactured housing has changed dramatically, and almost 10
    percent of single families are in manufactured housing. People
    think about trailers and double-wides. We are talking about
    tremendous technological progress that has been made in that
    area. And what remains really is the removal of a lot of the
    regulations. I know you do not think that regulations are
    everything, but they have severely impeded the ability to
    utilize this very excellent solution, and that is----
        Senator Cortez Masto. Regulations at the Federal level?
    Regulations at State and local?
        Mr. Carson. Local. State and local levels.
        Senator Cortez Masto. So if at the State and local level
    they are willing to address those issues, which they are
    working on in my State, to what extent are you looking at it
    having an impact on manufactured housing as it comes to the
    Federal role?
        Mr. Carson. Well, you know, HUD obviously is the regulator
    of the rules regarding manufactured housing, and we have now
    taken manufactured housing and made it a separate entity with a
    DAS designation. So we have paid a lot of attention to this.
    This is an area where I think we can solve a lot of the
    problem.
        Senator Cortez Masto. Well, let me ask you this: Can you
    agree to preserve the protections for manufactured housing as
    we move through this process of looking at various changes?
        Mr. Carson. We will preserve them and expand on them as
    necessary.
        Senator Cortez Masto. Thank you. I notice my time is up.
    Thank you.
        Chairman Crapo. Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman. I thank all of
    you for being here.
        Secretary Carson, I wanted to follow up on some of the
    questions Senator Jones asked with respect to the proposed rule
    that HUD put forward in August that would gut the ability of
    people who are victims of housing discrimination to prove that
    discrimination using a disparate impact analysis. In your
    response to Senator Jones, you said that the purpose of this
    rule was ``to bring the rule in alignment with the Supreme
    Court decision.'' Is that your testimony?
        Mr. Carson. That is correct.
        Senator Van Hollen. So I am confused, Mr. Secretary,
    because I have in my hand here an April 2017 filing where you
    are the defendant in the case, HUD, is being sued in the U.S.
    District Court for the Northern District of Illinois, Eastern
    Division, and the plaintiff is alleging that the existing Rule
    213 is not in compliance with the Supreme Court decision. And
    in this pleading, you took the opposite position. I quote from
    your own brief here stating, ``The Supreme Court's holding in
    Inclusive Communities is entirely consistent with the rule's
    reaffirmation of HUD's longstanding interpretation that the FHA
    authorizes disparate impact claims.''
        So which is it, Mr. Secretary? You have taken the position
    in a court filing that Rule 213 as is is consistent with the
    Supreme Court case, and your testimony today is just the
    opposite.
        Mr. Carson. No, it is not. We uphold the principles of
    disparate impact, and, in fact, as I testified earlier today,
    we have used that in a recent complaint against----
        Senator Van Hollen. Mr. Secretary, let me just ask you
    this: Does your testimony today remain, though, that Rule 213
    is consistent with the Supreme Court's holding in Inclusive
    Communities, which is the position that you took in this filing
    in April 2017, is your position today on that question the same
    as it was in 2017?
        Mr. Carson. My position----
        Senator Van Hollen. Yes or no? I mean, this is a pretty
    simple question.
        Mr. Carson. My position--I do not do yes or no. My position
    is that we want to be consistent with the idea of the Supreme
    Court, which is not to have this be so overly burdened that we
    drag discrimination into virtually every case.
        Senator Van Hollen. But, Mr. Secretary, you took the
    position in this filing that the existing rule complied with
    the Supreme Court decision in Inclusive Communities. Now, as I
    understand what you are saying, you are just using that
    decision as a pretext to rewrite the rule to make it much
    harder to file a discrimination claim. Is that what you are
    saying today?
        Mr. Carson. No. What I am saying is that----
        Senator Van Hollen. Well, then, why are you rewriting the
    rule that you said was consistent with the earlier--with the
    Supreme Court decision if your purpose was, as you testified
    earlier today, to bring the rule in alignment with the Supreme
    Court decision?
        Mr. Carson. What I would like to do is actually talk about
    solutions to problems----
        Senator Van Hollen. Mr. Secretary, really, you say you do
    not answer yes-or-no questions, but this is a pretty simple
    question. You took a position--you as Secretary--took a
    position in this court filing in 2017 that said the existing
    rule, Rule 213, is compliant, is consistent with the Supreme
    Court decision in Inclusive Communities.
        Mr. Carson. Yes----
        Senator Van Hollen. So I was surprised earlier today to
    hear you say that the reason for your new proposed rule, which
    you just filed in 2013, was because you wanted to bring it in
    compliance with the Supreme Court decision which you earlier
    stated it was already--the previous rule is compliant with. So
    my question is: Which is it?
        Mr. Carson. There are aspects of the rule that can be
    reinterpreted in many different ways, and it depends on which
    circumstance you are talking about. You know that.
        Senator Van Hollen. Well, Mr. Secretary, you are clearly in
    this latest proposed rule going way beyond what the Supreme
    Court required in terms of proving discrimination. In fact, you
    took the opposite position in 2017. And so it does----
        Mr. Carson. We are not going----
        Senator Van Hollen. So if I can show you a proposed rule
    change that is consistent with the Supreme Court decision but
    does not make it as difficult to file a discrimination case,
    would you accept that change as part of your new rule?
        Mr. Carson. What I would say is let us talk about what
    makes sense and what is logical and what helps us to solve the
    problem.
        Senator Van Hollen. Well, what we are trying to do is allow
    people to prove discrimination where it exists. The Supreme
    Court----
        Mr. Carson. And we are happy to do that.
        Senator Van Hollen.----has upheld the disparate analysis
    impact because they understand that discrimination can be
    subtle. People do not jump up and say, ``Hey, I am denying you
    this loan because of your race.''
        Mr. Carson. Senator, I----
        Senator Van Hollen. And so that is the whole purpose of
    this, Mr. Secretary. You took a position in support of the
    earlier rule in 2017. You appear to have flipped on it today. I
    hope we can work together during this comment period----
        Mr. Carson. I would be happy----
        Senator Van Hollen.----to get to the bottom of this.
        Mr. Carson. I would be happy to work together with you, and
    I would ask you to look at our record in pursuing cases against
    people who have discriminated against protected classes.
        Senator Van Hollen. But you brought some of those cases
    under the existing Rule 213, and now you are changing that
    rule----
        Mr. Carson. Some of the cases that have been brought----
        Senator Van Hollen.----or you are proposing to change that
    rule.
        Mr. Carson.----with disparate impact, and I do not disagree
    with disparate impact. It is the way that you interpret
    disparate impact that is important.
        Senator Van Hollen. OK. Well, let us interpret it in a way
    that still allows people to be able to bring discrimination
    cases where it exists.
        Mr. Carson. And they still can, absolutely.
        Senator Van Hollen. Thank you.
        Chairman Crapo. Thank you. That concludes our questioning,
    and before we conclude the hearing, Senator Brown has a
    statement.
        Senator Brown. A couple of brief comments. I followed with
    interest Senator Cotton's comments about removing regulatory
    barriers to fair and affordable housing, like zoning rules. I
    was pleasantly surprised because several years ago he
    cosponsored an appropriations amendment to end HUD's
    Affirmatively Furthering Fair Housing (AFFH) rule because he
    said it would give HUD too much say in local zoning. That
    amendment failed. Secretary Carson has recently suspended that
    rule. On his watch, AFFH would help communities identify and
    remove those barriers, so I will later ask Senator Cotton to
    join me in asking you, Secretary Carson, to reinstate that
    rule.
        The other comment, Mr. Chairman, I would like to make is,
    Secretary Mnuchin and Director Calabria, thanks for your
    comments on a utility model. I look forward to working with you
    on this and really figuring out how we can flesh out details. I
    will ask the staffs of both of you to provide technical
    assistance on a utility model with a regulated rate of return.
        Thanks, Mr. Chairman.
        Chairman Crapo. Well, thank you.
        That does conclude the hearing. For Senators wishing to
    submit questions for the record, those questions are due in 1
    week, on Tuesday, September 17th. As for the witnesses, we ask
    as always that you respond to those questions as promptly as
    you can.
        Again, we want to thank all of you for being here today and
    look forward to our continuing work together on this important
    topic.
        This hearing is adjourned.
        [Whereupon, at 12:03 p.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, we are joined by the leading voices within the
    Administration on reforming and strengthening our housing finance
    system: the Secretary of the Treasury and the Secretary of Housing and
    Urban Development, both of whom have just submitted housing finance
    reform proposals to the President, as well as the Director of the
    Federal Housing Finance Agency, who serves as regulator and conservator
    of Fannie and Freddie.
        Thank you for making the time to join the Committee this morning.
        Last Friday marked 11 years since the Government bailed out and put
    Fannie Mae and Freddie Mac into conservatorship, where they remain
    today.
        Prior to 2008, the two Government-sponsored enterprises held just
    45 cents in capital for every $100 in mortgages they guaranteed. Now
    they hold just 19 cents, after a historic $200 billion bailout from
    taxpayers.
        Eleven years later, these systemically important companies continue
    to be too-big-to-fail, are even more leveraged then they were before
    the financial crisis, and taxpayers remain on the hook in the event of
    the next market downturn.
        In March, President Trump signed a presidential memorandum
    directing the Department of the Treasury and the Department of Housing
    and Urban Development to develop a plan for administrative and
    legislative reform of the Federal housing finance system.
        Many of the legislative recommendations in the plans that were
    released on Thursday are consistent with my outline to fix our housing
    finance system, including attracting private capital back into the
    market; protecting taxpayers against future bailouts; and promoting
    competition.
        The recommendations also preserve certain incremental reforms that
    have already taken place during the conservatorship era, including
    robust transfer of credit risk; the single security and common
    securitization platform; and loan pricing that does not vary based on a
    lender's size.
        The status quo is not, and has not been acceptable, and my strong
    preference remains fixing it through comprehensive legislation.
        Five years ago, this Committee demonstrated that it is possible to
    come together and advance a comprehensive solution on this topic.
        This year, I released my housing reform outline, which builds upon
    many of the same principles from our previous efforts.
        It sets out a blueprint for a permanent, sustainable new housing
    finance system that protects taxpayers by reducing the systemic, too-
    big-to-fail risk posed by the current mortgage guarantors.
        It preserves the existing infrastructure in the housing finance
    system that works well, while significantly increasing the role of
    private capital.
        It establishes several new layers of protection between mortgage
    credit risk and taxpayers.
        It ensures a level playing field for originators of all sizes and
    types while also locking in uniform, responsible underwriting
    standards.
        And, it promotes broad accessibility to mortgage credit, including
    in under-served markets.
        Ultimately, only Congress has the tools necessary to provide
    holistic, comprehensive reform to our system that will be durable
    through any market cycle.
        However, it is important for the Administration to begin moving
    forward with incremental steps that move the system in the right
    direction.
        After 11 years of conservatorship limbo, it is long past time to
    make the hard decisions and address this last unfinished business of
    the financial crisis.
                                     ______

                  PREPARED STATEMENT OF SENATOR SHERROD BROWN
        Thank you, Mr. Chairman, and thank you to all of our witnesses for
    being here today.
        We're going to hear from the Trump administration about the ``next
    steps'' on housing finance reform, but it's clear from the plan they
    put out last week what President Trump thinks those steps should be--
    the Trump plan will make mortgages more expensive and harder to get.
        We shouldn't have to tell the President that we have an affordable
    housing crisis in this country. We all know it--we all see it.
        I see it when I talk to residents of a manufactured housing
    community on the verge of losing their home, because they can't afford
    the rent increase imposed by wealthy private equity investors who just
    bought their community.
        I see it when I drive past the boarded up houses that belonged to
    the victims of predatory lending in my neighborhood of Slavic Village,
    and so many like it across the country.
        I see it when I talk to young people in their twenties and thirties
    who want to buy a home, but who are drowning in student loan debt and
    can't save enough for a down payment or afford a mortgage.
        These are the real crises facing real families all across Ohio and
    around the country.
        They're renters, they're homeowners, and they're former homeowners,
    and they all have one thing in common--they can't afford a place to
    call home.
        We have had very productive hearings in this Committee where we
    talked about what it would take for the housing finance system to
    actually work for working families.
        In March, we held two hearings with representatives from the Home
    Builders, the Realtors, the Mortgage Bankers, the credit unions, the
    civil rights community, and multifamily lenders.
        We heard during those hearings that affordability and access aren't
    just components of housing finance--they're the whole reason we have
    housing finance system. They can't be an afterthought once we've
    answered other questions about the structure of the housing finance
    system--they have to be built into the system.
        We need a housing system built on a mission to serve borrowers and
    renters, no matter who they are, what kind of work they do, or where
    they live.
        That means we need policies that focus on increasing service for
    underserved markets, like rural areas and manufactured homeowners, and
    borrowers who have been locked out of the housing market over decades
    of discrimination.
        And we need a system that helps a wide variety of lenders and
    borrowers participate, so that they can meet all families' needs,
    particularly those who have been left behind for far too long.
        In our March hearings and in the months since, we've heard housing
    stakeholders coalescing around a few foundational principles for
    reform. They've said that reform should:

        Protect access to affordable 30-year fixed-rate mortgages;

        Provide a catastrophic Government guarantee;

        Structure loan guarantors like public utilities, providing
            a regulated rate of
            return;

        Serve a broad, national market;

        Serve lenders of all types and sizes equitably;

        Maintain a duty to serve all markets and all borrowers;

        Maintain affordable housing goals and metrics;

        Expand investment in affordable housing; and

        Maintain the GSEs' successful multifamily business models
            and ensure continued or better access for financing of
            affordable rental housing.

    Yet unsurprisingly, President Trump and his Administration missed the
    point.
        Rather than create a system that addresses the needs of working
    families, the Trump administration has put out half-baked proposals
    that will make mortgages more expensive and harder to get.
        In addition to increasing costs, the plan would make it harder for
    small lenders to compete, and gut the existing tools we have to help
    underserved families finally find an affordable apartment or own their
    first home.
        The President's plans would also roll back consumer protections and
    investor disclosures put in place following the financial crisis, to
    prevent predatory loans and toxic securities from building up in our
    financial system.
        So let's be clear: whether you're renting and want to buy a home,
    or own a home and someday want to sell it, President Trump's plan hurts
    you--all to funnel more money to the same Wall Street system that
    wrecked the housing markets and wrecked families' lives in 2008.
        I was encouraged when I saw that Treasury's plan had nine separate
    proposals dedicated to ``leveling the playing field.''
        I thought this might mean leveling the playing field for
    communities of color, young households trapped by student debt, or
    renters who can't afford to save for a down payment.
        So you can imagine my disappointment when I saw that all nine
    proposals--every last one--were about ``leveling the playing field''
    for Wall Street, which is looking to make money off of working
    families' mortgages.
        Really?
        Of course we shouldn't be surprised. Ultimately this plan is the
    same as every other Trump administration plan--it's about making it
    easier for Wall Street to profit off hardworking families.
        These plans come in the midst of a flurry of other troubling
    Administration proposals to weaken fair housing and fair lending
    protections, and gut a bedrock civil rights law, the Community
    Reinvestment Act.
        Taken together, the President has once again decided to side with
    Wall Street wealth over the dignity of work.
        We don't need to make it easier for Wall Street to get richer. To
    quote Secretary Carson, ``news flash, rich people are going to get
    richer anyway.''
        We need to make it easier for every family to find an affordable
    place to call home.
        Housing isn't optional. Housing is a basic need, and no one should
    go without it in this country.
        Thank you.
                                     ______

                    PREPARED STATEMENT OF STEVEN T. MNUCHIN
                     Secretary, Department of the Treasury
                               September 10, 2019
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    I am pleased to be with you today to discuss the Treasury Department's
    Housing Finance Reform Plan that will protect taxpayers and foster
    competition in the market.
        I would like to thank Chairman Crapo and the Committee for your
    work on this important issue. The outline you released in February was
    a productive step toward ensuring the safety and stability of our
    housing finance system.
        In September 2008, the Government-sponsored enterprises (``GSEs'')
    Fannie Mae and Freddie Mac were placed into conservatorship by the
    Federal Housing Finance Agency (``FHFA''). Treasury has provided the
    GSEs with over $190 billion in taxpayer assistance.
        Eleven years later, the GSEs remain in conservatorship and continue
    to be
    supported by a Treasury commitment to keep them solvent. The continued
    conservatorships of the GSEs have perpetuated far-reaching Government
    influence over the housing finance sector. The lack of reform has left
    taxpayers exposed to future bailouts.
        Treasury's Housing Reform Plan includes almost 50 recommended
    actions. These measures would reduce the role of the Federal
    Government, enhance taxpayer protections against future bailouts, and
    increase private sector competition in the housing finance system.
        As required by President Trump's directive, Treasury's plan shows
    that the GSEs can and should be reformed to ensure their safety and
    soundness. Although no law prescribes a specific end point for the
    conservatorships, no conservatorship is meant to be permanent, and that
    includes FHFA's management of the GSEs. This plan provides a roadmap to
    release them from conservatorship.
        Treasury's reform plan takes great care to preserve what works in
    the current system. Each of Treasury's recommended reforms is
    incremental, realistic, and balanced. In particular, Treasury's plan
    would preserve the longstanding Government support of the 30-year
    fixed-rate mortgage loan. That support, however, should be explicitly
    defined, tailored, and paid-for. Treasury recommends that Congress
    authorize an explicit, paid-for guarantee backed by the full faith and
    credit of the Federal Government that is limited to the timely payment
    of principal and interest on qualifying mortgage-backed securities. To
    foster competition, this guarantee should be available to the GSEs, and
    also to any other FHFA-approved competitors.
        Moreover, the regulatory environment should be harmonized so that
    the GSEs and private sector competitors operate on a level playing
    field. For example, the GSEs currently have a competitive advantage
    over other market participants under the so-called ``QM patch'' to the
    Consumer Financial Protection Bureau's (``CFPB'') ability-to-repay
    rule. In July 2019, the CFPB announced that the QM patch would expire
    in January 2021 or after a short extension. Treasury supports the
    CFPB's planned expiration of the QM patch, and it also supports further
    revisions to the ability-to-repay rule to ensure that mortgage lenders
    continue to have a bright-line safe harbor after the QM patch expires.
        Finally, I must emphasize, and our recommendations make it clear,
    that the Administration's preference is to work with Congress to enact
    comprehensive housing finance reform legislation. Legislation could
    achieve lasting structural reform that tailors explicit Government
    support of the secondary market, and repeals the GSEs' congressional
    charters and other statutory privileges that give them a competitive
    advantage over private sector competition. At the same time, we believe
    that reform can and should proceed administratively. Pending
    legislation, Treasury will continue to support FHFA's administrative
    actions to enhance the regulation of the GSEs, promote private sector
    competition, and satisfy the preconditions set forth in the plan for
    ending the GSEs' conservatorships.
        Under the leadership of President Trump, I am proud of all of the
    work we have done to create conditions for greater economic growth,
    more and better opportunities for working families, and higher wages
    for all Americans. Today I look forward to discussing with you the
    critical issue of housing finance reform. I hope that the Committee
    will work with us on passing bipartisan legislation. Thank you very
    much, and I look forward to answering your questions.
                                     ______

              PREPARED STATEMENT OF BENJAMIN S. CARSON, SR., M.D.
                    Secretary, Housing and Urban Development
                               September 10, 2019
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    thank you for the opportunity to appear before you today to discuss how
    the U.S. Department of Housing and Urban Development (HUD) will support
    this Administration's effort to reform the Nation's housing finance
    system.
        In the years since the financial crisis, the Federal Government has
    continued to play an outsized role in the Nation's housing finance
    system, and it is imperative Congress acts with the Administration to
    refocus Federal agencies insuring and guaranteeing mortgages to their
    core role of supporting equity and wealth building through sustainable
    home ownership and ensuring these Government programs do not overlap
    with, and crowd out, fully private capital in the conventional mortgage
    market.
        To this end, I am pleased to present an overview of HUD's housing
    finance reform (HFR) plan that was submitted to the President on
    September 5, 2019. Housing finance reform is a key priority of this
    Administration, and as recognized in the March 27, 2019, Presidential
    Memorandum on Federal Housing Finance Reform (Presidential Memorandum),
    it is crucial to advance reforms that acknowledge the integral role HUD
    plays in the Nation's housing finance system.
        HUD supports millions with affordable housing opportunities through
    its rental assistance and manufactured housing programs, and the
    Federal Housing Administration (FHA) and Government National Mortgage
    Association (GNMA) provide credit access and liquidity in the mortgage
    market. FHA provides credit enhancement and regulatory oversight for a
    portfolio exceeding $1.4 trillion, and importantly serves as a
    countercyclical buffer during times of stress, and GNMA guarantees more
    than $2 trillion in mortgage-backed securities (MBS) with the full
    faith and credit of the United States of America, facilitating
    liquidity in the housing market and contributing to the availability of
    mortgage credit for qualified borrowers.
        During the financial crisis, and because of the policies of the
    previous Administration, FHA's and GNMA's balance sheets swelled,
    growing by approximately 350 percent and 400 percent, respectively,
    between fiscal years (FY) 2007 and 2018. Federal policymakers should
    take steps to enable both FHA and GNMA to refocus on their core
    missions and make sure both agencies have the tools needed to manage
    their significant portfolios, strengthening their ability to support
    the housing market and minimizing the likelihood of any future taxpayer
    funded bailout.
        Reform will reduce the Federal Government's outsized role in
    housing finance and prevent its activities from crowding out the
    private sector. Congress must work with the Administration to: refocus
    FHA to its core mission of serving low- and moderate-income families,
    including first-time home buyers (FTHBs), that cannot be fulfilled
    through traditional underwriting; protect American taxpayers from
    bailouts; provide FHA and GNMA with the tools they need to manage risk
    of their oversized portfolios; and provide liquidity to the housing
    finance system.
    Pillar I: Refocus FHA to its Core Mission
    Targeting Programs to Borrowers Not Served by Traditional Underwriting
        The Presidential Memorandum directed HUD to recommend reforms that
    would allow FHA to best target its programs to borrowers not served by
    traditional underwriting. Historically, this has been FHA's most
    important contribution to the American housing market: facilitating
    earlier entry points into home ownership for these families,
    particularly FTHBs, than conventional mortgage loans with higher
    downpayment requirements. Without FHA mortgage insurance, many of the
    low- and moderate-income, minority, and FTHBs supported through the
    agency's programs would lack access to affordable mortgage credit. In
    recent years, in the aftermath of the financial crisis, the share of
    FHA-insured purchase mortgage activity for FTHBs has ranged between 75
    percent and 83 percent of total annual purchase loan endorsements.
        Refocusing on the core mission will strengthen FHA's ability to
    help creditworthy borrowers build equity, avoid foreclosure, and
    protect taxpayers. The benchmark for success of FHA's programs should
    be ensuring that borrowers are receiving financing that is appropriate,
    sustainable, and optimized for long-term home ownership. To this end,
    HUD has proposed the implementation of a ``Homebuyer Sustainability
    Scorecard'' (Scorecard) that would be used by FHA to measure the
    performance of loans to low- and moderate-income borrowers and FTHBs.
    The Scorecard will track the percent of mission borrowers who default,
    return to renting, refinance out of an FHA loan, remain in an original
    FHA-financed home, and monitor the risk associated with secondary
    financing (i.e., downpayment assistance (DPA)). Moreover, FHA will use
    the Scorecard to evaluate additional underwriting criteria to ensure
    that new lending within its single-family portfolio remains consistent
    with FHA's mission. With the Scorecard, FHA will change the measure of
    success by no longer touting the number of loans it insures and
    instead, as with other HUD programs, tracking whether its borrower
    participants are improving with FHA support.
        It is also important FHA support sustainable home ownership; which
    FHA can support in part through mortgage products that carry terms that
    accelerate equity accumulation. After all, faster accumulation of
    equity benefits borrowers. To achieve this objective, HUD's plan
    recommends FHA undertake the following reforms: 1) conduct rulemaking
    to clarify the statutory prohibitions on DPA providers that financially
    benefit from a mortgage transaction; 2) examine incentives to make
    shorter-term mortgages that accelerate equity accumulation more
    attractive to FHA's mission borrowers; 3) ensure the agency's programs
    and policies do not incentivize negative borrower behavior such as
    equity stripping via cash-out refinances; and 4) examine the overall
    impact of repeat borrowers on the Mutual Mortgage Insurance Fund (MMIF)
    and ensure these loans are consistent with the agency's mission.
    Define Roles for Government-Supported Programs through Better
            Coordination
        A central principle of the Administration's HFR plan is that
    Federal mortgage credit policies should be better coordinated in order
    to allow qualified borrowers to access responsible and affordable
    options. Coordination ensures that there is not unhealthy and
    irresponsible competition between Government-supported programs, which
    can lead to lower underwriting standards, increase risk to taxpayers,
    and threaten the long-term availability of credit to qualified
    borrowers. The Government-sponsored enterprises (GSE), which back a
    substantial portion of the Nation's mortgage debt, should not be able
    to selectively choose from the FHA portfolio and leave taxpayers with
    the riskiest borrowers.
        Uncoordinated policies create incentives that encourage entities to
    work at cross-purposes, resulting in little or no change in overall
    access to credit while increasing taxpayer exposure to uncompensated
    risk. As discussed in HUD's plan, the FHA program is primarily utilized
    by FTHBs who cannot be served through traditional underwriting, as it
    generally accepts more risk and provides low-downpayment borrowers
    greater leverage than allowable in GSE programs while also offering
    Government-subsidized pricing.
        As proposed in our plan, FHA and FHFA will coordinate to ensure
    that the GSEs and FHA serve defined roles within the marketplace. HUD
    and FHFA should develop and implement a specific understanding as to
    the appropriate roles and overlap between the GSEs and FHA, for
    example, with respect to cash-out refinances, conventional-to-FHA
    refinances, and loans to FHA repeat borrowers. Moreover, HUD has
    recommended that Congress establish FHA, the Department of Veterans
    Affairs (VA), and the Department of Agriculture (USDA)--the Government-
    insured mortgage loan programs--as the sole source of low-downpayment
    financing for borrowers not served by the conventional mortgage market.
    Provide Regulatory Certainty to FHA Lenders
        FHA strives to be clear in its guidance on compliance and legal
    enforcement matters and will not tolerate violations of its program--
    those who seek to defraud borrowers and taxpayers, as well as those who
    make routine (and often material) errors that put strain on the
    agency's resources. Additionally, FHA makes it a top priority to adhere
    to the rule of law, and this means the agency's view of materiality
    should be clearly communicated.
        FHA participants and advocacy groups have called for clarification
    of the process by which HUD and the Department of Justice (DOJ)
    consider whether severe financial penalties through the pursuit of
    False Claims Act (FCA) remedies is appropriate for minor and putatively
    immaterial errors. HUD will prioritize improving certifications to
    which lenders attest for each FHA-insured loan, as well as lenders'
    annual certifications. These certifications, along with updates to
    FHA's defect taxonomy in order to clearly align the severity of loan
    underwriting defects with proposed remedies, will provide the needed
    certainty and clarity on FHA's requirements. HUD also will ensure its
    views of materiality with respect to potential violations of the FCA
    are clearly shared through formal consultation with DOJ.
    Pillar II: Protect American Taxpayers
    Strengthen FHA Risk Management Systems and Governance
        With mortgage insurance on loans over $1.4 trillion in unpaid
    principal balance (UPB) and more than $2 trillion in MBS guaranteed by
    taxpayers, FHA and GNMA, respectively, must ensure their business and
    operational practices protect American taxpayers. Meeting this duty
    also is essential to both agency's respective missions, and if either
    does not operate in a fiscally responsible manner, HUD's ability to
    provide affordable and sustainable mortgage credit for borrowers is
    severely jeopardized. FHA must maintain an appropriate level of capital
    reserves in the MMIF, and it is unacceptable for the agency to ever
    again require a draw on taxpayer funds to sustain its book of business,
    as it did in the previous Administration. Thus, FHA should strengthen
    its governance and build its capital ratio well above the statutory 2
    percent minimum safeguarding the agency against episodes of market
    distress.
        To ensure protection of the American taxpayer, modernizing FHA risk
    management capabilities is critical. As the size of FHA's portfolio has
    not returned to pre-crisis levels and taxpayers continue to bear
    increased risk, now is an appropriate time to develop and implement a
    framework that will better allow the agency to monitor current,
    emerging, and future risks across credit cycles.
        To accomplish these risk management objectives, HUD has proposed
    the following key reforms: a sound risk-based capital regime framework,
    credit-risk sharing capability, in addition to inter-agency
    coordination on credit policy and counterparty information exchange.
    First, HUD's plan recommends that Congress direct the Department to
    formally evaluate options, feasibility, and the economics of a credit-
    risk transfer (CRT) program similar to those recently implemented by
    the GSEs--these programs could be effective ways for FHA to reduce the
    overall risk to taxpayers in FHA's mortgage insurance programs while
    still serving HUD's mission borrowers. Second, HUD proposes that
    Congress also direct FHA to more effectively manage lender counterparty
    risk in future books by authorizing such additional remedies as
    appropriate. HUD has further proposed FHA adopt sound risk-based
    capital regimes for both the MMIF and the General Insurance/Special
    Risk Insurance (GI/SRI) Fund, managing risk exposure to defined
    stressed scenarios and ensure that FHA does not inappropriately compete
    with the GSEs or private capital. Last, HUD recommends FHA pursue an
    inter-agency agreement with other Government agencies (including GNMA
    and FHFA) involved in mortgage insurance and mortgage securitization on
    counterparty risks.
    Improve Financial Viability of the Home Equity Conversion Mortgage
            (HECM) Program
        The HECM program, which has supported millions of American seniors
    to ``age in place,'' has suffered significant financial distress in
    recent years. At the end of fiscal year 8, FHA's HECM portfolio had an
    economic net worth of negative $13.63 billion and a standalone capital
    ratio of negative 18.83 percent. Financial volatility within the HECM
    program remains a constant challenge for FHA, despite changes to the
    program's principal limit factors and insurance premiums in 2017, and
    the implementation of an appraisal inflation risk mitigation policy in
    2018, both of which have been directionally positive on the program's
    fiscal solvency.
        To continue shoring up the HECM program and best ensure these
    mortgage products remain a viable option for America's seniors that
    desire to ``age in place,'' HUD has proposed several key reforms.
    First, HUD recommends Congress reform the loan limit structure in the
    HECM program to reflect variation in local housing markets and regional
    economies across the U.S. instead of the current national loan limit
    set to the level of high-cost markets in the forward program ($726,525
    for calendar year 2019). Second, HUD proposes Congress set a separate
    HECM capital reserve ratio and remove HECMs as obligations to the
    MMIF--reforms that would provide for a more transparent accounting of
    the program costs and decrease the cross-subsidization that occurs with
    mission borrowers in the forward mortgage portfolio. Third, HUD
    proposes FHA eliminate HECM-to-HECM refinances as these loan
    transactions result in greater appraisal inflation, increasing program
    costs, and negatively impacting GNMA-guaranteed HECM MBS (HMBS) due to
    quick ``churn'' in pool participations.
    Eliminating Regulatory Barriers to Affordable Housing Including
            Manufactured Housing
        Home ownership is a vehicle for many families to put down roots,
    become active in their communities, and build wealth for future
    generations. However, over-regulation of housing construction has been
    a key factor in supply failing to keep pace with growing demand,
    resulting in many creditworthy FTHBs unable to afford the purchase of
    entry-level housing. On June 25, 2019, the President continued his
    historic deregulation campaign by signing an Executive Order
    establishing the White House Council on Eliminating Regulatory Barriers
    to Affordable Housing (Council). As the Chairman of this Council, I
    will build on the President's commitment to hardworking Americans by
    reducing overly burdensome regulations that artificially raise the cost
    of housing development that directly lead to the undersupply of
    affordable housing and will engage with State, local, and tribal
    partners to help them do the same.
        Manufactured housing comprises 9.5 percent of the total single-
    family housing stock and, along with other innovative housing
    solutions, plays a vital role in meeting the Nation's affordable
    housing needs. Policies that exclude or disincentivize the utilization
    of innovative housing construction homes can exacerbate housing
    affordability challenges because this kind of housing potentially
    offers a more affordable alternative to traditional site-built housing
    without compromising building safety and quality.
        HUD will elevate the Office of Manufactured Housing Programs and
    appoint a Deputy Assistant Secretary to lead it and other innovations
    in housing. FHA also will consider innovative proposals to modify
    single-family housing mortgage finance underwriting to further
    stimulate additional supply of entry-level housing, including
    manufactured housing. To encourage innovation in manufactured housing,
    HUD will create a formal framework for identifying and evaluating new
    building, construction, and design developments and ensuring that HUD's
    regulations do not unnecessarily impede their adoption.
    Pillar III: Provide FHA and GNMA the Tools to Appropriately Manage Risk
        Today, FHA is responsible for managing a $1.4 trillion mortgage
    insurance portfolio with a fiduciary duty to protect taxpayers from
    costly bailouts. To fulfill this duty to taxpayers and ensure it
    continues to provide affordable access to mortgage credit for mission-
    focused borrowers, FHA needs some independence from broader HUD
    protocols that govern staffing, procurement and information technology
    (IT). To this end, HUD recommends that Congress enact legislation that
    would restructure FHA as an autonomous Government-owned corporation
    within HUD. Moreover, to the extent administrative reforms are
    insufficient to address the procurement challenges at FHA (and GNMA),
    HUD proposes that Congress provide new statutory acquisition
    authorities for the Department, particularly to address instances where
    material underperformance of contracting vendors results in substantial
    quality deficiencies and costs.
        FHA also continues to operate on antiquated technology platforms
    that inhibit the agency's ability to appropriately manage risk and
    fulfill its fiduciary duty to taxpayers. FHA has already developed a
    detailed technology roadmap that will guide the development of a single
    platform and baseline architecture to cover all aspects of the mortgage
    process, from loan origination, through endorsement, servicing, claims,
    and, as required, disposition. Overall, the investment in the new
    single platform structure will allow FHA to better adapt to changing
    industry, regulatory, and statutory requirements; the modernized
    systems will be data-driven, and ultimately allow FHA to fully digitize
    the mortgage process, opening doors to significantly more refined risk
    analysis and management. To this end, HUD has recommended that FHA
    explore agreements to share technology with GNMA and other Government-
    supported mortgage programs, including the GSEs, when feasible.
    Additionally, HUD recommends that Congress appropriate sufficient funds
    for FHA to complete its multi-year, single-family IT modernization
    effort.
    Pillar IV: Provide Liquidity to the Housing Finance System
        Following the financial crisis, GNMA's outstanding MBS guaranty
    portfolio swelled nearly fourfold to over $2 trillion. This substantial
    growth in GNMA's guaranty portfolio has been concurrent with the
    increase in the combined mortgage insurance and guaranty programs of
    FHA and VA. Then, as now, GNMA has been able to effectuate its mission
    because of the full faith and credit guaranty of the Federal
    Government.
        The GNMA guaranty provides for the timely payment of pass-through
    income (generally principal and interest) to security holders of GNMA-
    guaranteed MBS backed by pools of mortgages insured or guaranteed by
    Federal agencies, including FHA, VA, and USDA. The ``last position''
    guaranty in mortgage securitization that GNMA covers in its MBS
    guaranty program is an important element of potential reform of the
    broader housing finance system. As described in the U.S. Department of
    the Treasury's HFR report, and also pursuant to the Presidential
    Memorandum, GNMA could--if authorized by Congress--extend its explicit
    guaranty to MBS backed by conventional single family and multifamily
    housing mortgages, as it has already gained the experience of
    administering, and managing the growth of, its MBS-guaranty portfolios.
        In addition to this potential future role for GNMA in the Nation's
    housing finance system, HUD has recommended that Congress pass
    legislation granting the agency the authority to administratively
    adjust its guaranty fee within a narrow, permissible range. This
    guaranty fee provides the funds from which losses would be paid if GNMA
    needed to step in to remit funds to security-holders as the result of
    an issuer's failure to do so. GNMA believes that the authority to
    administratively adjust its guaranty fee within a narrow, permissible
    range, would ensure that such fees are adequate for the risks in the
    program and sufficient for GNMA to meets its statutory obligations
    under extreme circumstances.
    Conclusion
        The Presidential Memorandum provides an opportunity for Congress
    and the Administration to ensure FHA and GNMA serve their important
    missions effectively, responsibly, and sustainably while taking care to
    minimize overlap in the Nation's housing finance system. FHA should
    focus on helping its core mission borrowers become sustainable
    homeowners while minimizing risk to the taxpayer to the greatest extent
    possible and providing a path for borrowers to graduate from
    Government-supported programs. HUD continues to work on administrative
    reforms absent legislation so that FHA and GNMA better serve low- and
    moderate-income borrowers unable to access conventional financing, but
    Congress must join efforts in improving these agencies' service of this
    critical segment of the market. For too long FHA and GNMA have operated
    somewhat isolated from the rest of the housing finance system and I
    welcome Congress's participation as this Administration reforms the
    agencies to better fulfill their responsibilities to borrowers and the
    American taxpayers.
                                     ______

