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THE FUTURE OF HOUSING IN 

AMERICA: EXAMINING THE 

HEALTH OF THE FEDERAL 

HOUSING ADMINISTRATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND INSURANCE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

FEBRUARY 11, 2016 

Printed for the use of the Committee on Financial Services 

Serial No. 114–72 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

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 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON HOUSING AND INSURANCE

BLAINE LUETKEMEYER, Missouri, Chairman 

LYNN A. WESTMORELAND, Georgia, Vice 

Chairman 

EDWARD R. ROYCE, California 

SCOTT GARRETT, New Jersey 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

DENNIS A. ROSS, Florida 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

ROGER WILLIAMS, Texas 

EMANUEL CLEAVER, Missouri, Ranking 

Member 

NYDIA M. VELA ́ ZQUEZ, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

AL GREEN, Texas 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

JOYCE BEATTY, Ohio 

DANIEL T. KILDEE, Michigan 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

February 11, 2016 ............................................................................................ 1 

Appendix: 

February 11, 2016 ............................................................................................ 31 

WITNESSES 

THURSDAY, FEBRUARY 11, 2016 

Golding, Edward L., Principal Deputy Assistant Secretary, Office of Housing, 

U.S. Department of Housing and Urban Development ..................................... 3 

APPENDIX 

Prepared statements: 

Golding, Edward L. .......................................................................................... 32 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Luetkemeyer, Hon. Blaine: 

Chart entitled, ‘‘Financial Status of the FHA Mutual Mortgage Insurance 

Fund FY 2015’’ .............................................................................................. 43 

Written statement of the National Multifamily Housing Council and the 

National Apartment Association .................................................................. 44 

Beatty, Hon. Joyce: 

Article from The New York Times entitled, ‘‘As Banks Retreat, Private 

Equity Rushes to Buy Troubled Home Mortgages,’’ dated September 

28, 2015 .......................................................................................................... 46 

Ellison, Hon. Keith: 

Table entitled, ‘‘Manufactured Home Eligibility Requirements for FHA 

Title I and II Programs’’ ............................................................................... 55 

Golding, Edward L.: 

Written responses to questions for the record submitted by Representatives Luetkemeyer and Ellison .................................................................... 56 

(1) 

THE FUTURE OF HOUSING IN 

AMERICA: EXAMINING THE 

HEALTH OF THE FEDERAL 

HOUSING ADMINISTRATION 

Thursday, February 11, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING

AND INSURANCE, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:30 a.m., in room 

2128, Rayburn House Office Building, Hon. Blaine Luetkemeyer 

[chairman of the subcommittee] presiding. 

Members present: Representatives Luetkemeyer, Royce, Garrett, 

Pearce, Posey, Ross, Barr, Rothfus, Williams; Cleaver, Clay, Green, 

Ellison, Beatty, and Kildee. 

Ex officio present: Representatives Hensarling and Waters. 

Chairman LUETKEMEYER. The Subcommittee on Housing and Insurance will come to order. And without objection, the Chair is authorized to declare a recess of the subcommittee at any time. 

Today’s hearing is entitled, ‘‘The Future of Housing in America: 

Examining the Health of the Federal Housing Administration.’’ 

Before we begin, I would like to thank the witness for appearing 

today. We look forward to your testimony, Mr. Golding. 

I now recognize myself for 4 minutes to give an opening statement. 

The statutory mission of the Federal Housing Administration 

(FHA) is admirable. There is a purpose for the agency. Some qualified first-time and low-income individuals and families need assistance securing their first home. 

But FHA has suffered a case of mission creep, and the unfortunate truth is that the lack of sound underwriting and risk management puts both homebuyers and U.S. taxpayers at risk. 

This committee had a similar conversation last year and the 

years before that. And while the most recent independent actuarial 

report showed some signs of a modestly healthier agency, the bottom line is that FHA is still in a precarious state. 

FHA’s shaky principles were not born out of the 2008 crisis 

alone. In fact, since 2000 FHA has hit the target economic value 

for the Mutual Mortgage Insurance Fund (MMIF) only 3 times. 

Most recently, it was because the agency experienced a dramatic 

uptick in the value of its reverse mortgage or Home Equity Conversion Mortgage (HECM) portfolio. 

2 

We should take little comfort in FHA’s assertion that a longawaited positive actuarial report means that all is well and only 

getting better. With all due respect, we have heard that story for 

years and it has never proven to be entirely the case. 

In 2009, then-HUD Secretary Shaun Donovan said FHA would 

reach the capital requirement in the next 2 to 3 years. In 2011 and 

in 2012, he said FHA would hit the target by 2015. 

Today, FHA reports that the target has been hit—just barely— 

but only because of the upswing in the HECM portfolio. This is a 

portfolio that was a negative 1.2 percent in Fiscal Year 2014, now 

up to 6.4 percent. Meanwhile, the single-family ratio improved from 

0.56 percent to a modest 1.63 percent. 

The underlying problems at FHA—high volatility and questionable underwriting—have existed for years and continue to pose, in 

our judgment, a threat to all Americans. 

To make matters worse, the agency decided last year, despite 

poor performance, to cut its income stream by lowering premiums 

by 50 basis points. Anyone who understands the fundamentals of 

lending and insurance knows you can’t cut your income stream 

when you are in need of capital. 

The bottom line is that FHA keeps trying to grow itself out of 

a problem and has, in terms of the 2015 actuarial report, backed 

into a win. We need to continue to focus on common-sense reform 

and creation of a more stable housing market and housing finance 

system. 

I look forward to hearing from our witness today. 

With that, I yield 5 minutes to the distinguished gentleman from 

Missouri, the ranking member of the subcommittee, Mr. Cleaver. 

Mr. CLEAVER. Thanks, Mr. Chairman. 

Today, I think the news about the FHA is significantly better 

than it has been in the past, and I think we have convened this 

hearing, ‘‘The Future of Housing in America: Examining the 

Health of the Federal Housing Administration,’’ at a good time. 

It was 1 year ago that we held a hearing in this room on FHA, 

and we now have the opportunity to again examine and conduct 

oversight to the current state at FHA. Throughout my political career, first as a city councilman, next as a mayor, and now as a 

Member of Congress and the ranking member of this subcommittee, I have passionately advocated for increasing home ownership. Home ownership does things that I am not sure most people even realize, because it brings the ‘‘somebody-ness’’ out of folk. 

And I speak experientially. Moving out of public housing after 

my father bought a home, all of a sudden—and I am always 

pleased to say my father started getting the yard of the summer. 

He would get a photograph of his yard in the newspaper. 

He would walk out and pick up cigarette butts down the street. 

The neighbors all know that when you walk around Mr. Cleaver’s 

house, you have to be careful. He doesn’t even want you to breathe 

too heavily. He might go out and water the lawn if you do that. 

So I know what the pride of home ownership does. I have seen 

it. 

And like many in this room, I purchased my first home with the 

help of FHA. I continue to support the invaluable role that the 

3 

FHA plays in helping first-time and low-income individuals purchase homes. 

In Fiscal Year 2015, 82 percent of FHA purchases were from 

first-time homebuyers. Nearly a third were minority buyers, with 

Hispanic homebuyers accounting for 17.4 percent of purchases and 

African-Americans accounting for 10.4 percent. 

And it is no secret that there is a wealth gap in our country, a 

wealth gap that must be fully addressed, and the FHA plays a significant role in promoting home ownership and narrowing this gap. 

It is also important to note that overall health of FHA and the 

Mutual Mortgage Insurance Fund (MMIF)—last year the FHA announced that it would cut annual—it was projected that this move 

would bring an additional 83,000 new borrowers in a year into the 

market. 

In the first year since that change, the goal was exceeded by 

106,000 new borrowers purchasing homes. That ought to be an excitement for the people of this country. The capital ratio is now 

2.07 percent, and the net worth of the MMIF is up $19 billion in 

Fiscal Year 2014. 

I would like to thank you, Mr. Chairman, for this hearing. 

And I would like to also express thanks to our guest for being 

here. 

Chairman LUETKEMEYER. I thank the gentleman for his statement. 

With that, we welcome Mr. Golding. He is the Principal Deputy 

Assistant Secretary, Office of Housing, U.S. Department of Housing 

and Urban Development. 

Mr. Golding, you are recognized for 5 minutes to give an oral 

presentation of your testimony. And without objection, your written 

statement will be made a part of the record. 

You are probably aware of the lighting system: green means go; 

yellow means you have 1 minute left; and red means we are going 

to stop and try and give Members a chance to ask questions. 

So with that, you are recognized for 5 minutes. Welcome. 

STATEMENT OF EDWARD L. GOLDING, PRINCIPAL DEPUTY ASSISTANT SECRETARY, OFFICE OF HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. GOLDING. Thank you very much. 

Thank you, Chairman Luetkemeyer, Ranking Member Cleaver, 

and members of the subcommittee. I appreciate the opportunity to 

testify about the status of the Federal Housing Administration. 

FHA is just as critical today as it was when it was founded in 

the midst of the Great Depression. So I am proud to say that as 

a result of policy changes and prudent risk management, FHA’s 

Mutual Mortgage Insurance Fund is strong and improving. 

For Fiscal Year 2015, the independent actuarial report shows 

FHA rebuilt its capital reserve to the 2 percent standard and is expected to continue to accrue a reserve this year at a somewhat faster rate than initially projected in 2015. 

