the current state future of mortgage finance has really been a hot topic continues to be a right to hot topic with financial service committee and we're holding several hearings over the next several weeks to look at the current state of the housing finance situation and discuss ideas and how to structure the market and we think about it unfortunately i believe this focus is happening much later and then it really should be really should have been happening what about two years ago since fannie and freddie were put in to conserve ship and finally now we are beginning to formally and seriously look at the way to reshape that market throughout the financial regulatory reform debate my republican colleagues and i continuously look for opportunities to end the bailouts of fannie and freddie wind down their businesses and accurately account for their losses to the american taxpayer but i remember when we did those amendments and such the majority party and the white house have prevented those efforts from moving forward so to my colleagues including chairman frank who has said specifically i quote there is no urgency we've already abolished fannie and freddie mae remind him that just because you say something enough times doesn't actually mean that it's true just because fannie and freddie have been put into conservatorship that doesn't mean that they've been reformed and freddie are continuing to hemorrhage billions of dollars each and every quarter with the possibility now of a double dip recession and further value declines in homes really there's no end in sight so fannie and freddie have not been reformed rather they are being used essentially as an experimental guinea pig if you will for the administration's home modification programs also i've seen a quote by chairman frank when he said quote the money is not being lost by anything that we're doing right now well you know for no five when this committee was pushing ahead to institute new regulatory oversight over these companies supporters of these entities including challenge frank said well this was unnecessary then because they were in such terrific shape we see with that let us sort of say the have already been reformed and everything is fine now is really just making the same excuses that they made before the same mistakes as well you know as any expert in the mortgage business will tell you mortgage loans typically hit their peak default r of five to seven years so the loans underwritten by fannie and freddie during zero nine and this year they're only one or two years old so we have absolutely no idea what the market will be like in three four five years from now so we need to  right now to reduce the ongoing financial risk that fannie freddie pose the american taxpayer one of these steps is to more rapidly increase the wind down of these entities retain portfolio fannie freddie compain portfolio is one point six trillion dollars with the current market demand for g m and b s is there is absolutely no plausible reason they have to be the size yes they are so large there is significant amount of interest rate risk that to continuously has to be hedge interest rates sometimes rise in the future the hedging of these assets will be get even more complicated and volatile and harder to manage so with the current market situation appetite for jesse's n b s as we should be requiring the entities right now to reduce their proposed size and do it soon to reduce the risk before interest rates inevitably will rise and when a conservative can actually make more money back to the taxpayer to the director i thought it was a thoughtful decision that you made to shut down the page program during the summer this was a scheme that was putting taxpayer further risk well only really benefiting if you tax security firms are offering these products now we must need to make more hard decisions as you did then to protect the taxpayers new jersey mr garrett had to say in a committee vote on that bill to ban predatory loans the increasing of bail ability and affordability of sub prime mortgage credit is and has been an important factor leading to the increase in home ownership in recent years this bill the bill to restrict predatory lending may well limit now the products available to subprime borrowers particularly minority borrowers and will deprive many of those consumers from owning woman taining a home what we need to do is to ensure that it does absolutely nothing to homeownership particularly among minority communities who have benefited from the innovations that have occurred in the marketplace that is a stronger praised a predatory loan which we tried to stop and had the loans not been made they could not have been bought in fact gentleman was also incorrect when he said in two thousand and four and two thousand five hundred public and were trying to restrain fannie mae and freddie mac some of us were on the other side you know exactly the opposite is the case them i changed my opinion i thought this was dangerous two thousand five michael oxley you have a public and chairman of the committee put a bill through this committee to restrain fannie mae and freddie mac i actually voted for it in committee many my a couple of my republican colleagues administration and some on this committee didn't like the bill so this i have never heard more of an accurate characterization and said when republicans were trying to get something through we opposed know the republican majority of this committee and the republican majority  in the position as i often am to actually be there on the member to with defending my already interest and that's exactly what that quote was doing as you said you know four and five i was defending the rights of minority in the minority housing interest and i would like to enter into the regulations that the president that the ranking member of the chairman was talking about those were those regulations would have weakened the affordable housing standards that the chairman was talking about that they were trying to do that that  thank you chairman and you know two years and one hundred forty eight billion dollars later we still have freddie and fannie basically operating like they were before maybe with a little bit better underwriting and that's a good thing but   and so i think what many of us feel like is two years it's time to begin to do a model to wind this activity down the taxpayers off the hook and to live in directions that we will be able to encourage private activity in the mortgage market but quite honestly as long as freddie and fannie are the majority of the originations and the taxpayers pick up the tab there's really no incentive for do that and mr chairman and ranking member i think it's time for this committee and this congress this affordable advantage program mortgage program that actually doesn't require downpayment you don't have to have good credit history so we're laying the stage for the next bubble where  they're stable if we see another drop in home prices even in some key markets that could create a double dip recession that is extending the seven hundred twenty nine thousand and seven fifty limit in the roughly one  most expensive housing markets in the country if we allow this to expire at the end of the year it will be impossible to finance homes in most parts of los angeles and other and certain other major cities and even in areas where homes sell for less if the in the middle class neighborhoods the price drops but then in the working class neighborhoods prices will drop precipitously as well and we will see a double dip recession i hope that we get even more than the seventy agency efforts against the wall street