[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
HOUSING IN AMERICA: OVERSIGHT OF
THE FEDERAL HOUSING FINANCE AGENCY
=======================================================================
HYBRID HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
JULY 20, 2022
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-96
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
________
U.S. GOVERNMENT PUBLISHING OFFICE
48-472 WASHINGTON : 2022
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
RITCHIE TORRES, New York BRYAN STEIL, Wisconsin
STEPHEN F. LYNCH, Massachusetts LANCE GOODEN, Texas
ALMA ADAMS, North Carolina WILLIAM TIMMONS, South Carolina
RASHIDA TLAIB, Michigan VAN TAYLOR, Texas
MADELEINE DEAN, Pennsylvania PETE SESSIONS, Texas
ALEXANDRIA OCASIO-CORTEZ, New York RALPH NORMAN, South Carolina
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
July 20, 2022................................................ 1
Appendix:
July 20, 2022................................................ 53
WITNESSES
Wednesday, July 20, 2022
Thompson, Hon. Sandra L., Director, Federal Housing Finance
Agency (FHFA).................................................. 5
APPENDIX
Prepared statements:
Thompson, Hon. Sandra L...................................... 54
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of the Credit Union National Association
(CUNA)..................................................... 64
Written statement of the National Association of Federally-
Insured Credit Unions (NAFCU).............................. 66
Written statement of the National Multifamily Housing Council
and the National Apartment Association..................... 71
Hill, Hon. French:
Letter to Hon. Sandra L. Thompson from Senator Tillis et al.,
dated July 19, 2022........................................ 74
Sessions, Hon. Pete:
Letter with attachments to Hon. Marcia L. Fudge, Secretary,
U.S. Department of Housing and Urban Development, dated May
19, 2022................................................... 77
Thompson, Hon. Sandra L.:
Written responses to questions for the record from
Representative Cleaver..................................... 87
Written responses to questions for the record from
Representative Gooden...................................... 92
Written responses to questions for the record from
Representative Huizenga.................................... 93
Written responses to questions for the record from
Representative Posey....................................... 94
Written responses to questions for the record from
Representative Sessions.................................... 95
Written responses to questions for the record from
Representative Sherman..................................... 96
Written responses to questions for the record from
Representative Steil....................................... 98
HOUSING IN AMERICA: OVERSIGHT
OF THE FEDERAL HOUSING
FINANCE AGENCY
----------
Wednesday, July 20, 2022
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Sherman, Meeks,
Scott, Green, Cleaver, Himes, Foster, Beatty, Vargas,
Gottheimer, Lawson, Axne, Casten, Pressley, Lynch, Adams,
Garcia of Texas; McHenry, Lucas, Posey, Luetkemeyer, Huizenga,
Wagner, Barr, Williams of Texas, Hill, Emmer, Zeldin,
Loudermilk, Mooney, Davidson, Hollingsworth, Gonzalez of Ohio,
Rose, Steil, Gooden, Timmons, Sessions, and Norman.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``Housing in America:
Oversight of the Federal Housing Finance Agency.''
I now recognize myself for 4 minutes to give an opening
statement.
First, I would like to extend my congratulations to
Director Sandra Thompson, who has dedicated her career to
promoting access to mortgage credit nationwide and protecting
the safety and soundness of the housing finance system. Her
confirmation marks the first time in our nation's history that
a Black woman leads the Federal Housing Finance Agency (FHFA).
Director Thompson, we are very pleased to have you here.
Today, we continue the committee's oversight of FHFA. As we
all know, FHFA is responsible for the supervision, regulation,
and oversight of the Government-Sponsored Enterprises (GSEs),
which include Fannie Mae and Freddie Mac, as well as the
Federal Home Loan Bank System. I know my Republican colleagues
have recently complained about a lack of oversight hearings
pertaining to housing finance. However, this comes as a
surprise, given their repeated complaint that this committee
has held too many hearings on housing, over 30 to be exact.
Let's get the facts straight. It was their former Director
Calabria, who, in December 2020, refused to appear before this
committee, despite our repeated requests. And it is Republicans
in the Senate who have actively impeded our ability to confirm
Federal agency leadership, including FHFA Director Thompson and
FHA Commissioner Julia Gordon. So after 4 years of terrible
stewardship by former Director Mark Calabria during the Trump
Administration, I am relieved that FHFA is finally back to
fulfilling its intended mission.
Under Mr. Calabria, FHFA made several irresponsible and
dangerous moves that harmed borrowers in the housing finance
market, including attempts to sidestep Congress and release the
Enterprises from Federal conservatorship. In sharp contrast,
Director Thompson's actions have been reasonable, fair, and
grounded in facts and the law. In just a year, Director
Thompson has taken critical steps to set FHFA on a new path
forward by eliminating Mr. Calabria's unnecessary and harmful
policies which made it more expensive for families to buy or
refinance their homes, strengthening renter protections, and
expanding access to credit through the use of additional credit
data, like on-time rental payments.
Director Thompson has worked to fulfill her regulatory
mission over the Enterprises by recommitting to comprehensive,
fair housing and fair lending practices of the Enterprises. For
example, Director Thompson most recently led the historic
effort to require the Enterprises to develop and implement
equitable housing finance plans to address the gross racial
inequities on their books of business, and to ensure they
prioritize innovative, equitable practices that benefit
everyone. And we expect full transparency in these efforts,
including public-facing metrics that show a concrete,
measurable reduction in racial inequity.
FHFA plays an instrumental role in our housing finance
market, especially as our nation continues to face a housing
crisis that has been made worse by Republicans' refusal to
support meaningful investments to increase the housing supply,
reduce the housing costs, and offset inflation. I look forward
to continuing our work with Director Thompson to put borrowers
and communities first.
And now, I recognize the ranking member of the committee,
the gentleman from North Carolina, Mr. McHenry, for 4 minutes.
Mr. McHenry. Thank you, Madam Chairwoman, and Director
Thompson, welcome to your first appearance before the committee
as Director, and we are grateful you are here. We want to
congratulate you on your confirmation, and we hope that this is
the first of many appearances in an oversight fashion for the
committee. I am sure you look forward to that, but in a
different way than we look forward to it.
But this hearing is important for many reasons. First and
foremost is the Federal Housing Finance Agency's regulation of
the Government-Sponsored Enterprises (GSEs) such as Fannie Mae
and Freddie Mac, as well as the 11 Federal Home Loan Banks.
Combined, these entities hold more than $7.5 trillion in
mortgage assets, with GSEs financing roughly half of all new
mortgages originated in the U.S. each year. This makes them
arguably the most important component of our housing finance
system, despite the fact that they were put in conservatorship
and nationalized under Bush 43.
The second reason this hearing is important is that it
marks this committee's return to actually doing its oversight
job. There will be more to come of the oversight agenda, but it
has been nearly 2 years since the Chair has held a hearing with
FHFA. That was when former Director Mark Calabria came to
discuss his successful COVID response which helped protect
homeowners and taxpayers from the total economic meltdown that
was at the beginning of COVID. This earned Director Calabria
much praise, followed by an unceremonious and unjustified
firing by the Biden Administration in June 2021. After that,
Ms. Thompson served as Acting Director for nearly a year. And
it has taken another 2 months since her confirmation for her to
be here before the committee, being invited before the
committee, and there is no telling how long that streak would
have continued.
Last month, Housing Subcommittee Ranking Member French Hill
and I sent a letter to the Chair requesting that she invite
Director Thompson to testify at the June housing hearing. Let's
hope this doesn't turn out to be another case of too little,
too late, like the Administration's response on inflation, gas
prices, supply chain failures, or the rest of the economy.
Such blatant mismanagement has done real and lasting harm
to American households. Congress' neglect of the FHFA and some
of its recent decisions threaten to do even more harm. As the
Chair noted at last month's hearing, ``Rising home prices are
directly contributing to inflation.'' Mortgage rates have
nearly doubled over the last year to levels unseen since 2008.
Meanwhile, instead of working to maintain stability, FHFA has
weakened our housing finance system by reducing taxpayer
protections and pushing risky new schemes. For example, the
Agency rescinded the capital and liquidity rule designed to
ensure that the GSEs could weather an economic downturn. We are
concerned about that.
FHFA has also refused to complete work on the 2020 proposed
rule on prior approval of new GSE products and pilot programs.
That is of concern as well. And most importantly, FHFA
compelled the GSEs to issue disastrous and controversial
equitable housing finance plans which violate the spirit of
that proposed rule. This is FHFA's focus as soaring housing
costs and mortgage rates price hardworking families out of the
market. American homeowners and prospective homebuyers deserve
a fair system in which they can reasonably pursue the American
Dream, and I think that is our shared goal here.
Inflation and instability do not support that objective,
though, and I hope that we can use this hearing to get some
answers from the new Director on her plans to make
homeownership an attainable goal for all Americans. Thank you,
Madam Chairwoman.
Chairwoman Waters. Thank you, Ranking Member McHenry.
I now recognize the Chair of our Subcommittee on Housing,
Community Development, and Insurance, the gentleman from
Missouri, Mr. Cleaver, for 1 minute.
Mr. Cleaver. Thank you, Madam Chairwoman. FHFA's mission,
through supervision of regulated entities, is to foster a
sustainable housing finance system that supports equitable
access to both affordable homeownership and rental housing,
reaching communities of color, rural areas, and other
underserved populations, which is a description of my
congressional district. Frighteningly, all across the United
States, there is a widespread lack of affordable housing and
access to credit, problems that are especially concentrated in
communities of color, and low- and moderate-income Americans
are increasingly cut off from housing opportunities. FHFA plays
a vital role in both promoting equitable access to mortgage
credit nationwide and in protecting the safety and soundness of
the housing finance system.
I am very pleased to welcome Director Thompson, who is
widely respected for her deep expertise and leadership in
housing finance. Under Director Thompson's leadership, FHFA has
already taken significant steps to promote access and protect
the financial standing of the housing finance system, and I
look forward to continued dialogue on advancing the FHFA's
mission. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you, Mr. Cleaver. I now recognize
the ranking member of the Subcommittee on Housing, Community
Development, and Insurance, the gentleman from Arkansas, Mr.
Hill, for 1 minute.
Mr. Hill. Chairwoman Waters, thank you for agreeing with
Ranking Member McHenry to invite Director Thompson to our
committee today. I would urge the committee and the staff to
recognize this responsibility as an annual responsibility under
the statute to have the Director testify.
Director Thompson, it's terrific to have you here.
Congratulations on your confirmation.
In just 10 days, the Federal Housing Finance Agency will
turn 14-years-old. In its dual role, both as a regulator of the
GSEs and the conservator of Fannie Mae and Freddie Mac, FHFA
has a huge influence over our housing market and the entire
American economy. You have awesome powers. This comes at a time
when house prices were soaring to record levels and families
were seeing their mortgage rates skyrocket. So, I look forward
to your testimony today about your vision for FHFA, your 2021
report to Congress, your plans to finalize the long-overdue new
products and activities rule, and to ensure that taxpayers are
protected in the face of what I believe is financial laxity in
your policies at the Agency.
And I yield back. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you very much.
Mr. McHenry. Madam Chairwoman, I would ask for a point of
personal privilege.
Chairwoman Waters. The gentleman is recognized.
Mr. McHenry. I just want to take a moment to note a
distinguished guest we have in the audience, and that is Mr.
Clinton Columbus Jones, who worked on this committee for 24
years before making the jump to FHFA, where he is now the
General Counsel. This is the room where it all started for
Clinton. We will skip over the HUD time before that, Clinton.
[laughter]
Mr. McHenry. But I wanted to, on behalf of the committee
and the 7 Chairs under which Clinton served, say, happy
birthday. Today is Clinton's 32nd birthday.
[laughter]
Mr. McHenry. Happy Birthday, Clinton.
Chairwoman Waters. Thank you very much for welcoming Mr.
Clinton back in a different position. I don't want to know
about him. I want to know about his son.
[laughter]
Mr. McHenry. Oh, that's so true.
Chairwoman Waters. Thank you. I want to welcome today's
distinguished witness, the Honorable Sandra L. Thompson,
Director of the Federal Housing Finance Agency.
You will have 5 minutes to summarize your testimony. You
should be able to see a timer that will indicate how much time
you have left. I would ask you to be mindful of the timer and
quickly wrap up your testimony.
And without objection, your written statement will be made
a part of the record.
Director Thompson, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF THE HONORABLE SANDRA L. THOMPSON, DIRECTOR,
FEDERAL HOUSING FINANCE AGENCY (FHFA)
Ms. Thompson. Chairwoman Waters, Ranking Member McHenry,
and distinguished members of the committee, it is a great honor
to appear at today's hearing. My name is Sandra Thompson, and I
am the Director of the Federal Housing Finance Agency. I have
had a 30-year career as a financial regulator. I served more
than 2 decades at the FDIC, and just over 9 years at FHFA. I
was sworn in as Director just last month after serving as
Acting Director for the past year.
From my experience through two financial crises, I have
learned that safety and soundness, and sustainable access to
credit, work together to strengthen financial institutions,
families, and the economy. Actually, sustainable access to
credit requires prudent lending standards. The Enterprises have
been in conservatorship for nearly 14 years, and their
financial condition is a high priority for the Agency. Although
the Enterprises are now retaining more of their earnings and
building capital, it should be noted that there is still a long
way to go to meet their regulatory capital requirements.
As of the first quarter of this year, Fannie Mae and
Freddie Mac combined had more than $80 billion in capital
reserves. In February, FHFA finalized important enhancements to
the capital framework. These changes have enabled the
Enterprises to improve their capital position and have provided
them with the necessary incentives to transfer mortgage credit
risk to private investors. This helps protect taxpayers while
still requiring the Enterprises to hold a substantial amount of
capital.
The housing market has faced several years of rapidly-
rising home prices and limited housing supply. In addition,
interest rates have risen nearly 250 basis points in less than
6 months, making housing affordability a real challenge. I
share your concern about the struggle for many homeowners and
renters to find an affordable place to live. FHFA is taking
incremental steps to help increase the supply of multifamily
rental housing by raising the Enterprises' Low-Income Housing
Tax Credit (LIHTC) investment allocations, which is an
important source of funding for new, affordable rental housing.
We also require that at least 50 percent of the Enterprises'
multifamily business be mission-driven affordable housing.
FHFA has taken a number of steps to continue providing
liquidity in underserved areas. We recently proposed new
affordable housing goals for the Enterprises and asked them to
strengthen their duty-to-serve plans. The statutory duty to
serve is particularly important because of its focus on areas
with a great need: rural and tribal areas; manufactured
housing; and affordable housing preservation.
In addition, the Enterprises have recently published
equitable housing plans to help identify and address barriers
that prevent otherwise qualified homeowners from gaining access
to mortgage credit, particularly in communities of color. Under
these plans, both Enterprises will consider a borrower's
positive rental history in the underwriting of a mortgage. This
is data that has not traditionally been included in the
calculation of credit scores. It is one step in a series of
efforts the Enterprises are exploring to help expand
sustainable homeownership opportunities for underserved
populations and support a more-equitable housing finance
system.
While there is a lot of attention on the Enterprises, the
Home Loan Bank System is also important as it provides critical
support for small and community banks. As we near the 100th
anniversary of the Banks, now is a good time to reexamine their
approach to ensure that they continue to serve the needs of
today and tomorrow. We plan to engage a variety of stakeholders
in the coming months as we complete this review, and, of
course, we welcome the input of Members of Congress. These are
just a few of the many ongoing initiatives at FHFA to fulfill
its mission of ensuring the safety and soundness of our
regulated entities and promoting access to affordable and
sustainable housing.
Before I close, I would like to acknowledge and thank the
dedicated public servants at FHFA who work diligently to
accomplish our mission. And thank you again for the opportunity
to testify before you. I look forward to working with the
members of this committee and answering any questions you may
have.
[The prepared statement of Director Thompson can be found
on page 54 of the appendix.]
Chairwoman Waters. Thank you, Director Thompson. I now
recognize myself for 5 minutes for questions.
Director Thompson, FHFA has taken important steps under
your leadership to begin to address the racial homeownership
gap, including taking a close look at appraisal disparities,
expanding the eligibility for more affordable refinance
options, and publishing the equitable housing finance plans of
Fannie Mae and Freddie Mac, which marks the first time the
Enterprises have had to make intentional plans to redress
racial inequities in their books of business. Can you tell us
more about what your approach has been in targeting inequities
in today's housing market, and what further steps you might
take to help improve equitable access and fair pricing for
historically-underserved and excluded borrowers?
