today? >> under the law, the concerts ritter c --onservator owns them. there is a substantial risk that the only option they would be recreated in a somewhat different form, privatize. >> over what time frame should they and? >> it depends on how successful we are in bringing private capital back and. our sense is that the real expectation is this is a 5-7 year period of time. >> how do we benefit from the inside -- the data bases that

have value. there are the newer legacy loans that have value. how do we make sure that the federal government benefits? >> an excellent question. there is a lot of value in those systems. we have a variety of ways to make sure the government maximizes the benefits and that the housing market can benefit from the talent of those systems and resources. >> i know my time is up. we talked about giving more time to people that did not give and comments. on the debt issued, this is of subject, but we have had a number of regulators and. it was such a narrow situation. it really did not priced the interchange rate appropriately. do you have any comments on that? >> you did not give me the

authority under the law to resolve this. the fed got a lot of advice on how to deal with that but it is not my authority. >> on the qualified residential mortgages, 20%, is that something you support? >> there is a draft working through the system. i do believe that there is a very strong case, as we build this new system, a system in which more homeowners on equity against their house, and we can achieve that in a sensible, careful, balanced with. >> what is the time frame? >> as i said in an earlier question, you should as an objective do it within the next two years. if you do not give the market clarity about the in game, they

will have a hard time figuring out the economics. i would not -- attracted to it in the next few years. -- i would try to do it in the next few years. >> some questions about fannie and freddie. some people try to lay the entire blame of the financial crisis at their feet. i think it is ideological as opposed to looking at the facts. when you look at the facts, it is hard to pin exclusively or even predominantly the blame on fannie and freddie. here are some facts. they cannot be explained away by fannie and freddie and i wish my colleagues who think that they were at the center of the crisis will explain this. the housing bubble was international. there were houses and bubbles in ireland and others. second, the peak of the housing bubble was in 2004, 2005, and

2006 when fannie and freddie were losing market share. there was a bubble and bust in commercial real estate as well. no fannie and freddie loans in commercial. certainly fannie and freddie need research project need reform, but this idea that they are the center of the crisis is ideologically driven. they deserve some of the banks, as do banks, regulators, and even consumers. i will leave it at that. i want to leave question -- i want to ask some questions about covered bonds. something i care about. we have to get private capital back into private finance. covered bonds work in europe but we do not have a statutory framework that provides security -- security result -- regarding their treatment. there was a bill introduced in the house that i am considering

introducing in the senate on covered bonds. secretary geithner, you mentioned to you are willing to work with congress exploring a legislative framework for covered bonds. what you think of the legislation in the house? the fdic has argued that covered bonds could put the deposit insurance fund at some increased risk, but i cannot see how they are different from any other secured obligations. banks always have secured obligations. and finally, do covered bonds but the taxpayer address? secretary geithner, let me ask you and then secretary donovan. >> we would support legislation that would create better conditions for a covered bond market. we do have one in the united states in the form of the federal home bank financially --

financial structure. the fdic concerns are legitimate. for this to work, we would be putting the taxpayer in some sense behind private investors, and that has its own consequences, but that is something we can work through. we get -- a play a greater role in our system. >> how are they different? >> it depends on how the law defines it. i do not think it is rocket science. >> that is why i want to get involved. it is not rocket science. [laughter] >> to add to his point, it is important that it creates conditions for more innovation in the system. but it is important given that gse obligations of the second- largest securities market in the

world, there is no precedent for covered bonds operating in a market has broad and deep as the u.s. market. it is an important element but i do not think as some have suggested that it is a silver bullet. >> or a total replacement. i agree. i see secretary geithner agreeing. but you support the basic concept and think we should explored. >> absolutely. >> final question for secretary geithner about japan. they are our second largest creditor after china. the you think there is any risk that in order to respond to the disaster and support their economy in the aftermath, that the japanese will have to resort to selling some of their treasury holdings to raise cash? do you see this having any impact on treasury prices in u.s. interest rates? >> i do not.

