and i think that's very unfortunate. what we should be doing right now is worrying about the defense of this nation and the men and women that are fighting in afghanistan today and iraq. we should not be doing social engineerings on this bill. it's just wrong. and i think it's being done for political purposes, and i just say to my colleagues on the other side who are doing it, shame on you. the speaker pro tempore: the gentleman from missouri. mr. skelton: i continue to reserve my time. the speaker pro tempore: the gentleman from south carolina. mr. wilson: mr. speaker, i respectfully reserve my time on behalf of the republican leader who shall be here shortly. the speaker pro tempore: is the gentleman from missouri ready to close? mr. skelton: i am not. the majority leader will be with us momentarily.

mr. speaker, i yield one minute to my friend, my colleague, the distinguished majority leader, the gentleman from maryland, mr. hoyer. the speaker pro tempore: the gentleman is recognized. mr. hoyer: i thank the chairman for yielding. i thank the ranking member for his leadership. and i want to say particularly as i start that the distinguished chairman of this committee does america a great service. this is a critical bill for our nation, for our men and women in uniform. and there is no greater advocate of america's readiness or the quality of life of our serviceperson ell than the gentleman from missouri, -- service personnel than the

gentleman from missouri, mr. skelton, and i want to thank him for his leadership. mr. speaker, i rise to support the conference report on this vital bill for fiscal year 2010 which takes important steps to enhance our military readiness, our national security and the well-being of our military families. and i might add, our federal employees, our civilian personnel as well. i particularly want to thank chairman skelton of the armed services committee and their staff for their months of hard work to bring this legislation close to enactment. i know to the staff this has been tough. the conference was tough. and the conference report authorizes $550.2 billion for the department of defense and the national security programs at the department of energy. as well as $130 billion for overseas contingency operations. it is a serious response to the

real, immediate and rapidly changing threats our nation and our troops face. among its most important provisions are those that help to rebuild our armed forces which are worn down after years of war. it provides $11 billion and $2 billion to reequip the army and marine corps respectively. as well as to meet equipment shortfalls in the national guard and reserve. in line with president obama's request, it also adds an additional 30,000 troops to the army, 14,650 to the air force, 8,100 to the marines, and 2,477 to the navy. i believe these are critical provisions. we are asking our men and women to serve long tours at great

risk. the trauma that they are experiencing is very substantial. the ops tempo, as we call it, is such that if we do not increase our forces we will not be able to give the proper rest that our troops need. so i congratulate the committee for attending to that issue. it authorizes 0,000 more army year in fiscal year -- 30,000 more army in fiscal years 2010 and 2011. if we are going to have risk, we must properly resource our services with the proper number of personnel. to ensure and dignify living standards for those troops, it commits $550 million to construct new army training barracks and $250 million in the national guard and reserve. this conference report also orients our country in the

direction of the new national security strategy put forward by the obama administration which includes redeployment from iraq and a commitment to the stability of afghanistan and pakistan. the conference report reflects those priorities. mr. speaker, i have other matters that i could speak to, but i think everyone on this floor knows the importance of this bill. i note the presence on the floor of -- like mr. skelton, one of the great leaders in supporting our armed forces on the floor with me, my good and dear friend, bill young from the state of florida, the ranking republican on the appropriations subcommittee. i want to thank him for his leadership. he and mr. skelton have been here and mr. young has been here, ike, longer than either one.

it's appropriate that he's on the floor as we consider this appropriate bill. in closing, mr. speaker, i would urge every member in this house to support our troops, to support this bill which supports our troops, supports this bill which authorizes the funds necessary to respond to the needs and the policies of the united states of america. in protecting our citizens and our homeland from those who would undermine our security and safety, who would attack our property and persons, that's what this bill is about. this bill has many items in it. some more controversial than others. but at heart this bill is about our troops, about america's security.