Ms. Thompson. Thank you for the question. First, I am a
career safety and soundness regulator, so everything that we do
at FHFA has to be grounded in safety and soundness. After the
last crisis, we learned a very valuable lesson, and the thing
that I took away from that is that safety and soundness and
access to credit are two sides of the same coin. They work hand
in hand for the betterment of our country.
One of the things that we have done at FHFA is to focus not
just on standard business that the Enterprises buy in terms of
loans, but we have also asked them to focus on underserved
communities. This includes rural areas, tribal communities, and
other areas where there is just not enough access to liquidity.
One of the more recent things that we have done is we have
asked the Enterprises to look at previously-redlined areas and
try to figure out what barriers exist for borrowers who are
otherwise qualified, but are not able to access credit. We
believe that some of the initiatives that the Enterprises will
undertake in this area will benefit all homeowners and
potential homeowners.
I will give you the example that I used in my oral
testimony. One of the things that both Fannie and Freddie are
doing is incorporating positive rental payments into the
underwriting calculation. This is practical. A home or rent
payment is the largest payment most people make every single
month, and if people are able to pay their rent on time, why
shouldn't those payments be considered in terms of determining
whether they are able and/or willing to pay?
So, this is an opportunity that was included in the
equitable housing plan, but it applies to all borrowers or all
renters, and we just think that things that can be impactful
will impact the entire population.
Chairwoman Waters. Thank you for that answer. I would like
to go on. While the skyrocketing appreciation of home prices
during the pandemic has put homeownership even further out of
reach for many, research from the Urban Institute has shown
that there are still some communities throughout the country
where homebuyers can purchase homes for less than $100,000, but
only if they can pay all in cash, because mortgage lenders are
unwilling to make such small mortgages. In 2019, over a quarter
of all home sales were for homes priced at or below $100,000,
yet only 1 in 4 were financed with a mortgage. These are some
of the most affordable homes in America, and they are out of
reach because of a lack of financing.
Is there anything that FHFA can do to help encourage more
small-dollar mortgage lending? Is there any legislative
authority that you need to tackle this issue? I am certainly
interested in working with you on it.
Ms. Thompson. Certainly, and we believe that small-balance
loans and providing financing for those loans are very
important, whether it is to purchase or refinance. One of the
items that we have directed the Enterprises to look at this
year, and it is in the scorecard that sets the 4th-year
priorities, is to look at ways to enhance more small-balance
loans. And we will be happy to work with the committee on any
legislation that would be helpful in that area.
Chairwoman Waters. Thank you very much, and I will now call
on the ranking member, Mr. McHenry, for his questions.
Mr. McHenry. Thank you, Madam Chairwoman, and Director
Thompson, thank you for your career in public service. Your
skill set is well-tuned to being a safety and soundness
regulator because that is what your career is in. So, although
markets are different than your previous career, you have the
skills for this, and I am grateful for that, especially
considering how large the portfolio you oversee is and how
important it is to the American economy.
But let's start with oversight. Under the statute, you have
a requirement to testify annually, so is it your intention to
follow that statute?
Ms. Thompson. Sir, it is my intention to be at the call of
the committee whenever they request me to come up, with the
Full Committee or individual Members. I am happy to do that.
Mr. McHenry. Thank you. We are concerned about
transparency. You have a very important agency. You don't have
a statutorily-broad requirement for transparency other than the
testimony piece of that, and so we would like to hear more
about your plans going forward.
But let's start with what you oversee, which is the housing
market. We had an all-time low mortgage rate of 2.65 percent,
and 18 months later, we are back to 6, 7 percent mortgages. We
have inflation. Give me your view on the outlook of the housing
market.
Ms. Thompson. Sure. The housing market has been very
volatile in the past 6 months. As you have mentioned, we went
from record low interest rates to an increase in interest
rates, almost 250 basis points in about 6 months' time. And we
have also had a persistent supply issue or a lack of not just
affordable supply, but supply generally. When you look at the
rising interest rates, when you look at the lack of supply, you
also have seen an historic increase in home prices, which is
tempering just a little bit.
But when you look at all three of these components, it is
really difficult from an affordability perspective to have
borrowers, or prospective borrowers, be able to get homes.
Certainly what they could afford 6 months ago, they can't
afford now, because the interest rates have almost doubled. And
it is just an environment that is very challenging, and the
supply issue is also quite challenging because there just isn't
enough supply, especially at the entry level, for persons to
enter homeownership. We look at the characteristics of the
mortgages that both Fannie and Freddie are buying. We look at
interest rates.
And, in fact, after 2021, which was a record year for
refinances, we looked at the portfolio. And there were still
mortgages on the books that had been there for a while, that
had interest rates of over 5 percent, and we were just
wondering why people were not refinancing or taking advantage
of those opportunities. We look at trends, we look at risk
characteristics, and we look at loan factors so that we can
make assessments on the risk profile, of the profile of the
Enterprises.
Mr. McHenry. Okay. Let's get to that risk profile.
Congress, from time to time, has had plans to have these
Enterprises exit from conservatorship, and the Republican side
of the aisle put out a bill for two Congresses on that. We
welcome discussions from our committee Democrats on this, and
we welcome the housing finance reform discussion, and this
hearing gives you an opportunity to say that to them publicly.
But along those lines, there are pros and cons to
conservatorship and for this sort of halfway point that we have
that you are overseeing. What are the cons? What are the pros?
Ms. Thompson. First, after coming from the FDIC, I don't
think it was anybody's expectation for the Enterprises to be in
conservatorship for 14 years, but I would say that some
progress has been made just in terms of standardization, in
terms of alignment. When the pandemic arose, for example, we
were able to call the Enterprises together and put together new
policies for loss mitigation so that borrowers who were
impacted would have opportunities to be reinstated with your
mortgages, and the pandemic wouldn't be as impactful as it was.
And servicing standards have been aligned, data has been
aligned for the mortgage industry, so there has just been a lot
of positive improvements over time.
The one issue in terms of a con, I would say, is just the
uncertainty about the status of the Enterprises. I am the sixth
Director, and this issue has been in place for four
Administrations, six Directors, and continues just in terms of,
what is the future of the Enterprises? How are we going to get
together? And it is just the uncertainty that is about the
future that probably needs to be addressed by the Congress. But
I do think that there are pros and cons, and I do think that
the decision as to what happens certainly is up to Congress.
Mr. McHenry. Thank you.
Chairwoman Waters. Thank you. The gentleman from New York,
Mr. Meeks, who is also the Chair of the House Committee on
Foreign Affairs, is now recognized for 5 minutes.
Mr. Meeks. Thank you, Madam Chairwoman. Thank you for
having this very timely hearing, and congratulations, Ms.
Thompson, on being the Director of the Federal Housing Finance
Agency. We know that you are going to do a very great job at
it.
Director Thompson, one of the things that I have found to
be a huge barrier to homeownership in communities of color in
particular is they are crippled by student debt, and it serves
as a massive hindrance to being able to make the next step
towards generational wealth building. Many years ago, that was
one of the things that was hard for me. I had all of this
student debt, but I wanted to buy a house, and there is a
different consideration. This debt has serious implications for
qualification for loans. That is what happened to me, but the
student debt is not always treated the same by the various
GSEs.
I have a bill called the Expanding Homeownership for
Borrowers with Student Debt Act, which requires certain
agencies to more fairly treat student loan borrowers looking to
obtain an affordable mortgage through various programs. What
are the positive impacts that this type of uniformity and
alignment can have on student borrowers as their student debt
is assessed for loan qualifications, regardless of where they
seek out their loan?
Ms. Thompson. Thank you for the question, and student debt
certainly is taken into consideration in different ways
throughout the mortgage industry. And this is definitely an
area that we would be able to work with you on in terms of
trying to figure out how it is assessed today, and how it
should be assessed going forward, in terms of homeownership and
also the impact on credit scores.
Mr. Meeks. Yes, I would love to work with you on that, and
I will have my office follow up with yours because I am still a
big believer that the way that we close the wealth gap is
homeownership. Look at folks today, even within the middle of
this crisis, with the cost of rent, I am still trying to get
people to be homeowners. And working with you and trying to
figure that out is something that is of huge importance to me,
and I have used a lot of times, looking at the young people in
my district, I have found that there has been a dramatic growth
in fintech innovation leading to some rapid changes in our
financial markets, particularly in the housing space, where
fintechs are changing the landscape of how underwriting and
mortgage processes operate, including loan origination and
assessing credit risks.
Given this rise in fintech, and I see all the young people,
they are just online. When my daughter was buying a house, they
didn't go to the bank. They went to a fintech. But I know that
just this week, you announced the establishment of the Office
of Financial Technology at FHFA, which aims to evaluate the use
of fintechs in housing finance. What are some of the benefits
as well as the risks you expect the Office to identify, and
will this Office look to put racial equity at the forefront of
their engagement with these issues?
Ms. Thompson. Sure. Thank you, and we did this week
establish an Office of Financial Technology. And, as you
mentioned, financial technology, or fintech, is used in the
mortgage process, and we need to get a better understanding of
what these products are and how they are used, and to make sure
that they are used in a safe and sound manner. We do think that
there are opportunities to use technology in the mortgage
process because it takes a very long time to go from
application through closing. And there has to be a way to try
to make the mortgage process cheaper for the borrower, faster,
and also when you use technology, you often get good risk
management practices.
One of the things that I have mentioned, and this is
something that we have learned during the pandemic, is that
when the interest rates were really low, people were trying to
take advantage of refinances, and to refinance, you have to
have an appraisal. The appraisers didn't want to go into the
homes, and nobody wanted to let appraisers in, because this,
again, was when the pandemic started, and we were able to use
technology in a very meaningful way and introduced desktop
appraisals, and that is now one of the staples of the
Enterprises. It is one of the things that we learned during the
pandemic that we have now made a permanent policy. And we think
that these types of tools can be helpful in the mortgage
process in terms of making it shorter and also more efficient
in bringing risk management to the process.
Mr. Meeks. Thank you. I see I am out of time, so I yield
back, Madam Chairwoman.
Chairwoman Waters. Thank you very much. The gentlewoman
from Missouri, Mrs. Wagner, is now recognized for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman, and I am so very
pleased that we are having a most relevant housing hearing at
last. Director Thompson, I thank you for joining us today. It
has been far too long since this committee has been able to
perform its duty to conduct oversight at your Agency. I
appreciate your willingness to be transparent and to be willing
to take our calls and meetings.
With your significant safety and soundness regulatory
background at FHFA and previously at the FDIC, what
precautionary and preemptive steps are you taking with the GSEs
as they head into these economic headwinds--that is all we can
call them--of interest rate hikes, a lack of housing supply,
unsustainable home price appreciation, and inflationary
pressure?
Ms. Thompson. Thank you for the question, and, again, I am
a lifelong safety and soundness regulator, and we take that
responsibility very seriously, but we also couple that with
access to credit. I just want to really be clear that when we
talk about access to credit and we talk about affordability, we
are also talking about sustainability. Our work with the
Enterprises is really grounded in safety and soundness, and we
want to make sure that borrowers have loans that they
understand and loans that they can afford. And from our
perspective, it just doesn't make sense for a borrower to get
into a house and not be able to keep a house, so we are really
focused, laser focused, on sustainability.
Mrs. Wagner. These are very rocky times and we don't want
people to get in over their head, and we hope that there will
be more settling down and stability in the market. Whether you
agreed or disagreed with his views, your predecessor had a
clear vision for the Enterprises and a plan to get them out of
conservatorship. What is your vision for GSE reform?
Ms. Thompson. We are taking steps to make sure that the
Enterprises are run in a safe and sound manner, and that they
are continuing to build capital. As you know, the Enterprises
were just allowed to retain all of the capital that they earn,
just over a year now. And between the two of them, they have
about $80 billion in capital, so we are consistently allowing
the Enterprises to build capital. We are also putting in place
the provision to allow them to transfer credit risk away from
the Enterprises and also the taxpayers to private investors. As
you know, the Enterprises are probably the largest holder of
mortgage credit risk in the country, and to move that credit
risk to the private sector, we think is really important. So,
there are a number of steps that we are taking--
Mrs. Wagner. And let's talk about that for a minute
because, Director Thompson, under your leadership the FHFA
revised your predecessor's capital rule, which will result in
the Enterprises holding less capital, and therefore, being more
vulnerable to losses that the taxpayers will have to bear.
Director Calabria's rule would have required the Enterprises to
hold around $250 billion combined capital, which was above
their previous $45 billion capital on retained earnings. In
revising the rule, did FHFA calculate what the impact of the
changes to the capital rule would be in terms of how much
capital the Enterprises would be required to hold?
Ms. Thompson. Yes, another good question. We did take into
consideration the capital requirements. The reason that we
changed the rule was to really help facilitate credit risk
transfer. A credit risk transfer program is really important
because again--
Mrs. Wagner. I am running out of time. Do you have a
specific number? Can you describe the process, something? That
is what I am looking for here.
Ms. Thompson. Okay. I think the number that was going to be
required before was $316 billion, and now is $300 billion, and
there was a de minimis change. But the purpose was to really
move the credit risk to the private investors.
Mrs. Wagner. So, you are going to make sure that they are
holding around $300 billion in combined capital?
Ms. Thompson. That is the requirement, and, of course, that
changes based on the amount of assets that they hold.
Mrs. Wagner. As we don't want to weaken the capital buffer
as we are heading into what could potentially be a recession,
do you agree that it makes more sense to strengthen the capital
reserve at Fannie and Freddie to avoid another taxpayer
bailout?
Ms. Thompson. Yes, I do agree that it is important to
strengthen the capital reserve, but we also think it is
important to transfer credit risk outside of the system to
private investors.
Mrs. Wagner. Thank you for your input, and I yield back.
Chairwoman Waters. Thank you. The gentleman from Georgia,
Mr. Scott, who is also the Chair of the House Agriculture
Committee, is now recognized for 5 minutes.
Mr. Scott. Thank you, and the first thing I want to say is,
congratulations. You have made history, and you are now the
first woman ever to lead this most important Agency at the
right time with the right person. Congratulations.
First, Director Thompson, I want to ask you this. Back a
couple of months ago, in April 2022, your Agency directed
servicers of Fannie Mae and Freddie Mac loans to pause
foreclosures for up to 60 days upon notification that borrowers
applied for pandemic mortgage relief. Can you provide us with a
specific number of mortgages impacted by your decision?
Ms. Thompson. Certainly. We think that the Homeownership
Assistance Fund (HAF) program is really important. It was a
provision put in place to help both borrowers and renters. One
of the reasons we put the provision in place to put a halt on
foreclosures was that we didn't want borrowers or renters to be
adversely impacted when they were trying to get access, and
then have a concurrent foreclosure or concurrent eviction. We
don't have the specific numbers of all of the borrowers who
have been advantaged by that program, but we do know that of
the borrowers who were placed in forbearance plans by the
Enterprises, about 96 percent of them have now exited those
plans.
Mr. Scott. They were successful in reducing a borrower's
monthly payments then. What is your Agency's projection of how
many homeowners will be unable to resume regular mortgage
payments after they leave forbearance, and what do you expect
will be the outcome for them?
Ms. Thompson. Sure. At the start of the pandemic, about 2.2
million borrowers entered into forbearance plans. Today, there
is probably about 90,000 some-odd borrowers who are still in
forbearance plans. Ninety-six percent of borrowers who entered
forbearance plans have exited them. And what we found
particularly interesting was that there are a number of people
who were in these forbearance plans who continue to pay, even
though they had signed up for the forbearance, and we put in
place a modification so that borrowers would not be as severely
impacted as they otherwise would be if they had the option to
defer their payment.
And then the deferred payments, they could reinstate them,
or they could pay them over time, or they get tacked on to the
end of the mortgage. But there were lots of modifications that
were put in place to keep borrowers in their homes. And for the
almost 100,000 who are left, they are in modification programs,
and we are hoping that they will have successful workout
solutions.
Mr. Scott. Director Thompson, I want the nation to know,
because one of the most startling statistics when we are
discussing racial inequality in housing is this, that the Black
homeownership rate has remained virtually the same as it was in
1968. This is startling. And right now, there are thousands of
young people in my district and all of our districts, and
millions across the nation with a dream of owning their own
home one day, but who simply cannot afford mortgage payments.
