just get your comment on that. >> we stated publicly in the white paper that you've referenced that we believed that the loan limit should have been allowed to expire. i think if you look at my public statements consistently, as i've said today, we continue to believe that the loan limits must come down. and i do think you point out something important, which is that the effect of having for the first time in history, hired loan limit on fha compared to fannie mae and freddie mac could produce the results that would have more business come to fha and we've expected, particularly on the purchase side. we will need to see what happens

they are. and part of what we look at in terms of future steps is how we should price premiums and other -- other policies. i mentioned my testimony we expected our budget proposal for 2013 to have specific proposals about how we move forward with those loans. >> all right. thank you. i do think that could cause problems. and i think you'd agree. >> mr. chairman, those high valence loans, the loans about our loan limit represent about 2% to 3% of our loan volumes in terms of dollars stashed in terms of number loans at about 6% to 7% in terms of dollar volume. and the evidence we have, albeit early evidence is that those loans are lower risk for other loans we are making and therefore i don't think the issue is the loans propose a sick officer to the fun.

the real issue is how we encourage private capital to come back while making sure we continue to support the market with crisis. >> thank you. i agree. mr. b. shares. >> thank you. .. >> request you comment on this, and do you think this settlement would be appropriate? >> congressman, i -- i want to

make sure this is absolutely clear. it is exactly the opposite. we began an in-depth investigation of the servicing practices of our larger servicers. we found significant problems with the way that they were handling servicing, specifically, their loss mitigation as well as other steps like robo signing and other things you all have heard so much about, and began discussions with fellow agencies as well as state attorneys general who found similar problems with the way loans were being handled, and so the discussions we've been having is holding the servicers accountable for those practices, and first of all, making sure that the taxpayers compensated, and, in fact, one of the things that can help the fha fund to recover to a higher capital level is to recover where not

only on servicing, but on origination and other places where mistakes were made, where loans were originated or serviced against fha requirements as well as to get help to borrowers, so any release that we would provide would be in exchange for significant penalties as well as help to homeowners that were wronged by those practices. that's what we're pursuing. >> that's why i raised the question, and maybe american bank just got it wrong. it's not like they always get it right. >> thank you. >> i wanted to ask you that question because it is our responsibility if a mortgage serves a bank, an originator of the loan, didn't help the american family stay in the home and did not go through all of the mitigation and did not do

anything, just let it sit out there, then you can simply say, yeah, you can make an insurance claim, but if you found they didn't follow the rules, you can simply deny the claim and penalize them three times the cost. >> correct. >> are you still committed to caring and having that as a powerful tool? >> absolutely. >> when we deal with the mortgage servicers? >> absolutely. >> okay. because i think that that's important that we all understand that the insurance is insurance, but you have to follow the rules of the insurance, and we know that they didn't follow the rules in many cases, and that's why we have this pending litigation across the country. i believe that the kind of settlement is important because it sends a message that just because you got fha insured loan doesn't mean you're going 20 get

the money because what we found, and i don't know if you have evidence of this, and i'd like to hear your comment, but what i found in just the normal practice of reviewing is that homes stay out on the street and the banks do nothing to keep people in the homes. they don't mitigate. they don't -- they simply send you a letter, you send them money, then they fore close. they don't help anybody. secondly, they leave the homes -- in chicago, for example, the city counsel had to pass legislation against the banks saying, well, if you have abandoned properties out there, we'll charge you to board them up and keep them clean. do you find that situation throughout the country? >> as i said, congressman, we found significant problems with servicers not following the requirements on loss mitigation, and i'm proud to say that fha has been a leader in correcting

those and ensuring that we help families stay in their homes, and -- >> and i'm with you. i support you. i think you're at the helm and doing a good job. i just want to raise this issue because i wanted to make sure that you're continuing to -- i know what you did on loss mitigation. i congratulate you and thank for staff for keeping american families in their home, but i also want to send to all the mortgage servicers out there, that you're going to continue to penal ease them if they didn't submit a claim and didn't follow the procedures, and you'll go after them three times the amount. thank you. >> the gentleman's time expired. the gentleman from california has five minutes. >> thank you, mr. chairman. i'm glad you hold them accountable when they don't do their job. they should bear the loss. i'm also relieved to hear that my argument that the high costs are safer loans that you

justified they are. there's no doubt we want to get the private sector money back into the market place. that's been the goal all along, and the drop in recent conforming loan limits identified by economists as a test by the private sector no see if they step forward to fill the void, do you have evidence they are filling the void at this point? >> i think there is some evidence that that's beginning to happen. certainly there have been in the jumbo loan space, there's been some securitizations, some steps forward, mortgage insurers are, some at least are coming back into the market more, and i do think we need to continue to take steps 245 i talked -- that i talked about before to ensure that we encourage it. i think it's clear that we certainly have not returned to -- >> it's not where it needs to be. >> it's not a fully healthy

market at this point, and we have to continue to take steps to encourage private investment to come back. >> some argued to get everybody out on the government side. if the private sector was the only game in town back in 2007, without a backed entity, what would have happened? >> it's important congress recognized fha to be a counter force, and the fact that our market share grew in the wake of the crisis was not as some suggested today a plan on behalf of the administration or something we took affirmative steps to take. >> what would have happened? >> i think it's clear that had we not been able to step in and provide liquidity in the market, that the housing crisis would have been deeper, there would have been more significant declines in home prices, more dprks, and frankly, more losses

for the taxpayers. >> and the taxpayers own homes last time i checked. >> to be clear, and this is a critical point in this hearing today, the loans we made from 2000 to 2008, the actuary predicted we lose. loans since 2009 will make $18 billion for the taxpayers, so it is very important to recognize that the threat to the fund is from the legacy books of business. we have to ensure we minimize losses from those. it's not a problem of the new loans we're making, which are predicted to be profitable even under the most dire economic circumstances predicted in the various models that the actuary looked at. >> if you end all government guarantees today, how does that affect the overall economy in your opinion? >> i think we've been clear in

our white paper which does advocate shrinking the government footprint, that we have to do it in a careful measured way. so that the private sector can come in and not to expect it's going to happen overnight, and i think consistently in a range of proposals that we've seen, that is a -- something that congress understands, and generally understood that this will be a process that will take place overtime and not something to expect the depth of the crisis to happen immediately. >> what are the barriers you see applying to the private capital entering into the markets and secondary markets for home loans today. >> clearly, confidence, and a stronger economic recovery overall is a critical step. that's why the president has been so focused on getting the american jobs act passed. that's what it's part of the

american jobs act. he proposed america rebuild specifically dealing with the overhang of foreclosed properties, put 200,000 construction workers back to work fixing up those properties and to ensure they actually rather than depressing home values in the communities, they raise home prices by fixes them and getting them resold. that's a critical step we can take. the second i would say is to remove certainty that's holding back lending today which is another reason we've been pursuing these discussions around robo signing and other problems. we have to resolve those and get clear fair rules of the road in place so other steps can be taken that ensure it's clear what the responsibilities of a lender and servicer are going forward rather than the lack of clarity that led us into the crisis.

>> thank you very much. i yield back. >> at this point, ms. maloney from new york has five minutes. >> thank you. obviously, saving more loans from going into foreclosure is key to reducing losses to the fha insurance fund, and a "new york times" editorial that, i believe, it was this weekend that i read it, stated that there are 14.7 million american homeowners under water on their mortgages. unfortunately, 1.6 million will likely lose their homes to foreclosure, but the editorial states that there are at least 1.6 million who have had a temporary set back in their lives whether it's a health condition or a loss of a job, and that their homes can be saved if a loan modification is done. the key to making this happen is

the servicers reaching the borrowers to advice them of their options, particularly loan modifications. i know from a recent ogr hearing, another committee on which i serve, that the gses are doing a lousy job of borrower contact. fortunately, hud has a regulation in the books since 1992 requiring servicers to make face-to-face contact with the borrowers after 90 days of delinquency. in new york, what's most helpful is when we have these conferences with the borrowers, with the people in need, with government services, and try to put people face-to-face to help them stay in their job -- help them stay in their home, and to help the borrowers keep the houses and really to save the american taxpayers' money. what more can we do to really

enforce that regulation of face-to-face contact of working to help the people stay in their homes? are you enforcing that regulation? could you give us some insights into why are the servicers not responding? how come they don't work to help them stay in their homes? we get reports all the time when people do lose their homes that the servicers never even contacted them. they just came in and closed on them, so if you could -- could we -- should we look at giving them an economic incentive to work harder for face-to-face contact? what should we do? why are they not doing it? are you enforcing that regulation? >> congresswoman, this goes back to the other conversation we had, and we did find substantial problems in lenders not meeting our requirements for reaching out to borrowers, for ouring the