We endorsed more than 1.1 million single-family loans in Fiscal 

Year 2015—loans for hardworking, everyday Americans who are 

able to experience the benefits of home ownership for the first time 

or refinance into a more affordable mortgage. 

4 

With an average loan size of $190,000 and an average credit 

score of 680, we are demonstrating our commitment to expand 

credit for responsible borrowers and those impacted by the Great 

Recession. Though strained by the crisis, FHA has been on a strong 

upward track, gaining $40 billion in value over the last 3 years. 

Improved underwriting requirements have significantly increased 

the credit quality of the portfolio of the last few years, including 

the fund’s value and reducing the impact of the crisis years 2007 

and 2008. Early payment defaults and serious delinquencies continue to decline to pre-crisis levels, and improved recoveries have 

added over $3 billion to the fund since 2013. 

Last January, FHA lowered its annual mortgage insurance premium by 50 basis points. Around 1 million families were able to 

benefit from an average reduction of $900 in annual premiums. It 

also resulted in more than 160,000 additional responsible American 

families with credit scores below 680 becoming first-time home 

owners over the last 12 months. 

This adjustment was an important step in continuing to help underserved borrowers, and it did not harm FHA’s ability to build the 

capital reserve. I am proud to oversee FHA at a time when we are 

making such important strides. 

However, I also embrace the need for continuous improvement 

and risk management across all of our programs. Of particular interest to me is our Home Equity Conversion Mortgage (HECM) program, due to the challenges involved in projecting future values. 

The ability to age in place is critical for seniors and their families, especially as that segment of our population continues to grow. 

And FHA’s HECM program makes this possible for many seniors. 

FHA has made a number of changes to make the program more 

sustainable so we can manage the risk to the fund while better 

meeting the needs of today’s seniors. Changes include: requiring financial assessment to ensure sustainability; and reducing the 

amount of equity seniors can take out up front. 

I do want to thank the committee for the help they provided with 

the Reverse Mortgage Stabilization Act in 2013, which made many 

of these changes possible. The HECM portfolio’s value now stands 

at $6 billion and it is projected to continue to improve in Fiscal 

Year 2016. 

Looking ahead, FHA is committed to pursuing positive improvements across all our programs, changes that support our role as a 

partner in opportunity for the American people. FHA is eager to 

work with Congress and this committee to better understand the 

benefits and risks of all our programs and to ensure that FHA can 

continue to support housing, as it has for the past 82 years. 

Thank you, and I look forward to your comments and your questions. 

[The prepared statement of Principal Deputy Assistant Secretary 

Golding can be found on page 32 of the appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. Golding. I appreciate 

you being here this morning. 

And with that, I recognize myself for 5 minutes and begin the 

questioning. 

In January of 2011, the Administration issued a report to Congress entitled, ‘‘Reforming America’s Housing Finance Market.’’ 

5 

Within that report, there are three statements that were made. 

First: ‘‘FHA has also implemented important changes and reforms over the last 2 years, including strengthening underwriting 

standards, improving processes and operations, and raising premiums to improve its financial condition.’’ 

Second: ‘‘As Fannie Mae and Freddie Mac’s presence in the market shrinks, the Administration will coordinate program changes at 

FHA to ensure that the private market, not FHA, accepts that new 

market share.’’ 

And third: ‘‘As we begin to pursue increased pricing for guarantees at Freddie and Fannie, we will also increase the price of FHA 

mortgage insurance.’’ 

If we look at that statement, and we look at the last year’s actions to date, it is a dramatic 180-degrees difference. We are lowering premiums instead of raising them. You look at the private 

market share—FHA’s market share is now at 40 percent; private 

market share is 35 percent, according to figures that I have, and 

a lot of the growth is basically probably as a result of the lowered 

premiums. 

How does that—the statement made in that report in 2011? 

Mr. GOLDING. Thank you for your question. 

Times have changed considerably since 2011. The simplest measure of our market share is in 2010, we were about 30 percent of 

the purchase market by loan count. We have reduced that; that has 

been reduced to about 17.8 percent last year. So you have seen 

other players step into the market since the 2010 period, when that 

statement was made. 

We did raise in the crisis—I can’t remember the exact number; 

it may have been upwards of 8 times—the mortgage insurance premium. But as the fund stabilized, times change, and we try to set 

the mortgage insurance premium looking at the strength of the 

fund, how it is projected to grow, and the needs of the housing market. 

And I would also mention that while we did reduce the insurance 

premium to meet the market needs in the face of an improving insurance fund, we still are well above the historic level of insurance 

premiums for the FHA program. 

Chairman LUETKEMEYER. Can you answer the question with regards to your basically absorbing more of the market versus the 

private sector? It looks to me like you are buying your way into the 

market with lowering your premiums. Is that a fair statement, or 

how would you refute that? 

Mr. GOLDING. As I said, by one measure we are down considerably from the 2010 period. Our market share is much closer to 

where it historically is. So historically, it is in the mid-teens. 

You referenced some numbers relative to, I think, the mortgage 

insurers in particular. I have read a few of their investor reports. 

I think their estimates of the effect of the MMIF reduction on their 

business was less than 5 percent. 

Chairman LUETKEMEYER. Okay. I have a couple more questions, 

quickly. 

What is the profitability on your regular portfolio versus your reverse mortgage portfolio? What is the difference? 

Mr. GOLDING. I didn’t hear the— 

6 

Chairman LUETKEMEYER. What is the difference in profitability 

between your—your loss ratio between your regulator home owners 

portfolio and your reverse mortgage portfolio? 

Mr. GOLDING. The easiest number that I have in my head— 

Chairman LUETKEMEYER. And do that prior to 2014. Last year, 

2015, you got all these new mortgages on the books, which is going 

to skew your figure. Do you remember what it was prior to that, 

like at the end of 2014? 

Mr. GOLDING. No, I don’t remember the exact number. But there 

is no doubt that— 

Chairman LUETKEMEYER. Can you say just a rough difference? Is 

it more profitable with the regular homes versus reverse mortgage? 

Mr. GOLDING. Yes. The profitability or the negative subsidy rate 

for the forward market is about 4.5 percent; for the reverse mortgage the subsidy rate is about—negative subsidy rate is about 0.5 

percent. 

So for every dollar of the forward market that we insure, we are 

expecting to bring in—or for every $100, $4.50 of extra income. 

That is for the reverse mortgage, or HECM, that number is a half 

a dollar. 

Chairman LUETKEMEYER. So your profitability, your portfolio has 

increased significantly with reverse mortgages, which is a less profitable and more risky part of the business for the gains that you 

had with regards to the lowering of the guarantee fees and absorbing part of the market. Is that a fair statement? 

Mr. GOLDING. The HECM portfolio, reverse portfolio, can—is the 

riskier one. It was the one that grew greater in value last year. 

Chairman LUETKEMEYER. So we took on more risk even though— 

and more volume. The volume you took on is more risky. That is 

the point we are making, and that is what you just said. 

Mr. GOLDING. The volume of HECMs actually, because of many 

of the risk management improvements, is down significantly to 

about 60,000. 

Chairman LUETKEMEYER. My time is up. Thank you, Mr. 

Golding. 

With that, we will go to the ranking member of the subcommittee, Mr. Cleaver, for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

During my opening statement, Mr. Golding, I spoke about my 

own family situation, and I did so because home ownership is an 

emotional kind of a thing for me. So I was somewhat disturbed 

when the Urban Institute reported that tight credit standards had 

prevented over 5.2 million mortgages between 2009 and 2014. 

Do you have any ideas on what we can do now to expand the access of home ownership with those kinds of staggering figures? 

What can we do? 

Mr. GOLDING. Thank you for the question. 

Home ownership is important. My father also had his first house 

financed by an FHA mortgage, having been returning as a World 

War II veteran, U.S. Army Air Corps. And I do remember that first 

house when I was age 4. 

So it is important. We are striving to fill that. I think the Urban 

Institute, now there is an estimated almost a million missing borrowers that are not out there. 

7 

Some is obviously—I would think of on the demand side. The 

household formation hasn’t been there, although there are good 

signs that that has improved last year. 

What FHA is doing is we are trying to make it a program where 

it is easier to do business and to offer the FHA product. And that 

really comes back down to offering greater clarity in our programs. 

We, for the first time in the history of the single-family business, 

put out a handbook that has all the rules in one place so you can 

look it up, so you can search it. That handbook was a big achievement. 

We have also been working on improving our risk management 

supplemental performance metric. So we are continuing to try to 

bring in new lenders who will be willing to offer FHA products to 

the American consumer, make it without—while still holding them 

to very high standards, making it easier to do business with FHA. 

Mr. CLEAVER. I may come back to that later, but I am going to 

try to get a lot in. 

I have heard almost all my life that when people die—to grow, 

and probably generations keep passing it on. The same thing as 

parents say, ‘‘My kid had a sugar rush.’’ Scientists all agree there 

is no such thing as a sugar rush, yet people believe it. 

And then likewise, people continue to say that FHA is doing 

subprime loans. That is no different than the hair growing in the 

grave. 

So can you deal with that? Have you heard any of those three? 

Mr. GOLDING. Yes, I have heard all of them. I have said a few 

myself, except I have never said—FHA is definitely not in the 

subprime business. I have been in the mortgage business a long 

time. I was the damage done by subprime. 

FHA has always been a fully underwritten mortgage. We verify 

income. We make sure it is a sustainable mortgage for that usually 

first-time homebuyer. 

