▶ 0:02:57I don't know if we Do we need to
▶ 0:05:13The Subcommittee on Housing and Insurance will come to order. Without objection, the chair is authorized to declare a recess of the committee at any time. This hearing is This hearing is titled Homeownership and the role of the secondary mortgage market. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. I now recognize myself for 4 minutes for an opening statement.
▶ 0:05:40I'd like to thank our witnesses for being with us today, and I very much look forward to an interesting discussion of our secondary mortgage market and the enterprises Fannie Mae and Freddie Mac. Uh when witnesses refer to the secondary mortgage market during this hearing, please note that they are not referring to direct mortgage lending. In the case of the conforming market or the market that runs through Freddie and Fannie, they are referring to a chain of interactions between separate actors.
▶ 0:06:06Number one, the lender who sells a loan they originated to Freddie uh Mac or Fannie Mae. Number two, the securitization of that loan into a mortgage-backed security. And number three, the investors who purchase those mortgage-backed securities. The private-label securitization market works in a similar manner, but with fully private entities working to securitize the mortgage products instead of Fannie Mae and Freddie Mac.
▶ 0:06:31The secondary mortgage market works to provide greater liquidity for lenders and results in greater access to mortgage lending for borrowers. In today's banking regulatory climate, holding a mortgage on a bank's balance sheet can result in significant capital If instead the lender sells the mortgage they originate on the secondary market, their balance sheet is comparatively free to originate new loans. This creates an incentive for originators to utilize the secondary mortgage market rather than hold those loans on their own books.
▶ 0:06:59Next, I'd like to touch on the origin of the Fannie Mae was established back in 1938 under the National Housing Act to provide liquidity in the mortgage market. In 1954, Congress passed the Federal National Mortgage Association Charter Act, which converted Fannie Mae into a public-private mixed-ownership corporation. Then in 1968, Fannie Mae became entirely privately owned.
▶ 0:07:23Freddie Mac was chartered by Congress in 1970 as a private company to create competition with Fannie Mae. Around the same time, Ginnie Mae issued the first mortgage-backed securities or MBS. Mortgage-backed securities grew in popularity in the 1980s and became a major tool for both Fannie and Freddie to provide liquidity in the conforming mortgage market. Before the financial crisis in 2008, Fannie and Freddie were private entities.
▶ 0:07:48However, when mortgage delinquencies rose sharply in late 2007, the GSEs large retained mortgage portfolios expect exposed them to significant losses in the collapsing housing market. Congress enacted the Housing and Economic Recovery Act of 2008, which created today's FHFA and provided the government with the authority to provide further Later that same year as the enterprises eroded further, Treasury committed up to 100 billion per GSE
▶ 0:08:18in exchange for senior preferred stock, warrants for 79.9% of the companies common equity and a dividend. This intervention effectively ended both Fannie and Freddie's status as fully private companies. They now were both entered into what's called a conservatorship. Their board and CEOs were removed and the government had the ability to closely manage enterprises and conserve their important secondary market function. Freddie and Fannie have remained in conservatorship ever since.
▶ 0:08:49My hope with this hearing is that we will provide members of this subcommittee with an opportunity to closely examine two very important topics. Number one, the mechanics of the secondary mortgage market. How does it work? What are the incentives of the relevant actors in the space and what does this all mean for a prospective home buyer? And number two, the role of Fannie and Freddie in the secondary market and the policy implications of their ongoing status in conservatorship.
▶ 0:09:15Keen observers of this committee may note something unusual about the structure of this hearing. There is no legislation notice to our discussion today. The lack of legislation noted as to this hearing was an intentional choice. While there are absolutely important policy issues to be discussed regarding the secondary mortgage market and GSEs, I felt it was imperative that we begin our subcommittee's work by focusing on the underlying subject With that, I yield my time back. I now recognize the ranking member of the subcommittee, Mr.
▶ 0:09:44Cleaver, for 4 minutes for an opening statement. Thank you very much, Mr. Chairman. Today's hearing will examine home ownership and the role of the secondary market mortgage market. Unlike the primary mortgage uh mortgage market, where lenders issue loans directly to borrowers, the secondary market consists of loan originators selling ex- existing mortgage to third parties to replenish their capital.
▶ 0:10:11Selling loans in the secondary market provides the liquidity to issue additional mortgages in the primary market. These transactions also distribute mortgage-related risk across the wider financial system.
▶ 0:10:27Though largely unknown to most Americans, the secondary mortgage market is the driving force of our housing It ensures access to affordable home And this hearing is an opportunity for this committee to look deeper into the mechanics of the secondary mortgage The market depends on public confidence, stability, and adequate oversight by Congress and the administration.
▶ 0:10:53The fact that it is unnoticed by the average American means that it is The hearing also provides an opportunity to assess the responsibilities of secondary market participants and whether they are being failed. I had a great working relationship uh with the former FHFA Director Sandra Thompson, who I found thoughtful, open to dialogue, and unwavering in her commitment to affordable mortgage access.
▶ 0:11:22Recently, FHFA and the administration's unpredictable announcements have get generated great Many of these announcements have been made without supporting analysis or involvement from Congress. There is now a some great uncertainty uh regarding the long-term prospects of the enterprises and their impact on capital markets and home ownership.
▶ 0:11:46All of this has taken place against the backdrop of one of the most severe housing crisis the United States has ever had. I have emphasized that any future framework should ensure the enterprises remain a reliable source of affordable mortgages throughout all markets. To ensure responsible reforms, directors uh hope for uh that No, it's not here.
▶ 0:12:13Uh I'm proud of the committee's thoughtful work in advancing access to uh through the passage of the Housing for the 21st Century Act. That would not have happened without the leadership of Chairman Flood, Chairman Hill, and Ranking Member Waters. I look forward to the hearing from our witnesses and we start examining as we start examining these issues in the secondary mortgage market. Thank you, Mr. Chairman. Gentleman yields back. I now recognize the chairman of the full committee, Mr.
▶ 0:12:41Hill, for 1 minute for an opening Thank you, Chairman Flood. It's indeed, as you've both said, home ownership is the cornerstone of the American dream. A well-functioning financial system and access to reasonable mortgage rates are essential to making that dream achievable for more families across our The government-sponsored enterprises, particularly Fannie Mae and Freddie Mac, play a crucial role in providing critical liquidity to mortgage originators and enhancing the mortgage affordability through the operations of the
▶ 0:13:11secondary market. While Fannie Mae and Freddie Mac were created to support housing finance, history has shown that poor decisions, inadequate oversight, and unchecked mission creep can impose serious costs for taxpayers and the broader economy. As housing affordability challenges nationwide, it's critical that Congress take a wide-eyed view of the role of the GSEs play in the current market and how they're promoting stability, access to credit, and responsible risk management.
▶ 0:13:40I thank the chair, look forward to today's panel, and yield back. Chairman yields back. I now recognize the ranking member of the full committee, Ms. Waters, for 1 minute for an opening statement. Thank you very much, Mr. Chairman. This hearing will discuss our mortgage market, but it has been more than 1 year into Trump's disastrous administration, and this committee still hasn't heard from Trump official who oversees 7.6 billion trillion trillion dollars of this market.
▶ 0:14:10The Federal Housing Finance Agency Director, Bill Polte, has been busy. He's been uh pushing absurd 50-year mortgages, weaponizing Fannie and Freddie, to going after Trump's political enemies, but completely failing to do what he was appointed to do, make housing more affordable for Americans. Our country is facing an affordable housing crisis and needs competent leadership, but Polte is proving anything but competent.
▶ 0:14:40I hope today's witnesses share how Congress can restore the dream of home ownership. Thank you, and I yield back. Gentlewoman yields back. Today, we welcome the testimony of Mr. Michael Bright, the CEO of the Structured Finance Association. We welcome Mr. Robert Broeksmit, the President and CEO of the Mortgage Bankers Association, Dr.
▶ 0:15:04Norbert Michael, the Vice President and Director of the Center for Monetary and Financial Alternatives at the Cato Institute, and Dr. Sharon Cornelissen, the Director of Housing at the Consumer Federation of America. We thank each of you for taking the time to be here. Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record. Mr. Bright, we'll begin with you.
▶ 0:15:32You are now recognized for 5 minutes for your oral remarks. Thank you.
▶ 0:15:37Chairman Flood, ranking member Cleaver, Chairman Hill, ranking member Waters. My name is Michael Bright and I'm the CEO of the Structured Finance Association. Thank you and your staff for inviting me today and for holding a hearing on such an important topic. I've been engaged in the secondary mortgage market from several several angles over the course of my career. For 7 years I traded agency MBS and the interest rate derivatives necessary to hedge these securities.
▶ 0:16:02After the financial crisis, I came to Washington and worked for Senator Bob Corker managing banking and housing policy issues. I then worked at the Milken Institute where we wrote about secondary mortgage market reform. Prior to SFA, I was acting president at Fannie Mae for 2 years. And I have been conducting advocacy on this issue at the Structured Finance Association or SFA for the past 7 years.
▶ 0:16:23SFA was formed in 2013 with the goal of convening the many diverse institutions involved in securitization including consumer and commercial lenders, data providers, auto and equipment finance companies, rating agencies, law firms, trustees, banks, and very importantly end investors. This structure forces SFA to convene all parties, both those involved with the creation of a fixed income security such as a mortgage backed security, and those who invest in them.
▶ 0:16:48Since SFA represents all participants in the transaction, long-term financial stability in the mortgage market as well as other markets is a core principle of The American secondary mortgage market is an incredibly complex ecosystem. It extends well beyond Fannie Mae, Freddie Mac, and Ginnie Mae, which are often the primary focus of policy discussions. These These entities do not originate mortgages. They provide credit guarantees that support liquidity and standardization in the market.
▶ 0:17:13Operating in tandem with these government chartered agencies, there is a large interconnected series of mortgage-backed securities invest investors, broker-dealers, risk modelers, derivative hedging, prepayment analytic firms, and many more market participants that make up the overall secondary mortgage market apparatus. The investors in American mortgage-backed securities are broad and global. They include insurance companies, 401k retirement accounts, banks of all sizes, pension plans, foreign central banks, the Federal Reserve, and many more.
