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TRANSPARENCY, TRANSITION, AND 

TAXPAYER PROTECTION: MORE 

STEPS TO END THE GSE BAILOUT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS AND 

GOVERNMENT SPONSORED ENTERPRISES 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MAY 25, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–33 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES

SCOTT GARRETT, New Jersey, Chairman 

DAVID SCHWEIKERT, Arizona, Vice 

Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

JUDY BIGGERT, Illinois 

JEB HENSARLING, Texas 

RANDY NEUGEBAUER, Texas 

JOHN CAMPBELL, California 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

NAN A. S. HAYWORTH, New York 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

ROBERT J. DOLD, Illinois 

MAXINE WATERS, California, Ranking 

Member 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

RUBE ́ N HINOJOSA, Texas 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

CAROLYN B. MALONEY, New York 

GWEN MOORE, Wisconsin 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

May 25, 2011 ..................................................................................................... 1 

Appendix: 

May 25, 2011 ..................................................................................................... 57 

WITNESSES 

WEDNESDAY, MAY 25, 2011 

Crowley, Sheila, President, National Low Income Housing Coalition ................ 34 

DeMarco, Edward J., Acting Director, Federal Housing Finance Agency 

(FHFA) .................................................................................................................. 9 

John, David C., Senior Research Fellow in Retirement Security and Financial 

Institutions, The Heritage Foundation .............................................................. 31 

Sanders, Anthony B., Mercatus Center Senior Scholar and Distinguished 

Professor of Real Estate Finance, George Mason University ........................... 32 

APPENDIX 

Prepared statements: 

Crowley, Sheila ................................................................................................. 58 

DeMarco, Edward J. ......................................................................................... 72 

John, David C. .................................................................................................. 83 

Sanders, Anthony B. ........................................................................................ 91 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Garrett, Hon. Scott: 

Written statement of Americans for Tax Reform .......................................... 106 

Written statement of the National Association of REALTORS® ................. 111 

Waters, Hon. Maxine: 

List of 7,205 supporters of the National Housing Trust Fund (NHTF) ....... 116 

(1) 

TRANSPARENCY, TRANSITION, AND 

TAXPAYER PROTECTION: MORE 

STEPS TO END THE GSE BAILOUT 

Wednesday, May 25, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON CAPITAL MARKETS AND

GOVERNMENT SPONSORED ENTERPRISES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 3:10 p.m., in room 

2128, Rayburn House Office Building, Hon. Scott Garrett [chairman of the subcommittee] presiding. 

Members present: Representatives Garrett, Schweikert, Royce, 

Manzullo, Biggert, Neugebauer, Campbell, Posey, Fitzpatrick, 

Hayworth, Hurt, Grimm, Stivers, Dold; Waters, Sherman, Lynch, 

Miller of North Carolina, Perlmutter, Carson, Peters, and Green. 

Chairman GARRETT. Good afternoon. 

This hearing of the Subcommittee on Capital Markets and Government Sponsored Enterprises entitled, ‘‘Transparency, Transition, and Taxpayer Protection: More Steps to End the GSE Bailout’’ 

will come to order. 

Without objection, all members’ opening statements will be made 

a part of the record. 

I will now yield myself time for an opening statement. 

Today’s hearing is another step in this subcommittee’s work to 

protect the taxpayers and the ongoing bailout of Fannie Mae and 

Freddie Mac. Before us, we have seven legislative drafts which attempt to do just that. And I commend all of the bills’ sponsors for 

their hard work and thoughtfulness on these important steps. 

Currently, the government is underwriting roughly 97 percent of 

the entire housing market, and everyone on both sides of the aisle 

agrees that this number is completely unsustainable and must be 

reduced. These bills continue our efforts in beginning to wind down 

Fannie Mae and Freddie Mac and allow private capital to re-enter 

the mortgage market. The drafts—and these are drafts that we are 

examining today—increase transparency of the agencies, guarantee 

taxpayers are repaid for the bailout, end off-balance-sheet funding 

of special interests, focus the agencies on their core mission, limit 

taxpayer liability, and ensure new GSEs under the same structure 

are able to be automatically created without congressional approval. 

So I look forward to hearing from our witnesses about ways to 

improve these drafts and additional ideas to consider. And I am 

2 

also very hopeful that many of these commonsense measures can 

gain bipartisan support as we go through this and work them 

through. 

And again, I appreciate my colleagues’ hard work on the drafts 

that we will see today. 

With that, I will yield to the gentleman from California for 2 

minutes—21⁄2 minutes. 

Mr. SHERMAN. I am glad we are considering other ways to improve the GSEs. I think the most important one to consider, which 

unfortunately is not a bill on the official list for this hearing, is 

Gary Miller’s bill, along with myself, to make sure that the conforming loan limit does not decline in the 10 or 12 highest-cost 

areas of this country. 

We can talk theoretically about what the role of the GSEs should 

be. But the fact is, right now, the GSEs and FHA are responsible 

for virtually every middle-class mortgage in the country. And in 

their absence, we would see a precipitous second decline in home 

prices that would doom us to a double-dip recession. 

I think we should look at ways to make the GSEs better. One 

bill that I don’t think accomplishes that—although I have such tremendous respect for its author—is the prevent dividend payment 

decrease bill. Ten percent is a very high rate for an entity to pay 

in the real estate area. I don’t know many people in my district 

who are paying 10 percent. And it occurs to me that if we force the 

GSEs to pay—not even to consider a discussion, enter into discussions with Treasury to reduce that 10 percent rate on the preferred 

stock, that this will just mean they are going to have to borrow 

more money, and I don’t think it profits the taxpayers at all to be 

getting an illusory rate and then have to lend money to the GSEs 

so that they can afford to pay it. 

So I look forward to the GSEs playing an important role at this 

critical time for real estate, and I yield back. 

Chairman GARRETT. The gentleman yields back. 

The gentleman from California for 11⁄2 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Briefly, my soon-to-be introduced legislation would eliminate the 

Affordable Housing Trust Fund that was created back in 2008. 

While at the moment the fund is idle, it has always been a dream 

for activist organizations that dabble in housing and rental assistance as well as dabbling in political activism to establish and to get 

a revenue source for this fund. 

The fund should have never come into existence. Its primary 

source of funding was going to be the GSEs. Because that is no 

longer an option, those groups who would benefit are now advocating for a number of different revenue streams. And the best way 

to prevent abuses, the best way to ensure that money does not flow 

to the groups who were actively lobbying Congress and the GSEs 

to weaken lending standards over the years is to eliminate this 

fund before it gets off the ground. 

So that is the intent of the legislation, and I yield back, Mr. 

Chairman. 

Chairman GARRETT. The gentleman yields back. 

The gentlelady from California for 2 minutes. 

3 

Ms. WATERS. Thank you very much, Mr. Chairman, for holding 

this hearing this afternoon on a set of GSE-related bills. I believe 

that within this package of bills, there are some areas where we 

can agree. In fact, some of the bills we are considering today are 

rather noncontroversial because they are verbatim restatements of 

the existing preferred stock purchase agreement between the 

Treasury Department and Fannie Mae and Freddie Mac. 

However, while some of these bills may be unobjectionable, I am 

not sure why we are taking time to consider draft legislation that 

basically reiterates existing policy or repeals programs that were 

never funded. 

Chairman Bachus announced in a press conference at the end of 

March that we would mark up the Hensarling GSE privatization 

bill right after the Easter recess. That bill would render many of 

these piecemeal reforms moot. The Easter recess has come and 

gone, and we are heading into June with no markup of the Hensarling bill scheduled. Instead, the subcommittee continues to offer 

bills that kind of pick around the edges of reform and appear to 

be going nowhere in the full committee. 

By delaying consideration of a comprehensive reform plan and 

instead choosing to consider these piecemeal bills, I think my 

friends on the other side of the aisle are acknowledging that their 

privatization plan is kind of a nonstarter for the middle class, like 

the Ryan budget. It seems that many of my colleagues are now experiencing buyers’ remorse. 

Finally, I would like to make a note on Representative Royce’s 

bill to abolish the National Housing Trust Fund, which has never 

actually been capitalized. My colleagues constantly and consistently attack the affordable housing goals and the HUD affordable 

housing appropriations. They are moving to restrict access to FHA 

and now are seeking to abolish the trust fund. 

To be honest, I would be curious to know what my colleague suggests we do about the 7 million households with the worst-case 

housing needs, as defined by HUD, because they seem to reject 

every tool we come up with to assist these valuable populations— 

vulnerable populations, which predominantly include seniors, individuals with disabilities, and families with children. So I would ask 

unanimous consent to enter into the record a list of 7,205 national, 

State, and local organizations that support the National Housing 

Trust Fund. 

Chairman GARRETT. Without objection, it is so ordered. 

Ms. WATERS. I thank you very much, and I yield back the balance of my time. 

Chairman GARRETT. The gentlelady yields back, and the list is 

entered into the record. 

The gentleman from Texas is recognized. 

Mr. NEUGEBAUER. Sorry, Mr. Chairman, I had another thought 

there. 

Thank you for calling this important hearing. It has been 2 years 

and 8 months since the taxpayers were put on the hook for Freddie 

and Fannie, and it is time to do something. As a matter of fact, 

it is past time to do something. 

But one of the things that continues to bother me is that tax- payers have had to shell out $170 million to defend class-action 

4 

lawsuits against Freddie and Fannie and former top executives 

who knowingly and purposely manipulated earnings to increase 

their own compensation and whose actions directly contributed to 

the demise of the GSEs. 

With Freddie and Fannie’s bylaws to allow advancement of reasonable legal fees, there is no criteria for what constitutes ‘‘reasonable.’’ I am confident that the American people would agree that 

using $170 million of their hard-earned money to defend crooks is 

not reasonable. My bill would require GSEs to essentially define 

the term ‘‘reasonable’’ and have the Director of FHFA approve or 

disapprove such determinations in accordance with their role as a 

conservator of the U.S. taxpayers. 

The bill would also require employees accused of fraud or breach 

of fiduciary responsibility to post a bond or other collateral so that 

taxpayers are made whole in the event of a conviction. This will ensure that folks like Franklin Raines have skin in the game instead 

of having a blank check from the American taxpayer to pay their 

legal fees. 

Finally, the bill would prohibit the GSEs from taking Treasury 

funds to satisfy any legal settlements or judgments. Instead, the 

GSEs would be required to meet such obligations by selling its 

portfolio or other physical assets. 

Mr. Chairman, thank you for holding these hearings. I think the 

American people are anxious for us to get along with this process 

so that we can get them off of the hook. 

With that, I yield back. 

Chairman GARRETT. The gentleman yields back. 

The gentleman from Colorado for 2 minutes, please. 

Mr. PERLMUTTER. Thank you, Mr. Chairman. 

Mr. DeMarco, it is good to have you back in front of our committee. And I just want to alert you that I would like to talk to you 

about cleanup calls a little bit again. 

But I also want to congratulate you. We have come through a 

couple of very tough years, this country has. A lot of people have 

had to roll up their sleeves and really take on some difficult issues, 

one of those being to have some underwriting criteria back in connection with our housing stock and our housing loans. 

And I guess it has been gratifying to see that, through the course 

of the conservatorship, there has been continued improvement by 

Freddie Mac, due in no small part to the steps that have been 

taken. So even though I want to congratulate you, I am also going 

to pick on you about cleanup calls when it is my turn. I think when 

Americans really do roll up their sleeves, they have a certain plan 

that is implemented, you can really change what has been going 

on before. And I am pleased to see those kinds of things going on 

in your jurisdiction of things. So thank you. 

Chairman GARRETT. Thank you. The gentleman yields back. 

Mr. Manzullo, for 1 minute. 

Mr. MANZULLO. Mr. Chairman, thank you for calling this important hearing on GSEs. 

As you know, when the government put Fannie Mae and Freddie 

Mac into conservatorship, the Treasury Department granted them 

an influx of capital in exchange for Senior Preferred Stock, which 

pays a 10 percent dividend back to the Treasury Department. AlVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
5 

though this dividend rate may be changed at any time, the 10 percent rate was designed to guarantee taxpayers full repayment, and 

reducing this dividend could delay or even prevent full repayment 

to the taxpayers. 

The legislation I plan to introduce will protect taxpayers from 

this risk and solidify the 10 percent dividend agreement reached by 

the Treasury Department and the GSEs back in 2008. I look forward to discussing this bill as well as the other important bills introduced by my colleagues as we continue to move forward with the 

GSE transition. Thank you. 

Chairman GARRETT. The gentleman yields back. 

Who seeks time? The gentleman is recognized for 2 minutes—for 

21⁄2 minutes. 

Mr. PETERS. Thank you, Mr. Chairman. The housing sector is 

one of the largest and most important parts of the economy, and 

it requires a fully functioning secondary market to stay healthy. 

The bills that we are debating today, like the bills the committee 

has previously marked up, get rid of the existing housing finance 

system but fail to replace it with anything. 

Almost everyone agrees that the Freddie and Fannie hybrid 

model of privatized gains and subsidized losses must be eliminated, 

and I don’t think there is anyone in either party who doesn’t recognize the Fannie and Freddie model as flawed and that reform is 

desperately needed. The question isn’t whether we need reform. It 

is what kind of reform will we have and what will replace the existing GSEs? 

The Majority has invited two academics here to testify today. But 

this is not just an academic exercise. It has real-world consequences for homeowners and for the millions of Americans whose 

livelihoods depend on a vibrant housing sector. I believe that if we 

don’t replace the GSEs with a clear and comprehensive plan to encourage private capital to invest in the mortgage markets, Americans will no longer have access to a 30-year fixed-rate mortgage at 

stable and affordable rates. 

But you don’t have to take my word for it. I know we are going 

to have later some testimony from Mr. Sanders, who is a professor 

at George Mason University. And after reviewing his testimony, I 

offer a preview of what he is going to say about the secondary market. 

He acknowledges that investors may be hesitant to hold mortgage-backed securities that don’t have a guarantee, that this would 

cause the mortgage market to shrink, and that it would be detrimental to the economy. 

He also says that the United States would have fewer 30-year 

fixed-rate mortgages and that would shift the risk of interest rate 

changes away from investors. He doesn’t say who would bear the 

burden of that interest rate risk, but I can tell you who it is; it will 

be the homeowner. 

For generations, Americans have been able to benefit from access 

to long-term fixed-rate mortgages. Families have been able to 

weather economic uncertainty and interest rate fluctuations because their monthly mortgage payment has been stable. 

It is important to ask why would we voluntarily move away from 

a system that has been the cornerstone of wealth accumulation for 

6 

generations of American middle-class families? I believe that we 

need an approach that will preserve access to traditional mortgage 

products for responsible homeowners, while at the same time 

bringing private capital into the secondary mortgage market and 

protect taxpayers against future bailouts. 

I worked with my colleague from California, Mr. Campbell, on bipartisan legislation that we believe will accomplish those goals. 

And I would hope that before the subcommittee or the full committee acts on any GSE reform legislation, that we will have more 

hearings to discuss these issues where a broader range of views 

will be represented. Let’s hear from the investor community, from 

the REALTORS® and homebuilders, from mortgage originators, 

from economists, whose research is not guided by ideology, and 

most importantly, from groups representing the interests of homeowners. Let’s make sure that we know what the impact of these 

bills would be on the economy and homeowners before we actually 

act. 

With that, Mr. Chairman, I yield back the balance of my time. 

Chairman GARRETT. And the gentleman yields back. 

Just a reminder to the gentleman, that we actually have had 

those hearings with the individuals that you indicate might want 

to come to testify, such as the REALTORS® and the homebuilders 

and the Financial Services Roundtable as well. So I appreciate the 

interest and what have you, but that is exactly why we are having 

this hearing today and that is why we had those other hearings as 

well in the past, to have those people here so their voices would 

be heard. Thank you. 

Mr. Fitzpatrick for 1 minute. 

Mr. FITZPATRICK. Thank you, Mr. Chairman, for scheduling this 

hearing and for remaining vigilant on the issue of GSE reform. 

At this point, the American taxpayers have bailed out Fannie 

and Freddie to the tune of $160 billion, and the responsibility for 

this mess spans decades and, frankly, crosses both parties. However, it is the taxpayers who have borne the brunt of these mistakes, and that is simply unacceptable. We owe it to the American 

people to ensure them that this bailout is not unlimited and that 

never again will they be called upon to bail out bad public policy. 

I believe that the bills before us move us in that direction, including my proposal for a liability cap, and I look forward to this afternoon’s testimony. 

I yield back. 

Chairman GARRETT. The gentleman yields back. 

Mr. Carson for 21⁄2 minutes. 

Mr. CARSON. Thank you, Mr. Chairman. 

The National Housing Trust Fund (NHTF) is critical to addressing the need for affordable housing among low-income Americans. 

In my home State, low-income Hoosiers are the only population facing an absolute housing unit shortage. In my district, 91 percent 

of low-income renters devote over half of their income to housing. 

To afford a modest one-bedroom apartment, one of my constituents earning Indiana’s minimum wage would have to work 68 

hours per week. Clearly, the private market is not adequately serving the lowest-income population, which is why Congress authorized an NHTF in 2008 and why I support it without hesitation. 

7 

If we do not preserve the NHTF, we risk relegating working-class 

families to the despair of homelessness and an often unforgiving 

shelter system. We must maintain the opportunity of our States 

and communities to ensure access to affordable and sustainable 

housing for all Americans of all economic backgrounds. We often 

talk in these hallowed halls about achieving an education, building 

better communities, and preserving families. I ask my colleagues to 

be mindful that housing stability is the cornerstone on which we 

build stability in employment, schools, communities, and families. 

Thank you, Mr. Chairman. I yield back my time. 

Chairman GARRETT. The gentleman yields back. 

Mrs. Biggert for 1 minute. 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

And thank you to all the witnesses who are here today. 

And welcome. Today, I look forward to a constructive dialogue 

about potential reforms to help shape a stronger framework for the 

future of housing finance. Together, I hope we can better determine 

what role, if any, the government should play in housing finance. 

There is no doubt the GSEs are in need of reform. 

However, the reforms we embrace must by every possible means 

avoid disrupting the housing recovery as we allow private capital 

to replace government capital. As always, it is critical that we 

achieve the right balance for taxpayers and home buyers. I look 

forward to working with my colleagues on both sides of the aisle 

to facilitate the private sector re-entry, eliminate taxpayer risk, 

and promote a vibrant housing finance system that best serves the 

interests of all Americans. Thank you all for being here today. 

