November 19, 2014
CRAPO STATEMENT AT FHFA OVERSIGHT HEARING
WASHINGTON – U.S. Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, today delivered the following remarks during a Banking Committee hearing entitled “The Federal Housing Finance Agency: Balancing Stability, Growth, and Affordability in the Mortgage Market”:
Thank you, Mr. Chairman. Today is an important hearing. It is the first time that Director Watt has been before this Committee for an oversight hearing since he became Director of Federal Housing Finance Agency (FHFA). It is also potentially the last housing hearing of the Senate Banking Committee that Chairman Johnson may be chairing.
Mr. Chairman, it has been a pleasure working with you—both in the capacities we have each held during this Congress, as well as in the capacity of subcommittee leaders and committee members. I have especially enjoyed working with you and your staff this Congress to develop legislation addressing housing finance reform, FHA reform, improving the terrorism risk insurance program, and other important topics. We have had a productive collaboration over these years. I wish you the best and thank you for being a great partner.
Turning back to the task at hand—as Director, Director Watt’s primary roles are conservator of Fannie Mae and Freddie Mac, and regulator of the Federal Home Loan Bank system. These are two separate and distinct tasks that are incredibly complex and important.
In his role as conservator, Director Watt is obligated to conserve and preserve the assets of Fannie Mae and Freddie Mac until Congress acts to reform our Housing Finance Market. I wish that we were sitting here today to hear Director Watt describe his plan for the implementation of a phase-in to our next Housing Finance system. Director Watt may wish this were the case as much as anyone.
While we were successful in passing a bipartisan path forward out of this Committee, the ultimate goal of enacting legislation is not going to be achieved this Congress. This being the case, Director Watt’s job in preserving the assets of these companies becomes even more important.
Since taking over as conservator, Director Watt has been active. He has announced many actions, such as a change to the strategic plans of Fannie and Freddie’s conservatorships which removed the reference to reducing their dominance in the market; a shift in the focus of the Common Securitization Platform to focus solely on Fannie and Freddie instead of its original purpose to be a conduit for competition; and expanding Fannie and Freddie’s business by reducing required borrower home equity.
In addition to these changes, Housing and Urban Development (HUD) Secretary Castro is making public statements that FHFA will soon direct Fannie and Freddie to start setting aside money for trust funds. Keep in mind that if this were to occur, it would happen despite the fact that these companies have little to no capital and thus the American taxpayer is completely on the hook for any losses.
While I have serious concerns with some of these ideas individually, perhaps my largest concern is that collectively, they appear to feed a perception that the old, failed status quo is slowly beginning to take hold again.
Over the course of the last two years, this Committee held a series of in-depth hearings that examined the failures of our broken housing market and various approaches to reforming it. While there was spirited discussion on the best path forward, one area of consensus was that the status quo had failed us and that we should not return to that in the future.
We cannot allow the return of Fannie and Freddie backing toxic mortgages, with little or no capital. Instead, our path forward should be one based upon sustainable homeownership facilitated by a strongly capitalized private sector.
While I understand that some individuals and entities have been pressuring Director Watt to institute changes they favor via the conservatorship, we all understand that is not the proper role of the conservator. As Director Watt noted during his confirmation hearing in addressing this Committee, the conservator’s role is to “build a solid bridge from where we are now to whatever you decide the future housing finance system will be.”
Today, I look forward to hearing from Director Watt how he plans to prepare for that bridge through the preservation of the assets of these two huge taxpayer investments. I also look forward to him hopefully dispelling any notion that Fannie and Freddie are somehow being reestablished as the long-term secondary market solution. In doing so, he should focus on how his policies as conservator will: 1) address their dominance in the market place; 2) renounce any demands or outside pressures to divert the revenue of Fannie and Freddie to any source other than the taxpayer; and 3) maintain sustainable, safe underwriting at these institutions.
Thank you for joining us, today, Director Watt, and thank you, Mr. Chairman for holding this hearing.
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