deal with the tpas and say that we don't want anything to survive this. >> maybe i misunderstood and i do think again that not rating through all of the facts is a part of this. >> in order to obtain the objection under the you are -- you are required to do this act,

any act, the result of which that the thing you object to by virtue of submitting your virtue on a piece of paper that triggers the government that results in the provision of the coverage that you object to and it will will be this act. >> how will that be -- and all you have to do is push a button, let's say, that will bring it into the same play that brought in to play by your objection and if you press that, it is a different act in your pressing that that will bring into play

the government financing of the things that you objected. and if that were the case you would say when we pressed that button we are facilitating and bringing about the very things that we object to, we are complicit. >> i don't know that we would, first of all, by pressing the button with whom we have contracted to arrange for the services, we might not be a part of that. >> if the pressing a button is not substantially different. >> this is the kind of thing, these are difficult and philosophical and moral lessons and i'm not saying that we would do this and we might not. >> we are very much in the business of resolving questions as to whether he burden is on

schedule. >> we made a showing that it violates her religious beliefs if pressing the button thereby has the government go providing the services to someone else i don't think that we would allow that conclusion, but if we did hobby lobby and struck that that is what the court has to simply accept. the government can litigate over whether we believe that. but it somehow demonstrates that this is a pretext for bringing the lawsuit and then we would lose. but once the sincerity is not at issue and not here. >> sincerely it considers to be a substantial burden. >> a quick and always look up

the pressure being applied to modify the belief in the government can litigate over that. but once the belief is that and it is here that is what has to be accepted. the court's role is to say is there pressure to modify for not engaging in that practice and part of that is very simple. >> thank you, counsel. counsel, you reserved three minutes for a rebuttal. let's get a little extra time. >> a few quick points primarily of clarification, but first, one thing that particularly struck me about the argument is that he made clear that their objection is not to identify themselves as wanting a knockout. and this provides contraceptive coverage to tens of thousand of

dependence and their beneficiaries. >> they no longer would be able to tell their tpas not to provide coverage. >> acceptable it provided this

-- [inaudible] it is to ensure that women receive the full range of contraceptive coverage under the act. and then the tpas that we were talking about in this case are blue cross blue shield united health, these are very large third-party administrators. >> i don't think there would be a benefit if the government contacted another tpa. would that be feasible enact any less restrictive alternatives? >> what is available under the revised accommodation and it is important to emphasize that the government is not actually were wiring third-party administrative situation for the plaintiff to do anything because they have church plans so what occurs is that the departments notify the third-party administrators that there are incentives available on the

exchanges. but it is entirely voluntary on the part of the tpa to provide contraceptive coverage. the present regulations would not allow the department to contact different third-party administrators. and again they were talking about this here blue cross blue shield, united health amblin, there are large or party administrators and the plaintiffs are able to opt out entirely. they are effectively exempt as hobby lobby made clear and as wheaton college made clear nothing about the plaintiffs providing notice to the government under the revised accommodation.

>> we continue that we will have part of the tpa and also clarifying that nothing -- they make the ability to maintain the contract with the administrators and that is incorrect. >> as we were talking about the tpas in the future? >> they could include those third-party administrators there's nothing in the regulations that preclude them from doing that. they could drop their third-party administrators and this issue was addressed in the dc circuit. >> eventually they would have to find one.

>> that is correct. you know, they have third-party administrators to admit us your these plans and the government is and we have these religious organizations and the brochure and wedge they say we will never provide contraceptive coverage and they found this tpa. >> there is actually a case that presents what they are currently attending and i think that it is christian brothers that does not provide contraceptive coverage, that is currently being litigated and again, i

would emphasize that what the government has done is not require that you do anything. >> it is just one step from here to there and that is what has happened. >> and this is part of the difficulty because the supreme court made clear that it relies so heavily on the accommodation and ensures the contraceptive coverage is still provided. and it's an exemption as pointed out the thousands of women who made this in order to plan their pregnancies properly to ensure that they don't become pregnant when indicated to make sure that they are maximizing the outcomes

for their babies and themselves from a health perspective to achieve equality, and all of those are satisfied where the accommodation is in place in the plaintiffs take advantage of it and the government is able to fire or incentivize third-party administrative situation to make those contraceptives available without cost sharing to the women who need them. >> i just have one question, how do we judge sincerity of belief? >> sincerity of belief is not at issue in this. and again this does not contest that they have sincere religious objections. but the substantiality of the burden that is that issue, that is the standard that they have not satisfied that is clear.

>> this is not the case. >> would it be appropriate for the court to judge? >> i think the that is a difficult issue anacortes and presented with this here. and i think that as pointed out it is a difficult issue. but the question here is a question about the substantiality of the burden under the regulations entirely separated and every effort is made to of notified that the employees are not funding this coverage. >> and that certainly does not allow it. >> enqueue both were very good

argument. >> thank you both for very good arguments. [inaudible conversations] >> tomorrow, president obama's nominee to be the next attorney general, at loretto lynch him a testified at her senate confirmation hearing and you can watch live coverage of the judiciary committee beginning at 10:00 a.m. eastern time on c-span3 and c-span.org. >> c-span2 provides coverage

on key public policy events. c-span2 and booktv. created by the cable tv industry and brought to you as a public service by your local cable satellite provider. follow us on twitter. >> at a hearing of the house financial service committee director mel watt discussed efforts of credit to new homebuyers. also talking about measures being taken to shield the government from the risks posed by bad loans. this hearing was chaired by congressman jeb hensarling. [inaudible conversations]