With that, I yield back. 

Chairman GARRETT. The gentlelady yields back. 

The gentleman from California is recognized for 1 minute. 

Mr. CAMPBELL. Thank you, Mr. Chairman. 

The GSE model has failed us, and we need to wind them down, 

that is clear. But as was pointed out, we cannot replace the GSEs 

with nothing. 

The gentleman from Michigan, Mr. Peters, and I have an alternative, something we think could replace the GSEs and maintain 

or create a robust housing market. The gentleman mentioned that 

we have had hearings—or the chairman mentioned that we have 

had hearings with various groups. I would suggest to the chairman, 

although we have had hearings with various groups, we have not 

had hearings with any of those groups when bills are before us. 

And now we have both this series of bills, Mr. Peters and my bill 

before us, and we should have additional hearings and hear from 

those people because if we replace the GSEs with nothing, we will 

have higher downpayments, shorter duration terms; the housing 

market will drop dramatically. In the last crash, it dropped by 28 

percent. We will have a similar crash if we get rid of the GSEs and 

replace them with nothing. We cannot have a robust recovery without a recovery in housing, and we can’t have a recovery in housing 

without a consistent system for housing finance. 

I yield back. 

Chairman GARRETT. The gentleman yields back. 

The gentleman is reminded that actually, we have had legislative 

hearings, as I reminded the gentleman earlier. And at those hearVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
8 

ings, legislation was presented during those hearings, and that legislation was discussed. 

I would also remind the gentleman from California that I don’t 

think that anyone who has been at that panel or on the dais here 

has ever suggested that we replace the GSEs with nothing. I think 

everyone has suggested that there should be something to replace 

them, and in some cases, it should be the private market. 

With that, I yield to Mr. Dold for 1 minute. 

Mr. DOLD. Thank you, Mr. Chairman. 

I certainly want to thank Chairman Garrett for his leadership 

and his work on these important GSE issues. 

And I certainly want to thank the witnesses for taking time to 

be with us today. 

The GSEs clearly need serious reform. Right now, we have an 

untenable situation. The taxpayers are subjected to the risk of potentially unlimited losses, with $160 billion in losses and counting 

so far. 

Meanwhile, a weakened housing market continues to suffer while 

the private-sector mortgage lending largely remains on the sidelines. I am confident both the Democrats and Republicans share a 

common objective, a better, more sustainable, more effective mortgage finance system, one that protects the taxpayers from future 

bailouts, that encourages the private sector to get back into the 

mortgage market, and that effectively restores long-term stability 

and strength to the housing sector. 

The legislative proposals under discussion today are important 

components of moving us towards that common objective, and I 

look forward to working with the chairman and my colleagues on 

both sides of the aisle to achieve this common goal. 

I yield back. 

Mr. SCHWEIKERT. [presiding] Mr. Grimm for 1 minute. 

Mr. GRIMM. Thank you, Mr. Chairman. 

And thank you, Director DeMarco, for your testimony today. 

There is going to be a lot of discussion about a lot of things, and 

sometimes it seems a little esoteric and it seems to be out there 

in Washington world. 

But I just want to remind everyone that there are real people out 

there. I come from Staten Island and Brooklyn where they are 

struggling, families are struggling to put food on the table for their 

children. And when I think that these people, these taxpayers 

spend $160 billion of money that they don’t have, it makes me 

think that we have a lot of work to do. 

These taxpayers own 80 percent of a company that they feel 

that—and some of us feel they are not entitled to know the understanding of how the operations of this company works. So again, 

we have a lot of work to do. 

But we can’t forget, especially where I come from, New York 

City, 25 percent of our economy is focused around housing and the 

related industries. So we have to get this right. The long-term solution for these issues that we are discussing, if we don’t get it right, 

it is devastating. It is devastating for the people back home. 

So I just want to emphasize that. And before I yield back, I look 

at three things when it comes to legislation: Does it make the industry compete on a level playing field? Does it help protect the 

9 

general welfare of the public at large where applicable? And most 

importantly, does it promote growth in our economy and help 

produce jobs? I think we need to be looking at that as we reform 

these GSEs. 

I yield back. 

Mr. SCHWEIKERT. Thank you, Mr. Grimm. 

Our first witness is Edward J. DeMarco, Acting Director of the 

Federal Housing Finance Agency. 

Without objection, your written statement will be made a part of 

the record. You will have 5 minutes to summarize your testimony 

and then we will move on to questions. 

Mr. DeMarco? 

STATEMENT OF EDWARD J. DeMARCO, ACTING DIRECTOR, 

FEDERAL HOUSING FINANCE AGENCY (FHFA) 

Mr. DEMARCO. Very good. Thank you. 

Chairman Garrett, Ranking Member Waters, Mr. Schweikert, 

Mr. Miller, and the rest of the members of the subcommittee, 

thank you for inviting me today. It is again a pleasure and an 

honor to be before this subcommittee again. 

My written statement provides an update on the Enterprises’ financial condition and performance and a summary of four distinct 

initiatives FHFA has under way to improve the efficiency of the 

country’s mortgage market. 

In these few minutes though, I will provide some thoughts on the 

seven draft legislative proposals that were recently circulated by 

the subcommittee. 

The discussion draft sponsored by Representative Stivers would 

amend the Housing and Economic Recovery Act to ensure that, 

should Fannie Mae or Freddie Mac be put into receivership, an 

identical replica GSE, or Government-Sponsored Enterprise, would 

not be created to replace it. 

Now under current law, if an Enterprise were to be placed into 

receivership, FHFA would be required to establish a limited-life 

regulated entity which would operate for up to 5 years. At the end 

of that time, without congressional action, the Enterprise may be 

re-created under its current charter. 

Mr. Stivers’ bill would prevent the conservator from re-creating 

the current model of GSE and require that once an Enterprise was 

wound down, no new entity with taxpayer support could be set up. 

There does seem to be general agreement that Fannie Mae and 

Freddie Mac should not be reconstituted in their current form. 

The discussion draft sponsored by Representative Manzullo 

would prevent changes to the Treasury Senior Preferred Stock Purchase Agreements that would reduce the current 10 percent dividend. This proposal is consistent with the current Preferred Stock 

Purchase Agreement. The Enterprises have been paying quarterly 

dividends at this rate, and FHFA has no plans to seek a change 

in the dividend rate. 

The discussion draft sponsored by Representative Fitzpatrick 

provides for a cap on Treasury assistance to each Enterprise. It is 

consistent with what is in place today under the Senior Preferred 

Stock Purchase Agreements. 

10 

The discussion draft sponsored by Representative Royce would 

terminate any requirement that Fannie Mae or Freddie Mac make 

annual allocations to the Housing Trust Fund, the Capital Magnet 

Fund, and the HOPE Reserve Fund. The Enterprises never made 

contributions to these funds as was originally expected under the 

Housing and Economic Recovery Act due to their financial condition and status under conservatorships. It would be inappropriate 

for the Enterprises to start making contributions to the funds now 

or at any time while they are in conservatorship and in debt to the 

taxpayer. 

H.R. 463, introduced by Representative Chaffetz, would subject 

the Enterprises to the Freedom of Information Act or FOIA. FOIA’s 

core purpose is to enhance public understanding of the operations 

or activities of the government. This core purpose is not served by 

applying FOIA to Fannie Mae or Freddie Mac, which are still private companies operating in conservatorship. 

They did not cease to be private legal entities when they were 

placed into conservatorship, nor did they become part of FHFA. I 

urge the subcommittee to consider carefully the harm that could be 

done by subjecting the Enterprises to FOIA. 

The discussion draft sponsored by Representative Hurt would require the Enterprises to identify non-mission-critical assets, which 

would then be reviewed by FHFA and lead to a plan for disposition 

of such assets. FHFA has already begun to fulfill the intent of Mr. 

Hurt’s draft bill regarding the sale of non-mission-critical assets. 

Finally, the discussion draft sponsored by Representative Neugebauer would limit the advancement of legal fees for employees of 

Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The 

proposal would require that FHFA establish a process for the setting of standards for reasonableness in the amount of such fees. 

While certain specific elements of this proposal raise issues, 

none, I believe, is as important as the challenge to attracting and 

retaining employees. An approach to clarify tests for reasonableness and for monitoring legal expenses has merit, but the implication that employees will not be indemnified nor have funds advanced for their legal protection would expose them to lawsuits 

that could potentially bankrupt them, even if they are found innocent of any charges. Altering common practice for the availability 

of indemnification merits much more attention for its implication 

and potential unintended consequences. 

Thank you again, and I look forward to answering your questions. 

[The prepared statement of Acting Director DeMarco can be 

found on page 72 of the appendix.] 

Mr. SCHWEIKERT. Thank you, Mr. DeMarco. 

The Chair yields himself 5 minutes. And I appreciate this. 

I want to just put in the record that I appreciate how open you 

have been, particularly with my office, and the number of times we 

have had technical questions and your willingness to spend time 

with us. 

I would love to touch on—we will call it the Hurt draft bill, assets that you would have that would be appropriate for liquidation. 

Off the top of your head, what would you say there? 

11 

Mr. DEMARCO. As I believe most of the members of the subcommittee know, under the Senior Preferred Stock Purchase Agreement, the Enterprises are required to be shrinking their retained 

mortgage portfolio at a rate of at least 10 percent per year, and we 

are looking to liquidate that at a faster rate, as appropriate with 

safety and soundness and the goals of conservatorship. 

Prior to Mr. Hurt’s bill, as conservator, I directed a careful review of all the assets of both Enterprises to know what it was we 

were conserving, and to examine which things, in fact, were noncore—very much germane to his bill—and to see, if they are noncore, then should these things be, in fact, sold. That has already 

led to the sale of various non-core assets and an ongoing discussion 

between FHFA and the Enterprises regarding assets, whether they 

are core or non-core, and developing suitable plans for their liquidation. So we are looking to actually liquidate real estate assets 

as well as other non-core things. 

Mr. SCHWEIKERT. Mr. DeMarco, you are actually heading toward 

some of my questions. 

If you had a portfolio of nonperforming or underperforming debt, 

loans, but to sell it would require a loss, would you still consider 

putting that up on the— 

Mr. DEMARCO. If I felt that holding an asset to maturity would 

increase the net present value recovery to the taxpayer of holding 

that to maturity relative to selling it in the marketplace, I would 

be inclined to hold it. 

There are certain assets for which there is just not much depth 

of liquidity. And so, when you combine that with the preferential 

borrowing rate— 

Mr. SCHWEIKERT. Mr. DeMarco, could I ask you to stop just on 

that? But depth and liquidity, for some of us, the ability to test it, 

I have heard some folks say, impaired mortgages don’t have a lot 

of buyers. But then every time I see them being offered, I see lists 

of folks bidding in the auction for them. So I don’t know what tell 

ultimately—you would obviously have more information. 

Let’s use impaired mortgages. If you had a portfolio of those, yes, 

you might take a loss, but you would get it at current cash value 

and you would avoid actually some of the servicing and foreclosure 

and other costs that come with that. Tell me why or why not that 

is a good idea. 

Mr. DEMARCO. In fact, we are studying the reasonableness and 

opportunities for taking blocks of mortgage assets that the Enterprises have, including troubled mortgages, mortgages that have 

maybe gone through a loan modification, and seeing if there are 

market opportunities to sell that. How we would execute on that 

is all part of what is under review and discussion. But we are certainly not opposed to the idea— 

Mr. SCHWEIKERT. You are putting feelers out in that market? 

Mr. DEMARCO. We are looking for ways to effectively do that. 

Yes, sir. 

Mr. SCHWEIKERT. And that is obviously, from a personal standpoint, something I have a great interest in, because I keep being 

told and have been given tells that there is a hunger for product 

out there. But if you were to sell a product like that, would you 

be selling that paper with the actual guarantee? 

12 

Mr. DEMARCO. Let’s just say that because we are looking at a 

range of possible structures for the sale of assets, it could be with 

and it could be without. And it depends upon the assets. The assets 

that we are talking about, if there were guarantees, it would have 

to, of course, be something that advances the cause of conservatorship, which is to protect the taxpayer. 

Mr. SCHWEIKERT. Mr. DeMarco, in our last 50 or some seconds, 

walk me through some of the assets. You would probably, with 

both GSEs, $250,000, single family residences, $300,000, how many 

properties do you own right now? 

Mr. DEMARCO. I am sorry, Congressman, I can’t answer in terms of the number of properties. Freddie Mac has between $650 billion 

and $700 billion in mortgage assets. Fannie Mae has more on the 

order of $750 billion. These are orders of magnitude. 

The key thing for members of the subcommittee to understand 

is that the composition of those mortgage assets have changed a lot 

over the last several years in that prior to conservatorship, those 

would be performing whole loans or mortgage-backed securities, 

and today, there is an increasing share of that, which are in fact 

modified loans or nonperforming loans that have been pulled out 

of pools. 

Mr. SCHWEIKERT. Mr. DeMarco, I am now out of time, and I do 

hope someone else on the panel—I do have a curiosity of just trying 

to articulate the number of assets that you have that might be better served out in—we will call it the market right now than with 

all the things you are having to juggle. Thank you for your time. 

Ranking Member Waters, for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I would like to welcome Mr. DeMarco here today. 

I have a few questions that I would like to try to advance. My 

colleagues on the other side of the aisle said they want to end the 

slush fund, that is, the National Housing Trust Fund. To be clear, 

how much money have the Enterprises contributed to the fund to 

date? 

Mr. DEMARCO. Nothing. 

Ms. WATERS. I didn’t hear you. 

Mr. DEMARCO. I am sorry, ma’am. They have committed no 

funds to any of these trust funds. 

Ms. WATERS. Thank you very much. 

I just want to point out that it is disingenuous to characterize 

the trust fund as a slush fund, given that it hasn’t even been capitalized yet, and therefore, my colleagues cannot point to a single 

example of abuse or misuse. 

Also, I would like to be clear that trust fund dollars cannot be 

used for political activities, advocacy, lobbying, counseling services, 

travel expenses, or providing advice on tax returns. 

Director DeMarco, I appreciate the new servicing alignment initiative that you announced in April. It will set some new standards 

of how servicers of GSE loans should perform going forward. But 

I am concerned that the problem of past improper servicing hasn’t 

been fully addressed. 

First, do you think that bad servicing of GSE loans has cost the 

Enterprises money and that certain homeowners perhaps could 

have avoided foreclosure had their loan been better serviced? I am 

13 

thinking of a recent analysis from the CFPB that said that 

servicers saved up to $25 billion cutting corners in their operations 

and even failing to comply with the law. 

If so, shouldn’t FHFA look into whether this corner-cutting also 

cost the Enterprises money and that certain homeowners perhaps 

could have avoided foreclosure had their loan been better serviced? 

The servicing alignment initiative you announced details requirements going forward. What about fines or sanctions against 

servicers that performed poorly or broke the Enterprise servicing 

guidelines for the millions of foreclosures that have already been 

completed? 

Mr. DEMARCO. Each Enterprise has in fact assessed penalties on 

their servicers for failing to perform servicing as provided for under 

their contracts, and both Enterprises have sent back a large number of mortgages as repurchase requests to their servicers for either origination, violation of reps and warranties, or servicing violations. 

With respect to the servicing guidelines, clearly this is a reflection of a rather widespread failure among major mortgage servicers 

in the servicing of mortgages, and their primary regulators have 

undertaken careful scrutiny of this issue and as you know are following up with consent to orders and other remedies. We are participating in that so that we have good alignment between what 

FHFA is doing with Fannie Mae and Freddie and what the bank 

regulators are doing from their regulatory function so that we are 

tackling this issue together. 

Ms. WATERS. How much was the settlement that was agreed 

upon that you just referenced? 

Mr. DEMARCO. Those are matters of individual contract. I don’t 

have an aggregate number for you. 

Ms. WATERS. Bottom line, a total number? 

Mr. DEMARCO. Pardon me, I am sorry. I don’t have figures for 

that. 

Ms. WATERS. And do you know how this is to work? Homeowners 

who are in foreclosure, who can point to fraud, misrepresentation, 

etc., etc., or a failure of the servicers to follow the agreement, are 

they individually compensated in some way? Or do you know how 

that works? 

Mr. DEMARCO. Under the initiative that we announced, it is not 

reimbursement to the borrower, but servicers will be penalized, and 

they will know how those penalties are going to be assessed for 

failing to service a mortgage properly, that is, where the borrower 

is having trouble with their payment. 

The other thing, if I may, Ms. Waters, is that one of the things 

we are doing here is we are having Fannie and Freddie have exactly the same approach, the same set of penalties and so forth. So 

there are the same guidelines for servicing a Fannie loan as a 

Freddie loan, the same penalty for failure, whether it is a Fannie 

loan or a Freddie loan. And I think that this is an important development. 

Ms. WATERS. I am sorry. I didn’t hear what you just said. 

Mr. DEMARCO. I believe that this is an important development, 

and it will help to contribute to improving service operations for 

borrowers who are having trouble with their mortgages 

14 

Ms. WATERS. Do you think that we have enough oversight of 

servicers, or do we have standards that have been developed so 

that we could hold servicers accountable for what they do in servicing these loans? Do we need more legislation? 

Mr. DEMARCO. I think that at both the State level and at the 

Federal level, there has been a dramatic—not just increased awareness, but a dramatic increase in activity in terms of the oversight 

of servicer operations. And there has been a great deal of coalescing both among regulators and frankly among the servicers 

themselves on the need to improve the operations of mortgage 

servicers and to develop standards. 

I believe that our servicing initiative, our servicing alignment initiative, is an important step towards helping get toward consistency and uniformity in servicing standards. But we are not doing 

this in isolation. We are doing this with the other Federal banking 

regulators and so forth that are involved in looking at this issue. 

So we are taking as many steps as we can to remedy these problems. 

Ms. WATERS. Thank you very much. 

I yield back my time. 

Mr. SCHWEIKERT. Thank you, Ranking Member Waters. 

Mr. Royce? 

Mr. ROYCE. Thank you, Mr. Chairman. 