i should say, senator, that we should all extend our thoughts and concerns to japan. it is an extraordinary challenge for them. it is a very hot -- it has a very high savings rate and it has the ability to deal not just with the humanitarian but the construction challenges they have to face ahead. >> center moran. -- senator moran. >> short of overall gse reform, what steps could we take today, short of that two-year period that secretary geithner manchin, that would encourage capital formation, the return of the private sector into the housing market? >> we highlighted the fact that there were things we could do to gradually phase out the government's role. we have to get these rules into

place for banks and investors in the secure vacation market -- the securitization market. so there are clear requirements, better disclosure requirements, things like that. those two conditions are very important for getting private capital to come in. >> that would be in the ministry of action as compared to congressional action? -- administrative action as compared to congressional action? >> it would put in place clear rules for the private market. most of these things we can do within the authority congress has already given the executive branch. >> there are a number of letters we 0.2 in the report that we've already taken action on as well. we-- and number of letvers point to in the report that we

have taken action on as well. we announced an increase in our premiums, 25 basis points, which can help begin to step back our role. also on point -- i would also point to stepping back a limit to october 1. we would want to engage in further conversations about what loan limits we might want to pursue for fha as well as the gses going forward. those are steps we began to take. >> i think you both. home town kansas bankers talk to me about the regulatory environment in which they continue to operate, particularly small community banks. i had conversation to say they are no longer making real-estate loans as a result of concern about regulatory examination environment. it would be a sad day for

particularly world america and america as well, you're a small banks are not capable of making home loans. are you aware of those concerns? are there steps to either dissuade the bankers from having a concern or to reduce their regions that they do have concerns? >> we hear the same thing from banks across the country. part of this is in some sense, the natural consequence the natural response of regulators who in some sense who were a little too -- how should i say -- to lose in the boom and they tend to over correct in the crash. you're still seeing banks report a lot of concern about the change in the basic environment from examiners. bank supervisors are aware of this concern. we have issued a series of guidance about treatment of

commercial real estate loans to respond to these concerns. another chairman bernanke and chairman bair and the acting comptroller of the currency, john walsh, are aware of this and try to look for ways to say that examiner bring the appropriate degree of balance to the judgments and do not over correct. >> one of the consequences that we have seen through this crisis has been an increasing concentration of lending. today the top five banks account for 50% of all races. i've heard very directly from the fha-approved lenders in many communities, particularly rural, that fha's presence along with va and usda is absolutely critical to ensure that they can continue to be all sorts of safe, affordable home loans in

their communities. one of the points we make in the report is that a risk of option one in particular could be that we would have more concentration and less ability for community banks and others to continue lending in those communities. >> let me ask a broad question. i think you are all aware that the topic of conversation, the discussion that we are and deals with the fiscal house of the united states. in my view, we are bankrupt our nearly bankrupt fiscally. there's a tendency in this country to see this as a typical republican versus democrat, whatever the labels are, a philosophical battle going on in washington, d.c. there are consequences for every day americans, and i think that if we continue to have a goal in this country of having

homeownership, i hope that you agree with me that there is a significant consequence to the failure of congress in addressing the fiscal issues that we face today with rising interest rates. i like your reaction to tell americans that what we are discussing here, the outcome of debate and the vote that occurred in the house and senate and approved by the president, as direct consequence on our countries and our ability -- and our citizens ability to enjoy a high in burlap -- a higher standard of living and homeownership. >> i agree completely. it is a bipartisan imperative that we find a way to put into place long-term reforms to reduce our long-term deficit. we have to do that the way that does not hurt the recovery or leave this without the capacity to finance things that are critical to our growth as a country, but our growth prospects will be in jeopardy short-term and long-term it we cannot find a way in a bipartisan basis to lock in

reforms that would bring the deficits down over time, not least because of the center risk is the higher interest rates in the future that would be bad for the economy generally, not just making homeownership more expensive. >> i will also add that within the direct area of housing finance, the important steps have been taken by the conservative of the gse's to improve their current lending. it would also allow them to make good on their commitment to repay the american taxpayer through their agreements they have with treasury. and on the fha said, we have taken a broad set of steps to improve our finances to the point where we will contrary to the taxpayer in the range of $10 billion this year -- contribute to the taxpayer in the range of $10 billion this year. these are critical areas where

we can get our own fiscal house in order by responsibly managing on a bipartisan basis, just as you said, to improve government in no way the president laid out in the state of the union. we have to improve the performance of government. that is an important part of getting our fiscal house in order. >> senator hagen. >> [inaudible] >> [inaudible]

