[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                       FHFA OVERSIGHT: PROTECTING
                        HOMEOWNERS AND TAXPAYERS

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION
                               __________

                              MAY 23, 2023
                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-26
                           

                 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                           
                           
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
52-938 PDF                 WASHINGTON : 2023 



                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas                EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota                 JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia            BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia   JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio                JUAN VARGAS, California
JOHN ROSE, Tennessee                 JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin               VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina      SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina         AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania             STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin          RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York           RITCHIE TORRES, New York
YOUNG KIM, California                SYLVIA GARCIA, Texas
BYRON DONALDS, Florida               NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska                 WILEY NICKEL, North Carolina
MIKE LAWLER, New York                BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 23, 2023.................................................     1
Appendix:
    May 23, 2023.................................................    71

                               WITNESSES
                         Tuesday, May 23, 2023

Thompson, Hon. Sandra L., Director, Federal Housing Finance 
  Agency (FHFA)..................................................     4

                                APPENDIX

Prepared statements:
    Thompson, Hon. Sandra L......................................    72

              Additional Material Submitted for the Record

McHenry, Hon. Patrick:
    Written statement of the Center for Responsible Lending (CRL)    86
Thompson, Hon. Sandra L.:
    Written responses to questions for the record from 
      Representative Barr........................................    89
    Written responses to questions for the record from 
      Representative Casten......................................    90
    Written responses to questions for the record from 
      Representative Cleaver.....................................    92
    Written responses to questions for the record from 
      Representative Davidson....................................    95
    Written responses to questions for the record from 
      Representative De La Cruz..................................    98
    Written responses to questions for the record from 
      Representative Fitzgerald..................................   100
    Written responses to questions for the record from 
      Representative Garbarino...................................   103
    Written responses to questions for the record from 
      Representative Gonzalez....................................   106
    Written responses to questions for the record from 
      Representative Hill........................................   107
    Written responses to questions for the record from 
      Representative Kim.........................................   109
    Written responses to questions for the record from 
      Representative Luetkemeyer.................................   111
    Written responses to questions for the record from 
      Representative Norman......................................   112
    Written responses to questions for the record from 
      Representative Pettersen...................................   114
    Written responses to questions for the record from 
      Representative Sherman.....................................   115
    Written responses to questions for the record from 
      Representative Steil.......................................   117
    Written responses to questions for the record from 
      Representative Williams....................................   119

 
                       FHFA OVERSIGHT: PROTECTING
                        HOMEOWNERS AND TAXPAYERS

                              ----------                              


                         Tuesday, May 23, 2023

             U.S. House of Representatives,
                    Committee on Financial Services
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room 2128, Rayburn House Office Building, Hon. French Hill 
presiding.
    Members present: Representatives Lucas, Sessions, Posey, 
Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, Hill, 
Loudermilk, Davidson, Rose, Steil, Timmons, Norman, Meuser, 
Fitzgerald, Garbarino, Kim, Donalds, Flood, Lawler, Nunn, De La 
Cruz, Houchin, Ogles; Waters, Velazquez, Sherman, Meeks, Scott, 
Green, Cleaver, Himes, Foster, Beatty, Vargas, Gonzalez, 
Casten, Pressley, Horsford, Tlaib, Torres, Garcia, Nickel, and 
Pettersen.
    Mr. Hill. [presiding]. 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, ``FHFA Oversight: Protecting 
Homeowners and Taxpayers.''
    I now recognize myself for a 4-minute opening statement
    This morning, the committee will hold a hearing entitled, 
``Federal Housing Finance Agency Oversight: Protecting 
Homeowners and Taxpayers.'' This is our committee's second 
hearing on the government's role in and response to the housing 
challenges faced by too many Americans in as many weeks. We are 
fortunate today to have the FHFA Director, Sandra Thompson, as 
our witness for the second time in her 2 years as head of the 
Agency. Director Thompson has had a long career, with over 20 
years' experience with the Federal Deposit Insurance 
Corporation, followed by 10 years at FHFA. Thank you for being 
here, Director.
    Let's address the elephant in the room. Fannie Mae and 
Freddie Mac have been under government conservatorship for 
nearly 15 years, and to echo former FHFA Acting Director Ed 
DeMarco last week, we are asking a lot of our FHFA Director to 
act as both a regulator and a conservator for Fannie Mae and 
Freddie Mac, and continue to make what would otherwise be 
private business decisions while also regulating the 
Government-Sponsored Enterprises (GSEs). As long as the GSEs 
are under conservatorship, the Agency's primary focus should be 
raising on the Enterprise's capital and maintaining their 
narrow charter and mission.
    In many respects, housing finance in this country looks 
dramatically different than it did back when the Agency was 
created in 2008. According to recent research, non-bank 
companies now originate 71 percent of Agency-backed loans and 
86 percent of government-backed loans. Banks have all but 
retreated from the servicing and loan origination business 
because of bank capital and liquidity rules implemented in the 
Dodd-Frank Act regime. Meanwhile, back in 2008, the Federal 
Reserve started buying mortgage-backed securities for the first 
time as a temporary--repeat, temporary--response to the 
financial crisis, but now they own nearly a quarter--25 
percent--of all 1- to 4-family residential mortgages in the 
country, and the Fed has only recently started trimming its 
$2.7 trillion in mortgage-backed securities.
    Generationally-high inflation and out-of-control government 
spending have made housing affordability worse, with mortgage 
rates hitting 20-year highs last fall, and the GSEs somehow 
becoming even larger. We have to realize that these outcomes 
are the result of actions taken in this very room over many 
years, and it is hard for me to see this as a good outcome, 
having lived through the Obama, Trump, and Biden 
Administrations with no serious collaborative reform to the 
GSEs.
    Enter the FHFA, which has tremendous influence over our 
housing market and the American economy. Director Thompson has 
been active on a host of initiatives to revamp and expand the 
roles that Fannie and Freddie play. These include the 
questionable, politically-driven Equitable Housing Finance Plan 
lending mandates, to the technical, like improving the process 
for new product approval, and continuing to build Enterprise 
capital. Members can decide for themselves if these changes are 
good or bad, but it is clear that if you favor a more limited 
scope for the government's role in housing, as I do, you are 
probably out of luck, and we have been trending in the wrong 
direction for over a decade.
    All that brings this hearing and the critical need for 
Congress to do its job and provide oversight and accountability 
to FHFA. In too many instances, it appears that the Agency has 
allowed safety and soundness to take a back seat to advancing a 
housing agenda through the GSEs. We saw earlier this month when 
the Agency rescinded its unworkable debt-to-income base fee and 
issued a request for input on the opaque process it uses to set 
GSE pricing adjustments. The Agency also has to be focused on 
the safety and soundness, not only of Fannie and Freddie, but 
of the 11 Federal Home Loan Banks (FHLBs). And given what has 
happened in the banking market, that is a critical issue.
    I will now turn to the ranking member, Ms. Waters, for a 4-
minute opening statement.
    Ms. Waters. Thank you very much. Good morning, all. I am 
pleased to welcome Director Sandra L. Thompson before our 
committee this morning. Earlier this month, the Federal Housing 
Finance Agency took a step in the right direction to adjust 
loan-level price adjustments (LLPAs) in a way that ensures that 
lower-income borrowers with great credit scores but not enough 
for a 20-percent down payment, particularly in today's housing 
market, are not unfairly penalized compared to similar 
borrowers with higher income and higher wealth. Unfortunately, 
Republicans are continuing to spread misinformation about the 
new pricing framework and are regurgitating alternative facts 
about what this actually means for borrowers, even after their 
own witness debunked their claims last week.
    Here are the facts yet again. These changes will not result 
in higher-credit-score borrowers subsidizing lower-credit-score 
borrowers. As former FHFA Director, Ed DeMarco, who was invited 
by the Republicans to a hearing last week, stated, these price 
changes, ``are not focused on cross-subsidization. They are 
focused on making sure, across the grid, that we are making a 
rate of return efficient for the capital that has to be 
raised.'' In fact, these changes follow through on capital 
rules enacted by the Trump Administration. More importantly, as 
our nation's housing and homelessness crisis worsens across 
rural and urban communities, FHFA's changes will correct for 
unfair subsidies that have benefitted wealthier individuals 
purchasing lavish vacation homes and investment properties for 
over a decade.
    I would also like to point out that Director Thompson's 
updates to the pricing framework will benefit constituents 
everywhere, including in Chairman McHenry's district in North 
Carolina, and Housing and Insurance Subcommittee Chairman 
Davidson's district in Ohio. Homebuyers will pay some of the 
lowest fees among all Enterprise borrowers. My colleagues on 
the other side of the aisle appear to be more concerned about 
protecting the wealthy, even if it comes at the expense of 
those with less generational wealth. I, for one, support FHFA's 
effort to expand across to the American Dream of homeownership 
by every creditworthy borrower on fair terms.
    Finally, I would like to close with this. Despite 
supporting a debt ceiling increase 3 times under President 
Trump, and despite President Biden making a generous offer of 
level funding the government next year, Republicans continue to 
threaten economic calamity, including chaos in the housing 
market that would raise market rates to well over 8 percent. 
Their plan also eliminates 100,000 jobs for teachers, puts 
millions at risk of homelessness, and undermines health 
insurance for 21 million Americans. The fact that Republicans 
are up in arms about FHFA's modest pricing adjustments that 
their own Republican witness supports, while ignoring the 
devastating cost and harm of debt ceiling brinkmanship, shows 
everyone what they really care about: undermining President 
Biden by undermining America.
    Committee and House Democrats will continue to support 
policies that help every family live affordably and with 
dignity, both through housing reforms and cleanly raising the 
debt ceiling. So, I look forward to Director Thompson setting 
the record straight today, and with that, I yield back.
    Mr. Hill. The gentlewoman yields back. The Chair now 
recognizes the gentleman from Ohio, Mr. Davidson, who is also 
the Chair of our Subcommittee on Housing and Insurance, for 1 
minute.
    Mr. Davidson. Director Thompson, thank you for joining us 
today. This hearing comes at a critical time as consumers are 
struggling with inflation, much of which can be attributed to 
high housing costs. The Federal Housing Finance Agency may not 
be the most well-known agency to average Americans, but your 
credit score redistribution plan has captured everyone's 
attention. In response to our letter and market feedback, I am 
pleased that you have withdrawn a portion of your LLPA changes 
related to debt-to-income ratios. Thank you for that. 
Nevertheless, I am confident you will hear that additional work 
remains to be done.
    As both regulator and conservator, I will remind you that 
the conservatorship for Fannie and Freddie has lasted longer 
than Britney Spears' conservatorship did. Between that, the 
credit score redistribution plan bypassing traditional title 
insurance, limiting consumer credit information, and Federal 
Home Loan Bank oversight, there is much concern about FHFA's 
current focus. I am sure these will all be discussed today, and 
I look forward to hearing your answers.
    Mr. Hill. The gentleman from Missouri, Mr. Cleaver, the 
ranking member of our Housing Subcommittee, is recognized for 1 
minute.
    Mr. Cleaver. Thank you, Mr. Chairman. And thank you, 
Director Thompson, for being here with us today.
    Housing is roughly 15 percent of the gross domestic 
product, 30 percent of inflation, and the largest source of 
wealth among American families. According to the Federal 
Reserve, the wealth of a homeowner is 40 times greater than 
that of a renter. Addressing the lack of housing supply and 
preserving the opportunity for homeownership for the average 
American requires deliberate and sustained action. 
Unfortunately, some of my colleagues in Congress have abandoned 
what I believe to be a very significant issue as it relates to 
housing, and we have not done very much discussion or action on 
housing since January.
    Amid a lack of action in Congress, the FHFA has taken great 
strides in safety, soundness, and support for aspiring 
homeowners. I look forward to hearing from Director Thompson 
this morning, and I thank you again for this hearing.
    Mr. Hill. The gentleman yields back.
    Today, we welcome the testimony of the Honorable Sandra L. 
Thompson, Director of the Federal Housing Finance Agency. 
Director Thompson, we thank you for taking the time to be with 
us again today. You will be recognized for 5 minutes to give an 
oral presentation of 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.

   STATEMENT OF THE HONORABLE SANDRA L. THOMPSON, DIRECTOR, 
             FEDERAL HOUSING FINANCE AGENCY (FHFA)