It is so far away from subprime. 

I think there is a tendency for people just to translate credit 

score into subprime. There are lots of reasons why our fellow citizens have a 660 credit score. It is medical expenses; it is unemployment; it is—there are things that cause you to be late a payment 

or two and have your credit score at 660. That doesn’t mean that 

you shouldn’t have a place to live and an opportunity for home 

ownership. 

Mr. CLEAVER. Yes. I do think it is probably related to the credit 

score. But, as you said, that shouldn’t be the only factor. 

Hopefully we will get—I will get a chance to raise the additional 

questions along those lines. 

I yield back, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman yields back. 

With that, we go to the gentleman from Florida, Mr. Ross, for 5 

minutes. 

Mr. ROSS. Thank you, Mr. Chairman. 

And thank you, Mr. Golding, for being here. I am going to address some issues with you with regard to proposed administrative 

fee for administration, support, and IT. 

The President’s budget in the HUD request has indicated that 

they are seeking to charge an administrative support fee on FHA 

8 

lenders. And I think that has been rejected by Congress several 

times. 

I am glad to see that it at least has a sunset provision so that 

this proposed fee won’t be in perpetuity. But my concern is that I 

believe your budget document states that the fee will be charged 

on a prospective basis, and yet the budget request says that the fee 

would be calculated based on mortgages that were insured under 

this title during the previous fiscal year. 

That seems to be a disparity. It is almost as though it is retroactive. Could you explain that? 

Mr. GOLDING. Yes. Thank you for the question, and thank you 

for the opportunity to clarify. 

This is one of the cases I did a lot of math on in my youth when 

I was a student. It is easier probably to put down the algebra than 

the English words, which often fail us. But let me tell you what 

we think that means and how it actually would work. 

Basically—and we will go out for public comment and feedback 

however we would implement it, were it to pass. But it would be 

after the date. You would basically say for loans endorsed after the 

date of this public comment— 

Mr. ROSS. So it would still be going forward. 

Mr. GOLDING. It would still very much be forward— 

Mr. ROSS. For example, small lenders who have a small book of 

business, all of a sudden they can’t plan based on this complex formula and suddenly they have received a fee for retroactive. You are 

telling me that wouldn’t happen? 

Mr. GOLDING. It would not happen. 

Mr. ROSS. At all? 

Mr. GOLDING. It would basically be at the end of the year you 

would then look back— 

Mr. ROSS. Okay. But— 

Mr. GOLDING. —so it is not as— 

Mr. ROSS. But they would have to anticipate that fee in writing 

that mortgage. 

Mr. GOLDING. They would—basically the comment would already 

say this is the rate, so it would be— 

Mr. ROSS. Okay. 

Mr. GOLDING. —a simple multiplication of— 

Mr. ROSS. Would it not be easier just to do—as we have been, 

as we put in the chairman’s bill for the USDA—a nominal fee right 

at the time of lending? 

Mr. GOLDING. What we were giving some flexibility on the 

amount of the fee, but that would be another alternative— 

Mr. ROSS. Okay. And on the amount of the fee, I understand that 

there has been a request—I think that you indicate that you may 

need about $30 million, but the language for the proposed fee says 

the fee could be as much as four basis points. And in light of $200 

billion in business next year, those four basis points could equal 

$80 million. Why would you need that much when it is—it looks 

like you don’t need that many basis points to assess— 

Mr. GOLDING. Yes. If volumes were projected still to be $200 billion you would need closer to the—or the two basis points, not the 

four basis points, correct. 

9 

Mr. ROSS. Right. But I guess my concern is keeping you within your requested amount of $30 million, as opposed to the potential 

of $80 million that—what would you do with the additional funds 

raised? 

Mr. GOLDING. As I think it was written, it would be any additional funds would not go to FHA, as the proposal was written on 

that— 

Mr. ROSS. Let me talk to you— 

Mr. GOLDING. —but volumes do vary, so it depends on the origination and volumes. 

Mr. ROSS. Let me talk to you quickly about risk-share transactions. Congratulations on being at 2 percent for your capital requirements. We would love to get you to the minimum industry 

standard of 25-to-one in capital requirements. 

But I think that in order to do this appropriately, to transition 

to what I believe is sufficient capacity in the private markets you 

have to be able to do some risk-share transactions. What efforts 

have been made by the FHA to enter into risk-sharing transactions 

where each one takes a certain portion, either the front end, back 

end, or however it is structured? 

Mr. GOLDING. Yes. We have been risk-sharing on the multi-family side. 

On the single-family side we have had very preliminary discussions. With risk-sharing, it is one where it is very dependent on 

being able to change your systems, tracking things, and we 

would—one of the advantages of having additional resources— 

Mr. ROSS. But there aren’t any programs available yet? 

Mr. GOLDING. No. No programs are available. 

Mr. ROSS. Do you anticipate any any time soon, meaning within 

the next year? 

Mr. GOLDING. No, I do not. 

Mr. ROSS. Do you think it is an idea that ought to be continued 

to be pursued, or are you suggesting that maybe there should be 

no risk-sharing? 

Mr. GOLDING. There can be lots of value for risk-sharing. There 

are many ways that the private sector can help the FHA program. 

As I said, multi-family has highlighted some of it, and I think it 

has demonstrated that it can be very valuable. 

Mr. ROSS. Finally, with regard to FICO scores—and Mr. Cleaver 

was talking about this—look, I have to suggest that I think everybody should have the opportunity for home ownership—that is as 

a matter of right, no; as a matter of opportunity, yes, to earn, absolutely. 

But the low FICO scores were—a private lender would never 

lend, and yet FHA is. Is not that indicative of a higher risk? 

Mr. GOLDING. Yes, it is a higher risk, but it is an insurable risk. 

Mr. ROSS. By us. 

Mr. GOLDING. Pardon? 

Mr. ROSS. Insurable by us, by taxpayers. 

Mr. GOLDING. Even the private sector will do unsecured lending— 

Mr. ROSS. But not to the level that— 

Mr. GOLDING. —typically this has been FHA’s role. 

Mr. ROSS. Thank you. I yield back. 

10 

Chairman LUETKEMEYER. The gentleman yields back. His time 

has expired. 

With that, we go to the gentleman from Texas, Mr. Green. You 

are recognized for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

I thank the ranking member, as well. 

And I thank the witness for appearing today. 

A word about FHA: 80 years of service, and I might add outstanding service; 34 million first-time homeowners; low-income 

Americans have the opportunity to fulfill the American dream, 

have a place to call home. And FHA was in the business of lending 

when banks would not lend to each other. 

When we hit the crisis in 2008 and moved over into 2009 and 

other years, banks refused to lend money to each other. That is 

how frozen the market was. But FHA was still in business. 

That countercyclical function has served this country well, and 

we ought to salute FHA for the outstanding job that it has done. 

I do so. 

Your capital ratio is currently above 2 percent. If it were below 

2 percent this hearing would be about that, but it is above 2 percent. Thank God for you and what you do. 

Now, you put a lot of emphasis in your statement on first-time 

homebuyers. I am going to read a little bit here. You indicate that 

by making sure borrowers, particularly first-time homebuyers, have 

access to affordable credit to purchase homes. 

And further in your statement you indicate that over the course 

of your 81-year history, FHA has funded approximately 13 percent 

of total market mortgage originations, but more than 50 percent of 

all first-time homebuyer market purchase mortgages. That is on 

page three of your statement. 

I am focusing on this because I believe that there are people who 

pay light bills, gas bills, water bills, phone bills, cable bills; people 

who have other credit but they have what are called thin files. And 

they are currently making rent payments for some years that 

would exceed what a mortgage would be. If given the opportunity, 

they would have a monthly payment for housing that would be less 

than what their current payment is for rent. 

They have sound credit, but they don’t have a fat file. It is my 

opinion that we should look at light bills, gas bills, water bills, and 

phone bills. Don’t look at it in such a way as to only add to your 

score, but also cause your score to depreciate if it is negative. But 

we should look at this and we should do so in an automated fashion. 

It is my opinion that if we should do this, we will accord other 

persons the opportunity to own a home, who can pay the mortgage. 

I am interested in talking to you about this very briefly, with my 

1 minute and 47 seconds left. Tell me, dear friend, do we find that 

this circumstance actually exists, first, where there are people who 

can afford a mortgage—thin files, not fat files—and they are paying 

rent that exceeds a mortgage payment? 

Mr. GOLDING. Thank you for your question. Absolutely, yes. 

There are a lot of people for whom rent is, in fact, over half of 

their income sometimes, and they are still paying. And as we know, 

11 

the rent burden is even growing, so where home ownership may 

very well be the right answer and lower cost on that. 

And today, we strive to address those thin files. We use a scorecard but we also use manual underwriting if you do not get an ‘‘accept’’ on the scorecard. And it is those exact type of documents that 

we encourage lenders to look at. 

Mr. GREEN. With my 50 seconds left, let me intercede and say 

this: What we need is an automated process. We are doing it 

manually—and by the way, other lenders do it manually, too. They 

look at these things. But we need an automated process that will 

allow us to help more people in a much more expeditious fashion. 

Do you concur, my dear friend? 

Mr. GOLDING. Yes, is my second sentence. There are good things 

happening out there. People are starting to grab some of that data 

and we are looking to see how we can incorporate it into how— 

what we do in terms of underwriting FHA mortgages. 