transfer provisions in say that every time the property is transferred somebody on wall street gets one percent of the gross purchase price that undercuts the security of the lender it disadvantages the home buyer it complicates the transaction and it lowers the comps for the entire neighborhood impairing the in talking about h r fourteen sixty one which we passed in two thousand and five but the former chairman of this committee might have been even more eloquent in his article which i would like to put in the record without objection i agree we need to think about a plan we've got to reinvent our mortgage lending system and something like twelve to fourteen trillion dollars in outstanding mortgage debt right now that's not a small small matter but it would be very helpful in knowing how to fix what went wrong to figure out what it was that went wrong it is particularly hard to take republicans complaining about democrats trying to place blame all i have heard from republicans for two years  somehow the democrats fault we had a financial crisis that happened seven years eight months into a republican administration because of mortgages made during two thousand and four two thousand and six when republicans were also in the majority in allowed to operate under an unacceptable heads i win tails you lose system they enjoy the benefits of the government support that inadequate oversight in inadequate capital the market did not instill appropriate discipline because the market assumed that they had a government backstop the events that led to conservatorship were symptomatic of a range of regulatory management oversight failures throughout our financial system as a private unregulated mortgage market grew and market players began to loosen mortgage credit standards to pursue ever risky business ever riskier business in the booming market which had initially stuck to their core business of guaranteeing well underwritten loans so other market shares fall p driven by profit motives in an effort to regain that market share purchase riskier mortgages without holding adequate capital or having appropriate risk management these moves left them dangerously exposed as a result of the substantial deterioration in the housing market and fannie and freddie's inability to written necessary new capital eppy to place the g s t into conservatorship under the authority granted to them by congress under the bipartisan housing economic recovery act since september two thousand and eight f h a has acted carefully to help ensure that fannie mae and freddie mac the assets are conserved walking to new to play a critical role in making mortgage credit available by facilitating the flow of credit for responsibly underwritten mortgages have served as a source of stability for the housing market and helped to enable millions of americans to continue to have the ability to take out a new mortgage or to refinance the new loans being guaranteed by the g c s are not contributing in any material way to the losses the g s t is now a quite the contrary in fact it is the g s t is the old book of loans those acquired before conservatorship which are the overwhelming source of losses the credit quality and risk profile of the post conservatorship book of business has dramatically and compared to preconcerted ship level and less than one percent of losses have come from loans originated in two mistakes made in the years leading up to the crisis not today the country is unfortunately stuck with the consequences of the poor choices made prior to conservatorship today are working hard to minimize losses through loss mitigation and they are continuing to promote overall stability in the housing finance system which is the most important source of loss mitigation they can provide while we continue to bring stability to the mortgage market we are also to work on the business of reform it is not tenable to leave in place the system that we have today the administration is committed to delivering a comprehensive proposal to congress as called for under the dodd frank act by january two thousand and eleven our proposal will call for fundamental change congress began the process of reform with the passage of here in two thousand and eight and if a typical continue the path when it pla next phase of reform came with the passage of the dodd frank act which includes fundamental reform of mortgage market rules including important ability to pay requirements and risk retention standards for mortgages this act will help to ensure that homeowners are not sold products that they cannot afford and that originators retain skin in the game when they originate risky mortgages as we move forward together towards responsible reform our nation's housing finance system we are committed to ensuring that the transition to a new system of course in an orderly fashion that is mentally disruptive to the market and in designing a new system for housing finance we must ensure that the system is more stable consumers are protected sustainable credit is widely accessible and low and moderate income families have access to affordable housing after reform that will not exist in the same form as they did in the past private gains will no longer be subsidized by public capital and underwriting member baucus and members of the subcommittee thank you for inviting me here today i written testimony covers for topics the status of the conservatorship the current condition of the enterprises projected losses by the enterprises and considerations for the future of the housing finance system i will briefly summarize several key points from my written statement the enterprises have been operating in conservatorship for two years now since september two thousand a principal focus of the conservatorships is to maintain the enterprise a secondary mortgage market role until legislation produces a resolution of their future s h s phase oversight is also directed toward minimizing losses limiting risk exposure and ensuring the enterprises price their services to adequately address their costs and the rest f h f a recognizes that losses by the enterprises translate into cost of the tax payers and we are doing everything in our power to minimize future losses examples of these last litigation activities including loan modifications both through the administration's hamp program through enterprise as proprietary modification programs repayment plans and forbearance plans and short sales and deeds in lieu of foreclosure the foreclosure alternatives pursued by the enterprises not only serve the conservatorship goal of minimizing the losses but also bill f a statutory mandate to maximize assistance to homeowners while minimizing losses to the enterprises f h f a report every month to congress on the full range of enterprise foreclosure prevention activities through our federal property managers report since the first quarter of the conservatorship the enterprises have completed more than one million foreclosure alternative transactions with as conservator f h f a has also been clear that the enterprises should actively enforce lender compliance with their contractual obligations which includes pursuing re purchases from those institutions whose loans did not meet the enterprise underwriting and eligibility guidelines separately in july f h f a issued sixty four subpoenas as part of an effort to determine whether other firms have legal responsibility for some of the enterprises losses on private label mortgage backed securities which to date have been borne by the enterprises and taxpayers in february i communicated to congress my position that in conservatorship the enterprises will be limited to continuing