                 PREPARED STATEMENT OF MARK A. CALABRIA, Ph.D.
                    Director, Federal Housing Finance Agency
                               September 10, 2019
        Chairman Crapo, Ranking Member Brown, and distinguished Members of
    the Committee, thank you for the invitation to appear at this morning's
    hearing. I can think of few issues in our financial system more in need
    of our attention.
        Our Nation's housing finance system is in urgent need of reform.
    The status quo poses significant risk to taxpayers, homeowners,
    renters, and the entire financial system.
        I want to thank Secretary Mnuchin and Secretary Carson for their
    efforts to develop comprehensive housing finance reform plans. They lay
    out a responsible roadmap to build a more resilient housing finance
    system that protects taxpayers and mortgage access. I also thank
    Secretary Mnuchin for the opportunity to have offered commentary on
    Treasury's plan during its development.
        These plans are broadly consistent with my top priorities, which
    are to cement FHFA as a world-class regulator and to restore Fannie Mae
    and Freddie Mac (``the Enterprises'') to safe and sound condition by
    building capital to match their risk profiles. Building capital would
    also begin the process to end the Enterprise conservatorships, which
    have lasted more than 11 years, far longer than any other
    conservatorship.
        A root cause of the 2008 financial crisis was imprudent mortgage
    credit risk backed by insufficient capital. This fundamental problem
    remains unresolved today. While borrower average credit scores have
    modestly improved, the Enterprises' shares of low-downpayment and high
    debt-to-income mortgages are back to 2004 levels. Fueling rapidly
    rising home prices with easy mortgage credit from under-capitalized
    entities is a mistake. We should not repeat it.
        In their current financial condition, the Enterprises are not
    equipped to withstand a downturn in the housing market. The Enterprises
    own or guarantee a combined $5.5 trillion in single and multifamily
    mortgages out of a $12 trillion combined
    market. Yet with just $6 billion in allowable capital reserves, the
    Enterprises' combined leverage ratio is nearly a thousand to one.
        In comparison, the Nation's largest financial institutions have an
    average leverage ratio of roughly ten to one. See Exhibit 1.
                                  Exhibit 1\1\
    ---------------------------------------------------------------------------
        \1\ Large U.S. banks and the Enterprises are subject to separate
    leverage ratio requirements that use differing components, both in
    terms of what each firm can use to meet its respective requirements and
    which balance sheet measures the requirements are based on. To provide
    a simplified version of the actual requirements for the purposes of
    comparison, this graph uses Stockholders' Equity for the banks and
    Total Consolidated Assets (Total Capital) for the Enterprises.

        The 2019 Dodd-Frank Act Stress Test (DFAST) demonstrated the
    consequences of inaction. In the last crisis, from the market peak in
    the summer of 2006 to the bottom in 2012, housing prices declined by 27
    percent. The 2019 DFAST modeled a scenario where residential real
    estate prices decline by 25 percent. Under such conditions, the
    Enterprises forecasted combined total losses of $43.3 billion during
    the stress-test period.
        Given that housing supply appears to have become more inelastic
    since the crisis, we should expect greater price volatility going
    forward.
        Our housing finance system also undercuts sustainable home
    ownership. The Enterprises have expanded with the economy recently yet
    maintained risk and capital levels that ensure they will fail in a
    downturn. This pro-cyclical pattern harms low-income borrowers, making
    it easier to buy homes beyond their means when the economy is strong
    and harder to keep those homes when the economy is weak.
        Our housing finance system is supposed to serve homeowners and
    renters while protecting taxpayers. Currently, it fails on both counts.
    The Administration's plans aim to address these problems.
        Only Congress, however, can enact the structural reforms needed to
    fix today's broken model.
        Compared to the duopoly of the Enterprises, a fair and competitive
    secondary mortgage market would better serve borrowers and renters and
    promote long-term stability by ensuring that inefficient firms do not
    survive and that no institution is ``too big to fail.'' We have
    witnessed in one industry after another that the best guarantee for
    delivering lower prices to consumers is an open, competitive market,
    not a monopoly or duopoly.
        Some argue reform should wait for a crisis. This shortsighted
    thinking fueled the last housing market collapse. As we learned then,
    it is impossible to solve complex problems in the middle of a crisis.
        To paraphrase President Kennedy, the time to repair the roof is
    when the sun is shining. Now is the time for bold reforms because our
    economy and housing market are strong. This will not always be the
    case.
        I am not forecasting a downturn. Rather, as a prudential regulator,
    I believe my job is to hope for the best and prepare for the worst.
        Therefore, I intend, fulfilling my statutory duties, to strengthen
    FHFA, enable the Enterprises to build capital to match their risk
    profiles, and end the Enterprise conservatorships.
        These reforms are critical to building a resilient mortgage finance
    system that protects taxpayers and delivers a diverse range of housing
    options at market-affordable prices. In the interim, modest reforms can
    improve FHFA's ability to do its job.
        For example, in June, I asked Congress for the authority, similar
    to other financial regulators, to develop capital standards for the
    Enterprises and to charter new enterprises. This commonsense proposal
    need not wait for broader reform.
        In far too many areas of our Nation, we face a housing
    affordability crisis. Too often this has been the result of misguided
    local land-use and building regulations. In other areas, housing supply
    remains limited due to a lack of construction labor. For the
    Enterprises to play an important role in addressing this crisis, they
    themselves must be fixed. Adding more weight to an already cracked
    foundation is to invite collapse.
        Thank you again for the opportunity to testify today. I look
    forward to answering your questions.

     RESPONSE TO WRITTEN QUESTION OF CHAIRMAN CRAPO FROM STEVEN T.
                                MNUCHIN

    Q.1. During the hearing, you indicated that as part of your
    external engagement in designing the Treasury Housing Reform
    Plan, you sought out and obtained input from a diverse variety
    of stakeholders. Can you provide a specific list of parties
    that were consulted?

    A.1. Consistent with its approach to preparing its reports on
    Core Principles for Regulating the U.S. Financial System and
    other recent reports, Treasury met with a wide range of market
    participants, affordable housing advocates, think tanks, and
    other stakeholders and interested parties in advance of
    preparing the Treasury Housing Reform Plan. The purposes of
    these outreach meetings were to foster Treasury's understanding
    of the key priorities of stakeholders, solicit stakeholders'
    views on recent developments related to housing finance reform,
    and discuss stakeholders' perspectives or housing finance
    reform more generally.
        In advance of preparing the Treasury Housing Reform Plan,
    Treasury met with the following stakeholders, among others:

       LAmerican Bankers Association

       LAmerican Enterprise Institute

       LAmerican Land Title Association

       LAnnaly Capital Management

       LBank of America

       LBlackRock

       LBNP Paribas

       LCapital Magnet Fund Coalition

       LCato Institute

       LCBRE Group

       LCenter for Responsible Lending

       LCitibank

       LCommercial Real Estate Finance Council

       LCommunity Home Lenders Association

       LCommunity Mortgage Lenders Association

       LConsumer Federation of America

       LCredit Suisse

       LCredit Union National Association

       LGoldman Sachs

       LHeritage Foundation

       LHousing Assistance Council

       LHousing Policy Council

       LIndependent Community Bankers Association

       LJPMorgan

       LManufactured Housing Institute

       LMilken Institute

       LMorgan Stanley

       LMortgage Bankers Association

       LMr. Cooper

       LNational Association of Affordable Housing Lenders

       LNational Association of Federally Insured Credit
            Unions

       LNational Association of Home Builders

       LNational Association of Real Estate Investment
            Trusts

       LNational Association of Realtors

       LNational Community Reinvestment Coalition

       LNational Congress of American Indians

       LNational Council of State Housing Agencies

       LNational Housing Council

       LNational Low Income Housing Coalition

       LNational Multifamily Housing Council

       LNational Urban League

       LNomura

       LOpportunity Finance Network

       LPennyMac

       LPIMCO

       LPNC

       LPrudential/PGIM

       LQuicken Loans

       LR Street Institute

       LSecurities Industry and Financial Markets
            Association

       LStructured Finance Association

       LSunTrust

       LU.S. Mortgage Insurers

       LUnidosUS

       LUrban Institute

       LVanguard

       LWalker & Dunlop

       LWellington Management

       LWells Fargo
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM STEVEN T.
                                MNUCHIN

    Affordable Housing Goals, Duty to Serve, and the Housing Trust Fund/
            Capital Magnet Fund
    Q.1. Secretary Mnuchin, in your testimony you told me that you
    ``very much support the duty to serve, as well as affordable
    housing goals.'' You went on to say that your ``priority is to
    make sure that we maintain affordable housing and duty to
    serve.''
        But in the Treasury Department's plan, you state that the
    GSEs' ``statutory mandates should be reformed'' and that ``the
    GSEs' statutory affordable housing goals should be
    replaced.''\1\ You also cite a dissenting argument from the
    Financial Crisis Inquiry Commission report that asserts that
    the goals were used to ``degrade the GSEs' mortgage
    underwriting standards,''\2\ when in fact the Commission
    concluded that the GSEs would have met their affordable housing
    goals in the years leading up to the crisis without purchasing
    any subprime or Alt-A securities, and that Fannie did not
    submit any of these securities for goals credit in 2004.\3\
    ---------------------------------------------------------------------------
        \1\ See U.S. Department of Treasury Housing Reform Plan pg. 23.
        \2\ See Financial Crisis Inquiry Report, Dissent of Peter J.
    Wallison, January 2011, pg. 502, available at https://fcic-
    static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_
    full.pdf.
        \3\ Id. at pg. 123.
    ---------------------------------------------------------------------------
        Instead of comprehensive programs to serve underserved
    borrowers and markets with tailored products, your report
    states that the affordable housing goals should be replaced
    with another mechanism like a stream of funds sent to the
    Department of Housing and Urban Development (HUD).
        Where in your plan do you state or make proposals
    demonstrating that you ``support the duty to serve, as well as
    the affordable housing goals?''
    A.1. Treasury supports the GSEs' longstanding role in promoting
    access to affordable mortgage credit, including access by low-
    and moderate-income, rural, and other historically underserved
    borrowers. Relevant statements in Treasury's Housing Reform
    Plan include:

       L``The GSEs should also continue to support
            affordable housing for low- and moderate-income, rural,
            and other similar borrowers.''\4\
    ---------------------------------------------------------------------------
        \4\ Treasury, Housing Reform Plan, at 3.

       L``Consistent with its charter, each GSE's role
            should be to perform activities relating to mortgages
            on housing for low- and moderate-income families
            involving a reasonable economic return that may be less
            than the return earned on other activities.''\5\
    ---------------------------------------------------------------------------
        \5\ Id. at 3; see also id. at 25.

       L``Pending legislation, FHFA should focus on
            increasing the efficiency of the means employed by the
            GSEs to achieve the statutory affordable housing
            goals.''\6\
    ---------------------------------------------------------------------------
        \6\ Id. at 24.

       L``In addition to operating a cash window, single-
            family guarantors generally should be required to offer
            to acquire mortgage loans from across the Nation. A
            nationwide service requirement will foster equitable
            secondary market access, diversified Government-
            guaranteed MBS, and also affordable access to mortgage
            credit by underserved borrowers.''\7\
    ---------------------------------------------------------------------------
        \7\ Id. at 42.

       L``Pending legislation, Treasury and FHFA should
            amend each PSPA to require each GSE to maintain a
            nationwide cash window for small lenders . . . ''\8\
    ---------------------------------------------------------------------------
        \8\ Id. at 43.

    Q.2. Your plan proposes to reform the GSEs' ``statutory
    mandates.'' The current ``statutory mandates'' are the
    affordable housing goals, the Duty to Serve underserved housing
    markets, and contributions to the Housing Trust Fund and
    Capital Magnet Fund. Do you intend to reform all three of these
    mandates? If so, how? Please address each of the three
    ---------------------------------------------------------------------------
    elements.

    A.2. Treasury does not propose, and indeed opposes, reducing or
    eliminating the GSEs' longstanding support for affordable
    housing. Indeed, comprehensive housing finance reform
    legislation could preserve and improve support for low- and
    moderate-income and other historically underserved borrowers
    and renters.
        With respect to the statutory affordability mandates
    enumerated in the Treasury Housing Reform Plan,\9\ Treasury's
    recommended reforms are focused primarily on the statutory
    affordable housing goals for the GSEs' acquisitions of mortgage
    loans to low- and moderate-income borrowers and mortgage loans
    to borrowers in low-income areas.\10\ In particular, Treasury
    recommends that ``Congress should replace the GSEs' statutory
    affordable housing goals with a more efficient, transparent,
    and accountable mechanism for delivering tailored support to
    first-time home buyers and low- and moderate-income, rural, and
    other historically underserved borrowers, with a portion of the
    associated funding potentially transferred to HUD to expand its
    affordable housing activities.''\11\
    ---------------------------------------------------------------------------
        \9\ Id. at 23.
        \10\ 12 U.S.C.  4562-63.
        \11\ Treasury, Housing Reform Plan, at 24.
    ---------------------------------------------------------------------------
        Except to suggest that reforms could ``more effectively
    target support for affordable housing,'' the Treasury Housing
    Reform Plan did not include specific recommendations to alter
    the duty to serve specified underserved markets or the periodic
    contributions to the Housing Trust Fund and Capital Magnet
    Fund.

    Q.3. Absent legislation, your plan states that ``FHFA should
    consider more efficient mechanisms for the GSEs to achieve the
    statutory affordable housing goals.''\12\ What are those more
    efficient mechanisms? How do you expect that these changes
    would impact the way that the GSEs currently serve very low-,
    low-, and moderate-income homeowners and renters?
    ---------------------------------------------------------------------------
        \12\ Treasury, Housing Reform Plan, at 24.

    A.3. The Treasury Housing Reform Plan notes that the GSEs'
    ``mission-related cross-subsidization in large part occurs
    where the GSEs collect above-cost guarantee fees from lower
    credit risk borrowers to subsidize below-cost guarantee fees
    collected from higher credit risk borrowers.''\13\ Because
    ``[c]redit risk is not necessarily a good proxy for borrower
    income,'' Treasury has suggested ``that alternatives to credit
    risk-based cross-subsidy could provide more efficient
    mechanisms for the GSEs to deliver well-targeted support to
    low- and moderate-income borrowers and achieve their statutory
    affordable housing goals.''\14\ FHFA will determine whether to
    adopt any particular recommendation set forth in the Treasury
    Housing Reform Plan. One approach that FHFA might wish to
    consider could be to focus support on borrowers that have been
    identified as very low-, low-, or moderate-income, or another
    type of historically underserved borrower.
    ---------------------------------------------------------------------------
        \13\ Ibid.
        \14\ Ibid.

    Q.4. Secretary Mnuchin, during your testimony you stated that
    there is bipartisan support on the issue of affordable housing,
    and it ``may be that there should be more money put for
    affordable housing.'' As you know the Housing Trust Fund and
    Capital Magnet Fund are currently funded through a 4.2 basis
    point assessment on the GSEs' volume. The Administration
    proposes limiting the footprint of the GSEs' multifamily
    business and suggests a number of limitations on the single-
    family business that would likely reduce the GSEs' overall
    guarantee volume.
        If the Administration limits the GSEs' volume or eliminates
    certain product lines, what impact would you expect that to
    have on the amount of funds allocated to the Housing Trust Fund
    and Capital Magnet Fund in future years?

    A.4. The Treasury Housing Reform Plan does not include specific
    recommendations to alter the periodic contributions to the
    Housing Trust Fund and Capital Magnet Fund. More broadly,
    Treasury does not propose, and indeed opposes, reducing or
    eliminating the GSEs' longstanding support for affordable
    housing. Indeed, comprehensive housing finance reform
    legislation that establishes a more efficient, transparent, and
    accountable mechanism for delivering tailored support could
    preserve and improve support for low- and moderate-income and
    other historically underserved borrowers and renters.
    Affordability
    Q.5. Secretary Mnuchin, during the hearing and in the Treasury
    Department's Housing Finance Reform plan you expressed support
    for affordable housing.
        How would you define affordable housing? Please address
    affordability in the context of home ownership, rental housing,
    and explicit subsidies.

    A.5. As stated in the Treasury Housing Reform Plan, ``[a]ccess
    to affordable housing is far too difficult for many Americans,
    with rising housing costs forcing many families to dedicate
    larger shares of their income to housing.''\15\ Consistent with
    the Presidential Memorandum on Federal Housing Finance Reform
    dated March 27, 2019, sustainable home ownership for American
    families should be a benchmark for success for housing finance
    reform. Affordable housing policy should, among other things,
    contemplate efficient, transparent, and accountable mechanisms
    for delivering targeted support to facilitate access to
    affordable housing for borrowers and renters.
    ---------------------------------------------------------------------------
        \15\ Id. at 21.
    ---------------------------------------------------------------------------
    National Market
    Q.6. Secretary Mnuchin, in your testimony you stated that
    Treasury supported ``the national concept.'' But in the
    Treasury Department's plan, you also state that ``[c]areful
    attention should be
    devoted to the drafting of the nationwide service requirement
    so as to not confer on FHFA the authority to in effect dictate
    underwriting or pricing terms for single-family guarantors--for
    example, the authority to require a single-family guarantor to
    acquire mortgage loans from a geographic area that the single-
    family guarantor has determined to have home prices that are
    not supported by market fundamentals.''\16\
    ---------------------------------------------------------------------------
        \16\ Id. at pg. 42.
    ---------------------------------------------------------------------------
        Why might a guarantor decide not to serve a given market?

    A.6. The Treasury Housing Reform Plan states that ``single-
    family guarantors generally should be required to offer to
    acquire mortgage loans from across the Nation. A nationwide
    service requirement will foster equitable secondary market
    access, diversified Government-guaranteed MBS, and also
    affordable access to mortgage credit by underserved
    borrowers.''\17\ Congress may consider exceptions to this
    requirement to prevent circumstances in which a regulator is in
    effect dictating underwriting terms to a guarantor. Treasury's
    preference and recommendation is that Congress enact
    comprehensive housing finance reform legislation. The
    legislation should specify the parameters for maintaining a
    nationwide service requirement, in particular to ensure that
    all markets are served by the housing finance system.
    ---------------------------------------------------------------------------
        \17\ Id. at 42.

    Q.7. Under the Treasury Department's plan, would a guarantor be
    required to explain to FHFA why it would not serve a market on
    ---------------------------------------------------------------------------
    equitable terms before it could exclude that market?

    A.7. Treasury's preference and recommendation is that Congress
    enact comprehensive housing finance reform legislation. The
    legislation should specify the parameters for maintaining a
    nationwide service requirement, in particular to ensure that
    all markets are served by the housing finance system. The
    Treasury Housing Reform Plan recommends a framework for
    comprehensive housing finance reform, but Congress should enact
    legislation addressing these specific considerations. Treasury
    looks forward to working with Congress on passing bipartisan
    legislation.

    Q.8. If FHFA cannot enforce the requirement for a guarantor to
    serve all markets, how would Treasury maintain a truly national
    market?

    A.8. Treasury's preference and recommendation is that Congress
    enact comprehensive housing finance reform legislation. The
    legislation should specify a mechanism for enforcing the
    nationwide service requirement, in particular to ensure that
    all markets are served by the housing finance system. Treasury
    looks forward to working with Congress on passing bipartisan
    legislation.

    Q.9. Please describe the impact for borrowers and prospective
    homeowners and renters if a guarantor or guarantors decide not
    to serve a given market.

    A.9. There should be no disruption to the market as a result of
    Treasury's recommended reforms. Treasury's reform plan takes
    great care to preserve what works in the current system.
    Treasury's preference and recommendation is that Congress enact
    comprehensive housing finance reform legislation. The
    legislation should specify the parameters for maintaining a
    nationwide service requirement, in particular to ensure that
    all markets are served by the housing finance system. The
    Treasury Housing Reform Plan recommends a framework for
    comprehensive housing finance reform, but Congress should enact
    legislation addressing these specific considerations. Treasury
    looks forward to working with Congress on passing bipartisan
    legislation.
    30-year fixed-rate mortgage
    Q.10. Secretary Mnuchin, in your testimony you stated that you
    do not believe that the 30-year fixed-rate mortgage could exist
    without Government backing. But the Treasury Report states that
    it ``is possible that the 30-year fixed-rate mortgage loan
    could remain widely available and at similar prices under a
    market structure that does not depend on Government
    support.''\18\ Treasury further states that it ``does not
    believe a Government guarantee is required'' for a functioning
    mortgage market.\19\
    ---------------------------------------------------------------------------
        \18\ Id. at pg. 12.
        \19\ Id. at pg. 2.
    ---------------------------------------------------------------------------
        To clarify, is it the position of the Trump administration
    and the Treasury Department that a Government guarantee is
    necessary to preserve widespread availability of the 30-year
    fixed-rate mortgage? Please specify whether you are referring
    to an implicit, limited explicit, or unlimited explicit
    guarantee.

    A.10. As stated in the Treasury Housing Reform Plan, the GSEs
    have fostered the widespread availability of the 30-year fixed-
    rate mortgage loan. Any proposal to fundamentally change the
    housing finance system should take careful account of the risks
    posed by the transition. Stability in the housing finance
    system is crucial, and generally counsels in favor of
    preserving what works in the current system, including the
    longstanding support of the 30-year fixed-rate mortgage loan.
    This existing Government support should, however, be made
    clearer and better tailored.
        Treasury does not believe an explicit guarantee, backed by
    the full faith and credit of the Federal Government, is
    required for the GSEs to continue to support the widespread
    availability of the 30-year fixed-rate mortgage. However, to
    preserve stability in the housing finance system pending
    comprehensive housing finance reform legislation, Treasury
    expects that it will be necessary to maintain limited and
    tailored Government support for the GSEs by leaving the PSPA
    commitment in place after the conservatorships. The capital
    support provided through the PSPA commitment continues to
    provide confidence to investors that the GSEs will meet their
    financial obligations.
        Further, Treasury would support legislation that authorizes
    an explicit, paid-for guarantee backed by the full faith and
    credit of the Federal Government that is limited to the timely
    payment of principal and interest on qualifying mortgage-backed
    securities (MBS). That explicit Government guarantee should be
    available not only to the GSEs but also to any other potential
    guarantors that would be chartered by FHFA.
    Multifamily
    Q.11. Secretary Mnuchin, during your oral testimony you stated
    that Treasury believes the GSEs' current level of involvement
    in the multifamily housing market is ``fine'' and that you were
    not looking to reduce it. But in the Administration's plan, the
    Treasury Department stated that ``FHFA should revisit FHFA's
    efforts in 2012 and 2013 to restrict the GSEs' multifamily
    footprint.''\20\ The plan further states that FHFA should
    ``limit support of each GSE's multifamily business to its
    underlying affordability mission.''
    ---------------------------------------------------------------------------
        \20\ Id. at pg. 21.
    ---------------------------------------------------------------------------
        As you know, the GSEs play a critical role in providing
    liquidity for multifamily housing in secondary and tertiary
    markets that are less likely to attract capital from other
    sources. While these deals may not be designated as affordable,
    they, too, serve a critical unmet need.
        Does the Administration recommend restricting the GSEs'
    multifamily footprint and limiting its activities as stated in
    the Treasury Department's Housing Finance Reform plan? If so,
    please explain what limitations Treasury would recommend. If
    not, please explain the meaning of the quotes above.

