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Senate Banking Committee Hearing with Housing Regulators

Senate Committee on Banking, Housing, and Urban Affairs

“Oversight of Housing Regulators”

Tuesday, June 9, 2020

Key Topics & Takeaways

  • GSE Conservatorship: Calabria noted that exiting conservatorship is his statutory mandate, adding that the framework of the Housing and Economic Recovery Act requires him to get Fannie Mae and Freddie Mac in a safe and sound condition consistent with exiting conservatorship. He predicted that current economic challenges will delay the exit by three to four months, though noted this should be taken with a wide margin of error as a number of factors could impact the timelines including how many forbearance loans go into default and foreclosure.
  • Enterprise Capital Proposed Rule: Sen. Jerry Moran (R-Kans.) noted that under FHFA’s enterprise capital proposal, there is a “confusing disparity” in how risk weighting is applied to single-family and multi-family homes, asking for clarity on this issue. Calabria explained that there is a preexisting multi-family activity cap separate from the capital rule treatment of multi-family homes, adding that the average risk weights for single-family and multi-family homes in the proposed rule are driven by the composition of the loans.
  • Forbearance: Calabria noted that about six percent of Fannie Mae and Freddie Mac loans are in forbearance and this number has stabilized. Reed asked what will happen at the end of the forbearance period, with Calabria responding that FHFA wants to minimize foreclosures and evictions, noting that no one will be required to pay a lump sum at the end of the forbearance period. Calabria explained that FHFA is monitoring the servicers they work with, noting that they are in a better financial position now than they were in March and many have raised substantial liquidity. He said forbearance rates would need to be over 30 percent before there would be systemic risk in the industry.

Witnesses

Opening Statements                   

Chairman Mike Crapo (R-Idaho)

In his opening statement, Crapo said that COVID-19 has negatively impacted the housing market but noted that the CARES Act has provided help to renters. He continued that Title 4 of the CARES Act had three housing provisions which provided forbearance on payments and foreclosure moratoriums for those who were financially affected by the pandemic. In addition, he said that Title 12 of the CARES Act provided $12.4 billion of emergency supplemental appropriations for Department of Housing and Urban Development (HUD) programs to further soften the economic blow. Crapo said that HUD and the Federal Housing Finance Agency (FHFA) have taken many additional measures to help lower income groups during the pandemic, such as allowing borrowers to pay back their missed payments when they sell their house or refinance their loan.

Ranking Member Sherrod Brown (D-Ohio)

In his opening statement, Brown said that Americans have lived in a system that perpetuates inequality and racism, especially in our housing system. Brown explained that HUD has the responsibility to ensure that there is no housing discrimination, but HUD Secretary Carson has failed to address inequalities, foster economic inclusion, and is attempting to dismantle the civil rights protections within the system. Brown stated that both FHFA and HUD are attempting to implement programs and policies that would make it harder for lower and middle class families of color to own houses.

Testimony

The Honorable Benjamin S. Carson, M.D., Secretary, U.S. Department of Housing and Urban Development

In his testimony, Carson stated that during the pandemic, as HUD Secretary, his highest priority has been to ensure Americans do not lose their homes and to safeguard those at the greatest risk of contracting the virus. He explained that the CARES Act provided over $12 billion in funding to HUD programs. Carson said that $9 billion of this has already been allocated. This $9 billion has been distributed into CDBG funds, ESG funds, the Public Housing Operating Fund, tenant based rental assistance, project based rental assistance, IHGB funds, the Section 811 Mainstream Housing Choice Voucher Program, and HOPWA funds. Carson touched on the both Title 4 and Title 12 of the CARES Act, explaining the assistance the CARES Act has provided to renters. Carson also mentioned his role as the Chair of the White House Opportunity and Revitalization Council, and explained that the Council is working to protect our most vulnerable communities from COVID-19.

The Honorable Mark A. Calabria, Ph.D., Director, Federal Housing Finance Agency

In his testimony, Calabria expressed that there is not a single civil rights protection that FHFA has rolled back during his time there. In addition, he emphasized that fairness, diversity and inclusion are important to both himself and FHFA. Calabria explained actions that FHFA has taken to assist renters and homeowners during the pandemic. For homeowners facing foreclosure before COVID-19, all evictions and foreclosures have been extended until June 30th and this date will be extended if necessary. For borrowers impacted by COVID-19, they can have a forbearance on their payments and can repay their missed payments when they sell their home or refinance their loan. In addition, Calabria stated other ways that FHFA is helping renters and borrowers currently, these include the Borrower Protection Program and a website that has consolidated mortgage relief information. Calabria also explained how the current crisis has shown the vulnerabilities in our system and said that he believed only Congress can fix the issues with our system.

Question & Answer

GSE Conservatorship

Sen. Mark Warner (D-Va.) asked how current economic challenges will impact the timing of the release of the GSEs from conservatorship. Calabria noted that exiting conservatorship is his statutory mandate, adding that the framework of the Housing and Economic Recovery Act requires him to get Fannie Mae and Freddie Mac in a safe and sound condition consistent with exiting conservatorship. He predicted that current economic challenges will delay the exit by three to four months, though noted this should be taken with a wide margin of error as a number of factors could impact the timelines including how many forbearance loans go into default and foreclosure.

Enterprise Capital Proposed Rule

Sen. Jerry Moran (R-Kans.) noted that under FHFA’s enterprise capital reproposal, there is a “confusing disparity” in how risk weighting is applied to single-family and multi-family homes, asking for clarity on this issue. Calabria explained that there is a preexisting multi-family activity cap separate from the capital rule treatment of multi-family homes, adding that the average risk weights for single-family and multi-family homes in the proposed rule are driven by the composition of the loans.

Forbearance

Sens. Tim Scott (R-N.C.), Jack Reed (D-R.I.), Tom Cotton (R-Ark.) and Martha McSally (R-Ariz.) asked various questions about mortgage forbearance. In response to Scott, Calabria noted that about six percent of Fannie Mae and Freddie Mac loans are in forbearance and this number has stabilized. Reed asked what will happen at the end of the forbearance period, with Calabria responding that FHFA wants to minimize foreclosures and evictions, noting that no one will be required to pay a lump sum at the end of the forbearance period.

Cotton asked if mortgage servicers have an upper limit to their capacity for providing forbearance. Calabria explained that FHFA is monitoring the servicers they work with, noting that they are in a better financial position now than they were in March and many have raised substantial liquidity. He said forbearance rates would need to be over 30 percent before there would be systemic risk in the industry.

McSally asked whether borrowers are receiving conflicting advice about forbearance. Calabria said that Fannie Mae and Freddie Mac sent a script to all their servicers, so all borrowers should be receiving the same guidance and options.

Current State of the Housing Market

Crapo asked the witnesses to characterize the current state of the housing market. Carson noted that the quick action taken to provide forbearance and other measures had a very important positive impact on the market, and the situation has not deteriorated to the level many thought it would. Calabria added that they feared spikes in forbearance in May and June, but this did not occur and there has instead been a stabilization. He continued that the housing market itself is relatively strong, but the biggest problem facing the economy that effects the housing market is employment.

Evictions and Foreclosures

Sens. Brian Schatz (D-Hawaii), Scott and McSally expressed concerns about evictions and foreclosures. In response to a question from Schatz about extending the foreclosure moratorium, Calabria said they are considering an extension that will likely be between one and two months, noting that the agency can extend it again if needed.

For more information on this hearing, please click here.