them the right -- offering them the right tool to stay in their homes so we through enforcement measures and technical mechanisms have seen improved results. not only have we reached about 1.2 homeowners to help them stay in their homes through loss mitigation activities, but improved the success of it where two years later 95% of the homeowners are still in their homes. we are making progress. i think we can go further. we continue to push. we also, through this servicing settlement zagses we're -- discussions we're having, are requiring write downs you talked about and improved modifications to een help more families stay in their home. housing councilling is a big piece of the puzzle here. what we see is recent evidence shows a homeowner is twice as

likely to stay in their home if they get face-to-face help from a housing counselor. we were very disturbed from $88 million was cut from hud's budget last year. we worked with the appropriation committees this year to get not all of that funding, but a significant portion of the funding restored, and we have been working closely, and i give carroll real complements here working to improve our housing councilling operation. we cut the amount of time to get funding on the streets by 83% in the competitive processes. we already have housing councilling notice out and available for the 2012 funds we just got. we're doing a lot to improve the process, and that funding is critical as well. >> i totally support your funding request, and it's been a part of the recovery. also, can you comment in writing or the brief time i have left on the economic development

programs hud has. i know the focus is housing, but on the city council, the program helped build sort of economic models, i know at that time, it made money. can you talk on that program? is it still around? is it working? is it helping with economic development? >> time expiredded, but go ahead and answer that question. >> happy to follow-up afterwards with specifics on the programs. we continue to have the program vain. i say in the project rebuild portion of the jobs act that the president proposed, we proposed to expand our neighborhood stablization activities successful in the residential area up to 30% to be used for commercial an non-residential building or properties to support economic development as well, particularly in neighborhoods hard hit by the housing crisis, and that's an important tool as well. >> with that, mr. gaiter from new jersey has five minutes.

>> i thank you, mr. chairman, and i thank the panel also who testified before the senate banking committee if i'm not mistaken opposing the recent increase or maintaining the level of fha loan limits. i agree with you on that, and if i understand you correctly, i appreciate it that. my only regret is that the congress went ahead with their decision on this prior to digesting the entire report that you all had there. as far as the condition of the fund right now. just, first of all, a little basic question. so you might want to say look at the fha, you say in two books, the old book and newer book, and the old book is you lose money, it's bad. the new book is a good book, you make money on it, and so things will be good as it goes forward. 1 that the summary? >> congressman, i want to be clear about this because i think it's come up in other comments

as well. we have significant concerns about the level of the reserves at this point. >> i understand, but -- >> the actuary does predict that the fund will stay positive, but there's a serious risk -- >> i understand -- >> and we have to take steps to protect against. >> i guess my question is if things are getting better based upon the new book, in other words, you say you will make money on the new book, why don't you just significantly increase the side of the new book or why don't you -- why isn't the private sector entering into the market. if you can make money on it, why isn't the private sector able to make money on it? why leave it all to you if it's such a good book? >> specifically, i believe, and it goes back to the comments i made earlier, that there are a series of barriers to the private sector reentering that

include a lack of clarity around enforcement, servicing, potential buy backs, and a range of steps that need to be clarified and established so that private capital does come in. i would be clear -- >> i just have two minutes. i appreciate that. >> the market share is declining, important evidence that, i think, that the steps we're taking to shrink our footprint are beginning to have a real effect. >> let me get into another issue, the weeds on an accounting issue that i talked about. i'm a member of the budget committee, and we're looking at how the fha is scoredded. currently, the gses and fha are part of the government, both taking on risk, they are scored differently. gses are scored by including the market risk of holding a loan, but the fha, on the other hand, is scored on the credit reform act, not including the market

risk. what this means is that the gse book looks better than it does with less volume, and the fha book looks better than it does with more volume. some insinuated this is done on purpose by the administration and propose to change to rules because it makes the gses look better when you decrease, and fha looks better with the increase. did are you assuring the taxpayers are ensured transparency to the risk you incur and are taken through the programs 1234 # >> well, first of all, congressman, we obviously follow the law -- >> i understand that. >> in the federal credit reform, and it's up to congress how we -- >> what's your recommendation to congress? i have just a little time. >> i believe you're talking about the fair value accounting that ceo recommended. >> right. >> we believe there's a number of steps in cbo's ways of looking of this. we begun to incorporate

different changes to the modeling in a number of those. there are portions of it, however, that really, we think don't apply to fha -- >> why is that? >> simply because our cost of credit and a range of other things are different from the way -- essentially, what they are recommending is we look at it as if we sold off fha to the private sector and how would it be -- >> is that fair? >> the fact is that there are many things that are different about the way the business operates, both in terms of the need for return on capital. we don't have a need tar return on equity. that would overstate the costs. there are a number of other things that are just different about the way we operate. we're not a profit oriented institution. we don't have shareholders in return, and those portions simply don't make sense for the way you look at fha, and, frankly, they are not required by the law. >> right. i understand it's not required.

that's what we need to change in the law and i look to you to give encouragement to congress to make the changes. my time is up. >> thank you, mr. chairman. welcome, mr. secretary. >> thank you. >> let me take a moment to thank you for the leadership and foresight in dealing with this massive housing disaster that you were confronted with, and i want to thank you on behalf of the 13 million families who are being able to keep a roof over their head, and everything that you are doing to assist those that are in at risk of foreclosure. representing -- excuse me, ma'am? representing the 99% of this country, so my question is, mr. secretary, during the

housing bubble, the fha ensure less than 500,000 mortgages. after less than five years, fha's obligations has expanded to cover over 1.7 million mortgages, more than a three-fold increase. did the fha take any steps to prevent private lenders from shifting the risks of under performing loans to the fha and their taxpayers? >> it's a very important question, and we were very concerned when we came into office that risk management was not strong enough at fha, that we had not taken sufficient steps to make sure that we weren't going to get those very same sub prime lenders that had caused such damage to shift over to fha, and so we appointed the very first chief risk officer in

the history of fha, created a whole risk management organization under that chief officer that has taken important steps. we instituted a whole set of underwriting changes, improving the quality of our book, and we've also taken substantial steps to increase enforcement. i mentioned more than 1600 lenders we've excluded from doing business with fha, more than four times the number of lenders that the prior administration had penalized in its entire eight year, and so we've taken a whole series of steps and others that are critical along those lines, and i really do think that's a big reason why the performance of our loans have been so much better since -- over the last two years. >> thank you. according to the hud report, the fund is not expected to become

insolvent, and it will return to the congressionally mandated 2% capital ratio by 2014. mr. secretary, is this projection based on home buyers increasing over the next few years? if that's the case, how will the fha protect taxpayers if home values do not rise i expect to cause the fund to seek help from treasury? >> yeah, very, very important, and just to be specific, the actuary report predicted that home prices would decline in 2011 by 5.6%, and then it would begin to rise -- rise about 1.3% next year, and that's sort of the base case that it projected on, and based on that, it projected that we would recover to the 2% capital ratio by 2014. obviously, none of us has a

crystal ball, and there is real risk that home prices could perform worse than that, and the actuary looks at a whole range of scenarios there. to ensure that we have protection against that, we are looking at a series of steps. i laid out five steps in my written testimony including premium increases, further steps on lender enforcement, but i think it's very important for the committee to understand the balance here. given that the actuary predicts that under any economic scenario that they look at, the new loans that we're making are profitable. given our premiums are already at the highest level they have been at in the fha, and given that the losses are really coming from old books of business, we have to balance any premium increases or other steps we might take on new loans against both the fairness of that, begin that they are

already profitable, and the fact that that has some risk to the housing market more broadly by limiting the number of people pushing homes and pushing home prices down further, so what we need to look at as well is how do we recover what we should be recovering from the older loans meaning increased enforcements and other steps as well. >> thank you. >> the lady's time expired. with that, the gentleman from texas, five minutes. >> thank you. good to see you again. >> you too. >> i want to go back to something i said in my opening statement, and maybe the conversation you had with market share, but what i want to talk about is something you were just eluding to, and that is your new business is priced differently than your old business was because turns out your old business probably wasn't priced appropriately because you didn't have enough money to cover that,