>> we will provide a recess to the committee at any time and today we need to hear from the director of the hsa to have this committee today. we have our colleague and friend mel watt, and his position came down in 2013 a special welcome to the director and most of us know him well. he was representative of north carolina's 12th district for 21 years and i can say from both sides of the aisle he is one who has served on this committee with honor and distinction and it was a pleasure to serve with

him and i always listen very carefully when he spoke. i rarely agree with everything he said that he always commanded my respect and i listened carefully because he was a thoughtful member of this committee. i certainly admire the fact that the director has chosen to continue his career and it when my colleague was on the side of the witness table he is always commanded of the short concise answers and i have no doubt now that he is on the other side of the witness table that he will continue to demand the exact same thing from that side of the witness table and once this is open i can't wait to ask my last question which did you enjoy more, the inquisitor or they've

already discovered the answer to that question. i want to yield a brief moment to the ranking member as well. >> thank you very much, mr. chairman. i would also like to welcome the director to this hearing today and i must admit that i was somewhat torn when mr. watt receive this appointment. and i always knew that he would do a great job and i knew that i would miss him on this committee not only because he was such a well prepared thoughtful member of the committee but not only had he read every line of the

bill, but he was the one that could come up with a question that no one else could come up with because he had spent so much time reading the bill. i also appreciate the fact that he had an important role when their was a need for tough negotiations and we asked him to work with the opposite side of the aisle and work out the different to and he did this on any number of occasions. and i understand why and i understand why everyone else understands why. and so we are so pleased again the you are here and that you

are here with us on this committee. we know that you are the right person for this issue and we are very pleased that you were able to hit the ground running because you know the issue so well and so we welcome him today and we look forward to hearing. if anyone on the opposite side of the aisle tries anything i will take them on. thank you. [laughter] >> the purpose is to testimony from the director, i now recognize myself for three minutes for an opening statement. memories are clearly short among washington's ruling class that causes financial crisis.

contrary to this by the test was not under regulation but deregulation. that it had mandated financial institutions to loan money to people to buy homes that they ultimately could not afford to keep. exhibit one is the affordable housing goals of fannie and freddie. many were backstopped by fannie and freddie and other federal agencies. contrary it was glossary that brought down the system and when their hasn't been, there is something known as washington, we command and control huge swaths of the economy and we need to have them allocated as opposed to we have a free competitive transparent market. and the mentality is best summed up by jonathan gruber who

famously stated that the american people are too stupid to know the difference. and i doubt the american people collectively would've been foolish enough to roll the dice on taxpayer prime lending but really washington wise. millions lost their homes and the economy was brought to its knees and the last three months they have announced three different policies than this includes a sustainable housing finance system that protects taxpayers. first by suspending a previously scheduled increase for the loan guarantee this is leveraging the taxpayer balance sheet and one that is clearly awash in red ink and next in a race to the

bottom with them to become the nation's largest subprime lender and as history repeats itself, historically prudent underwriting standards are being thrown out the window. and this includes the window and sees and foreclosures on the one hand and low down payment on the other. then the fha announced it would again siphoning off taxpayer funds in order to begin filling government housing. although i they remained ridiculously leveraged and continued to threaten the taxpayers. the best thing is a healthy economy not doubling down on obama economics and not risky housing schemes, it's time to grow our economy from the main

street of and not from washington down. it is time to get off the boom and bust bailout cycle and time that hard-working middle income families have greater economic opportunity to achieve financial independence and to buy a home that they can actually afford to keep. i recognize the ranking member for three minutes. >> thank you mr. chairman. i recognize the director. since the you have become the head of the finance agency, you have taken an important step to make sure that we remain affordable housing and this is for everyone. there is $30 billion more than the treasury invested during the christmas crisis. our action to prevent this collapse had been a resounding

success. but we close this without putting in place a viable alternative is my republican colleagues would do, we would likely reenter a recession and i think that it is our economies best interest that this act lost what little momentum it may have ever had and this includes preserving competitive national housing market. similarly, the fhfa has another statutory mandate and this one action will help improve the availability and affordability of rental housing 7.1 million american households for whom safe and decent housing is neither affordable or available. a situation made worse due to republican attacks on public housing and voucher programs and

there is a tiny percentage of the fannie mae and freddie mac profit was and improving the lives of millions of american children, families, people with disabilities and the elderly. i also talk about homeownership behind all americans who are qualified borrowers are not fortunate to come from wealthy families. when the fhfa lower the down payment requirements, it balanced safeguard to protect attacks went expanding credit. i encourage them to think outside of the box when it comes to credit scores to ensure that all credit worthy and vigils have a chance at the american dream so i thank you, director, and again we welcome your testimony today and i yield back the balance of my time. >> the chair now recognizes the

gentleman from new jersey the chair of the capital markets gsc subcommittee, mr. garrett, for two minutes. >> thank you for including me in this important hearing, thank you for being here with your testimony as well and i would like to begin by commending the chairman for the work and steadfast commitment to reforming the nation's housing -- broken housing finance system. the gsc was at the heart and center of the recent financial crisis and when i realize the odds are long and the political issues are part of this i believe that reforming this broken marketplace must remain a priority in the 114 congress. i'm heartened by members on both sides of the aisle with a number of specific legislative proposals and these proposals and the bipartisan bill provide

a foundation and hopefully reach a reform package. you have been quoted as saying that this should be left up to congress and the f8 -- fha should not be a part of it. it is important to understand that any decisions you make as director will impact reform efforts either positively or negatively. there is no way for you to ignore that. so i would hope that your decisions and not act as an impediment to it. lowering payments, preventing risk-based pricing, those things will make it harder and quite possibly lead us down the path of another taxpayer bailout. this brings to mind those that

don't learn from history are due to repeated in the subpar undermining standards of underwriting buying homes that people cannot afford, they were the main parts of the last situation. and with that i read back. >> we now recognize the gentle lady from new york ms. maloney. >> we thank the chairman and ranking member and it is a pleasure to welcome you. ..

a 3 percent down payment

which we will allow borrowers with strong credit histories but not stockpiles of extra cash to get a mortgage. he was he was guided by the data which clearly demonstrates the size of the down payment is not the most important factor in predicting default rates. finally, he recently he recently made the decision to start funding the national housing trust fund and the capitol magnet fund which would provide hundreds of millions of dollars for affordable housing programs which was a critically important decision because it was one of the only dedicated sources of funding for affordable housing that we have. thank you very much. we are delighted to have you back your. >> the gentle lady yields back.