and i would hope and urge every one of my colleagues when the roll is called to vote aye on this critically important bill for the security of the united states of america. mr. skelton, i congratulate you for your leadership. you are one of america's great patriots and leaders. i am proud to be your colleague. i yield back the balance of my time. the speaker pro tempore: the gentleman from south carolina. mr. wilson: mr. speaker, i reserve the balance of my time for mr. boehner of ohio, the republican leader, when he arrives. the speaker pro tempore: the gentleman from missouri. mr. skelton: does the gentleman from south carolina have any additional speakers? mr. wilson: mr. chairman, we are reserving our full time for the republican leader, mr. boehner, as soon as he arrives.

mr. skelton: i'm prepared to close, mr. speaker, after the gentleman from ohio speaks. the speaker pro tempore: the gentleman reserves the balance of his time. mr. wilson: mr. speaker, as we close on the -- indeed, this is such an important bill for the military of our country. and as has been indicated by so many of my colleagues, with the highest regard that we have for the chairman of the house armed services committee, there is great distress over the additional language that should not have been added to this bill. and i at this time will yield the balance of my time.

the speaker pro tempore: the gentleman yields back his time. the gentleman from missouri. mr. skelton: mr. speaker, in a mind's eye, picture a young army corporal preparing to drive down a road in his security vehicle to help in an ongoing firefight in the mountains of afghanistan. picture in your mind this young

corporal dressed in the army fatigue uniform, and m-1682 standard issue rifle in his hand, with bullets made in america for that m-16a2. he is in the latest security vehicle provided by the united states army. that m-16a2 rifle was furnished by the congress of the united states. the ammunition for that rifle was furnished by the congress

of the united states. the body armor on that soldier was funnished by the congress of the united states. and the vehicle in which he rides that security vehicle, was furnished by the congress of the united states. as this young soldier, this young corporal goes down the road, look at that soldier and answer the question, did you vote to support me as a

the committee will come to order. we welcome our guests, witnesses this morning, as well as my colleagues. the title of this morning's hearing is "the future of the mortgage market and the housing enterprises." this is a subject matter which there has been a tremendous amount of committee interest and others over time, and we have had -- rich, i counted up last night, just this year alone 70 hearings. >> i believe it. >> i could not believe the numbers just on the various subject matters. most of it has been focused on reg reform issues and almost everything -- >> i don't know of any other committee, because we both serve

on other committees, and we would not have any sleep. >> it has been a lot. i know yesterday jack reid had a hearing as well, and you were participating that hearing that jack had, and so we are covering a lot of ground, and there are so many things that we could literally have a hearing a day on the subject matters that the committee has jurisdiction over. this is a subject matter that bob corker and others and obviously richard, and we all have a great interest in the issue of the government-sponsored enterprises, and where we are, where we are going, and what is the future of all of this? and so it is an important subject matter, and therefore, i am glad we have some time this morning ing ting to spend on t. let me share a few opening comments and i will turn to senator shelby on the opening comments and get right to the witnesses unless the members feel compelled to share a thought or two on this. today, we meet to discuss the government-sponsored enterprises fannie mae and freddie mac and the role they will play as we

seek to restore normalcy to the mortgage market, but don't forget what we are talking about. we are talking about whether responsible homeowners will have the access to home loans they need to realize the american dream of homeownership. last year when the mortgage market collapsed, the director of the federal housing finance authority put fannie mae and freddie mac into conservatorship, and at the time chairman paulson xer siexercise authority that he was given to provide backup funding for the two companies to insure they would continue to finance mortgages in the housing crisis. today, we need to consider where we are going to go from here. now is the time to look forward as well as looking back, but with so much damage done by this financial crisis, the role of the gses in that crisis is still hotly debated, as we all know. let me just say that fannie and freddie were neither the villains that caused the crisis in any view as some claim nor

the victims as others would make them out to b. they didn't create the subprime and exotic loan market, but they did chase it to generate profits. and like many of the supposedly private financial institutions, they ended up becoming equivalency gses and fannie and freddie enriched the shareholders while the public took the losses. we can't let it happen again, in my view. as we look for ward, we must look to set benchmarks to determine whether the mortgage market is healthy so that american families can once again begin to build wealth and not the wealth that buys mansions and yachts, but the kind of wealth that sends a child to college and ensures an affordable retirement. first the market must remain stable and liquid in times of stress otherwise the prices are driven down and the rates are