Let me ask you this: What steps is your Agency taking to ensure
that first-time homebuyers and first-generation homebuyers, who
would like to earn generational wealth, can realize their goal
of homeownership?
Ms. Thompson. Thank you. And, again, certainly to your
point, there were a lot of gains that were made, but they were
lost in the Great Recession as we saw record numbers of
foreclosures, particularly in communities of color where there
were a lot of predatory loan practices. Having said that, one
of the ways to close the equity gap is through homeownership.
And we want to, again, put in place, or Fannie and Freddie have
programs in place that allow creditworthy borrowers to take
advantage of first-time homebuyer programs where they have
homeownership education and they understand what homeownership
means.
One of the provisions they put in place that we think will
be really beneficial is incorporating the rental payments into
their credit scores because some people don't have credit built
up.
Mr. Scott. Thank you so much, and, again, congratulations.
I look forward to working with you.
Chairwoman Waters. Thank you very much. The gentleman from
Texas, Mr. Sessions, is now recognized for 5 minutes.
Mr. Sessions. Madam Chairwoman, thank you very much.
Director Thompson, thank you for taking time to be with us
today. I have a piece of business that I simply want to bring
to your attention. Madam Chairwoman, I have a letter that I
would ask unanimous consent to have entered into the record.
Chairwoman Waters. Without objection, it is so ordered.
Mr. Sessions. Thank you very much. This is a letter that I
have. Republicans--I am a Republican--have been working with
the Secretary of Housing and Urban Development for months on
getting more housing in Texas, and we believe that there are
rules and regulations which could be waived by the Secretary.
In essence, it goes through it here. I just want you to be
aware of it, and I am going to make sure that your staff gets a
copy.
But what we are trying to do is get the Secretary to look
at ways within her discretion that she could waive some rules,
allowing more building without having to tear down something
that corresponds to that. Like, it is a 1-to-1 ratio when in
Texas, we need more housing. And I just appreciate your
attention that you have not been brought into this, but I want
you to be aware of it. The young chairwoman is also getting
this for the first time.
Director, I am interested in hearing from you about the
President's call across all of government as it relates to
equality and gender, about how you apply that within your
Agency and how that is being applied to the loan-making
process.
Ms. Thompson. Thank you. Certainly, we at FHFA are
responsible, as are all of the other financial regulators, for
adhering to the Fair Housing Act, which looks at equality and
housing--
Mr. Sessions. Yes, madam, but you were given that under the
law also. I am talking about specifically anything new or
different that you may have undertaken. What I am particularly
interested in is that it be applied equally to everyone else,
too, not necessarily to a selected group. And I do think it is
important, as the President has noted, that they pay close
attention, but I want to ask, have you taken other facts or
factors into play as a result of that direct order from the
President?
Ms. Thompson. Our primary objective is to comply with the
law and to make sure that it is applied in our regulated
entities. We certainly look at programs and policies, but we,
again, first, want to make sure that they are in compliance
with the regulations that undergird our authority. And so,
again, the Fair Housing Act probably has more credence to
looking at certain characteristics, but we want to make sure
that the programs and policies that are applied at Fannie and
Freddie apply to all persons who are eligible and meet the
criteria.
Mr. Sessions. In other words, you have not utilized any
different discretion. You have not utilized anything
necessarily different with the President's request?
Ms. Thompson. I don't think that I have done that.
Mr. Sessions. So, you have not done anything. You looked at
the law. You looked at the law as needing to be fair and
equitable anyway, and you have not undertaken any steps within
these agencies to direct them or to have them change the
processes that would have been available under the law. That is
what I hear you saying.
Ms. Thompson. That is correct, sir.
Mr. Sessions. Okay. Thank you very much, because we are
very interested in the success that you have spoken about of
being fair and doing these things because with the increase of
interest rates, it is becoming even more critical for people to
land within housing that is properly within their scope.
The chairwoman and I lived through what happened in 2008
and 2009, and we want to make sure we are not going to create
any sort of a bubble, any sort of an articulation of Federal
policy that would do anything other than follow the law as it
has been and as it is now. And I appreciate the gentlewoman for
her testimony before this committee. Thank you very much. I
yield back.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Green, who is also the Chair of our Subcommittee on Oversight
and Investigations, is now recognized for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman. It is an honor to
serve under your leadership. And I would like to thank the
Director and salute her for having the opportunity to serve in
such a high capacity within our government. I am confident that
she will do a stellar job.
Madam Director, I would like to address two issues. The
first has to do with something that you have caught our
attention about, which is purchasing homes. People who can pay
rental payments timely are likely to be able to make a mortgage
payment timely. This is something that I concur with. In fact,
I concur with it to the extent that I can share with you H.R.
123, a piece of legislation that I have filed in multiple
Congresses, called the, Alternative Data for Additional Credit
FHA Pilot Program Reauthorization Act, ``reauthorization,''
because we actually passed it in Congress once. So, I salute
what you are doing, and I would like to have you take a look at
my H.R. 123 because I am curious as to whether you think that
it might, in some way, conflict with what you are doing
currently.
I salute what you are doing. I don't think we can do too
much to help people who need some opportunity to own property,
which is a means by which they can build wealth. H.R. 123 would
have additional credit scoring in the area of rental payments,
light bill, gas bill, water bill, phone bill, and other things
that are not automatically scored. They would then become a
part of a pilot program to have them scored such that we can
examine not only the efficacy of simply scoring, but also the
mechanics of doing it. I think it is a pretty good bill. I have
sponsored it multiple times, and I would like to have you take
a look at it, if you would, to give me some commentary as to
whether or not it would conflict with what you are attempting
to do with your program. I yield to you for a comment, please.
Ms. Thompson. Sure. We are happy to work with you on this
very important issue. We do believe alternative data in
evaluating credit is very important, and we are happy to look
at the bill.
Mr. Green. Thank you. I will make sure that we get it to
you immediately, if not sooner. Now, I am also concerned about
the lack of homes available to first-time homebuyers, for
persons who are wedding, young people, Millennials and
Generation Z, or persons who are trying their very best to get
into their first home.
I am concerned because at a hearing under the leadership of
the Honorable Maxine Waters, one of the things that I discussed
at the hearing was a concept known as predatory purchasing. We
have these major corporations with deep pockets that are buying
properties out from under first-time homebuyers, and they are
converting these to rentals. They with their deep pockets can
make cash offers. The cash offer, in and of itself, will shut
out a good many persons who have to purchase with credit. My
concern is with the predatory purchasing and how it is
impacting the housing market. Currently, I have some indication
that we need some 300,000-plus, 328,000 new apartments annually
to meet the demand. That demand is being thwarted to a certain
extent by this predatory purchasing, in my opinion.
Are you familiar with what I speak of, and if you are, can
you give me some thoughts as to how we might manage to let
young people have the opportunity to purchase their first home,
to keep homes on the market for first-time homebuyers as
opposed to having them become rentals wherein persons with
these deep pockets can raise rents and it becomes very
profitable for them, but it doesn't help those who are seeking
homes? I yield to you, Madam Director.
Ms. Thompson. Okay. We are very familiar with that issue,
and in 2018, we prohibited the Enterprises from engaging in
sales with large institutional investors, and this is
particularly true in the single-family rental space. I think
both Enterprises had pilot programs and we stopped those, and
they are no longer able to purchase these loans or these homes
from these large institutional buyers. One of the things that
we are doing on the Enterprises' real estate owned (REO)
portfolios is we have what is called a First Look Program, and
it is a 30-day window where an owner-occupied or potential
owner-occupied person has an opportunity to bid on the loan or
a nonprofit.
And there is a 30-day window whereby which owner-occupied
potential tenants or borrowers can take a look at these
properties before investors start purchasing them. And I do
think it is important that we make homeownership affordable in
that all people have the opportunity to purchase these
mortgages, especially those who can't afford to pay cash.
Mr. Green. Thank you, Madam Chairwoman. My time has
expired. Thank you so much.
Chairwoman Waters. The gentleman from Florida, Mr. Posey,
is now recognized for 5 minutes.
Mr. Posey. Thank you very much, Madam Chairwoman. Time
expired while Director Thompson was answering Congressman
Greene's question. I am willing to allow her some extra time if
she wanted to expand her thoughts on a little bit further.
Ms. Thompson. Thank you. I am fine. Thank you.
Mr. Posey. Okay. We still call them Government-Sponsored
Enterprises, or GSEs, but for the last 14 years, Fannie and
Freddie have been government agencies, pure and simple. I am
just curious about what FHFA leadership has done to improve the
safety of the loans securitized by these agencies?
Ms. Thompson. When we look at the Enterprises' portfolio,
because of the low interest rates, a lot of the risk was
removed through refinances where people were able to reduce
their mortgage payments. We also have seen an increase in home
prices, which means that the loan-to-value ratios have
decreased on the Enterprises' portfolio, which means that
homeowners' equities have increased. And we think that the
portfolio, as evidenced in terms of how it performed during the
pandemic, is in a very good position to weather a storm. We do
monitor the loan characteristics that the Enterprises'
purchase, and we make sure that they are operating in a safe
and sound manner. Again, we do take a look from a safety and
soundness perspective at every single thing that the
Enterprises do, and we want to make sure that they continue to
be in good financial condition.
Mr. Posey. Thank you. Now, the FTC and the Justice
Department are apparently reviewing the merger between mortgage
software firms, ICE and Black Knight. I am just wondering if
you have any concerns about this Big Tech merger and its
potential impact on the GSEs and ultimately on consumers.
Ms. Thompson. I don't have any thoughts on that particular
issue, sir.
Mr. Posey. Okay. Do you have any plans to remove Fannie Mae
or Freddie Mac from conservatorship?
Ms. Thompson. Excuse me, could you repeat the question? I'm
sorry.
Mr. Posey. Do you have any plans to remove Freddie or
Fannie from conservatorship?
Ms. Thompson. Sir, we are working on, again, approving the
financial condition of the Enterprises. We think that the
future state of the mortgage secondary market ought to be
determined by the Congress, but, again, we are taking steps to
allow them to build their capital. They are transferring credit
risk. We also implemented a capital planning requirement for
both Enterprises as well as a capital disclosure where they
have to disclose information about their capital position. We
think that those things are steps that move them towards taking
good steps to move towards whenever they are out of
conservatorship.
Mr. Posey. Okay. Thank you. Data from your Agency says that
Fannie and Freddie purchased 62 percent of all mortgages
originated in 2020, and purchased, on average, 54 percent each
year from 2002 to 2020. What is the Administration's vision for
increasing the role of the private sector market in the
secondary mortgage market?
Ms. Thompson. I know that the Enterprises really play a
countercyclical role in the mortgage market as evidenced by
what happened after the Great Recession and also what happened
in the pandemic. I think when there were sources of liquidity
that were not available to borrowers across the country, the
Enterprises did step in. So, we do believe that there is a role
for the Enterprises. They play a countercyclical role, and they
certainly did step up and make purchases during and after there
is a crisis, in particular the pandemic.
Mr. Posey. Given what happened before the financial crisis,
would it make sense to limit government exposure in the
secondary market to those activities that meet our objectives
for low- to moderate-income homeownership and leave the
remainder of the markets to the private sector?
Ms. Thompson. I think the statute requires us to provide
liquidity to all Americans across the country, and based on
their eligibility, borrowers can get mortgage loans. So, I
think that would be something that would have to be decided by
the Congress.
Mr. Posey. Very good. I thank you for your direct answers,
and I yield back the balance of my time.
Mr. Cleaver. [presiding]. The gentleman yields back. I now
recognize myself for 5 minutes.
The gentleman from Texas, Mr. Sessions, had mentioned a few
minutes ago the 1-for-1 HUD policy--well, he didn't mention the
1-for-1 HUD policy, but there is a 1-for-1 HUD policy. We can
only build a new unit or financially support a unit that has
been demolished, and we ended up having a number of those
during the Hurricane Katrina crisis. The chairwoman and I,
along with Mr. Green, toured some of those projects. But in all
of the projects in which all of the units had been damaged and
needed to be demolished, we ended up, I think, replacing one
unit because of the policy. And if the gentleman from Texas is
interested in that, it is something that we can address, but
only with an increase in the HUD budget, which we have tried to
do almost each year, and it is not anything that I think FHFA
is involved with. It is a HUD policy. But let me say that I
would love to work with Mr. Sessions on dealing with that issue
and on increasing the HUD budget.
My home district would not be this high, but the average
housing price is over $500,000 in the United States. As I said,
in my district, it would be less, and so we are always looking
for ways in which we can construct badly-needed affordable
housing. And one of the things that I have become quite
interested in is the CrossMod homes. They are manufactured
homes. They are built to meet construction and architectural
design standards, and they are also consistent with site-built
homes. We have a number of problems. One of them is that there
appears to be an appraisal bias against the HUD code label,
which has distorted and made inaccurate appraisals of these
homes. And I am trying to figure out ways in which we can
remove the barriers for a significant source of affordable
homes for American families.
And so I am hoping, Madam Director, that you can address in
some way, both here and in your policies, CrossMod homes, by
addressing the barriers to their adoptions, such as ensuring
Enterprise guidance will ensure accurate appraisals. If we
don't get accurate appraisals, we are not going to be able to
move to this form of housing, which has changed dramatically
from when I was a kid, when nobody wanted anything to do with
it. You wanted to move away from it, but now they have changed
and they meet most standards. But is there a way in which
appraisals can be examined to allow these CrossMod homes to be
acceptable?
Ms. Thompson. Yes. We believe that manufactured housing can
be a huge benefit to addressing the housing supply issue. We
are very much aware of the CrossMod appraisal issue, and we are
working with our regulated entities to see what flexibilities
there might be in that particular situation.
Mr. Cleaver. Are you having any ongoing contact about these
homes?
Ms. Thompson. Yes. Actually, there was a housing event on
the Mall, and I went, and walked through, and actually saw
those CrossMod homes and the manufactured housing that was
there, and it was just like you said, something that I hadn't
expected and hadn't seen. The issue about the appraisals was
raised with me directly as I was taking a tour through those
homes. And we have committed to working with the Enterprises to
look at the specific issue that relates to appraisals for these
properties because, again, with the supply issue being so
acute, we just believe that this could be a really good
solution.
Mr. Cleaver. Yes, I am surprised. I was surprised at the
new direction they are taking, and they were trying to attract
congressional attention on them.
My time has expired. Thank you very much, Madam Director.
The gentleman from Missouri, Mr. Luetkemeyer, is now
recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman, and Director
Thompson, welcome. It's good to see you. The capital rule you
proposed recommends combined required capital for Fannie and
Freddie of somewhere between $250 billion and $300 billion.
This morning, you mentioned that $300 billion is your target.
I'm glad to see that. I know we had lots of discussions with
your predecessor with regards to this. I think this Agency was
tremendously undercapitalized, and I think getting it there is
where we need to be. As a former regulator, I am sure you
understand the importance of capital to an entity, and we are
certainly glad to see you there. Do you think $300 billion is a
point at which the conservatorship can end?
Ms. Thompson. I think that when the Enterprises meet the
capital targets, that is one component of exiting
conservatorship. There are other factors that need to be taken
into consideration, certainly conversations with the Treasury
about the senior preferred shares. There are conversations with
the Federal Reserve about certain policy issues, like single
counterparty, what happens if the Enterprises exit and what
other significant institutions have exposure to the Fannie-
Freddie stock. There are just a number of issues that really
need to be worked through that. Meeting the capital target
alone just won't answer those questions.
Mr. Luetkemeyer. Okay. One of the things that you have
commented on a couple of times and I am excited about, quite
frankly, because, again, I had a lot of discussions with your
predecessor with regards to moving some of this risk to the
private sector, getting to the secondary market. Can you give
me an amount or percentage of what you think is adequate and
what your target would be on it?
Ms. Thompson. We set targets for the Enterprises to
transfer credit risk each year through our scorecard, and they
have to transfer, I think it is 90 percent of certain loans,
the risky loans. I think the loans have a loan-to-value ratio
of 60 percent or higher. So, we look at the Enterprises' books,
and, again, as you know, the Enterprises are the largest
holders of mortgage credit risk. We want to make sure that they
transfer, through either the capital market structures or
reinsurance structures, a great amount of this credit risk to
private investors so that if there is something catastrophic,
the risk is not undertaken or borne by just the Enterprises or
the taxpayers, and that private investors are bearing some of
that risk.
