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FEDERAL HOUSING ADMINISTRATION: 

IMPLICATIONS OF A $1.7 BILLION 

TAXPAYER BAILOUT 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

OCTOBER 29, 2013 

Printed for the use of the Committee on Financial Services 

Serial No. 113–47 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

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 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

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 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

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 

GARY C. PETERS, Michigan 

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 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

October 29, 2013 ............................................................................................... 1 

Appendix: 

October 29, 2013 ............................................................................................... 51 

WITNESSES 

TUESDAY, OCTOBER 29, 2013 

Galante, Hon. Carol J., Commissioner, Federal Housing Administration, and 

Assistant Secretary for Housing, U.S. Department of Housing and Urban 

Development ......................................................................................................... 8 

APPENDIX 

Prepared statements: 

Galante, Hon. Carol J. ..................................................................................... 52 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Maloney, Hon. Carolyn: 

Center for American Progress paper entitled, ‘‘The Federal Housing Administration Saved the Housing Market,’’ dated October 2012 ................ 64 

Galante, Hon. Carol J.: 

Written responses to questions submitted by Representative Royce ........... 76 

Written responses to questions submitted by Representative Sinema ........ 78 

Written responses to questions submitted by Representative Ellison ......... 81 

(1) 

FEDERAL HOUSING ADMINISTRATION: 

IMPLICATIONS OF A $1.7 BILLION 

TAXPAYER BAILOUT 

Tuesday, October 29, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:05 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Members present: Representatives Hensarling, Royce, Capito, 

Garrett, Neugebauer, McHenry, Pearce, Fitzpatrick, Westmoreland, 

Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, Fincher, Stutzman, 

Mulvaney, Hultgren, Ross, Pittenger, Barr, Cotton, Rothfus; 

Waters, Maloney, Velazquez, Sherman, Meeks, Capuano, Clay, 

Lynch, Scott, Green, Cleaver, Ellison, Himes, Carney, Sewell, Foster, Kildee, Murphy, Delaney, Sinema, Beatty, and Heck. 

Chairman HENSARLING. The committee will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the committee at any time. 

This hearing is entitled, ‘‘Federal Housing Administration: Implications of a $1.7 Billion Taxpayer Bailout.’’ 

I recognize myself for 5 minutes to give an opening statement. 

On February 6th, this committee held its very first hearing of the 

113th Congress on the topic of the declining fiscal health of the 

Federal Housing Administration (FHA). We heard from witnesses 

that FHA was ignoring warnings about its solvency, failing to use 

its existing tools to price insurance appropriately, and failing to 

minimize losses. 

Today, 8 months later, our witnesses have been proven correct. 

The FHA is indeed broke. It is officially bailout-broke. Twenty-nine 

days ago, FHA became the recipient of the latest Washington bailout, funded courtesy of hardworking taxpayers, to the tune of $1.7 

billion. 

On February 13th, when our witness, Commissioner Galante, 

came before us to discuss the state of FHA’s Single-Family Insurance Fund, she testified that FHA was making changes to ‘‘accelerate the fund’s recovery.’’ Regrettably, seemingly FHA has only accelerated our national bankruptcy by accelerating the national debt 

clock, which can be seen on the monitors to both my left and my 

right. 

When Commissioner Galante last appeared before us, the national debt stood at $16.5 trillion. A mere 18 months later, the naVerDate Nov 24 2008 18:00 May 09, 2014 Jkt 086682 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\86682.TXT TERRI
2 

tional debt now stands at a staggering $17.3 trillion and counting, 

over $140,000 per American household, on average, and $1.7 billion 

of that is courtesy of the FHA bailout. 

Our spending-driven national debt is the greatest existential 

threat that is facing our Nation today. The former Chairman of the 

Joint Chiefs of Staff has said that the greatest threat to our national security is our national debt. The Democratic co-chairman of 

the President’s fiscal commission, Erskine Bowles, has said this 

debt is like a cancer: ‘‘It will destroy this country from within.’’ 

Just last month, the Congressional Budget Office warned us yet 

again that our Federal debt is unsustainable. Yet, a number of my 

Democratic colleagues have asked to have the debt clock removed, 

taken out from sight, reflecting a see-no-evil attitude. And, in fact, 

President Obama has said, ‘‘Don’t pretend as if America is going 

bankrupt.’’ I have but little doubt similar words were spoken in 

both Greece and Detroit. 

Barely a week ago, the Congressional Budget Office (CBO) delivered more bad news, reporting that FHA has consistently misstated its projected recovery. Specifically, the CBO has said mortgages insured by FHA over the past 2 decades have had a net cost 

of $15 billion even though the initial estimates from FHA suggested $45 billion in profits. That is a remarkable $60 billion swing 

in the wrong direction—another rosy scenario dashed at an agency 

that, regrettably, has a history of such. 

Whether it was Assistant Secretary Stevens telling us back in 

2009 that FHA’s financial troubles would ‘‘last a short period of 

time’’ or Secretary Donovan testifying in 2011 that the insurance 

fund’s ‘‘prospects for the future are good,’’ or Commissioner Galante 

reporting in 2012 that reforms and enforcement efforts under way 

are ‘‘positioning FHA well for the future,’’ these assurances today 

ring a little bit hollow. 

The taxpayer-funded bailout of FHA reinforces everything that 

many have said about FHA for some time: that it is high-risk to 

taxpayers; high-risk to the mortgage insurance market; and highrisk to our economy. The Government Accountability Office (GAO) 

underscored those points in February when it added the FHA to its 

list of programs considered high-risk due to their vulnerability to 

fraud, waste, abuse, mismanagement, or the need for transformation. 

The $1.7 billion bailout of FHA also reinforces the need for the 

Protecting American Taxpayers and Homeowners Act, the PATH 

Act. The PATH Act will achieve needed objectives for the Federal 

Housing Administration. It will put FHA on a sound financial footing and keep it there. It clearly defines FHA’s mission to ensure 

that the agency is serving first-time home buyers and low- to moderate-income borrowers. 

The PATH Act shifts risk away from taxpayers and into the private sector by reducing FHA’s footprint and making sure the industry is complementing the private sector, not competing with it. It 

ensures that the FHA runs its Single-Family Insurance Fund according to the basic tenets of mortgage insurance. Finally, the 

PATH Act mandates the insurance of the 30-year fixed-rate mortgage and retains FHA’s countercyclical role. 

3 

The American people clearly want to end the destructive cycle of 

boom, bust, and bailout that Washington policies have helped foster. They do not want an economy laid low by unsustainable levels 

of debt. Regrettably, the FHA, as it operates today, exacerbates 

both. The FHA has gone from backstopping the market to supplanting the market. The time for FHA reform is now. We can 

truly wait no longer. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Scott, for 2 minutes. 

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

Ms. Galante, first, let me thank you for coming down to Atlanta 

to our home foreclosure prevention event, where we saved right on 

that day, as you will recall, 6,000 homes from being foreclosed 

upon. I really appreciate you coming down and being with us at 

that time. 

Now, first of all, I want to say this is not a bailout. It is very 

easy for us to try to use that kind of language. This is a required, 

mandatory appropriation of nearly $1.7 billion in appropriations 

from the United States Treasury that is required, that is needed, 

and is very timely for our recovery. 

Now, to the chairman’s point, my facts, just to recall, the Federal 

Credit Reform Act of 1990 requires that at the end of each fiscal 

year, every government credit agency, which includes the FHA, 

must have sufficient reserves to cover 100 percent of anticipated future losses. The FHA’s programs, like all Federal Government direct loan and loan guarantees programs, are subject to the Federal 

Credit Reform Act, and they can take advantage of permanent and 

definite authority to cover increases in cost for outstanding loans 

and loan guarantees. That is all this is. 

This authority allows the FHA access to U.S. Treasury funds 

without congressional approval for any funds needed to balance its 

books. That is what this is. That is what is in the law. It is no kind 

of bailout. And I think it is very important that we be honest with 

the American people so they know that this is codified in the Federal Credit Reform Act of 1990. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Texas, the chairman of the Housing and Insurance Subcommittee, Mr. Neugebauer, for 2 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. And thank you for 

holding this hearing. 

And I think—several points here. One is that everybody recognizes that FHA has played a valuable role in helping first-time 

home buyers and low-income families enter into homeownership. 

But also what we understand is that when these young couples 

purchase these homes, it helps them set down their roots and begin 

to raise their families, which is good for our neighborhoods and our 

communities. And that is the reason it is important that we have 

a healthy FHA. FHA plays a vital role in that area. 

The problem is that FHA is not on sound financial footing, which 

jeopardizes its ability in the future to provide this first-time home 

buyer or the low-income family financing. 

Now, you are going to hear today that FHA is not broke, but that 

is not the case. What we know is they have a negative capital ratio 

of 1.44 percent. They are supposed to have a capital ratio of 2 perVerDate Nov 24 2008 18:00 May 09, 2014 Jkt 086682 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\86682.TXT TERRI
4 

cent, and many private mortgage insurance companies have to 

have a capital ratio of 4 percent. 

The other is that they have a negative net worth of $16.3 billion. 

You are going to hear that they have $48 billion in the bank. There 

are a lot of companies in bankruptcy that have money in the bank; 

they just don’t have enough money to cover all of their liabilities. 

And so what we need to do is pass the PATH Act. What does the 

PATH Act do? It begins to make sure that we have a strong and 

healthy FHA for the future so they can help these families. It also 

makes sure that the taxpayers don’t have to underwrite these 

mortgages in the future and puts them on sound footing. It gets 

FHA back to its original core mission. 

It is important that we have this discussion today, but what is 

more important is we need to know exactly where FHA is, because 

I don’t think anybody knows. We are told, every time someone 

comes to tell us about FHA, that things are fine, things are getting 

better. We had people come in and tell us the same thing about 

Freddie Mac and Fannie Mae; things were fine, things were great. 

But that turned out not to be the case. And what this Administration has done is missed the mark on projection after projection of 

when this fund is going to be back into its statutory limit. 

With that, Mr. Chairman, I yield back the time that I don’t have. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Connecticut, Mr. Himes, for 2 minutes. 

Mr. HIMES. Thank you, Mr. Chairman. And I welcome the witness to come before us today and talk about a very important question. 

A couple of observations. One, once again, I sit down and listen 

to the majority talk so piously about the need for fiscal responsibility and so much concern about the debt that most of them, of 

course, voted last week to default upon, questioning, I think, 

whether we should take any protestations of responsibility and 

prudence coming from those who voted to default on the United 

States debt with, perhaps, a rather large grain of salt. 

But to move on to the topic of this hearing, it is important that 

those who are watching this understand that when the word ‘‘bailout’’ is used, it is not being used terribly accurately. What is occurring here is essentially an accounting entry. 

And I am not saying that this is an good thing. The FHA, like 

so much of the private housing industry and our banks and Fannie 

Mae and Freddie Mac, is paying a tremendous price for the activities of the real estate industry and the government’s involvement 

in real estate in the years 2006 and before and after that. They are 

staggering out of what was the most significant dislocation we have 

experienced since the 1930s. So it is not shocking that, in fact, they 

are looking for $1.7 billion in capital. 

If you believe that the real estate market is destined to take another massive downturn, you should be concerned that will never 

be reversed. However, the decades and generations of experience 

with FHA show two things. 

One, this is not cash. This is not cash going to Merrill Lynch or 

Bank of America or any of the other financial institutions that received bailouts in 2008. This is an accounting entry. This is an acVerDate Nov 24 2008 18:00 May 09, 2014 Jkt 086682 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\86682.TXT TERRI
5 

counting entry whereby FHA says, we have a call on cash from the 

Treasury. 

Two things to be pointed out about that. One, it is an accounting 

entry that, if you look at the history of FHA, has always been the 

opposite. As for most of its existence, it has actually operated at a 

surplus and funded important affordable housing programs. 

So, as we talk about a bailout, keep in mind that this is not cash; 

this is an accounting entry. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentlemen has expired. 

The Chair now recognizes the gentleman from New Jersey, the 

chairman of the Capital Markets Subcommittee, Mr. Garrett, for 2 

minutes. 

Mr. GARRETT. Thank you, Mr. Chairman. 

Thank you, Commissioner, and we appreciate you being here 

today, although, of course, I wish it was under happier circumstances. 

But, instead, we are here in the aftermath of what is going to 

be the first taxpayer bailout of the FHA in its 80-year history, one 

which for years we were told would never happen. And just earlier 

this year, we were told, also, that it would be about half the size 

of what it is going to be in fact. 

So I am certainly troubled by what this says about the FHA. I 

am even more troubled now, I am really angered actually, about 

forcing the American people once again to come and rescue yet another failed government-backed housing agency. 

But on top of all that, what is even more alarming, in my opinion, is the FHA’s pattern of underestimating your losses. Now, I 

can only see really two possible explanations for that: either FHA 

is really bad at assessing risk, which is basically what your core 

mission is; or that for years you knew what the real risks were and 

you were simply downplaying it each time FHA came to Congress. 

In a stress test conducted earlier this year, a test, I might add, 

the FHA basically tried to cover up, the Federal Reserve estimated 

that in a severe economic downturn, the FHA would need not $1.7 

billion but $115 billion. And while we can’t predict whether this 

will happen or not, it is clear the FHA does pose an enormous potential liability for taxpayers. 

One of the most important steps we as Congress could take 

would be to refocus FHA on its core mission of helping low- to moderate-income borrowers and first-time home buyers, and we do that 

with the PATH Act. How many times do we have to be burned before we learn that government guarantees don’t make markets 

safer; they make them more dangerous? 

If you can’t actually get someone at FHA to admit that this is 

a bailout, to use that forbidden word here in this town—it is only 

$1.7 billion, and I guess in some people’s mind that is just pocket 

change. And on top of all this, we are supposed to believe that this 

is the only bailout that FHA is ever going to need. Of course, the 

Federal Reserve doesn’t believe that, and neither do I. 

I yield back. 

Chairman HENSARLING. The Chair now recognizes Ranking 

Member Waters for 4 minutes. 

Ms. WATERS. Thank you, Mr. Chairman. 

6 

Commissioner Galante, I am very pleased you have appeared before this committee today. I would like to applaud your work in 

managing the Federal Housing Administration, which has provided 

an affordable pathway to homeownership for hundreds of thousands of first-time and low-income home buyers. 

During the worst of the 2008 crisis, when the private sector virtually left the market, the Federal Housing Administration stepped 

up and provided the liquidity that kept our struggling housing 

market afloat. This is the countercyclical role of FHA as it has been 

throughout the course of its nearly 80-year history. 

Despite corrective action taken in recent years, the severity of 

the financial crisis weakened the help of FHA’s Mutual Mortgage 

Insurance Fund. Recently, FHA announced a number of changes 

designed to shore up its finances. Since that time, FHA has raised 

premiums on multiple occasions, strengthened downpayment and 

credit requirements, enhanced underwriting, and increased enforcement measures. In addition, FHA recently issued mortgagee letters 

for the Home Equity Conversion Mortgage program to help stabilize the segment of FHA’s business which has accounted for the 

majority of FHA’s losses. 

As a result of these reforms, FHA’s last two books for business, 

2011 through 2012, have been the strongest in the Administration’s 

history. Moreover, the 2013 book of business is estimated to continue that trend. 

Nevertheless, on September 30, 2013, FHA was required to take a mandatory appropriation of approximately $1.7 billion. Although 

this one-time transfer of funds from the Treasury is legally necessary, it is important to note that FHA is far from bankrupt. In 

fact, the FHA holds over $48 billion in cash on hand, and the agency continues to generate revenue. 

This mandatory appropriation is only required because FHA is 

bound by law to hold the revenue necessary to pay any potential 

claims over the next 30 years without taking into account future 

business. Moreover, the calculation used to determine whether a 

mandatory appropriation is required is completely outdated, based 

on assumptions about loan performance and recoveries made in December 2012. The number does not incorporate recent performance 

improvements or current economic factors. 