driven up. otherwise, the opportunity of the 30-year fixed mortgage uniquely american without pre-paid penalties which helps borrowers and lenders. third, mortgage credit must remain consistent and affordable. home ownership remains part of the american dream, and that dream should remain open to as many people as possible and sustainable for as many people as possible. today, we are meeting the test, but not as efficiently as possible. today the government is pumping more than $1 trillion into the mortgage market, and that can't go on, as we all know. therefore, it is time to begin the conversation about how we can recreate a functional market that stands on its own two feet, aed on the decide what role, if any, that the gses or their successor should play. i want to start that conversation by posing a number

of questions. can the market function with no government involvement? should, on the other hand, the government completely and explicitly take over the job previously done by fannie and freddie? do we want a model where there is some private capital at risk, but only under strict control like utility, and hank paulson and others have raised this possibility or idea. there are other important questions, and the answers are critical to ensuring the american dream that we all embrace. i look forward to considering the questions with the distinguished panel today we are fortunate to have with us. before turning to senator shelby, i want to quickly add that i am hopeful that the higher gse and loan limits established will be extended again in the hud appropriations bill currently being negotiated the high loan limits are helping borrowers in states like mine where it is critical to purchase homes and refinance the mortgages. i think that we need to keep the support in place. it is a controversial item, but i wanted to mention it as an

aside item this morning as well. with that, i want to turn to my good friend and colleague from alabama, senator shelby. >> thank you, mr. chairman. as we consider the future of gses we would be wise to remember the disastrous consequences that poorly regulated gses can have on the financial markets. just one year ago fannie and freddie mack were placed in conservatorship when they could not cover billions of dollars of losses. despite repeated warnings by me and other members of the committee about the risks that gses permitted, they were allowed to accumulate more than $5 trillion -- $5 trillion in financial obligations with only minimal amounts of capital. the congressional budget office now estimates, and this is probably conservative that resolving the gses will cost the american taxpayers $389 billion,

perhaps more. we must insure this does not happen again, and the question is, will we? this hearing therefore comes at an opportune time as this committee is considering financial regulatory reform there. is no doubt that the failure of fannie and freddie was a significant factor in the financial crisis, because their activities touched nearly every aspect of the financial system. in addition, their debt is the most wildly held in the world, and they are the most prominent part of our financial institutions, and therefore, regulatory reform must involve the gses, but the administration made no effort to include the gses in the financial regulatory reform proposal. instead, the administration has said that it will not propose of how to deal with the gses until next year. why? i believe this is a grave mistake to make it more difficult to reform the financial system that will

potentially expose taxpayers again to even greater losses. i think that what we need is a clear path to express the gses' own financial difficulties and the role that the gses should play in the economy in the future. i fear that the longer we wait, the more it is going to cost the american taxpayer. certainly, the question of what to do with gses is very difficult and complex. yet, it is a question that we ignore at our peril. thank you, mr. chairman. >> thank you very much, senator. do either of my two colleagues have any comments at all? >> well, mr. chairman, i know you want to get to the witnesses, but i don't think that the moment should pass when we are taking up this issue to not acknowledge the fact of the extraordinary work that you two did last summer, summer before last, to basically address this issue. i mean, the chaos which would have occurred even, would have been even more severe if you two

had not joined together and pulled together an aggressive resolution of the freddie mac a and fannie mae resolution issue. >> thank you, senator, for those comments. let me just say that i know that people here say these things, but it is a tremendous pleasure to work with richard shelby and this committee has been tremendous and we have at lo of work in front of us, but i am more confident that we will do well at it as we move forward. i want to introduce our panel, not only mr. demarco, but the second panel as well, so we can move through so we have a sense of everyone. mr. -- where is my sheet? here it is. i have it right here. sorry. edward demarco, acting director of the federal housing finance agency and served as fhfa with the fhfa, the successor of the office of housing enterprise when he came on as house

director and served in various capacities of the social security administration and other agencies is. thank you. let me introduce the second panel as well. mr. william sheer is director of the financial markets and community investment at the united states government accountability office. in this capacity, he has conducted research on the government enterprises including a recent report published in 2009 and we look forward to hearing about that with your testimony. peter wallisston is fellow at the enterprise institute, and serves as co-chair of the pugh reform task force and held a number of government positions including consulate at the united states treasury. he has written numerous books about u.s. enterprise. we welcome you. and dr. susan waxter is the