welcome back. you are now recognized for your opening statements. >> chairman, ranking member, members of the community thank you for inviting me to discuss the work we're doing at the federal housing finance agency and for providing my 1st opportunity to return to this committee since i left congress. this actually might be the 1st time since i left that i have the sense and might be better off on that side of the table. abcaseven. [laughter] f hfa is mandated by statute to ensure the safety and soundness of the federal home loan banks fannie mae and freddie mac and to ensure they provide liquidity in the national housing finance market. f hfa works to balance these objectives across all of our activities. also in conservatorship we

are mandated by statute to preserve and conserve there assets. earlier assets. earlier this month f hfa issued a new scorecard that outlines are conservatorship expectations for the enterprises. f hfa conservatorship strategic plan that we issued in 2,014 and the scorecards we issued in 2,014 and 2,015 are centered around three strategic goals that are wholly aligned with f hfa statutory mandate. the 1st goal is to maintain the credit availability and foreclosure prevention activities supported by the enterprises, and to do so in a safe and sound way.

during 2014 in support of the school f hfa made considerable progress with the enterprises to clarify their representation and warranty framework, to encourage responsible lending to creditworthy borrowers and to enhance the enterprises outreach and provision of service to small and rural lenders enterprises will continue their work on these and other priorities such as analyzing the potential benefits and feasibility of using updated or alternative credit score miles. the 2nd goal is to reduce taxpayer risk. risk. the primary way that we do this is by increasing the role of private capitol in the mortgage market.

in 2014 ff hfa triple the enterprises credit risk transfer requirement and the enterprises executed transfers on single-family mortgages with a combined unpaid principal balance of over $300 billion last year. use the models that have already proven successful other ways of transferring and reducing risk to taxpayers. our 3rd goal is to build a new securitization infrastructure used by the enterprises. last year we defined the government structure of the common securitization plan

and the enterprises announced a feel for this joint venture the common securitization platform technology and a single security. our strategic plan and 3rd 2015 scorecard offer affordable rental housing for the enterprises. peace weather is adequate private-sector coverage and to ensure that affordable housing and that the housing needs of people in rural and other underserved areas are met f hfa is also focused.

as part of our security to ensure the bank we will fulfill their statutory mission in support housing finance in a safe and sound manner we propose a a rule last year concerning the banks requirements. our comment timeframe ended in january, and we received approximately 1300 comments. i want to emphasize that getting and evaluating input from stakeholders is a crucial part of our policymaking process. we will carefully consider

comments made by members of this committee and the public in determining our firewall on the bank standards. we are also actively considering input that we have received our guarantee fees, single security, and the enterprise housing goals. i have covered a lot more areas and provided more detail in my written statement and i look forward to responding to your questions. again thank you for the opportunity to testify. i am happy to be back, especially since i know that i i know that i am free to leave after the hearings over. [laughter] >> that share now yields himself five minutes for questions. again, thank you, director. i director. i wish to echo the comments of the chair of the capitol. gse subcommittee. i feared that you have reversed policies of your predecessor which we will make it more difficult to have a sustainable housing finance system. i i want to 1st focus on what you have done when

authorizing the gse to backstop 3 percent downloads. you have previously testified before the senate we no that the size of the down payment by itself is not the most reliable indicator of whether a borrower will repay a loan. all things being equal because i have looked and cannot find your thoughts on the subject, but all things being equal is a 3% down loan riskier to the taxpayer than a 10 percent? >> i would say, mr. chairman, that that that is generally true. when you pair the down payment with other compensating factors, which is part of the sentence that apparently people missed when i announced this you can make a 3 percent down payment loan as secure --

>> other factors. i understand there are other factors mr. dir. but director, but also, ability to repay surely is an indication of whether or not a homebuyer can say that they can only afford 3% down, do you believe that 3% down his riskier to the home purchaser than 10 percent down? >> again the same considerations were applied to the borrower as well apply to the wonder. if you carefully look at other considerations and take them into account in deciding whether to extend that credit or in fannie and freddie's case whether to back that credit then you can ensure that a 3 percent loan is just as safe as a

10% down payment loan. >> let's explore some information that has come out of your agency previously. previously. can i have the chart from the federal register police your agency frankly along with treasury, the fed fdic, sec, and had i know like most charts it is somewhat difficult to read but on the horizontal axis, loan-to-value axis loan-to-value ratio. on the vertical axis is default rate's command to the far right-hand corner you see a precipitous rise in default rate when you go from 90 percent loan to value and particularly an incredible slope from 95% as we reach no down payment whatsoever. again, this is information that is coming from your agency along with just about every other

provincial banking and housing regulator. so doesn't that seem to indicate that again at 3% down 3 percent down payment not only is not too good for the taxpayer you are once again putting people into homes that they cannot afford to keep. i have always believed you cannot make a loan to somebody who cannot afford to repay it. this is data from your agency and others. why is a sustainable? >> i have not changed my position, and i want to assure this committee that i have not changed my position. you should never make a loan to somebody that you cannot anticipate would pay it but if you couple -- >> again, this is data from your agency. >> make a loan as safe which is exactly what we have done

with this 97 percent product , compensating factors including housing counseling, including higher prices. >> dir., was not just look at -- >> you do recall i get to control. let me quote from the same document. default rates increased drastically. substantial data indicating that loans of 80 percent or less perform noticeably better. so notwithstanding mr. dir., with all due respect i understand what you are saying, but i fear what you are doing is repeating the exact same mistakes that brought us here in the 1st place command now your in contact with fha to see who can be the nation's largest subprime lender.