These significant changes are likely to have improved the underlying financial health of the Mutual Mortgage Insurance Fund. For 

instance, expectations of home price appreciation have improved 

significantly, and, in conjunction with rising home prices, FHA policy changes have boosted recoveries on foreclosures. HUD has implemented measures including a 10-basis-point guarantee fee hike 

earlier this year and more aggressive pursuit of put-backs on delinquent loans to shore up the Mutual Mortgage Insurance Fund. 

Higher interest rates are likely to reflect positively on the fund 

as existing borrowers prepay more slowly and pay mortgage insurance premiums for longer periods. As a result, this accounting 

transfer does not reflect an up-to-date view of the Mutual Mortgage 

Insurance Fund’s performance, its long-term fiscal health, or its 

current cash position. 

Above all, we must strive to have a healthy, viable FHA that continues to facilitate homeownership for first-time and low-income 

7 

home buyers while standing ready in the unfortunate event of another housing downturn. 

I look forward to your testimony today. 

I yield back the balance of my time. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from West Virginia, the Chair of our Financial Institutions Subcommittee, Ms. Capito, for 1 minute. 

Mrs. CAPITO. Thank you, Mr. Chairman. 

And I want to thank our witness for being here with us today, 

and thank you for your service in the housing industry. I am very concerned about the bailout of $1.7 billion. I have been 

on the Housing Subcommittee for many years, and I have sat 

through the testimony of witness after witness saying that we 

would never reach this point. Even when red flags were raised that 

we were dipping below the 2 percent MMIF ratio, under questioning we were assured that with the housing market improving, 

the decrease in capital reserves, this would return to normal levels 

and we would never need a bailout. Yet, here we are. 

So I would say $1.7 billion may be an accounting move, but $1.7 billion, in my book, is $1.7 billion. And if we were told this would 

never happen, the question is, how did we get here? 

We would have been here last year had they not made an adjustment, and I would like to have you speak to that in your testimony. 

And so, here we are again this year. 

I yield back the time I do not have. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from Ohio, Ms. Beatty, for 2 minutes. 

Mrs. BEATTY. Thank you, Chairman Hensarling, and Ranking 

Member Waters. 

And thank you to our witness for being here. Let me join my 

other colleagues in thanking you for all of the work that you have 

done in this industry. And I am looking forward to hearing your 

testimony and having the opportunity to pose a few questions. 

Let me be very brief in my remarks and say, certainly, as you 

and our audience today can imagine, there are two sides to every 

story. I have noticed the overemphasis on ‘‘bailout’’ today, but what 

I have not heard is all of the good things that have happened 

through your industry in providing low-income and affordable 

housing. Also, what the portfolio looks like today, and that those 

dollars that are being taken from the Treasury, I have had the absence of the word ‘‘legal,’’ that this is a legal way to expend those 

dollars. 

But let me say what I was most impressed with, as I looked 

through your testimony—and I am sure we are going to hear more 

about that today—is when you said the ultimate health of the portfolio is partially a function of the broader economic environment, 

causing me to be reminded of when the government shuts down, 

the default on Treasury’s obligations are threatened, and the economy performs worse, and the MMIF suffers. 

So, hopefully, you will have the opportunity to tell the other side 

of the story and share with us the history, but more importantly, 

where we go from here. 

Thank you, and I yield back. 

Chairman HENSARLING. The gentlelady yields back. 

8 

Today, we welcome the testimony of Carol Galante, the Commissioner of the Federal Housing Administration and Assistant Secretary for Housing at the Department of Housing and Urban Development. Ms. Galante appeared on February 13th of this year, so I 

believe she needs no further introduction. 

Without objection, Ms. Galante’s written statement will be made 

a part of the record. 

Ms. Galante, you are now recognized for your oral presentation. 

Thank you for being here. 

STATEMENT OF THE HONORABLE CAROL J. GALANTE, COMMISSIONER, FEDERAL HOUSING ADMINISTRATION, AND ASSISTANT SECRETARY FOR HOUSING, U.S. DEPARTMENT OF 

HOUSING AND URBAN DEVELOPMENT 

Ms. GALANTE. Chairman Hensarling, and Ranking Member 

Waters, thank you for the opportunity to testify today on the recent 

mandatory appropriation to the Mutual Mortgage Insurance Fund. 

First, I want to be clear that while we would have preferred to 

avoid the mandatory appropriation, these funds are not a bailout 

and they are not a failure of the FHA model. This accounting 

transfer is the result of a static assessment as part of the annual 

budget process, and it is based on September 2012 portfolio characteristics using fall 2012 economic assumptions. 

This assessment determines the amount of reserves necessary to 

pay for up to 30 years of potential claims. Today, these assumptions are outdated, as demonstrated by the dramatic improvements 

in portfolio performance, including a 15 percent drop in delinquencies, a 91 percent drop in early payment defaults, a 20 percent 

reduction in foreclosure starts, and a 30 percent improvement in 

recovery rates. These improvements cannot be captured by the reestimate calculation. And right now, FHA has $48 billion in liquid 

assets on hand. 

The housing market was crippled by the reckless practices of private actors, ultimately resulting in the worst recession this Nation 

has seen in over 70 years. The discussion we are having today 

would be very different were it not for the serious losses on legacy 

books from 2006 to early 2009. 

HUD has testified many times about the clear and significant 

impacts of those years on FHA, especially seller-funded 

downpayments and HECM loans—programs that incurred serious 

projected losses because FHA lacked the authority to expeditiously 

make the changes necessary to prevent them. The seller-funded 

program accounts for $15 billion in expected losses to the fund, according to last year’s independent actuarial report. And were it not 

for HECM losses, our capital reserve would have been positive by 

almost $3.5 billion. 

Throughout the crisis, FHA has played its dual role of ensuring 

access to credit while providing countercyclical support to the market, just as it was intended to do. And since 2009, this Administration has taken aggressive steps to ensure the fiscal soundness of 

FHA. We have raised premiums 5 times, reversed the premium 

cancellation policy, tightened credit requirements, and made unprecedented efforts on enforcement actions. 

9 

Many of these actions were made possible because of the support 

of Congress. I would especially like to thank Representatives Heck 

and Fitzpatrick for their work on the Reverse Mortgage Stabilization Act, making HECM safer for borrowers and taxpayers alike. 

To be clear, while these changes cannot erase the adverse impacts of the past origination practices or the considerable strain the 

recession placed on the fund, they are ensuring that future books 

are much stronger. We are on the right track. New books of business continue to perform well, and just 2 weeks ago the Congressional Budget Office clearly noted the significant profitability of the 

2010 through 2012 portfolio. 

In addition to focusing on ensuring strong new books, we have 

executed on our commitment to reduce losses on past books, keeping families in their homes when possible, while protecting the 

fund. Improvements to our loss-mitigation waterfall, settlements 

with lenders, and expanded use of REO alternative programs are 

directly responsible for significant portfolio improvements I mentioned earlier. We estimate that the improvement and recovery 

rates alone are worth no less than $5 billion, far exceeding the 

amount of the mandatory appropriation. 

Actions we have taken since the peak of the crisis also had the 

effect of reducing FHA’s footprint. Endorsements have declined 27 

percent since their peak in 2009. 

No one is more concerned than I am with ensuring FHA continues on a trajectory toward rebuilding our capital reserve. To be 

successful in the future, FHA needs the right tools and your support. Indemnification authority for all our lenders and improved 

authority to terminate origination and underwriting approval will 

allow us to better identify risks and avoid unnecessary losses. Authority when the fund is at risk to quickly revise requirements via 

mortgagee letter while rulemaking is under way will improve 

FHA’s ability to respond to new risks or urgent needs. Giving FHA 

more control over its resources both administratively and legislatively, such as use of the FIRREA wage scale or procurement flexibility, would also help. 

I look forward to working with Congress to give FHA the additional tools it needs to better protect the housing market against 

another crisis and to make the dream of homeownership a reality 

for generations to come. 

Mr. Chairman, thank you for this opportunity, and I am happy 

to answer questions. 

[The prepared statement of Commissioner Galante can be found 

on page 52 of the appendix.] 

Chairman HENSARLING. I thank you, Ms. Galante. 

The Chair recognizes himself for 5 minutes for questions. 

Ms. Galante, I ascribe no malevolent intent to you or your predecessors. I have no doubt that you and your staff work very hard. 

But in listening to your testimony, I am reminded of that famous 

line from a Marx Brothers film, ‘‘Who are you going to believe, me 

or your own eyes?’’ 

And so what I hear from you is, frankly, what I have heard from 

you and your predecessor and the Secretary for many years, that 

all is well. And what I see with my own eyes is a Congressional 

Budget Office report that shows a $60 billion swing from what was 

10 

supposed to be a $15 billion savings instead—a $45 billion savings 

has instead turned into a $15 billion cost. What I see with my own 

eyes is a GAO report—congratulations, FHA has now been added 

to the high-risk series. What I see with my own eyes is your letter, 

dated September 27th. 

I notice that you and many of my colleagues on the other side 

of the aisle use the phrase ‘‘required, mandatory appropriation.’’ 

That might be the phrase in Washington. The phrase on Main 

Street is ‘‘bailout.’’ And what I have known is either you, your 

predecessor, or the Secretary have been so wrong for so long, 

whether it had to do with the value of the MMIF, whether it had 

to do with your capital ratios, whether it had to do with the need 

for a bailout, and then when you finally acknowledged you needed 

one, it turned out to be almost twice the size. 

So, with all due respect, Ms. Galante, why is the testimony credible today? 

And I particularly find it quite poignant that in your written testimony, one of the last lines you have is, ‘‘FHA continues to be a 

reliable steward of taxpayer dollars.’’ 

What is different today than all that we have heard for the last 

4 years of this Administration? 

Ms. GALANTE. Mr. Chairman, let me be clear. If you look at the 

testimony chart on page 2, which is based on the CBO report that 

just came out a couple of weeks ago, what we did was we added 

to that chart the 2013 receipts. And we broke down this chart to 

show you the changes in the economic value of the fund by year 

based on the actuarial reports, based on the budget reestimates. 

This happens every year. There is a— 

Chairman HENSARLING. That is kind of the point, Ms. Galante, 

because we have seen these charts before. We have seen them for 

4 years, and for 4 years, they have been wrong. 

So, again, what is different today? Why should this committee 

believe the testimony today, when it hasn’t been credible for 4 

years running? 

Ms. GALANTE. Again, Mr. Chairman, since I have been here, 

since the Secretary has been here, what we have reported on are 

the results of an independent actuary, the results of annual budget 

reestimates that are done as part of the Administration’s budget. 

And the point I want to make here is that in the years in which 

this country was hit by the worst recession in 70 years, our portfolio took a significant hit. 

Chairman HENSARLING. And I understand that, Ms.— 

Ms. GALANTE. There is no doubt about that. 

Chairman HENSARLING. —Galante. But, again, the housing crash 

came in 2007. It is almost 2014. 

You would acknowledge that for the entire time this Administration has been in office, that FHA has failed to meet its legal standard of maintaining a 2 percent capital ratio, correct? 

Ms. GALANTE. We have been under the 2 percent. 

Chairman HENSARLING. Even though the law says ‘‘shall,’’ not 

‘‘may,’’ not ‘‘might,’’ not ‘‘could,’’ but ‘‘shall.’’ 

Given that previous predictions, again, have proven so wrong for 

so long—for 4 years running, you have been in violation of the 

law—has anybody in your agency been held accountable for this? 

11 

Has anybody been fired? Has anybody been reassigned? Has anybody had a reprimand? What is the level of accountability at FHA 

for these actions? 

Ms. GALANTE. Mr. Chairman, the 2 percent capital ratio is a requirement. We have worked very hard over these 4 years, as I have 

talked about, increasing premiums, changing policies, changing 

credit standards, to work our way past— 

Chairman HENSARLING. But did you fully utilize those tools to 

bring your capital ratio up to 2 percent? So maybe the trend line 

could have been in the right direction, but didn’t have you tools 

available to you that you could have used further? 

Ms. GALANTE. Let’s be clear. We didn’t even have the ability to 

raise premiums until 2010. We had to come back to Congress to get 

the authority to increase premiums. So we have used our— 

Chairman HENSARLING. My time has expired. So was anybody 

held accountable, yes or no? 

My time has expired. The Chair now recognizes the ranking 

member for 5 minutes. 

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

Ms. Galante, again, I appreciate your being here today. And I appreciate the fact that FHA has been successful in its mission. I appreciate all of the changes that have been made. But I appreciate, 

more than anything else, that FHA was there for the citizens of 

this country who needed them when nobody else was. 

And so, would you go over with us what you cited in your testimony about the success and the improvements of FHA? 

Ms. GALANTE. Certainly. 

As I mentioned in my testimony, we have focused on tightening 

the credit box so future loans that we insure are the best that they 

can be. We have increased costs on borrowers significantly. And, in 

fact, there is some concern that is restricting access to credit moving forward. But we have been balancing that with ensuring that 

the fund is rebuilt and the capital reserves are rebuilt as quickly 

as possible given economic circumstances. 

The last thing I would— 

Ms. WATERS. What have those actions resulted in? What kind of 

success have those actions resulted in? 

Ms. GALANTE. The biggest success is, this past year, we have 

spent significant effort on the existing portfolio and reworking the 

loss-mitigation waterfall to enable more people to stay in their 

home. We have done alternative disposition of our REO assets that 

have significantly improved—the percentage is 30 percent improvement in our recovery rate on our defaulted loans. That is a success. 

Ms. WATERS. That certainly is. 

And would you one more time explain for the chairman of this 

committee, who does not seem to understand, the 2 percent requirement and why you had to get that appropriation and the fact 

that FHA is not broke? Would you explain that so the committee 

understands that very well? 

Ms. GALANTE. Yes. Let me make two points. 

First of all, the requirements for the mandatory appropriation, 

where we had a budget reestimate to pay for 30 years’ worth of potential claims, we were just a little bit short of that total requirement. 

12 

And to get to the point of what is the difference between the 1.7, 

this is a static estimate. The 22.4 requirement on the reestimate 

was static; it doesn’t change. The only thing that makes a difference during this fiscal year of whether we were going to meet 

that reestimate was how much revenue we were bringing into the 

FHA in 2013. And we brought in $17 billion worth of revenue. It 

was just shy of what was needed to fill that reserve up. 

Ms. WATERS. We may not have time to discuss it today, but I 

have always been concerned about the 30-year requirement. And it 

seems to me, if we were doing our work here in the Congress, we 

would take a look at that and try and understand whether or not 

that makes good sense, whether or not it is realistic, or whether 

or not we should update and take a look at that. 

Again, would you explain to this committee how it is you have 

to have, or you are mandated to take an appropriation when you 

have, what, $48 billion? 

Ms. GALANTE. That is correct. This is required as part of the Federal budgeting process and as part of Federal credit reform so 

that—think about this. You have to take money from your savings 

account to put it in your checking account so that it is there, available to pay your 5-year-old child’s college tuition 10 or 15 years 

down the road. That is what we are required to do. 

Ms. WATERS. Let me just say that my chairman here, Mr. Hensarling, has talked about the need for somebody to be fired. He 

questioned you about who you have fired, who your predecessors 

fired. And let me just say to you that his eyes, as he described, are 

seeing things; my eyes see things differently. 

And I think if anybody needs to be brought to task, it is perhaps 

the Congress of the United States and this committee for not doing 

its oversight responsibility in updating, first of all, the 30-year requirement and having an appreciation for how you have provided 

a safety net when everybody else refused to participate in the housing market. 

Thank you, and I yield back the balance of my time. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Texas, Mr. Neugebauer, the chairman of the Housing and Insurance Subcommittee, for 5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

I want to make a couple of points. 

One is I agree with the ranking member, in the sense that we 

need to change this antiquated accounting system that we are 

using at FHA. And I would ask her to join me in supporting the 

PATH Act, where we go to GAAP accounting, which is what the 

rest of the world has to use. And those numbers would be more 

negative, in the sense that if you used GAAP accounting, it is estimated that FHA would have a negative $26 billion net worth. 