Let me ask you, Mr. DeMarco, with regard to the GSEs, given 

that the Preferred Stock Purchase Agreements were agreed to with 

the understanding that they would remain in place until a clear 

path to end the conservatorship was agreed upon, and given that 

there is certainly the potential right now for no concurrence between the House and the Senate or the Administration on this 

issue—at least for the foreseeable future—is it fair to say that cutting the dividend payments would violate the spirit of the PSPAs 

entered into on behalf of U.S. taxpayers? And could you fairly say 

that would unnecessarily absolve the GSEs of additional financial 

obligations? Let me just get your thoughts. 

Mr. DEMARCO. I believe that, with respect to the dividend rate, 

the way I envision this, Congressman, is that the American taxpayer has forwarded the capital that is allowing these companies 

to operate in the marketplace and is providing the capital that is 

the protection to the investors and mortgage-backed securities. And 

that is what is allowing the country’s secondary mortgage market 

to operate. If these companies were to be operating today with private capital, that private capital would be substantial and that private capital would expect a return, certainly, of 10 percent or more. 

So, in my view, it is the American taxpayer who is the equity 

holder here, and so that is why I have no plans to be seeking any 

adjustment in that 10 percent dividend rate because it is compensation of the taxpayer for providing the capital that is allowing 

our secondary mortgage market to function today. 

Mr. ROYCE. Thank you, Mr. DeMarco. 

The other question I wanted to pursue briefly is on my proposed 

legislation to eliminate the Affordable Housing Trust Fund. You 

mentioned that it would be inappropriate, in your words, for the 

GSEs to start making payments to the trust fund while in conservatorship. Do you believe that contributions made to this fund 

15 

could ever be construed as consistent with the goals of the conservatorship as we agreed initially in that? 

Mr. DEMARCO. My view is that while Fannie and Freddie are in 

conservatorship and owe money to the taxpayers, that I have an 

obligation as the Director of the Agency to conserve assets on behalf of the taxpayer. And so I do not envision a state in which 

Fannie or Freddie would make contributions to the trust fund 

while they owed money to the taxpayer and these Preferred Stock 

Agreements were there. The liquidation preference in those Preferred Stock Agreements require the taxpayer to be paid first. 

I would add that the statute itself directs the FHFA Director to 

make judgments about not making contributions to the trust fund 

if that would have a negative effect on the financial condition of the 

Enterprises. I don’t have the precise language in front of me. But 

that is also another basis why in terms of them making contributions, I don’t see that happening. 

Mr. ROYCE. But that leaves some gray areas, maybe not with respect to the judgment you have made, but in my mind at the moment, it could leave some question in the future and that is one 

of the reasons, just parenthetically, why I want to move that legislation because I want to keep with the spirit of the agreement that 

we all entered into. But I appreciate very much your testimony 

here today. 

And I yield back, Mr. Chairman. 

Mr. SCHWEIKERT. Thank you, Mr. Royce. 

Mr. Miller? 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. DeMarco. 

As you and I have discussed before, the guiding principle for 

FHFA in their conservatorship should be reducing, minimizing taxpayer loss. 

Ms. Waters asked you about any fines against the servicers. 

There has been a great deal—we have heard a great deal about the 

remarkable deficiency by servicers, the stunning sloppiness, the 

robo-signers, the chain-of-title issues, and on and on. You said you 

had, in fact, imposed some fines on both of the Enterprises, but 

have you calculated what the loss has been? The servicing alignment initiative recognizes that the more prolonged foreclosure is, 

the more expensive it is for you. Have you calculated how much the 

losses are as a result of delays from the manner in which servicing 

has been handled? 

Mr. DEMARCO. A couple of things. First, the fact that these penalties have been assessed is something I have testified about before 

in this subcommittee. And the charges themselves are, in fact, assigned on a case-by-case basis based upon the Enterprises’ estimation of the losses that they have incurred as a result of servicing 

deficiencies consistent with the contractual obligations that are in 

place between an Enterprise and a particular seller-servicer. So 

that has been the basis of the calculation of the fine is, it is following the contract and it is done on a case-by-case basis. 

Mr. MILLER OF NORTH CAROLINA. Would you assess for contractual damages? 

Mr. DEMARCO. Yes. The assessment is for contractual damages. 

Mr. MILLER OF NORTH CAROLINA. Okay. There have been studies 

that show that the mortgages actually held in portfolio by banks 

16 

have a better rate—are more successfully modified with a lesser 

loss experience than those held in secured house pools and serviced 

by a servicer that does not actually own the mortgages. Have you 

examined those studies and determined why that would be? 

Mr. DEMARCO. I am aware of analyses that talk about whether— 

that talk about these differences. My focus is on ensuring that the 

Enterprise loans are being properly serviced. And I have found that 

the performance of modified loans that are owned by Fannie and 

Freddie continues to improve and continues to exceed expectations 

in terms of the low redefault rates on modified loans. So I don’t 

have an immediate comparison for you with respect to private-label 

securities. But clearly, we have been seeing strong performance, 

and it is certainly consistent with what the Treasury Department 

is reporting on the HAMP program. 

Mr. SCHWEIKERT. Forgive me, Mr. Miller. 

Mr. DeMarco, could I beg you to pull the microphone just slightly 

closer? We are losing you a little bit. This room does have tough 

acoustics. 

Mr. DEMARCO. Thank you, Mr. Schweikert. 

Mr. MILLER OF NORTH CAROLINA. Along the same lines, have you 

looked at whether the proprietary loans, the portfolio loans by 

banks, are more likely to reduce the principal or other modifications that have led to their better success rate and whether that 

is something that you could do as well? 

Mr. DEMARCO. We are continuing to examine that issue. I don’t 

have any information that suggests that there has been superior 

performance on modifications done on a proprietary basis because 

of principal forgiveness. But I would be happy to look at such information and assess it just to see whether there was value there that 

we should consider in terms of our responsibility to conserve assets. 

Mr. MILLER OF NORTH CAROLINA. In addition to the loans that 

you polled, you still have a substantial amount of private-label 

mortgage-backed securities. You appear to be pursuing possible liability claims with respect to those. But are any of those—do any 

of those mortgage-backed securities also have private investors who 

hold the same securities or securities in the same family— 

Mr. DEMARCO. Right. 

Mr. MILLER OF NORTH CAROLINA. —in which any investors are 

pursuing any claims? 

Mr. DEMARCO. I am sorry, Mr. Miller. 

The question was, are we working with— 

Mr. MILLER OF NORTH CAROLINA. You also own—because in the 

mid-part of the last decade, the Bush Administration set a very 

high affordable housing goal for you but said you could meet it by 

buying private-label mortgage-backed securities and subprime 

mortgages, and you still hold a pretty substantial portfolio of private-label mortgage-backed securities. 

Mr. DEMARCO. Right. 

Mr. MILLER OF NORTH CAROLINA. Are any of those mortgagebacked securities, private-label mortgage-backed securities, MBSs, 

are any of those subject to any litigation by other investors besides— 

Mr. DEMARCO. They are. 

17 

Mr. MILLER OF NORTH CAROLINA. Okay. Are you participating in 

those? 

Mr. DEMARCO. We are involved with certain discussions, settlement discussions, reviews with other holders of these securities to 

see what the proper course of action is to analyze whether there 

are problems with what goes into those securities and finding an 

appropriate settlement or outcome regarding it. 

Mr. MILLER OF NORTH CAROLINA. Apparently, my time has expired. 

Mr. SCHWEIKERT. Thank you, Congressman Miller. 

Chairman Neugebauer? 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Mr. DeMarco, thank you for coming back over. I think you are 

getting frequent flyer points now. 

I want to go back to something that I think was a little bit along 

the line of questioning to the gentleman from California. And you 

and I have actually had this conversation. Your role as conservator—and there are a lot of different statuses that you could have. 

You could be in a conservatorship. You could be in a receivership. 

You can be in a bankruptcy. One of the things that I wanted to be 

clear about is, do you believe that your role as conservator is to 

wind down these entities or to perpetuate them? 

Mr. DEMARCO. The statutory responsibility of a conservator is to 

conserve and preserve the assets, the property of the conserved entity, and return it to a financially sound condition. 

As I have reported to the Congress and as my predecessor has 

reported, really the ultimate resolution of these two 

conservatorships can only effectively happen with congressional action. So we are limiting the companies to their core business. We 

are shrinking their activity wherever we appropriately can, consistent with ensuring the United States continues to have a liquid 

secondary mortgage market. And we are anxious to work with the 

Congress to get to that ultimate resolution. 

In the meantime, we are winding down where appropriate. And 

certainly a key aspect of the wind-down for us is reducing the retained mortgage portfolio of both companies. 

Mr. NEUGEBAUER. So I believe the answer that you are giving me 

is that you believe that your job is to perpetuate at this point in 

time? 

Mr. DEMARCO. My statutory authority does not allow me to 

eliminate these charters. 

Mr. NEUGEBAUER. I am not talking about eliminating. But you 

are either winding down or you are perpetuating. I just want an 

answer. Do you believe you are winding down or you are perpetuating? 

Mr. DEMARCO. I am winding down the retained portfolio, and I 

am perpetuating their activity in ensuring that there is a liquid active secondary mortgage market through securitization, both for 

multi-family and single-family loans. 

Mr. NEUGEBAUER. Was that in the charge that the Congress gave 

you, to make sure that there was a secondary market for our mortgages? 

18 

Mr. DEMARCO. I believe it is both the charge for the companies 

and my charge at FHFA that there be a stable and liquid secondary mortgage market. 

Mr. NEUGEBAUER. Does it make the market stable, that you 

dominate the market? 

Mr. DEMARCO. Congressman, as I have testified before, I believe 

that this is not a healthy or long-term situation for 90 percent or 

more of the securitization market to be driven by companies that 

are operating with direct taxpayer support. 

Mr. NEUGEBAUER. One of the things in a previous hearing that 

we talked about was that you had the ability—and I think your 

legal counsel said you actually could lower the limits of mortgages 

that the entities could purchase. So if you took actions to lower and 

restrict the levels, the loan limits of the GSEs, how would that fit 

into your charge? 

Mr. DEMARCO. Yes. I have certainly thought about that since my 

last appearance here. To be clear to the members, my ability to 

lower the conforming loan limit is derivative as conservator. It is 

because Congress directed FHFA to have authority to set what the 

maximum loan limit was. It gives each company the discretion to 

limit their purchases to some lower number. That essentially has 

never been done. 

And as I testified before, I don’t intend to act unilaterally in lowering the loan limit because the Congress of the United States has 

been so actively and repeatedly involved in adjusting the conforming loan limit. I believe that is an important issue of national 

policy. 

And directly to your question, Congressman Neugebauer, I think 

for me to do this unilaterally would risk some disruption in the 

marketplace. It could be inconsistent with my responsibility as conservator. 

I really and truly believe that the Congress of the United States 

is the body that should make the determinations about the future 

path of the loan limit if it is going to be something other than what 

current law provides. 

Mr. NEUGEBAUER. I am going to respectfully disagree because I 

actually believe that the charge that the Congress of the United 

States actually gave you is to minimize both current and future exposure to the taxpayers. And as you continue to dominate that 

market, we are not reducing the level of exposure to the American 

taxpayers. I am concerned. 

And if we need to have some additional discussions, but I think 

we need to get into what I consider the conservator mode, and that 

is the conservator mode is beginning to conserve the exposure of 

the American taxpayers, and that as long as you are in the mode 

of continuation instead of wind-down, we are impeding the ability 

to do that. And one of the things that people don’t realize right now 

is one of the reasons that you have narrowed your losses is somewhat driven by the fact that you are—some of those losses—but the 

fact that your revenues are such that—because you are the only 

game in town, so you are getting a lot of volume and are getting 

a lot of revenues from that. But the problem with that model is 

that we would continue to increase the exposure for the taxpayers. 

19 

Mr. DEMARCO. May I respond? Just very briefly. I appreciate and 

respect your perspective, Congressman. I would just like to, for the 

record, state that I think it is also a very important element of 

what we are doing is strengthening the underwriting standards 

and improving the loan quality of what is purchased and very 

much improving the risk-based pricing of that because that is essential to my responsibility to protect the American taxpayer. 

Mr. SCHWEIKERT. Thank you, Chairman Neugebauer. Congressman Perlmutter? 

Mr. PERLMUTTER. Again, it is good to have you here. Personally, 

I appreciate the turnaround that I see with the organizations over 

which you have supervision, Fannie Mae and Freddie Mac. If I am 

not mistaken, Freddie reported a $676 million profit last quarter. 

And so, Mr. Neugebauer and I have debated this thing for several 

years. But basically, from my point of view, you have Fannie Mae 

and Freddie Mac providing liquidity in the secondary market for 

years, decades. Okay? 

There was a blip in the deep recession of the early 1980s where 

Fannie Mae and Freddie Mac had some losses, and then, again, in 

2003 to 2007. Since the Congress, led by Mr. Frank, made some 

changes to Fannie Mae and Freddie Mac, and authorized the placement of conservatorship or receivership if that was required, we 

have seen underwriting criteria re-established with Freddie Mac 

and Fannie Mae, if you care to respond to my statement. 

Mr. DEMARCO. Yes, sir. I believe that is certainly fair. I would 

not minimize particularly with Fannie Mae, in the early 1980s, 

that they operated for awhile while they were certainly insolvent 

on a market value basis. I don’t believe Freddie Mac had that same 

situation. But clearly, underwriting has improved substantially at 

both companies and the credit quality of the business that we are 

doing in conservatorship is meant to be safe, sound, and profitable. 

Mr. PERLMUTTER. Just to sort of come back again to basics, it 

was under the Bush Administration, a lot of losses. Since the conservatorship, and if I remember correctly, it was Secretary Paulson 

who was given the authority to choose whether Fannie Mae or 

Freddie Mac were placed into a conservatorship or receivership. 

Am I mistaken on that? 

Mr. DEMARCO. Actually, Congress gave that determination to the 

Director of FHFA. What Congress gave to Secretary Paulson was 

the funding authority. They gave the Treasury Department the authority to purchase securities from the Enterprises in an unlimited 

amount, so that has been the source of the financial support of the 

Enterprises. So the conservatorship had to be a joint effort between 

the Treasury Department and FHFA because of the distribution of 

responsibilities. 

Mr. PERLMUTTER. Okay, so the choice, though, was between conservatorship and receivership. Conservatorship was chosen which, 

I am a bankruptcy lawyer by trade, and there are Chapter 11s and 

there are Chapter 7s. In Chapter 11, you maintain the organization, you keep it as a going concern, you try to maintain its operations, as opposed to a Chapter 7, in which you liquidate. And I 

roughly liken a conservatorship to a Chapter 11, and a receivership 

to a Chapter 7, one where you maintain operations, and the other 

where you liquidate operations. 

20 

And so, for me, I believe we have to have a secondary market of 

some kind to really continue to assist what is a very fragile housing market. And it appears to me that is what you all have been 

doing. Whether we come out with a different name or there is some 

other shape to all of this, that may be. But I personally believe we 

have to have a secondary market. And I just appreciate, again, all 

of you rolling up your sleeves and trying to right the ship. And it 

appears that is happening. 

Underwriting criteria, in some respects I can tell you may have 

gone overboard with some underwriting criteria. It is very hard to 

get a loan out there, a housing loan. And so I just want to put that 

on the record. 

The other thing I wanted to talk to you about were these cleanup calls and whether you have had any further conversations with 

people at Freddie Mac about the clean-up calls that you and I have 

discussed in the past. 

Mr. DEMARCO. Yes, sir. Since you brought this to my attention, 

I have gone back and looked again. While the clean-up call would 

come as a benefit to certain holders of securities, we continue to 

reach the conclusion that exercising them raises important concerns affecting the security prices of Enterprise mortgage-backed 

securities in a way that could be detrimental to the conservatorship. 

So, we can’t view the clean up in terms of in isolation with respect to the particular security, but need to assess the impact on 

all the securities that are out there trading. So we have gone back 

and analyzed—again, and I am sorry, Congressman, but the conclusion we have drawn continues to be, and this is based upon past 

experience because this has been tried before by one of the Enterprises. 

Mr. PERLMUTTER. Don’t be surprised if I come and talk to you 

some more about this. 

Mr. DEMARCO. That would be fine. I think it is a topic for further 

consideration. 

Mr. PERLMUTTER. I yield back. 

Mr. SCHWEIKERT. Thank you, Congressman Perlmutter. And you 

are open to disclose. I have great interest in that particular subject 

with him. 

Congressman Campbell? 

Mr. CAMPBELL. Thank you, Mr. Chairman. And thank you, Director DeMarco. I am going to ask you questions about three of the 

bills that you address that are potentially before this committee. In 

the Hurt bill that is about disposition of property, is it your interpretation of that bill that it would require disposition and sale of 

intellectual property as well? 

Mr. DEMARCO. It certainly could be read, I believe, to cause both 

the Enterprise and the FHFA Director to consider such a thing. 

Mr. CAMPBELL. If that were the case, given that virtually no one 

is making loans for the secondary market other than Fannie and 

Freddie these days, all of the data and information and other intellectual property is pretty much not contained anywhere else. If 

that were all sold out in the market and purchased by a single purchaser, couldn’t that potentially create a monopoly issue in the future? 

21 

Mr. DEMARCO. I suppose it could. But you have raised the question of data. If I may, because I think this is an important point. 

I testified in front of a different committee a couple of weeks ago 

and said that it is on FHFA’s agenda that Fannie Mae and Freddie 

Mac move towards loan level disclosures in their mortgage-backed 

securities; that this is something we want to get the Enterprise on 

a path so that their mortgage-backed securities have detailed loan 

level information. 

And part it of that is to start getting information out into the 

marketplace so that it can—first of all, so that we can work with 

market participants to figure out what that data should be, and so 

that it starts to get out there. I am also aware that it could have 

value to the marketplace, particularly as we think about a transition from a GSE world to something that follows it, that there is 

historical loan data that Fannie Mae and Freddie Mac have that 

it may be in the public interest for that information to be put out 

there. As it is, we already disclosed a good bit of public information, but we are going to look in terms of whether there is more 

that we can do. 

Mr. CAMPBELL. Director DeMarco, I totally and completely agree 

with you and applaud you for those remarks. And I agree, this data 

should be made publicly available, and I don’t think it should be 

sold, where it potentially is bought by a single user. It sounds like 

you would agree with that. 

Mr. DEMARCO. For that, yes, sir. 