    Ms. Thompson. Thank you, Chairman McHenry in his absence, 
Ranking Member Waters, Mr. Hill, and distinguished members of 
the committee, I am pleased to be with you today to discuss 
FHFA's work and the country's challenges facing our housing 
market. When I last appeared before this committee in July, I 
spoke about my career as a Federal safety and soundness 
regulator. The safety and soundness of our regulated entities 
is a key component of all policy decision and other actions we 
take. The Enterprises and the Home Loan Bank System cannot 
achieve their missions without a continued and unwavering focus 
on safety and soundness.
    As you know, home prices have soared in recent years, and 
mortgage interest rates are higher than they have been since 
the record-low interest rates experienced during the pandemic. 
In addition, the country is dealing with a housing supply 
shortage; there simply are not enough houses, especially for 
first-time homebuyers. Many young adults, people just starting 
out, college graduates, and people who have been renting for a 
while, along with members of our workforce whose professions 
require them to live where they work, such as teachers, 
policemen, firefighters, and other first responders, just can't 
afford homeownership, or if they can buy a home, they have to 
move far away from their place of employment to find a home 
they can afford. This is true for people across our country in 
both rural and urban areas.
    Most first-time homebuyers cannot afford to put 20 percent 
down on a house, which would be $40,000 on a $200,000 house, 
and $60,000 on a $300,000 house. These are creditworthy people 
who are paying their rent, utility, and other bills on time. 
They simply cannot afford a large down payment. The pricing 
changes we have made will help most first-time homebuyers by 
eliminating the up-front fees. We were able to do this because 
the returns the Enterprises earned on second homes and vacation 
homes, investor homes, are more than enough to offset the 
first-time homebuyer up-front fee. But unfortunately, the 
reality is that even with no up-front fees, the first-time 
homebuyer still pays higher overall mortgage costs than most 
other homebuyers.
    Pricing for loans is complex, so I would like to take this 
opportunity to provide more context and clarity so the public 
can better understand why we made changes to the outdated 
pricing grids. FHFA updated the pricing framework for three 
reasons: one, to update grids that had not been changed in 
almost a decade; two, to help creditworthy first-time 
homebuyers, limited by income and wealth across this country; 
and three, to enhance the safety and soundness of the 
Enterprises by building capital. This reduces the risk to 
taxpayers, who have borne the burden of supporting the 
Enterprises since they were placed into conservatorship in 
2008.
    The pricing grids in effect prior to these changes had not 
been updated in many years and were not fully reflective of the 
capital framework that governs the Enterprises' requirements. 
In fact, in the prior grids, many low- to moderate-income 
borrowers were overcharged, and some borrowers were 
undercharged, compared to the capital requirements. But most 
importantly, and I want to be very clear on this key point, 
which is one that bears repeating, in the new pricing grids, 
borrowers with strong credit profiles are not being penalized 
at the expense of borrowers with weaker credit profiles. Put 
another way, even with reduced fees, borrowers with lower 
credit scores and lower down payments will continue to pay 
higher overall mortgage costs than borrowers with higher credit 
scores and higher down payments.
    The purchase of a home is a complicated transaction, and 
homebuyers should have accurate information to make the best 
decisions possible. Understanding how mortgage insurance is 
factored into pricing is critical to the fee calculation. By 
law, the Enterprises cannot purchase a loan with a loan-to-
value (LTV) greater than 80 percent, which means that if 
someone puts down more than 20 percent or less, they have to 
have credit enhancement to protect the Enterprises. Most of the 
time, this credit enhancement takes the form of mortgage 
insurance. Borrowers must pay for this insurance in addition to 
their guarantee fees. This does not show up on the pricing 
grids and is why many loans with loan-to-value ratios greater 
than 80 percent have what looks like lower fees, but you have 
to add the mortgage insurance premium to these loans to get a 
more complete picture of borrower costs. The less down payment 
you have, the more mortgage insurance coverage you need, and 
the higher the cost.
    The recent focus on pricing brings needed attention to our 
housing affordability challenges. Housing makes up almost 16 
percent of U.S. GDP, and for most Americans, their home is 
their largest asset. Owning a home is the primary way for 
hardworking families to build wealth and pass it on to their 
children and grandchildren. And for renters, their rent bill is 
usually the largest expense that they have every month. Every 
American deserves safe, decent, and affordable housing, and I 
would love to work with this committee to come up with ways to 
address the increasingly-unattainable American Dream of owning 
a home. I am sure if we work together, we can find other ways 
to make housing more affordable so that people who have had 
their dreams deferred or denied can one day soon be in a home 
of their own so they can start the wealth-building journey that 
will benefit not only their families--
    Mr. Hill. Thank you, Director.
    Ms. Thompson. --but also their communities.
    [The prepared statement of Director Thompson can be found 
on page 72 of the appendix.]
    Mr. Hill. Thank you, Director, for your testimony. It is 
now time to turn to Member questions, and I recognize myself 
for 5 minutes for questioning.
    The Agency has a new activities rule, which you worked on 
mightily when you were first in office, which means there is 
transparency around any new products and activities by the 
Government-Sponsored Enterprises so that they don't displace 
private sector firms or crowd out capital. For this reason, I 
was glad to see the rulemaking finalized in December. Under 
this process, they are now to submit advance notice and get 
approval for new products and activities, including any pilot 
programs. Director Thompson, since the rules have gone into 
place, have you received any submissions for new activities or 
products?
    Ms. Thompson. Thank you, Mr. Hill. The new activities rule, 
as you mentioned, was finalized last year, and we spent this 
year implementing processes for FHFA and the Enterprises to 
submit and for us to review. We deferred the implementation 
through April 28th, and we told the Enterprises if they had new 
products, they would have to wait until our processes were 
complete before they submit to the Agency for our review.
    Mr. Hill. Are those processes complete----
    Ms. Thompson. The processes are----
    Mr. Hill. ----and open to submission?
    Ms. Thompson. Yes, the processes are complete, and we have 
not yet received, from my perspective, because they have to 
come through our New Products Committee, which actually we are 
having a meeting tomorrow on some of the products that are 
coming.
    Mr. Hill. Thank you. Would you commit to notifying Congress 
if and when the Agency makes any decisions on any of those 
future submissions?
    Ms. Thompson. Sir, we are happy to work with the Congress, 
but I would mention that is part of the rule. We have a pilot 
transparency page so that any pilot that the Enterprises are 
undertaking is posted on our website, but we are absolutely 
happy to work with the committee.
    Mr. Hill. I think that would be helpful. Thank you. Since 
you have been in your position over the last 2 years, is the 
capital higher or lower in the Enterprises than it was when you 
became Director?
    Ms. Thompson. Great question. The Enterprises' capital rule 
was put into----
    Mr. Hill. The capital itself or the----
    Ms. Thompson. Oh, the actual capital? Yes.
    Mr. Hill. Yes, the actual capital for Fannie Mae and 
Freddie Mac.
    Ms. Thompson. Oh, the Enterprise----
    Mr. Hill. Is it higher or lower than when you came into 
office?
    Ms. Thompson. Oh, it is higher than it was when I came into 
office. The Enterprises are just now able to retain capital.
    Mr. Hill. And does the capital mandate require more capital 
now, or was it higher when you took office? The rule itself, 
the requirement.
    Ms. Thompson. The rule was changed to allow for credit risk 
transfer which, as you know, both Enterprises are the biggest 
holders of mortgage credit in the country, and we facilitated a 
credit risk transfer process by making nominal changes to the 
capital rule. When I came in to serve as Acting Director, the 
rule was penalizing, to some extent, the credit risk transfer, 
which moves the Enterprises' credit risk to the private sector.
    We made changes, not to the requirements themselves, but to 
the leverage buffer. Instead of having a static buffer, we made 
it more dynamic and facilitated more credit risk transfer 
because the leverage ratio, as you know, Mr. Hill, would make 
it binding.
    Mr. Hill. Thank you. That is helpful.
    With high interest rates and high inflation, are you 
concerned about the impact of inflation and high interest rates 
on the health of the Enterprises, and if so, do you think their 
capital requirements should be higher right now?
    Ms. Thompson. I am very concerned about the health of our 
country as it relates to----
    Mr. Hill. No, I am talking about the GSEs, not the country 
at large.
    Ms. Thompson. The GSEs, absolutely. We are very much trying 
to build capital so that they can continue to operate in a safe 
and sound manner. I don't believe that they need more capital. 
They right now need about $300 billion between the two of them, 
and that is quite a lot of capital that is required based on 
the capital requirements.
    Mr. Hill. Thank you. And with the remaining time I have, I 
want to switch subjects, and I encourage my colleagues on both 
sides of the aisle to ask questions on the subject of your 
oversight of the Federal Home Loan Banks. We have had just a 
colossal use of the Federal Home Loan Banks in this last 5 
months due to the crisis in the banking industry for liquidity. 
Is it still your intent to provide administrative and 
legislative recommendations on the oversight of the Federal 
Home Loan Banks, and if so, when are you going to do that?
    Ms. Thompson. Yes, Mr. Hill. We are undergoing a study of 
the Home Loan Banks, and the report should be published in the 
3rd quarter of this year.
    Mr. Hill. You think by September 30th or early in the 3rd 
quarter?
    Ms. Thompson. We are working as quickly as we can. I will 
just give a September 30th deadline.
    Mr. Hill. Thank you. I yield back, and I recognize the 
ranking member, Ms. Waters, for 5 minutes of questions.
    Ms. Waters. Thank you very much. I am going to continue 
with my questions based on where you started, dealing with the 
question of inflation. Director Thompson, I am concerned about 
adjustable rate mortgages, or ARMs, which have interest rates 
that change over the life of the mortgage. This was a major 
issue in the aftermath of the 2008 financial crisis when ARMs 
contributed to countless households losing their homes. I know 
that we made reforms to prevent some of the most-predatory 
features of the kind of ARMs that were problematic back then, 
but I remain concerned that some people are still choosing 
these products without fully being aware of the risk they are 
taking. Unless a homeowner knows how to refinance their 
mortgage into a fixed-rate loan and can afford to do so, they 
may see their monthly housing payment increase significantly. 
This is especially true in high-cost mortgages.
    I have heard from constituents in my district with ARMs, 
who have seen their monthly payments increase by $1,000 a 
month, which is a financial shock for their families. So, I 
wanted to talk about educating consumers about ARMs and how 
they are different from 2008, and what does the volume of ARMs 
purchased by Fannie Mae and Freddie Mac look like today. But 
what I really want to explore is the fact that with inflation, 
and with the Fed increasing the interest rates in order to 
contain inflation, it is causing these ARMs to be in a position 
where people are going to lose their homes.
    Is there anything that can be done to say to the mortgage 
holders of the banks, you don't have to continue to do this, 
you may do it because you have this kind of ARMs agreement, but 
can we say, you have to stop at some point?
    Ms. Thompson. Thank you for the question, Ranking Member 
Waters. I am very concerned about ARMs as well, but I am also 
happy to say that most of the mortgages that the Enterprises, 
Fannie and Freddie, purchase are fixed-rate mortgages. Many 
people took advantage of the low interest rate environment in 
and 2021 and 2022 to refinance their homes, and so the majority 
of the loans that the Enterprises own right now have very low 
interest rates. But I do get concerned that because of the 
higher interest rate environment, many times the ARM offers a 
lower starting interest rate, but the nice thing about some of 
the changes that have been made since the Great Recession was 
that now, underwriters have to underwrite to the fully-
amortized index of the loan.
    So, instead of underwriting, can you make this payment at 2 
percent or 3 percent, they have to add the margin and 
underwrite to the full payment of the loan so that borrowers 
are fully protected. And I do think that the rising-interest-
rate environment contributes greatly to the purchase activity 
at both Enterprises because we have just changed from seeing 
record refinances at those low interest rates to very high 
interest rates in a very short period of time. And I do think 
that the underwriting provisions that are in place for 
mortgages, at least the ones that Fannie and Freddie buy, are 
well-suited to assess the borrower's ability to repay.
    Ms. Waters. I want to talk with you about that some more, 
Director Thompson, but let me just go to another question here. 
We are less than 2 weeks away from defaulting on our nation's 
debt, and my Republican colleagues are threatening a completely 
avoidable economic catastrophe that would have global impact. 
If we were to default on our national debt, the impacts on our 
housing market and on prospective homebuyers would be 
devastating. It has been reported that mortgage rates could 
rise by 8 percent. By comparison, the changes you made to LLPAs 
would have a very modest effect on the mortgage crisis for the 
average homebuyer.
    Director Thompson, could you help us put your changes to 
the pricing framework in context? What could we expect to 
happen in the mortgage market and to the cost of a mortgage if 
we default on our nation's debt?
    Ms. Thompson. Thank you for the question. I think mortgage 
interest rates will increase substantially. It will be even 
more difficult for borrowers or potential borrowers to enter 
into homeownership. There would be concern amongst the investor 
community because there are a number of investors--
    Mr. Hill. Thank you, Director. And I thank the ranking 
member. The gentleman from Texas, Mr. Sessions, is now 
recognized for 5 minutes.
    Mr. Sessions. Mr. Chairman, thank you very much. Director, 
I am delighted that you are here. I began receiving letters as 
early as January, February, and March, and while I have not 
provided you a copy of the letters, which I will be pleased to 
do, people who are in appraisal services and in housing across 
the 17th District of Texas have written to me, and essentially, 
it is not just a concern about conservatorship, but it is 
specifically that, and I am quoting from a letter here, 
``Fannie Mae has grossly overstepped its authority during its 
conservatorship by moving to abolish appraisals for refinance 
purposes in its new Fannie Mae selling guidelines published on 
March 1st.'' Can you please discuss with this committee the 
effect of that and your thinking about that?
    Ms. Thompson. Sure. First, let me say that appraisals are 
always an option, and there are alternatives to appraisals, 
which we discovered during the pandemic when we had the record 
number of refinances and people wouldn't let you in their homes 
for an appraisal, and nobody wanted to go do these appraisals. 
We have what is called desktop underwriting, which allows an 
appraiser to input information about a property into a desktop 
system. And we also have, what you are talking about, appraisal 
waivers, but those are primarily for very low-risk loans and 
primarily used in refinances where the borrower has lots of 
equity, and they have to reach certain criteria.
    It is not the goal of Fannie Mae or Freddie Mac to ever 
serve in any primary market capacity. Fannie and Freddie have 
come up with alternative tools to help the borrowers and the 
lenders move the loan along in the process, and I think that we 
have leveraged technology, which also helps with safety and 
soundness because it provides good risk management oversight on 
the whole mortgage process.
    Mr. Sessions. So your testimony today is, essentially, this 
was used only in refinancing?
    Ms. Thompson. Refinancing and limited purchase properties. 
It has to be very specific circumstances, but we are not trying 
to eliminate or abolish appraisals, and a borrower always has 
the right to have a full appraisal.
    Mr. Sessions. Okay. I would like to offer my concerns over 
this conservatorship, and I think that it is important to note 
that this committee, as Mr. Davidson has outlined, really wants 
to know more about the ending of that conservatorship. Could 
you please take a minute and discuss that?
    Ms. Thompson. Sure. Again, the Enterprises have been in 
conservatorship for 15 years. They first have to meet their 
capital requirements, which I mentioned earlier, about $300 
billion between the two of them. In addition, this isn't a 
decision that FHFA alone would have to undertake. As you know, 
there is a huge ownership interest that the Treasury has in 
Fannie and Freddie, and that has been longstanding, so we would 
have to have conversations with them.
    And we would also have to figure out what the impacts and 
implications are for the Enterprises outside of 
conservatorship. There are lots of rules that would be 
impacted, for example, the single counterparty rule that the 
Federal Reserve has. If Fannie and Freddie are out 
conservatorship, what does that mean? Right now, we have 
uniform mortgage-backed securities. Do Fannie and Freddie 
securities count towards the single counterparty rule? There 
are risk transfer rules that have to be looked at. So, there 
are a number of rules that relate to capital markets activities 
that would have to be considered as well. But the main point is 
that the Enterprises have to meet their capital requirements, 
and those are minimum capital requirements.
    Mr. Sessions. And you believe that is the linchpin about 
why this has not moved forward?
    Ms. Thompson. I think, as was stated earlier, that is one 
component, but the Enterprises have been in conservatorship for 
15 years, and there has been lots of conversation on proposed 
legislation and the like, on what to do with Fannie and 
Freddie, and that is a decision for the Congress to make.
    Mr. Sessions. Thank you very much. It is obviously clearly 
within our purview also, and I appreciate the time. Mr. 
Chairman, I yield back.
    Mr. Hill. I thank the gentleman. The gentleman from 
California, Mr. Sherman, is now recognized for 5 minutes.
    Mr. Sherman. Those who do not remember history are doomed 
to repeat it. Many of us in this room experienced the meltdown 
of the GSEs during the 2008 Great Recession. That occurred, in 
large part, because you had Enterprises that were out to make a 
profit, so they participated in the upside when things were 
good, and there was an implicit, turned out to be explicit, 
Federal guarantee. So, the taxpayers took the risk, the private 
shareholders took the upside, and, of course, because they got 
the upside and didn't have the downside, the shareholders 
insisted upon excessively-risky policies.
    Now, there are those who say let's free Fannie and Freddie 
from the conservatorship and return to what we had in 2007. I 
would say if it is not broke, don't fix it. These Agencies are 
doing a great job of helping homeowners who are borrowing at a 
just bit over what the U.S. Government borrows at, and they are 
making money for the Federal Government. I realize 
conservatorship may not have worked well for Britney Spears, 
but it is working out very well for us.
    We are told that inflation hurts homebuyers, and it does, 
and that somehow the decisions made in this building caused 
that inflation. That is a remarkable conclusion, since 
inflation over the last year has been higher in Germany, or the 
U.K., or France than it is here, and COVID is worldwide. The 
policies made here in this Capitol are not.
    I was going to ask that great question that the ranking 
member asked about the effect of a debt default on homebuyers. 
It would be disastrous, as you pointed out. You have talked 
about the high cost of housing and the low supply. Our friends 
making State and local government decisions have caved in to 
NIMBYs again and again, especially when it comes to apartments 
and condos. We need more housing, and we need to build it 
somewhere.
    Director Thompson, Representative Luetkemeyer and I sent 
you a letter expressing concerns about the GSEs, saying that 
you don't need title insurance. You just get an opinion letter 
from a lawyer. I wrote a lot of lawyer letters when I was a 
lawyer. None of them came with a guarantee, for if somebody 
buys a home and it turns out that what they bought, they don't 
own, and all they have is an opinion letter, first, they have 
to prove that the attorney was negligent, and this is 
complicated stuff. I made a lot of mistakes back in my day that 
were not my fault. I also made some that were my fault.
    And then, even if you can prove that the attorney is at 
fault, you have to hope you can sue that attorney and prove to 
a jury that it was their fault. And then you have to hope that 
they are adequately insured, and if you have one attorney 
making the same mistake in the same tract or neighborhood, two 
or three homes, blow a hole in the Arizona emissions policy, 
and the rest of the homeowners get nothing. All this said, 
don't homeowners and the Agencies need the protection of title 
insurance?
    Ms. Thompson. Absolutely. I would say that the Enterprises 
require that the seller, whomever is selling the loans to them 
or lender, that they represent that the home that is being 
purchased has a first lien, that there are no superior liens, 
and that the title is clear and the lender has to represent 
that that is true. And what has typically been the case is that 
people purchase title insurance.
    And I think Freddie Mac has been allowing attorney opinion 
letters since 2008, but when we looked at the numbers last 
year, I think there were only 45 borrowers who used this 
attorney opinion letter. And it is an option, and certainly 
that is one----
    Mr. Sherman. So, only 45 people in the country have used 
this.
    Ms. Thompson. In the last year.
    Mr. Sherman. For a whole year. I am going to go on to 
another question that, hopefully, affects more people, and that 
is Fannie and Freddie have talked about transitioning to a bi-
merged credit report, relying on two credit agencies rather 
than a report where you need all three credit agencies. Now, 
there are only three credit agencies, so if you had a rule that 
requires all three credit agencies to be used, none of those 
credit agencies has to do a good job because you are guaranteed 
that you are 1 of the 3 participating in a three-factor 
formula. Would we benefit from increased competition for better 
accuracy among the credit reporting companies if we just go to 
two?
    Ms. Thompson. Sure. Thank you for the question. When we 
started looking at----
    Mr. Hill. If you could answer that question in writing, 
please, Director.
    I thank the gentleman from California. The gentleman from 
Florida, Mr. Posey, is recognized for 5 minutes.
    Mr. Posey. Thank you, Mr. Chairman. Ms. Thompson, could you 
give us a brief summary of the status of the lawsuit against 
Fannie and/or Freddie by the investors?
    Ms. Thompson. Which one?
    Mr. Posey. Yes, just----
    Ms. Thompson. Oh, certainly. In, I think it was October 
last year, there was a lawsuit, a trial for Fannie against the 
investors, the junior preferred shareholders, not all of them 
but many of them, and there was a D.C. trial. It was FHFA 
versus the junior shareholders, and there was a hung jury. And 
there is going to be an upcoming trial in, I think it is July, 
that will further the issues with which the previous trial was 
dealing. And that was, one, the settlement or the actual amount 
of the benefits to some of the junior preferred shareholders. A 
prior judge had limited that amount to, I think it was $1.8 
billion, so we are trying to figure out what that amount is, 
and that is the premise of the trial that is coming up in July.
    Mr. Posey. Thank you. Can you tell me the amount in legal 
defense fees the taxpayers have paid so far?
    Ms. Thompson. Sir, I will have to get back to you on that. 
The trial that I have mentioned was the first jury trial, but 
there have been a series of trials for the past 14 years that 
FHFA and the Enterprises have participated in, and I certainly 
would be happy to give you that number.
    Mr. Posey. Yes. I understand it was over $100 million, many 
years ago. I would greatly appreciate if you could tell me the 
total amount of fees paid in defending Raines, et al.
    Ms. Thompson. Sure. I would be happy to.
    Mr. Posey. Thank you.
    What steps do you think policyholders should take to move a 
greater share of the secondary mortgage market and associated 
risk to the private sector?
    Ms. Thompson. I think that is a great question, because I 
know that it is important to have a balance of both the private 
sector and the government. It helps competition, but it also 
helps homeownership because people are competing to get 
mortgage loans. And I have been through, for the past 30 
years--I know the private-label securities (PLS) market and the 
challenges that had, which is not completely gone, but mostly.
    I think that if there is any way to facilitate more 
participation in the private market, that would be helpful. But 
as Mr. Hill said in his opening remarks, it seems like many 
banks are getting out of the mortgage business, and many of the 
non-bank lenders are servicing that market. I don't know if 
that is good or bad, but at the end of the day, it just seems 
like there could be more participation in the mortgage market.
    Mr. Posey. Thank you. Does the Biden Administration have a 
plan to release the GSEs from conservatorship, and if so, what 
does that look like?
    Ms. Thompson. Certainly. I actually don't know that we have 
a plan to release the Enterprises out of their conservatorship. 
I have not spoken with the Administration about that. FHFA is 
an independent regulatory agency, and I do believe that meeting 
the capital requirements is really important. I think that 
making sure that the Enterprises have appropriate capital, that 
they have appropriate pricing, and that they are able to meet 
commercially-viable returns is a critical component of that.
    You have to make sure that people are sure about what they 
are investing in, both from the mortgage-backed security side 
and from investing in the company, so if they ever got out of 
conservatorship, they would likely have to have a huge capital 
raise. And there are a lot of questions that would need to be 
answered, but they also would have to have the capital 
requirements to make sure that they are in position to take 
care of any losses that they have.
    Mr. Posey. Thank you. Broadly speaking, what role should 
risk-based pricing play in sitting borrower and lender prices 
for GSE-insured mortgages?
    Ms. Thompson. Risk-based pricing is very important. After 
all of the concerns that were raised about the loan-level 