>> could you turn on your microphone? >> is it on now? thank you. i would expect that the guarantees provided by ready in fannie are wound down that the government involvement being out, they would be used for riskier standards of capital. how would you expect the securities to be viewed for risk rating and capital adequacy standards under basel in each of the three options outlined in the administration's report? >> my own view is that the d against riske should be the same in all three options. again, that is the simple proposition that whatever brisbane's holds, you want to make sure that they are required to hire more capital against those risks. that's it apply regardless of

the options that congress chooses. >> what you believe the comparative cost to consumers will be for the 30-year fixed- rate mortgage under these plans? >> under any of these plans, it is important recognize that the cost of mortgages will rise, modestly we believe, but they would be different under the three option. any reasonable person would conclude that the cost of mortgage finance and particularly for 30-year fixed mortgage would be higher in option one and in options two .han an option three highest in options one. >> the interaction of the qualified residential mortgages is one of the -- it will be critical here as well. how we set those standards, as

secretary g-8 said, not changing the risk rating, but it would be a critical part of how we set those standards more broadly and as we released the rule for comment, we should continue to have that discussion about setting the standards to ensure at -- adequate capital but not pricing that would put fixed- rate financing out of reach for most consumers. >> that is what i am very concerned about. what would be the impact on u.s. banks to hold mortgage securities relative to their competitors abroad? and with our banks have to hold comparatively more capital? >> under the framework we have supported, there would be a level playing field across global markets and institutions. the objective is to make sure that banks in the united states are required to have the same level against risk as banks in the united kingdom or in canada or germany.

you want there to be a level playing field across the institutions. that is a challenge to achieve in practice but it is important to try to do that. >> there have been calls for a down payment requirement of as much as 20%. some examples renown. middle-class families in the u.s. i do not think are able to satisfy that hide down payment requirement. median single hand -- single- family homes cost an average $170,000 in 2009. median household income was approximately $55,000. if the family earned that median income, it would take them a great deal of time to save $34,000 to put toward the home. when you consider instances where the same family has reimbursed medical expenses or college expenses, how can we help ensure that families that

fit this middle-class definition and these profiles could ultimately obtain a home? >> first of all as a bedrock principle, this is one of the reasons we focus on having fha continue to be a source of affordable, safe mortgages for low and some moderate income borrowers. that is an important but brought to ensure that that continues. -- that is an important that bedrock to ensure that that continues. downpayment assistance but allow homeowners who can achieve home ownership to buy a home that they can afford and remain a homeowner and a sustainable way. but there are implications beyond those bedrock principles that we lay out the differences between the various options,

particularly around availability and pricing of the 30-year mortgage. it would be different and there clearly would be less availability of a fixed rate 30- year mortgage and higher pricing on that and onone relative to option three. >> an important point you made. it is not just the homeowner but we have a great tradition of thousands of small businesses started because people were able to borrow against the value of their home. you want to get the value right. we do not know where the balance is but it is important to recognize that whatever we do, it is important that we get the incentives better for people to put predict hold more equity in their house over times. for the bulk of the mortgage

market, you want the system to require -- that is very important. you have lots of ways not through fha but other ways to make sure that we get people to help to buy that first home. so that they can afford that first home. i think we can get a better balance than we have in our current system. >> and the financing structure, the actual cost of interest rates? that impacts that greatly. >> as we proceed, we have to proceed with a lot of care. it would be irresponsible for the government of the united states to embrace policies today that would raise the cost of mortgages significantly and add to a very substantial burden and fragility of the current financing system. in terms of the end state, we have to make sure we do not go

to far and the other direction. >> thank you both for being here and for your work. i want to go back to senator moran's concern about the overall fiscal situation. to you think congress and the president's can put off beyond the next election some major approach to get us on a different long-term fiscal path without the risk of serious negative consequences in the meantime? >> it would be better for the country for congress and the administration to come together sooner and agree on a set of reforms that you can lock in today which would restore gravity to the fiscal position. if you do it now a multi-year set of reforms coming you give people more chance to and just. and you leave the world more confident that we're not one to put this off forever.

