Prioritizing Fannie's and Freddie's Capital Over America's Homeowners and Renters? (Hearing, 2020)
Summary
The record of a September 16, 2020 hearing of the House Committee on Financial Services, Serial No. 116–109, titled "Prioritizing Fannie's and Freddie's Capital Over America's Homeowners and Renters? A Review of the Federal Housing Finance Agency's Response to the COVID-19 Pandemic." The committee met via Webex with Chairwoman Maxine Waters presiding; Patrick McHenry is the Ranking Member. The only witness is Mark A. Calabria, Director of the Federal Housing Finance Agency (FHFA). Waters says mortgage delinquencies have reached their highest level since August 2014 and 3.6 million mortgages are in forbearance, while mortgage credit supply has fallen to its lowest level since March 2014. She says FHFA's response to the pandemic has fallen short; other members say they will ask Calabria about the capital rule.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“Prioritizing Fannie's and Freddie's Capital Over America's Homeowners and Renters? (Hearing, 2020).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/house-hearing-116th-congress-prioritizing-fannie-s-and-freddie-s-capit-76c91e8798/
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PRIORITIZING FANNIE’S AND FREDDIE’S
CAPITAL OVER AMERICA’S HOMEOWNERS
AND RENTERS? A REVIEW OF THE FEDERAL
HOUSING FINANCE AGENCY’S RESPONSE
TO THE COVID-19 PANDEMIC
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
SEPTEMBER 16, 2020
Printed for the use of the Committee on Financial Services
Serial No. 116–109
(
U.S. GOVERNMENT PUBLISHING OFFICE
43–502 PDF WASHINGTON : 2023
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK MCHENRY, North Carolina,
NYDIA M. VELÁZQUEZ, New York Ranking Member
BRAD SHERMAN, California ANN WAGNER, Missouri
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
DENNY HECK, Washington TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee
KATIE PORTER, California TREY HOLLINGSWORTH, Indiana
CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin
BEN MCADAMS, Utah LANCE GOODEN, Texas
ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia
JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina
STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESÚS ‘‘CHUY’’ GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
CHARLA OUERTATANI, Staff Director
(II)
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CONTENTS
Page
Hearing held on:
September 16, 2020 .......................................................................................... 1
Appendix:
September 16, 2020 .......................................................................................... 65
WITNESSES
WEDNESDAY, SEPTEMBER 16, 2020
Calabria, Hon. Mark A., Director, Federal Housing Finance Agency (FHFA) ... 5
APPENDIX
Prepared statements:
Calabria, Hon. Mark A. .................................................................................... 66
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
McHenry, Hon. Patrick:
Written statement of the National Multifamily Housing Council and the
National Apartment Association .................................................................. 83
Calabria, Hon. Mark A.:
Written responses to questions for the record from Chairwoman Waters ... 106
Written responses to questions for the record from Representative Wag-
ner .................................................................................................................. 116
Written responses to questions for the record from Representative
Kustoff ........................................................................................................... 116
(III)
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PRIORITIZING FANNIE’S AND
FREDDIE’S CAPITAL OVER
AMERICA’S HOMEOWNERS AND
RENTERS? A REVIEW OF THE
FEDERAL HOUSING FINANCE
AGENCY’S RESPONSE TO THE
COVID-19 PANDEMIC
Wednesday, September 16, 2020
U.S. HOUSE OF REPRESENTATIVES,
COMMITTEE ON FINANCIAL SERVICES,
Washington, D.C.
The committee met, pursuant to notice, at 12:12 p.m., via Webex,
Hon. Maxine Waters [chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney, Velazquez,
Sherman, Meeks, Scott, Green, Cleaver, Himes, Foster, Beatty,
Vargas, Gottheimer, Lawson, Tlaib, Porter, Axne, Casten,
McAdams, Lynch, Gabbard, Adams, Dean, Garcia of Illinois;
McHenry, Wagner, Posey, Luetkemeyer, Huizenga, Stivers, Barr,
Tipton, Williams, Hill, Zeldin, Loudermilk, Mooney, Davidson,
Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Steil, and Taylor.
Chairwoman WATERS. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a recess of
the committee at any time.
Before we begin today’s hearing, I want to remind Members of
a few matters, including some required by the regulations accom-
panying House Resolution 965, which established the framework
for remote committee proceedings.
First, I would ask all Members to keep themselves muted when
they are not being recognized by the Chair. This will minimize dis-
turbances while Members are asking questions of our witness.
Members are responsible for muting and unmuting themselves.
The staff has been instructed not to mute Members except when
a Member is not being recognized by the Chair, and there is inad-
vertent background noise.
Members are reminded that they may only attend one remote
hearing at a time, so if you are participating today, please remain
with us during the hearing. Members should try to avoid coming
in and out of the hearing, particularly during the question period.
If, during the hearing, Members wish to be recognized, the Chair
recommends that Members identify themselves by name so as to
facilitate the Chair’s recognition. I would also ask that Members be
(1)
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2
patient as the Chair proceeds, given the nature of the online plat-
form the committee is using.
Today’s hearing is entitled, ‘‘Prioritizing Fannie’s and Freddie’s
Capital Over America’s Homeowners and Renters? A Review of the
Federal Housing Finance Agency’s Response to the COVID-19 Pan-
demic.’’
I now recognize myself for 5 minutes for an opening statement.
Today, this committee convenes for a hearing to conduct over-
sight over the Federal Housing Finance Agency (FHFA). Our sole
witness today is Dr. Mark Calabria, the Director of the FHFA.
We had initially intended for Dr. Ben Carson, Secretary of the
Department of Housing and Urban Development, to also join us for
today’s hearing, but we were told his calendar was booked. Sec-
retary Carson does appear to have enough time on his calendar to
make non-pandemic-related decisions that undermine fair housing
protections and to attend non-pandemic-related events but, appar-
ently, not enough time to talk to this committee about how he is
responding to the current national emergency.
Failed leadership has come to define this Administration’s re-
sponse to the pandemic, which continues to have a terrible impact
across the nation. Nearly 200,000 people in the United States have
lost their lives to the virus. Short of a vaccine, our homes and the
ability to shelter in place are the greatest protection we currently
have against COVID-19.
The U.S. Census Bureau’s Household Pulse Survey recently
found that 8.4 million homeowners and 8.2 million renters are be-
hind on their rent and mortgage payments. Of those households,
33.4 percent report that they are either somewhat or very likely to
face eviction or foreclosure in the next 2 months. Meanwhile, over
half a million people in the United States were already experi-
encing homelessness going into the current crisis.
Historically redlined communities are reporting higher rates of
COVID-19. Sixty-nine percent of Latinx borrowers are unaware of
mortgage relief options. And Black borrowers are citing higher
mortgage rates and an inability to refinance their mortgages as a
result of lending discrimination. Unfortunately, this Administra-
tion’s ideological agenda continually gets in the way of meeting the
current demands of the housing market and the people that our
government stands to protect.
Instead of focusing on how to help homeowners and renters, and
how to support the housing market during this national emergency,
Director Calabria’s actions suggest that he is first and foremost in-
terested in filling the coffers of Fannie Mae and Freddie Mac so
that he can continue to move forward with his plans to release
them from conservatorship.
Rather than allowing homeowners to take advantage of histori-
cally low mortgage rates, Director Calabria announced a new refi-
nance fee that would take some of the savings that would have oth-
erwise gone into the pockets of families and instead redirect that
money into the pockets of Fannie and Freddie.
Director Calabria is also rushing forward with a new complex
regulatory capital framework for Fannie Mae and Freddie Mac, ig-
noring calls from me and many others to delay this rulemaking in
light of the pandemic. Not only is the timing of this major change
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3
inappropriate because it would cause serious market disruption in
the middle of a recession, but many have raised concerns that
these changes would actually make the housing market less pre-
pared for the next economic crisis.
Many have also raised concerns that the rule Director Calabria
has put forth would hamper the ability of the Government-Spon-
sored Enterprises (GSEs) to carry out their mission of promoting
access to credit to underserved borrowers.
In the 4 months that Senate Republicans have failed to pass
$100 billion in critical rent relief, and the $75 billion Homeowner
Assistance Fund included in the Health and Economic Recovery
Omnibus Emergency Solutions (HEROES) Act, eviction filings hae
continued to grow. Mortgage delinquencies have reached their
highest level since August 2014, despite forbearance measures in
place, and 3.6 million mortgages are now in forbearance. Mean-
while, mortgage credit supply has fallen to its lowest level since
March 2014.
I am very concerned that FHFA’s response to this pandemic has
fallen short and that Director Calabria, like President Trump, is
putting his personal political agenda ahead of the American public.
With that, I now recognize the ranking member of the com-
mittee, the gentleman from North Carolina, Mr. McHenry, for 5
minutes.
Mr. MCHENRY. Director Calabria, thank you for testifying today.
I would like to start with some of the basics here.
Combined, Fannie and Freddie guarantee or own a portfolio of
roughly 28 million single-family and multi-family mortgages, for a
value of approximately $5.7 trillion. That is nearly half of all out-
standing mortgage debt in the United States. These are significant
numbers.
Early on, there was concern about what the pandemic might
mean for home ownership and whether our housing markets could
withstand the impact. Under your leadership, Director Calabria,
and decisive action by the FHFA, you confronted the challenges
head-on, and I want to commend you for that.
In March, FHFA started issuing statements to mortgage
servicers about their responsibility to ensure that, ‘‘hardship for-
bearance is an option for borrowers who are unable to make their
monthly mortgage payments.’’
On March 18th, FHFA went further and suspended foreclosures
and evictions for its single-family mortgages for at least 60 days.
That was 9 days before Congress enacted the Coronavirus Aid, Re-
lief, and Economic Recovery (CARES) Act—I repeat, that was 9
days before Congress enacted the CARES Act—which codified those
two FHFA policies. So, that is leadership.
The results of FHFA’s leadership could not be clearer. In Feb-
ruary, the GSEs had about 580,000 delinquent loans, or about 2
percent of its portfolio. Approximately 9,000 were in some stage of
foreclosure. Today, the delinquency rate has almost tripled because
of this pandemic, yet loans in forbearance are just under 5 percent,
and the number of foreclosure sales fell to just 97 in May. It is
clear that these policies have worked to protect American home-
owners impacted by the pandemic.
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4
In August, FHFA announced it was going to extend its fore-
closure and real-estate-owned eviction moratoria through at least
December 31st. However, these pandemic-related actions and oth-
ers come at a cost. FHFA projected these costs in August to be at
least $6 billion to the GSEs. That is a concerning figure.
What is more concerning was FHFA’s poorly explained rollout in
August of a new adverse market fee. The way this was announced,
and the initial 3-week timing for its implementation, doomed it
from the start. Clearly, FHFA has a statutory obligation to ensure
that the GSEs operate in a safe and sound manner, with sufficient
resources to meet these obligations.
That is the 2008 law that created the FHFA, a law that Chair-
woman Waters and all 11 other current committee Democrats who
were in Congress at the time supported. So, let me repeat: The law
that Director Calabria is implementing and following is the one
that Chairwoman Waters and 11 other current Democrats on this
committee who were in Congress at that time supported.
But this last-minute fee on mortgage refinancings rightfully re-
ceived bipartisan scrutiny. I am pleased that FHFA understood our
concerns and revised the fee to protect homeowners with loan bal-
ances below $125,000, and delayed the implementation date until
January.
That is a good example of how this process ought to work: Con-
gress relying on FHFA to make smart decisions regarding the pan-
demic, and FHFA listening to Congress and responding to this bal-
ancing act of protecting American home ownership with its legal
requirements to supervise the GSEs.
When you testified before the Senate in June, Director Calabria,
you said you were, ‘‘proud of what FHFA has done to help bor-
rowers, renters, and the housing market deal with this crisis, but
FHFA recognizes that more work remains. The crisis caused by
COVID-19 is not over.’’ I think we all can agree on that, even
today.
And so, I thank you for your leadership and efforts throughout
this pandemic. Thank you for your thoughtful approach to safety
and soundness in home ownership in America.
And I would like to yield the balance of my time to the ranking
member of our Housing Subcommittee, Mr. Stivers.
Mr. STIVERS. I would like to thank Mr. McHenry for yielding,
and I will be fairly brief.
I want to thank Director Calabria for his leadership. And I am
looking forward to asking some questions today about the adverse
finance fee as well as the capital rule and some other very impor-
tant things.
I think Mr. McHenry really summed it up well on the leadership
you have provided. I appreciate your leadership. We look forward
to asking you some very important questions, because we are 12
years past the financial crisis and the only piece of work that is
undone is fixing Fannie and Freddie. So, we have some work to do.
I yield back.
Chairwoman WATERS. Thank you very much.
I want to welcome our witness today, the Honorable Dr. Mark A.
Calabria, the Director of the Federal Housing Finance Agency.
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Dr. Calabria has served in his current position since April of
2019. Dr. Calabria has testified before the committee on previous
occasions, so I do not believe he needs any further introduction.
Dr. Calabria, you will have 5 minutes to summarize your testi-
mony. A chime will go off at the end of your time, and I would ask
you to wrap up your testimony so we can be respectful of the com-
mittee members’ time. And without objection, your written state-
ment will be made a part of the record.
Dr. Calabria, you are now recognized for 5 minutes to present
your oral testimony.
STATEMENT OF THE HONORABLE MARK A. CALABRIA,
DIRECTOR, FEDERAL HOUSING FINANCE AGENCY (FHFA)
Mr. CALABRIA. Chairwoman Waters, Ranking Member McHenry,
and distinguished members of the committee, thank you for the in-
vitation to appear at today’s hearing.
The Federal Housing Finance Agency has acted swiftly and pru-
dently to respond to COVID-19. We have updated our policies to re-
main responsive to the challenges facing renters, borrowers, and
mortgage market participants.
The success of our policy response to COVID-19 is foremost a tes-
tament to our hardworking employees. They are FHFA’s greatest
asset. My top priority has been ensuring their well-being. This in-
cludes continuing to foster a work environment where everyone
feels safe, respected, and valued for our differences.
The unrest across our nation in recent months has strengthened
our resolve to uphold the Agency’s core values of fairness, diversity,
and inclusion in all that we do. Central to this work is FHFA’s new
Division-level Office of Equal Opportunity and Fairness.
Foremost during a public health emergency, Americans should
not have to worry about losing their homes. FHFA has worked with
our regulated entities to support borrowers and renters. We have
done this while both ensuring the function of the mortgage market
during this crisis, and laying the groundwork for after. Our actions
have been and will continue to be data-driven.
FHFA’s actions apply to mortgages backed by Fannie and
Freddie, but they have also set workable standards for the rest of
the mortgage market. For homeowners struggling before COVID,
we suspended all foreclosures and foreclosure-driven evictions until
the end of 2020, and we will extend that further, if needed. This
has protected over 28 million homeowners and enabled roughly 200
million families facing foreclosure pre-COVID to stay in their
homes.
We allowed homeowners to take a timeout from their mortgage
payments through forbearance for up to 12 months, as later codi-
fied under the CARES Act. Under FHFA’s direction, the Enter-
prises worked with servicers to develop loan modification options
and repayment plans to ensure that borrowers will not face pay-
ment shock.
We allowed borrowers in forbearance, who again become current,
to repay what they missed when they sell their home or refinance
their loan.
We have emphasized repeatedly that those who can make their
mortgage payments should continue doing so, so that we can focus
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our resources on those most in need. Of the borrowers in forbear-
ance with an Enterprise-backed mortgage, about one-quarter con-
tinue to make their payments. We will treat these borrowers as
current if they want to buy a new home or refinance.
And for the first time in history, recognizing the disproportionate
impact on renters, we developed a nationwide multifamily forbear-
ance program that prohibits landlords from evicting tenants for the
nonpayment of rent. And we are now requiring landlords to notify
tenants of their rights under these forbearance agreements.
At FHFA’s direction, the Enterprises created online lookup tools
that allow renters and borrowers to determine if they are eligible
for eviction protection or forbearance. We have updated and trans-
lated into five additional languages servicer scripts to help clarify
borrowers and make sure all borrowers are receiving the same
message regardless of their servicer.
We have emphasized that no lump sum is required at the end
of forbearance. We have partnered with the CFPB to launch the
Borrower Protection Program. And we have created a website con-
solidating Federal relief resources for borrowers and renters.
To provide stability and clarity to the mortgage market, FHFA
instituted a 4-month limit on servicers’ obligations to advance prin-
cipal and interest on loans in forbearance. We have authorized loan
closing, employment verification, and appraisal flexibilities that
have ensured the safety of market participants such as appraisers
and home inspectors.
And to support lenders’ liquidity, FHFA enabled Fannie and
Freddie to purchase certain single-family mortgages in forbearance
for the first time in history.
I am extremely proud of FHFA’s response to this crisis. Our ac-
tions have provided real relief to both homeowners and renters in
need. And, as referenced in my written testimony, I am encouraged
by what the data tell us about the state of the market and forbear-
ance rates.
But I must emphasize that this does not mean that all is well.
America’s housing problems did not begin with, and they will not
end with, this pandemic. A root cause of the 2008 crisis was impru-
dent mortgage credit backed by insufficient capital. This funda-
mental problem remains unresolved today. Together, Fannie and
Freddie are leveraged roughly 250-to-1. They lack the capital to
withstand a serious downturn in the housing market.
The 2008 housing crisis was financially devastating for countless
families, especially low-income, minority households. We know that
a major driver of today’s racial wealth gap is that minority house-
holds went into the 2008 crisis with high levels of mortgage lever-
age.
And I still remember, working as a staffer on the Senate Bank-
ing Committee, the considerable amount of calls that I took, an-
swering phone calls from families facing foreclosure. We cannot for-
get those families, and we cannot forget the families today. We
must remember that when mortgage finance goes bad, it is Amer-
ica’s families who pay the price.
My job and my statutory mission is to make sure that Fannie
and Freddie never again fail the millions of families whose finan-
cial futures depend upon a stable mortgage market.
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To do this, the Enterprises must build capital. Capital absorbs
losses and enables Fannie and Freddie to continue supporting bor-
rowers and renters during times of stress. It is with capital that
Fannie and Freddie are able to support the market.
This May, FHFA took a critical step toward solving this problem
when we released a capital framework for the Enterprises. Meeting
the framework’s requirements will make Fannie and Freddie safer
and sounder. This will mean safety and soundness for millions of
homeowners and renters, especially low-income, minority home-
owners and renters, who are the first to lose their jobs and savings
when downturns hit.
Thank you again for the opportunity to testify. I look forward to
answering your questions. And I hope that all of the committee
members are in good health and good spirits.
[The prepared statement of Director Calabria can be found on
page 66 of the appendix.]
Chairwoman WATERS. Thank you very much, Director Calabria.
I will now recognize myself for 5 minutes for questions.
Director Calabria, you recently announced a fee increase that
would make it more expensive for homeowners to refinance their
mortgages, costing the average borrower $1,500. Those are dollars
that homeowners need during this pandemic, but that you are re-
directing into the pockets of Fannie and Freddie.
The Urban Institute estimates that, once implemented, this fee
will prevent roughly 255,000 borrowers from accessing affordable
mortgage credit. And the revenue raised by the fee will be nominal.
Researchers have found that borrowers who obtain low-rate mort-
gages through refinance have reduced mortgage default rates by 40
percent and reduced defaults on non-mortgage debts by 25 percent.
In other words, in the midst of the current pandemic, when de-
fault rates are already at historic highs, you have made a decision
that will likely not only harm families across the country but will
likely also harm the balance sheet of Fannie Mae and Freddie
Mac..
You have since delayed the refinance fee after much criticism,
but this isn’t enough. Dr. Calabria, how can you justify this fee in-
crease?
Mr. CALABRIA. Thank you, Madam Chairwoman.
I will respectfully disagree with the bit of analysis I just heard.
Let’s be very clear: First and foremost, the CARES Act imposed un-
funded costs on Fannie and Freddie as well as much of the mort-
gage market. And as the ranking member pointed out, we are, by
statute, required to recoup those fees via income. So I first and
foremost want to say, I am simply following the law, and, again,
as the ranking member pointed out, a law you voted for.
But, more importantly, this fee does not go into the pockets or
the coffers of Fannie and Freddie. It is money that comes to help
us keep people in their homes.
As I have mentioned, we had 200,000 families facing foreclosure
in March when COVID hit. For the last 6 months, we have paid
their property taxes, we have paid their housing costs. And it
would be nice if local governments would have given property-tax
relief to some of those families. We have kept people in their
homes.