Mr. GREEN. With my final 11 seconds, let me just say to you that 

I want to work with you to develop the automated process. I am 

working with my colleagues here in Congress, and there are many 

on both sides who favor this; we just haven’t reached a proper conclusion yet. 

But I want to work with you to get this done. It really is a good 

thing for not only the people who will benefit, but also for the 

American economy. 

I yield back the balance of my time, and I thank you for the 

extra 17 seconds. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

We now go to another gentleman from Texas, Mr. Williams, for 

5 minutes. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

Mr. Golding, thank you for your testimony today. We appreciate 

it. 

I am a small business owner. I am from Texas, as you heard. 

I want to echo some of the statements made by my colleagues so 

far. 

In my mind it is simple. In my business, the car business, we do 

it all the time: If I want to gain a customer and prevent them from 

buying an automobile from a competitor, I will lower or cut their 

rates. We give the customer the best deal we can, just like what 

the FHA is doing. 

Now, lowering premiums—for example, rates—gives FHA a 

greater share of the market, a competitive advantage, we will say, 

over the rest of the industry. But the only difference is, we talked 

about earlier, is unlike the private market, which I am in, the taxpayer is providing the backstop. It is taxpayers’ dollars, and fairly 

substantial ones, as we have already discussed. 

So a greater share of the market equals a greater liability. We 

see this with Fannie and Freddie; we see it with the National Flood 

Insurance Program, and on and on and on. Frankly, discouraging 

private sector participation is what the Federal Government is 

good at. 

So my first question is simple: Could we consider requiring that 

borrowers show that private mortgage insurance is unavailable before being able to obtain FHA mortgage insurance? 

12 

Mr. GOLDING. Thank you for the question. 

I don’t think that type of standard would be very easy to implement. As I mentioned earlier, if you look at some of the M.I.s, they 

said—they told their investors that under 5 percent of their business was affected by the mortgage insurance premium—some overlap and some tension between the two. 

Mr. WILLIAMS. It is no. ‘‘No’’ would be the answer. 

Mr. GOLDING. No. I think— 

Mr. WILLIAMS. So what policy tool do you recommend, then, to 

ensure that the FHA’s future role minimizes market distortion and 

preserves the financial condition of the FHA? 

Mr. GOLDING. I think in terms of getting private capital back in, 

especially as it relates to the mortgage insurance industry, their 

traditional market has been serving the conforming market and the 

GSEs, and the housing finance reform and getting real competition 

in is probably the most powerful tool for getting private capital 

back into the mortgage— 

Mr. WILLIAMS. ‘‘Competition’’ is the key word. I am glad you said 

that. 

Switching topics, let me go back to my own experience in selling 

automobiles for a living and use the FICO scores. Now, contrary to 

what some may believe, my industry heavily relies on one’s credit 

history, as you probably know. In most cases, the borrower becomes 

riskier based on their credit score. 

I think everyone knows that. And in fact, there are some studies 

which show that loan performance deteriorates rapidly for borrowers with FICO scores below 660. 

The FHA currently allows homeowners with exceedingly low 

FICO scores by industry lending standards—and frankly, as low as 

500—to qualify for its mortgage insurance. So should FHA be in 

the business of insuring loans to borrowers with credit scores so 

low—and frankly, that I can’t even sell a car to—that other private 

sector companies would deem too risky? 

In other words, as we talked about earlier, you really are in the 

subprime business. 

Mr. GOLDING. Thank you for your question. 

And the risk management and the use of credit scores and what 

the odds ratios are things that we study considerably on that. We 

have taken the important step that if you are below 580 you need 

to put 10 percent down, so you have to have that compensating. 

And we take into account the credit score during the underwriting process, in particular the total scorecard. So if one has a 

620, one needs other compensating factors, whether it is debt-to-income ratios or the amount of the downpayment. 

And we do look very carefully at the credit score in deciding what 

FHA mortgages to insure. 

Mr. WILLIAMS. Okay. And another question: Do you think that 

FHA has an obligation to underwrite mortgages for applicants with 

credit scores that are that low—are the low end of the FICO spectrum? 

Mr. GOLDING. Thank you for your question. 

It is always where exactly you do—what is the last loan in is always a difficult one. We look at our credit policies; we are comfortable with the credit policies we have today. And in fact, the 

13 

credit mix that we are getting is actually quite good, with 680, 

which is higher than the historical average has been over those 82 

years. 

Mr. WILLIAMS. All right. Thank you for being here. 

Mr. Chairman, I yield back. 

Chairman LUETKEMEYER. The gentleman yields back the balance 

of his time. 

I now recognize the gentlelady from Ohio, Mrs. Beatty, for 5 minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman. 

And thank you, to our ranking member. 

And also, I would like to thank our witness, Mr. Golding, today. 

Mr. Golding, I would like to start today by asking about the Distressed Asset Stabilization Program. 

I have an article from the New York Times, dated September 

2015, Mr. Chairman, which I would like to ask unanimous consent 

to be entered into the record. 

Chairman LUETKEMEYER. Without objection, it is so ordered. 

Mrs. BEATTY. This article brought to light the affinity which 

hedge fund and private equity funds have for buying discounted 

mortgages from HUD at auction under the Distressed Asset Stabilization Program. Many folks have expressed concern that these 

firms are too quick to push homes into foreclosure once they acquire the mortgage, and seem to be really less helpful than banks 

in negotiating loan modification. 

This article specifically mentions a couple from my district in 

Gahanna, Ohio. Their mortgage loan was sold at auction last summer by HUD, but prior to the auction JPMorgan Chase was working with this couple on a loan modification. But after the sale of 

their mortgage to Caliber, a private equity firm, loan modification 

talks were abruptly ended and the couple were met with a foreclosure notice. 

In fact, the Consumer Financial Protection Bureau has recently 

had over 1,000 complaints from consumers about Caliber alone, 

which has bought some 20,000 mortgages from HUD. That same 

company, as I understand it, is currently under investigation for its 

foreclosure practices by the New York attorney general. 

And I could go on and on. You get the gist of this. 

My question is, how can we get more nonprofit organizations, 

whose mission is neighborhood stabilization, to be more competitive 

in these auctions? 

Mr. GOLDING. Thank you for your question. It is one that is very 

important because I have always been a believer that the way to 

mitigate loss is to do loss mitigation, and foreclosure, REO, and 

then trying to sell the property should be a last resort—although, 

unfortunately, it is one that we too often have seen. 

So we do struggle to make sure that there is loss mitigation— 

we put loans into these pools that have largely exhausted attempts 

by the original servicer to do the loss mitigation. 

And as you point out, we do want—we have both neighborhood 

stabilization options, where we have minimum outcomes and we do 

a lot of smaller pools. Half of the last option went to the NSL option. And we have been working with different nonprofits with 

14 

small pools, targeted pools, to try to get more nonprofits in. We 

have done a lot of outreach. 

I have to say, it is a difficult one for many nonprofits. They are 

good in—traditionally in dealing with actual houses and properties; 

servicing loans is new to many of them and it is very difficult. 

But I pledge to work hard to try to continue to do more, and I 

look forward to working with you on this. 

Mrs. BEATTY. Thank you very much. 

Mr. Chairman, I yield back my time. 

Chairman LUETKEMEYER. The gentlelady yields back. 

With that, we go to the gentleman from Pennsylvania, Mr. 

Rothfus, for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

And thank you, Mr. Golding, for being here today. 

You are currently the Principal Deputy Assistant Secretary for 

the Office of Housing. What was your position at HUD, and during 

what specific dates did you hold that position? 

Mr. GOLDING. I joined HUD in June—Principal Deputy Assistant 

Secretary in April 2015. 

Mr. ROTHFUS. Your biography on the HUD website says that you 

‘‘worked with the Department of Justice to craft consumer relief as 

part of mortgage settlements with the large lending institutions.’’ 

These are the residential mortgage-backed securities, or RMBS settlements with JPMorgan Chase in November 2013 and Citibank 

and Bank of America in July and August 2014? 

Mr. GOLDING. I provided technical expertise and I am—I think 

those were the ones I was involved in, but I would have to go back 

and check my records. 

Mr. ROTHFUS. You said, ‘‘technical expertise.’’ What was your 

specific role in the negotiations? 

Mr. GOLDING. It was how to structure the consumer relief in 

order to bring sort of the greatest benefit. There were different 

parts of the settlements that the Justice Department entered into 

where specific actions in effect expanded servicing on some of the 

loans, loss mitigation, addressing blight. And it was that technical 

expertise. 

Mr. ROTHFUS. Was your involvement directed by anyone specifically? 

Mr. GOLDING. Again, I was sharing my technical expertise, so I— 

Mr. ROTHFUS. Who directed you to do it? The Secretary? Anybody 

at DOJ? 

Mr. GOLDING. I don’t remember how I came upon that task. I 

can, again, check my records, but I— 

Mr. ROTHFUS. Did you negotiate directly with any of the banks 

yourself? 

Mr. GOLDING. I was in the room during negotiations. But as I 

said, I did not view my role as a negotiator, but rather to provide 

technical expertise in the area of consumer relief. 

Mr. ROTHFUS. Did you ever do that without anybody from DOJ 

being present? 

Mr. GOLDING. No, I don’t remember ever being in a meeting 

without DOJ there. 

Mr. ROTHFUS. Did you ever work directly with any of the heads 

of the banks when working on your technical expertise? 