pricing adjustments, we have issued a request for input which 
asks that very question: What role should the capital rule play 
in terms of setting the prices? What role should loan-level 
pricing adjustments play? Should there be any? So, we are 
really looking for stakeholders to provide input on how we 
establish returns and pricing so that we can answer that 
question responsibly.
    Mr. Posey. Thank you, Ms. Thompson.
    Mr. Hill. The gentleman's time has expired. The gentleman 
from New York, who is also the ranking member of the House 
Foreign Affairs Committee, Mr. Meeks, is recognized for 5 
minutes.
    Mr. Meeks. Thank you, Mr. Chairman. And thank you, Director 
Thompson, for the excellent job that you are doing at FHFA. I 
agree with the ranking member, and I don't think you got a 
chance to answer this question: Our Republican colleagues are 
threatening to default on our debt, and as the ranking member 
asked, what effect would that have on the housing market? You 
started to answer, but you only had about 6 seconds to do so, 
and I think it is important for this committee and for America 
to hear what effect it would have.
    Ms. Thompson. Thank you. I do believe that mortgage 
interest rates would increase, and to the extent that 
homeowners are impacted and they are not getting paid, it would 
certainly impact employment, which would increase delinquencies 
for the mortgages that are owned by Fannie and Freddie. And to 
the extent that delinquencies are increased, we would have to 
start making sure that the investors get paid. And fortunately, 
at both Fannie and Freddie, there is $100 million to cover 
losses, but I don't know how long something like this would 
last or how much would really be necessary to make sure that 
investors got paid.
    And we lost a lot of confidence in the last Great 
Recession, through the PLS market and the mortgage-backed 
securities investors; while they are worldwide, we are just 
regaining the confidence back. So, making sure that we have 
homeowners who can afford these homes because, again, these 
interest rates would be really high, is really important. We 
want to make sure that investors also have confidence that they 
are going to get their return on investment.
    I think there would be some confidence issues, both in the 
beginning with the borrowers and the homeownership, and then in 
the end with the investors and mortgage-backed securities.
    Mr. Meeks. Thank you, and that affects, as you were talking 
about earlier, the private market also getting involved, as 
well as the global market as far as confidence in what we are 
doing. It will be devastating, in other words, and people will 
lose their homes, and we know that. Those who are renting would 
be faced with losing rental assistance in the middle of a 
housing crisis. So, it actually is a default on America if, in 
fact, my Republican colleagues continue to move to hold the 
debt ceiling hostage.
    Let me quickly, in the time that I have left, talk about 
appraisal bias. As you well know, the appraisal is a critical 
part of the homebuying process, and significant attention has 
been given to the bias and discrimination that has resulted in 
material loss, particularly for borrowers of color. Now, I 
understand that you hosted the second of two public hearings on 
appraisal biases just last week. Could you provide any key 
takeaways from the public hearing, including specific steps 
that FHFA and the Enterprises have taken or plan on taking to 
work towards more fair and equitable property valuations?
    Ms. Thompson. Sure. Thank you for the question. We have 
actually issued over 43 million loans or data on 43 million 
loans--we had to anonymize the data--just to help with the 
discussion on appraisal bias. We published the data last 
October, and we update it every quarter, and we have provisions 
so that people can use tools to look at neighborhoods and 
pricing of homes in different neighborhoods. And in many cases, 
homes in minority neighborhoods are appraised at lower values 
than loans in non-minority neighborhoods.
    When we started this conversation, most of the discussion 
was based on anecdotal data, and now we have actual data from 
the Enterprises, and people can go on our website, use the 
data, and come to their own conclusions. But I have seen a 
number of studies that do reflect that some of the appraisal 
numbers are much lower in minority neighborhoods across the 
country than they are in non-minority neighborhoods, but the 
data is on our website.
    Mr. Meeks. And what about in the appraisal profession? Can 
you tell us what outcomes or what initiatives have been taken, 
including how many people of color have entered into the 
profession?
    Ms. Thompson. There are a number of appraisers, and it is 
our understanding that the appraisal industry is aging and that 
their----
    Mr. Hill. The time of the gentleman has expired. I would 
invite the Director to respond to the gentleman's question in 
writing.
    The gentleman from Missouri, Mr. Luetkemeyer, is now 
recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. Ms. Thompson, I 
am just kind of curious, do you ever meet with the President at 
all or talk with him about how his policies are affecting 
homeownership and the ability of your Agency to function?
    Ms. Thompson. I have met with the President to talk about 
homeownership, along with the Secretary, when we present a 
global perspective on homeownership.
    Mr. Luetkemeyer. Do you talk to him about what his policies 
are doing to homeownership, such as increasing rates, and now 
his unwillingness to meet until about 2 weeks before the 
deadline with regards to the debt limit bill? You have already 
delineated what you think is going to happen here: Higher 
interest rates could increase costs. Do you ever talk to him 
about that? Has your Agency talked to his people, or him 
personally?
    Ms. Thompson. We have conversations with the White House. 
We have conversations with Treasury. We have conversations with 
other regulators----
    Mr. Luetkemeyer. Do they listen to you?
    Ms. Thompson. Of course, everyone is----
    Mr. Luetkemeyer. They may hear you, but they don't listen, 
do they, because we continue to have this increased situation. 
I just read in the paper again yesterday where the Fed looks 
like they are going to raise rates at least once or twice more 
this year. That is going to have a dramatic effect on the 
ability of people to afford houses, is it not?
    Ms. Thompson. Rising interest rates is a huge contributor.
    Mr. Luetkemeyer. I used to Chair the Subcommittee on 
Housing and Insurance here, and the statistics that I got from 
the National Association of Home Builders people was that for 
every 1 percent of increased costs to purchase or to finance a 
home, 100,000 people no longer have the ability to have a home. 
That is really, really significant, and that is devastating to 
the National Association of Home Builders. And it is 
devastating to homeowners to not be able to buy homes because 
of increased costs. Inflated interest rates that continue to go 
up are devastating to homeowners, are they not?
    Ms. Thompson. High interest rates are very impactful to 
potential homebuyers.
    Mr. Luetkemeyer. What is the reaction you get from the 
Administration whenever you ask them about that or tell them 
about that? Do they care? Every time you raise interest rates 
like that or raise costs, 100,000 people don't have access to 
homes.
    Ms. Thompson. Understood. Housing is a big part of our 
economy. It is a national issue.
    Mr. Luetkemeyer. So, you are telling me that they don't 
react at all?
    Ms. Thompson. It is a national issue, and I think that 
people care about homeowners--
    Mr. Luetkemeyer. Yes, but you are giving me the 30,000-foot 
view. I am asking a very specific question about whether the 
Administration actually responds to you and says they are 
concerned about that. Do they ever say that?
    Ms. Thompson. I don't know that we have talked about--
    Mr. Luetkemeyer. Now, you are saying you don't talk to them 
at all about this?
    Ms. Thompson. No, no, no. What I said was that we do talk 
to the Administration about housing generally. I think everyone 
is concerned about homeownership, including the Administration, 
including people that I have talked to in this room.
    Mr. Luetkemeyer. It doesn't seem as though you are meeting 
with them on a regular basis and getting your message across. 
How can you not? It is your job to talk about housing. How can 
you not be forceful and say, I am an advocate for housing, I am 
an advocate for people to have homeownership, your policies are 
killing us right now, please listen to me? And I don't hear 
that from you.
    Ms. Thompson, you had a career with the FDIC, is that 
right?
    Ms. Thompson. Yes.
    Mr. Luetkemeyer. For about 20 years, you were in charge of 
the Examination Enforcement Program for Risk Management, 
correct?
    Ms. Thompson. That is correct.
    Mr. Luetkemeyer. The FDIC enforces capital requirements on 
its banks, does it not?
    Ms. Thompson. They do.
    Mr. Luetkemeyer. You talked a little bit this morning about 
how there needs to be about $300 billion of capital to be able 
to move out of conservatorship, and you are at what level right 
now roughly with the two GSEs combined?
    Ms. Thompson. About $100----
    Mr. Luetkemeyer. About $100----
    Ms. Thompson. ----loss.
    Mr. Luetkemeyer. And when I chaired the subcommittee, it 
was about, I think $20 or $25, which was about 6 years ago, so 
they are making progress toward that end. The problem is as 
long as the GSEs are undercapitalized, it allows a whole lot of 
other things to go on. Would you, in your position as a risk 
management officer, allow the banks to engage in new activities 
if they were undercapitalized like this?
    Ms. Thompson. The banks would have to submit to their 
regulators----
    Mr. Luetkemeyer. You were the regulator, Ms. Thompson, so 
the question is, if you had banks that were severely 
undercapitalized, $100 billion versus $300 billion, so that 
they are only a third of where they should be, and they wanted 
to expand their services into new areas they had no expertise 
in, would you go along with that?
    Ms. Thompson. I would have to look at the plan submission.
    Mr. Luetkemeyer. Ms. Thompson, you know as well as I do--I 
am a former examiner--that that wouldn't happen. They would not 
be able to expand, because they don't have the expertise or the 
capital to absorb the losses that are going to come because 
they don't know what they are doing in this area.
    Ms. Thompson. They would likely be on a capital plan, and 
to the extent an activity would help increase their capital, we 
would thoroughly look at----
    Mr. Hill. The gentleman's time has expired, and----
    Mr. Luetkemeyer. I yield back.
    Mr. Hill. I thank the gentleman from Missouri, and the 
Director is invited to respond in writing.
    And I now recognize the gentleman from Georgia, Mr. Scott, 
who is also the ranking member of the House Agriculture 
Committee, for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman. Director Thompson, back 
in October of 2022, FHFA announced the Agency's transition to a 
bi-merged credit report rather than a tri-merged credit report 
for GSE-backed mortgages. And I want to specifically focus on 
the portion that proposes to use an average borrower's two 
credit scores as the representative credit score for single-
family mortgages instead of the lower of the two credit scores.
    Under the current three-credit-reports system, lenders have 
access to all available credit history information about 
potential borrowers. My concern is that by removing one of the 
reports from a lender's review, FHFA is potentially leaving 
predictive and positive credit history out of the credit risk 
assessment. And while I agree that we need more competition 
between the three nationwide credit reporting agencies, I have 
concerns that this action could have serious implications for 
consumers planning to purchase a home.
    And my understanding is that FHFA and GSE officials say 
that the proposal is more sustainable than the old regime of 
FICO classic reporting. Can you explain what your Agency means 
by, ``more sustainable?''
    Ms. Thompson. Sure. Years ago, there were three separate 
credit reporting agencies, and they had special information 
about certain parts of the country: one had information on the 
West Coast; one on the South; and one on the Northeast 
Regional. Having said that, we have made several advances in 
technology, and now there is national lending. We currently 
require the Enterprises to get credit scores from all three 
companies, and you have to pull a credit score for every 
borrower on the loan.
    When we initially undertook the credit score model update 
review, which is a separate but related activity, one of the 
things that we did was we took a look at if you get credit 
scores from three credit reporting agencies, what are the 
differences if you get it from one or two? There were 
significant differences if you went from three credit reporting 
agencies to data from one credit reporting agency, so that is 
bi-merged to one, but there was very little from three to two.
    Mr. Scott. Let me ask you about the risk. Has there been a 
review of the risk that this change could have on the 
underwriting process, and is there a mechanism in the proposal 
to ensure that positive credit history is not left out of a 
borrower's credit risk assessment?
    Ms. Thompson. Yes. We have done an assessment on the 
differences between moving from three credit scores to one 
credit score, and three credit scores to two credit scores. And 
again, the accuracy is not impacted very much, if at all, 
moving from three to two, and we do believe that would foster 
competition. With regard to including positive rental payments, 
that is something that is going to be and currently is included 
in the underwriting systems for both Fannie Mae and Freddie 
Mac. If people report these positive payments, they are 
included, and they get factored into the credit decisions.
    Mr. Scott. Would you be willing to share this information 
with members of this committee so we can have a better 
understanding of the impact the bi-merged credit report 
proposal could have on our constituents?
    Ms. Thompson. Sure. We would be happy to provide you a 
briefing with the information.
    Mr. Scott. Thank you, and I think you are doing a wonderful 
job.
    Ms. Thompson. Thank you.
    Mr. Hill. The gentleman yields back.
    The gentleman from Oklahoma, Mr. Lucas, is recognized for 5 
minutes.
    Mr. Lucas. Thank you, Mr. Chairman. Director Thompson, I 
would like to follow up on the concerns many of my colleagues 
have raised regarding the recent changes to the loan-level 
price adjustments. When you compare the previous pricing grids 
with the new pricing grids that went into effect this March, 
there are some perplexing changes.
    For example, a borrower with a credit score between 760 and 
709, with a down payment range of 15 to 20 percent, will have a 
significantly higher adjustment under the new grid, while a 
borrower with a lower credit score between 640 and 659 and the 
same down payment would have a significantly lower adjustment.
    You discuss in your testimony that one of the objectives of 
the new pricing grids is to assist lower-income first-time 
homebuyers. Could you discuss how this policy objective is 
weighed alongside protecting the safety and soundness of the 
GSEs?
    Ms. Thompson. Absolutely. The grids that are in place right 
now are calibrated to the new capital requirements to which the 
Enterprises are subject. The prior grid was outdated and had 
not been subject to any updates in over 8 years. In fact, the 
last time a change was made to the pricing grids was in maybe 
2014. Since then, the Enterprises have had what we call the 
conservatorship capital framework, and the pricing grids were 
not changed to reflect that framework nor were they changed to 
reflect the new capital requirements. We believe that your 
income needs to cover your expenses, and we do believe that 
these new pricing grids absolutely reflect the cost of capital 
and other administrative expenses.
    Mr. Lucas. You can see why several groups of borrowers with 
lower credit scores and lower down payments having their fees 
reduced, while some with higher credit scores and higher down 
payments having their fees increased, would be concerning to 
people looking at this.
    The GSEs owned and guaranteed approximately $7.4 trillion 
in mortgages at the end of last year. That is more than half of 
the $13-trillion U.S. mortgage market. Is this why it is 
imperative that Congress play an oversight role in FHFA? 
Director Thompson, could you discuss what you view as the 
oversight role of Congress, particularly in identifying the 
risks and vulnerabilities within the housing finance sector?
    Ms. Thompson. Sure. I think Congress has policymaking 
responsibilities for the entire sector. Whether it is housing 
or other, Congress certainly can do what it chooses to do, and 
we are happy to provide any information you need with regard to 
how we are managing and overseeing as conservator and regulator 
of the Enterprises and the Home Loan Banks.
    Mr. Lucas. But where do you see the risks and the 
vulnerabilities these days?
    Ms. Thompson. I think one of the risks is building capital 
and making sure that we have capital so that the Enterprises 
can cover any losses. But there is also a dual mandate of 
making sure that liquidity is provided throughout the country 
to borrowers everywhere so that they can have access to 
homeownership. And I think that is a dual mandate for which we 
have to be responsible.
    Mr. Lucas. In our remaining moments, Director, Fannie Mae 
and Freddie Mac have been under a conservatorship since 2008 in 
which FHFA is charged with acting as regulator and conservator. 
Could you explain your approach to both of these different 
responsibilities and what you see is the greatest challenge 
facing each?
    Ms. Thompson. Sure. We believe that safety and soundness 
and sustainable access to credit are our mandates. Everything 
that we do at FHFA is wrapped around safety and soundness. We 
have examiners onsite at the Enterprises. We conduct 
examinations at the Home Loan Banks each and every year. And we 
make sure that they are accomplishing their missions in a safe 
and sound manner.
    We believe that both are attainable, and it shouldn't be 
either/or, it should be and/both, because we have the dual 
mandate to provide safe, decent, and affordable housing to 
Americans throughout the country, and that is how we approach 
our job.
    Mr. Lucas. Thank you very much. I yield back, Mr. Chairman.
    Mr. Hill. The gentleman yields back.
    The gentleman from Texas, Mr. Green, is recognized for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the witness for appearing today as well, and of 
course, I thank the ranking member.
    Mr. Chairman, you might recall that in the last Congress, 
the Oversight and Investigations Subcommittee held a hearing on 
the question related to rental markets and tenant protections. 
I see where a recent ProPublica investigation alleges that 
RealPage, a company which provides a rent-setting algorithm to 
landlords and property management companies--it is being 
alleged that they have colluded with landlords to help inflate 
rental prices using private data.
    The question becomes, Madam Director, of course, is this 
price-setting software, or is this price-fixing software? And 
does this pricing algorithm allow landlords to coordinate 
prices and provide rental pricing higher than competitive 
levels?
    It is of great concern, because we want to make sure that 
we protect tenants from egregious rent hikes, and this looks 
like a very clever means by which this can occur. I am 
concerned about how the FHFA might play a role in protecting 
tenants. Can you give me some commentary on this, please?
    Ms. Thompson. Sure. Thank you. The subject of tenant 
protections has been coming up quite a bit, and our Agency is 
preparing to issue a request for input to get stakeholder input 
on this very issue. I read that same article, and Fannie Mae 
and Freddie Mac in particular are secondary market 
participants. They provide the funding for financing to 
lenders.
    So, we have asked them to talk to the lenders who, in turn, 
talk to the property managers to figure out, one, are they 
using this type of algorithm to establish rents? But, two, we 
want to make sure that we are balancing safety and soundness 
and tenant protections so that tenants certainly have rights 
and also the multifamily lenders that build these properties 
are part of this conversation.
    So, we are really looking forward to getting input on our 
request for input on tenant protections for stakeholders, for 
loans that are backed by Fannie and Freddie.
    Mr. Green. Thank you for looking into this. I am moved by 
this in part because when I was a neophyte lawyer, we were 
given a booklet that would give us suggested prices for various 
actions--divorce one price, DWI another--and this was found to 
be a violation of antitrust law when you start pushing prices 
so that you create a price level that is beyond what would 
ordinarily be a competitive price. And this smells very much of 
what I experienced when I was a neophyte.
    And I am really concerned to the extent that I may give you 
a written request--I don't want you to get blindsided--as it 
relates to this because from the hearing that we had, it became 
very obvious to us that major corporations were buying up these 
properties and that somehow in buying them, prices were being 
elevated. This was immediately during the advent of the 
pandemic, that prices were being elevated.
    And not only were the prices too high for renters, but they 
were also buying properties that first-time homebuyers could 
have acquired. So, they were cutting into poor people who don't 
have what rich people have, in various ways. Your final 
comment, please?
    Ms. Thompson. We don't allow institutional investors to 
purchase these multi- and single-family rental properties. I 
think one of the Enterprises did one transaction in 2018, and 
we have not allowed that since.
    Mr. Green. Thank you very much. I will yield back the 
remainder of my time.
    Mr. Hill. The gentleman from Texas yields back.
    The gentlewoman from Missouri, Mrs. Wagner, who is also the 
Chair of our Capital Markets Subcommittee, is recognized for 5 
minutes.
    Mrs. Wagner. I thank the Chair, and I thank Director 
Thompson for joining us here today.
    I just want to join my colleagues in their concerns with 
the recent changes to these home mortgage fees. I have heard 
from countless people in the housing community, as well as 
homebuyers young and old in Missouri's Second Congressional 
District who are adamantly opposed to this new Biden-era rule.
    What you are essentially proposing or doing is taking money 
from those with good credit, who have spent years saving for a 
home, and transferring it to more-risky borrowers. We all agree 
that there is a housing affordability problem in this country, 
but it won't be solved by punishing those who played by the 
rules and did things right. And none of this will be solved by 
this unjust, socialist-style redistribution of wealth.
    Director Thompson, on May 15th, you did announce a formal 
request for input, an RFI, on the broader pricing change 
initiative after significant stakeholder, as I just reflected, 
and congressional feedback and concern. Now, this is one step 
in the right direction. However, I believe that you are putting 
still the cart before the horse here by releasing a new pricing 
framework without proper input first.
    Why did the FHFA neglect to formally request stakeholder 
input before releasing this new pricing framework?
    Ms. Thompson. Thank you for the question. The FHFA reports 
on pricing every year to the Congress, and we also publish 
reports that discuss the pricing requirements.
    Mrs. Wagner. But what about the stakeholder input?
    Ms. Thompson. Yes, what I would like to say is we published 
the changes--I really wanted to say that the new pricing grids 
do not punish people with high credit scores and higher down 
payments.
    Mrs. Wagner. Okay.
    Ms. Thompson. That is not the case. What people forget to 
look at is the cost of mortgage insurance----
    Mrs. Wagner. Respectfully reclaiming my time, we couldn't 
see this, nor can the American people see this any differently.
    Given all the backlash from the FHFA's rollout of the 
recent pricing changes, will you commit to increased 
transparency and stakeholder input for actions like this in the 
future?
    Ms. Thompson. Yes. We will certainly commit to----
    Mrs. Wagner. Let me move on then. Lower-credit-quality 
borrowers are typically the first to default, and many 
experience extremely-early payment defaults during times of 
economic stress. If more borrowers with worse relative credit 
receive Fannie and Freddie guarantees, could that result in 
more systemic risk for these GSEs either, one, in the short 
term in an economy at risk of recession or, two, in the longer 
term as the credit quality of the GSEs deteriorates?
    Ms. Thompson. That is one of the reasons that the 
Enterprises require mortgage insurance, because if there is a 
default, the mortgage insurance steps in front of and has the 
first-loss position and protects the Enterprises and limits the 
Enterprises' loss.
    And as we said, any loan that has less than 20 percent down 
is required by law to have credit--
    Mrs. Wagner. Yes. We are all familiar with private mortgage 
insurance (PMI). Director Thompson, I am concerned with the 
FHFA's proposed actions related to the bi-merge, tri-merge 
transition, which would only require two credit reports instead 
of three to determine consumer credit scores. I am sure you 
would agree that relying on incomplete and imprecise data 
raises the possibility of another GSE policy-created mortgage 
crisis. Lenders cannot accurately price risk and manage their 
mortgage-related exposures if they are relying on a limited 
picture of borrowers' credit files. Ultimately, the taxpayers 
will pay the cost if mortgage defaults increase.
    And like it or not, the most predictive of models, the 
single-most predictive one is credit scores. How would this 
change work, and who would determine which two reports to use, 
and at what juncture in the lending process would that decision 
be made?
    Ms. Thompson. The decision would be made early on, and the 
lender would choose two of the three. We think it fosters 
competition, and it lowers the cost for the buyer. Instead of 
getting reports from three----
    Mrs. Wagner. Do all three have the same data?
    Ms. Thompson. Some have more data than others.
    Mrs. Wagner. Yes. That is problematic.
    Mr. Hill. The gentlewoman's time has expired.
    Mrs. Wagner. My time has expired. And ma'am, I have a 
multitude of questions in this arena that I am going to forward 
to you.
    Mr. Hill. Director Thompson, you can respond to the 
gentlewoman in writing.
    Mrs. Wagner. Thank you.
    Mr. Hill. The gentleman from Missouri, Mr. Cleaver, who is 
also the ranking member on our Housing and Insurance 
Subcommittee, is now recognized for 5 minutes,
    Mr. Cleaver. Thank you, Mr. Chairman.
    And again, thank you, Director Thompson. And let me also 
express appreciation for your availability and your staff's 
availability to discuss these issues of significance to us. It 
is always helpful.
    And particularly, I am now very much interested in the 
Federal Home Loan Bank (FHLB), which is in Des Moines, Iowa, 
about 175, 180 miles from me in Kansas City, Missouri. We ended 
up having a lot of concerns and questions around Silicon Valley 
Bank and Silvergate Bank because the FHLB had provided billions 
of dollars to both of those banks in the weeks that led up to 
their collapse.
    And whenever that kind of thing happens, we are going to 
get questions, ``I thought their priority was making affordable 
homes available. And if that is, in fact, their mission and if 
they are backed up by the Federal Government, implied or not, 
how can they justify giving billions of dollars to two banks 
that went under?''
    Ms. Thompson. Yes. Thank you for the question.
    The Home Loan Banks certainly are part of the greater 
financial ecosystem. And we are conducting a review of the Home 