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I certainly want to emphasize that nobody’s monthly payment
will go up because of this fee. Not a one. The only impact on people
who have not lost their job will be able to take advantage of the
lower rates, and we are using that to keep people in their homes.
And that is the important part of this. It doesn’t build capital.
It doesn’t go to anybody’s bonuses. It doesn’t go to anybody’s sala-
ries. It certainly doesn’t benefit me. It goes to keep people in their
homes who would otherwise be exposed to a deadly virus.
And that is what we are focused on here first and foremost, keep-
ing those who lost their jobs and creating a funding stream—be-
cause I will remind you again, Madam Chairwoman, that Congress
provided no funding to allow us to be able to help millions of house-
holds. We have done it without a penny of assistance.
Chairwoman WATERS. Dr. Calabria, despite your response and
the excuses that you have given, I believe there is no excuse for
this fee increase. This policy puts hundreds of thousands at risk of
default in the middle of an economic crisis. And instead of facili-
tating access to affordable credit, you are limiting the options. Bor-
rowers have to remain housed and financially stable. I urge you to
reverse course immediately so homeowners will have a fighting
chance.
Dr. Calabria, shortly after you began your tenure as the Director
of FHFA, we met to discuss your priorities, including your inten-
tions to move forward with a rulemaking on capital requirements
for Fannie and Freddie. I specifically raised questions about the po-
tential for this rulemaking to have an adverse impact on lower-in-
come borrowers and borrowers of color.
You committed to me then that you would pay close attention to
this issue. Yet, you recently released a capital rule proposal that
does not appear to have any analysis and attention to the effects
it will have on underserved borrowers. How do you respond to
that?
Mr. CALABRIA. I would say, respectfully, Madam Chairwoman,
we believe this is a rule that protects lower-income families, and
provides stability to the market.
If I could for a moment quote a letter that you wrote to Chair-
man Powell of the Federal Reserve 2 years ago, when you said,
‘‘Strong capital requirements are the cornerstone of an effective
regulatory regime that promotes financial stability while sup-
porting stable economic growth. The financial crisis a decade ago
taught a painful lesson about how damaging an undercapitalized fi-
nancial system could be.’’
You go on in the letter to observe that higher capital standards
since the crisis have not harmed the economy.
I agree with you in this letter, Madam Chairwoman.
Chairwoman WATERS. Thank you very much. I would still insist
and encourage you to change direction and, particularly, to pay at-
tention to the needs of the underserved and minorities who appear
to be the victims of this pandemic in so many ways.
Thank you very much.
And I now recognize the distinguished ranking member, Mr.
McHenry, for 5 minutes for questions.
Mr. MCHENRY. Thank you, Madam Chairwoman.
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9
Director Calabria, in anticipation of a lot of questions we will
have from committee members on your announcement of this addi-
tional fee, why don’t you give us the lay of the land on why you
feel the decision was necessary and why this fee is an appropriate
solution? And what are the alternatives?
Mr. CALABRIA. Thank you, Congressman.
Let me first say, I certainly have no desire to raise fees in the
housing market. In fact, what we are trying to do is avoid a much
worse outcome. But, foremost, as I mentioned to the Chair, we are
simply following the law of the CARES Act that imposed unfunded
mandates on the mortgage market by the charters of the GSEs
that are required to recapture those costs via income.
Both Fannie and Freddie approached me back in March and
April, as early as that time, and requested it. So I do want to em-
phasize, this was not my proposal, my suggestion; this was Fannie
and Freddie’s suggestion.
And as a safety and soundness regulator, when I have two multi-
trillion-dollar entities coming to me and saying that if they aren’t
allowed to increase their income, that they are at risk of distress,
I simply have to take that seriously. I don’t think we can ignore
instability in the mortgage market.
So, foremost, this was a Fannie and Freddie request. I will note
for the record, Fannie and Freddie requested a much higher
amount and also wanted to cover purchases, but I went back to
them and said, ‘‘Let me know exactly what your costs are going to
be.’’
And so, we wanted to also—the timing of this in September is
we wanted to be able to capture the finance wave, because the
losses, which will ultimately, by our estimates, be somewhere be-
tween $8 billion and $15 billion—I will note, CBO recently put out
an estimate of $10 billion—we wanted to spread that over as many
mortgages as possible so we would minimize the impact on con-
sumers.
And I really do want to emphasize for members of the committee,
we delayed this until December to give Congress an opportunity to
fund these costs. And while I am, of course, not asking for that, I
believe we can cover these costs within the mortgage market, but
we are simply following our statutory mandate.
Mr. MCHENRY. Thank you.
And, as we look at the state of the housing market and what it
has gone through since the beginning of COVID, raising capital for
the Enterprises when you did, appears to be a prudent step. If you
hadn’t started to build capital at the beginning of the last year, the
GSEs would be without reserves and would be reliant on taxpayer
money from the Treasury.
Would you agree that we need to have sufficient capital within
these Enterprises and risk-mitigation tools around capital—again,
a credit risk transfer—for protection of the taxpayers so that these
Enterprises don’t need to be bailed out again?
Mr. CALABRIA. Absolutely, Congressman. As we have seen re-
peatedly, it is capital in financial institutions that protects home-
owners, protects the economy, and protects taxpayers.
Mr. MCHENRY. Okay. So has this pandemic altered your plans to
rebuild capital at the GSEs?
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Mr. CALABRIA. We still think it is absolutely necessary. And
while any capital increase is unrelated to this short-term adverse
market fee, in the long run we simply need to build capital if we
want to have a stable mortgage finance system.
Mr. MCHENRY. Okay.
I am aware that the FHFA is currently reviewing comments on
the proposed capital framework, but, generally, how has your
thinking about recapitalization changed since the onset of the pan-
demic?
Mr. CALABRIA. I think particularly the events of March—I should
mention, we saw in March, that third week particularly, very simi-
lar behavior to what we saw in 2008, where you saw, actually,
mortgage spreads and the cost of credit blow out and become much
higher even when the Fed was lowering overall interest rates. And
this, I believe, was most directed to the high leverage and insta-
bility in Fannie and Freddie.
And so the objective here is, if we can have a well-capitalized
Fannie and Freddie, that we can be able to withstand a crisis, that
Fannie and Freddie can better support the market, and we have
less volatility in rates.
And, more importantly, if we had come into this crisis with the
appropriate amount of capital, this fee could have been delayed for
years. The reason, the timing here is because Fannie and Freddie
really are on the verge of insolvency.
Mr. MCHENRY. Let’s move on to the question of what is hap-
pening on the Gulf Coast. We know that we have the earliest S-
named hurricane on record currently hitting the Gulf Coast right
now. So, let’s talk about flood risk.
I asked you back in October about the increased risk of flooding
and how that poses a risk to GSE portfolios and, thereby, the tax-
payer. We talked about the 2019 Johns Hopkins Montreal study on
alarming trends of lenders transferring flood-related mortgage
risks to the taxpayer. You stated, ‘‘The overall point of the study
is largely correct,’’ and added concern that, without meaningful re-
form, much of that risk will be sent to Fannie and Freddie.
It has been almost a year since that conversation, and Congress
has not enacted any meaningful reform legislatively. Can you tell
me what steps FHFA is doing to take into account the risk of flood-
ing and more enhanced flooding as a result of our changing cli-
mate?
Mr. CALABRIA. First and foremost, I think the most important
thing we need to do to prepare Fannie and Freddie for any risk
from flooding or climate change and other related activities is to
build a capital buffer that accounts for that so that we have a safe
and sound system.
Second, we are building out research capacity. Here, for instance,
we are in the process of hiring an environmental economist and
building the data infrastructure to be able to model these issues,
and we are working with both Fannie and Freddie to get much bet-
ter data on this element.
But there will be more announcements to come on this front that
address those concerns.
Mr. MCHENRY. Thank you, Dr. Calabria.
And I yield back.
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Chairwoman WATERS. Thank you.
I now recognize the gentlelady from New York, Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Chairwoman.
Dr. Calabria, earlier this year, the FHFA took the administrative
step of extending both the foreclosure and eviction moratoria for
GSE-backed single-family homes until the end of the year. Have
you considered extending either of these moratoria into 2021? What
factors would you use in making this decision?
Mr. CALABRIA. Thank you, Congresswoman.
Let me commit to you, we will extend those measures if nec-
essary. We are looking at a lot of the same data that I think every-
body is looking at: COVID; we are looking at the rental market;
looking at the spread of the disease. But, absolutely, I would com-
mit to you that, if the data and the evidence at the time suggests
we need to extend it, we will extend it.
Ms. VELAZQUEZ. Thank you so much.
And I just want to discuss New York City and other cities that
are filled with mom-and-pop landlords and CBOs with multifamily
properties backed by GSEs. Many of these property owners are cur-
rently struggling with their own loan fee obligations, as tenants
have had difficulty paying their rent.
In June, the FHFA approved forbearance extensions for multi-
family property owners with GSE-backed mortgages for up to 6
months. Have you considered extending the forbearance period for
multifamily property owners?
Mr. CALABRIA. Congresswoman, yes, we have. And I very much
agree with you and see the need that we especially face in smaller
rental properties. The worst impact of this has truly been on rent-
ers and our multifamily properties. And so I do commit to you that
we will examine, and if the data suggests needing to extend the
multifamily forbearance program, we will do so.
Ms. VELAZQUEZ. I appreciate it.
My next question is, some experts predict that the FHFA’s pro-
posed capital rule will result in higher mortgage rates, with rates
increasing by an average of 15 to 20 basis points while the GSEs
remain in conservatorship and 30 to 35 basis points if they were
released. And these numbers could be even higher for borrowers
with higher loan-to-value ratios or lower credit scores, such as
those in communities of color.
So my question to you is, given your charter to provide access to
credit for the entire country, with particular emphasis on low- and
moderate-income (LMI) families and underserved communities,
how do you plan on raising the capital requirements while still pro-
viding affordable access to credit to these communities that are in
need?
Mr. CALABRIA. Thank you for the question, Congresswoman.
First and foremost, I believe that the more capital that Fannie
and Freddie have, the more they have an ability to provide support
to low-income families. Every additional dollar of capital in Fannie
and Freddie is another dollar invested in housing.
If I can get to some of the numbers you mentioned, let me also
be very clear and emphasize for members of the committee, there
is absolutely nothing in the rule that requires Fannie and Freddie
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to raise prices—nothing in the rule that requires them to do that.
I really do want to emphasize that point.
Ms. VELAZQUEZ. Hopefully, we will see what the data will show
a month from now, and a year from now, and if, in fact, it will not
have any impact on underserved communities.
Mr. CALABRIA. It is hard to know ahead of time, but I will cer-
tainly mention, we have had over a decade of the financial crisis,
and, again, as the Chair noted in her letter to Chairman Powell,
increases in capital standards in banks have not resulted in costs
or harm imposed upon low-income communities. We have a signifi-
cant amount of data and evidence as it applies to raising capital
of other institutions, and there is very little reason to think it
should work any differently here.
And I lastly want to emphasize that given the large body of re-
search that has happened, and scientific research we have had over
the last decade, the estimates out there of 30 to 40 basis points are
simply very much outside of the range of accepted research in this
area.
Ms. VELAZQUEZ. We shall see.
Dr. Calabria, multifamily property owners with GSE loans in for-
bearance are required to inform tenants of eviction suspensions
and the protections that apply during their repayment period. How
is the FHFA ensuring landlords are informing tenants of their
rights and carrying out these obligations?
Mr. CALABRIA. Thank you, Congresswoman.
What we are doing is, when we hear from tenants and we hear
from community groups, Fannie and Freddie go in and talk to the
landlord. And if we discover that they are not meeting the require-
ments of it, we can declare the forbearance agreement in default.
We can go as far as [inaudible] Default. But we always try to work
with the lenders to get them to behave.
Ms. VELAZQUEZ. Thank you very much.
Chairwoman WATERS. Thank you very much.
The gentlelady’s time has expired.
I now recognize the gentlelady from Missouri, Mrs. Wagner, for
5 minutes.
Mrs. WAGNER. Welcome, Director Calabria.
I first want to thank you for your leadership at FHFA to protect
borrowers and renters since the beginning of the COVID-19 pan-
demic. FHFA has gone above and beyond what has been required
of it in statute to assist American homeowners and renters, and I
commend you and your staff for your hard work these past 6
months.
America, as we have discussed a little bit, is currently seeing
some of the lowest interest rates in history available for both pur-
chase and refinancing of existing mortgage loans.
In the St. Louis region, sir, which I represent, the residential
real estate market in August has experienced a dramatic increase
in pending and closed sales of over 27 percent. These sales in-
creases exceed the year-over-year monthly increase in 2020 and re-
flect the strength, I think, of American demand to purchase new
homes during this pandemic.
So, with home sales increasing and millions of Americans consid-
ering taking advantage of record-low refinance rates—you have
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talked about it a little bit, and I don’t want to beat a dead horse,
but I still don’t think I fully understand FHFA’s reasoning behind
the announcement on August 12th to implement that new adverse
market refinance fee, which, in my estimate—I know that the
chairwoman said $1,500. We estimate about $1,400 to the con-
sumer based on their average mortgage.
I understand the fee has been delayed, I think, until December
1st, and that you are doing some reconfiguring work on this. I
think I know where it came from and the initial thinking, but do
you believe that the changes that FHFA has made to this fee are
adequate to prevent placing uncertainty on both the refinance mar-
ket and on borrowers who choose to refinance their mortgage?
This is of great concern to me and to my constituents in Mis-
souri’s Second Congressional District, sir.
Mr. CALABRIA. Thank you, Congresswoman. I appreciate the re-
marks.
First of all, let me emphasize that nobody’s preexisting monthly
payment will go up because of this. This only applies to people who
would refinance and who are therefore going to get a lower rate re-
gardless. We specifically—and, again, I should also emphasize, this
was a Fannie and Freddie announcement request, not an FHFA re-
quest.
But, that said, we asked Fannie and Freddie to exclude purchase
mortgages, because, again, home purchases have a much bigger im-
pact on the economy. And, again, our hope was that Congress could
come up with a fix. But we are trying to avoid a much bigger dis-
ruption to borrowers, which is the insolvency of Fannie and
Freddie.
If we aren’t able to get this fee—maybe it would be helpful for
members of the committee if I just take a minute to walk through
this.
If you look at the combined net worth of Fannie and Freddie
today, it is about $30 billion. About half of that, $15 billion or so,
is because of accrued interest on mortgages in forbearance. If I
could put that into plain English, that is money they haven’t re-
ceived. They can’t absorb any losses. So, were Fannie and Freddie
to take the entire potential $15 billion loss from COVID, they
would hit zero. And if they become insolvent, there is a real risk
that it would disrupt the mortgage market, that it would disrupt
mortgage availability. We saw that in 2008.
So what I would emphasize to the committee is, I had a whole
list of bad choices, and I tried to pick the ‘‘least bad.’’ And I would
be delighted for the committee and Congress to offer me some bet-
ter options.
Mrs. WAGNER. As we move forward in the recovery, what
changes has COVID-19 brought to our housing market that will
kind of stay with us in the future? And which segments of the
housing market give you the most concern? Which are performing
the strongest throughout the pandemic? If you could elaborate a lit-
tle bit, Director.
Mr. CALABRIA. That is a great question, because we really do
have a two-track market, if you will. Obviously, single-family sales
in many suburban areas have been booming. Prices have been
quite strong.
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On the other hand, urban markets, particularly multifamily,
have been hit really hard. Both Fannie and Freddie, for instance,
have exposure to student housing, and that has been under a tre-
mendous amount of stress. And Fannie and Freddie have exposure
to senior housing, which is also under a lot of stress. Obviously,
outside of Fannie and Freddie, the commercial retail market, par-
ticularly the retail sector, shopping centers, are just under a com-
plete mess.
So the rental market really is extremely stressed today, which is
very different from, of course, the purchase market.
It sounds like the timer is up.
Mrs. WAGNER. I yield back.
Chairwoman WATERS. The gentlelady’s time has expired.
I now recognize the gentleman from California, Mr. Sherman, for
5 minutes.
Mr. SHERMAN. Thank you.
I believe that Fannie and Freddie should continue to be what
they are now, government agencies. We tried having them be in
this bifurcated position, where the upside went to the shareholders
and the downside seemed to go and ended up going to the tax-
payers. That is not the right answer. They have done very well and
have made money for the taxpayers in their current situation. If
it is not broke, we don’t need to fix it.
In addition, all of the fees we are talking about now wouldn’t be
necessary if we weren’t gearing up to have these agencies become,
not private, but halfway between private and public, which is not
a good place for any agency to be.
And I would hope that we would, instead of instituting these new
fees, wait until next year, when a new Congress, and hopefully a
new Administration, can look anew as to whether we are going to
recreate these entities in the same form that didn’t work last time,
and, if not, then we don’t need the new fees.
But I will start with the assumption that, currently, we are hell-
bent on removing these agencies to the semi-private sector, and I
am concerned about this half-percent fee. I am not sure it is nec-
essary even if we are moving toward privatizing these agencies.
But if we do need that amount of money, I hope, Mr. Calabria,
that you would, as we have talked about on the phone, look at rais-
ing the same amount of capital with a lower fee over a longer pe-
riod of time. Because, right now, we have people who are looking
at their home to save them from their financial crisis and they are
refinancing, and taking a half-point from them just makes that
harder.
I want to focus on apartments, because, obviously, we all aspire
to home ownership, or most of us, but a lot of people are renting,
nearly half, and the rents are too high. And when the rent is high,
the middle-class renter can’t put together the downpayment nec-
essary to become a homeowner. And, even worse, poor renters are
just one step away from homelessness.
So we look at Fannie and Freddie’s multifamily mortgage under-
writing programs, and we see a recently proposed capital rule that
is not clear as to its risk-sensitive grid based on empirical multi-
family loan performance data.
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Mr. Calabria, can you produce information showing that you
have to treat GSE loans on multifamily properties as quite so risky
and quite so in need of higher fees?
Mr. CALABRIA. Congressman, thank you. There was a lot to that
question, so if I can touch on a few things.
First of all, while I very much share your observation that the
preexisting model, essentially privatized gain and socialized losses,
is—
Mr. SHERMAN. Well, if you could just address the multifamily,
and then I have to try to squeeze in one more question.
Mr. CALABRIA. But before I do, I just want to emphasize for the
record that, by law, these are not government agencies. By law,
they are private companies. And I have to follow the law, whether
I think it makes sense or not.
But to the multifamily question, as perhaps you are aware, the
multifamily grids changed very little from the 2018 rule, which was
based upon the capital conservatorship framework that they have
been working on for some time.
So, the short answer is, I am happy to try to figure out what
data we can share with your staff, but I want to commit to you and
emphasize, the multipliers for the multifamily are completely driv-
en by the historical data. This is an empirical—
Mr. SHERMAN. I look forward to you presenting that historical
data as part of the record of this hearing. And I and my staff will
go through it and try to convince you to look at it in a somewhat
different light
I know a number of my colleagues will be asking about the credit
risk transfer contracts and whether you are taking them into ac-
count appropriately in computing the amount of capital that is
needed.
And I want to shift to the consumer credit scores. As part of the
CARES Act, passed overwhelmingly, we directed the credit rating
agencies not to look at accessing forbearance as part of their credit
score. But now we are told that somehow you are getting the infor-
mation, perhaps from the credit rating agencies, perhaps from
other sources, and that it negatively impacts the homeowner.
Are you making use of the very information we said shouldn’t be
used?
Mr. CALABRIA. I am certainly not.
Mr. SHERMAN. Okay. We will get back to you with the evidence
that it is affecting people. And, of course, by law, it shouldn’t.
Mr. CALABRIA. Absolutely.
Mr. SHERMAN. I yield back.
Chairwoman WATERS. I now recognize the gentleman from Flor-
ida, Mr. Posey, for 5 minutes.
Mr. POSEY. Thank you very much, Madam Chairwoman.
Dr. Calabria, I commend you for your leadership.
And I wondered if you could tell us how much the Federal Gov-
ernment has spent on legal defense fees in litigation of Fannie and
Freddie decisions made by people like Mr. Raines, one of your pred-
ecessors, during the run-up to the last financial crisis.
Mr. CALABRIA. Congressman, I don’t have that information in
front of me, but I am happy to try to track down and assemble
what we have internally and what I can get from the SEC. Cer-
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tainly, my impression is we are surely talking millions and millions
of dollars.
Mr. POSEY. I think it was over $150 million many years ago
when I asked that question. But I would greatly appreciate it if you
could provide my office with that information at your earliest pos-
sible convenience.
Mr. CALABRIA. We would be happy to.