    A.11. The GSEs continue to provide liquidity to the multifamily
    lending market, in particular to support the availability of
    rental units that are affordable to low- and moderate-income
    and other historically underserved renters. The Treasury
    Housing Reform Plan recommends that Congress authorize an
    explicit, paid-for guarantee of qualifying MBS collateralized
    by eligible multifamily mortgage loans. The funding advantage
    conferred by an explicit guarantee could risk crowding out
    existing private sector funding of multifamily loans. As such,
    Treasury recommends that Congress and FHFA revisit the
    framework for ensuring that the Federal Government's support of
    the multifamily secondary market is tailored to an
    affordability mission. FHFA recently announced changes to the
    restrictions on GSE multifamily loan purchases. Treasury
    believes these changes are consistent with the recommendations
    in the Treasury Housing Reform Plan.
    Cross-Subsidy
    Q.12. Secretary Mnuchin, the Administration's plan proposes to
    reduce business lines for which the GSEs charge higher
    guarantee fees.
        Does the Administration intend to maintain at least the
    same level of cross-subsidy in the system, which directly
    impacts low- and moderate-income prospective homeowners and
    renters in harder to serve markets? If so, how will the GSEs
    generate sufficient funds to maintain affordable access to
    mortgage credit for moderate-income borrowers and in less
    lucrative markets, like rural areas?

    A.12. The Treasury Housing Reform Plan recommends that
    ``Congress should restrict the permissible activities of
    guarantors to the business of securitizing Government-
    guaranteed MBS,'' and that ``[p]ending legislation, FHFA should
    assess whether each of the current products, services, and
    other single-family activities of each GSE is consistent with
    its statutory mission . . . ''\21\ Treasury supports
    appropriate review of GSEs business activities to ensure that
    there is a clear rationale for them given the Government's
    existing and recommended future support.
    ---------------------------------------------------------------------------
        \21\ Id. at 18.
    ---------------------------------------------------------------------------
        Treasury does not propose, and indeed opposes, reducing or
    eliminating the GSEs' longstanding support for affordable
    housing. Indeed, comprehensive housing finance reform
    legislation that establishes ``a more efficient, transparent,
    and accountable mechanism for delivering tailored support to
    first-time home buyers and low- and moderate-income, rural, and
    other historically underserved borrowers'' could improve
    support for affordable housing.\22\ Any legislative reforms
    should also preserve and improve support for low- and moderate-
    income and other historically underserved renters.\23\
    ---------------------------------------------------------------------------
        \22\ Id. at 24.
        \23\ Id. at 14, 19-21.
    ---------------------------------------------------------------------------
    Regulated Rate of Return
    Q.13. Secretary Mnuchin, in your oral testimony you stated that
    the Trump administration believes that FHFA should maintain
    regulation and oversight of the pricing of any guarantee. While
    regulation of pricing is important to avoid unhealthy
    competition for market share, I am also concerned about the
    returns that investors in guarantors might demand. As the
    Financial Crisis Inquiry Commission's report noted, ``risky
    practices of Fannie Mae,'' which was the case study for the two
    Enterprises, ``led to its fall: practices undertaken to meet
    Wall Street's expectations for growth, to regain market share,
    and to ensure generous compensation for its employees.''\24\
    ---------------------------------------------------------------------------
        \24\ Financial Crisis Inquiry Report, pg. 323.
    ---------------------------------------------------------------------------
        To address the problematic incentives in place before the
    crisis, we must also address investor expectations.
        In addition to supporting regulation of the guarantee fee,
    does the Trump administration also support a regulated rate of
    return for shareholders in any guarantor?

    A.13. Treasury believes any subsidy provided to the GSEs should
    be passed through to borrowers, not passed through to
    shareholders or employees. While the Treasury Housing Reform
    Plan recommends a framework for comprehensive housing finance
    reform, Treasury's preference and recommendation is that
    Congress enact legislation to address these specific
    considerations. Treasury looks forward to working with Congress
    on passing bipartisan legislation.

    Q.14. Secretary Mnuchin, you stated that FHFA should maintain
    ``regulation and oversight of the pricing of the guarantee''
    for mortgage-backed securities. But in the Treasury
    Department's plan, you also state that ``[c]areful attention
    should be devoted to the drafting of the nationwide service
    requirement so as to not confer on FHFA the authority to in
    effect dictate underwriting or pricing terms for single-family
    guarantors--for example, the authority to require a single-
    family guarantor to acquire mortgage loans from a geographic
    area that the single-family guarantor has determined to have
    home prices that are not supported by market
    fundamentals.''\25\
    ---------------------------------------------------------------------------
        \25\ Treasury Housing Reform Plan, pg. 42.
    ---------------------------------------------------------------------------
        How do you distinguish between regulation and oversight of
    pricing for the guarantee and the pricing terms for a single-
    family guarantee? Under the Treasury Department's plan, what
    pricing would FHFA establish and what pricing would be left to
    the discretion of the guarantor?

    A.14. Treasury supports preserving a national service
    requirement to ensure that all markets are served by the
    housing finance system. Comprehensive housing finance reform
    legislation should specify the parameters for maintaining such
    a nationwide requirement and any limited exceptions to such a
    requirement to address potential safety and soundness
    considerations for a guarantor or with regard to achieving a
    competitive secondary market.
        While the Treasury Housing Reform Plan recommends a
    framework for comprehensive housing finance reform, Treasury's
    preference and recommendation is that Congress enact
    legislation to address these specific considerations. Treasury
    looks forward to working with Congress on passing bipartisan
    legislation.
    QM
    Q.15. Secretary Mnuchin, your plan calls on the Consumer
    Financial Protection Bureau to amend its rules put in place
    after the crisis to hold lenders accountable for making
    predatory loans based on little or no documentation. You also
    say that the GSEs will be limited to guaranteeing only some
    portion of the loans that the Bureau believes are so safe that
    lenders are given a complete safe harbor from legal liability.
        Please describe what loans you believe are so safe that
    consumers shouldn't need the right to hold their lender
    accountable, but that are too risky for the GSEs to guarantee.

    A.15. The Treasury Housing Reform Plan recommends that
    ``Congress amend the Truth in Lending Act to establish a clear
    bright line safe harbor for compliance with the required
    ability-to-repay determination,'' and that ``[p]ending
    legislation, the QM patch should expire.''\26\ Treasury
    recommends that FHFA review GSE purchase guidelines in light of
    any revisions to the QM standard, as determined by the Consumer
    Financial Protection Bureau (CFPB), in order to manage risks to
    the safety and soundness of the GSEs or additional guarantors,
    and to ensure that GSE activities have a close nexus to the
    underlying rationale for Government support.
    ---------------------------------------------------------------------------
        \26\ Id. at 38.
    ---------------------------------------------------------------------------
    G-Fees
    Q.16. Secretary Mnuchin, your plan suggests that FHFA could
    charge different guarantors different amounts for the same
    Government guarantee to help new entrants compete with Fannie
    Mae and Freddie Mac.\27\
    ---------------------------------------------------------------------------
        \27\ Id. at pg. 41.
    ---------------------------------------------------------------------------
        Who would you imagine would pay those higher costs for a
    guarantee, and what impact might these higher costs have on
    access to credit?

    A.16. Treasury recommends legislative reforms that would
    encourage a more competitive secondary mortgage market,
    including granting FHFA the authority to charter additional
    competitor guarantors to the GSEs. Having multiple guarantors
    could reduce the systemic importance of any single guarantor,
    increase market discipline, better protect taxpayers, and
    encourage the transmission of any subsidy to borrowers.
    However, additional entrants may face significant barriers to
    entry. Treasury's Housing Reform Plan recommends that Congress
    grant FHFA ``appropriate authorities to foster competition with
    the re-chartered GSEs.''\28\ These authorities may include
    giving FHFA the ability to adjust the fees it charges in
    association with administering a mortgage insurance fund. The
    Treasury Housing Reform Plan contemplates that certain
    requirements for new guarantor entrants be phased in to foster
    the development of a competitive market. These recommended
    authorities would not be expected to have a negative effect on
    borrower access to credit. The establishment of a full faith
    and credit Government guarantee by Congress on eligible MBS
    could support continued broad access to mortgage credit by
    providing confidence to MBS investors regardless of prevailing
    market conditions.
    ---------------------------------------------------------------------------
        \28\ Id. at 42.
    ---------------------------------------------------------------------------
    TBA Market
    Q.17. The Administration proposes a number of limitations on
    the GSEs' single-family business that would likely reduce the
    GSEs' overall guarantee volume, including product restrictions.
        How would any reduction in the size of the GSEs' footprint
    impact liquidity in the to-be-announced (TBA) market? How would
    changes in liquidity in the TBA market ultimately impact
    mortgage pricing for consumers?

    A.17. There should be no disruption to the market as a result
    of Treasury's recommended reforms. Treasury's reform plan takes
    great care to preserve what works in the current system,
    including preservation of the TBA market, to which the GSEs and
    Ginnie Mae have unique access and through which global capital
    supports the availability of the 30-year fixed-rate mortgage.
    Duplication of Support
    Q.18. Secretary Mnuchin, both the Treasury and HUD plans
    express concern about ``duplicating support'' for families who
    might be eligible for both FHA-insured and GSE-guaranteed
    loans. But, as you know, FHA's insurance and the GSEs'
    guarantee provide two different functions, and most borrowers
    participate in just one of these programs at a time.
        How is a borrower being eligible for an FHA-insured loan
    and a GSE-guaranteed loan duplicating support? How does a
    borrower having the option to choose an FHA or conventional
    loan hurt the programs?

    A.18. The Presidential Memorandum on Federal Housing Finance
    Reform dated March 27, 2019, directed Treasury to define the
    GSEs' role in promoting affordable housing without duplicating
    support provided by the Federal Housing Administration (FHA) or
    other Federal programs. Consistent with its charter, each GSE's
    role should be to perform activities relating to mortgages on
    housing for low- and moderate-income families involving a
    reasonable economic return that may be less than the return
    earned on other activities. Consistent with the Presidential
    Memorandum, FHA and Ginnie Mae have primary responsibility for
    providing housing finance support to low- and moderate-income
    families that cannot be fulfilled through traditional
    underwriting. Treasury acknowledges that there will be some
    incidental overlap between the GSEs' and FHA's support for
    affordable housing, but the duplication of support for
    affordable housing has unnecessarily increased during the GSEs'
    conservatorships. Treasury believes FHFA and HUD should better
    define the respective roles, including their overlap, between
    the GSEs and FHA to avoid duplicating sizable Federal support
    to the housing system.
    PLS
    Q.19. Secretary Mnuchin, your plan makes a number of
    suggestions to try to resuscitate the private-label securities
    (PLS) market. In its latest paper on reviving the PLS market,
    the Structured Finance Association said that ``[i]nvestors have
    indicated that a mechanism to solve issues related to
    representations and warranties is a prerequisite to returning
    to the market.''\29\
    ---------------------------------------------------------------------------
        \29\ ``RMBS 3.0: A Comprehensive Set of Proposed Industry Standards
    to Promote Growth in the Private Label Securities Market,'' SFIG,
    November 9, 2017, available at https://structuredfinance.org/wp-
    content/uploads/2019/05/RMBS-3.0-Sixth-Edition-Final-1109.pdf.
    ---------------------------------------------------------------------------
        Has the market fixed the remaining distrust between
    investors and issuers? If this hasn't been fixed, why would we
    think that investors would come back?

    A.19. PLS issuance has not returned to levels seen in the
    decade before the financial crisis. Residual investor concerns
    with how losses are managed and allocated to different parties
    to a private label securitization (PLS) transaction, and how
    conflicts between those interests are resolved, continue to be
    raised as one challenge limiting PLS issuance. Other issues
    likely also contribute to the relatively limited issuance,
    including challenges for issuers to comply with onerous asset-
    level disclosure requirements for registered issuances; passive
    investor concerns with their potential assignee liability under
    Federal law; risk retention rules for residential mortgage
    securitizations; and GSE activities crowding out private risk
    capital. The Treasury Housing Reform Plan has as one of its
    main pillars leveling the playing field across market
    participants, so that innovation and competitive market forces
    drive volume, as opposed to statutory and regulatory barriers.
    Treasury supports efforts by regulators to review existing
    rules to address areas where recalibration is warranted to
    support a competitive secondary mortgage market.
                                    ------

    RESPONSE TO WRITTEN QUESTION OF SENATOR MENENDEZ FROM STEVEN T.
                                MNUCHIN

    Q.1. First-time home buyers have traditionally been the driving
    force of the housing market and these borrowers traditionally
    rely on low-downpayment mortgages to purchase their homes. In
    fact, over the past several years, nearly 80 percent of first-
    time home buyers with mortgages purchased homes using low-
    downpayment products. With rising rents, high home price
    appreciation numbers, and student debt, it is critical that
    younger buyers have access to affordable low-downpayment
    options that will allow them to attain the American Dream of
    home ownership.
        Can you please speak to how your agencies' recommendations
    will ensure that borrowers can access affordable, prudent low-
    downpayment mortgage options?

    A.1. Treasury supports the GSEs' longstanding role in promoting
    access to affordable mortgage credit, including access by low-
    and moderate-income, rural, and other historically underserved
    borrowers. As stated in the Treasury Housing Reform Plan,
    ``[a]ccess to affordable housing is far too difficult for many
    Americans, with rising housing costs forcing many families to
    dedicate larger shares of their income to housing.''\1\
    Consistent with the Presidential Memorandum, sustainable home
    ownership for American families should be a benchmark for
    success for housing finance reform. Affordable housing policy
    should contemplate efficient, transparent, and accountable
    mechanisms for delivering targeted support for affordable
    ownership and rental opportunities.
    ---------------------------------------------------------------------------
        \1\ Id. at 21.
    ---------------------------------------------------------------------------
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT FROM STEVEN T.
                                MNUCHIN

    Q.1. Treasury's report states that Treasury and FHFA should
    amend each PSPA to require each GSE to maintain a nationwide
    cash window for small lenders and to prohibit volume-based
    pricing discounts or other similar incentives. I think this is
    a critical issue to ensure that small banks can compete in the
    mortgage business and that rural America can have access to
    mortgage credit.
        How will you operationalize enforcement, particularly if
    more guarantors enter the market? How will the window function
    in a crisis without the implicit guarantee of debt financing?

    A.1. Treasury believes housing finance reform should foster a
    competitive primary mortgage market in part by protecting equal
    access for lenders of all sizes to the secondary mortgage
    market, including operating a cash window for small lenders.
    While cash acquisitions account for a sizable share of GSE
    business acquisition volumes, because the GSEs have access to
    the Agency MBS market to package and securitize their cash
    acquisitions, the size of the balance sheet needed to fund
    these activities is relatively small. Treasury expects that
    much of the funding needs currently supported by unsecured
    corporate debt of the GSEs will be covered by the equity
    financing eventually required by FHFA's final capital rule.

    Q.2. Both Treasury and HUD have been heavily involved in the
    implementation of my Opportunity Zone initiative and I
    appreciate your hard work. Thus far Opportunity Zones have
    proven to be instrumental in fostering community development,
    job creation, and economic development across our Nation.
    Needless to say, Opportunity Zones have also been extremely
    impactful in terms of the topics we've covered today.
        As you know, Opportunity Zones have been a catalyst for new
    investment into our Nation's most economically distressed
    neighborhoods. Of course, Treasury's work in providing
    implementing regulations has been a huge part of making this
    initiative--and these projects--possible. In light of that,
    when do you expect that we will see the Opportunity Zone
    regulations finalized?

    A.2. On December 19, 2019, the Treasury Department and IRS
    issued a final set of regulations on Opportunity Zones.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN FROM STEVEN T.
                                MNUCHIN

    Q.1. Our housing finance system faces a number of profound
    challenges. In most parts of the country, prices for starter
    homes are skyrocketing as much as 10 percent per year.\1\
    Millions of Americans are cost burdened, paying more than 30
    percent of their income on rent, mortgages or other housing
    costs. Perhaps most perniciously, the legacy of decades of
    racist Federal housing policy is still too apparent today. The
    average Black family has about \1/10\th the wealth of the
    average white family,\2\ and while the Black families made some
    gains in the healthy housing markets of the 1990s and early
    2000s, that progress was wiped out in the subprime crisis.
    Today, the homeownership gap between Black and white families
    is as large as it was when housing discrimination was legal.\3\
    ---------------------------------------------------------------------------
        \1\ Marketwatch ``One big reason it's so hard for first-time buyers
    to find the right starter home.'' Jacob Passy, March 21, 2018, https://
    www.marketwatch.com/story/another-hurdle-for-first-time-home-buyers-
    there-are-barely any-starter-homes-for-sale-2018-03-21.
        \2\ Brookings, ``A conversation about the racial wealth gap--and
    how to address it,'' Michaela Broyles, June 18, 2019, https://
    www.brookings.edu/blog/brookings-now/2019/06/18/a-conversation-about-
    the-racial-wealth-gap-and-how-to-address-it/.
        \3\ Census Bureau, ``Quarterly Residential Vacancies and
    Homeownership, Second Quarter 2019,'' July 25, 2019, https://
    www.census.gov/housing/hvs/files/currenthvspress.pdf; National Bureaus
    of Economic Research Working Paper Series, ``Race and Home Ownership,
    1900 to 1990,'' William J. Collins and Robert Margo, August 1999,
    https://www.nber.org/papers/w7277.pdf.
    ---------------------------------------------------------------------------
        Any proposal for housing finance reform must confront these
    problems. After all, as the U.S. Department of Treasury Housing
    Reform Plan (``Treasury Report'') points out, ``[e]ach GSE's is
    unique in that its congressional charter endows the GSE with a
    public mission.'' These public missions make it clear that the
    GSEs exist to ``promote access to mortgage credit throughout
    the Nation (including central cities, rural areas, and
    underserved areas)'' and to perform ``activities relating to
    mortgages on housing for low- and moderate-income families
    involving a reasonable economic return that may be less than
    the return earned on other activities.''\4\
    ---------------------------------------------------------------------------
        \4\ U.S. Department of the Treasury, ``U.S. Department of the
    Treasury Housing Reform Plan,'' September 2019, file:///C:/Users/
    js42247/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/
    LTYNPN67/Treasury-Housing-Finance-Reform-Plan.pdf.
    ---------------------------------------------------------------------------
        I have carefully reviewed the Treasury Report and the
    Department of Housing and Urban Development's Housing Finance
    Reform Plan (``HUD Report''). Both appear to eliminate many of
    the mechanisms in the current system that support sustainable
    home ownership among low- and moderate-income and middle-income
    borrowers, especially in communities of color. The following
    questions seek more information about the analysis that
    Treasury, HUD and the Federal Housing Finance Agency (FHFA)
    undertook to determine the effects of their various proposals
    on housing prices, access to home ownership for first-time home
    buyers, and the racial homeownership gap.
        The Treasury Report recommends that ``Congress should
    restrict the permissible activities of guarantors to the
    business of securitizing Government-guaranteed MBS,'' including
    ``cash-out refinancings, investor loans, vacation home loans,
    higher principal balance loans [in high-cost areas], or other
    subsets of GSE-acquired mortgage loans,'' and in the absence of
    legislation ``FHFA should assess whether each of the current
    products, services, and other single-family activities of each
    GSE is consistent with its statutory mission.''\5\
    ---------------------------------------------------------------------------
        \5\ Ibid.

        Did Treasury analyze the effects of limiting the activities
    of the guarantors on home prices, especially in high-cost
    ---------------------------------------------------------------------------
    areas? If so, please provide the analysis.

    A.1. Treasury recommends that activities that benefit from
    Government support should be assessed to ensure they align with
    a clear rationale warranting such support. Treasury took great
    care to formulate its recommendations in ways that would not
    disrupt the market or raise borrowing costs. Treasury believes
    any changes to GSE business activities should be carefully
    calibrated to this objective.

    Q.2. Did Treasury analyze the effects limiting the activities
    of the guarantors on access to home ownership for low-,
    moderate-, and middle-income borrowers and first-time home
    buyers, especially in high-cost areas? If so, please provide
    the analysis.

    A.2. Treasury took great care to formulate its recommendations
    in ways that would not disrupt the market, limit access to
    credit, or raise borrowing costs. Critically, the legislative
    reforms Treasury recommends in Treasury's Housing Reform Plan
    should preserve and improve support for low- and moderate-
    income and other historically underserved groups.\6\
    ---------------------------------------------------------------------------
        \6\ Id. at 14, 19-21.

    Q.3. Did Treasury analyze the effects of limiting the
    activities of the guarantors on access to sustainable home
    ownership in communities of color? If so, please provide the
    ---------------------------------------------------------------------------
    analysis.

    A.3. See previous answer.

    Q.4. The Treasury report recommends getting rid of the
    affordable housing goals. As an alternative, the Report
    suggests, ``collect[ing] a periodic assessment from guarantors
    that Congress would make available through an appropriation to
    administer on-budget affordable housing.''
        Did Treasury analyze the effects of getting rid of the
    affordable housing goals on home prices? If so, please provide
    the analysis.

    A.4. While the Treasury Housing Reform Plan recommends a
    framework for comprehensive housing finance reform, Treasury's
    preference and recommendation is that Congress enact
    legislation to address these specific considerations. Treasury
    looks forward to working with Congress on passing bipartisan
    legislation. Given the critical importance of the housing
    market to the U.S. economy, Treasury supports careful review of
    proposed reforms, as they are developed in potential
    legislation, to ensure that they do not
    disrupt the market, limit access to credit for creditworthy
    borrowers, or raise borrowing costs.

    Q.5. Did Treasury analyze the effects of getting rid of the
    affordable housing goals on access to home ownership low-,
    moderate-, and middle-income borrowers and first-time home
    buyers? If so, please provide the analysis.

    A.5. See previous answer.

    Q.6. Did Treasury analyze the effects of getting rid of the
    affordable housing goals on access to sustainable home
    ownership in communities of color? If so, please provide the
    analysis.

    A.6. See previous answer.

    Q.7. The Treasury report recommends that ``FHFA and HUD should
    develop and implement a specific understanding as to the
    appropriate roles and overlap between the GSEs and FHA, for
    example, with respect to the GSEs' acquisitions of high LTV and
    high DTI loans and FHA's underwriting of cash-out,
    conventional-to-FHA, and other refinancing loans and loans to
    repeat FHA borrowers.''
        Did Treasury analyze the effects of limiting the footprint
    of the GSEs and FHA on home prices? If so, please provide the
    analysis.

    A.7. The Presidential Memorandum directed Treasury to define
    the GSEs' role in promoting affordable housing without
    duplicating support provided by the FHA or other Federal
    programs. Consistent with its charter, each GSE's role should
    be to perform activities relating to mortgages on housing for
    low- and moderate-income families involving a reasonable
    economic return that may be less than the return earned on
    other activities. Consistent with the Presidential Memorandum,
    FHA and Ginnie Mae have primary responsibility for providing
    housing finance support to low- and moderate-income families
    that cannot be fulfilled through traditional underwriting.
    Treasury acknowledges that there will be some incidental
    overlap between the GSEs and FHA's support for affordable
    housing, but the duplication of support for affordable housing
    has unnecessarily increased during the conservatorships.
    Treasury believes FHFA and HUD should better define the
    respective roles, including their overlap, between the GSEs and
    FHA to avoid duplicating sizable Federal support to the housing
    system. Treasury took great care in formulating its
    recommendations in ways that would not disrupt the market,
    raise borrowing costs, or limit access to credit for
    creditworthy borrowers to achieve sustainable home ownership.

    Q.8. Did Treasury analyze the effects of limiting the footprint
    of the GSEs and FHA on access to home ownership for low-,
    moderate-, and middle-income borrowers and first-time home
    buyers? If so, please provide the analysis.

    A.8. See previous answer.

    Q.9. Did Treasury analyze the effects of limiting the footprint
    of the GSEs and FHA on access to sustainable home ownership in
    communities of color? If so, please provide the analysis.

    A.9. See previous answer.

    Q.10. The Treasury Report recommends that ``FHFA's eventual
    regulatory capital requirements should require that each
    guarantor, or each GSE pending legislation, be appropriately
    capitalized by maintaining capital sufficient to remain viable
    as a going concern after a severe economic downturn and also to
    ensure that shareholders and unsecured creditors, rather than
    taxpayers, bear losses.'' These higher capital requirements
    would be similar to bank capital requirements, well above the
    status quo and the proposed FHFA rule.
        Did Treasury analyze the effects of higher capital
    requirements on home prices? If so, please provide the
    analysis.

    A.10. Treasury stated in Treasury's Housing Reform Plan that
    ``[t]o foster a level playing field with private sector
    competition, similar credit risks generally should have similar
    credit risk capital charges across market participants.''\7\
    The Treasury Housing Reform Plan is not prescriptive as to the
    level of capital the GSEs or additional competitor guarantors
    would be required to hold. Treasury took great care in
    formulating its recommendations in ways that would not disrupt
    the market or raise borrowing costs. On November 19, 2019, FHFA
    announced it would re-propose its capital regulation applicable
    to the enterprises.\8\ Any assessment of the impact of
    potential GSE capital requirements would be premature pending
    the development of those requirements.
    ---------------------------------------------------------------------------
        \7\  Id. at 28.
        \8\ Federal Housing Finance Agency. FHFA Will Re-propose Enterprise
    Capital Rule in 2020 (Nov. 19, 2019), available at: https://
    www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Will-Re-propose-Enterprise-
    Capital-Rule-in-2020.aspx.

    Q.11. Did Treasury analyze the effects of higher capital
    requirements on access to home ownership for low-, moderate-,
    and middle-income borrowers and first-time home buyers? If so,
    ---------------------------------------------------------------------------
    please provide the analysis.

    A.11. See previous answer.

    Q.12. Did Treasury analyze the effects of higher capital
    requirements on access to sustainable home ownership in
    communities of color? If so, please provide the analysis.

    A.12. See previous answer.

    Q.13. According to the Treasury report, ``Treasury supports the
    contemplated expiration of the QM patch.''
        Did Treasury analyze the effects of letting the QM patch
    expire on home prices? If so, please provide the analysis.

    A.13. The CFPB is currently engaged in a review of the ability-
    to-repay rule, following its advance notice of proposed
    rulemaking in July 2019. As noted in Treasury's Housing Reform
    Plan, Treasury recommends that FHFA and the CFPB continue to
    coordinate their efforts to avoid market disruption in
    connection with the expiration of the QM patch and the
    implementation of any amendments to the CFPB's ability-to-repay
    rule.\9\ Treasury took great care in formulating its
    recommendations in ways that would not disrupt the market,
    raise borrowing costs, or limit access to credit for
    creditworthy borrowers to achieve sustainable home ownership.
    ---------------------------------------------------------------------------
        \9\ Treasury, Housing Reform Plan at 38.

    Q.14. Did Treasury analyze the effects of letting the QM patch
    expire on access to home ownership for low-, moderate-, and
    middle-income borrowers and first-time home buyers? If so,
    ---------------------------------------------------------------------------
    please provide the analysis.

    A.14. See previous answer.

    Q.15. Did Treasury analyze the effects of letting the QM patch
    expire on access to sustainable home ownership in communities
    of color? If so, please provide the analysis.

    A.15. See previous answer.

    Q.16. The Treasury report recommends that ``[f]ollowing any
    change to the CFPB's ability-to-repay rule, FHFA should revisit
    the determination as to which single-family mortgage loans
    should be eligible for acquisition by the GSEs (with
    appropriate amendments to the PSPAs) or, following legislation,
    should be eligible to secure Government-guaranteed MBS.''
        Did Treasury analyze the effects of further limiting the
    footprint of the GSEs on home prices? If so, please provide the
    analysis.

    A.16. Treasury recommends that FHFA review GSE purchase
    guidelines in light of any revisions to the QM standard, as
    determined by the CFPB, in order to manage risks to the safety
    and soundness of the GSEs or additional guarantors, and to
    ensure that GSE and guarantor activities maintain a close nexus
    to with Government support for their MBS. Treasury took great
    care in formulating its recommendations in ways that would not
    disrupt the market, raise borrowing costs, or limit access to
    credit for creditworthy borrowers to achieve sustainable home
    ownership.

    Q.17. Did Treasury analyze the effects of further limiting the
    footprint on access to home ownership for low-, moderate-, and
    middle-income borrowers and first-time home buyers? If so,
    please provide the analysis.

    A.17. See previous answer.

    Q.18. Did Treasury analyze the effects of further limiting the
    footprint of the GSEs on access to sustainable home ownership
    in communities of color? If so, please provide the analysis.

    A.18. See previous answer.