i feel we're going in the completely wrong direction with your policy and now recognize the ranking member five minutes. >> thank you very much. i really want to spend my time on affordable housing trust fund, but i must step in here to basically ask, when we take a look we would lend to with a 3 percent down, are we not talking about people who have shown that they pay their bills every month and basically get credit they are not able to stave off a ten to 20 percent of the taxpayers. >> that is exactly the kind of people that we would be looking for. we would pair that with a strong credit score lower debt income ratio housing counseling and private

mortgage insurance the lower down payment. and we have no interest in going back. as part of our prior. >> even though i don't have the data were the information that a a large part of our society fits into that category and they deserve to be homeowners if in if, in fact, hard-working citizens who pay their bills and not have any problems they should not cause us any problems. let me get to the affordable housing trust fund. i would like to commend you on your recent decision in the housing and economic

recovery act of 2,008 and let the suspension on the obligation as you are well aware, the rental housing crisis that has ever been seen, and the richest country in the world, it is unconscionable that the 7.1 million americans the shortage of nearly 43,000 affordable and available rental units for extremely and very low income households. these critical new funds will not only add to the supply. you considered in coming to your decisions to end the suspension of contributions to the fund. >> ranking member i simply follow the statute. the statute tells us the

exact circumstances of the criteria to be applied on the suspension of the contributions to the housing trust fund and it tells us the criteria to be applied under normal circumstances for funding. and whether they are contributing, whether the contributions to these funds would contribute or are contributing to the financial instability of the enterprise whether they are causing or would cause the enterprises to be classified as undercapitalized or whether they or preventing or would prevent the enterprises from successfully completing a capitol restoration plan. those other statutory provisions. they are the same provisions that mr. demarco applied appropriately in my opinion

at the time that they were applied to suspend contributions to the trust fund. they are the same criteria that i applied appropriately in my opinion to reinstate them because circumstances of changed in the interim. so i simply follow the statute. that is all i did. >> thank you very much. there are those on the opposite side of the house who would have us believe that you have done something outside of the statutory. so i am very pleased that you are able to clarify that i think it is going to be if we can get this implemented it we will be good for this country. i yield back the balance of my time. place the gentle lady yields back. back. the chernow recognizes the gentleman from new jersey for five minutes.

>> follow-up when your question with regard to the down payment. obviously we are seeing a return to underwriting standards at the agency. i am sure you have read one of the largest banks in the country has bubbled the stated a 3 percent down payment is simply too risky to originate. on the on the other hand we have an agency the you are instructing to take on more risk than the largest too big to fail banks. everyday we read in the paper how wall street banks are greedy and risk-taking, but it would appear that in this situation you are doing just the exact opposite. they are being more prudential and you are saying let's roll the dice. the difference the difference is we are rolling the dice with taxpayer money is that wise? >> let me clarify that i have not instructed any bank to make any loans that they think --

>> not the banks, you are instructing the agency. >> i have i have instructed that fannie and freddie can guarantee loans that are made responsibly that fit the criteria. the bank you are talking about is the same one that made a decision to acquire countrywide. following their experience, i can understand why they might be a little bit. >> this should not control the entire mortgage speaking on behalf of the american taxpayers. concerned with a taxpayer dollars are going as we return the loose underwriting standards. another.we read in the paper is how after the last crisis

a lot of people thought they did everything right and still get burned. it seems to me that is exactly the same thing we're doing now. with regard to lowering the level level price adjustments there is a fair amount of cross subsidization which means that you have good borrowers with high down payment and better credit scores being told they have to pay the exact same fees as borrowers who have low down payments and worse credit scores. can save them money, acted in a prudential way. they have to pay the exact same fees. >> your question illustrates the complexity of this issue

representative garrett. all i did was suspend the increase. evaluate the implications of it. when we announce the guarantee fees which we we will do. doing that without an evaluation and consideration of all of the aspects of it, as you suggest we should. >> the only suspended the decreases. playing it safe. those those who did get a being penalized. the situation of rewarding bad behavior and unfairly treating us he did give behavior bipartisan support

as far as moving forward one of those areas is a securitization platform the cutout of some of the development of a securitization platform. they are not really allowed at the ground floor. when we have a bipartisan initiative here, we we have both sides of the aisle and both chambers looking at it in the same manner why are you cutting out industry? an attempt to control the marketplace and manipulate the gone reforms going reforms as opposed to allow those players to have a say? >> my response would be twofold. we are not getting out private industry. we are in regular consultation with private industry. [inaudible conversations]

>> to the chair when i discussed it with him what i did did was exactly what i thought republicans really support, the risk this whole process by not trying to form a common securitization platform for a future that you all have not yet defined. >> the time for the gentleman has inspired. members probably don't need to be reminded, we're not in our usual hearing room. they are liking the individual clocks. to gauge her time you need to look at the little color wheel, if you we will to let the witness table. you otherwise no the drill. the chernow recognizes the gentle lady from new york. >> thank you. i was please

last year when you delayed your predecessor's decision to raise. as you know, your predecessor wanted to raise it even more in four states, one of which was new york. new york and the other four have particularly strong consumer protections for foreclosures, and this would have needlessly harm to the new york economy and would have discouraged states from enacting stronger consumer protections. i think this was an important decision. we should be rewarding states that the strong consumer protections and, not penalizing. now, of course, what i am i am hearing the markets are telling me or some of them that they anticipate a possible decrease rather than an increase the you anticipate that they we will be going down and not up?