Mr. POSEY. Over a decade after the financial crisis, we are con-
tinuing to deal with the role that the Government-Sponsored En-
terprises, Fannie Mae and Freddie Mac, played in the meltdown of
the entire financial system. Many continue struggling to under-
stand the lessons and whether we have learned the lessons.
Our Federal Government created these GSEs to overcome a per-
ceived inability of healthy private markets to mobilize sufficient
capital to finance housing at a scale and scope that met all of our
social and political goals for widespread home ownership.
Now, with these social and political goals, the Federal Govern-
ment implicitly promised to provide a backstop to the Enterprises
while letting them act like private firms and take on risk that the
market would not have underwritten.
The result was the subprime mortgage crisis, moral hazard, and
an unprecedented bailout. We should work, obviously, to prevent
that in the future, and I think you are doing a great job of doing
exactly that.
The mortgage securitization footprint of the GSEs dominates
that activity. Now, given our social and political goals in housing,
we could pull out the segment of the market we seek to subsidize
and give the job of financing that activity to a smaller GSE as es-
sentially a government agency inside HUD, then leave the funding
of mortgages that are outside our social and political goals to the
market.
That arrangement would give the government better regulatory
control over underwriting standards and capitalization, I believe,
and streamline the government’s involvement and give Congress
and the Executive Branch better oversight. We wouldn’t be encour-
aging market-level risk-taking in pursuit of backstop mortgages for
social and political goals and moral hazard on a grand scale like
we did in the run-up to the crisis.
Can you comment on that concept?
Mr. CALABRIA. I absolutely agree with you. And it is certainly
very interesting, because, as you know—and despite perhaps the
perception that I am somehow the person privatizing Fannie and
Freddie, it was actually President Lyndon Johnson who privatized
Fannie. And, as you may recall, that is when Ginnie Mae was cre-
ated so that we had a government-backed entity.
And so, I would very much agree that we should fix the situa-
tion, and we should decide what is private and what is government,
and be very clear about those lines. And, as you know, I came be-
fore the committee last year urging reform, and I urge reform
today.
Mr. POSEY. And regarding that, you did propose new rules to
capitalize GSEs. These rules were based on risk weighting like the
government rules banking capital.
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Based on your stress-testing results under these rules, what can
you tell us about whether the capital funds will cover another fi-
nancial crisis like we experienced in the 2008 timeframe or an even
worse crisis?
Mr. CALABRIA. I would say that the rules are geared toward mak-
ing sure that Fannie and Freddie can survive a 2008 crisis.
Of course, we always have to be modest about the unknowns. We
don’t know if there is going to be another pandemic. We don’t at
this point know the implications quantitatively of climate change.
So, I think it is always important to have sufficient capital and be
modest about what may happen in the future that you don’t see
coming.
And, again, that is why I think it is so important to make sure
Fannie and Freddie have sufficient capital to withstand most situa-
tions, if not all.
Mr. POSEY. Thank you very much. I have another question, but
my time will expire before I get a chance to get your answer, so
I will just save us all the grief and yield back, Madam Chair-
woman. Thank you.
Mr. CALABRIA. Thank you, Congressman.
Chairwoman WATERS. Thank you very much.
I now recognize the gentleman from Georgia, Mr. Scott, for 5
minutes.
Mr. SCOTT. Thank you, Madam Chairlady.
Dr. Calabria, how are you?
Mr. CALABRIA. I am doing well, thank you, and hope you are the
same.
Mr. SCOTT. I am.
Dr. Calabria, you may recall, back in 2010 when we had that fi-
nancial meltdown, we were able to put together what we called the
Hardest Hit Fund. You remember that, where we took the 18
States with the highest unemployment and the highest home fore-
closure rate, and we were able to help them significantly. It was
a very, very successful program.
You recall that, don’t you agree?
Mr. CALABRIA. I do. It was modeled after, basically, the Commu-
nity Development Block Grant program, where we provided assist-
ance to a number of—actually, I believe there was an original
version of it, the Housing and Economic Recovery Act (HERA),
which also created this agency.
Mr. SCOTT. Exactly. It helped nearly 500,000 homeowners stay in
their homes; in Georgia, it was close to 20,000. So, it had a very
good impact.
And do you agree with us that this Hardest Hit Fund was help-
ful in stabilizing families, stabilizing the real estate market, and,
actually, stabilizing our entire financial system?
Mr. CALABRIA. First of all, you recognize that, as we all remem-
ber, Georgia was hit particularly hard in the 2008 crisis, and so I
do believe that assistance allowed—first, it was well-targeted,
which I think is an important component of any system, any pro-
gram in this effort, and it did help stabilize a number of markets.
Mr. SCOTT. Yes. Mr. Calabria, thank you for that answer.
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In August, with this pandemic, we now have 8.4 million Ameri-
cans who are facing foreclosure. We also have 6.2 million more
homeowners who have entered forbearance.
So what we have done to help here, is we have entered this legis-
lation, our committee, and I was able to provide legislation that
would give $75 million to be able to do the same thing that we did.
And we were able to save the economy with this, and it is so vital.
We are talking about $75 billion.
Do you think that this type of program now would have the same
positive impact as it had back in 2010?
Mr. CALABRIA. There certainly is some potential for that, Con-
gressman. And I certainly hope that the two Houses of Congress
and the Administration agree.
It’s certainly worth reminding the committee that I am an inde-
pendent regulator, so I don’t speak on behalf of the Administration
or anybody else, but I am certainly hopeful that folks can work to
come together.
Mr. SCOTT. I want you to work with us. It is in the Health and
Economic Recovery Omnibus Emergency Solutions (HEROES) Act.
We need to get that out. We need to understand that this pandemic
has an even more detrimental impact. Right now, 15 million people
are about to be put out. That means the banking system is not get-
ting their money. We are in terrible shape. So, I hope that you
would make these points known to the Senate to get this help to
our American people.
Now, I want to ask you something else.
President Trump has put forward this moratorium on evictions.
You are a very knowledgeable person, and a very respectful one.
Don’t you know that it is very devious to say, put a moratorium
on evictions? How is the landlord going to pay for his end of it?
How are the property owners who own the property going to do
that without collecting rent from the renters?
In other words, how can you have an eviction moratorium and
stop that without making sure that everybody along the line is cov-
ered? If not, you will have an implosion of the economy.
Can you help us with that?
Mr. CALABRIA. Thank you, Congressman. Just a quick reminder
that the independent regulator is not a part of the Administration.
Chairwoman WATERS. The gentleman’s time has expired. I now
recognize the gentleman from Missouri, Mr. Luetkemeyer, for 5
minutes.
Mr. LUETKEMEYER. Thank you, Madam Chairwoman.
Mr. Calabria, I would like to start out with a question with re-
gards to the Credit Risk Transfer (CRT). I would like to commend
you, first, for reproposing the Enterprise capital regulatory frame-
work to make sure that the GSEs are properly capitalized, and
have an exit from conservatorship. I want to specifically ask you
about the treatment of the Credit Risk Transfer and the frame-
work.
You have talked about this at length, but in my opinion, CRT
has been one of the biggest successes of conservatorship by reduc-
ing the concentration of mortgage credit risk at the GSEs. How-
ever, as proposed, the GSEs would receive little to no capital relief
for distributing risk to private capital through CRT, which would
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significantly increase their own retained credit risk exposure, while
the Enterprises remain taxpayer-backed.
Can you comment on the treatment of CRT, and can you commit
to revisiting this part of the proposal to ensure that a robust CRT
regime is preserved in the market going forward?
Mr. CALABRIA. Congressman, certainly, we are in a comment pe-
riod. We had a listening session last week on CRT. So, obviously,
we will look at all of the comments; the comment period only closed
2 weeks ago. So, I certainly commit to you that we will examine
the issue as we move forward.
Mr. LUETKEMEYER. I was one of the folks who pressed the flood
insurance folks to be more aggressive in the reinsurance market,
and purchase that to minimize taxpayer risks, and it has worked
out very well. In my opinion, it is still not enough, but at least it
shows that it is a program that works.
In your situation, to me, I think this is something that we need
to be doing. And I am not sure, by the way, of your calculation on
that, how you wind up with minimizing the ability to show that it
actually helps capital, and I am curious about that.
Mr. CALABRIA. Great question. And what you said 2 years ago,
with reinsurers paid out on the National Flood Insurance Program,
I thought that was a great success and a great model. I would
point the committee to things I wrote in different positions back in
2015 and 2016 that were very supportive of CRT. In fact, I think
over the course of my career, I have established an extremely
strong reputation for wanting to get as much risk out of Fannie
and Freddie as possible.
That said, certainly we are trying to make this data-driven. We
certainly are open for others that have the parameters and ways
to do this. I would note that this rule, while it is not as generous
to CRT as the 2018 proposal, is far more generous than the current
bank capital treatment of CRT. We fully expect CRT to continue
to operate. It is still in the conservator report cards, for instance,
so we expect CRT to play a role. I certainly want to minimize as
much impact as possible.
But I do think that the distinguishing principal—there were situ-
ations under the 2018 rule in which CRT was given dollar-for-dol-
lar relief. And, again, we are in a situation in 2018 where there
was no expectation of conservatorship, so perhaps, over-
incentivizing that was appropriate. But going forward, we certainly
know that a dollar of CRT, which, of course, only provides a dollar
of relief against losses on a reference pool, is not the same thing
as a dollar of equity on the balance sheet, which covers any losses.
So I think we would all agree they are not only one where it is
in the middle of that. We certainly don’t think it is zero either. The
relief is somewhere in the middle. That is an empirical question.
I certainly commit to you, Congressman, to work with you and your
office to figure out where that number actually is.
Mr. LUETKEMEYER. Thank you. I certainly want to continue to
work with you on that, Director.
With regards to your raising of fees, it is kind of interesting—
the chairwoman, a while ago, whom I spent over a year trying to
convince that we needed to have a hearing on Current Expected
Credit Losses (CECL), which we now know is exacerbating, or
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could exacerbate the situation here, it will be implemented, and
now it has now been delayed. And now, she is talking about the
very same principal of that, of CECL causing people to not be able
to access credit.
But it is not the same thing this time around, because that was
to build up reserves. This is to actually—you are forced—the
CARES Act, if I am not mistaken, actually covered costs, which is
what you are trying to do. Isn’t that correct?
Mr. CALABRIA. There are a couple of different elements to this.
And certainly, we implemented CECL at Fannie and Freddie in the
first quarter. And it did result in the higher reduction of loan loss
reserves than it would have otherwise. The requirement to cover
the expenses via income is something that comes out of the GSE
charts. So it is a different—but certainly the way all of these things
interact is what is essentially driving the problem.
Mr. LUETKEMEYER. A very quick question, what is the percentage
of refinancing of the loans versus the new loans that you are cov-
ering right now?
Chairwoman WATERS. The gentleman’s time is up.
Mr. LUETKEMEYER. It is a quick question, Madam Chairwoman.
Just give me the percentages of—
Chairwoman WATERS. Go right ahead.
Mr. CALABRIA. About 60 percent of new loan volume is refi-
nanced.
Mr. LUETKEMEYER. Okay. Thank you.
Chairwoman WATERS. Thank you very much. I now recognize the
gentleman from New York, Mr. Meeks, for 5 minutes.
Mr. MEEKS. Thank you, Madam Chairwoman, and thank you for
holding this important hearing. During the Great Recession that
struck in 2008, the housing market collapsed, and wealth across
the country that had been built up over the course of the genera-
tions evaporated. Families saw their home value go underwater,
owing more on their mortgages than their house was worth. And
banks already impaneled foreclosure homes across the country. The
Black homeownership rate plummeted from under 50 percent in
the mid-2000s, to around 40 percent over the course of a decade.
This deep hole was caused by bad actors, and insufficient regula-
tion and enforcement. Certain unscrupulous lenders were targeting
communities of color with tricky balloon mortgages that the lenders
knew would jump, but they were able to get the loan off of their
books and sell it to other financial institutions while pocketing the
initial fees. When the buckle popped, the banks had a bunch of bad
debt on their hands, and Black and Brown families were out of
homes.
So let’s fast forward to today, where our country has been deci-
mated by a pandemic, and we have lost nearly 200,000 people to
this terrible virus. The unemployment rate briefly spiked to levels
not seen since the Depression era, and remains over 8 percent. And
some of our wonderful small businesses around this country have
shut their doors, probably forever. And we have a public health cri-
sis on our hands, and we have an economic crisis on our hands, but
crucially, we do not have a financial crisis or a housing crisis on
our hands yet.
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The Dodd-Frank Act is working, in my estimation, and banks
have the capital they need. Instead of dragging the economy down,
the housing market is propping it up, actually. And homeownership
rates have gone up during the pandemic, and mortgage interest
rates are at an all-time low.
This brings me to my question, Mr. Director. I just can’t fathom
why you would impose a sizable fee on home borrowers and mort-
gage refinancers at this time. You are talking about a fee which is
functionally a tax that would take thousands of dollars out of the
pockets of middle-class borrowers. For people in my district in
Queens, for example, the cost will easily amount to more than
$2,000 for a borrower. That is not a small fee. For many, that is
a paycheck. Can you explain why a fee, that is an essence a tax
at this time?
Mr. CALABRIA. Respectfully, Congressman, I don’t think that is
what we are doing at all. If I can take a moment to explain this.
First of all, I think we are facing a housing crisis for renters today,
and I think we are facing a housing crisis for those who have lost
their jobs.
And, again, we at FHFA had directed Fannie and Freddie to pro-
vide assistance. I will remind you, there were 200,000 families fac-
ing foreclosure in March when COVID hit. We covered their prop-
erty taxes for the last 6 months. I am going to cover their property
taxes for the next 3 to 6 months. We are paying to keep these fami-
lies in their homes. And for these families, this is a housing crisis,
this is an employment crisis. And if we allow Fannie and Freddie
to fail, we will also have a financial crisis. And I want to push back
on this fee amounts to about 5 basis points, annually, on the loan.
That is less than mortgage rates have fluctuated through the time
this year has been going on again.
So, again, I want to emphasize that I think higher-income house-
holds—if I can give some demographic data, the typical refinance
household in the second quarter had an income of about $110,000,
whereas the typical income of a borrower in forbearance today who
has lost their job, and their income before losing their job was only
$80,000. And I will remind the committee, that this committee has
provided me not a penny to cover the people in their homes. This
fee was necessary to keep people in their homes so that we can
avoid a renter crisis.
Mr. MEEKS. That is why this committee, under the leadership of
Chairwoman Waters, put in our Heroes Act over $110 billion for
vouchers for renters so that we can prevent a housing crisis, and
put in another $90 billion for those who are behind on their mort-
gage, because individuals have lost a lot of their income. So, this
committee, under the guidance of the leadership of Chairwoman
Waters, is trying to make sure that we prevent a housing crisis,
and that is why we have been trying to get something through the
Senate so that we can make sure that happens.
At the same time, it is communities like mine, who are still try-
ing to get back on their feet as a result of the crisis, and we are
still trying to urge individuals that now is the time for them to buy
a house, so that they can own a house, which will be an appre-
ciating asset, as opposed to buying a car.
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And, so, now you are taking the incentives of others who are
struggling, some of these same people who own homes now and
need to refinance, and are trying to figure out it, they are now
struggling, and this would be, in effect, a tax on them. And I just
think that this is the wrong time. I yield back. Thank you.
Chairwoman WATERS. The gentleman’s time has expired, thank
you.
I now recognize the gentleman from Michigan, Mr. Huizenga, for
5 minutes.
Mr. HUIZENGA. Thank you, Madam Chairwoman, and Dr.
Calabria, I am glad you were able to be with us. My colleague, Mr.
Luetkemeyer, hit on the Credit Risk Transfers (CRTs), and you had
a bit of a discussion on that. I am curious, though, obviously the
pandemic has been disruptive to various financial markets, and
CRT relies on those private capital markets for its funding. Are in-
vestors and reinsurers still buying CRT deals?
Mr. CALABRIA. As we saw in March and April, the CRT market
basically shut down. I will also note for the committee that in
March and April, we had a number of CRT investors approach
Fannie and Freddie with the expectation that Fannie and Freddie
would repurchase their CRT in a stress environment, which, of
course, undercuts the entire purpose of CRT.
But over time, Freddie has gone through a deal recently since
then, so it started the CRT market open up, but this is really after
we got past, what I would say, was the capital market stress. As
you know, the capital markets today are much calmer during that
third week of March.
Mr. HUIZENGA. Yes. Let’s talk a little bit about the capital role
and multifamily situation. As you may recall, when you were before
the committee last October, I had asked a question about what eco-
nomic analysis FHFA did to study the impact of multifamily capital
requirements on the multifamily housing market. You said you
could not go into detail to answer the question, since FHFA was
in another Enterprise capital rulemaking process. The comment pe-
riod ended August 31st, so I will ask the question again, but in the
context based on the most recent rulemaking. What economic anal-
ysis did you perform to study the impact of multifamily capital re-
quirements on the secondary and tertiary markets, and are you
able to publish that proposal?
Mr. CALABRIA. Since some of the internal analysis relies on con-
fidential data, let me see what we can release publicly without re-
leasing any confidential data. But I think an important point to
make on this, as I mentioned earlier, is that this proposal on the
multifamily side is extremely similar to the 2018 proposal. The
2018 proposal was based on the conservator capital framework that
both Enterprises have been operating on for a number of years. So
to the extent they are pricing their multifamily book off of that,
they are basically pricing as if they are already on the rule. And,
as you know, they are the largest players in the market. Over the
last several years, they have gone from 20 percent to 40 percent
of the multifamily. So I think the last several years of multifamily
activities where they, for all intents and purposes, have been pric-
ing as if this rule were already in place, shows that they have been
quite competitive. And we certainly hear regularly from other mar-
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kets participants, such as insurance companies, that they have a
very hard time competing with Fannie and Freddie on price.
So, I would argue that the data is fairly clear, the experience is
fairly clear on certain years. Of course, I want to caveat and heav-
ily emphasize that we are in a rulemaking process, so we have to
hear from everybody, and we are going to take that into consider-
ation, so it is likely to change. But I think the evidence is pretty
clear that they have been able to run an extremely successful mul-
tifamily business basically under these same sort of parameters.
Mr. HUIZENGA. So you are saying that FHFA basically has the
analysis to demonstrate the ways capital proposals reflect histor-
ical experience in actual reality?
Mr. CALABRIA. Yes.
Mr. HUIZENGA. Okay. I have a little bit of time here left, so I
want to talk about capital rule, multifamily, that—on the space. It
seems that multifamily is held at a much higher capital standard
than single family in the capital rule, despite what I think is clear
and well-documented historical data demonstrating that multi-
family performance was actually superior to single family. When
comparing the applied capital standards in the proposal for the sin-
gle family versus multifamily to realize losses, the worst historical
vintage single family’s capital is half of the 2007 vintage loss, while
multifamilies charge more than 5 times its worst vintage lost. Why
is that?
Mr. CALABRIA. Congressman, it really depends on the timeframe
you look at. I would be the first to say that in the 2008 crisis, mul-
tifamily came through it much better. But, for instance, if you look
at the early 1980s, multifamilies did worse. And, of course, in this
current COVID environment, multifamily is suffering to a much
greater degree than single family.
So, first, I want to emphasize the grids are driven by historical
experience. Nobody is changing the math. The math is what the
math is. If we can look at alternatives, we are happy to do that.
But I also just think it is important to recognize that we can’t sim-
ply just take the 2008 experience and assume that every cycle for
multifamilies is going to perform similarly.
Mr. HUIZENGA. I believe my time has expired. I yield back.
Chairwoman WATERS. The gentleman’s time has expired.
I now recognize the gentleman from Texas, Mr. Green, who is
also the Chair of our Subcommittee on Oversight and Investiga-
tions, for 5 minutes.
Mr. GREEN. Thank you very much, Madam Chairwoman. I thank
the witness for appearing, and I also thank the staff for the out-
standing job they are doing in providing intelligence.
Mr. Director, you have indicated that there is a housing crisis for
renters. And in so indicating, I assume that you are talking about
30 to 40 million people who are at risk of eviction through the end
of the year, the intelligence I received from staff. I assume that you
are talking about the 1.5 million renters in this same survey who
reported that they have not paid their previous rental payment. I
assume you are talking about the 40 percent of Houstonians who
could not make their August rent payment due to the pandemic.
I assume that all of these things are correct. Am I correct in as-
suming these things, Mr. Director?
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Mr. CALABRIA. Congressman, I would say, however you want to
measure, there is very clearly a stress amongst renters today, and
that is where the greatest housing needs remain.