15 

Mr. GOLDING. On these matters, I would be with the DOJ. Just 

in my role of FHA and my knowledge of the mortgage industry and 

at conferences, I have— 

Mr. ROTHFUS. This is when you were a senior advisor on housing— 

Mr. GOLDING. But not on these issues related to the settlements. 

It would have been with DOJ. 

Mr. ROTHFUS. Did you ever meet with Jamie Dimon at 

JPMorgan Chase with respect to these settlements? 

Mr. GOLDING. I have never met Jamie Dimon, to the best of my 

recollection. 

Mr. ROTHFUS. As part of the settlements the banks are directed 

to make payments to third-party groups who were not part of the 

settlements and were not directly harmed by the conduct of the 

banks, such as HUD-approved housing organizations and attorney 

state organizations. The settlements require that the banks pay 

$150 million to these organizations. 

Who came up with the idea of directing money to third-party 

groups? Did you? 

Mr. GOLDING. Again, I do not remember particular—it has been 

a few years here. I do not remember how that was put on the table. 

Mr. ROTHFUS. Did you speak to any of the organizations that are 

named as recipients of the funds in the RMBS settlements during 

or after the negotiations process? 

Mr. GOLDING. Again, I don’t have a list in front of me, so I am 

not sure who they are or whether I have ever talked to them before, during, or after. 

Mr. ROTHFUS. So you don’t recall ever having any conversations 

with anybody at La Raza, the National Urban League, 

NeighborWorks America, about any of these settlements? 

Mr. GOLDING. I don’t remember having conversations with those 

parties about the settlements. 

Mr. ROTHFUS. Is it possible you had conversations with them? 

Mr. GOLDING. I may have had conversations about the mortgage 

market with them; I would not have had conversations about the 

settlement with them. 

Mr. ROTHFUS. Who, besides you, would have been involved with 

negotiating in any part of the RMBS settlements—anybody at 

HUD? Who besides yourself? 

Mr. GOLDING. I would have to—the Office of General Counsel 

was with me, I think, at all of those meetings. 

Mr. ROTHFUS. The settlements require that banks pay a certain 

fixed amount. Under the settlement, a dollar sent to the Treasury, 

as is the case with most law enforcement penalties, counts as one 

dollar towards the total. But in these settlements, a dollar sent to 

a third-party groups counts for more than one dollar towards the 

total. 

Do you know who came up with that plan? 

Mr. GOLDING. I don’t know who came up with specific elements. 

Mr. ROTHFUS. Did you come up with that plan? 

Mr. GOLDING. As I said, I was there to provide technical expertise on that, so I would not have been the one who came up with 

or formulated these. 

Mr. ROTHFUS. I yield back. 

16 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

The gentleman from Michigan, Mr. Kildee, is now recognized for 

5 minutes. 

Mr. KILDEE. Thank you, Mr. Chairman. 

And, Mr. Golding, thank you for being here. 

There are two areas I would like to pursue. One has to do with 

the issue of disposition of REO owned by HUD, and then I would 

like to specifically ask a couple of questions about my hometown 

of Flint, Michigan. 

On the issue of REO, can you in rough form, not—you don’t have 

to have specific numbers, but what is the current inventory held 

by the Department? 

Mr. GOLDING. I am going to have to get you that number. I think 

we dispose—I know the run rate. I think we dispose of something 

like 5,000 properties a month. 

Mr. KILDEE. And those dispositions, are they through bulk dispositions? How are those executed? I guess I’ll maybe just give you 

a general question: Is there preference given to public land bank 

authorities or neighborhood-based nonprofit organizations, over the 

private for-profit speculator market? 

Mr. GOLDING. They are. I will have to get back to you on specifics. 

We tend to sell them one at a time, manage that process. There 

are certain preferences, first-look types for certain groups, and I 

would have to get back to you on the details of that program. 

Mr. KILDEE. Okay. I would appreciate that. I have some concerns, not so much about bulk disposition specifically, but bulk disposition that doesn’t have the impact considered on external—the 

externalities considered when it comes to neighborhoods, especially 

those that are already struggling. 

I appreciate that. And if we could pursue some engagement on 

that subject, I would appreciate it. 

If you could help me think through, maybe offer some guidance 

on what the Department’s role might be in providing direct assistance to people in Flint—and I am sure most of you are familiar 

with what has happened in Flint due to a series of decisions by the 

State-appointed emergency manager and then the lack of—and an 

extended period of time with high levels of lead leeching into the 

water system and having, obviously, a devastating effect on individuals, but particularly on children, which is the real tragedy. 

But part of the problem that we are seeing right now is that the 

City, which is a city of about 100,000 people, is now getting sort 

of a third hit to its housing market. The chronic abandonment as 

a result of population loss driven by globalization, racial avoidance, 

poor land-use planning, et cetera, was the first hit. 

The crisis, the housing collapse, was the second hit, which really 

drove down property values. In the last 7 years, for example, the 

real estate values in the City of Flint have been cut in half—just 

in 7 years. 

And now the crisis that we are facing with water is a third hit 

that I am not sure without some serious intervention, we are going 

to be able to recover from. We are seeing, for example, individuals 

not being able to close on sales—even sales that they are able to 

make, which is one question; who is going to buy one of these 

17 

houses—but even when they can, not being able to get to closing 

because they can’t provide the kinds of certifications regarding 

drinking water that would be required to close. 

Can you just address first of all whether or not the Department 

is thinking about this, and if so, what that thinking is? And if the 

answer is no on either one of those, how we can engage you? 

Mr. GOLDING. No, we are very engaged and very focused. The 

Secretary has made that very clear. 

Let me talk about what FHA is doing, because there are other 

activities at HUD. And it is something that is of grave concern. 

FHA tends to be the lender in communities like Flint. As you 

know, it is part—we talk about a countercyclical role, but sometimes that is not just the national recession; it is cities like Flint 

that have been hard hit. So we have stayed there and will stay 

there to be part of the mortgage market, because it is important 

to have lending. 

That said, it is also—we will lend only on houses that have safe 

potable water. It is part of our longstanding mission and goes back 

82 years. 

And we have given guidance to the industry on how they can do 

both—how they can still continue lending. We will continue to 

monitor that. 

I would be glad to work with your office. It is so important to 

continue lending, because if you cut off lending, you basically will 

drop house prices even further. 

On the other hand, we have to make sure that the water is potable. And we have given clarity. We are looking to see whether certain waivers are necessary. 

Again, I would be glad to work closely with your office on this 

one. 

Mr. KILDEE. Thank you very much. I see that my time has expired. 

Thank you, Mr. Chairman. 

Chairman LUETKEMEYER. I thank the gentleman. 

I would be willing to yield you another 2 minutes if you have 

some more questions, because I think this is an issue of utmost importance, not only to you but for the country. And to have the gentleman here in front of you, and have him be able to be on record 

for some things, is going to be very helpful. We want to yield you 

2 more minutes, sir, if you have some more questions. 

Mr. KILDEE. I really appreciate that, Mr. Chairman. Thank you. 

I guess the specific question is whether you have been pursuing 

any direct relief? One of the things we are seeing right now, for example, in Flint, a lot of folks aren’t paying their water bill, which 

often is an attachment to the tax bill, which can lead to delinquent 

taxes and even a potential tax foreclosure action. 

And again, when we see properties that may have a booked value 

of somewhere, even on the tax rolls, it is going to have a State taxable value assigned to it. But we know how markets work. Property is only worth—or any commodity—is only worth what somebody is willing to pay for it. 

And so I am concerned about whether or not this problem will 

double down in Flint by folks essentially not paying their water 

bill, not paying their property taxes, walking away from property. 

18 

Is there any way or any thought you have about assistance—direct 

assistance to individuals to prevent the loss of their home, which 

would obviously affect them, but worse, would contribute to an 

oversupply of substandard housing in a weak market community 

already? 

Mr. GOLDING. I am going to have to check to see the tax and insurance defaults, which I have not—that has not risen to me of 

being an issue, but it is one that you have my personal commitment to monitor and make sure that we are responding appropriately. We don’t want to foreclose because of a tax, and if someone is not paying their water bill it is sort of understandable on 

that one. 

So again, very much the entire Department is committed to 

doing what it can, is focused on this, and thank you for bringing 

this specific issue to my attention. 

Mr. KILDEE. Thank you. And we will follow up with you and perhaps get together. 

Again, thank you, Mr. Chairman. I really appreciate that indulgence. 

Chairman LUETKEMEYER. Absolutely. Hopefully, it can be helpful 

in many ways to work on your problem. This is of significant and 

national importance. 

With that, the gentleman yields back. 

The gentleman from New Mexico, Mr. Pearce, is recognized for 

5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

And thank you, Mr. Golding, for being here. 

As we look at the CFPB, their required QM standards for loans, 

do the loans that you all insure comply with QM standards? 

Mr. GOLDING. Yes, we have. The statute— 

Mr. PEARCE. All? 

Mr. GOLDING. —provided for a specific HUD–FHA QM standard, 

but we do. 

Mr. PEARCE. All of them do? 

Mr. GOLDING. Yes. 

Mr. PEARCE. Now, I note that you have the capacity to include 

mortgages up to $625,000. What percent of your portfolio would be 

houses above $200,000, say? 

Mr. GOLDING. The average is $190,000, so—or the median, so 

half are above $190,000. Our loan limits in most counties in this 

country are $271,000. It is only a few very high-cost areas that go 

up to the $625,000. 

Mr. PEARCE. When I read your opening statement, you say that 

you are providing underserved borrowers, so people buying 

$270,000 houses are underserved? 