▶ 0:17:43SFA investor members are fiduciaries to their clients. Collectively, these varying sources of capital form the foundation of America's ability to have fixed-rate, fully prepayable mortgages, which currently comprise over 90% of all outstanding US household mortgages. One essential connection between the secondary market and individual borrowers is the to-be-announced, known as the TBA market, which allows borrowers to lock in an interest rate before their loan closes.
▶ 0:18:07This market extends through the life of the mortgage, where servicers and investors must must manage the highly complex risk associated with prepayment risk when rates fall, and extension risk when rates rise. This is an incredibly impressive market that is made possible by SFA and MBA members, firms, and a variety and their firms in a variety of capacities.
▶ 0:18:26SFA not only represents the ecosystem for agency MBS, but also the private label security or PLS market. Since 2008, that market has undergone enormous change. The most important evolution has been to ensure that underwriting practices are safe and sound. At SFA, we say bad loans make bad securities, good loans make good A lesson from the fact that pre-crisis failures in mortgage underwriting were the primary contributing factor to the collapse of certain bonds.
▶ 0:18:52Policies such as the ability to repay rule, risk retention, QM definition, oversight of servicing standards, and full documentation of loans have all helped to create a PLS market that serves millions of Americans without direct taxpayer risk. There are further regulatory reforms to this market that I would be happy to discuss with you today. In conclusion, thank you again for this hearing and for your attention to this topic. As SFA looks forward to working with all of you as you continue to focus on these markets and housing issues in the United States. Thank you. Mr.
▶ 0:19:23Buchschmid, I hope I'm saying that right. You are now recognized for 5 minutes for your oral remarks. Thank you, Chairman Flood, Ranking Member Cleaver, Chairman Heck, Ranking Member Waters, and members of the subcommittee. Thank you for the opportunity to testify before you today on behalf of the Mortgage Association. My name is Bob Broeksmit and I serve as MBA's President and Chief Executive Officer. I'm a Certified Mortgage Banker with more than 40 years of experience in real estate finance.
▶ 0:19:53I have held positions in virtually all aspects of the mortgage business from loan processing and underwriting to secondary marketing and servicing. This extensive experience has given me an up-close perspective on the secondary mortgage marketplace, which is a complex ecosystem where both single-family and multi-family loans and assets such as mortgage servicing rights are bought and A sizable percentage of newly originated mortgages are sold by lenders, be they depositories,
▶ 0:20:24non-banks, or other capital sources into the secondary market where they are packaged into mortgage-backed securities or MBS and sold to investors. Many participants utilize the secondary market, most notably Ginnie Mae, Fannie Mae, and Freddie Mac to help make mortgages more mortgage credit more widely available to borrowers across America by freeing up capital that can be used to issue new mortgages.
▶ 0:20:51This process increases liquidity and supports home ownership and rental activity by making financing more accessible and affordable. Other players include entities that issue private label securities or PLS that are MBS created from pools of mortgage loans. These non-government guaranteed loans offer both investment opportunities and associated risks.
▶ 0:21:17As a point of emphasis, PLS are financial instruments that are not backed by a government guarantee. Instead, they are created by private entities and typically consist of mortgages that may vary from Fannie and Freddie's specific underwriting standards, which means investors may realize higher yields but bear more credit risk. These loans are typically pulled together in a trust, which then issues securities to investors.
▶ 0:21:44The cash flows from the underlying mortgages are then passed through to the Let me now emphasize the sizing of our US real estate and mortgage markets as part of both the domestic and global There are $48 trillion in owner-occupied real estate value with almost $14 trillion in mortgage debt, leaving almost $34 trillion in home equity.
▶ 0:22:10There is another $2.2 trillion in multi-family mortgage debt outstanding plus associated equity. An annual mortgage origination volume of $2.2 trillion in residential home lending and another almost $400 billion in multi-family lending.
▶ 0:22:27In recent years, market shares of residential origination dollar volumes have averaged roughly 50% to the GSEs, 25% to banks, 20% to Ginnie Mae, which is made up of FHA, VA, and USDA loans, and 5% for PLS. Market shares of multi-family origination dollar volumes have averaged 40% to the GSEs, 5% to FHA, with the remainder covered by banks, life insurance companies, and commercial mortgage-backed securities.
▶ 0:22:59There was an average MBS trading volume of $351 billion per day in 2025. All of these executions have led us to an average US home ownership rate of which is held steady including amongst younger cohorts. The American mortgage market is unique given the degree to which 30-year fixed-rate fully amortizing pre-payable mortgage loans play such a large role.
▶ 0:23:26Our system protects borrowers against increases in interest rates while providing a long period over which to amortize the loan principal. This allows for more affordable monthly payments than are available under a shorter The remainder of my written statement describes the key pillars that undergird the secondary market system, a holistic view of that market, balancing market innovation and the sanctity of existing contracts that support investor
▶ 0:23:57the core principles needed should Fannie and Freddie exit that their conservatorship status, and both legislative and regulatory recommendations on improving housing In conclusion, I appreciate this chance to comment on the secondary mortgage market this afternoon. MBA looks forward to continuing to work with this subcommittee, the full Congress, and the administration to serve as a resource while important discussions regarding housing continue to take shape.
▶ 0:24:27I look forward to answering any questions you may have. Thank you, Doctor. Doctor Michel, you are now recognized for 5 minutes for your oral remarks. Chairman Flood, ranking member Cleaver, Chairman Hill, ranking member Waters, members of the committee, thank you for the opportunity to testify today. I'm Norbert Michel, vice president director of the Center for Monetary and Financial Alternatives of the Cato Institute.
▶ 0:24:50The views that I express in this testimony are my own and should not be construed as representing any official position of the Cato Institute. A little more than 8 years ago, I testified in front of this committee and started my testimony by pointing out that it had been 10 years since the GSEs, Fannie and Freddie, had failed and were placed into government conservatorship, but Congress had yet to reform the housing finance market and protect taxpayers.
▶ 0:25:17The only meaningful difference in my testimony today is that it is now been about 18 years. By continuing to leave the government-backed duopoly of Fannie and Freddie in place, expanding their reach, or merging them into a monopoly, Congress would again be perpetuating one of the worst parts of the current housing finance system, the same one that imploded in 2008. And as I said 8 years ago, Americans deserve better.
▶ 0:25:46In the intervening years, many so-called reform proposals have been introduced, and the ones that typically garner the most bipartisan support are the those that included an explicit government guarantee for mortgage-backed That mechanism would simply mean that the federal government would begin explicitly guaranteeing the principal and interest payments on otherwise private investments and forcing borrowers to pay for it, all for no real public purpose because there has been no market failure.
▶ 0:26:16Still, advocates of these guarantees promote them as necessary for creating a sustainable housing finance system. The truth, though, is that history clearly shows that these guarantees are not necessary to sustain the housing market. During the five decades leading up to the 2008 financial crisis, the United States achieved a stable rate of home ownership of approximately 64% without explicit guarantees.
▶ 0:26:39The only major deviation from that rate was when misguided policies were enacted with the express intent of arbitrarily raising the home ownership rate to 70% by increasing the use of the implicit Predictably, that scheme did not work well, and it ended in spectacular There's no doubt that the constant expansion of implied taxpayer guarantees through the GSEs helped to create excessive debt, leading to Excuse me,
▶ 0:27:07leading to the 2008 crisis. Doubling down by making these guarantees explicit is destined to end at least as There's also no doubt that the people in the housing finance sector want to receive government guarantees for their Who wouldn't?
▶ 0:27:24But that desire is not a sufficient reason to provide those guarantees, and the truth again is that they are not necessary because robust home ownership was established in the United States long before the government became so heavily involved in the housing market.
▶ 0:27:39From 1949 to 1968, the year Fannie was allowed to branch out into purchasing non-government insured mortgages, government-backed home owner government-backed home loans never accounted for more than an annual share of 6% of the market in any given year. Yet that home ownership rate then was 64%, which is very close to the rate that we have now.
▶ 0:28:01There simply is no compelling need from either existing or potential home owners' perspective for these Borrowers and lenders like to take risks because it provides the possibility of a future financial reward. That's what occurs in financial markets every day. Shifting these financial risks onto taxpayers is what increases systemic risk and makes financial crises more likely. And I fear that Congress has forgotten this lesson even though it was crystal clear in 2008.
▶ 0:28:32So, for the sake of completeness, shifting financial risks onto taxpayers relieves investors of caring about what is in their portfolio. It creates excessive leverage. It creates overbuilding. It puts upward pressure on home prices, not downward, and possibly to unsustainable levels. It is therefore almost inconceivable that Congress would still contemplate repeating this mistake rather than moving as far away from the GSE system as possible.
▶ 0:29:00Thank you for your consideration, and I'm happy to answer any questions you may have. Thank you very much. Dr. Sharon Cornelissen, you are now recognized for 5 minutes for your oral Uh Chairman Flatt, Chairman Hill, Ranking Member Cleaver and and Ranking Member Waters, uh thank you for the opportunity to testify here today. My name is Sharon Cornelissen, and I'm the director of housing at the Consumer Federation of America.
▶ 0:29:25And CFA is one of the nation's leading consumer groups in the country, and we represent around 250 consumer groups across the nation. So, this hearing is about homeownership and the role of the secondary mortgage market, but at its core, it's about the question of whether the institutions that Congress created to to promote affordable homeownership, namely the GSEs and FHFA, are being deployed to that purpose today, or if that purpose have been has been undermined over the last year by actions taken by
▶ 0:29:55FHFA. Congress created Fannie Mae in 1938 and Freddie Mac in 1970 in order to make homeownership more attainable across the They are GSEs, which means government-sponsored enterprises, which means that they are unique public-private hybrids. While they before 2008, they were they were privately capitalized, they also enjoyed significant public subsidies.
▶ 0:30:20And in exchange, Congress put a public mission in place to make sure that the GSEs reached all markets, including rural markets and underserved urban markets, and also served the mortgage needs of underserved consumers, namely low- and moderate-income home buyers.
▶ 0:30:38It put in place FHFA in 2008, and it gave FHFA two responsibilities, namely to oversee the safety and the soundness of the GSEs and prevent against excessive risk-taking and two to oversee and promote the mission of the GSEs including by making mortgage credit broadly available. Over the last year, however, we have seen FHFA move away from that mission.
▶ 0:31:03You know, there's a lot of examples that I could get that I could mention here, but we've seen them reduce the housing that have taken away of GSE-backed mortgage access from an estimated working families in the United States. We've seen a significant rollbacks of fair housing which, you know, has only made our housing crisis worse for renters and home buyers.