Loan Banks and will, as part of the report that we issue, have 
a discussion about the Home Loan Banks' role in the failure of 
the two banks over the March 9th weekend.
    What I would say is we work very closely with the primary 
Federal regulator, and they govern the permissible activities. 
But what we do is we try to make sure that the Federal Home 
Loan Banks are not the lender of last resort. That is supposed 
to be the Federal Reserve. And to the extent that the Home Loan 
Banks want advances, then we certainly work with them. We 
assess their credit and look at just their activities over the 
quarter. Because we don't get reports of examinations, we have 
to rely on our own member credit assessments.
    We, again, based on the requirement of law, are required to 
provide advances, and these advances need to be used for 
homeownership, home lending. They can be in the form of loans 
or mortgage-backed securities that are purchased to fulfill 
some of the collateral requirements when they are requesting 
advances.
    And so, we really keep a close eye on the Home Loan Banks. 
And as it relates to these failures, we are definitely going to 
incorporate the Home Loan Banks' role into the report that we 
publish by the end of the third quarter.
    Mr. Cleaver. Thank you. I look forward to seeing that.
    The Federal Home Loan Banks have over $1 trillion in 
assets, and we also are having a serious problem with 
homeownership, or the lack thereof. Is it reasonable that the 
Federal Home Loan Banks play a more active and aggressive role 
in responding to the affordable housing crisis?
    Ms. Thompson. Yes, absolutely. We conducted numerous 
listening sessions around the country to talk about the role of 
the Home Loan Banks. And at almost every session, many 
participants said that there was more that the Home Loan Banks 
could do to be helpful in their affordable housing 
responsibilities. So, we will be, again, publishing a report 
that will list some of the suggestions that were made to really 
help the Home Loan Banks better focus and enhance the 
activities around affordable housing in their respective banks.
    Mr. Cleaver. I would hope that since the Community 
Reinvestment Act (CRA) is being looked at right now by these 
finance Agencies, this might be a really good time to look at 
that in terms of a more active role.
    Thank you, Mr. Chairman.
    Mr. Hill. I thank the gentleman. I now recognize the 
gentleman from Kentucky, Mr. Barr, who is also the Chair of our 
Financial Institutions Subcommittee, for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman.
    Director Thompson, thanks for being here today. And I hear 
your argument that the FHFA's recent changes to loan-level 
price adjustments does not punish borrowers with higher credit 
scores and down payments and won't impact them. But I have to 
drill down a little bit on your argument that this doesn't 
undermine risk-based pricing.
    Did the LLPAs assessed on any loans increase under the new 
pricing grid?
    Ms. Thompson. Yes.
    Mr. Barr. In terms of credit scores, were there any price 
increases assessed on any loan with a credit score of 679 or 
lower?
    Ms. Thompson. I don't have the chart in front of me.
    Mr. Barr. I think the answer is, no. But the next question 
is really more revealing. Is it correct to say that all 
increases in the LLPAs under the new grid were assessed on 
loans with credit scores of 680 or higher?
    Ms. Thompson. I think the capital requirements for those 
loans, which the pricing grid is tied to, I think would reflect 
the risk distribution of those----
    Mr. Barr. Yes. The answer is, yes.
    Ms. Thompson. Okay.
    Mr. Barr. Every one of these higher fees goes to borrowers 
with credit scores higher than 680. And this is the problem 
that Members of Congress have, because our constituents have a 
problem with this. It may advance a political agenda of 
equitable housing, but it doesn't advance the statutory mandate 
that you, as the FHFA Director, have to promote safety and 
soundness.
    What we think you are doing here by assessing higher fees 
on higher-credit borrowers is you are actually contradicting 
the statutory mandate to advance safety and soundness, and you 
are putting taxpayers at risk. I want you to kind of take that 
feedback, evaluate it, and recognize that, yes, in fact, the 
borrowers with the highest credit scores are the ones getting 
the higher fees.
    Let me follow up on Representative Cleavers' very good 
questions about the Federal Home Loan Bank System. One of the 
key lessons from the recent bank failures is how quickly 
deposit outflows can cripple a financial institution, and 
Federal Home Loan Banks do have an ability to respond almost 
instantly to their members' funding needs. This is particularly 
important for community banks and credit unions which otherwise 
don't have access to the capital markets.
    I hear what you are saying, that the Federal Home Loan 
Banks (FHLBs) are not the lender of last resort, but 
considering this recent history, would you agree that any 
suggestion to limit access to Federal Home Loan Bank liquidity 
could have negative consequences for financial institutions and 
consumers if residential mortgage assets can't be effectively 
liquefied or pledged through FHLB borrowing?
    Ms. Thompson. I think, first, I would like to say that even 
with these reduced fees, borrowers with high credit scores and 
high down payments will always pay less than borrowers with low 
credit scores and low down payments. That is FHFA's 
requirement, and we do believe that it is safe and sound.
    With regard to the Federal Home Loan Banks, they have to 
issue debt. So when a member comes in, if they have a large 
requirement, the debt markets are not open 24-hours-a-day, so 
what typically happens for the Federal Home Loan Banks is the 
members come in, and they have staggered requests. And if they 
have a large request, then the Home Loan Bank has to plan for 
it, because they have to issue debt to meet the funding 
requirement.
    So, we just think that planning, which is appropriate for 
the Home Loan Banks, which are the second----
    Mr. Barr. Thanks for your feedback. Just remember the 
important liquidity provisions that Federal Home Loan Banks can 
provide here.
    On credit risk transfer, the SEC's proposed conflict of 
interest rulemaking exempts the GSEs as long as they are in 
conservatorship. But whether or not the Enterprises are in 
conservatorship really should have no bearing on whether the 
transactions impacted create material conflicts of interest 
with investors.
    I appreciate that you have restored capital credit for 
Credit Risk Transfers (CRTs), and the revisions you made to the 
Enterprises' regulatory capital framework, which supports 
ongoing issuance of credit risk transfer transactions that 
protect taxpayers, but is there any reason you can think of why 
the SEC should not simply write a rule that can apply to all 
issuers of CRT or similar risk-mitigating instruments rather 
than relying on these clumsy exemptions that undermine efforts 
at housing finance reform?
    Ms. Thompson. The FHFA has no jurisdiction over what the 
SEC should or should not do. To the extent they issue a rule, 
we have a responsibility to respond on how it impacts our 
regulated entities, and that is what we have done.
    Mr. Barr. I am just making the point. I appreciate it, and 
I yield back.
    Mr. Hill. The gentleman's time has expired.
    The gentleman from Illinois, Dr. Foster, is now recognized 
for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman.
    Director Thompson, a variety of people come in front of our 
committee, and come to us individually for private meetings 
ahead of time. And I have to say, when I encounter someone with 
your breadth of experience, your deep understanding of business 
considerations, and the strength of your moral compass, I just 
want to say that I thank you for your years of service to our 
government and the people.
    Now, I have long been concerned about the cybersecurity 
risk that third-party providers may pose to individual 
financial institutions as well as our entire financial system, 
given how interconnected the whole system is and the fact that 
many of these third parties are, in fact, core mission-critical 
providers to several important financial institutions. We have 
learned a number of painful lessons in the recent past about 
how cybersecurity attacks--well, about the effectiveness of 
supply chain attacks and third-party attacks on financial 
services and elsewhere.
    I hope soon to reintroduce the Strengthening Cybersecurity 
for the Financial Sector Act, which this committee actually 
passed out of markup last session. This bill would give the 
FHFA the authority to examine and regulate third-party service 
providers of its regulated entities. This is, as you are 
probably aware, very similar to the existing authority that 
prudential banking regulators like the FDIC and others 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, 
continue to have limited authority to regulate and supervise 
third-party providers.
    So, Director Thompson, can you tell us the current extent 
of FHFA's authority over third-party service providers like 
Fannie, Freddie, and the Federal Home Loan Banks?
    Ms. Thompson. Sure. Thank you for that. We have been asking 
for authority to examine third parties that are counterparties 
to the Enterprises and the Home Loan Banks for a number of 
years now. So, thank you for raising the issue.
    Right now, we use our conservatorship authority, because 
the counterparties have contractual relationships with the 
Enterprises. But as a regulator, we think it is very important 
to have oversight or examination authority, similar to what the 
bank regulators have through the Bank Service Company Act, on 
their ability to oversee and examine third parties that are 
critical counterparties to their regulated entities. We would 
like the same thing.
    Mr. Foster. I concur, and I hope the Congress moves on what 
I hope should really be a no-brainer on this.
    Are you involved in Fed Vice Chair Barr's holistic review 
of bank capital and liquidity requirements? And in particular, 
will the report that you are generating, for which I think you 
set a due date in September, really have a timeline that is 
useful for input into that, given the importance of the Home 
Loan Banks in providing emergency liquidity?
    Ms. Thompson. We are not directly involved with the bank 
capital review that the Federal Reserve and the other 
regulators are undertaking, but I have committed to Vice Chair 
Barr and the other banking regulators that we would share 
information from the review that we are undertaking on the Home 
Loan Banks because they are the primary Federal regulators. And 
it is really important for us to continue to work together and 
communicate because these are all entities in the larger 
housing finance ecosystem, so we will be sharing information 
with them along the way.
    Mr. Foster. Yes. In your testimony, you mentioned the 
capital stress testing of the Enterprises. And we, I guess, had 
seen the biggest drop in house values in the last 11, 12 years 
in the last year. And that, fortunately, has not been 
accompanied by unemployment, which is the other thing that can 
really wipe out capital rapidly.
    So, what can you say about the nature of the stress 
testing? Is the stress testing you do comparable to, say, a 
repeat of the 2007 to 2008 crisis or----
    Ms. Thompson. Yes. Actually, we use much of the information 
that is published by the Federal Reserve in their stress 
testing of their regulated entities, and we modify it to 
accommodate our regulated entities. For example, we will look 
at high concentrations of a single counterparty. We will look 
at home price decline since we have a single asset in a way 
that maybe others do not.
    And so, we take what is publicly available and we modify it 
just a little bit, and we publish the results of our stress 
tests every year. And we think that we want to be aligned where 
we can be with the other regulators and then make differences 
that are relevant to our counterparties, and then we publish--
--
    Mr. Davidson. [presiding]. The gentleman's time has 
expired.
    Mr. Foster. Thank you. I yield back.
    Mr. Davidson. The Chair now recognizes the gentleman from 
Texas, Mr. Williams, for 5 minutes.
    Mr. Williams of Texas. Thank you very much, and thank you, 
Director, for being here.
    I am from Texas. I am a car dealer in Texas, and I own 
multifamily properties in Texas. And I know that the White 
House has been pushing the FHFA to enact rent controls where 
they are going to tell me what I am going to make. It takes 
away me wanting to do things, and multi-family property is part 
of their initiative to socialize the housing industry.
    Now, the law is very clear. FHFA does not have the 
authority to enact these types of rent controls, and inserting 
yourself into the free market by enacting rent controls would 
have the opposite effect. It keeps people like me from wanting 
to build. It does away with competition. It keeps people from 
having places to live.
    And we would see a reduced housing supply by you getting in 
the market and a lack of investment. You wouldn't see that. And 
rental costs being pushed onto other tenants. That is what 
happens.
    And the focus should be shifted toward, I believe, 
increasing housing supply by reducing inflation, lowering 
interest rates, and getting the supply chain under control, and 
doing away with regulation for people like me who want to build 
and help people. And it is really hard to go borrow money when 
you have a cap on what you are going to make.
    All of these factors will lead to an increase in home 
development and investment, driving the supply of housing up 
and the price down, if you do those things. Ms. Thompson, are 
you worried about the implementing of rent caps and other 
regulations? Do you think that could harm the housing market, 
like I am talking about, and make it even more difficult to 
develop housing, along with other economic challenges and 
discourage people like me from building?
    Ms. Thompson. That is a great question, and we really want 
to get all sides on this issue. And this is why we are going to 
issue this request for input because we want to make sure that 
the policies that we are undertaking make sense from both a 
safety and soundness perspective and for the tenants. And we 
are really looking forward to getting information that can 
address this very issue that you have raised.
    We, FHFA, don't have a lot of input or influence on the 
supply chain. We do participate in the supply on the multi-
family side through Low-Income Housing Tax Credit (LIHTC) 
investments. We have allowed both Enterprises to have $850 
million each of LIHTC investments, and half of that has to be 
in rural and manufactured housing in counties across the 
country.
    Mr. Williams of Texas. Caps and forbearance does not help 
people who want to live in a decent homestead.
    Next question. When traveling back in Texas, which is where 
I live, I continuously hear about how the dream of 
homeownership is becoming more and more unattainable for 
individuals in my district. Now, it is critical that we support 
new innovation designed to create more choices for consumers.
    One solution to reducing prices in the housing space could 
be through a new, innovative approach such as direct mortgage 
insurance, which I know you are familiar with, which brings new 
private capital to the market and reduces risk for taxpayers. 
Unfortunately, due to political pressures and lack of action by 
the Biden Administration, this is a model that is ready to 
launch but has not been approved as a standard product 
offering.
    My question is, why is the Biden Administration standing in 
the way of competition, which creates a lot of great things for 
consumers, and innovation that would lower costs for borrowers? 
And what are your thoughts on the direct mortgage insurance 
approach that could bring new capital to the market, and where 
does it stand with the FHFA currently?
    Ms. Thompson. Thank you for that. The product that you 
mentioned would be considered, I think--we would have to make a 
determination as to whether it was a new activity or new 
product for the Enterprises and would warrant making sure that 
it was publicly available so people could have public 
comments----
    Mr. Williams of Texas. But if it lowers costs, isn't that a 
good thing?
    Ms. Thompson. Well, lowering costs and improving risk 
management is always good. But our rules suggest that this 
might be a new activity or new product, and we wouldn't want to 
make a decision that would be impactful without getting input.
    Mr. Williams of Texas. Okay.
    Ms. Thompson. We would have to.
    Mr. Williams of Texas. Big government wins again.
    Okay. Lastly, the GSEs have been in conservatorship coming 
up on 15 years this fall since the financial collapse in 2008, 
and former FHFA Director Calabria 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 toward that 
ultimate goal.
    However, since you have taken over serving as Director of 
the FHFA, it does not seem like there is a similar focus on 
working to get away from the conservatorship, so GSEs remain 
under government control and continue to be financially backed 
by the American taxpayers. FHFA must work to bolster the 
capital levels of GSEs to better protect taxpayers from undue 
risk. Quickly, what is the FHFA doing to build capital in hopes 
of eventually exiting conservatorship?
    Ms. Thompson. We are implementing the new pricing grids 
that are--
    Mr. Davidson. The gentleman's time has expired, and I would 
ask the Director to respond in writing for the record.
    The Chair now recognizes the gentlewoman from Ohio, Mrs. 
Beatty, for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and thank you, 
Ranking Member Waters.
    And thank you for being here today, Director Thompson.
    Mr. Chairman, let me make this statement, because my 
colleague from Missouri asked Director Thompson about her 
relationship and meetings with the President and the White 
House, and I heard a different response. I heard her say, yes, 
she meets with the White House, she has met with the President, 
and she has presented information. I did not hear her say that 
they did not listen.
    And as Chair Emeritus of the Congressional Black Caucus, I 
can say that on housing, thanks to this Director and data and 
resources that she supplied to me during my tenure as Chair, 
along with information that came from Chairwoman Waters, we 
were able to present housing information to this President, 
unlike the last President.
    Since it has been introduced about what Presidents do, the 
last President did not know who or what the Congressional Black 
Caucus was, although we represent 80 million Americans, 18 
million Black Americans, and for the last 52 years, Democrat 
and Republican Presidents have met with us and housing has been 
an issue. So, thank you for that.
    Let me continue with what Congressman Meeks brought up. We 
have held hearings in this committee led by Chairwoman Waters 
and others over the last two Congresses that dealt with looking 
at diversity, equity, inclusion, and some of the biases with 
appraisals. Your time ran out when Representative Meeks was 
starting to ask about representation of people of color and 
biases in this profession. Is there anything you would like to 
add to that?
    Ms. Thompson. Yes, thank you.
    In terms of appraisal diversity, Fannie Mae and Freddie Mac 
have worked with, I think 29 sponsors, to bring diverse 
clients, diverse persons into the appraisal industry because, 
again, it is aging out and it is less diverse than other 
industries. And that was one of the things that came out at the 
hearing that we had last week Friday at FHFA with the Appraisal 
Subcommittee.
    Right now, there are 469 scholarships that have been given 
by these 29 sponsors to persons who are interested in serving 
in the appraisal industry. There is not a lot of knowledge at 
Historically Black Colleges and Universities (HBCUs) or 
community colleges about that. So, there is a lot of outreach 
that is being done.
    But what has happened is when people hear about it, they 
want to find out more, so there has been a lot of interest in 
the appraisal industry by diverse persons and diverse 
organizations, and we are trying to make sure that we 
accommodate that in any way that we can through the private 
sector.
    Mrs. Beatty. Thank you. As the former Diversity and 
Inclusion Subcommittee Chair, I really appreciate that.
    Certainly, we all know that the FHFA was created by the 
Housing and Economic Recovery Act of 2008, to restore the 
confidence and stability in mortgage markets in the wake of 
what we experienced in 2008 with that financial crisis. One of 
your Agency's primary goals is to ensure that the Enterprises 
and the Federal Home Loan Banks are operating in a safe and 
sound manner and serve as a reliable resource of liquidity in 
the housing financial market.
    What is FHFA doing under your leadership to help ensure 
safety and soundness in the housing finance market? Is there 
anything you would like to add?
    Ms. Thompson. Yes, thank you.
    We are looking at the operations of the Enterprises and our 
regulated entities. We have examiners onsite, and we conduct 
regular examinations. We are also looking at ways for the 
Enterprises to build capital so that they don't have to rely on 
the taxpayer support should there be losses. We are looking at 
ways to both help homeownership in a responsible way because 
one of the things that we learned from the crisis was it 
doesn't make sense to put people in a home if they can't stay 
in the home. It is a lose-lose situation, so we focus on 
sustainable homeownership, and safety and soundness is embedded 
in everything that we do at FHFA.
    Mrs. Beatty. If an economic crisis were to occur, do you 
think you have what you need at your disposal, or is there 
anything else Congress can do to help you?
    Ms. Thompson. We would be happy to work with the Congress 
on any way to help with looking at ways to make homeownership 
more----
    Mr. Davidson. The gentlelady's time has expired.
    Mrs. Beatty. Thank you, Mr. Chairman, and thank you to the 
witness.
    Mr. Davidson. The Chair now recognizes the gentleman from 
Michigan, Mr. Huizenga, for 5 minutes.
    Mr. Huizenga. Director, thank you for being here, and I 
appreciate your testimony.
    Director, do you believe it is appropriate for the FHFA to 
prohibit GSEs from varying their pricing solely based on the 
origination channel of a loan?
    Ms. Thompson. I think the pricing grids are based on the 
capital and the performance of the different origination 
channels.
    Mr. Huizenga. Okay. So, would you agree that one loan no 
more or no less risky than an equivalent loan, with identical 
characteristics, simply because it was originated through a 
third party, would be a bad idea?
    Ms. Thompson. I would agree. I think one of the points that 
was made earlier is the transition from the retail channel, the 
banks, to non-bank mortgage servicers and lenders. And I think 
we need to get some data that would show the experience on 
loans originated by channel so that we could look at the losses 
associated with it and then have capital reflect what the 
performance has been so we could price them appropriately.
    Mr. Huizenga. Okay.
    Ms. Thompson. It would be helpful to have data.
    Mr. Huizenga. So, while GSEs should be permitted 
flexibility to adjust their pricing frameworks to meet their 
mission and safety and soundness objectives obviously, I don't 
believe they should be permitted to implement pricing that 
violates the principle of equal access to the secondary market.
    You noted in your testimony that FHFA's statutory mission 
of ensuring the safety and soundness of the regulated entities 
and promoting access to affordable and sustainable housing 
includes first-time homebuyers in underserved communities, and 
I applaud you for that. I am actually a former licensed 
REALTOR. And when I got my real estate license, I was taught 
one thing: Everyone is green. It doesn't matter where you are 
from, what language you speak, or what your religion might be 
or anything else, what matters is, can you afford it, or can 
you not afford it?
    I am curious, do you believe the reports that disparities 
in pricing for third-party organization (TPO) loans are a 
departure from the core level playing field principle that FHFA 
has established?
    Ms. Thompson. I would want to see data that showed by 
channel what the loss experience has been so we could 
appropriately account for the pricing----
    Mr. Huizenga. Should there be a difference, though?
    Ms. Thompson. I hope not, but the data would be helpful and 
more informative for me to answer the question.
    Mr. Huizenga. Okay. Moving on, in your appearance before 
our committee last July, I submitted a question for the record 
concerning GSEs and perceived steps that were taken to limit 
acquisitions of mortgage loans sold through third-party 
originators. Your response was, shall we say, I would 
characterize it as lacking. You said that FHFA must account for 
appropriate risks, including those associated with loans 
originated through the third-party broker and corresponding 
channels. But TPO-underwritten loans provide an alternative 
competitive product that lowers costs and can actually reduce 
interest rates on low- and middle-income borrowers, driving the 
mission purpose of why you are there at FHFA.
    Here is what I am hoping to hear from you. I would like you 
to commit that you will provide my staff and this committee's 
staff with the analysis that you and FHFA used to determine any 
of the price changing and the pricing frameworks, and I would 
like to know what kind of analysis you have conducted. You have 
been referencing getting more data, but you have taken some 
actions. What is that based on?
    And I am especially concerned what this means for our low- 
and middle-income borrowers. In my district, we are wildly 
diverse in that we have urban, suburban, and rural areas, and 
there are very poor people in all of those areas. And I want to 
make sure that those borrowers are being treated equally. Will 
you commit to working with us and giving us that information?
    Ms. Thompson. Absolutely. And I would also mention that 
many of the borrowers, if your area median income is less than 
100, if you are a first-time homebuyer, your up-front fee was 
eliminated. And so, I really want that message to get out that 
for first-time homebuyers, the up-front fee was eliminated.
    You do have to continue to have the mortgage insurance, and 
your costs are going to be higher than someone who has a higher 
credit score and a higher down payment, but the up-front fee 
for first-time homebuyers in rural and urban counties 
throughout this country----
    Mr. Huizenga. In my remaining 3 seconds, many of us are 
concerned about that disparity and making others pay for it.
    Mr. Davidson. The gentleman's time has expired.
    Mr. Huizenga. Thank you, and I yield back.
    Mr. Davidson. The Chair now recognizes the gentleman from 
California, Mr. Vargas, for 5 minutes.
    Mr. Vargas. Thank you very much, Mr. Chairman. I also thank 
Ranking Member Waters for this hearing.
    And I especially want to thank Director Thompson. I have to 
say that I want to join with my colleague, Mr. Foster, in 
thanking you for the service that you have given, and for your 
deep knowledge. I have to say that I think you are doing a 
great job, and I have enjoyed your performance today in the 
sense that a few times they tried to put words in your mouth, 
especially with respect to the President and what you said and 
what you didn't say, and you corrected the record very 
graciously.
    So, again, that normally doesn't happen in here. Normally, 
there is a tit-for-tat, and instead, you handled it better than 
anyone I have ever known to do it.
    Now that I have praised you, I do want to ask you some 
questions that you probably don't know the answer to, and and 
that are not in your bailiwick, but because the other side 
brought it up at the beginning, I have to ask, do you know what 
the inflation rate is of the EU and the UK?
    Ms. Thompson. I'm sorry. I don't know.
