[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]







                        THE FUTURE OF HOUSING IN
                         AMERICA: EXAMINING THE
                         HEALTH OF THE FEDERAL
                         HOUSING ADMINISTRATION

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         HOUSING AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 11, 2016

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-72





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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                 Subcommittee on Housing and Insurance

                 BLAINE LUETKEMEYER, Missouri, Chairman

LYNN A. WESTMORELAND, Georgia, Vice  EMANUEL CLEAVER, Missouri, Ranking 
    Chairman                             Member
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey            MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            WM. LACY CLAY, Missouri
BILL POSEY, Florida                  AL GREEN, Texas
ROBERT HURT, Virginia                GWEN MOORE, Wisconsin
STEVE STIVERS, Ohio                  KEITH ELLISON, Minnesota
DENNIS A. ROSS, Florida              JOYCE BEATTY, Ohio
ANDY BARR, Kentucky                  DANIEL T. KILDEE, Michigan
KEITH J. ROTHFUS, Pennsylvania
ROGER WILLIAMS, Texas

















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 11, 2016............................................     1
Appendix:
    February 11, 2016............................................    31

                               WITNESSES
                      Thursday, February 11, 2016

Golding, Edward L., Principal Deputy Assistant Secretary, Office 
  of Housing, U.S. Department of Housing and Urban Development...     3

                                APPENDIX

Prepared statements:
    Golding, Edward L............................................    32

              Additional Material Submitted for the Record

Luetkemeyer, Hon. Blaine:
    Chart entitled, ``Financial Status of the FHA Mutual Mortgage 
      Insurance Fund FY 2015''...................................    43
    Written statement of the National Multifamily Housing Council 
      and the National Apartment Association.....................    44
Beatty, Hon. Joyce:
    Article from The New York Times entitled, ``As Banks Retreat, 
      Private Equity Rushes to Buy Troubled Home Mortgages,'' 
      dated September 28, 2015...................................    46
Ellison, Hon. Keith:
    Table entitled, ``Manufactured Home Eligibility Requirements 
      for FHA Title I and II Programs''..........................    55
Golding, Edward L.:
    Written responses to questions for the record submitted by 
      Representatives Luetkemeyer and Ellison....................    56

 
                        THE FUTURE OF HOUSING IN
                         AMERICA: EXAMINING THE
                         HEALTH OF THE FEDERAL
                         HOUSING ADMINISTRATION