▶ 0:31:26And we've seen a glut of policy proposals back and forth of of different ideas including the 50-year mortgage, portable mortgages, and conflicting ideas about the future of Fannie and Freddie, these really important institutions to the US economy which has has generated deep uncertainty for industry, for investors, but but also for consumers. I think we can all agree here today that home ownership is simply too unaffordable.
▶ 0:31:52Um so in order to to tackle that, we need ambitious housing policy and including housing policy that that really leverages the GSEs for all of their potential and what they can do for American home ownership. So I will end here on three priorities. First, I would just want to establish that Fannie Mae and Freddie Mac are working really well and they function really well over the last 18 years of conservatorship. We don't need to fix what isn't broken.
▶ 0:32:18Uh in any planning for the future of Fannie and Freddie, we should be very careful. Congress should be involved. We should prioritize a strong and independent regulator and we should put consumers first. That means maintaining long-term, you know, low mortgage rates and maintaining broad access to mortgage credit, which is why we put the GSEs in place to begin with.
▶ 0:32:41Second, FHFA should should actually leverage its actually actual policy tools to promote affordable mortgage to affordable homeownership. This means reinstating the affordable housing goals as they were before to to really ensure mortgage credit is broadly available for working families. But also take take its position to actually drive innovation at Fannie and Freddie and innovate mortgage products that make mortgage credit more broadly available.
▶ 0:33:10Think about mortgages for manufactured housing, for example, for small dollar mortgages, or to support mortgage lending by CDFIs. And then third and finally, I would urge Congress to not forget about the Federal Home Loan Banks. This is another GSE that FHFA regulates and another GSE that Congress put in place to promote affordable homeownership and access to However, they've also they've lost their way over the last few decades.
▶ 0:33:38Congress currently only requires the Federal Home Loan Banks to devote 10% of their net income every year towards affordable housing programs. If Congress were to raise that minimum from 10% to 30%, that would mean that an additional $1.2 billion could go to affordable housing construction and down payment assistance every year.
▶ 0:34:00This one point This additional $1.2 billion would not compromise the safety and soundness of the Federal Home Loan Banks because they have been very profitable over the last few decades, including making $6.4 billion just in The gentle lady's time is expired. Okay. Thank you.
▶ 0:34:17turn to member questions. I recognize myself for 5 minutes for questioning. Mr. Bright and Mr. Brooks-Smit. I think the benefits of a liquid and stable secondary MBS market are often not noticed by home buyers. What can we point to as the main indicators of a healthy secondary mortgage market and what benefits do you homeowners enjoy when the secondary market is operating well? Uh Mr.
▶ 0:34:46Chairman, I don't think many people in this room or in this country understand what a rarity it is to have 30-year fixed-rate prepayable mortgages in all parts of the country through all economic cycles. And that is precisely what this system permits and we need to be careful about how we tinker with it given the incredible importance of that feature to our economy.
▶ 0:35:17Yeah, I know I I agree. I mean I You're talking about how it's been 18 years since conservatorship and can we do comprehensive reform. It's easy to say from these seats, it's really hard from your seats. And and trust me, I have the scars to show for it. So, I understand that. To answer your question specifically, it it's kind of the secondary mortgage market is sort of like plumbing and electric wiring behind the wall. So, you don't see it. You notice if the water doesn't work and if the lights don't turn on.
▶ 0:35:43But since the conservatorship of Fannie and Freddie, the lights, as far as getting a fixed-rate mortgage, a prepayable fixed-rate mortgage, which is a really unique feature that Americans enjoy, the ability to get that at low the lights are on and the and the water works. So, what we're talking about is a political exercise when we talk about structural reform is you're saying, "Hey, you don't notice all this stuff behind the wall, but let's rip up the wall and take it down." And that gets a little tricky. So, I I I get it.
▶ 0:36:08I think it's important as we get into this conversation about GSEs, we have this beautiful thing called the 30-year fixed mortgage. They don't have that in South America. They don't have that in every country in even Europe or in Central America. We have it here. And not only do we have trillions of dollars coming in capital, we have other countries sending capital into the United States so that somebody in Laredo, Texas can achieve the American dream. And so, we are we have done something right as a country here. Mr.
▶ 0:36:38Bright, can you walk through the way MBS is priced by investors from a very high level? How can we think about how investors weigh prepayment risk and interest rate risk in mortgage-backed securities? Yeah, thank you. Um so, right now in agency MBS and Ginnie MBS, you don't have to take into account the credit risk of the underlying borrower. You do in PLS, but the structures allow senior bondholders to not have to worry about that. But in all mortgage-backed securities in the US, you you take on significant risk as an investor.
▶ 0:37:07And again, I I do want to stress the point that this MBS investor is a pension plan, it's a 401k, it's your TSP plans. This isn't people investing their own money, it's retirees and savers. If you make a loan to a you buy a a mortgage-backed security that 3 and 1/2% coupon and the borrower gets a 4% mortgage, that's an example. If interest rates go up, you're as a bondholder are probably going to be getting a 3 and 1/2% coupon for a very, very, very long time while prevailing market interest rates could be 6 or 7%.
▶ 0:37:36So, you're underwater on that bond. Conversely, if you make if you're an investor and you make a loan with a 5 and 1/2% coupon, and that's where prevailing mortgage rates are, which is about where they are now, and rates go you're going to get prepaid. I mean, you're going to get par back and have to reinvest that at a substantially lower market interest rate. So, that's okay. The market knows how to do it. It prices that. It's It's built an entire You're doing great, but I got I got I'm running out of time here, okay?
▶ 0:38:03It's impressive is what I There's one There's one thing I I want to touch on. My time is limited, but I worry about banks, community banks, uh and their connection to Main Street when everything goes to the GSEs. Mr. Berkesman, how can Can you describe the capital treatment of mortgaging a mortgage servicing assets both with relation to the risk weights and the effective cap on MSA and the effects it has on mortgage originators, particularly small banks.
▶ 0:38:29I worry that we're losing our connection between banks and homeowners and um please react to that. I'll be brief. Basel III needs to be fixed. The service the risk weight on servicing is 250%. It shouldn't be more than 100%. That's a That's a complicated way of saying the service capital we require for servicing is two and a half times higher than it ought to It We We've been working with the prudential regulators on this.
▶ 0:38:58It would help banks get back into the servicing business. They've effectively been driven out of it because of these onerous capital requirements. Excellent point. Uh I am going to offer for the record an article written by David Spector, chairman and CEO of PennyMac. It's titled a blueprint for making housing more affordable. Entered into the record without objection. With that, I now turn to my colleague on my right, Mr. Cleaver. He is recognized as the ranking member for 5 minutes.
▶ 0:39:28Thank you uh Mr. Chairman. because of my um very very deep respect for the previous um head of FHA FHA and my ability to work with with her, uh I I I've become more and more concerned about uh the role and and appreciative of it.
▶ 0:39:52Uh the the uh continues to evaluate the future of government sponsored enterprises such as Fannie Mae, Freddie Mac, and has considered ending their 17-year conservatorship because the GSEs are participants in the secondary market mortgage market buying, pooling, and then securitizing mortgages mortgages.
▶ 0:40:20Any transition out of conservatorship could have, I think, maybe everyone would agree, broad implications of liquidity, uh risk distribution, and housing affordability across the market. the Ms. Forgive me if I mess it up. Uh Corneliuson. Cor- Corneliuson. Am I close? Just Yes, Corneliuson.
▶ 0:40:46Thank Um the Congressional Budget Office has has noted that the GSE's role in the housing system is so significant uh that they could warrant systematic designation if released from conservatorship.
▶ 0:41:02What would be the material impact on the secondary mortgage and the broader housing finance system, particularly at a time when we are all talking about this uh historically difficult time uh for Americans to to secure uh affordable housing? Yeah, I I mean, um you you don't want to break the secondary mortgage market.
▶ 0:41:24I I think we all have the memory of 2008, uh when uh Fannie and Freddie uh risked failing and, you know, threatened to drag down the economy. But, specifically, if you if you end conservative without conservatorship without a good plan in place, uh this would mean the end of the 30-year mortgage as we know it, right?
▶ 0:41:41You may not be able to get a a rate locked in before you before you buy your house, or you may not be able to have that prepayable uh feature and refinance your What what what are the primary drivers of higher mortgage transaction costs uh particularly for uh smaller loans uh in in today's market? Excuse me? No, anyone any any any I'm sorry, I didn't hear the question.
▶ 0:42:09What are the primary drivers of higher mortgage transaction costs, particularly for a smaller loans in today's market. Well, one of the issues with small dollar amounts is that small dollar loan amounts is that there are certain charges on a mortgage that are fixed in cost. Let's say the appraisal. Let's say the appraisal is $700.
▶ 0:42:32Well, if you're buying a $500,000 house, that may not be that big an obstacle, but if you're trying to buy a $40,000 house, that could be a couple percentage of the purchase price. So, there are things like that that are fixed regardless of the loan amount, and that's really a a barrier for small dollar loans. Thank you. Uh yield back, Mr. Chairman. Chairman yields back. The gentleman from Arkansas, the chairman of the full Financial Services Committee, Mr.
▶ 0:43:01Hill, is now recognized for 5 minutes. Thank you, Chairman Flood, and again, thanks for this expert panel, and it's very, very good to have your expertise restored and renewed on the subject of the government-sponsored enterprises. Uh Mr. Bright, I want to start with you. We're going to play Fannie and Freddie Jeopardy. And let's play You want to play for a trillion? Let's play for a trillion dollars. Are the government-sponsored enterprises, or the GSEs, is Fannie Mae and Freddie Mac, are they public companies or private companies?
▶ 0:43:29Uh their stocks do trade on on the pink picture So, so they're they were public companies, and their stock is still available to purchase on the pink sheets. Is that a fair description? That's correct. So, um are they Do they have capital standards set by the US Treasury, by the federal government? Uh yes, they they There's a capital framework that's been in place since 2022. Mhm. And would you say the two enterprises, based on your knowing knowledge about their financial statements, are they undercapitalized against that or overcapitalized?
▶ 0:43:58Um they are definitely they are they are not at the requirements of the 22 proposal by a couple hundred billion. By a couple hundred billion? About that, yeah.