it is easy to solve if you start these things early. >> to add to that, senator, critical steps that we are taking, the freeze that the president proposed over five years, reductions we're proposing for the 2012 in our own budget, almost a 3% reduction relative to 2010, all that would bring domestic discretionary spending to the lowest level since eisenhower. those are critical steps. we need to move beyond domestic discretionary spending. we proposed a budget that puts it beyond that course. >> that raises my next question. i fundamentally disagree with that. when will the president or the administration lead on changing our fiscal course? i truly believe what has been

announced so far has gone completely hand in terms of the markets which are ultimately -- gotten panned in terms of the markets. ultimately they are the most effective judge. that would impact the consequences we take down the line. >> i do not agree with that. what the president proposed in his budget is a series of detailed changes to our resources and our commitments to reduce our deficits from 10% of gdp to around 3% of gdp, which is at the level which you stop our debt burden growing as a level of our economy. that is necessary for fiscal sustainability. it does not solve the problem for decades. but it is the minimum thing that we need to do. we see that as a first step and a down payment. if congress were to legislate constraints on itself, consistent with that path, it

would be enormously helpful to sustaining the confidence that we're going to live within our means. we will have to figure out how to make deeper reforms in health care spending over time. ultimately, that is what drives the long-term deficit. we have to find a way to get from 10% of gdp, unsustainable, to least primary balance and a three-five year period, so that we can stop the overall debt burden from growing as a share of the economy. under the constitution, the president proposes but that congress has to legislate in that context. i think if you listen carefully to what is happening across the congress today, there is a lot of interest across the aisle, democrats and republicans, to try to come together in a bipartisan framework to lock in long-term reforms. >> i agree with the last

payment. -- statement. and i encourage everyone including the administration to latch on to that and lead on that. my second main topic is about risk retention. there are proposals to exempt gse loans from risk retention. do either you support that? >> actually i do not think that there are discussions about exemptions. the key question is, if we are setting standards without risk retention, that should cover the market brought light. -- broadly. how do we ensure whether it is gses or any other kind of financial institution holding adequate capital? everything we set about the aboutsai -- said about the

reform of the gses suggest that we are in favor of assuring that the gse agencies are holding adequate capital against their commitments. that is what you will save not -- see not only when a reporter gets released but also in the further discussions about the future of the gse's. >> our overall objective, and it needs to be our shared objectives, it is to have the private markets, banks and investors, bear more of the risk not less of the rest. absolutely we want to make sure as we design the draft regulations that we are meeting the stated objective. we do not want to work against that basic objective. we expect to have a draft out reasonably soon. there will be a chance to comment on that so we can adjust if necessary. >> under the framework you are describing come up with the gse loans in terms of downpayments comer risk recension -- under the framework you're describing, with the gse loans in terms of down payment, risk retention, -- be created like

other loans? >> our overall objective should be to make sure that we create a system where private investors and private banks and private individuals are holding more the risks in housing finance, not less relative to the government agencies in this context. >> thank you, mr. chairman. i thank you both for testifying on this challenge. i want to focus on option 3 and get a sense of the piece is and what your thinking is. a piece of the guarantee fund fee being pulled off for the catastrophic guarantee fund,

with that portion going to the catastrophic guarantee, would that be adjustable in an fdic style that could be changed from year to year as the size of the fund grew and the risk being higher or lower? >> senator, that is something that could be designed in the details. one of the principles we have as we let out these options, was to provide the opportunity to respond to market conditions as you enter a financial crisis particularly, there is a need to insure that that pricing can be adjusted whether it is to grow those reserves more rapidly or to ensure that there is adequate capital available, adequate liquidity during that crisis. some form of flexibility would be important. >> my impression is that this catastrophic guarantee fund

would be the last resort after private guarananancompanies. with that kick in after the stockholders have lost their value? would kick in after the bondholders have lost the value of their investment? >> one of the primary areas we focus on in the report is to ensure that we are creating a system where there is real private capital at risk ahead of any guarantee. we're there to be that system and to ensure that equity would be at risk and therefore would be wiped out, if you will, 04 -- before there would be access to a guarantee. >> bondholders as well stop? -- stock?

