FHFA Acting Director DeMarco Testifies Before Senate Panel

Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco testified at a hearing held by the Senate Committee on Banking, Housing, and Urban Affairs, “Oversight of the Federal Housing Finance Agency: Evaluating FHFA as Regulator and Conservator,” on April 18. Steve Linick, FHFA Inspector General was also a witness.Several Senators commended Mr. DeMarco for his performance as FHFA Acting Director. Senator David Vitter (R-LA) thanked Mr. DeMarco “for refusing to use Fannie and Freddie as a piggy bank for things that are popular for some forums in the short-term.” Senator Vitter did not further elaborate on this comment.A portion of the discussion was about the necessity for and likelihood of reform of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in the 113th Congress. Ranking Member Mike Crapo (R-ID) said “instead of a time-out, the conservatorships have been a perpetual state of limbo,” referring to the current status of the GSEs. Ranking Member Crapo later said that he fears with the GSEs now profitable, there is a closing window of time in which GSE reform would be possible in Congress.Senator Vitter noted that the Committee has not yet held a markup since September 8, 2011, and urged that the Committee soon consider S. 563, the Jumpstart GSE Reform Act. The legislation was introduced by Senator Vitter as well as Senators Bob Corker (R-TN), Mark Warner (D-VA) and Elizabeth Warren (D-MA). Mr. DeMarco said in his testimony, “I share the view of the sponsors that now is the time to address reform of the housing finance system. I look forward to working with all of you as you move forward on that effort.” Senator Jack Reed (D-RI) asked about FHFA’s decision not to allow for principal reductions on GSE loans. Mr. DeMarco responded that FHFA has implemented other programs that result in similar outcomes to principal reductions for borrowers, and said that after a careful analysis, FHFA determined that allowing for principal reductions under the Home Affordable Modification Program (HAMP) was not consistent with FHFA’s mandate as conservator. Senator Richard Shelby (R-AL) and Senator Warner asked about the GSEs multifamily portfolio and trends in multifamily foreclosures. Mr. DeMarco indicated that the multifamily portfolio is continuing to perform quite well, and that the intended reduction of the GSEs footprint in the multifamily market should not be cause for concern and should not affect liquidity in the multifamily market. While not mentioned at the hearing, Mr. Linick’s testimony also discussed compliance with consumer protection laws. “We found in a March 2013 report that FHFA does not examine how the Enterprises monitor compliance with consumer protection laws, and the Enterprises do not ensure that their counterparties from which they purchase loans comply with such laws… further, FHFA has not attempted to enforce compliance with contractual provisions. We recommend that FHFA develop a risk-based plan to monitor the Enterprises’ oversight of their counterparties’ contractual compliance with applicable laws and regulations. FHFA agreed with our recommendation.”Also relevant to the hearing is the fact that the Housing and Economic Recovery Act (HERA) statute calls for the National Housing Trust Fund to be funded through contributions by the GSEs. FHFA suspended the contributions when the GSEs went into conservatorship. NLIHC holds the position that now that the GSEs are making profits, they should begin contributing to the NHTF immediately (see elsewhere in Memo). This issue was not raised any testimony or questions at the hearing; NLIHC however has asked for a determination to be made on this issue by April 30. An archived hearing webcast and all witness testimony are available at http://1.usa.gov/17O7M3W.