Ms. Galante, I want to point you up there to the chart, and it 

is maybe hard to read, but the dotted lines are previous years 

where FHA has predicted what their progress would be. And, as 

you can see, the red line at the top is at the 2 percent mandatory 

requirement for reserve, and the blue line, as you can see, is the 

actual reserve ratio. 

So the question is—and back to, I think, what Chairman Hensarling was saying—is why would we sit here—as we listen to your 

13 

testimony today, we have heard similar testimony in previous 

years where the projections are as we see up there, but yet what 

the actual results are are far from that. I think it is like going to 

a doctor and your health continues to deteriorate but the doctor 

tells you you are just fine. Would you continue to go to a doctor 

who told you you were just fine if your health continued to deteriorate? 

Ms. GALANTE. Let me just answer that by saying, the actuarial 

projections are based on economic conditions. If economic conditions 

worsen, if house prices don’t go up as much as they project, things 

like that—this recession lasted longer, was deeper, was more harmful for families than the independent actuary—these aren’t our estimates—than the independent actuary projected, in the first actuary, for example. 

So, yes, these numbers are affected by external events, the external events of the shutdown, for example, and those kinds of activities affect the economy, affected the economy by $24 billion, according to Standard & Poor’s. If it has an effect on the housing market 

moving forward, that will affect FHA negatively. We are very subject to the overall economic conditions— 

Mr. NEUGEBAUER. Yes, but— 

Ms. GALANTE. —and how well the portfolio performs. 

Mr. NEUGEBAUER. —the bottom line, Ms. Galante, is you are not 

currently in compliance with the 2 percent reserve. Is that correct? 

Ms. GALANTE. That is correct, but, again— 

Mr. NEUGEBAUER. Yes. 

Ms. GALANTE. —this is—the accountability for that— 

Mr. NEUGEBAUER. That was a yes-or-no question. Thank you. 

So, as the chairman said, when you look at the National Housing 

Act, it states that the FHA shall—not may or could or should—at 

all times maintain a 2 percent capital ratio. So, in effect, the FHA 

is not in compliance with the law. Is that correct? 

Ms. GALANTE. That has been reported for the— 

Mr. NEUGEBAUER. No— 

Ms. GALANTE. —number of years. In our financial statements— 

Mr. NEUGEBAUER. —it has been reported. 

Ms. GALANTE. —we report that compliance. 

Mr. NEUGEBAUER. What is your position? Do you believe that you 

are in compliance with the law? 

Ms. GALANTE. Again, it is reported that we are not in compliance 

with that particular aspect. 

Mr. NEUGEBAUER. It has been reported, but you are the Director 

of FHA, so I just want you to tell me ‘‘yes’’ or ‘‘no,’’ yes, I am in 

compliance, or, no, I am not in compliance with the law. 

Ms. GALANTE. Again, I think I have answered that question. According to— 

Mr. NEUGEBAUER. I didn’t understand the response, so— 

Ms. GALANTE. As a compliance item in our audit, it is reported. 

Mr. NEUGEBAUER. It is a yes-or-no question. Yes, you are in compliance, or no, you are not. 

Ms. GALANTE. Again, our report says we are not in compliance 

with that. 

Mr. NEUGEBAUER. Okay. Thank you. 

14 

And so I think the question is, then, if you are not in compliance 

and your projections have not materialized, are you doing the right 

things to get that reserve ratio back to where you are not in violation of the law? 

Ms. GALANTE. So— 

Mr. NEUGEBAUER. Now, you are doing some things, but the question is—if you were a private company, you wouldn’t even be allowed to continue doing business, because in many States that regulate private mortgage—or mortgage insurance companies, once 

they get below a certain level, they aren’t allowed to continue to 

write insurance. 

And so, what actions—and how can we hold you accountable to 

getting that ratio back so that we are in compliance with the law? 

Ms. GALANTE. We have taken very aggressive action over these 

past 5 years. And—we can repeat them again. But we have more 

than doubled our mortgage insurance premiums, to the point where 

I think anybody would see that continuing to increase the mortgage 

insurance premiums would have a difficult time for new borrowers 

essentially paying for these legacy loans of the past. 

We have increased those premiums to the amount that we believe we can without totally destroying access to credit in this country. So, we have been taking very aggressive action. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlewoman from New York, Ms. 

Maloney, for 5 minutes. 

Mrs. MALONEY. Thank you. Thank you, Mr. Chairman, and 

thank you, Ranking Member Waters, for this hearing. 

And as my fellow New Yorker, former Senator Patrick Moynihan, 

used to say, everyone is entitled to their own opinion but not their 

own facts. And the facts are that the FHA has succeeded in continuing to meet its mission, to strengthen the insurance fund, and 

to reduce its role as the housing market continues to recover. So 

I want to compliment you, Commissioner, and your staff for your 

hard work. 

I want to point out that there were expected losses associated 

with the worst years of the housing crisis, and the crisis hit housing harder than any other sector in our economy. And while a 

$1.68 billion mandatory appropriation was recently requested by 

FHA to ensure that at the end of Fiscal Year 2013, the Mutual 

Mortgage Insurance Fund has sufficient funds in the capital reserve account to pay for all of its expected future losses, these accounting projections are based on data from the fall of 2012. 

And this request is not a bailout, as the Commissioner pointed 

out, and is not a reflection of the FHA’s ability to pay claims on 

outstanding loans insured by the insurance fund. Rather, the mandatory appropriation is a reflection of old information, not the 

realtime performance of the fund. And the improvements and recoveries alone are worth at least $5 billion, a value that is much 

higher than the required transfer of $1.7 billion. 

Now, the chairman wanted to know if anybody had been fired. 

Well, they weren’t fired, but they were certainly furloughed. And 

despite the government shutdown, which forced the FHA to operate 

with a skeleton staff of 64 people out of a total of 3,000, they continued to perform services for the American public. And this was, 

15 

of course, in addition to the sequester cuts, which resulted in 100 

percent of FHA employees taking a mandatory cut that—and, I 

would say, an undeserved pay cut, compliments to the majority 

party. 

And, in any event, I would like to ask you, Commissioner, about 

the role, the very positive role, that the ranking member pointed 

out of the countercyclical role that FHA plays in times of crisis. 

Now, the charts I looked at is you were this part, and then because no one else would do it you went up and helped the American people. 

And I would like to put in the record a statement by Mark Zandi, 

an independent economist from Moody’s— 

Chairman HENSARLING. Without objection, it is so ordered. 

Mrs. MALONEY. —which noted that the role of the FHA—absent 

the role of the FHA, according to Moody’s, the average price of a 

home would have declined an additional 25 percent. 

So I think I would like to thank the FHA for helping to preserve 

housing prices and for coming in and meeting a role when the private sector wasn’t there and now retreating as others are willing 

to come forward. 

Could you elaborate on the countercyclical role that FHA plays 

in times of crisis, such as the one we just lived through? 

Ms. GALANTE. Yes. Thank you. 

The FHA has helped, since the start of this Administration, 7 

million people become homeowners. The FHA has been particularly 

important to African-American and Hispanic home buyers and people with credit scores, for example, that are lower than the norm 

or lower than the private market on its own would help. So those 

credit scores, or those populations had a much deeper challenge 

getting financing during this recession, and the FHA was there for 

those borrowers. It was there for a broader group of borrowers who 

in good times don’t need the FHA. 

Mrs. MALONEY. So I would say that FHA continues to accomplish 

its mission, when it was the same mission that it had in 1934, 

which is facilitating access to sustainable mortgage finance, particularly for underserved minority communities and borrowers, and 

being a critical countercyclical force on mortgage lending during 

times of crisis that we just lived through. 

Now, if the FHA goes ahead—excuse me, if the FHFA goes ahead 

with its plan to lower the loan limit for Fannie and Freddie on its 

own, without even considering any input from Congress, will that 

force FHA to lower its loan limit, as well, to maintain consistency? 

Ms. GALANTE. Let me just say that, first of all, FHA’s loan limits 

will change on January 1st because the special legislation for FHA 

higher loan limits expires on January 1st of this year. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from New Jersey, the 

chairman of our Capital Markets and GSE Subcommittee, Mr. Garrett, for 5 minutes. 

Mr. GARRETT. Again, thank you, Mr. Chairman. 

I think the phrase, ‘‘so wrong for so long,’’ will be the takeaway 

from today’s hearing. For so long, the FHA has come to this committee and has given us wrong information time and time again. 

16 

Now, I know the chairman started out with a Marx Brothers reference. I will start out with a familiar Einstein reference, which is, 

‘‘The definition of insanity is doing the same thing over and over 

again and expecting different results.’’ And I think perhaps that is 

what we have been hearing from the FHA and this Administration 

for the last number of years, coming with positive charts, promises 

that things are getting better. To use your own words, ‘‘We are on 

the right track.’’ I believe I have heard those words or similar 

words year after year after year after year after year from this Administration. The track is getting pretty short, and now I guess it 

has gotten to the point where it needs a bailout—oh, I’m sorry, not 

a bailout but an accounting irregularity. 

So, first of all, do you believe that the FHA, you and your predecessors, have been honest with Congress and the American people 

over the last 5 years? 

Ms. GALANTE. Yes, I absolutely believe we have been honest. We 

have reported on independent reports, and we have tracked the 

portfolio performance, and we have reported on all those activities. 

Mr. GARRETT. With regard to those tracks, one of them was your 

estimates of the worst-case scenario. What are your estimates, your 

agency’s estimates of the worst-case scenario as far as losses? 

Ms. GALANTE. I don’t have those numbers in front of me, but I 

would say—are you talking about in the actuarial report? 

Mr. GARRETT. The actuarial study, yes. 

Ms. GALANTE. In the actuarial study last year, we looked at the 

95th percent worst path, and I think the negative value is somewhere around $65 billion. 

Mr. GARRETT. Right. But you are familiar with the Fed’s study, 

correct? 

Ms. GALANTE. I am familiar with a draft of a chart that was in 

an early actuarial, yes. 

Mr. GARRETT. You never saw the final Fed results? 

Ms. GALANTE. The only thing I ever received was a draft of a 

chart. 

Mr. GARRETT. So if I told you that their number was not 60- 

something, it was 115 billion, that would be new information to 

you? 

Ms. GALANTE. No. That was in the chart. 

Mr. GARRETT. Okay. So why are they so wrong and you are so 

right, with their projections? 

Ms. GALANTE. Again, it is not whether they are right or wrong. 

It is that the determination was made by the actuarial that was 

not an appropriate stress test. We were already doing—the actuarial was already providing 99th or 95th percentile worst potential 

activity, and a Fed stress test is meant for a totally different purpose. 

Mr. GARRETT. It was reported in The Wall Street Journal earlier 

this year that a senior FHA official said that while the agency was 

familiar with the Fed study, they still wanted to present the results of the Fed stress to other government agencies but not to the 

American public. 

I quote from the article: ‘‘We—this is from your agency, the 

FHA—just do not want the analysis to be in the actuarial review 

report.’’ And, ‘‘In congressional hearings, it is quite possible that we 

17 

will be required to present this information on the record, but that 

will be well after the actuarial review is released and the initial 

media coverage takes place.’’ 

It sounds as though the information was available to this Administration, but you wanted to wait until after you came to Congress, 

made your presentation here, and the media covered it, to present 

the information. It sounds as though you were, in a positive sense, 

putting a spin on it, or in a worse case, trying to cover it up. 

Why do you think that the American public should have any confidence after such reports come out? 

Ms. GALANTE. Let me say a couple of things. 

First of all, that Wall Street Journal report was reporting on a 

congressional oversight by Congressman Issa’s committee. That is 

ongoing. 

I just want to say that the actuarial report is an independent report. The actuary determines what information goes in there. 

Stress tests aren’t even required as part of actuarial reports. In 

conversations between the actuary and our staff— 

Mr. GARRETT. That is actually not what is reported. Emails from 

the FHA indicated that the FHA did not want the bleaker forecast, 

as they put it, included in your own report. And it was the FHA 

that was withholding that information, and preventing it from 

going into the report. 

So your testimony right now contradicts what came out earlier, 

saying that the FHA knew that the Fed’s report was not good and 

was directing that your own actuaries would not take the bleaker 

presentation. 

Ms. GALANTE. To be— 

Mr. GARRETT. Is that not true? 

Ms. GALANTE. —clear, Congressman, I can’t comment on what 

other people’s emails— 

Mr. GARRETT. They work for you, do they not? Have you looked 

into this? 

Ms. GALANTE. Just to be clear, I am not going to comment on 

somebody else’s email in a group of emails that have been turned 

over to the investigative committee. 

Mr. GARRETT. Can I just ask the Chair to—I know at the end of 

the hearing we are able to ask for additional questions in writing 

to the witness—ask her, at this point, to provide information in 

writing after the hearing? 

Chairman HENSARLING. Certainly. 

Mr. GARRETT. Thank you. 

Chairman HENSARLING. Without objection, it is so ordered. 

The Chair now recognizes the gentleman from New York, Mr. 

Meeks, for 5 minutes. 

Mr. MEEKS. Thank you, Mr. Chairman. 

I just don’t understand how my colleagues on the other side—if 

anything, FHA should be given praise and a thank you. Because 

this market, this housing market, but for FHA, would have really 

destroyed this country. 

We forget sometimes that it wasn’t this Administration, it was 

the prior Administration that drove us into the worst recession 

since the Great Depression, not this Administration. And much of 

that time is when they were in charge. They had the White House, 

18 

they had the Senate, and they had the House. And they drove this 

country down to where it was. It took a new Administration to 

bring us to a different path, where we are now recovering. 

Now, unfortunately, when we have this Great Recession, the 

FHA, which came into existence after the Great Depression to help 

preserve the market—isn’t that the original reason why the FHA 

was created? 

Ms. GALANTE. It is, yes. 

Mr. MEEKS. And so now, we have the same situation. The Great 

Recession, since the Great Depression, so we had to depend again, 

as we did going back into the 1930s, on the FHA to help save this 

country. How did you do it? Because you have two parts, you are 

supposed to facilitate, access sustainable mortgage financing, particularly for underserved borrowers, and act as a stabilizing countercyclical force during times of crisis of uncertainty. We had times 

of crisis and uncertainty. By its very nature, therefore, a countercyclical agency that is asked to take on more volume, which you 

did, and more risk doing during an economic crisis, will obviously 

also experience cyclical ups and downs in its own financial 

strength. Wouldn’t that be correct? 

Ms. GALANTE. Yes. 

Mr. MEEKS. And therefore, isn’t it also the very nature of a countercyclical institution and why we need them in the first place, because that is what you were created for. You did your job, the thing 

that you were created for, isn’t that exactly what you did? 

Ms. GALANTE. Yes, sir. Thank you. 

Mr. MEEKS. And let me ask this, let’s just think about this: 40 

percent of all first-time home buyers, 50 percent of all AfricanAmerican and Latino home buyers. So if we were to do a little costbenefit analysis, if you will, and assume for a moment, even you, 

this is what it wasn’t—but you can assume for a moment that you 

are going to use the term ‘‘bailout’’ as my Republican friends would 

like to call it. Even if you use that definition, how would you rate 

the return on investment our Nation has benefited for having 40 

million of Americans able to own their own home, and millions 

more benefiting from affordable, long-term, fixed mortgage rates, 

are the taxpayers getting a reasonable return on their investment, 

would you say that? 

Ms. GALANTE. Yes. 

Mr. MEEKS. And let me also ask, therefore, since we are moving 

in the right direction, and since we are seeing that we are starting 

to move and get past this financial crisis, we are doing certain 

things and the economy is picking up, now, can you just tell us 

what the FHA has been moving and doing certain things to increase dollars therein, the model that you have since 2009 to ensure that the FHA emerges from this worst recession since the 

Great Depression as a stronger, more resilient organization? Can 

you tell us what is happening there? 

Ms. GALANTE. Yes, we have, with your help, made changes to the 

reverse mortgage program, and frankly, without which, we still 

would have been, even after all of the stress that the fund has been 

under, we would have been in positive territory, and not have needed a mandatory appropriation, so we are making changes to that 

19 

program to ensure that going forward, it continues to help keep the 

FHA healthy. 