>> i don't know where that information would come from evaluating the empathy we got in response to a request for input from the public on this issue. we anticipate we anticipate making a decision hopefully by the end of this quarter. they may slip into next quarter but we we will make a decision and then justify and outline the reasons for the decision. i don't think i have any information about whether they are going down. >> to talk about what that result we will be. i don't even no what it we will be. we we are in the process of

evaluating it something should be rewarded. but for the 1st. we have heard a lot about the capitol trust fund. we know the facts are that the capitol magnet fund is already had one successful round of funding in 2010 and it was a huge success the capitol magnet fund was turned into a $1 billion for affordable housing and i congratulate this effort. now with your decision to start funding for both the housing trust fund in the capitol magnet fund they we will be hundreds of millions of dollars for affordable housing every year. can you talk a little bit about the impact that you expect this funding to have

on the affordable housing crisis that our country is facing? can you talk about the public-private partnership that emerged to help magnify the money and are you looking at more public-private partnerships in general? >> rep., to be quite honest i did not take any of that into account legislative decisions, congressional decisions those decisions are made at treasury and had. had. our decisions related only to whether to fund it or not and applying the statutory criteria to determine whether it should be funded or should not be funded. and so we did not look at the use of these funds. we did not like at the history.

i am not even sure i i knew. >> thank you for clarifying. i would like to ask you about the risk retention role. the final rule inadvertently failed to exempt freddie mac multi family securities but did exempt fanny. f hfa is working on a possible solution. give us an update. >> the risk retention role was not done by f hfa. it it was a joint rulemaking progress. it did exempt fanny. they should be treated the same. >> i would hope that whatever role comes out would treat them the same.

trying to work her way toward a single security. >> the majority has expired. the chair recognizes the gentleman from north carolina. >> thank you. good to see you again. going going back and forth from your former district. >> congratulations. appreciate your kindness and over the years. i i just want to ask you a few questions. email me fairly well. well. i figured at some.you we will cut me off. >> it seems conflicting

actions that you have taken. you suspend and move away from risk-based pricing and at the same time start up upholding reserves of the housing trust fund in allocating lousy. you are conserving capitol and on the other you are moving capitol away from enterprise. reconcile that. >> all i am doing is following the statutes ever written by congress and passed by congress. we're we're trying to do it as judiciously and prudently as we can. i am not even trying to connect those two things the housing trust fund funding is an independent decision based upon the statute. the study the issue, and we are doing that.

we we don't no where we're going to get you on that. judging where that might go at this.would be premature. >> you have to allocate capital through the housing trust fund. >> if the statute 25 if the statutory standards are met the contributions can be suspended. they were suspended in 2,008 back to director at that time. we apply the same principles under changed circumstances to reinstate them. that is all we did. but the housing trust fund was not created. it was it was created by congress. the decision to fund it or not funded is based on statutory criteria. >> look at that and think

look at freddie being leveraged hundred and 56 to one. if if any leverage the 134 to one. the conditions are not right because the requirement suspending the allocation trust fund should not be justified under any circumstances. >> not one of the statutory criteria that congress set for evaluating whether to fund the housing trust fund or not. >> is this an odd circumstance. subprime lending leading up to the crisis. i heard you at home. it is really high ltv loans

for small fluctuation marketplace could cause problems. do you have a similar similar concern? you are making substantial decisions. you are making huge decisions. the the consequences of these actions are real. i know you no that. is there a conflict looking back at what you said about the private sector versus the actions you are taking right now? >> i don't think there is any conflict. you need to make responsible loans. this decision was surrounded by a bunch of compensating factors for every borrower that would make there loan as reliable alone as a 10 percent down payment loan

the responsibility, and i would hope that you all would rely on the same things that i said in advocating for reform in this area to no that we are going to apply those principles and not sanctioned loans backed by fannie and freddie and the taxpayers that are not reliably expected to be paid >> the time of the gentleman has expired. the chair now recognizes the gentle lady from new york. >> thank you, mr. chairman. welcome esteemed colleague. i would like to revisit the question by congresswoman maloney regarding the national housing trust fund. i heard you when you said that it would be hard when

making the decision after which projects to fund. my question to you is when would that money make it out there. any discussions with those two agencies? >> i i have not had discussions with them about the application of funding. that is their decision to make. decisions about the capitol fund. they make a a decision about the housing trust fund side of the. so those are their decisions to make. >> do you have any idea as to when this money was spent? >> i can tell you that because the process that we followed to iraq's fannie and freddie to start setting aside the funds in january of 2,015 and and at the end of 2,015 if

circumstances don't reverse than the monies will be allocated into the trust fund in the capitol magnet fund that can be used. it would be 2016 at the earliest. >> is part of the public nations fannie mae and freddie mac maintain a duty to serve the housing market and support of for a while housing preservation. f hfa in the process of

looking at the of the host issue 2008 2008 at 2,009 never was finalized because of whatever reason the role. >> thank you. >> they have units affordable to low income. this effort is important the important part of the housing stock. low initial benchmark in an effort to take the approach.

this explains how it we will be evaluated. they sure that loans are safe and sound. that they achieve the purpose of serving of serving a group or category of people of the people who have been underserved. which is why we encouraged directed fannie and freddie to look at how to incentivize the small developments because generally smaller developments have more than orientation toward middle and lower income people. >> the 2015 scorecard.

>> and evaluation mechanism. >> that we we will revise the expectations in the future based on experience which we do quite regularly. >> thank you. thank you, mr. chairman. >> the chair now recognizes the journal of oklahoma. >> i would like to address the federal home one for finances. the security institutions in oklahoma and across the country by limiting.

provide mortgage financing needed the communities and the federal home loan banks. i guess my question is why propose such regulation at a time when community banks and credit unions are in need of every credit resource available to serve the communities or as congressman watt would have said was the probably trying to fix? for his faithful want anybody to me a member of the federal home loan bank system unless they meet the criteria. some of the members of

federal home loan bank were not meeting those criteria. i can go into more detail and give you a complete outline of the rationale. we're trying to do this in a way that does not. the standards that have to be met by any home loan bank institution. there is some concern out there in the countryside and perhaps the hallways of congress that there is more to this than just an ongoing set of standards. perhaps is the administration has not been able to legislate much that this is another effort to change how the system works viral.

