House Subcommittee Examines GSE Operations, Housing Finance Reform

On December 1, the House Financial Services Subcommittee on Oversight and Investigations held a hearing entitled, "Oversight of the Federal Housing Finance Agency."  The hearing witnesses were Edward DeMarco, acting director, Federal Housing Finance Agency; Charles Haldeman, Jr., chief executive officer, Freddie Mac; and Michael Williams, president and chief executive officer, Fannie Mae.
 
In his opening statement, Subcommittee Chairman Randy Neugebauer (R-TX) said he is concerned about wasteful spending at the GSEs, expressing his view that they have not been adequate stewards of taxpayer dollars.  Neugebauer said he would like to ensure that the GSEs and the Federal Housing Administration (FHA) withdraw from the mortgage market to encourage private capital to return.  He also said the GSEs must formulate an exit strategy, because it is not in the taxpayers' best interest for the government to back the secondary mortgage market in perpetuity.
 
Subcommittee Ranking Member Michael Capuano (D-MA) said he believes the GSEs forgot their original mission to help middle-class families become homeowners.  This mission is essential, Capuano explained, but the GSEs themselves became greedy and sloppy.  Capuano said Congress and the Administration must protect the middle class and ensure access to affordable housing during the transition to a new housing finance system.
 
In his opening remarks, Haldeman told the Subcommittee that Freddie Mac is mindful of and grateful for taxpayer support and, as a result, Freddie Mac has become a new company since 2008.  He said Freddie Mac is pursuing higher-quality loans and reducing administrative spending in an effort to lessen the burden on taxpayers.  He said questionable loans acquired before 2009 are responsible for most of the GSEs' credit expenses.
 
Williams echoed Haldeman's remarks, saying Fannie Mae has been reducing administrative expenses while continuing to support quality, affordable rental housing and single-family homes.  Williams also told the Subcommittee that Fannie Mae has helped one million families avoid foreclosure through its foreclosure prevention efforts.  Additionally, Fannie Mae has made progress in selling foreclosed properties and stabilizing neighborhoods.  Williams reminded the Subcommittee that Fannie Mae has solicited feedback on how best to facilitate the disposition of single-family real estate-owned (REO) properties.
 
DeMarco gave the Subcommittee a general overview of the conservatorship of the GSEs.  He said FHFA's attention has turned to stemming the losses from pre-conservatorship obligations through loss mitigation programs and better loan servicing.  Soon, DeMarco said, the future of FHFA and the GSEs will require input from Congress and the Administration to shape a new housing finance system.  The current FHFA and GSE model cannot continue forever, DeMarco noted.
 
Capuano asked the panelists if they predict there will exist a GSE-like entity supporting the secondary mortgage market ten years from now.  Haldeman said he could not envision the country without a secondary market, as mortgage originators cannot be expected to hold a mortgage for its entire 30-year length.  DeMarco agreed, saying a secondary market must exist for lenders to access capital.
 
Representative John Carney, Jr. (D-DE) asked the panel how they would like to see a future secondary market operate.  While Haldeman refrained from expressing his own personal opinion, he said there could be a role for the government as a guarantor that collected insurance payments to extend the guarantee to entities participating in the secondary market.  Without the guarantee, Haldeman said, the availability of the 30-year, fixed-rate mortgage would decline.  Williams asked Congress to devise a system that provides for the 30-year, fixed-rate mortgage; ensures liquidity; gives low- and moderate-income families access to mortgage financing; and supports affordable rental housing as well as homeownership.
 
Capital Markets and Government Sponsored Enterprises Subcommittee Ranking Member Maxine Waters (D-CA) asked DeMarco about the GSEs' REO property disposition initiative, expressing her concern about the potential negative impact when the GSEs sell large inventories of REO properties.  DeMarco said FHFA's goal is to make the process as competitive as possible, which would result in the greatest monetary return for the taxpayer.  DeMarco added that he would like to see greater local equity investment to help foster community involvement in the process.