their existing core business activities and taking actions necessary to advance the goals of conservatorship we continue on that course today when i appeared before you in late may i pledge that f i f a would expand its reporting on the enterprises in conservatorship in fulfillment of that pledge last month publish the first of what will be a quarterly conservators report on the enterprises financial condition two of the findings present in the report at the end of two thousand and seven the enterprises had seventy one billion dollars in combined capital from the end of two thousand and seven through the second quarter of twenty ten charges against capital totaled two hundred twenty six billion dollars the largest contributor to these charges against capital has been the single family credit guarantee segment accounting for one hundred sixty six billion dollars seventy three percent of combined capital reductions over that period during conservatorship the enterprises have made significant progress in improving the quality of new mortgages purchased new enterprise mortgage guarantees have been for borrowers with higher credit scores and loans with lower loan to value ratios to bacterias that affect expected default rates also when i appeared here in may i was asked how much more money the enterprises may draw under the preferred stock purchase agreement i said that even across most severe stress scenarios modeled by the enterprises combined treasury draws appeared to be less than four hundred billion dollars based on the analysis available to me that remains my view today but to provide congress and the public with a more defined sense of the enterprise's potential future treasury draws f working with the enterprises to develop forward looking financial projections for public release similar to the supervisory capital assessment program conducted by the federal banking agencies last year the results of this exercise will not be forecast works back that outcome but rather modeled projections in response to what if exercises that utilize various scenarios as we prepare for the future legislation is needed to restructure and strengthen our housing finance system and resolve the conservatorship ensuring an orderly transition will be essential the role of the government and housing finance going forward is a key decision point in my written statement i offer   let me take our first crack at it not that i apologize but i think that some of the opening statements we've had a little bit of revisionism we might and the level that the country needs it seems to me we need a map a methodology of having a secondary market that brings in and attract more capital into the american market not maybe to the exact  that they obviously didn't compete very well to get the best price and both seem to rely on same the same same conditions and failed in the same way what if we broke up the mortgage  are involved in the system of housing finance in the secondary market is only one set of factors in the development of a new housing finance system and i think bringing it back to the fundamental level what's the shape of that housing finance system what do we want to look like how will it deliver widely available credit for sustainable mortgages how will they deliver on financial stability gols  deliver on affordability i think those broader and deeper sets of questions come into play in a sense for the question of whether you want one entity or multiple entities if you want multiple and how many they have relate to those broader set of concerns and as you're thinking about the numbers of entities in the system that involve a number of trade offs and you've identified some of the question of what part of the system is  inside the new housing finance system we create and what part is out how do we ensure a level playing field for different kinds of approaches to financial intermediation how do we prevent races to the bottom in that sector if we have multiple entities involved does it deal with the basic question of correlation of risk in the system or just add to that and i think those are the kind of fundamental questions we're going to need to address in the in the reform we were limited to because of the way the enterprises were structured out that model in vision that there would be only two companies they were given a number of advantages not otherwise available in the marketplace and so we did not have freedom of entry and exit in terms of how many firms there might be in the future if we're looking for a market model i would think it's the market that should determine that not a not a regulator or for the government generally so i would look for a market model in which there was licensing of firms to do certain things but they met certain requirements but other than that we should be having a model that let the market determine that through entry and exit and that would help  to spread and diversify r that we have continued under the preferred stock purchase agreements to assure that meet their obligations now and into the future in tell such time as the congress enacts reform implicit guarantee with an explicit one does not resolve all the shortcomings and inherent conflicts in that model and it can produce a tone problem that was your statement i  think i read it on your website yesterday yes what are some of the shortcomings with the government and what are some of the possible consequences for taxpayers i think that congress no what i tried to articulate there was that while there are a number of of industry representatives and others that have been advancing the cause of having explicit government  guarantees backing a wide array of mortgages in the future housing finance system my testimony says that i think that some of the that you know there are definitely some positives to that but that some of the negatives is not been fully explored and so i've tried to identify several matters that i would think lawmakers would want to consider in determining whether in the extent to which to provide explicit government guarantees you know in the in the future housing finance system and that goes to the ability capacity of the government to be able to adequately price the risk that's there it goes to the question of to the extent that there's you know government support for an activity that provides a subsidy you get more of that activity and that comes as an opportunity cost of funds not going elsewhere it's a matter for lawmakers to weigh and i believe that if the government is involved in in providing guarantees on a broad portion of the mortgage market  seems likely in past experience would suggest the government would want to say to some degree in how the mortgage market is working pricing what segments are being served and you know that how that gets done and how that it mr sharon maris and one other thing to note here though is that you know there can be a you know it's for you all to decide you know what sort of multiplicity of guarantees there are we  still have and you know i would expect would continue to have the f h a programs out some form of government guarantee program it's one that's targeted it's one you know that has certain transparencies about it i'm getting to the larger question of you know going to the full you know what we know today is the conventional market you know to what degree is the government going to get involved there but there may well be a role in that for the public benefits to be to be weighed by lawmakers t to conforming loan limits for the high cost areas the federal housing finance agency has determined that the loans originated since the temporary loan limit went into effect have consistently