Mr. Luetkemeyer. I think it is fantastic. I think moving
those things off the books to the private sector is extremely
important. I'm just kind of curious, and I know my colleagues
will kind of laugh when I ask the question because I am well
known around here as being concerned about the current expected
credit losses (CECL) ratio all the time. I know, again, in
discussion with your predecessor, he indicated this would be
something you would have to consider. Are you working with the
new CECL regulations at this point and adjusting your reserves
for that accounting rule?
Ms. Thompson. Yes. I am certain that our Office of the
Chief Accountant is working on that.
Mr. Luetkemeyer. You are not sure it will be effective at
this point?
Ms. Thompson. Yes. I am not sure what the effect is right
now.
Mr. Luetkemeyer. Okay. I see my good friend, Clinton, back
here. He can help me get that information, I assume. Okay. He
is nodding. Thank you very much. Again, one of the things that
is concerning right now, especially in this particular climate,
is inflation and the proposed taxes out there that I think hurt
the affordability of housing. You mentioned it a number of
times. Leadership that has been here this morning talked about
affordability and the ability of people to afford homes, and
the high cost of those things.
It is interesting. Yesterday, I got some numbers that just
floored me. The latest numbers show that cost of goods and
services will cost the average American household over $8,600 a
year. That is $165 a week in lost purchasing power compared to
what they had a year ago. That is unbelievable. That hurts
their ability to make those house payments that you have on the
books right now with folks. Do you have the ability to talk to
the President about affordable housing?
Ms. Thompson. I have actually talked to the President about
affordable housing.
Mr. Luetkemeyer. You talk, too, about the inflation problem
in this country with regards to the increased value of homes
and the increased cost of building homes, and then the lack or
the hit that the wages are taking, so that there is this
twofold problem: it costs more to purchase a home, yet you have
less buying power for the individual. Do you talk to him about
that?
Ms. Thompson. I think there are a number of people who talk
to the President about those issues.
Mr. Luetkemeyer. Madam Director, it is your job to worry
about the housing industry, about the availability of
affordable housing. You should be in front of his desk with
your hand, getting some attention, ``Mr. President, this is a
huge issue for my Agency and the people of this country.'' Are
you not having that discussion?
Ms. Thompson. We have discussions with all of the housing
regulators and all of the interested parties.
Mr. Luetkemeyer. Including the President?
Ms. Thompson. With the Economic Council, whether it is
national or domestic.
Mr. Luetkemeyer. Including the President?
Ms. Thompson. I have had conversations. I have been in a
briefing with the President to speak about housing issues.
Mr. Luetkemeyer. I am curious about your response.
Mr. Cleaver. Thank you. Your time has expired.
Mr. Luetkemeyer. Thank you.
Mr. Cleaver. Mr. Luetkemeyer, thank you. The gentleman from
California, Mr. Vargas, is now recognized for 5 minutes.
Mr. Vargas. Thank you very much, Mr. Chairman. Director,
first of all, I want to congratulate you, like my colleagues,
and I think you are the right person in the right place at the
right time, and I also appreciate your background very much.
Why don't we start with inflation? Mr. Luetkemeyer brought
it up, and I think it is a good idea to start with that. What
is the inflation rate in England right now? Do you know?
Ms. Thompson. I do not.
Mr. Vargas. It is a little higher than ours. It is 9.4
percent. We are at 9.1 percent. In fact, if you looked at a lot
of the industrialized countries, the advanced economies, they
are running a little hotter than ours. We have an advantage
that our unemployment rate is lower than theirs and lower than
many of these countries.
But anyway, when my colleagues on the other side talk about
inflation, they make it seem as if it is only in the United
States and only because of the American President that we have
inflation. That is not true. The reality is, inflation right
now affects the whole world, especially advanced economies.
Anyway, I wanted to bring that up because they always have a
good time beating up on all of the people who come here about
inflation as if it was only in the United States. I agree that
we have to do something about inflation, but at the same time,
it is the pandemic that has caused all of this and now, of
course, the war in Ukraine.
I do want to ask a little bit about the issue of housing
inflation. Over the last 40 years, the average U.S. house price
has increased by more than 470 percent because of the increased
cost of labor, constrained supply chains for housing materials,
and local zoning restrictions. Many families are being priced
out of the American Dream. In my district alone, the median
list price for homes increased 14 percent last year, making San
Diego one of the most expensive housing markets in the country.
Can you speak to this aspect of inflation and how this recent
housing depreciation impacts Americans in need of affordable
housing?
Ms. Thompson. Sure. Again, the rising home prices and the
rising interest rates mean that borrowers cannot purchase as
much as they could even 6 months ago, and then the supply issue
that is just really acute, has exacerbated affordability. We
are starting to see just a little bit of easing in the increase
in home prices. Last year, we had a record increase in home
prices, I think it was about 18.5 percent year over year. We
are starting to see that slow down a little bit across the
country. But there are pockets, as you mentioned, where there
are huge increases in home prices, and it is really
exacerbating the affordability issue.
So, we do look at that, and we are trying to figure out
ways to be helpful. In terms of the multifamily business line,
they are creating multifamily--Fannie and Freddie, in
particular, are purchasing multifamily loans, and every loan
that they purchase, about 50 percent of them have to be
affordable. In addition, we have expanded LIHTC allocations,
which go to very affordable housing across the country. And so,
again, while Fannie and Freddie are not directly involved in
supply issues, there are ways that they can try to be helpful.
Mr. Vargas. Another concern of mine is that now that we are
sliding out of the pandemic, and the help that we provided for
homeowners and renters is basically going away, there will be
people who can't afford to pay their mortgages and they will
need some flexibility. Have you done any studies to look at how
many people will be foreclosed upon because of this issue, and
what can we do?
Ms. Thompson. I can tell you that when the pandemic
started, there was a little over 2 million borrowers who
entered into forbearance programs, and today, there are less
than 100,000. I think there are about 94,000, 95,000 borrowers
who are still in forbearance programs. The Enterprises have
very effective loss mitigation programs, so when borrowers get
in trouble, they can contact their servicers, and they can go
into a workout solution that would allow them to modify the
loan or defer the payment. So, we are really focused on home
retention, and for those borrowers who are in trouble, they can
contact their servicers and really try to get a loan
modification or workout.
Mr. Vargas. Okay. I think you are the right person at the
right time for all this, and again, I thank you for your
service. I wish you the best of luck, and I hope you do come
back to us every year. Thank you for being here. Thank you, Mr.
Chairman. I yield back.
Mr. Cleaver. The gentleman yields back. The gentleman from
Kentucky, Mr. Barr, is now recognized for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman. And to my good friend
from California, I would just note that inflation rates for
most recent months in the selected countries that belong to the
Organisation for Economic Co-operation and Development (OECD),
the industrialized countries, the vast majority of those
countries, including all but one G7 country, have inflation
rates lower than the United States. And the countries that have
higher inflation rates are, in large part, those countries that
are uniquely impacted by the Ukraine situation. What is
different about the United States is bad fiscal policy
compounded by monetary policy errors. And so, to my friend from
California, if you are wondering about the unaffordability of
gas and groceries and housing, we need to look at our own
policies with an eye towards reversing the course on
overspending and constraining supply, such as constraining the
supply of energy.
But let's talk about the safety and soundness of the
Enterprises and get back on topic, Director Thompson. I am
concerned about the increased risk-taking by the Enterprises
under various initiatives that have been recently announced by
FHFA and/or the Enterprises. One potential check on excessive
or creeping risk-taking by the Enterprises is maintaining a
robust role for private capital in pricing credit risks ahead
of and alongside the Enterprises. This is obviously one reason
that the charter requirement for private credit enhancement for
higher loan-to-value mortgages exists. Requiring the
Enterprises to programmatically issue credit risk transfers is
another mechanism which provides an independent market base
check on the risks that the Enterprises are taking. And I
compliment the Director for working to recalibrate the
Enterprise Regulatory Capital Framework to enable more credit
risk transfers.
My question is, can you tell us specifically what FHFA is
doing to ensure that the Enterprises continue to shed this risk
to private markets through a variety of executions and
counterparties to help limit taxpayer risk, and explain that
tweak to the regulatory framework?
Ms. Thompson. Sure. Thank you for the question. Credit risk
transfer is something that is really important from a safety
and soundness perspective. We can't have what happened in 2008
happen again, and the Enterprises are, again, the largest
holders of credit risk in the country, so the Credit Risk
Transfer Program that was started in 2013 has been very
effective. There are a number of ways to transfer credit risk
into the private sector so that if there is an unexpected or
catastrophic loss, the private sector is helping to offset some
of those losses, because otherwise, it would be on the backs of
the taxpayers.
Every year, we set forth credit risk transfer requirements
for the Enterprises, and we meet with them on a regular basis
to make sure that they are effectuating those transactions. And
again, everything that we are doing is going to be undergirded
by safety and soundness, because their financial condition is
so important to us in making sure that what happened before
doesn't happen again.
Mr. Barr. Let me also talk to you about your role on the
Financial Stability Oversight Council (FSOC) and the importance
of enabling credit risk transfers through the private bank
capital requirements, because if private bank capital
requirements become excessively high, it is an impediment to
credit risk transfer (CRT). In your role on FSOC, have you had
a dialogue with the banking regulators and maybe the potential
incoming Vice Chair for Supervision, Mr. Barr, around the
appropriateness of also giving banks capital credit for credit
risk transfer?
Ms. Thompson. I am happy to have that conversation with
Acting Comptroller Hsu, incoming Vice Chair of Supervision
Barr, and Acting Chairman Gruenberg.
Mr. Barr. That is important, and I appreciate you doing
that. Final question, when the FHFA updated the conforming loan
limits for single-family mortgages that can be acquired by the
GSEs, you raised the baseline over 18 percent, or $100,000.
These new limits will allow Fannie and Freddie to subsidize the
purchase of an over $1-million home, even though they were
intended to serve those with modest means. Should FHFA
reevaluate the 2022 update to the conforming loan limits to
ensure that Fannie and Freddie are serving low- and moderate-
income individuals?
Ms. Thompson. This is a statutorily-required calculation
that we have done every single year, and we are following the
law and the statute as written. And we are happy to work with
you all if you would like to change it or tweak it.
Mr. Barr. On safety and soundness, a million-dollar home
sounds like quite a bit for your mission, but I appreciate your
consideration. I yield back.
Mr. Cleaver. The gentleman yields back. The gentleman from
California, Mr. Sherman, who is also the Chair of our
Subcommittee on Investor Protection, Entrepreneurship, and
Capital Markets, is now recognized for 5 minutes.
Mr. Sherman. I have a couple of comments on comments made
by our Republican colleagues. First, on inflation, thank God
Democrats pushed for fuel economy standards. If we were still
getting the fuel economy that I got in my 1975 Plymouth Fury,
we would have to buy 3 times as much gas. We would have triple
the demand for gasoline, so we would have much higher prices,
and we would be buying 3 times as much.
There are those who say we should end the conservatorship.
I think the GSEs are and should be government agencies. They
make money for the government, and they give us much lower
interest rates than we would have otherwise. They do so because
we have a government guarantee of the debt risk, while the
private sector assumes the interest rate risk. If we didn't
have Fannie and Freddie, et cetera, we would not have 30-year
fixed-rate mortgages. The shareholders were wiped out in any
economic sense in 2008. They do not have a right to have us, at
our cost, rehabilitate their private banking entities. And what
we saw is that when you have the GSEs strive for profits for
private shareholders but have a full government guarantee, you
have socialism for the well-connected and the rich, and you
have a bad system.
Now, in response to one of my Republican colleagues asking
you why you don't limit the GSEs to, in effect, lower- to
middle-income loans, you correctly responded that it was
because Congress has told you to do really the entire middle-
class. And under the formulas, we have a conforming loan rate
of $647,000 in most of the country, and $970,000 in high-cost
areas, and that is pursuant to congressional enactment. And
that $970,000 loan gets you a 3-bedroom home in my district,
whereas the $647,000 gets you a 4-bedroom or 5-bedroom home in
Nebraska or Kansas.
The question I have is, why do we have higher fees on some
conforming loans, those in higher-cost areas? Congress has said
that a conforming loan is a conforming loan, and a high-cost
area conforming loan is up to $970. And the GSEs have decided
there is a real conforming loan and there is a not-so-real
conforming loan, and the 2-bedroom and 3-bedroom houses in the
chairman's district will be subject to a big fee. Why are we
treating all conforming loans equally?
Ms. Thompson. Let me just say that the conforming loan
limit, again, is required by statute, as you stated. And for
many of the conforming loans, even for first-time homebuyers,
especially in high-cost areas, if they have an area median
income of less than 100 percent, there is no fee, and that is
true across-the-board. I just wanted to make sure--
Mr. Sherman. But somebody with an income above average in
Nebraska gets a conforming loan, and somebody in California
gets a penalized conforming loan. That is not what Congress
provided, but I want to move on to another question and that is
these Property Assessed Clean Energy (PACE) loans. In effect,
the agencies you oversee, you draft all of the mortgages that
are used in the country. Those mortgages contain a Paragraph 4
that says you can't have a superior lien, but under these PACE
loans, you, in effect, do have a superior lien. Why aren't you
requiring these GSEs to modify their form so as to clarify that
under Paragraph 4, you can't get around the requirement of
turning the first mortgage into a second mortgage just by
calling it a part of your property taxes? Why don't we amend
Paragraph 4 and protect the GSEs from this?
Ms. Thompson. Certainly, that is something that we can look
into. The Enterprises having priority lien status is pretty
important, but we can--
Mr. Sherman. And under these PACE loans, your first is
turned into a second?
Ms. Thompson. That is a requirement, and, again, we can
look into that.
Mr. Sherman. I look forward to working with you on that.
And finally, I would hope that you would change the lending
caps on multifamily because we have a crisis. The rents are too
high, and people are sleeping on the streets. I yield back.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Williams, is now recognized for 5 minutes.
Mr. Williams of Texas. Thank you, Madam Chairwoman, and
thank you for being here, Director Thompson. The GSEs have been
in conservatorship for 14 years now, and former FHFA Director
Calabria had made it a priority to get these Enterprises out of
government control and back in the hands of the private sector.
He had a clear focus for the Agency, and every action seemed to
be building towards that ultimate goal. However, since you have
overseen the FHFA, it does not seem like there is a similar
focus on working to get away from the conservatorship. Director
Thompson, do you think there are any negative consequences if
we retain the status quo of the GSEs in perpetuity?
Ms. Thompson. Thank you, and I would say that we are
working diligently to make sure that the Enterprises are in
good financial condition, and that they are operating in a safe
and sound manner, and we think that these things are
prerequisites to them exiting conservatorship. We are making
sure that they are retaining their capital and earnings, and we
are also, again, focusing them on credit risk transfer so that
we are taking incremental steps to prepare them. Certainly,
there are pros and cons for being inside of conservatorship and
outside of conservatorship, as I spoke to earlier, and we just
think that, again, Congress can decide what it wants to do with
the secondary market. And in the meantime, we will continue to
prepare the Enterprises in a safe and sound manner.
Mr. Williams of Texas. I am concerned with the one-size-
fits-all approach that we have the FHFA and the GSEs are taking
with respect to lease terms. In the manufactured housing space,
Fannie and Freddie are attempting to nationalize landlord
tenant law by requiring lease terms that are in conflict,
frankly, with the current laws of several States. And, in fact,
every State in the country would be out of compliance with the
new national standards being set by the GSEs. These changes
were done without any stakeholder input, with one GSE simply
publishing the change on its website. Director, are you
concerned that your Agency unilaterally made a single Federal
standard that is at odds with every other State's laws, and
will you commit to working with stakeholders to come up with a
better solution than that?
Ms. Thompson. Thank you for the question. Really, we are
always happy to work with stakeholders. We do believe that
tenant protections are important, and we did have outreach
sessions with various stakeholders to have a conversation about
them. And the tenant protections that are required are giving
notice to renters before they are evicted, or giving notice to
a borrower before rent is raised. But if there are things that
are prohibitive, we are certainly willing to work with
stakeholders at the State or local levels on these issues.