    Q.19. The Treasury Report is silent about the Housing Trust
    Fund and the Capital Magnet Fund. Both programs make important
    contributions to mitigating the affordable rental-housing
    crisis. Nearly every county in the United States lacks a
    sufficient stock of available and affordable rental units for
    residents who make 30 percent of area median income or below--
    the population targeted by the Housing Trust Fund.\10\ Nearly
    half of renters are cost burdened, meaning that they pay more
    than 30 percent of their income in rent.\11\ The private sector
    cannot and will not the fix this gap on its own. How does
    Treasury recommend funding the Housing Trust Fund and the
    Capital Magnet Fund and at what level?
    ---------------------------------------------------------------------------
        \10\ National Low Income Housing Coalition, ``New Report Concludes
    that Nearly Every U.S. County Lacks an Adequate Supply of Affordable
    and Available Homes for Low Income Renters,'' June 20, 2019, https://
    nlihc.org/news/new-report-concludes-nearly every-us-county-lacks-
    adequate-supply affordable-and-available.
        \11\ Housing Wire, ``Apartment List: Nearly 50 percent of renters
    are cost burdened,'' Jeremiah Jensen, September 25, 2018, https://
    www.housingwire.com/articles/46924-apartment-list-nearly-50-of-renters-
    are-cost-burdened.

    A.19. The Treasury Housing Reform Plan does not include
    specific recommendations to alter the periodic contributions to
    the Housing Trust Fund and Capital Magnet Fund. More broadly,
    Treasury does not propose, and indeed opposes, reducing or
    eliminating the GSEs' longstanding support for affordable
    housing. Indeed, comprehensive housing finance reform
    legislation that establishes a more efficient, transparent, and
    accountable mechanism for delivering tailored support could
    preserve and improve support for low- and moderate-income and
    other historically underserved borrowers and renters.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS FROM STEVEN T.
                                MNUCHIN

    Q.1. Treasury's report on reforming the GSEs mentioned that
    it's possible for the 30-year fixed-rate mortgage to still be
    widely available under similar prices in market structures that
    don't depend on Government support. An alternative system that
    Treasury discussed was one in which mechanisms like covered
    bonds mimic our GSEs' separation of credit risk and interest
    rate risk. Banks in Denmark, where government has a less
    central role in housing finance and the use of covered bonds is
    widespread, have recently been offering 30-year fixed-rate
    mortgages at interest rates of just 0.5 percent.
        I understand that monetary policy in Europe plays a role in
    such an ultra-low rate, but the fact that this kind of a
    mortgage product is so widely available in a small country like
    Denmark suggests that there are indeed other options to the
    American status quo.
        Would such an alternative financing model that doesn't have
    Government support as its centerpiece be feasible in the United
    States?

    A.1. As stated in the Treasury Housing Reform Plan, the GSEs
    have fostered the widespread availability of the 30-year fixed-
    rate mortgage loan. Any proposal to fundamentally change the
    housing finance system should take careful account of the risks
    posed by the transition. Stability in the housing finance
    system is crucial, and generally counsels in favor of
    preserving what works in the current system, including the
    longstanding support of the 30-year fixed-rate mortgage loan.
    This existing Government support should, however, be made
    clearer and better tailored. Treasury, therefore, would support
    replacing the commitment in the senior preferred stock purchase
    agreements with an explicit, paid-for guarantee backed by the
    full faith and credit of the Federal Government that is limited
    to the timely payment of principal and interest on qualifying
    MBS. That explicit Government guarantee should be available not
    only to the GSEs but also to any other guarantors chartered by
    FHFA.
        Treasury supports a level playing field for diverse forms
    of capital participating in the mortgage finance market to
    support widespread access to mortgage credit at the lowest cost
    to borrowers. Diverse forms of capital competing to support
    creditworthy borrowers are more likely to facilitate a dynamic
    housing finance
    system where efficiency, innovation, and service drive business
    and funding decisions.

    Q.2. In January 2016, the FHFA released a rule on Federal Home
    Loan Bank (FHLB) membership that restricted private capital
    investors' support of our housing market through their captive
    insurance companies. This rule was set to become fully
    effective 5 years after it was made final. Companies whose
    membership sunsets in February 2021 have already started
    pulling meaningful private capital from the housing market.
        Given that it will take time for the Administration to
    review the January 2016 rule and FHLB membership, what interim
    steps is the Administration planning on taking to promote the
    ability of impacted housing finance-focused companies to
    continue providing liquidity?

    A.2. In light of the continued evolution of the housing finance
    system, including lending outside of traditional depositories,
    Treasury recommends that Congress and FHFA revisit the FHLBank
    membership eligibility to consider whether captive insurers and
    other types of financial institutions should be eligible for
    FHLBank membership. Pending legislation, FHFA will determine
    whether to adopt any particular recommendation set forth in the
    Treasury Housing Reform Plan.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS FROM STEVEN T.
                                MNUCHIN

    Q.1. I was pleased to see that you believe that FHFA and
    Congress should revisit FHLBank membership eligibility to
    reflect the evolution of the housing finance system. Can you
    discuss the role you would see mREITs playing in the housing
    finance system and how that would increase liquidity and
    durability to housing finance?

    A.1. Treasury supports diverse forms of capital participating
    in the mortgage finance market to support widespread access to
    mortgage credit. Diverse forms of capital and associated
    private market participants competing to support creditworthy
    borrowers are more likely to reduce the systemic importance of
    any single intermediary, increase market discipline, and pass
    benefits through to borrowers. Treasury believes it is critical
    that housing finance reform further level the playing field
    across market participants so that efficiency, innovation, and
    service drive business and funding decisions.
        In light of the continued evolution of the housing finance
    system, including lending outside of traditional depositories,
    Treasury recommends that Congress and FHFA should revisit the
    FHLBank membership eligibility to consider whether captive
    insurers and other types of financial institutions should be
    eligible for FHLBank membership.

    Q.2. Given the impending expiration of captive insurance
    membership and the resultant withdrawal of private capital
    occurring now, would you be willing to sit down with the FHLBs
    and mission-aligned captive insurance companies to discuss a
    path forward?

    A.2. Treasury supports Congress and FHFA revisiting the FHLBank
    membership eligibility to consider whether captive insurers and
    other types of financial institutions should be eligible for
    FHLBank membership. Treasury stands ready to provide technical
    assistance to Congress on this and other issues and otherwise
    support legislative reform efforts. Pending legislation, FHFA
    will determine whether to adopt any particular recommendation
    set forth in the Treasury Housing Reform Plan.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN FROM STEVEN T.
                                MNUCHIN

    Q.1. What risk and prudential controls would you want to see in
    place at the FHFA as the regulator of the GSEs to whom you
    provide a line of credit? Director Calabria has noted that he
    must be ``100 percent'' confident in the supervisory framework
    at the FHFA, and that FHFA is prepared for proper oversight and
    regulation of the GSEs as private entities, before he agrees to
    release the GSEs from conservatorship. What does this framework
    require in your opinion?

    A.1. Pending legislation to end the conservatorships, each GSE
    should remain in conservatorship until FHFA determines that
    that the particular GSE can operate safely and soundly and
    without posing an undue systemic risk. Treasury believes that
    FHFA should consider a number of preconditions prior to
    releasing a GSE from conservatorship. These include
    finalization of regulatory capital requirements; approval and
    subsequent completion of capital restoration plans by each GSE;
    amendments to the senior preferred stock purchase agreements to
    compensate the Federal Government for its support, among other
    potential amendments; and any other conditions that FHFA
    determines are necessary to ensure that the GSE would operate
    in a safe and sound manner after conservatorship.

    Q.2. The Treasury report detailed recommendations to support a
    level playing field for new participants in the housing finance
    system. These regulatory requirements touch on items like
    capital relief, data standardization, and third-party credit
    risk transfers; however, the report does not address the
    technological infrastructure that the enterprises have built up
    over the past decade while in conservatorship. Post
    conservatorship, how do we limit the competitive advantage
    Fannie & Freddie would have over new competitors due to the
    technological infrastructure they have accrued over the past
    decade on the taxpayers' dime?

    A.2. In addition to granting FHFA the authority to charter
    competitor guarantors to the GSEs, the Treasury Housing Reform
    Plan recommends that Congress ``give FHFA appropriate
    authorities to foster competition with re-chartered GSEs.''\1\
    Such authority may include the ability to set variable
    guarantor-specific fees for access to the Federal guarantee on
    MBS or to make the GSEs' ``loan-level and appraisal data and
    the source code for the GSEs' automated underwriting system[s]
    available to new entrants.''\2\
    ---------------------------------------------------------------------------
        \1\ Id. at 42.
        \2\ Id. at 41.

    Q.3. In the report from the U.S. Department of the Treasury,
    recommendation #6 is that ``pending legislation, each GSE
    should be recapitalized so that private capital takes the
    first-loss position on the GSE's exposure to risk and loss.''
    To best protect taxpayers from mortgage related credit risk, do
    you agree that the entities taking the first-loss risk should
    be dedicated to the housing finance system, highly regulated,
    ---------------------------------------------------------------------------
    and available during all market cycles?

    A.3. Yes.

    Q.4. I appreciate that the report recognized the impact to
    housing affordability that local jurisdictions are causing
    through myriad barriers such regulations, land use and rent
    control. What impact can the GSEs, through direction from FHFA,
    have on breaking down these barriers or incenting localities to
    modify their rent control initiatives?

    A.4. One of the objectives in the GSEs' 2020 Conservatorship
    Scorecard, as prescribed by FHFA, is to ``assess opportunities
    to support and encourage State and local policies that enable
    the housing market to function more efficiently by (1) reducing
    the cost of housing production and/or (2) lowering the cost or
    risk of providing mortgage financing.''\3\ Treasury supports
    FHFA's efforts to explore ways to address the critical shortage
    of affordable housing. Additionally, Treasury continues to
    participate in efforts to address the critical shortage of
    affordable housing through its participation on the White House
    Council on Eliminating Regulatory Barriers to Affordable
    Housing, established under Executive Order 13878.\4\
    ---------------------------------------------------------------------------
        \3\ Federal Housing Finance Agency. 2020 Scorecard for Fannie Mae,
    Freddie Mac, And Common Securitization Solutions, available at: https:/
    /www.fhfa.gov/AboutUs/Reports/Report
    Documents/2020-Scorecard-10282019.pdf.
        \4\ Executive Order 13878 of June 25, 2019, Establishing a White
    House Council on Eliminating Regulatory Barriers to Affordable Housing.
    See 84 FR 30853.

    Q.5. The report mentions the deleterious effect that rent
    control policies can have on housing affordability--why not be
    more explicit about what FHFA should do about underwriting
    loans eligible for the GSEs to purchase from jurisdictions that
    ---------------------------------------------------------------------------
    have enacted rent-control laws and regulations?

    A.5. The Treasury Housing Reform Plan recommends that FHFA
    revisit the GSEs' underwriting criteria for multifamily
    properties in jurisdictions that adopt rent-control laws. In
    certain markets, drastic changes to rent control laws may have
    credit implications for underwriting, and the GSEs should
    account for those risks when underwriting loans in those
    jurisdictions. FHFA will determine whether to adopt any
    particular recommendation set forth in the Treasury Housing
    Reform Plan.

    Q.6. The report identifies that housing affordability is a
    major concern but then calls for contracting the GSEs'
    multifamily footprints and reducing liquidity in the market.
    What measures does Treasury propose to create more supply of
    multifamily assets to put downward pressure on rents?

    A.6. Treasury acknowledges the critical challenge of
    insufficient affordable housing across the country. Pursuant to
    Executive Order 13878, Treasury is actively supporting the
    White House Council on Eliminating Regulatory Barriers to
    Affordable Housing in its
    efforts to identify practices and strategies that reduce
    regulatory and other barriers. Successful remediation of these
    challenges should help create additional housing supply that
    benefits both borrowers and renters.
        FHFA recently announced changes to the restrictions on GSE
    multifamily loan purchases.\5\ Treasury believes these changes
    are consistent with the recommendations in the Treasury Housing
    Reform Plan. As a part of comprehensive housing finance reform
    legislation, Treasury recommends that Congress revisit the
    framework for ensuring that the Federal Government's support of
    the multifamily secondary market is tailored to an
    affordability mission.\6\
    ---------------------------------------------------------------------------
        \5\ See FHFA Revises Multifamily Loan Purchase Caps for Fannie Mae
    and Freddie Mac. September 13, 2019, available at: https://
    www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Revises-MultifamilyLoan-
    Purchase-Caps-for-Fannie-Mae-and-Freddie-Mac.aspx.
        \6\ Treasury, Housing Reform Plan, at 21.
    ---------------------------------------------------------------------------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM
                           STEVEN T. MNUCHIN

    Q.1. Does Treasury's plan propose eliminating the requirement
    that Fannie Mae and Freddie Mac--or additional guarantors
    envisioned by your proposal--have a duty-to-preserve affordable
    housing?

    A.1. Treasury recommends that guarantors continue to have a
    national service requirement to foster access for small, rural,
    and other mortgage lenders to the secondary market. Each GSE
    also has a statutory duty to serve underserved markets
    requirement to provide leadership in developing products to
    facilitate a secondary market for mortgages in three specific
    markets: rural housing, manufactured housing, and preservation
    of affordable housing. Except to suggest that reforms could
    ``more effectively target support for affordable housing,'' the
    Treasury Housing Reform Plan did not include specific
    recommendations to alter this duty to serve requirement.

    Q.2. Under the current affordable housing goals regime, there
    is no budgetary limit to Fannie and Freddie's ability to reach
    out and serve low- and middle-income and low-wealth borrowers.
    There would be such a cap under your proposal.
        How would you propose to allocate the funds you would raise
    in your proposal?

    A.2. The Treasury Housing Reform Plan recommended reforms
    focused primarily on the statutory affordable housing goals for
    the GSEs' acquisitions of mortgage loans to low- and moderate-
    income borrowers and mortgage loans to borrowers in low-income
    areas. In particular, Treasury recommends that ``Congress
    should replace the GSEs' statutory affordable housing goals
    with a more efficient, transparent, and accountable mechanism
    for delivering tailored support to first-time home buyers and
    low- and moderate-income, rural, and other historically
    underserved borrowers, with a portion of the associated funding
    potentially transferred to HUD to expand its affordable housing
    activities.''\1\
    ---------------------------------------------------------------------------
        \1\ Treasury, Housing Reform Plan, at 24.
    ---------------------------------------------------------------------------
        While the Treasury Housing Reform Plan recommends a
    framework for comprehensive housing finance reform, Treasury's
    preference and recommendation is that Congress enact
    legislation to address these specific considerations. Treasury
    looks forward to working with Congress on passing bipartisan
    legislation.

    Q.3. What populations would be served under Treasury's plan?

    A.3. The Treasury Housing Reform Plan recommends ``a more
    efficient, transparent, and accountable mechanism for
    delivering tailored support to first-time home buyers and low-
    and moderate-income, rural, and other historically underserved
    borrowers.''\2\ Any legislative reforms should also preserve
    and improve support for low- and moderate-income and other
    historically underserved renters. While the Treasury Housing
    Reform Plan recommends a framework for comprehensive housing
    finance reform, Treasury's preference and recommendation is
    that Congress enact legislation to address these specific
    considerations. Treasury looks forward to working with Congress
    on passing bipartisan legislation.
    ---------------------------------------------------------------------------
        \2\ Ibid.

    Q.4. How would diverting money to HUD not simply substitute for
    other appropriated funds instead of providing new resources for
    ---------------------------------------------------------------------------
    desperately needed affordable housing?

    A.4. Treasury recommends that ``Congress should replace the
    GSEs' statutory affordable housing goals with a more efficient,
    transparent, and accountable mechanism for delivering tailored
    support to first-time home buyers and low- and moderate-income,
    rural, and other historically underserved borrowers, with a
    portion of the associated funding potentially transferred to
    HUD to expand its affordable housing activities.''\3\ The
    Treasury Housing Reform Plan offers HUD's administration of
    these funds as one potential option for Congress to consider.
    ---------------------------------------------------------------------------
        \3\ Ibid.

    Q.5. The Treasury paper recommends administrative consideration
    of other means of reaching the objectives now served by the
    affordable housing goals besides ``cross-subsidy and credit-
    expanding tools.'' Could you please elaborate on this
    recommendation? What other sorts of incentives or requirements
    ---------------------------------------------------------------------------
    do you have in mind?

    A.5. The Treasury Housing Reform Plan notes that the GSEs'
    ``mission-related cross-subsidization in large part occurs
    where the GSEs collect above-cost guarantee fees from lower
    credit risk borrowers to subsidize below-cost guarantee fees
    collected from higher credit risk borrowers.''\4\ Because
    ``[c]redit risk is not necessarily a good proxy for borrower
    income,'' Treasury suggested ``that alternatives to credit
    risk-based cross-subsidy could provide more efficient
    mechanisms for the GSEs to deliver well-targeted support to
    low- and moderate-income borrowers and achieve their statutory
    affordable housing goals.''\5\ FHFA will determine whether to
    adopt any particular recommendation set forth in the Treasury
    Housing Reform Plan. One approach that FHFA might wish to
    consider could be to focus support on borrowers that have been
    identified as very low-, low-, or moderate-income, or another
    type of historically underserved borrower.
    ---------------------------------------------------------------------------
        \4\ Ibid.
        \5\ Ibid.

    Q.6. Is there an assessment of what will happen to the projects
    currently in the pipeline if the Housing Trust Fund and Capital
    Magnet Fund are eliminated? How many developments will not be
    built if the Housing Trust Fund is eliminated or substantially
    ---------------------------------------------------------------------------
    changed?

    A.6. The Treasury Housing Reform Plan does not include specific
    recommendations to alter the periodic contributions to the
    Housing Trust Fund and Capital Magnet Fund. More broadly,
    Treasury does not propose, and indeed opposes, reducing or
    eliminating the GSEs' longstanding support for affordable
    housing. Treasury believes that reforms should more effectively
    target this support for affordable housing. Indeed,
    comprehensive housing finance reform legislation that
    establishes ``a more efficient, transparent, and accountable
    mechanism for delivering tailored support''\6\ could preserve
    and improve support for low- and moderate-income and other
    historically underserved borrowers and renters.
    ---------------------------------------------------------------------------
        \6\ Ibid.
    ---------------------------------------------------------------------------
        Under current law, the GSEs have a statutory requirement to
    contribute an amount equal to 4.2 basis points of their annual
    production to the Housing Trust Fund and the Capital Magnet
    Fund. The statute also enumerates certain circumstances where
    annual contributions would be temporarily suspended. Treasury's
    strong preference is to work with Congress to enact
    comprehensive housing finance reform. In the absence of
    comprehensive reform legislation, Treasury supports appropriate
    review of the GSE contributions under the statutory framework
    to ensure that contributions are not diverting funds away from
    the GSEs in a way that is causing the GSE to become
    undercapitalized or preventing the completion of a capital
    restoration plan.

    Q.7. The Treasury report recommends restricting multifamily
    lending in jurisdictions with rent controls. As I mentioned,
    rent control only exists in cities in four States and
    Washington, DC, In addition, GSE underwriting already factors
    in the effects of rent control.
        What additional restrictions do you have in mind?

    A.7. The Treasury Housing Reform Plan recommends that FHFA
    revisit the GSEs' underwriting criteria for multifamily
    properties in jurisdictions that adopt rent-control laws. In
    certain markets, drastic changes to rent control laws may have
    credit implications for underwriting, and the GSEs should
    account for those risks when underwriting loans in those
    jurisdictions. FHFA will determine whether to adopt any
    particular recommendation set forth in the Treasury Housing
    Reform Plan.

    Q.8. Did you consider similar recommendations to restrict or
    constrain single-family home lending in jurisdictions that have
    restrictive zoning, or that fail to adopt inclusionary zoning
    to encourage more development in high opportunity communities?

    A.8. Treasury supports efforts underway in response to
    Presidential Executive Order 13878 to increase the available
    supply of affordable housing by addressing, reducing, and
    removing the multitude of burdensome regulatory barriers that
    artificially raise the cost of housing development and help
    cause the lack of housing supply. Pursuant to that Executive
    Order, the White House Council on Eliminating Regulatory
    Barriers to Affordable Housing is
    engaging with stakeholders to explore policy solutions to
    address the critical shortage in affordable housing in the
    United States.

    Q.9. Nevada is home to many small banks and credit unions. They
    tell me that Fannie Mae and Freddie Mac work efficiently for
    them. They know the system and have good relationships with
    both. However, your proposal requires creating new entities.
        In your ideal model, what are your preferences for
    recapitalizing Fannie and Freddie?

    A.9. Regular, nondiscriminatory, and reliable access to the
    secondary market is critical for small, rural, and other
    mortgage lenders. These lenders often play a particularly vital
    role in serving rural and other historically underserved
    borrowers. Treasury believes housing finance reform should
    foster a competitive primary mortgage market in part by
    protecting equal access for lenders of all sizes to the
    secondary mortgage market.
        Treasury's preference and recommendation is that Congress
    enact comprehensive housing finance reform legislation. Pending
    legislation, FHFA should exercise its authority as conservator
    to begin the process to end each GSE's conservatorship. As a
    part of this process, Treasury and FHFA should develop a
    recapitalization plan for each GSE after identifying and
    assessing the full range of strategic options. Among other
    preconditions for exiting the conservatorships, Treasury
    believes each GSE should remain in conservatorship until it has
    retained or raised sufficient capital or other loss-absorbing
    capacity to operate in a safe and sound manner.

    Q.10. Who will these new guarantors be?

    A.10. Treasury recommends that ``Congress should authorize FHFA
    to charter competitor guarantors to the GSEs . . . ''\7\ As
    Treasury further states, ``the likelihood of achieving a
    competitive secondary market . . . will depend in part on the
    specifics of any legislation.''\8\ While the Treasury Housing
    Reform Plan recommends a framework for comprehensive housing
    finance reform, Treasury's preference and recommendation is
    that Congress enact legislation to address these specific
    considerations. Treasury looks forward to working with Congress
    on passing bipartisan legislation.
    ---------------------------------------------------------------------------
        \7\ Id. at 41.
        \8\ Ibid.

    Q.11. How many guarantors would there be? Who should invest in
    ---------------------------------------------------------------------------
    a guarantor?

    A.11. The benefits of a competitive market are such that
    Treasury supports Congress establishing a framework where
    interested private parties could apply for a charter to become
    a guarantor. To encourage private sector entrants, Congress
    could supplement FHFA's chartering authority with additional
    authorities to foster a competitive secondary market,
    including, but not limited to, ``authorizing FHFA to set
    variable guarantor-specific fees for the Government guarantee
    of a particular guarantor's MBS or authorizing FHFA to lower
    barriers to entry by making the GSEs' loan-level and appraisal
    data and the source code for the GSEs' automated underwriting
    system available to new entrants.''\9\
    ---------------------------------------------------------------------------
        \9\ Ibid.

    Q.12. Will guarantors be allowed to serve a countercyclical
    ---------------------------------------------------------------------------
    role, particularly for multifamily loans? If so, how?

    A.12. Treasury supports legislation that authorizes an
    explicit, paid-for guarantee backed by the full faith and
    credit of the Federal Government that is limited to the timely
    payment of principal and interest on qualifying mortgage-backed
    securities. Critically, this guarantee should be available for
    both MBS collateralized by eligible conventional mortgage loans
    and eligible multifamily mortgage loans. Such a guarantee would
    provide certainty to MBS investors in all market conditions.

    Q.13. Smaller financial institutions are concerned with the
    staff costs of establishing new relationships with many more
    secondary market entities than Fannie Mae and Freddie mac. How
    are you computing the costs to financial institutions to learn
    to work with new entities?

    A.13. A competitive secondary market would allow lending
    institutions to pursue a range of execution options for the
    sale of their loans. Treasury's Housing Reform Plan recommends
    that housing finance reform legislation include protections for
    small lenders by requiring each single-family guarantor to
    operate a cash window for small lenders, prohibiting volume-
    based pricing discounts, and requiring guarantors to maintain a
    nationwide presence. Nothing in Treasury's Housing Reform Plan
    would require smaller lenders to build relationships with
    additional secondary market guarantors.

    Q.14. Currently, housing credit is available and affordable in
    rural Nevada, Reno and other parts of the country. How will
    your plan ensure consistent national pricing?

    A.14. The Treasury Housing Reform Plan states that ``single-
    family guarantors generally should be required to offer to
    acquire mortgage loans from across the Nation. A nationwide
    service requirement will foster equitable secondary market
    access, diversified Government-guaranteed MBS, and also
    affordable access to mortgage credit by underserved
    borrowers.\10\
    ---------------------------------------------------------------------------
        \10\ Id. at 42.

    Q.15. The proposal makes many changes to the housing market
    which is not serving African American and Latino borrowers
    well. We have the largest homeownership gap between whites and
    African Americans since before the passage of the Fair Housing
    Act.
        What will be the impact on African American and Latino home
    ownership if the Qualified Mortgage (QM) patch is eliminated?

    A.15. The QM patch, which offers a bright line safe harbor for
    loans eligible to be purchased by the GSEs, creates an unlevel
    playing field between the GSEs and other market participants,
    which, to achieve a safe harbor, must comply with a strict
    maximum 43 percent borrower debt-to-income ratio as documented
    by outdated requirements under Appendix Q of the ability-to-
    repay rule.\11\ Treasury supports the contemplated expiration
    of the QM patch. Treasury also supports further revisions to
    the ability-to-repay rule to ensure that mortgage lenders
    continue to have a bright-line safe harbor after the expiration
    of the QM patch.
    ---------------------------------------------------------------------------
        \11\ 12 C.F.R.  1026.35; 12 C.F.R. part 1026, appendix Q.
    ---------------------------------------------------------------------------
        The CFPB is engaged in a review of the rule, following its
    advance notice of proposed rulemaking (ANPR) in July 2019. The
    CFPB will determine whether to adopt any particular
    recommendation set forth in the Treasury Housing Reform Plan
    regarding the ability-to-repay rule, and the impact, if any, on
    loan origination volume will depend on the specifics of the
    CFPB's rulemaking.

    Q.16. Will elimination of the QM patch increase or decrease
    African American and Latino homeownership rates? If so, by how
    much?

    A.16. The CFPB is responsible for implementing and
    administering the ability-to-repay requirement and determining
    the standards for what constitutes a Qualified Mortgage loan.
    The CFPB is engaged in a review of the existing rule, as noted
    in its July ANPR, which committed to addressing the temporary
    nature of the QM patch. The Treasury Housing Reform Plan
    supports the expiration of the patch and the establishment of a
    bright-line safe harbor for compliance with required ability-
    to-repay standards.

    Q.17. What will be the impact on African American and Latino
    home ownership if FHA loans are restricted to primarily first-
    time home buyers?
        Will limiting FHA to first-time home buyers increase or
    decrease African American and Latino homeownership rates? If
    so, by how much?

    A.17. The Treasury Housing Reform Plan does not make
    recommendations specific to the FHA program, which is the
    purview of HUD. However, the Treasury Housing Reform Plan
    recommends that ``FHFA and HUD should develop and implement a
    specific understanding as to the appropriate roles and overlap
    between the GSEs and FHA, for example, with respect to the
    GSEs' acquisitions of high loan-to-value (LTV) and high debt-
    to-income (DTI) loans and FHA's underwriting of cash-out,
    conventional-to-FHA, and other refinancing loans, and loans to
    repeat FHA borrowers.''\12\
    ---------------------------------------------------------------------------
        \12\ Id. at 25.

    Q.18. Has Treasury modeled the potential costs of the housing
    finance system you envision for homeowners and renters across
    ---------------------------------------------------------------------------
    the income and wealth spectrum? If so, what have you found?

    A.18. Treasury took great care to formulate its recommendations
    in ways that would not disrupt the market or raise borrowing
    costs. Treasury believes any changes to GSE business activities
    should be carefully calibrated to this objective. While the
    Treasury Housing Reform Plan recommends a framework for
    comprehensive housing finance reform, Treasury's preference and
    recommendation is that Congress enact legislation to address
    these specific considerations. Treasury looks forward to
    working with Congress on passing bipartisan legislation.

    Q.19. The Treasury report mentions the Common Securitization
    Platform as part of reviewing FHFA's accomplishments during
    conservatorship. This platform has significantly reduced
    liquidity differences in the companies' mortgage-backed
    securities. Both companies now issue a single security under
    close supervision and guidance of FHFA. But your report says
    nothing about how this major development should influence the
    possible shape of a post-conservatorship regime. Please explain
    how you propose to incorporate the Common Securitization
    Platform into any legislative option as outlined in your paper.

    A.19. Treasury believes the Common Securitization Platform has
    made progress toward separating the GSEs' credit guarantee
    function from their operational function of securitizing MBS--
    an important enhancement to the pre-conservatorship business
    model. In the Treasury Housing Reform Plan, Treasury recommends
    that Congress authorize an explicit, paid-for guarantee by
    Ginnie Mae of qualifying MBS. As a part of that, ``FHFA and
    Ginnie Mae should identify and assess the operational and other
    issues posed by authorizing Ginnie Mae to guarantee the timely
    payment of MBS, including necessary enhancements to existing
    securitization and bond administration infrastructure.''\13\
    While the Treasury Housing Reform Plan recommends a framework
    for comprehensive housing finance reform, Treasury's preference
    and recommendation is that Congress enact legislation to
    address these specific considerations. Treasury looks forward
    to working with Congress on passing bipartisan legislation.
    ---------------------------------------------------------------------------
        \13\ Treasury, Housing Reform Plan, 15.