    Mr. Vargas. That is right, and there is no need for you to 
know. But President Biden was blamed for the inflation rate 
that we have in the United States, which is lower than it is in 
the UK, which is over 10 percent. We are at 4.9 percent. And 
it's also lower than it is in the European Union. And yet, 
Biden's policies are not the European policies, and not the 
UK's policies.
    We have inflation all over the world because of the 
pandemic, supply chains, all sorts of issues. And yet, each and 
every time, my colleagues want to blame Biden, Biden, Biden. It 
didn't work. They used it in the last election. They didn't get 
the wave that they thought. They are trying that old trick 
again. The reality is that it is a worldwide phenomenon. We are 
doing better than the rest of the world. That is the reality.
    Now all that being said, I do have a problem with prices of 
homes. That is the real issue, and I will give you a good 
example. I just went on an inflation calculator, I have two of 
them here, and I took a look at--I bought my home in 1993 with 
my wife. We paid $176,000 for it, it's a modest home, but it is 
unique. It is an historic home.
    Today, it would be worth $369,000 in the U.S. inflation 
calculator. Under the asset calculator, it would be worth 
$355,000. That is reasonable. So if somebody, again, wants to 
buy a house for $369,000 in California, that would be very 
reasonable. I think that would be fine, and people could afford 
it.
    The problem is, the median home in San Diego is over 
$800,000 now. And in my neighborhood, it is over $1.5 million. 
People can't afford those prices.
    What can you do about that? That is the real issue. It is 
supply, and that people want to live in California. People say 
they don't want to live in California, but every time a house 
goes up for sale, there are all sorts of people trying to bid 
on it.
    So, what can we do about the supply? That is the issue.
    Ms. Thompson. We would be happy to work with the committee 
on anything that we could do to help address the supply issue. 
We don't directly have an impact on that, but we certainly have 
some ideas on things that could be done and we would love to 
work with the committee to try to address those issues. There 
is a huge housing shortage, as you mentioned, across the 
country.
    Mr. Vargas. It is across the country, different types. In 
California, I think we need more tax product, which becomes a 
little more tricky because we are not used to that product, but 
we have to have it if it is going to become affordable.
    Ms. Thompson. No, that is a great point. One of the things 
that the Enterprises have done is they have changed the 
underwriting requirements to allow more accessory dwelling 
units (ADUs); sometimes, they are called, ``granny units.'' And 
they allow income to be used in part of the calculation. But 
just looking at manufactured housing and just different ways to 
think about different types of homes that can really help at 
the affordable level throughout the country.
    Mr. Vargas. Okay. And with the last few seconds that I have 
here, you were asked about the Fed Funds Rate, and do you have 
anything to do with the Fed Funds Rate? Do you call up Chair 
Powell and say, hey, lower it, or raise it?
    Ms. Thompson. No, I do not.
    Mr. Vargas. Of course not. That was put on your bailiwick 
earlier, and it is ridiculous. Some of the things that my 
colleagues come up with on the other side of the aisle 
sometimes surprise me.
    With that, I yield back. Thank you, Mr. Chairman.
    Mr. Davidson. Thank you, Mr. Vargas.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Loudermilk, for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman.
    And thank you, Director Thompson, for coming in and 
speaking with us today.
    I want to echo some of my colleagues' concerns over the 
loan-level price adjustment changes that took effect earlier 
this month, but I would also like to echo some of what my 
colleagues from Georgia and Missouri discussed on the bi-merge, 
tri-merge transition. As Mrs. Wagner pointed out, I don't think 
anyone would argue that all three credit reporting bureaus 
reflect the exact same information about a borrower, and thus, 
they aren't interchangeable. Excluding a single trade line 
could move borrowers up a credit score band, increasing risk 
for lenders. Additionally, there is an element of hazard. If 
only two scores are used, how do you plan to prevent lenders or 
borrowers from gaming the system and using the two most-
favorable scores?
    Ms. Thompson. That's a great question. We have a proposed 
rule out for our capital rule, and one of the questions in that 
rule is related to the bi-merge, tri-merge, and how we should 
calculate it, because right now, it is a two-step process. You 
take the median and then the lowest of the lowest score based 
on the two borrowers, and should we move from median to 
average? And just how do we make sure that if the lender 
doesn't like two scores and if they pull a third one, that they 
are not using that?
    And one of the things that we are talking about is making 
sure that if lenders pull three scores, they have to use all 
three scores. But if they pull two and don't like the two, then 
they have to make that submission.
    But we are doing a request for comment on that in this new 
capital rule, and the comments just closed on May 12th. But 
that is a question.
    Mr. Loudermilk. So, this is something you are still working 
on? You really haven't come up with a conclusion of how are you 
going to do this?
    Ms. Thompson. We are getting input from the people who are 
going to be using this.
    Mr. Loudermilk. What about in the reverse situation? Just 
as it could move borrowers up a band, missing critical 
information or a trade line could force millions of credit-
worthy consumers down to a lower credit score band. Wouldn't 
this reduce access for borrowers who would otherwise be deemed 
creditworthy?
    Ms. Thompson. In addition to the credit score, the 
Enterprises both have their own underwriting engines that they 
use, and this is an input to that, so they try to take as much 
information as they can to make a good underwriting decision.
    I know Fannie Mae uses trended data, and I think Freddie 
Mac either is or does, which doesn't just talk about what gets 
paid, it talks about how it gets paid as well. So, there is 
just a lot of information that is available that goes into the 
underwriting decision, and based on the analysis that we did, 
we thought that moving from three credit scores to two did not 
detract from accuracy of the borrower's final credit score at 
all.
    Mr. Loudermilk. What credit score models did you use for 
validation studies? The FICO 8, FICO 10? VantageScore?
    Ms. Thompson. The two models were validated by the 
Enterprises, FICO 10T and VantageScore 4.0, and we are working 
on a multi-year implementation process to change from classic 
FICO, which is over 30-years-old, to these new credit scoring 
models. Updating the credit scoring models has been a priority 
for the Agency for years, so FICO 10T and Vantage 4.0 were 
validated by the Enterprises and FHFA.
    Mr. Loudermilk. Are you planning on validated bi-merge 
across all the models before implementation to evaluate the 
impact of the average scores?
    Ms. Thompson. The bi-merge, tri-merge process is outside of 
the credit score model update. The credit reporting agencies 
generate the score, and they send it to FICO, or they send it 
to Vantage. They also send it to the lender. So, the lender 
would have the two scores, and they would either take the lower 
of the median or the lower of the average.
    Mr. Loudermilk. We all know that if a lender misses 
information, and makes a loan to someone who can't or doesn't 
pay it back, that affects every consumer across-the-board. Is 
it a good idea to limit any information to lenders, when a 
house is the largest purchase most people will make in their 
lifetime, and it is the most critical? Are you concerned at all 
about the adverse effects this might have if lenders become 
more risk-averse due to incomplete information?
    Ms. Thompson. We think that this would increase 
competition. Again, when we looked at moving from three scores 
to two, there was really no difference in accuracy that would 
be cheaper for the borrowers.
    Mr. Davidson. The gentleman's time has expired.
    Mr. Loudermilk. Thank you.
    Mr. Davidson. The Chair now recognizes the gentleman from 
Nevada, Mr. Horsford, for 5 minutes.
    Mr. Horsford. Thank you, Mr. Chairman. And to the ranking 
member, I thank you as well.
    Director Thompson, I want to start by commending your 
diligent work to expand opportunities for homeownership to 
hard-working Americans while never sacrificing the safety and 
soundness of the Government-Sponsored Enterprises. I would also 
like to applaud your thoughtful decision to rescind the 
proposed loan-level pricing adjustment fee on borrowers with 
debt-to-income ratios greater than 40 percent.
    We heard just last week from experts such as National 
Association of REALTORS President Kenny Parcell, who reiterated 
the increased uncertainty that low-wealth homebuyers would face 
if these carried that additional fee. The new price matrix will 
help lower-wealth borrowers and increase access to 
homeownership for first-time homebuyers.
    I represent Nevada, and my district is 50,000 square miles. 
I have rural areas and urban areas, and I am particularly 
concerned with the rural communities who have lower home prices 
than some of the ballooning housing market in Las Vegas, but 
who fit the profile of high credit, but low wealth. And I look 
to these rural areas as an opportunity for entry-level 
homeownership. So, thank you for making them a priority.
    I also find it interesting when I hear this debate about 
creditworthiness. We just had bank executives here the other 
day who won't even take accountability for their lack of 
performance and governance of the banking institutions that 
they have responsibility for, but yet, we will target 
individuals and question their creditworthiness based on 
formulas that, in my opinion, are out-of-date, and antiquated, 
and I am glad that you have decided to look to more updated 
models.
    Particularly after the housing collapse of 2008, and the 
pandemic we have endured that people are coming out of, it is 
time that we allow people the ability to show their worth is in 
investing in themselves and their families, and one part of 
that is through homeownership.
    Now, Director Thompson, as you are aware, there has been 
renewed debate around how credit scores may bake in a history 
of discrimination. Could you please discuss your view on the 
impact that overreliance on credit scoring could have for 
majority-minority communities? And additionally, I noticed a 
recent announcement from the FHFA that validated the use of 
additional credit scoring models, so could you discuss how this 
potential change will help equitably expand access to credit?
    Ms. Thompson. Sure. Thank you.
    The Enterprises have been using the classic FICO credit 
score model for years. Classic FICO is almost 30-years-old, and 
it was time to update the models. We had a process that the 
Enterprises went through where they validated applicants. So we 
said, we are updating the credit score models. Anybody who 
wants to be the new credit score model can submit an 
application. We had an extensive validation process. And what 
we found was that both FICO 10T and VantageScore 4.0 met all of 
the tests of accuracy and reliability, but they also were more 
inclusive. What is different today is these new models include 
positive rent payment. They include payments for utility bills. 
They include payments for things that weren't in place 30 years 
ago.
    Mr. Horsford. That is the point.
    Ms. Thompson. Yes.
    Mr. Horsford. I previously served on the House Ways and 
Means Committee, and this is the inequity that is inherently 
baked into some of the structural inequities. A homeowner can 
be treated one way and get credit, but a renter who pays on 
time gets no credit. But now, you are accounting for that in 
your new methodology. Someone who is paying their utilities on 
time and their phone bills on time can now use that as a sign 
for creditworthiness.
    Ms. Thompson. That is correct.
    Mr. Horsford. I appreciate that. I am going to just turn 
quickly to another issue that I am concerned about, and that is 
the role that the Enterprises have in stopping subsidizing home 
purchases, particularly by out-of-State corporate speculators 
that are buying up a bunch of properties. And I do believe the 
Federal Government has a vested interest in this because of 
FHFA's role.
    I have introduced a bill, H.R. 702, the Housing Oversight 
and Mitigating Exploitation (HOME) Act, which would crack down 
on these corporate speculators, and I would like to work with 
you and your Agency----
    Mr. Davidson. The gentleman's time has expired.
    Mr. Horsford. ----to ensure that there is the 
accountability in place to protect the homeowner.
    Mr. Davidson. As I said, the gentleman's time has expired.
    Mr. Horsford. Thank you, and I yield back.
    Mr. Davidson. I now recognize myself for 5 minutes for 
questions.
    Director Thompson, thank you for being here today. Thank 
you for your testimony.
    You and I have spoken about the loan-level price 
adjustments that have drawn quite a lot of attention lately. At 
some level, the RFI that you announced after you implemented 
the price indicates that there is some openness to more input. 
Do you feel like there is a way to get more transparency 
upfront so that this is better understood?
    Ms. Thompson. Absolutely. I think that we do, again, 
publish every year what the pricing is and compare it to what 
it was because when the Enterprises were first put in 
conservatorship, they were given pricing discounts to larger 
sellers versus smaller sellers, and we want to make sure there 
is a level playing field for both large banks and community 
banks as well. So, we are very conscientious about what they 
are paying, and who is paying what, and we have the report by 
loan-to-value (LTV) ratio and debt-to-income (DTI) ratio.
    Mr. Davidson. As we have discussed, there are a lot. We 
could fill up my 5 minutes trying to talk about it. But I 
appreciate you taking the time to do the RFI now.
    Just last week, when our Subcommittee on Housing and 
Insurance met, we noticed a bill called the Middle Class 
Borrower Protection Act. I introduced that with colleagues 
yesterday, and the bill reverts to the old LLPA prices and 
freezes those prices for a year pending a GAO review of the 
current process.
    It would require FHFA to conduct a notice-and-comment 
procedure for future LLPA periods and, frankly, that probably 
would have dealt with some of the transparency challenges, I 
think anyway, and it mandates that FHFA use risk-based pricing 
principles.
    Lastly, it prohibits future fee changes based on debt-to-
income ratios. So, thank you for withdrawing that effort. Do 
these proposals seem reasonable to you?
    Ms. Thompson. I haven't looked at the proposals in depth, 
but we would be happy to work with your office on any proposed 
legislation that you have.
    Mr. Davidson. Thank you, Director. I appreciate that.
    And I want to turn now to the Federal Home Loan Banks. You 
recently finalized a review of the Federal Home Loan Bank 
System at 100. What can you provide in terms of a timeline on 
when to expect your findings and can you go into more depth as 
to what FHFA will recommend from a legislative standpoint?
    Ms. Thompson. Thank you. We hope to have the report by the 
end of the third quarter, and we will include in that report 
what we heard at the various listening sessions we had across 
the country, as well as an overview of the Home Loan Banks' 
role in the bank failures. What we heard across the country was 
that the Home Loan Banks certainly served their mission, 
especially for community banks, and I think that was evidenced 
during the most-recent few weeks with the bank failures.
    But what we also heard was that there is a lot more they 
can do to be helpful in affordable housing and community 
development, and we also heard that people had views on the 
number, and they had views on membership. So, we are going to 
consolidate all of that information and talk about kind of what 
we heard.
    Mr. Davidson. Are you going to address liquidity? Because I 
think that is one of the big things. It has been a key part of 
liquidity for, in particular, community banks.
    Ms. Thompson. Absolutely. We will discuss liquidity and, 
again--and I think the Members know this--the Home Loan Banks 
have to issue debt to meet liquidity requirements, and the debt 
markets are not open 24/7, so if they have these large 
requests, we need to plan them out, because the Home Loan Banks 
are not the lender of last resort.
    Mr. Davidson. Thank you for that point.
    And then, lastly, as you talk about the Enterprises, Fannie 
and Freddie, their retained earnings have been higher in spite 
of not necessarily the same top line revenue.
    When you look at the goal that has been set, $300 billion, 
what is that in relation to the size of the portfolio and how 
is that determined? At the rate they have been retaining 
earnings, how long until they reach that?
    Ms. Thompson. It will be a long time. The capital rule was 
established in 2020 and that established the requirements for 
capital for both Enterprises. They just started having the 
ability to retain capital in 2021. So, to come to almost $100 
million in 2 years is quite interesting. But it is going to 
take a while to get to $300 billion, quite frankly. The 
mortgage pipeline is much lower than it was 2 years ago and the 
earnings are down.
    Mr. Davidson. Thank you, Director Thompson. My time has 
expired. I now recognize the gentlelady from Michigan, Ms. 
Tlaib, for 5 minutes.
    Ms. Tlaib. Thank you so much, Director, for being here.
    Is FHFA looking at improving access to small-dollar 
mortgages?
    Ms. Thompson. Yes.
    Ms. Tlaib. It is particularly hard for my community in 
Wayne County, Michigan. According to HUD, we have the largest 
share of the nation's lower-priced homes.
    My colleagues have heard me talk about small-dollar 
mortgages consistently for the last 5 years that I have been on 
this committee, and I can't believe it is actually harder to 
get a mortgage for less than $100,000 than one for over 
$100,000.
    It is my understanding that Freddie Mac and Fannie Mae 
provide lenders a higher fee, they call it the origination fee, 
for small-dollar mortgages to encourage lending. Is that 
correct?
    Ms. Thompson. Yes. Small-dollar mortgages have been a huge 
impediment to try to either originate or refinance. What we 
have found, especially during the refinancing boom, is there 
were a number of borrowers who had really high-interest rate 
mortgages but their balances were under $100,000, and the cost 
of closing was really impactful to them.
    And so, we wanted to make sure that we included small-
dollar loans because, in our view, there are communities around 
this country where this issue is very impactful.
    Ms. Tlaib. Could such subsidies be increased or expanded?
    Ms. Thompson. I would have to take a look at that, and we 
would be happy to work with your office on this issue.
    Ms. Tlaib. Do you think it could possibly be implemented 
through the Federal Housing Administration (FHA) as well?
    Ms. Thompson. I would have to have a conversation with 
them. But I do know that this is a very--
    Ms. Tlaib. Could you at least commit to talking to them 
about it?
    Ms. Thompson. Absolutely.
    Ms. Tlaib. Another option for making small-dollar mortgages 
more viable for small lenders is to leverage the secondary 
market by pulling some of these small loans. The Government-
Sponsored Enterprises, for example, have proposed pilot 
programs to secure personal property loans on manufactured 
homes. What are your thoughts on such efforts? Have either of 
the Enterprises taken steps to establish such pilot programs?
    Ms. Thompson. The Enterprises have looked at and are able 
to purchase manufactured homes, and they have the requirements 
in their selling guides, and we have seen an increase in the 
number of manufactured homes and manufactured home communities 
that both Enterprises have purchased, and we are happy, again, 
to work with your office on this very important issue.
    Ms. Tlaib. I would love to work with you on this.
    Are there other ways to leverage secondary markets to 
encourage small-dollar loans? I am genuinely interested.
    Ms. Thompson. We certainly would want to talk to some MBS 
investors to see what kind of information they would need to 
help facilitate the liquidity for these types of mortgages. 
But, again, we would love to talk further and in depth with you 
about this.
    Ms. Tlaib. During the crisis in 2008, the Enterprises were 
taken into conservatorship by your Agency and, ultimately, you 
have authority over them. Right now, technically, maybe 
legally, could FHFA require the Enterprises to do a pilot 
program to facilitate small-dollar loans?
    Ms. Thompson. Certainly. The Enterprises have a number of 
pilot programs and, again, we try to be very transparent about 
the pilot activities.
    Ms. Tlaib. On small-dollar mortgages?
    Ms. Thompson. I think in some of the equitable housing 
finance plans, there are references made to some of the small-
dollar loans, because they do impact underserved communities. 
But I will have to take a look and just be more specific with 
you.
    Ms. Tlaib. I think it needs to be more targeted and more 
intentional, truly. We lost more Black homeownership, Director, 
in Michigan than any other State in the country, and we haven't 
truly recovered after the 2008 recession, and we now have 
neighborhoods that were thriving in the City of Detroit and 
even neighboring communities like Inkster and other places 
where we now have more renters than homeowners, because private 
equity firms have been able to gobble them up, not even on 
mortgage foreclosures, on tax foreclosures, which we have been 
working with Secretary Fudge on, and working with using 
American Rescue Plan Act (ARPA) dollars to help those families. 
But I think it needs to be much more intentional.
    I know there was a report that came out, and that is great. 
But I think my residents are tired of studies and reports and 
want us to do much more and actually implement something.
    The last thing is, I want more credit through the Community 
Reinvestment Act for small-dollar mortgages, something to 
incentivize more of these lenders to do that. Again, I know it 
is not going to be as profitable as the over-$100,000 
mortgages, but communities across the country are suffering 
because of that. So, I want you to look into that as well.
    Mr. Davidson. The gentlelady's time has expired. The Chair 
now recognizes the gentleman from Tennessee, Mr. Rose, for 5 
minutes.
    Mr. Rose. Thank you, Mr. Chairman. And thank you to 
Chairman McHenry and Ranking Member Waters for holding this 
hearing.
    And thank you to Director Thompson for being with us today 
and thank you for meeting with our team last week and talking 
about the industry, including mortgage insurance, and I think 
we clearly share the goal of trying to make the dream of 
homeownership as attainable and affordable for as many 
Americans as possible.
    But, of course, you understand we also have to protect the 
taxpayers of this country, and so thank you for spending time 
with me.
    Last October, the FHFA announced that it approved 2 new 
credit scoring models for conventional mortgages, FICO 10T and 
VantageScore 4.0.
    FHFA recently announced its proposed implementation 
timelines whereby the Agency would: first, begin delivering and 
disclosing historical data for both scores to support credit 
model updates in the first quarter of 2025; and second, 
incorporate credit score model updates into its capital and 
pricing by the fourth quarter of 2024.
    As you know, this is a complex undertaking that will have a 
broader impact on the GSEs' capital rule. The rule says, ``The 
Enterprises currently rely on classic FICO for product 
eligibility, loan pricing, and financial disclosure purposes, 
and if the Enterprises were to begin using a different credit 
score for these purposes, or multiple scores, the grid for new 
originations would need to be recalibrated.''
    Director Thompson, can you expand on the ways FHFA is 
preparing to recalibrate, given the two new credit scores, and 
how do you think moving to the two-score model impacts the 
Enterprises' capital rule?
    Ms. Thompson. Thank you for the question. We are engaging 
with stakeholders and there are lots of stakeholders that use 
the credit score model; it is not just the Enterprises or 
lenders. Credit scores are used for underwriting. They are used 
for pricing. They are used for pooling. The mortgage insurance 
companies use them. Investors use them.
    So, it is going to be a multi-year effort. We are working 
with the Enterprises to make sure that we talk to and provide 
data to stakeholders who are going to be impacted by this 
change. What people will want to know is, for the credit score 
that is associated with a particular loan, how does that 
calibrate or tie into these new scores?
    So, we are really looking at publishing data so that 
stakeholders can make those assessments so that they can be 
comfortable, and we are not wedded to timelines, particularly. 
We just want to make sure that everybody has the information 
they need so they can make a credible decision because it is so 
impactful in the mortgage market.
    We did think it was important to update the credit score 
model because, again, the Enterprises had been using classic 
FICO, which hadn't been updated--well, it has been updated, but 
it has been around for almost 30 years and doesn't take new 
ways of doing things into consideration. So, we want to be very 
careful with the update. We want to be very inclusive and we 
want to provide data so that people can make really good 
decisions about this.
    Mr. Rose. Thank you.
    Following up on some of my colleagues' concerns about the 
recent tri-merge credit score changes, Director Thompson, what 
impact, if any, do you think the tri-merge to bi-merge changes 
will have on FHA loans and VA loans?
    Ms. Thompson. Again, we have done some analysis and we 
don't think that moving from tri-merge to bi-merge has material 
impact. We know that moving from three scores to one score has 
huge impacts, so we did not recommend that.
    We do work with and talk to our colleagues from FHA, VA, 
USDA, and HUD, and we are constantly engaged with them on this 
and other housing-related issues because we want to make sure 
that we are coordinated. We are going to be working with them, 
and they are going to be one of the stakeholders that is 
included in all of this outreach that we are doing, because 
they are going to have to make those assessments as well if 
that is the direction that they choose to take.
    Mr. Rose. Thank you.
    Quickly, with my last remaining moments here, 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. I believe in capital and not just the 
quantity, but the quality of capital, so there ought to be loss 
absorption ability, first and foremost.
    Mr. Rose. Thank you. My time has expired. I yield back.
    Mr. Davidson. The gentleman from New York, Mr. Torres, is 
now recognized for 5 minutes.
    Mr. Torres. Thank you, Mr. Chairman.
    Even though the Federal Home Loan Bank System exists for 
the purpose of housing finance, as you know Federal Home Loan 
Banks made $30 billion in advances to Silvergate, Silicon 
Valley, and Signature Banks for reasons that appear to have 
nothing to do with housing finance. Silvergate specialized in 
banking the crypto industry. SVB specialized in banking the 
tech industry. Neither one had a particular focus on housing 
that would justify a massive liquidity injection.
    Do you think the $30 billion in advances to Silvergate Bank 
and SVB are an example of mission creep on the part of the 
Federal Home Loan Bank System?
    Ms. Thompson. I think that the activities of the bank 
itself are, certainly, up to the primary Federal regulator. 
When an institution that is a member of the Home Loan Bank 
System comes to the Home Loan Bank for advances, they have to 