                              ----------                              


                      Thursday, February 11, 2016

             U.S. House of Representatives,
                            Subcommittee on Housing
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 9:30 a.m., in 
room 2128, Rayburn House Office Building, Hon. Blaine 
Luetkemeyer [chairman of the subcommittee] presiding.
    Members present: Representatives Luetkemeyer, Royce, 
Garrett, Pearce, Posey, Ross, Barr, Rothfus, Williams; Cleaver, 
Clay, Green, Ellison, Beatty, and Kildee.
    Ex officio present: Representatives Hensarling and Waters.
    Chairman Luetkemeyer. The Subcommittee on Housing and 
Insurance will come to order. And without objection, the Chair 
is authorized to declare a recess of the subcommittee at any 
time.
    Today's hearing is entitled, ``The Future of Housing in 
America: Examining the Health of the Federal Housing 
Administration.''
    Before we begin, I would like to thank the witness for 
appearing today. We look forward to your testimony, Mr. 
Golding.
    I now recognize myself for 4 minutes to give an opening 
statement.
    The statutory mission of the Federal Housing Administration 
(FHA) is admirable. There is a purpose for the agency. Some 
qualified first-time and low-income individuals and families 
need assistance securing their first home.
    But FHA has suffered a case of mission creep, and the 
unfortunate truth is that the lack of sound underwriting and 
risk management puts both homebuyers and U.S. taxpayers at 
risk.
    This committee had a similar conversation last year and the 
years before that. And while the most recent independent 
actuarial report showed some signs of a modestly healthier 
agency, the bottom line is that FHA is still in a precarious 
state.
    FHA's shaky principles were not born out of the 2008 crisis 
alone. In fact, since 2000 FHA has hit the target economic 
value for the Mutual Mortgage Insurance Fund (MMIF) only 3 
times. Most recently, it was because the agency experienced a 
dramatic uptick in the value of its reverse mortgage or Home 
Equity Conversion Mortgage (HECM) portfolio.
    We should take little comfort in FHA's assertion that a 
long-awaited positive actuarial report means that all is well 
and only getting better. With all due respect, we have heard 
that story for years and it has never proven to be entirely the 
case.
    In 2009, then-HUD Secretary Shaun Donovan said FHA would 
reach the capital requirement in the next 2 to 3 years. In 2011 
and in 2012, he said FHA would hit the target by 2015.
    Today, FHA reports that the target has been hit--just 
barely--but only because of the upswing in the HECM portfolio. 
This is a portfolio that was a negative 1.2 percent in Fiscal 
Year 2014, now up to 6.4 percent. Meanwhile, the single-family 
ratio improved from 0.56 percent to a modest 1.63 percent.
    The underlying problems at FHA--high volatility and 
questionable underwriting--have existed for years and continue 
to pose, in our judgment, a threat to all Americans.
    To make matters worse, the agency decided last year, 
despite poor performance, to cut its income stream by lowering 
premiums by 50 basis points. Anyone who understands the 
fundamentals of lending and insurance knows you can't cut your 
income stream when you are in need of capital.
    The bottom line is that FHA keeps trying to grow itself out 
of a problem and has, in terms of the 2015 actuarial report, 
backed into a win. We need to continue to focus on common-sense 
reform and creation of a more stable housing market and housing 
finance system.
    I look forward to hearing from our witness today.
    With that, I yield 5 minutes to the distinguished gentleman 
from Missouri, the ranking member of the subcommittee, Mr. 
Cleaver.
    Mr. Cleaver. Thanks, Mr. Chairman.
    Today, I think the news about the FHA is significantly 
better than it has been in the past, and I think we have 
convened this hearing, ``The Future of Housing in America: 
Examining the Health of the Federal Housing Administration,'' 
at a good time.
    It was 1 year ago that we held a hearing in this room on 
FHA, and we now have the opportunity to again examine and 
conduct oversight to the current state at FHA. Throughout my 
political career, first as a city councilman, next as a mayor, 
and now as a Member of Congress and the ranking member of this 
subcommittee, I have passionately advocated for increasing home 
ownership. Home ownership does things that I am not sure most 
people even realize, because it brings the ``somebody-ness'' 
out of folk.
    And I speak experientially. Moving out of public housing 
after my father bought a home, all of a sudden--and I am always 
pleased to say my father started getting the yard of the 
summer. He would get a photograph of his yard in the newspaper.
    He would walk out and pick up cigarette butts down the 
street. The neighbors all know that when you walk around Mr. 
Cleaver's house, you have to be careful. He doesn't even want 
you to breathe too heavily. He might go out and water the lawn 
if you do that.
    So I know what the pride of home ownership does. I have 
seen it.
    And like many in this room, I purchased my first home with 
the help of FHA. I continue to support the invaluable role that 
the FHA plays in helping first-time and low-income individuals 
purchase homes.
    In Fiscal Year 2015, 82 percent of FHA purchases were from 
first-time homebuyers. Nearly a third were minority buyers, 
with Hispanic homebuyers accounting for 17.4 percent of 
purchases and African-Americans accounting for 10.4 percent.
    And it is no secret that there is a wealth gap in our 
country, a wealth gap that must be fully addressed, and the FHA 
plays a significant role in promoting home ownership and 
narrowing this gap.
    It is also important to note that overall health of FHA and 
the Mutual Mortgage Insurance Fund (MMIF)--last year the FHA 
announced that it would cut annual--it was projected that this 
move would bring an additional 83,000 new borrowers in a year 
into the market.
    In the first year since that change, the goal was exceeded 
by 106,000 new borrowers purchasing homes. That ought to be an 
excitement for the people of this country. The capital ratio is 
now 2.07 percent, and the net worth of the MMIF is up $19 
billion in Fiscal Year 2014.
    I would like to thank you, Mr. Chairman, for this hearing.
    And I would like to also express thanks to our guest for 
being here.
    Chairman Luetkemeyer. I thank the gentleman for his 
statement.
    With that, we welcome Mr. Golding. He is the Principal 
Deputy Assistant Secretary, Office of Housing, U.S. Department 
of Housing and Urban Development.
    Mr. Golding, you are recognized for 5 minutes to give an 
oral presentation of your testimony. And without objection, 
your written statement will be made a part of the record.
    You are probably aware of the lighting system: green means 
go; yellow means you have 1 minute left; and red means we are 
going to stop and try and give Members a chance to ask 
questions.
    So with that, you are recognized for 5 minutes. Welcome.