think this would pass a bill to do this. this is an effort by the administration to be able to channel and steer how these institutions use this resource. >> i am not part of the administration. the federal housing finance agency is an independent regulatory agency. we don't play out the administration's policy. to paraphrase congress the folks who we will keep you their. >> we have no agenda other than making sure that members of federal home loan things meet the criteria

that congress is established for. unprecedented. we will go through every one of those comments and evaluate every single one of them. most most of them probably 90 percent of them appear to be against the proposed rolling. so that obviously, we test a nerve. and try not to have adverse impacts that people are contemplating. >> you have always been a man of your word. i take us such. we are. we are in an environment where a lot of things are going on.

i would note that i would hope the committee would be sensitive about doing anything against a model that is working well in a tough set of times. >> i agree with you. >> i appreciate her friendship. many of the underclassmen were here when you work to help wherever the ranking member chairman was at any given time over two decades almost. as we help the leadership, i will try and help you, you, sir. >> thank you so much. good to see you again. >> the chair now recognizes the settlement from massachusetts for five minutes. >> thank you, mr. chairman, and i want to welcome back director what. good to see you again. some things have not changed in terms of how we might view affordable housing in the way that the hfa works. a great article yesterday in the new york times talking about how the middle class

is continuing to shrink in this phenomenon is resulting in more people being squeezed into the bottom of income earners putting a lot of pressure on affordable housing which is where you come in. according to the national low income housing coalition we need about 7 million more homes nationwide that are affordable and available to extremely low income households and those with incomes at 30% or less. in my home state of massachusetts there is a shortfall of about a hundred and 75,000. in my district it is about 16,000. there are a couple tools that you have command i am happy to see that they are beginning to be used. i think i think that they can be part of the solution. i know that you are

following statutory directive but can you talk a little bit more broadly about how your affordable housing goals are consistent with the reality we're seeing? the situation seems to be getting worse for the tier of people that would benefit from access to affordable rental housing but just the folks that have resigned themselves that they are not purchasers but renters. how does your affordable housing goal how does it help those people? >> well, we have not finalized affordable housing goals yet. the rule is in process command we are evaluating comments. >> how do you anticipate?

>> here is the way that we think of this. we want to make people who can afford to pay the mortgage make it available. on the rental side we want to make sure that affordable housing is available in the marketplace. there there is a very robust multi- family market on the high-end but not so much on the affordable and which is why when we wrote the scorecard criteria we exempted from the $30 billion or whatever the figure was i can't even remember what it was,

affordable housing development to try to encourage fannie and freddie to be more involved and active in getting into that space which is underserved by the private sector. so that is what we have done, and the rule itself we will try to build on that and incentivize that. you are right, their there are a lot more people renting now than had been historically renting. the rental market is robust robust and there are not enough units to serve that market. >> okay. i see my time has just about expired. i yield back and thank you. >> the chair now recognizes the gentleman from texas.

>> good to see you again. he mentioned a a couple of times, i want to talk 1st currently studying the gp issue and will make a determination. it was was my understanding that the study was done prior to the previous director issuing a directive to increase to 10%. i guess the 1st question is if we have already studied at wire we studying it again? >> well, i don't think that we should ever stop evaluating issues. i i was not a party to the study that was done before. we obviously are taking the study and any conclusions that it reached into account in reaching our conclusion, but we have been transparent in seeking input about how these should be set what criteria should be applied in setting should it be

about just about protecting is the risk that fannie and freddie are assuming? should it be about capitol formation, should formation, should it be about attracting private capital? the progress has been very transparent. >> he you decided to study it again. >> yes. >> okay. the cross subsidization issue that the german from new jersey brought i think is an issue that i am interested in. there are some states that have very very stringent foreclosure procedures that in many cases keep the people alone money in good faith months from doing the property back but in some cases years. and so i'm thinking that in

those cases i support. that is a higher risks to those entities and where those foreclosure rules are very consumer-oriented. i am not opposed. i think that is their right, but what they have to understand is when you make it so consumer-oriented many states where they have -- very difficult to get your property back. strips of windows and sinks. i just want to say to you that i think it is important. one of the things that you alluded to in your report or written testimony, you have been doing risk transferring. transferring. the question is you know if you are not taking a risk

you don't have to transfer it. i wonder if you could give the community something, costing to transfer that risk, what is the pricing on those transactions that you are doing that would give us some idea of what it is costing to reassure those risks. >> i cannot tell you in basis points, but i can tell you that one of the criteria that is always applied is that a a risk transfer must be done in a commercially reasonable manner. cannot be giving away assets because that would be inconsistent with our conservative preserve mandate under the conservatorship statute. >> where i am trying to get is in the current situation

were freddie and fannie need to make a profit but there is really no market forces in place to determine what the value of these entities are. if you are transferring that risk it we will be helpful for us to no that. in other words -- >> we have that information. i don't mean to suggest we don't. we have the information on every risk transfer, transaction that has been undertaken because with the models say the value was what fannie and freddie made on the transactions we have that information. if you're asking me the number of basis points, points that is information i would not have of the top of my head. >> i would like a. on the down payment, i think

it is kind of ironic maybe erroneous, too, but ironic that we made fha increased the down payment to three four, 5% when it looks like the two of you have a race to see who can get the most market share. they they have a three and a half percent down payment. >> well, 1st of all he, you should be clear that we are not in competition with fha. we are not. the market is going to go to whoever gives them the best deal. we know that, but we are not competing. we are trying to provide liquidity in the market which is what our mandate says. >> the time of the gentleman has expired. >> thank you, mr. chairman. i feel good, and i feel proud to see you sitting where you are sitting and doing what you're doing for

the people of this nation. congratulations. the national housing trust fund. and i would like to clear up some things so that folks will understand. first of all, both you and i were here sitting on this committee when none other than president george w. bush authorized he authorized this housing trust fund. when he authorized authorized it he said that this is perhaps the best tool that we could use to help get housing for our most vulnerable population. so i want to set the record

straight that this is both a democratic and a republican initiative. secondly you have moved to reinstate the payments largely following the orders of congress because we during the economic recovery put three criterion in for suspending it. those criterion now no longer exist. so you are operating within the authority, 1st of all all, that president george bush give you an secondly that the congress of the united states reinforced. i just want to make sure that it is clear. now i want to talk about one other thing because i think it is important.

that is principal reduction. that that is really at the core of helping people and all the evidence is in that that is the case. recently you went -- and that is another thing i want to commend you for because you go out with the problems are. you have been out in the nation. you have been to atlanta. we certainly appreciate you there with the hud program but you went to detroit where this problem is very pronounced. i think you articulated their your concern about being able to use the necessary tools for principal reduction. i think that that is the core of it. would you mind addressing that within the light of what you said and how important principal reduction is?