And as I mentioned earlier, we have been doing everything possible to increase recovery on that legacy portfolio loans, so that, 

again, we are bringing in more money on those properties to the 

fund, to get the fund back up as quickly as possible. 

We continue investigations and enforcements against lenders 

who brought us fraudulent loans, particularly during this crisis 

when a lot was coming our way, and we could use more help on 

that front from Congress in terms of additional authorities. 

Mr. MEEKS. With my last 15 seconds, on behalf of the 40 million 

first-time homeowners, on behalf of the at least 50 percent of all 

African-American and Latino home buyers, we thank the FHA for 

what you do. On behalf of the American people for helping keep the 

market, the housing market strong, we thank you for what you do. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, the 

chairman of our Oversight and Investigations Subcommittee, Mr. 

McHenry, for 5 minutes. 

Mr. MCHENRY. Thank you for being here today and for your testimony, and this question about being a countercyclical force, you 

talk about legacy loans that you are dealing with now as impacting 

your fund balance. Now, what years are we talking about in particular? 

Ms. GALANTE. If you look at the chart on page 2 of our testimony, 

it is very small in— 

Mr. MCHENRY. What years? 

Ms. GALANTE. 2001 through 2009. 

Mr. MCHENRY. Okay, so at that period of time, there was a 3 

percent downpayment, no minimum credit scores, and a lack of 

risk-based pricing, is that correct? 

Ms. GALANTE. I am not trying to herd all three of those, but yes. 

Mr. MCHENRY. Okay, and what is different now? 

Ms. GALANTE. So what is different now— 

Mr. MCHENRY. Do you still have a 3 percent downpayment requirement? 

Ms. GALANTE. A 3.5 percent downpayment requirement— 

Mr. MCHENRY. Okay, so that is similar. 

Ms. GALANTE. —and 10 percent if you are under a 580 FICO 

score. 

Mr. MCHENRY. Okay, but under 580. So you are making loans 

to those with FICO scores under 580? 

Ms. GALANTE. Today, no. Let me just be clear. 

Mr. MCHENRY. None? 

Ms. GALANTE. Virtually none. 

Mr. MCHENRY. Virtually none, or none? 

Ms. GALANTE. Let me just—this is a really important point. If 

you look at the changes we have made in our credit policies, not 

just downpayments, but overall credit policies and the tightening 

that we have done, a large percentage, 30, 40 percent of our portfolio in the past was lower FICO band scores, and I don’t believe 

a person is— 

Mr. MCHENRY. So what is the cutoff for FICO scores? 

Ms. GALANTE. Today, that is not true. 

20 

Mr. MCHENRY. My time is limited. 

Ms. GALANTE. Our average FICO score today is— 

Mr. MCHENRY. Not average, what is the cutoff? If I have a 550 

FICO score, can I get an FHA loan, yes or no? 

Ms. GALANTE. Yes, only if you meet the lender underwriting 

and— 

Mr. MCHENRY. Yes, so why is that called subprime? 

Ms. GALANTE. —compensating factors. 

Mr. MCHENRY. No, I’m asking a question, and now I am following up with this question, and I would appreciate you answering it. 

Ms. GALANTE. Yes. 

Mr. MCHENRY. So if I have a 550 FICO score, that is considered 

subprime, right? 

Ms. GALANTE. Again, you would be required to have a 10 percent 

downpayment. 

Mr. MCHENRY. I understand, but I am asking a different question than you are, in fact, answering, and my time is limited, so 

if I have a 550 FICO score, that is subprime. It is certainly not a 

prime mortgage. 

Ms. GALANTE. You can’t just take a FICO score and say that is 

subprime. You have to look at the full— 

Mr. MCHENRY. Under under Qualified Residential Mortgage 

(QRM) and the Qualified Mortgage requirements, that would not be 

permissible and not within the box. So let me get to the point here. 

If we are talking about FHA as a countercyclical force, what, in 

fact, we saw in the early part of the 2000s, and leading up to the 

crisis, was FHA following the market as—and racing to the bottom 

in terms of underwriting standards. 

Ms. GALANTE. No, that is absolutely not correct. 

Mr. MCHENRY. Pardon me? 

Ms. GALANTE. That is absolutely not correct. 

Mr. MCHENRY. Okay, I ask unanimous consent to offer a Washington Post editorial from July 3rd of this year, going through the 

very provisions that I am outlining. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. MCHENRY. Okay. So can you explain to me, in March of last 

year you testified before the Senate Appropriations Committee. You 

said, ‘‘Thanks to our efforts since taking office, I can say that the 

long-term outlook of FHA and the MMIF are now much better than 

they were in 2009.’’ 

In 2009, the MMIF capital ratio was .53 percent, today it is nega- tive 1.44 percent, and you are drawing over $1.5 billion from the 

taxpayers. So do you still stand by your statement that FHA’s outlook is improving? 

Ms. GALANTE. I do believe it is improving. Look at each book of 

business that we have done. 

Mr. MCHENRY. Improving? 

Ms. GALANTE. 2010, 2011, 2012. 

Mr. MCHENRY. So you are saying you are in better shape now 

than you were in March of 2012? 

Ms. GALANTE. I am not saying we are in better shape. I am saying we are rebuilding our trajectory. Again, I want to go back to, 

these are based on economic changes in the environment. 

21 

Mr. MCHENRY. So is the housing market worse today than it was 

in March of 2012? 

Ms. GALANTE. No. 

Mr. MCHENRY. No, it certainly is not. So let me go to another 

question here. In February of this year when you testified before 

this committee, you expected a capital reserve of $8 billion by the 

end of 2013. Do you still expect that? 

Ms. GALANTE. Again, we will have a new actuarial coming out. 

It would have been mid-December—mid-November, but given the 

shutdown, it will be— 

Mr. MCHENRY. Sure. We are sitting at the end of October. 

Ms. GALANTE. Yes. 

Mr. MCHENRY. And let me just take a gander, just take sort of 

a guess, if you will, or take a look over the horizon. Do you think 

you will be close to that $8 billion you projected in February? 

Ms. GALANTE. I am not going to make an estimate, sir. 

Mr. MCHENRY. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair will now recognize the gentleman from Massachusetts, 

Mr. Capuano, for 5 minutes. 

Mr. CAPUANO. Thank you, Mr. Chairman, and thank you, 

Madam Chair, for being here. I’m sorry, I am feeling a little bit 

under the weather. I am a little cloudy, but haven’t we done this 

hearing about 42 times this year? It seems like deja vu all over 

again. And I am just wondering—I know the numbers have 

changed a little bit because numbers change, but am I wrong to 

think, the last I heard you have about $48 billion in liquid assets 

at the FHA? Is that a right number or close to it? 

Ms. GALANTE. That is correct. 

Mr. CAPUANO. Is there anybody in their right mind who believes 

that absent unforeseen circumstances, but with the current market, you would utilize that entire $48 billion in the coming fiscal 

year? 

Ms. GALANTE. Not that I know of. 

Mr. CAPUANO. Not that I know of, either. So you have $48 billion 

sitting in the bank. And because of some stupid Federal law, you 

have been required to access taxpayer money. By the way, are you 

familiar with H.R. 1028, the End Unnecessary Borrowing Act of 

2013? 

Ms. GALANTE. I have seen it, yes, sir. 

Mr. CAPUANO. Do you think that is a good idea? You don’t have 

to say anything— 

Ms. GALANTE. If you— 

Mr. CAPUANO. —because I know you do. That Act would stop this 

stupid borrowing and get us off of this treadmill. If you were in 

trouble, I would be happy to jump on you, pound you pretty good. 

You have $48 billion in the bank and you don’t think you are going 

to have to use it, and yet, we are having another hearing today. 

Friends of mine just bought a $200,000 condo. They put $50,000 down. That is pretty good, right? They had to borrow $150,000. 

They have an auto loan, they have some credit cards. They owe 

about $175,000, and they have about $10,000 in the bank. Oh, my 

God, they are $165,000 of negative net worth. Call the police. Everybody I know has negative net worth, except a few people on the 

22 

other side, apparently. But if they still get loans and things go on, 

there is no Federal law that I know of that would require my 

friends to make another borrowing simply to have money there in 

case—do you know of any Federal law that would require my condo 

owners to do that? 

Ms. GALANTE. I do not. 

Mr. CAPUANO. Yet we have one for you. Is there any other agency 

in the Federal Government or State government that you know of 

that has $48 billion sitting in the bank, that they probably won’t 

use, but is required to access the Treasury? 

Ms. GALANTE. I can’t speak to other State agencies. 

Mr. CAPUANO. I knew I was not feeling well when I got here. I 

am feeling worse now. I just wanted to—I am looking forward to 

the next seven hearings we have on this exact same issue, with the 

exact same answers, that we don’t need to borrow this. Why don’t 

we just pass H.R. 1028 to stop stupid requirements of stupid borrowing that no one needs? But we won’t do that because it is too 

simple; it avoids us having these hearings to pretend to beat up on 

people who are doing their job exactly as required and that don’t 

need to access Federal taxpayers. 

For the first time in my life, I will actually give back the time 

that I have unused because I can’t think of anything else that 

would add any light to this hearing that we haven’t already said. 

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

Chairman HENSARLING. The gentleman yields back. The Chair 

recognizes the gentleman from Missouri, Mr. Luetkemeyer, for 5 

minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. Over the opening 

remarks and some of the things that have been said recently with 

regards to bailouts, I really can’t let slide the comments about this 

being simply an accounting entry. I just—this is not voodoo bookkeeping here. The comments have been made and the testimony 

has been given many times from Members on both sides of the 

aisle here that there is a $1.7 billion transfer of money. That is not 

an accounting entry. That is a transfer of taxpayer dollars to the 

tune of $1.7 billion. And to paraphrase here, if it looks like a bailout, by definition it is a bailout. Because what are we doing here? 

We are paying losses and recapitalizing the FHA. 

What did we do in 2008 with all of the banks and the financial 

institutions, and what have you? We paid losses and recapitalized 

their accounts, their institutions. So for us to sit here and argue 

semantics over whether it is a bailout or an accounting entry I 

think is a red herring and really denigrates our discussion today. 

Let me move on. I am kind of curious. You made a comment a 

while ago—and the discussion was had—that you make your decisions within FHA based on the economic conditions of how you adjust your criteria on whether you make loans, on who you make 

them to, and that sort of stuff. Over the last couple of weeks here, 

we have had some discouraging news with regards to the number 

of home housing starts, unemployment stabilized at where we are 

at, but the number of new jobs being created actually is probably 

a little bit less than what it takes to maintain our folks with where 

they are. 

23 

At the beginning of the year, we are going to have a QM rule 

coming out, a QRM rule that is going to be, I believe, devastating 

to the home lending market because of the requirements that are 

in it. And as a result, I am kind of curious, what is FHA doing to 

prepare itself for these things that are coming here? If we have a 

little downturn in the economy, are you ready? Do you have any 

ideas, some plans that you are going to put in place to protect taxpayers dollars so we don’t go back and have to have another $1.7 

billion next year? And what are your concerns about the QM, QRM 

rule coming here at the beginning of the year with regards to mortgage lending? 

Ms. GALANTE. Let me make a couple of comments. First of all, 

we are not trying to deal with semantics on this accounting transfer. 

Mr. LUETKEMEYER. I realize you are not, but there are a lot of 

folks who were. 

Ms. GALANTE. What I want to make clear here is the difference 

between what FHA is doing, and what happened to private financial institutions who were making private gains and then the government had to come in to ‘‘bail them out.’’ That is very different 

than the fact that FHA, every piece of revenue, every dollar that 

we earn, goes back into the Federal Treasury. 

Mr. LUETKEMEYER. Ma’am, where do you think the money from 

the private sector goes? By definition, when you paid losses and recapitalize a business or an institution, that is exactly what we are 

doing right here. 

Ms. GALANTE. Again, we are transferring dollars— 

Mr. LUETKEMEYER. You are arguing over semantics as well. 

Ms. GALANTE. —so that we have in reserves enough to pay our 

costs. All of our money goes back to the Treasury. I get paid the 

same amount of money, which isn’t much, regardless of how much 

money we generate for the Federal Government, and to the CBO 

chart if you add in 2013— 

Mr. LUETKEMEYER. Okay, I am running out of time. Please answer my other questions if you would, because we are arguing semantics here. Can you answer my other questions? Are you being 

prepared, are you looking at a possible downturn and what are you 

doing to prevent that? And what are your thoughts on QM? 

Ms. GALANTE. Again, I don’t control what happens in the economy. I really hope we don’t have another downturn, but we are— 

Mr. LUETKEMEYER. Ma’am, you just testified that you look at, 

from the economic projections and make changes and adjustments 

to your program. I am asking, what are you doing? 

Ms. GALANTE. Let me clarify. The economic projections are used 

to value the existing portfolio. What we look at in terms of our underwriting criteria is, what do we need to do pricing-wise, creditwise to ensure that we are pricing our risk appropriately and taking the right risks? And we have done—I have listed those out, we 

have done a number of measures over these past 5 years to protect 

ourselves going forward, and it shows in our new books of business. 

Our current books of business are extremely profitable, and very 

safe. 

24 

Mr. LUETKEMEYER. Okay, what are your opinions on QM after 

the first year? How is this going to affect the mortgage market and 

affect you? 

Ms. GALANTE. FHA has its own QM rule that is out for public 

comment. In fact, public comments are due on the 30th, I believe. 

Mr. LUETKEMEYER. I see my time has expired. Thank you, Mr. 

Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. Scott, 

for 5 minutes. 

Mr. SCOTT. Mr. Chairman, with all due respect to you, this isn’t 

a hearing. This is a sham, and not only is it a sham, it is a shameful sham of deceit. First of all, trying to use the word ‘‘bailout,’’ and 

ladies and gentlemen, Mr. and Mrs. America who are watching 

this, just coming from this other side, my friends on the Republican 

side just 2 weeks ago shut down the Federal Government, shut 

down the Veterans’ Memorial, and they were high-fiving, congratulating one another, and then going out the next morning right 

down to that same Veterans’ Memorial and blaming the poor park 

rangers for shutting it down. 

These are the people who are bringing this shame, and this 

sham, who furloughed 800,000 jobs, shutting down the Federal 

Government when they take, just like we do, that solemn oath to 

uphold the Federal Government, to defend the Federal Government, to protect the Federal Government of the United States of 

America, and every act up here in this committee, no matter what 

it is, their sole purpose is to try to destroy this Federal Government, and no greater example than right here. 

Because, Ms. Galante, you and the FHA have done a remarkable 

job and under great difficulty. We went through the worst recession, coming up almost to the Depression of the 1930s, but yet, and 

still, the amount of stability that you gave to the housing market, 

particularly for the lower income and middle income and sustainability deserves four stars, or five stars, not this. But it is very important that we understand where this fiasco of criticism is coming 

from. There is no credibility on that side of the aisle when it comes 

to the financial stability of this country, when it was they who took 

this country to the brink of bringing the entire world economy 

down because they wouldn’t allow us to raise the debt ceiling to 

pay the debts that we have. 

Now, Ms. Galante, is it not true that we have an act that was 

passed in 1990, the Federal Credit Reform Act, that you are obeying, that you are required to have sufficient funds available to meet 

your obligations, much like the United States has. In order to remain strong, it requires you to have this over a 30-year period. Is 

that not true? 

Ms. GALANTE. That is correct, over the life of the loans. 

Mr. SCOTT. Over the life of the loans, so that if you were to close 

your door today and be out of business, the law would require you 

to have this mandatory appropriation, to be able to carry your duties out for 30 years. And the hurtful feeling to me is to see my 

friends on the other side use the American people with this fake 

language of bailout when we have crossed that bridge, when we 

25 

have written it into statute that no taxpayer’s money will ever 

again be used to bail out anything. This is required of you by law. 

Now, let me ask you this: Isn’t it true that because of the interest rates that have risen, because of the mortgage insurance premiums that have been increased, that it has reduced the FHA’s 

loan volume, and thus revenue that is used to offset future losses, 

and is not that why it is written into the law that this $1.7 billion 

is there to bring you in compliance with the law? 