Mr. GREEN. And I would also call to your attention, he words of
Dr. King. He reminds us that, ‘‘Injustice anywhere is a threat to
justice everywhere. We are caught in an inescapable network of
mutuality, tied in a single garment of destiny. Whatever affects one
directly, affects all indirectly.’’
So this inability to pay rent, while it has a direct impact on the
renter, it also has an impact on the person who happens to be
called a landlord, who may have a mortgage that has to be paid,
and then, that has an impact on the mortgage holder. So, there is
a chain of events that take place when the renter cannot make the
rental payment. Do you agree?
Mr. CALABRIA. Absolutely. Yes.
Mr. GREEN. Okay. In so agreeing, then, it becomes of paramount
importance that we not allow the chain to get beyond the renter.
If the rent is paid, then the landlord, who happens to be a mort-
gage holder is paid, and the mortgage company is paid. I believe
that paying the rent is of paramount importance. The rent must be
paid, not delayed.
The moratoriums on rent ultimately don’t help the landlord. The
landlord still has bills to pay and is depending upon the rent. So,
the rent must be paid.
This is why I look at the leadership of the Honorable Maxine
Waters. There is $100 billion in the Heroes Act that has passed the
House, Mr. Director, $100 billion for renters, to assist them. But
in so doing, it will also assist the landlords, as well as the mort-
gage companies. Remember, ‘‘inescapable network of mutuality.’’
This mutuality would also afford us the opportunity to maintain a
stronger economy. It all comes together.
There is also in the Heroes Act, $75 billion to help mortgage
holders. This is significant money, and that probably is a means by
which we can salvage what may become an economic downturn
that may exceed the last Great Recession.
So my question to you is simply this: Isn’t it true that we have
to pay the rent so that we can take care of all of the other persons
in this chain, otherwise, all we are doing to a certain extent is de-
laying the inevitable for a good many people?
Mr. CALABRIA. Before answering the question directly—
Mr. GREEN. Here, let me just share this with you, Director. My
time is of the essence. Why don’t you start with answering my
question, and then we will see if we can get to the other answer?
Thank you.
Mr. CALABRIA. Just to remind you, we are providing forbearance
to multifamiliy renters. But the answer, of course, is we need to
deal with the rental situation.
Mr. GREEN. Yes, we do have to deal with the rental situation.
And so, I mention this to you finally in this fashion, and you said
earlier, and I made a note of it, that the committee had not pro-
vided a penny to help you with this situation.
Let me just ask you to rethink that for a moment, if you would
kindly, in this sense. This committee, under the leadership of the
Honorable Maxine Waters, has passed legislation to deal with the
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situation: pay the rent; pay the mortgages. The House has voted
on the legislation provided by the Honorable Maxine Waters. The
legislation has passed the House. So, the truth is that the House
has done its part. It is the Senate that won’t take up the House’s
legislation.
I am not trying to create an argument with you. I want you to
have some degree of respect for what the committee has done, and
how it has met its mandate to meet the needs of the American peo-
ple.
I talk to the people who are engaged in this renting business,
they are called REALTORS, and they help us in various ways. And
the REALTORS tell me they are very much concerned about not
only the rent, but the mortgages. So this committee is dealing with
the issues of the REALTORS, who are right there where the rubber
meets the road. Can you agree that we have to pay the rent so that
we can pay the mortgage? Your final response? Can you agree that
we have to pay the rent so that we must pay the mortgages so that
the mortgages can be paid?
Mr. CALABRIA. I agree with all of these issues, and I have to deal
with issues and I can’t wait until the Houses come to agreement.
So, respectfully, I would encourage everybody to work together.
Chairwoman WATERS. Your time has expired. I would like to ad-
vise the Members that votes have been called on the Floor. We will
continue with the hearing. And so, for those Members who have
spoken, perhaps you want to go and take your votes while we con-
tinue. Thank you very much.
I now recognize the gentleman from Ohio, Mr. Stivers, for 5 min-
utes.
Mr. STIVERS. Thank you, Madam Chairwoman. I appreciate you
holding this hearing. Welcome, Dr. Calabria. And since you brought
it up in answer to a couple of other Members’ questions, I want to
give you some time to expand upon it.
You said that you chose, in your adverse market finance fee, the
‘‘least bad’’ option you could find. I know you don’t want to lobby
Congress, but what other options could Congress give you if Mem-
bers of Congress don’t like the adverse finance fee?
Mr. CALABRIA. Since this fee is resulting from costs that arise out
of the CARES Act that are unfunded, of course, Congress could
come in and fund that. And I do want to be clear, I am not asking
for a penny, because I think we at this agency and we at the Enter-
prises can make this work without any taxpayer assistance. So if
the question is: Were Congress to provide taxpayer assistance, Con-
gressman, I think, where you are going is what would that number
be?
Mr. STIVERS. That was my next question. Assuming that you said
you wanted congressional financing, how much would it cost?
Mr. CALABRIA. I think it would have to be in the neighborhood
of about $10 billion. That would make sure that we would not have
to reassess city fees to cover COVID costs. I certainly want to em-
phasize that—heavily caveat on the economy not getting consider-
ably worse.
Mr. STIVERS. And I understand you are not asking for it.
Mr. CALABRIA. No.
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Mr. STIVERS. I just wanted to understand if Congress were to do
something to avoid that fee, because none of us want Fannie and
Freddie to go bankrupt, and frankly, that is the option if you do
nothing, because Freddie and Fannie have no reserves and are on
the verge of insolvency, is that correct?
Mr. CALABRIA. That is correct. And, again, were Congress to pro-
vide the funding to cover that hole, we would not have to imple-
ment the fee. Again, as you recognized, I am not requesting any
funding. We think we can make this work on our own. Again, I
wanted to be able to give Congress the opportunity to find other
solutions.
Mr. STIVERS. I appreciate you delaying the fee implementation
through December to give Congress time to decide what we want
to do. I think that is really important.
I would like to move on to the capital rule. I know that Mr.
Luetkemeyer talked a lot about credit risk transfers and sort of
asked about those. But one of the other things that doesn’t get
credit is MI coverage that is above the minimum level. It doesn’t
seem to get much credit in your capital rules. And I am curious if
you could explain to us why that doesn’t get much credit in your
capital rules?
Mr. CALABRIA. We were trying to base this on the bank frame-
work, and the bank framework doesn’t give credit. But, again, I
would say that we do factor the ultimate losses. So I do think that
we have agreed to reduce credit. But I am happy to provide the
fuller analysis for the record.
Mr. STIVERS. The fuller analysis, and I would like to note for the
record that the GSEs are not banks. And while I understand the
bank capital rules, as far as the level of capital is okay, I don’t
think you need to follow the bank capital rules up and down. And,
frankly, credit risk transfers, while, I understand, may not be dol-
lar for dollar, are a very important piece of managing risks.
And the other thing I would like to add about credit risk trans-
fers are—because you are not at this conversation privately, Direc-
tor, it is going to take years for the GSEs to be fully capitalized,
and credit risk transfers can infuse some amount of shock absorber
where less capital is needed immediately without the capital mar-
kets problems that the GSEs will have if they try to go to a full
capitalization too quickly.
I guess I would like to put in a plug for how important credit risk
transfers are during the transition. I also think they play a role in
the future of the GSEs because they would require less total capital
to have still the taxpayers off the hook.
So I guess I am not really asking you to comment on that be-
cause I know you already commented on it with Mr. Luetkemeyer.
But if you could take another look at that, if you could just tell us
you might take another look at both MI coverage and credit risk
transfers, and if you want to follow up with a fuller analysis on
both of those to my office, that would be great.
Mr. CALABRIA. Absolutely we will do so. And let me commit to
you that as long as the GSEs are on conservatorship, and we are
doing a conservatorship score card, we will be requiring them to
engage in some CRT transactions.
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Mr. STIVERS. Since you bring that up, Fannie has stopped credit
risk transfers, and I am curious if you are going to encourage them
to restart them?
Mr. CALABRIA. We certainly are. They have not stopped at my di-
rection, so let me be clear about that.
Mr. STIVERS. Okay. Thank you. I know my time is wrapping up.
I am going to follow up with some questions in writing to you.
Thanks for being here, and thanks for your leadership, Dr.
Calabria.
Mr. CALABRIA. Thank you, Congressman.
Mr. STIVERS. I yield back.
Chairwoman WATERS. Thank you very much. I now recognize the
gentleman from Missouri, Mr. Cleaver, for 5 minutes.
Mr. CLEAVER. Thank you.
Dr. Calabria, are you familiar with Norman Whitfield and Bar-
rett Strong?
Mr. CALABRIA. Not off the top of my head.
Mr. CLEAVER. Well, I didn’t expect you to be. I consider myself
somewhat of a little amateur historian on Motown, but they were
big songwriters, and wrote a bunch of hits. One of them in 1970
was called, ‘‘Ball of Confusion.’’ And I mention it because I want
to talk to you about a couple of things really fast, and I hope that
you can deal with them. And one of them happened just this past
week. Dan O’Neal, the guy who runs the Missouri REALTORS,
talked to me about an issue that you and several other members
had talked about earlier, and that is with the landlords.
Contrary to what people would probably believe, many of the
landlords, maybe most of them, are small landlords. They are peo-
ple who saved money and bought a duplex, or they bought some
kind of apartment building, and they are trying to make a little
money on it. And so, they are in trouble, and they are going to be
in greater trouble if we can’t do anything. How are they going to
make repairs and so forth? Is there something that you can do as
it relates to these landlords?
Mr. CALABRIA. First of all, I 100 percent agree with you on the
problem. These small landlords are under a tremendous amount of
stress. If that small landlord has a mortgage that Fannie and
Freddie hold, we can offer forbearance to that landlord during how-
ever much time they are under some stress, and we have been
doing this for 3 months at a time, so we can provide, essentially,
a bridge, if you will, if they are a Fannie and Freddie borrower. If
they are not a Fannie and Freddie borrower, then we don’t have
a direct relationship with them.
Mr. CLEAVER. Right. I appreciate that, and I am going to try to
make sure that all of them get some information about it. I am try-
ing to rush.
But the second issue is last week, one of the bankers in my dis-
trict, in a small rural bank, looked in the newspaper and saw a
story in The Wall Street Journal about Freddie and Fannie adding
this one half of one percent fee to all loans, beginning on Sep-
tember 1st, and others have spoken about it. But when they found
that out, it was the day after it was done. Which means that they
have, at least small banks, have to go out and pay for somebody
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28
to come in and try to undo and redo loans. And I just think that
is a bit much to drop on any bank.
But certainly, these small banks in a little town like Marshall,
Missouri, with 12,000 people, or Higginsville. So, can that be de-
layed? Do you have the capacity?
Mr. CALABRIA. We will delay that. We are delaying that second
one, Congressman.
Mr. CLEAVER. Okay. Madam Chairwoman, thank you. My work
is done here today.
Mr. CALABRIA. Thank you, Congressman.
Chairwoman WATERS. Thank you very much, Mr. Cleaver. I now
recognize Mr. Barr from Kentucky for 5 minutes.
Mr. BARR. Mr. Calabria, thank you for being here today and for
your testimony and your work at FHFA. And as you may know, the
Democrat bill, the Heroes Act, called for an additional $100 billion
in rental assistance. But I want to underscore the work that you
have already done in this area at FHFA, keeping renters in their
homes throughout this pandemic.
As you noted in your testimony, FHFA built nationwide multi-
family forbearance programs and tenant protections, ‘‘from the
ground up’’ during the crisis. And I applaud your efforts. Tenants
residing in multifamily properties with federally-backed loans in
forbearance may not be evicted.
And on August 6th, you announced a number of additional renter
protections for tenants in qualifying properties, including rent pay-
ment flexibility and a prohibition on late fees.
You note in your testimony that renters in approximately
170,000 rental units in multifamily housing are eligible for eviction
protection, and that FHFA created an online tool that allows ten-
ants to know their options.
My question is, to what extent are renters utilizing this online
lookup tool that you have created to see if they qualify for FHFA
renter assistance programs?
Mr. CALABRIA. Congressman, thanks for that question. Thanks
for the remarks. Let me go back and find out whether we can de-
termine the numbers of unique hits. I think we probably can find
how many people have—
Mr. BARR. Thanks for sharing that. And, again, I think that the
actions that you are taking reduce the need for Congress to act—
maybe Congress doesn’t act, but certainly, you have done a good
job to help renters in this pandemic.
I also want to echo my colleague, Congressman Stivers’, thoughts
on CRT. Unfortunately, we have heard from stakeholders that the
proposed GSE capital framework doesn’t account for the value of
CRT, and there is a risk of disincentivizing private market partici-
pation. Do you agree with that? Do you disagree with that?
Mr. CALABRIA. I would certainly think this one is a blanket state-
ment. I think it is less an issue of counting or not. I think there
is some difference on how much it should count rather than does
it count. We certainly account for it. The question is, are we as gen-
erous as someone would like and thinks we should be?
Mr. BARR. Thanks, and my colleague, Congressman Stivers, said
it very well, I do believe it is a very valuable tool for you all as
you attempt to recapitalize the GSEs.
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In December 2019, the Financial Stability Oversight Council
(FSOC) announced it would undertake an activities-based approach
rather than an entity-based approach when identifying potential
systemic risks.
During the July 2020 FSOC meeting, FSOC announced it would
begin that activities-based review of potential risks posed by the
secondary mortgage market. You issued a statement in support of
that decision. What observations or suggestions will you bring to
FSOC on how to ensure the safety and soundness of the GSEs, par-
ticularly considering your view of the market during the pandemic,
the economic challenges?
Mr. CALABRIA. I would say I think as you can understand given
the nature of deliberations within FSOC, that I can tell you today
that we have been in conversation with other members of FSOC on
these issues. We are examining these issues. I am very hopeful
there will be a release from FSOC on this issue soon.
Mr. BARR. Do you anticipate any adjustments given the pan-
demic or the post-pandemic market, adjustments to your proposed
GSE capital framework, or are you going to stay the course?
Mr. CALABRIA. I think we are going to stay the course, because
more of the reasons for a number of the buffers is to, essentially,
account for unquantifiable risks. And at this point—while again, of
course, we all hope we don’t get another pandemic, the chance of
that is certainly not zero, but it is extremely hard to quantify with-
in the capital rule. And this is why I think it has been so important
that we have buffers, we have a leverage ratio that goes beyond
simply measuring credit risks, because there are so many unac-
countable factors that affect the impact of climate, such as the im-
pact of the pandemic that we simply, at this point, don’t have to
get into appropriately model or quantify them the right way.
Mr. BARR. Director, thanks for your service, and thanks for your
work, especially during these challenging times.
And, Madam Chairwoman, I yield back.
Mr. CALABRIA. Thank you so much, Congressman.
Chairwoman WATERS. Thank you very much, Mr. Barr.
I now recognize the gentleman from Connecticut, Mr. Himes, for
5 minutes, and then I will turn the gavel over to Mr. Sherman.
Thank you very much. Mr. Himes is not available.
I will now recognize, Mr. Casten, the gentleman from Illinois for
5 minutes. Mr. Casten, are you unmuted? Okay. Let us move on.
Mr. Calabria, thank you for your patience. I am going to call a
5-minute recess. Thank you very much.
[brief recess]
Chairwoman WATERS. The committee will return to order, and
thank you very much for your patience. We had to have a 5-minute
recess, but we will now move on.
Mr. MCHENRY. Madam Chairwoman, may I inquire why we
needed a 5-minute recess? We had two Republicans who were wait-
ing in line for recognition, because the Democrats weren’t avail-
able.
Chairwoman WATERS. We had an emergency, thank you.
Mr. MCHENRY. I hope everyone is okay. I hope it was not a
health emergency, but I hope everything is okay.
Chairwoman WATERS. Everything is okay now. Thank you.
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I will now recognize the gentleman from Texas, Mr. Williams, for
5 minutes.
Mr. WILLIAMS. Director Calabria, thank you for coming before us
today in this virtual setting. As many of my Republican colleagues
have mentioned today, I appreciate that the FHFA has been one
of the most proactive agencies throughout the COVID-19 pandemic.
Back in early March, before we passed the CARES Act, you had
already suspended evictions and offered forbearance for borrowers
of federally-backed mortgages. I think these were productive steps
to take when there was such uncertainty surrounding this virus.
Now with that being said, I am starting to worry about the
lengths that some of these provisions have been in effect. In Texas,
alone, where I come from, there are 1.7 million single-family rental
homes, and the majority of these are owned by mom-and-pop land-
lords. By preventing evictions and allowing people to go without
paying rent for an extended period, we are shifting the burden
from the renters to their landlords. The underlying problem is not
being fixed, and someone down the line is not getting paid the
money they are rightfully owed.
Most of these landlords are not massive companies that are sit-
ting on millions of dollars to cover the costs of owning property
without any rent being collected. The stop in rental income does
not mean that landlords suddenly do not need to pay property
taxes, for example, or that maintenance and repair expenses go
away, or that the mortgage payments are no longer owed every
month.
So I am very concerned about these second, and third order ef-
fects that ultimately implicate the GSE balance sheet if a great
deal of mortgage payments are no longer to be paid.
So, Mr. Director, again, thank you for being with us today. And
I want to get your thoughts on, if you think that a national eviction
moratorium could introduce safety and soundness issues within the
housing system? In other words, what problems are we creating for
the apartment owners who have their cash flow interrupted
through nonpayment of rent?
Mr. CALABRIA. Congressman, thank you for that question. And,
foremost, let me really emphasize this is particularly the case for
any landlords who are listening. If you have a Fannie or Freddie
loan, you are eligible for forbearance as a landlord during this
time, in which we can give you some relief if your tenants aren’t
paying.
So I really do want to emphasize, for landlords who have a
Fannie and Freddie loan, please contact Fannie and Freddie. Let’s
get you into a forbearance program. Let’s try to provide you relief.
I do appreciate, also, that the forbearance program only delays the
inevitable, because the mortgage payments will have to be paid
back. But, again, I do want to make sure that within the Fannie
and Freddie space, those landlords are aware of what their options
are to deal with this stress.
On the broader question of—we certainly are taking a look at the
mortgage market, as has been mentioned. We do essentially have
a two-tract housing market now, we have an extremely healthy sin-
gle-family market, which we are, unfortunately, we have a lot of
stress on the rental side. I am concerned that continued stress in
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the multifamily side, particularly, ends up being a threat to Fannie
and Freddie. We are seeing that in Fannie and Freddie student
lending, for instance, which is under distress. Fortunately, at this
point, it is not so large to be systemic, but it is an issue, and it
is an issue we continue to watch.
Mr. WILLIAMS. Thank you. In August, the FHFA reproposed a
capital plan for Fannie Mae and Freddie Mac. This is an important
step to get these Enterprises out of government control and on
sound financial footing for the future, which we talked about.
While I think the new framework is a step in the right direction,
I was hoping it would utilize the private sector, and the benefits
of credit risk transfers to a greater extent. The private sector is
willing and able to shield taxpayers from potential losses and re-
duced volatility if the housing market takes a turn for the worse.
So, Mr. Director, can you discuss why the capital credit for CRTs
and the new proposals was reduced for the Enterprise’s capital re-
quirements?
Mr. CALABRIA. Thank you for that question, Congressman. First
of all, let me emphasize that the CRT treatment under the new
rule is still considerably more generous than that under the bank
treatment. The change from 2018 was funneling money. And in
2018, there was no perception, no intention of actually raising out-
side capital. So it was appropriate in the 2018 rule to incentivize
CRT, if you will, because there was no additional capital. But mov-
ing forward in a world where we expect there to be actual capital
built up on the Fannie and Freddie balance sheet, we see that CRT
should play a more calibrated role. I do emphasize that I see a role
for CRT in the future. I don’t see CRT going away.
But under some circumstances in the 2018 rule, a dollar of cap-
ital relief was given for a dollar of CRT. And again, because CRT
relief is only tied to a specific reference pool, it is not functional
against all losses, but we think it is quite obvious that a dollar of
CRT is not equal to a dollar of capital.
So, again, the question here is, what is the right calibration? We
had a listening session last week. We will continue to talk with
people, and we will continue to work on that element of the rule.
Chairwoman WATERS. The gentleman’s time has expired.
Mr. WILLIAMS. Thank you for being here today. I yield back.
Chairwoman WATERS. Thank you. I will turn the gavel over to
Mr. Sherman, and Mr. Hill will be the next Member to be recog-
nized. Thank you.
Mr. SHERMAN. [presiding]. Thank you, Madam Chairwoman. The
gentleman from Arkansas is now recognized for 5 minutes.