and so now the -- the fund levels are actually would be much worse than they are today if you had not had the fairly substantial increase in market share, would you say that's true? >> i think there's no question that the quality of the new loans that we're making has helped balanced losses on the old loans. as i said earlier, that is the -- the congress set us up to be counter silly call, and so this is not something we intended. in fact, we're working to decrease the market share, and that's beginning to have an effect, but certainly, the new loans are balancing losses from the older books. >> providing the profit and the cash flow to sustain the losses in those, and so one of the questions that i wanted to ask you about you in putting these

new risk management tools in place, you've raised your guarantee fees -- are you doing locational risk analysis? because obviously, there are pockets where if you're looking at, as you said, the studies show that maybe a 5% additional decline in crisis, but there's other areas in the country, as i'm sure you've looked at, that probably could actually have more than 5% decrease, further decrease in prices. when you look at making loans in those areas, are you saying -- are you increasing the fee? do you say, we don't want to be making 97% loans in that area because we have a downside. is that a part of the risk management? >> yeah, you know, congressman, i would love to be able to have a way of knowing what's going to happen in the individual housing

market and national housing market. if you know someone to help us do that with precision, that would be a wonderful tool. the truth is that there are not great ways of knowing what's going to happen a year out at the national level much less at the local level. we work with appraisals, clear techniques, trying to improve those to try to get to real market value, and certainly we've gone to a disaggregated, more geographicically specific set of home place indicators in the modeling. that's one of the improvements we've made, but the truth is, and nobody's able to do this to get, to, you know, very previce geographicically specific pricing, and the most important thing we can do, and this is what we did to, is to look at the risk factors for a

particular borrower and raise 10 #% the down payment requirement for risky borrowers. the early payment defaults declined by two-thirds by doing that in the riskiest loans. the evidence is that that policy is really having a good effect. >> well, let's just go to the fact your assumption, one of your best case scenarios in the study was you thought there would be an additional 5% decline in housing crisis; right? >> predicted to be 5% -- this year, and we have data that's better predicted by the actuary. it's likely at this point the 5.6% is not as bad, but that was the prediction for this year. >> yeah. so if you're making -- if you predicted that you're going to have a 5% decline in housing prices, and you're making 97

president -- 97% loans, i mean, aren't we setting people to be underwater? when you talk about predicting the future of some of the locational issuings, i mean, there's historical data to show you what the levels are, how long it takes to foreclose on properties and jurisdictions, and to me, if that's an important part of the risk animal sigh, but what you're -- analysis, but what you're saying is we don't do that? i mean, yes or no, we don't do that? >> well, what we are clearly looking at is what are the risks of different factors in underwriting? down payment is a critical piece, but it is one of a number of factors, and what we see on the performance of our high ltv loans because of the -- we've excluded the highest risk borrowers from doing that is very, very strong performance.

early payment defaults are lower than the higher credit score boar roars with high ltv than 10% down payments with lower credit borrowers. i'd be happy the share more data, but we base this on real experience in realtime, and the performance there is strong enough. the other thing i would just say is -- >> the gentleman's time expired. i'll let you finish quickly. >> i'll just finish. we looked back at last year. if we had even gotten rid of the highest ltv loans on purchases, our estimate is that 10% of the borrowers in the entire country would not have been able 20 buy a home -- to buy a home, and so what we balance here, to be clear, is making a safe loan possible, but also not trying to do anything that would threaten the housing recovery, and frankly, that -- anything that would hurt the housing recovery would be more damage to the taxpayer, not only in fha, but at the gse's and

elsewhere. that's the balance. >> thank you. >> the time expired. the gentleman from new york, five minutes. >> thank you. i want to probe, if i can, for a moment, and reflect on the philosophical differences within the committee as far as the roll of the public sector and the private sector, which i think is indicative of the same discussion in the country. there are those who believe that the government or the public sector should play very little or no role in many aspects of public life, housing in particular in this case, and it should be left up to the private market, and i think that's very reflective of our votes and our attitudes and our approach to things. that being said, how much money

do you make? >> me personally -- >> fha, yeah, on your day job. >> i would say i make a fair salary. it is under $200,000. >> it's about what we make; right? >> yep. >> and if you took a bonus from somebody, you'd go to jail? >> we do have certain -- very, very awards we can make to employees. i'm not one of those who can get one of those bonuses, yes, that's correct. >> right, so there's no incentive for you to gobble up business from other sources, is there? other than getting an atta-boy? >> based on the disutionz of the committee -- discussion of the committee today, i'd say there's lots of incentives not to do more business. >> not financial numerations any way? >> absolutely not. >> you have no motivation to

steal clients from the private sector; right? >> that's -- >> no reason to crowd them out of the market, no reason to see their market share is less or larger, do you? >> none that i know of, congressman. >> and it's quite conceivable in the private sector people can get bonuses and exponential amounts, thousands of percentages if they want, larger than your salary? >> in fact, one of the problems, i believe, that led us into the crisis is that there was lots of compensation to mortgage originators to make bad loans. >> right. even in fannie and freddie, before they were in conservatorship, they could get huge bonuses also? >> they could. >> and yet your business remained stable, and you didn't get into any financial trouble, and you didn't need a bailout while they did and had to be taken under the public wing and got taxpayer dollars to be

steady? >> thus far, although we continue to be individual lent begin the -- vigilant given the risk. >> how come you did so well and they did so poorly in the private sector. i think the main factor is that fha continued to make plain that vanilla, 30-year fixed rate, fully documented loans. it's why our market share slunk to about 2%. >> you have no problem with your market share shrinking? you don't take it personal? >> that's what congress intended us to do. >> as part of your mandate? >> is that we would not -- when the private market is operating correctly -- >> so -- >> we would need to do very limited business. >> so when you were established back after the depression for the purpose of expanding into the brink, into the breach when there was a crisis within the system, and you expanded to fill that role, those who said, oh, my god, look what they are

doing, they are stepping into the breach, and that's a private -- that's a dangerous place for them to be, how terrible, you were really fulfilling your role, mission, and obligation, were you not? >> we believe so, yes. >> and you'd be very, very happy to have a smaller market share, remain stable, and be ready to fill the breach again once the prosh is resolved within -- problem is resolved within the housing market? >> more than that i believe we're taking steps to reduce the market share. >> i thank you and your agency for doing the great job you are doing and being the professional firemen that you are and with standing the criticism of the people who say you prevent the good samaritans from coming in and fighting the fire. >> thank you. >> thank you very much. i yield back the balance of any time. >> thank you. with that the, the gentleman from florida for five minutes. >> thank you, mr. chairman. thank you for coming, mr. dono

mr. donovan. i'd be remiss not to mention your office, a great asset to our office, in educating our district, how to stay out of trouble, and if you're in trouble with your mortgage, how to best handle it. great job down there helping educate the public and mitigate losses. >> thank you, i'll let them know. >> couple questions. what are you doing to prosecute the fraud that you've discovered that help put us into this undesirable position we're in now? >> we are working very closely with the department of justice. we, obviously, don't do the prosecuting ourselves. the department of justice represents us. we have active cases against a range of lenders. a good example of that is tbw, which was not only one of the larger fha lenders, but a large fannie mae and freddie mac lender. we discovered working closely with the inspector general,

discovering problems including fraud with fha lended, and -- >> and just because time is limited, can you brief me on that, send me a memo -- >> absolutely. >> the number of cases and scope of it. i'll follow-up with you on that. do you see any needed improvement in the process? >> let me -- one thing i would just mention remitted to the enforcement is we have legislative changes that we would like to pursue with the committee that we'd love to work with you on to improve our ability to go after lenders and kick them out of the program when they are not doing their jobs, so that is an important next step. >> you get 1 00% from both sides of the aisle. promise you that. >> reo, we're working closely with fannie and freddy. we asked for ideas from the public of new things to do to improve our reo processes. we expect by the first quarter of next year to be able to

implement some new pilots around our work on reo to improve the processes. >> okay. if you have bulletins on that, i want to be kept in the loop. on paper, it's a pretty attractive process. on the ground and really, it's devastating, inefficient, causes you greater losses than you would sustain otherwise, harms neighborhoods to a much greater degree than otherwise would happen if the process were streamlined, more effective, allowed more people to participate in it. on paper, looks good, but on ground level, from my observation at least, it needs to be improved and can't wait a year for that. what effect do you think it would have to make fha loans full recourse loans? >> i think you could argue about the amount, but there's no question they would be substantially more expensive,

and in exchink for that, i think there would be some potential improvement in performance. it's hard. various people modeled in different ways. it's hard to predict how significant that would be. >> i'd like it. if you have data on that, i'd appreciate it if you would send that to me. i wonder if there's somehow you might make the awareness, and i heard it said by many people, the point made by many people, and most recently by former senator graham that we hear a lot of people are upside down on their mortgages, and he compares that to somebody driving a new car off the car lot. the second they drive off, if they financed their car, they are upside down in their car, too. that doesn't mean it makes sense to abandon a car and go buy another one. i just wonder if there's some way you with initiate that into your education program. i know there's so-called financial advisers telling

people, hey, if you're underwater, walk away, walk away, and that doesn't help, at the end of the day, anybody. if people would hang in there a little bit better probably like they do their automobile, just view is a little differently. i think there's a negative propaganda being perpetrated to a large part of the population, and no positive information coming from the other way to put it into proper perspective, more reality. i believe, and i'm sure you've read the book, "reckless endangerment," would have been a good title for a former congress, but the authors of the book believed that the worse of the market is still ahead of us. we've been unable to get anybody from the department of treasury to tell us whether or not they think we've bottomed out to give us any real information of the people we think are the most knowledgeable about it, cannot give us that information.