    Q.20. Why shouldn't Congress consider making the CSS a publicly
    owned utility platform, and compensate Fannie and Freddie for
    its development that could become the basis of a system built
    on clear separation of the securitization and credit
    enhancement functions, as some proposals have suggested? Did
    Treasury consider this option? If so, what are the reasons you
    ---------------------------------------------------------------------------
    did not recommend or discuss it in your paper?

    A.20. While the Treasury Housing Reform Plan recommends a
    framework for comprehensive housing finance reform, Treasury's
    preference and recommendation is that Congress enact
    legislation to address these specific considerations. Treasury
    looks forward to working with Congress on passing bipartisan
    legislation.

    Q.21. What is the Department of Treasury doing to incentivize
    affordable housing developments via Opportunity Zones? What
    specific actions has Treasury taken to ensure that Opportunity
    Zones are being used to expand affordable housing, and not
    luxury apartments or hotels? Last, what constitutes
    ``affordable housing'' under Treasury's measure?

    A.21. To incentivize affordable housing developments via
    Opportunity Zones, Treasury actively participates in the
    outreach efforts of the White House Opportunity and
    Revitalization Council. Also, in drafting guidance (including
    proposed regulations) to implement the Opportunity Zones
    statute, Treasury's Office of Tax Policy and the Internal
    Revenue Service (IRS) made sure that there are no regulatory
    impediments to combining the Opportunity Zone tax benefits with
    eligibility for low-income housing tax credits (LIHTCs).
        Opportunity Zone guidance does not present a barrier to
    simultaneous eligibility for both LIHTCs and the several tax
    benefits that flow from investing in a qualifying zone.
    Moreover, nothing in the Opportunity Zone statute or guidance
    interferes with local land-use and development requirements
    that contain inclusionary provisions or other rules addressing
    the need for affordable housing. A basic principle of the
    Opportunity Zone statute, however, is that taxpayers should
    have incentives to pour new capital into Opportunity Zones.
    Beyond that geographic focus, there should be almost no other
    Opportunity-Zone-specific Federal interference with free-market
    incentives regarding how that new capital is deployed. The
    relevant tax guidance seeks to be faithful to that statutory
    flexibility.
        Because there are no Opportunity-Zone-specific incentives
    for affordable housing, there is no definition of ``affordable
    housing'' for Opportunity Zone purposes. However, Treasury does
    administer the Federal Government's largest subsidy for the
    construction and rehabilitation of affordable housing--LIHTCs.
    To be eligible for these credits (which are received annually
    over a 10-year period), a residential rental project must in
    general satisfy one of the three following set-asides:

       LNo fewer than 20 percent of the units are rent-
            restricted and occupied by tenants whose income does
            not exceed 50 percent of area median income.

       LNo fewer than 40 percent of the units are rent-
            restricted and occupied by tenants whose income does
            not exceed 60 percent of area median income.

       LNo fewer than 40 percent of the units are rent-
            restricted and occupied by tenants whose average income
            does not exceed 60 percent of area median income and
            none of whom has income over 80 percent of area median
            income.

    For this purpose, rent restriction means that gross rent for a
    unit does not exceed 30 percent of the income limit for that
    unit, and area median income is determined in the same way that
    HUD determines it for purposes of its rental assistance
    programs.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA FROM STEVEN T.
                                MNUCHIN

    Q.1. What kind of gaps in affordability do you anticipate as
    private sector funding of multifamily loans ramps up and
    funding from Fannie Mae and Freddie Mac winds down? Was a gap
    in funding during transition, and its effects on affordability,
    considered in the FHFA's recent decision to revise Fannie Mae
    and Freddie Mac's lending caps?

    A.1. FHFA, as conservator, recently announced changes to the
    restrictions on GSE multifamily loan purchases.\1\ Treasury
    believes these changes are consistent with the recommendations
    in the Treasury Housing Reform Plan. Furthermore, Treasury
    recommends that comprehensive housing finance reform
    legislation ensure that the Federal Government's support of the
    multifamily secondary market is tailored to an affordability
    mission.\2\
    ---------------------------------------------------------------------------
        \1\ See FHFA Revises Multifamily Loan Purchase Caps for Fannie Mae
    and Freddie Mac.
        \2\ Treasury, Housing Reform Plan, 21.

    Q.2. How do you know the private sector has the capacity to
    fully serve the multifamily market? Do you believe this
    capacity will remain sufficient during an economic downturn,
    and if not, will FHFA allow Fannie Mae and Freddie Mac some
    flexibility to compensate for a lack of private capital during
    ---------------------------------------------------------------------------
    economic downturns?

    A.2. FHFA recently announced changes to the restrictions on GSE
    multifamily loan purchases.\3\ Treasury believes these changes
    are consistent with the recommendations in the Treasury Housing
    Reform Plan.
    ---------------------------------------------------------------------------
        \3\ See FHFA Revises Multifamily Loan Purchase Caps for Fannie Mae
    and Freddie Mac.

    Q.3. Our Nation faces a serious multifamily housing shortage.
    According to the National Multifamily Housing Council, the U.S.
    will need to build an average of 328,000 units per year by 2030
    to meet growing demand. As private capital becomes a growing
    source for multifamily assets, what measures will the FHFA and
    Department of the Treasury take to ensure a greater supply of
    ---------------------------------------------------------------------------
    affordable multifamily housing units?

    A.3. In Treasury's Housing Reform Plan, Treasury acknowledges
    the critical challenge of insufficient affordable housing.
    Pursuant to Executive Order 13878, Treasury is actively
    supporting the White House Council on Eliminating Regulatory
    Barriers to Affordable Housing in its efforts to identify
    practices and strategies that reduce regulatory and other
    barriers. Successful remediation of these challenges should
    help create additional housing supply that benefits both
    borrowers and renters.
                                    ------

    RESPONSE TO WRITTEN QUESTION OF SENATOR BROWN FROM BENJAMIN S.
                           CARSON, SR., M.D.

    Affordability
    Q.1. Secretary Carson, during the hearing you expressed support
    for affordable housing.
        How would you define affordable housing? Please address
    affordability in the context of home ownership, rental housing,
    and explicit subsidies.

    A.1. The standard measure of housing affordability--and the
    definition applied for the purposes of HUD programs--is based
    on the share of a household's income consumed by housing costs,
    including utilities. In other words, the combination of housing
    costs and household incomes informs whether housing is
    affordable.
        Several HUD subsidies help lower-income families afford
    housing. For example, HUD's largest rental subsidy program, the
    Housing Choice Voucher Program, provides portable rental
    assistance subsidies that are typically the difference between
    30 percent of a very low-income household's adjusted income and
    the payment standard, which is based off fair market rental
    costs for each area.
        Regulations play a role in limiting affordable housing
    supply by restricting land use and density, driving up
    development costs, and delaying construction. The President's
    Executive Order on Eliminating Regulatory Barriers to
    Affordable Housing aims to reduce regulatory barriers to the
    production and preservation of affordable housing.
    FHA Structural Reforms
    Q.2.a. Secretary Carson, HUD's plan proposes to make FHA a
    separate corporation within HUD. The proposal is silent on the
    treatment of FHA's receipts, which are currently used to pay
    for other HUD spending on housing assistance and community
    development programs.
        Does HUD believe that FHA should retain all of its receipts
    if it becomes a separate corporation?

    A.2.a. No. HUD's Housing Reform Plan does not contemplate FHA
    retaining all or even a portion of its receipts to fund its
    operations.

    Q.2.b. Please provide a detailed explanation of what additional
    flexibilities and authorities HUD believes are necessary for
    FHA and how each of those would be achieved through corporation
    status.

    A.2.b. As highlighted in the housing finance reform plan,
    Congress should re-charter the FHA as an autonomous Government
    corporation within HUD. HUD's existing procurement and hiring
    processes inhibit FHA's ability to make appropriate decisions
    to mitigate risks and respond rapidly to constantly changing
    market fundamentals.
        As the mortgage markets have grown and commoditized over
    the decades, so has the sophistication and complexity of
    managing the credit risk in FHA's Mutual Mortgage Insurance
    Fund. FHA faces challenges in hiring and retaining sufficient
    staff with the necessary expertise in mortgage finance and
    asset management. Like GNMA, FHA will explore the targeted use
    of pay flexibilities available under current law (e.g.,
    Critical Pay) to improve hiring and retention of key positions
    requiring specialized technical skills. If existing authorities
    are insufficient to address its human capital challenges, FHA
    may request new authorities.
        Similarly, HUD's procurement process is burdensome and
    protracted, and HUD has experienced difficulties obtaining
    qualified contractors to perform critical duties. FHA needs the
    ability to adopt a streamlined procurement process to ensure
    awards are able to be made based on expertise and competency.
    To the extent administrative reforms are insufficient to
    address procurement challenges, new statutory acquisition
    authorities may be necessary to address instances where
    material underperformance of contracting vendors results in
    substantial quality deficiencies and costs.
    FHA Default Rates
    Q.3. Secretary Carson, HUD's Housing Finance Reform plan states
    that since the financial crisis, ``the risk profile of FHA's
    portfolio has increased steadily, endangering FHA's ability to
    support access to affordable mortgage credit for first-time
    home buyers.''\1\ Throughout the report, you compare FHA's
    current portfolio with its portfolios in 2009, 2010, and 2011,
    and your graphics on single-family mortgage credit quality
    begin in 2010 or 2011.
    ---------------------------------------------------------------------------
        \1\ U.S. Department of Housing and Urban Development Housing
    Finance Reform Plan pg. 1.
    ---------------------------------------------------------------------------
        As you know, FHA took on a countercyclical role during and
    immediately following the financial crisis. With the
    conventional mortgage market frozen, FHA served borrowers with
    credit characteristics that would normally allow them to access
    conventional mortgage financing. Further, as you stated in your
    oral testimony, at FHA ``substantial delinquency rates or early
    defaults are at the lowest rate that they have been. So changes
    have been made.''

    Q.3.a. Please provide an updated graphic for figure 2 in HUD's
    Housing Finance Reform plan, which in the plan begins in 2010,
    to show FHA credit characteristics beginning in 1999 or earlier
    and continuing through 2019.

    A.3.a. See graph for 2005 through 2019. Data for 1999-2004 was
    not included because FHA did not collect credit scores on
    Single Family mortgages prior to 2004 and the information
    collected prior to 2004 is incomplete.

    Q.3.b. If FHA has historically low default rates and changes
    have been made, why is HUD proposing ``tiered pricing?''\2\ How
    does HUD propose to establish which borrowers should be in
    which tiers?
    ---------------------------------------------------------------------------
        \2\ Id. at pg. 20.

    A.3.b. In a dynamic marketplace, FHA may require a mechanism to
    quickly react to any deterioration in credit quality and
    protect the MMIF from excessive exposure to riskier loans.
    Adjusting premiums is a relatively quick way to do so. HUD is
    not planning to implement tiered pricing or otherwise adjust
    ---------------------------------------------------------------------------
    FHA's Single Family premiums in the near term.

    Q.3.c. How would tiered pricing as described in the answer
    above effect different populations of FHA borrowers?

    A.3.c. Prior to moving forward with tiered pricing, the
    Department will perform an analysis to determine the impact on
    FHA borrowers.
    Duplication of Support
    Q.4. Secretary Carson, both the HUD and Treasury plans express
    concern about ``duplicating support'' for families who might be
    eligible for both FHA-insured and GSE-guaranteed loans.
        But, as you know, FHA's insurance and the GSEs' guarantee
    provide two different functions, and most borrowers participate
    in just one of these programs at a time.
        How is a borrower being eligible for an FHA-insured loan
    and a GSE-guaranteed loan duplicating support? How does a
    borrower having the option to choose an FHA or conventional
    loan hurt the programs?

    A.4. A central principle of the Administration's housing
    finance reform plan is that Federal mortgage credit policies
    should be better coordinated in order to allow qualified
    borrowers to access responsible and affordable borrowing
    options and choices. Coordination ensures that there is not
    unhealthy and irresponsible competition between Government-
    supported programs, which can lead to lower underwriting
    standards, increase risk to taxpayers, and threaten the long-
    term availability of credit to qualified borrowers. The GSEs
    should not be able to selectively choose from the FHA portfolio
    and leave taxpayers with the riskiest borrowers. Uncoordinated
    policies create incentives that encourage entities to work at
    cross-purposes, resulting in little or no change in overall
    access to credit while increasing taxpayer exposure to
    uncompensated risk. In recent years, the market overlaps might
    have increased to the extent that the GSEs expanded credit
    guidelines to ``stretch'' into the FHA market.
                                    ------

        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM
                     BENJAMIN S. CARSON, SR., M.D.

    Q.1. The Bipartisan Budget Act of 2018, which provided Puerto
    Rico with $18.5 billion in CDBG for Disaster Recovery funding
    was signed into law nearly 19 months ago. Furthermore, HUD is
    required by law (P.L. 116-20) to publish all Federal register
    notices for CDBG-DR mitigation funding for eligible grantees,
    including $8.4 billion for Puerto Rico, within 90 days. That
    term expired 6 days before this hearing took place. According
    to HUD's latest grant financial report, Puerto Rico has only
    been allowed access to $1.5 billion out of which only $236,000
    have reached the island.
        Secretary Carson, what is HUD doing to stop slow walking
    access to much needed relief funding for Puerto Rico nearly 2
    years after Hurricane Maria?

    A.1. Puerto Rico has more than $1.5 billion available to them
    and, as of November 1, has drawn down less than $3 million. On
    average, it takes a DR grantee 1.5-2 years to spend $1.5
    billion. Additionally, HUD has approved Puerto Rico's action
    plan for another $8.2 billion and is working with the Puerto
    Rico Department of Housing (Vivienda) to finalize the grant
    agreements in place for those funds.

    Q.2. First-time home buyers have traditionally been the driving
    force of the housing market and these borrowers traditionally
    rely on low-downpayment mortgages to purchase their homes. In
    fact, over the past several years, nearly 80 percent of first-
    time home buyers with mortgages purchased homes using low-
    downpayment products. With rising rents, high home price
    appreciation numbers, and student debt, it is critical that
    younger buyers have access to affordable low-downpayment
    options that will allow them to attain the American Dream of
    home ownership.
        Can you please speak to how your agencies' recommendations
    will ensure that borrowers can access affordable, prudent low-
    downpayment mortgage options?

    A.2. A central principle of the Administration's housing
    finance reform plan is that Federal mortgage credit policies
    should be better coordinated in order to allow qualified
    borrowers to access responsible and affordable borrowing
    options and choices. Coordination ensures that there is not
    unhealthy and irresponsible competition between Government-
    supported programs, which can lead to lower underwriting
    standards, increase risk to taxpayers, and threaten the long-
    term availability of credit to qualified borrowers.
        FHFA and FHA should coordinate to ensure that the GSEs and
    FHA serve defined roles within the marketplace. Ideally,
    coordinated policies would bring out the best that each entity
    has to offer. Consistent with their charters, each GSE's role
    should be to perform ``activities relating to mortgages on
    housing for low- and moderate-income families involving a
    reasonable economic return that may be less than the return
    earned on other activities.'' Similarly, and consistent with
    the Presidential Memorandum, FHA should focus on low- and
    moderate-income families who cannot be served through
    traditional underwriting.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT FROM BENJAMIN
                          S. CARSON, SR., M.D.

    Q.1.a. Secretary Carson, can you describe the steps you are
    taking to carry out the $5 million carbon monoxide detectors
    and alarms installation grant that you announced on May 20,
    2019? How many applications have you received for the grants
    and how many recipients do you anticipate HUD being able to
    support through it?

    A.1.a. The May 20, 2019, announcement set in motion the process
    to deploy these funds. On August 19, 2019, HUD published the
    revised Emergency Safety and Security Notice (PIH Notice 2019-
    22) which modified its grant program to include carbon monoxide
    detectors as an eligible expense. A week later, on August 27,
    2019, HUD notified Public Housing Authorities (PHAs) that the
    funding round had opened and that the due date for applications
    was October 25, 2019.
        HUD received 140 applications meeting eligibility
    requirements by the October 25, 2019, application deadline. The
    total amount of grant funds requested across these 140
    applications is $12.3 million. Under the framework established
    for Emergency Safety and Security grant funding, HUD will
    conduct a lottery to select awardees to receive the full amount
    of the $5 million in available funding. Given that PIH Notice
    2019-22 established a maximum PHA grant award of $250,000, HUD
    expects to announce at least 20 grant awards in the coming
    weeks.

    Q.1.b. Additionally, would legislation, such as the CO ALERTS
    Act, help expedite the rulemaking process to mandate the
    presence of carbon monoxide detectors and alarms during the
    inspections process?

    A.1.b. Yes. By bypassing the rulemaking process, the CO ALERTS
    Act would allow HUD to more quickly implement the bill's
    requirements. It puts into statute requirements for PHAs and
    private owners of most HUD-assisted housing to use the
    standards described in chapters 9 and 11 of the 2018 IFC.
    Should the Department decide to go beyond the 2018 IFC, it
    would publish a notice in the Federal Register.

    Q.2. Given tools like Credit Score Competition, FHFA benefits
    from access to more technologically advanced modeling tools and
    resources. It is a well-known fact, however, that FHA is still
    largely a paper-based operation. Congress provided $20 million
    in IT funding to better assist FHA in getting to an advanced IT
    infrastructure.
        In HUD's reform plan, the Administration proposes re-
    chartering FHA as an autonomous Government corporation within
    HUD and to pursue inter-agency agreements. How would FHA's
    potential role as an autonomous agency allow it to better
    utilize modeling resources and tools, like those at FHFA and
    the credit-scoring program, to increase access to home
    ownership? And better adapt to technological changes in the
    marketplace?

    A.2. FHA's ability to both measure and manage its credit risk
    in the MMI and GI/SRI Funds is limited because of its
    antiquated IT systems. More independence would allow FHA
    greater flexibility to procure the appropriate resources and
    tools to manage its portfolio. Through a better understanding
    of risk within its portfolio, FHA could enhance its ability to
    facilitate sustainable home ownership and to keep pace with the
    changing credit environment.

    Q.3. How would changing the designation of manufactured housing
    to be an option for affordable housing affect the shortage of
    affordable homes as well as Americans seeking home ownership?

    A.3. As detailed in HUD's housing finance reform plan, the
    Department believes manufactured housing is an important option
    to increase housing opportunities throughout the United States.
    Policies that exclude or disincentivize the utilization of
    manufactured homes can exacerbate housing affordability
    challenges because manufactured housing potentially offers a
    more affordable alternative.

    Q.4. Both Treasury and HUD have been heavily involved in the
    implementation of my Opportunity Zone initiative and I
    appreciate your hard work. Thus far Opportunity Zones have
    proven to be instrumental in fostering community development,
    job creation, and economic development across our Nation.
    Needless to say, Opportunity Zones have also been extremely
    impactful in terms of the topics we've covered today.
        As you've toured the Nation's opportunity zones, can you
    highlight some of the benefits to these communities and
    individuals that you've personally witnessed?

    A.4. Throughout their travels to Opportunity Zones, HUD
    officials have seen firsthand the benefits of this tax
    incentive to distressed communities. One of the most
    significant aspects of Opportunity Zone investments has been
    the construction of affordable multifamily housing. In
    Opportunity Zones where more housing is needed and
    affordability is a concern, these investments are crucial.
    Beyond housing, the decentralized nature of the Opportunity
    Zones incentive has allowed for many kinds of investments to be
    made through Qualified Opportunity Funds. Thus, local
    communities can plan for investments uniquely suited to their
    needs.
        A few examples of projects that have made an impact across
    the country include:

       LPR Mallory (Indianapolis, IN)--This building sat
            vacant for more than two decades. Now, thanks to its
            Opportunity Zone designation, it will become home to
            two affordable housing developments for seniors,
            including Indiana's first net positive energy
            residential development, as well as two charter
            schools.

       LLife Sciences Corridor (Salt Lake City, UT)--
            Spanning across the city, construction has begun on a
            ``life sciences corridor.'' One of the projects was a
            200,000-square-foot mixed-use development that will
            include apartments, the majority of which are
            affordable, an employment training center for people
            with disabilities, and commercial space.

       LBirmingham Inclusive Growth Partnership
            (Birmingham, AL)--This partnership identifies local
            projects that both enhance the lives of residents and
            provide sound returns for investors, facilitating
            public-private partnerships. One of the most exciting
            aspects of Birmingham's Opportunity Zones strategy is
            the training of 500 individual residents on Opportunity
            Zones, which will go a long way toward guiding
            investments in their neighborhoods.

       LErie Homecoming Weekend (Erie, PA)--In August 2019,
            Erie hosted an event called Erie Homecoming 2019-
            Unlocking Capital in Legacy Cities, which showcased
            investment opportunities to people from across the
            Nation. In the poorest zip code in the entire United
            States, Opportunity Zones have brought markets to life.
            The Erie Downtown Development Corporation was founded
            in 2017 and has a mission of attracting businesses,
            residents, and investments to the city. Today, a total
            of $60 million in investment in Erie Opportunity Zones
            is forthcoming.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN FROM BENJAMIN
                          S. CARSON, SR., M.D.

    Q.1. Our housing finance system faces a number of profound
    challenges. In most parts of the country, prices for starter
    homes are skyrocketing as much as 10 percent per year.\1\
    Millions of Americans are cost burdened, paying more than 30
    percent of their income on rent, mortgages or other housing
    costs. Perhaps most perniciously, the legacy of decades of
    racist Federal housing policy is still too apparent today. The
    average Black family has about \1/10\th the wealth of the
    average white family,\2\ and while the Black families made some
    gains in the healthy housing markets of the 1990s and early
    2000s, that progress was wiped out in the subprime crisis.
    Today, the homeownership gap between Black and white families
    is as large as it was when housing discrimination was legal.\3\
    ---------------------------------------------------------------------------
        \1\ Marketwatch ``One big reason it's so hard for first-time buyers
    to find the right starter home.'' Jacob Passy, March 21, 2018, https://
    www.marketwatch.com/story/another-hurdle-for-first-time-home-buyers-
    there-are-barely any-starter-homes-for-sale-2018-03-21.
        \2\ Brookings, ``A conversation about the racial wealth gap-and how
    to address it,'' Michaela Broyles, June 18, 2019, https://
    www.brookings.edu/blog/brookings-now/2019/06/18/a-conversation-about-
    the-racial-wealth-gap-and-how-to-address-it/.
        \3\ Census Bureau, ``Quarterly Residential Vacancies and
    Homeownership, Second Quarter 2019,'' July 25, 2019, https://
    www.census.gov/housing/hvs/files/currenthvspress.pdf; National Bureaus
    of Economic Research Working Paper Series, ``Race and Home Ownership,
    1900 to 1990,'' William J. Collins and Robert Margo, August 1999,
    https://www.nber.org/papers/w7277.pdf.
    ---------------------------------------------------------------------------
        Any proposal for housing finance reform must confront these
    problems. After all, as the U.S. Department of Treasury Housing
    Reform Plan (``Treasury Report'') points out, ``[e]ach GSE's is
    unique in that its congressional charter endows the GSE with a
    public mission.'' These public missions make it clear that the
    GSEs exist to ``promote access to mortgage credit throughout
    the Nation (including central cities, rural areas, and
    underserved areas)'' and to perform ``activities relating to
    mortgages on housing for low- and moderate-income families
    involving a reasonable economic return that may be less than
    the return earned on other activities.''\4\
    ---------------------------------------------------------------------------
        \4\ U.S. Department of the Treasury, ``U.S. Department of the
    Treasury Housing Reform Plan,'' September 2019, file:///C:/Users/
    js42247/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/
    LTYNPN67/Treasury-Housing-Finance-Reform-Plan.pdf.
    ---------------------------------------------------------------------------
        I have carefully reviewed the Treasury Report and the
    Department of Housing and Urban Development's Housing Finance
    Reform Plan (``HUD Report''). Both appear to eliminate many of
    the mechanisms in the current system that support sustainable
    home ownership among low- and moderate-income and middle-income
    borrowers, especially in communities of color. The following
    questions seek more information about the analysis that
    Treasury, HUD and the Federal Housing Finance Agency (FHFA)
    undertook to determine the effects of their various proposals
    on housing prices, access to home ownership for first-time home
    buyers, and the racial homeownership gap.
        The Treasury report recommends getting rid of the
    affordable housing goals, and, as an alternative, suggests,
    ``collect[ing] a periodic assessment from guarantors that
    Congress would make available through an appropriation to
    administer on-budget affordable housing.'' The Trump
    administration budget request for fiscal year 2020 asks
    Congress to zero out or deeply cut existing appropriated
    programs that provide access to home ownership to low- and
    moderate-income Americans including the HOME Investment
    Partnerships Program, the Self-Help Homeownership Opportunity
    Program, the Housing Trust Fund, and Native American Housing
    Block Grants.\5\
    ---------------------------------------------------------------------------
        \5\ National Low Income Housing Coalition, ``FY20 Budget Chart for
    Selected HUD and USDA Programs,'' May 22, 2019, https://nlihc.org/
    sites/default/files/NLIH_HUD-USDA_Budget-Chart.pdf.

       LDoes HUD agree with this recommendation? Will it be
    ---------------------------------------------------------------------------
            implemented?

       LDid HUD analyze the effects of getting rid of the
            affordable housing goals on home prices? If so, please
            provide the analysis.

       LDid HUD analyze the effects of getting rid of the
            afford-
            able housing goals on access to home ownership for low-
            ,
            moderate-, and middle-income borrowers and first-time
            home buyers? If so, please provide the analysis.

       LDid HUD analyze the effects of getting rid of the
            affordable housing goals on access to sustainable home
            ownership in communities of color? If so, please
            provide the analysis.

       LPlease provide the funding levels that HUD will
            propose for existing programs in the absence of the GSE
            affordable housing goals.

       LPlease describe additional homeownership programs
            that HUD will propose if the affordable housing goals
            are abolished, the funding levels HUD will propose, and
            their expected effects.

    A.1. Questions related to the Treasury Report and the GSE
    affordable housing goals should be directed to the Department
    of the Treasury. HUD supports its 2020 Budget requests.

    Q.2. The Treasury report recommends that ``FHFA and HUD should
    develop and implement a specific understanding as to the
    appropriate roles and overlap between the GSEs and FHA, for
    example, with respect to . . . [the] FHA's underwriting of
    cash-out, conventional-to-FHA, and other refinancing loans and
    loans to repeat FHA borrowers.''

       LDoes HUD agree with this recommendation? Will it be
            implemented?

       LDid HUD analyze the effects of limiting the
            footprint of the GSEs and FHA on home prices? If so,
            please provide the analysis.

       LDid HUD analyze the effects of limiting the
            footprint of the GSEs and FHA on access to home
            ownership for low-, moderate-, and middle-income
            borrowers and first-time home buyers? If so, please
            provide the analysis.

       LDid HUD analyze the effects of limiting the
            footprint of the GSEs and FHA on access to sustainable
            home ownership in communities of color? If so, please
            provide the analysis.

    A.2. HUD supports all recommendations in the Treasury and HUD
    Housing Finance Reform reports. Questions about the GSEs'
    footprint should be directed to the Department of the Treasury.
    With respect to FHA, the HUD Housing Finance Reform report does
    not target a specific footprint. The goals are to mitigate
    taxpayer risk, refocus FHA on its core mission and minimize
    overlap with the GSEs.

    Q.3. The HUD Report recommends that ``FHA should seek to build
    its capital ratio well above the statutory 2 percent minimum to
    ensure that it is able to weather stress events without
    requiring a taxpayer bailout.''

       LDid HUD analyze the effects of higher capital
            requirements on home prices? If so, please provide the
            analysis.

       LDid HUD analyze the effects of higher capital
            requirements on access to home ownership for low-,
            moderate-, and middle-income and first-time home
            buyers? If so, please provide the analysis.

       LDid HUD analyze the effects of higher capital
            requirements on access to sustainable home ownership in
            communities of color? If so, please provide the
            analysis.

    A.3. By statute, the minimum capital reserve ratio for the MMIF
    is 2 percent. While 2 percent is a minimum, it may not reflect
    an appropriate buffer to pay expected claims, particularly
    during countercyclical periods. In 2013, inadequate capital
    reserves required FHA to take a $1.7 billion draw from the U.S.
    Treasury. By building a larger capital buffer, FHA could
    weather stress events more successfully, which, ultimately,
    means that FHA can continue to offer sustainable mortgage
    credit for borrowers not served by the private market. In a
    stress event, inadequate capital could require FHA to implement
    policy changes that would restrict its ability to serve mission
    borrowers. It is important to note that building capital would
    not necessarily entail any changes to the current mortgage
    insurance premium structure.

    Q.4. The HUD report recommends that ``FHA should assess repeat
    FHA borrowers to ensure these mortgage loans are consistent
    with FHA's mission.''

       LDid HUD analyze the effects of disqualifying repeat
            FHA borrowers on home prices? If so, please provide the
            analysis.

       LDid HUD analyze the effects of disqualifying repeat
            FHA borrowers on access to home ownership for low-,
            moderate-, and middle-income and first-time home
            buyers? If so, please provide the analysis.

       LDid HUD analyze the effects of disqualifying repeat
            FHA borrowers on access to sustainable home ownership
            in communities of color? If so, please provide the
            analysis.

    A.4. HUD's housing finance reform plan recommends that FHA
    should assess repeat FHA borrowers to ensure these mortgage
    loans are consistent with FHA's mission. It does not recommend
    disqualifying repeat FHA borrowers. Any further analysis would
    occur as part of the assessment recommended in the plan. This
    recommendation was made within the context of the increasing
    number of borrowers who have used the FHA program to extract
    equity from their homes. The fiscal year 2018 cash-out
    refinance volume of 150,883 loans was the highest reported
    since 2009 and represented 63.31 percent of all FHA refinance
    transactions. Additionally, by definition, this recommendation
    would have no effect on first-time home buyers.