>> obviously the protection would be for the bondholders on security, but those are bondholders, it goes to capitol, that would be at risk. >> one of the concerns about fannie and freddie is that it became so large and so significant, would there be a limit on the size of these private mortgage guarantee companies? >> the most important thing to do is to make sure that you regulate them for capital. and that they are required to be subject to a set of comprehensive oversight supervision and capital requirements to do that. the only way to limit the real risk to the system ultimately and the rest to the taxpayer beyond requiring them to hold enough capital to bid -- is that if the government is exposed to any risk, that there is a lot of head of the government. >> as well, independent of the

size of the individual institution, a fundamental premise of option 3 was that the footprint overall they guarantee be limited, as secretary geithner referred to it, and nationalization option, or continuing the current was where we are where over 90% of all mortgages are guaranteed. is not just the individual size of the institution but the overall size of any guarantee being limited to ensure the primary risk in the market is borne by the private sector. >> one of the things we talked about under the volker rule structure -- it was actually outside that structure -- but the companies that are private investment banks, as they became larger and more systemically significant, they

could raise the capital requirements to recognize the problem of a single house going around. would there be an upper limit on the size of the companies, or to encourage smaller companies? >> perhaps i could start on that. it is very important generally to look across the system and recognize a level of concentration are consolidation that would be against our broad interest in this contest. we want to create a set of incentives in this system where we preserve the very strong role played day today by regional banks and small community banks. when foreign thing is to make sure we do not alter the balance in a way that would work against the objective of being diversified in our current banking system. in terms of capital

requirements, i am very supportive and welcome very much legislation on this, that for the largest institutions in the country to create the greatest stress, be held to higher capital standards than other banks. that is the approach that we have brought to these around the world. not just holding enough capital but have been returned to the government has there, but for large institutions whose mistakes could cause a broader damage, you want to make sure that they're held to higher standards. >> finally, the government would set standards for mortgages that could be guaranteed by the private guarantee companies. would that be different than the qrm standards? >> i hope not. you want to have a simple, uniform, tougher, more conservative set of standards for these things.

you want to try to improve the outcome, you have one framework for differentiating. >> just to echo the point, one of the clear problems that led us into this crisis in the first place was a patchwork of various standards or lack of standards that apply across different types of mortgages. one of the important elements of the qrm is that it would hopefully level that playing field rather than continuing the patchwork we saw before. >> thank you. >> senator kirk. >> thank you, mr. chairman. picking up on everyone else's thoughts and the increased risk routine by the private sector, one of the key problems for the american people the best understand it the way i think about it is the movie "it's a wonderful life." the bailey building among

retained its -- building and loan retained its mortgages. they expected to be repaid. others just made the loans, becoming just a loan origination house, they may never expected. payton said they skim the percentage and offloaded -- expected to be repaid, so they skim the percentage and offloaded. they never expected to be repaid and therefore quality was not retained. what about a rule, if we look at other than atone which require energy other than option -- other than option one? if it required the originating banks --if the government found that out of 100 loans, you have to reown, said the garbage you passed on to the government needs to be recaptured by the loan, there for sinking the bank

that originated this terrible paper. it you have it exactly right. that may be one way to do that. you have to do two things. or maybe many more than two things. you want to make sure that you get that the people originate be supposed to some form of risk in that judgment, but you also require that they hold capital against risk. as you set in our system, we have people not just originated in, but they have legal liability but that didn't have the protection in that context, and there was no recourse against them. >> and this can expect doh will -- this connects back with the conversation we just talked about what senator merkley. they would be at risk not just for worst mortgages but all 100 mortgages in the pool to the extent of the capital of their

holding as well as the equity, whatever assets were held at that institution. i think we fundamentally agree with the nature of your comment. >> a totally separate subject because it is a hot issue. we see japanese equities falling 17%, a chinese equities 1.4%, hong kong 2.9%, and australia 2.1%. do you see a systemic risk forming here? the assumption that housing will always rise was the fundamental assumption that created risk in our system. another problem may be asia is strong and therefore actually that assumption is incorrect, creating a systemic risk. i would guess that you could give me better than u.s. tensions and other holdings are

probably 3% held in asian equities. question now falling fairly rapidly, can you describe if you see a systemic risk in the fall of these inequities? -- of asian equities? >> i would focus more on the basic humanitarian reconstruction challenge and containing the risk and prepare -- repairing the damage caused by the catastrophe there. it is something that japan with assistance from the world committee can achieve. it is important to recognize that we come into this challenge in the world economy in a much stronger position that we have been. you see much more confidence, i think testified here and around the world, and the resilience in the process of expansion we see under way. we want to sustain that. and they should be our focus and attention.