Mr. CAMPBELL. Thank you, sir. Going on to Mr. Fitzpatrick’s bill about the cap at $200 billion, if we were to hit that cap, let’s say 

we are in place to hit it tomorrow, in other words, with circumstances as they exist today, what would you be required to do? 

Mr. DEMARCO. I am not sure we would be issuing any further 

securities. But I haven’t envisioned the detailed things of what we 

would do tomorrow because I don’t see that on my horizon. 

Mr. CAMPBELL. Okay. So if you didn’t issue further securities, 

you indicated in questioning from Mr. Neugebauer that you are 

issuing securities in order to have a stable secondary market. So 

do you think that we would—potentially that hitting that cap 

would create instability in the secondary market? 

Mr. DEMARCO. Certainly, if we are speaking hypothetically, so 

we are speaking in a hypothetical world. 

Mr. CAMPBELL. Hypothetically, except that is what the bill says. 

Mr. DEMARCO. No. I understand but the hypothetical state of the 

world in which— 

Mr. CAMPBELL. As it exists right now, I agree. 

Mr. DEMARCO. As you start to run up awfully close to that, I believe that there would be, certainly the market would be concerned 

about that. I have no concern that is on my horizon. But I think 

it would have, it could have marked repercussions, which is why 

both the previous Administration and the current Administration, 

in structuring the senior preferred agreements and the follow on 

amendments to it, have sought to have adequate protection there 

so that we don’t inject this kind of instability into the marketplace. 

Mr. CAMPBELL. Okay. Thank you. And then the last bill I wanted 

to ask you about was one you talked about the end of your testimony, Representative Neugebauer’s bill, and you said, I am conVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
22 

cerned these provisions treat these regulated entities differently 

from the regulatory regimes for other regulated entities on the 

legal fees thing. What other regulated entities are treated—are not 

treated this way, or that are treated differently, particularly if they 

are in the financial services world? 

Mr. DEMARCO. I will confess that the bill—and I understand that 

it is just an early discussion draft—is a bit confusing in terms of 

its applicability as references to the Federal Home Loan Banks, 

which are not in conservatorship, and other financial institutions, 

even though they are regulated, they also, they are operating under 

State law, there are indemnification agreements that employees at 

those companies have. And so for example, when a bank goes 

through the FDIC conservatorship or receivership, there are provisions in FDIC regulations regarding indemnification. And, in fact, 

our rules on that are following out of the— 

Mr. CAMPBELL. And as you say, those entities are not in conservatorship, but they are still government entities, as these are. 

Mr. DEMARCO. Yes. I am sorry. Yes, they are ongoing entities, 

and so the employees there certainly need that protection. 

Mr. CAMPBELL. Thank you. I yield back. 

Mr. SCHWEIKERT. Thank you, Congressman Campbell. Congressman Peters? 

Mr. PETERS. Thank you, Mr. Chairman. Mr. DeMarco, I thank 

you for being here today. We appreciate your testimony. And I 

know that your agency has a great deal of data concerning the 

housing market. You have expertise, economic expertise on the 

housing markets, and I am just wondering if you have had a 

chance, the Agency has had a chance to do any economic analysis 

on the impact of these bills on the market. 

Mr. DEMARCO. To that specific question, no, sir. We have not had 

time. We have only had the bills for a few days. 

Mr. PETERS. But it is something we need to be doing? 

Mr. DEMARCO. In terms of an economic analysis, I believe that 

as legislation such as this goes forward, it would certainly be appropriate to undertake appropriate economic analysis. But in the 

time taken, I have been able to provide some reflection on the particular provisions in the bill that I hope are helpful. 

Mr. PETERS. I appreciate that. And now we were looking at the 

Stivers bill, for example, which basically says when Freddie and 

Fannie disappear, nothing to replace them. You certainly caution 

that it is up to Congress to decide what should replace them. The 

package of bills we have here basically doesn’t replace them with 

anything to speak of. Are you able to make any kind of prediction 

now today? Do you feel comfortable with any kind of prediction of 

the impact of just terminating existing GSEs, what effect that 

might have on interest rates, the availability of mortgage credit or 

maybe the types of mortgage products that consumers would have 

access to if we just get rid of these without anything replacing it? 

Mr. DEMARCO. I have not made such a projection as to what 

would happen if that were to happen tomorrow. It certainly was 

one of the considerations when the Enterprises were put into conservatorship in the first place is that the country’s financial system 

lacked a ready substitute to ensure liquidity in the secondary mortgage market, which is why maintaining these companies in conVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
23 

servatorship as ongoing concerns was important from an economic 

stability standpoint, certainly for the safety and operations of the 

country’s housing system. 

Mr. PETERS. So you would say to just basically wind these down 

without any thought to the replacement would be reckless? 

Mr. DEMARCO. Congressman, I believe that we should be taking 

steps with the companies in conservatorship to be preparing for a 

housing finance system in the future that does not operate with the 

GSEs. In the meantime, I believe all of us, lawmakers, policymakers, and regulators have a responsibility to be figuring out 

what does replace them. So, to your point, I certainly agree that 

we need to be developing some sort of infrastructure and answering 

for private markets what is going to be the role of the government 

and the rules that the government puts in place for the future operations of the housing finance system, post-Fannie and Freddie. 

Mr. PETERS. Right. I appreciate that. On the Manzullo bill, you 

talked about how the Enterprises would have to overcome some, in 

your testimony, significant hurdles to exit from conservatorship 

without further legislative action. Could you kind of flesh that out 

a little bit for us please, some of those hurdles that would exist and 

the legislative action that you would anticipate? 

Mr. DEMARCO. Currently, the conservatorships have drawn a combined $162 billion from the American taxpayer and they don’t 

emerge from conservatorship without either congressional action or 

certainly seeing that $162 billion being repaid. 

Mr. PETERS. Then, a final point on the bill also before us that 

deals with FOIA; the Chaffetz bill. It is your understanding or your 

belief that if this bill goes forward, other private companies would 

also be subjected to FOIA. This is not, would be limited not just 

to the GSEs but also banks, thrifts, bank holding companies, nonbank financial companies, that this would open it up to all of those 

entities as well? 

Mr. DEMARCO. No, sir. That is not what I was trying to convey 

in the testimony. What I was conveying is that this would be such 

a fundamental and profound change in the scope and intent of the 

Freedom of Information Act that if this were applied to Fannie Mae 

and Freddie Mac at operating as private entities, they are not government entities, if this were applied to them it would raise a host 

of questions for other private companies, maybe in particular, financial institutions that themselves could be recipients, or have 

been recipients of government assistance or could be in a government conservatorship some time in the future, since that is a tool 

that is certainly part of the tool kit of Federal regulators. And I 

think it raises some very substantial questions that would need to 

be considered. 

Mr. PETERS. Right. Thank you so much. I appreciate it. I yield 

back. 

Chairman GARRETT. Director, thank you. Coming back in, let me 

just start off by going—and some of this may have been touched 

upon. But with regard to g-fees, going back to what we did last 

month we had some legislation there which addressed the g-fees. 

And in that area, I wanted to ask you a question with regard to 

the possibility of raising them. What the Administration did with 

their White Paper, they did, in fact, advocate for what, a raising 

24 

of the g-fees increase, and subsequently, this subcommittee passed 

legislation to do what, to do just that, which I think there actually 

was a bipartisan vote, if I am not mistaken, as well. 

So there seems to be, as I say, broad support for going in that 

direction. Can you capsulize for me your intention, I guess, in the 

context of a timeframe where you intend to go with the rising of 

the g-fees that you can anticipate? 

Mr. DEMARCO. The last time I appeared before the subcommittee 

I, in fact, stated my general support for that being done. And since 

that time, we have been examining the pricing structure, and we 

are working on that issue. I would point out that a set of g-fee increases just went into effect in March and April, and so I don’t 

have a specific timeline for you. But it is certainly something in 

which I am in very active work, both with my staff and with that 

of the Enterprises, to examine the current fee structure and looking at the appropriate approach and timing in transparency to 

bring to another, to further increases. 

Chairman GARRETT. What is the transparency issue? 

Mr. DEMARCO. The transparency issue is a question of informing 

the market in advance about what the intent is and the timing, so 

that it is done in a way that is not disruptive, say, to folks who 

are looking to buy a house, in the process of buying a house. 

Chairman GARRETT. So your analysis right now, is it retrospective? At this point in time, are you looking to see what the impact 

has been of what you did a month ago? Or is your analysis now 

prospective, looking at both— 

Mr. DEMARCO. It is prospective, and it is meant to be, as was 

suggested both in the legislation and in the Treasury White Paper, 

to be done with due consideration for, if we had a market in which 

there was private capital, that was backing a pool of mortgages, 

and so there was a private capital assigned to it and that capital 

needed to have a target rate of return, that should be input into 

the benchmarking for what the guarantee fee price would be. 

Chairman GARRETT. And that is interesting. So on that one 

point, though, is that a chicken-or-the-egg sort of situation that you 

have to analyze as far as, you say, if there is a private market, 

right, for you to make that determination, but raising or maintaining the g-fees—let me ask you the question. Does raising or maintaining the g-fees have an impact on whether there will be a private market going forward? 

Mr. DEMARCO. I believe that gradually raising the g-fees actually 

is a useful step not just for conserving assets but to prepare for and 

allow for the return and entry of private capital into the marketplace. 

Chairman GARRETT. So it is to facilitate a private market? 

Mr. DEMARCO. Yes, sir. 

Chairman GARRETT. So it is a case where you almost have to say, 

we have to take certain actions to help facilitate the market. On 

another note, I know you have—you can probably list the number 

of criteria that you consider your responsibilities as a conservator 

you have to consider. Is one of them to protect the interests of the 

taxpayers? 

Mr. DEMARCO. Absolutely. 

25 

Chairman GARRETT. Okay. So in that capacity, earlier, I guess 

the gentleman from Texas was raising the question with regard to 

conforming loans and the levels. And in that area, you were saying 

that as conservator, how do you consider that your role in that regard of raising or lowering them? 

Mr. DEMARCO. My ability to raise or lower conforming loan limits to have the Enterprises purchasing less is derivative of what 

Congress gave the two companies to purchase loans at less than 

the maximum allowed to them. And my response to Mr. Neugebauer was that the Congress of the United States has legislated on 

conforming loan limits 5 times in the last 3 or so years, and I believe some deference to both longstanding practice and the congressional interests here is something of which I am mindful. 

Chairman GARRETT. Okay. But in the role of conservatorship, 

what would the impact be? And I am looking at the letter from the 

CBO and their analysis of the scoring and the risk basis aspect of 

conforming loans and the valuation. What is the impact of keeping 

them where they are, or basically lowering them? If you do lower 

them, how does that affect your role as conservator with regard to 

the book? Are you in a better position, vis-a-vis the taxpayer, and 

on the risks that are out there if the conforming loan limits are 

lower or where they are today? 

Mr. DEMARCO. Whether they are lowered or not, if they are lowered, obviously there is a smaller pool that is going to be eligible 

to purchase, but everything that Fannie and Freddie are purchasing today, we are working to ensure that there is strong underwriting and appropriate pricing so that we are not booking business at a loss. So one could argue on the one hand, there is a loss 

of revenue to the conservatorship, but on the other hand, it creates 

an opportunity for private capital to come in. But the other consideration— 

Chairman GARRETT. Since my time is limited, that is one analysis. But how does CBO analyze it? How do they score this? Do 

they score it that way, that if you lower it, you are actually losing 

revenue? Or do they score it to say that you are actually losing that 

market risk factor, and that actually it is more expensive for you 

to have and maintain as opposed low? Do you know how they score 

it? 

Mr. DEMARCO. I am sorry, Chairman Garrett. I do not know off 

the top of my head how CBO is scoring potential changes in the 

conforming loan limit. I do know how they have been scoring the 

conservatorship is a rather unusual approach to measuring subsidy 

and it is coming not because, when they do their cost estimates, it 

is not because they are projecting further losses on business we are 

booking in conservatorship. It is because they are arguing that if 

these loans are being done in a purely private sector, that there 

would be a higher g-fee being charged. 

So it is not that we are losing money, it is that in a private 

world, there would be higher g-fees. 

Chairman GARRETT. And it is not because of the market risk that 

they are considering on that higher cost? 

Mr. DEMARCO. It is because in the private market, there would 

be a substantial amount of private capital and that private capital 

26 

would be seeking a market rate of return. I believe that is a fair 

summary of the CBO’s— 

Chairman GARRETT. I appreciate that. We can continue that discussion, and I see that my time has expired. 

Mr. Manzullo, for 5 minutes. 

Mr. MANZULLO. Thank you, Mr. Chairman. Mr. DeMarco, I want 

to thank you for your openness and your willingness to be with us 

on several occasions, and I appreciate your candor. 

Several of us, going back to 2000, were concerned about the easy 

money. And that was the 2000 GSE reform bill which went nowhere. The 2005 reform bill, with the strengthening Royce amendment, passed the House. Unfortunately, the Royce amendment did 

not pass. That went nowhere. The Federal Reserve did not, until 

October 1st of 2009, require written proof of a person’s earnings. 

And so, a lot of us have really been concerned with the sloppy underwriting standards, the sloppy standards for documentation, 

while HUD still keeps nine people working full-time on the HUD1 and RESPA. 

And when I closed over 1,000 real estate transactions as an attorney, we could close it in 20 minutes with documents a half inch 

high, and now it is 6 inches to a foot and no one reads it because 

if you don’t sign whatever they put in front of you, you don’t get 

the keys to your house. And so, we have not gone very far in this 

whole issue of financial disclosure so people can understand it. I 

am going to introduce a bill to prevent the dividend payment decrease. And I notice on page 7 of your testimony that, if I am reading this right, you are going to continue paying that 10 percent; 

that some groups are already opposed to it. And I just don’t want 

to go back to the old Fannie Mae, Freddie Mac. 

This dog has to die and be reconstructed in a whole new form. 

And one of the things they are trying to do is make sure that the 

taxpayers get back the money that they put in to save this thing. 

Is it my understanding, based on your testimony, that you are not 

only going to continue to pay the 10 percent, but not object to the 

bill that I plan to introduce? 

Mr. DEMARCO. Yes, sir, Mr. Manzullo. 

Mr. MANZULLO. Good. I yield back the balance of my time. 

Chairman GARRETT. Mr. Posey, for 5 minutes. 

Mr. POSEY. Thank you, Mr. Chairman. I was going to maybe skip 

comments today just in the interest of moving this thing along, but 

I didn’t want to be the only one left out of this dialogue. 

The legal fees issue continues to bother me, Mr. DeMarco. The fact that the citizens have spent over $162 million already with no 

end in sight on legal fees for people at the GSEs who plundered 

it, quite frankly, and maybe they are innocent until proven guilty, 

but prima facie evidence, to me, indicates they deserve to go 

through the wringer. 

But, anyway, I wonder if there is any other organization in 

America, in the world, in the universe where an organization would 

obligate itself to spend that kind of money defending its officers 

and directors against fraud. Do we know of anywhere else that has 

ever happened in the history of mankind? 

Mr. DEMARCO. Yes, sir, Congressman. Frankly, every major, any 

publicly traded corporation in the United States is going to be proVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
27 

viding indemnification to its employees, and, in fact, such indemnification is typically required and stipulated for under State law. 

So this is not unusual at all that Fannie Mae and Freddie Mac employees are indemnified by the companies for actions they take as 

employees of the company. And it is quite common and it is basically a near universal practice in corporate America. 

Whether the companies get actually—so the indemnification is to 

provide legal protection to employees for actions that they take. 

There is a great deal of case law governing this. And frankly, companies have tried in the past to not honor those indemnification 

agreements, and there is a good bit of case history here. The courts 

don’t look very kindly upon that. 

It may be interesting to you and other members of this subcommittee that I testified at length on this topic before a different 

subcommittee of the House Financial Services Committee, in which 

we went through in some detail what the legal standards are here 

and how this is working. 

But to your point, Mr. Posey, it frustrates me that the companies 

are in this situation, but I will respect that this is a requirement 

that is there. It is something that is standard practice, and I believe that, while we may be concerned about the behavior or practices and actions of past officers of these companies and the losses 

that these companies have had, I have a responsibility to respect 

the law, and the legal process that is necessary to be followed here 

needs to be followed, and that is what we are doing. 

So I may not like it, but I believe that this is the right thing to 

do, given current law. And I think to do otherwise would, in fact, 

lead to an overall increase in legal fees for both FHFA and the 

companies, which would drive up costs to the taxpayers. So I share 

the concern about this but I do believe that we have looked at this 

carefully and this is what needs to be done. 

Mr. POSEY. So it is common practice then for companies to obligate themselves to unlimited advance legal fees for officers and directors? I mean, $162 million would bankrupt most companies. I 

can’t believe that the average, whatever the average company is in 

the United States, or small business, could endure that amount of 

legal expenses. It just—and to be totally unlimited, this could go 

on for 10 years and reach a billion dollars. Who knows? 

Mr. DEMARCO. I would not expect that, Congressman. But there 

are other very large financial institutions that are subject to enormous amounts of litigation by shareholders and by others, and this 

is the practice, that these officers and employees are indemnified. 

There is an advancement of legal fees. And I would not expect that, 

as large as this number is, that other major financial institutions 

that have been subject to enormous amounts of litigation don’t 

have similar issues. 

Mr. POSEY. And again, I can’t think of many private corporations 

that have ever been plundered as bad as these guys plundered 

ours. So there is some context here. Have we taken any action, 

have we asked for any criminal investigations against these people? 

Mr. DEMARCO. I am sorry, Congressman. Could you repeat the 

question? I didn’t hear you. 

Mr. POSEY. Have we taken any action for the GSEs to recover 

from these people? 

28 

Mr. DEMARCO. If someone who has been indemnified is found 

guilty in an adjudicated matter of fraud or malfeasance or the various, whatever the legal standards are, that is a basis for recovery 

of the advancement of legal fees. The indemnification itself is, of 

course— 

Mr. POSEY. I understand, obviously, they would be broke by then 

by the time they get the judgments. And I think, given the facts, 

a third grader— 

Chairman GARRETT. The gentleman’s time has expired. 

Mr. POSEY. A third grader could figure out the guilt here, and 

that we are wrong to continue to defend it. And I yield back, obviously. 

Chairman GARRETT. Mr. Stivers for 5 minutes, please. 