Mr. Williams of Texas. Okay. I am concerned about a trend I
am seeing now in the Biden Administration where they just label
anything that President Trump did as bad, and therefore, it
must be reversed. There seem to be a few examples of this
coming out of your Agency that were overturned without much
justification. Quickly, Director, how did reversing Director
Calabria's rule that limited the GSEs' ability to purchase
mortgages from second and vacation homes further the mission of
the FHFA?
Ms. Thompson. We put that provision on pause that was part
of the agreement that was embedded in the preferred stock
purchase agreement that FHFA and Treasury are a party to. I am
a lifelong safety and soundness regulator. This risk management
is what we do, and we certainly are looking at the loan
characteristics, whether they are seconds or investors, and we
are also looking at debt-to-income ratios. We are looking at
LTVs. We are looking at all of these things on a daily basis,
and these are the things that we ordinarily do as regulators
and as conservators. And again, we are effective risk managers,
and safety and soundness is really undergirding everything that
we do.
Mr. Williams of Texas. Okay. Madam Chairwoman, I yield
back. And Director, thank you for being here.
Chairwoman Waters. Thank you. The gentleman from Illinois,
Mr. Foster, who is also the Chair of our Task Force on
Artificial Intelligence, is now recognized for 5 minutes.
Mr. Foster. Thank you, Madam Chairwoman. Director Thompson,
in May of this year, this committee passed my bill, H.R. 7022,
the Strengthening Cybersecurity for the Financial Sector Act of
2022. This bill would give FHFA the authority to regulate and
examine the third-party service providers of its regulated
entities. This is similar to the existing authority that
prudential banking regulators have over banks' third-party
vendors under the Bank Service Company Act.
The Financial Stability Oversight Council (FSOC) noted in
its 2021 annual report that some regulators, including FHFA,
``continued to have limited authority to regulate and supervise
third-party service providers.'' I am very concerned about the
risks that third parties may pose to individual financial
institutions as well as to the entire financial system, given
how interconnected our system is, and how many of these third
parties are, in fact, core providers to not just one, but
several financial institutions. Director Thompson, could you
tell us the extent of FHFA's current authority over the third-
party providers to Fannie Mae, Freddie Mac, and the Federal
Home Loan Banks?
Ms. Thompson. Sure. That is a great question, and thank you
for asking it. The Agency has been asking for a number of years
for the third-party service provider oversight, and this is
something that is similar to what the banking regulators have
through the Bank Service Company Act. In fact, when I got to
the FHFA from the FDIC, I was very surprised that we didn't
have that authority because, as you say, the services that are
provided to our regulated entities are really important. They
could impact the safety and soundness of our regulated
entities. And so, we just want comparable authority similar to
that which the other regulatory agencies have, so that we can
ensure the safety and soundness of our regulated entities. So,
thank you for that.
Mr. Foster. Thank you. In your view, would it also be
helpful for the Federal Housing Administration (FHA) to have
this authority to examine and regulate third-party vendors, to
the Enterprises and the Federal Home Loan Banks?
Ms. Thompson. I am not going to speak for them. If we can
stick to the FHFA for this authority, I would be very happy.
Thank you.
Mr. Foster. Okay. I will let you off the hook on that one.
Some of the logic I think sort of speaks for itself. And,
Director Thompson, while historically-low mortgage interest
rates have expanded access to credit for many borrowers by
making the cost of lending more affordable, housing supply
constraints have continued to lock borrowers out of
homeownership. According to the Urban Institute and the
National Association of Home Builders, housing supply is at the
lowest level of the century, with just 2.6 months' supply as of
May 2022. The supply shortage is especially acute for low-
income consumers and many first-time buyers who are looking for
starter homes.
This lack of supply has led to record year-over-year home
price appreciation. This measure was 17.5 percent for 2021,
with some States, such as Arizona, Utah, and Idaho being closer
to 30 percent. And now, someone said that this is a housing
bubble that is imminent, reminiscent of what we saw in the
lead-up to 2008. However, the high levels of home equity have
been generated at the same time that we have a significantly
lower level of subprime lending. And we have more responsible
limits on credit and other reforms put into place by the Dodd-
Frank Act, which hopefully have helped protect the safety and
soundness of our housing market, despite the recent turmoil and
the potential for future turmoil.
Are you nonetheless concerned that record house price
appreciation could create real estate bubbles in certain
markets, and is there anything that should be done about that?
Ms. Thompson. I agree with you in terms of the increase in
home prices, the increases in interest rates, and the current
lack of supply. Actually, before the pandemic, there had been a
persistent lack of housing supply. One of the things that we
have asked the Enterprises to do is increase their LIHTC
allocation so that they can start providing supply in low- to
moderate-income areas to low- to moderate-income individuals.
And affordability is just a huge issue, both in rental
properties and in mortgages, so anything that we can do to be
helpful in that space, we will certainly take those steps. But
as you know, the Enterprises don't directly impact the supply
issue, but we certainly will be working with all stakeholders
to see what we can do to address that issue.
Mr. Foster. Thank you. I am nearly out of time, so I yield
back.
Chairwoman Waters. Thank you. The gentleman from Arkansas,
Mr. Hill, is now recognized for 5 minutes.
Mr. Hill. Thank you, Chairwoman Waters, and let me say,
again, thank you for holding this overdue and very welcome
hearing. Director Thompson, we are delighted, as I said in my
opening comments, to have you back. Before you came to the
Agency, you talked about your background, and 23 years at the
FDIC, including as the Director of the Division of Risk
Management Supervision, so that gives you a heavy dose of
background in managing risk. Would that be a good description?
Ms. Thompson. That would be a good description.
Mr. Hill. And back in September of 2020, you were Deputy
Director of FHFA's Division of Housing Mission and Goals, and
that is what you were doing in 2020, right?
Ms. Thompson. That is correct.
Mr. Hill. And you attended the FSOC meeting that was held
on September 25, 2020, where the Council unanimously voted on a
public statement regarding the secondary mortgage market. Is
that accurate?
Ms. Thompson. That is accurate.
Mr. Hill. I have that statement, and I would ask unanimous
consent to insert it in the record, Madam Chairwoman.
Chairwoman Waters. Without objection, it is so ordered.
Mr. Hill. I thank the Chair. This statement highlighted the
central role that the Enterprises continue to play in the
housing markets. And it also described how any distress at
Fannie and Freddie could pose a financial stability risk unless
that risk was mitigated by the new FHFA capital rule, and you
voted to support that FSOC report?
Ms. Thompson. I was the Deputy. My principals supported it.
Mr. Hill. Yes. Very good. If you had been the principal,
would you have supported it?
Ms. Thompson. It's hard to say. At the time, that was a
proposed rule that the FSOC wrote the statement on, and there
were lots of questions about credit risk transfer. There were a
number of comments, and I think that, as we have spoken about
earlier, the Credit Risk Transfer Program is very important.
The statement was issued in September, but the rule was
finalized in December, so I am not sure.
Mr. Hill. Okay. Looking back at that, there was a real
effort to allow the two GSEs to gather capital and become
stronger, not with any issue, that they would immediately be
eligible for release from conservatorship. You supported
building the capital with Fannie Mae and Freddie Mac?
Ms. Thompson. I still do, yes.
Mr. Hill. Yes. Can you explain why you cut the capital
ratio from 4 percent to 3 percent?
Ms. Thompson. We issued through notice and comment a rule
to make the leverage ratio buffer a dynamic buffer instead of a
static buffer. This was something that the bank regulators did
as well. One of the concerns that was raised was that the
leverage ratio was becoming a binding constraint. And we have a
risk-based capital rule as well that takes a look at the risk
characteristics of the loans versus the leverage, which you
well know. And so we wanted to make sure that the leverage
ratio served as a credible backstop for the risk-based
capital--
Mr. Hill. Let me reclaim my time. Thank you. I think you
have explained that well. And when you look at the risk-based
situation, clearly doing a stress test is an important part of
that, right? What was CPI inflation in June? Do you know what
that was: 9.1 percent. Do you agree with that?
Ms. Thompson. 9.1 percent.
Mr. Hill. That was high, right?
Ms. Thompson. It was very high.
Mr. Hill. Your stress test implies that inflation will be
1.5 percent between 2022 and 2025. In your worst-case scenario,
do you think that seems low?
Ms. Thompson. We haven't released our stress test scenario
for this year, and we get our assumptions from the Federal
Reserve like the other regulators, so we will be releasing that
information in August of this year, the stress tests for both.
Mr. Hill. I hope that stress test will reflect the
inflationary environment we are in and also the potential for a
recession. I am glad to know that it will be out in August. You
didn't mention in your prepared remarks about your pending
products and activities rule and when we can expect that.
Ms. Thompson. Sure. We have been working on finalizing that
rule for awhile now. And the issue that we are looking at is,
how do we marry the rule with our current conservatorship
authorities as we look towards working that out? We will
finalize the rule.
Mr. Hill. This year?
Ms. Thompson. In the near term.
Mr. Hill. Okay. It seems to me in looking at your pilot
transparency framework, and your equitable housing finance
goals, those are in conflict with not having that product and
services rule. I think it is putting the cart before the horse.
That rule should be in place, and then those agencies can
comply with those other policies with it.
And, Madam Chairwoman, I would ask unanimous consent to
insert in the record a letter that Senator Tillis and Senator
Toomey sent to Director Thompson, dated July 19th.
Chairwoman Waters. Without objection, it is so ordered.
Mr. Hill. I thank the Chair, and I yield back.
Chairwoman Waters. Thank you. The gentlewoman from Ohio,
Mrs. Beatty, who is also the Chair of our Subcommittee on
Diversity and Inclusion, is now recognized for 5 minutes.
Mrs. Beatty. Thank you, Chairwoman Waters, and thank you to
Director Thompson for appearing before the committee today. Let
me say at the onset that it is great to have an experienced and
competent leader at the head of FHFA, especially at this very
critical time in the housing market.
I represent Columbus, Ohio, and the surrounding areas, and
housing affordability is one of the most-pressing issues facing
my district. Unlike practically all of the other Midwestern
cities, Columbus is growing. Between the 2010 and 2020 Census,
the population of the Columbus Metropolitan Area grew by
236,000 people, which is 9 times more than the entire rest of
the State of Ohio. And we are very fortunate that with Intel's
incredible multi-billion-dollar investment in semiconductor
manufacturing in the area, the growth is only going to
accelerate in the next decade. This is a great position to be
in, but that growth has put a huge strain on the availability
of housing, especially affordable housing.
We know what the National Low Income Housing Coalition has
said for our area, that there are only 32 available affordable
housing units for every 100 households. That leaves us
basically about 50,000 units short. So, I am very grateful for
all that you have been saying to help us work on this, although
I know you don't do housing and you don't originate home loans,
but I am very impressed that you said in your testimony that
you are exploring the policies and programs to address the high
cost of housing.
But here is my first question. Everybody knows I am the
Chair of the Diversity and Inclusion Subcommittee, and I have
been on the record asking every one of your colleagues if you
are aware of the Office of Minority and Women Inclusion (OMWI),
and what that means, and if you have an OMWI Director?
Ms. Thompson. Yes, we are very aware of OMWI, and we do
have an OMWI Director who reports directly to me.
Mrs. Beatty. Okay. Thank you for that. You would be
surprised at how many have not answered that question. Director
Thompson, I also understand that FHFA announced that Fannie and
Freddie contributed some $740 million into the Housing Trust
Fund, and that, as I recall, is about a $29-million increase
over last year. And we welcome that news because, as you know,
the Housing Trust Fund is an important tool to produce and
preserve affordable housing for low-income households. But the
fact is, even with this increase, the Housing Trust Fund falls
a little bit short of what we need in it. Can you speak to what
impact it would have if perhaps, we were able to double the
size of the Housing Trust Fund?
Ms. Thompson. Sure. Thank you. The Housing Trust Fund, the
allocation that Fannie Mae and Freddie Mac make to both the
Housing Trust Fund and the Capital Magnet Fund is through
statutory formulas, and certainly, it is based on acquisitions.
We had a record contribution last year because Fannie and
Freddie had record acquisitions, and so depending on the number
of loans they purchase, that will determine how much is
contributed. The Housing Trust Fund is very important because
we send the money to HUD, and they distribute it to the States,
who have a good understanding of the specific needs in their
respective areas. And so, those allocations are very important.
The money to the Capital Magnet Fund goes to the Community
Development Financial Institutions (CDFIs), and they, too, can
distribute money as appropriate to their local areas, but the
Housing Trust Fund and the Capital Magnet Fund are very
important for impacting local housing supply.
Mrs. Beatty. I am very glad you said that in front of my
colleagues, because I have a bill that I am going to
reintroduce, called the Generating Resources and Opportunities
Within (GROW) Act, which will allow us to increase the
contributions of Fannie Mae and Freddie Mac into the Housing
Trust Fund and the Capital Magnet Fund. I think I have a few
seconds left, and with that, is there anything else, if I yield
my time to you, that you would like to say to us about your
leadership or anything that you have been doing?
Ms. Thompson. Sure. Thank you for the opportunity. And,
again, I really just want to reiterate that both safety and
soundness, and sustainable access to credit are very important
to me, and I take my position very seriously. We have a huge
responsibility. We have public confidence. And I have actually
worked at FDIC and at FHFA, and I have had an impact and a
chance to see what happens when public confidence is destroyed.
I take this role very seriously and I just want to make sure
that we are marching down the path of safety and soundness,
good financial condition, and also equitable access to credit
throughout the country.
Mrs. Beatty. Let me just say, thank you. And Madam
Chairwoman, let me also say for the record, many other former
Directors have probably done a great job, but they have not
reached out as Director Thompson has. I want to be on the
record and thank you for reaching out, for talking about
housing far beyond the traditional means of coming before this
committee, and I have had the opportunity to have some one-on-
one time with you. Thank you, and I yield back.
Chairwoman Waters. Thank you. The gentleman from Tennessee,
Mr. Rose, is now recognized for 5 minutes.
Mr. Rose. Thank you, Chairwoman Waters, and Ranking Member
McHenry, for holding the hearing, and thank you to Director
Thompson for being with us today.
I would just like to first express some concerns about the
proposals that are attached to this legislative hearing today.
We are over $30 trillion in debt. We are experiencing the
highest inflation in over 40 years, and the Majority has chosen
to attach proposals, like Build Back Better, and the
Downpayment Toward Equity Act, to this hearing that would spend
money we don't have, put people in houses they can't afford,
and exacerbate the current inflation that is hurting everyday
Americans, including Tennesseans back in my home district.
With that, let me dive right into some questions. Director
Thompson, during your confirmation hearing before the Senate
Banking Committee, you stated that you, ``have long believed
that safety and soundness and access to credit are not mutually
exclusive.'' While some actions that the FHFA takes may promote
either safety and soundness or access to credit, there are
actions that FHFA can take and prioritize that enhance both
safety and soundness and access to credit, such as utilizing
direct mortgage insurance. Will you commit to prioritizing
initiatives at FHFA that will both enhance safety and soundness
and improve access to credit?
Ms. Thompson. Absolutely. Thank you for the question,
because that is really something I firmly believe in, and/both
safety and soundness and equitable access to credit, not
either/or. And, again, we have seen the extremes on both ends,
and they have to work hand-in-hand because the Enterprises have
to do things in a safe and sound manner, but they have to
fulfill their mission to promote equitable access across the
country to every neighborhood so that we have a good functional
housing finance system.
Mr. Rose. What about direct mortgage insurance? Would you
speak to that?
Ms. Thompson. That was, I think, a pilot that the
Enterprises engaged in a couple of years ago. I would have to
take a look at what the results were, and probably get input
from stakeholders on the impact of that particular pilot.
Mr. Rose. Thank you. Director Thompson, I would like to
follow up on some of the questioning that you have already
faced regarding the GSEs. Do you believe that the
conservatorships are unsustainable and need to end?
Ms. Thompson. The Enterprises have been in conservatorship
for 14 years, so I think that nobody ever expected that to be
the case. I know, again, at the FDIC, when an institution is
placed into conservatorship, it is placed into conservatorship
for a resolution, which is sale or some other mechanism. This
is really unprecedented what we have had to deal with for these
past years, and this isn't something that there is an easy
answer to. So, when the Congress makes a decision on the future
of the secondary mortgage market, we certainly can do whatever
we can to facilitate that, and we can try to be helpful to the
extent that you all want to engage in legislative proposals.
But, again, I am the sixth Director, and have worked under four
Administrations, and we are happy to engage on this issue
whenever you all would like.