▶ 0:44:05About $200 billion undercapitalized. Is maybe a consensus view? I think that I can So, if they're $200,000,000 undercapitalized, and yet I read periodically on social media that someone thinks that they want to do an IPO, even though you've already established that they're already public So, what's the largest IPO that you can think of that's gone public in the world? Saudi Aramco. Saudi Aramco, about how much was that? 28 billion, I issue.
▶ 0:44:35I think it yeah, I'd say somewhere around $30,000,000. It's a big number. But, it's not $200,000,000. So, my point is that these are public enterprises. They're in conservatorship by the government for 18 years that Dr. Michelle noted. That they're undercapitalized 190 billion. So, before anybody could maybe doing something and and raising money from the public, aren't there some other decisions that we have to take into account?
▶ 0:45:03Like um wouldn't the Treasury Department have to make a a concrete decision about how much money they're still owed from the financial crisis or not owed? In other words, have a negotiated settlement on Yeah, that would definitely be very important to any prospective new investor in the equity share. And the Treasury's warrants, I think it expire in 2028. So, I mean that's there is a clock ticking on that. Is that also Yeah, I believe so. There's probably some mechanisms around that, but yeah, that's you're right.
▶ 0:45:32And then the Congress of the Congress needs to be involved. So, the Congress would have to outline well, what are the missions, oversight, corporate governance, compensation, rules of the road. The Congress also has a view on leaving the conservatorship. Do you agree that we should have a viewpoint on that? 100% yes. Okay. So, that's that's part of that's part of the jeopardies today. So, we'll go to Dr. Michelle now because he's he's he's a he's a big game show guy, Mr. Dr.
▶ 0:46:02Michelle, is a 50-year mortgage a good idea? I mean, I think that if if people want to do that, fine. I don't Meaning if the private sector wanted to offer it, yeah, so yeah. I agree, that's right. Would it be easier to provide secondary market liquidity to that when it's brand new is or would it have to reach a certain level for there to be a PO? Mr. Bright, you want to answer that question? I'm sorry.
▶ 0:46:27I The liquidity, if somebody if we did have a 50-year mortgage, yeah, it might How many How many billions of dollars would it have to exist before it could be packaged with liquidity in the secondary market? Hundreds at and I mean lots, and it's not TBA deliverable. Yeah. And if you wanted to have a portable mortgage, that would be really hard for an existing mortgage that's been sold in the secondary market, wouldn't it? That'd be a contract violation. Yeah.
▶ 0:46:51So, um Anyway, it's a good to think about important ways to bring down affordability, which is why the chairman and Mr. Cleaver have worked so hard on 21st century housing because these are concrete ideas that reduce the cost of housing. Dr. Michelle, bounce back to you. Um The Federal Home Loan Banks are a GSE, and I agree with uh our friend that noted that we should pay close attention to them.
▶ 0:47:17There's no doubt about that, and we have an obligation of oversight I don't agree that um we should take from their low-income housing from 10% to 30% because I don't think of these organizations as housing agencies. They also are a liquidity to banks using mortgage loans as collateral. Is that right, Dr. Michelle? That's right. They've become
▶ 0:47:38provide liquidity to banks using one to four-family mortgages as a as a as a collateral base. But, they also do grant programs. Is that right for helping with
▶ 0:47:48Yeah, it much much bigger uh mission and public purpose than than it originally was.
▶ 0:47:53Yeah, I think that the housing piece low-income housing is an incidental to that uh core piece. Well, this is a great panel and I think it's wonderful to get a new generation of members of Congress focused on the government-sponsored enterprises and the complexity of it. And I yield back. Gentleman yields back. The gentlewoman from California, ranking member Waters, is now recognized for 5 minutes. Mr. Chairman, before I ask the I have a parliamentary inquiry.
▶ 0:48:22It is my understanding that uh Mr. Ed DeMarco, co-president of the Housing Policy Council and former FHA director, was supposed to testify today, but no longer is. Since Director Polsky was not invited to testify, I was very much looking forward to hearing from Mr. DeMarco, someone who used to work at the FHA and maybe able to give us some answers to our questions about what has been going on there. Mr. Chairman, do you know what happened to Mr. DeMarco?
▶ 0:48:51Committee will stand at ease pending uh conference with legal counsel. request you made is not a valid parliamentary inquiry. Do you have a question about the process today? Thank you very much. Let I'm sorry, your mic's not on. What did he say?
▶ 0:49:21He couldn't hear you. I'd like to go on with my question now.
▶ 0:49:25You may proceed.
▶ 0:49:26okay? Thank you. We will start your time Uh I'm going to direct this question to uh Dr. Cor- uh Cornelius The Federal Housing Finance Agency.
▶ 0:49:40Uh Director Polsky uh has been using his agency as a tool to attack Trump's political enemies while offering patently dumb uh proposals, like a 50-year mortgage that would only serve to trap Americans in forever loans. But the FHA has an important, maybe the most important role in our mortgage market.
▶ 0:50:06If he were here today and I will note again that Republicans have not shared any plans to invite him to testify. But if he were here, what are the top three things you would not remind him that he and the government sponsored enterprises would do to help make buying a home more affordable and accessible? Thank you for your question.
▶ 0:50:31I would remind him of the the importance of the equitable housing finance plans that he retracted uh to make credit more broadly available. I would remind him of the importance of the affordable housing goals to truly uh reach the mission that Congress set for uh Fannie Mae and Freddie Mac to also serve the credit needs of low and moderate-income families.
▶ 0:50:51And I would remind him of the actual fact that uh FHFAC can direct Fannie and Freddie to truly innovate products and by innovating secondary mortgage products make primary products more available such as home-only loans for manufactured housing uh or small-dollar mortgages for example. Let me continue.
▶ 0:51:12Last year Director Polte launched a tip line for reporting mortgage fraud activity, then began investigating and referring to the Department of Justice many people who openly disagreed with Trump and who Trump views uh basically as political enemies. This includes New York Attorney General Letitia James, Federal Reserve Board Governor Lisa Cook, and more.
▶ 0:51:38Even the Government Accountability Office has opened an investigation into Polte's actions. Several Trump cabinet officials and apparently uh even Trump himself, reportedly may have committed mortgage fraud. And yet, I don't think Polti has referred any of these cases to the DOJ, nor would the American public have any confidence that DOJ would do anything about it. This whole incident though allows actually bad actors to go unpunished.
▶ 0:52:09No one should forget the widespread mortgage fraud committed by Wall Street that directly contributed to financial crisis. What do you think about that? I I I think it's an inappropriate and I think it undermines the independence of this regulator, right? It it sort of uses an independent regulator for political ends. So, I think it's an inappropriate use of an independent Uh do you think it would be proper for you to make a request of this committee? Uh the chairman Oh, he just left.
▶ 0:52:39Uh but uh I'll make an inquiry about uh perhaps uh the appearance of him here. I I think that would be appropriate. Uh do you think it would be helpful to this committee? I I think it would be helpful for this committee, yes. Well, then uh I would like to impose on you a little bit. We will do our share about trying to get him here, but I would if you could help us uh make a request, I would appreciate it very Will do. Thank you. Thank you.
▶ 0:53:09I yield The gentlewoman yields back. The gentleman from Tennessee, Mr. Rose, is now recognized for 5 minutes. Thank you, Chairman Flood, and and thank you, Ranking Member Cleaver, for holding this important hearing, and thanks to our witnesses for your time and being with us today to lend your expertise. In the run-up to the 2008 financial crisis, Moody's, Standard & Poor's, and Fitch were not innocent bystanders. They were central enablers.
▶ 0:53:36They repeatedly stamped complex mortgage-backed securities stuffed with risky loans with the highest possible ratings, helping to pump toxic products into every corner of the financial system, and paving the way for a collapse that devastated homeowners, retirees, and taxpayers. Mr.
▶ 0:53:55Bright, given that the history of catastrophic failure given that history of catastrophic failure and apparent disregard for basic due diligence, why should Congress or the American people place any trust today in these same firms to accurately assess risk in the current market for mortgage-backed securities rather than assuming that these firms will once again chase fees at the expense of honesty and prudence?
▶ 0:54:22Well, the market that that buys the securities based on these has learned and evolved quite a bit. And I think that that's important. And I think that there have been some good reforms um on the rating agencies and on the entire market itself. If I go back to um if I could you know repeat sort of a principle that we have uh from the beginning is that I think the failure of the financial crisis is that we had poorly underwritten loans, no-doc loans, low-doc loans, liar loans.
▶ 0:54:46The collateral was being underwritten based on the value of the underlying asset, not the borrower's ability to actually repay. And I think um we've moved a long way since that. And so I think that that's a very healthy evolution and lesson learned from the financial crisis. I'm skeptical. Mr.
▶ 0:55:04Michel, uh what concrete steps should Congress consider to break the dominance of Moody's, S&P, and Fitch, firms that helped vaporize trillions in wealth, cost Americans their jobs, homes, and savings, and yet walked away with virtually no real accountability, and to encourage new competitors in the credit risk rating business so investors are no longer captive to this closed ratings Well, I mean, you you don't want to have regulations that mandate
▶ 0:55:35a special sort of designation. That's one thing, because that makes it harder for anybody else to come in and do a rating sort of arrangement. Um, but I think that the bigger issue is that you don't want a single or double government-backed entity in the first place. Uh, and to be a little bit fair to those guys, uh, for the most part, the mortgage-backed securities ratings that they gave not that far off. Interesting. Okay. Uh, Mr.
▶ 0:56:05Bright, if China accelerates mortgage-backed security sales as retaliation for tariffs or other policies, as some analysts warn, how could or how would that interact with Fed balance sheet runoff or domestic liquidity shocks to amplify housing market stress? if the Chinese Central Bank were to do something like that, it would be That would be a strategic decision. That would be very poor economics for them.
▶ 0:56:31They have lots of dollar reserves from trade deficit, um, that we have with them, and they have to invest those reserves in a way. So, I They'd have to put it in something else. I think that would be pretty detrimental to them. It would also be detrimental to us. Dr.
▶ 0:56:45Michelle, uh, if China chose to dump a significant volume of US mortgage-backed securities for geopolitical reasons, how worried would or should we be that this kind of foreign policy-driven selling could, uh, deepen housing market stress for American families and small lenders? Uh, my my flippant answer is that the Fed would just buy it.