Ms. GALANTE. That is correct. We have shrunk in volume significantly, particularly at the end of this quarter. 

Mr. SCOTT. Thank you. And let me just say to my Republican 

friends on the other side, let’s cut this out and let’s move this country forward. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, for 5 minutes. 

Mr. HUIZENGA. Amen, hallelujah. Amen, hallelujah. Except we 

are just sitting here and I have just been told that I am trying to 

destroy the Federal Government, when in fact, I am trying to fix 

it, hold it accountable, and make it more efficient. I have just been 

labeled someone who is taking part in a sham because I am asking 

hard questions. Now, what I am curious to know is why this Administration is insistent on flim-flam and snake-oil sales? Because 

that is exactly what we are hearing about. But we are going to get 

righteous indignation from the other side who was here. I wasn’t 

here. I am in my second term, just starting my second term. I 

wasn’t here when a lot of this was all created, but you are seeing 

from the people who wrote the bill, not on a bipartisan fashion, 

with one party who wrote the bill who no longer wants to adhere 

to the language of that bill that they wrote, and who are now trying to blame me for coming in and trying to fix it. 

That gets a little frustrating. It gets a little frustrating. I think 

the American people who are watching this hopefully should be 

frustrated, too. My background is in real estate and development. 

And as I am looking at your chart on page 2, as you have noted 

a couple of times, my real estate career starts right at about the 

beginning of your chart, in fact a little bit before. And it just 

strikes me, as I am noticing a little bit of blue, a little bit of red, 

a little bit of blue in there. For those of who you don’t have the 

pleasure of seeing this on TV, it is positive and negative. 

It is also about market share. It is not about how much or how 

little. Then it starts blowing up in 2000 and you start seeing a 

massive downward slide, and let’s explore what happened. What 

happened is, FHA started to expand its footprint pretty dramatically, and especially starting in 2003, through on to where we currently are. I am a student of history and I am kind of reminded 

of Europe during World War II. We had the Allies versus the Axis. 

Okay, that was a righteous fight. But what happened? After the 

fighting, we had East versus West. And at one point the West said, 

you know what, we liberated Holland, we liberated Belgium, we 

liberated France, we liberated Germany, and the Soviets also did 

that. But guess what? We left and they stayed. All right. 

And what I want to know is when are the Soviet troops going to 

withdraw from the territory that you have conquered? The massive 

26 

amount of involvement that the FHA, which is intended for lowand moderate-income homeowners buying a home for the first time, 

when you are going to actually let that happen, because the massive expansion of the footprint of FHA concerns me. Because you 

are now strangling what the private sector should be doing, and we 

are having the Federal Government come in, label more requirements, have just additional requirements that they are putting in 

place, and frankly, putting the Federal taxpayer on the hook. I 

want to fix it. I want to fix this, and I want to make sure that we 

are serving those low-income, first-time home buyers. And by the 

way, it is not about race. It is not about geography, and I have 

heard that brought up by a couple of my colleagues on the other 

side. 

When I got my REALTORS® license, they taught me that people 

aren’t black, white, yellow, or red. They taught me that they are 

green. And what I mean by that is, they can either afford it, or 

they can’t afford it. They are not black. They are not white. They 

are not yellow. They are not red. They are green. Can you afford 

it or not afford it? And unfortunately, my friends on the other side 

seem to blur that a whole lot and I want to fix this. 

It seems to me that the work that this committee has done on 

the PATH Act is one of those things. I would like you to comment 

if you would, please, on that, and whether you believe that you are 

actually serving the low-income, first-time home buyer, which is 

the original intent of this program. 

Ms. GALANTE. A couple of things, Congressman. First, I think 

that you are conflating the chart which looks at the economic value 

of these books of business, which includes—part of the reason the 

blue charts in the late years are as high as they are is because we 

have increased premiums. So, we are bringing in a lot more. They 

are worth more because we are bringing a lot more. 

Mr. HUIZENGA. And what was your—what has been your footprint, though? In 1992— 

Ms. GALANTE. Let’s talk about, I have back to 1999. 

Mr. HUIZENGA. Great. 

Ms. GALANTE. And I just want to say, FHA insured 1.23 million 

loans in 1999. How many did we insure in 2013? 1.29. 

Mr. HUIZENGA. And how was—no, no, time out, time out. You 

cannot get away with this, because you have to look at the overall 

market and market share and percentage. 

Ms. GALANTE. Yes. 

Mr. HUIZENGA. Market share and percentage. That was back in 

the day, getting an FHA loan was difficult, and frankly, it was 

tough to work with; not so much anymore. That is what we have 

to reverse. That is what we have to go back and we need to put 

FHA back into the box that it was intended for, not to have it expanded. My time has expired. I’m sorry. 

Ms. GALANTE. To be clear, our market share has dropped from 

its peak at 27 percent and it is continuing to drop. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the witness for 

testifying. And since the indication is that we are talking about 

27 

people who are not red, black, or white, but they are green, I assume we are talking about me, I happen to be green, Al Green. 

Mr. HUIZENGA. If the gentleman will yield? 

Mr. GREEN. Of course, I will. I yield to my— 

Mr. HUIZENGA. I wish there were more people like you who were 

green, not just in name, but who could afford all of this. 

Mr. GREEN. Thank you very much, and I have been blessed. I tell 

people all the time that I am better than I deserve to be. But let’s 

talk about reality for just a moment. And I would like to have you 

give some testimony today, since you are clear, so let’s talk about 

why FHA finds itself in the position that it is in. FHA is not a forprofit business. Is this a fair statement? 

Ms. GALANTE. That is correct. 

Mr. GREEN. And FHA was established more than 80 years ago. 

Would you state what the purpose of FHA was 80 years ago, and 

what it is currently, please? And if those two are the same, please 

make note of it. 

Ms. GALANTE. As you may know, FHA was established immediately after the Great Depression partly to get the economy back 

on its feet again, to get people working again, to get homes built, 

and to get people being able to live in those homes at reasonably 

affordable prices. And it was not just for one classification of borrower. There is nothing about it that was only for low income, for 

example. 

Mr. GREEN. As a matter of fact, when it was established, there 

was no contemplation that it would help any specific class, but 

probably when it was initially established, the beneficiaries were 

rarely—not to a great extent, African-Americans or Latinos. Is that 

a fair statement in the infancy of FHA? 

Ms. GALANTE. Not having statistics, I would say that is probably 

a fair statement. 

Mr. GREEN. So FHA was not established to help African Americans or Latinos, but as time has evolved, FHA has been of benefit, 

and it did, after the Great Depression, a good thing. Was it of benefit to this country to have FHA after the Great Recession? 

Ms. GALANTE. Yes, absolutely. As you have heard quoted before, 

economist Mark Zandi has said that if the FHA had not been in 

the market during that worst recession, we would have had a 

worse economic crisis by property values dropping 25 percent more 

than they did, therefore making the economic recession even worse. 

Mr. GREEN. I, like my colleagues, am of the opinion that FHA 

has served a meaningful purpose. It has done what it was designed 

to do. And I think that we need to continue this effort with FHA, 

so I would like to ask you a question now about in-person servicing. 

FHA seeks to help persons who are having some difficulty with 

their mortgages. In-person servicing is an option, and the information that I read on this, the intelligence seems to indicate, to connote that you get greater results if you can perfect in-person servicing as opposed to doing it by way of email or some other form of 

servicing. 

We have a piece of legislation that would allow firms, businesses, 

to work with FHA to perform in-person servicing to modify loans, 

to get engaged in short sales, to refinance, and my question to you 

is, is that something that we can talk to you about, this in-person 

28 

servicing, so that maybe we can save even greater numbers of persons from having to go into foreclosure? 

Ms. GALANTE. I would be happy to have more conversation with 

you about that. I do believe that high touch, so to speak, helping 

existing homeowners in any way that we can, if we can get them 

to re-perform, if we can get them to stay in their home, that ultimately is going to help the fund as well as the homeowner. 

Mr. GREEN. Thank you. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from South Carolina, Mr. 

Mulvaney, for 5 minutes. 

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

Galante, I can assure you, this is not where I was going to take 

my original line of questioning. 

I was actually going to ask you about something other than the 

bailout here today. But then you said something that struck me, 

and I have to come back and talk to you about it. You were talking 

about how you get paid the same amount whether or not you do 

a good job or do a bad job, and that you don’t make that much. 

How much do you make? 

Ms. GALANTE. $150,000. 

Mr. MULVANEY. Is that really not that much, Madam? We are sitting here talking about a national debt of $17 trillion, and the 

impact on an ordinary family. Is that really how you feel about this 

job? 

Ms. GALANTE. Let me be clear. I was using that in the context 

of private sector companies with private profits, and private compensation plans, that then came to the Federal Government, so as 

a relative— 

Mr. MULVANEY. No, I am less worried about the amount of 

money, Ms. Galante, as I am about the attitude— 

Ms. GALANTE. Just to clarify— 

Mr. MULVANEY. Excuse me. I am worried less about the amount 

of money, because that is really none of my business. It is because 

it is public, but about the attitude that you get paid the same 

whether you do a good job or a lousy job. What kind of job security 

do you have? 

Ms. GALANTE. That was not— 

Mr. MULVANEY. What does it take to get you fired? 

Ms. GALANTE. I serve at the pleasure of the President. 

Mr. MULVANEY. I am sitting here and again, this is not where 

I was going. But I am sitting here, I have been here like Mr. 

Huizenga, my colleague. I have been here for 3 years. In the last 

year, I have seen four people get killed in an embassy in Libya and 

nobody got fired. I have seen an IRS turn on its own people and 

target people based upon their political beliefs and nobody has been 

fired. I have seen us spend half a billion dollars on a computer program that doesn’t work, and nobody has been fired. And then I see 

stories about somebody who is a phone operator making $26,000 a 

year, who says one wrong thing on the radio, and immediately gets 

fired. 

I have a tweeter—somebody tweeting inside one of the agencies 

who immediately gets fired. And I just want to know where the 

outrage is. I want to know where the even treatment is. I want to 

29 

know why somebody can come into this meeting and say, I make 

the same if I do a good job or a lousy job. But I don’t make that 

much. It is only $150,000 a year. But we sit here and we have no 

outrage when ordinary Americans get treated poorly by their own 

government, whether or not they are being mistreated by the agency or whether or not they get fired—$26,000 a year and you get 

fired for saying the wrong thing on the radio. 

Is there no outrage for that type of reaction? People are afraid 

of their government. They are afraid of exactly what Ms. Galante 

has said today, which is we have a faceless bureaucrat who doesn’t 

really care if she does a good job or a bad job. She is just here to 

pick up the check. I want to know where the outrage is. With that, 

I will go back and ask my original questions. 

There has been a lot of talk in the industry about using eminent 

domain to try and solve the mortgage crisis. Several agencies, most 

recently the FHFA, have taken a very aggressive position on this 

position. They have said: ‘‘On balance, after conducting a review of 

law and markets and considering public input, there is a rational 

basis to conclude that the use of eminent domain by localities to 

restructure loans for borrowers who are underwater on their mortgages presents a clear threat to the safe and sound operations of 

Fannie Mae, Freddie Mac, and the Federal Home Loan Banks as 

provided in the Federal law, would run contrary to the goals set 

forth by Congress for the operation of conservatorships by FHFA 

and present a direct relationship to their responsibility for overseeing entities.’’ 

Why haven’t HUD and FHA taken a similar position? You were 

asked in June by the Senate if you supported, or what your 

thoughts were on these type of eminent domain proceedings, and 

you said that it was too early to know. To me, that is like waiting 

until somebody gets killed to find out if murder is wrong or not. 

Why aren’t you doing the same thing that the FHFA is doing and 

taking a definitive position on this stunning development on the 

West Coast about using eminent domain in order to take people’s 

houses? 

Ms. GALANTE. First of all, Congressman, I want to start by saying I am very proud of my Federal service, and I left my entire life 

across the country in California to come here and serve this Government and this Administration. And you have taken my comments entirely out of context. I was— 

Mr. MULVANEY. Fair enough. It happens to me all the time, so 

I appreciate your concern. Do you want to answer the question 

about eminent domain or not? 

Ms. GALANTE. Yes. In response to your question, FHA continues 

to monitor the situation. 

Mr. MULVANEY. Monitor the situation. They are already doing it. 

Why does the FHFA not have to monitor the situation and you do? 

Ms. GALANTE. I want to make two points on this. The first is that 

eminent domain is a local and State obligation or authority, and— 

Mr. MULVANEY. You will be asked to guarantee and insure these 

loans. What is your position on that? 

Ms. GALANTE. We don’t know that is the case, number one. Number two, this was the second point I was going to make. I just want 

to be clear. The FHFA and Fannie and Freddie are in an entirely 

30 

different position than the FHA, because they own some of these 

private label type securities. FHA only insures for its own book of 

business. We didn’t buy— 

Mr. MULVANEY. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. I can’t recall the day, 

but like many of you, we all probably studied or became familiar 

with this dawn-to-dusk discussion and debate at the beginning of 

the 19th Century between Albert Einstein and David Hilbert. And 

maybe I am the only person who remembers this kind of stuff, but 

they had a dawn-to-dusk debate on physics, and one of the reporters who covered this discussion wrote that they were talking past 

each other, which is kind of the—either the beginning of that 

phrase, although I think it goes back to some kind of English theater, talking past each other, and that is what is happening here. 

I was speaking to a group of people at the Savoy Club in Kansas 

City, and as we were—during the question-and-answer period, they 

said that they didn’t watch C-SPAN, the hearings, because they 

couldn’t get anything out of it because the Members talked past 

each other, and that it was so confusing that they had made a decision to just not watch. 

And I don’t blame them. If they are watching this, I want to 

apologize—where is the camera—for you having to go through this. 

I hate to see it. Alphonso Jackson was Secretary of HUD. I met 

him back when he—I preached, many times, at the St. Luke Community United Methodist Church in Dallas which he attended. And 

I didn’t agree with him. I would never, ever, ever in this committee 

or anywhere else, accuse him of coming to take his check and not 

caring about his job. 

And I’m sorry that has been said. I apologize. I made all of these 

notes to ask what I thought were reasonably intelligent questions 

concerning HUD. I want to do it. I am kind of hurt over the way 

we have come to treat people here in this Congress. So I apologize, 

and I don’t want to participate. I yield back. 

Chairman HENSARLING. The gentleman is yielding back. The 

Chair now recognizes the gentleman from Florida, Mr. Ross, for 5 

minutes. 

Mr. ROSS. Thank you, Mr. Chairman. Ms. Galante, the intent of 

the FHA, of course, is to help those—I apologize, I can see l you 

better this way. The intent, of course, was to make sure that we 

had affordable housing, that low- to moderate-income people could 

have access to the American dream of homeownership. To that extent, at the height, I guess, of the boom, the market share that 

FHA had was about 2 percent. Today, it is about 56-some percent, 

which leads one to question a lot of things, especially not only how 

and why it happened which we will have that debate for quite 

some time, but specifically, with regard to the future, do you have 

an opinion as to whether there is sufficient private capital, capacity 

of private capital in the market to return to the days where the 

FHA only had 2 percent of the market in mortgage insurance? 

Ms. GALANTE. Let me just say that FHA had 2 or 3 percent of 

the market, as you said during the ramp up to the bubble. Our norVerDate Nov 24 2008 18:00 May 09, 2014 Jkt 086682 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\86682.TXT TERRI
31 

mal market share ranged over time from 10 to 15 percent; that 

would be kind of the normal market share. We are actually at I 

think 12, 13 percent today. The challenge to the private capital 

that you speak of is that the entire market has shrunk, and that 

private— 

Mr. ROSS. But why has the market shrunk? It is not because 

there isn’t sufficient capital. Is it because of the rates? Is it because 

they are trying to compete against a monopoly called the FHA? 

Ms. GALANTE. No, I think, sir, this is really important. The FHA 

is not competing with the entire broad market. We—the MI companies, for example, I would say their market share over the past 

couple of years has been coming back steadily, and their pricing is 

now— 

Mr. ROSS. Is it competitive? 