    Q.5. The HUD report recommends that ``FHA should examine
    incentives to make shorter-term mortgages that accelerate
    equity accumulation more attractive to FHA's mission
    borrowers.''

    Q.5.a. Did HUD analyze the effects of shortening the term of
    mortgages on home prices? If so, please provide the analysis.

    Q.5.b. Did HUD analyze the effects of shortening the term of
    mortgages on access to home ownership for low-, moderate-, and
    middle-income and first-time home buyers? If so, please provide
    the analysis.

    Q.5.c. Did HUD analyze the effects of shortening the term of
    mortgages on access to sustainable home ownership in
    communities of color? If so, please provide the analysis.

    A.5.a.-c. HUD's housing finance reform plan does not
    contemplate eliminating access to FHA's 30-year fixed-rate
    mortgage product. Rather, the report recommends that FHA
    examine incentives to make shorter-term mortgages that
    accelerate equity accumulation more attractive to FHA's mission
    borrowers. The HUD report recommends that ``[t]o ensure that
    FHA and taxpayers are properly compensated for riskier loans,
    FHA should implement a tiered pricing framework to protect the
    MMIF [Mutual Mortgage Insurance Fund] from excessive exposure
    to riskier loans.''

    Q.5.d. Did HUD analyze the effects of risk-based pricing for
    mortgage insurance on home prices? If so, please provide the
    analysis.

    Q.5.e. Did HUD analyze the effects of risk-based pricing on
    access to home ownership for low-, moderate-, and middle-income
    and first-time home buyers? If so, please provide the analysis.

    Q.5.f. Did HUD analyze the effects of risk-based pricing for
    mortgage insurance on access to sustainable home ownership in
    communities of color? If so, please provide the analysis.

    A.5.d.-f. In a dynamic marketplace, FHA may require a mechanism
    to quickly react to any deterioration in credit quality and
    protect the MMIF from excessive exposure to riskier loans.
    Adjusting premiums is a relatively quick way to do so. HUD is
    not planning to implement tiered pricing or otherwise adjust
    FHA's Single Family premiums in the near term.

    Q.6. The Treasury Report is silent about the Housing Trust Fund
    and the Capital Magnet Fund. Both programs make important
    contributions to mitigating the affordable rental-housing
    crisis. Nearly every county in the United States lacks a
    sufficient stock of available and affordable rental units for
    residents who make 30 percent of area median income or below--
    the population targeted by the Housing Trust Fund.\6\ Nearly
    half of renters are cost burdened, meaning that they pay more
    than 30 percent of their income in rent.\7\ The private sector
    cannot and will not fix this gap on its own. How does Treasury
    recommend funding the Housing Trust Fund and the Capital Magnet
    Fund and at what level?
    ---------------------------------------------------------------------------
        \6\ National Low Income Housing Coalition, ``New Report Concludes
    that Nearly Every U.S. County Lacks an Adequate Supply of Affordable
    and Available Homes for Low Income Renters,'' June 20, 2019, https://
    nlihc.org/news/new-report-concludes-nearly every-us-county-lacks-
    adequate-supply affordable-and-available.
        \7\ Housing Wire, ``Apartment List: Nearly 50 percent of renters
    are cost burdened,'' Jeremiah Jensen, September 25, 2018, https://
    www.housingwire.com/articles/46924-apartment-list-nearly-50-of-renters-
    are-cost-burdened.

    A.6. Questions related to the Treasury Report should be
    directed to the Department of the Treasury. HUD's 2020 Budget
    proposes to eliminate the Housing Trust Fund, as it recognizes
    a greater role for State and local governments and the private
    sector in addressing affordable housing needs.
                                    ------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM
                     BENJAMIN S. CARSON, SR., M.D.

    Q.1. What will be the impact of your proposal to limit FHA's
    investment in multi-family housing? Has HUD modeled the
    potential costs of the housing finance system you envision for
    multi-family investments across the income and wealth spectrum?
    If so, what will the impact be on renters?

    A.1. HUD's housing finance reform plan does not propose
    limiting FHA's insurance of multi-family housing.

    Q.2. Why does HUD propose to limit FHA to only first-time home
    buyers? How do you respond to critics who note that such a
    limitation would harm African American and Latino home buyers
    who have had difficulty accessing loans in the private market?
    Has HUD modeled the potential costs of the housing finance
    system limiting FHA to first-time home buyers across the income
    and wealth spectrum? If so, what will the impact be on current
    homeowners and potential homeowners? What would the impact of
    such a limitation be on the ability of all homeowners to sell
    their homes?

    A.2. HUD's housing finance reform plan does not propose
    limiting FHA insurance to first-time home buyers. The plan
    recommends that FHA examine the impact of repeat borrowers on
    the MMIF and ensure these loans are consistent with its
    mission.

    Q.3.a. You stated that HUD plans to address some of the
    ``deeper issues'' causing the acute housing needs of extremely
    low-income families and that ``just throwing money at the
    problem has not solved it.'' Please elaborate with details on
    this and HUD's plan to ensure that the acute housing needs of
    extremely low-income families are addressed by your plan.
        How many new families received housing assistance from HUD
    in 2016, 2017, and 2018?

    A.3.a. HUD's Picture of Subsidized Households reports annual
    housing assistance levels for HUD programs. The following chart
    summarizes the number of households subsidized and the number
    of people served by HUD's Public Housing, Housing Choice
    Vouchers, Project-Based Rental Assistance, and Housing for the
    Elderly and Persons with Disabilities, and other HUD subsidies
    in 2016, 2017, and 2018.
        The programs combined have between 11 percent and 12
    percent turnover each year, allowing approximately 500,000 new
    households to be served each year. Combined over the 3 years,
    approximately 1.5 million households have moved off housing
    assistance allowing a similar number to receive housing
    assistance.

        Programs such as Indian Housing, HOME and Community
    Development Block Grants are excluded from these counts, as are
    households served by the U.S. Department of Agriculture's Rural
    Housing Service or other State or local programs, unless such
    households also receive subsidies through a HUD program
    mentioned above.

    Q.3.b. How many individuals, families or households qualify for
    HUD assistance but are unable to receive any housing
    assistance?

    A.3.b. Tabulations from the American Housing Survey estimate
    that about 1 in 4 very low-income households receive housing
    assistance. Among very low-income renters in 2015, 25 percent
    of households received rental assistance and an additional 43
    percent had worst case housing needs due to severe cost burden
    or unit quality deficiencies. About a third of very low-income
    renters--32 percent--avoided severe housing problems in the
    unassisted private rental market in 2015.

    Q.4. You recently announced a major policy initiative to help
    reduce local barriers to development of affordable housing. Are
    you proposing to limit access to funds like CDBG and HOME in
    jurisdictions with rent control? Are you considering limiting
    their use in communities that do not affirmatively encourage
    affordable housing through inclusionary and high-density
    zoning?

    A.4. No. The White House Council on Eliminating Regulatory
    Barriers to Affordable Housing, chaired by Secretary Carson, is
    engaging with Federal agencies that serve on the Council and
    stakeholder groups who have offered to share their ideas on
    program regulations, policies or practices that, with
    modifications, may reduce the cost of market-rate and
    subsidized housing and expand affordable housing options for
    all Americans. Per the President's Executive Order creating the
    Council, member agencies are directed to identify
    administrative rules and processes that may restrict supply or
    pose unnecessary barriers to new construction of affordable
    housing, and submit recommendations for how HUD can encourage
    communities that want to increase the supply of affordable
    housing and/or preserve valuable affordable housing stock.

    Q.5. Could you please elaborate on this statement: ``Congress
    should establish FHA, VA, and USDA . . . as the sole source of
    low-downpayment financing for borrowers not served by the
    conventional mortgage market.''? Are you suggesting that Fannie
    Mae and Freddie Mac should not provide support for responsible,
    sustainable low-downpayment mortgages originated by private
    sector lenders in the primary market? What conventional
    mortgage market are you referring to in this statement?

    A.5. A central principle of the Administration's housing
    finance reform plan is that Federal mortgage credit policies
    should be better coordinated in order to allow qualified
    borrowers to access responsible and affordable borrowing
    options and choices. Coordination ensures that there is not
    unhealthy and irresponsible competition between Government-
    supported programs, which can lead to lower underwriting
    standards, increase risk to taxpayers, and threaten the long-
    term availability of credit to qualified borrowers. The GSEs
    should not be able to selectively choose from the FHA portfolio
    and leave taxpayers with the riskiest borrowers. Uncoordinated
    policies create incentives that encourage entities to work at
    cross-purposes, resulting in little or no change in overall
    access to credit while increasing taxpayer exposure to
    uncompensated risk. In recent years, the market overlaps might
    have increased to the extent that the GSEs expanded credit
    guidelines to ``stretch'' into the FHA market.

    Q.6. The Treasury paper suggests legislative action to
    authorize Ginnie Mae to provide the full faith and credit
    guarantee for Fannie, Freddie and possibly other credit
    enhancing guarantors. Can you please elaborate on what steps,
    roughly how much funding would be necessary, and a timeline for
    when you think Ginnie Mae could be made operational for this
    task?

    A.6. Operationalizing the Treasury Plan's proposal (to extend,
    via Ginnie Mae, a Federal guarantee of timely payment of
    principal and interest on qualified Mortgage Backed Securities)
    can be seen as having three phases:

       LPhase One would be to comply with the Treasury
            Plan's Recommendation 7, which calls for FHFA and
            Ginnie Mae to ``identify and assess the operational and
            other issues'' involved in the proposal. HUD estimates
            this would take approximately 6 months.

       LAssuming that Congress passed legislation
            implementing the plan, Phase Two would consist of
            mobilizing and deploying resources in pursuit of all
            aspects of the Phase One plan that do not require
            changes to the current-state operations or material
            system development. HUD estimates this phase would take
            approximately 12 months in conjunction with FHFA,
            Treasury and other stakeholders, including Congress.

       LPhase Three, if authorized, would consist of full
            implementation of operational changes, as per the
            preparatory work done in the preceding phases. Making
            projections about this phase, without having the
            benefit of knowing the outcome of the first two phases,
            is a highly uncertain exercise, but HUD's current
            estimate is that this phase would at a minimum be a 12-
            24 month project. This timing does not account for any
            feedback from stakeholders on the impact such a change
            would have on the industry, and any needed transition
            time.

    Projecting the investment needed to bring about the extended
    guaranty is similarly uncertain. Our current best estimate is
    that the funding needed would be minimal for the commencement
    of Phase One, but a more significant amount may be needed over
    the course of in Phase Two (though still just a fraction of
    Ginnie Mae's annual S&E budget).

    Q.7. How will you ensure that Ginnie Mae, which today has no
    responsibility for assessing the credit quality of the assets
    in its bonds or the solvency of the primary mortgage guarantor
    protecting it and taxpayers, is ready to take on such a big
    role?

    A.7. While the expansion of Ginnie Mae's responsibilities in
    the Treasury Plan is significant, the exact nature is yet to be
    decided, and will drive the activities Ginnie Mae will need to
    perform. We expect that all of the expanded responsibilities
    derive from, and
    relate to, functions Ginnie Mae already performs in connection
    with approximately $2 trillion in risk associated with Ginnie
    Mae's security. It would be a somewhat larger, and reorganized,
    agency, but the subject matter encompassed would not be
    materially different from operations conducted over recent
    years. With respect to the credit quality of security assets
    backed by individual mortgages, under the Treasury Plan this
    would primarily be the responsibility of the guarantors, as
    regulated (including in terms of credit enhancement pricing) by
    FHFA, not Ginnie Mae.

    Q.8. What is the risk of this added responsibility to FHA, VA
    and USDA, which are currently Ginnie Mae's clients?

    A.8. The proposal for an extended Ginnie Mae MBS guaranty
    should be understood as something that would be effected while
    separately maintaining the legacy Ginnie Mae MBS program and
    platform.

    Q.9. What is the status of HUD's proposed rule change to allow
    homeless shelter operators to consider an individual's sex to
    determine whether an accommodation or admission will be offered
    at the operator's facility?

    A.9. The draft proposed rule, ``Revised Requirements Under
    Community Planning and Development Housing Programs'' (FR-
    6152), is currently undergoing review by the Office of
    Information and Regulatory Affairs.

    Q.10. The new Fair Market Rents considers regional variables.
    What resources did HUD use to establish the recently released
    FMRs? Do these resources consider the fast market growth in
    particular places, like Nevada, where rental rates continue to
    skyrocket quarterly?

    A.10. HUD estimates Fair Market Rents (FMRs) for approximately
    600 metropolitan areas and 2,000 nonmetropolitan counties in
    the United States which are used by local agencies to set
    housing assistance payment limits for public programs that
    address the housing needs of low-income families. HUD's
    calculation of the FY2020 FMRs includes utilizing CPI data at
    the metropolitan level for 22 CPI areas (containing 69 FMR
    areas) where data was available, and regional data for all
    other FMR areas to inflate gross rent estimates for 1 year
    beyond the American Community Survey data which serves as the
    basis for most FMR calculations. HUD's
    research efforts in a 2019 report titled, Deriving Local Trend
    Factors for Fair Market Rent Estimation, helped to inform HUD's
    approach to the utilization of more localized data inputs in
    the trend factor component of the FY2020 FMRs. HUD computed 26
    trend factors for the FY2020 FMRs (22 CPI-based metropolitan
    areas and 4 regional CPI areas). The 22 CPI areas where local
    CPI forecasts are calculated include: Boston, New York,
    Philadelphia, Chicago, Detroit, Washington, Baltimore, Miami,
    Atlanta, Dallas, Los Angeles, San Francisco, Seattle,
    Minneapolis, St. Louis, Tampa, Houston, Phoenix, Denver, San
    Diego, Urban Hawaii, and Urban Alaska. Regional trend factors
    are applied to all other FMR areas for the North, South,
    Midwest, and West.
        As a result of this method change the trend factor applied
    to counties and metropolitan areas in Nevada increased from
    1.055 to 1.061, reflecting a faster rent growth in the West
    relative to other regions of the country.

    Q.11. When jurisdictions contest Fair Market Rents, what
    assistance is available from HUD to local housing authorities
    to provide rental data?

    A.11. HUD provides a questionnaire that can be used for
    conducting a survey of rents and a spreadsheet for compiling
    survey responses.
        HUD also researches the rental market for an area that
    would like to have its FMRs reevaluated to determine how large
    of a survey must be conducted to meet appropriate statistically
    significant standards. HUD encourages jurisdictions to consider
    the following when submitting a reevaluation of FMRs:

       LNo fewer than 100 qualified survey results are
            considered for an FMR reevaluation.

       LAreas with fewer than 10,000 rental units would
            have difficulty getting 100 qualified results and are
            encouraged to work with adjacent FMR area(s) of similar
            economic and demographic factors to conduct such a
            survey.

       LMetropolitan areas are required to get 100-200
            qualified survey results for acceptance of their
            reevaluation. HUD determines the exact number based on
            their rental population and consistent with other
            surveys conducted by PHAs.

       LLarge metropolitan areas are required to get 200
            qualified survey results.

       LQualified survey results are 1-, 2-, and in some
            cases 3-bedroom units that were not built in the past 2
            years; where the resident lives year-round; where unit
            is not owned by a relative; where there is no work done
            for the landlord; where the rent is the same each month
            over a 12-month period; where income of the resident is
            not verified each year; where tenant does not
            participate in a housing program; and where the tenant
            does not have a voucher. HUD lists these conditions in
            its acceptance of the reevaluation.

    Last, when a PHA conducts a local survey, the information may
    be used until more current data becomes available. Depending on
    when the survey data is collected, a local survey will be used
    for a minimum of 2 FMR years, but are typically used for 3 FMR
    years because of the age of the data. This is based on
    statutory language that FMRs must be calculated using ``the
    most recent available data.'' As an example, local surveys
    conducted to reevaluate the FY2019 FMRs were typically
    conducted between October and December of 2018. These surveys
    were used to reevaluate the FY2019 FMRs and were used as the
    basis for the FY2020 FMR calculations. The FY2021 FMRs will be
    calculated using 2018 ACS tabulations; however, because all of
    the local survey observations were obtained after the mid-point
    of 2018, HUD considers the local survey to be more current than
    the ACS and continues to use the local survey as the basis for
    the FY2021 FMRs as well. In FY2022, the FMRs will be based on
    2019 ACS data, all of which was collected after the 2018 local
    surveys. Additionally, the results may be used for up to 5 FMR
    years when the survey is conducted in smaller nonmetropolitan
    counties where statistically significant 1-year ACS data for
    the FMR area is not available.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM MARK A.
                            CALABRIA, Ph.D.

    Affordability
    Q.1. Director Calabria, you stated that you would continue to
    direct the GSEs to send annual contributions to the Housing
    Trust Fund and Capital Magnet Fund as ``long as the conditions
    in the statute are met for funding it.'' Please describe what
    conditions in the statute must be met, and please provide your
    interpretation, as FHFA Director, of what may cause such
    conditions not to be met.

    A.1. By statute, the FHFA Director must temporarily suspend
    Enterprise allocations to the Housing Trust Fund and the
    Capital Magnet Fund upon a finding that the allocations (1) are
    contributing or would contribute to the financial instability
    of the Enterprise, (2) are causing or would cause the
    Enterprise to be classified as undercapitalized; or (3) are
    preventing or would prevent the Enterprise from successfully
    completing a capital restoration plan. Because FHFA suspended
    Enterprise capital requirements when the Enterprises were
    placed in conservatorships, the latter two conditions have not
    been applicable. To assess financial stability, FHFA considers
    Enterprise earnings and income, among other performance
    measures.

    Q.2. Director Calabria, the Treasury Department's Housing
    Finance Reform plan expresses support for affordable housing.
        How would you define affordable housing as you seek to
    implement the Treasury Department's recommendations? Please
    address affordability in the context of home ownership, rental
    housing, and explicit subsidies.

    A.2. FHFA defines affordable housing using generally recognized
    definitions, primarily by comparing the cost of housing to the
    income of the resident, and by comparing the income of the
    resident to the area median income (AMI). Generally speaking,
    housing is affordable if it consumes less than thirty percent
    of household income. Explicit subsidies can help make housing
    affordable, but most people with incomes low enough to qualify
    for help do not actually live in subsidized housing or receive
    housing assistance. It should be kept in mind that demand-side
    subsidies, such as interest rate reductions, may have little or
    even negative effects on affordability in the presence of tight
    supply constraints.
        In a homeownership context, affordability usually focuses
    on the monthly payment of principal, interest, taxes, and
    insurance. Efficient delivery of mortgage capital helps to keep
    the cost of borrowing down and makes housing more affordable.
    FHFA oversees efforts by the Enterprises and the FHLBanks to
    support mortgage financing for low-income households earning 80
    percent of AMI or less, very low-income households earning 50
    percent of AMI or less, and households in low-income areas.
        In a rental context, affordability compares monthly rent
    (and related housing costs such as utilities) to monthly
    income. The affordable housing need is greatest at the lowest
    income levels, especially households earning 30 percent of AMI
    or less. Extremely low-income renters generally cannot afford
    housing without rental subsidy. Affordability challenges for
    renters occur at higher income levels, too. In some extremely
    high-cost markets, even renters at 120 percent of AMI struggle
    with housing costs.
        I should note that FHFA is currently reviewing Treasury's
    reform plan and there is yet no decision on which
    recommendations will be implemented or how. As FHFA is an
    independent regulator, Treasury's recommendations will be given
    appropriate consideration, but will be treated as
    recommendations.
    Underwriting Improvements
    Q.3. Director Calabria, during your oral testimony you could
    not name any actions that had been taken in the prior 11 years
    to address misaligned incentives and poor underwriting during
    the financial crisis.
        In the years following the crisis, Congress passed the
    Dodd-Frank Wall Street Reform and Consumer Protection Act,
    which created risk retention requirements and an ability to
    repay standard, among other changes. The GSEs have also reduced
    their retained portfolios as required under the terms of the
    senior preferred stock purchase agreements and continually
    updated their automated underwriting systems and seller/
    servicer guides.
        Do you believe that any of these changes have helped to
    address the pre-crisis underwriting problems and incentives for
    GSE-guaranteed loans, for mortgages held on a lender's balance
    sheet, and for loans sold into private-label securities? If
    not, why not?

    A.3. While I do not recall using the word ``any,'' as I have
    documented elsewhere (https://www.cato.org/publications/
    working-paper/mortgage-reform-under-dodd-frank-act) the post-
    crisis Dodd-Frank mortgage reform efforts have had at best
    limited and very modest impacts on loan performance. This is
    due to the fact that such reforms have ignored the largest
    drivers of default, borrower credit history and loan-to-value.
    Some evidence of this is displayed by the fact that GSE loan
    performance today, in terms of delinquencies, is very similar
    to that witnessed before the crisis. I would also point you to
    a recent FHFA working paper for further evidence on trends in
    credit risk: https://www.fhfa.gov/PolicyPrograms
    Research/Research/Pages/wp1902.aspx. I remain deeply troubled
    by the overall compliancy regarding credit risk in today's
    mortgage market. It bears too strikingly a similarity to that I
    regularly witnessed before the crisis.

    Q.4.a. Director Calabria, in response to a question about why a
    lender would make a loan without verifying a borrower's income,
    you agreed that the lender would make such a loan because they
    could sell it to the GSEs.
        Are the GSEs currently guaranteeing loans with no
    documentation of income?

    A.4.a. I do not believe I stated or implied during the oral
    testimony that the GSEs were buying no documentation loans. My
    recollection was that the question was a hypothetical. To the
    best of my knowledge, the Enterprises are not acquiring or
    guaranteeing loans that do not have documentation of income,
    nor is FHFA aware of any terms of business with specific
    lenders that allow for them to deliver loans to the Enterprises
    without any documentation of income. The Enterprises have
    automated the collection, verification, and assessment of a
    borrower's income and assets in their respective automated
    underwriting systems, which increases efficiency and reduces
    fraud in loan origination. Fannie Mae's data validation service
    in Desktop Underwriter, commonly referred to as Day 1
    Certainty, enables lenders to electronically obtain employment,
    income, and asset documentation directly from the source rather
    than relying on collecting the documents from the borrower.
    Freddie Mac has a similar service in Loan Product Advisor
    called Asset and Income Modeler, which automates the manual
    process of assessing income and assets, particularly for self-
    employed borrowers. All that said, as is reflected in the logic
    behind ``risk retention,'' if an originator can pass along the
    risk of a mortgage, said originator is likely to make riskier
    mortgages.

    Q.4.b. In the years leading up to the financial crisis, what
    percentage of subprime and Alt-A, low- or no-documentation
    loans were securitized into private-label securities, and what
    percentage of such loans were securitized and guaranteed by the
    GSEs?

    A.4.b. There is no single, universally accepted definition for
    what might be called a subprime or Alt-A loan.
        For example, ``subprime'' may be defined in terms of
    borrower characteristics such as credit scores, in terms of
    loan characteristics such as interest rates, or even in terms
    of whether the lender originating the loan is considered a
    ``subprime lender.'' ``Alt-A'' traditionally referred to
    alternative documentation but not necessarily higher credit
    risks, while in the years leading up to the crisis the
    proliferation of low- and no-documentation loans was often
    associated with higher credit risk borrowers and loans.
        Another challenge in measuring ``subprime'' and ``Alt-A''
    is that data from before and during the financial crisis is
    sometimes missing or incomplete. Given these data challenges,
    FHFA can only provide estimates comparing the prevalence of
    some types of loans in private label securities and Enterprise
    portfolios.
        For purposes of this response, FHFA categorized loans with
    Vantage Scores at or below 660 as ``Low Score Loans.'' Such
    loans could be seen as one proxy for ``subprime'' because they
    generally reflect borrowers who had weakened credit histories
    that included payment delinquencies and possibly more severe
    problems such as charge-offs, judgments, and bankruptcies. The
    share of ``Low Score Loans'' increased significantly for PLS in
    the years leading up to the crisis. For example, in 2001,
    approximately 39 percent of all ``Low Score Loans'' originated
    were for Enterprise portfolios, with 11 percent in PLS and 50
    percent in ``Other.'' In 2006, the Enterprise share of all
    ``Low Score Loans'' remained at 40 percent while the PLS share
    had increased to 37 percent, with 23 percent in ``Other.''
        A similar pattern existed for ``Alt-A.'' For purposes of
    this response, FHFA categorized loans with combined loan-to-
    value ratios of 97 percent and without full income
    documentation or not owner-occupied as ``Other Risky Loans.''
    In 2001, approximately 33 percent of all ``Other Risky Loans''
    originated were for Enterprise portfolios, with 12 percent in
    PLS and 55 percent in ``Other.'' In 2006, the Enterprise share
    of all ``Other Risky Loans'' fell to 22 percent while the PLS
    share had increased to 44 percent, with 34 percent in
    ``Other.''
        The PLS share of ``Low Score Loans'' and ``Other Risky
    Loans'' reached their largest percentages as house prices were
    peaking in 2005 and 2006. In later years, the PLS share quickly
    dropped to zero as private label securities stopped being
    issued almost entirely. It is critical to note, however, that
    during the largest growth period in PLS, Fannie Mae and Freddie
    Mac were the largest single purchasers of those securities,
    adding considerable investor demand to the PLS market. It is
    extremely unlikely that the subprime PLS market would have
    reached such levels if Fannie Mae and Freddie Mac had not been
    such larger investors in that market.

    Q.5. Director Calabria, during your oral testimony you stated
    that underwriting at the GSEs has ``gotten worse, not better.''
        Please describe all underwriting changes that have been
    made at the GSEs since 2008. Please indicate which of these
    changes you believe have made underwriting worse.

    A.5. During the financial crisis, the Enterprises tightened
    their eligibility and underwriting standards, and their overall
    risk appetite, as did many other mortgage market participants.
    Some of these changes included:

       LEliminating mortgage products that featured
            negative amortization

       LRequiring borrowers to be qualified at the fully
            indexed interest rate (QM driven)

       LNot permitting less-than-full documentation of the
            borrower's income or other risky lender variances

       LAdding and raising the minimum credit score
            required

       LAligning their manual underwriting policies with
            their automated underwriting systems

       LChanging debt-to-income (DTI) requirements

       LCollecting data and building systems to verify/
            validate the property appraisal

       LLowering the maximum loan to value (LTV) and
            combined loan to value (CLTV) ratios permitted

       LAdjusting pricing, adding an adverse market charge,
            and establishing risk-based pricing in the form of
            delivery fees or loan level pricing adjustments

    In recent years, the Enterprises have also relaxed some of
    those standards, for example by re-establishing maximum LTV
    ratios above 95 percent for certain mortgage products and by
    recently relaxing DTI requirements, both of which are
    problematic and have been a source of increased risk for both
    Enterprises.
        The evolving debt-to-income standards are a good example.
    In July 2017, Fannie Mae removed compensating factors from its
    automated underwriting system, Desktop Underwriter (DU), that
    were required for loans to exceed 45 percent DTI up to 50
    percent. With this change, all loans became eligible for a
    maximum DTI up to 50 percent as part of the comprehensive risk
    assessment performed by DU. Within months, Fannie Mae saw a
    significant increase in loans with ratios exceeding 45 percent
    DTI that also exhibited other high risk factors that included
    very high LTV ratios and low credit scores. This practice is
    commonly referred to as risk layering and loans with multiple
    layers of risk tend to default at a higher rate. Freddie Mac
    also experienced a similar increase in loans with risk layering
    because it acquires loans that are assessed by DU. In March
    2018 and again in December 2018, Fannie Mae made some
    adjustments to DU's risk assessment to limit risk layering.
    However, those changes have not had the desired effect and
    Fannie Mae plans to make additional changes later this year.
        Another critical factor is the large increase in high LTV
    loans. In 2008, less than 4 percent of Fannie's acquisitions
    had LTV's in excess of 95 percent, in 2018, almost 8 percent
    had LTV's in excess of 95 percent. Such low levels of borrower
    equity leave borrowers exposed to a possible downturn in home
    prices.
    De-risking the GSEs
    Q.6.a. Director Calabria, in your oral testimony you stated you
    will be ``de-risking'' the GSEs and that the GSEs ``cannot make
    loans that are almost guaranteed to go bad.''
        Are there loans that the GSEs are guaranteeing today that
    you believe are almost guaranteed to go bad? If so, please
    describe the characteristics of those loans, the volume of
    those loans, and their current default rates.

    A.6.a. During the financial crisis loans with multiple risk
    factors, often called risk-layering, defaulted at much higher
    rates than loans without multiple risk factors. For example,
    loans with loan-to-value ratios greater than 90 percent and
    credit scores less than 620 defaulted at rates more than double
    the average default rate for all loans with loan-to-value
    ratios greater than 90 percent.
        Since the beginning of 2017, the Enterprises have been
    acquiring an increasing share of loans with multiple risk
    factors. This happens when a mortgage has more than one of
    higher risk factors such as:

       LBorrower's debt-to-income ratio greater than 43
            percent,

       Linvestor loan,

       Lsecond or vacation home,

       Lborrower with a credit score of less than 680,

       Lcash out refinance, and/or

       Lloan-to-value ratio greater than 80 percent.

    Since the beginning of 2017, the Enterprises have acquired 1.76
    million loans with more than one of the mentioned risk factors.
    As of June 30, 2019, 0.28 percent of those loans were seriously
    delinquent (three or more payments past due).

    Q.6.b. What other products or activities would you alter or end
    to ``de-risk'' the GSEs? Please provide a list of activities
    and the changes you believe would be appropriate.