Mr. GOLDING. As I said, the highest in most communities—in 

most counties in this country is $271,000. The average is $190,000. 

Mr. PEARCE. So, okay, we will use the $191,000. Are those people 

underserved? 

Mr. GOLDING. Typically, we do serve a market that— 

Mr. PEARCE. Okay, but if your average is there, you have a lot 

above that. And so my question is, the people who are above 

$191,000, pulling your average up to that, are they underserved? 

19 

Mr. GOLDING. They are not being served by the conforming market. The GSEs’ average FICO score is, I think, around 750, 760. So 

we are playing in a very different market than the conventional or 

private sector is playing in. 

Mr. PEARCE. The average income in my district is maybe 

$31,000; 50 percent of the houses are manufactured housing. It is 

hard for me to sit here and believe that these people are underserved that you are telling me. 

And so I find maybe that all of the portfolio increases is you creating an artificial market in order to improve the balance sheet 

and improve what you report to us in order to delay and defer 

questions. And our questions are to keep people who are making 

$31,000 a year in my district from paying for the people who are 

making enough to borrow a $600,000 house and the government is 

insuring it. That is what the rub is about. 

Do you think that we are in a recovery market here? The President said in his State of the Union Address that we have recovered, 

and we recovered a long time ago, and it is now looking really good. 

Have we recovered? 

Mr. GOLDING. The housing market is recovering and has recovered. We now are seeing housing start— 

Mr. PEARCE. How long has that recovery been going on? 

Mr. GOLDING. I don’t remember the exact year where housing 

started to increase, probably around 2009, 2010. 

Mr. PEARCE. 2009, 2010—in your opening statement you say you 

are a countercyclical force, so in the period that you say that we 

have been recovering, countercyclical means when the market is 

not recovering that you get in and when it is recovering you should 

be diminishing out because the private market is there. 

And so you say that the recovery started about 2009, but that is 

during the period when you are skyrocketing in your portfolio. Do 

you find that to be not consistent with your statements, not consistent with your stated objectives as an institution? 

Mr. GOLDING. Thank you for the question. 

The exact numbers of what it means to be countercyclical are 

sometimes difficult to measure. But as I said, we in— 

Mr. PEARCE. Then why do you come and talk to us about it? If 

it is difficult to measure, why are you saying that in your opening 

statement, in your opening paragraph? You lead with that. Why 

don’t you put it at the end where nobody is going to read down 

there if it is difficult to assess? 

Mr. Williams said, basically you are in the subprime business, 

and you made the comment that, ‘‘We study the odds.’’ What does 

that mean, that you study the odds? 

Mr. GOLDING. The odds ratio of defaults. As we— 

Mr. PEARCE. So you think that the people who rate 500 in the 

private system of measuring are being unfairly evaluated and that 

you all have an evaluation system that is better than the 500 and 

you are going to go ahead and lend that money down there because 

these are insurable real estate, I think is what you said. Is that 

correct, that the private market is undervaluing the capability of 

people with these scores to make their payments back? 

20 

Mr. GOLDING. The private market traditionally will not serve 

that market, correct—for a variety of reasons, but that is not 

where— 

Mr. PEARCE. So what you are telling me is that your agency is 

willing to put my constituents at risk, who are making their lives 

work on $31,000 a year. You are willing to put them at risk to help 

somebody who bought a $600,000 house with a 500 credit score because you have a system of measuring that is—and the private 

market is inaccurate and yours is accurate. 

Sir, I have trouble believing it. I appreciate it. 

I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

We now go to the gentleman from Minnesota, Mr. Ellison. He is 

recognized for 5 minutes. 

Mr. ELLISON. Thank you, Mr. Chairman. 

Thanks to the ranking member, as well. 

Mr. Golding, thanks for joining us today. I have a chart I would 

like to direct your attention to, if we can get that up. 

My first question, Mr. Golding, is this—first of all, thanks for the 

good news you shared. It is clear that FHA is in good financial 

health. 

The FHA Mortgage Insurance Fund continues to grow stronger. 

That is a good thing. 

And we appreciate your team’s effort to reduce risk, improve recoveries, and lower premiums. In my community in Minnesota and 

around the Nation, FHA remains a critical source of sustainable 

credit for American families. 

So here is what I would like to ask you: This chart I have up 

here shows that nationwide, we have a rental housing crisis. Current estimates are that nearly 12 million low-income people pay 

more than half of their income for rent. 

And according to a Harvard Joint Center for Housing Studies report, one in two households spend more than 30 percent of their 

gross income on rent and utilities; one in four households pay more 

than 50 percent of their gross income for rent and utilities. And in 

my district we have more than 10,000 low-income families on a 

waiting list for assisted housing. 

So could you talk to us about what the FHA is doing to help us 

address the dire rental housing crisis for low-income families? And 

what more could the FHA do? 

Mr. GOLDING. Thank you for the question. 

And if you add in utilities, the number goes to over 11 million 

paying over half, so we are, as you point out, definitely in a rental 

crisis. 

On the FHA—and HUD in general, but FHA specifically—is on 

its multi-family program we support construction of new properties. 

We, in fact, recently reduced—for affordable properties, we reduced 

the insurance premium in order to attract more capital into that 

sector so that we would get more construction, more units, and 

more proceeds for rehab also. So it is not just the construction, but 

it is a substantial rehab. And our multi-family program is continuing to focus on that area. 

21 

As you know, our Rental Assistance Demonstration Program is also putting more capital—we are nearing the $2 billion and about 

35,000 units preserved in terms of affordable housing. 

But with those numbers up there, we clearly are only chipping 

away at what is a huge problem. 

Mr. ELLISON. Thank you very much. 

Let me ask you now about manufactured housing finance. A year 

ago, the Consumer Financial Protection Bureau published a report 

noting that manufactured home buyers have more expensive loans. 

It noted that two of three manufacturing homeowners eligible for 

a mortgage financed with more expensive personal property loans 

instead. 

On the screen is a CFPB chart on FHA requirements for manufactured home loans. Can you briefly explain the types of financing 

FHA provides to manufactured home buyers? 

Mr. GOLDING. Yes. We have both Title 1 and Title 2 loans for 

manufactured housing. Title 2 requires that it be real property, 

and Title 1 will also be for just—for property that is chatteled. We 

do try to provide financing to—through both of those FHA programs. 

Mr. ELLISON. The CFPB report said that the FHA-guaranteed 

loans constituted about a fifth of the manufactured housing loans 

for home purchases in 2012. That seems a little low, especially 

since about half of all African-American and Hispanic households 

seeking mortgages have relied on FHA for financing since 2008. 

Contrast 20 percent to 50 percent. 

What can the FHA do to improve the financing options for people 

who buy manufactured homes? 

Mr. GOLDING. It is an area where the demand has been declining. I will commit to working with you and your office to see what 

more we can do in this area. As you point out, it is an important 

source of affordable first-time home ownership. 

Mr. ELLISON. Quickly, in Minnesota we have eight manufactured 

home communities that are resident-owned, which we are very 

proud of. Can FHA help those residents buy their property? 

Mr. GOLDING. Again, thank you for the question. I will have to 

work with you on that. 

Mr. ELLISON. It would be a good thing if we could. 

Thank you. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we go to the gentleman from New Jersey, Mr. Garrett, 

chairman of our Capital Markets Subcommittee. He is recognized 

for 5 minutes. 

Mr. GARRETT. I thank the chairman. 

And I thank the Secretary for coming here to testify. 

And I thank anyone else who is here from the Department coming to testify. 

By the way, who else is here from the Department? Can they 

raise their hands? Anybody else? That’s it? 

Thank you. About a third of the audience. 

So the past news in these hearings was, as has already been 

talked about, that the MMI has consistently in the past been below 

the 2 percent minimum capital requirements, as required by law 

since 2009. You have indicated it is now above that level. 

22 

It should be noted that the 2008 downturn was not foreseen or 

expected by anyone. The taxpayers are still on the hook for over 

$1 trillion of FHA-insured mortgages. 

Here is the difference, Mr. Secretary: Unlike other financial entities subject to the Dodd-Frank Act and the Federal Reserve requirements, FHA’s 2 percent minimum capital ratio has not been 

increased ever, right? It is still 2 percent and it was 2 percent. 

I know in previous hearings on this matter, Mark Zandi recommended an increase of the minimum capital to 4.5 percent. Why 

did he say that? To withstand the effects of another financial crisis, 

which all the experts tell us there will be another financial crisis. 

So, quick question: Do you believe that FHA is strong enough to 

withhold and withstand another Great Recession at its level right 

now? Or do you believe, as other testimony has given us, that we 

should increase it to something above 4 percent, instead of 2 percent? 

Mr. GOLDING. Thank you for your question. 

If a Great Recession were to start tomorrow, I don’t believe that 

we would be able to sustain a positive capital reserve ratio. 

Mr. GARRETT. What is the level that it should be increased, do 

you think? 

Mr. GOLDING. I actually think that the 2 percent standard is a 

good standard. 

Mr. GARRETT. But you just said that it was not strong enough 

to meet the next recession, so what would be one that would be 

able to withstand it? 

Mr. GOLDING. We are growing and it is projected to—the fund— 

there is the question of the standard. I don’t expect the Great Recession to start tomorrow. But we are building reserves above— 

Mr. GARRETT. That is good. 

Mr. GOLDING. —that 2 percent. 