Ms. GALANTE. —is better, is competitive for basically anybody 

over a—FICO score today, yes. 

Mr. ROSS. Approximately 25 percent of the endorsements that 

FHA has are made up of loans that are considered high to be to 

high-income borrowers, and that shouldn’t be the function of the 

FHA, should it? This should be ceded to the market, shouldn’t it? 

At one point, it was 16 percent. Now, you are up to 25 percent of 

the high-income borrowers. So that is in an area that we should 

address, shouldn’t it? 

Ms. GALANTE. There are two areas we should address. One is the 

global market, and that is going to take—and I appreciate the efforts on the PATH Act—resetting the entire housing finance system well beyond FHA so that private capital understands how to 

play and has the right— 

Mr. ROSS. If they are given the opportunity to play. 

Ms. GALANTE. —framework to do that. But FHA, in terms of its 

market share, we ramped up. In 2009, we dropped way back down, 

and— 

Mr. ROSS. The maximum mortgage loan value of $729,000, that 

is usually considered for a high-income borrower, wouldn’t it be? 

Ms. GALANTE. So again— 

Mr. ROSS. In my neighborhood in central Florida, it seems like 

it would be. 

Ms. GALANTE. That is only for high-cost areas, and to be clear, 

that expires in January of 2014. 

Mr. ROSS. It goes down to what? 

Ms. GALANTE. These were congressional limits that were put in 

place, and FHA has operated within those. They expire in January. 

Mr. ROSS. Of course, my friends on the other side say this is not 

a bailout. It is just policy and it is an accounting function. Regardless of what it is, just because it is policy doesn’t mean it is good. 

And I think it is a bad policy that we now have to have the Treasury issue a check for $1.7 billion to make up for a shortfall. 

Do you think it would be in the best interest of not only the 

FHA, but quite frankly the Treasury as well to have it repaid? 

Ms. GALANTE. Again, over time, everything that FHA earns goes 

back to the Federal Government. 

Mr. ROSS. And with regard to your capital standards—let’s face 

it, FHA has the best capital standards if they even exist. Why 

wouldn’t the private mortgage insurance companies be allowed to 

32 

subject themselves to the same capital standards that the FHA 

has? Would that not, in and of itself, create a more viable market 

of private capital? 

Ms. GALANTE. FHA exists as a government entity. It is very different than a private mortgage insurer. 

Mr. ROSS. But it competes against the private mortgage insurer, 

and that is my issue here. 

Ms. GALANTE. They play different roles. Private mortgage insurers are normally guaranteeing a top amount of mortgage insurance 

with— 

Mr. ROSS. So you don’t think they should have the same capital 

standards? 

Ms. GALANTE. They are regulated by State agencies, State governments. 

Mr. ROSS. It is okay to say no. That is okay. 

Ms. GALANTE. I am just saying, it is a different business and it 

is regulated differently. It is entirely different. 

Mr. ROSS. My time has expired. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Minnesota, Mr. Ellison, for 5 minutes. 

Mr. ELLISON. Thank you, Mr. Chairman. Ms. Galante, this term 

‘‘bailout’’ has been thrown around a lot, and I don’t want to belabor 

it, but when I think of bailout, I am thinking about AIG, I am 

thinking about Citi, I am thinking about General Motors. These 

were all privately-owned companies that but for our government 

assistance, would maybe not exist, and probably in their collapse 

would have caused a lot of damage to the economy. I guess my 

question is this: Is FHA in danger of imminent collapse? 

Ms. GALANTE. No, sir. Again, FHA is part of the Federal Government. 

Mr. ELLISON. So I heard the term thrown around in terms of how 

much liquid cash assets you have and the number I heard was $48 

billion? 

Ms. GALANTE. That is correct. 

Mr. ELLISON. So to sort of talk about FHA being in a bailout situation, when the historic precedent for it is Citi, General Motors, 

AIG, is really misleading. Would you agree with that? 

Ms. GALANTE. I agree with that. 

Mr. ELLISON. Thank you. Now, another thing that happened that 

I just would like to shed some light on, you were asked about FICO 

scores, and whether or not a person would be eligible for the services of FHA if they had a 550 FICO score. 

I don’t believe you were allowed to answer the question fully, or 

fairly. Can you explain the total scorecard and manual underwriting process just so people watching this can have an accurate 

idea of exactly how you make decisions. 

Ms. GALANTE. Yes, thank you. So we have a system where we— 

our lenders can look at, underwrite a borrower based on their 

FICO score, based on their income, their projected income over 

time, based on their ability to make the downpayment. All of that 

goes into an automated underwriting system. We also, if they don’t 

make it through that underwriting system, the lender can look at 

compensating factors and determine a holistic nature of that borVerDate Nov 24 2008 18:00 May 09, 2014 Jkt 086682 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\86682.TXT TERRI
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rower, and whether they have the ability to adequately repay the 

loan. 

And this is fully documented, unlike the question where we were 

talking about ‘‘subprime,’’ where those were in the crisis, no documentation, all of that. That is not what FHA is about. We ensure 

that our lenders are fully underwriting these borrowers. 

Mr. ELLISON. Thanks for that elaboration. And I would also just 

like to say that I think you are a dedicated public servant. I know 

that based on your expertise, you probably could be receiving way 

more money than you are now, but what you are doing is a public 

service, and what you are doing springs from your patriotism, your 

commitment to our country. 

So I want to say thank you for that. And I want to let you know 

that there are literally thousands and thousands of people who 

work for the Federal Government who do it out of love, commitment, and passion for our great Nation. So with that, I yield back. 

Thank you. 

Mr. HUIZENGA [presiding]. The gentleman yields back. 

With that, I am checking just to make sure, my colleagues, it is 

going to be the gentleman from Georgia, Mr. Westmoreland, for 5 

minutes. 

Mr. WESTMORELAND. Thank you, Mr. Chairman, and thank you 

ma’am, for coming today. And the first question I want to ask is 

just for informational purposes, and is not related to FHA, but you 

are a Presidential appointee, is that correct? 

Ms. GALANTE. That is correct. 

Mr. WESTMORELAND. Are you under the Affordable Care Act? 

Just as—that is— 

Ms. GALANTE. I don’t think so. I have no idea, to tell you the 

truth. 

Mr. WESTMORELAND. Okay, so you don’t know if you would be 

covered under the Affordable Care Act or not? 

Mr. GALANTE. I am covered as a Federal employee. I get my benefits through the regular Federal program. 

Mr. WESTMORELAND. Okay. So you will remain with the insurance that you had compared to the Members of Congress, and staff, 

and stuff? 

Ms. GALANTE. Correct. 

Mr. WESTMORELAND. Okay, thank you. I know that Mr. Himes has stated that the $1.7 billion was a part of money that you had 

to have. It was a mandatory appropriation to get the level up to 

where you should be in case of another collapse or failure. Why 

don’t you have that money, when there has been a requirement of 

a 2 percent fund, and FHA has failed to be able to get that reserve 

even though that you have had permission through legislation to 

increase fees and other things to get to that 2 percent level? Is it 

not true that the reason that you are having to get the $1.7 billion 

is because FHA has refused to raise their fees to really comply with 

the law? 

Ms. GALANTE. Congressman, we have raised fees. We have raised 

fees 5 times. We have changed our policy to, we have reversed canceling mortgage insurance premiums after a certain period of time. 

We have made a number of changes, including premium increases, 

that directly increase our revenue to FHA. 

34 

The challenge is, those are on new loans moving forward, and if 

you put the increase in fees too high on the new loans, those will 

be profitable. As you can see in that chart on page 2, they are extremely profitable. They can’t go back and make up for the challenge of the loans that were done well before we got here in the 

midst of the recession, and so the economic value of those books of 

business has continued to be a drag on the FHA. 

Mr. WESTMORELAND. Do you think it is a problem that FHA does 

the insurance on homes up to $729,000, or whatever that amount 

is? Do you think that is a problem rather than—I don’t know many 

first-time home buyers who go into that kind of house. So do you 

think that FHA has gotten a little bit out of where the original intent of FHA was at when it was started? 

Ms. GALANTE. We have stated publicly many times that we think 

the loan limits ought to come down. These were, as part of the 

countercyclical role, Congress gave Fannie, Freddie, and the FHA 

the ability to make higher loans during the height of the crisis. 

That higher loan limit expires on January 1st of 2014, and FHA 

will go back to the limits that were put in the HERA legislation. 

Mr. WESTMORELAND. What would that limit be? 

Ms. GALANTE. It will be for high-cost areas, I think it is 

$625,000. But again, FHA loan limits will be a percentage— 

Mr. WESTMORELAND. Right. 

Ms. GALANTE. —in most of the country. 

Mr. WESTMORELAND. I am running out of time, so let me just ask 

one further question. I know that you were talking about, do you 

think that in order for FHA to comply with the law, you need to 

have a reserve fund of 2 percent? 

Ms. GALANTE. Over time, I absolutely believe we need to get it. 

Mr. WESTMORELAND. If so, how long do you think it will take to 

get to that point? 

Ms. GALANTE. Again, we have an independent actuary look at 

that each year. I think last year, which is the most recent available, it was 2017. 

Mr. WESTMORELAND. When? 2017. 

Ms. GALANTE. 2017. 

Mr. WESTMORELAND. 2017, so that is about 3 years from now, to 

where you can get up to where you are just in compliance with the 

law. 

Unfortunately, most people who aren’t in compliance with the 

law have some type of penalty, but it seems like if a government 

agency doesn’t comply with the law, there is no penalty. So with 

that, I will yield back. 

Mr. HUIZENGA. The gentleman’s time has expired. With that, we 

will recognize the gentleman from California, Mr. Sherman for 5 

minutes. 

Mr. SHERMAN. Thank you. First, in response to the gentleman 

from South Carolina, you are getting paid $20,000 less than we 

are. He is outraged that those in the Administration aren’t fired 

often enough for his beliefs, but I would say you are doing a good 

job under trying circumstances. And as to those getting fired, I 

point out that we in Congress shut down the U.S. Government. 

None of us have been fired yet. And if we are going to have a list 

35 

of ways in which Washington has failed the American people, I 

don’t think the FHA is on that list, but I know Congress is. 

I want to pick up on Ms. Maloney’s questions about high-cost 

areas as you point out. If we don’t act, we are going to see a drop. 

This is a great country, and things vary from one area to the other. 

There are a lot of Members here from places where for $729,000, 

you buy the biggest home in town. I represent an area where there 

that is a middle-class family. And I would like you for the record, 

these loans between $625,000, and $729,000, as I understand it, 

they performed well. They have low rates of default, and they are 

not considered to be a weak part of your book of business, is that 

correct? 

Ms. GALANTE. That is correct. I would also add it is not a very— 

it is like 2 percent of our entire portfolio. It is a very small amount 

that are up at the higher loan limits. 

Mr. SHERMAN. So it is 2 percent of your business. It is absolutely 

critical to my district and Carolyn Maloney’s districts, and while it 

is hard to calculate, you are not losing money on this. In fact, you 

are making money on this 2 percent, as I understand it, is that correct? 

Ms. GALANTE. As far as I know, today, yes. 

Mr. SHERMAN. Okay, so we can increase government costs, and 

cause a spectacular decline in home values in high-cost areas by allowing the current limit to expire. I would hope that if Congress 

wants to bring its approval rate above its current levels that we 

would instead authorize you to continue your program for high-cost 

areas. 

As to reverse mortgages, you have indicated that it is not a significant strain on the FHA, more specifically, the Mutual Mortgage 

Insurance Fund. If the HECM program, which is basically reverse 

mortgages, was not part of that program—the MMIF fund, would 

you still need the infusion of cash that you need? 

Ms. GALANTE. No, the reverse mortgage program, as you can see 

on the chart on page 8 in my written testimony, clearly demonstrates that but for that program, we would have a positive capital. 

Mr. SHERMAN. So you are saying that has been a problem for— 

Ms. GALANTE. The—again, legacy mortgages for the reverse 

mortgage program, we have made changes with the help of Congress, but the legacy mortgages—again, they got hit hard by the recession as well, have been problematic. 

Mr. SHERMAN. Have you made changes so that you expect to lose 

money on those programs in the future or not? The reverse mortgages? 

Ms. GALANTE. No, we have made changes so that we will not lose 

money on those in the future. 

Mr. SHERMAN. Finally, I have one element of agreement with the 

gentleman from South Carolina, as strange as that may seem, and 

that is the eminent domain issue. We now have, unlike most countries in the world, non-recourse mortgages, you buy a home, and 

if you want, you can walk away from it. In Europe, you still owe 

the money on the mortgage. And now, there are those who say we 

want to go even further than that and say if you buy a home and 

the price goes up in value, you keep all the profit of, course. And 

36 

if it goes down in value, you keep the home and you just tell the 

lender to write down the mortgage through a process called eminent domain. 

If that becomes the norm, what does that do to Fannie, Freddie, 

and FHA solvency if we create a system in which most towns in 

America, if you don’t like your mortgage principal amount, you just 

go through a process and it is written down. 

Ms. GALANTE. Let me be clear, my view is that eminent domain 

is a local tool that can be used by localities. We are happy to issue 

informational guidance if it becomes necessary around eminent domain. 

Mr. SHERMAN. You need to stay out of that. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, Mr. 

Pittenger, for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. And thank you, Ms. 

Galante, for being here with us today, and thank you for coming 

from California and for your sincere efforts. 

Ms. Galante, as I have been a new Member of the Congress on 

this wonderful committee, I have learned a great deal about the 

impact of the Dodd-Frank Act, the role of the Consumer Financial 

Protection Bureau (CFPB) and its oversight over financial institutions, and the fact that if they don’t reach certain standards, the 

CFPB can put them out of business and penalize them or whatever. 

Given the same sense of accountability, do you feel that accountability in your role? Obviously, the capital standards haven’t been 

met, but you are able to function, and nobody’s going to put you 

out of business. As you said several times, you work for the Federal 

Government and so the taxpayers are here. You stated this last 

month that needed $1.68 billion. We heard in 2009 that HUD said 

FHA was stable and sound and secure for the future. 

So this creates a lot of concern with the American people. I think they certainly felt the gravity of $17 trillion debt and it keeps 

mounting. You are part of a government that has accrued an enormous amount of debt. Peter Orszag, a former budget writer, Erskine Bowles, Paul Ryan, they are all saying the same thing—that 

our spending is out of control and unsustainable and will collapse 

like Greece. They have all said it in many ways. So I would hope 

that you would share that concern and accountability back to the 

American people. 

I think as you spoke to us, as you spoke and you appeared before 

the committee in February, you said then that you tested the financial health of the FHA, and yet right after that, the next day, the 

Government Accountability Office added your agency to the list of 

government programs that are identified as, ‘‘High risk due to their 

greater vulnerability to fraud, waste, abuse, and mismanagement 

or the need for transformation.’’ How do you respond to that? What 

is your—do you feel, do you understand the impact of the role that 

you are having and that you would be considered a high-risk agency to the taxpayer? 

Ms. GALANTE. Let me be clear, I take my responsibility extremely seriously in terms of running the FHA, and we have 

worked incredibly hard to keep the market going, to keep access to 

37 

credit and rebuild the reserves of the fund. And, we have listed out 

those actions and we continue to work hard every single day to 

make this as strong a fund as possible, and as strong an agency 

as possible. I have read the GAO high-risk report, we have regular 

conversations with the GAO. We are working on all the recommendations— 

Mr. PITTENGER. Would you admit that these are very strong 

words, ‘‘vulnerability due to fraud, waste, abuse, and mismanagement or the need for transformation,’’ that is about as strong as 

you can get. 

Ms. GALANTE. The GAO does recognize there is need for transformation, business transformation activities, IT transformation activities, I believe is what the quote is related to. The quote in the 

high-risk report I would say, GAO acknowledges that we are improving our condition by increasing fees and underwriting changes. 

So part of the reason FHA was put on the high-risk list is that the 

housing finance system, without further reform of the entire system, puts all of us at risk. 