i'd appreciate any up sight you have. i see my time is up. thank you, mr. chairman. >> happy to follow up. >> all right. with that, the gentleman from massachusetts for five minutes. >> thank you, mr. chairman. do you have any idea how many loans fha currently has out there now? about? >> the total value of the portfolio -- >> no, the number of -- >> it's over a trillion dollars. the exact number -- >> the number of loans. >> right at about 7 million. >> 7 million. just curious. of the 7 million people, all first time home buyers; is that correct? >> not all of them are first time home buyers. there's refinancing also available, but that's a smaller share of the business. >> so 90% first time home buyers? >> our estimates are of all the first time home buyer who is bought a home last year, 56% used an fha mortgage. it's not just a huge share, but

a huge share overall. >> the vast bulk of first time home buyers, people getting into the market, young people for obvious reasons. i'm curious. i know you don't know the answer, but i'd like to at some point for people to take a look, how many of them, if not for fha could they afford a 50% down piment and then afford to carry a mortgage over five year period? i asked that question because correct me if i'm wrong, there's staff back there, great history in their minds, before fha, wasn't that the typical mortgage in america? 50 prct -- 50% down with a five year repayment period? >> that was typical before fha; correct. same with many countries around the world. >> the creation of fha instituted the 30-year mortgage we now take as a given, and the institute, the practice of limited down payments, 20%, 10%, now down to 3.5%, whatever the number might be.

is that a fair historical memory? >> that's correct. >> well, i ask that because i'm not against the private market, but that was what the private market did when there was no government involvement. the private market basically disallowed most people in this country, my guess is of the 7 million mortgages you have now, very few of them would ever have been able to put 50% down and pay a mortgage back at rates over a five year period. very, very few of them, which is why home ownership has gone up in the country. it's a fair debate we have as a society where the level of home ownership should be, but i don't think anyone has the audacity to suggest you go back to the 30% it was before fha, and i say that because all of this discussion about somehow you've done something wrong is ridiculous if you believe that home ownership and middle class go together, and i guess i do, and those who don't should turn to their own house and

represent. i guess the other thing i'm concerned about, i think you are as well, some of the issues relative to the capital requirements, the reserve account, and i think it's long overdue and well done to tie down payment requirements to fica scores e not the holy grail, but something that is good as any. it's a good thing. out of curiosity, but i want to be clear. have the repayment levels improved now that you improved the scores requirements? >> our early payment defaults have dropped by two-thirds. >> so they have improved 1234 >> that change. >> defaults have gone down as you increase fica requirements. >> i have to thank the committee for this. the most serious problems we had, the worst loans for seller funded down payment loans, and those alone are estimate responsible for $14 billion in

losses, and that was stopped by this committee in just in the beginning of 2009. >> is it also fair to -- 1 it a fair -- is it a fair conclusion that in the average home, the more valuable homes that you're allowed to do, those closer to your cap have a lower rate of default? is that a fair conclusion? >> given we have not done larger loans for long, it was raised by the crisis by congress. we don't have definitive data, but the early default performance suggests larger loans perform somewhat better. >> it's fair -- again, i don't hear disagreement from you the idea is to get the capital reserve back up to where it should be, so everybody can feel better about it, and the fact you raised the standards and narrowed done scopes who who gets in, and you raise that number, it would be fair, i think, to do this stach tsh

statutorily to say if the levels go down, that triggers some of the things you already institute, and if we do that, and you continue on the course you're at, tightening it up, but because no one wants a bailout, no one was problems with fha, we want you to be stable. why shouldn't we just do it statutorily in a way you have done and a few other things as pell. >> the gentleman's time expired on that. i'll allow very brief response. >> happy to follow-up. i think the only thing we need to be careful of is the balance between recovering on old loans that were the problem versus putting increased costs on new borrowers and begin that our premium levels are already at the highest level, i think making sure that we maintain that balance, not just focusing on the underwriting of new borrowers, but also what we do

on old loans around enforcement is critical as well. >> all right. we'll go to congressman from arizona, and there's a note that the fha was created in 1934 according to my memo in front of me. with that, the gentleman from arizona. >> thank you, mr. chairman. glad you had the memo. forgive me for doing this, but there's so many questions i want to run there, mr. secretary, so we'll predenned to do the lightning round. there could be informational correction from the last bit of exchange of testimony. fha is not restricted to first time home buyers; correct. >> correct. >> the last dialogue, you'd think you had to be first time home buyer, went we want on the record it's not that way. also, you're talking about the performance particularly on the higher end of your ltv, loan

limits performing pretty darn well. if we walk into an environment where regulators do the qualifies residential mortgage and the qualifies mortgage definition, isn't that going to ultimately continue to inhibit or drive more business to fha and stimey the creation of a private label nbs market? >> just to be clear, first of all, i think we were talking about large balance loans rather than -- >> i was just using that as an example, loans performing well, so if we were going to start our own private label mortgage, you don't start a securitization business, but if i have qualifying residential mortgage and risk retention and other things over here, how will i compete with fha? >> there's no question that there's an important balance that needs to be struck in the qrm between making sure that we

don't repeat the mistakes of the past, but at the same time, creating a rebust private market. i think you raise an important issue, but for fha, we have a range of mechanisms including prep yum levels and other -- premium levels and other underwriting that allowed us, and loan limits, of course, that allowed us to ensure that the private market can function very well, and therefore -- >> actually, mr. secretary, that's really not true. you have your fees, and you do have loan limits, but because of the current loan limits, which my understanding you were not particularly thrilled with, there is no private market out there. now, 5 lot of that is there's uncertainties with dodd-frank and those mechanics, but i'm just, you know, please understand i've had an fha loan, i sold my firms over the years that sold hundreds, if not thousands of them.

it's not my opposition there, it's just sort of the mission creep in many ways. you are a huge portion of the market today. mr. chairman -- mr. secretary, has your legal staff thrown out any warnings or concerns about the fact that you're well beyond the statutory 2% and any sort of recourse that either you in your capacity or as an agency hold by violating the law right now? >> so i would say we've had a lot of discussions with the legal staff. it's obviously, my concern is not just on the legal side, but business side that we need to take significant steps to make sure that that capital reserve gets rebuilt. just in terms of the specifics of the law, my understanding is that it requires that if fha goes below the 2%, that there be a plan put in place to ensure that the fund recovers as

quickly as possible. >> yeah. >> those are the steps that we've described. those are the additional steps that i talked about that will be in our 2013 budget. all are parts of what is required by the law to put in place steps to help fund it. >> mr. secretary, why i'm concerned, previous year's testimony, is sounds similar. we're going to build the plan. please understand, i don't want there to be a shock to fha where legal opinions, and you have to stop writing loans or this or that because the real estate market can't handle that. i want to bounce off of something mr. posey said because of a possible exchange error there. i think he touched on what do you think would happen if fha loans were full recourse? would that help your credit quality? would that also help us in some way where, for many of us with a

concern if someone gets an fha loan, 3.5% or 5% down, and i'm somehow to get a credit line or stacking a second instrument behind that, there is absolutely no equity. in many ways, you are incentivized to walk away from the loan. should that trigger recourse on my first mortgage or deed of trust? >> the gentleman's time expired, but you can answer quickly. >> we actually need clarification on the question. i'm not sure i'm clear -- happy to follow-up afterwards or -- >> mr. chairman, unanimous consent for 30 seconds 1234 >> without objection. >> okay. right now, fha loan, nonrecourse; correct? >> uh-huh. >> if i go and put a second loan behind that, in most places other than texas, it's still nonrecourse, but i've chewed up what little equity was built in there and actually made it more likely that i'm going to default or there's a higher loss ratio