    A.6.b. FHFA is currently reviewing the Enterprises' products
    and activities with the goal to lower the risk profile of the
    Enterprises, including a review of Enterprise pilot programs,
    the risks within their book of business, and their risk
    management practices. We expect the review of the Enterprises
    products and activities to continue through the next year.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT FROM MARK A.
                            CALABRIA, Ph.D.

    Q.1. The final rule published this past August on the
    implementation of the Credit Score Competition Act, which would
    allow for the use of alternative credit-scoring models by the
    GSEs, will increase home ownership and put more Americans on a
    path to success.
        I am glad to see FHFA's work to implement this and,
    importantly, to reflect the intent of Congress in fostering
    competition.
        Do you view the use of alternative credit scoring as
    integral to increasing access to home ownership? As I
    understand the final rule, it may take the industry anywhere
    from 18 to 24 months to fully adopt a new credit score model.
    Will you commit to fully seeing this through until the new
    models have become fully adopted?

    A.1. I am fully committed to seeing through the completion of
    this process. FHFA is committed to the validation and approval
    process laid out in law and in FHFA's final credit score
    regulation, and we believe the Enterprises will be able to
    validate and approve a new credit score model using this
    process. We want to ensure we allow the industry the
    appropriate amount of time to prepare for any change to the
    Enterprises credit score requirements. Based on analysis and
    industry outreach, we do not believe that updating the credit
    score model will have a significant impact on access to credit;
    however, there is opportunity to increase access to credit
    through the Enterprises no-score automated underwriting
    systems. The nonscore AUS allows potential borrower who lack
    traditional credit to be evaluated through automation,
    eliminating the need for a manual underwrite.

    Q.2. Given tools like Credit Score Competition, FHFA benefits
    from access to more technologically advanced modeling tools and
    resources. It is a well-known fact, however, that FHA is still
    largely a paper-based operation. Congress provided $20 million
    in IT funding to better assist FHA in getting to an advanced IT
    infrastructure.
        In HUD's reform plan, the Administration proposes re-
    chartering FHA as an autonomous Government corporation within
    HUD and to pursue inter-agency agreements. How would FHA's
    potential role as an autonomous agency allow it to better
    utilize modeling resources and tools, like those at FHFA and
    the credit-scoring program, to increase access to home
    ownership? And better adapt to technological changes in the
    marketplace?

    A.2. We cannot comment on the potential for FHA to utilize
    modeling resources and tools, since that is outside our
    authority. However, we do believe it is important that the two
    agencies coordinate with respect to credit scores, to alleviate
    any bifurcation in the industry. This has been explicit
    feedback we have received from the industry and we believe
    there is a benefit to having FHA and the Enterprises aligned on
    their credit score requirements.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN FROM MARK A.
                            CALABRIA, Ph.D.

        Our housing finance system faces a number of profound
    challenges. In most parts of the country, prices for starter
    homes are skyrocketing as much as 10 percent per year.\1\
    Millions of Americans are cost burdened, paying more than 30
    percent of their income on rent, mortgages or other housing
    costs. Perhaps most perniciously, the legacy of decades of
    racist Federal housing policy is still too apparent today. The
    average Black family has about \1/10\th the wealth of the
    average white family,\2\ and while the Black families made some
    gains in the healthy housing markets of the 1990s and early
    2000s, that progress was wiped out in the subprime crisis.
    Today, the homeownership gap between Black and white families
    is as large as it was when housing discrimination was legal.\3\
    ---------------------------------------------------------------------------
        \1\ Marketwatch ``One big reason it's so hard for first-time buyers
    to find the right starter home.'' Jacob Passy, March 21, 2018, https://
    www.marketwatch.com/story/another-hurdle-for-first-time-home-buyers-
    there-are-barely-any-starter-homes-for-sale-2018-03-21.
        \2\ Brookings, ``A conversation about the racial wealth gap--and
    how to address it,'' Michaela Broyles, June 18, 2019, https://
    www.brookings.edu/blog/brookings-now/2019/06/18/a-conversation-about-
    the-racial-wealth-gap-and-how-to-address-it/.
        \3\ Census Bureau, ``Quarterly Residential Vacancies and
    Homeownership, Second Quarter 2019,'' July 25, 2019, https://
    www.census.gov/housing/hvs/files/currenthvspress.pdf; National Bureaus
    of Economic Research Working Paper Series, ``Race and Home Ownership,
    1900 to 1990,'' William J. Collins and Robert Margo, August 1999,
    https://www.nber.org/papers/w7277.pdf.
    ---------------------------------------------------------------------------
        Any proposal for housing finance reform must confront these
    problems. After all, as the U.S. Department of Treasury Housing
    Reform Plan (``Treasury Report'') points out, ``[e]ach GSE's is
    unique in that its congressional charter endows the GSE with a
    public mission.'' These public missions make it clear that the
    GSEs exist to ``promote access to mortgage credit throughout
    the Nation (including central cities, rural areas, and
    underserved areas)'' and to perform ``activities relating to
    mortgages on housing for low- and moderate-income families
    involving a reasonable economic return that may be less than
    the return earned on other activities.''\4\
    ---------------------------------------------------------------------------
        \4\ U.S. Department of the Treasury, ``U.S. Department of the
    Treasury Housing Reform Plan,'' September 2019, file:///C:/Users/
    js42247/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/
    LTYNPN67/Treasury-Housing-Finance-Reform-Plan.pdf.
    ---------------------------------------------------------------------------
        I have carefully reviewed the Treasury Report and the
    Department of Housing and Urban Development's Housing Finance
    Reform Plan (``HUD Report''). Both appear to eliminate many of
    the mechanisms in the current system that support sustainable
    home ownership among low- and moderate-income and middle-income
    borrowers, especially in communities of color. The following
    questions seek more information about the analysis that
    Treasury, HUD and the Federal Housing Finance Agency (FHFA)
    undertook to determine the effects of their various proposals
    on housing prices, access to home ownership for first-time home
    buyers, and the racial homeownership gap.

    Q.1. The Treasury Report recommends that ``Congress should
    restrict the permissible activities of guarantors to the
    business of securitizing Government-guaranteed MBS,'' including
    ``cash-out refinancings, investor loans, vacation home loans,
    higher principal balance loans [in high-cost areas], or other
    subsets of GSE-acquired mortgage loans,'' and in the absence
    legislation ``FHFA should assess whether each of the current
    products, services, and other
    single-family activities of each GSE is consistent with its
    statutory mission.''

    Q.1.a. Do you agree with this recommendation?

    A.1.a. Yes. As Congress thinks through housing finance reform,
    it will be critically important to define the role of Fannie
    Mae and Freddie Mac, including permissible activities. In the
    meantime, our mission will remain unchanged and focus on
    ensuring that the housing Government-sponsored enterprises
    operate in a safe and sound manner so that they serve as a
    reliable source of liquidity and funding for housing finance
    and community investment. I believe it is appropriate and
    necessary for all financial regulators to regularly insure that
    the activities of regulated entities are consistent with their
    charters.

    Q.1.b. Did FHFA analyze the effects of limiting the activities
    of the guarantors on home prices, especially in high-cost
    areas? If so, please provide the analysis.

    A.1.b. FHFA to date has not done an impact analysis on
    recommendations made by the Treasury. I do, however, largely
    concur with the analysis and argument you advance in Chapter 6
    of The Two-Income Trap. As you so accurately describe there,
    ``as housing prices leveled off, more families would be able to
    afford a home . . . ''.

    Q.1.c. Did FHFA analyze the effects limiting the activities of
    the guarantors on access to home ownership for low-, moderate-,
    and middle-income borrowers and first-time home buyers,
    especially in high-cost areas? If so, please provide the
    analysis.

    A.1.c. FHFA to date has not done an impact analysis on
    recommendations made by the Treasury. Again, I largely agree
    with your assessment contained in Chapter 6 of The Two-Income
    Trap, which very clearly describes how demand-side housing
    subsidies can actually make housing less affordable. As you
    also note in Chapter 6, between 1980, which largely predates
    the growth of the GSEs, and the publication of The Two-Income
    Trap in 2003, the increase in home ownership was modest, at
    best.

    Q.1.d. Did FHFA analyze the effects of these changes on access
    to sustainable home ownership in communities of color? If so,
    please provide the analysis.

    A.1.d. FHFA to date has not done an impact analysis on
    recommendations made by the Treasury. However, FHFA conducts
    fair lending analysis of any proposed policy change to identify
    and assess potential impacts to protected classes, including
    communities of color. Again, I largely concur with the
    arguments you advance in Chapter 6 of the Two-Income Trap. As
    you so eloquently put it, ``credit was not supposed to be an
    end in itself.'' Unfortunately, the area of GSE dominance has
    seen almost no long-term increase in sustainable homeownership
    rates in communities of color.

    Q.2. The Treasury Report recommends that ``[p]ending
    legislation, FHFA should consider more efficient mechanisms for
    the GSEs to achieve the statutory affordable housing'' than the
    affordable housing goals.

    Q.2.a. Do you agree with this recommendation? Will FHFA
    implement it?

    Q.2.b. Please describe the ``more efficient mechanisms'' that
    the FHFA is considering.

    Q.2.c. Did FHFA analyze the effects of getting rid of the
    affordable housing goals on home prices? If so, please provide
    the analysis.

    Q.2.d. Did FHFA analyze the effects of getting rid of the
    affordable housing goals on access to home ownership for low-,
    moderate-, and middle-income borrowers and first-time home
    buyers? If so, please provide the analysis.

    Q.2.e. Did FHFA analyze the effects of getting rid of the
    affordable housing goals on access to sustainable home
    ownership in communities of color? If so, please provide the
    analysis.

    A.2.a.-e. Treasury included a number of administrative actions
    related to FHFA matters. As the current Enterprise Housing
    Goals Regulation runs through 2020, we expect to engage with
    the Treasury Department on the specifics of its recommendation
    as we formulate our 2021-2023 goals regulation next year. FHFA
    conducts fair lending analysis of any proposed policy change to
    identify and assess potential impacts to protected classes,
    including communities of color.

    Q.3. The Treasury report recommends that ``FHFA and HUD should
    develop and implement a specific understanding as to the
    appropriate roles and overlap between the GSEs and FHA, for
    example, with respect to the GSEs' acquisitions of high LTV and
    high DTI loans and FHA's underwriting of cash-out,
    conventional-to-FHA, and other refinancing loans and loans to
    repeat FHA borrowers.''

    Q.3.a. Do you agree with this recommendation? Will FHFA
    implement it?

    A.3.a. It is appropriate to further greater coordination
    between FHFA and HUD, ensuring efforts are complementary, in
    support of a well-functioning housing finance system.

    Q.3.b. Did FHFA analyze the effects of limiting the footprint
    of the GSEs and FHA on home prices? If so, please provide the
    analysis.

    A.3.b. To date, FHFA has not done an impact analysis on
    recommendations made by the Treasury.

    Q.3.c. Did FHFA analyze the effects of limiting the footprint
    of the GSEs and FHA on access to home ownership for low-,
    moderate- and middle-income borrowers and first-time home
    buyers? If so, please provide the analysis.

    A.3.c. To date, FHFA has not done an impact analysis on
    recommendations made by the Treasury.

    Q.3.d. Did FHFA analyze the effects of limiting the footprint
    of the GSEs and FHA on access to sustainable home ownership in
    communities of color? If so, please provide the analysis.

    A.3.d. To date, FHFA has not done an impact analysis on
    recommendations made by the Treasury. However, FHFA conducts
    fair lending analysis of any proposed policy change to identify
    and assess potential impacts to protected classes, including
    communities of color.

    Q.4. The Treasury Report recommends that ``FHFA's eventual
    regulatory capital requirements should require that each
    guarantor, or each GSE pending legislation, be appropriately
    capitalized by maintaining capital sufficient to remain viable
    as a going concern after a severe economic downturn and also to
    ensure that shareholders and unsecured creditors, rather than
    taxpayers, bear losses.'' It later recommends, ``would be . . .
    to more fully align the GSEs' credit risk capital charges with
    those of other fully private regulated financial institutions
    for holding similar assets.''

    Q.4.a. Do you agree with this recommendation? Will FHFA
    implement it?

    A.4.a. I believe that the Enterprises are woefully
    undercapitalized and it is a priority of mine to correct that.
    FHFA proposed an Enterprise capital rule in 2018 and received
    extensive comments in 2019. Because those comments were
    provided under a different set of assumptions about the future
    of the Enterprises, I determined that FHFA would repropose the
    capital rule in 2020, The rule will be re-proposed and
    finalized within a timeline fully consistent with ending the
    conservatorships. Requiring the Enterprises to build capital
    that can properly support their risk ensures that taxpayers
    will never be on the hook again during an economic downturn.

    Q.4.b. Did FHFA analyze the effects of bank-like capital
    requirements on home prices? If so, please provide the
    analysis.

    A.4.b. No. FHFA has not analyzed the effects of bank-like
    capital requirements on home prices.

    Q.4.c. Did FHFA analyze the effects of bank-like capital
    requirements on access to home ownership for low-, moderate-,
    and middle-income borrowers and first-time home buyers? If so,
    please provide the analysis.

    A.4.c. No. FHFA did not analyze the effects of bank-like
    capital requirements on access to home ownership for low-,
    moderate-, and middle-income borrowers and first-time home
    buyers.

    Q.4.d. Did FHFA analyze the effects of bank-like capital
    requirements on access to sustainable home ownership in
    communities of color? If so, please provide the analysis.

    A.4.d. FHFA conducts fair lending analysis of any proposed
    rulemaking to identify and assess potential impacts to
    protected classes, including communities of color. I believe
    having stronger capital levels would improve the ability of the
    GSEs to provide access during all phases of the business/
    housing cycle.

    Q.5. The Treasury report recommends that ``[f]ollowing any
    change to the CFPB's ability-to-repay rule, FHFA should revisit
    the determination as to which single-family mortgage loans
    should be eligible for acquisition by the GSEs (with
    appropriate amendments to the PSPAs) or, following legislation,
    should be eligible to secure Government-guaranteed MBS.''

    Q.5.a. Do you agree with this recommendation? Will FHFA
    implement it?

    A.5.a. Yes. As conservator and regulator, FHFA must assess any
    rule changes that may impact the Enterprises. Following updates
    to the ability to repay rule, both FHFA and each of the
    Enterprises will assess the impact of the new rule on the
    Enterprises' businesses and the Agency will determine whether
    any additional changes to eligibility requirements are
    necessary.

    Q.5.b. Did Treasury analyze the effects of further limiting the
    footprint of the GSEs on home prices? If so, please provide the
    analysis.

    A.5.b. N/A

    Q.5.c. Did Treasury analyze the effects of further limiting the
    footprint on access to home ownership for low-, moderate-, and
    middle-income borrowers and first-time home buyers? If so,
    please provide the analysis.

    A.5.c. N/A

    Q.5.d. Did Treasury analyze the effects of further limiting the
    footprint of the GSEs on access to sustainable home ownership
    in communities of color? If so, please provide the analysis.

    A.5.d. FHFA is unaware of Treasury analysis regarding the
    effect of acquisition eligibility of loans on access to
    sustainable home ownership.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON FROM MARK A.
                            CALABRIA, Ph.D.

    Q.1. Is FHFA aware of increased GSE multifamily volumes in the
    Class A high-end market rate space?

    A.1. FHFA monitors the Enterprises' multifamily activities
    through monthly volume reporting and outreach to multifamily
    market participants, and requires the Enterprises to report
    their business under Conservatorship Scorecard cap and in the
    targeted affordable categories. In addition, FHFA meets with
    multifamily market participants, including Fannie Mae and
    Freddie Mac, on a quarterly basis to discuss market conditions
    and the Enterprises' multifamily business activities to ensure
    that we have a strong handle on what is happening in the
    market.

    Q.2. Do you believe it is appropriate for the GSEs to crowd out
    private capital in these markets?

    A.2. No, it is not appropriate for the GSEs to crowd out
    private capital. FHFA sets the multifamily volume caps
    utilizing market forecasts, expertise from industry
    participants, and other market information in order to prevent
    the Enterprises from crowding out private capital. FHFA also
    closely monitors the Enterprises' business activities in the
    multifamily market through monthly reporting and quarterly
    meetings with other multifamily market participants to identify
    potential areas of concern.

    Q.3. Is the Agency considering how it can refocus the GSEs on
    their mission and supporting the supply of affordable housing,
    rather than Class A apartments?

    A.3. Examples of Class A high-end projects where the GSEs
    narrowly outbid the private market (there are many more, this
    is just a small sample):

       LA 146-unit luxury apartment complex in Florida that
            was constructed in 2017. 1-bedroom units rent for
            $2,430/month while local area ``A'' quality 1 bedroom
            apartments average $1,800 and ``B'' quality 1-bedroom
            apartments average $1,500 or lower. In 2018, the
            property owner was seeking a $26 million 7-year
            mortgage. A private market participant quoted the
            mortgage at T + 150 bps, but Fannie Mae reportedly won
            with a quote of T + 106 bps--[equates to less than 50
            bps spread].

       LA 280-unit apartment community in Florida that was
            constructed in 2018. The average asking rent per unit
            for the property is $1,520 per month while local area
            class A rents average $1,300. In 2019, the property
            owner was seeking a $44.5 million loan. A private
            market participant bid aggressively, but Fannie Mae
            reportedly offered a lower spread and was chosen by the
            borrower.

       LA 252-unit multifamily project in an affluent area
            of Pennsylvania. The multifamily recently stabilized
            and the sponsor is renewing tenants at proforma rents.
            In 2019, the property owner requested financing for
            $59MM, 10-year fixed. A private market participant was
            quoting the mortgage at T + 215 bps for full proceeds,
            but Freddie Mac reportedly won with a quote of T + 176
            bps--[39 bps less].

       LA newly constructed, 135-unit Class A multifamily
            property located in Minnesota. The sponsor was seeking
            a $30MM, 10-year fixed-rate loan to pay off its
            existing construction loan and return a portion of its
            equity in 2019. A private market participant was
            quoting the mortgage at T + 190 bps for $27.5MM (68
            percent LTV), but Fannie Mae reportedly won with a
            quote of T + 165 bps for more proceeds at $30.25MM (75
            percent LTV)--[25 bps less with $2.75MM more proceeds].

    FHFA recognizes that the private sector plays a key role in the
    multifamily market and should not be crowded out of the market.
    On September 13, 2019, FHFA announced the multifamily volume
    caps for the fourth quarter of 2019 through the fourth quarter
    of 2020 and a revised cap structure that it is intended to
    ensure that the Enterprises do not grow their share of the
    market to the detriment of private investors, while still
    ensuring that they maintain a presence and a strong focus on
    affordable housing and traditionally underserved markets. To
    accomplish this, FHFA directed that at least 37.5 percent of
    the Enterprises' multifamily business be mission-driven,
    affordable housing. Traditionally, one-third of Enterprise
    business, outside of Green loans, has fallen into the mission-
    driven space. This new minimum of 37.5 percent responsibly
    assures that the Enterprises' multifamily businesses have a
    strong and growing commitment to affordable housing finance.
                                    ------

      RESPONSE TO WRITTEN QUESTION OF SENATOR TILLIS FROM MARK A.
                            CALABRIA, Ph.D.

    Q.1. Given your previous commitment to transparency and risk-
    based pricing, can you assure me that the release of any new
    capital standards will abide by the Administrative Procedures
    Act (APA)?

    A.1. Yes, absolutely. FHFA intends to fully comply with the
    Administrative Procedures Act in finalizing a capital rule for
    the Enterprises.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN FROM MARK A.
                            CALABRIA, Ph.D.

    Q.1. The Treasury report detailed recommendations to support a
    level playing field for new participants in the housing finance
    system. These regulatory requirements touch on items like
    capital relief, data standardization, and third-party credit
    risk transfers; however the report does not address the
    technological infrastructure that the enterprises have built up
    over the past decade while in conservatorship. Post
    conservatorship, how do we limit the competitive advantage
    Fannie & Freddie would have over new competitors due to the
    technological infrastructure they have accrued over the past
    decade on the taxpayers' dime?

    A.1. Related to the technology infrastructure for the
    securitization of single family loans, the Enterprises have
    established a joint venture (Common Securitization Solutions,
    LLC), which owns and operates a new common securitization
    platform (CSP). The CSP is used to perform key activities
    related to security issuance, bond administration, disclosures
    and tax reporting. The CSP was developed so that it would be
    adaptable for use by additional market participants, in part by
    leveraging industry-standard interfaces, industry software and
    industry data standards, wherever possible. In addition,
    earlier this year, the Enterprises, leveraging the CSP,
    implemented the new Uniform Mortgage-Backed Security (UMBS),
    creating a new common security, with common security
    characteristics and disclosure requirements. FHFA believes that
    the development and implementation of the CSP and UMBS will not
    only lead to a more efficient, resilient, and liquid secondary
    mortgage market, but also they will support a more level
    playing field for new participants in the housing finance
    system, by providing the potential for third parties to
    participate in using them.

    Q.2. The Treasury report details the harmonization of
    regulatory requirements applicable to the GSEs, including the
    standardization of data practices that the GSEs use and those
    of the greater housing finance system. Do you see increased
    transparency and the sharing of GSE data and other information
    with industry--which has given the enterprises an almost
    unassailable competitive advantage--as a precondition for
    release from conservatorship?

    A.2. FHFA supports improvements in Enterprise data quality and
    standardization of information submission requirements from
    market participants. At the same time, greater transparency by
    the Enterprises is merited. For example, as part of risk-
    sharing transfers, the Enterprises have increased the amount of
    public data
    regarding their loans and their characteristics. These have
    enhanced investor and public understanding of the loan
    composition of Enterprise underwriting. Continued expansion of
    data production will be part of FHFA attention going forward.

    Q.3. In the report from the U.S. Department of the Treasury,
    recommendation #6 is that ``pending legislation, each GSE
    should be recapitalized so that private capital takes the
    first-loss position on the GSE's exposure to risk and loss.''
    To best protect taxpayers from mortgage-related credit risk, do
    you agree that the entities taking the first-loss risk should
    be dedicated to the housing finance system, highly regulated,
    and available during all market cycles?

    A.3. To best protect taxpayers from mortgage related credit
    risk, entities taking credit risk should have capital
    requirements that are sufficient for the risks. I believe that
    an appropriate amount of capital commensurate with the
    Enterprises' risk as well as with a strong and effective
    regulator will best protect the taxpayers from future losses.

    Q.4. I appreciate that the report recognized the impact to
    housing affordability that local jurisdictions are causing
    through myriad barriers such regulations, land use and rent
    control. What impact can the GSEs, through direction from FHFA,
    have on breaking down these barriers or incenting localities to
    modify their rent control initiatives?

    A.4. One driver in the rising cost of housing throughout the
    United States is a lack of housing supply caused by regulatory
    barriers, inclusionary zoning and growth management controls,
    rent controls, and a variety of other State and local
    regulations. FHFA continuously monitors State and local
    regulations and their effects on the Enterprises' multifamily
    loan purchases.
        FHFA has worked directly with State and local authorities
    to ameliorate the impact of unnecessary, antiquated or counter-
    productive rules that adversely affect the availability of
    housing including affordable housing. Rules that impose fees
    that actually are taxes, rules that delay foreclosures and the
    restoration of housing to the market, rules that prevent in
    someinstances Enterprises from maintaining properties and in
    other instances mandate overly prescriptive local rules for
    such maintenance all evidence adverse pressures on affordable
    housing supply. In the coming months, FHFA plans to explore
    State and local laws, identify roles the Enterprises can play
    in addressing these regulatory barriers, and look into
    approaches to encourage responsible changes to these laws or
    ordinances while assuring safe conditions remain for
    properties.

    Q.5. The report mentions the deleterious effect that rent
    control policies can have on housing affordability--why not be
    more explicit about what FHFA should do about underwriting
    loans eligible for the GSEs to purchase from jurisdictions that
    have enacted rent-control laws and regulations?

    A.5. FHFA continuously monitors State and local regulations and
    their effects on the Enterprises' multifamily loan purchases.
    In the coming months, FHFA plans to explore State and local
    laws, and identify roles the Enterprises can play in addressing
    these regulatory barriers.

    Q.6. The report identifies that housing affordability is a
    major concern but then calls for contracting the GSEs'
    multifamily footprints and reducing liquidity in the market.
    What measures does FHFA propose to create more supply of
    multifamily assets to put downward pressure on rents?

    A.6. On September 13, 2019, FHFA announced a revised cap
    structure on the multifamily businesses of the Enterprises. The
    revised structure caps new multifamily loan purchases at $100
    billion for each Enterprise, a combined total of $200 billion
    in support to the multifamily market, for the five-quarter
    period Q4 2019-Q4 2020. The new caps apply to all multifamily
    business--no exclusions. This new cap regime will ensure the
    Enterprises do not crowd out private market participants.
    However, to ensure a strong focus on affordable housing and
    traditionally underserved markets, FHFA directs that at least
    37.5 percent of the Enterprises' multifamily business be
    mission-driven, affordable housing. This new minimum of 37.5
    percent responsibly assures that the Enterprises' multifamily
    businesses have a strong and growing commitment to affordable
    housing finance. FHFA's priority is to ensure the provision of
    liquidity where needed, without crowding out private capital.
                                    ------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM
                        MARK A. CALABRIA, Ph.D.

    Q.1. Congress required Fannie Mae and Freddie Mac have a duty-
    to-serve rural communities and manufactured home buyers and
    preserve affordable housing. Is it your understanding that the
    FHFA must implement those requirements until Congress rescinds
    them?

    A.1. As I have consistently said, including at my confirmation
    hearing before this Committee, I fully intend to carry out the
    law as enacted. This includes the Duty-to-Serve provisions of
    HERA. During my tenure at FHFA, I intend to hold the
    Enterprises accountable for meeting their statutory
    responsibilities to serve the rural, manufactured housing, and
    affordable housing preservation markets.

    Q.2. FHFA has the responsibility to monitor the housing finance
    market for discrimination, inequities and risks. Has the
    elimination of some loan quality criteria from small banks and
    credit unions reported through the Home Mortgage Disclosure Act
    banks and credit unions hindered your ability to monitor for
    discrimination in lending?

    A.2. The recent changes to the Home Mortgage Disclosure Act
    reporting requirements have not hindered our ability to monitor
    for discrimination in lending. FHFA uses loan-level acquisition
    data provided by the Enterprises for fair lending monitoring.
    This data provides a robust, complete, and accurate view of
    Enterprise activities.

    Q.3. In your confirmation hearing, you said that you would
    recruit and expand career staff hires with a background in
    financial regulation. Please list the hires made since your
    confirmation and note their background.

    A.3. Over the last 5 months, FHFA hired 12 career staff
    employees with financial regulation experience. These hires
    include five examiners, three economists, two financial
    analysis/research specialists, and two attorneys. I also
    approved 19 new positions for the fiscal year in financial
    regulation functional areas.

    Q.4.a. In your confirmation hearing, you said that you would
    expand the research and economics function at the FHFA.
        Who have you hired to lead the research department?

    A.4.a. We have not hired anyone to lead the research
    department. I am using my recently appointed Senior Advisor for
    Economics to evaluate the Agency's research functions and make
    a recommendation on if/how it should be organized into a single
    department.

    Q.4.b. Who have you hired to work there?

    A.4.b. Although we have not established a single Agency-wide
    research function, we have filled five positions in economic
    and research analysis functions since my arrival. In addition,
    I approved six economic and research positions for FY2020.

    Q.4.c. Have you created an economics and statistics function
    with a direct report to the Director? If so, please explain its
    function. If not, what is your timeframe to do this?

    A.4.c. Yes, I appointed a Senior Advisor for Economics on May
    20, 2019. This employee is responsible for formulation,
    establishment, and promulgation of economic practices and
    policies for the Agency.

    Q.4.d. In what forums has FHFA staff presented research?

    A.4.d. Speaking engagements have included academic conferences,
    university seminars, think tank forums, and special topic
    research symposiums. Below is a list of organizational names
    for which FHFA's research has been presented during the past 5
    years.

        2019-11 Association for Public Policy Analysis and
    Management

        2019-10 American Enterprise Institute

        2019-07 Office of Financial Research

        2019-07 Federal Reserve Board

        2019-06 North American Econometric Society

        2019-06 American Real Estate and Urban Economics

        2019-04 American Real Estate Society

        2019-04 Federal Reserve Bank of Cleveland

        2019-03 Federal Deposit Insurance Corporation

        2019-03 U.S. Department of Housing and Urban Development

        2019-01 American Economic Association

        2018-12 Housing Statistics Users Group

        2018-11 National Association of Regional Science Council

        2018-11 National Association of Realtors

        2018-10 National Community Stabilization Trust

        2018-10 Fannie Mae, Appraisal Institute, University of
    Connecticut

        2018-09 Workshop on Improving the American Community Survey
    for The National Academies of Science Engineering and Medicine

        2018-09 Federal Reserve Bank of Richmond

        2018-06 Federal Reserve Board, Consumer Financial
    Protection Bureau Research, Federal Reserve Bank of
    Philadelphia

        2018-05 Consumer Financial Protection Bureau Research
    Conference

        2018-05 Housing Statistics User Group

        2018-04 American Real Estate Society

        2018-04 Florida State University, University of Florida,
    University of Central Florida

        2018-01 CoreLogic Federal Symposium

        2017-11 Federal Reserve Bank of Philadelphia

        2017-11 National Association of Realtors

        2017-11 Urban Economics Association

        2017-10 Federal Deposit Insurance Corporation Consumer
    Research Symposium

        2017-09 University of South Alabama

        2017-06 Freddie Mac

        2017-06 American Real Estate and Urban Economics

        2017-05 Housing Statistics Users Group

        2017-04 Urban Institute, Lincoln Institute of Land Policy

        2017-04 Homer Hoyt Group

        2017-04 American Real Estate Society

        2017-02 National Association of Realtors

        2017-02 CoreLogic Federal Symposium

        2017-01 American Economic Association

        2016-10 Florida Atlantic University, Florida International
    University

        2016-10 University of Michigan Conference on Big Data in
    Finance

        2016-09 Association of Public Data Users Annual Conference

        2016-09 Regulatory Data Workshop

        2016-08 American Enterprise Institute

        2016-07 Society for Economic Measurement Conference

        2016-06 George Washington University

        2016-05 American Real Estate and Urban Economics

        2016-05 Experian Vision Conference

        2016-04 American Real Estate Society

        2016-04 Freddie Mac

        2016-03 U.S. Department of Housing and Urban Development

        2016-02 Americans for Financial Reform

        2016-01 Federal Deposit Insurance Corporation

        2015-09 CoreLogic Property Data Roundtable

        2015-09 University of Wisconsin Real Estate and Economic
    Outlook Conference

        2015-09 Association of Public Data Users Annual Conference

        2015-05 American Real Estate and Urban Economics

        2015-04 American Real Estate Society

    Besides presenting work at forums, FHFA researchers also
    received their first patent for the invention, ``Data Analytics
    Database and Platform System and Method (U.S. Patent No.
    10,282,781),'' issued by the U.S. Patent and Trademark Office
    (USPTO) in May 2019.