Mr. PITTENGER. Let me ask you, it is imperative that the agency 

use every tool at its disposal to address the budget shortfall and 

protect the taxpayer. Do you believe that the agency has used 

every tool at its disposal to address the budget shortfall? If not, I 

guess I would have to raise the question of whether FHA is failing 

to properly manage its portfolio, which places the taxpayer at 

greater expense. 

Ms. GALANTE. I believe we have used every tool at our disposal 

and we have made prudent and appropriate policy changes, whether that’s increasing premiums or the many other changes that I 

have talked about here today. We also have to do that in a way 

that does not do further damage to the economy. 

Mr. PITTENGER. Thank you. You do agree that if you were in a 

business, the CFPB would put you out of business? 

Ms. GALANTE. No, I do not. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Connecticut, Mr. 

Himes, for 5 minutes. 

Mr. HIMES. Thank you, Mr. Chairman. And Ms. Galante, thank 

you for being with us today. I have been doing this for about 5 

years, sitting in on this committee, and I don’t think I have ever 

been quite as embarrassed as I am today by the tone and the substance of this hearing or by the way that you have been personally 

treated. You have been subjected to the entire repertoire, from 

Benghazi to personal queries about your health insurance. I think 

I heard you called a faceless bureaucrat. That kind of language and 

that kind of tone is beneath the dignity of this institution and 

earns us our single digit approval ratings, and it is violative of any 

standard of gentlemanliness that anybody sitting back here should 

presume to aspire to. 

I used to work in affordable housing, and I am familiar with your 

work prior to taking this job. You took this job in December of 2012 

at the request of the President of the United States, did you not? 

Ms. GALANTE. Yes. 

Mr. HIMES. So in 2012, 4 years after the meltdown, you came 

in—you might say that you came in really at one of the most difVerDate Nov 24 2008 18:00 May 09, 2014 Jkt 086682 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\86682.TXT TERRI
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ficult times in this Nation’s housing and economic history because 

the President of the United States asked to you leave the good 

work you were doing in California with BRIDGE and you chose to 

do this. 

Ms. GALANTE. Yes, I do want to, just for the record, be clear. I 

started in multifamily in 2009, and I became acting in mid-2011 in 

this position and confirmed in 2012. 

Mr. HIMES. Thank you. In the past, you have advised the Cities 

of Richmond, Philadelphia, and Santa Barbara I think, and you are 

also a real estate broker. So is it fair to say you could be doing 

plenty of things other than what you are doing here now? 

Ms. GALANTE. Yes. 

Mr. HIMES. Let’s talk a little about the people of FHA, because 

I want to transition now to this question of accountability which so 

fascinates the other side. Without in any way minimizing the reform that we might ask FHA to undertake, I do want to pull on 

this thread of accountability. I don’t know the people of FHA the 

way you do, but I heard the chairman and others really demand 

personal accountability, and asked again and again, has anybody 

been fired, should somebody have been fired, why has nobody been 

demoted? Ms. Galante, have the troubles of FHA, in your opinion— 

is it in any way related to individual malfeasance due to witting 

or unwitting performance on the part of the any of the people who 

work at FHA? 

Ms. GALANTE. Absolutely not. 

Mr. HIMES. Do you think anybody at FHA could have done anything differently, could have worked harder or have been more prudent or been more thoughtful in a way that would have prevented 

you sitting here today with us talking about this $1.7 billion capital 

injection? 

Ms. GALANTE. No, I do not. I believe we have done everything 

asked of us. 

Mr. HIMES. In your agency, you are closely constrained by law 

and regulation that Congress has imposed. We were recently treated with the debt ceiling to an example of that where the Congress 

was going demand that the President of the United States violate 

some law. We say tax this, spend this, math—then requires a certain amount of borrowing, but by the way, you may not be able to 

borrow. So Congress was going to tell the President of the United 

States to violate some law. 

Is it fair to say that under the strictures, the congressionally-imposed strictures and regulations of FHA, that FHA itself has performed as well as it could have under the circumstances? 

Ms. GALANTE. I believe we have done everything to perform as 

well as we can. 

Mr. HIMES. So that leaves the question of why are you here asking for a 1.7 billion, as the other side puts it, bailout? 

Let me read you the last line the Majority staff’s memo on this 

hearing. The last line, and just to be clear, this bailout as it is 

called is required because the MMIF is at 16.3—negative $16.3 billion in value, right? 

Ms. GALANTE. Yes. 

Mr. HIMES. Right. The last line of the Majority staff’s memo 

reads, ‘‘The MMIF’s negative 16.3 billion economic value represents 

39 

a decrease of 17.49 billion from its 1.19 billion economic value at 

the end of fiscal year 2011,’’ and here is the part I want to emphasize, ‘‘which resulted from further declines in national home prices, 

more loans having elevated default potential and uncertain economic conditions.’’ This is the Republican memo saying that you 

are sitting here today because of the decline in national home 

prices and uncertain economic conditions. Is it fair what the Republicans are saying in their own memo? Do you agree with that? 

Ms. GALANTE. Yes, as I have been saying, the value of the fund 

is greatly affected by economic conditions. 

Mr. HIMES. Great. Do you think Congress has done all it could 

in the last 3 years or so? And I know this is beyond your purview, 

but do you think we have done all we can in terms of fiscal policy 

in this institution to actually promote growth in the country? 

Ms. GALANTE. Rather than answering that question, I would say 

I think there is more that Congress could do for FHA in terms of 

giving us some additional authority that would help us do our jobs 

better. 

Mr. HIMES. Fair enough. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Indiana, Mr. 

Stutzman, for 5 minutes. 

Mr. STUTZMAN. Thank you, Mr. Chairman, and thank you, Ms. 

Galante, for being here today and for your testimony. I want to 

kind of follow up on a comment you just made about what could 

Congress do for FHA. We are obviously very concerned about the 

numbers, the direction. I know that back in 2009, you had mentioned that you would like to—that the outlook for FHA was a concern of yours, but that the numbers today I think as we look at 

them do draw much more—deserve more scrutiny and questions to 

be asked. And you mentioned that if Congress would give FHA 

flexibility, I can’t remember the exact terms that you used. Do you 

think that FHA would be better served from being outside of HUD 

as a standalone agency rather than under HUD and under its purview? 

Ms. GALANTE. I think there are tools that FHA needs. I don’t 

think that those tools relate to whether we are inside or outside 

of HUD. So there is no reason, from my view, that in order to access those tools, we would need to be outside of HUD. We are closely aligned with HUD and its mission, and there is no reason why 

that would need to change in order to give us the kinds of tools 

that I talked about, including better authority to go after lenders 

and terminate lenders when they are not doing the right thing and 

following our rules to being able to make emergency decisions without going through the full rulemaking process. Those are tools that 

could be given to us as examples that would be very, very useful. 

Mr. STUTZMAN. Could you describe that relationship with HUD 

a little more? What is HUD’s involvement in your day-to-day operations and how do they influence decisions at FHA? 

Ms. GALANTE. The Secretary of HUD—as the Commissioner, I report to the Secretary of HUD, so it is part of HUD. We have separate accounting for the Federal Housing Administration, but our 

staff all follow the same rules that are part of the— 

Mr. STUTZMAN. So if they were separated, what would change? 

40 

Ms. GALANTE. I think it depends on what people would impose 

or change specifically, right? There is not just—you are either in 

or you are out. You have to say what else would you be talking 

about? 

Mr. STUTZMAN. I guess I am trying to find out, does HUD influence FHA in certain decision-making, or if you are standalone and 

you could use some tools, some flexibility with other tools, how 

would that be, how would that change things or make things work 

better? 

Ms. GALANTE. Again, the main thing about being inside HUD is 

that we report up to the HUD Secretary. So that’s— 

Mr. STUTZMAN. What does that matter? Does that change the 

way that you handle your decision-making? Does it—I guess, if 

FHA were a standalone with tools, would we serve the housing industry better and would we serve the taxpayer better? 

Ms. GALANTE. I would just say, I think within HUD and working 

with the HUD Secretary, there is no reason to change that. We 

could have some of these tools that would help us, as the fund and 

as an agency do an even better job, but I don’t see any reason why 

it would be necessary to do that outside of HUD. 

Mr. STUTZMAN. Thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. Would you yield back to the chairman? 

Mr. STUTZMAN. Yes. 

Chairman HENSARLING. In the seconds remaining, and as a sign 

of respect to the gentleman from Connecticut, I wanted to respond 

to something that he said, and that is the accusation that Republicans were encouraging a violation of the law with respect to the 

debt ceiling. The debt ceiling is the law of the land until it is 

changed. And many of us believe that the specter of default on sovereign debt should never happen, it is unthinkable, and that is why 

House Republicans have passed the Full Faith and Credit Act to 

make sure that this never happens. I don’t recall having any Democrats support that to take that nuclear option off the table. I hope 

perhaps one day they will support it. The time of the gentleman 

has expired. 

The Chair now recognizes the gentleman from Illinois, Mr. Foster, for 5 minutes. 

Mr. FOSTER. Thank you, Mr. Chairman. Ms. Galante, I want to 

echo Representative Himes’ comments. I have profound respect for 

you and every one of the talented people who choose to spend a 

fraction of your life in service to the people of the United States. 

It makes a big difference whether the housing operation in this 

country is well run or not. We are having a hearing about a $1.7 

billion capital shortfall. In the financial collapse at the end of the 

Bush Administration, families in America lost $16 trillion of household net worth, two-thirds which was a drop in the value of their 

house at the collapse of the housing bubble, that is a factor of 

10,000. So however many hearings you think it is worth having on 

this subject now, we should have 10,000 times more hearings on 

the incompetent management of our economy that led to the $16 

trillion drop in household net worth. 

And we heard also about your $150,000-a-year salary, well, that’s 

10,000 times smaller than the subject of the hearing today. And so 

41 

the difference that you make whether you do your job well or not 

is much larger than your direct compensation. 

I would also remind Members on both sides of the aisle that during the last Republican default crisis, family net worth dropped by 

$2.4 trillion, that was the drop the last time we went up to the 

cliff. Could you please hold up your page 2 graph again, I have a 

couple of questions on that. So you have those colored, now the 

red—some are red and some are blue. Does that indicate the political party that was in charge when those mortgages were indicated? 

Ms. GALANTE. Actually, that’s not what it is supposed to indicate, 

no. 

Mr. FOSTER. So it is an accident that the party normally thought 

of as the blue party was responsible for the blue ends of the bar 

graph, that is interesting. 

Is it fair to think of the approximately $2 billion shortfall we are 

talking about as the difference between the $41 billion deficit that 

you are facing because the mortgages originated under Republicanappointed regulation, and roughly 37 billion that have been recovered since Democrats have taken back control? Is that a fair statement of the difference? 

Ms. GALANTE. It is absolutely true that the legacy books that are 

causing us the substantial problems are from 2006 to early 2009. 

Mr. FOSTER. There was also talk about accountability. So if you 

look at the fact that the party that was responsible for running up 

all the red bar graphs was, in fact, removed from power, I think 

there is accountability, and the fact that you are a Presidential appointee is a reflection of that accountability. 

Now, I want to change subjects a little bit towards what rules 

could have been in place that might have prevented the disaster of 

2001 to 2009? And there is a suggestion that has been made—there 

are some research papers on what are effective countercyclical capital requirements for you. Are you familiar with this general line 

of research? 

Ms. GALANTE. A little bit, yes. 

Mr. FOSTER. Yes. And so the idea would be that as a protection 

of the taxpayer against investing into a housing bubble effectively, 

that you would look, have some effort to estimate market conditions. And when you identified that you are investing into a bubble 

that you would hold more capital, hold more loss reserves, or—and/ 

or tighten the credit box or some combination of both of these effectively asking the homeowner to hold more capital reserves against 

this. I was wondering, this is something—first of all, would this, 

had this sort of rule been in place, would that have mitigated your 

financial difficulties today? 

Ms. GALANTE. I think the challenge with that is you could actually be worsening the crisis by making it more difficult to increase 

downpayment requirements for—on individuals, for example, in a 

crisis as— 

Mr. FOSTER. These are requirements that would have tightened 

the credit box during the bubble years. For example, looking at the 

recent appreciation housing values as one of the metrics for tightening the credit box. 

Ms. GALANTE. So when times are ‘‘good,’’ yes. 

42 

Mr. FOSTER. Right, what we are talking about is an automatic 

punch bowl retractor? 

Ms. GALANTE. Yes. Sorry, I thought you were talking about the 

reverse. 

Mr. FOSTER. It is the countercyclical principle on the upswing. 

There was an American Enterprise Institute conference on that 

subject this summer, which I thought presented a number of good 

ideas. I was just wondering if that was under serious consideration, 

or if you might be willing to endorse some variant of this? 

Ms. GALANTE. I would certainly have to look into that more. 

Mr. FOSTER. Okay. Thank you again for your service. 

Ms. GALANTE. Thank you. 

Mr. FOSTER. I yield back. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from California, Mr. Royce, for 5 

minutes. 

Mr. ROYCE. Yes, I would like to go back to an issue that I think 

Mr. Sherman from California raised with you, and Mr. Mulvaney, 

to try to get your position actually nailed down on Richmond, California’s proposed use of eminent domain to seize performing mortgages. 

A number of times over the last year, I have sent letters, and I 

know Mr. Miller and Mr. Campbell, and my colleagues in the Senate as well have tried to get the Administration to definitively come 

out and just state your position on the proposed use of eminent domain to seize mortgages. And my question is, if you would make 

that statement? 

Ms. GALANTE. Yes, I appreciate you asking this question again, 

because I think the former times that I have gotten asked it, it was 

the end of questioning as opposed to the beginning which makes 

it a little hard to give a full answer. But what I have been trying 

to say here is that we do believe that eminent domain authority in 

general is a local and State authority and it needs— 

Mr. ROYCE. Well— 

Ms. GALANTE. May I just finish this? They need to be able to 

make their decisions and this needs to be played out over time in 

terms of what impact, if any, it will ultimately have on lending. So 

I— 

Mr. ROYCE. Hold on, hold on. The question that you need to answer, if you think it through, is will the FHA insurance fund be 

counted on or not? Do we have a position where the FHA insurance 

fund cannot be counted on by the investment fund mortgage resolution partners in Richmond or elsewhere to help insure refinance 

mortgages that are seized through eminent domain? This is a question that pertains to your decision. 

Ms. GALANTE. Yes. And what I was getting to is that when we 

see how this plays out, and we don’t know exactly what FHA would 

be asked to do in any particular given situation under the use of 

eminent domain, when we see that, if we need to issue additional 

guidance, FHA will do so. But we don’t even know exactly what 

these various programs will look like at any given time. 

Mr. ROYCE. No, we know exactly what the programs look like. 

This isn’t a hypothetical. We know what the plan is. MRP has 

made their presentation in California, they made it in Nevada. Yes, 

43 

there could be legal challenges, and they may or may not be successful, but why do we need to allow the process to reach that 

point? You can solve a lot of confusion by stating whether or not 

the FHA will be available to refinance any mortgages seized under 

MRP’s eminent domain plan, that is the question. 

Ms. GALANTE. Again, we do not believe we understand the exact 

contours of any of these. There are different proposals and different 

communities, and those proposals could be applied differently. 

Mr. ROYCE. Okay. The FHFA has made a very strong statement 

for a reason—they stated that they would restrict or cease business 

activities within the jurisdiction of any local authority or any State 

employing eminent domain to restructure mortgage loan contracts. 

The question is, why FHA won’t do the same? 

Ms. GALANTE. So— 

Mr. ROYCE. Why will you not state without a doubt that FHA 

will not be used to refinance these seized mortgages? 

Ms. GALANTE. Again, to be clear, we have made our statement, 

which is that we will look at and see how these programs play out. 

Mr. ROYCE. Okay. 