on it. should -- has there been discussion of policy on if i stack up, if i use what little equity i have in the property that the loan should be recourse? >> i have not heard extensive discussion of that. there is certainly been a significant amount of discussion about whether to allow second liens, how to ensure we don't get the same kinds of problems that we have had in terms of the stacking of debt in first and seconds and thirds in many cases. that's clearly been a significant problem, and i think it's important that we have policies that ensure that doesn't happen going forward. >> the gentleman's time expired. >> thank you mr. chairman, and thank you to the, committee, thank you for the tolerance. >> on behalf of the committee, you're welcome. [laughter] >> thank you, mr. chairman. thank you for having this hearing. i thank you for spending so much time with us because this is a great concern for all of us on

both sides of the aisle because we're dealing with an awful lot of constituents at home that are trying to get modified mortgages. i think there's only -- i'm not going to mention the name, but there's only one bank that's been working with us, and it's the only one that has actually remodified a number of the mortgages that we have been asked to help, but something that i wanted to ask you about, especially with what's been in the paper. with our veterans coming home from afghanistan and iraq and coming home to find that their house is under foreclosure, when we have passed legislation to make sure that that wouldn't happen, and what can you be doing to protect these veterans coming home, even though we have laws, but obviously, i mean, to me, it's -- whatever's the highest fine that you can give to these particular banks, it should be. >> yep. >> it should be.

>> these examples are shameful, and we have worked closely where we have found examples of that in fha. we work closely with the department of justice. they broight -- brought a series of cases, and i'd be happy to follow-up on the background cases they brought and where they won judgments against companies for that. ..

what do you need to have as well. so that's another step we take that's important. >> if there's anything we need to do even more so, please let us know because those that are defending this country and coming home, those that are lucky enough to come home uninsured, we can't let this one go. i mean, certainly an awful lot of our constituents that through no fault of their own -- i mean, they have good credit rating. they bought a home. i live on long island, a starter home commies to be from 500,000 coming out around 430. but that's still an awful lot of money for a young couple to get together to deal to do that. so i thank you again for the fha loans. but also, i am with mr. gary miller from california. unless we somehow come up with getting this housing market going again, through the real

estate building, our economy is not going to come back to the way we want it. and i hope that you are looking not -- i know a number of legislators at giving you different ideas, pieces of legislation that we have written to jumpstart that and i hope that we -- i hope we can actually do it sooner rather than later, but this session is almost over. but the question i want to ask you. your testimony states the default rate on fha loans have been relatively stable throughout this year due to a number of fat person i know you touched upon it. can you discuss the overall state of the housing market to the stable default rates anticipated rebuilding of fha's mutual mortgage insurance fund for 2012? >> i think what is critical they are, we have seen a substantial

decline over about a year, year and a half, leading into this year. we have seen stabilization and even a small, increase in delinquency rates in fha, but also across the board i take that what a kind of slow down the economy had in the late summer really impacted that to some degree and saw, somewhat. but they have remained stable at substantially lower than we had historically. and i think most importantly they are, the decline of about 45% and the number of people falling into foreclosure has been a combination of both lower overall serious to link with the rates as well as more than 5 million modifications -- the modifications i attacked about earlier in my testimony. those have been key pieces. >> and time is short. i know the president had mentioned in sunday night mentioned years ago that people going for foreclosures were

under unemployment to rent the homes to them until things got better. my time is going to be up, but i hope you are working on that. >> we did institute increased forbearance for unemployed homeowners in fha. we went from a minimum of four months to a minimum of 12 months forbearance. we did the same thing with treasury programs and we hope the rest of the market will follow us on that. it's very, very important. >> with that, mr. canseco from texas for five minutes. >> thank you, mr. chairman. and thank you ester secretary for being here today. in your testimony in your written testimony you mentioned that over the past three years, fha has made homeowner possible for 2.27 million first-time buyers. how many of these first-time homebuyers used the $8000 homebuying tax credit included as part of the 2009 stimulus

bill for their down payment? >> given that the tax credit is claimed after closing, we don't have precise estimates of how many families used the tax credit. so i can't give you a specific answer on that. >> do you mentioned earlier testimony to some of the questions that down payment is a critical piece in the risk analysis, is that correct? ! since they self-funded down payment loan, which data shows or three times as likely to default as other loans. >> in fact we were very aware of the history we establish our policy. what we said was we'd be in any use of the tax credit as a loan or something else that would be go directly towards reducing the down payment. we allowed the tax credit to be

used to increase the amount of down payment, but we did not allow any home buyer to monetize that tax credit to go out and buy her it or do anything else. the down payment have to come from their own funds or from family and a way that any other lung would be required. silly nature to specifically avoid the experience you are talking about with the tax credit. >> so given that $8000 tax credit could have come after the finalization of all of the documents? you can't really follow that $8000, whether or when to make up for that $8000 that went into the down payment? >> let's be clear about this. if you may close this may require to $10,000 down payment for an fha loan. we checked to make sure that

that is coming from allowable funds, a bank account they have, a family member, very -- so if they go in and get a refund from the taxes at the end of the year at $8000, all that does is replenish savings that they might have. so it actually puts the homeowner in a better position relative to repay their loan, not worse. our job was to make sure it closing that those funds were coming only from allowable funds, not for example by going out to a scam artists for some local lender is saying i am going to get this tax credit. send me the money to do that. so that was a requirement. >> so your answer is this tax credit did not go into the seller funded down payment assistance --

>> it is a completely different phenomenon. just to be clear, the risk that the seller fund down payment was he basically had the seller of the home raise the price. we often saw bogus appraisals and affect and affect zero down payment or worse. here, the requirement was that they have that down payment in their own cash, and get from family, anything traditionally allowable. so we were very specific about the way the tax credit could be used. re/max osha estimates that capital reserve fund could withstand an additional decline in housing prices up to 4% and remain positive. does this mean the housing price declines in excess of 4% will trigger a taxpayer bailout of fha? >> so to be clear about that, the expectation actuarial was a 5.6 decline -- 5.6% decline this

year and our estimate -- and this is only an estimate. there are many other factors is that everything else they equal, an additional 4% decline next year could trigger the need for additional assistance. but that is before any changes or other steps we might take. for example and i lay out five different things we can do in my written testimony. premium increases are a series of other steps that would have capital to the fund and help to avoid that. >> does the recent increase in loan limits for fha encourage private capital to get back into the markets? >> it does not. and that is why we laid out our white paper are position come at it ministrations position that loan limits ought to step down. on the other hand i think it's important to point out that they do not, based on early did i come up with the fund at greater

risk. >> the gentleman's time has expired. >> i do want to reemphasize your last comment. i know you kids are responsible response or not is the increase is not that the fha fund at greater risk than anything as i understand your data, it should help the fha authority some of the risks that it absorbs some of the less than 625,000. one concern that people have is that, are the fha reserves adequate? would obviously prefer that they be higher. but it is my understanding that those reserves would not be exhausted if we ended up issue with a 5.6% decline in national

home prices. and then there was a 4% decline next year. is this right? do you predict a 4% or greater decline in home prices next year? please tell me know. >> i will tell you what our industry has stated that we used for the actuarial predict the lives of 5.6% decline. as we got third quarter due third quarter due to yesterday hfa p. it appears likely that the climate will be smaller than the 5% and it's now zero for years under 4%. their prediction again commending these analytics production of soy 1.3% increase next year in home prices. so i will tell you that is the base case that the actuarial is run off of. >> so we -- the predictions have been more loony than actuality over the last of oman.