▶ 0:57:12Uh, I And And my serious answer to go with that, though, is that I think that you What you What you still are end up What you still end up with is a bunch of effectively Treasury securities that are sitting out there. Someone's going to buy them. In all seriousness. All right. Mr. Brooksmit, uh, from MBA's perspective, what aspects of the current secondary market structure are most important to maintaining broad access to 30-year fixed-rate fully amortized payable mortgages?
▶ 0:57:41Congressman Rose, thanks again for your leadership on the Trigger Leads bill, which is going into effect next month and will help consumers immediately. We think that a level playing field among all types of lenders in accessing the secondary market is a critical part of this. So, whether you're a small bank or a large independent mortgage banker, you should have the same terms available. The the The terms should be based on the credit of the loan, not on the volume of the loans sold to the GSEs. Thank you.
▶ 0:58:11My time's expired. I yield Gentleman yields back. The gentlewoman from Michigan, Ms. Tlaib, is now recognized for 5 minutes. Thank you, Mr. Chair. In Metro Detroit, the average home owned by one of my black neighbors is worth 45% less than an average home owned by one of my white Black residents in my community have long complained that appraisers are undervaluing their homes.
▶ 0:58:36And I'm sure you all have heard or saw reports and Under the last administration, FHFA began releasing public appraisal data for the first time. And wouldn't you know it, the appraisal gap between black neighborhoods and white neighborhoods started closing uh significantly as soon as those reports were made public.
▶ 0:58:57However, shamefully this administration uh under this administration, the FHFA has stopped updating that public data and has ended appraisal bias work. Uh which again, under Secretary Fudge, was uh a priority for her. Dr. [snorts] Cornelsen, can you talk briefly about what impact appraisal gap has on households in the broader market, especially um appraisal bias that we continue to see not only in the blackest city in the country, Detroit, but really across the nation? Thank you so much.
▶ 0:59:27Um I mean, we we have a long-standing racial homeownership gap in this country and it still stands at 30%. Uh mechanisms such as appraisal bias just kind of worsen that that homeownership gap and the the wealth gap. Specifically, they undermine people's capacity to truly build wealth through homeownership as their their asset gets valued lower, but it also can make it more difficult for them to get a mortgage or to refinance as their mortgage application may be rejected if the appraisal comes in too low.
▶ 0:59:56Uh another troubling change from FHFA is that they have reduced the number of Fannie and Freddie are expected to buy serving lower and moderate-income families. This is a really big big decision here. The new enterprise housing goals will mean that over the next three uh years, 177,000 lower-moderate-income families will no longer receive mortgages that they otherwise would have gotten access to.
▶ 1:00:22So, Dr., can you talk about the enterprise housing goals and how they support working families and what recent changes will mean? I think for the folks listening, my residents, what is this? And then again, the terminology is used in DC, I feel like is intentional so that they will never fully understand how discriminatory the housing uh market Yeah, I thank you for your question.
▶ 1:00:43I I feel the same that there's too too many But the affordable housing goals Congress put these in place to make sure that Fannie and Freddie of all the mortgages that they support, that a certain percentage of those mortgages go to underserved communities and to low-and-moderate-income home buyers to make sure that they serve all markets. Uh so, Congress put these in place, but over the last year, as you said, uh we've seen the director significantly low significantly lower those goals. And I just want to emphasize that these are not risky borrowers.
▶ 1:01:12These are everyday working families. These include firefighters, realtors, paramedics, all kinds of jobs that sort of fit in that in that bullet of 80% AMI or less. Oh, I know, and and it's interesting to see the rent cost go up and they're able to afford that rent, but they if they got a mortgage they would actually be paying less than they would in rent in many parts of my Uh finally, just last week FHFA announced they keep making all these announcements as you know, um is ending the fair lending and fair housing enforcement for Fannie Mae.
▶ 1:01:43I don't think there's a lot of people talking about this. For any again, fair housing enforcement is ending under Fannie Mae, Freddie Mac, and Federal Home Loan Banks. This is the part of broader pattern by this administration as we know, enabling discrimination. We have seen staffing cuts, disruptions in HUD's office of fair housing and equal opportunity. I know for a fact they laid off all these civil rights, you know, these attorneys that basically investigate invest, you know, discrimination.
▶ 1:02:10They have them at home getting paid, on administrative leave, doing nothing, not enforcing. So, the administration has also proposed reforming what they call regulation B of the equal credit opportunity act. I keep bringing this up in committee, which would eliminate disparate disparate impact liability. This is huge. Now the FHA FHFA has announced it is repealing the fair lending, fair housing, equity housing finance plans regulation.
▶ 1:02:38Director Newsome, what are the consequences for many of our residents in underserved communities across the country and FHFA to step back from ensuring compliance with our fair housing, fair lending laws, and specifically women? This is women are overwhelmingly getting discriminated against. Black women, brown women, but women with children are continuing to again, people looking the other way and not wanting to lend or rent their homes to. Thank you for your question.
▶ 1:03:04I think it's a really important issue to raise, and I just want to start by level setting that the Fair Housing Act and fair housing protects virtually every consumer, right? There's a lot of protected classes in there, so it protects you against discrimination based on national origin, on race, but you're a woman, what if you have kids, uh based on your disability status. So, by taking away these protections, they're making our fair and affordable housing crisis even worse, right? It may mean you The gentleman is no longer recognized. Thank you. The gentleman from New York, Mr. Torres, is now recognized for 5 minutes.
▶ 1:03:35Thank you, Mr. Chair. Um mortgage-backed securities represent the most liquid fixed-income market in the world, second only to US Treasuries. The liquidity of the MBS market stems from confidence. And the confidence stems from the implicit government guarantee. And if there is an erosion of the implicit government guarantee, real or it could conceivably create a crisis of in the MBS market.
▶ 1:04:00Is there a risk that the IPO of Fannie Mae or Freddie Mac could compromise the liquidity of the second most liquid market in the world? Mr. Bright. Thank you, Congressman. Um we keep One caveat, we keep using the IPO, but there are I just listened to Fannie's earnings calls today. So, they do, you know, they do have shareholders and and SEC registration and all that stuff. So, you're talking about a capital raise through the capital markets. It depends on so many things.
▶ 1:04:30I mean, I I I would advocate for broad, bipartisan congressional oversight of any change that's structural in that market, um to ensure that that doesn't happen. I The Thus far, the market has not reacted negatively to to these statements. Um and so, that take that as a good sign. Um the administration is obviously very focused on interest rates, and so the market has taken that into account. But I I can't
▶ 1:04:53Can I interject though? It seems like the starting point should be do no harm. Sure. Yeah, fair So, like what is the problem that we're attempting to solve Like is this a solution in search of a I look forward to seeing the comprehensive proposal. Mr. Brickman.
▶ 1:05:12I think that if [clears throat] there were some sort of capital raise and the GSEs remained under conservatorship, which is a construct we've heard, then I don't think there's much potential damage to the market. I think if there were an exit from conservatorship
▶ 1:05:29of the two, yeah. Well, or separately. I think they frankly probably on a separate track, but
▶ 1:05:34an ill-thought-out exit is where the concerns you raised would really come to the fore. And could I could I or a major change to the PSPAs. Because that's really the undergirding of the market's confidence that they're not taking on credit risk. You know, the US has a $15 trillion mortgage market. The GSEs backstop the majority of it. If the GSEs are backstopping the majority of a $15 trillion market, does it not stand to reason that the GSEs should be designated as systemically important financial institutions?
▶ 1:06:05Mr. Bright. I told you when we met I love the question. It's not It's an idea that I think is a lot of merit. I I would pose it to the FSOC. I think they they probably fit the SIFI bill. People have different opinions about the value of the SIFI tag, but it's it's not a bad thing to look into. It's fair to say if those institutions were to fail, it would create a systemic crisis.
▶ 1:06:27I I that's very fair to say. Thus making it a systemically important institution.
▶ 1:06:30That is a fair Regardless of how we designate it.
▶ 1:06:32Yes, sir. Um the FHFA directed the GSEs to make a $200 billion purchase of mortgage-backed securities. I feel like if it walks like a duck and sounds like a duck and looks like a duck, it's probably a duck. And it's fair to say that a $200 billion purchase of MBS looks a lot like a kind of shadow quantitative easing.
▶ 1:06:53Is that a fair So, um in some ways I I yes, I see exactly I see what you're saying um because the stated purpose of it was to lower interest rates. So, they they They been buying um a couple of about 10 to 20 billion dollars a month and the market was was been watching that. Um, to pull forward the 200 billion um, with the stated goal of lowering rates um, QE had similar objectives, yes. I Although in the case of the Fed, QE is typically a response to a crisis.
▶ 1:07:23You wouldn't have a 200 billion dollar purchase in the absence The Fed did it because it was concerned about deflation and attempting to stop a deflationary cycle. COVID, the great financial should there be a statutory cap on the amount of de facto quantitative easing that can be undertaken by the FHFA or is there a The uh, yes, there is a cap.
▶ 1:07:48225 billion dollars per GSE and the directive from the administration was simply to get much closer to the cap. They were nowhere near it. And you know, I think you said earlier bad loans make bad securities. It's like garbage in, garbage out, right? garbage loans. So, what's what's the how would you assess the strength of lending since the financial crisis in 2008? Uh, definitely much stronger. I think um, it to the extent that any of our members have any concern, we're not calling for a recession.
▶ 1:08:18We don't think that's necessary.
▶ 1:08:19calling for a recession? I don't I don't think that's likely in the in short term, but I think there is some fraying
▶ 1:08:25I'm I'm against a recession, too.
▶ 1:08:27I'm not advocating for a recession. Um, sorry, I'm using predictive speak. There's some fraying in subprime sectors of the economy worth watching. My time has receded. Gentleman yields back. The gentlewoman from Texas, Ms. Garcia, is now recognized for 5 minutes. Well, I'm not advocating for a recession, either, just for the record. Uh, but thank you, Mr. Chair, and and thank you to all the witnesses for being here this afternoon.
▶ 1:08:53Uh, across the country, working families are struggling to keep up with rising housing costs. Between the labor shortage impacted by Trump's immigration crackdown and tariffs that ext extraordinarily have raised the material cost. Building a home has become much more expensive. Builders are scaling back. I see that myself in Houston every time I go home.
▶ 1:09:18And every time the housing supply shrinks, families end up paying the price with higher rents and higher Rather than address the issue, the housing finance system saw unprecedented change including mass firings and staffing changes. One of these changes was the Federal Housing Finance Administration agencies recession of its advisory bulletin on climate-related risk management.
