[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                     
          
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

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

                     Gregg Richard, Staff Director

                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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