outperformed the smaller conforming loans at least that's what i've been told and  dramatically lower delinquency rates one issue that comes up is will congress even if we do extend the seven twenty nine do it late in december de marco if congress waits until the very end of the year to extend the current increased conforming loan limits what do you in think will be the impact of not doing it earlier will homes be able to open escrow november and december without the borrower knowing whether you can  conforming or she can get a conforming loan during that escrow period and congress perhaps not extending how important is it for congress to act expeditious for the election or for october then people will be able to open an escrow in november because they don't know whether they can close in january congressman won't be able to is  below has been coming down and there would be mortgage credit presumably available so i wouldn't say that i i would hope you go back and look at statistics what i see in the los angeles area is yes the jumble markets working well for the homes in malibu every one of anybody buying a home in malibu has a banker on speed dial probably the c e o but for those homes selling for six hundred seven hundred eight hundred thousand dollars ninety nine percent of them are f h a fannie or freddie and the idea that the private market could step in  markets but places where the four seventeen level applies to see whether and under what circumstances people can get loans in the seven hundred thousand or six hundred thousand dollar range let's move to these private resale fees last month your agency proposed guidance for fannie and freddie and the federal home loan banks that they should not deal in mortgages on properties income burd by these private transfer fees i want to commend you for moving in that direction we discussed the last time you appeared before this committee and as you know they typically involve a circumstance where he didn't in the documents is a statement that when the home buyer sells one percent of the purchase price goes to a desi usually an investor on wall street included in the documents for signature and closing do you expect that this proposed guidance will become guidance and do you expect it to become  due by the by the relevant lenders expect that we will finalize the guidance in some fashion congressman that is currently in a public comment period and we are looking forward to receiving public comment on this we cast a wide net in this proposed guidance and i think it is very important for us to take the time to get public comment on that and to consider it so that we make sure that whatever we come out in final form is fashioned  and certainly i mean for me at the time and in zero five i remember discussions i had and we had a federal reserve chairman where he told us where these bills would lead and in particular  with the fact that unless congress allowed us allowed the regulators to deal with the leverage the portfolios over the years we watched those portfolios grow to one point five trillion we watched what about eleven trillion i think in sub prime loans go through securitization or end up in those portfolios and the federal reserve actually became frantic and their worry was that we created kind of a political beast  half half politics and half private and it became the most influential lobby here at least in financial services on the hill it was very hard for a congressman to stand up against president clinton i remember  one of the one of the i think the responsibility that the democrats have may rest more in resisting any effort by republicans in the congress or by me when i was president to put some standards and tighten up a little on fannie mae and freddie mac and that was the fact i mean in the senate we had a good bill in the house we had the congressional bill and the congressional bill would have made the problem worse and that's why it was opposed by economists and by the treasury exactly what the fed warned about risk and how we're going to create this political beast that would eventually bring down the housing market and then on top of it the financial services sector we're talking about reconstituting them  and my worry is how do we can if we end up reconstituting this institution how do we constrain it because i guarantee it they're not regulated by market discipline they become an instant monopoly because they knock their competition out of business because the government backstop that they have behind them and at the same time the way in which they influence members of congress they've basically dictated terms and said they would not be regulated by the regulators so why would we go down this  term other than this boom bust cycle in housing we seem to contribute to that congressman i think that there is widespread agreement that reconstituting the g s t is as they were would be a very bad idea and i would agree that one of the was some questions about the valuation of those securities whether misrepresentations were made i know you asked for a lot of documents i didn't go through all of the subpoenas but i want to a some of them and  where are we now with that whole process so the information that we've requested is in the process of coming in and we're initiating you know our process of reviewing those documents for the purposes of doing a financial review the purpose here is to review the records mortgages underlying these securities to make a determination as to whether there's a breach of warranty or some other misrepresentation it would suggest that the loss of the enterprise of incur the legal obligation of someone else that process is going to take some time congressman but we are hard at work at it now and the records are beginning to come in time for the democracy i'm afraid not to open and well not open ended in terms of responding subpoenas but the timeframe to go through all of these records and so forth is very hard to say is there any opportunity that you might share with congress with this oversight committee on financial services  your progress or lack thereof congressman i would be happy to try to find an appropriate method to periodically update the committee on the progress we are making here recognizing sort of some of the privacy  legal sensibilities that need to be respected i would be i would be pleased to find a way of providing periodic updates i would really like that i think that just as some of these mortgage backed securities were foisted on  let me ask you another angle on this while you're going after some of these private label issuers and trying to hold them accountable for some of these same companies purchasing their securities to the congress and i correct that just just just a bit to two things just to clarify first we're not yet pursuing anyone we're just gathering information we have made no determination that there's been misrepresentations or breaches of warranty or gathering information through the subpoenas to see if that is in fact the case second with respect to what the federal reserve in the treasury of them purchasing their purchases  losses you got here you know one quarter two hundred sixty six billion dollars you know it's just a whole litany of losses here hammer jane value so i'm just making a deduction that we've made everywhere else in the industry with their mo securities that there were there were misrepresentations made here and to some degree whether it's we're going to malfeasance i'm not i'm not going to go there but i don't we're going to find out i mean i think that this is important for the american taxpayer american taxpayer is now you know backing fannie and freddie so that