Mr. GARRETT. And I appreciate that. So what is the goal, what 

is the target you are trying to get to? 

Mr. GOLDING. We have, again, no specific target. We have a statutory 2 percent standard. 

Mr. GARRETT. Right. So what should the—since you have just 

testified that the 2 percent level is not strong enough for the next 

recession, wouldn’t it be incumbent upon us—either you or Congress—to set a standard that is your target? Maybe you can’t get 

there tomorrow or next week or next month or by the end of the 

year, but shouldn’t either you or us set that target now? 

Mr. GOLDING. As I said, if the Great Recession starts tomorrow, 

we can withstand some recessions on that. And we would be glad 

to work with your office to try to come up with what the number 

is that we would be—in order to survive another Great Recession. 

Mr. GARRETT. That would be great, and—that would be fantastic, 

actually, if you could provide us with that number. 

Now, private financial institutions have to go through stress 

tests to deal with that situation, to try to prepare for that. You do 

not, correct? 

Mr. GOLDING. Correct. 

Mr. GARRETT. Is that something that we should require or you 

should do voluntarily—do your own stress tests? 

23 

Mr. GOLDING. The independent actuarial does do scenario analysis, which is similar to a stress test— 

Mr. GARRETT. But isn’t it true that when they do those, they do 

so based upon your assumptions? 

Mr. GOLDING. They do a variety of assumptions. Many of these 

assumptions are taken from third parties, some from OMB, but 

they all— 

Mr. GARRETT. Isn’t it true that some of your assumptions are not 

accurate or are faulty assumptions, and that they recommend other 

assumptions? 

Mr. GOLDING. I— 

Mr. GARRETT. That is my understanding. 

Mr. GOLDING. Okay. I will have to go back and look at the exact 

report on— 

Mr. GARRETT. So would you be averse to having—either have the 

Congress order or you can do this independently—you have the 

power to do a—your own stress test that is akin to or similar to 

or the same as what the Fed requires of private institutions? Why 

wouldn’t that be fair and good to do? 

Mr. GOLDING. As I said, we do—there are scenario analyses— 

Mr. GARRETT. But you agree that these are not the same stress 

tests that the Fed requires in private institutions? We agree on 

that, don’t we? 

Mr. GOLDING. They are not exactly the same. They are similar. 

Mr. GARRETT. Right. So wouldn’t it be good to do those same— 

similar stress tests, just like the private sector would, that would 

give us a best picture? 

Mr. GOLDING. It always is good to look at different scenarios. 

Mr. GARRETT. Would you commit today, then, to reaching out to 

them so you could do the exact same stress tests so we could come 

back and put everything on an even keel? 

Mr. GOLDING. It is very difficult to know exactly what the Fed— 

we are— 

Mr. GARRETT. You could do this by yourself, adopt those standards and do your own stress tests. Would you commit to doing that 

right now so we can know conceivably that these are on the same 

level as the other private institutions have to deal with? That 

would be great if you could say that. 

Mr. GOLDING. We do and continue to look at different scenarios. 

Not being regulated by the Fed, it is very difficult for me to make 

a commitment that we will match exactly what the Fed does. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

We now go to the gentleman from Missouri, Mr. Clay, for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. 

And thank you, Mr. Golding, for being here today. 

It has been over a year since the FHA made the decision to reduce annual premiums for new borrowers by half of a percent, despite Republican criticisms that the MMIF was not strong enough 

to handle this change. What can you tell us now about the impact 

of the premium reduction and the validity of Republican criticisms 

against the decision? 

Mr. GOLDING. Thank you for the question. 

24 

The concern when you do—we have clearly reduced the premium 

in order to lower the cost of housing and for new first-time homebuyers. And as my written testimony points out, we actually exceeded our expectations. We had expected 75,000 new first-time 

homebuyers. The data suggests it is over 106,000. 

So we have had—on the benefit side, we clearly did better than 

expected. On the cost side, you are cutting your per-loan revenue, 

but you also are increasing volume. 

And there I turn to the independent actuary, which basically estimated how those two balanced out. And the understandable concern was the lost revenue would be greater than the expanded 

value. 

The independent actuary showed those were basically a wash, so 

the cost was actually lower than expected. So greater benefits than 

expected, lower costs than expected. 

Mr. CLAY. And under what conditions might the FHA consider 

decreasing premiums further? 

Mr. GOLDING. In general, when one looks at what the appropriate premium is what you do is you look at the strength of the 

fund, you look at what track it is on, what are the projections. And 

then you also look at the market conditions in the housing market: 

How healthy is it? Are people getting the credit they need? Is housing affordable? 

Mr. CLAY. Is HUD considering changing the requirement that 

borrowers pay premiums for the life of the loan? 

Mr. GOLDING. Again, I am not considering a change in that. I 

view the life of the loan—a lot of our defaults occur much longer 

after origination than people expect. This is true of all mortgages. 

And so, the losses are fairly long-lived. 

And I also will point out that the GSEs do not—their guarantee 

fee is also for the life of the loan. So I am actually not considering 

changes to the life of the loan policy. 

Mr. CLAY. How would you consider the health of the housing 

market? I met with some homebuilders yesterday, and apparently 

it is increasing, but they complained about some of the regulatory 

obstacles. And they think it is a little more difficult, especially with 

some of the hurdles that they have to jump through in relation to 

the Clean Water Act and things like that. 

What are you seeing? 

Mr. GOLDING. Yes. So especially for new construction largely 

driven by household formation, and that has come—is much stronger than it had been. It is over a million households. 

There is no doubt that getting the land and getting it permitted 

are tough issues, and it is community by community. There is not 

just one national policy there. As they say, real estate is local no 

more than when you are building. 

Mr. CLAY. Okay. And do you—despite the premium reduction announced in January of last year, the FHA premiums remain high 

by historical standards. Many have pushed for an even larger reduction. 

The most recent independent actuarial report on the Mutual 

Mortgage Insurance Fund shows it to be in a strong financial condition. And is HUD now considering further premium reductions or 

other steps? 

25 

Mr. GOLDING. We have no plans at this time. Again, it is a 

very—it is one of these things that we evaluate. It depends, as I 

have pointed out, on the strength of the fund, its trajectory, and 

the needs of the housing market. 

Mr. CLAY. I see. Thank you very much for your answers. 

And I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. 

With that, we go to the gentleman from California, Mr. Royce, 

for 5 minutes. 

Mr. ROYCE. Thank you very much, Mr. Chairman. 

And, Mr. Golding, thanks for being with us this morning. 

The GSEs, under the direction of the FHA, have engaged in innovative methods of offloading risk to shield the American taxpayers 

currently holding the back for Fannie and Freddie losses. And I 

have been encouraged by the progress that the GSEs have made 

in this regard, although I think a lot more could be done. 

Risk-sharing with the private sector is a way to slowly but quite 

surely remove the Federal Government’s grip on the housing market and introduce private capital in a way that lets us better price 

risk and avoid a calamity. So it is my belief that the FHA has the 

authority to do risk-share transactions, or at least co-insurance to 

reduce the risk. 

We had a conversation with Secretary Castro here and he told 

me we can find ways to introduce more private capital into the 

market. And I was going to ask, what are you doing to work with 

the private sector to—in mortgage finance with an eye to avoiding 

the need down the road, should troubled waters be ahead, of avoiding any taxpayer-funded bailout? 

Mr. GOLDING. Thank you for the question. 

And I am aware of what the GSEs have done, some of their innovative products. As I mentioned before, on the multi-family side, 

we do risk-sharing. I would also mention that there is a lot of private capital in the FHA market in terms of the origination, the 

servicing, and actually the funding of the mortgages. 

As it relates to credit risk, it is a difficult one on the single-family side for FHA to share credit risk. As I am sure the GSEs will 

tell you, there is a lot of systems work involved in setting up these 

programs. I know many of the individuals over there working on 

that. So it is very difficult. 

The other thing I would point out is you are also giving up significant income. So while you are shedding some of the downside, 

you are also shedding considerable revenue when you do do a risksharing transaction. 

Mr. ROYCE. The question I will ask you about—and I saw Mr. 

Garrett had inquired about capital—your target capital ratio. And 

I remember a conversation I had with Mark Zandi after he finished 

his book, and in particular we were talking about the GSEs. 

For FHA, the issue of a target capital ratio of 2 percent—I know 

you are looking at this—he felt that 4.5 percent was the proper 

capital ratio, at least 4.5 percent. And so, since I know you are 

looking at analyzing where will you go on that target, I would just 

suggest that I think with an eye toward experience, that would be 

a wise objective. And I just wanted to get your feedback on that. 

26 

Mr. GOLDING. I have been looking at capital ratios for most of my 

career in the mortgage market. Yes, it’s a tough question exactly 

what the right level is. 

I will point out we have had—the 2 percent target has served us 

well, that while we came through the Great Recession there was 

a mandatory appropriation. I think FHA came through, as all the 

mortgage—of all the major participants in the mortgage market 

that I know of, FHA came through this crisis better than any of 

them did. 

So I do think that we have the wherewithal. And these numbers, 

the 2 percent works. It is a projection of whether we are going to 

run out of cash in year 27. 

Mr. ROYCE. Right. 

Mr. GOLDING. It is not an immediate cash need. We have lots of 

cash at hand. 

But we would be glad to continue the discussion of what a different target might be. 

Mr. ROYCE. Thank you, Mr. Golding. 