provide collateral and we haircut the collateral so that the 
advances are protected.
    When we provide advances or when the Home Loan Banks 
provide advances to the member, they should be using those 
funds to either buy mortgage-backed securities or increase 
community lending or home lending in their respective 
communities. Many of these institutions--
    Mr. Torres. So, it sounds like you would agree that it was 
mission creep?
    Ms. Thompson. I don't know. Their mission is up to their 
primary Federal regulator. Our role is to make sure that they 
tie their advances to homeownership, whether it is through 
MBS--
    Mr. Torres. Do you have any reason to think that those 
liquidity injections were related to homeownership?
    Ms. Thompson. We are doing a review of that--
    Mr. Torres. You would be the only one who believed that, if 
that were true.
    Ms. Thompson. Excuse me?
    Mr. Torres. You would be the only one who believed that, if 
that were true. I am not sure if anyone thinks that was related 
to--
    Ms. Thompson. We will find out the facts and put them in 
our report.
    Mr. Torres. The banks that received the $30 billion were at 
imminent risk of failing and ultimately did fail, and if the 
Federal Government had never intervened to insure the deposits 
of SVB and Signature Bank, those FHLB funds would have been 
permanently lost.
    Do you think it was responsible for the Federal Home Loan 
Banks to inject $30 billion into failing banks?
    Ms. Thompson. The advances are covered by collateral, so 
the Home Loan Banks don't lose funds at all, and 9 times out of 
10, they are overcollateralized. So, it is not a loss for the 
Home Loan Banks.
    Mr. Torres. Are you investigating whether these injections 
were related to housing finance or----
    Ms. Thompson. We are taking a holistic view of everything 
that happened that weakened the----
    Mr. Torres. What is the timeline for the review?
    Ms. Thompson. September 30th.
    Mr. Torres. Fox News had a headline that read, ``New 
mortgage rules favor buyers with bad credit.'' The implication 
of the headline is that it disfavors buyers with good credit.
    And according to an Urban Institute analysis of the new 
pricing matrix, those with the lowest credit scores and down 
payments would pay as much as 2.2 percent in LLPA fees, whereas 
those with the highest credit scores and down payments would 
pay nothing in LLPA fees.
    Does that strike you as a pricing model that, in the words 
of Fox News, favors buyers with bad credit?
    Ms. Thompson. Our new pricing grid in no way allows persons 
with high down payments and high credit scores to pay more than 
low. It just doesn't work that way.
    Mr. Torres. Quite the opposite?
    Ms. Thompson. Yes.
    Mr. Torres. So, the reporting on FHFA has not been fair and 
balanced?
    Ms. Thompson. Correct.
    Mr. Torres. According to the Republican memo, the GSEs are 
private corporations chartered by the Federal Government with 
special benefits to help make homeownership more available and 
affordable for lower- and middle-income Americans.
    Given that description, is it fair to say that the FHFA, as 
both a regulator and a conservator of GSEs, has a statutory 
obligation to break down barriers to affordable homeownership 
for lower-income Americans?
    Ms. Thompson. Yes.
    Mr. Torres. And those barriers include high fees, correct?
    Ms. Thompson. Many. We actually have equitable housing 
finance plans that look at what the barriers are and provide 
suggestions on how to remove those barriers for underserved 
areas.
    Mr. Torres. Reducing fees for lower-income, lower-wealth 
borrowers is not an act of radical redistribution on your part. 
It is a fulfillment of the mission conferred upon you by 
Congress. Is that a fair assessment?
    Ms. Thompson. Yes, and we did eliminate the up-front fees 
for first-time homebuyers throughout the country, and the way 
we were able to pay for that is through the fees charged on 
second and vacation homes, investor homes, that are much more 
than the fees that were eliminated for first-time homebuyers 
who are creditworthy but are struggling to have a down payment.
    In the Enterprises' affordable programs, the average credit 
score for many of these borrowers--I think for Fannie, it is 
743, and for Freddie, it is 742. So, we are talking about 
creditworthy people. They just don't have a down payment.
    Mr. Torres. Thank you.
    Mr. Davidson. The gentleman yields back.
    The gentleman from South Carolina, Mr. Timmons, is now 
recognized for 5 minutes.
    Mr. Timmons. Thank you, Mr. Chairman.
    The FHFA has been unusually aggressive in pursuing changes 
to the traditional role of title insurance in many mortgage 
transactions. Title insurance is an important tool to protect 
homebuyers from damages or losses due to issues with the title.
    As it stands today, the title insurance company, not the 
homebuyer, pays to resolve any title issues that arise in a 
real estate transaction. It surprised me to find out that 
Fannie Mae is preparing to develop a way to waive the title 
insurance requirement for loans purchased by the GSEs.
    Director Thompson, no doubt you are aware of this reported 
pilot program that would allow Fannie Mae to effectively 
provide title insurance on its own mortgages. I join a good 
number of my colleagues on both sides of the aisle who are 
highly skeptical of this latest mission creep by one of the 
GSEs. Title insurance is a primary market activity that is well 
outside of Fannie Mae's mission, and this is the clearest 
example to date of Biden Administration overreach.
    But as I dug deeper into this Fannie Mae pilot, I found 
some troubling aspects in the arrangement itself. Are you aware 
of the company partnering with Fannie Mae on this pilot?
    Ms. Thompson. That pilot has not been brought to my 
attention. We have a process for the Enterprises to bring 
decisions to FHFA for decisioning and I just have not seen 
that. I have read about it in the same way that you have.
    Mr. Timmons. Okay.
    Ms. Thompson. FHFA has not made that decision.
    Mr. Timmons. Well, they have partnered with a company named 
Doma Holdings. Are you aware that Doma is on the verge of 
bankruptcy? Just today, analysts again further downgraded the 
outlook for the company. Its stock has dropped from $10 to less 
than $.30 since its initial public offering last year, and 
early investors have been selling off their shares, driving the 
share price into decline and putting in question the long-term 
viability of this company.
    So, here is a company on life support, that the free market 
is putting out of business, and along comes Fannie Mae to throw 
it a lifeline. How could something like this happen? And then, 
I looked to see who sits on its board of directors, and I 
suspect you know who I found--Larry Summers, the 71st Treasury 
Secretary under President Bill Clinton and Director of Obama's 
National Economic Council.
    Here is what I see, a company that is essentially out of 
money but politically-connected receiving a no-bid contract to 
do a pilot program with Fannie Mae, which is overseen by your 
Agency and the Biden Administration. Is that a problem for you? 
Do you think that raises red flags?
    Ms. Thompson. I have not seen that proposal come before me 
and--
    Mr. Timmons. I am just describing to you a contractual 
relationship. Does that cause problems, a company that is 
filing bankruptcy, that is buddies with Biden, getting a 
lifeline and getting a no-bid contract from your Agency? Does 
that generally raise a problem?
    Ms. Thompson. We did not give a no-bid contract.
    Mr. Timmons. It was not bid. It was--
    Ms. Thompson. Whatever it is has not been approved by FHFA. 
And it should not be undertaken until such approval is given.
    Mr. Timmons. It has been reported that Doma Holdings has 
the contract for the pilot. So, is that not true?
    Ms. Thompson. I have not seen that proposal.
    Mr. Timmons. Okay. Let us just say that it is true, because 
that is what is being reported. Is it a problem that a company 
that is on the verge of filing bankruptcy is receiving a no-bid 
contract and it just so happens that Biden is buddies with the 
board of directors? Is that a problem? Would that be a problem 
if it is true? Let me put it that way.
    Ms. Thompson. I think it would be a problem for any company 
who was filing bankruptcy to have that issue.
    Mr. Timmons. Okay.
    Ms. Thompson. We look at safety and soundness. That doesn't 
sound safe or sound.
    Mr. Timmons. You are speaking my language. Thank you.
    Have you had any contact with Larry Summers regarding this? 
Have you had any contact with anybody in the Biden 
Administration regarding Doma Holdings?
    Ms. Thompson. I have not.
    Mr. Timmons. No? Okay. So, it surprises you to know that 
all of these things have allegedly occurred. Could you look 
into this and follow up to maybe give me more information about 
whether other companies were considered, and how this all came 
about?
    Ms. Thompson. Absolutely.
    Mr. Timmons. Thank you so much.
    One final follow up. Did FHFA consider that while nominally 
decreasing closing costs, a lack of title insurance for 
homebuyers may leave consumers financially unprotected from 
false claims against their home for the life of their loan? Was 
that a variable that was factored into these decisions?
    Ms. Thompson. The variable that the Enterprises care about 
is making sure that the lender reps that the home is free and 
clear and has no superior liens and that there is a clear 
title, and the lender decides whether or not the title 
insurance is a mechanism.
    And I would say, and I have said this earlier, that Freddie 
Mac has allowed attorney opinion letters since 2008. But there 
haven't been many people who have used that.
    Mr. Timmons. I think sticking to the main mission and not 
trying to take on title insurance would be the best path 
forward for this. Mr. Chairman, thank you. I yield back.
    Mr. Davidson. The gentleman's time has expired. The 
gentlewoman from Texas, Ms. Garcia, is now recognized for 5 
minutes.
    Ms. Garcia. Thank you, Mr. Chairman, and thank you, 
Director Thompson, for being here with us today.
    And let me just say that you have been a breath of fresh 
air as a witness and I appreciate the time that you spent with 
us and your candor in answering all of our questions.
    Last week, as has been noted by a couple of my colleagues, 
the Subcommittee on Housing and Insurance had a hearing on the 
Federal Housing Finance Agency's recent loan-level price 
adjustment changes. As I learned from the witnesses in that 
hearing, the recent FHFA pricing changes have the potential to 
protect low- and moderate-income homebuyers, a priority that I 
believe we should share.
    Further, in that subcommittee hearing, I expressed my 
concern surrounding the Republicans' lack of action in the 
housing space, especially because we were in the midst of a 
major housing crisis.
    As you said in your opening statement, simply put, there 
are just not enough homes, especially for first-time 
homebuyers. This can be said in the Houston area, that I 
represent. We were always considered a good place to find a 
home and that it would be affordable. But in the past decade, 
home prices have nearly doubled and about half of the residents 
now spend more than 30 percent of their income on housing costs 
alone. Housing inventory in Houston has decreased and the 
affordability gap has widened, especially for buyers and 
renters of color.
    Given our nation's worsening racial wealth and 
homeownership gaps, we know that people of color are more 
likely to be renters and homeowners hold well over 40 times the 
median net worth of renters.
    When it comes to evictions, and this is also true in 
Houston, Black and Latina women are twice as likely to be 
evicted than their White counterparts, while people of color 
make up over 60 percent of the homeless population, which is 
more than their share of the total population.
    So, Director Thompson, the FHFA has a duty to dismantle 
inequities in housing and community development and it is 
prohibited from discrimination, including through disparate 
treatment.
    How is FHFA ensuring that the operations and activities of 
the Enterprises are affirmatively furthering fair housing 
opportunities for renters, including through tenant 
protections?
    Ms. Thompson. Thank you.
    FHFA has an Office of Fair Lending Oversight and they 
examine both Fannie Mae and Freddie Mac to ensure that they are 
in compliance with the Fair Housing Act and that there isn't 
disparate treatment in any of the policies or applications of 
those policies. They are examiners, and they have reports of 
examinations that they share with both Enterprises.
    That is one of the ways. The other way is--I mentioned 
earlier that we are going to issue a request for input to try 
to figure out what good tenant protections are just in terms 
of--during the pandemic, one of the protections that was 
instituted by Fannie and Freddie and any organization that had 
a federally-backed mortgage was that there needed to be notice 
of eviction, there needed to be notice of a rent increase, just 
basic things, and most of these things are dealt with at the 
State and local level. But just making sure that people have an 
opportunity to understand what their rights are and make sure 
that they are enforced.
    Ms. Garcia. Thank you. One essential component to 
supporting homeownership for all Americans is expanding access 
to credit in lending. Disparities remain in mortgage access, as 
only 4.7 percent of Fannie Mae- and 4 percent of Freddie Mac-
backed mortgages for home purchases were from Black homebuyers 
in 2021, and research from the Urban Institute suggests that 
more than 1 million mortgages are missing from the U.S. 
financial market each year, and a disproportionate percentage 
of those are by borrowers of color.
    What can FHFA do to make sure that young Americans, low-
income Americans, and Americans of color can purchase homes to 
build wealth for future generations?
    Ms. Thompson. Sure. We noticed that same statistic and one 
of the things that we are requiring the Enterprises to do is 
put forth an equitable housing finance plan that identifies 
what the barriers are, and they also have to identify solutions 
for these underserved communities. One of the barriers is just 
the financial literacy in terms of homeownership--
    Mr. Davidson. The gentlelady's time has expired. Director 
Thompson, you may answer in writing for the record.
    And the gentleman from South Carolina, Mr. Norman, is now 
recognized for 5 minutes.
    Mr. Norman. Thank you, Director Thompson. I appreciate you 
being here today.
    My constituents that I talk with back home are outraged 
about the government involvement, not just with the LLPAs but 
just as a whole in the housing market. In your mind, and in 
your role as Director, where does the private sector come in? 
Do you support the private sector getting more involved?
    Ms. Thompson. It would be nice to have a balance of private 
sector and government in the housing market as it has 
previously existed.
    Mr. Norman. When the LLPA was adjusted, the RFIs went out 
after it was raised. Whom did that go to and why wasn't it done 
prior to just going into effect?
    Ms. Thompson. Historically, every FHFA Director, including 
me, has made pricing changes and we report on those changes 
every year. We send the reports to the Congress and we publish 
them on our website.
    We also published the RFI because it was--the 
misunderstanding that was spoken that high-credit-score 
borrowers were paying for low-credit-score borrowers----
    Mr. Norman. No. No. Let me ask you now. Tell me if I am 
right or wrong that a buyer with a higher base credit score 
doesn't pay an added fee that went up to subsidize those who 
may not have a----
    Ms. Thompson. No. The fee that was eliminated for first-
time homebuyers is paid for through second mortgages and 
vacation homes, investor properties----
    Mr. Norman. Through a higher fee? Through a higher closing 
cost fee?
    Ms. Thompson. Yes, they have higher fees. That has always 
been the case.
    Mr. Norman. And that is where the money goes?
    Ms. Thompson. And that is where the money goes. Yes.
    Mr. Norman. Okay. So, that is subsidizing those with the 
lower credit scores.
    Ms. Thompson. Yes.
    Mr. Norman. The money is going somewhere.
    Ms. Thompson. The Congress allows us to get a lower return 
for certain mortgages.
    Mr. Norman. Okay. I want to get my questions in, but I 
think you have answered my question. Now, regulations are all 
over housing at every level. Rent controls--is this something 
that should be expanded by the Federal Government, in your 
opinion?
    Ms. Thompson. Our Agency has not gotten involved in that.
    Mr. Norman. As Director, what is your general opinion? Are 
rent controls a great thing?
    Ms. Thompson. We are actually issuing a request for input 
to the public to get information on rent controls and tenant 
protections to see what all stakeholders have to say.
    Mr. Norman. Okay. On appraisals, I have heard going from 
three to two. Are the government Agencies given the appraisals 
or the credit reports' varying information that they can 
include in the credit report and what they can't include?
    Ms. Thompson. The credit reporting agencies each have basic 
information and some companies report to one and smaller 
community banks may report to one----
    Mr. Norman. But it is left up to them. They don't have to--
there is no guidance that----
    Ms. Thompson. It is up to them.
    Mr. Norman. And I think it is good to put--if somebody pays 
their utility bill, pays the rent, but it is also good to know 
those who don't pay, the different groups. Would you agree with 
that?
    Ms. Thompson. Yes, I do.
    Mr. Norman. So, it ought to be all-inclusive. They ought to 
make the decision?
    Ms. Thompson. It is opt-in if the tenant wants it, and I 
think the negative information is reported.
    Mr. Norman. It has to be. It is part of the record.
    Ms. Thompson. The positive information needs to be 
reported, too, so if we have people paying their rent on time, 
that needs to be included.
    Mr. Norman. Okay. What is your opinion on this with the 
title insurance, an attorney's opinion letter versus getting a 
full title?
    Ms. Thompson. The lender has to represent to Fannie and 
Freddie that they have clear title and that there is no 
superior lien to that property. The lender can say, here is the 
title insurance policy, and in the case of Freddie Mac, which 
has been accepting attorney opinion letters since 2008, it 
would be either/or, not one is supplanting the other.
    Mr. Norman. Okay. And that is up to the Agency to decide 
which ones they accept?
    Ms. Thompson. The lender.
    Mr. Norman. Right. The lender decides.
    We have had affordability issues come up. Have you ever 
asked those who are in the business why houses aren't 
affordable? Could it be that gas prices are sky high? Could it 
be that at every level, people are paying more for supplies? 
Could it be that all of it is brought on by this 
Administration, which wasn't the prior case?
    I yield back. I am out of time.
    Mr. Hill. [presiding]. The gentleman from South Carolina 
yields back.
    The gentleman from North Carolina, Mr. Nickel, is 
recognized for 5 minutes.
    Mr. Nickel. Thank you so much. And thank you, Director 
Thompson, for being with us here today.
    Over the weekend, I hosted a town hall in my district, and 
one of the top issues I heard about was the high cost of 
housing and the lack of affordable housing options. I have one 
of the fastest-growing congressional districts in the country, 
so this is a very important priority for my constituents.
    The high cost of housing is the single-biggest squeeze on 
household budgets and a major drag on our economy. Access to 
safe and affordable housing is essential to the well-being of 
working families and individuals in North Carolina and 
throughout the country.
    As Vice Chair of the new Democratic Affordable Housing Task 
Force, I am working to lower housing costs and increase the 
supply of affordable housing. Unfortunately, if we are unable 
to find viable bipartisan pathways forward on addressing the 
debt ceiling, housing prices in my district would skyrocket.
    According to data compiled by the U.S. Census Bureau, 
defaulting could cause mortgage costs in North Carolina's 13th 
District to increase by $159,000. On a national scale, over 
half-a-million households nationwide could lose rental 
assistance, and mortgage rates could surpass 8 percent.
    Director Thompson, can you please share what defaulting on 
our debt would mean for our nation's housing finance market?
    Ms. Thompson. Sure. Thank you for the question.
    Extremely-high mortgage rates would probably prevent or 
limit persons from purchasing a home. Also, making sure that 
the mortgage-backed securities investors will know that they 
are going to get paid for the investment that they made, so if 
there are borrowers who could be impacted by unemployment or 
issues related to employment, that could create delinquencies, 
and it would just not be a positive thing for the mortgage 
market.
    Mr. Nickel. Thank you.
    Defaulting on our debt could also send our economy 
spiraling into a recession, which I worry would have even 
broader impacts on housing costs for my constituents.
    How would a recession impact Fannie Mae and Freddie Mac, 
the Government-Sponsored Enterprises created to help provide 
reliable and affordable access to homeownership?
    Ms. Thompson. It would be prohibitive, again, because the 
interest rates would probably be so high that no one could 
afford a home, and I think Fannie Mae and Freddie Mac, in terms 
of protecting borrowers who couldn't make their payments, if 
they have $100 million that they have accumulated over the last 
2 years that can cover losses or it--but it just would not be a 
good outcome, honestly.
    Mr. Nickel. Thanks. I want to shift gears here. My wife is 
an attorney and she handles real estate closings, so I 
certainly understand the importance of title insurance and the 
protection it provides to homebuyers and lenders. I want to 
touch on this proposed pilot from Fannie Mae to become a de 
facto title insurance company. It really concerns me what I 
have heard reported on that as consumers could lose critical 
protections for their homes.
    I have heard your answers on this from my other colleagues. 
But just generally speaking, Director Thompson, do you agree 
that protecting consumers and their homes should be a top 
priority and that Fannie Mae replacing title insurance probably 
is not the best way to do that?
    Ms. Thompson. Yes, I do think that protecting consumers is 
critically important, especially on the largest asset purchase 
they will make. But I do not believe that Fannie Mae is going 
to be in the primary market or the activities in the primary 
market at all.
    Again, the attorney opinion letters are acceptable only on 
Freddie Mac, and, again, that has been since 2008. But those 
are really to protect Fannie and Freddie from--the seller has 
to represent that they have clear title and that there are no 
superior liens. And the lender can decide what is acceptable.
    Mr. Nickel. Thanks. Will you commit to conducting an open 
process with public input for any new program under 
consideration as called for by the prior approval for 
Enterprise products rule?
    Ms. Thompson. We have a new products rule that we finalized 
in December and we have been working out how that new products 
rule will work both internally at FHFA and at Fannie and 
Freddie, and we are committed to making sure that pilots are 
public and people know. There is more transparency in what is 
going on at Fannie and Freddie.
    Mr. Nickel. Thank you.
    Mr. Chairman, I yield back.
    Mr. Hill. The gentleman yields back.
    The gentleman from Wisconsin, Mr. Fitzgerald, is now 
recognized for 5 minutes.
    Mr. Fitzgerald. Thank you, Mr. Chairman.
    Director, thanks for being here.
    When Fannie and Freddie were taken into conservatorship in 
2008, Treasury received warrants that give it the right to buy 
common stock in each of the GSEs equal to 79 percent, I guess, 
of the total outstanding shares, and those warrants expire in 
September of 2028.
    And in August of 2020, the Congressional Budget Office 
issued a report that estimated Treasury could receive $190 
billion for its senior preferred shares, in addition to the 
$110 billion from exercising its warrants in the GSEs.
    So while the conservatorship has gone on for far too long, 
I am concerned that, given the Biden Administration's record, 
these warrants could be used as kind of a slush fund or piggy 
bank to advance any of the partisan housing agenda. Do you have 
any comment on that or is that something that you have 
identified and are worried about at all?
    Ms. Thompson. Thank you for the question, and I think these 
conversations need to take place with Treasury in terms of what 
their plans are for the warrants since they own them, and we 
have not had those conversations with them.
    Mr. Fitzgerald. Okay. So, no conversations with Secretary 
Yellen at all about this topic so far?
    Ms. Thompson. Secretary Yellen is on our oversight board 
and we talk about all things related to FHFA and their 
activities. But on this specific topic of the warrants, we have 
not had that conversation.
    Mr. Fitzgerald. Okay. Very good.
    The Securities and Exchange Commission recently reproposed 
the conflicts of interest rule, which could unintentionally 
impair the ability of private mortgage insurers to procure 
reinsurance through the capital markets.
    As the Director, obviously, you have firsthand knowledge 
that the private mortgage insurance companies are subject to 
stringent regulation and requirements at both State and Federal 
levels from the GSEs, and that they use reinsurance through the 
capital markets to manage risk and capital.
    By taking a first-loss position, private mortgage insurance 
reduces the risk for the GSEs, thereby protecting taxpayers. 
Can you tell me if FHFA is currently working with the SEC on 
the final rule to ensure it does not really have any harm, I 
guess, on the mortgage insurance?
    Ms. Thompson. I can't talk about open rules, but the 
Enterprises have provided comments on the impact of this 
particular rule on their credit risk transfer activities.
    Mr. Fitzgerald. Okay. And with the last couple of minutes I 
have here, I just thought that maybe--you justified the LLPA 
changes partially by saying that they are needed to protect the 
GSEs' capital buffer from losses. However, GSEs would have more 
capital if the FHFA did not lower fees for riskier borrowers 
and use the capital from less-risky borrowers to make up for 
it. But the larger problem with these fees is that they act as 
kind of a political hedge against the Fed's interest rate 
hikes. Would you comment on that or do you agree with that?
    Ms. Thompson. I think that is true, that the changes that 
we made in the pricing grid actually help with safety and 
soundness because they are calibrated to the capital rule that 
is in effect and they also cover some of the administrative 
costs that the Enterprises have. That is what the guarantee fee 
does and the up-front fees are part of that.
    And I do think that, at the end of the day, the risk-based 
fees that we have in place are doing the two jobs of: one, 
safety and soundness by building capital; and two, we were able 
to offset the fees for first-time homebuyers throughout the 
country by those fees that are charged for the second and 
vacation homes and investment properties.
    So, we were able to figure out a way to achieve the dual 
mandate that the FHFA has in overseeing Fannie and Freddie by 
updating these out-of-date pricing grids.
    Mr. Fitzgerald. I am going to run out of time, but maybe 
you could still answer one more question and it is more a 
thought that continues to come up in financial services.
    There is this bracket or group of adults between ages 25 
and 35 right now who have been completely frozen out of the 
housing market, and I am wondering how you look at that?
    Mr. Hill. The gentleman's time has expired. If you would 
submit that question in writing, I am sure the Director will 