the mortgage market in this country can continue the losses are extraordinary and i think that we owe it to the american taxpayer to to find out as part of our responsibility to conserve assets to see where these losses are coming from the campbell and i sent a letter to you actually with forty other members of congress back during the summer when it came about actually because it was a media report says a lot of things are driven as far as coming out with information that mortgage bonds  so and we've had discussions and what have you and every time you come here to testify you state that you are trying to fill your mission and i know you are maintaining values of the entities in reducing losses to the taxpayers but if we're really trying to do that preserve that value and get money back to the taxpayers shouldn't we be selling them today when they're at these prices and not have to deal with the hedging of the risk down the road a year or two whenever that may be when inflation kicks in and then the problem of hedging that would be  astronomically harder than it is today on this is a challenging question congressman and i would point out that there's more to this than just the hedging so the enterprises are funding long term assets by issuing long term liabilities we start rapidly shrinking  the assets out of the balance sheet i'm left with long term liabilities that need to be need to be funding something so it's has more to do than than just hedging i would also say that they are holders of the the so i understand what you're saying but can't  you take care of that better today i mean if you can sell my one hundred sixty day who knows what they would be worth five years from now if the interest rates goes up and what have you so you can take care of those other underfunded assets that are on your books if you basically sell and put that money aside to take care of it so managing one of the half trillion dollars worth of retained portfolio has lots of complexities where let me just simply say that part of that is that's so large it is substantial relative to what's trading in the marketplace and i think the enterprises also have a responsibility to market stability that their sales and they own warning of their portfolio be done in a stable and predictable way in order to ensure greater market stability with that said my letter to you also pointed out that as a result of these market movements this summer we have been in discussions with treasury as required by the senior preferred agreement and we are making some adjustments to how we approach the you know the question of disposition of assets and in normal business order in order to take greater advantage of market prices but i think we have a responsibility to do so in a way that does not involve markets instability and also real cognizant of the fact that there's that there's hedging and long term funding here as well ok but we do want to belong to the basic point kind of as i do agree we want these portfolios to be run down and we are working very much to that end and my time is moving quicker than i would like  but you made your opening comment which i think was in your opening comment with regard to the purchase of by treasury of the g s e's the mortgage backed securities and i want to go into more detail but in thirty seconds or so i asked the same question to chairman bernanke we were purchasing these things today up until they are guaranteed by the faith and credit effectively of the taxpayer told two thousand and twelve right after that that guarantee in essence is no longer there so what actually are you purchasing and what is the value of those securities that you're purchasing today after two thousand and twelve if there is not the backing and the funding by the treasury for the three of these operations going forward there's not a sharp distinction between the activities before and after two thousand and twelve the preferred stock purchase agreements that backstop the treasury support for f continue into force after that date with respect to the obligations and with respect to the mortgage backed securities the mortgage backed securities that the federal reserve purchase and that in small part smaller part the treasury purchase have the value that they have intrinsic to the asset and that that also continues after two thousand and twelve so there's not a there's not a sharp break obligations are  or or have incurred in the past are supported and the obligations are designed so that as the congress considers reform of the housing finance system it's not driven to instability in the housing finance system during the transition whatever the congress decides about the future and fannie mae and freddie mac can be done on the basis of sound policy and good choices whether one want to guarantee or doesn't want to guarantee whether they're in the shape of the government's role in the all be made independently disturbing any existing arrangement or design relay to the congress to develop a plan that is good for the country going forward in the future gentleman's time f ninety five to two thousand and six december and did nothing nothing legislatively we took office in two thousand and seven and worked with hank paulson and put it into conservatorship although to the clear fact we also tried to block the subprime lending and that was somewhat bit of old ground here secretary bar in your testimony you speak about the events leading up to conservatorship and i read your testimony i didn't hear it assuming that it was the same testimony i didn't see any mention freddie's affordable housing goals which as you well know the low and moderate income housing goals ratcheted up from two thousand and forty two percent to fifty six percent under served areas from twenty four percent in two thousand to thirty nine special affordable from fourteen percent in two thousand to twenty seven percent we've had testimony before in this committee about fannie and freddie having to take on lower quality of loans that were connected to these affordable housing goals again i saw no mention in your testimony should i conclude that you believe there is no nex hanson i think that primarily if you look at what happened in the lead up to the financial crisis and the conservatorship primarily what happened was that fannie mae and freddie mac were the private market the private market in the put it at the top of of the set of problems going forward that i think that if congress is considering affordability going forward that it ought to have a clear delineation between that objective and other objectives in the housing finance system well throughout see the chairman of the full committee is here throughout most of his career he and courage fannie and freddie to get more deeply involved in affordable housing encourage them to do more  affordable housing on december eleventh chairman frank went to the house floor and said quote in two thousand and four president bush and yes the affordable goals came into ninety nine and to president bush raise them from forty to fifty four percent over my objection i thought it was imprudent and said so at the time you don't want to take the opportunity and try to blame president bush for one more problem here sir i don't think it really helps to blame one or another  party remember with respect to any activity i think what we want to do is look at the basic problems in the housing finance system we had a race to the bottom in mortgage standards we had a lack of uniform level playing field in the system we had a system in which there was  on page four and five of your testimony i did not see any mention whatsoever of taxpayer protection as you