    Q.4.e. Were there research forums where FHFA staff were invited
    to participate but they did not attend, if so, why did they not
    attend?

    A.4.e. While there are occasional schedule constraints, funding
    is prioritized to allow FHFA researchers to attend most
    domestic forums, conferences, or seminars when invited. FHFA's
    staff participation in international events is less frequent,
    although invitations have been extended from a variety of
    entities (e.g., Bank of England, ESCP Europe Business School).

    Q.5.a. In your confirmation hearing, you promised to expand the
    borrower education and financial literacy activities under
    FHFA.
        How have you done that?

    A.5.a. At the direction of FHFA the Enterprises are working to
    enhance their homeownership education and financial education
    curriculum. In September, Fannie Mae previewed many changes,
    including waiving the $75 fee for Fannie Mae's online education
    platform Framework and expanding their homeownership education
    requirement to apply to all first-time time home buyers with
    greater than 95 percent loan-to-value ratios. Freddie Mac, by
    end of 2019, will introduce enhancements their homeownership
    education and financial literacy curriculum provided through
    their online education platform Credit Smart. Additionally,
    it's important to mention our efforts with the Mortgage
    Translations clearinghouse. The Mortgage Translations
    clearinghouse houses a collection of translated documents and
    tools to assist lenders, servicers, housing counselors, and
    other parties involved in the mortgage process to help mortgage
    borrowers who have limited English proficiency (LEP). Created
    by FHFA, Fannie Mae, and Freddie Mac in collaboration with
    industry, consumer, and Government partners, the Mortgage
    Translations clearinghouse contains resources such as
    translated documents, borrower education materials, a
    standardized glossary of mortgage terms, and more. Today, the
    Mortgage Translations clearinghouse has English and Spanish
    content; we are working toward having content in the five most
    common non-English languages spoken by LEP households in the
    United States which include Spanish, Chinese, Vietnamese,
    Korean, and Tagalog.

    Q.5.b. Some argue that your decision to eliminate language
    related to housing counseling and language preference from the
    Uniform Residential Loan Applications undermines borrower
    education and fair treatment. How does eliminating housing
    counseling and language preference from the URLA affect
    borrowers, especially those concerned that borrowers might
    marketed a loan in one language but sign documents in English
    that they cannot understand?

    A.5.b. Including housing counseling and language preference on
    the URLA does not have a key impact on the experience of
    borrowers who need to sign documents in English they may not
    understand. This is because only the English version of the
    redesigned URLA is a legally executable document. FHFA
    recognizes that some industry participants see benefits in
    asking questions about language preference. The Enterprises
    will develop and make available a new Voluntary Consumer
    Information Form to capture the language preference and housing
    counseling questions and thus support industry participants
    that choose to collect this information.
        As part of the 2019 Conservatorship Scorecard, the
    Enterprises are tasked with addressing the needs of limited
    English proficiency (LEP) borrowers, and ensure understanding
    of their documentation, through the development of a Mortgage
    Translations clearinghouse, a website geared toward industry
    and other market participants who serve LEP borrowers. The
    clearinghouse is a repository of key mortgage documents and
    educational materials, including, the URLA translated into the
    top five languages spoken in the U.S. according to the U.S.
    Census Bureau. To date, the URLA and other loan documents have
    been translated into Spanish. Chinese translations are set to
    launch on the website in October 2019, with Vietnamese, Korean
    and Tagalog to follow. FHFA and the Enterprises intend to add
    glossaries of key mortgage terms in these languages as well.

    Q.6. In your confirmation hearing, you promised to strengthen
    the core human resources function at FHFA. Please explain how
    FHFA has reached out to historically underrepresented
    communities for your open positions.

    A.6. FHFA maintains a recruiting presence at a number of career
    fairs that represent historically underrepresented communities.
    Since August 2018, we have attended or are scheduled to attend
    eight career fairs that target underrepresented communities to
    include veterans, Blacks, Hispanics, and candidates with
    disabilities. We also announce all our entry-level positions
    via Handshake. Handshake allows us to simultaneously post our
    vacancy announcements to hundreds of schools' career websites.
    These schools include a large number of Historically Black
    Colleges and Universities and Hispanic Association of Colleges
    and Universities.

    Q.7. In your confirmation hearing, you promised to be a vocal
    spokesperson for ``an affordable and vibrant national housing
    market.'' Please provide a list of your speeches, articles,
    etc., where you spoke about expanding the affordable housing
    market.

    A.7. I have made an effort as FHFA Director to reach out to
    stakeholders of all kinds, listen to different perspectives,
    and advocate for a strong national housing market that has more
    affordable housing. For example:

       LMeetings with Stakeholders: As of November 25,
            2019, I had met with 57 stakeholder, advocacy, and
            industry groups to
            discuss and solicit ideas for addressing the Nation's
            affordable housing shortage.

       LVisits to Affordable Housing Developments: On
            September 19 and 20, I visited and toured two
            affordable housing developments in Newport, KY, and
            Indianapolis, IN, which were financed in part by the
            Federal Home Loan Banks of Cincinnati and Indianapolis,
            respectively. The Northern Kentucky Scholar House is
            made up of 48 temporary rental units for low- and very
            low-income single parents who are enrolled in post-
            secondary education, and provides child care for their
            children and other services aimed at achieving self-
            sufficiency. Illinois Street Senior is made up of 63
            housing units that are reserved for low-income
            residents 55 years and older.

       LPublic remarks, interviews, and articles: I've
            given numerous speeches, remarks and interviews and
            published an op-ed calling for action to resolve the
            Nation's housing affordability crisis in a number of
            public venues, including:

         LInterview with Jennifer Schonberger, Fox
            Business--May 10, 2019 [Video and Written Summary,
            https://video.foxbusi-
            ness.com/v/6035185923001#sp=show-clips]

         LMortgage Bankers Association National Secondary
            Market Conference & Expo 2019--May 20, 2019 [Remarks as
            Prepared for Delivery, https://www.fhfa.gov/Media/
            Public
            Affairs/Pages/Prepared-Remarks-of-Dr-Mark-A-Calabria-
            Director-of-FHFA-at-Mortgage-Bankers-Association-
            National-Secondary-Market-Conference-Expo-2019.aspx]

         LHUD and NAHB's Innovative Housing Showcase--June
            3, 2019 [Remarks as Prepared for Delivery, https://www.
            fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-
            Dr-Mark-A-Calabria-Director-of-FHFA-at-Mortgage-
            Bankers-Association-National-Secondary-Market-
            Conference-Expo-2019.aspx]

         LHousing Wire, Article by Kelsey Ramirez, ``Mark
            Calabria: New Director Changes Course for FHFA''--
            September 3, 2019 [https://www.housingwire.com/
            articles/49939-mark-calabria-new-director-changes-
            course-for-fhfa/]

         LU.S. Senate Banking Committee Hearing, ``Housing
            Finance Reform: Next Steps''--September 10, 2019
            [Testimony as Prepared for Delivery, https://
            www.fhfa.gov/Media/Public
            Affairs/Pages/Statement-of-Mark-A-Calabria-Director-
            FHFA-Before-the-US-Senate-Committee-on-Banking-Housing-
            and-Urban-Affairs-09102019.aspx]

         LNational Association of Federally Insured Credit
            Unions congressional Caucus--September 11, 2019

         LNational Multifamily Housing Council Fall
            Meeting--September 13, 2019

         LAmerican Credit Union Mortgage Association Fall
            Conference--September 23, 2019

         LThe Cincinnati Enquirer, Opinion Editorial, ``The
            future of affordable housing depends on finance
            reform''--September 30, 2019 [https://
            www.cincinnati.com/story/opinion/2019/09/30/opinion-
            future-affordable-housing-depends-finance-reform/
            2423345001/?utm_medium=email&utm_source=gov
            delivery]

         LU.S. House of Representatives Committee on
            Financial Services Hearing, ``The Future of Affordable
            Housing Depends on Mortgage Finance Reform''--October
            22, 2019 [Testimony as Prepared for Delivery, https://
            www.fhfa.gov/Media/Public
            Affairs/Pages/Statement-of-Mark-A-Calabria-Director-
            FHFA-Before-the-US-House-of-Reps-Comm-on-Financial-
            Services-10222019.aspx]

         LBoston Business Journal, ``Why Boston needs
            housing finance reform''--October 24, 2019 [https://
            www.bizjournals.
            com/boston/news/2019/10/24/viewpoint-why-boston-needs-
            housing-finance-reform.html]

         LMortgage Bankers Association 2019 Annual
            Convention & Expo--October 28, 2019 [Remarks as
            Prepared for Delivery, https://www.fhfa.gov/Media/
            PublicAffairs/Pages/Prepared-Remarks-of-Dr-Mark-A-
            Calabria-at-MBA-2019-Annual-Convention-and-Expo.aspx]

         LStructured Finance Association Residential
            Mortgage Finance Symposium--November 4, 2019 [Remarks
            as Prepared for Delivery, https://www.fhfa.gov/Media/
            PublicAffairs/Pages/Prepared-Remarks-of-Dr-Mark-A-
            Calabria-at-SFA-Residential-Mortgage-Finance-
            Symposium.aspx]

         LIndianapolis Business Journal, ``Why Indianapolis
            needs housing finance reform''--November 15, 2019

    Q.8. What is the current delinquency rate of loans guaranteed
    to Fannie Mae, Freddie Mac and the Federal Home Loan Banks
    through their MPF/MPP programs? For Fannie and Freddie, please
    break out the single-family from the multi-family portfolio.
    How do these delinquency rates compare over the past 20 years?

    A.8. As of September 30, 2019, Fannie Mae had a serious
    delinquency rate of 0.68 percent for its single-family
    portfolio and 0.06 percent for its multifamily portfolio.
    Freddie Mac had a serious delinquency rate of 0.61 percent for
    its single-family portfolio and 0.04 percent for its
    multifamily portfolio. The MPF/MPP program only includes
    single-family loans. As of September 30, 2019, the serious
    delinquency rate was 0.34 percent for the MPF/MPP program.
        The following data table shows the serious delinquency
    rates for the last 15 years. It should be noted that the MFP/
    MPP program largely shut down in the mid-2000s (when
    acquisitions decreased from 603,000 in 2003 to 35,000 in 2007),
    so the MFP/MPP program largely missed the low underwriting
    standards that characterized loans leading up to the financial
    crisis.

    Data source: Fannie Mae and Freddie Mac 10K SEC filings, and
    FHFA. Seriously delinquent is defined as the percentage of
    loans that are 90 days or more delinquent as of the date
    indicated, consistent with public disclosures in the SEC
    filings and credit supplements.

    Q.9. In your confirmation hearing, you said ``my first actions
    would be to conduct a series of stress-tests on the regulated
    entities.'' Have you undertaken such an analysis? What have you
    found?

    A.9. In August 2019, FHFA published the results of the annual
    Dodd-Frank Act Stress Tests (DFAST). The 2019 DFAST includes a
    Severely Adverse scenario, which assumes a severe global
    recession accompanied by stressed commercial real estate and
    corporate debt markets.
        The scenario is not a forecast, but instead is a
    hypothetical future economic environment designed to assess the
    strength of the Enterprises and other financial institutions
    and their resilience to unfavorable market conditions. The
    planning horizon for the implementation of the 2019 DFAST is
    over a nine-quarter period from December 31, 2018 through March
    31, 2021.
        In the 2019 DFAST Severely Adverse scenario, U.S. real GDP
    declines by about 8 percent from its pre-recession peak. The
    rate of unemployment increases from 3.8 percent at the
    beginning of the planning horizon to a peak of 10.0 percent in
    the third quarter of 2020. The annualized consumer price
    inflation rate falls to about 1.25 percent in the first quarter
    of 2019 and then rises to approximately 2 percent by the second
    half of 2020.
        Both Enterprises simulated their portfolios under the
    Severely Adverse scenario using their internal models. Fannie
    Mae estimated a comprehensive loss of $9.5 billion and Freddie
    Mac estimated a comprehensive loss of $8.4 billion under the
    assumption that they would not need to establish a valuation
    adjustment for deferred tax assets. Fannie Mae estimated a
    comprehensive loss of $26.1 billion and Freddie Mac estimated a
    comprehensive loss of $17.2 billion under the assumption that
    they would need to establish a valuation adjustment for
    deferred tax assets.

    Q.10. Will you change policies to allow Fannie Mae and Freddie
    Mac to resume providing financing to investors to purchase
    homes in bulk through the REO program or something similar?

    A.10. No, FHFA has no plan to allow the Enterprises to resume
    investor financing for bulk sales of REO. In 2012, FHFA worked
    with Fannie Mae on a bulk sale of REO properties that were
    largely tenant occupied. The REO properties were both large in
    number and heavily concentrated in certain geographies (CA, AZ,
    NV, IL and FL). To incentivize investment, the transaction
    included a financing tool to encourage large institutional
    buyers capable of providing property and asset management to
    undertake the scattered site single family homes. The
    transaction structure was also specifically designed to
    incentivize qualified bidders to partner with regional and
    local property management companies to stabilize and improve
    market conditions. In contrast to the REO portfolio
    characteristics at the time (large size, strong geographic
    concentration), today's portfolios are much smaller and more
    disperse. These changes to the REO portfolio make the future
    bulk sales uneconomical for the Enterprises and taxpayers. The
    Enterprises continue to provide targeted financing in certain
    challenged markets for their REO properties to support owner-
    occupant purchases.

    Q.11. Do you seek any changes to the number of staff focused on
    affordable housing at the Enterprises; do you believe today's
    number of staff focused on affordable housing is too low, too
    high or just about right? Do you seek any changes in the areas
    of focus?

    A.11. FHFA does not establish the Enterprises' staffing levels
    focused on affordable housing; that is the responsibility of
    Enterprises' Boards of Directors and management. FHFA has not
    requested that the Enterprises make any changes to these
    staffing levels or in the areas of focus.

    Q.12. Nationwide, nearly 20 million families live in
    manufactured homes; about 7 percent of the housing stock. The
    quality of the homes is good, but, at times, the financing can
    be predatory. Just recently, Fannie Mae and Freddie Mac were
    assigned a duty-to-serve manufactured homeowners. They are in
    the early stages of meeting the financing needs of
    manufacturedhomeowners. In Nevada, Fannie Mae estimates it owns
    approximately 3,500 loans with a little under 1,000 purchased
    last year.
        What changes would you make to the GSEs' requirements to
    serve people who buy manufactured homes either with mortgages
    or with chattel loans?

    A.12. Manufactured housing is an important segment of the
    Nation's housing stock and a historically underserved market.
    Additionally, we agree with you that newer manufactured housing
    is usually high quality and is an important part of the
    affordable housing supply solution. We find the existing legal
    authority sufficient to serve this market.
        Manufactured housing is part of the Enterprises' specific
    Duty to Serve under the Housing and Economic Recovery Act of
    2008. The law does not permit FHFA to set requirements for the
    Enterprises; rather, the Enterprises set their own targets and
    FHFA's responsibility is to annually evaluate how well the
    Enterprises do at enhancing how they serve the Duty-to-Serve
    markets.
        As you note, both Enterprises are in the early stages of
    meeting the financing needs of manufactured homeowners. In
    2018, Fannie Mae increased its purchase of loans on
    manufactured housing titled as real estate by 26 percent year-
    over-year, while Freddie Mac increased its purchase of loans
    titled as real estate by 8.6 percent over the previous 3 year
    average.

    Q.13.a. Fannie Mae and Freddie Mac finance manufactured housing
    communities. In Nevada, in 2018, they purchased 62 loans of
    manufactured housing investors.
        What changes will you implement to ensure that those loans
    facilitate community ownership for owners who provide robust
    tenant protections?

    A.13.a. FHFA's Duty-to-Serve program includes a specific
    Regulatory Activity which is a part of both companies' current
    Duty-to-Serve Plans to incentivize community owners to adopt
    certain minimum tenant protections for residents of
    manufactured housing communities who lease the land under their
    unit. FHFA believes that allowing the Enterprises to continue
    to work through the private market to encourage leases that
    treat tenants fairly is the best approach.

    Q.13.b. Are there things Fannie and Freddie can do to ensure
    that the manufactured home communities they finance do not have
    abusive practices such as high lot rents and fines, unfair
    evictions, limitations on tenant associations, etc.?

    A.13.b. The Enterprises require that MHC borrowers follow all
    applicable State and local laws regarding tenant protections;
    however, these laws can vary from State-to-State. FHFA is aware
    of the business practice of some MHC owners who raise pad rents
    or unexpectedly cancel leases where the land has appreciated in
    value. In order to encourage MHCs to adopt pad lease
    protections for tenants, or enhance existing pad lease
    protections, the Duty-to-Serve program offers credit for MHCs
    with tenant pad lease protections. In 2019, Fannie Mae began
    offering pricing reductions to MHC owners that provide tenant
    pad lease protections in their pad leases. Without the pricing
    reduction facilitated by the Conservatorship Scorecard, MHC
    owners may not be able to access the necessary capital to
    maintain the communities and provide the tenant protections
    encouraged by the Duty-to-Serve program.
        Our current Duty-to-Serve Program also addresses some of
    these practices, including some eviction practices. There are
    limits to how much Enterprise financing can do to curb abusive
    landlord practices. Since landlord/tenant practices are a
    matter of State law, the most direct way to address potential
    abuses is through action by a State and local governments.

    Q.14. Do you support the Federal Home Loan Banks affordable
    housing goals as recently proposed? If not, what changes would
    you make? How will the goals help bridge the ever-widening
    homeownership gap between whites and Latinos and African
    Americans? What do you think would increase homeownership rates
    for Latinos and African Americans?

    A.14. FHFA published in the Federal Register a notice of
    proposed rulemaking to amend the existing FHLBank housing goals
    regulation on November 2, 2018. The 90-day comment period ended
    January 31, 2019. It would not be appropriate for me to comment
    on a rulemaking in progress, other than to say that we are hard
    at work developing a final rule to amend the FHLBank housing
    goals to make them both meaningful in terms of mission impact
    and achievable for the FHLBanks, consistent with safety and
    soundness. Housing goals for the FHLBanks fulfill a statutory
    requirement, but as they affect less than 1 percent of the
    mortgage market, they are only one tool among many to address
    homeownership gaps.
        The gap in homeownership rates between white borrowers and
    Latino or African American borrowers is of concern, as is the
    devastating loss of wealth in those communities as a result of
    the housing crash and Great Recession. FHFA's focus on
    addressing the homeownership gap is to emphasize safe and sound
    lending that encourages sustainable home ownership that can be
    a path to long-term wealth building. Unless the secondary
    market is safe and sound, we risk leading minority borrowers
    into another last-in, first-out repeat of the Great Recession.
        Two recently updated tools that FHFA uses to help ensure
    that the mortgage market serves all potential homeowners well
    are 1) the recent credit score rule to allow validation and
    approval of third-party credit score models that the
    Enterprises can use to more accurately measure risk; and 2) the
    mortgage translations clearinghouse (https://www.fhfa.gov/
    MortgageTranslations).

    Q.15. In your confirmation hearing, you said that you would
    consider ``increased data collection and evaluation'' of
    Federal Home Loan Banks economic development mission
    activities. Have you been able to undertake such an analysis?
    If so, what have you found? If not, what is your timeframe for
    ensuring that the FHLBanks provide small business, small
    agricultural and community development investments in rural,
    urban and low-income communities?

    A.15. FHFA is currently very focused on working with the
    FHLBanks to implement the recent amendments to the Affordable
    Housing Program. We do continue to monitor community
    development activities and you will be able to read more about
    that when we release our Annual Report on the Low Income
    Housing and Community Development Activities of the FHLBanks
    later this month.
        The FHLBanks' support community development activities
    through their Community Investment Program (CIP) and their
    Community Investment Cash Advance Program (CICA). In 2018, CIP
    generally funded housing projects while CICA generally funded
    economic development projects. CIP advance commitments for
    economic development projects increased from $96.9 million in
    2017 to $105.1 million. But economic development projects
    continue to constitute a minority of total CIP projects. In
    2018, 74 of 483 CIP projects funded with advances were economic
    development projects.
        Total CICA advance commitments were approximately $3.1
    billion in 2018, a decrease from about $3.8 billion in 2017.
    CICA grants in 2018 increased by about $2.1 million from 2017,
    and CICA advance commitments for mixed-use projects decreased
    to approximately $4.6 million in 2018 from about $21.1 million
    in 2017.

    Q.16. What are you doing to ensure that the Federal Home Loan
    Banks meet their OMWI requirements regarding board leadership?
    How are you ensuring that public interest board members have
    deep affordable housing and community development experience?

    A.16. Since 2016, FHFA staff have served as advisors to the
    Federal Home Loan Bank's Diversity Task Force, comprised of
    representatives from each of the 11 FHLBanks. One of the task
    force's activities has been to develop best practices for
    soliciting and nominating diverse candidates for both member
    and independent board director positions.
        On September 9 of this year, the FHLBanks disbanded the
    task force and, in its stead, created a six-member Subcommittee
    on Board Diversity comprised of FHLBank chairs and vice chairs.
    To support the Subcommittee, another subcommittee comprised of
    Bank presidents will serve as its staff. The president's
    subcommittee has authority to appoint OMWI officers and other
    FHLBank employees as needed. FHFA is supportive of this recent
    reorganization as it places the responsibility for diversity
    and inclusion on the collective leadership of the System.
        At the September meeting, FHFA's Office of Minority and
    Women Inclusion (OMWI) met with the FHLBank chairs and vice-
    chairs to share expectations and recommendations for diversity
    competencies applicable to both existing and incoming
    directors. OMWI staff has also met with FHLBank leadership to
    identify challenges and opportunities for the recruitment and
    election of diverse board directors. This dialogue will
    culminate in an FHFA Advisory Bulletin on Board Diversity,
    which will provide guidance to the FHLBanks on diversity and
    inclusion competencies, as well as clarification of legal
    authorities for the recruitment and election of diverse
    directors.
        By statute, the board of each Federal Home Loan Bank must
    include at least two ``public interest'' independent directors
    having significant experience representing consumer or
    community interests in one or more of four designated areas:
    banking services, credit needs, housing, or financial consumer
    protections. It is the province of each Bank's board of
    directors to nominate candidates for its public interest
    directorships, although FHFA reviews the qualifications of all
    nominees to ensure that they meet statutory requirements. While
    each public interest director must have experience in at least
    one of the areas mentioned in the statute, there is no legal
    requirement that any of a Bank's public interest directors have
    experience in affordable housing in particular.
        Nonetheless, experience representing consumers on
    affordable housing matters falls within the ``housing'' area,
    and many of the Banks have public interest directors with
    significant experience in affordable housing, as well as in
    community development. Other types of Bank directors--that is,
    regular independent directors and member directors--also may
    have significant experience in providing or promoting
    affordable housing, even though they are not designated as
    public interest directors. In addition, each Bank has an
    Affordable Housing Advisory Council of between 7 and 15
    members, all of whom must be drawn from community organizations
    actively involved in providing and promoting low- and moderate-
    income housing and community lending in the Bank's district.
    The Advisory Council is required by statute to advise the board
    of directors on how best the Bank can identify and meet the
    affordable housing and community lending needs of persons in
    its district.

    Q.17. Has FHFA changed the criteria for the Home Possible and
    the HomeReady programs to only serve people at the 80 percent
    AMI threshold or below instead of the 100 percent threshold? If
    so, what analysis was done to support that change? With the new
    limit of 80 percent, how many households are excluded that used
    to be eligible?

    A.17. Yes, FHFA has permitted the Enterprises to change the
    criteria for the HomeReady and Home Possible programs to better
    serve households at or below 80 percent of AMI in order to
    focus Enterprise attention and resources on low-income and very
    low-income borrowers who are in need of down payment
    assistance. FHFA's housing goals define low-income households
    as households whose income is at 80 percent or below of AMI
    while very low-income households have incomes at or below 50
    percent of AMI. FHFA's analysis based on preliminary January
    through March 2019 data, showed that approximately 38 percent
    of Fannie Mae's HomeReady loans were to borrowers with
    household income above the 80 percent AMI threshold and would
    no longer be eligible for a HomeReady loan. These households
    would need to seek alternative mortgage products. The decision
    was communicated through Lender Letter 2019-06 (https://
    www.fanniemae.com/content/announcement/ll1906.pdf), where
    Fannie Mae noted that this change would go into effect at the
    same time as changes to DU Eligibility that would find certain
    loans with multiple-high risk factors to be ineligible. Freddie
    Mac also aligned to these changes through changes to its Home
    Possible product (announced through its Bulletin 2019-16,
    https://guide.freddiemac.com/app/guide/content/a_id/1003267).
        Both Enterprises recently made changes to the area median
    income (AMI) requirements for their affordable lending programs
    HomeReady and Home Possible to better target subsidy to low-
    income borrowers (< or = to 80 percent AMI) and align with the
    Enterprises' statutory housing goals. These changes set the
    income requirements of both programs at 80 percent AMI and were
    approved by FHFA. The Enterprises project that these changes
    will reduce the volume of HomeReady and Home Possible
    acquisitions. The
    Enterprises also expect that the vast majority of the borrowers
    who no longer meet the Home Possible and Home One income
    requirements will still be eligible for Fannie Mae's Standard
    97 percent LTV product, Freddie Mac's Home One, or the Federal
    Housing Administration programs.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA FROM MARK A.
                            CALABRIA, Ph.D.

    Q.1. What kind of gaps in affordability do you anticipate as
    private sector funding of multifamily loans ramps up and
    funding from Fannie Mae and Freddie Mac winds down? Was a gap
    in funding during transition, and its effects on affordability,
    considered in the FHFA's recent decision to revise Fannie Mae
    and Freddie Mac's lending caps?

    A.1. One of FHFA's top priorities is maintaining a strong
    affordable housing market, without driving out private capital.
    In 2015, FHFA developed Scorecard caps to ensure consistent
    liquidity in the affordable housing market. The revised cap
    paradigm, adopted in September 2019, seeks to improve on the
    existing cap structure, by setting an overall cap of $100
    billion for each Enterprises. The new cap also directs that at
    least 37.5 percent of the Enterprises' business must be mission
    driven and eliminates green loans as part of the Enterprises'
    mission driven activities. FHFA believes these changes will
    balance the need to eliminate loopholes that have crowded out
    private capital in the multifamily market, while simultaneously
    increasing affordable housing support over previous years'
    production levels. I do not foresee any additional gaps in
    affordability, beyond those already existing in the market,
    developing from the recent change in the GSE multifamily caps.

    Q.2. How do you know the private sector has the capacity to
    fully serve the multifamily market? Do you believe this
    capacity will remain sufficient during an economic downturn,
    and if not, will FHFA allow Fannie Mae and Freddie Mac some
    flexibility to compensate for a lack of private capital during
    economic downturns?

    A.2. FHFA is committed to fulfilling the Enterprises'
    affordability mission and addressing the Nation's shortage of
    rental housing. In recent years, however, the multifamily
    market has grown considerably, and the Enterprises' share of
    multifamily loan originations has expanded in a procyclical
    manner. To address this issue, FHFA modified the multifamily
    lending cap structureand eliminated green loans from the
    mission driven category. These changes to the cap are intended
    to limit the amount of multifamily debt that is purchased by
    the Enterprises in an expanding economy and will allow the
    Enterprises to participate more meaningfully when the economy
    is in a downturn. FHFA is certainly open to revisiting the caps
    in a time of market stress, if there is evidence of private
    capital leaving the market.

    Q.3. Our Nation faces a serious multifamily housing shortage.
    According to the National Multifamily Housing Council, the U.S.
    will need to build an average of 328,000 units per year by 2030
    to meet growing demand. As private capital becomes a growing
    source for multifamily assets, what measures will the FHFA and
    Department of the Treasury take to ensure a greater supply of
    affordable multifamily housing units?

    A.3. FHFA announced on September 13, 2019, that to ensure a
    strong focus on affordable housing and traditionally
    underserved markets, FHFA directs that at least 37.5 percent of
    the Enterprises' multifamily business be mission-driven,
    affordable housing during from now until the end of 2020, when
    the next year's scorecard will be published. This new minimum
    of 37.5 percent responsibly assures that the Enterprises'
    multifamily businesses have a strong and growing commitment to
    affordable housing finance. FHFA continues to work in
    collaboration with the Enterprises to identify potential
    solutions to the growing affordability crisis.

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