former assistant secretary of housing and urban development, and served on numerous review and research boards in the public and private sectors. lastly, mr. andrew jackabovitz. did i pronounce that correctly? close enough. he is the associate director for housing and economics for the center of american progress, action fund and prior to, this he served as the research chief of staff for m.i.t. center for the real estate housing supportability initiative. so we have a distinguished group of witnesses to hear from this morning as well. i am very honored that all of you have agreed to appear before us this morning to talk about this very important subject matter w. that, mr. demarco, i welcome you and i will take all of your full statements and they are probably fuller statements than what you are prepared to give public and any supporting documents or information that you think would contribute to our knowledge to this issue is

welcomed as well. so if you would try to keep your remarks in the five to seven-minute range, i would a appreciate it so we can get to questions. >> good morning, chairman dodd, and senator shelby and others. thank you for the opportunity to be here today. my report details fhfa's challenges and accomplishments, and the challenges of the gses and the response to the challenges. i will summarize the condition and key challenges and close with some thoughts about the future of the housing finance system. i begin with a current financial system of fannie mae and freddie mac or as i will refer to them the enterprises. in the first two years of the housing crisis combined losses of the enterprises totaled $165 billion. their financial performance continues to be dominated by cred credit-related circumstances stemming from mortgages

purchased in 2006 and 2007. with the combined losses of the enterprises depleted all of their capital and required them to draw $96 billion from the treasury under the senior stock preferment agreements. with continuing uncertainty with economic conditions, employment, house prices and mortgage delinquency rates the short term outlook for the enterprises remains troubled and will require additional draws. the treasury and the federal reserve has determined sizable purchases for the gses to restoresecurities, provide stability to mortgage markets and lower mortgage rates. this combined support exceeds $1 trillion and has allowed the enterprises to continue to provide liquidity to the mortgage markets. first challenge is staffing. they have filled vacancies at the executive level but several

remain open below that level. staff retention is a key word. improvements in the economy, opportunities for employees and officers to seek other employment will add to the retention problem. credit risk. it remains a supervisory concern. we recognize the risk associated with the increasing number of seriously delinquent loans and the uncertain path of the markets recovery. in addition, the multifamily market is experiencing declining property values and record vacancy rates. market risk. the enterprise's investments in mortgage assets expose them to market risk which is challenging to manage. finally operational risk. the systems and models upon which the companies relied in the past have been greatly stressed in this market and the new management teams are working on appropriate remediation. the implementation of the new

consolidation accounting standard which will require the enterprises to bring mortgage backed securities on to their balance sheets in january is a substantial operational challenge. turning to the home loan banks. federal home loan banks have not been immune from losses. most notable is the deterioration in the value of private labelled mortgage backed securities held by many federal home loan banks. in the first six months of this year the home loan banks collectively sought $8 billion in their prif label portfolio. however a change in accounting rules resulted in only a change of $1 billion charged against net income. this improvement reflects in part these new accounting rules. the home loan banks have two key challenges of note, first is working through the issues associated with their private label and the other is the failure or consolidation of

system members has shifted business volumes among the banks and increased concentration of ownership by and advances to a few large institutions. mr. chairman, you asked me to address the@@@@@@@ @ h hu)@ @ to mortgages. an efficient system would have characteristics such as allowing innovati innovation, providing consumer choice and protection and transparency in the marketplace.