Mr. Rose. Thank you. Do you believe that any government
guarantee should be paid for and should come behind significant
private capital in the first loss position, kicking in only in
the most catastrophic of economic crises?
Ms. Thompson. Yes. I believe that is one of the reasons
that we are allowing the Enterprises to build capital so that
the government doesn't have to absorb any of the losses. As
another reason, we are facilitating the Credit Risk Transfer
Program, again, so that the private sector, not the Enterprises
and not the taxpayers, can absorb any catastrophic or
unexpected losses. We do believe in having skin in the game.
Mr. Rose. And I think you have sort of alluded to this, but
are you going to make it a priority during your time to end the
conservatorships?
Ms. Thompson. I am going to make it a priority to make sure
that the Enterprises are run as responsibly as they can be from
an operational and financial perspective. Again, ending
conservatorships is not a quick action to undertake. There are
capital targets that have to be met. There are other policy
issues that have to be decided by different stakeholders,
Treasury, some with the Federal Reserve and others. So, it is
not an easy or immediate process, and we will do our best to
make sure that when they do exit, they are in a good position
both financially and operationally.
Mr. Rose. And in the last seconds that I have here, I want
to just renew a statement that I made to your predecessor,
which is that back in my home State of Tennessee, a lot of
folks are still very concerned about compensation at the GSEs,
particularly before that 2008 crisis. And if the taxpayer is
going to be on the hook, we certainly want to be sensitive to
that. Thank you.
Chairwoman Waters. Thank you. The gentleman from Florida,
Mr. Lawson, is now recognized for 5 minutes.
Mr. Lawson. Thank you, Madam Chairwoman, and Ranking Member
McHenry. Director Thompson, congratulations and welcome to the
committee. In terms of closing the racial wealth gap, where
does FHFA stand on creating power programs that will allow the
Government-Sponsored Enterprises to purchase more non-
conforming loans for community development financial
institutions?
Ms. Thompson. Thank you for the question. FHFA required the
Enterprises, Fannie Mae and Freddie Mac, to submit equitable
housing plans that looked at what are the barriers to
homeownership, and what are some things that they could put in
place to address those barriers. Again, there are creditworthy
borrowers across the country who are not able to get homes, and
some people don't even believe that they can have a home. I
spoke earlier about one of the programs that both Enterprises
have undertaken, which is to include positive rental payments
in the calculation of the underwriting score, and that is a
program that can be implemented across the country. But we
believe that people have paid their mortgages and they pay
their rent.
Rental payment is one of the largest payments that people
make every month. And if you have someone who is paying their
rent on time, that certainly speaks to their ability and
willingness to repay, and that ought to be considered in the
credit score calculation and certainly can help responsible
homeownership.
Mr. Lawson. Okay. That is great. And, Director Thompson,
since you mentioned rental assistance, renters who are working
hard and trying to save up enough for a down payment to
purchase a home seem to be working against a moving target with
strong year-over-year increases in home prices and rental costs
as well as increases in interest rates. What more do you think
the Enterprises can do to ensure that those who are looking to
transition from rentals to owning a home are not left behind
and locked out of the dream of homeownership?
Ms. Thompson. Both Enterprises have first-time homebuyer
programs, I think, working with different stakeholders around
the country to make sure that prospective homebuyers are aware
of these programs, that they are aware of the requirements, and
that they are ready for homeownership. We believe that there is
a lot of information out there about the Enterprises and their
programs to promote responsible access to credit, and just
working with other stakeholders to make sure that information
is available so that we can get creditworthy borrowers into
homes.
Mr. Lawson. Director, climate change poses an increased
threat to the housing financial system. And I heard you allude
to it earlier that FHFA does have to confirm these changes, the
challenges that they have with these climate changes.
Ms. Thompson. That's a great question. From a housing
perspective, we think of climate change from the natural
disaster perspective. We look at wildfires and the impact of
hurricanes and floods, and we want to make sure that the
Enterprises are well-positioned to address these issues as they
come up. For example, if a hurricane or a tornado takes place
and there is a stated national disaster, homeowners are
impacted immediately. The last thing they need to worry about
is whether or not they are going to make their mortgage payment
when they are looking for an alternative place to live.
So, making sure that we have good programs in place to help
borrowers in their time of need, I think is very important. And
as we are seeing more and more of these climate issues take
place, making sure that people know that they don't have to
worry about making their mortgage while they are actually
trying to find adequate housing for their families. So, having
forbearance programs and modification programs in place, we
believe is really important.
Mr. Lawson. Okay. Thank you very much. Madam Chairwoman, I
yield back.
Chairwoman Waters. Thank you very much. The committee will
take a 15-minute recess and resume at 12:16 p.m..
The committee stands in recess.
[recess]
Chairwoman Waters. The committee will come to order.
The gentleman from Ohio, Mr. Davidson, is now recognized
for 5 minutes.
Mr. Davidson. Thank you, Madam Chairwoman. Director
Thompson, thanks for your time here today. And thanks for the
work you are doing to make owning a home more feasible for more
families around our country. We have had a lot of approaches
here and within the committee, and I don't think it will
surprise anyone that we have differences of opinion on how to
solve a problem. The good news is that this is one in which we
share a common objective. We think America is better and the
American Dream is more complete when more people own their
homes. And I just want to run through a couple of scenarios
here that are ways to maybe go about that.
Hypothetically, if all borrowers were given a fixed sum of
government grant money to purchase a new home, would the market
respond by simply increasing home prices by the same amount?
Ms. Thompson. It is hard to tell the answer to that
question, and I don't know that the market will respond by
increase. I don't know how the market will respond, honestly.
Mr. Davidson. I think economists would recognize that if
you have an artificial insertion of, say, whether it is
$10,000, $50,000, or $100,000, setting that aside, say my
colleague, Mr. Loudermilk, he is going to sell a home and I
will buy it, and we said, all right, $250,000, done. Great.
Make it $300,000. What do you mean? We just shook on $250,000.
Oh, we are going to get $50,000 from the Federal Government.
That is effectively how subsidies work, and the things that we
subsidize tend to be more inflated. We subsidized health care,
most egregiously, and we have seen the problems of subsidies in
education. And what is gone is the rate of inflation, and the
things that we subsidize far outpace the massive inflation we
have seen in the United States.
And, frankly, I have been really concerned because the
Federal Reserve created this artificial subsidy for housing for
a long time, and they were soaking up Treasuries that no one
else was willing to buy massively, but they were also buying
about $40 billion worth of mortgage-backed securities every
month. That is not a direct subsidy, but it is an indirect
subsidy. How will FHFA adapt and how will the market respond to
the fact that the Federal Reserve is no longer soaking up $40-
billion worth of demand for these every month?
Ms. Thompson. I think the Federal Reserve made a comment
about what actions they were going to take, and part of those
actions was to let some of the mortgage-backed securities run
off, and we have seen some of that take place. When we looked
at the actual coupons of what Federal Reserve Bank holdings
were, I think they were looking at coupons or interest rates,
securities with interest rates of like 2 and 2.5 percent, and
in today's interest rate, our current coupon is about 4, 4.5
percent. So, we think that the Federal Reserve's actions
certainly have started, and it has yet to be seen what impact
they will have, but so far we have not seen a significant
change.
Mr. Davidson. You are doubling the cost of interest rates
on homes, so the rate of interest is going to go up. We are
seeing the market respond to that already. And fundamentally,
that depresses prices, because for the same amount of money per
month, someone who was going to buy a $250,000 home might have
to look at a $200,000 home now because they can't afford the
payment. The interest gets much more expensive, and that has
the effect of depressing prices. Conversely, when they were
subsidizing, it had the effect of inflating prices. We have
experienced this asset price inflation for nearly 2 years with
the Fed dumping fuel on the fire. I think one of the hopes,
really, is technology.
We could all continue to have these debates about
continuing, hopefully, to turn off some of the economic
distortions that we are seeing here. It is trending the right
way at the Fed. Hopefully soon, there will be an election that
will help turn the trend the right way here in Congress.
But your office, I was encouraged to see, announced an
Office of Financial Technology. In this paragraph, I just
wanted to say, in the announcement, in preparation for the
launch of the Office of Financial Technology, FHFA conducted
discussions with peer regulatory agencies and industry groups.
A key takeaway from those discussions is the value of
consistent stakeholder engagement and helping to identify
opportunities and challenges in the application of new
technologies in the housing finance system.
Do you go about that approach with clear regulatory
guidance or regulation by enforcement? And what are some of the
things that you view as promising as you are launching this
Office?
Ms. Thompson. Sure. It depends on the issue, which would
determine, as it is true with the banking regulators, was
implemented through guidance and what is implemented through
statutory regulation. But as we engage with the other
regulators, and we certainly do with the FFIEC and also with
FSOC, but each of the regulators has started an office of
financial technology or something similar.
One of the things we wanted to do was try to figure out
what lessons they have learned before we started our office,
and specifically, we want to focus on technology impacts in the
mortgage industry. And we want to see the technology that is
being used, and how it is being used, to make sure that it is a
safe and sound process, not just for the user of the
technology, but for the borrower as well.
Mr. Davidson. Thank you. My time has expired, and I look
forward to cooperating with you as you develop that office.
Thanks.
Chairwoman Waters. The gentleman from New Jersey, Mr.
Gottheimer, who is also the Vice Chair of our Subcommittee on
National Security, International Development and Monetary
Policy, is now recognized for 5 minutes.
Mr. Gottheimer. Thank you, Madam Chairwoman, and thank you,
Director, for being here today. The United States is suffering
from a chronic housing shortage, as we know, and I believe it
is well past time to implement a long-term national strategy to
expand our housing supply. The first step of developing a
sustainable and abundant supply of housing, of course, is to
reduce the cost of materials and increase access to labor. To
do this, Congress will take immediate action to fix our supply
chains and strengthen our workforce by, among other actions,
investing in skilled and construction trades.
Director Thompson, from your perspective, what is the
greatest obstacle to increasing the supply of housing in the
United States, and what actions could Congress take to most
quickly reduce housing costs for Americans?
Ms. Thompson. That's a great question, and certainly, the
housing supply shortage is not new, and it is getting
exacerbated, as you stated, through the labor shortage, labor
costs, and supply chain issues. And to the extent there are
answers to address those particular issues, I think that can be
very helpful in terms of just addressing the housing supply. If
you have the supplies and the supply chain is distorted and
taking a long time, that has a huge impact on home builders,
and it is just a domino effect. So to the extent that Congress
has ideas about things that they want to do, certainly we would
work with them to figure out what would work for our regulated
entities in a way that would be helpful.
Mr. Gottheimer. And are there policies that FHFA is
pursuing to increase the supply of affordable housing in the
United States?
Ms. Thompson. FHFA indirectly impacts affordable housing
and housing specifically. We don't build. We are, as you well
know, providers of secondary market liquidity, and we can
incrementally impact housing. For example, we have allowed the
Enterprises to allocate low-income tax credit or the housing
tax credit in rural and other properties as specifically
focused on affordable housing. We have also encouraged the
Enterprises to take a look at their existing Accessory Dwelling
Unit (ADU) programs, and also manufactured housing programs,
which we think will be very beneficial in terms of helping the
housing supply in rural areas where housing supply issues are
particularly acute.
And again, we are happy to work with the Congress to do
whatever we can to be helpful as we, as a nation, address the
housing supply issue.
Mr. Gottheimer. Thank you, Director. Now, I would like to
shift focus to the ongoing credit score evaluation, which has
now been in progress for more than 7 years. Over the past 4
years, I joined my colleagues in sending letters to three
different FHFA Directors, including you, about my concerns with
the proposed multi-score option where the credit bureaus own
one of the credit score developers, VantageScore. The credit
bureaus already control the credit data that would be needed by
any credit score developer to produce a score for this unique
market. As a result, I don't see how creating a multi-score
system, which strengthens the credit bureaus' market position,
is a viable consideration.
I appreciate your recent response to my letter raising
these concerns, but I am requesting further elaboration,
please, on how the so-called lender choice option could address
the vertical integration threats, consumer confusion, and a
host of other problems that arise from this approach.
Ms. Thompson. Sure. Thank you for the question. We have not
made a decision on the credit score model. As you know, both
Enterprises and most mortgage participants have used the FICO
classic model for over 20 years now. And there have been so
many different changes and things that should impact credit
scoring, like utility payments or rental payments. And there
are just a host of other issues that are now more prevalent
than they were 20 years ago. In fact I don't even think they
existed 20 years ago.
But at the end of the day, making a change on updating the
credit score model is a decision that we take very seriously
because it is going to have significant operational and cost
impacts, even if we move from one credit score to a new credit
score. So, we want to be very thoughtful, and we want to engage
with all of the stakeholders about not just what we do, but how
we do it, because it is going to be very costly. Many people
think that the credit score models--
Mr. Gottheimer. I'm sorry. I want to try to get a sense of
your timing in that, when you expect a decision. Do you have a
sense of timing of it coming, because it has been 7 years? Do
you have a sense of whether that will be soon?
Ms. Thompson. Yes. We are in the process. This isn't an
easy decision, and we want to make sure that we are making the
right decision because it impacts so many stakeholders
throughout the nation.
Mr. Gottheimer. Yes. I just worry a lot because we know
that is going to take another 2 years once it is decided. I
just worry a lot about the impact it is having on homeowners
and families. So, anything you can do to keep us abreast of
kind of that progress would be very helpful.
Ms. Thompson. I am happy to do so. Thank you.
Mr. Gottheimer. Thank you so much, and I yield back.
Chairwoman Waters. Thank you. The gentleman from Georgia,
Mr. Loudermilk, is now recognized for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman. Director
Thompson, congratulations on your position. And it is a very
important time, a very tenuous time that we are in right now,
where we are focused on the safety and the soundness of the
GSEs, and I hope you would agree with that. And I want to talk
a little bit about some priorities of your office, and, first,
let me ask, where are you on finalizing the rule for prior
approval of Enterprise products as the law requires?
Ms. Thompson. Sure. That's a great question. We are in the
process of looking at finalizing that rule. We want to make
sure that there is transparency in the activities of the
Enterprises, and we are looking at a couple of different
aspects. So, we will be finalizing the rule.
Mr. Loudermilk. You are going to finalize the rule as it is
written by law?
Ms. Thompson. Yes.
Mr. Loudermilk. Okay. I just want to make sure, because my
understanding is you may be replacing it with a pilot
transparency framework.
Ms. Thompson. No, no, the pilot transparency framework--
just to be clear, there were a lot of questions about what the
Enterprises were doing in both their duty to serve plans and
also the equitable homeownership or the equitable housing
plans. And we wanted to have a framework in place to be
transparent about what activities the Enterprises were
undertaking so that people could comment or so you would just
know what they were doing. And that was just one step that we
were undertaking, because these pilot programs, some of them
are included, and we want to have a transparent process where
people know what the Enterprises are doing.
Mr. Loudermilk. So, your pilot transparency framework is
not going to replace the rule. And you are still going to
require public comment?
Ms. Thompson. We have a proposed rule, and we received
public comment on the proposed rule. We are taking those
comments into consideration, and we are going to finalize the
rule based on the comments that we received. The pilot
transparency does not take the place of the rule.
Mr. Loudermilk. Okay. And that is why I am asking
questions, because there are perceptions, and in politics,
perceptions can be reality, so I just want to make sure we are
in the right place on priorities. And let me first say that I
agree, and I think everyone on this committee, in Congress,
agrees that there should be equity in all that we do,
regardless of someone's background, someone's race, et cetera,
and I applaud those who look at that to ensure that things are
equitable. But there have been some issues that we have seen
here in Congress that when you base a policy specifically on
race, that is unconstitutional. We have seen that happen
recently.
And I just want to make sure that the racial equity plans
that we come forward with are based on the Constitution. Our
concern is that Fannie Mae's recent racial equity plan never
mentions, ``safety and soundness,'' and Freddie Mac's plan only
mentions it twice. And the fact that some of these are race-
based is generally unconstitutional, which we saw on the
American Rescue Plan when a race-based priority was given to
government subsidies and the courts ruled that is
unconstitutional and struck it down. I just want to make sure
that when you are going forward, you are working within the
framework of the Constitution.