and if the predictions hold, the fha will not need an institution of federal funds. >> under the base case that's correct. i will now, however, that obviously we can't predict the future, that the predictions last year, the performance this year has actually been somewhat worse than was predicted diabetes last year and that is why we are evaluating a series of steps that we could take and that we expect to be a part of our -- >> you want to be planted for everything. but the assessment is home prices will go up next year and then even go down by 4%, fha will not be funny from this congress. as sheila -- thing i think we tend to agree on here is we want to get to you as much choice as

possible. another thing i think we all agree on is we want the federal government to take as little risk as possible. and in the private sector, to take as much of that risk as possible. and i would like to see if fannie and freddie conforming loan limit in high-cost areas raised 2729 because then you may in many of those cases have private mortgage insurance. as i understand the current situation if somebody gets an fha loan, the federal government is on the first dollars loss. if instead that loan was privately mortgage insured and fannie and freddie, has a private letter is on the hook for the first losses. do i have that right? >> that's correct. >> and so, if we can give be

consumers in high-cost areas like los angeles a chance to use any and freddie, that opens additional doors to them and those involve less of a risk being a sort of the federal government? then fha? >> i'm not sure if you were here earlier. i did talk about the fact that we've never had a situation where fha loan and that were high year. >> yeah, i remember when they were lower. >> overall i would restate our position that we do we need over the long term to bring those loan limits down to more historical levels for fha. that will increase demand for fannie and freddie, code is why you can get the shuttle to session is to see a decline in values -- precipitous blind and values of homes in the high-cost

areas of the country. the data yields that >> thank you. at this time the chair recognizes himself for five minutes. i want to say thank you for a couple colleagues were likely to jump ahead before you take off. my background is real estate as well as a few of the others that are here. and when i was in real estate back in the early 90s and back into the late 90s, day loans were extremely difficult to get. they were very unusual. and we're sort of the last resort because they didn't go to those that were underserved. and i am glad to hear your position. i hope that is a clear position you have shared with the senate who has pushed this increase on the fha loan limit and i encourage you to continue to do that and talk with them as we try to readjust this. i do have one quick question on page three of the report you've given us talking about the underserved borrowers part that

there's a note that -- let me read, 56% of all first-time homebuyers in 2010 according to national association of realtors for fha buyers. in my reading and understanding that correct? >> that is their estimate. >> okay. you believe that 56% of all first-time homebuyers are underserved? buyers? >> what i would say is that we have a dual mission as far as i understand congress' creation of fha. in normal times, to serve underserved borrowers, but that in times of crisis, where there is a lack of private capital are fha to act as a countercyclical force and to be able to serve a broader group. i think that is in fact what has happened during this crisis and the fact that 56 sunna first-time buyers is to some

degree of results of that lack of private capital. so i would certainly expect in fact would hope that the number would go down and return to a more normal level. but that certainly is not a level that i believe is the right level over longer-term in normal time. >> i would hope so as well. the countercyclical rule for fha i think leads logically to the next question is, should all of these first-time homebuyers, the sub 700 credit for buyers to think he was noted five a.d. was a score that without their and should these people be in a position to be buying homes? >> we'd be happy to spend sometime with you showing the performance data. i think the fundamental question is if they are buying a home they can afford with a product that is going to be safe and sustainable and they've demonstrated they can be successful homeowners, that is hope are looking at.

certainly the performance is income and improve performance tells us by and large they can be successful. >> i think that is a fear of a lot of us have enough economy with the job situation as it is, that may be more whiskey which goes back to a number of questions about requirements for reserves and those kinds of the. so you had -- i believe it was mr. ackerman who has to question and talked a little bit about bailout for fha. her exact quote was we don't need one thus far. the page start team, what you are making the claim to the current underwriting and premium structures have created an actuarially sound basis for growing capital and a rapid rate in the economy. i for one and pleased that it sounds like it'll be an easy pledge from all of us on this committee to say there will be an fha bailout. i don't know if that is -- how

shall you are fat, but i guess i'm looking for some reassurance that the fha is not going to need that government assistance because that is what a lot of the concern is that a number of us have on this committee. >> it is my concern as well. and we've been working very hard to do everything we can to make sure we protect the taxpayer. to be clear, the new loans that we are making, even under the most severe economic scenarios that the actuary of the that would remain profitable. so fundamentally what we are talking about here is a risk. if the economy and the housing market performed worse than expected and the actuarial, that is the risk that could push fha's capital reserves -- they can't tell you today that the zero risk. >> is not sort of go counter to your argument about the fha needed for countercyclical? if you guys are that rocksolid,

wise and the private sector step in and click some of the suspected might be regulators that have been clamping down on amounts of loans that banks are holding in those types of things. but i think you are seen sorter that push me pull you asked that to some of my concern at least. my time has expired. >> briefly i would say -- i think we agree that we need to encourage private capital to come back. the fact that our market share is now shrinking is evidence, i believe that the steps you're taking on on premiums and underwriting are in fact doing a direction. >> thank you. my pack him butters from california for five minutes. i believe the chairman had also made a commitment to you because he was mr. opening statement that there would be some additional time and all at the next person in the chair take care of that. let's go with five-minute and then ask for additional.

>> thank you very, very much. i'm appreciative for secretary, then in the time that he is putting him on this very, very important issue today. i would like to remind the committee that we saw this coming month here in the capital reserves level fell 2.53%. in response i worked across the aisle within ranking member capito and bachus of the fha reform act which passed the bipartisan vote for 64. although the bill wouldn't sign into law, parts of it most notably provisions allowed sha to raise the annual and on front premiums were enacted separately. these provisions for the most important pieces for my bill because they were designed to give fha resources they need to raise the cap the cap. however, the provisions on sha. however, the provisions on sha have been able to likewise important. and i'm disappointed the senate

to take up a bill. however, secretary donovan has taken advantage of the flexibility we were able to get it signed into law last year and fha had to tighten it lending standards. the average psycho score of fha bars has risen from x 20 to 700 in addition to more credit worthy borrowers that recently extended higher loan limits will help fha to strengthen this reserve. there's been a lot of speculation in the press about whether fha needs a bailout. and i'm certain that you secretary donovan may have gotten questions that affect on members from both sides of the i/o. but i just want to be clear that fha remains the only source of mortgage credit for most americans today. investors are still reluctant to enter the mortgage market after being burned by original misrepresentations during the run-up to the financial crisis.

continue to plague markets services and just last month when private market filed for bankruptcy. in the wake of these problems and uncertainty, fha has taken on a larger market will. that will assault the middle class. there are millions of creditworthy middle-class borrowers who is not guilty by a home or refinance an existing shortage if it were not for the availability of fha mortgage insurance. fha single-handedly holding up our mortgage market. and i just reiterate time and time again we must support it. to be clear, i do oppose any attempt to use the current challenges facing the fha is an excuse, dismantle the committee fund or otherwise destabilize critical housing program. now is the time to stress and fha, not to weaken it. i am more than willing to work with my friends on both sides of the aisle to find ways to make fha stronger, better, more

effective in providing homeownership opportunities to americans elsewhere. if i may continue, i would like to ask a few questions of the secretary. the fha has made changes to the down payment requirements with pico scores 579 lower, 10% payment and prohibit loans for borrowers with scores below 500. has this change contributed to the strong economic value of the book of business as a new premium structures that are aligned with market conditions? >> first of all, congresswoman, thank you for all your work with us on the fha bill that you talked about. we do continue to believe that many of those provisions that were passed that were part of the bill are critical to allowing us to continue to

increase enforcement and other stats. the thank you for your work on that. we look forward to continuing to partner with you on it. aesthetically and your question, the answer is yes. we have seen roughly two thirds reduction in early payment defaults in that class of loans and that really i think as a result of the underwriting changes be talked about. >> cut said in a rating minimum spec my credit score and down payment requirements to balance risk management with broad access to housing credit would have historical and that fha credit quality standards. could you comment on the impact this has had on sha current book of business? >> well, what we see as between the last two years the actuary predicts about an $18 billion positive net worth for those two books of business. the $18 of benefit to the taxpayer from those two books. i would also say the work that

we've done to look at what could have it if we removed the option for lower risk borrowers to get higher lcd loans, we think we could lose as much as about 10% of all the buyers last year. and that is the concern that we have in terms of risks to the housing recovery if we were to restrict credit too much, it might actually hurt the taxpayer by increasing the losses that we would be on loans that were made in 2008 and before that. >> may have unanimous consent for another minute and a half from now for the ranking member? >> thank you very much. mr. secretary, could you comment on the steps hud has taken to increase enforcement of fha lender policies eliminate

approval for a long correspondence and increased net worth requirements for lenders, wanting to underrate fha loans? >> absolutely. i think one of the first steps that we took was to really create a strong risk management team and culture and fha, created the first-ever chief risk officer position in the history of fha. we also increased net worth requirements for lenders that hadn't been increased in quite some time. we stepped up dramatically both the investigations that we were doing, and the share of loans we review and consequently we've seen four times more lenders removed from the fha roles during the period of this administration and in the entire eight years of the prior administration. and we have worked actively with our partners at the department of justice to bring cases

against the worst offenders. and have been successful in a number of those as well. >> thank you very much. i think you've done a great job. and again, i appreciate all of the attention that we paid to fha and the way that you perceive it, even without all of the legislation we would've liked to have had passed. i yield back the balance of my time. >> the chair recognizes mr. handsomely for five minutes. >> thank you, mr. chairman. mr. secretary, in the 2011 actuarial study that i guess was released last month, if i read it correctly, we have approximately 1.2 billion values supporting insurance in force of about 1.9 trillion on the single-family mmi asked. is that correct? >> it's actually not correct, congressman. there is a total of