Mr. STIVERS. Thank you, Mr. Chairman. Mr. DeMarco, thank you 

so much for coming today. In your opening comments, you talked 

a little bit about the bill I have out for discussion draft which deals 

with, if the GSEs are in receivership. And I think a lot of people 

misunderstand the powers in the Housing and Economic Recovery 

Act with regard to receivership powers. Can you explain what the 

receivership authority is that you have under HERA? 

Mr. DEMARCO. If a company goes into receivership, we are required—it would work as would a FDIC receivership for a bank, 

but the statute goes further and directs FHFA to create a limited 

life-regulated entity that may operate for a maximum of 5 years, 

after which there is basically an expectation that the charter would 

have to go back out into the marketplace as it existed pre-conservatorship. So it would be recreating Fannie and Freddie as they 

existed pre-2008. 

Mr. STIVERS. And you have been quoted as saying that Fannie 

and Freddie, in their current form, should be duplicated. Without 

this bill that I have circulated for discussion draft, they would be 

recreated in their current form, which would put the taxpayers on 

the hook. What my bill does is it again gives Congress control of 

what is created and when it is created. Do you have any thoughts 

on my draft? 

Mr. DEMARCO. No, I appreciate that, Congressman. I believe that 

is what it would affect. The only other thing I would observe is that 

the structure of placing Fannie Mae and Freddie Mac in conservatorship in the way that Treasury Senior Preferred Agreement 

has been structured is essentially to allow them to continue to operate in conservatorship and not create a mandatory receivership 

situation. And the whole reason for doing that was to give the Congress of the United States an opportunity to be the determiners of 

where we go from here. 

Mr. STIVERS. Thank you. I think that is correct. I will ask you 

a couple of questions while I have you here. Do you think there is 

a benefit to having two GSEs at this point? I read your executive 

compensation report on the GSEs which was pretty—offended me 

at what is going on there because they are paying everything in 

cash, nobody has any incentive to turn the places around. Is there 

a real benefit to having two GSEs at this point? One charter, 

frankly, preserves the ability to do something in the future. Is 

there a reason to have two charters? 

29 

Mr. DEMARCO. At this point, we still have two very large, complex entities, each managing over $2 trillion worth of mortgage assets on behalf of the American taxpayer. I don’t envision in the 

near term here the added complication and operational risk of putting that together. Long term, what I would hope is that we have 

a more competitive and marketplace environment than we had 

prior. 

Mr. STIVERS. Great. Thank you. Can you talk a little bit about 

whether you ever see Fannie and Freddie going into receivership 

at this point? 

Mr. DEMARCO. I believe what I see at the moment here is that 

the companies will continue to operate in conservatorship as long 

as we are in the environment that we are in and we will await congressional action that will determine whether, it is a receivership, 

whether the receivership is to then lead to a break-up or a sale or 

a recapitalization of the companies, some transformation of the 

companies or a liquidation of the companies. That really is what 

we are awaiting Congress to decide in view of where we are and 

the enormous taxpayer investment that is already in the two companies, and I look forward to working with this committee on that. 

Mr. STIVERS. Thank you. And I just want to thank you for everything you are doing to conserve taxpayer dollars and to try to make 

sure that we turn the companies around and make sure that they 

are being good stewards of what is now billions of taxpayer dollars. 

I yield back the balance of my time, Mr. Chairman. 

Chairman GARRETT. Mr. Hurt, for 5 minutes. 

Mr. HURT. Thank you, Mr. Chairman. Thank you, Mr. DeMarco, 

for being here, and I want to add my thanks to you for your leadership on this issue. I apologize for not being here during your opening statement, and so I hope I am not retreading on things you 

have covered. But one of the proposals that has been submitted to 

the subcommittee would require that Fannie Mae and Freddie Mac 

account to you or to FHFA, account for the non-mission-critical assets, account for them and then have the FHFA develop a proposal 

to dispose of them and/or sell them. It is my understanding that 

you all have started this process, and I was wondering if you could 

just talk a little bit about that. 

Mr. DEMARCO. Certainly. I am happy to, Congressman. Yes. As 

conservator of the Enterprises, we have the responsibility to conserve and preserve the assets and property. And so when I became 

Acting Director, I said we need to make sure we know what those 

assets and property are. And so we have engaged in a full review 

of that and that is now updated on a regular basis and my staff 

looks through that. It has led to the disposition of certain assets 

at the companies, and it has led to us directing the companies to 

develop plans for the disposition of additional assets, consistent 

with the safety and soundness of the companies and consistent 

with our responsibilities as conservators, so we are already acting 

in that way. 

Mr. HURT. And are you saying that the accounting for the properties or assets is complete? That accounting is complete and you 

are saying it is ongoing? 

30 

Mr. DEMARCO. Yes. We have, we completed the sort of getting 

the first full set. And now what we do is we regularly update that 

because assets are coming and going in and out of the company. 

Mr. HURT. So that accounting is largely done? 

Mr. DEMARCO. Yes. And part of that is we have identified, areas 

of assets where we have engaged now directly with the companies 

in terms of further disposition planning with regard to— 

Mr. HURT. And how do you—you say you have disposed of some 

of the property. Has some of it been sold? 

Mr. DEMARCO. Yes, sir. 

Mr. HURT. Can you just talk a little bit about the disposition and 

sale of some of these assets? 

Mr. DEMARCO. These would be, for example, if there are investment securities for which there is a market that we sell them into 

the marketplace. There hasn’t been anything particularly magical 

about it. These are largely financial assets that we are talking 

about. And we are engaged in a prudent disposition. 

Mr. HURT. So do you all—part of the, at least the way the language of the current draft that we are considering talks about nonmission-critical assets. Is that something that you think that the 

FHFA is qualified and able to discern the difference between critical and non-critical to mission? 

Mr. DEMARCO. It may be a gray area sometimes, but I believe, 

in fact, that we can. And I believe that has been one of the things 

that has been part of our consideration as we have reviewed the 

assets of the companies and talked to them about disposition. But 

I am also open to the disposition of mission critical assets if there 

is a market there and we can sell them in a way that advances the 

goals of the conservatorship. 

Mr. HURT. There may be some concern that there is a difference 

between whether you sell something or whether you dispose of it 

in some other way, like the patents. Can you talk about that? Because obviously, we don’t want to sell something that would give 

an unfair advantage in the marketplace to one private entity. Is 

that part of the decision-making process that you are going through 

or that you go through. 

Mr. DEMARCO. Yes, sir. Right. 

Mr. HURT. I understand that you all have looked at the draft 

that has been submitted and you have some suggestions with respect to timing. 

Mr. DEMARCO. Yes, I believe my staff has been sharing some 

thoughts with your staff as a technical matter about how this 

might actually work in an operational way. 

Mr. HURT. And I thank you for that. Finally, one of the things 

that is of great concern to any Member of this body, I know, is seeing that the $164 billion that we are up to now that is owed the 

Treasury, how does that get paid back? To what extent do you 

think that this can be directed towards that debt, or is that not 

consistent with what you think is prudent? 

Mr. DEMARCO. Certainly, anything, what we have been doing 

and our approach to asset disposition has been driven by our conservatorship responsibilities, and so we are looking for the disposition of assets in a way that is optimal for the taxpayer. So that is 

31 

part of the answer; $164 billion is a tremendous amount of money 

to try to recoup, and I expect that is going to be a challenge. 

Mr. HURT. Sure. 

Chairman GARRETT. The gentleman’s times has expired. And I, 

too, thank Acting Director DeMarco for all your testimony here, 

and also for both you and your staff as well for your cooperation 

and assistance to all of our staffs who are trying to work our way 

through all of this and the assistance that they and you have provided in that regard. So thank you very much and I appreciate 

your testimony. 

Mr. DEMARCO. Thank you, Chairman Garrett. 

Chairman GARRETT. And now, a quick transition, as they say, to 

the next panel. I know you folks have been waiting patiently, and 

we will be eager to hear from you. And I think we are. I thank the 

panel, and as you know, your full testimony will be made a part 

of the record. I appreciate your limiting your comments to 5 minutes right now. 

And we will begin with Mr. John. I know I threw you off on that 

one, Dr. Sanders. We are just trying to keep you all guessing here. 

STATEMENT OF DAVID C. JOHN, SENIOR RESEARCH FELLOW 

IN RETIREMENT SECURITY AND FINANCIAL INSTITUTIONS, 

THE HERITAGE FOUNDATION 

Mr. JOHN. Thank you, Mr. Chairman, for allowing us to testify 

on your latest series of bills to resolve the question of Fannie Mae 

and Freddie Mac. Starting about 157 BC, the Roman Statesman 

Cato the Elder began to end all of his speeches with the phrase, 

‘‘Carthago delenda est,’’ which translates to ‘‘Carthage must be destroyed.’’ He did this to keep the focus on what he regarded as one 

of the major issues of his day, the elimination of Rome’s greatest 

rival to world domination, etc. And about 146 BC, Carthage was 

destroyed. For the first time out of three times, it has been destroyed in the last thousand years. 

I mention this because you have started on a process, and these 

individual bills are exceedingly important towards reaching the 

goal, but the goal is not the passage of 15 individual bills, or 32 

individual bills. The goal finally must be the elimination of Fannie 

Mae and Freddie Mac. And I would translate that into Latin but 

out of respect for my 9th grade Latin teacher, I won’t even attempt 

that. 

The bills you are considering today are the next step and they 

include some very important provisions here. I am only going to 

mention three, which is not to denigrate by any means the other 

four. It is just that if I mention all 7 of them, I have about 10 seconds for each. 

First off, Representative Royce’s bill to eliminate the Affordable 

Housing Trust. I want to make it clear that I do not oppose all 

housing finance programs for lower-income workers. I strongly support the whole idea of asset building, IDAs and things like that. 

However, the concept of avoiding the actual appropriations process 

by trying to extract money from a hypothetically, at the time, private Enterprise seems rather ridiculous and seems completely contrary to the way this Congress should act. If you wish to do affordVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
32 

able housing programs, then they should be structured strictly 

under HUD and they should be appropriated in the usual manner. 

Representative Stivers’ proposal to ensure that we do not have 

a new Fannie Mae and Freddie Mac, I believe, is a second and 

equally important move. The very last thing we need to do is to repeat the mistakes that we have made over the last several years. 

To my mind, that does not mean that they will not be replaced by 

something. I think that would be incredibly irresponsible. There 

needs to be a very careful process to replace Fannie Mae and 

Freddie Mac with a new private entity, or a series of private entities, frankly, smaller ones that can compete with each other and 

can provide many of the same services or conceivably a completely 

different form of housing finance system. You have already started 

on this process. I think that the Stivers legislation has an excellent 

opportunity to move that forward. 

I have expressed some concerns in my written testimony about 

Congressman Fitzpatrick’s proposal to put in a firm cap. As long 

as that is written in a way—and the most recent information I 

have is that it has been—so that it does not cause problems within 

the housing markets, should that cap come close to being reached, 

which I increasingly doubt, I think that also would provide some 

comfort to taxpayers who are finding themselves forced to come up 

with up ever larger amounts of money for companies that were 

largely mismanaged in many different ways. 

The next step is going to be equally important. The fact is that 

Fannie Mae and Freddie Mac are not going to continue as private 

entities, and it is about time to take the next step and bring them 

under a control where, to repeat Mr. Perlmutter’s comment, bring 

it under Chapter 7. Let’s dissolve it. Let’s get rid of it. Let’s replace 

it with something else here. And one step to do that once that has 

been taken is to take the portfolios out of those entities, to repeat 

to an extent what turned out to be a surprisingly successful experiment created by the Resolution Trust Corporation which dealt with 

the S&L assets, and wind up those portfolios. But that is a separate issue from the issue of dealing with housing finance going forward. Thank you. 

[The prepared statement of Mr. John can be found on page 83 

of the appendix.] 

Mr. SCHWEIKERT. [presiding] Thank you, Mr. John. 

Dr. Sanders? 

STATEMENT OF ANTHONY B. SANDERS, MERCATUS CENTER 

SENIOR SCHOLAR AND DISTINGUISHED PROFESSOR OF 

REAL ESTATE FINANCE, GEORGE MASON UNIVERSITY 

Mr. SANDERS. Chairman Garrett, Ranking Member Waters, and 

distinguished members of the subcommittee, thank you for inviting 

me to testify today. I have been asked to offer opinions on transparency, transition, and taxpayer protection, more steps to end the 

GSE bailout. Fannie Mae and Freddie Mac, the Government-Sponsored Enterprises in conservatorship are the dominant players, 

along with the FHA, in the residential market. With market share 

of more than 90 percent in terms of purchasing and ensuring mortgage losses given that they have effectively crowded the private 

sector out of the secondary market, can the private sector offer a 

33 

less costly alternative to Fannie and Freddie that requires less government involvement in the housing mortgage markets? The answer is yes. 

I have reviewed seven proposals to facilitate the transition from 

such a dominant role in the mortgage market and limit taxpayer 

losses. These proposals constitute pieces of the puzzle in trying to 

deal with Fannie Mae and Freddie Mac in terms of market capture 

that was accomplished with a government guarantee. I want to 

make four key points: First, these proposals make an excellent 

start to winding down Freddie and Fannie, particularly capping the 

draws for Freddie and Fannie to $200 billion, although I don’t believe that will even come to be an issue unless interest rates suddenly spike upwards, and in that case, we are going to have a lot 

more serious problems than just the cap on Freddie and Fannie. 

Second, there is nothing unique about Fannie and Freddie that 

the private sector cannot provide. They both have loan underwriting models. They both can purchase loans and they both can 

create mortgage-backed securities, and both offer mortgage insurance. The one attribute that Fannie and Freddie have that the private sector does not is a guarantee from the Federal Government. 

But this guarantee, as we now know, encourages risky loan originations or purchases and exposes taxpayers to perpetual losses. So 

Fannie and Freddie must wind down the government guarantee 

which gives them an inappropriate competitive advantage. And in 

my report, I do not specifically call for Fannie and Freddie to be 

terminated rather, that is don’t shut off their lights, but at least 

get them down-scaled to the point where they can cause no more 

mischief. 

Third, we must reintroduce mortgage choice so that we are not 

so heavily reliant on the 30-year fixed-rate mortgage. Currently, 

that mortgage product is so dominant that some like the Center for 

American Progress have called for Fannie and Freddie to remain 

in existence simply to take those loans off of banks’ balance sheets 

because, again, borrowers can struggle with the interest rate risk. 

And again, that is a point. But on the flip side, perhaps having borrowers have some exposure to interest rate risk may cause them 

to act more responsibly in terms of how much house they buy, and 

what the loan product is. 

And fourth, since the Government-Sponsored Enterprise is so 

dominant, care must be exercised in reducing the conforming loan 

limits, which I was not asked to review. A too-rapid decline may 

freeze housing markets further. I recommend in my report that 

perhaps we start with a 10 percent reduction, and just see how the 

housing market responds. But eventually, we really need to get 

Fannie and Freddie wound down to a very small footprint or to exit 

the market altogether. 

Currently, taxpayers have provided over $160 billion in draws to 

Fannie and Freddie. I doubt that this will ever be paid off in our 

lifetime, even if they reduce the interest rate from 10 percent to 

zero. 

And one of the kind of ironic proposals I thought was that since 

Fannie and Freddie are not really doing any principal write downs, 

I find it odd that we are proposing to give Fannie Mae a loan modiVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
34 

fication, which seems to be kind of the opposite of what I would expect. 

On the Freedom of Information Act, I think that, again, had 

Fannie and Freddie been transparent all along, we would not be 

sitting here today because we would have seen the problems occurring. Having said that, I want to compliment Mr. DeMarco on the 

fact that the FHFA Web site has really increased greatly the 

amount of information that can be disseminated to the population. 

But I also expect and hope this would be taken by the privatelabel mortgage market in their attempts to make a rally and come 

back. On the housing trust fund issue, there are two considerations 

on that one. First of all, we have the FHA already, which is very 

important in terms of housing mission. But secondly, a thing that 

Raphael Bostic at HUD, who is the Policy Director of Research, and 

I agree on, is that we really put too many people into homeownership. And Bob Schiller and I have both commented on this, that 

housing prices have remained constant over time once you take out 

inflation. If you used a pre-Clinton measure of inflation, housing 

prices have gotten crushed by inflation; that is, they have fallen in 

real terms. Wouldn’t we be better off serving many of these households in that respect by allowing them to rent, and then perhaps 

encouraging them to take investments like Treasury tips to hedge 

against inflation or some other type of program that actually helps 

them rather than punishes them in the future? Thank you very 

much for letting me share my comments with you. 

[The prepared statement of Dr. Sanders can be found on page 91 

of the appendix.] 

Mr. SCHWEIKERT. Thank you, Dr. Sanders. 

And I was told, Mr. John, we have you only till 5:00, and it is 

now five. 

Mr. JOHN. Yes. Sadly, I live in West Virginia and must catch a 

train. Thank you. 

Mr. SCHWEIKERT. All right. Thank you. 

Dr. Crowley? 

STATEMENT OF SHEILA CROWLEY, PRESIDENT, NATIONAL 

LOW INCOME HOUSING COALITION 

Ms. CROWLEY. Mr. Schweikert, Ms. Waters, and members of the 

subcommittee, thank you very much for the opportunity to testify 

today. I am Sheila Crowley, the president of the National Low Income Housing Coalition. The National Low Income Housing Coalition leads the National Housing Trust Fund Campaign, which is a 

coalition of more than 7,000 national, State, and local organizations 

located in every single congressional district. We thank Mr. Garrett 

and Ms. Waters for putting that list into the record today. 

Our interest in the hearing today is Mr. Royce’s bill that would 

terminate the Housing Trust Fund, and we strenuously object to 

this bill. The Housing Trust Fund was created as part of the Housing and Economic Recovery Act of 2008, but it was after a multiyear effort that included earlier legislative proposals, some of 

which were unrelated to Fannie Mae and Freddie Mac. 

In the United States today, there are 10 million extremely lowincome renter households and only 6.5 million homes renting at 

prices they could afford. Extremely low-income is household income 

35 

at or below 30 percent of the area median. In Orange County, California, it is $26,492 or less. And we have the data for every jurisdiction if you would like us to provide that. This is the only income 

group for whom there is an absolute shortage of housing nationwide. These are people in the low-wage workforce, primarily service 

workers, retail clerks, daycare workers, home health aides, the people that the rest of us rely on in order to be able to do our jobs. 