Ms. Thompson. Yes, absolutely, and thank you for the
question, because I can assure this committee that we fully
intend to comply with the law as written. And the equitable
housing plans are certainly plans that are focused on
underserved communities, similar to the plans that we have for
rural communities which are underserved, and tribal
communities. We are focused on communities of color because
they have been impacted by the housing crisis of the Great
Recession and even prior to that, and so the things that are in
some of these equitable housing plans will benefit all. I had
mentioned earlier the positive rental payments. That would be
appropriate for all borrowers, all prospective borrowers.
Mr. Loudermilk. Okay. I only have a few seconds left, and
you mentioned the 2008 recession. That was brought on because,
really, we were subsidizing people to buy houses they could not
afford, right? Right now, we are in a situation where the
demand is outpacing supply. How do you reconcile that the
Treasury Department is raising interest rates to suppress
demand as we are trying to get inflation under control, but the
GSEs are trying to artificially stimulate through homebuyers'
subsidies? Is that not contradictory here?
Ms. Thompson. I'm a safety and soundness regulator first
and foremost, and everything that the GSEs will do will be
grounded in safety and soundness, and that includes access to
credit. We have already seen what happens when unsustainable
loans were made, and people had loans that they didn't
understand and couldn't afford. We are not doing that. We want
to make sure that access to credit is sustainable, that not
only do people get in homes, but hey stay there, because it is
completely disruptive for borrowers, servicers, you name it, an
unsustainable system.
Mr. Loudermilk. Thank you, Madam Chairwoman.
Chairwoman Waters. The gentleman's time has expired. The
gentlewoman from Iowa, Mrs. Axne, who is also the Vice Chair of
our Subcommittee on Housing, Community Development, and
Insurance, is now recognized for 5 minutes.
Mrs. Axne. Thank you, Madam Chairwoman, and thank you,
Director Thompson, for being here. I very much appreciate it.
And I sure appreciate hearing the word, ``rural,'' in the last
5 minutes, I think 3 times, so thank you and your team for all
that you are doing for rural housing as well.
Just over 3 years ago, some of my constituents living in a
manufactured housing community--which, as you mentioned, are
good opportunities for getting people into homes--in Waukee,
Iowa, received a notice that their community had been sold, and
that their rents were set to be jacked up by 69 percent. Many
of these folks are people who are living on fixed incomes. They
are, of course, now struggling to afford food and keep a roof
over their heads. But to make matters even worse, that
community, just like hundreds of other communities like theirs
across the country, saw rent and fee increases, and the buyer
was backed by Fannie Mae.
So, having these kinds of predatory rent increases
benefiting from Federal backing just seems so wrong. It is like
adding insult to injury. And a few years ago, FHFA, Fannie Mae,
and Freddie Mac worked on a set of tenant site lease
protections (TSLPs). These are very basic things, as you well
know, like notice of sale, or closure of a community, or the
right to sell your own home in your community. But here is the
problem. That community that I just talked about with a more
than 60-percent increase in rent, that purchase included those
TSLPs, and the buyer actually got a discount to buy that
community, but he is still jacking up their rent increases by
60 percent.
I have to ask you, Director Thompson, does it feel like the
residents in that community are really getting protected?
Ms. Thompson. Great question. We believe that tenant
protections are very important, and that is why we require both
Fannie and Freddie to not purchase loans, especially in
manufactured housing communities that don't have the tenant
protections, and they won't get the duty to serve credit. I
think we need to follow up on that specific example of what
took place there because that is not the intent. In addition to
putting these protections in place, one of the things that we
do is we have the seller or the seller of the loan to Fannie or
Freddie certify every year that these protections are being
enforced. I really would like to follow up with you on that
specific incident.
Mrs. Axne. Absolutely, and I appreciate that because we
have to make sure that we take care of this, so thank you. Now,
can you explain quickly what the duty-to-serve obligations are
and whether you think this purchase counts towards that
requirement?
Ms. Thompson. In order to meet the duty-to-serve
requirement to get credit from our Agency for Fannie and
Freddie, they have to have the tenant protections, and we ask
the Enterprises to put forth a plan as to how they are going to
increase liquidity in hard-to-serve areas, rural areas in
particular. The duty to serve covers three specific areas:
rural; manufactured housing; and affordable housing
preservation. They submit their plans, and then we review them
and approve them, and they have to meet those plans and then
they get credit, and we assess their progress on an annual
basis: Here is what you said you were going to do, and here is
what you did. Did you do it, and if you didn't, there are lots
of conversations.
Mrs. Axne. Good. Thank you. So, it definitely does count.
And I believe this kind of action should not be counting as
community here, and I would ask you to look at those changes,
so thank you for bringing that up that your team will because
it is really important. And I have to tell you, it is
incredibly frustrating for me and my constituents who feel like
they are being put under the thumb of a landlord who is taking
advantage of Federal backing and not putting forth the
protections that my constituents need. These are just average,
everyday folks trying to make ends meet, save enough for a
dignified retirement, and keep a good roof over their heads.
In general, I would love to see you and the FHFA strengthen
the protections for residents of communities that Fannie and
Freddie finance, require public disclosure of those
communities, align duty-to-serve credit with the actual level
of support for the residents, and work to give residents a
strong right of first refusal to give them a chance to buy
their own communities. You may know I have been working with
Senator Hickenlooper on this. We have a letter that gives more
detail on those recommendations, so we will be getting that to
you. And can I just have you commit to reviewing that letter
and taking a look at some of these protections for manufactured
housing?
Ms. Thompson. Absolutely. We are happy to do so.
Mrs. Axne. Thank you so much. I will make sure the Senator
knows about that. My team and myself are ready to work with you
and your team at any given point in time. I agree with you. I
think manufactured housing could be much more impactful in
helping get a roof over people's heads in this country, but
only if the protections are really there for those tenants.
Thank you so much. I yield back.
Chairwoman Waters. Thank you. The gentleman from Ohio, Mr.
Gonzalez, is now recognized for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman. And
thank you, Director Thompson, and congratulations, which has
been extended so many times and is much deserved.
When I look at the housing market today and really for the
last several years, I think what we see is a clear supply and
demand imbalance which is jacking up prices. Of course that
was, in many ways, stimulated by zero percent interest rates
which were held too low for too long. That aside, homes are
becoming more unaffordable, and it is pricing, especially young
families, out of the market entirely. As you note in your
testimony, the number-one issue is low inventory. Beyond
increasing the GSE's equity investment cap, what more can the
FHFA do to increase supply? For example, could Fannie and
Freddie take steps to encourage more lenders to make more low-
cost loans available for builders to buy land and construct
less-expensive starter homes for first-time buyers?
Ms. Thompson. That's a great question, and we will have to
take a look at the charter requirements for Fannie and Freddie
to see if they were eligible to purchase construction or loans
that had not, without the actual collateral, they have to buy
the loans on property that exists, not to be. But certainly, we
would have to look at the charter requirements for Fannie and
Freddie on that particular issue.
Mr. Gonzalez of Ohio. Anything else that you could think of
within your remit that could boost supply?
Ms. Thompson. Again, as you pointed out, Fannie and Freddie
have very little impact on supply. Certainly, they can provide
liquidity for different types of mortgages. And you mentioned
on the multi-family side, we talked about an increase in the
LIHTC allocation. On the single-family side, we have really
been looking again at accessory dwelling units and also the
manufactured housing. We think, again, that the manufactured
housing programs that already exist at Fannie and Freddie can
certainly be helpful in terms of providing liquidity to those
who want manufactured housing.
Mr. Gonzalez of Ohio. Yes, thank you. I think that
highlights a point that Mr. Davidson was moving in the
direction of, which is the more subsidies we provide, the more
that we do these sorts of things, we don't actually solve the
underlying problem, which is the lack of homes, and there
simply isn't enough supply in the market. This is especially
acute in the places with the worst homelessness problems
because it is nearly impossible.
For example, let's talk about San Francisco for a second,
where it's nearly impossible to bring homes online. It takes
forever. It costs ungodly sums, and, as a result, their housing
crisis is probably as bad as any in the country.
So, I hope this committee will start to take that issue up
in a major way. We talk a lot about housing and we should,
because, as Mr. Davidson suggested, it is a shared priority for
all of us. But until we do something significant on the supply
side, I just don't see this solving itself.
I have a minute and 40 seconds left. So once again, the
GSEs are growing in power and building up. They are implicitly
taxpayer-guaranteed debt. As it stands, the combined assets of
the GSEs are over $7 billion, which is an amount greater than
the combined assets of the nation's three largest banks. What
steps is the Agency taking to ensure that in the event of a
market downturn, low-income buyers will be protected and
taxpayers won't be required to once again bail out the GSEs?
Ms. Thompson. That is a great question. The Enterprises, as
you mentioned, are responsible for a little over $7.5 trillion
in--
Mr. Gonzalez of Ohio. Trillion? I said, ``billion.'' It is
trillion.
Ms. Thompson. Yes, but your point was well made. Just over
a year ago, they were allowed to retain all of the earnings
that they made, and this has been about a year-and-a-half now,
and between Fannie and Freddie combined, they have about $80
billion in capital. And in addition to continuing to build
capital, they are also engaged in the Credit Risk Transfer
Program, because while they are building capital, we want to
make sure that if something unexpected happens or if there is a
catastrophic loss, that we have transferred that credit risk to
the private sector so that they can absorb some of those losses
and that those losses are not on the backs of the taxpayers or
the Enterprises.
Mr. Gonzalez of Ohio. And how do you feel about that at the
moment? Do you feel comfortable with the safety and soundness
of our GSEs at the moment?
Ms. Thompson. Yes, I feel very comfortable with the safety
and soundness of the Enterprises. We have outstanding
supervision programs, great people at FHFA who look at Fannie
and Freddie every single day. We also actually benefited, to
some extent, from the portfolio perspective, with the low
interest rate environment as many borrowers took the
opportunity to reduce their interest rates. I would consider
that derisking the existing portfolio, so we are in good
condition. We are concerned about some of the market volatility
and some of the rapidity with which these changes have taken
place, the interest rate increase in home prices, so we keep
our eye on that.
Mr. Gonzalez of Ohio. Thank you. I yield back.
Chairwoman Waters. The gentleman's time has expired. The
gentleman from Illinois, Mr. Casten, who is also the Vice Chair
of our Subcommittee on Investor Protection, Entrepreneurship,
and Capital Markets, is now recognized for 5 minutes.
Mr. Casten. Thank you, Madam Chairwoman, and Director
Thompson, it's nice to see you. I have great sympathy for your
position because I feel like all of us who are responsible in
some capacity for housing policy are deeply schizophrenic. On
the one hand, we want houses to be a store of wealth and
increase the wealth of the American people. On the other hand,
we want housing to be affordable, and anything we do to push
one of those levers hurts the other. And I think we have seen
it a lot on this committee today, right, whether or not we
think about housing inflation as being a good thing.
From 2010 to 2020, a period that I think all of us would
agree was not a particularly inflationary period, we saw median
wages in the U.S. over that 10-year period grow by only 9
percent. CPI was up 20 percent during that period, and median
home prices went up 50 percent. Those are numbers to prove what
we all know, which is that it has gotten harder and harder for
most Americans to buy their first home and start accumulating
that wealth.
And I had this conversation recently with Larry Summers
that you can put a part of the blame for that on the fact that
way back in 1983, we actually took housing prices out of the
CPI Index. There was a concern that this was going to
eventually bankrupt Social Security because housing prices were
going to grow so quickly. And the result of that, in part, has
been that the Fed does not raise interest rates as quickly to
rising house prices as they otherwise would have.
And I wonder if you could comment just, number one, how you
see your role, how you balance that tension between wealth
creation and housing affordability? And number two, what would
you pay if you didn't have a house? Should we think about
putting housing prices back into CPI so that the Fed can
actually get out ahead of housing bubbles beforehand?
Ms. Thompson. It is a great question, and I haven't really
thought about whether or not we should put housing back into
CPI. I am certainly happy to work with you and do some research
on that particular issue and get back to you and your staff on
that.
In terms of the balance, we try to balance all of the
different factors, the market factors, and the other issues
that pertain to the activities of our regulated entities. And
there is always a healthy tension, as you mentioned, between
the home prices and also affordability. And again, our view is
to make sure that safety and soundness as far as in that we are
making sure that we are providing liquidity across the country
to those who are eligible and able to purchase homes.
And striking that balance, again, is important, because
sometimes there are factors, as you have mentioned, that we
just can't or didn't plan for. But, again, we have pretty
restrictive programs in place that make sure that we are not
allowing loans to be made that cannot be repaid and that
borrowers cannot afford. I think that those are really some
healthy tensions in terms of affordability and the home price.
Mr. Casten. I would love to continue the conversation. It
is a tricky issue. But at a minimum, it seems to me that if
wealth is growing faster than income, that is going to
disproportionately accrue at the upper ends of our economy,
which is what we stated.
Second, unrelated question, I know you have gotten a lot of
questions about Fannie and Freddie and conservatorship, and I
understand you are not going to go on the record with what
might happen there. But it strikes me that you have a fairly
unique vantage point because you oversee all of these other
Federal Home Loan Banks (FHLBanks), many of which, unlike
Fannie and Freddie, don't have this innate conflict because it
is a federally-backed, for-profit institution. They behaved in
ways that got them into conservatorship in the first place,
that you didn't have to deal with, with the other FHLBanks
because the other FHLBanks structurally don't have a conflict
between their customers and their homeowners.
And I wonder if you would consider having a conversation
that if we are going to eventually get Fannie and Freddie out
of conservatorship, can we think about learning the lessons
from the other FHLBanks and maybe changing the structure of
Fannie and Freddie so that they don't have the incentives to
get back in, because, again, I think within the banks you
oversee, it is not coincidental that the one that went into
conservatorship, that blew up, was the one that had the
conflict of interest, that, too, would have a conflict of
interest.
Ms. Thompson. We are happy to have those conversations.
Mr. Casten. Okay. I will follow up with your office, and I
will yield back the balance of my time. Thank you.
Chairwoman Waters. Thank you. The gentleman from Wisconsin,
Mr. Steil, is now recognized for 5 minutes.
Mr. Steil. Thank you very much, Madam Chairwoman. And thank
you for being here, Director Thompson. I appreciate your time
with us today as well as your testimony.
In your testimony, you noted that at the FHFA, you took
decisive action to support the market and provide relief to
borrowers and renters with mortgages backed by the Enterprises.
This is in relation to navigating through the pandemic. And you
said, ``Our actions allowed millions of Americans to stay in
their homes.'' That is a great thing for so many Americans. Do
you believe that during the pandemic, FHFA's response to the
pandemic fell short?
Ms. Thompson. I believe that the pandemic was
unprecedented. And I believe that FHFA and the regulated
entities worked together to ensure that borrowers were
protected and stayed in their homes, and also that renters were
protected as well. And I think that we worked really hard to
make sure that the losses, because nobody knew what they were,
would not be exorbitant.
Mr. Steil. Understood. And I would agree that I think we
actually navigated through that reasonably well from an FHFA
perspective, and I appreciate your comments. The reason I bring
it up is earlier, I know, in a previous statement, going back a
little bit, our chairwoman said, ``I am very concerned that
FHFA's response to this pandemic has fallen short, and that
Director Calabria, like President Trump, is putting his
personal agenda ahead of the American public.'' I disagree with
that, and from your words, it sounds like you do as well.
Let me jump to the next topic I want to cover. I am
curious, in particular, about the capital requirements, how we
are building this up, in particular, and how, in your role as
both a regulator and a conservator, you are analyzing building
up those capital requirements and what actions are being taken
under your direction to do that? How do you balance those two
hats?
Ms. Thompson. Sure. We have an Office of Conservatorship,
and we also have an Office of Supervision. And the Office of
Supervision operates in a similar way to supervision
responsibilities at other Federal regulatory agencies, so they
supervise. We have a supervision team for the Enterprises, and
we have a supervision team for the Home Loan Banks. The Office
of Conservatorship looks at the infrastructure of the
Enterprises, and they also work with the Division of Housing
Mission and Goals, which works on many policy initiatives. We
have a huge governance infrastructure that evaluates some of
the policies and practices of the Enterprises, but we have a
separate team that oversees supervision.
Mr. Steil. Understood. That is a helpful clarification for
me. Is it a goal in your role as the Director to continue to
build capital at the GSEs?
Ms. Thompson. Absolutely.