>> i am concerned because we see toshiba and toyota stopping production. illus like we have a systemic -- it looks like we have a systemic shortage of power in japan that will cripple large publicly traded companies in being able to maintain production. >> again, there are a lot of things to be concerned about in the world. it is important that we watch this carefully. very hard to judge at this stage what will be the magnitude of the short-term cost of production output there. our focus will be on trying to help them make sure they can help meet the humanitarian challenge in the reconstruction challenge. i think it can be reasonably confident they will be able to do that. >> senator bennet. >> thank you for being here today. i want to go back to the very beginning, the ranking member is a conversation with you, which i am all for. one of the things the worries

me in reading the three options and all the discussions being had is that even though we will not make an explicit guarantee, even though we will do everything that we will try to do to mitigate the private actors from believing that the government will show up and rescue to mortgages, there is a nagging concern that they will always believe that we will be, because of the sheer scale of housing and the importance of it to our economy. i wonder if you could talk more about whether you see that as a risk, and what it is we could do to try to mitigate it -- that moral hazard? >> you are right to highlight it. is not beyond our capacity to make a substantial improvement in mitigating the risk. under the options we propose, in each of them, any guarantee the government provided would be explicit, carefully

qualified, covering in the loss to the taxpayer. even if we achieve that chemo -- even if we achieve that, will we still be left as an alternate entity that banks operate with the hope and expectation the government would step in in the future as we have in the past? that is an important concern. the only way credibly we know to reduce that risk is to make sure we deliver the reforms that were put in place in legislation last year. but those reforms do is require banks to hold much more capitals, any entity that operates as a bank, hold much more capital against losses, that the government cannot step in to save them from their mistakes. the only thing the government can do is to step in to dismember them safely to minimize damage to innocents. so the not just banks but

homeowners have more equity in their homes, we could make a system less vulnerable to crisis and thus vulnerable to the moral hazard risk that pervades all systems. >> let me go back to the premise of your question, which is important as well, part of this debate is to look at other countries around this world that have different housing finance systems and to say, they do not have mechanisms to protect against crisis in the same way that we do. but if you look closely at those systems, there are in almost every case a recognition as you said that in the midst of a major financial crisis, the impacts on housing, on a whole range of -- labor mobility, for

example. there is a system whether explicit or not they would step in whether banking guarantees or some other form, and a broad recognition that there needs to be a system that exists. we tried to report to be very explicit about that. and to lay out options in each case, whether fha alone with some other form of backstop, recognizing that we will need to step in. and when they stepped in, the crisis would of been much deeper on the housing front, but i think that secretary geithner has laid out designing that in the most clear, transparent way possible, putting private capital at risk and in front of it as much as possible so that

we minimize the chances always there of this pricing the guarantee, or of having moral hazard and other tax at a minimum. >> and he did talk about the differences with what we saw with fannie and freddie, but in the interest of time, it is a forum for people to focus map. i will skip that because i do not want to get in trouble with the chairman. i'll ask you another question. they were allowed to behave like government-backed stops, managing large stock portfolios with the risk falling largely on taxpayers. if we create something like that third option, should fannie and freddie be allowed to maintain investment portfolios? or with certain restrictions? >> there is no question that any portfolio activity should be dramatically different from what was there before.

there are some minimal functions, for example, if you're talking about multifamily housing in rural communities or underserved communities where there might be some need to accumulate funds for some period of time prior to securitization, there are some relatively small activities that we might consider. but fundamentally, the scale of the portfolio of a lack of restrictions were fundamental problems. and importantly, ensuring that any guarantee provided did not backstop those portfolios to, i think they are critical pieces of what we are promoting fundamentally different from what was true that freddie mae and -- get fannie mae and freddie mac. >> thank you for your testimony. we have a second round, very brief questions.

secretary donovan, the administration cautioned against a hasty transition from fannie mae and freddie mac in the current economy, but also recommends increasing the enterprise guarantee fees. last week we heard from the group that this discourages potential home buyers. some industry groups argued that these fees may drive borrowers to fha-insured loans. are we pulling mortgages away from the public market with these fees? >> there will be some increased cost for mortgages.