They are also people who are elderly and disabled who rely on 

SSI as their source of income. The annual income of an SSI recipient in California is $13,000 a year. The most tragic manifestation 

of this housing shortage is the existence of homelessness in the 

United States. And in this very dangerous game of musical chairs, 

the people who are most likely to end up with no housing at all 

are the poorest and the most vulnerable. 

So the primary purpose of the National Housing Trust Fund is 

to produce, preserve, rehabilitate, and operate rental housing that 

extremely low-income households can afford. If funded at a sufficient level, the National Housing Trust Fund would end the shortage of housing for this population. The National Housing Trust 

Fund is a block grant housed at HUD which distributes funds to 

States and territories on a need-based formula. A chart that shows 

the State allocations is attached to my written testimony. The 

State has to design an allocation plan, create performance goals, 

and then make grants to qualified entities. The statute requires 

that sub-recipients have the expertise and experience to carry out 

the activities they proposed and that they demonstrate financial 

expertise and experience. 

The State is responsible for assuring that all funds are used 

properly and for assuring that any funds not properly used are, in 

fact, reimbursed. HUD must reduce future grants to States that 

are not reimbursed for improperly used funds. Funds cannot be 

used for advocacy, lobbying, political activities, travel counseling or 

preparing of tax returns. 

The State can use up to 10 percent of its allocation to administer 

the program, but no fund can be used for outreach or other administrative activities. HUD is required to recapture any funds that 

have not been committed within 2 years and reallocate the funds 

to other States. I hope that these rules that will govern the Housing Trust Fund allay concerns about how it will be used. The allegations that the funds will be used for political purposes by special 

interest groups are simply false. Moreover, they are an affront to 

the thousands of people across the country who work every day to 

help their needy neighbors and who have been the backbone of the 

company to get the National Housing Trust Fund established. 

So why do we need another loan from housing program? There 

is no existing Federal housing program that produces rental housing specifically targeted for extremely low-income households. More 

critically, the existing programs are grossly underfunded. Low-income rental housing programs only serve 25 percent of the eligible 

households, and none of them of have dedicated sources of revenue. 

The legislation that created the National Housing Trust Fund was 

part of GSE reform enacted in 2008, and that was because it was 

linked to a proposal for the GSEs to be the dedicated source of 

funding. 

36 

As we know, the contributions have been suspended, and we 

don’t see any chance of any contributions ever being made. But it 

was never the intention that the National Housing Trust Fund rely 

solely on contributions from Fannie and Freddie. In fact, the 

amount provided in the legislation was very small relative to the 

need. Therefore, the statute also says that the National Housing 

Trust Fund can be funded by any amount as are or may be appropriated, transferred or credited to such trust fund under any provisions of law. 

So regardless of what Congress decides for the future of housing 

finance policy, the statutory basis for the National Housing Trust 

Fund should stand alone and unharmed. The National Housing 

Trust Fund campaign does support the creation of a dedicated 

source of funding in whatever form, whatever emerges to replace 

Fannie and Freddie. We also support Representative Cummings’ 

bill which provided a billion dollars for the trust fund from profits 

made from the sale of warrants that were created in the Emergency Economic Stability Act of 2008. 

We are looking at tax policies for other ways to fund the trust 

fund, and we welcome other suggestions. In closing, let me reiterate that the National Housing Trust Fund is a program we must 

continue regardless of what Congress decides to do with the GSEs, 

and we would urge Mr. Royce to please withdraw his bill. Thank 

you. 

[The prepared statement of Dr. Crowley can be found on page 58 

of the appendix.] 

Mr. SCHWEIKERT. Thank you, Dr. Crowley. I now yield myself 5 

minutes. Dr. Crowley, one of the things I love about this job is the 

chance to sort of drill down and learn more about all those things 

that I thought I knew a little bit about. But first, sort of a global 

question. How many different housing programs—and this may be 

almost unknowable—do you believe are out there, first from the 

Federal level, that deal particularly with low-income populations? 

Because even off the top of my head, I think I can come up with 

dozens and dozens. 

Ms. CROWLEY. Actually, my able staff will give you a sheet that 

tells you exactly what the Federal housing programs are. 

Mr. SCHWEIKERT. Do you have just a guess of the total number? 

Ms. CROWLEY. On this sheet for Federal housing programs, we 

have 1, 2, 3, 4, 5, 6, 7, 8, 9, 10: 10 at HUD, and then there is a 

low income house tax credit program, which is administered by 

Treasury. There is the Federal Home Loan Bank Affordable Housing Program, and then there are three programs at FHA. These are 

generally the major housing programs that would provide any rental housing assistance. 

Mr. SCHWEIKERT. I think I came across one list where there 

could be, there are many other sort of subprograms. And part of 

the nature of my question is more, do we damage our, the goal of 

affordable housing or affordable rental properties particularly for 

our lower-income population by sometimes having so many programs? If you were to visualize—and I know I am a little off topic, 

but this is one I actually have a great interest in—a consolidation 

of some sorts, would we service the population better? 

37 

Ms. CROWLEY. I think that there are very few housing advocates 

today, and people who provide low-income housing who wouldn’t 

say to you that if we were starting over today, or if we could wave 

a magic wand, that we would design a system that looks differently 

than it does. We have multiple programs because we have a long 

history, and programs are developed over time responding to those 

particular needs. They build up, they serve a particular purpose, 

and it is no different than any other function of government where 

Congress responds. 

Mr. SCHWEIKERT. I am very appreciative of how our history and 

sometimes— 

Ms. CROWLEY. But incremental—we are incrementalists. And 

this is how these programs develop and then you develop new programs to fill the void of what the existing programs don’t do. Could 

we reform some of the programs and do them better? Sure. You can 

always reform. But none of the existing programs are going to fill 

the void that I talked about in terms of extremely low-income people. 

Mr. SCHWEIKERT. For the education of David up here, your opinion on the effectiveness of a classic Section 8 program? 

Ms. CROWLEY. The Section 8 voucher program? 

Mr. SCHWEIKERT. Yes. 

Ms. CROWLEY. I think the Section 8 voucher program is extremely effective. I think it is a program that provides really essential assistance to a large number, 2 million families in the United 

States. I think the Section 8 program should be doubled. 

Mr. SCHWEIKERT. But is it a similar population that would be 

served from the trust fund? 

Ms. CROWLEY. Yes. But the Section 8 program is only effective 

if there is housing that can be rented with a voucher. 

And in many, many places, there is an insufficient supply of 

housing that voucher holders can use. And so in order to be able 

to house everybody, what we need is both a supply, contribution to 

supply, which the National Housing Trust Fund would do, and additional operating subsidies. I was just in Mr. Hurt’s district— 

Mr. SCHWEIKERT. My personal experience came from Maricopa 

County, where I know there are lots and lots of properties, and 

they are actually fairly well managed, both the Phoenix and then 

some of the other municipalities also managed. And my understanding is there are substantially more available properties than 

there are voucher holders. That may be somewhat unique to what 

has happened in the Phoenix market. 

Ms. CROWLEY. I think the Phoenix market is unique. But the 

question is, are those properties renting at prices that the voucher 

will cover? 

Mr. SCHWEIKERT. Yes. And they have been driving them down, 

and I only know that from having managed some of those portfolios. Thank you. But I am down to my last 45 seconds. 

Dr. Sanders, with your look at historical trends, what do you 

think our homeownership percentage averages should be? What 

would be a model percentage? 

Mr. SANDERS. Again, one of the problems we are facing now, trying to recover from what happened, is by driving up homeownership rates and trying to hit 70 percent. Of course, we now know— 

38 

and even HUD has agreed with us—we overcooked it. We should 

have been putting more people in rentals. So it probably is going 

to get down to about 62, 61 percent. 

Mr. SCHWEIKERT. Is 62, 61 percent is that a historic optimum? 

Is that the most stable percentage of population in ownership compared to population rental? 

Mr. SANDERS. Yes, I believe that is about the right answer. And 

one of the things we have to consider is that, once again, housing 

prices had an enormous bubble in it. The collapse has dislocated 

people in rental housing. And I want to just supplement one thing 

Dr. Crowley said is that I was asked in Phoenix to speak with Congressman Mitchell, who is I guess no longer in the House, and La 

Raza. 

Mr. SCHWEIKERT. I am a little embarrassed you said that. He is 

both our family friend and the person I replaced. 

Mr. SANDERS. He was very nice, and he had me speak through 

a group, La Raza. And he said, what is the best way to get affordable housing to our constituents? And I said, the market solution 

would be, why don’t we do what we did back in the 1980s and just 

increase the depreciation deductions on apartments, multifamily, 

and we will create a multifamily building wave. 

Mr. SCHWEIKERT. Dr. Sanders, I am way over time, but I would 

love to circulate back to that. 

Ranking Member Waters? 

Ms. WATERS. Thank you very much. 

I am sorry that Mr. John had to leave because he characterized 

the housing trust fund as ridiculous, and it is a good thing Barney 

Frank was not here. That is a program that he initiated and cares 

an awful lot about and probably would have had a few words for 

Mr. John, calling the program ridiculous. 

But you are here, Mr. Sanders, and in your testimony, you note 

that one of the seven bills we are considering today caps the taxpayer loss at $200 billion, and this represents a major step toward 

the curtailment of further taxpayer bailouts of Fannie and Freddie. 

Mr. SANDERS. That is correct. 

Ms. WATERS. Do you understand that this legislation mirrors verbatim the language already governing the draws from the Treasury 

available to the Enterprises? The language is included in the 

Treasury Department’s Preferred Stock Purchase Agreement with 

the Enterprises. The Treasury Department became legally unable 

to amend this bailout cap as of December 31, 2009. So to be clear, 

would you agree that this legislation provides no new authority to 

limit bailout to the GSEs? 

Mr. SANDERS. What I would say is that, yes, one of the reasons 

why I like this is it agrees with the Treasury report. But I think 

this puts into—casts into stone keeping it there and not letting it 

continue to grow. 

Ms. WATERS. So it is verbatim and you understand that this is 

not new, that however you want to characterize it, that it has already been done. So this is repetitious. Okay. 

Let’s go on. In your testimony, you note that you concurred that 

Fannie and Freddie should have the Housing Trust Fund contribution eliminated since we already have the FHA. Do you acknowlVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
39 

edge that Fannie and Freddie have made zero contributions to the 

trust fund to date? 

Mr. SANDERS. I am aware of that. 

Ms. WATERS. No money, none. 

Mr. SANDERS. That is correct. 

Ms. WATERS. All right. So what is it you are agreeing that should 

be eliminated? 

Mr. SANDERS. What I am saying is that we have the FHA and 

HUD, which should be serving the afflicted households. And I don’t 

know why we are putting this over on Freddie and Fannie. We already have a big government organization to do this. 

And secondly, again, as I said, there is a free market approach 

to this, which is build more multifamily. That is why the Housing 

Trust Fund, to me—I am not saying it is good or bad. I just don’t 

think it belongs in Freddie and Fannie. 

Ms. WATERS. Do you realize that the trust fund and FHA have 

vastly different goals? 

Mr. SANDERS. Yes. 

Ms. WATERS. Do you know what the difference is? 

Mr. SANDERS. Yes, I do. 

Ms. WATERS. What is it? 

Mr. SANDERS. The FHA is primarily for first-time home buyers. 

But a recent report by Robert Van Order—and I forgot who the second author is—looking at the FHA low downpayment programs has 

identified that it is more than just first-time home buyers. They 

have actually reached down and provided more lending to minority 

households, etc. 

Ms. WATERS. Dr. Crowley, will you tell him—because you stated 

in your testimony—would you restate the goals of the Housing 

Trust Fund for him? 

Ms. CROWLEY. The Housing Trust Fund is primarily a vehicle for 

expanding the supply of rental housing for the poorest people in 

the United States. 

The statute does provide that some of the funds, up to 10 percent, could be used for homeownership activities. And up to 10 percent can be used. The statute says that 75 percent of the funds 

must be used for extremely low-income people. Up to—the other 25 

percent can be for very low-income people. The regulations that are 

about to be finished would say for the first year, it should all go 

to extremely low-income people because that is where the greatest 

need is. These are not people who are in a position to become 

homeowners today. And in fact, we really think that if you create 

a stable rental opportunity for low-income, extremely low-income 

working families and they have the ability to actually stay in one 

place, to pay a reasonable amount for their home, to be able to afford the other things that they need in their lives, that you know 

what, they might be able to save money and eventually improve 

their economic circumstances so that they could buy a house in the 

old-fashioned way, making a downpayment. 

But if you don’t have a sufficient supply of rental housing, getting people into homeownership is a foolhardy effort. 

Ms. WATERS. Thank you very much. 

Dr. Crowley, let me just mention, if I may, to Dr. Sanders that 

there are still 7 million renter households with worst-case housing 

40 

needs, including 1.3 million elderly households and nearly 1 million 

households, including an individual with a disability. And to just 

let you know that given what is happening with the housing market at this time and a lack of availability of mortgages, that there 

is going to be a greater need for rental housing. And so, the Housing Trust Fund would address that data, and it is quite different 

from the FHA. 

I yield back the balance of my time. 

Chairman GARRETT. The gentlelady yields back. 

The gentleman from California. 

Mr. CAMPBELL. Thank you, Mr. Chairman. 

Dr. Sanders, in your testimony, you said that we should have a 

less costly alternative to Fannie and Freddie that requires less government involvement. You didn’t say no government involvement. 

What government involvement do you believe is appropriate or necessary? 

Mr. SANDERS. Again, as we have been discussing on the FHA— 

and this is a matter of where the Housing Trust Fund, if we had 

that, resides. We will always have a need to help house the lowestincome households in the United States. And it is true, right now 

we are suffering from a shortage of that, so there are solutions to 

this. I am just not sure the trust fund is the way to do this. But 

again, there will always be a—and we have the FHA to serve that 

means. 

Mr. CAMPBELL. And that is it? So you don’t think there is any— 

as I read through your testimony, you talked about a few alternatives you thought for, other than low income and for the general 

housing finance market. 

Mr. SANDERS. No, I think that pretty much sums it up. I think 

FHA covers most of it. And for the GSEs, Fannie and Freddie—and 

again, it gets back to a point. 

Mr. CAMPBELL. So, in the absence of the GSEs—or if they are 

just gone, let’s say, and so there is no government backing whatsoever for any housing market, so will the 30-year fixed-rate mortgage continue? 

Mr. SANDERS. The answer to that is, it depends on what would 

you put in its place. I think covered bonds, for example, facilitates, 

allows the 30-year fixed to be originated, and then somebody purchases it and bears the interest rate risk. 

Mr. CAMPBELL. Stop right there. Do you think that covered bonds 

can replace Fannie and Freddie in the marketplace? 

Mr. SANDERS. You would have to have a portfolio of things to replace Freddie and Fannie. One of them is a better private-label 

securitization market. One of them is to get banks back into lending— 

Mr. CAMPBELL. What is a better private-label security market? 

Mr. SANDERS. Again, we were discussing it earlier. I didn’t really 

have much of a problem with the private-label securities market, 

other than Fannie and Freddie grabbed off all the least risky loans 

and stuck the private sector with the risky stuff. 

Mr. CAMPBELL. Just like covered bonds do, by the way, since they 

pull all the non-risky things over to the covered bonds, and they 

leave all the risky assets in the bank for the FDIC to insure, which 

is government insurance. 

41 

Mr. SANDERS. That is one way of looking at it. 

Mr. CAMPBELL. Okay. Go on. So covered bonds involve government assistance and also transfer risk and put it in a different 

place. But go on. Let’s talk about the private securitization market. 

Mr. SANDERS. Okay. One of the things we have discussed in previous hearings recently is that while I have no problems with it per 

se, one of the issues we have talked about to help the market go 

forward is standardization of pulling a servicing agreement, standardization of other documents, making loan level information public. 

Mr. CAMPBELL. But still, is that going to get you 30-year fixedrate mortgages? 

Mr. SANDERS. If there is somebody who is willing in the private 

sector to take on the interest rate risk. 

Mr. CAMPBELL. History would indicate both in this country and 

in others that—because they don’t just have to take on the interest 

rate risk. They have to take on the interest rate risk, market risk, 

credit risk, and duration risk; four types of risk. And certainly the 

people who participate in that market tell me they would have no 

interest, and history would indicate that they have no interest either, because without—all you have to do is look at what there was 

in nonconforming loans in the past and in other countries so it is 

not there. 

If a 30-year fixed-rate mortgage went away or was generally not 

available or required a 50 percent downpayment or something like 

that, so instead you had much shorter duration mortgages and 

much higher downpayments required in a private securitization 

market, which I admit could exist, but it would exist with shorter 

duration loans and higher downpayments. Isn’t that going to have 

a major negative impact on housing prices if people, in order to get 

the same house, have to have a lot more cash and a lot more 

monthly payment to get the same house they do today? 

Mr. SANDERS. Again, let me put on my hat from a bank where 

I was a bank officer and actually was head of mortgage-backed securities and analysis and modeling. And what I will say to you is 

this, on the one hand, while I hear the people come out and say, 

if there is no government guarantee, the market will evaporate; on 

the other hand, it was always my understanding when I would talk 

to people, is they would always say, boy, we love more yield. We 

want more yield. Hence, that is why we saw some alternative mortgage products. 

I would say the following: If we geared down—and notice I say 

wind down the guarantee—I didn’t say obliterate it yet. But if you 

wind down the guarantee and let the private sector back in, that 

means higher yields. I think there is approximately $12 trillion of 

capital around the world sitting on the sidelines. And right now, 

our Treasury rates are so low and Freddie and Fannie debt adds 

a whopping 20 basis points to Treasury debt. In other words, yields 

are so low, they are not going to attract— 

Mr. CAMPBELL. My time has expired. But if I can just suggest— 

and I will welcome the conversation going forward. But every scenario you have described or describe in this paper relative to no 

government activity results in significantly higher payments for 

the same house in the housing market, which is going to reduce 

42 

housing prices, which is going to cause a significant economic withdrawal, which we can’t do. I think there are ways to protect the 

taxpayer but yet support the market. 

And I yield back. 

Chairman GARRETT. The gentleman yields back. 

Mr. Peters, for 5 minutes. 

Mr. PETERS. Thank you, Mr. Chairman. 