>> it allows me to go back to a.that i made with representative new from our. this is one of those issues that i have received a lot of second-guessing about because there was a a study done about principal reduction before i got death hfa also command i have not done press for reduction either. we are still studying that issue just like we are still studying the gc issue. what we what we are trying to do on principal reduction is find a place where it is beneficial to borrowers and not negatively that present value to fannie and freddie. and they are some instances in which that is the case.

it is beneficial to borrowers and not negative to fannie and freddie. and when we find that niche that is what we are going to make a decision about this. now, in detroit detroit we are under the neighborhood stabilization initiative testing some things there to see where that sweet spot is because if you have a whole neighborhood just sitting there with vacant property half of the property vacant it pulls down the value of the other properties in the neighborhood. so we are trying to craft something that will work for the enterprises and for the

borrowers. >> the time of the gentleman has expired. the chair now recognizes the gentleman from missouri. >> thank you, mr. chairman. i don't know whether i empathize or sympathize, but we are glad you are here today. ..

>> >> that sweeps all love the profit that fit and ready

made to the taxpayers. >> whenever those losses occurred you take those losses? that is what would happen under the preferred stock purchase agreement basically the taxpayers are backing fannie and freddie and they will be and tell gse reform is done. we don't do gse reform that is why it is so important for congress to act on this. >> i saw some nice income figures imparted that is settlement of lawsuits? and there are lawsuits pending now. >> there are three more

lawsuits. >> to they go to capital account or treasury? >>. >> they go into freddie in fannies accounted at the end of the year they are profits they are swept to treasury. >> also with regards with though way you of our changing rules and regulations. >> i can tell you there are certain tenets the matter how -- the matter how much you want to or you will lose it. but you just have to tweak here or there i have put my nose against certain things so my concern is when we

change these things over the last six years fannie and freddie as a resurgence there turning a profit. so why would they change those to head down the same path. >> you are absolutely right. that you can make any loan at some point. so what you'd do that we try to assess what are the risks associated with this loan in we tried to minimize the risks. >> with respect to have one more question. with regards to your testimony trying to move to

the private sector that is something we need to be doing but to to continue to compete with the private sector it makes it more difficult to. would you agree with that statement? >> generally but at the same time our responsibility is to insurers in the interim through gse reform. in with housing finance which is what i said to my opening statement. >> mr. chairman it was of privilege to serve for more

than a decade in congress and you're the voice of reason. talk about the fight goes gore the gics are required to adhere to. under the current fight the standard we have a circumstance that allows bad credit for you to -- for utilities but the good credit for these utilities and rental payments is not utilized. i mentioned this to you because i think we need a more inclusive model. i am not talking about anything to compare a good cycle score from being developed that the use that with fair play because it

seems to me that if you use the adverse information that we should use that in a positive way when it is available. the fico scores are exceedingly important than our everything when it comes to getting a loan. so could we work with your office to expand to have more inclusive credit scoring model? >> is sure microphone on? >> so there are alternative

credit scoring models that are beginning to be out there now. fico is updating the credit scoring model, the advantage as a credit scoring model. and what we have done in the 2015 scorecard we have instructed fannie and freddie to evaluate the alternative credit score models to see if we could get to a better place in this area. not to race to the bottom we don't want scores to lead get more abilities to have loans and are not reliable so we asked them to evaluate the reliability of it to evaluate the operational challenges that would go with implementing of credit

scoring models. so we are working in aggressively this year we started last year as a number of people on this committee have written to be about alternative models on the republican and democratic side. it is not a partisan issue. we're trying to figure how to do this in a reliable way and in the way into not create a inkster in the market. because what we do in this space could have significant implications. >> and receives to indicate we have opportunity.

>> to put a trigger in to have a person in your position and who might have opinions that would vary from what we thought the law should require. and then requires we do fund those circumstances. into the actions of the director as opposed to the will of the director. and trying to do protect the process those a don't have as much assets soar

liquidity as others. >> i am happy to follow the statute as written. and i stand by that decision >>. >> good to see you again. my concerns have always gone to these whether a republican the administration for a democratic administration. some of my concerns were considered hypothetical or philosophical but after 2007 i think that over leverage issue proved a point. and government keeps pushing fees as the index rises.

and had to have affordable housing trust fund. the error is not 2005 but 2015. we find the fha to day engaged in the race to see who can morse with the crowd up the sector on behalf of the taxpayer. this was of frightening race because we have seen it before because the fha has joined a moral hazard problem and in december you announced said gse should begin to put more money into the coffers of housing through the housing trust fund established under the

housing and economic recovery act. you make this despite the fact fannie and freddie have yet to replay a lot of the money to the american people. but there was a lot of money lost at the end of the day because of over leverage. it is difficult to see how you can argue as it is required by bob the gics are financially stable enough to begin transfer money to housing groups for cry will show you the ratios fannie mae leveraged at 341 / one. that is the capital ratio freddie mac 153 / one and equally concerning 6.5 one decade ago i was arguing 100 / one and this is in excess of that.