Mr. HILL. Thank you, Mr. Chairman. And, Madam Chairwoman,
thank you for the opportunity to be with Director Calabria today
on this timely hearing about how FHFA and Fannie Mae and
Freddie Mac are handling the pandemic and trying to help our
families across this country that are hurting from the coronavirus.
Mr. Calabria, let’s have a little fact check, could you tell me what
Freddie Mac and Fannie Mae’s market share is as you measure it,
say, from 2019 versus 2008?
Mr. CALABRIA. Certainly, on the multifamily side, there is just
over 40 percent, about 42 percent of the market in 2019. I believe
on the single-family side combined, it is close to about 60 percent
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32
of the market, if I recall correctly, approximately. And, obviously,
on both those metrics, they are much, much larger than they were
in 2008, where they were less than 50 percent of the market. Cer-
tainly, single-family is close to the 40 percent. And I believe the
multifamily book back in 2008 was much closer to, say, 20 percent.
Let me double-check the numbers for the record. But off the top of
my head, that was my recollection.
Mr. HILL. So, they have increased market shares in the past 2
years, is that right?
Mr. CALABRIA. Absolutely, without a doubt.
Mr. HILL. And to Mr. Sherman’s point earlier, are the Govern-
ment-Sponsored Enterprises, Fannie and Freddie, they private cor-
porations?
Mr. CALABRIA. By statute, they are private corporations.
Mr. HILL. And they were put into conservatorship when?
Mr. CALABRIA. They were put into conservatorship in September
2008.
Mr. HILL. And has the Federal Government taken any steps to
take them out of conservatorship since that time?
Mr. CALABRIA. I had taken steps consistent with my obligations
under statute to repair them so that they potentially could exit con-
servatorship, as is required under law.
Mr. HILL. Would you consider them wards of the State right
now? They are in conservatorship, right? They solely exist because
we have a $250 billion line of credit to them, isn’t that right?
Mr. CALABRIA. I think it is an open legal question. I would cer-
tainly say legally, they are not wards of the State. Conservatorship,
of course, is essentially administrative bankruptcy. Lots of compa-
nies go into a bankruptcy court and don’t become wards of the
State. Of course, bankruptcy judges are employees of the State.
So I don’t think simply being in a conservatorship—I guess—the
number of court cases specifically on this—and I believe you are
the lawyer, not me, but my understanding is that the litigation in
this issue is ruled on whether the conservatorship is governed—
Mr. HILL. Let me move on. I am not a lawyer, so I don’t want
a lawyer’s answer. Thank you very much. I have one lawyer in my
family, I am married to her, and one lawyer per couple is my view.
Did the Federal Government order these companies to take cer-
tain actions to help our families during the pandemic?
Mr. CALABRIA. Yes.
Mr. HILL. And you have talked this morning about the cost of
that. What did you just tell Mr. Stivers, what is the approximate
cost of these measures?
Mr. CALABRIA. That would be $6 billion to $15 billion. I sincerely
emphasize that a number of private institutions, such as banks,
took action, sort of forbearance actions. So I believe pretty much all
of the actions that we have taken to help the market through
Fannie and Freddie are really what any institution would do, pub-
lic or private.
Mr. HILL. So, since the State ordered these two companies that
are in bankruptcy conservatorships to this, you believe Congress
should make up that difference instead of sticking our families
with these fees, is that a fair assessment?
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Mr. CALABRIA. I am leaving it up to Congress to decide how to
recoup these fees. I think that is a better question for this body to
answer rather than me.
Mr. HILL. On the subject of your capital rule, what is the lever-
age of the GSEs right now, Mr. Calabria?
Mr. CALABRIA. They are 250-to-1.
Mr. HILL. And what does your proposed capital rule suggest their
leverage be?
Mr. CALABRIA. 25-to-1. Which I will note is twice the leverage of
our largest banks. To clarify some previous questions, in no way
does the capital rule require Fannie and Freddie to hold bank-like
levels of capital.
Mr. HILL. But you believe that 25 times leverage, which is really
an agency-type leverage ratio—the brokerage companies, before
they were all forced to become banks in the crisis, many of them
operated around 25 times leverage, while the banks were closer to
10. But they were an agency business, not a principal risk busi-
ness. Are the GSEs taking principal risks?
Mr. CALABRIA. They are taking principal risks.
Mr. HILL. So, a 10 times leverage ratio might be more appro-
priate, given that mix of business?
Mr. CALABRIA. I do believe there is an argument for that.
Mr. HILL. Thank you, Mr. Calabria, I appreciate the time. And,
Madam Chairwoman, and Mr. Chairman, I yield back.
Mr. SHERMAN. Thank you. I am an optimist, and I believe that
we will, next year, make Fannie and Freddie government agencies.
But I am a pessimist as to whether we can continue the hearing
right now, because I have been informed by our staff that they
would like me to declare a 5-minute recess, and that is what I am
doing.
[ brief recess]
Mr. SHERMAN. The committee will return to order. I know Mr.
Tipton wanted us to move forward.
And it is now my pleasure to recognize Mr. Foster, the gen-
tleman from Illinois.
Mr. FOSTER. Thank you, Mr. Chairman. First off, Director
Calabria, I want to thank you for what I regard as a very com-
petent execution of a very misguided concept, which is to steer us
toward the eventual recapitalization and release of these entities,
which I don’t think was ever really the intention when this was
passed more than a decade ago now, but, as you correctly point out,
that is what you inherited.
I also want to concur in your respect for what was done on an
emergency basis here to deal with the COVID crisis and the relief
you have been able to provide. And so, you can go through the list
there, your announcement of, limit the number of payments
servicers are required to make, the eviction moratoria, all of those
sorts of things.
My question, though, is, do you think that the GSEs could have
provided this much relief and this quickly if they were, in fact,
fully private companies, out of conservatorship, with a primary
duty to maximize shareholder profits? And what cautions should be
made when we try to think about what charter they might or
might not be released on?
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Mr. CALABRIA. First, Congressman, I would say, if these Enter-
prises were out with meeting capital standards, they could actually
have provided even more relief without danger of endangering the
system.
And let me say broadly, I believe the statute requires me to get
them out of conservatorship. I would certainly be delighted with
Congress, if Congress would clarify the situation of what the status
of these Enterprises should be. I certainly think that is an appro-
priate thing for the committee to address.
Mr. FOSTER. Yes. I worry specifically about their countercyclical
mission, which is not the natural response to private entities.
Now, a second general question having to do with the implemen-
tation of the capital rule. When the capital rule is implemented,
there is going to be, I don’t know, a fraction of the trillion dollars
of retained capital in Fannie and Freddie.
Have you done the analysis—there is going to be a significant
market rebalancing. The market share will change and so on. And
there will be, for example, when guarantee (g-fees) are, ultimately,
a big fraction of them, borne by the cost of home ownership, which
will keep more people in rentals longer, the rents will go up, so
maybe landlords will be slightly better off.
But when you just rebalance the entire market to reflect the im-
pact of your capital rule, where does the capital come from, and
who are the winners and losers? Have you done that analysis? Are
there third parties that have?
Mr. CALABRIA. First of all, Congressman, there is absolutely
nothing in the rule that requires Fannie and Freddie to change
their pricing. And in no way is the rule meant to drive a particular
market share or market structure.
Mr. FOSTER. How do you anticipate that they will raise the
money to generate that much capital? Or, in fact, could they have
lowered the g-fees or something if the rule was not in place?
Mr. CALABRIA. First of all, we expect them to continue to build
up retained earnings, and we are hopeful at some point that there
will be a public offering. And, of course, we are hopeful that the
Treasury will eventually sell off its share and recoup the taxpayer
investment.
So, again, they have earnings. They can continue to have earn-
ings. That doesn’t mean they necessarily need to raise prices. That
ultimately has to be their decision.
And, again, I share your observations, as well as Congressman
Sherman’s observations, about the tension due to the nature of the
status of these companies, and I greatly encourage Congress to re-
solve their conflicted status.
Mr. FOSTER. Yes. No, it is a conflicted status, as you say, that
we have been living with for a long time.
But I would be interested if you had a baseline implementation
of the recapitalization. The way you describe it, it sounds like the
losers largely would be the taxpayers, who would no longer be get-
ting the earnings sweep. Is that correct?
Mr. CALABRIA. Congressman, I think the taxpayer would be bet-
ter off, because we would have a cushion of capital to protect the
taxpayer from financial instability.
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Mr. FOSTER. But the retained earnings would come, as you de-
scribe it, largely by an earnings sweep that won’t happen, at least
to the same degree, anymore.
Mr. CALABRIA. But the bulk of capital raised would be expected
to go through a public offering, which would allow Treasury to ex-
ercise its warrants and recoup its investment. In fact, I think a
public offering is likely the only way the Treasury would be able
to recoup its very sizable investment on behalf of the taxpayer.
Mr. FOSTER. Okay.
And what is your attitude on the tail risk? You capped a whole
100 percent capital not to have a scenario where there isn’t enough
capital and the government has to step in. Do you really envision
a future where that would not be a possibility?
Mr. CALABRIA. There is always some possibility, whether it is our
largest banks or whether it is Fannie and Freddie, that the tax-
payer may step in. I recognize Title II of Dodd-Frank attempted to
end all that, but I don’t think anybody believes that our largest
banks don’t have some sort of implied backing.
Mr. FOSTER. Right. But what is missing there is a way to tax the
entire industry to recapitalize the difference when that happens.
Anyway, I hear a gavel, and my time has expired. Thank you.
Mr. CALABRIA. Thank you, Congressman.
Mr. SHERMAN. Thank you.
We now move on to Mr. Tipton from Colorado.
Mr. TIPTON. Thank you, Mr. Sherman.
Dr. Calabria, thank you for being here, and I do want to thank
you for all of the hard work that you are doing.
I did want to have a follow-up question in regards to Representa-
tive Wagner’s question. And I will paraphrase you, if I wrote it
down correctly, that you commented that you have a lot of bad
choices and effectively tried to make the one that is going to do the
least amount of damage.
Do you have some recommendations maybe for this committee in
terms of what tools you might really need to be able to do your job?
I think being able to get Fannie and Freddie out of conservatorship
is probably one of the more admirable goals that we certainly ought
to have. But what tools, what statutory movements do you see
could be beneficial to you and your mission?
Mr. CALABRIA. Thank you, Congressman. Great question.
I would say foremost among those, unlike the bank regulators,
who have authorities under the Bank Service Company Act to ex-
amine third parties, we do not.
For instance, I have no authority to examine all of the non-bank
servicers who service Fannie and Freddie loans. Just like the
banks, Fannie and Freddie are moving to the cloud. There is poten-
tial for a significant amount of risk about having our mortgage
data in the cloud, but I lack the authority, unlike the bank regu-
lators, to go into Amazon Web Services and make sure that data
is actually protected appropriately.
So, first of all, having third-party exam authority similar to that
under the Bank Service Company Act, I think would be absolutely
crucial to avoid further problems. In fact, that is foremost.
I would say, having additional authority over chartering—I do ul-
timately believe that what benefits consumers most is competition.
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I don’t ultimately think a duopoly is what benefits consumers. So,
I think having charter authority so that I can bring more competi-
tion to this marketplace, ultimately is what would be most protec-
tive of the consumer.
Mr. TIPTON. Great. I appreciate your thoughts on that. I think
we have proven in this country that competition actually works—
Mr. CALABRIA. Absolutely.
Mr. TIPTON. —and to be able to have competitiveness.
And, listening to a couple of my colleagues—and I don’t want to
misinterpret their comments, but it seems that some are com-
fortable having conservatorship over Fannie and Freddie. Would
you maybe like to explain, why is it important for the American
taxpayer, and for the entities themselves, to move out of con-
servatorship?
Mr. CALABRIA. First, I really want to emphasize that the statu-
tory framework is that you either fix them and they exit or you go
into a receivership.
I will note, by contrast, the longest-ever bank conservatorship
was 18 months. This simply is not the statutory framework.
I know it is often characterized that it is somehow my objective
to get them out of conservatorship, but that is not accurate. I am
just carrying out the law. My objective is to see the law carried out.
But, more importantly, the process to get them out of con-
servatorship is the same process that it would take to make them
safe and sound: building up capital; dealing with supervisory con-
cerns; and changing the culture at these companies, making them
good citizens, good corporate citizens. All of these things that you
would need to do to exit a conservatorship are all of the things you
would want to do to make sure that they are safe and sound and
that they are good actors.
Mr. TIPTON. You have taken some admirable steps to be able to
build up capital prior to COVID-19. I don’t know if you have done
any analysis in terms of, had you not made those efforts, what
would the impacts have been?
Mr. CALABRIA. Thank you, Congressman. That is a great ques-
tion.
I will remind the committee that when I walked in the door, in
April of 2019, Fannie and Freddie were leveraged 1,000-to-1. No in-
stitution survives trouble in a 1,000-to-1 leverage.
So we were able, in conjunction, working with Treasury Sec-
retary Mnuchin, to raise the amount of retained capital. So, instead
of the $6 billion that they had combined coming in, we were able
to get them up to about $20 billion. So, again, we were able to take
some losses.
If we had not been able to do that, we would have been forced
to raise these adverse market fees back in the spring, which I
think would have been the absolute worst timing. And if we had
been able to build even more capital, we could have delayed this
even further.
So, again, I think the process of having built capital from day
one that I have been here is appropriate to try to bring some safety
and soundness to Fannie and Freddie and to bring stability to our
system.
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Mr. TIPTON. Great. But, I guess, following up a little bit on this,
since the pandemic, have your views on the importance of capital-
ization changed at all, just given the marketplace?
Mr. CALABRIA. If anything, the pandemic has really proven how
important it is to have adequate capital and also how modest we
need to be in not thinking that solely risk-based should be solely
based on credit risk that you can measure going back. The pan-
demic and, again, thoughts about climate change and such really
emphasize, we need to have an adequate buffer of capital that pro-
tects us from the unknown.
Mr. TIPTON. Great. Thank you.
With that, I yield back, Mr. Chairman.
I appreciate it, Dr. Calabria.
Mr. SHERMAN. Thank you.
I now recognize the gentlelady from New York, Mrs. Maloney,
who is also the Chair of the House Committee on Oversight and
Reform.
Mrs. MALONEY. Thank you so much, Mr. Chairman. And thank
you for your service, Dr. Calabria.
You stated that one of your top priorities is to release Fannie
Mae and Freddie Mac from conservatorship. I think we all agree
that we can’t keep Fannie and Freddie in conservatorship forever,
but we want to make sure they have enough capital and that the
right regulatory regime is in place before we release them.
I think we need to be very cautious about this. I am very con-
cerned that the Administration is going to rush a number of major
decisions before the end of the year, and certainly before January
20th. I think rushing to release Fannie and Freddie before the end
of the year would be catastrophic.
So, with that in mind, can you commit that you will not, under
any circumstances, release Fannie and Freddie from conservator-
ship before the end of the year?
Mr. CALABRIA. Congresswoman, I very much share your con-
cerns. I can’t envision a scenario where they would be ready to
leave before the end of the year.
Mrs. MALONEY. So, I will take that as a, ‘‘yes.’’
You have also stated that you hope to have IPOs for Fannie and
Freddie in 2021 or 2022, even before they are released from con-
servatorship. So, will you also commit that you will not rush an
IPO of either Fannie or Freddie before the end of the year?
Mr. CALABRIA. I promise you, absolutely, this is not calendar-de-
pendent; this is process-dependent. Under no circumstances would
I release them if they were not ready to be released. I can abso-
lutely commit that to you.
Mrs. MALONEY. Okay.
And, as you know, one of the key missions of Fannie and Freddie
is to increase access to credit for underserved communities. How-
ever, as Chairwoman Waters and Congresswoman Velazquez
touched upon earlier, some commentators have argued that your
proposed capital rule will harm access to credit for underserved
communities by increasing costs for the very borrowers they were
chartered to help.
Given these concerns, how do you justify a capital rule that
would have a disproportionate impact on underserved borrowers?
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Mr. CALABRIA. I appreciate the question, Congresswoman.
We have yet to see any evidence that the capital rule would have
a disproportionate impact on borrowers. In fact, we believe it would
disproportionately benefit low-income communities by helping
avoid financial crises. As we have repeatedly painfully learned, it
is low-income, minority communities who pay the price during fi-
nancial crises, and this capital rule is meant to avoid financial cri-
ses.
Mrs. MALONEY. Has FHFA bothered to conduct an analysis of
how this rule might impact Black, Latino, and underserved bor-
rower communities?
Mr. CALABRIA. There was an internal fair lending analysis done
in regard to the 2018 rule. We made a number of changes in the
reproposal. For instance, we eliminated the grids on single bor-
rowers, which disproportionately impacted African-American
women, for instance. We also removed the penalty that was on
small-dollar lending.
So we have made a number of changes to the 2018 proposal that
the advocacy community requested us to do, as well as in response
to the fair lending analysis that we conducted on the rule.
Mrs. MALONEY. Four days after the national emergency was de-
clared, I led a letter with more than 100 of my colleagues request-
ing that your agency immediately institute a nationwide morato-
rium on all foreclosures and evictions from GSE-backed mortgages.
The very next day, the FHFA announced it had directed the GSEs
to suspend foreclosures and evictions.
At the end of July, I requested that the FHFA extend this mora-
torium again to the end of 2020. At the end of August, FHFA did
just that. Thank you.
The GSEs implemented these moratoria and other forbearance
programs quickly when millions were at risk of losing their homes.
However, the private mortgage markets have struggled to do the
same. Do you think that the GSEs could have provided this relief
as quickly if they were private companies out of conservatorship?
Mr. CALABRIA. I do; I believe they could have provided it more
quickly. I believe they actually could have been more supportive be-
cause they would have had the capital to absorb even more losses.
So I do think, as a fully capitalized set of private companies—
which, of course, they are private companies today—but I believe
if they had capital, they could move far more quickly.
Mr. SHERMAN. Mr. Davidson is now recognized for 5 minutes.
Mr. DAVIDSON. Thank you. And thank you all for coordinating
this hearing.
And, Director Calabria, thank you for your work, really, to keep
our FHFA and the duties and responsibilities of that first and fore-
most and just for bringing the great experience you have into a, as
we can tell from this hearing, sometimes very thankless job. So, I
appreciate it.
A lot of the things that you oversee are things that the private-
sector market, the free market, wouldn’t actually create some of
these products, right? So, I guess I am curious, if you could list a
few of those things that you do that the Federal Government has
decided that we really think it is important to have these pro-
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grams? Could you highlight some of those programs that you over-
see?
Mr. CALABRIA. That is a good question, Congressman. I am not
sure, on a daily basis, I divided that kind of bucket, but I will try
to do my best here for you.
I would probably create two broad categories.
One, I would say, on one hand, there is an extremely large
amount of Fannie and Freddie business that is extremely high-
quality. The number of loans that Fannie and Freddie make where
the loan-to-values are less than 70 percent, where it is substantial
downpayments, very high FICOs, very low debt-to-income, that any
lender would feel comfortable making, is very significant. And I
would maybe say that is as much as perhaps 80 percent of Fannie
and Freddie’s business.
There is probably another 15 percent of their business that,
under most terms of the private sector, would do, but I would say
that maybe—and, again, I want to emphasize, some real approxi-
mations, so please don’t hold me to it—probably around 5 percent
or less of their business is business—and, of course, I am not
counting this—that would otherwise go to the FHA—but this is
business that most private lenders would probably say that this is
simply too risky, or else they would have to price considerably
higher.
And most of what Fannie and Freddie do in that regard—again,
whether we want to explicitly subsidize that small amount of the
overall amount certainly is a decision for Congress to make. But,
of the loan products, most of what they do, the private sector, the
rest of the private sector, rather, would and could do.
Mr. DAVIDSON. Yes. Thanks for that.
So that, without naming the exact programs, gets to the heart of
what I am concerned about. So much of the portfolio would truly
be able to be priced, in a sense that the market could provide a
price. And I think it is really important that that part is able to
re-enter the market. And the tool to do that is the credit risk trans-
fer, or structured credit market. It’s incredibly important, whether
you are talking in any of the four main sectors of it, but certainly
a big portion comes under FHFA.
And so, when you think about how important that is, the struc-
tured credit market is a massive part of how we have kept nominal
rates low for the vast majority of borrowers. Because the yield is
able to happen primarily because of liquidity, right?
So, if the vast majority of things entering the structured credit
market are really things that the market understands, have priced,
would price, then when you pass that on into the secondary mar-
ket, then the market knows how to price that. Even if it is a stand-
alone vehicle or bundled up together, it consists of market risks,
things the market would do.