well know we already have one hundred fifty billion dollars tax payer was and fannie and freddie we have as you taxpayers i don't think we can have a system in the future in which we have these private gains that are that are subsidized by the taxpayer which the taxpayer is on the hook for and which shareholders of private entities get the upside and taxpayers get the downside i think you mentioned that and i think you've mentioned in your testimony that part of the lack of desire to achieve reform today is i believe you testified that most of the losses have resulted from the underwriting as of five zero six zero seven but isn't it true that the loans that are being underwritten today albeit with a new underwriting standard one we have a limited track record as opposed to the longer track record also do we know how these loans would perform if they became under reform i do believe the congress took the important first step in passing here in two thousand eight hundred second step of placing these entities into conservatorship important third step of passing the dodd frank act which fundamentally transform market creates a level playing field has ability pay requirements as risk retention with respect to risky mortgages as a whole set of reforms that are designed to prevent the market from blowing up the way it did in the past and now we need to take the last yes i have been a strong advocate for housing i wasn't making the distinction at the time by affordable housing i was always talking about rental housing i am in fact like a lot of people i missed a lot of this but i have always been critical of what i thought was an excessive push in could play a role in that and we have been asking for any of that to the extent that they're involved in that process even if a court system as in doing it could take steps to make sure that notice is given to people that we have learned that there was a problem to the papers we had well thank you very much along the same lines i guess we're all very much concerned with what's going on right now with a lot of the foreclosures that are pending before us and it seems like the institutions and neither one of you can answer it a lot of the institutions right now are foreclosing and there seems to be a lot of problems in the documentation and lose you know the documentation within the banking industry too as well and i don't know if the treasury and others can be involved in part of that process because the consumer who is being foreclosed right now gets a notice and in that process they fill out the documents in there and then they don't tell us specifically what those documents should be and then what happens is during that whole process they are losing their homes because they're not compliant it seems like now it's another gimmick that is being used by some of the banking institutions to foreclose on individuals what can be done in that area with dressing that let me just trying to address a bit of that i do think there were serious problems in the documentation process and in the foreclosure process treasury through the lever of our home affordable mortgage program has been putting pressure on servicers to do a better job and that i think they have made significant progress over the last number of months in reducing documentation problems we had engaged both with compliance agents and directly with the servicers to deal with the loss documentation process require additional review still think there are problems out there in the market and homeowners are having difficulty in that way and  i think that it need to continue to focus on making better improvement because they're still being tantalized and they're being foreclosed and it shouldn't be because of the deadline that they said they're the ones that are late to responding back and yet the homeowner is the page eight of your testimony you talk about work is underway to develop projections that are comparable between the enterprises there and say that there's some differences between the enterprise generated results a result directed exercises but you say that's consistent with what you said in the past even under severe stress in iraq the treasury draws remain under four hundred billion dollars  bready and we have been clear about the securities that they are issuing today is that our mortgage market continues to function will have the backing of the treasury department under the terms of the senior preferred agreement those terms are public people  trading billions of dollars of securities based on that i don't think that we should come back in and alter the terms of that at this time well i'm hearing from constituents about the fact they're saying that that fannie and freddie are through to the states are providing mortgages just as in the past where there's no down payment very much like to to respond to that if i may because congress and baucus raised it as well there's been some news reports recently about a so called affordable advantage program i'd like to explain this and provide some clarity around this this program is with is an agreement between fannie mae and several state housing finance agencies it's a limited term agreement it is a think of it as an addendum to an ongoing purchase agreement that danny has with the h f days under the terms of this with the se days apparently danny has agreed to buy certain mortgages with little or no money down that it involves recourse back to the h s and that has a great deal of underwriting and review a i've had great communication with both danny mae and freddie mac during the period of this conservatorship and any significant actions it's been taken by these companies have been reviewed and approved by the conservator this one got away from us there was a miscommunication and this agreement with these a chip days was signed without my knowledge what i learned about it after the fact i reviewed what was been done i saw that there was no legal contract with the days and i made clear to fannie mae a couple things we're going to honor and respect that contract for its duration it ends next march and two we were not doing this in the future so there were several other requested to come into fannie mae from other parties for similar no down payment or very little down payment mortgages and i said absolutely not and so we've had nothing further on this and when this particular program with these agencies expire it will not be renewed but but how much is the value of that i mean how many mt of loans that have been made under this program i believe is less than ten million dollars i guess it's you know it seems pretty risky going back to to where we were before it was congress and i grabbed the basic premise here is that i believe  should have a down payment if they're going to purchase a house and i found that the terms of this program did not fit with the what we're trying to accomplish here in conservatorship and that's why you won't be hearing about additional programs such as this and i'm not sure that i don't think you answered my previous question would you support legislation for a cap on the amount of money and four hundred billion congressman bigger as i understand the way you hit not that the traditional became a problem is that correct i suppose i mean certainly as house prices and as unemployment is rising it's affected quite a broad range of homebuyers poorly on a written loans lines that required little documentation stated income but the terms were not the interest rate may have been higher but the terms were not terribly different from problems how much were all day and how much did fannie and freddie by any  kind of twenty three twenty seven's with a thirty to