[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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]