while these characteristics provide a broad framework policymakers must determine government's role. absorbing credit risk and affordable housing. now ensuring liquidity in this context addresses periodic disruptions in credit markets that cause investors to temporarily exit from holding or purchasing mortgages. during such episodes do we need to ensure there's a balance sheet of last resort? second, markets have relied upon an implicit government guarantee of enterprise securities. going forward, those what level of government credit support is needed to have an efficient mortgage market? one approach is having the government take a limited catastrophic credit insurance position backing certain mortgage assets. another approach is a combination of enhanced private sector market discipline and regulatory oversight. thirdly the government has long promoted credit availability for low and moderate income

homeowners and renters. the subsidies were exing changed for requirements including housing goals to ensure the enterprises didn't ignore this side of the market. but policymakers may consider alternative choices. finally, we should remember the benefits of our current system. notable are the standardization of conventional mortgages and the highly liquid forward market for mortgage backed securities that allows mortgage applicants to lock in interest rates. we should strive to maintain those benefits as we plan for the future. i think we're in the early stages and important national discussion, one that the administration is committed to addressing in the coming months. i also believe private capital, properly regulated has a critical role to play. we need clear rules of the road. as for the enterprises and the home loan banks, they each may well have important roles to play in this future system.

but the place to begin the discussion is outside the existing framework of institutional arrangements. thank you for the opportunity to be here today and i'd be pleased to answer questions. >> thank you very much, mr. demarco. let me begin with something we don't do too often enough and that's to thank you and your staff. these are the most difficult economic circumstances that any of us have had to grapple with in our tenure here in the united states congress. there have been other periods of downturn but nothing like what we've been through. you got to go back to the period of our parents or grandparents to encounter a time that's been as difficult. so i want to thank you and your staff, you've had the equivalent of a gun at your head and have performed very well and we thank you. >> thank you very much. on behalf of the very hard-working staff, we appreciate it. >> they don't get recognized.

most people don't understand there are people behind those letters that show up every day and do a tremendous job. let me begin by -- one of our witnesses in the second panel is going to testify -- let me quote part of that testimony to you. the witness says perhaps the biggest question policymakers face is whether u.s. housing finance can attract sufficient capital to meet its needs without a significant government role, particularly in the wake of the massive failures in the private securitization market. ends of quote. what is your answer to this question? will the united states be able to attract the capital necessary to meet our housing needs without the role of the federal government? >> mr. chairman, as i said at the close of my opening, i actually think that private risk capital can and should return to in a more full some fashion to the u.s. housing system. there's multiple dimensions to

that. we've had clearly the government is playing a direct guarantee role through the fha, through the v.a., through rural housing so there already is various mechanisms in which the government is providing direct credit guarantee to certain targeted mortgage activity. the question becomes really with the conventional mortgage market, what sort of role the government ought to play going forward there. there's various options that i think this actually is a bit of a rub in terms of what should be done. i would say that the system that we've had has attracted a great deal of global capital investment, but it appears to have done so with this, you know, much discussed perception and implied government guarantee. so, i would hope that, however, policymakers end up deciding on this question of the government's role in providing or not providing credit support

to a broad swath of the mortgage market we don't leave this hanging uncertainty because this has the tendency to privatize the gains and put the losses on taxpayers. so, i would hope that something that is either clear about what the limit of government support is, if there's going to be some, or clarity in the fact that we're looking to private financial institutions to be well capitalized and for private market discipline to be the controlling, the controlling influence on mortgage credit risk. >> i don't begin with a presumption. we ought to. i begin with the presumption how can we do that without doing that. seems to me that taught be the charge. tell me how we can achieve that without that role? is that a realistic conclusion? looking down the road, can it be done that way? otherwise we're trying -- whether or not we deal with this in a regular reform proposal

ordeal with it after the fact we have to deal with this issue sooner rather than later and the question is what do we do? we would like to know the answer to the question as policy centers i begin with the presumption -- i would like to figure out a way to do that without that. if i'm being unrealistic and going to destroy a great wealth creator, job creator, everything we associate with home ownership i would like to get a sense if that's realistic. >> i believe we, in fact, can develop structures in a framework by which this can be managed in the private sector. so, if the question is can it be done, my response is yes, sir it can be done. i think it requires structures in which there's competition in the marketplace, that there's freedom of entry and exit for market participants that would be engaging in mortgage, secondary mortgage market