Actually, I would like to follow some of the questioning of Mr. 

Campbell about the cost of this, Dr. Sanders, with you. I am looking at your testimony here, the written testimony. And it talks 

about, if I may quote it, how some investors are hesitant to hold 

anything but Fannie and Freddie. Now with this, it also could assume any kind of guaranteed paper, some sort of government function of some sort of guarantee. If just some investors are hesitant, 

the mortgage markets will shrink in size. Smaller mortgage markets would be detrimental to the economy. Explain what you mean. 

What degree of detriment are we looking at for the economy based 

on your testimony? 

Mr. SANDERS. To build on what Mr. Campbell was asking, the 

whole notion is that suddenly if the guarantee just magically went 

away today, investors may be reticent about funding further mortgages in Fannie and Freddie or MBS. So we would see rates rise. 

And right now in this perilous market condition, with housing markets essentially dead at the moment, that could cause further damage. I am talking more of over a 5-year period until the housing 

market recovers, then that is when I would recommend we go 

through and do some of the more private market implementation, 

not right at this moment. 

Mr. PETERS. So it would be a rise. And I want to continue just 

for you to clarify some of this. You do talk about interest rate increases that would occur without some sort of guarantee. But you 

say these are educated guesses as to what this will be. We are talking about a multi-trillion dollar market that impacts a lot of people’s lives; and most middle-class families, their principal asset 

that they have. I am hoping that we don’t move forward with policy 

based on educated guesses but something more than that. So give 

me an idea of what we need to do to move beyond the educated 

guesses that you have provided for us for us to make the analysis 

necessary. 

Mr. SANDERS. Coincidentally, I have a suggestion which could 

handle this. I wish Mr. DeMarco was here to hear it. I would suggest that Fannie and Freddie just attest this because I don’t want 

to see the housing market collapse and have calamity. I would suggest we do the following: We have Fannie and Freddie, with Mr. 

DeMarco’s assistance, create a ring fence MBS. What that means 

is, they take the same loans that Fannie and Freddie are buying 

now, which are generally pretty high quality, 20 percent down, 

high credit score for the most part; and we ring fence them, saying 

that if anything goes wrong with these mortgages in terms of default etc., you will not be bailed out by Fannie or Freddie, full risk. 

And just don’t do this on a huge level. Do this for a few pools and 

just put them out on the market. We don’t have any experiment 

right now. And that is why I say, educated guess. 

43 

Nobody knows, if suddenly it went away, how the market would 

respond. This would be an excellent way to test the water, put our 

feet into it, to see how much the international market wants the 

guarantee or it would be fearful of us if there is no guarantee. 

Mr. PETERS. In your testimony, you talk about ranges of—new 

mortgage rates would be in the range of 50 to 100 basis points. But 

there are other studies that have higher rates. I mean 50 or 100 

basis points; I have mortgage investors who are actually in this 

marketplace, who are saying it would probably be 300 basis points 

or more. Where do you come up with your 50 to 100 basis points? 

What is the basis for that kind of estimate? 

Mr. SANDERS. I have heard the 250 basis points. I haven’t heard 

the 300 basis points. But yes, where I am coming from on that and 

the difference is that if you take a look historically between Fannie/ 

Freddie loans and jumbos in the past, it has generally been about 

a 30 basis-point pickup. So between a guaranteed market agency 

and the jumbo market, that is 30 basis points so that is the starting point. So it is probably going to be more than 30 basis points 

because if the guarantee goes away, we will—again, that is why I 

want to see the ring fence test. So it could be 30 basis points, this 

low. I honestly, on the numbers I ran, got probably about 100 basis 

points or 1 percent. But my colleague Andy Davidson, with whom 

I wrote a Wall Street training manual on MBS and mortgages, 

thinks it could be 100, but he goes up to 250, depending on what 

happens in the world economy. We just don’t know yet. 

Mr. PETERS. If it does go up to 250, that could have a much more 

substantial effect on homeownership rates than you are anticipating here. 

Mr. SANDERS. If the international market is not willing to fund 

mortgages unless it takes 250 basis points, I would say that is an 

indication of how sour the outlook for housing and our economy is 

in the first place. So maybe we are stuck with a guarantee. 

Mr. PETERS. Okay. I think I am out of time, Mr. Chairman. I 

yield back. 

Chairman GARRETT. The gentleman yields back. 

Mr. Hurt, for 5 minutes. 

Mr. HURT. Thank you, Mr. Chairman. 

Thank you, members of the panel, for appearing. 

I wanted to just switch gears a little bit. It is a related subject 

but perhaps not directly associated with what you all have talked 

about tonight. And that is FHA and the proposed reform that we 

covered a little bit this morning in a hearing in another subcommittee. And I assume you are familiar with the proposals to reduce the loan limits and increase the downpayment? 

Mr. SANDERS. Yes, I am. 

Mr. HURT. I was wondering if you could speak to that. I would 

love to hear from both of you about this. It was interesting, we had 

a very long panel, two of the panelists, one was from the REALTORS® and was one was from the home builders. They had grave 

concerns about those proposals and believe that the short-term effect will be to drive down values, real estate values, and make it 

more difficult, obviously, for us to recover in the real estate market. 

I think that if we are serious about trying to get—to invite the 

private sector in, we simply have to do these things. But I was 

44 

wondering if you could comment on that and comment especially 

on the short-term effects that you think that we will see and the 

long-term effects as it relates to the goal of many of the people on 

this committee, which is to try to have the private sector come in 

and take a greater share of that market. 

Mr. SANDERS. Let me begin by saying in my testimony, I have 

a graph of mortgage interest rates since the Clinton years, where 

it has gone from—I don’t know if any of you remember—the interest rate in the Clinton and early Reagan years was 18 percent. And 

it has just gradually fallen almost like this; we are down here at 

4.5 percent, 30-year fixed. 

So when we did that, we lowered rates—partly market pressure, 

partly Federal Reserve practices, etc. But when we lower rates like 

that and loosen credit and allow lower downpayment, we got a bubble. Trying to close the barn after we have done this is very difficult. So it is a matter of fiscal responsibility, which is tightening 

credit scores, which on one hand, I agree with. But my biggest concern is exactly what they are arguing, is that while I want us to 

be fiscally responsible and take the taxpayers off the hook, on the 

other hand, I think, whether you look at Experian or Zillow or 

some of the different companies, they estimate that approximately 

50 percent of households will no longer qualify for a loan. And I 

think even FHFA has done some work in saying that I believe it 

is only 20 percent of households—of Freddie and Fannie loans that 

are held would qualify under QRM standards. 

So we have just gone through and literally strangled the credit 

market. Is this going to help the housing market? No, of course not. 

So there has to be a trade-off there between ratcheting down 

some of the stuff. That is why I argue on conforming loan limits, 

don’t go too fast. Let’s just go down the list and test if we don’t 

want to trash the market. There is a fundamental tension there: 

Do it too fast, we are going to have problems. 

Eventually, we have to get more private market participation. 

But at all times—and I don’t know how we are going to do this— 

if Fannie and Freddie stick around in a much smaller format, we 

would have to almost lock them in an iron box and make sure they 

just don’t expand out of control again. 

Mr. HURT. Dr. Crowley, I would love to hear your thoughts on 

it? 

Mr. CROWLEY. The issue of all the structures around homeownership is not the area that we focus on. But I would say that it seems 

pretty clear that a 20 percent downpayment requirement would exclude large numbers of low- and moderate-income people from the 

homeownership market. I also don’t think we should forgo downpayment requirements altogether. I think the era of not having to 

make an investment, have skin in the game, as they say, was unfortunate. 

And so there has to be someplace in between there that provides 

people with the ability to access the market, if they can afford it 

and if they are able to predict that they have a reasonable expectation of income that will be able to sustain that mortgage and they 

have been able to assemble some money to be able to put it down 

on that. 

45 

But let me reiterate that in the absence of a robust rental housing market for low- and moderate-income people, people aren’t 

going to get to that. And see, we are very much out of balance now 

in our housing policy. We have put so much in the homeownership, 

not just in the HUD programs, but in the tax subsidies and in the 

subsidies that went to—in any number of ways. And we have seriously neglected the rental housing market. We need to rebalance 

that. And if we do, then you may find that people—we will restore 

it to a time when people could, in fact, figure out how to build up 

to where they could get into homeownership. 

Mr. HURT. Thank you. 

Chairman GARRETT. And the gentleman’s time has expired. 

Thank you for the questions. 

The gentleman is recognized for— 

Mr. PERLMUTTER. Ten minutes, 20, 30 minutes. 

Chairman GARRETT. Four minutes and 50 seconds. 

Mr. PERLMUTTER. I thank the chairman. 

And I appreciate the testimony you both have provided today and 

thank you for being with us at this late hour, and it actually has 

been pretty thought-provoking, even though it is 5:30. 

So here are my questions: First of all, to you, Dr. Crowley, in 

Denver, we have just now hit a 1.4 percent vacancy rate, which is 

virtually no vacancies. Whether it is subsidized housing or not subsidized housing, we are down to 1.4 percent, and now we are seeing 

rental rates increase. And hopefully, because there are a lot of 

homes that have been through foreclosure, there will be an opportunity to move that way, except that Fannie Mae and Freddie Mac 

have been very tough on their underwriting criteria. So how do I 

now change that 1.4 percent and get it back to something, 5 percent I think is what they always say is kind of a healthy vacancy 

rate? 

Ms. CROWLEY. The issue of this tight squeeze in the rental housing market while there is a vacant property that has been sitting 

there foreclosed, that comes up a lot. Like, do we need more production because we have vacant property? And the question is, how 

do you match those things up? And what is the nature of the property? Where is it? Is it convertible into rental housing? Can you 

take that and make it affordable to where the subsidies that are 

provided actually would work? 

And I don’t know the particulars in Denver about how to do that. 

Every single market is going to be very different. I know that. 

Mr. PERLMUTTER. I guess what I am saying is, I think we have 

way too few rental units, subsidized or otherwise. 

Ms. CROWLEY. We have way too few rental units, and we have 

way too few for the lowest-income people. And when you have a 

market like what you have described, what that means is that the 

people with the greatest resources are the ones who are going to 

get into the rental market. The poorest people are the ones who are 

going to be left out. So it gets harder and harder for the lowestincome people. And that means that you don’t have a workforce to 

do things that are required to keep the economy going. So it doesn’t 

just impact the families who are struggling to pay rent in that 

market. It impacts everybody else who is trying to operate in that 

market. 

46 

Mr. PERLMUTTER. Thank you. 

Dr. Sanders, I guess you reminded me of a couple of things. Have 

you ever heard of a company called the Philadelphia Savings Society? I represented them many, many years ago, and it was a big 

operation. They took a lot of fixed-rate mortgages and they operated until that timeframe you talked about. You said Reagan and 

Clinton. It was Carter and Reagan when the interest rates went 

sky high to 15 to 18 percent. And anybody holding fixed-rate mortgages as an investment got clobbered, including the savings and 

loans. 

So, after that time, because of that experience in the marketplace, because these were clients of mine, I started seeing them fall 

by the wayside because they really couldn’t operate in a variable 

interest rate space and they were afraid to get back into the fixed 

interest rate space because they got clobbered. So my question to 

you—and I wish Mr. John were here with his Latin quote. And my 

friend Mr. Garrett will know this one, ‘‘res ipsa loquitur’’, ‘‘the 

thing speaks for itself.’’ 

Here we have two organizations that are in conservatorship with 

tremendously tough underwriting criteria right now, Fannie Mae 

and Freddie Mac, yet they are the only guys in town. Where is the 

competition? There should be competition, except that other organizations are afraid to get back into this space because they have gotten clobbered in the past. How do you react to that? 

Mr. SANDERS. Thank you. I just want to start off—by the way, 

I want to thank you because at the previous hearing, when Mr. 

Sherman cut me off, you gave me your time to finish the question. 

I always thought that was very nice of you to do that. 

Again, I just want to make—I have written about this separately. 

When we created this, whether it was the Clinton Administration 

or the Bush Administration, which Congress, we created this, 

again, desire to have homeownership at almost any cost. We created this enormous kind of beast that just moved through the market. Okay, what we got was a huge housing bubble. There are a 

lot of contributors to this. But then what we did is we did sap out 

the multifamily market. It kind of went by the wayside because we 

are all pushing homeownership. Now that we are kind of over this 

and we are trying to pare back the home-ownership-at-all-costs 

mentality, we are left with a lack of a multifamily which, again, 

I can say there are other market responses, but we have to build 

more. But getting back to the interest rate issue—and I agree with 

you completely. When it was 18 percent, as rates fell, you could refinance, and ARMs do present some danger to consumers. But 

again, Fannie Mae almost went belly-up because of interest rate 

changes. Interest rate changes almost took out the entire—or did 

take out the entire S&L industry. My point being is that we are 

the only country in the world with this many 30-year fixed. We 

don’t see Denmark, Germany—even France is more liberal than us 

in terms of allowing more ARMs and other types of mortgage products. We are short on products. 

What I am trying to say is that this huge obsession—maybe 

rightfully so. I like 30-year fixed myself. I have never gotten an 

ARM. But when I look at that, I also understand that if interest 

rates do go up, which they will, we now have somebody who is 

47 

going to be holding a ton of risk. The risk isn’t free. Consumers 

may be less better to manage interest rate risks than Freddie, 

Fannie or the State teachers retirement system of Ohio. But I 

guarantee, there is going to be a lot of pain going around when interest rates start going up. Consumers won’t feel it? They will feel 

it. They will just feel it in a different form. Their pension funds will 

get clobbered. 

So I am saying, I am just saying, it is a global holistic issue; if 

we could move more towards what other countries are doing and 

try to not have so much concentration, diversify—I am not saying 

get rid of it; I am just saying, just diversify, have a little more 

product in the mix—it would be a very good thing. 

Mr. PERLMUTTER. Thank you, sir. 

Thank you, Mr. Chairman. 

Chairman GARRETT. I am sitting over here trying to come up 

with a Latin phrase, and I can’t come up with one. 

Ms. CROWLEY. ‘‘Veni vidi vici.’’ 

Mr. PERLMUTTER. There is one right up on the wall, ‘‘e pluribus 

unum.’’ 

Mr. CAMPBELL. That is the only one I know. 

Chairman GARRETT. That is the only one I know. And it goes 

along with the comment that Dr. Sanders was saying, and others 

have mentioned. Aren’t there a myriad of programs that are out 

there? You say, well, the gentleman from California said, there is 

FHA. But as Dr. Crowley says, there is the mortgage interest reduction. There is the activity of the Fed, the Federal Home Loan 

Banks, there is Ginnie Mae. So you can go down a whole list of 

various programs that are in place right now that have somewhat 

of a track record, good and bad, that no one is suggesting too 

strongly to eliminate all those. So they will exist going forward to 

facilitate the housing market, as both of you have said in admirable ways, to provide for rental housing and to provide for homeownership as well. And you both agree that is a good thing, right? 

Mr. SANDERS. Yes. 

Chairman GARRETT. Now here to Dr. Crowley’s point with regard 

to the housing trust, so I guess, aren’t there other ways to do it 

than to look—and maybe you gave this as a partial answer to 

someone else here—to these entities for a mechanism to do it. Basically what we have here, the prior panel, was that they are basically bankrupt—they didn’t say it that way, but you are not doing 

too well—entities, aren’t there other ways, perhaps on budget ways 

to actually do what you and I and others might want to do than 

having a trust through these entities? 

Ms. CROWLEY. As I said in my testimony, the current Federal 

housing programs serve 25 percent of the eligible population. They 

have all been constrained over time within the appropriations process. If we could magically alter that— 

Chairman GARRETT. So they are all confined by the appropriations process. And by that, I am guessing what you mean is, these 

items that we are talking about here are on budget and there is 

only x number of dollars to do it. So that is what the constraint 

is? What you mean by constrained by the appropriations process? 

Ms. CROWLEY. Oh, yes. Most of those programs are cost-based. 

The voucher program is cost-based. It has to go up every year beVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
48 

cause the costs goes up. The block grant program can be held flat 

or reduced, as is happening now. And the other big—there is the 

big three, the voucher program, public housing, and the projectbased Section 8. The project-based Section 8 goes up because those 

are contracted privately. Public housing gets held flat, and it is 

being starved, and that is shameful. 

But there is no existing program that is building new rental 

housing that is affordable to this population. Most programs are 

maintaining what we have. 

Chairman GARRETT. So let me just go down two roads real quick. 

And the gentleman from Arizona may have been going on his way. 

He talked to me when he went out. With regard to rental housing, 

one maybe additional way to address it was on the depreciation 

side. Were you talking about that? Or Dr. Sanders was? 

Ms. CROWLEY. Dr. Sanders said that. 

Chairman GARRETT. Is that not a way? That is something administrative—not administrative, but if we legislatively change the depreciation schedule, doesn’t that help facilitate? 

Ms. CROWLEY. It is not clear to me that would help facilitate creating housing for the population that I am concerned about. 

Chairman GARRETT. Why not? If you craft the tax language in 

such a way—I didn’t hear your testimony—in such a way that you 

say that depreciation for what category? Not for the super wealthy 

but for whatever category as we define the depreciation schedule, 

that is the incentive to do it. What is the depreciation schedule 

now? Probably 15 years or something like that. Whatever it is, you 

shorten the time, so that for investors, they can say I can get a return on it. That just seems to be one alternative. 

Ms. CROWLEY. We are very open to talking about any alternatives, but we don’t think that is going to solve the problem. The 

cost of building and operating housing in the United States today— 

rental housing or any housing, but rental housing—exceeds, just to 

do basic housing, nothing fancy, basic housing, it exceeds what it 

is that people in the low-wage workforce and in that population can 

afford. 

Chairman GARRETT. Right. 

Ms. CROWLEY. So there is a serious gap between— 

Chairman GARRETT. I understand that. So in order to do that, if 

somebody is over here and they just can’t afford it because they are 

working, but they are the working poor, someone has to help them. 

And if the government is going to help them, fine. But then 

shouldn’t we be transparent about that? You are saying that you 

have this list of programs over here that are cost constrained. 

Why? Because they are on budget. And some go up. Some go down. 

Some just stay their way. But the solution to that is not simply 

saying, let’s go over here because I think Dr. Sanders says, there 

is a cost, is there not, to risk. And so there is a cost to the risk 

that Fannie and Freddie have incurred. 