$33.7 billion in reserves that are held against the book. that is the highest level of reserves in the history of fha and contrary to what was predicted last year, those total reserves -- >> that's talking about just single-family. >> this is single-family but i'm focused on. i think you are focused on there to reserve accounts. the capital reserve account and the financing account. the financing account is the piece that i believe you are focused on. and that is only access reserves that are -- i'm sorry, the capital reserve account is only excess reserves that are held above and beyond expected losses. and this is going apportioned. total cash reserves here holding against that book is a total of dirty $3.1 billion. >> at the insurance in force the

1 trillion, is that correct? >> it's over $1 trillion. that's correct. >> now in that report if they quote you correctly, with the economic net worth being very close to zero under the base case forecast, and the chance that future net loss on the current outstanding portfolio could exceed cap under the base case forecast, and the chance that future net loss on the current outstanding portfolio could exceed cap under the base case forecast, and the chance that future net loss on the current outstanding portfolio could exceed cap is close to 50%. i am under the impression that study was based upon june and july data. is that correct? >> it was based upon predictions for house prices. >> and the serious delinquency rate has increased from june to september. is that correct?pppp my data shows we now have 50,000 more serious to link went fha loan september compared to chan. >> as the portfolio grows,

obviously the number typically increases. with all types of loans there was a slight increase in the serious delinquency rate. at the end of the summer. i would also say though home prices have performed better than it did since the june 30th predictions, given that home prices are the single most important fact very and predict in the value of the fund, that it is likely that affect the actuarial understates the capital reserves relative to what happened since june 30 as a result. >> said mr. secretary, and mike to assert your markup domestic than the statement included? >> optimism is not something that i think it's relevant here frankly, given the scale of capital reserves. this is a serious issue. there are serious risks to the

fund. we need to take steps to protect the taxpayer and we will continue to do that. >> you obviously have discretion and not to say appreciate the comments you've made with respect to the conforming loan limits, with respect to fha. you have discretion to increase once or twice, but i think now the annual premium for a 30 year loan with a 95% ltb is 1.15. i think statutorily as i am correct, you have the authority to increase that to 1.5. and it chosen not to do so, given the precarious state of the mmi asked, why have you chosen not to do that? >> as i said in my testimony,

that is something we're actively looking that, given that we have just gotten this actuarial review. we are actively evaluating night and we expect in our 2013 budget proposal to propose additional deaths. but i would say, congressman, understand that the balance here is we are now charging the highest premiums in the history of fha. and under any economic scenario, even the most dire, the actuary predicts new lows we are making will be profitable. and so, while increasing fees for new borrowers is an option, it is also critically important to me could use the help of the committee in further enhancing our enforcement to maximize recovery some old loans. those are what are really driving the losses. 2008 and prior books of business. and we must balance changes that we make two new loans with

focusing on enforcement and recovering on the loans that really are causing the problem. we can't go back and make those loans. unfortunately they were made, but we can't do as much as he possibly can to enforce and recover on the phone sonatas were reading the help of the committee as well. >> thank you. see my time is expired. >> the chair recognizes the senator list for five minutes. >> thank you, mr. chairman. i want to thank the secretary and ms. galante for your patience to help this committee with the work. the question for me is not whether fha is needed. of course it is needed and will be needed for the foreseeable future. the question is whether or not fha operates in a way that will be sustainable without a massive taxpayer bailout. that is what i worry about. i have a very, very good report here that i'm going to to refer to by the gao direct drive financial markets or community investment not share scire will

be on the second panel sometime this evening i suspect, but he does a very good job of this. and you know, according to the gao is, there is 4.7 billion in the end of your balance and the end of your reserve account. you say there's 33 billion that account. actually the 33.7 billion is combined between. >> okay the one that's historically used in this committee and when your predecessors came up was always the capital reserve account. >> it's historic here. based on earlier testimony by predecessors, we've always gone by this account. niu combined with another account? it's two different things congressmen. if we complete an account and you're not willing to say a 33

part 7000000000 account, we have a serious problem. because you are saying that we are not going to go negative on this account. are you talking about the $33 billion account? are you talking about the $4.7 billion account? >> the total cash reserves is what i was talking about. in other words, we are holding against expected losses, this reserves. and i was just correct you -- i didn't want to leave the impression with the committee that somehow we were only holding $4.7 billion. >> so let's talk about the ratio reserves. capped the reserve ratio. statutorily supposed to be 2%. here's the problem. under the fed's analysis, the number of homes and appalled in

foreclosure, they tell us a very different story than the actuary is telling us that we're were going to remain positive next year. in the actuary told us in this committee in 2008, 2009, 2010 not to worry. things will be okay. we watch that account over 22 billion in 2724.7 million to 2010. what i am saying is i know you're working as hard as you can to do the right thing here. no question about that. congress pays the price is. we hate surprises. so when someone until the things will be okay next year and then you report once a year the statutorily review and we get terrible news that things are alright, that's a matter of fact year after year it gets worse and worse.

that creates a tension between what we are expect it to do by our constituents and what is happening here with fha. so your is my problem. you are required on the national housing act to report this actuarial review, to conduct and publish it once a year. my problem is that in this market, that is too long a period of time. we are going to surprise one way or the other. it may be a pleasant surprise enemy assisting with the actuary is saying or it may be something as very negative and we are going to be in a calamitous situation. what i filed back in 2009 was to ask fha to file -- to conduct their actuarial review every six semiannual, rather than waiting a full year and we don't have time to react and we get terrible menace that puts us at a real disadvantage here in congress. i can understand where

22 billion that account we didn't need a review every year. now, we are at .24% on the capital reserve ratio. we are at a precipitous point. and you know, they might be the european debt crisis, the sovereign debt crisis there that tips its economy the wrong way and then we are in trouble. i am just asking you, would you support an enhanced -- the name of my bill was the enhanced fha oversight at? and what we are looking for is this data -- that gentleman's time has expired. >> we are looking for data privacy rather than once a year. would you support that? been a congressman, first of all that they seattle think you've heard me here say today you don't need to worry, that everything's going to be fine. i've said consistently we need to be vigilant to come none of us can predict where home prices are exactly. >> what i'm saying is every six

months instead of once a year. >> up to the committee to decide and the congress to decide with the legal requirements are. but i will tell you is rerun these we run these numbers are murdered annually. >> the gentleman's time has expired. you can submit your questions in writing, sir. i think the secretary for having remained with us passes. i'm calling on mr. stivers. the chair recognizes mr. stivers of ohio for five minutes. >> thank you, madam chairwoman. i'm always worried enough by seniority is solo. we know you've been here long time, so i appreciate you hanging with this in your your candor today. we are all concerned about actuarial report. and like to ask a couple structural questions about fha and then questions about your recommendations if that's okay. first you refer to your chief risk officer and that is the position congress allows you to fill last year.

my understanding is the position was filled and the person of life. at that position then filled? visit so currently? >> i apologize, congressman. i do need to depart. but actually our chief risk officer had promoted to a senior adviser to me directly. we have just brought on another senior writer for risk. the 15th of urchins be filled in this year. so we are strongly working to fill out and complete that risk organization. >> and thanks to the secretary. ms. galante will remain to answer further questions. >> have you read the gao report on risk mitigation and one of the things that it says is there is no comprehensive strategy on risk mitigation and it calls for three specific actions to be taken. in fact, it also says that the two important parts of the agent t., the single-family housing quality control activities and

the office of risk management activities are still separate us as the date of this report. has that changed since then? >> sorry, congressman. i have read the report and i've commented on the report for the gao. we generally think the gao did a very good assessment of the progress that we've been making over the past couple of years, integrating the risk office into the overall fha operation. and so, we are working on a number of the recommendations that they had. none of them are well in progress by the time the gao mitigation strategy is really

strategy, you're going to be to know that direction. still have one way. customer. and look at the risk of the do you need for their ability from congress to do that? talked about it he talks about he also has the ability to raise particular about the old tiered way. raise those limits to encourage