▶ 1:09:44The bulletin required government-sponsored enterprises to integrate climate-related risk management framework in into its existing risk management program. Dr. Korth Nollason, how does climate risk intersect with secondary mortgage markets? It It very closely intersects. You know, natural disasters are becoming more common and this is impacting, you know, the quality of our housing stock.
▶ 1:10:10We've seen a lot of housing stock destroyed in natural disasters, but it's also impacting systemic risk more broadly. If there's a very large disaster, you know, this can bring down home prices and and create more risk on the books of the enterprises. Well, we know that climate risk is a significant threat to us in Texas in the secondary mortgage market as rising insurance premiums driven by hurricane and flood risks increase mortgage delinquencies, especially for us in Houston.
▶ 1:10:39I think we've seen seven major disasters in the last eight years. I mean, you all see it on the news. The that photo that that always comes to mind of that image of of people on on on boats, you know, going home to home because that's how much water we had. That was in my district, so I'm very, very, very cognizant of it. So So, Dr.
▶ 1:11:02A study done last year by the Dallas Federal Reserve Bank found that the the delinquency effects are present in both GSE and non-GSE mortgages, implying risk for both the federal government and the private sector. Do you believe that climate risks, coupled with soaring reinsurance costs, are ultimately eroding housing stability, particularly for low-income Absolutely. We're We're seeing a We're seeing growing pressure.
▶ 1:11:30I mean, our housing crisis is not just about the cost of a mortgage, but also other costs, such as the the price of home insurance. Uh so, for a lot of lower-income homeowners and homebuyers, this is putting a lot of extra pressure on their pocketbooks every every month. Yeah, for sure.
▶ 1:11:44So, it's a double whammy. It's a double whammy, yeah. It's a double whammy. So, as insurance insurers continue to pull out or increase premiums due to climate events, lenders are more likely to pass on risk for properties with high environmental risk, decreasing property values, and ultimately undermining the stability of the secondary mortgage Mr. Bright, you wrote in HousingWire in 2022 about the impact that environmental could have on residential mortgage-backed securities.
▶ 1:12:15In your opinion, does the mortgage-backed securities market adequately price risks related to insurance costs, especially in states like mine in Texas, Florida, and California that are impacted the most? The end MBS investors, as fiduciaries to their clients, have to take into account all risk, including climate risk and the costs that that could incur, you know, that that that could impose on um loss of property, delinquencies, etc.
▶ 1:12:41So, the the the large investors, insurance companies, and and asset managers who invest in these bonds very much look at So, I know I focused on climate risk today, but there are so much more to discuss, including the role of GSEs, market stability, and recent policy at the Federal Housing Finance Agency. I hope we can keep up the momentum from this week and continue the important discussion, Mr.
▶ 1:13:06Chair, because when we talk about affordability for many of people in my district, it's more than just the groceries, it's more than just the gas, it's also utilities, it's also rent, it's the high insurance premiums, it's their mortgage, it's all of the above. So, unlike the person in the White House who thinks affordability is a hoax, my district knows it's real. They encounter it every single day. So, thank you, and thank you to all the witnesses, and I yield back the final 10 seconds of my time.
▶ 1:13:36The gentle lady yields back. The gentleman from Wisconsin, Mr. Fitzgerald, is now recognized for 5
▶ 1:13:42Thank you, Chairman. Uh the secondary mortgage market depends on broad investor confidence that uh mortgage credit risk is being priced, managed, and distributed in the coming weeks, I plan, and I'm I'm sure the Chairman's aware, we're going to be introducing legislation that would end the conservatorship of Fannie Mae, Freddie Mac by codifying many of the reforms that have been accomplished the past few years, in particular encouraging
▶ 1:14:12more credit risk transfers. Mr. Bright, thanks for being here today. From your perspective, would you agree that uh with the cap on their investment portfolios, increased capital standards, and the introduction of the credit risk Fannie and Freddie have become far less risky than prior to the financial crisis? And then, how can we encourage more CRT uh further How could we have that CRT further remove taxpayer risk and better utilize private capital?
▶ 1:14:42So, to answer your first question, undoubtedly, they're less risky. Much lower leverage, much stronger underwriting standards, much more oversight. And as you point out, the use of CRT as an insurance vehicle to protect against predefined losses. How can how can we encourage more? You mentioned codifying reforms and legislation.
▶ 1:15:03I think there are a lot of reforms that have been done administratively that could use codification legislation and encouragement of them to continue to leverage that as a form of loss protection. Very good. Let me ask you another question. Mr.
▶ 1:15:17Bright, one aspect of Fannie and Freddie that has not been addressed is the alarming increase in the conforming loan which allows them to purchase mortgages over a million dollars in high-cost So, what we're trying to do with the is tie increases in the loan limits to median income rather than the home price appreciation index, right?
▶ 1:15:42I know I'm getting into the weeds here, but So, that would in effect, you know, probably put the rates on a different path and they would increase Can you talk about how this change would bring in probably more capital, more private capital to the mortgage market as well as uh the benefits of that, I guess. There's there's quite a bit of private capital on the sideline looking to get into the mortgage market.
▶ 1:16:09The PLS market is functioning well and there's more capital to be deployed there. One regulatory change that I would hope you all would encourage would be the SEC to continue looking at amendments to the Reg AB II framework, which has been in place since 2013 and has really limited the ability to have a public issuance market for mortgage-backed securities that aren't backed by the taxpayer. My understanding is the SEC is looking into it.
▶ 1:16:31I would encourage you to do that as Being mindful of time, there is a chart that I think speaks volumes and it it's a graph of home prices and a graph of loan limits and then a graph of income over the last 15 years and you can see these lines home prices and loan limits goes up together. Incomes do not and that gap is a problem and is probably contributing to affordability challenge. Very good. Thank you. Mr.
▶ 1:16:57Brooks Smith, um one core part of the bill that I'm working on would establish a utility model framework for Fannie and Freddie. Can you discuss how a utility uh kind of model potentially use using a a return on equity band could discourage Fannie and Freddie from expanding beyond their I guess what you'd call their core mission? Sure.
▶ 1:17:21We think that a model for a post conservatorship Fannie Mae and Freddie Mac where their returns are targeted to a range of um return on equity would make sense. We we want it to be set enough so that there'll be interest in people buying their stock and having them be well-run companies but with a cap so that they don't stray away from their chartered mission and get into the primary mortgage market for instance.
▶ 1:17:48Yeah, I mean we're kind of in that would be uncharted territory so we're assuming you but but you're confident that that's what the what the impact would be. Well, I think that
▶ 1:17:59We think that that Congress's involvement in any ultimate release would put guardrails in terms of what activities they could pursue which would complement the utility model. Very good. Thank you. I yield back, Chairman. Gentleman yields back. The gentlewoman from Colorado, Ms. Perlmutter is now recognized for 5 minutes. Thank you, Mr. Chairman. It must be fun to run the committee. I miss those days. Um
▶ 1:18:25I welcome everyone. Thanks so much for being here. We know that the skyrocketing housing costs are really fundamentally about the housing supply. We have to build more housing but you all play such a critical role and perspective I in making sure that we have a well-functioning secondary mortgage market to ensure that lenders can make loans more affordable. I So, I want to first start out with the industry perspective and hear from Mr. Bright and Brooks-Smith.
▶ 1:18:56I The secondary market is critical to facilitating homeownership and the stability of our financial system. And I think it's important that any major efforts here should involve Congress and be bipartisan so that they're durable.
▶ 1:19:10Do you agree that GSE reform, significant policy changes to the secondary market, or any attempt at releasing Fannie and Freddie from conservatorship should be done in a bipartisan way working with Congress so we can have a system that is resilient to economic and political conditions. We can start with you, Mr. Bright. Yeah, I I I think congressional bipartisan involvement in these issues is critically important. All right.
▶ 1:19:38Can I hear from you, Mr. Brooks-Smith? Hey, wow, that was concise. I Let's shift to the consumer perspective and want to thank Sharon Cornellison. I'm so sorry. We're all butchering it. Um We're trying though. And Trump and the FH FA director have pushed several concerning ideas regarding the secondary market. We've heard a lot about the 50-year mortgage.
▶ 1:20:06I'm deeply concerned that something like this that might sound good on its face would actually lead people further into debt and homeowners won't be able to build equity in these products. Would you like to expand further on how this would negatively impact consumers? Uh yeah, absolutely.
▶ 1:20:24Um I mean, if you if you sign up for a 50-year mortgage, uh your monthly payment may be a little lower, so maybe $50 a month lower, but even in just 10 years of the loan, you end up paying $50,000 more or more in interest payments, right? So, it really undermines people's ability to build wealth through homeownership. I also want to point out that the average first-time homebuyer today is 40 years old. So, if you if you sign for a 50-year mortgage, you may still be paying mortgage payments well into your retirement.
▶ 1:20:55Thank you for that. Do you have anything else that you'd like to expand on on what some real solutions are? Um yeah, I I mean, I I've mentioned this before, but I think I really thinking about the actual capacity of Fannie and Freddie to lead the market. They have a lot of capacity to really set standards for the US mortgage market and come up with products that make mortgage finance more broadly available.
▶ 1:21:21So, you know, I think a way to really expand shared equity financing, for example, for nonprofit uh shared equity product uh could be a great idea. Um helping CDFIs uh do more mortgage lending and get better access to the secondary market for what are usually kind of unusual products, right? They don't really meet the sort of typical Fannie and Freddie loan, uh but helping them uh get better access to the secondary market.
▶ 1:21:47And then finally, I mentioned it before, but I think there's a lot of bipartisan support here, too, uh for for thinking about ways to expand financing for manufactured housing through a mortgage um to help consumers uh access that housing stock as well. Thank you for adding to that. I quickly We're running out of time, but Mr. Bright, what are some of the top three suggestions for ways that the GSEs can better support access and affordability?
▶ 1:22:15Um so, Fannie has this HomeReady program, I think it's called. Um it's kind of an interesting program. I'd look at that. It involves, I think, a $2,500 um rebate to uh first-time homebuyers and allows for a very low down payment. I don't know I don't know if I have the uptake on that program, but that could you already have sort of something that's right there to use. When when it comes to affordability, one thing I think always is important to remember and you know this cuz you said it.