fifty percent increase in mortgage monthly mortgage payment three percent prepayment penalty what kind of subprime mortgage lending in the last decade  i don't think it should be the federal government role to take sides in private litigation but your claims are almost identical to those of many private little it's pension funds that feel cheated in very same way who had have been stymied so for their litigation as we're gathering this information at this point we're simply gathering information and determining what it what it tells us whatever our path is from there is yet to be determined and i will certainly rely upon the advice of counsel in question is that i've been asking and been talking to a lot of folks about and mr de marco you and i have actually had this discussion as well as considering the reform and the fate of fannie one time you know we had a functioning private market in this country and there are other countries that have mortgage financing that doesn't necessarily have government backing can you see in the future the ability for if congress decides to get the taxpayers out of the bailout business of having a functioning private mortgage market where the government's not on the hook yes or i can envision such an environment i believe this country has despite the incredible difficulties it's had the last two years in the last stop we have a strong and robust financial system is every day getting stronger congress that took a lot of action this summer to enhance regulatory oversight that will contribute to it i can envision a market system for a good chunk of the u s mortgage market strong role in housing finance and business finance and commercial finance all across the market we do need to attract private capital back into the market i think that as congress considers the future shape or reform as i said  just a few moments ago i do think it's important that we not go back to the system that we had in the past where there were basically private gains in public law says we can't have that kind of system the future i do think there is a question to what extent there should be a government guarantee in the mix of ways that we are approaching revitalizing and having a strong and robust housing system what the role of that guarantee should be when it should come into play if it exists how it's priced i think are important questions for the congress as tamara director demarco suggested it's hard to imagine not having some kind of role similar to the role that plays for example so i do think that there needs to be a mix of strategies used to bring the private capital back into the system ensure we have a strong and vibrant system into the future are you familiar with the canadian system a tightly regulated but also highly concentrated banking system they rely not on a thirty year fixed rate mortgage but on a shorter term adjustable rate mortgage possible create a system similar to that other countries have used the covered bond market as an approach i think in each instance when you look at the international examples it's important to look not just what's on the books but what may also be implicitly there a number of countries with concentrated banking sectors where there doesn't appear to be a government guarantee involved there's an implicit backing for the financial institutions which i think we don't want to recreate so i do think international examples can help but we have to go thousand and six and two thousand and seven i do think that congress now needs to turn to the task of reforming the housing finance system including fannie mae and freddie mac and deciding what kind of system we want to have in the future and i think very strongly i  to to bring stability to the housing finance system i think those are absolutely critical as the congress decides what the future system should look like it's not a statement that the future system should look like the past quite the opposite it's a statement it says as we figure out what the new system should look like we can't disrupt the market we can't disrupt the ability of homeowners to get mortgages and that's absolutely critical to maintain so that congress can civically those banks will be required to have enough high quality liquid assets and fannie and freddie debt counts as a high quality debt how would you ensure that fannie and freddie will not inadvertently take on more risk than they can effectively handle let me let me just say a little bit about the capital rules and then maybe turn it over to the director to mark i think the capital rules are important step in bringing greater stability now and in the future add to our financial  system significantly increase the capital carmen's for our firms as well as going forward will improve their ability to withstand the quiddity crises i do think that as congress takes up the question the future of  we're going to need to address the way in which other participants in the financial system interact with those institutions if they continue to future or if they don't continue in the future what the role of financial intermediation is with we just got i just got another e mail from a world class manufacturer in my congressional district he has orders for supply management i think nine or ten months in a row  i believe in fact i would not as a regulator say nothing has changed i think a lot has changed with respect to mortgages needed to happen to change it's still under way we needed to improve the underwriting standards  secondary mortgage market so there is a secondary mortgage market outlet for credit worthy borrowers mortgage so i can't explain what might be a particular problem for that particular constituent of yours but we have a functioning mortgage market right now this is not a particular constituent i'm talking about hundreds of thousands of give me for saying it that way but all i can tell you is that the secondary mortgage market is open an been a excessive tightening it's common in that in any downturn it's been much more pronounced in this downturn it's been frustrated businesses around the country do you think there are steps that we can take to help  on the regulatory front but also with the with the pending small business jobs bill i think that it was not going to do because it doesn't change the underlying the underlying standards for lending the money big money i think  have money they don't need more money from the federal government they don't need another program they're not lending the money because they're being hammered by the regulators because the examples of just arbitrarily classify a loan to be about another federal program i do think that that with respect examinations you do find again on any downturn a tightening and excessive tightening that in a sense the mirror image stakeholders and what the government should do to replace many mae and freddie macin create a stronger housing finance system but i've heard one suggestion that concerns me and that's freddie privatized the entire housing finance system is treasury receiving comments from private industry stakeholders that privatization would be a good idea and is a good idea represented more we received a range of public comment  privatization on nationalization on a wide variety of different strategies looking at the housing finance system in the future as with any topic complex there are conflicting views on each of the suggested approaches the potential downsides of having a system in which there is no government involvement include the lack of standardization potential lack of consumer protection potential lack of key products that the country has become reliant on such as the thirty year fixed rate mortgage