Mr. Steil. Perfect. And I would like to take that in that
context and ask you a question about a decision you made. Under
Director Calabria's FHFA, we put a portfolio cap on vacation
homes and investment properties, which you removed once you
took over, and I am curious about the justification for that?
Earlier today, you said you think it is important that we move
risks to the private sector, and I agree with that. So, how
would you explain that to a voter in Kenosha, Wisconsin, who is
concerned that their tax dollars are at risk for the GSEs, and,
in particular, as it relates to vacation properties and second
homes?
Ms. Thompson. I would say that FHFA and Fannie and Freddie
monitor risk. There is a role for seconds and investors. And in
many cases, the investor properties are in minority or low- to
moderate-income communities. That would be true in Kenosha or--
Mr. Steil. The vacation properties are in low- to moderate-
income areas?
Ms. Thompson. No, no. Vacation properties might be in Door
County or other.
Mr. Steil. If they ever visited Wisconsin, it would be one
of the most high-income areas in the State, right? There are
often vacation, private--traditionally, people who have second
homes are not low-income individuals.
Ms. Thompson. We just monitor the risks. We monitor what
comes in for investor properties and second homes. I did not
remove it. We are monitoring the risk to our conservatorship
authorities and our supervisory authorities.
Mr. Steil. I appreciate your comments. Let me just share my
view on this, which is that I think any time government risk is
being backed by shareholders, implicitly or explicitly--in this
case, implicitly--I get really concerned when we are looking at
fancy-pants vacation homes differently than, in particular,
low-income individuals, whom we really have to make sure we are
getting into that home. When we look at expensive homes, I
think that is a different bucket. I appreciate your time. I
yield back.
Chairwoman Waters. Thank you. The gentlewoman from
Massachusetts, Ms. Pressley, who is also the Vice Chair of our
Subcommittee on Consumer Protection and Financial Institutions,
is now recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman. I really
appreciate your holding this critical hearing, and Director
Thompson, I appreciate your leadership at the FHFA.
Blatantly racist policies, like redlining, denied Black
families homeownership opportunities throughout much of
America's history, and we are still seeing the effects of those
laws today. In fact, the WBUR analysis of mortgage lending in
Boston, a city in my district, the Massachusetts 7th, found
that between 2015 and 2020, Black applicants were denied
mortgages at 3 times the rate of White applicants. This is
modern-day redlining, and we need intentional policy solutions
and tools to end this discrimination and create equity in our
housing market.
Director, every family has the right to a stable, safe, and
affordable home, but for Black families, this right has truly
never been actualized. Director Thompson, last December you
acknowledged that special purpose credit programs are important
tools that can promote equity. Fannie Mae and Freddie Mac both
cite these programs as ways to help promote credit access and
reduce barriers to homeownership for Black and Latino
borrowers. However, these programs remain dramatically
underutilized. Can you share with us your plan to ensure the
special purpose credit programs reach borrowers of color who
are disproportionately underserved?
Ms. Thompson. Sure. Thank you for the question. The
Enterprises, as you have mentioned, have published these
equitable housing plans, and contained in those plans are
provisions to utilize the special purpose credit programs. And
we are making sure that all of the programs and policies that
are in these equitable housing plans come before the FHFA so
that we can understand the risk, and we can understand the
impact, both on low- to moderate-income families and
communities of color. And we really believe that the SPCPs, or
the special purpose credit programs, are going to be a really
good way to facilitate equitable homeownership in a responsible
way, working with different stakeholders.
Ms. Pressley. Thank you. And Director Thompson, Fannie Mae
and Freddie Mac's practice of charging loan-level price
adjustments disproportionately impacts Black and Brown
borrowers, due, in part, to limited access to wealth for large
down payments. These fees are pricing many Black and Brown
borrowers in my district and around the country out of the
mortgage market altogether. Will you commit to eliminating
loan-level price adjustments, and have you considered how this
change could help struggling homebuyers actually achieve
equitable access to homeownership?
Ms. Thompson. Thank you for the question. We have asked
Fannie Mae and Freddie Mac to undertake a holistic pricing
review, which would include the loan-level pricing adjustments
or delivery fees and also the guaranty fees. And we are going
to look at the submissions and take into consideration the
impact that pricing has on all of the different segments,
including communities of color. That is a priority for the
Enterprises for this year, and we will commit to taking a look
at, again, the pricing and the impact on different areas of
impact.
Ms. Pressley. Thank you. And with the Federal Reserve's
recent interest rate hikes, homeownership is even further out
of reach for many working-class families due to the increased
cost of mortgages, so at least some layer challenges there.
Director Thompson, what policy options is the FHFA considering
to offset rising interest rates and assist first-time
homebuyers who lack intergenerational wealth? Would you agree
that post-purchase counseling or, say, a reserve account to
assist borrowers with home repairs and other financial
hardships will help in that regard?
Ms. Thompson. I absolutely think that post-purchase
counseling is extremely helpful, especially when a borrower
gets in trouble. That was one of the lessons learned from the
Great Recession, that borrowers were not calling their
servicers when they were getting in trouble with having to pay
their mortgages or when they couldn't pay. So, early contact is
really important, and so we think that is really just
fundamental.
The other thing that you mentioned that I think is very
important is what I call liquidity reserves, or what happens
when the hot water heater breaks and you have to go into your
savings. These are the things that really need to be talked
about as we enter and embark into homeownership because these
unexpected expenses can certainly have an impact on households.
And the more information borrowers, especially first-time
homebuyers and first-generation homebuyers, have is going to be
just crucial to the sustainability of the mortgage.
Ms. Pressley. Thank you.
Chairwoman Waters. Thank you. The gentleman from South
Carolina, Mr. Timmons, is now recognized for 5 minutes.
Mr. Timmons. Thank you, Madam Chairwoman, and welcome,
Director Thompson. Thank you for being here. Are you familiar
with the intern graduate opportunities that are available at
the FHFA?
Ms. Thompson. We have interns at FHFA. I am not sure if
that is an exact name of the program.
Mr. Timmons. Sure. I am looking on the website, and you
have internships for, I guess, college-, and high-school-level
students. You have a Recent Graduate program, a Presidential
Management fellow program, and a Research Assistant program,
with different levels of qualifications, and different pay
structures, obviously, because some of them have more
qualifications than others. That makes sense. Have you ever
been involved with any hiring or recommendations for any of the
positions I just talked about?
Ms. Thompson. No, I have not.
Mr. Timmons. Do you have any idea what they make?
Ms. Thompson. The High School Interns is a new program. We
certainly work with the other regulators like the OCC, the SEC,
and other financial regulators, but I am not sure what the
exact pay is for those.
Mr. Timmons. But you would agree it is probably not more
than $100,000 for any of those positions annually?
Ms. Thompson. For an internship?
Mr. Timmons. Yes.
Ms. Thompson. I have no familiarity with pay scale, and we
actually work with our other regulators to figure out what our
pay structure is going to be.
Mr. Timmons. If they did make over $100,000, do you think
they should be subject to the ethics and disclosure
requirements?
Ms. Thompson. I think everybody should be subject to ethics
requirements.
Mr. Timmons. I like that answer. That is very helpful. So,
you don't have any fellowship programs where you have, say, a
couple dozen people making a quarter-million dollars a year
working for you?
Ms. Thompson. I would have to take a look so I could give
you an accurate answer.
Mr. Timmons. Okay. Probably not. Is that right? You would
know about it if you did.
Ms. Thompson. I should know about it.
Mr. Timmons. I guess one last question. Would you allow any
of your interns or graduate fellows to do interagency
communications, kind of speak on your behalf in their capacity
as an intern or a fellow? Probably not?
Ms. Thompson. I allow my direct reports to speak up. We
speak on behalf of the Agency.
Mr. Timmons. Sure. That is fine.
Ms. Thompson. Yes.
Mr. Timmons. Okay. As you know, in November of 2015,
Congress enacted the Equity in Government Compensation Act of
2015, which capped the compensation that the Chief Executive
Officer of each GSE can make at the levels in effect at the
start of 2015, which was $600,000 per year. Then in March of
2019, FHFA's Inspector General found that the GSEs had fought
their compliance with that law by creating new executive level
jobs, ``acting to circumvent the congressionally-intended cap
of $600,000 on CEO compensation.''
Housing Subcommittee Ranking Member French Hill sent a
letter to your predecessor, Director Calabria, about this issue
in 2019. My question today is, beyond the Chief Executive
Officers, to whom that law applies, are there any current
employees at any level of either Fannie Mae or Freddie Mac who
are currently making more than $600,000 in an annual salary?
Ms. Thompson. I don't believe so, but I would check with
the Ks and Qs that are issued by the Enterprises. They do have
at-risk compensation, but I don't believe that there is any
individual within Fannie or Freddie who has a base salary of
more than $600,000.
Mr. Timmons. Okay. I guess I will give you some homework.
If there are any, could you tell us how many, and we will
submit some questions. And then, could you supply a list of
those positions and their rate of compensation, if anyone does
exceed $600,000? And we will get you something in writing. It
is okay. And would you agree that if anybody is making more
than that while the GSEs remain in taxpayer-supported
conservatorship, that would be a problem? I guess, to your
knowledge, there aren't any that make more than $600,000, but
if there were, would that be a problem?
Ms. Thompson. I want to be clear that the base salary--they
can have bonuses--cannot be more than $600,000. They do have
at-risk compensation, and I, again, would look at the public
disclosures, and I would also get you the information that you
wanted on that particular issue.
Mr. Timmons. Thank you so much. I really appreciate you
being here today. Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you. The gentlewoman from North
Carolina, Ms. Adams, is now recognized for 5 minutes.
Ms. Adams. Thank you, Madam Chairwoman, for hosting the
hearing today. Director Thompson, thank you for your testimony,
and congratulations on your confirmation. I am delighted to
have an HBCU at the helm of FHFA, and I can't wait to see the
great work that I know you will do.
Madam Director, I have three questions for you. Director
Thompson, I would like to dive right into something that we
both care deeply about, the affordable housing crisis in
Charlotte and Mecklenburg County, which I represent. We need
30,000 units of housing to meet our community's need, and that
is why I proudly introduced the bipartisan, bicameral LIFELINE
Act with Representative David Rouzer, and Senators Leahy and
Collins. Our bill would allow cities and States to use their
already-appropriated Coronavirus State and Local Fiscal
Recovery Fund (SLFRF) dollars to serve as gap financing for
housing that utilizes LIHTC.
Director Thompson, do you believe that enabling local
governments to use their SLFRF dollars as gap financing for
LIHTC units could help ameliorate our nationwide housing
shortage?
Ms. Thompson. Certainly, I would love to get more
information on that so I can give you a more thorough and
thoughtful answer, and I would be happy to work with you on
this particular issue.
Ms. Adams. Okay. Thank you. We will make sure you get the
information. I do know that FHFA has been evaluating a new
credit score model for a number of years now, so I wanted to
echo the sentiments that Mr. Gottheimer made earlier.
Ms. Adams. Director Thompson, can you provide a brief
update on where the Agency is in that process and give us a
roadmap on what the next steps might be?
Ms. Thompson. Sure. Thank you for the question. We have not
made a decision on the update for the credit score model. We
are currently analyzing the submissions that we received for
the modelers that have submitted their applications. The
Enterprises went through their oversight process, and we are
now going over ours. And, again, I mentioned earlier that this
is a very complicated decision, and is very impactful for all
stakeholders in the mortgage industry. And we want to make sure
that we get as much stakeholder input on this decision as
possible, so we are actively engaged in overseeing and
reviewing the applications that have been submitted.
Ms. Adams. Thank you. I have one last question. It is my
understanding that FHFA's Office of Inspector General released
a report on third- and fourth-party service providers, and FSOC
recently published a similar report. Can you walk us through
your safety and soundness concerns if those core providers of
technology services to the Enterprises were to fail?
Ms. Thompson. Yes. Thank you for the question, and we have
asked as an agency for third-party service provider oversight.
We want to have the same regulatory authorities that the
financial regulators have, the bank regulators in particular,
over their regulated entities. And we believe that the persons
or entities that provide services to our regulated entities, if
there is an issue that could impact the safety and soundness of
Fannie Mae and Freddie Mac or the Home Loan Banks, that we want
to have the authority to go in and take a look and identify
whatever the problem might be because it could be very
impactful. And we would like to have those authorities so that
we can really have parity with the other financial regulators.
Ms. Adams. Right. Thank you very much. Madam Chairwoman, I
yield back.
Chairwoman Waters. The committee stands in recess. We will
return after the vote on the Floor.
[recess]
Mr. Green. [presiding]. The Chair now recognizes Mr. Norman
for 5 minutes for questions.
Mr. Norman. Thank you, Chairman Green. I appreciate the
opportunity. Director Thompson, thank you for taking the time
to be here today. Let me ask your opinion. Why is it that
someone can get a taxpayer-backed loan from Fannie or Freddie
for a second home up to $1 million?
Ms. Thompson. Sir, thank you for the question. We have a
statutory requirement for loan limits, and the Enterprises are
allowed to purchase second homes, investor homes. And as long
as they meet the qualifications, the loan limits are prescribed
by statute for the different property types. We certainly would
be happy to work with the committee on any adjustments they
would wish to make.
Mr. Norman. Do you think that would be something that would
really send a message, for a second home to be able to let the
taxpayers on the hook to pay it off, if it doesn't work out,
for a second home up to $1 million? Do you not think that sends
a message to all Americans that something is not right about
that?
Ms. Thompson. Certainly, there are requirements on how many
second homes, how many investment homes and other property
types that are different from single-family residential, which
is the bread and butter of the Enterprises' portfolio. So, we
do look at the volumes that come in, and we also look at the
characteristics that come in. With regard to the million
dollars and the pricing, again, that is a requirement that we
have to follow the law and impose.
Mr. Norman. If you could use your influence on that, I
think that would send a strong message. Secondly, Congressman
Luetkemeyer's question on affordable housing--that is my line
of work, I have been doing it for a long time, and I don't know
what affordable housing is anymore. What is affordable? I would
not start a project now. You can't get water heaters. You can't
get pipes to put the utilities in. The supply chain issues on
top of the inflation is out of control. His question was, have
you had an audience with the President, and you said you had,
but does he realize the severity of what he is doing with his
policies, particularly with gas and energy?
One thing that would unlock this country would be to go to
our natural resources and start producing our own oil and gas
instead of buying it from OPEC, which is 15 countries that
don't like us. And I can't tell you the number of projects that
are stopped because truckers try to get somebody with a GDL to
drive a truck. They can't price anything. They have a shortage
of workers anyway. Anyway, all of the above, you need to be
pounding on his desk saying, this is not right, and it is not
right for the homeowners. As housing goes, so goes the economy.
Would you agree?
Ms. Thompson. I would agree that housing is a very
important component of the economy.
Mr. Norman. You realize housing, from footings to finished
product, affects over 142 different trades. That is coming to a
complete standstill. And I am from South Carolina. We have
people coming there. I see more California tags, New York tags,
New Jersey tags that come in because of our low regulations,
and our low crime rates. And I would ask you, for the sake of
the citizens of this country, to bang on his desk and say
something has to be done sooner rather than later.
Ms. Thompson. Congressman, thank you so much for that
suggestion.
Mr. Norman. Now on the GSEs, I heard you earlier going to
the private sector--and I only have 52 seconds--trying to
transfer the funds. What kind of discount rate do they normally
buy these on? They are not going to take risks that they can't
recover. What is your take on that?
Ms. Thompson. Actually, Congressman, they have capital
markets transactions that they sell, and they use a syndicated
structure, similar to what they do for mortgage-backed
securities, and they sell based on the market rate that is
available at that time. And they sell different tranches of
these securities, and sometimes the spreads are wider than
others. But many times, some of these transactions are
oversubscribed, which means that they can tighten the spreads.
So, we are trying to preserve and conserve the assets of the
Enterprises for the taxpayers.
Mr. Norman. Thanks for your service. You are one of the few
who have a pleasant way. You answer the questions in an easy
manner, and I appreciate that.
Ms. Thompson. Thank you.
Mr. Norman. I yield back, Mr. Chairman.
Mr. Green. The gentleman yields back.
I would like to thank our distinguished witness for her
testimony today, and I would also like to thank her for her
patience today because we did have votes interrupt our hearing,
and you have been very gracious. So again, we thank you.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witnesses and to place her responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 2:51 p.m., the hearing was adjourned.]
A P P E N D I X
July 20, 2022
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