▶ 1:22:44The secondary market and interest rates can only affect the demand side really and make it a little bit easier to borrow. It's the supply that I think really needs the most amount of focus and I think rehabilitation of old homes, building on vacant land, conversion of office buildings into rentals, and manufactured housing as well. These are all I think a holistic approach that can help address that.
▶ 1:23:06Thank you so much for that and maybe we don't have time for a response, but I don't think that tariffs and deporting our workforce is also going to help with rising costs, but thank you all for being here. I yield back. Gentlewoman yields back. The gentleman from Montana, Mr. Daines is now recognized for 5 minutes. Thank you, Mr. Chairman, and thank you for the witnesses for being here today.
▶ 1:23:25Uh we've discussed at length today how the GSEs and the secondary mortgage market serve to provide substantial liquidity in the mortgage market and really make it possible for small and mid-size lenders to originate mortgages. Yes, it's fair to say that home ownership, which epitomizes the American dream for many, has never been further out of reach.
▶ 1:23:48And today the GSEs securitize roughly 40% of new mortgage originations and own or guarantee guarantee nearly 70% in outstanding agency mortgage-backed As a conservative, I prefer as little as little involvement of the federal government in the market as possible and in Congress created these GSEs. So I'm going to start my questioning with Dr. Uh is more comp this is a two-part question.
▶ 1:24:13Is more competition needed in the secondary mortgage market mortgage market and if so, what can Congress do to lessen the federal government's involvement to drive down the cost of lending and borrowing. Yes, revoke the But they're Thank you very much. Uh I'm going to move on to uh Mr. Do you believe the secondary mortgage market is functioning as efficiently as it should be? I I think it I think it's functioning pretty well. Yeah, I do. Well, thank you.
▶ 1:24:43Is there anything that congressional or the commercial mortgage-backed securities or CMBS market, you know, something I've a a little bit of experience with, um that we should explore for the residential mortgage-backed security space? You know, there's all these ideas like, you know, B-piece buyers for the higher-risk tranches, um yield maintenance defeasance. Is there anything we should be exploring on the CMBS side that would apply here? Yeah, that's that's a really interesting question because in the CMBS market there is risk sharing. It's already built in, um which is what the PLS market does.
▶ 1:25:12And if we can get Reg AB II changes, then that market can really step in. Why do you think other countries have not adopted the GSE model of the United States? I mean, I think homeownership is a little bit uniquely American and as a you know, as an aspiration. Um there Europeans are a little bit more comfortable obviously with renting culturally. There there is a covered bond market in Europe that's very heavy. Um and they they rely on that.
▶ 1:25:37I will point out that the EU is undertaking some very aggressive reforms right now to attempt to jump-start their securitization market because they realize that relying solely on giant banks with putting just loans on their balance sheet isn't enough to achieve growth that they want. So, they're voting in June on a package of really substantial regulatory reforms to try and jump-start their securitization market as well in all asset classes. Thank you. Uh I'm going to move back to Dr. Michelle.
▶ 1:26:02Do you see the US needing the GSEs I'm sorry, do I see them Needing. Do you see the United States needing the GSEs No, I mean, I don't think that they needed them in the first place though.
▶ 1:26:14So, if these disappeared tomorrow, what effect would that have on a I in an abrupt fashion like that, that's probably not ideal. However, you have a really hard time to make a logical case that they are necessary. Thank you. We've discussed
▶ 1:26:31Other people would invest. That's what I'm trying to say. I I I appreciate your answer. We've discussed how the GSEs failing to stay within their congressional boundaries contributed to the 2008 financial crisis. So, how do you think 2008 would have played out differently if the GSEs didn't exist?
▶ 1:26:50Well, I mean, there's a very large percentage, and I don't have the numbers in front of me, but a large chunk of even the private label market were We know they were buying They were They were securitizing with the specific intent of selling some of that stuff to the GSEs. Right. So, the the the whole problem is this is more leverage, right? And that's what you get. If you have more federal backing, more government backing, uh cover losses, you're going to get more leverage than you would have otherwise. So, you would have had less leverage and less risk.
▶ 1:27:20Well, thank you for that. Uh I'm going to move to Mr. You know, one reason for the failure of the GSEs in the run-up to 2008 financial crisis was the irresponsible political pressure of trying to put as many people in a home as possible.
▶ 1:27:34So, in your opinion, what should Congress be considering as we work on housing affordability legislation to ensure we are responsibly increasing Well, I think there are some immediate steps that could be taken right now in terms of lowering the loan level price adjustments at Fannie Mae and Freddie Mac that would that would give lower rates to borrowers tomorrow. I think the mortgage insurance premium at FHA would also do the same thing and lower costs tomorrow.
▶ 1:28:01And modernizing the credit report requirements would save hundreds of dollars per loan. So, I think those are some short-term tangible actions that we could take. Right. Well, I I I the panelists again. And on that, Mr. Chair, I yield my time. Gentleman yields back. The gentlewoman from Georgia, Ms. Williams, is now recognized for 5 minutes. Thank you, Chairman Flood and Ranking Member Cleaver for holding this very important hearing today because I am hearing about um home ownership and affordability crisis every single day in my district.
▶ 1:28:30I represent Georgia's 5th Congressional District centered in Atlanta, where mortgage borrowers know that homes are only getting more expensive and home ownership less attainable. Yesterday, had I had the opportunity to ask witnesses, I would have asked about the Trump administration's plan to have Fannie and Freddie sell off stock and unwind the conservatorship relationship, which has protected our housing market since the crash of 2008. But, I didn't get that opportunity, so let's have that conversation today.
▶ 1:29:01To better understand how deregulation of the government-sponsored enterprises will impact the secondary mortgage market and most importantly, folks trying to buy a home. Dr. Cornellissen, if the GSEs lose their implicit guarantee, how do you anticipate this would impact the secondary mortgage market? Um well, if they if they lose their guarantee, um investors will demand higher returns on MBS because they perceive more risk.
▶ 1:29:27That would that would drive up uh mortgage rates and make um home ownership even more out of reach for people. Even more out of reach, which is wild to me when this isn't just my district that is facing this crisis, it's across the country. So, we should all be concerned about this. Dr. Cornellissen, how does the current secondary mortgage market and the relationship between community banks and GSEs impact housing affordability and consumer protection?
▶ 1:29:53I mean, at this point, um you know, all lenders sort of have equal uh pricing when they want to try to when they're trying to sell their mortgages uh to the GSEs, and it's something that MBA has really uh emphasized as something that needs to be protected in the future too, for any kind of future plan uh for the Thank you.
▶ 1:30:11And to follow up on that, finally, as we see movements towards GSE reform coming from the White House, how should Congress contemplate ingraining protections for borrowers into any change in the relationship between our government and the GSEs?
▶ 1:30:27I I think it's very important that if Congress gets involved, that um they're thinking about ways to really make sure that FHFA uh is the sort of well-staffed, independent regulator that we need in order to make sure that the GSEs stay safe and mission-focused. So, I would urge Congress to definitely focus on FHFA. Uh and I also want to mention the CFPB here, right? We're talking about the secondary mortgage market, but ultimately this is premised on the safety of the primary mortgage market.
▶ 1:30:54So, we also need a safe uh and strong regulator uh to to make sure mortgages are safe, and so we need the CFPB as well. Safe, strong, independent regulator that is actually advocating on behalf of the American people, because as I've stated, this isn't just an issue in my district, in Atlanta, back home in Georgia. This is an issue that is nationwide. Our homes is one of the most expensive things that we will ever invest in in our lifetime. Most people, the most expensive thing that we'll invest in.
▶ 1:31:23And in my district where I work daily to close the racial wealth gap, this is something that is extremely important to me. Thank you to our witnesses today, and I look forward to working with you as we continue to lower the cost of home ownership and make it more attainable for more more Americans. Mr. Chairman, I yield back. The gentlewoman yields back. The gentleman from South Carolina, Mr. Timmons, is now recognized for 5 Thank you, Mr.
▶ 1:31:44Chairman, and thank you to the witnesses for being with us Today's hearing gives us an important opportunity to examine the structure and function of the secondary mortgage market and why it has been such a critical part of expanding access to mortgage credit for American families. Fannie Mae and Freddie Mac play a central role in that system. And when they operate within clear guard rails, they help sustain a stable and effective housing market. History also reminds us that when the GSEs grow too large or assume excessive risk, taxpayers in the broader financial system can be exposed.
▶ 1:32:14Striking the right balance remains a key consideration for policy makers as we look ahead. One of the most significant structural changes to the GSE model since 2008 has been credit risk transfer. Before before turning to outcomes, it is important to understand what credit risk transfer is and how it functions and how much risk it actually shifts away from the GSEs. Mr.
▶ 1:32:34Bright, for members who may not work day-to-day in the mechanics of housing finance, could you explain what credit credit risk transfer is, when it emerged, and the problem it was intended to address in the aftermath of the financial crisis? Yeah, thank you. Um, CRT um, I'm not sure the exact year, but this is post-conservatorship. I would want to say maybe 2011.
▶ 1:32:55Um, the FHFA director at the time began looking for other ways to safely uh, protect Fannie and Freddie from So, credit risk transfer is essentially a security that you sell that has a predetermined definition of when it would pay pay out. So, for example, you you sell a bond, Fannie would sell a bond to a credit investor, they would put money in a pot that Fannie has access.
▶ 1:33:17If if borrowers in underlying reference pool go 120 days delinquent, Fannie at that point has to buy the loan out of the mortgage-backed security, put it on its own balance sheet, exposing it to risk. But in CRT transaction, it also can dip into that as loss protection for So, I I think it is very important um, uh, part of, you know, a series of of ways of protecting yourself.
▶ 1:33:41It's sort of like the metaphor I use is it it Saying don't use CRT, only have equity capital would be kind of like saying don't buy fire insurance on your house, just have the value of your house sitting, you know, that much cash sitting in a savings account. Sure, that sounds really nice, but that's really expensive and you can't really do it. So, you need both. You need money saved in an account, and you need insurance against predefined risk. Thank you for that. These programs were designed to strengthen the secondary mortgage market, reduce the GSE's footprint, and promote long-term stability.