with it to be announced market the potential for lack of standardization and liquidity the potential upsides of having a full privatization include removing some element of direct tax payer risk increasing the ability for private sector capital to are looking at those trade offs as with again as with any area this complex choosing an approach that sounds pure in advance is usually less satisfying  case and how many home purchase loans have fannie and freddie bought in the past twelve months in which the down payment was below five percent and below ten percent respectively if you don't have the exact numbers could you please give us those numbers in writing as soon as misunderstanding here the one exception to this is that we do have a a refinance program operating the home affordable repairman's program or harp and so there are refinance is going on in the harp program where we have allowed for refinances of existing mortgages of ready on up to our current loan to value of one hundred twenty five percent in the purpose of doing that is it that benefits the homeowner and  to take advantage of lower mortgage rates but it also benefits the credit risk of being ready by having improved pricing on that mortgage and a homeowner with an improved balance sheet so it reduces the credit risk whenever we go over the data i've got to be careful about and you know carving out that exception for our program ok mr de marco at a capital markets subcommittee hearing in july john taylor from the national community reinvestment coalition indicated his strong concerns about bein charged by fannie and freddie his response to why was concerned quote because we think it's unfair i mean you know the notion that because somebody lives in a declining market that somehow they have to a premium seems fairly anti american to me you ought to be able to judge the person on their capabilities their individual financial status their credit worthiness and so on not by the neighborhood the nests are living in quote that are charged in lieu of adequate private mortgage insurance seem to be driving mortgages pricing on on mortgages prior to this housing finance debacle we've had we clearly were under pricing credit risk i believe the typical conversation about fannie and freddie pricing today is regarding what are called low level price adjustments but i think the congress needs to understand that fannie and freddie have guarantee that day that they apply and then the low level price adjustment is essentially  the risk based pricing that gets placed on a mortgage that allows for pricing for the particular risk characteristics provided by that mortgage i have a responsibility as conservator and i've certainly heard i last few hours and from this committee that we're supposed to be operating these conservatorship so that we are pricing to the risk that mortgages have and so i think with respect to the pricing that's going on today that's that's what i would say we are we're doing we're pricing the way the enterprises are pricing their guarantees to cover expected losses operating expenses and to be able to have a measured rate of return that is certainly reflective of their time to the gentleman from california writes i think the gentle way that you know mr chairman the talking points did not come from fannie and freddie competitors in zero five it came from the federal reserve that came down here the chairman of the federal reserve will continue to grow faster than the overall home mortgage market they can grow virtually without limit and without restrictions on the size of the put at risk or ability to preserve safe and sound financial markets in the united states now this is what caught jim leach attention and frankly the attention to richard baker myself mister others on this committee that took the fed seriously and took the treasury department both under the clinton administration and under the bush administration seriously when they looked at what we had done in the one nine hundred ninety two passage to set up this house of cards that would eventually lead to two thirds of the mortgage market subprime do you believe that the private market can handle the vast majority of this market down the road if we properly handle them because right now we've got a real problem in terms of how we sustain this but long term i would like to get away from a situation where there's so much political pull replacing market discipline and where the biggest lobby on the hill and i'd make one other quick observation and that that it would like the bulk of the conventional mortgage market be handled in purely private and i believe that that is achievable not the only option i believe it is achievable with respect to the second question regarding housing  in portent because one of the things we're doing in conservatorship is to ensure that they meet their existing core mission responsibilities under the statute and i believe that the housing goals are one reflection one set of metrics as to whether they are accomplishing that congressional mandate or not we have substantially changed the goals congress didn't hear a and so this rule that we just finalized is substantially different set of housing goals than existed prior and we also in setting the final goal levels for ready have tied them to what the primary market is actually producing and to put it simply the goals are that keep up with the proportionate to what the primary market produces not to have to exceed i understand that but i remember also in the ninety two act and i think the ninety two act was a disaster but there was a provision in there on the need to maintain the sound financial condition of the enterprise and only with respect to what is authorized in the in the statute and i believe with any government sponsored enterprise their activity should be limited to the specific areas that congress is targeted for them so general support a commercial lending is not part of the charter of the federal home loan bank system but there are provisions and you have certainly been worse than a proponent of it i'm well aware of that sir with regard to certain of the programs they have a community investment  program for community financial institution members there's a broad set of eligible collateral because it's been clearly stated the intent of congress is that the community financial institutions a be able to take down advances for a broader set of community development purposes and there it is a broader set of eligible collateral for that in the letter that i sent you on friday made clear i reiterated my commitment that i made in the comment letter to the g a o response to their study this summer that we were going to go back and look at how we were examining each of the home loan banks with respect to their implementation of these authorities under the statute and so we will do so but we will do so consistent with what the statutory mandate they said we shall have a division of housing mission and goals and we have such a division sir and in fact the team in that in that division that works on these matters is in fact going out into the field in his holding  with community development participants out in the field going around the country and actually seeing what's going on and trying to hear in the local markets what are the needs what are the concerns and with respect to the federal home loan bank system they're trying to better understand how the programs available to the banks system are working or not working how they could be improved and we are in the process of refreshing the regulatory framework we inherited from the final that all housing finance board regarding those programs we are in the