is that something under consideration? i've asked this question before and it's always been under consideration nobody seems to do anything about this he increases. >> again, just to be clear, you're talking about premium increases and the answer is all the options. >> tearing premium increases. are you serious reconsidering it to the point you actually do it because he considered it apparently in the past. >> i'll just say of the options are on the table, including sometime at the secretary alluded to that, particularly given the higher loan limit that we have. you know, there's some opportunity there. authority because obviously if you need more authority or know when that's my final authority and to take any of the five steps you requested that looks like you want more

i can't help of congress to grant that to you because frankly i'm a freshman and it's unclear to me and i'm not familiar with every name. >> there is several provisions in the fha reform bill that we would like that additional authority to seek indemnification from certain types of lenders we do not have the authority for now. >> can you answer in writing about this civic authority to require from congress because it looks like my times expired. thank you for your time today. appreciate the secretary's time for at least one of my five minute. >> the chair recognizes mr. scott of georgia for five minutes. >> thank you very much. in listening to the testimony and just gathering and what we've heard today, it seems like a -- you were sort of caught in a catch-22. i mean come you have a situation where of the revolt of your

falling reserves in your capital fund, you tend to probably become more vulnerable to default. these defaults have to be covered because of the federal guarantee that we offer to the wonders that have to be covered. and that is done for the taxpayers. and then the final analysis that if your funds that treasury has to step in. and at the same time, secretary has pointed out that the key -- the real key to turning this around and stab the bleeding than the default is home counseling -- homeowners counseling. and yet, in april this congress/ the money for you to provide the counseling $80 million,/all of it. so when we look at this, and

there seems to be a big priority here in congress. so given that, what impact has this clash of the 88 million had? because i can tell you this from first-hand experience. i agree with the secretary. the most critical weapon we have to turn all this around is getting that counseling to the struggling homeowners. we forget how complex and complicated dealing with this whole issue is for your average homeowner. they refuse to answer the 1800 number because a lot of them are scared. and when you don't have accurate information and intelligence, you do nothing. and so when we had our homeowners events, being able to get the borrowers under one roof with the lenders under one roof. but i have found that the key ingredient that helped us more than anything else was having those hud counts lawyers care.

we found out, for example, having fha dared and had the hand program treasury, that if they qualify it with the fha program, then the banks immediately come together at camp because they would support that. and then my question to you is, you in september in your attempt to make up for some of this, you put in $10 million in unspent funds for the previous year to be utilized for this home counseling program. but despite this may have, you expressed concerns over the gap in funding going forward for the 2000. here's some aqua chemin is what funding would have actually need in order to operate or not profit housing counseling program effectively for this year coming up in 2012? >> well, thank you for raising the issue of housing counseling. we agree it is a very important

one that we were fortunate with the appropriations bill that just passed, that some level of housing counseling dollars in the conference community was approved for $15 million. so we didn't get the 88, that were able -- we are able to provide for fiscal year 12 some of the counseling dollars to a counseling agencies. i'm actually really happy you asked that because the notice of funding availability for fiscal year 12 with posted today. >> and so it's a done deal. with the money for 2012. >> with some money for 2012. >> is a sufficient? >> we originally asked for more than we think we could effectively use more. i would also say we are doing everything in our power to make sure that the housing count and program, not just for the grantees, but for the administration of it is as effective as it could be.

and so we certainly could use additional funds for the program if they were available. >> and you know, some hud approved count going agencies have been inundated with new clients with every new federal program. wouldn't it be beneficial of hud could contract directly with these housing counseling agencies in assisting delinquent homeowners with qualified mortgage work out solutions? >> a number of these housing counseling agencies are directly helping borrowers get through their processes was nervous there is that they are very fat to and helping people through a loan modification process, for example. >> the gentleman's time has expired with permission. ms. scire, do i just finished an answer? >> i think i finished. >> the chair recognizes

mr. baker of illinois for five minutes. >> thank you, none of chairman and ms. volante. can you talk a little bit about the key lime and if you rmo? promulgated by the regulators -- do they have the potential to drive more business to fha at the exclusion of the private market or will it -- will the private market be able to increase in this area? >> so i think as we have discussed on some prior occasions, the? rmo still in the multiple federal agents he's looking out what it will be. you know, one of the aspects that was in the proposed? rmo was higher retention levels

for loans with higher down payment for my sake turn that that will drive more business to the fha. obviously we don't know what the rule is going to be, so we don't know what the ultimate impact will be. but you know, we are concerned and are monitoring not as we are a part of the discussion on-q rn. >> would there be anything that would ensure that the private market will have access? or is it just because of the way they are drawn? >> again, i am not close enough to other negotiation on what is ultimately going to come out. i think it difficult for me to answer that. >> fha has estimated that the capital research fund could withstand an additional decline in house prices and talk about 4% beyond the baseline decline

without experiencing the negative capital situation. and does that mean that a decline in access of 4% would result perhaps in a taxpayer-funded a lot of fha? would you need more money? >> so i appreciate that question. anion other is this without any other kinds of policy changes, with no premium increases, as house prices again got to do much worse point and they are today, then we project they will be today, then there is a path ability that we will need some additional support. but we are doing everything as part of the five-point plan we've been talking about. we are going to do everything in our power to let get actions we can take to ensure that we avoid that situation.

>> thank you. i think most of my other questions haverty pronounced, so i will yield that. [inaudible conversations] , [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> i'd like to welcome the second panel i thank you for your patience. i don't think we expected that to go quite that long, but we will start right away and i would like to introduce the panel. mr. matthew scire, director of financial markets that u.s. government accountability office. and we have.andrew caplin,

department of economics at new york university. mr. henry cunningham junior, cmb president and ceo of cunningham & co. on behalf of the mortgage bankers association. mr. patrick sinks, president and chief operating officer of mortgage guaranty association on behalf of the mortgage insurance companies of america. mr. -- president of national association of realtors and ms. sir -- i'm trying to hurry to get the sin. , wartell secretary for american progress and thank you all for being here. without objection, your written statements will be made part of the record and you'll be recognized for five minutes. the separator testimony. we will start with mr. scire.

you're recognized for five minutes. >> thank you. none of chairman, members of the committee, thank you for the opportunity to be here today to discuss fha's mortgage insurance program. since 1934 come fha is an important player in the mortgage market, especially for first-time homebuyers. fha insures these funds under its mutual mortgage insurance funds. recently, had released the results of its latest independent actuarial review, citing the capital ratio used to measure the fund has declined 2.24%, well below the statutory minimum of 2%. this is the third consecutive year -- >> mr. scire, could you pull your microphone a little closer. >> this is the third consecutive year that had reported not meeting the minimum capital ratio. let me start by describing the reasons for the capital ratio steep declines since its peak in

2006. put simply the ratio declined because the economic value of the fund dropped sharply at the same time the insurance imports grew. the rapid growth in the amount of all of fha insures that was due to the growing demand for fha mortgage insurance programs. by the end of 2011 fha had outstanding insurance almost four times the level that had the end of 2006. we previously reported that the sharp decline in the economic value is due to several fact years, including more pessimistic forecast for house prices, which would result in higher claims that more pessimistic assumptions about bosses. hud attributes last year's drop off an assessment of the funds economic value to further declines in home prices which resulted in higher than expected default claims and losses on claims. also, hud points to changes in the model itself. these include accounting for those that are previously been seriously going when it in

assuming that won't likely affected by delays in the foreclosure process would result in claims in 2012. from a budgetary death, the worst expect tatian for the performance ultimately result in caplin recognizing a $10 billion increase in the estimate a cost of the program for 2009 in a similar amount for 2010. the capital reserve account is also seen declines in recent years. yet this account which now stands at $4.7 billion were to be depleted, fha would require additional federal funds to cover its cost on a tinted insurance. last month, we reported a number of challenges that fha faces given its rapid growth. to his credit, fha has taken important steps to raise premiums, tighten underwriting coverage requirements of wonders and put in place more risk based approach is to manage workload. also with the approval of congress, fha created the office of risk management and regulatory affairs to bring

focus to risk assessment and management. however, efforts at the office have been limited by staff resources and leadership turnover in its efforts to assess risk and similar efforts by the office of single-family housing have not been integrated. here we think there is more that fha can do to put in place integrated and timely process for assessing and managing risk, particularly risks linked to its rapid growth. further the office of single-family housing has capital charges that his not the mouse could identify them put in place the skills and resources that it is. also it can do more to plan for likely turnover in staff, a pressing challenge given half of the headquarters staff in nearly two thirds of its field staff are eligible to retire the next two years. returning to fha's fund, we continue to believe that fha can do more to measure its financial