▶ 1:34:10Recently, however, some observers, including former Freddie Mac CEO Don Layton, have raised concerns that the use of CRT has declined, potentially increasing risk at the GSEs. Mr. Brady, again, drawing on your experience across the industry, do you believe CRT remains an important tool for protecting taxpayers and maintaining a stable secondary mortgage market, and are we doing enough to ensure these programs remain efficient and consistent over time? I think um CRT is an important tool, and I know that uh Mr.
▶ 1:34:38Layton has a lot of personal pride in their development. Um he's a friend of mine, so uh I'm sure his writing was very good, but yes, uh I think they're important tool. Thank you for that. Uh finally, I want to ask about GSE cash window. It was originally designed as a safety valve to ensure that community lenders who do not have the scale or resources to access complex securitization markets could still sell loans and continue serving their borrowers.
▶ 1:35:03While that role remains important, there are growing concerns that the that the cash window is being used more broadly than originally intended. Heavy reliance on it can allow lenders to sidestep the pricing discipline checks that exist in the private market. Because individual loans are combined into large pools, weaker underwriting can be harder to just to identify, and incentives for careful risk management are reduced. This reliance can also leave lenders vulnerable when policies change.
▶ 1:35:30For example, the FHFA's 2021 volume caps showed how quickly access to the cash window can be limited, cutting off a primary source of liquidity for lenders that had not developed alternative market channels. At the same time, this approach can concentrate more risk on the GSE's balance sheets, and ultimately on taxpayers. Uh Mr. Brooksmith, do you believe the GSE cash window has drifted away from its original mission of supporting small lenders?
▶ 1:35:56And are there steps policymakers or regulators should consider to ensure it remains a true backstop rather than a primary outlet for risk? We think the cash window is a is a critical part of the way that lenders interact with Fannie Mae and Freddie Mac so that they could sell loans one by one rather than securitizing them. And we also think there's more Fannie and Freddie need to do to show you and the Congress that there's a level playing field between the cash window and their MBS purchases.
▶ 1:36:26Their their annual reports to Congress on the G fees, for instance, need to go into more detail on this to prevent just the kinds of things you cited. Thank you for that, Mr. Chairman. I'm out of time. I yield back. Gentleman yields back. The gentle woman from Oregon, Ms. Bonam, is now recognized for 5 minutes. Thank you, Mr. Chairman, and thank you to our witnesses this afternoon for joining our committee today.
▶ 1:36:48It's no secret that homeownership is out of reach for far too many Americans, and I'm glad to have the opportunity today to talk about how we can fix that. Part of the problem is mortgages just aren't affordable or accessible. Now, as this administration considers whether to release Fannie and Freddie from government control and prepares to potentially pursue public offerings for their shares, the entire mortgage system is at a critical inflection point.
▶ 1:37:20I believe this could have a major impact on the housing market and wider economy. But my question actually is pretty simple. Where should all that money go? Should the administration proceed with this, this would be one of the largest stock offerings in history, raising as much as 30 billion dollars for the federal government. If we use this money to plug holes in the federal budget or give more tax breaks to billionaires, I think we'll be making a major mistake.
▶ 1:37:50I don't believe we can afford to liquidate our housing finance system while failing to address the shortage of 4 million homes that keeps home home ownership out of reach for Americans all over the country. So, in my view, this is pretty easy. The money shouldn't deepen inequalities in our country. Instead, it should go to the states where housing development is most urgently needed.
▶ 1:38:14And in my home state of Oregon, it's estimated that we need to build 140,000 new homes in the next 4 years just to keep pace with demand, never mind lowering the cost of housing. I believe we should use these funds to build more affordable housing of all types to get the housing supply where it needs to be. That includes investing in infrastructure like transportation and clean drinking water which enables more new builds.
▶ 1:38:45The money should also fund demand-side solutions like offering down payment assistance to first-time home buyers, and I think this would make significant progress towards increasing housing affordability in both the short and long term. Now, I'll pause here for just a second just to share I always share a family story. I have four kids, 24, 21, 17, and 15.
▶ 1:39:08And um after receiving a frantic call from my mother this weekend, she says, "You all You all need to fix the tax policy in this country because I have property and and I need to unload it. You all are angry at my generation for not unloading it, but I have to pay for my retirement. I have to pay for my long-term care, and you all are forcing us to keep it." Okay, thanks, Mom.
▶ 1:39:31So, so I talked with my husband and and we, you know, rekindled the conversation about our estate planning. And so, every Sunday night we have family meetings, so I'm preparing the older kids who are away. Um Um, hey, you know, we're going to talk about our estate planning. And when I talked with my oldest daughter, the 24-year-old, her the first question out of her mouth was, "Okay, we're talking about estate planning, do I get the house?" That was the first question.
▶ 1:40:01The The young people are acutely aware of how out of reach this feels. And I think that's what we're talking about today. So, my question, um, is I want to ask Dr. Cornelison, did I get it right?
▶ 1:40:18with the profits that would come from this public offering that would be genera- that were generated by American homeowners paying their mortgages, would it make sense to keep housing dollars in the housing sector rather than paying for, say, tax cuts for the wealthy or letting them go to the Treasury's general fund? Uh, I think that totally makes sense. Uh, this money came, uh, from housing and it should stay in housing.
▶ 1:40:43I I also think you raised a really important point that if we want to build 4 million homes that we're short over, you know, over the next 5 years, we need investments. We need real money to kind of, um, you know, prompt the housing industry into action and to build homes, not just any homes, but homes that are affordable for families, too. So, I think that's a great idea. Thanks. Um, Mr.
▶ 1:41:05Bright, um, so what do you make of this idea if the administration is willing to buy up 200 billion in mortgage-backed bonds to bring down mortgage rates, um, maybe we could be leveraging revenue from a potential public offering to offer as one solution to addressing our nation's housing crisis? And I have 20 seconds left. Love the idea of finding revenue to address the housing crisis, absolutely. I One caveat, I I don't know how the capital is scores.
▶ 1:41:32So, um, I I because Treasury is selling an ownership stake that comes with warrants with it. So, I don't know that it scores as 30 billion as revenue. That I just I just flag that. All right. Thank you. Thank you, Mr. Chair. Yield back. Gentlewoman yields back. Now, the gentleman from California, Mr. LaCardo, who is also going to be honored by Habitat for Humanity for his work in housing tonight, is now recognized for 5 minutes. Thank you, Mr. Chair, and and congratulations as well as on your award. And thank you.
▶ 1:42:02I just want to note that Congresswoman Bonamici's mom also called my office as well. She's a very effective lobbyist. But she's tough. Um Mr. Brooks, I I appreciate uh that your members are deeply engaged in our battle to try to make housing more affordable uh for home buyers.
▶ 1:42:24I I know that um there's also an opportunity for us as we think about expanding housing supply, which I I know is at the core of all this, of enabling and empowering homeowners to become home Um and in cities like Vancouver, we see as many as a third of the single-family parcels um have an ADU, an accessory dwelling unit or backyard home.
▶ 1:42:45Uh and I saw that opportunity when I was mayor of San Jose to try to see how we can in- incentivize folks to build ADUs of their own working with the private sector who had prefabricated and modular units that were more affordable. Um and so, we streamlined our permitting and enabled folks to get a permit in a day online. And uh we were very proud of ourselves as we watched the number of permits a year ago from about 15 to more than 800 in just a couple years.
▶ 1:43:14Uh and suddenly we were seeing that this was a significant source of new housing. Um as we were patting ourselves on the back for this great success, then we went back and and looked at whether or not we were actually getting housing after these permits were getting issued.
▶ 1:43:27And uh anecdotally, about half the homeowners I talked to said, "We can't build because we can't get financing." Uh and certainly we've seen studies, for example, the Terner Institute where it indicates that roughly 2/3 of the ADUs that are getting built are really getting built or financed with liquid assets. And we know for most homeowners that's just not attainable.
▶ 1:43:50And so as we think about those many moderate-income uh or homeowners with perhaps not nearly enough equity to be able to finance the construction of a of a backyard home. Um you know, we're mindful as we reached out to a lot of lenders that there are a lot of challenges for lenders and lending in this space. Uh we'll go into all those now, but we certainly heard from many of your members that they had real challenges.
▶ 1:44:15Uh and the fact there's no FHA backing for a second mortgage of this site this type is is is particularly uh challenging. And it appears that Fannie and Freddie are largely engaged only in allowing um lending for acquisition of a home with an ADU, not for new construction.
▶ 1:44:33Uh and so uh I wanted to ask you about whether you believe there's an opportunity here if we can get Fannie and Freddie into the game, FHA, to actually uh empower more homeowners to become uh home providers, to get the financing they need to build ADUs, and perhaps help them pay their mortgage over the long run. I think that more accessory dwelling units is good. And I think there should be ways that to finance the construction.
▶ 1:45:01I know FHA has made it easier to use the rental income you get from an ADU to qualify for a loan. And we're open to all good ideas on this uh on this subject. And I know that our people are in touch with you and your people on on this topic. Yeah, I I appreciate that. I appreciate your partnership. Um you know, we we agree that it's a good thing that they're starting to consider the rental income. Um but of course uh what we're seeing, for example, in the case of Freddie is you actually have to show proof of an executed lease.
▶ 1:45:30Uh which means that it's already built and and there's somebody in it. So So, appreciate very much we have a at least a a direction here. Um I know there has been some concern about whether or not FHA would be healthy enough uh to be able to um backstop uh this kind of lending with insurance.
▶ 1:45:51Uh but I think you note in your your written comments I think on page 13 that the mutual mortgage insurance fund uh the reserve ratio is now 11 and 1/2%, which I think is roughly six times the statutory minimum. Is that right? Thank you for reading my written testimony.
▶ 1:46:10Uh I um well, I won't I won't go into how exactly I learned that. We There are smarter people than me around me. Um so I I I like to think uh as you look at the the landscape, we have healthy enough institutions to be able to expand this opportunity. Is that fair to say? To expand, I'm sorry, what?
▶ 1:46:28Expand this opportunity that is uh to help more homeowners. Absolutely. Yes. Well, I I appreciate that very much and I appreciate um your organization's partnership with us. I I introduced a bill, of course, uh with uh my colleague Andrew Garbarino uh in New York, a bipartisan bill called the Supply Act, and I uh look forward to working together see if we can get this over the goal line. Thank you. Thank you. Gentleman yields back. I'd like to thank all of our witnesses for your testimony today.
▶ 1:46:57Without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for their response. Witnesses, please respond no later than March 18th, 2026. This hearing is adjourned.