activity. there ought to be suitable regulatory oversight of those functions as there is for most aspects. in any event this is one aspect of a larger issue, mr. chairman, about returning to, you know, more sort of traditional sort of underwriting, so, in fact, we're being more honest with ourselves about the, you know, the risk of these -- of mortgages, and the differential in risk from one mortgage to another. and so i think that, in fact, if we have, you know, appropriate transparency in the marketplace so investors know, that if we distribute risk appropriately so that there's good credit risk management, one of the things -- i talked earlier about global capital market investors wanting to purchase mortgages. so, you know, they are not going to know about the individual credit characteristics of any individual mortgage of $200,000

if they are investing in securities in the millions. so there are ways. private mortgage insurance is one aspect today of where there's other private capital at risk to assess that very issue of what is the credit risk of this mortgage. and so i think that our financial system can build upon what we have today so that that credit risk can be, in fact, managed and capitalized in the private sector. so that is a workable model. >> the index shows housing prices in most large american cities has stabilized or turned around. according to that index. your own house price index shows some gains, fha for the first time in many months. now on the other hand we have millions of mortgages are in delinquency and heading to foreclosure. i saw a number the other day. it talked about an 18% increase in this year over last year the number of foreclosures in this

country. it's associated with unemployment rates rather than subprime. nonetheless those numbers seem pretty high. i would like to ask what your expectations are regarding housing prices and what impact that will have on the performance of the enterprise, in your view? >> senator, i don't have a forecast for national house price approximately i'll affirm what you said that fhfa own price index which is based on repeat mortgage transaction and mortgages that flow through fannie mae and freddie mac has been pretty stable this year. it's up very slightly for the year. so that is one indicator that at a nationwide basis, there may be some bottoming out of house price. the number is only a more recent, first time in three years that it has shown an uptick in house prices. so, i mean, these are, in fact, positive signs that perhaps,

we're in some sense bumping along the bottom, but if you hadn't, i would very much added, i am concerned about the continued increase in serious delinquency rates in mortgages around the country, including in, you know, what have been considered prime mortgages of fannie mae and freddie mac in purchasing guarantee. it's troubling to me to see that the serious delinquency rates are continuing to rise and the employment situation, you know, is one factor that is certainly affecting that. that's a very clear reason why it's too early to declare victory. >> you pointed out that enterprises are playing a central role in charge out the administration's foreclosure prevention plan in your testimony. why did you turn to the enterprises to perform this function, number one and to date the loan modification has

focused on payment modification. we've been trying to fashion a way that would help out. i think all of us wished it worked better than it has. i believe the principle reduction would have done more than interest rate reduction. that was a view taken by some but we haven't embraced that view nationally. is this the kind of thing you're ready to explore? >> before the obama administration took office, late last year fhfa in conjunction with treasury and really with hope now, a group of some of the largest mortgage lenders and servicers in the country developed a stream line modification plan. what we collectively faced, the gses and many of these mortgage servicers for their own mortgage books as well as for mortgages that were in private label securities faced this incredible increase in delinquent mortgages and the challenge of how to mitigate the losses from those

mortgages. and so what we first tried to do last fall with the stream line modification program was to come up with a national program that servicers could implement regardless of whose mortgage it was, a consistent framework for engaging in a massive scale loan modification program. that was set at what could be done voluntarily at that time of a payment rate of 38% of a home own others monthly income. the obama administration looked at the results of the stream line program with us, with the gses and with the industry and we all collectively concluded that more needed to be done here and so the obama administration did lead an effort to develop the making the home affordable program. the reason for the enterprises involvement in this is two fold. one the enter operations currently owner guarantee in rough water about half the mortgages in the country.

anything that brings stability to the general mortgage market goes to the financial benefit of fannie mae and freddie mac in terms of stabilizing their credit exposure. the second thing, fannie mae and freddie mac with all these mortgages, the mortgages are actually serviced by, you know, several thousand services around the country, most of the servicing being done in these same large servicing shops that do private label securities. so, to engaging a large scale national loan modification effort, it really made a lot of sense for there to be one program that servicers had to learn the rules and had to implement, regardless of whether it was a fannie mae loan or freddie mac loan or a loan in some other balance sheet and so the reason the enterprises do this they have the direct commercial relationships with these servicers and it allowed for this consistency which was good for the servicers, good for the borrowers, they get treated equitably that way and certainly facilitated loss