if you look back at the system that we have had, there is no question that we underpriced risk and took on risks at the interest rates we provided, that we were not prepared for. that is one recognition we have to make in the system going forward. we also within fha take prudent steps to ensure that we are not expanding risk through fha and increasing our portfolio beyond its current footprint. our recent announcement of a 25 basis point increase in our premiums will help to do that. i think it says the stage for private capital to begin to return. i think we are taking steps, recognizing that through fha. fha's guarantees are 100%

guarantees. we take that risk seriously and we need to look at that through fannie mae and freddie mac, looking at options like risks sharing or other legislative changes through fhfa photo of the sure fha is better prepared in the future to step then in this kind of role. >> would this be more likely others? >> i do think that if fha is the sole guarantor with va and usda plan a smaller role, but that they are the sole guarantor is particularly in the wake of

a crisis, then there is certainly a risk that we take on a much larger footprint in the market then would happen under options two or three. that is something that we consider, and to work collaboratively with the committee to ensure that fha is prepared to take on a larger footprint in a crisis as we've done in this one. there are many issues. systems, around procurement, ensuring we have the ability to operate effectively and efficiency as we stepped up in a crisis, does the things that ought to be an essential part of what we're looking at as we consider reform to the gse's. >> senator shelby.

>> secretary donovan, quoting your words, the administration is fully committed to exploring other measures to make sure that secondary market participants are providing capital to all communities. then secretary geithner said, government-supported incentives for housing to distort the markets. on the one in use in the administration is fully committed to exploring government and sentenced to distort the market. what are some of the ways that the administration is considering meeting the seemingly contradictory goals? are you supporting quotas are an expansion of the cra? how'd you achieve some of these goals without politicizing lending decisions? >> i think that we've talked about the risks of the politicization of any of these issues. >> and there are big risks there.

>> no question. going back to something you said earlier in the hearing that transparency can be at powerful tool to ensure markets are working effectively. one of the things we have seen is that as we have provided transparency in the primary market through mechanisms like the disclosure act, we have seen that transparency be a powerful force to ensure that where you have homeowners that can be successful homeowners, they have the ability to take on loans, that credit is provided in those communities. there is a lot that we can do with transparency as well as making sure that we do not have a an unlevel playing field between primary market and

secondary market actors. >> secretary geithner, your joint report states that the obama administration's reform plan is designed to target the government rivals support while affordable housing and more effective manner. numerous studies including those conducted by the congressional budget office and the federal reserve have concluded that the federal government's implicit guarantee of fannie and freddie securities yielded a small benefit to borrowers. most of the benefit went to fannie and freddie shareholders and executives. do you agree with the results of those studies? >> i do. >> as the value of government guarantees for mortgage-backed securities been overstated by some, and probably me here? >> in the context of fannie and freddie, and the support that the government provides, you

are right to say that most of the benefits of those guarantees did not go to the purported beneficiaries. that would be something you would want to make sure you avoided in the future if you are going to preserve any role for guarantees. and there are ways to do that, senator. they are not beyond our capacity to get right. >> i hope we can. if your socializing the risk and privatizing the profits to shareholders, we have a bad situation. >> exactly, and we would not support recreating a system in which private shareholders were able to benefit from a guaranteed designed to help make sure that homeowners have more affordable housing. and that an economy like ours can survive risk factors. >> is the issue -- is it your

desire to not replicate another fannie mae and freddie mac? >> absolutely. >> thank you, mr. chairman. >> thanks again to secretary geithner and secretary donovan for being here today. it is set the essential to have an affordable housing market for american families. white paperration's is a good starting point to do that. i look forward to continuing these discussions as we further explore the options presented today. this hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> that was treasury secretary to tim geithner and housing secretary shaun donovan testifying about changes to the mortgage finance system. the house will debate eliminating the federal mortgage program. we will hear more about that in a moment. steven chu will be on capitol hill, joined by the chairman of the nuclear regulatory commission. they will be asked by -- about u.s. nuclear safety following last week's earthquake in japan. that is from a joint house- senate subcommittee hearing. that is on c-span3 and c-span radio. >> the c-span networks -- providing coverage of politics, public affairs, nonfiction books, and american history. it is all available to you on television, radio, online, and on social media networking

sites. view our content anytime at the c-span video library. we take you on the road with our digital content vehicle. it is washington your way. the c-span networks -- now available in more than 100 million homes, created by cable, provided as a public service. >> "washington journal" is next and will take your phone calls. the house is back in and and they will debate a foreclosure program. it is at 10:00 eastern, legislative work at noon eastern. coming up this hour, we will look it u.s. preparedness for both natural and man-made disasters. congresswoman loretta sanchez of