But I guess my concern is, there are certain things—you referred
to it as maybe 5 percent of the portfolio—that the market really
wouldn’t do. Now, I am not debating whether the Federal Govern-
ment should or shouldn’t do those things. I guess my concern is
that they shouldn’t really enter into the credit risk transfer pool
and be considered market risk.
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Now, a lot of people know that, okay, it is in there, so you have
to cover for it and dilute it with other things. But why would you
put poison into an otherwise healthy food chain?
What are your thoughts on how to protect the market from non-
market risk in that sense?
Mr. CALABRIA. That’s a great set of questions and points.
And let me first say, I think the CRT market has been so helpful
in illustrating that there actually are investors who want to take
mortgage credit risk. And, certainly, for a very long time, one of the
arguments for keeping Fannie and Freddie in their current condi-
tion was that nobody else would take mortgage credit risk, and so
I think CRTs demonstrate that there is an appetite for that.
I think the way that the GSEs have traditionally done, but the
point—your point is that they have had rather high, what you call
attachment points. And so, until you hit the attachment point,
Fannie and Freddie take the first loss of the CRT. So, if you take
my example of, say, 5 percent of the pool is not what the private
sector would necessarily want, where the structure of the pool gen-
erally leaves that first 5 percent or so with Fannie and Freddie.
Mr. DAVIDSON. Thank you so much. I wish we had more time to
talk, and I would love to, at your convenience.
My time has expired, and I yield back.
Mr. CALABRIA. Absolutely.
Mr. SHERMAN. Thank you.
And I now recognize my fellow Californian, Mr. Vargas.
Mr. VARGAS. Thank you very much, Mr. Chairman.
And I want to thank the chairwoman and the ranking member.
And, of course, Dr. Calabria, thank you very much for being here.
I appreciate it.
In a normal economy, when a borrower requests early forbear-
ance, it could be a sign that the loan was poorly underwritten and,
therefore, problematic for the Enterprise to purchase. However,
during the pandemic, early requests for forbearance have become
more common and were likely an indication of the broader eco-
nomic uncertainty, that poor underwriting or responsibility is not
the issue.
Ultimately, FHFA seemed to agree with this reasoning and al-
lowed Fannie and Freddie to purchase some loans that entered into
early forbearance. In fact, FHFA’s 2019 report to Congress states
that, ‘‘Purchases of these previously ineligible loans help provide li-
quidity to mortgage markets and allow originators to continue
lending.’’
Could you explain that to us, Dr. Calabria?
Mr. CALABRIA. Thank you, Congressman. And let me first say, I
hope that you and your family have not been adversely impacted
by the fires and that we are monitoring that situation as it impacts
the mortgage market.
But more directly to the point, prior to COVID, if a loan had en-
tered forbearance or any sort of delinquency after closing but yet
before delivery—because it is important to keep in mind, it is not
a Fannie and Freddie loan until it is purchased. So it is not a
Fannie and Freddie loan at closing; it is a Fannie and Freddie loan
at delivery.
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Historically, Fannie and Freddie have just to buy those loans at
all. And so, when COVID hit, of course, a number of lenders, origi-
nators, particularly those who are nonprofits, such as State hous-
ing finance agencies, were telling us that they were unable to keep
those loans. And so, we wanted to provide a source of liquidity.
But we also wanted to make sure that large portfolio lenders,
such as the Wells Fargos of the world, couldn’t just move all the
loans off their portfolio onto Fannie and Freddie and transfer the
risk to us. So we wanted to be able to price this in a way that we
are providing liquidity but we are not encouraging people to move
risk to us.
And our legal analysis was that we calculated what the decline
in the value of the loan was—because let me say as a broader
issue, we are not intentionally supposed to overpay for loans or
take losses. And so, we priced this in a way where essentially, it
was meant to be if you were a buyer of last resort, so we could buy
liquidity when it was needed.
Mr. VARGAS. I didn’t want to interrupt you, but when you say
pricing, are you talking about the 500 and 700 basis points?
Mr. CALABRIA. Yes, I am.
Mr. VARGAS. In doing that, that has put the burden, obviously,
on the loan. Could you explain that a little bit?
Mr. CALABRIA. The way the loan pricing works is, we have cal-
culated—and, again, I should say, start, as a comparison, there is
an active private market for those loans, and the pricing discounts
are 20 to 25 percent off. So, there are alternatives for lenders.
But what we wanted to look at this and say is, given that loans
entering into forbearance have higher ultimately delinquency and
loss rates, given that if it was going to be in a forbearance, you are
automatically not going to get 3 months or more of interest, we had
to calculate what the loss in value was.
So, again, between—and, again, let me emphasize, it has histori-
cally always been the case that anything that negatively impacts
the loan between closing and delivery is a risk borne by the lender.
That has always been the case. We wanted to respect that. The
lenders are not Fannie and Freddie employees; they don’t work for
me. Ultimately, we wanted to be able to price the decline, and that
is what we did.
So, quite frankly, just to be clear, it is not a penalty. It really
is just, the loan is only worth this now.
Mr. VARGAS. No, I understand. Okay. And I would like to con-
tinue to work on that. And I appreciate you speaking to that.
I do want to ask you this. The issue of climate change—you
asked about my family. Thank you. My family is fine. And I do ap-
preciate that. But do you believe in climate change?
Mr. CALABRIA. I believe it represents a significant probabilistic
risk that we, as financial regulators, need to account for.
Mr. VARGAS. Okay. Because I know I was in insurance for a
while, and they certainly believe in it. The actuaries do. And I do
think we have to prepare ourselves for that. I don’t think that the
fires in California and in the West and these larger hurricanes that
we have are an accident. I believe it is climate change.
And I do have to say—I have a few seconds left—that I am very
happy that people are starting to talk about that. I used to talk
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about that all the time, and Republicans said it is a fake thing, it
is a hoax; it is actually a Chinese hoax. It is not. It is real. It is
urgent.
And I think people like yourself, who believe in science, really
need to take a look and say, how can we act as a nation to protect
our people and especially protect poor people, who are mostly af-
fected by climate change? Because I do think the people who are
poor are going to be the ones who are affected most.
But, again, I thank you very much, and I would like to continue
to work on forbearance. Thank you, sir. Thank you for being here.
Mr. CALABRIA. Absolutely. Thank you, Congressman.
Mr. VARGAS. My time has expired.
Mr. SHERMAN. Thank you.
I now recognize the gentleman from Georgia.
Mr. Loudermilk, are you there?
Okay. We are going to move on to the gentleman from North
Carolina, Mr. Budd.
Mr. BUDD. Thank you, Mr. Chairman.
And, again, Director, thanks for being here.
I have a question about the origination flexibilities that have
been put in place by the GSEs. They have been crucial to con-
ducting mortgage transactions safely during the pandemic and
have helped the mortgage market remain a bright spot in the econ-
omy during these recent times.
Now, these flexibilities, which impact areas such as appraisals,
verifications of income, power of attorney, they have been extended
on a month-by-month basis. But given that the current public
health crisis remains ongoing for the foreseeable future—maybe
after the election; we will see—are there any plans to extend these
flexibilities for longer periods of time, just to provide more cer-
tainty and stability?
Mr. CALABRIA. We are currently in the process of evaluating the
impact of these flexibilities. I certainly want us to make sure that
we are thoughtful about making long-term changes, for instance, to
the appraisal industry, as you mentioned, or the home inspectors.
We want to make sure, before we make long-term changes, that we
hear from those organizations, that we hear from those constitu-
encies.
And so we are engaged in, first and foremost, right now, an in-
ternal risk review, looking back to see what has been the impact
of these flexibilities on the risk. But we intend before the end of
the year to issue a request for input on some of these flexibilities
so that we can hear from market participants and others on what
the impact has been and what we should keep and what we should
extend and what we should modify.
Mr. BUDD. Thank you, Director. Just to borrow an analogy from
healthcare, we are doing so much more telemedicine now, and we
are seeing that we should have done that pre-COVID, and we
should continue to do that post-COVID. So there are things like
that, that we are seeing in home mortgages and in the home pur-
chase process that we probably should have been doing before, and
should do long after. So please keep that in mind, if you would.
I want to say that I like FHFA’s efforts to move the risk of
Fannie and Freddie away from the taxpayer and onto counterpar-
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ties. And as we look at a longer timeframe for the recapitalization,
it seems like a really good idea to protect taxpayers from another
possibility of a housing downturn.
So would you be willing to commit to working with me and oth-
ers on the committee to ensure that taxpayers are adequately pro-
tected during this time, particularly including during the possi-
bility of offloading downside risk to private capital markets, rein-
surers, and other qualified risk-transfer partners?
Mr. CALABRIA. Absolutely. We look forward to working with
every member of the committee on these issues.
Mr. BUDD. That would be great. Thank you.
And my last question is, before the pandemic, I know your agen-
cy was involved in a comprehensive review of all of the pilot pro-
grams of Fannie and Freddie. It continues to concern me that both
Fannie and Freddie set the capital standards for the mortgage in-
surance industry and then turned around and created mortgage in-
surance pilots to compete against the very industry that you over-
see.
I am speaking specifically about the integrated mortgage insur-
ance and the Enterprise Paid Mortgage Insurance (EPMI) options.
Should a GSE in conservatorship—or in any state—should it be
permitted to set capital for a counterparty and then compete
against them in the primary market?
Mr. CALABRIA. I share your concern, and I raised that question.
We had hoped to have that issue resolved before, and then COVID
hit, and, obviously, this is one of those regulatory issues that has
been delayed because of COVID. But I certainly want to commit to
you, Congressman, that this is an issue that we want to resolve.
Mr. BUDD. Thank you, Director. I appreciate you being here
today.
And I yield back to the Chair.
Mr. CALABRIA. Thank you.
Chairwoman WATERS. Thank you. And thank you very much, Mr.
Sherman.
I now recognize the gentlelady from Michigan, Ms. Tlaib, for 5
minutes.
Ms. TLAIB. Thank you, Madam Chairwoman.
My district—13 District Strong—is really hurting right now. I
don’t know if you have ever heard me talking about my beloved dis-
trict. It is the third-poorest congressional district in the country,
and the pandemic has really exposed a lot of the broken systems
and programs.
The Neighborhood Stabilization Initiative (NSI) was created by
your agency, correct?
Mr. CALABRIA. It was created by Congress, but it was imple-
mented by this agency and some—
Ms. TLAIB. You all implement the policy. So, the goal was to sta-
bilize neighborhoods that were hit hard by the housing downturn.
That was the goal of Congress when they created it.
It also was to help reduce the inventory of what they call real-
estate-owned (REO) properties by putting those homes in the
hands of residents, correct?
Mr. CALABRIA. Absolutely, yes.
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Ms. TLAIB. Yes. So, do you believe the NSI program would be
useful in stabilizing neighborhoods and retaining home ownership
during the pandemic right now?
Mr. CALABRIA. I believe it could be in targeted neighborhoods,
yes.
Ms. TLAIB. One of the things, though, Director, is, I really think
we need to ensure that we don’t repeat the damage this program
actually created on the ground.
And, as you know—I know you are nodding your head, but did
you know that, since 2014, in my district, 15,000 homes were actu-
ally torn down and sold to deceitful or unscrupulous, kind of, com-
panies in my district? Were you aware of that?
Mr. CALABRIA. I was not aware of those specific, particular exam-
ples, but I have certainly heard of similar cases elsewhere.
And let me very much agree with you that there was a number
of ways in which the response to the 2008 crisis were not well-exe-
cuted, and I think it is so important that we don’t repeat those er-
rors this time around.
Ms. TLAIB. And I am so glad to hear you say that, Director, be-
cause consumer advocates have really pleaded about making sure
they repair and sell these homes and actually put them in the
hands of actual residents. It is so critically important. Because I
can tell you right now, NSI has left a lot of my neighborhoods in
despair.
And one of the other really important things is that consumer
advocates—and this is why I need your partnership—have really
been pushing and urging a lot of banks that received a huge tax-
payer bailout, as you know, during the last recession, to force them
to lend, to give smaller loans to many of those that do benefit from
the NSI program.
Also, I think it is really important—and this is something that
is a really serious question, Director. To ensure that families can
save money on their rent and to really help working-class Ameri-
cans recover from the pain of this crisis—and, still, we don’t really
even know what that is going to look like on the ground—your
agency needs to ensure that REO properties are getting in the
hands of affordable-housing nonprofits.
How are you ensuring that happens?
Because that is one thing that went wrong, as you know. Vision,
a company that woefully ignored their responsibility as owners and
landlords, was able to buy thousands of REO properties from
Fannie Mae, and I think they continue to hold some of those prop-
erties.
What are we doing to make sure that we are not repeating those
mistakes that really hurt our families?
Mr. CALABRIA. Agreed. And that is really such an important
issue. As you know, there was also some Fannie financing of some
of these investment funds that were buying vacant or foreclosed
properties, when they could, of course, have gone to homeowners.
So we are currently conducting a review, particularly of the issue
of the vacant properties, which we know can be so devastating to
communities. We want to make sure we don’t repeat those errors.
One of the things I impressed upon our staff when I came in the
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door last year was, we need to make sure the servicing side of this
is up and running and that we don’t repeat those problems.
So, we are certainly looking at some of these things. We certainly
want to make sure that we can work with nonprofits when it
makes sense. We want to make sure that we are not leaving vacant
properties that are just being a blight on the neighborhood, that we
are addressing those as soon as we can. And hopefully, we can
avoid a number of the problems that happened the last time
around.
Ms. TLAIB. And you have a partner in me. I would like a follow-
up by your agency on what specific measures your agency has
taken to prevent other companies from buying homes from Fannie
Mae, from dodging State laws, endangering tenants, and promoting
abusive lease-to-own schemes, which Chairwoman Waters and I
are trying to deal with now.
Can you follow up with our office, with specifics on what those
measures are? Because you can review; I can tell you, it is going
to come back saying, we didn’t do our due diligence to making sure
this program was as it was intended by Congress to help stabilize
neighborhoods.
Mr. CALABRIA. Congresswoman, let me commit to you and every
member of the committee, I have no tolerance for Fannie and
Freddie partnering with bad actors. Any time that anybody on this
committee points me toward a bad actor, we will take a look at it,
and we will try to deal with it the best we can.
Ms. TLAIB. Thank you.
And I yield back.
Chairwoman WATERS. Thank you very much.
I will now recognize the gentleman from Tennessee, Mr. Kustoff,
for 5 minutes.
Mr. KUSTOFF. Thank you, Madam Chairwoman.
And thank you, Director, for testifying today.
Last November, you spoke at the Conference of State Bank Su-
pervisors summit, and you speculated, I believe, that the GSEs
could be ready to exit conservatorship, I think you said at that
time, by 2022 or 2023.
Obviously, the world has changed. I think we all understand that
and appreciate it. Can you talk about whether that projection is
still on track and, if not, why?
Mr. CALABRIA. Let me first emphasize that my view—and I
somewhat relayed this to Congresswoman Maloney in our back-
and-forth—was that this is process-driven, not calendar-driven.
And when I made those statements, I believe I said at the time
that these were approximations, and so it would be driven by the—
but, again, they won’t get out until they are ready to get out.
But let me—if I can put a date around it in terms of delay, I
think we have probably been delayed 4 to 6 months. But, again, I
want to caveat, that really depends on what the housing market
looks like going forward, what the equities market looks like going
forward. Certainly, there are a lot of unknowns.
But, Congressman, what I think you should really take away is,
we have to make sure that they are not going to leave until they
are ready to leave, and we have a lot to accomplish for them to get
out.
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Mr. KUSTOFF. You just talked about trying to project what the
housing market looks like. And, again, I appreciate the challenges
that you have, along with everybody else. What do you think about
the next 6 to 12 months in terms of the housing market?
Mr. CALABRIA. Again, repeating my earlier observation that I
think we have a two-track housing market, where the single-family
purchase market is going extremely well, I think it will continue
to go well for at least another 6 months. I am very much concerned
on the rental side and on the multifamily side. I think we are just
facing a very different set of scenarios there.
But I would also say that while it is very hard to date these
things, I do think we are closer to the peak of the single-family
market than we are to the bottom. And so, certainly, my instincts
are, probably within the next 2 years, this rally, if you will, will
probably have run its course, and so we do need to be concerned
about a potential downturn in the housing market.
The housing market does have a tendency after long runs to re-
vert itself. And so, we do need to make sure that Fannie and
Freddie, borrowers, lenders are all prepared for a potential stress
environment in the housing market at some point.
Mr. KUSTOFF. As to that point—and I know you have been testi-
fying, and we have been in our hearing, but the Federal Reserve
Chairman today—in fact, now—is talking about interest rates, pro-
jecting interest rates, and that they are going to remain low, close
to zero, at least for the next couple of years. Does that affect your
projections of the housing market itself?
Mr. CALABRIA. We certainly take into consideration the Fed’s
projections. And, of course, I think if you ask Chairman Powell, he
would say that it is hard to have much certainty, too far out, and
that is the same here.
And while I certainly hope for the best, I think my role as a pru-
dential regulator is to plan for the worst, which, of course, I hope
never happens. And, again, as I have mentioned, there are a lot of
unknown risks, and I think we just need to be prepared for those.
Mr. KUSTOFF. Thank you.
In terms of Fannie Mae and Freddie Mac suspending both pur-
chases of seasoned mortgages, or mortgages that have been held on
the balance sheet for over a year, my understanding was that the
suspension was initially going to expire a couple of months ago, on
June 30th.
The suspension is still active. I don’t believe that FHFA or the
GSEs have provided any guidance regarding how long the suspen-
sion will last. Can you give us any guidance?
Mr. CALABRIA. We are not at the point where we can give a date,
but I would be happy to work with you and other members of the
committee.
To give you some background, we were very concerned early in
the crisis. We had been approached by a number of very large de-
positories, some of the largest banks in the country, who wanted
to move considerable amounts of their seasoned mortgages, which
were hitting some stress.
And so, quite frankly, we were concerned about having our larg-
est banks, who are leveraged—while we could argue whether they
are too highly leveraged or not enough—that were leveraged 10-to-
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1 wanting to pass on the risk of seasoned loans to Fannie and
Freddie, who were leveraged 250-to-1. And so, we certainly just
wanted to make sure that these large institutions weren’t using
this as an opportunity to transfer their risk.
But Congressman, I do recognize that there are some smaller in-
stitutions that this has inadvertently impacted. And we would be
happy to work with you on some modifications to try to facilitate
liquidity to smaller institutions.
Mr. KUSTOFF. Thank you, Director.
And I yield back.
Chairwoman WATERS. Thank you very much.
I now recognize the gentleman from Florida, Mr. Lawson, for 5
minutes.
Mr. LAWSON. Thank you. Madam Chairwoman, thank you for
having this hearing.
And I welcome the Director to this hearing.
Mr. Director, I have been listening to many of my colleagues ask
questions. And one of them is really on my mind, and I know it
is on the mind of the chairperson. We have been receiving—I have
been seeing on television different programs that occurred around
the country which related to evictions.
And since the FHFA extended the foreclosure and eviction mora-
torium through the end of the year, I worry that we will see an in-
flux of evictions coming January, and homelessness—this is very
important—will reach a new all-time high with this pandemic.
Do you have the same concerns? And is there a plan set in place
to deal with the potential outcomes?
Mr. CALABRIA. Congressman, I share your concerns. And let me
commit to you that, if the data, as we approach the end of the year,
suggests that we need to extend our eviction/foreclosure morato-
rium beyond the end of the year, we will do so.
Mr. LAWSON. Okay. Thank you.
And, from your perspective—and I know that you have heard
from some of my colleagues about the HEROES Act that we sent
down to the Senate, which Chairwoman Waters had a great deal
to do with. The homeless program that we see out in California and
we see on the streets—there are the highlights all the time. Do you
have any influence in this regard when you talk to some of my Sen-
ate colleagues, as to, because of this pandemic, that we need to
move on this before the end of the year?
And I have heard some of my colleagues on both sides talk about
it. But what do you think is going to be the outcome as we ap-
proach the end of the year? Because this pandemic that we have
been faced with is—everyone anticipated that in the early part of
July or in August, everything will start to stabilize and everything
will try to go down. How do you all approach that?
Mr. CALABRIA. Congressman, just a reminder for members of the
committee, I am an independent regulator. I am not part of the Ad-
ministration, and not part of the negotiations between the Senate
and the White House. So, again, we are not privy to that conversa-
tion.
We certainly share everybody’s, I hope, general feeling that we
can have some resolution and deal with these issues. But our agen-
cy doesn’t have a role in that process.
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Mr. LAWSON. I understand that. But do they ever ask you for
input from your perspective with the responsibility that the FHFA
has? Do they ever call you for a recommendation?