Ms. GALANTE. Whether or not there is a necessity for us to issue 

any— 

Mr. ROYCE. FHA refinance up on the screen there is clearly part 

of the program, that is what is in circulation. And getting back to 

an earlier point, because some of us were concerned about over-leverage as we get back to the issue of the implosion of the economy 

brought on by overleverage. One of those issues was the role that 

Congress played. And yes, the role that was played by this committee and on the Senate side in allowing the over-leveraging, 100 

to 1 by Fannie Mae and Freddie Mac. And when legislation was 

brought by me and others to the Floor to try to allow the regulatory committee to control it, it was opposed by that side of the 

aisle. So, there is a little bit of revisionist history going on here. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Ohio, Ms. Beatty, for 

5 minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman. Thank you ranking 

member, and again to our witness, thank you for coming. 

Before I ask a few questions, let me just start by saying I think 

we have become all too comfortable with loudly interrupting and 

talking over our witnesses. And while that may sometimes be the 

way it appears that we operate, I think today we took it a little 

too far, ‘‘faceless government worker, questioning your public service.’’ 

So let me use three words that I was always taught, and they 

are very powerful words: ‘‘I am sorry.’’ I join my colleagues, Representatives Cleaver and Himes, in extending their apologies because sometimes I think we forget. When we talk about challenging 

your commitment to public service and putting that in question 

today, I find it very ironic that some of my colleagues who question 

your integrity are the same people who furloughed some 800,000 

Federal employees, which cost the government some $24 billion, 

and certainly reduced job growth of some 120,000 jobs because of 

our shutdown. 

44 

Now, how does that tie in today? I think when we look at the 

housing market and we look at growth and we look at the economy, 

and we look at jobs, there is direct linkage. But my memo said that 

today we were going to talk about and ask you questions so we 

could share and learn more about the FHA’s recent announcement 

about the MMIF. 

I read something that I would like for you to answer for me if 

this is factual in truth, because in hearings, I think we have an obligation to the people who are here and to America to speak the 

facts and the truth, and then look at how we dissect that to come 

to some end resolve. 

What I have before me says that the Federal Credit Reform Act 

of 1990, or FCRA, requires that at end of each fiscal year, and as 

part of the closing annual financial statement, every credit agency, 

including the FHA, must have sufficient reserves to cover all anticipated loss. For FHA, this requirement means that the MMIF 

must have sufficient reserves to cover the amount that would be 

needed to meet all expected claims over the next 30 years, if FHA 

closed its doors tomorrow and had no new business to offset those 

claims, such as an appropriation is not a bailout. Would you agree 

with that statement? 

Ms. GALANTE. I agree. 

Mrs. BEATTY. Thank you. We have heard it said loudly that this 

would be a bailout. So, thank you for clarifying that it isn’t a bailout. 

I guess my next set of questions would be, would you say that 

there has been an economic shock this year by the fiscal cliff, or 

sequestration, or the government shutdown, or the threat to default on our Nation’s debt, would you say that impacted the fund’s 

performance in any way? 

Ms. GALANTE. To be clear, the shutdown caused economic harm 

in general, according to economists. I can also tell you that in that 

very short period of time while FHA kept its doors open and continued to ensure mortgages, we did see a substantial drop in our application volume, as did other partners or other agencies given the 

lack of confidence in home buying, for example, during that period 

of time. 

Mrs. BEATTY. Lastly, let me just make a comment because we 

have had so many comments that have attacked the FHA. I think 

the American people also like to hear good or positive news, especially when we are talking about housing and putting a roof over 

their head. So let me just say I am from the great State of Ohio, 

and in my district, through the American Recovery and Reinvestment Act in 2009, through your operation, we were able to provide 

housing credit assistance, and that tax credit assistance and the 

tax credited change was a way to offset declining investors interest 

in housing tax credits, and that was done by some of my Democratic colleagues, and I wanted to thank your office for working 

with us on that. 

Ms. GALANTE. Thank you. 

Mrs. BEATTY. Thank you, and I yield back. 

Chairman HENSARLING. The gentlelady yields back. The Chair 

now recognizes the gentleman from Wisconsin, Mr. Duffy, for 5 

minutes. 

45 

Mr. DUFFY. Thank you, Mr. Chairman. I want to be clear at the 

outset that FHA has helped a lot of my constituents, first-time 

home buyers and low-income home buyers, to achieve the American 

dream of homeownership. It has been incredibly helpful for them. 

And so I don’t want to underestimate how important the program 

has been for people who live in central and northern Wisconsin. It 

has been a very helpful program. 

I think you picked up a little bit of concern on our side of the 

aisle, and I think our frustration here is that whenever we have 

testimony, we continually bring up concerns about the capital reserve ratio. It hasn’t been that, we are concerned about bailouts. 

And it seems that every time we get testimony from the agency, 

we are told that it is sunshine and roses and tulips and unicorns; 

everything is great. And we look at the numbers and say, that is 

not true. We think it is far worse than you are telling us. And it 

is always no, no, no, no. It is all fine. And lo and behold, we were 

right, our concern was well-warranted because we now know that 

we are going to have almost $1.7 billion going from Treasury to 

FHA. And I know that you said it is not a bailout. First of all, 

would you agree it is actual money, this is an accounting. We have 

actually had $1.7 billion go from Treasury to FHA; that is correct, 

right? 

Ms. GALANTE. It all stays in Treasury accounts, but yes. 

Mr. DUFFY. But it has been moved to FHA, right? 

Ms. GALANTE. To our accounts at Treasury, yes. It is intergovernmental. 

Mr. DUFFY. —balance sheet, the transfers has been made? 

Ms. GALANTE. Correct. 

Mr. DUFFY. And so these are real dollars, yes? 

Ms. GALANTE. Yes. 

Mr. DUFFY. Okay. And I just want to be clear on the bailout. If 

this isn’t a bailout, what do you consider a bailout? 

Ms. GALANTE. Congressman, let me say two things, because I do 

think this whole conversation about bailout or no bailout is really 

beyond the point. I want to go to the fact that your earlier statement about we have said its roses and then it is not, what we have 

been saying all along is that we have an independent actuary, and 

we have an independent budget reestimate that is made by the 

budget process. And as a result of changes in condition and 

changes in portfolio, those numbers change. And we have always 

been honest about that. 

In fact, the conversation we are having here today, we had this 

conversation when the President’s budget came out and said that 

we were looking at a $943 million shortfall. I really just want to 

get this on the record because the only difference between then and 

today is that our volume was a little bit less in the last quarter 

than we had anticipated as part of the President’s budget. I admit 

that circumstances change, and that is what caused the additional— 

Mr. DUFFY. But this underscores the point of the testimony that 

we always get. It is a bailout. If it looks like a bailout, it walks, 

it quacks, it is a bailout, just call it a bailout. Let me ask you this: 

What are the terms of repayment of the $1.7 billion? 

46 

Ms. GALANTE. This is exactly why it is not a bailout, because 

again, this is all within the government agency— 

Mr. DUFFY. What are the terms of the repayment of taxpayer money of $1.7 billion? 

Ms. GALANTE. The terms are every nickel we ever earn goes back 

to the Federal Government. 

Mr. DUFFY. No, no. So are there terms of repayment? No, you 

don’t have to repay it, do you? It is a bailout. There might be a 

point in the future where we make a little bit of money and we 

turn it over. But there is no requirement that you pay the $1.7 billion back to the American taxpayer, not at all. And so, I think the 

transparency and honesty, stop splicing words, this is a bailout, 

call it what it is. 

Ms. GALANTE. No, what I am saying is— 

Mr. DUFFY. Repay it to a taxpayer. 

Ms. GALANTE. We have prepaid on this, we pay every year on an 

ongoing basis. 

Mr. DUFFY. I only have 15 seconds left. In the PATH Act, we discussed a risk-sharing pilot program, is that something you would 

consider at FHA, a risk-sharing pilot program? 

Ms. GALANTE. I would just say that I think it is worthy of looking 

at, risk sharing, how it is structured, counterparty risk, there are 

a lot of challenges in risk sharing but we certainly are willing to 

look at the parameters. 

Mr. DUFFY. I yield back. 

Chairman HENSARLING. The time of the gentlemen has expired, 

and to notify our very patient witness, we anticipate two more 

Members to ask questions. The Chair now recognizes the gentleman from Washington, Mr. Heck, for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. Ms. Galante, thank you 

very much for your presence here today. Thanks to the FHA for, 

I believe 40 years ago this very month, enabling me to buy my first 

home, and thank you as well for your kind comments about both 

my role and that of Congressman Fitzpatrick in the earlier effort 

to reform the reverse mortgage market. Indeed, I would like to flip 

that around a little bit and take this opportunity to express my 

gratitude to Congressman Fitzpatrick for his exceptional advocacy, 

and to the members of the industry, the reverse mortgage industry, 

who really stepped up to be a constructive part of this, and to you 

personally as well. 

I don’t happen to think your reputation as a public servant needs 

a whole lot of defense, because I frankly think it speaks for itself. 

And if my experience working with you on the Reverse Mortgage 

Reform Act is any indication, it is beyond reproach and exceptional, 

and I thank you for it. 

I thank you as well for the speedy way in which the agency 

moved to implement the Reverse Mortgage Reform Act. I think it 

helps a lot and speaks volumes about the FHA. I think sometimes 

here we, to coin a verb, ‘‘complexify’’ things beyond what they need. 

So let me see if I can reduce this to its basic elements. Do I understand correctly, Ms. Galante, that in the table on page 8, as 

Congressman Sherman was getting at, we could say that the accounting transfer was triggered and/or required almost entirely as 

a result of the performance in the HECM program? 

47 

Ms. GALANTE. That is correct. 

Mr. HECK. And is it also true that the accounting transfer of $1.7 

billion was calculated based on data prior to the enactment of the 

Reverse Mortgage Reform Stabilization Act and its implementation? 

Ms. GALANTE. That is a little more difficult, because I would just 

say that the 1.7, there is an element of the receipts that are a little 

bit less, as I was saying, to an earlier question. 

Mr. HECK. And when will an actuarial projection be predicated 

on a full recognition of the implementation of the Reverse Mortgage 

Stabilization Reform Act—I am getting the title screwed up, but I 

think you know what I am referring to. 

Ms. GALANTE. Just to be clear, the next time you will see numbers like this is when the President does the reestimate that will 

be probably, the dates shift a little bit again, partly because of the 

government shutdown, but I would expect though reestimates to be 

available in February or so of next year. 

Mr. HECK. And to what degree will that reflect any experience 

for implementation? 

Ms. GALANTE. It will reflect the projections of what the future experience will be, yes. 

Mr. HECK. So do I also understand correctly that when you all 

make money, you transfer back to the Treasury; is that correct? 

Ms. GALANTE. That is correct. 

Mr. HECK. Have you done that in the years leading up to the 

Great Recession? 

Ms. GALANTE. Yes. 

Mr. HECK. Can you give me some kind of a range of estimate 

about how much money? 

Ms. GALANTE. I don’t have that, we keep it all in the capital reserve. The capital reserve went well above the 2 percent up to I 

think 8 percent in earlier years. 

Mr. HECK. It does not literally get transferred to other accounts? 

Ms. GALANTE. Again, they are all sitting at Treasury, all these 

accounts are at the Treasury. 

Mr. HECK. Okay. So just to summarize, and please do correct me 

if I am oversimplifying, the requirement for the accounting transfer 

was triggered, in large part, by the experience in the Home Equity 

Conversion Mortgage Program, a problem you identified and 

sought legislation from this Congress, which responded with your 

able assistance, and which you immediately implemented, and projections about how FHA’s balance sheet will be affected by all of 

that are not going to be made available until some time in the winter or spring reflecting the corrections to that single program that 

was dragging you down. Do I have that all correct? 

Ms. GALANTE. Yes, you do, sir. 

Mr. HECK. I think that about says it all. Thank you again for 

your service. With that, Mr. Chairman, I yield back the balance of 

my time. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Ohio, Mr. Stivers, for 5 minutes. 

Mr. STIVERS. Ms. Galante, I appreciate your willingness to be 

here today, and I appreciate what you do on behalf of the Federal 

48 

Government at FHA. What I want to look at is how FHA might be 

able to improve its performance so that any additional infusion of 

capital—taxpayer capital, whether you want to call it a bailout or 

accounting transfer, it doesn’t matter what you call it, I want to 

try to figure out how we can improve your performance to avoid it 

in the future. 

You said during your testimony that you thought FHA had taken 

every reasonable action to improve its risk management. And so, 

I want to look at a few areas. You talked about REO real estate 

that you own. Are you familiar with the GAO report from June of 

2013— 

Ms. GALANTE. Yes, I am. 

Mr. STIVERS. —that reviewed your practices? And on—page, the 

page number is not here—in one of the highlights here, it said that 

if you had dealt with your dispositions on timelines the same way 

as the Government-Sponsored Enterprises, both Fannie and 

Freddie, that you would have been able to save as much as $600 

million a year in your cost such as taxes, homeowner association 

fees, maintenance fees, and others, and you would have increased 

your proceeds by up to $400 million. It has taken you about a year, 

taken them about 200 days to dispose of their REO real estate. 

Tell me what you have done with that to improve your performance going forward. I am not here to blame you, I just want to see 

how we are going to fix it. 

Ms. GALANTE. Yes, so just to be clear, we changed how we do 

government contracting for those who take responsibility for— 

Mr. STIVERS. Have you seen results from that yet? 

Ms. GALANTE. So, yes. Let me just give you one example. We now 

do an REO alternative disposition called Claims Without Conveyance of Title, so not requiring the property to come all the way 

back to us and it enabling our— 

Mr. STIVERS. Can I ask you, instead of just one example, have 

you seen your average length of disposition shorten in any significant way, or do we not know yet? 

Ms. GALANTE. Again, in this Claims Without Conveyance of 

Title— 

Mr. STIVERS. That will speed things up. I am looking for how it 

moves your average. 

Ms. GALANTE. Yes, so again our recoveries have improved by 

more than 10 percent on our—by these new recovery strategies 

that we have been going through, both REO and alternatives to 

REO disposition. 

Mr. STIVERS. I guess I just ask that you to continue to monitor 

that. 

Ms. GALANTE. Absolutely. 

Mr. STIVERS. And move forward as quickly as you can. 

I would like to you look at the slide up there which shows that 

your capital ratio has continued to worsen, and you did talk about 

premiums and some things had you done. Let’s move to the next 

slide really quickly, no, next slide. 

So there were some things that you could have done to change 

your premium, both your up-front premiums and your annual premiums, and let’s go to one more slide. Look at what has happened 

to interest rates over time, we are at still with an uptick over the 

49 

last few months pretty historically low interest rates. You have the 

ability to—go back one slide, to increase your annual fees by another 25 basis points which would be a rounding error on the 

amount that interest rates have come down over the last few years. 

Why have you chosen not go ahead and max that out and require 

less taxpayer infusion, whether you call it a bailout or you call it 

something else? 

Ms. GALANTE. We have spent an enormous amount of time balancing, bringing the fund back as quickly as possible with ensuring 

continued access to credit. And, by the way, just when you take a 

look at what happened when we made our latest increases in June 

and not just premium increases, but our policy changes, you saw 

a huge amount. Our application volume dropped off by 50 percent. 

Mr. STIVERS. And my time is limited. Let’s go back to that again. 

Ms. GALANTE. By the way, I can’t see this. 

Mr. STIVERS. When you look at how much interest rates have 

come down, and we are talking about rounding errors for those 25 

basis points. And it could have helped you significantly and I would 

ask you to look at that again. And this is, I think, the fifth time 

you have come to testify before the committee in my 3 years here, 

and every time I ask you, so I am going to ask you again, why 

hasn’t FHA instituted risk-based pricing yet, being that you have 

had the authority since 2010? 

Ms. GALANTE. Again, I believe I said this before that FHA believes that the way we do pricing and the way we do risk-based underwriting but not risk based pricing and we do that because we 

think that is in the best interest of the borrowers and access to 

credit. And again, we are always balancing— 

Mr. STIVERS. I have limited time. I would argue that you should 

do both. Thank you for your time. 

Ms. GALANTE. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

There are no other Members in the queue, so I would thank Ms. 

Galante again for her testimony and patience today. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place her responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

This hearing stands adjourned. 

[Whereupon, at 12:55 p.m., the hearing was adjourned.] 

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A P P E N D I X 

October 29, 2013 

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