I will yield back, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman yields back. 

I now recognize the gentlelady from California, Ms. Waters, who 

is the ranking member of the full Financial Services Committee. 

She is recognized for 5 minutes. 

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

I am very pleased that we are here today and the committee has 

invited you, Mr. Golding, to speak with us, because it does give us 

an opportunity to highlight the very positive results that were included in the most recent independent actuarial report on the 

health of the Mutual Mortgage Insurance Fund. 

The report showed that the fund has now reached and exceeded 

the capital ratio requirement and now stands at 2.07 percent. The 

economic net worth of the fund is now at $23.8 billion, which is up 

$19 billion from the previous year. The report also shows that delinquency rates and foreclosures started to decrease substantially. 

Exactly 1 year ago, this committee held an oversight hearing on 

the FHA, for which Secretary Castro came to testify. At that hearing the Republicans criticized the Secretary for his decision to decrease premiums, saying that the decision was irresponsible and 

that the fund was not strong enough to handle a premium decrease. 

But here we are 1 year later and the fund has reached and exceeded the capital ratio earlier than expected, and it is in strong 

financial shape. Moreover, the premium reduction is helping thousands more borrowers access affordable home ownership. 

So thank you very much for your work, and for Mr. Castro’s leadership on this issue. 

I have a few issues that I would like to bring to your attention. 

Let me just ask about the reverse mortgage program. We had 

some interaction with HUD, particularly about the spouses of deceased individuals who were the mortgage-holders, and an inability 

for them to stay in their homes, et cetera, et cetera. I understand 

that a lot of work has been done on this issue and that you are 

continuing to work on this. 

27 

But I am concerned about the reverse mortgage program in general. I see a lot of advertising that continues to go on, a lot of lack 

of information that seniors don’t have, a lot—information that they 

don’t have. 

And so what is the future of this reverse mortgage program? 

What are you doing, and do you think that we need to either talk 

about how we wind this down, or can it be fixed in a way that seniors understand it, and that they are fairly compensated while they 

are alive, and that they don’t end up basically losing property that 

is valued much higher than what they have gotten out of it? What 

do you think about this? 

Mr. GOLDING. Thank you for the question. 

Reverse mortgage is a really tough question, and I struggle with 

it too. Thanks to this committee, we have made important changes 

in this program, and I am—what is being originated now I generally think is good for allowing seniors to age in place. 

There is a very important role for counseling so that individuals 

know what they are getting. And, quite frankly, we encourage families and heirs and non-bearing spouses to be part of that counseling. 

So I think the program now is on the steady keel. Its volumes 

are way down as a result, but it is one that needs to be monitored 

closely, as we learn more about the program. 

Ms. WATERS. We are going to be paying very close attention to 

it and trying to address some of the concerns that we have identified. 

Let me just move on. Since HUD announced its multi-family 

transformation initiative, I have been active in opposing this dramatic consolidation of HUD’s multi-family field offices throughout 

the country. This plan seems to ignore the importance of local offices, and I am concerned that it will adversely affect the delivery 

of services by reducing staff’s ability to effectively respond to local 

concerns. 

That is why I successfully introduced an amendment to the 2015 

HUD funding bill to ensure that HUD is not requiring the consolidation of asset management staff. However, I am very disappointed 

that HUD is circumventing the intent of this legislation and to 

keep asset management in every field office by failing to backfill 

these positions. Some offices are already completely vacant because 

HUD has not replaced asset management staff in those locations. 

And I have also heard from affected HUD staff that HUD is penalizing asset management staff who are not choosing to relocate 

by sending the message that there will be no opportunities for career advancement rules—they voluntarily relocate to a hub office. 

Is this true? 

Mr. GOLDING. Our current plans have been to, when vacancies 

were to occur—now, it is a fairly new program so I will have to get 

to you on the number of vacancies—but our current plan has been 

to fill those at one of either the hub or the satellite offices. 

Ms. WATERS. Is there any intimidation going on with employees 

because you would like to or you are trying to circumvent what I 

successfully had passed? 

Mr. GOLDING. Let me look into that. We don’t tolerate intimidation, so please, I will work with your office on that one. 

28 

Ms. WATERS. Thank you very much. 

I yield back. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

With that, we go to the gentleman from Kentucky, Mr. Barr, for 

5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. Thanks for holding this 

hearing. 

Mr. Golding, thanks for your testimony and your service. 

I want to follow up on the line of questioning from Mr. Garrett 

and Mr. Royce on what is the appropriate capital reserve ratio. I 

think we are all happy to see the positive development of exceeding 

the 2 percent target, but we continue to be concerned that target 

may be inadequate. 

The Government Accountability Office found that the statutory 

target of 2 percent is insufficient to ensure the stability of the FHA 

in the event of another crisis. I think Mr. Royce mentioned economists like Mr. Zandi, who said that we need a capital ratio of at 

least 4.5 percent. And then, of course, just the history of a $1.7 billion mandatory 

appropriation suggests that a 2 percent capital ratio requirement 

may not be adequate in a stress scenario. 

So, given those realities, and given the decision by the FHA to 

reduce the mortgage insurance premiums, what was the decisionmaking process in making that decision to reduce premiums? And 

are you in any way concerned that may deteriorate a more realistic 

target where we need to go? 

Mr. GOLDING. I appreciate the question, and it is an important 

one because the strength of the fund is very important, and one 

that I, too, have always been concerned about. 

The track is strong. We raised—I don’t remember the exact number, but I think we raised the mortgage insurance premium about 

8 times. The last one was a step back as market conditions had 

changed and the like, where we thought it was important to get it 

at a level that promoted affordability. 

And as I said, the actuary has showed that it didn’t really have 

an effect on the trajectory of how fast we are growing. In fact, they 

are now projecting that we are going to grow faster than they did 

last year before the cut. 

Mr. BARR. I appreciate the goal and the mission of affordability. 

But according to the National Association of Insurance Commissioners, their model act on mortgage insurance, any mortgage insurance company that has outstanding total liability greater than 

25 times its capital is required to cease operations until it rebuilds 

capital. 

Obviously, the FHA is competing and supplanting PMI. Its capital requirements arguably should be at least similar to private 

markets, but the FHA baseline is 50-to-one, meaning that it is operating with only 2 cents on hand for every dollar of risk, which 

is half the minimum amount required by State regulators. 

So, given that, what should be the proper balance in market 

share between FHA and private mortgage insurance, and where is 

it now? 

Mr. GOLDING. In terms of, as I said, in terms of insurance—and 

these are rough numbers, but for a very high LTV above—basically 

29 

above 80 LTV, where the M.I.s play, where we play, the rough 

breakdown is basically 40 percent M.I., 40 percent FHA, and about 

20 percent VA is where it is. 

Mr. BARR. So 40–40–20? 

Mr. GOLDING. Roughly. 

Mr. BARR. Okay. 

Mr. GOLDING. It bounces around, but that is my rule of thumb. 

Mr. BARR. Do you all look at the substitution effect that you all 

are having when you lower premiums, when you have lower capital 

requirements versus the private sector? Do you all actually look at 

the displacement that your policies create? 

And don’t we want to invite more private mortgage insurance? 

Forty percent seems like a low number. 

Mr. GOLDING. Now look, we look at it, I read what the M.I. said. 

One of them told their investors that the net reduction had less 

than a 5 percent effect on their business. 

So I am definitely aware of the fact that there is overlap. But if 

you step back, we really do operate in largely different markets. 

Our core market and their core market— 

Mr. BARR. But in the high-income areas you are talking about 

loans of $625,000, and I know that that is a high-income place or 

standard, but where I come from, a $625,000 mortgage is a very 

significant amount of debt. 

But in any event, my time has expired. I would just encourage 

FHA to—we want to make sure risk is on the private sector, not 

on the taxpayer. 

I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. 

With that, we are finished with our witnesses. 

And I will thank Mr. Golding for being here today. 

I just have a few closing comments. I still have concerns and, to 

your testimony today, sir, I appreciate some of your remarks, and 

I am glad to see your capital has improved. I think that is fantastic. 

But if you take the report, as I initially started my discussion 

with, in 2011, you are diametrically opposed with the way you are 

operating today compared to what that report was trying to give 

you the guidelines in the future. And so you were talking about 

raising premiums; now you are lowering premiums. You were talking about trying to shift stuff to the private market; through many 

of our Members’ questions and what have you today, that is not 

happening. 

So your comment a while ago was with regards to all the underwriting you did. The chart on the screen right now shows that for 

10 years, underwriting went downhill, or your profits went downhill, or negative, in fact, as a result of the underwriting practice 

that you were using. 

In 2009, you switched and got back on a sound basis, and now 

you have actually made money, which is fantastic. 

The problem and the concern that I have, though, is that you testified a minute ago, whenever I was discussing it with you, with 

regards to the reverse mortgages, that you are taking on higher 

loan levels with more risk, and doing it with less income associated 

with that risk. That is a recipe for disaster. 

30 

And so hopefully, there isn’t a downturn. Hopefully, we can work 

our way out of this. But I think it is incumbent on us as a committee to continue to watch what goes on here very carefully because I think you are treading on some very thin ice with the way 

that you are running the Department, especially with getting into 

the reverse mortgage market with less income to protect it. 

So with that, we certainly want to, again, thank you for your 

participation today. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

And with that, this hearing is adjourned. 

[Whereupon, at 11:07 a.m., the hearing was adjourned.] 

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A P P E N D I X 

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