Right now, we can quantify that cost. It is not, as Mr. Peters was 

saying, guessing. We can quantify that cost to the tune of around 

$150 billion, and we can quantify it even further, that the cost is 

going to be upwards to the tune of $400 billion. Right now, that 

is not cost constrained? Why? It is not on budget. You are not sugVerDate Nov 24 2008 12:41 Sep 01, 2011 Jkt 066871 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\66871.TXT TERRIE
49 

gesting that to solve the problem of these cost-constrained areas, 

let’s not be nontransparent about it and— 

Ms. CROWLEY. Oh, I think we should be extremely transparent. 

Chairman GARRETT. Do you support then putting the GSEs, 

while they are existing right now, on budget so we can really see 

what the cost is, right? That is fair. 

Ms. CROWLEY. No. 

Chairman GARRETT. Why not? 

Ms. CROWLEY. I don’t know enough to answer that question. 

Let me just say that the reason that the GSEs were the source 

that we went to around funding the National Housing Trust Fund 

is that the GSEs in their current form, as they existed until September 2008, and what we expect will emerge, depending on what 

Congress decides, are entities that are going to be—they are going 

to have a substantial backing of the Federal Government. 

Chairman GARRETT. But that backing right now is a cost to the 

Federal Government that is not constrained. 

Ms. CROWLEY. It is a benefit to the GSEs. It is a benefit to them, 

and it is a benefit to whatever may replace them. They get some 

benefit from that. In exchange for that benefit, they ought to do 

something that they aren’t going to do in the marketplace. They 

ought to do something in order to help where it is that the housing 

market will not go. So that was the logic behind a contribution 

from them to the National Housing Trust Fund. In order to— 

Chairman GARRETT. But it is a benefit that they are receiving 

that they are not putting on the budget, so it was and is a nontransparent benefit because you are not seeing—you are asking for 

them to give something to this community, to this program, because they are getting a benefit from the taxpayers, but we are not 

seeing that benefit—correct me if I am wrong—we are not seeing 

the benefit, we are not seeing the actual cost. 

Ms. CROWLEY. I think the benefit should be very clearly calculated. There are many people who over time said that the GSEs 

were getting a benefit for what they did. That was the basic rationale for doing it. And anything that replaces them, in the absence 

of—I am not going to predict what is going to happen. But anything that replaces them that has any kind of government guarantee, they have a responsibility to also then make a contribution 

to do things that they won’t do otherwise. 

Chairman GARRETT. And my time has expired. 

The gentlelady from California. 

No? 

Okay. 

So, at this time, without objection, I am going to put into the 

record letters from Americans for Tax Reform with regard to today’s hearing, dated May 25th, and also from the National Association of REALTORS®. 

I appreciate the full panel, even the one who is not here, for their 

testimony. 

Oh, I don’t know. I think we will take a vote to see whether Mr. 

Green gets his 5 minutes. 

No, I am just kidding. 

So the record will remain open with regard to additional questions. 

50 

But since Mr. Green is here and he came in under the gavel— 

Mr. GREEN. Thank you, Mr. Chairman. I have always appreciated your generosity and your kindness. 

Mr. Chairman, I am here because—and I apologize for being 

tardy because I have been in other meetings. But I am here because of the National Housing Trust Fund, and I am here because 

I believe that we should preserve it. If you have no poor people in 

your district, then obviously this is not of concern to you. 

But to my friends on both sides of the aisle, if you happen to 

have some poor people, this may be of interest to you. We have, at 

long last, managed to codify a methodology by which poor people 

can have rental housing funded such that we know that at least 

in difficult times, there will still be a program available to poor 

people. I think that in a great country such as ours, wherein we 

can subsidize oil companies—and I am from an oil State, and I understand the need for it—we subsidize industries that provide our 

food, we subsidize people who are losing their jobs by way of an 

auto industry—and I thought it was a good idea, by the way, to 

bail out the auto industry. I think that is one of the great accomplishments of this President and of our tenure. 

But if we can subsidize those who have had great benefits from 

the country and who are in need at a given time, it seems to me 

that we can subsidize poor people. There are some who would say 

that it is not a subsidy, but I say it is, and we are helping people. 

We are helping people who are very poor. Thirty percent of the 

area median income—which is not a lot—but they still need housing. 

So my appeal today to my colleagues is to, please, let’s find a way 

to maintain the program. Let’s not end it before it has a chance to 

do what it was designed to do. These funds will go to States and 

block grants. The States have to submit a plan to the Secretary, 

which has to be approved. And only with an approved plan will the 

moneys be spent. 

These moneys are not simply passed on to entities to do with as 

they please. My hope is that my friends will engage in a colloquy 

with me with the time that I have left. As you know, I enjoy talking to my friends. So, Mr. Garrett, it looks like you and I—can you 

give me some rationale for— 

Chairman GARRETT. These two guys. 

Mr. GREEN. Get me some rationale, Mr. Chairman, for why 

would we end a program to help poor people, given all that we are 

doing to help people who are well-off, well heeled, and well-to-do? 

Why would we do this to poor people, Mr. Chairman? 

Chairman GARRETT. I appreciate that. And before you came in, 

I made the comment—I think that we are on the same page. 

Mr. GREEN. You and I? 

Chairman GARRETT. No. I was talking to them. Before you came 

in, I was speaking to and asking the panel, and I said we are on 

the same page, saying that there are certain needs that you just 

elaborated on for a certain segment of society that we need to figure out what is the best way to facilitate that getting done. One 

of the suggestions was thrown out—I guess this was by Dr. Sanders with regard to facilitating rental housing in the area of the Tax 

51 

Code maybe. I was suggesting that maybe the best way to do it was 

through direct assistance. 

My overarching theme in all of these is that they be clear and 

transparent so that they be on budget. And I will just close on this. 

The President of the Federal Reserve—and where is he from, Richmond—said these issues are laudable social goals, but if that is the 

objective, we should be subsidizing housing equity and not housing 

debt. In other words, we are subsidizing the debt through the programs that we have facilitated over the past. Let’s not do that. 

Let’s be honest to the public and let’s do it in a transparent way 

and let’s do it in a direct way. 

Mr. GREEN. If we may, Mr. Chairman, I beg that you would 

allow our colloquy to continue for just a moment, given that we are 

it right now. And I know that we both have great things to do, but 

helping poor people is a great thing to do. 

Chairman GARRETT. We are on the same page with that. 

Mr. GREEN. Let’s do this, Mr. Chairman. Let’s look at it from this 

point of view: I find that when it comes to helping the poor, we always—not just you now, but I am including myself—we always 

work toward getting around to doing it. We rarely get the opportunity to actually do it. In Texas, we call this ‘‘fixing to.’’ We are 

fixing to do it, but we don’t ever get to the actual fixing. We just 

get to the ‘‘fixing to do’’ part. Mr. Chairman, this is a program that 

cannot bankrupt this country. Helping poor people with this program will not bankrupt America. 

Chairman GARRETT. But is it the question that when we are 

talking about helping any segment of society, especially the poor 

people, shouldn’t we be honest with them in saying that the programs that we establish are really for them and not for all other 

classes of people as well? So when we had programs like the GSEs 

and we say, well, we are going to try to help the poor, as you describe, and where we have the mortgage interest rate deduction 

that we have we try to help the poor be able to start out and get 

that first house and what have you, shouldn’t we really be honest 

with them that we are really not just helping the poor. In those 

programs that you are advocating that we are doing, continuing on, 

that we are actually helping the middle class, the upper middle 

class, and the wealthy as well because that is where a large part 

of the cost goes, so shouldn’t we be honest with those people? 

Mr. GREEN. Let’s be honest. Let me reclaim my time for just a 

minute, Mr. Chairman. 

Chairman GARRETT. Your time was over a minute ago. 

Mr. GREEN. Let me reclaim the time that I don’t have that you 

are sharing with me. You have said a lot. And I need for you to 

explain to me what you mean by, ‘‘we are helping the wealthy.’’ 

How are we helping the wealthy by helping poor people with rental? 

Chairman GARRETT. What I am talking about is if we are talking 

about various ways here, as we have been talking about over the 

last hour, on facilitating various programs to help the poor. And 

my response back to you was that many of the programs that have 

been advocated to help the poor, the ones that I just gave you a 

list of—what did I just say, the GSEs, the mortgage interest rate 

deduction, something else, the Federal Home Loan Banks, those 

52 

are all programs that people come here and say, we have to do 

them because we are helping the poor. And I am just saying, let’s 

be honest with the poor; poor, we are trying to help you, but you 

know what, we are also trying to help the guy who is making over 

$250,000, too. We are also trying to help the guy who is making 

$350,000 with these litanies of programs. So, you have to be honest. 

Mr. GREEN. I am going to be honest. But let’s do this: Challenge 

me if you ever think that I am not being honest. No, listen now. 

Challenge me and let me respond. Because I am going to be honest. 

I simply believe that— 

Chairman GARRETT. So do you tell people that when you supported the GSEs that you say, we are out there helping— 

Mr. GREEN. What does that have to do with this program? Because I think the mortgage interest—I agree with you. That helps 

middle-class people, and that helps wealthy people. But this is not 

mortgage interest deductions. 

Chairman GARRETT. So, with this program, my position is that 

if we are truly trying to facilitate helping the poor, shouldn’t we 

also be honest with them as to what the cost of the program is? 

As the testimony was that there is a risk cost to the underlying 

program that is facilitating this—which is what? The GSEs—which 

is not on budget, and we understand, Dr. Crowley is saying, well, 

if they are getting this benefit— 

Mr. GREEN. Mr. Chairman, if I may now, the GSEs did not—I 

don’t know, I am picking up a disjointed syllogism here because I 

don’t see how the GSEs play a role in this one. We are not getting 

the money from the GSEs currently for the program. And the GSEs 

did not—listen now, this program did not bankrupt the GSEs. 

There were some other things that we have a nice name for. We 

call them exotic products that went into the GSEs. But this program didn’t bankrupt the GSEs. 

Chairman GARRETT. My understanding is that this program was 

established with the GSEs principally intended to be the main 

funding source. 

Mr. GREEN. That they never got around to funding. 

Ms. CROWLEY. First funding source, not the main funding source. 

Chairman GARRETT. So do you think that was being honest with 

the poor segment of the population that you were trying to help, 

saying, we are creating a new program? And they will say, how are 

you funding it? Our first source of funding is going to be from the 

GSEs. That is what was said. But did you then go on to say that 

those two entities that we are going to list as the first source of 

funding are basically bankrupt? 

Mr. GREEN. Let me respond. It is only fair to give me a response. 

Not only did we not say it, I am not sure that a lot of people knew 

it at the time we were working with this program. This program 

was not something that was designed to satisfy the needs of poor 

people as a result of the GSEs going bankrupt. We weren’t designing a program to hurt the GSEs. The GSEs didn’t go bankrupt because of the program. Tell me the amount of money the GSEs 

spent on this program. 

Chairman GARRETT. No one was saying that the GSEs went 

bankrupt because of these programs. What we are saying is, if you 

53 

are going to be as honest as you are that when you created this 

program through the HERA program and you are going to enlist 

as the primary or the first funding source being then the GSEs in 

2008— 

Mr. GREEN. But that was not esoteric. That wasn’t esoteric. 

Chairman GARRETT. Did you understand at that time in 2008 

what the status and the quality and the sustainability was of the 

GSEs? 

Mr. GREEN. Absolutely not, Mr. Chairman. I did not know that 

the GSEs—most people didn’t realize that we were approaching the 

economic crisis that we approached. I think that had I known, if 

you would let me be king, we wouldn’t have had this happen. But 

it wasn’t this way. And these programs had nothing to do with the 

bankruptcy of the GSEs. 

Chairman GARRETT. No one is arguing that. So let’s agree on one 

point then. 

Mr. GREEN. What is the point? 

Chairman GARRETT. The point is that we should be transparent 

and honest, and so, so long as they are coming from this program 

or have the potential to come from this program, the program’s potential funds—I know it is not getting a dollar yet—potential funding should be on budget so that they can actually see what it would 

cost. 

Mr. GREEN. Let me ask you this, Mr. Chairman: Are you saying 

that as though there is a move afoot to hide this or secret this? 

Chairman GARRETT. I don’t know. Have you sponsored my bill to 

put it on budget? I don’t know. 

Mr. GREEN. I don’t know about putting them on budget in terms 

of your bill, but I don’t have a problem with transparency and 

knowing the source of revenue. There is no problem with that. My 

concern has to do with the elimination of them. We have had Members from your side talk about eliminating the program totally, 

eliminating the trust fund. That is what I am addressing, elimination of the trust fund. I don’t have a problem with transparency. 

Poor people don’t have a problem with it being known that they are 

getting money from some source or given source. And I represent 

a lot of poor people. So I will speak for them and tell you that poor 

people are okay with people knowing where the money is coming 

from. But here is my question to you, though, Mr. Chairman, why 

are we approaching a vote to end the program? 

Chairman GARRETT. Because they are—we are not being transparent. We are not being honest with— 

Mr. GREEN. Okay. Let’s be transparent. Let’s be honest. And 

keep the program. 

Chairman GARRETT. There was legislation to put the GSEs on 

budget. So I would appreciate your signing on to that. That is the 

first step of that. Second step— 

Mr. GREEN. The GSEs don’t have to be the funding source for the 

programs, Mr. Chairman. There can be other funding sources. The 

point is, this country needs a National Housing Trust Fund to help 

poor people get rental housing. And I would love for the source to 

be the GSEs in better times. But if the GSEs are not available to 

fund, then I don’t want to conclude that we won’t have any funds. 

54 

Chairman GARRETT. Then let’s look—and Dr. Crowley was listing 

some of the various programs that are out there. Let’s take a look 

and say that the GSEs are not the source of the funding of this. 

And let’s look to the other programs that are in existence. Let’s put 

it over under HUD and put it on budget and then consolidate with 

the other funding over there. Then you can say, we are going to 

provide this service, and this is what it is going to cost. 

Mr. GREEN. Let’s say this: Rather than you and I conclude conclusively right now what would be done, let’s agree that we would 

save the program and that we will work on the funding source. I 

think the funding source is something that we can resolve if we 

have the will to say that we will save the program. 

Chairman GARRETT. We can agree that we can address the problem, which is the issue of multifamily housing and rental housing 

and the like and also for first-time homeowners and the like, all 

the issues for the four. But until we come to an agreement of where 

the funding source is for this program, I think we are being disingenuous to that very class of people who are trying to help. 

Mr. GREEN. I still haven’t ascertained where this disingenuousness is coming from. 

Chairman GARRETT. You haven’t ascertained as to where you 

want to get the money from to pay for this. 

Mr. GREEN. I am saying to you, if we agree that we can keep the 

program, I think we can agree that we can find the money to take 

care of the program. 

Chairman GARRETT. And I look to you for that first hurdle. 

Mr. GREEN. Do we agree that we keep the program? 

Chairman GARRETT. I look to you for the first hurdle as to where 

you want to start getting the funding for housing assistance programs. There is a litany of those programs that are out there. I 

look to you also to say which ones are beneficial, and which ones 

are superfluous. 

Mr. GREEN. Let me share this with you. 

I will do that right now. I say to you that we have the courage 

to say to poor people in this country that Congress will appropriate 

the funds and that we will do it from sources that we will determine at a later time. But Congress can appropriate the funds for 

the program. Why can’t we make a commitment to poor people? We 

are committed to oil companies. We were committed to the big 

banks. We have been committed to farmers. We have been committed to people who have really benefited from what we have 

done. What is wrong with committing to poor people? 

Chairman GARRETT. What is wrong with being honest with 

them—when you make a commitment—when my kids make a commitment to somebody— 

Mr. GREEN. I am saying, I will be honest. I am willing to be as 

honest as I can if you will just help me. 

Chairman GARRETT. And I am glad to help you. 

Mr. PERLMUTTER. If I might, gentlemen—and I am with my 

friend from Texas. We have now gone 15 minutes over the 5 minutes. We have votes. These people have been here for like 5 hours. 

That is all I am saying. 

Mr. GREEN. Let me apologize to the two people who have been 

here and encourage you to go and vote. 

55 

Let’s do this. We welcome you, and we thank you. But I am committed to poor people for as long as it takes. 

Mr. Chairman, listen, this will be my last word. I regret that the 

Congress of the United States of America can subsidize the welloff, well-heeled, and well-to-do and turn its back on poor people because that is the way I see it, Mr. Chairman. And we should not 

do this. We should not do this. It is so easy to draw a line through 

something that benefits poor people. It is very difficult to draw a 

line through subsidies for oil companies. It is very difficult to draw 

a line through subsidies for banks. But when it comes to poor people— 

Chairman GARRETT. I will close on this. It is very difficult to 

draw a line through other housing policy that you—Members on 

your side of the aisle support in the name of poor people who actually support the middle class and the upper middle class on various 

issues. 

Mr. GREEN. Mr. Chairman, I will work on those. Let’s just talk 

about this one. What you are doing now is you are confusing other 

issues with this one. 

But listen, you have been generous. And thank you for the colloquy. I thank you. You have been generous. God bless you. Thank 

you very much. You know I love you. 

Chairman GARRETT. Very good. Likewise. 

Dr. Crowley, Dr. Sanders, I appreciate your sitting there. I bet 

you have a whole bunch of comments you want to throw out. 

Ms. CROWLEY. This was fascinating. 

Chairman GARRETT. It was a good discussion. 

I will digress for 30 seconds more. One of the interesting things, 

when the former chair of this subcommittee in the last year was 

Paul Kanjorski, and if you ever sat in, oftentimes, just like what 

happened now, everybody leaves, except for like three or four of us, 

and it would be Paul and I and just one member on the other side, 

and we would get into some of these later sort of roundtable—not 

12 minutes as we just did with a dialogue like this. But it was one 

of the better things that we worked out in the last Administration 

with Paul here. And I am glad I was able to do it and continue on. 

Again, thank you both for waiting patiently for us before and 

through the first panel. Thank you both very much for your testimony and your expertise that you bring to this issue. I think I have 

already said it, but I will repeat it that the record is open for another 30 days for additional questions. And I had better put the 

gavel down before someone else walks into the room. Thank you. 

[Whereupon, at 6:10 p.m., the hearing was adjourned.] 

(57) 

A P P E N D I X 

May 25, 2011 

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