Mr. CALABRIA. We do get inquiries on issues dealing with us. For
instance, for Sections 4022 and 4023 of the CARES Act, that lan-
guage was shared with us late in the process by the Senate as it
was being debated. We had offered some suggestions. Some they
took; some they didn’t.
But we did have a conversation. But it wasn’t a question about
the overall bill. It really was a reach from the Senate Banking
Committee in terms of the issues that directly impact our agency.
Mr. LAWSON. It is great to have you here. And I know this ques-
tion might be unfair, and you don’t have to answer it, but do you
feel that, here, we are headed in the right direction in terms of
what we would like to do for the rentals, for the landlords, which
a lot of our major cities are experiencing? Do you feel that we are
headed in the right direction?
Mr. CALABRIA. Are you referring to the HEROES Act? Referring
to Congress? Are you referring to the economy? Could you be more
specific, Congressman?
Mr. LAWSON. The HEROES Act that is pending, that is before
the Congress right now, did we leave out anything? Are we headed
in the right direction in what we are trying to do?
Mr. CALABRIA. Thank you, Congressman. I have not personally
had an opportunity to go through the HEROES Act housing provi-
sions, but I will do so and get back to you.
Mr. LAWSON. Okay. That will be fine.
Madam Chairwoman, with that, I will yield back.
Chairwoman WATERS. Thank you very much, Mr. Lawson.
I will now yield 5 minutes to the gentleman from Georgia, Mr.
Loudermilk.
Mr. LOUDERMILK. Thank you, Madam Chairwoman.
And, Director Calabria, I appreciate your being with us today
and engaging in this process.
It has been a challenging time for a lot of us across the nation,
but I believe that America is strong. We have relied on our Enter-
prises, our private businesses, and especially our small banks, with
our support, to get us through this. And our healthcare profes-
sionals have been phenomenal. And I have no doubt we are going
to make it through 2020, and we are going to make it through
these other challenges we have in the housing market and rental
market.
But, for this, I would like to follow up with you on the Enterprise
capital rule, which some of my colleagues have already discussed.
My concerns are that the rule would reduce the capital benefits
and other incentives for the GSEs to engage in credit risk trans-
fers, which is a good way to reduce the risk to taxpayers.
You mentioned to Mr. Luetkemeyer that you support the CRT
and that the GSEs will continue to do CRT regardless of how the
final capital rule turns out. But I am concerned that we have al-
ready heard evidence to the contrary. Because, in a recent filing
with the SEC, Fannie Mae disclosed that it had paused its CRT
program because this rule would reduce the amount of capital re-
lief they would get from CRT.
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With that case, how can you be sure CRT will continue if the
capital rule is implemented?
Mr. CALABRIA. First, let me emphasize, Congressman, that, while
they are in conservatorship, we put out a conservatorship score-
card. And so I guess I would put it this way: We will be mandating
that Fannie continue to do CRT during conservatorship, and be-
cause the compensation of their executives depend on them getting
the scorecard, I strongly believe—I suspect they will be incentivized
to do so.
Mr. LOUDERMILK. Okay.
Is the FHFA incentivizing Fannie Mae and Freddie Mac to re-
turn to pre-financial-crisis behavior with this rule? That is a con-
cern.
Mr. CALABRIA. Just the opposite, Congressman. We are trying to
deal with making sure they don’t go back to their pre-crisis behav-
ior.
Certainly, as I have emphasized in a couple of conversations
today, I do believe that the model of privatized gains and socialized
losses that represents the Government-Sponsored Enterprises has
some deep structural flaws that are outside of my authorities to fix.
So, I would certainly encourage Congress to address those issues.
But I believe having these be better capitalized—lastly, I would
also add—this is a little less visible, but I would really emphasize
this, because it is such a big part of this. Fannie and Freddie have
what I would consider to be some of the worst corporate cultures
I have ever seen in corporate America, and fixing that is a funda-
mental prerequisite to getting out of conservatorship. These compa-
nies must be good corporate citizens if they are to exit conservator-
ship, and the truth is, we have a lot of work to do on that front.
Mr. LOUDERMILK. I appreciate that. And it is refreshing to hear
you say that, because I share those same concerns.
Another concern is that the capital rule would require the GSEs
to hold almost double the capital for multifamily loans as compared
to the single-family. That is not consistent with the historical rate
of loss in multifamily, which has been much lower than that of sin-
gle-family, and it could impact the supply of multifamily housing.
Following up on your conversation with Mr. Huizenga, can you
confirm if you have an economic analysis to study the impact of
multifamily capital requirements?
Mr. CALABRIA. Congressman, I will see what we can share, and
I would be happy to share that with the committee.
Mr. LOUDERMILK. Okay. I appreciate that.
Madam Chairwoman, I will yield back the remainder of my time.
Mr. CALABRIA. Thank you, Congressman.
Chairwoman WATERS. Thank you very much.
I now recognize the gentlelady from California, Ms. Porter, for 5
minutes.
Ms. PORTER. Thank you.
Mr. Calabria, you are here today before this committee to explain
why the agency that you are in charge of, FHFA, needs to charge
an additional fee to homeowners who want to refinance their mort-
gage during a pandemic. And, as I understand it, you have said
you need to do this because the coronavirus pandemic is costing
your agency money. And there is money that you have said is going
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to come from loan losses, money from foreclosure moratorium
losses, money from servicer compensation.
My question for you is, wouldn’t homeowners would actually save
money by refinancing their mortgages?
Mr. CALABRIA. Let me clarify: This isn’t costing our agency any-
thing; it is costing Fannie and Freddie. We are two distinct things.
We are not Fannie and Freddie. We are FHFA.
Fannie and Freddie requested these fees. They said they would
be distressed if they didn’t get them. Obviously, a refinancing im-
proves borrower—borrowers are in a better situation. But, again,
I want to emphasize, nobody’s payment goes up because of this.
Ms. PORTER. Correct. But we have this adverse market fee that
we are dealing with here. This adverse market fee creates an addi-
tional fee on homeowners when they refinance, that would not exist
if you had not put forth the adverse market fee.
Mr. CALABRIA. Without this fee, I am not paying to keep people
who have lost their jobs in their homes. Without this fee, families
are on the street. Without this fee, families are exposed to
COVID—
Ms. PORTER. Reclaiming my time, Mr. Calabria, homeowners can
refinance with or without this fee. By adding the adverse market
fee into the refinance process, you are increasing the cost of refi-
nancing for homeowners. Their overall mortgage payment will go
down by refinancing.
Mr. CALABRIA. Correct.
Ms. PORTER. I understand how a refinance works.
Mr. CALABRIA. Thank you.
Ms. PORTER. But, as compared to no adverse market fee versus
your proposal, which is an adverse market fee, homeowners are
being asked to pay more.
Mr. CALABRIA. Congresswoman, I would certainly welcome your
assistance in finding a way for us to pay to keep people in their
home, which is my first priority here.
Ms. PORTER. Okay. Great.
Mr. CALABRIA. I appreciate the burden on people—
Ms. PORTER. But I have an idea for you, Mr. Calabria. Did you
go to Congress? Instead of creating fees on families that total $5
billion or $6 billion, why didn’t you go to Congress and ask them?
Mr. CALABRIA. Why didn’t Congress pay for these things when
the CARES Act was passed?
Ms. PORTER. Have you asked us?
Mr. CALABRIA. Was it not understood that, if you pose mandates
on private companies via legislation, as was done in the CARES
Act—it was widely understood when the CARES Act was passed,
that costs would be placed on the mortgage market. Perhaps I na-
ively assumed that those who voted for the CARES Act knew
that—perhaps they didn’t know there would be costs.
And this is why it has been delayed, to give Congress the oppor-
tunity. This is why the numbers are being presented today. So, if
Congress wants to come in and provide the funding, the fee goes
away. It is really quite simple.
Ms. PORTER. But, Mr. Calabria, you are in charge of the Agency.
It is your job to come to us and say, ‘‘We need additional resources.
One way we could get it is by increasing the cost on homeowners,
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who are already struggling to stay in their homes, to add cost to
a refinance that is, in fact, designed to benefit homeowners—it is
not our job—we are here today, so you could have come to us today
and asked us for the $6 billion so that we avoid putting these costs
onto homeowners.’’ And yet, you did not.
Mr. CALABRIA. Respectfully, Congresswoman, we have delayed
the fee so that Congress can come up with a solution. The fee has
not been implemented.
Ms. PORTER. Okay. So let me ask you again, have you asked Con-
gress for this money?
Mr. CALABRIA. I have not. We can find a way to pay for it in the
mortgage market. Because, again, the charters require expenses to
be covered via income. I simply assumed that, by Congress passing
the CARES Act and Congress having passed the charters, that
Congress very clearly intended for me to recoup expenses via in-
come, because that is the statutory framework.
Ms. PORTER. Of course, Mr. Calabria, but you—
Mr. CALABRIA. Perhaps it is naive of me—
Ms. PORTER. —you write the budget. You know how much money
you need.
Mr. CALABRIA. But Congresswoman, we don’t write—these are
the fees that—you have CBO. None of this went through CBO. If
the CARES Act had been scored—and, again, I also want to em-
phasize, we don’t determine the ultimate cost to the borrower. The
lender determines the cost to the borrower. This is a fee charged
to lenders, not a fee charged to borrowers.
Ms. PORTER. You don’t think lenders—you, Mr. Very Free Mar-
ket, don’t think lenders will pass this fee onto borrowers?
Mr. CALABRIA. That is a question for lenders. Just like any costs
out of Dodd-Frank are ultimately passed on to borrowers—
Ms. PORTER. Have you had any conversations with lenders that
suggest that they will absorb this fee rather than passing it on to
homeowners?
Mr. CALABRIA. Some of them said they would absorb it.
Ms. PORTER. Really?
Mr. CALABRIA. Yes. I am happy to connect—
Ms. PORTER. Would you provide to the committee those lenders
that have agreed to absorb the fees?
Mr. CALABRIA. I would be happy to connect you to lenders that
said they would absorb some of it.
Ms. PORTER. Thank you.
Mr. CALABRIA. Thank you.
Chairwoman WATERS. The gentlelady’s time has expired.
Thank you very much, Ms. Porter.
I now recognize Mr. Hollingsworth, the gentleman from Indiana,
for 5 minutes.
Mr. HOLLINGSWORTH. Good afternoon, Director Calabria. I really
appreciate you being here and I appreciate the time that you have
invested to talk about some of these very important issues.
I know that a lot of language has been thrown at you today and
a lot of adversarial conversations have been had. I wanted to just
maybe step back from some of those conversations and get at the
underlying construct by which we put this fee into place.
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And so, as you have articulated both in your testimony and sev-
eral times today, there are $6 billion to $10 billion in real costs
that the Enterprises expect to incur on account of COVID-19. That
is correct, right?
Mr. CALABRIA. That is correct.
Mr. HOLLINGSWORTH. And I imagine, if we just close our eyes
and put our heads in the sand, that those costs aren’t going to go
to zero under any circumstances. Those are real and tangible costs
that we can expect, right?
Mr. CALABRIA. Correct.
Mr. HOLLINGSWORTH. And the question before us, and I think the
question that you have very thoughtfully and artfully answered
several times now is, are we going to have rate payers at the end
of the day pay the full cost of originating, servicing, and
securitizing those mortgages, or are we going to ask taxpayers to
pay part of those costs of originating, servicing, and securitizing
those mortgages?
And I think, philosophically, you and I have been aligned that,
ultimately, it should be rate payers that bear the full cost of that,
of the cost over time. Is that correct?
Mr. CALABRIA. That is correct.
If I could add for little more detail, the median income of house-
holds who refinanced in the second quarter is $110,000. So, again,
as you are getting at, we are essentially asking lower-income tax-
payers to help subsidize higher-income people to refinance, is what
the argument I have heard today is, and that doesn’t sound terribly
progressive to me.
Mr. HOLLINGSWORTH. I think that is well-put. And I continue to
hear from many constituents who are deeply concerned about
where the deficit is today and that taxpayers generally are being
asked to fund more and more of that, which should be borne ulti-
mately by rate payers.
And I continue to believe that, ultimately, in setting forth a fee
to compensate for those costs, you have appropriately placed the
costs on rate payers instead of bearing the burden on taxpayers,
and coming to Congress and asking for that money but instead re-
couping it, as you said, through income.
And so, I wanted to ask very specifically, you set forth a 58-basis-
point adverse market fee. You said we are going to start that in
September.
We are going through an epic refinance boom right now. Some
of that boom is going to be behind us by December when it goes
into effect, which I think, because the $6 billion to $10 billion isn’t
going away, means you are going to have to perhaps have a larger
fee, or perhaps that fee will have to be in place for even longer, be-
cause you have less volume on which you can recoup those costs.
Could you speak to that a little bit, how the delay might actually
lead to higher costs or longer-term this cost being in place because
there will be less volume?
Mr. CALABRIA. Thank you, Congressman. And, first, let me clar-
ify, since there are a number of methods, is it not a 50 basis point
addition to the fee. Nobody is going to pay 350 instead of three—
Mr. HOLLINGSWORTH. I get that. I understand that. And I under-
stand that is not going to translate directly to 50 basis points, in-
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crease the interest rate, it is on the purchase. I am sorry for
misspeaking on that, but I get you and I understand.
Mr. CALABRIA. I think you got it right. I was clarifying that for
other members of the committee. But you are absolutely right, that
if we miss the refinance wave, we ultimately may have to have a
higher fee, for longer, because we will be forced to spread this over
fewer loans. And so, the direction here is to minimize the loan im-
pact by being able to capture the refinance wave.
Mr. HOLLINGSWORTH. And the reality of where we stand today
with where mortgages rates are, at historic lows, and I think, as
you well-articulated this 50 basis point fee, may translate into 5
basis points, I think, you testified earlier on the ultimate mortgage
cost to the consumer, that if we miss this opportunity—this is
something I have been talking about—if we miss this opportunity
through this huge refinance boom, that cost may be higher later on,
on those who are trying to refinance. Also, while rates may be
going on, a double whammy for the housing market later on while
we miss this epic refinance boom today. Is that something that you
think as well?
Mr. CALABRIA. That is absolutely the tradeoff we face. Again,
what I have tried to do is—we have probably had nothing but bad
choices, trying to pick the least bad that minimizes the impact and
targets the benefits of those most in need.
Mr. HOLLINGSWORTH. And to ensure the basic philosophical prin-
ciple that rate payers pick up that full cost, versus taxpayers sub-
sidizing the cost, I think that is the basic principle we need to stick
with. With that, I yield back.
Mr. CALABRIA. Thank you, Congressman.
Chairwoman WATERS. Thank you very much.
I now recognize the gentlelady from Iowa, Mrs. Axne, for 5 min-
utes.
Mrs. AXNE. Thank you, Madam Chairwoman, and thank you, Di-
rector Calabria, for being here. I very much appreciate it.
I want to talk a little bit about how renters have been protected
during this pandemic. As you are fully aware, we have a new evic-
tion moratorium from the CDC that is intended to protect eligible
renters, and basically all properties. I think we all know that that
is a temporary measure that unfortunately will still leave people
owing money, rent money on January 1st with no ability to pay for
that. But I am going to continue to support rental assistance for
people to provide a long-term solution to this problem.
But for now, I want to take a look at how things have gone so
far. We are already seeing reports of legal challenges to the CDC
moratorium, as well as landlords illegally refusing to accept dec-
larations from renters. Obviously, that is a major problem, one we
are going to have to look at moving forward, but it brings me to
some issues that we are seeing with the moratorium under the
CARES Act.
Hundreds of Iowa families have been kicked out of their homes,
unfortunately, and at least 10 percent of these were done illegally
in violation of the State or Federal moratorium. The CARES Act
created a 120-day moratorium on evictions for federally-backed
properties.
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Director, can you outline what properties that protection cov-
ered?
Mr. CALABRIA. Thank you, Congresswoman. Let me say before
we get to the question, we very much share your concern. I do want
to emphasize that renters, particularly landlords facing stress, if
they have a Fannie and Freddie loan, they should reach out to us
so we can get them in forbearance and provide some relief. In
terms of the authorities that we have to provide a moratorium on
eviction, we can only stop eviction on foreclosures and properties
that we actually own, ‘‘we,’’ being, Fannie and Freddie.
Mrs. AXNE. Thank you, first and foremost, for that offer. We are
going to be getting ahold of your office because I have heard from
Iowa Legal Aid, who found most of these illegal evictions, and they
worry that their list is incomplete because of bad data. We have
seen circumstances where this is happening. They can pretty much
find everything that is backed by the VA and the FHA, but they
are struggling with the lookup tools from Fannie Mae and Freddie
Mac. It is just not giving them what they need. Those are not only
difficult to use, but they are very incomplete, which is the biggest
part of the problem, missing some properties that should have been
covered.
So, instead of being able to quickly check the property to help the
renter facing eviction, now they are spending their time searching
these records, which means they can’t help people as quickly as
they need to, in a really difficult time. This kind of thing, of course,
allowed landlords to go ahead and file illegal evictions, because it
makes it easier for them to get away with it.
Director Calabria, can you commit to making sure that Fannie
and Freddie get these tools working properly so that we can get the
transparency that America’s renters need?
Mr. CALABRIA. Well, we are, and what I will mention that I think
will be particularly impactful, is we recently revamped the search
engines. So, unlike the single-family program where if you are an
owner, you enter your Social Security number, which is obviously
unique, so they can find the mortgage. Unfortunately, if you think
about it, if a renter lives in a property that is called something like
Gardens Manor and they search Garden Apartments, they may not
find it. So what we have done is set this up so the renter can now
search by ZIP Code, and they will get a list of all the Fannie and
Freddie rentals in their ZIP Code.
Again, I would really emphasize, as you know, we set this lookup
tool up for the first time in this crisis, and I will be the first to say,
was it perfect when it went out? No. But we thought it was better
to have something that was 80 percent correct than have nothing
at all. And we continue to have updates on that, and we will con-
tinue to try to make sure we can get it to 100 percent.
Mrs. AXNE. Please let me know what you are looking at for 100
percent, what kind of timeline that is? We literally have people
being kicked out on the street because of this and the inaccuracy
of the tools and the inability for people to get that information.
I have many examples that I can go into, but they are long sto-
ries, unfortunately, sad, long stories.
I did want to mention, too, and I appreciate you working on that,
so thank you so much. But I am a little disappointed that making
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sure renters knew if they were protected, wasn’t the biggest focus
of your organization, and that instead, there was a lot of effort put
into that capital proposal that was put out in May, in the middle
of this crisis, as we have been trying to focus everything on helping
people during this crisis.
We have talked a little bit about that today. The standards you
put out in May would be questionable, even in good times, but dur-
ing a crisis like this, it seems almost disconnected with the reali-
ties that people and the economy need. Raising the cost of the aver-
age mortgage by $350 a year, which Fannie and Freddie both say
is basically what is going to happen, is not what we need during
this crisis.
So, I would urge you to reconsider the proposal. I have heard the
conversation today. But given the impact that this can have on our
economy and on a family’s ability to pay their bills and own their
homes, I hope you can reconsider. Thank you so much. My time
has expired, so I yield back.
Chairwoman WATERS. Thank you very much. I now recognize
Mr. Gonzalez of Ohio for 5 minutes. Thank you.
Mr. GONZALEZ OF OHIO. Thank you, Chairwoman Waters, for
holding today’s hearing, and thank you, Director Calabria, for
being with us today.
Director, first, I want to start by thanking you overall for your
work throughout the pandemic. There have been multiple times
where myself, or members even from my community, have wanted
to connect with you and your office to get guidance in helping fig-
uring out sort of the direction that FHFA is going, and you have
always been incredibly receptive. And I just want you to know on
behalf of myself and my community, I really thank you for that, be-
cause it is not normal, I think you know that, but it is appreciated.
First of all, I will start with a question. In your testimony, you
reference your earlier recommendation to Congress that FHFA give
additional regulatory and supervisory authorities. Looking at the
June annual report to Congress, those recommendations included
supervisory primary market, specifically nonbank mortgage lend-
ers. Can you explain further the kind of authority that you are
seeking over this segment of the market?
Mr. CALABRIA. Thank you, Congressman, for that, and to clarify,
I am not looking to regulate anybody that I am not already regu-
lating. I certainly have my hands full with the companies I already
regulate. What I am looking is simply to have exam ability, similar
to that of the Bank Service Company Act, where we can go in to
essentially those who provide services or counterparts of the GSE.
So as it relates to nonbank servicers, it will essentially allow us to
go in, take a look at their financials, and know what kind of shape
they are in financially, whether they are a strong counterparty.