respond promptly.
    Mr. Fitzgerald. Thank you. I yield back.
    Mr. Hill. The gentlewoman from Colorado, Ms. Pettersen, is 
recognized for 5 minutes.
    Ms. Pettersen. Thank you, Mr. Chairman.
    Director Thompson, thank you so much for being here. You 
have a difficult job of making very complicated decisions, and 
I appreciate the time that you spent with me walking me through 
exactly why you all made the changes, and I think that you have 
done a good job in communicating the impacts of that and the 
intention and, unfortunately, not every American can sit with 
you and hear that.
    I think that is the difficulty with politics, is taking 
these complicated things and trying to create simple messages. 
So, thank you for your work and thank you to everybody in your 
Agency for the work you do every day.
    The FHFA serves a critical role in ensuring that Americans 
with different incomes, levels of personal wealth, and credit 
scores are able to purchase homes, and we all know that we are 
in the midst of an historic housing crisis and the dream of 
homeownership remains out of reach for many.
    Home prices in Colorado have skyrocketed throughout the 
last 20 years, but especially during the pandemic when people 
were able to work remotely and come to a place where they have 
always wanted to live. Some communities in my district have 
seen their home values increase threefold in just a few years, 
and people are being forced to leave the communities in which 
they grew up.
    The increase in the cost of housing has also made it 
difficult for our small businesses to hire and retain workers, 
and our public servants are far too often unable to stay and 
work in these communities.
    One thing that this committee must address is how we can 
help incentivize building more housing. We know we have a 
supply issue. There are numerous reasons why, but one 
significant contributor is our failure for decades to provide a 
legal pathway for people who want to work in the U.S. to do so. 
Our workforce shortage and inability to address our failed 
immigration system has crippled our economic growth and has 
significantly increased the cost of building homes and has 
stalled our progress in meeting our housing needs.
    We have also seen the unfortunate impact of failed tax 
policies in the U.S. that have increased the inequities in this 
country and have made it harder for regular people like me to 
have a chance to get ahead and build a better life.
    We are seeing the impacts of these policies in every area, 
but especially in housing. Homelessness is on the rise in every 
community. Middle-class families are having difficulty getting 
ahead to buy their first home, and in rural parts of my 
district, the housing supply is being bought up for vacation 
homes while people who have lived there their entire lives are 
being forced out.
    I know you can't solve our failed tax policies and 
immigration system, but you do oversee the financing of most 
housing, and I would like to know what programs and incentives 
you are currently providing to help low- and middle-income 
individuals buy a home, that our constituents should know 
about, and what Congress should consider to reduce the 
likelihood of houses being bought up for third, fourth, and 
fifth homes.
    Also, what can we do to support our public servants in 
buying homes so they can stay in the communities that depend on 
their services?
    Ms. Thompson. Great. Thank you. We did eliminate the up-
front fee for first-time homebuyers for the reasons that you 
have articulated. The housing supply shortage is very real. 
There aren't enough houses, and people who live and work in 
communities can't afford to live there, so we eliminated the 
fee for mostly workforce housing people and first responders, 
our policemen and firefighters and teachers, as well as first-
time homebuyers, people just out of college or people who have 
been living in apartments for a while. They just can't afford 
these down payments, and so they are required by law to have 
the mortgage insurance, which is added to their fee, which 
makes our pricing grids make sense from a risk-based 
perspective.
    But we really believe that we are able to eliminate these 
fees for first-time homebuyers because people are getting 
second and third homes and those fees kind of offset the fees 
that were eliminated.
    We just believe that homeownership is important. It is 
important to communities around this country, and whatever we 
can do to be helpful in that way in a safe and sound manner is 
what we are going to do.
    Ms. Pettersen. Thank you. We have very little time left. 
But one of the problems that I constantly see is we have great 
ideas, great programs at every level of government, but nobody 
knows about them.
    Do you have an outreach program, and are there things that 
we can do in Congress to support your work?
    Ms. Thompson. I think the Enterprises have outreach 
programs, but I really do wish the message about the first-time 
homebuyers would reverberate throughout the country so that 
people would know that the up-front fees for first-time 
homebuyers are eliminated.
    Mr. Hill. The gentlewoman's time has expired.
    The gentleman from Pennsylvania, Mr. Meuser, is recognized 
for 5 minutes.
    Mr. Meuser. Thank you, Mr. Chairman. And thank you, 
Director, for being here with us.
    There is, as we all know, a significant decrease in housing 
affordability in our country from supply issues largely due to 
inflation in building costs, and rising interest rates.
    In Pennsylvania, the price appreciation is nearly 50 
percent just over the last several years. Hopefully, the 
Administration is not planning on making this worse with new 
regulations and unnecessary government meddling.
    The government entities such as Fannie Mae, Freddie Mac, 
the FHLB system, HUD, VA, and USDA represent a large share of 
the mortgage loan market. There obviously should be a 
coordinated approach to housing policy across the government to 
ensure that Federal programs do not compete for market share. 
In the past, when FHA has reduced rates, it incentivized 
borrowers to move to the FHA, which is supposed to be a safety 
net, not a first choice.
    Can you describe briefly how you coordinate with other 
Federal Agencies to ensure there is no duplication?
    Ms. Thompson. Of course. We have quarterly meetings with 
the other Government Agencies--we call it the, ``housing 
govies.'' But we meet every quarter to talk about the policies 
that we are each undertaking, and this has been going on for 
many, many years.
    We meet regularly. The Secretary of HUD is on our oversight 
board as well as the Secretary of the Treasury. We meet every 
quarter to have conversations about FHFA policies and we also 
have our teams work together on issues that affect housing in 
this country. There is lots of communication.
    Mr. Meuser. Sure. Okay.
    When the FHA announced a premium cut of 30 basis points in 
February on the premium charged to mortgage borrowers, did the 
FHA consult with you?
    Ms. Thompson. They did not consult with us. Certainly, the 
reduction in mortgage insurance premiums has been widely 
speculated. They did let us know that they were going to move 
forward on that.
    Mr. Meuser. What effect do you think it had on the private 
mortgage insurance market?
    Ms. Thompson. The FHA has a different market than the FHFA. 
I get this question all the time, and we have looked at the 
Enterprises' acquisitions and, again, for the affordable 
programs, the credit score for most of the Fannie and Freddie 
borrowers is over 740. That is not the case for many borrowers 
who have FHA-backed loans or VA-backed loans.
    Mr. Meuser. Do you feel it had a minimal effect?
    Ms. Thompson. Excuse me?
    Mr. Meuser. Okay. So, you feel it was a minimal effect 
since it was two different marketplaces more or less, as you 
stated.
    In the questioning with Mr. Cleaver and Mr. Barr, you did 
not mention the liquidity mission of FHLBs. You said that you 
are also working on a report to provide new guidance for 
Federal Home Loan banks. Do you agree that providing liquidity 
to the members of FHLB is a primary mission of the Federal Home 
Loan Banks?
    Ms. Thompson. Absolutely. That is in the statute, yes.
    Mr. Meuser. Okay.
    Now, regarding the guidance, can you offer any details on 
what you might be planning?
    Ms. Thompson. We did a study to figure out what was working 
and what was not. We had 17 listening sessions around the 
country and 3 days of sessions here in Washington, and one of 
the areas for improvement was the Home Loan Banks' 
contributions to affordable housing throughout the country.
    And we will be culminating our report with what they have 
done correctly, which is a lot, as evidenced through their most 
recent bank failures, and then some areas for improvement. Some 
things we can do and some things we will ask the Congress to 
do.
    Mr. Meuser. Was the action of moving fees higher for those 
with better credit, if you will, versus those with lower 
credit--did you get much feedback related to that?
    Ms. Thompson. Sure. I would say that under no circumstances 
do borrowers with high credit and high down payments pay more 
than borrowers with low credit and low down payments, and what 
we did was we took an outdated pricing grid that actually was 
so outdated that it overcharged a lot of the borrowers with low 
credit, and it overcharged other borrowers.
    So, we took the current capital rule, which really looks 
at, on a loan by loan basis, the risk associated with each 
loan, and we calibrated the pricing grids to accommodate the 
new capital.
    Mr. Meuser. A lot of people felt that was----
    Ms. Thompson. I would be happy to walk everybody through 
that.
    Mr. Meuser. ----the thing to do, right, that it was very 
controversial that those with good credit would be punished and 
those with not so good credit would be rewarded.
    I yield back, Mr. Chairman.
    Mr. Hill. I thank the gentleman from Pennsylvania.
    The gentlewoman from Massachusetts, Ms. Pressley, is now 
recognized for 5 minutes.
    Ms. Pressley. Thank you, Director Thompson, for joining us, 
and for what you do each and every day.
    I represent the Massachusetts 7th Congressional District. 
There was a report, ``The Color of Wealth in Boston,'' put out 
by the Federal Reserve in Boston which states that the average 
wealth for a Black Bostonian family is $8, and that of a White 
family is $247,500. I believe that has everything to do with 
homeownership.
    In July, when you last came before our committee, I asked 
if your Agency, the FHFA, had considered how eliminating loan-
level price adjustments could increase equitable access to 
homeownership.
    Following that hearing, FHFA enacted reforms, including the 
elimination of up-front fees for low- to moderate-income first-
time homebuyers. I really applaud your leadership in making 
these pricing changes. These are important steps in improving 
equity in the housing market.
    I still believe that the FHFA needs to go further and fully 
eliminate these harmful fees which put homeownership out of 
reach for everyday people, especially Black, Brown, and low-
income homebuyers. Many stakeholders, including consumer and 
housing groups, agree that it is time to get rid of these fees. 
Have you looked into the feasibility and impact of eliminating 
LLPAs altogether?
    Ms. Thompson. Sure. I mentioned that we have just recently 
issued a request for input that talks about this issue, and one 
of the questions that we are asking is, should LLPAs be 
eliminated? We are also asking, should the pricing grid be tied 
to the capital framework?
    There are a host of issues that we are trying to get 
stakeholder input on, and I would be happy to keep you updated 
on our progress.
    Ms. Pressley. I would certainly welcome that. Thank you.
    This LLPA framework does disproportionately impact 
consumers of color, and so I am glad that you are looking at 
this so that we can eliminate these structural barriers to 
affordable housing.
    Mr. Chairman, I ask unanimous consent to enter in the 
record a 2022 article by WBUR entitled, ``Black and Hispanic 
people are more likely to be denied mortgage loans in Boston.''
    Mr. Hill. Without objection, it is so ordered.
    Ms. Pressley. Director Thompson, in this report, WBUR found 
that 3,501 applications for loans to purchase homes were denied 
in Boston between 2015 and 2020. For White applicants, the 
denial rate was approximately 5 percent, but for Black and 
Latinx applicants, the denial rates were 15.3 percent and 12.7 
percent, respectively. This is modern-day redlining.
    In your view, what are the biggest barriers for lower-
income borrowers and borrowers of color when applying for 
conventional mortgages?
    Ms. Thompson. That's a great question. We have found that 
many underserved borrowers, particularly in communities of 
color, are renters and some of the positive rental payments 
don't get counted and so they end up being credit invisible or 
they have limited credit.
    And to the extent that you report on positive rental 
payments, it really helps people build their credit in a way 
that is reflective of their ability and willingness to repay. 
Those are some of the changes that both Fannie Mae and Freddie 
Mac have made in their underwriting mechanism, and when we 
update the credit score models, it will include things like 
rental payments and utility payments or streaming payments, 
just things that weren't thought about 30 years ago.
    So, this is really something that is very important. But 
the rental payment impacts everybody across the country because 
people were not getting credit for positive rental payments.
    Ms. Pressley. That is right. And, additionally, hikes in 
rental costs in my district of Massachusetts and across the 
country have put many low-income families, really, in dire 
straits. In Boston, we have had rents that have risen by nearly 
20 percent in some neighborhoods.
    Director Thompson, what can the FHFA do to protect tenants 
from these egregious rent hikes we are seeing, specifically in 
properties with federally-backed mortgages?
    Ms. Thompson. We do a lot of investor and stakeholder 
outreach and we are getting ready to, before the end of this 
month, issue a request for input on tenant protections.
    This has come up a number of times and we want to hear from 
not just the people who are building these houses, but we want 
to hear from tenants as well what can we do to be more 
proactive and fair and safe and sound in this area. So, we are 
looking forward to getting comments on our request for input.
    Ms. Pressley. Thank you very much, Director, and it is 
really unconscionable that this committee, under the Republican 
Majority, has declined to prioritize housing and homelessness 
in the 118th Congress. Housing affordability is the number-one 
issue--
    Mr. Hill. The gentlewoman's time has expired. The gentleman 
from Wisconsin, Mr. Steil, is recognized for 5 minutes.
    Mr. Steil. Very good. Thank you, Mr. Chairman. Director 
Thompson, thank you for being here. Home prices are 
skyrocketing because regulations and supply chain disruptions 
have made it too difficult to build new homes. Interest rates 
have exploded because Washington went on a spending spree and 
pretended the effects would be only be temporary and 
transitory. Homeownership is getting even further out of reach 
for countless Americans. Meanwhile, the FHFA is pushing changes 
that would penalize responsible homebuyers and inject more risk 
into the housing finance system. I am concerned that it is the 
wrong approach.
    Earlier this year, the FHFA approved changes to the pricing 
system. You have discussed those changes today. They are 
complex, but I think it is clear that it would lead to many 
responsible borrowers paying more, and, ultimately, those with 
lower credit scores and smaller down payments paying less. You 
have noted some of your rationale for doing that. I don't know 
that I agree with the approach that you have taken. It seems 
broadly unfair. The FHFA is also allowing GSEs to expand the 
use of attorney opinion letters instead of traditional title 
insurance, and I am concerned that may be putting borrowers at 
risk in the name of saving a few dollars up front. And your 
Agency is also considering a title insurance waiver pilot, and 
I am concerned that would increase the risk for homeowners.
    I want to encourage you to review the course that you have 
set, and I think broadly, we do need to make sure that our GSEs 
are safe, sound, and well-capitalized and that they support 
responsible homeownership. The American people face a lot of 
challenges in today's high-inflation, high-interest-rate 
environment. We need solutions that work for them.
    Let me shift gears slightly and dive into a pair of 
questions that I think are pretty relevant for us to get our 
heads wrapped around. First, I want to get in the weeds here, 
if I can, into shifting from three credit reports to two, that 
it could have and will it have unintended consequences? And so, 
as we look at this move from the tri-merge standard to a bi-
merge, under the bi-merge standard, do you feel that there 
might be an incentive for brokers to cherry-pick the two 
highest credit scores for a prospective borrower, and how would 
the FHFA prevent any gaming of the system under a bi-merge 
standard?
    Ms. Thompson. In moving from three to two, I think one of 
the requirements we have is that if the lender chooses three, 
if they don't like the two, that if they choose three, they 
have to use all three, but we are still working on that 
process. But I did want to, if I could, just make a comment 
about something that you said earlier. I just want to make 
sure, for the record, to note that we have done a lot of 
analysis, and borrowers with high credit scores are not 
subsidizing borrowers with low credit scores. We are providing 
an elimination of fees for first-time homebuyers across the 
country in rural areas, and manufactured housing, and that is 
being paid for by people who buy second and third and vacation 
and investor homes. And that money well offsets the fee 
elimination, and so it is----
    Mr. Steil. Is the fee increasing for high-credit-score 
individuals?
    Ms. Thompson. The pricing grid is calibrated to the capital 
requirements for individual loans, and we went through a public 
notice-and-comment period on that. It is very public, and we 
can look at that----
    Mr. Steil. No, I understand, but is the fee increasing for 
high-credit-score individuals?
    Ms. Thompson. The fee is changing for not all high credit 
and not all low, there is no universal, it is just increasing 
for high-credit-score individuals. In some cases, it is zero, 
no change whatsoever.
    Mr. Steil. In some cases, is it increasing?
    Ms. Thompson. In some cases, it is an increase, and in some 
cases, it is a decrease.
    Mr. Steil. Okay.
    Ms. Thompson. But at the end of the day, no borrower with a 
low down payment and a low credit score is going to pay less. 
They are going to pay more, on average, than a high-credit-
score borrower. That is just the way the calibration works.
    Mr. Steil. Understood, but in the delta in the change from 
the proposal you put forward----
    Ms. Thompson. You would have to believe that the original 
grid was accurate, and the original grid was outdated. It 
wasn't calibrated to any of the capital requirements that the 
Enterprises were using, not the one that was in place in 2017 
and 2018, and not this one. So, we updated it to make the 
Enterprises more safe and sound, more viable, and so they can 
accumulate the appropriate amount of capital for the risk that 
they are taking so it wouldn't have to be on the backs of the 
taxpayers.
    Mr. Steil. I appreciate that. I will follow up in writing 
on the bi-merge, because we ran out of time for it. Mr. 
Chairman, I yield back.
    Mr. Hill. I thank the gentleman. The gentlewoman from New 
York, Ms. Velazquez, is now recognized for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman, and thank you, 
Director Thompson, for being here. You know, if the Republicans 
are so concerned about interest rates and mortgage payments 
being so high, what would happen if there is a default, a debt 
default, Ms. Thompson?
    Ms. Thompson. Yes. I think the mortgage interest rates 
would be really high, and it would be likely more preventive 
from borrowers getting homeownership. And then, I am sure 
mortgage-backed securities investors would want to make sure 
they got paid.
    Ms. Velazquez. One economist today described it as a 
calamity. So, Director Thompson, Senator Van Hollen and I 
recently wrote to you and the other regulators charged with 
writing the incentive-based concession rules, under Section 956 
of Dodd-Frank, so thank you for your response. Last week, some 
of the other regulators told me in this committee that the six 
Agencies have met since the collapse of Silicon Valley Bank, 
and a notice of proposed rulemaking could be out by the end of 
the year. Do you agree with what they said, and do you agree 
with this timeline for the notice of proposed rulemaking?
    Ms. Thompson. Thank you for the question. I was on the call 
where we agreed to move forward with the rule and to try to 
have it out by the end of the year.
    Ms. Velazquez. Thank you. And, Director Thompson, as you 
know, residential co-ops are an important part of our housing 
stock in New York City. Can you explain the programs the GSEs 
have in place for affordable housing investment in co-ops and 
the options for refinancing? How is the FHFA working to expand 
programs for residential co-ops?
    Ms. Thompson. The Enterprises are allowed to buy co-ops, 
and, again, they purchase the loans that are made, and there 
are requirements for purchasing those co-ops. I don't know the 
specifics on if there are issues with that or not, but I do 
know that those are eligible products for both Enterprises to 
purchase.
    Ms. Velazquez. And in terms of the option for refinancing?
    Ms. Thompson. And the option for refinancing is there as 
well.
    Ms. Velazquez. Director Thompson, there has been a lot of 
misinformation and mischaracterization by Fox News about the 
changes the FHFA was making to its pricing structure. Could you 
please explain how these changes were intended to help 
homebuyers across the country in all communities, and maybe 
tonight, Fox News will air your response?
    Ms. Thompson. Sure. Thank you. The changes were made: one, 
to update the outdated pricing grids that had not been updated 
in almost 10 years; and two, to really help first-time 
homebuyers who cannot afford a huge down payment on a home, to 
make homeownership more affordable for them, and this is across 
the country. But we really thought it was important for the 
workforce, for policemen, for firemen, for teachers, and just 
for people to be able to live where they worked, and we wanted 
to do what we could to provide affordability. And, again, we 
are paying for that with the fees that are generated from 
second homes, investor homes, and vacation homes. And that was 
the second reason.
    The third reason was to build capital so that the 
Enterprises could meet their capital requirements and be in a 
position to absorb more losses. The Enterprises are woefully 
undercapitalized, and this was a good way to balance safety and 
soundness and responsible access to credit.
    Ms. Velazquez. Are you listening, Fox News? I yield back, 
Mr. Chairman.
    Mr. Hill. I thank the gentlewoman. The gentlewoman from 
California, Mrs. Kim, is now recognized for 5 minutes.
    Mrs. Kim. Director Thompson, thanks for being with us 
today. As you may know, California has suffered from chronic 
home affordability for years. Last year, Orange County, my 
district, saw the median selling prices going over $1 million. 
To make matters worse, California has the highest rate of 
poverty of any State, at 13.2 percent, so in California, we 
have a mismatch in the housing market with low supply, the 
highest prices in the country, and a large segment of the 
population unable to afford a home.
    One of the solutions to California's housing access and 
affordability problems is found in your testimony. The move to 
newer, more modern credit-scoring models you are undertaking 
will score 12.5 percent more for my constituents in 
California's 48th District, and of these newly-scorable folks, 
41 percent, or 26,000 of them are near prime, with a score 
above 620. Can you outline the benefits of including rental 
payments, utility, and cellphone payments in mortgage credit 
scores?
    Ms. Thompson. Sure. I think one of the tenets of credit is 
somebody's ability to pay and their willingness to pay. And if 
you have people who are making a living and they are making 
their payments every single month on time, but they just can't 
afford a low down payment, we think that their ability to pay 
and their willingness to pay, as demonstrated by their 
continuous payment of rent every single month, is really 
important and ought to be considered in their credit score. And 
utilities--you certainly need water and electric. So if people 
are paying their bills on time--just because somebody has low 
wealth doesn't mean they have bad credit. And to the extent 
they are able to and willing to pay, then that ought to be 
taken into consideration--
    Mrs. Kim. I couldn't agree with you more. I do have a bill 
to do just that, so thank you. It will help Californians 
achieve the American Dream of homeownership, so please keep me 
updated on your efforts as well.
    The topic of the GSEs venturing into title insurance has 
come up a lot recently, and there are some major concerns 
amongst my colleagues about these endeavors, whether it is the 
reported Fannie Mae title waiver or the promotion of 
unregulated title insurance alternatives onto the low-income 
borrowers. I, too, am worried that the FHFA may be pushing 
alternative products and workarounds that don't effectively 
protect homebuyers, lenders, or the GSEs themselves. I would 
like to ask you and encourage you to go back and revisit the 
rationale for FHFA pushing the use of unregulated title 
insurance on low-income borrowers in general, but most 
immediately, can you confirm that these risky, unregulated 
title alternatives are not being pushed in Southern California, 
where I am from, and where my constituents are, or in other 
seller-paid geographics across the United States?
    Ms. Thompson. Yes. First, let me confirm that it is our 
goal to protect borrowers and to protect the Enterprises, and 
FHFA is not pushing any unregulated entities. I think the title 
insurance is a requirement, again, by the lender to prove that 
there is clear title and that there is no superior lien. And 
since 2008, attorney opinion letters are an option for certain 
borrowers under certain circumstances, but nobody is pushing 
that.
    Mrs. Kim. Thank you for the clarification. In the interest 
of time, I just want to continue, but I want to say that we 
need to ensure that these pilot programs don't undermine the 
safety and soundness goal of FHFA. Now, I commend you for 
conducting a robust review of GSEs, NPL, and RPL loan sale 
programs. However, given that these programs reduce the risk to 
the GSEs and the taxpayers and help achieve more favorable 
outcomes for borrowers in local communities, I encourage you to 
restart these programs as soon as possible, but I understand 
these programs have come to a stop.
    And these programs are important to help de-risk programs, 
the GSEs, and the taxpayers. Would you agree that we need to 
restart these programs?
    Ms. Thompson. We wanted to make two changes: one, we wanted 
to update the benchmarks because they were old; and two, we 
wanted to make sure that all of the lost MIT programs that the 
Enterprises have are included in the waterfall.
    Mr. Hill. The gentlewoman's time has expired.
    Mrs. Kim. Thank you. I yield back.
    Mr. Hill. The gentleman from New York, Mr. Garbarino, is 
recognized for 5 minutes.
    Mr. Garbarino. Thank you, Mr. Chairman. Director Thompson, 
you were just discussing a little about title insurance with my 
colleague. And last week, in our Housing and Insurance 
Subcommittee, I discussed FHFA's proposal about waiving title 
insurance requirements and acting essentially as the title 
insurer to a lending organization. Mr. DeMarco, who is one of 