and it is that something the statute requires to look at when suspending allocations i have a different reading of that statute that i will share. that you shall suspend allocations. a reit shall suspend allocations if they contribute to the financial instability of the enterpriser would cause the enterprise to be classified as undercapitalized. so the statistics to come into play so director how could the enterprise be in this day with the leverage ratios and not be deemed undercapitalized and financially stable? that is my question. >> first of all we put in

place stops if circumstances go back in the other direction. if we ever have a draw on the treasury that would automatically stop funding of a housing trust fund. >> but is is already under capitalized? >> when freddie in fannie were put into conservatorship that suspended the capital of fannie and freddie. if we were building up capital, and stand exactly what you are saying but that criteria don't apply anymore because they're in conservatorship. and it goes to do the

taxpayers of there is a profit. >> requires an end to is the allocation. >> but today with my republican colleagues will reintroduce the payback and this will assure the money coming in from the gse will go to address this issue instead of being diverted to the housing trust fund but thank you. >> the chair recognizes the gentleman from missouri. >> thank you. there has been a question about 3 percent down i am not sure if that suggestion is that 3 percent down is

reckless looking at a steady the virginia has a 0 percent down whistle-blower foreclosure rate base of the prime lenders. is there any evidence that the 3 percent would cause more foreclosures if 0 percent is not? the word to agree that creates the problem sanitizing representative the challenges to look at the lenders to make a determination when the down payment is lower with the potential it could be a risky loan but if you pair that with other compensating factors that this product does you offset that additional risk and that is what we have done.

lending is about assessing the ability of people to pay. what most people don't realize is 90 percent of the people who were under water have no equity in their mortgage at this point are continuing to pay their mortgages. that is not a criteria if somebody will pay whether you have 3% a 10%, it is about whether you want to have a home that you own purposes uss the criteria with substantial studies that suggest that confirm homeownership counseling makes people better borrowers.

that is one of the compensating factors and if all else fails you have to have private mortgage insurance to back we'll loan. these are not the loans that have no documentation for a reset after 90 days or three years. these are not risky loans and we have made that assessment based on research not politics. we have made that assessment and i stand behind this decision that is why we have the opportunity to you talk about the compensating factors may have put around this to make sure that you will understand my

philosophy has not changed. somebody cannot pay a loan they should not be given the loan for golden it would be irresponsible for us to say that we should make loans to those people or fannie or freddie should be backing those clotheshorse. >> i think i heard you clearly. [laughter] i have time for a quick question with the sociological issues but if the economy is not healing we still have stagnant wages and in fact, our the wages are actually taking down to keep up with inflation if we have a stagnant wages and

housing is a significant part doesn't make sense to put interest rates their downpayments as he tried to get the housing industry field could reduce that without getting them to buy houses? with credit worthy people is there a way to do it? to make it affordable? and congress gives the of mandate to provide liquidity we hear constantly balancing those two objectives and that is what we plan to continue. >> the chair recognizes the

chairman. >> welcome back is sort of home turf but almost two years ago i had a chance to ask your predecessor about the intention of new regulations with the lender placed insurance market. and i urge the director to make sure any such regulations had a fair and open marketplace for providers with the consumers that would produce lower prices. can you provide the committee with an update in this area that has gone on? >> first of all, the acting

director in the fha should be commended to get into this space because there was a lot of abuse with virtually no controls and shfa address those inappropriate practices to direct the enterprises to prohibit services or affiliates to receive compensation in the form of commission for placing insurance because there was a perverse financial incentives to place insurance in these circumstances with the affiliate's for those who were paying commissions. we've formed a working group because this is an issue not only the fhfa issue it

impacts everybody who has a mortgage in this country then we have set up a regulatory working group consisting of insurance regulators and aid to federal regulatory agency representatives to try to figure out how best to attack this problem. >> when was that formed? >> 2013. they have had seven meetings up until this point. id in the meantime things have improved because of the interim requirements we imposed on fannie and freddie. but we are continuing to work on a set of guidelines

that would apply across. >> you have the time flight -- a time frame when that is completed? anything in limbo needs to be wrapped up. >> is hard to set a timeframe on a lot of these. as soon as they cannot with a set of recommendations we are evaluating those. >> they have not come up with those as of yet? >> it is in the 2015 scorecard. we expect that to happen this year. >> we will follow-up on that. >> going from the testimony back then is the 30 year mortgage necessary?

and why? >> now you have me into congressional territory. that is a decision that is more appropriately made. i can tell you demographics are changing. people are a lot more mobile than they used to be. and the 30 year mortgage was based on people staying in the same place 30 years and on the fact it would get a lower payment. there are a lot of factors but that is not the decision in fhfa will make but that is more appropriately made in the legislative context. >> personally i think it might be the private market place where most of that is.

>> that also. >> i don't know if you are a wart -- aware but the fifth year home loan. that gets me very nervous with these types of time frames. >> we don't allow that with fannie or friday to back 50 year mortgages. 30 years is though limit. >> that was one of the few times i agree with you. >> now we will turn to the gentleman from texas. i was in another committee. good morning and thank you to reformer colleague for being here today to give an update on the housing

finance system and the fhfa will cooling for word. i believe fannie mae and freddie mac share important goals such as sharing liquidity in the market to promote home ownership but due to financial trouble we have seen attempts to wind it down completely and i don't agree with that. i would like to go right into the questions and president obama expressed he would see fit in may and freddie mac to be replaced by a mortgage-backed insurance. where do you stand on the proposal and where will that negatively or positively affect the home buying market? >> that is the subject i will not express an opinion that is a legislative congressional opinion.

and to put into perspective when i got that fhfa there were multiple visions of gsa reform -- gse reform and i took fhfa out of that because we were sending mixed messages it was not part of the statutory mission that fhfa has to guarantee the liquidity and safety and soundness in the market it is a congressional decision. >> i respect your answer but i want to commend you because since fhfa conservatorship of fannie mae and freddie mac we have seen a change for the better a and we thank you for your of leadership and being able to make those improvements.

i especially liked the $38 billion of extra funds you gave the nation's treasury. i have another question. fannie mae and freddie mac have new lending guidelines with lower income including the reduction of the minimum down payment down at 3%. . .