But it would not put us in the place of being a regulator for
nonbank servicers. Just to clarify, exam authority, but not regu-
latory authority.
Mr. GONZALEZ OF OHIO. Are you worried about any overlap from
an exam standpoint? That is sort of the comment that I hear most
often.
Mr. CALABRIA. That is one of the reasons that I raise that. We
are not looking for regulatory authority. As you know, most
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nonbank servicers are regulated at the State level. I think that is
certainly appropriate. We work well with the State regulators, and
we want to keep it that way. We certainly just want to make sure
that we continue to make sure that Fannie and Freddie are only
doing business with strong institutions that are good corporate citi-
zens.
Mr. GONZALEZ OF OHIO. And shifting to something that has been
covered ad nauseam, the adverse market fee. I was pleased to see
that you put in place a threshold of $125,000, in order to help low-
income homeowners. I am just curious, because I know you are a
data-driven guy, what information went into that? Is $125,000 the
right number? What are we expecting to avoid having to pay, let’s
say, by putting $125,000 versus, say, $200,000 or $250,000, or
something like that?
Mr. CALABRIA. Great questions. I also want to emphasize that we
have also excluded Fannie and Freddie’s HomeReady products,
both affordable products from both agencies. And so, there is a
much less liquid market for small-dollar loans, and, of course,
given that income is related to the size of the loan, what we end
up doing is cutting off, making sure the fee does not apply to pre-
dominantly households that are under 80 percent of area median
income.
Mr. GONZALEZ OF OHIO. Okay. That is helpful. And then what
about, I know, this is always hard to do, but expanding it depend-
ing on market, right? So, New York City is going to have a dif-
ferent mortgage market than Cleveland.
Mr. CALABRIA. Certainly, there are two issues with that, where
obviously, the more we cut out, the higher the ultimate fee may
have to be, because—and I think Congressman Hollingsworth men-
tioned this, we have to fix the model ultimately, we are going to
have to recover.
So, again, we cut out purchases, because, again, we didn’t want
to have an adverse impact on the purchase market. So as we
shrink that, the ultimate fee may be higher. But, secondarily, it is
not clear to me that Fannie and Freddie have the IT capacity to
be able to come up with a price differential brief market, but we
can look into this. We did go back and forth with a number of dif-
ferent parameters. And, again, unsurprisingly, sometimes Fannie
and Freddie both do things very differently. So some of this is,
again, what are the mechanics in the administrative process to set
this up?
Mr. GONZALEZ OF OHIO. Thank you. I have some more questions,
but I will submit them in writing, as I see my time is almost up.
And, again, thank you, Director Calabria, for just being acces-
sible and for all of your work. Thank you, and I yield back.
Chairwoman WATERS. Thank you very much.
Mr. Casten, you are now recognized for 5 minutes.
Mr. CASTEN. Thank you, Madam Chairwoman, and thank you,
Director Calabria, for being here today, and for being patient, be-
cause I know it has been a long day, especially when you are down
at the bottom of the dais.
With all of these horrific wildfires raging out West, have you
done any modeling yet to assess what the impact is of those fires,
or is it premature to have started that?
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Mr. CALABRIA. Anything now has to be preliminary. We have
done some internal analysis. We think that in terms of financial
impact on Fannie and Freddie, it will be small. But, again, as we
know the fires are still raging in many areas, so the ultimate im-
pact is far from being known.
Mr. CASTEN. That is helpful. As Mr. McHenry pointed out, this
is the earliest year ever with an ‘‘S’’ named hurricane. Have you
done any preliminary modeling of what this hurricane season is
going to do to the GSEs?
Mr. CALABRIA. We have some numbers that we are putting to-
gether. Some numbers on the—let me, overall, say, the overall im-
pact, because it has mostly been a wind, rather than a flood event,
doesn’t look like it is going to be very large numbers for Fannie
and Freddie. Again, we are happy to share our preliminary num-
bers with you. But I wouldn’t say the broader point that Congress-
man McHenry touched upon, which is, we do need, essentially, a
broader look at this in terms of what the future impacts are going
to be, particularly, for many changes in climate to make sure as
well that lenders aren’t necessarily transferring risk to Fannie and
Freddie that we are not aware of. So, these are all things that we
are looking at.
Mr. CASTEN. I am glad you asked that question, and I would like
to ask unanimous consent to enter into the record a New York
Times piece called, ‘‘Climate Risk and the Housing Market Has
Echoes from the Sub Prime Prices From 2019.’’
Chairwoman WATERS. Without objection, it is so ordered.
Mr. CASTEN. This article notes that starting in 2004, every time
we had a hurricane that caused at least $1 billion in damages,
lenders increased by almost 10 percent a share of those mortgages
that they sold to Fannie Mae and Freddie Mac. It sounds like the
private sector figured out, way back in 2004, that this was an issue
and started offloading it onto the taxpayers.
After that study was released, what analysis did FHFA under-
take to understand that exposure? Because this is not just loss,
this is exactly what you just described, increasing the shares of
those mortgages that are held by Fannie and Freddie.
Mr. CALABRIA. Let me first say, having read the article as well,
and having read the underlying research, I might take issue with
some of the methodology, but I broadly share the qualitative con-
clusion of the article and the underlying research.
As you know, I came on board last year with a number of issues
to deal with. We are expanding our capacity. For instance, we are
going to be hiring an environmental economist to start doing mod-
eling in this area. I am very concerned that this risk is being
passed from lenders off to Fannie and Freddie. And, again, when
I came on, we didn’t have the research capacity to really look at
this issue, thoroughly, and we have been building that out.
Mr. CASTEN. Okay. Have you done any modeling of more sys-
temic risks throughout your portfolio? There have been estimates
as much as $900 billion of property, coastal property has a risk of
increased flooding. Have you looked at the systemic risk from any
of those losses or modeled what that could do to GSEs?
Mr. CALABRIA. We have looked at some of that. And Freddie, par-
ticularly, has done some work in this area. I can certainly see what
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we can share with you. But the broader overall issue, I would cer-
tainly agree that Fannie and Freddie are not prepared for systemic
climate.
Mr. CASTEN. In FHFA’s proposed capital requirement rule, you
acknowledged that climate change is a, ‘‘potentially material risk
to GSEs,’’ but the final rule says there is no risk-based capital re-
quirement for the risks that climate change could pose to property
values in some localities.
Given, as you said, that you are doing this research right now,
how did you come to such a dogmatic conclusion?
Mr. CALABRIA. Congressman, what issue is it that you see as
dogmatic? I am confused on—
Mr. CASTEN. The final rule says that there is no risk-based cap-
ital requirement for the risk that climate change could pose. I am
wondering what research FHFA has conducted to make that deci-
sion to say that there is categorically no risk, and are purposely ex-
cluding climate risk, especially when the private sector has appar-
ently decided that it is not worth them holding that risk?
Mr. CALABRIA. To clarify, Congressman, the rule doesn’t say that
we don’t believe there is any risk. What the rule is saying is that
we have included this within the buffers, because we are not at the
point where we have the data to be able to come up with precise
estimates. And so, the credit part of the capital is based on histor-
ical data, but we have the credit losses. We don’t have that quality
and level of data. So I do want to be clear, and I apologize if what
the rule says has been misunderstood.
Mr. CASTEN. My time has expired. But I would just point out
there is a significant systemic risk, and I am sadly disappointed in
speaking with you, and with Treasury Secretary Mnuchin, that
there seems to be a lot of non-climate people assuring me that we
don’t need to worry about this. I yield back. Thank you.
Chairwoman WATERS. Thank you very much. The gentleman’s
time has expired. I now recognize Mr. Garcia, the gentleman from
Illinois, for 5 minutes.
Mr. GARCIA OF ILLINOIS. Thank you, Chairwoman Waters, and
Ranking Member McHenry for convening this hearing. And thank
you, Director Calabria, for joining us today.
I represent a working-class immigrant district that has been hit
particularly hard by both COVID and our economic crisis. Most of
my constituents are renters, and our State’s eviction moratorium
expires in 3 days. The CDC’s eviction protections are an important
step, but we don’t know how they will play out in the eviction
courts across the country. And none of the measures that are in
place so far help tenants or landlords deal with the overdue rent
payments that have piled up for months.
Director Calabria, the Heroes Act included $100 billion in rental
assistance funds to help tenants who can’t pay their rent, but the
Senate won’t pass it. Landlords in my district are feeling the strain
of so many missed rent payments, even with mortgage forbearance.
What is the projected risk to Fannie and Freddie of so many bor-
rowers who enter into default because they can’t collect rent pay-
ments? And would rental payment assistance minimize that risk?
Mr. CALABRIA. First, Congressman, as I think you know, we are
offering forbearance to landlords with Fannie and Freddie loans
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59
who are experiencing difficulty collecting rents. So, we are trying
to deal with that in terms of the Fannie and Freddie portfolio. We
don’t have exact numbers. That is within the overall $4 billion we
have calculated for credit losses from COVID that is part of the
reasons for the adverse market fees to recoup those losses. And so,
I certainly share your overall concern about problems in the rental
market going forward.
Mr. GARCIA OF ILLINOIS. And would rental assistance payments
help?
Mr. CALABRIA. Yes.
Mr. GARCIA OF ILLINOIS. Are you asking the Senate to possibly
take action on that? Are you encouraging that?
Mr. CALABRIA. Congressman, I have had conversations. We have
provided numbers. I do want to emphasize, again, that I am an
independent regulator. I am not part of the Administration. I have
no authority, and no ability to negotiate on behalf of the Adminis-
tration. I am not part of the negotiations.
Mr. GARCIA OF ILLINOIS. Do you think it is good policy?
Mr. CALABRIA. I think coming up with something to deal with
renters is certainly something that makes sense in good policy. Let
me say to the committee overall, I am very sympathetic, because
the Senate doesn’t always do what I want them to do either.
Mr. GARCIA OF ILLINOIS. The skies in Chicago have been gray for
2 days now because of the fires out West. The smoke reached us
here in Washington yesterday. It doesn’t take a scientist to see that
fires, floods, hurricanes, and droughts are becoming a bigger part
of life in our country. Black and Brown communities in New Orle-
ans, in Houston, in New York, and in Chicago have suffered some
of the worst destruction from these events. But homeowners in
communities like mine are the least able to bear the financial bur-
den of climate change. REALTORS, mortgage lenders, and insur-
ance companies are factoring climate risks into their business deci-
sions.
How about the FHFA? What data is the FHFA putting together
about individual properties and their climate risks, and do you
have an estimate of the exposure of the GSEs to climate risk?
Mr. CALABRIA. Congressman, when I came on last year, we did
not have the analytical capacity, or the staffing to do that. We are
in the process of hiring and bringing on that staffing. So what I
would say to you today is, I share those concerns. I don’t think
Fannie and Freddie are prepared for a systemic climate event. One
of the reasons I think we need strong capital is to be able to pre-
pare for that unknown. But I certainly want to commit that the
very questions that you have raised are questions that I want us
to get to the bottom of, and we are in the process of staffing the
office so that we can try to figure out what the answers are.
Mr. GARCIA OF ILLINOIS. Okay. Thank you, Dr. Calabria.
Madam Chairwoman, I yield back.
Chairwoman WATERS. I now recognize Ms. Adams, the gentlelady
from North Carolina.
Ms. ADAMS. Thank you, Madam Chairwoman. And thank you to
our guest for being here today.
Director Calabria, I am glad to hear that you are continuing in
your efforts to diversify the agency staff by recruiting at Histori-
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cally Black Colleges and Universities (HBCUs). Building a pipeline
of diverse talent into the financial sector is critical to providing all
Americans more equitable access. So, please continue to look to
these pillars of our education system as you move forward.
The FHFA recently announced the pandemic relief measure that
would permit the GSEs to purchase loans that have gone into for-
bearance before delivery, but at a significant fee. And I am con-
cerned that this change will impact creditors’ lending decisions and
end up disproportionately limiting access to credit for communities
of color and other historically underserved communities. What are
you actively doing to prevent this?
Mr. CALABRIA. Thank you, Congresswoman, for that question.
Let me first say that we thought we were required under statute
to be able to price these loans appropriately. I think the positive
is, we are no longer at a point where lenders are going to be sur-
prised by COVID, so, certainly, in the underwriting decisions that
are going on, and I heard from a number of people that when they
have gone, they had to maybe sign a form, saving their job.
So I think what we have seen is some better underwriting in re-
sponse to COVID, so that lenders are no longer surprised. We are
carefully, on a regular basis, monitoring our incoming credit qual-
ity. We have not seen big changes in the quality of credit or the
demographics of our incoming book. I get application summary
data from Fannie Mae and Freddie Mac on a weekly basis, so we
are able to have an inside look into what the coming pipeline is.
And we continue to monitor that. And, certainly, if we think and
we see evidence of problems in the marketplace, we will take offset-
ting action.
Ms. ADAMS. So, you will reduce the fee if you see it happening,
or—
Mr. CALABRIA. We will come up with some alternative, because
again, and I guess I certainly should characterize, it is not as much
a fee as it is a reflection of the climbing value of the price. We cer-
tainly are just paying for the value of the loans for what they are.
And we also just want to make sure at this point that lenders
aren’t putting borrowers into loans they can’t afford.
As you recall, I’m sure, Dodd-Frank imposed ability-to-repay
tests on lenders. So even today, lenders have to make sure that
when a borrower is put into a loan, they have the ability to pay
it back. And, of course, that rule in itself has some sort of post-cy-
clical effect so that when we are in the kind of economic stress,
lenders are going to pull back because of that rule. But we are
making sure that doesn’t have an adverse impact.
Ms. ADAMS. Okay, good. Let me ask, I want to touch on the re-
proposed capital requirements for the GSEs. My concerns have to
do with the strength of this rule and will require the GSEs to raise
a significant amount of capital, which could raise g-fees and the
cost of the mortgages for consumers. And, so, the adverse market
fee for refinancing could negatively impact consumers when it
takes effect in December.
What are you reproposing, or why are you doing it now at a time
of economic stress when consumers need as much relief as they can
get?
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Mr. CALABRIA. Thank you, Congresswoman. Let me separate out
the question on the capital rule from the one on the adverse mar-
ket fees. Those are two separate issues. First, let me remind the
committee that Congress told us to do a risk-based capital standard
in 2008. So I would say that given as an agency, we are 12 years
behind schedule on that, that we haven’t been moving too quickly,
but rather moving too slowly. This, again, was a reproposal that we
put together. We delayed for a couple of months. It was originally
supposed to come out in March.
It is important to recognize that first, there is nothing in the cap-
ital rule that requires Fannie and Freddie to change their pricing,
but more importantly, it will be implemented over time. So there
won’t be an immediate impact in the interim. And in terms of the
average market fee, because we were provided no funding to offset
the impact of the CARES Act, we were forced by charter by those
statutes to be able to recoup that via income.
And so, again, we would have preferred to delay this indefinitely,
but the very solvency of Fannie and Freddie is at risk, and so, the
statute requires that we recoup that for income. I will just wrap
up by saying we are simply following the law. And of course, if
Congress wants to write a different law, we will follow that.
Ms. ADAMS. Thank you, Madam Chairwoman, and I yield back.
Chairwoman WATERS. Thank you very much. I now recognize
Ms. Dean, the gentlelady from Pennsylvania, for 5 minutes.
Ms. DEAN. Thank you, Madam Chairwoman.
Dr. Calabria, I thank you for your testimony today. As everybody
has indicated, and as you well know, we are in unprecedented
times that require extraordinary response from Congress and the
Administration. The pandemic has upended people’s financial secu-
rity and well-being, leaving many people unable to pay their mort-
gage, their rent, their utility bills. That is why my colleagues and
I are so puzzled by the fact that you have put forth a new refinance
fee, which could further burden, and will further burden American
families as they navigate this pandemic.
In particular, in my district, which is Montgomery and Berks
County, suburban Philadelphia, Pennsylvania, I have heard from
my constituents about their concerns for housing relief. I have
talked with homeowners, with tenants, as well as landlords.
So my first question is, considering that as many as 30 million
Americans could face eviction, what additional relief and resources
do you think Congress should provide to both tenants and land-
lords to navigate this pandemic?
Mr. CALABRIA. Thank you for the question, Congresswoman. I
really want to emphasize that the adverse market fee that has
been proposed by Fannie and Freddie is to pay for the efforts to
keep people in their homes. As I mentioned, for instance, we had
200,000 families facing eviction in March when COVID hit. We
paid their property taxes for 6 months, for instance, for those fami-
lies. We paid their housing price costs, so we can do that for an-
other 6 months. So, I do want to emphasize, we have done that
without any assistance.
Ms. DEAN. Just for timing, and I do appreciate that explanation,
does that mean, then, in follow-up to Ms. Porter’s question, you
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would recommend that Congress pass relief so that you do not have
to tack on an adverse fee?
Mr. CALABRIA. I am neither asking nor telling you not to charge
it. I am laying out that if you do, and, again, if you want—first,
let me get to a number.
Ms. DEAN. Sir, yes or no?
Mr. CALABRIA. I am not asking you to do it. I am giving you the
opportunity.
Ms. DEAN. You are comfortable adding the fee? Would you be
asking us to move forward with the very important bill that was
part of the HEROES Act, which was the $100 billion in rental re-
lief that would get the small landlord assurance that his and her
rent is being paid? That is the Heck bill.
Mr. CALABRIA. Again, I want to emphasize that I am not part of
the Administration, and not part of the negotiation. I haven’t done
the analysis as to whether or not that is the right number. I would
just say broadly, as I said to other members, that I certainly think
rental assistance could be helpful and appropriate. But we cer-
tainly aren’t part of the negotiations, and have not done any anal-
ysis to know what the right number is.
Ms. DEAN. I would think you might want to do that analysis so
you that could be informed and better inform us as well. I am cer-
tainly in support of that rent stabilization bill, and those dollars.
Another issue I would like to highlight is transparency and con-
sumer notification. It is critical we provide tenants and borrowers
with notice of their rights, particularly, to our most vulnerable. I
championed a bill, along with our chairwoman, the Know Your
Housing Rights Act of 2020, which would ensure Federal agencies
develop resources and provide notice to tenants of their housing
rights and relief and assistance during COVID. There are other
bills for homeowners as well.
Dr. Calabria, can you clarify what FHFA is doing to notify all
tenants of their rights under the CARES and options at this time?
Mr. CALABRIA. Absolutely, and foremost, for those listening, I
want to encourage any homeowners, any renters, if you need assist-
ance, if you need information, to go to CFPB.gov/housing, which is
a website that we developed with the Consumer Financial Protec-
tion Bureau (CFPB), in a partnership with FHFA, and there’s a
tremendous amount of information there. So, that is first and fore-
most.
We have also worked with Fannie and Freddie to establish de-
tailed websites, with videos, fact sheets, and flyers.
Ms. DEAN. Whose obligation is it to notify tenants of their rights?
Mr. CALABRIA. It is the landlord’s obligation.
Ms. DEAN. So you actually believe that you tell the landlord that
they should tell their tenants of their rights as a result of COVID?
You don’t think that is within your responsibility?
Mr. CALABRIA. I don’t have the statutory authority to make them
do that. We are not a consumer-facing agency. We have no actual
relationship with the tenant. Again, there are other agencies. We
tried to make sure we provide this information.
So, for a multifamily property owner to enter into forbearance,
we require them to tell the tenant. We don’t have any way to reach
the tenant, to be quite frank about it.
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Ms. DEAN. What tools do you have to make sure that they are
compliant?
Mr. CALABRIA. We work with community groups. People can give
us—when we hear complaints, we can investigate it. We won’t have
any enforcement authority over the landlords, ultimately, however.
All we can do is declare them to be in default of their loan.
Chairwoman WATERS. Ms. Dean, your time has expired.
Thank you very much. I would like to thank Dr. Calabria for his
testimony today.
The Chair notes that some Members may have additional ques-
tions for this witness, which they may wish to submit in writing.
Without objection, the hearing record will remain open for 5 legis-
lative days for Members to submit written questions to this witness
and to place his responses in the record. Also, without objection,
Members will have 5 legislative days to submit extraneous mate-
rials to the Chair for inclusion in the record.
This hearing is now adjourned.
[Whereupon, at 3:45 p.m., the hearing was adjourned.]
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APPENDIX
September 16, 2020
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File and source
- File
- CHRG-116hhrg43502.pdf
- Size
- 18,166,963 bytes
- SHA-256
- c744da229115c79c94967bc095ec0df848434d688dd61260819c07fe1d552f80
- Our copy
- CHRG-116hhrg43502.pdf
- Original
- www.govinfo.gov