your predecessors, said, ``Title insurance is a primary market 
function and, frankly, the GSEs simply do not belong in the 
primary market.'' He also went on to say that it is disturbing 
to think that Fannie Mae or Freddie Mac might displace title 
insurance by taking on the insurance itself. Would you agree 
with Mr. DeMarco that Fannie and Freddie have no business 
offering their own title insurance products?
    Ms. Thompson. FHFA is not pushing that, and I have not seen 
that proposal. And we would have to evaluate anything on the 
merits of safety and soundness to the Enterprises and to 
borrowers.
    Mr. Garbarino. You brought up attorney opinion letters. 
What do you think about the proposal? Would you agree with the 
proposal, if Fannie and Freddie wanted to waive title insurance 
requirements?
    Ms. Thompson. I would have to see if that was a safe and 
sound decision or proposal. I would have to evaluate that on 
the merits. I just haven't seen it.
    Mr. Garbarino. It wouldn't be safe and sound. I was a 
practicing attorney, and I did house closings all the time. I 
worked with title insurance companies, and thank God for them 
at some of those closings, because they saved a lot of 
homeowners a lot of grief by going through the title insurance 
policy. So, I don't think it would be a sound proposal.
    And I hope if anything does come forward where Fannie and 
Freddie would waive those insurance requirements, I would hope 
you would object to it, because there is a reason private 
lenders require title insurance now. There is protection there, 
and when homeowners purchase their homes, that is usually the 
biggest asset they are going to buy, and it is one thing to 
have title insurance that protects the lender, and it is 
another thing to have title insurance that protects the 
homeowner. So, I think any sort of waiver of title insurance 
requirements by the GSEs would be a huge mistake and would end 
up hurting consumers.
    I want to move on to, and one of my other colleagues used 
this word, but the Administration has tasked the FHFA with 
looking into enhancing tenant protections and addressing 
egregious rent increases in the Enterprises' multi-family 
programs. Director Thompson, what do you consider to be an, 
``egregious'' rent increase, and do have concerns that any kind 
of rent control in Enterprise programs would disincentivize 
multi-family borrowers and significantly impact the supply of 
affordable housing?
    Ms. Thompson. One of the things that we are doing before 
the end of this month is issuing a request for input on this 
very topic. I would love to keep you informed on the 
information we are getting from all of the stakeholders on this 
really important issue.
    Mr. Garbarino. Okay. So, you are requesting information. I 
would have to say one thing we have seen in New York, which has 
rent stabilization laws and limits deductions of investments 
from people who have landlords who offer affordable housing, 
when you limit rent increases, when you limit deductions that 
can be taken from capital investments into upgrading these 
apartments, you see landlords just they walk away. They either 
say, well, we are not going to build any new apartment 
buildings, so we are not going to continue to invest in these, 
because I can't recoup the money that I am investing. So, the 
low-income renters who are in these affordable housings are the 
ones, again, who are hurt.
    I think when you are requesting this information, again, 
pay attention and focus on what the actual effect is on these 
low-income renters, and I think we have a perfect example of 
how they are harmed when you look at what has been going on in 
New York City, where we already have rent stabilization laws 
and limits on deductions on investment and how to recoup 
capital improvements.
    Last question, because I am running out of time, we have 
heard a lot today about increasing access to homeownership, an 
issue that has especially hit home for me. I continually hear 
about that concern from my constituents. According to the 
latest statistics, New York has the lowest percentage of 
homeowners in the nation, under 55 percent. One way to reduce 
prices in the housing space could be through a new model of 
providing mortgage insurance designed to create more 
flexibility and pricing for borrowers by utilizing a new, 
streamlined, highly-capitalized approach.
    Okay. I will submit this for the record. Sorry. I yield 
back.
    [laughter]
    Mr. Hill. The gentleman from New York will submit that 
question for a prompt answer.
    And now, we turn to another gentleman from New York, Mr. 
Lawler, for 5 minutes.
    Mr. Lawler. Thank you, Mr. Chairman. Director Thompson, you 
said a few minutes ago that the changes that you have made to 
mortgage pricing were designed to lower the risk profiles of 
the GSEs. I want to focus on the LLPA changes you announced in 
October, where you decided to eliminate LLPAs altogether on 
certain borrowers, like first-time homeowners, which you paid 
for with increased fees on second and vacation homes. That is 
obviously a policy choice, and we can argue whether it is good 
or bad, but my question is on the impact of this change from a 
risk management standpoint.
    Since first-time homebuyers have presumably never owned a 
home before, there is no history of how they will do in 
repaying the largest loan they have ever taken in their lives, 
and yet you lowered the risk-based pricing fees on those loans 
to zero. Can you tell us how that decision lowers the risk 
profiles of the GSEs?
    Ms. Thompson. Sure. As you know, borrowers who have very 
low down payments are required to have credit enhancement by 
law, so the Enterprises cannot buy a loan that has a loan-to-
value ratio of greater than 80 percent unless it has credit 
enhancement. That credit enhancement takes the form of mortgage 
insurance, and to the extent that borrowers with low loan-to-
value ratios default, the mortgage insurance stands in front of 
and takes the first-loss position, so it reduces losses to the 
Enterprises. The mortgage insurance companies are capitalized, 
they have liquidity, and at the end of the day, we are 
transferring the first-loss credit risk to the private sector, 
which helps protect the Enterprises.
    So from a risk-based perspective, the cost of that premium 
gets included in the pricing. Even though we eliminate the up-
front fees, it is a very small portion of the total fees that 
low credit risk, low down payment borrowers pay, and they pay 
more than any other borrower. And if you look on the final grid 
that shows the total amount of payment that borrowers pay, it 
is risk-based, and there is absolutely no case where low credit 
score and low down payment borrowers pay less than someone with 
a high credit score and a high down payment.
    And what I get nervous about is people hearing that, oh, I 
don't have to have a good credit score to get a house, and then 
they are going to go to the bank and get sorely disappointed. I 
want to make sure that people understand that you have to 
continue to pay your bills. We are talking about creditworthy 
borrowers, and, again, in the Enterprises' flagship programs 
that are their affordable programs, the credit scores are over 
740. These are people who make their payments, they are 
creditworthy, but they just don't have enough money for a down 
payment, and the Enterprises are protected through the mortgage 
insurance.
    Mr. Lawler. My colleagues, Mrs. Wagner and Mr. Davidson, 
discussed with you the issue that we have a perceived lack of 
transparency and stakeholder input which the rollout of the new 
pricing framework has brought up. Again, while the recent 
formal RFI is a nice first step, the American people need to 
see more, and given all the attention on the recent pricing 
changes and some of the backlash that has resulted, are there 
other specific ways that FHFA can increase transparency for 
actions like this in the future?
    Ms. Thompson. Sure. We specifically are intentional about 
providing public information on pricing. Every year, we submit 
a report to the Congress, and we also publish it on our 
website, that talks about what the pricing is, how it has 
changed year-over-year, and it goes into detail on small 
lenders, larger lenders, and loan-to-value ratios. And in the 
2022 report that we published, we actually articulated that we 
were going to update the pricing grids, and we also, in the 
scorecards that we published that define what we expect the 
Enterprises to do, both in 2022 and 2023, let the public know 
that we were making these pricing changes.
    What was interesting to me was that many people didn't 
understand the mortgage insurance component, and so we thought 
that we would take this opportunity to explain what we did by 
issuing the RFI, and then get input to answer questions like, 
should we even have LLPAs? Should we include mortgage insurance 
or not? Should we tie the pricing to capital? So, we are trying 
to get as much input as we can.
    Mr. Lawler. Thank you.
    Mr. Hill. The gentleman's time has expired. We have votes 
called on the House Floor, and we will continue questioning 
until there are 200 votes outstanding.
    And I now recognize the gentleman from Florida, Mr. 
Donalds, for 5 minutes.
    Mr. Donalds. Thank you, Mr. Chairman. Director Thompson, 
thanks for being here. I am pleased to see that FHFA announced 
rescission of the debt-to-income up-front fee proposal. In my 
view, the decision came after significant stockholder or 
stakeholder feedback and congressional oversight. Can you speak 
about the specific issues inherent with the debt-to-income 
proposal from both lenders and borrowers that were raised 
throughout the process?
    Ms. Thompson. Sure. When we made the announcement, and 
there is a debt-to-income capital requirement in the capital 
rule, lenders called and they said, we are having operational 
challenges implementing this. And I personally went to and 
visited lenders, credit unions, I went to banks, I talked to 
heads of organizations, and they walked us through the process. 
And they said especially for first-time homebuyers, it was 
difficult to pinpoint exactly what the debt-to-income ratio was 
at a point in time. Many times, people forget pieces of 
information, whether it is expenses or whether it is additional 
income, that has to get added into the calculation. And what 
they were nervous about was this notion called bait-and-switch, 
where we start out with pricing for a loan with one set of 
information, they get additional information, and then the 
pricing would change if it moves the debt-to-income ratio up to 
40 percent.
    And so, there was lots of confusion about it, and we 
postponed that implementation through August. And then after 
getting lots of information from talking to stakeholders, we 
rescinded it.
    Mr. Donalds. Director, do you have any plans on trying to 
bring this back?
    Ms. Thompson. No, we do not.
    Mr. Donalds. No? Okay. I just want to make sure we clarify 
that. Sometimes, I find in this town that ideas bubble up, then 
they go away, then they bubble up again in the future, so I 
think it is important to state that. One other thing I want to 
talk about briefly is I have some strong concerns about the 
reported title insurance pilot program at Fannie, namely the 
opaque process with which this program is being developed and 
how it would work in practice. A spokesperson from Fannie 
stated in response to recent reporting on the title pilot that 
the Agency was still in the research phase. Can you describe 
the stakeholders and data FHFA is utilizing and collaborating 
with as it conducts research on this potential action?
    Ms. Thompson. FHFA is not conducting research. FHFA 
evaluates proposals from Fannie Mae and Freddie Mac. I have not 
seen that proposal because a pilot would have to be approved by 
FHFA. And we also put in place a new products rule. Like all of 
the pilots that both Fannie and Freddie are engaged in, that 
proposal has not come to FHFA for approval.
    Mr. Donalds. Okay, Director, last question. Are you 
concerned about the current size of the GSEs, and to a second 
degree, do you have any concerns about potential loosening of 
underwriting standards?
    Ms. Thompson. Yes. To answer your question, I am concerned 
about the Enterprises building capital so that they can cover 
their losses. The Enterprises have very low delinquencies right 
now. The market-to-market loan-to-value ratio on the book of 
the Enterprises is the best it has ever been, but I am 
concerned about making sure that they build capital so they 
don't have to default to getting taxpayer support, so that is 
my number-one concern.
    My second concern, 1A and 1B, is making sure that they 
fulfill their responsibility to provide liquidity throughout 
the United States to homeowners everywhere, not leaving anybody 
out, but making sure that creditworthy borrowers can get access 
to first-time homeownership.
    Mr. Donalds. I will say in closing that I share a portion 
of your concern, and this is as a former banker who watched the 
residential side from the commercial side. I would say that 
with respect to the GSEs being able to be supportive of the 
mortgage market to a degree is a goal that I think it is 
optimal, but it may not always be realistic. But I think that 
the key concern is always going to have to be credit quality, 
because credit quality is the thing that is actually going to 
protect taxpayers in the long run. With that, I yield back.
    Mr. Hill. The gentleman yields back. The gentleman from 
Iowa, Mr. Nunn, is recognized for 5 minutes.
    Mr. Nunn. Thank you, Chairman Hill. I very much appreciate 
it. Director Thompson, thank you so much for spending some time 
with us today. As a guy here from the Midwest, I think we want 
to make sure both that our first-time homebuyers have an 
incredible experience and do this the right way, and that 
ultimately the taxpayers are not on the hook for when things 
don't work out the right way. And for those folks watching back 
home in Iowa today, your organization, the FHFA, plays a unique 
role in how mortgage markets function. In fact, you are the 
primary regulator for our GSEs, Fannie and Freddie, of over 
half of the mortgages on the market owned or guaranteed by 
those government Agencies. That is more than 50 percent of 
where we are here, and your primary mission is to regulate 
these GSEs.
    By design, the FHFA is intended to be an independent 
agency, free from agenda or political pressure, whether it be 
from Congress or from the White House. Now, as we have heard 
here today, some have argued that the FHFA is pushing forward 
the Administration's equitable housing finance plans, but that 
you are doing it while potentially displacing private capital. 
Additionally, your Agency simply announced significant changes 
to long-held standards via press report or a periodic report, 
disregarding any formal notice-and-comment period, which is 
concerning.
    Last October, the FHFA made two important announcements 
related to credit scores and homeownership. First, adding 
VantageScore 4.0 seems to make a lot of sense, and that is an 
area where we would agree with you. These new models help score 
an additional 11 percent of people in my district, and only 
half of those folks score near prime or higher than 620.
    My question, Director, is what is the timeline for this 
project that you are working on, and can you commit to being 
communicative not just with my office, but with us here in 
Congress on how that process is going?
    Ms. Thompson. Sure. Thank you. It is going to be a multi-
year effort to update credit scores because credit scores are 
used not just for underwriting. They are used for pricing. They 
are used for pooling. They are used by the mortgage insurance 
companies. They are used by investors. And so, making sure that 
people have data so that they can calibrate the old to the new 
is going to be very important. And it is going to take lots of 
stakeholders analyzing the data and making sure that their 
systems can absorb it and they can process in a way that is 
safe and sound, and that we don't lose a beat in terms of risk 
management. It is a multi----
    Mr. Nunn. I appreciate that, no, and that is good. I hope 
that we can expedite that process because I think we all 
recognize this is something we want to get to in a safe way but 
not something that takes years and years to do that addresses 
the current concern. As my colleagues on both sides of the 
aisle have mentioned, my second announcement is moving to a bi-
merge system. It raises some questions, though. My small 
community banks and credit unions, including those in rural 
Iowa, often only report data to one credit reporting agency. 
Under the bi-merger standard, two consumers who have similar 
credit profiles could potentially get differently priced 
mortgages, depending on: one, which two reports are pulled; 
two, which mortgage lender and consumers choose; and three, 
which or how many mortgage lenders they have access to, 
depending on where they live.
    For example, one of my constituents living in a large 
metropolitan area, like Des Moines, might receive something 
very different from one of my rural guys in Bedford, Iowa. How 
is the FHFA going to ensure that all Americans have equal 
access to mortgages, regardless of where they live and how they 
apply?
    Ms. Thompson. We are working on that process right now, and 
we are getting input from stakeholders. We believe after 
analysis that moving from three credit scores to two is going 
to be beneficial for the borrowers, that it will encourage 
competition from the credit reporting agencies, and it will 
lower costs for the borrowers, because instead of pulling three 
credit reports, they only pull two, and then the lender picks 
which two. Right now, we are working through the process with 
the GSEs on trying to figure out whether or not there is going 
to be the median or the average. It used to be the median for 
the three, and should it be the median for the two or the 
average for the two? And we have a request out for comment on 
that very issue of moving from bi-merge to tri-merge.
    Mr. Nunn. As you look at these comments, I think one of the 
things that has to be a concern here is that the FHFA is asking 
for more data, specifically related to those mortgages, but at 
the same time excluding some information from the mortgage 
process. I hope that provides some clear guidance.
    In my last 30 seconds here, I want to highlight the fact 
that we just had a cyberattack in Des Moines, Iowa. It really 
went after a number of young people who had no credit score 
whatsoever. The information is now being used by cybercriminals 
to be able to apply. Talk to us a little about what the FHFA is 
doing in this area to really protect first-time homebuyers who 
may have no credit history.
    Ms. Thompson. To the extent that first-time homebuyers have 
no credit history, if they are renting and not living with 
their parents, perhaps the positive rental payments are being 
captured. But in cyber, there is not much----
    Mr. Nunn. Thank you, Mr. Chairman. We will submit those 
questions for the record, and I yield back.
    Mr. Hill. I now recognize the gentlewoman from Texas, Ms. 
De La Cruz, for 5 minutes.
    Ms. De La Cruz. Thank you, Mr. Chairman, for holding this 
important hearing today, and thank you, Director Thompson, for 
appearing before the committee. We are towards the end here. I 
will state here that I am concerned about the increasing prices 
of housing and the availability of affordable options, 
especially in my community, which is one of the most-Hispanic 
districts in the entire nation. In fact, over 80 percent of our 
district is Hispanic.
    With that being said, record-high inflation and a possible 
recession will only further complicate housing issues and 
introduce uncertainty in the system. We are living in a 
transitory period, moving from a low-rate environment to a 
high-rate environment, and it is a time when we should be most 
focused on the safety and soundness of our system and not 
pushing to remake the system.
    With that said, Director Thompson, FHFA has required Fannie 
and Freddie to release equitable housing finance plans each 
year during your tenure. The stated purpose of these plans is 
to, ``create goals and actions to advance equity in housing 
finance.'' That being said, equity can mean a lot of different 
things to a lot of different people. What does this mean to 
you, specifically?
    Ms. Thompson. Sure. Thank you for the question. We believe 
equitable housing plans are the vehicle that allows us to 
identify barriers to homeownership for underserved communities, 
and particularly minority communities, but also come up with 
goals and objectives to eliminate those barriers, and I will 
give you an example. In the Latino community, one of the 
barriers is the documents for the mortgage itself. And as you 
mentioned, the mortgage is one of the largest assets that most 
people have.
    What we have done is we have translated many of the 
mortgage documents into different languages so that people who 
don't have English as their first language can understand what 
the documents say and walk through the implication of this 
purchase, and so those are the barriers. What is the goal to 
try to make the documents more understandable? So, those are 
the types of things that are in the plan.
    Ms. De La Cruz. I reclaim my time. You would agree, though, 
that your main responsibility is to focus on the safety and 
soundness of the system, correct?
    Ms. Thompson. Yes. Everything we do is wrapped in safety 
and soundness.
    Ms. De La Cruz. And our concern, of course, is that some of 
the tradeoffs that you have had to make as a conservator and a 
regulator in the name of equity may be affecting that safety 
and soundness, not only for Hispanic communities, but for our 
district specifically. Do you believe that you have to move the 
goal posts, in other words, lessen or otherwise change the 
requirements to own a home, to bring more borrowers to Fannie 
Mae and Freddie Mac?
    Ms. Thompson. We absolutely believe that we are not 
lowering any credit standards. We are not making any changes 
such that borrowers who would not otherwise be eligible, are 
now eligible. We are just not doing that. We have seen that 
before. The equitable plans really go towards more education 
and also loan products and programs that are helpful to people 
who, again, have high credit or reasonable credit, but they 
don't have the down payment.
    If you look again at the Enterprises' affordable programs, 
the average credit score for the borrowers in 2022 was over 
700. In fact, it was over 730, so we are talking about 
creditworthy people. They may have low wealth, but they are 
creditworthy and they pay their bills on time.
    Ms. De La Cruz. Again, I believe that what we are feeling 
and what constituents are telling us is that they feel that 
they have worked hard for their higher credit score, and that 
they are having penalties or are having to pay more because of 
that higher credit score. With that, I yield back.
    Mr. Hill. I thank the gentlewoman from Texas. The gentleman 
from Tennessee, Mr. Ogles, is now recognized for 5 minutes.
    Mr. Ogles. Thank you, Mr. Chairman, and for the record, I 
do want to state, as it pertains to the potential of a default, 
the House Republicans have passed a piece of legislation. It is 
now incumbent upon the Senate Democrats to do their job and 
pass our bill, and it is incumbent upon the President to do his 
job and sign our bill. So, this notion that the Republicans are 
to blame is nonsense. If there is a default, it is a Democrat 
default.
    Director, thank you for being here. I know it has been a 
long day, and you are ready to get out of here, as are we, but 
one of the things I want to discuss is how climate change and 
some of the climate activism is kind of creeping into the 
regulatory regime. And I will specifically go to Fannie Mae's 
website. Under the, ``ESG environmental,'' webpage, it notes, 
and I will paraphrase here, that Fannie continually seeks to 
better understand climate change related to risk. Ms. Thompson, 
can you explain what risks to the banking, to the loans that 
climate has that is being articulated by Fannie and, 
ultimately, that you are overseeing?
    Ms. Thompson. Sure. In the mortgage space, both Fannie and 
Freddie and the Home Loan Banks look at natural disasters. We 
are in the mortgage housing business, and so to the extent that 
there are climate events, and there have been just an increased 
number in the past few years, whether it is floods or 
hurricanes or wind, they cause the damage to the properties 
that are owned by the Enterprises. And we want to make sure 
that----
    Mr. Ogles. I will reclaim my time. You are on the lending 
side, and the market has insurance for the purpose of risk, 
right? So, in specific numerical terms as it pertains to 
climate change, if there is a 3\1/2\ degree change in 
temperature, how does that affect the housing financial system?
    Ms. Thompson. Sure. I am glad you raised that question, 
because in many States that are hugely impacted by climate, the 
insurance question remains. I know last year, in one particular 
State, the rating for those insurance companies was going to be 
downgraded, and that means that borrowers wouldn't have 
coverage if----
    Mr. Ogles. Yes, ma'am, and I will reclaim my time. I am a 
country boy from Tennessee, and flood insurance in Florida does 
not impact the borrowers in my State or in the cornfields of 
Iowa. So, to have a regulatory regime that is forcing climate 
regulations, or those types of things, into this system is, 
quite frankly, inappropriate, when what I would really want to 
know, as I look at going forward in the GSEs, is what is the 
plan and timeline to get them out of conservatorship, because 
we have had two Administrations that have been talking about 
it. Everybody seems to agree that it needs to be done, but yet 
here we are continuing to have this conversation. Here we are 
without a clear picture of what the GSEs look like post-
conservatorship. How does it affect/impact the free market? I 
want to get back to the question of, what is your specific 
plan, under your tenure, to move them out of conservatorship 
quickly?
    Ms. Thompson. Right. My plan is to make sure they continue 
to build capital and that the prices they charge cover the cost 
of capital for every loan that they take. Also, to make sure 
that they are running their operations in a safe and sound 
manner, and to make sure that they are protected, which goes 
back to the insurance issue you raised. It is not just flood; 
it is wind, hazard, and fire. We need to make sure our 
properties are protected and that coverage is available for 
those properties at inception and through the life of the loan.
    Mr. Ogles. Yes, ma'am, but specifically, as you look at 
building capital based off of historic trends, and obviously we 
are in a different and fluctuating market, what is your 
projected timeline to see them out of conservatorship, and is 
there anything that can be done to expedite that, such as 
private capital?
    Ms. Thompson. We are working to, again, build capital for 
the Enterprises. And because the market has shifted from record 
acquisitions for refinances to this purchase market, we are in 
the high interest rate, we have seen the number of loans coming 
to the Enterprises decline. And so, we are trying to build as 
much capital as we can and make sure their infrastructures are 
as safe and sound as possible. It will take a long time to get 
to the capital requirement.
    Mr. Ogles. Yes, ma'am. In other words, there is really not 
a specific timeline. We are kind of in the same conversation 
that we are going to be having for a number of years. Mr. 
Chairman, I yield back.
    Mr. Hill. The gentleman yields back. I want to thank 
Director Thompson for her testimony today.
    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 witness 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.
    I thank Director Thompson for her perseverance in the 
hearing.
    Ms. Thompson. Thank you.
    Mr. Hill. This hearing is adjourned.
    [Whereupon, at 1:53 p.m., the hearing was adjourned.]

                            A P P E N D I X

                              May 23, 2023

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