  STATEMENT OF EDWARD L. GOLDING, PRINCIPAL DEPUTY ASSISTANT 
 SECRETARY, OFFICE OF HOUSING, U.S. DEPARTMENT OF HOUSING AND 
                       URBAN DEVELOPMENT

    Mr. Golding. Thank you very much.
    Thank you, Chairman Luetkemeyer, Ranking Member Cleaver, 
and members of the subcommittee. I appreciate the opportunity 
to testify about the status of the Federal Housing 
Administration.
    FHA is just as critical today as it was when it was founded 
in the midst of the Great Depression. So I am proud to say that 
as a result of policy changes and prudent risk management, 
FHA's Mutual Mortgage Insurance Fund is strong and improving.
    For Fiscal Year 2015, the independent actuarial report 
shows FHA rebuilt its capital reserve to the 2 percent standard 
and is expected to continue to accrue a reserve this year at a 
somewhat faster rate than initially projected in 2015.
    We endorsed more than 1.1 million single-family loans in 
Fiscal Year 2015--loans for hardworking, everyday Americans who 
are able to experience the benefits of home ownership for the 
first time or refinance into a more affordable mortgage.
    With an average loan size of $190,000 and an average credit 
score of 680, we are demonstrating our commitment to expand 
credit for responsible borrowers and those impacted by the 
Great Recession. Though strained by the crisis, FHA has been on 
a strong upward track, gaining $40 billion in value over the 
last 3 years.
    Improved underwriting requirements have significantly 
increased the credit quality of the portfolio of the last few 
years, including the fund's value and reducing the impact of 
the crisis years 2007 and 2008. Early payment defaults and 
serious delinquencies continue to decline to pre-crisis levels, 
and improved recoveries have added over $3 billion to the fund 
since 2013.
    Last January, FHA lowered its annual mortgage insurance 
premium by 50 basis points. Around 1 million families were able 
to benefit from an average reduction of $900 in annual 
premiums. It also resulted in more than 160,000 additional 
responsible American families with credit scores below 680 
becoming first-time home owners over the last 12 months.
    This adjustment was an important step in continuing to help 
underserved borrowers, and it did not harm FHA's ability to 
build the capital reserve. I am proud to oversee FHA at a time 
when we are making such important strides.
    However, I also embrace the need for continuous improvement 
and risk management across all of our programs. Of particular 
interest to me is our Home Equity Conversion Mortgage (HECM) 
program, due to the challenges involved in projecting future 
values.
    The ability to age in place is critical for seniors and 
their families, especially as that segment of our population 
continues to grow. And FHA's HECM program makes this possible 
for many seniors.
    FHA has made a number of changes to make the program more 
sustainable so we can manage the risk to the fund while better 
meeting the needs of today's seniors. Changes include: 
requiring financial assessment to ensure sustainability; and 
reducing the amount of equity seniors can take out up front.
    I do want to thank the committee for the help they provided 
with the Reverse Mortgage Stabilization Act in 2013, which made 
many of these changes possible. The HECM portfolio's value now 
stands at $6 billion and it is projected to continue to improve 
in Fiscal Year 2016.
    Looking ahead, FHA is committed to pursuing positive 
improvements across all our programs, changes that support our 
role as a partner in opportunity for the American people. FHA 
is eager to work with Congress and this committee to better 
understand the benefits and risks of all our programs and to 
ensure that FHA can continue to support housing, as it has for 
the past 82 years.
    Thank you, and I look forward to your comments and your 
questions.
    [The prepared statement of Principal Deputy Assistant 
Secretary Golding can be found on page 32 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Golding. I appreciate 
you being here this morning.
    And with that, I recognize myself for 5 minutes and begin 
the questioning.
    In January of 2011, the Administration issued a report to 
Congress entitled, ``Reforming America's Housing Finance 
Market.''
    Within that report, there are three statements that were 
made.
    First: ``FHA has also implemented important changes and 
reforms over the last 2 years, including strengthening 
underwriting standards, improving processes and operations, and 
raising premiums to improve its financial condition.''
    Second: ``As Fannie Mae and Freddie Mac's presence in the 
market shrinks, the Administration will coordinate program 
changes at FHA to ensure that the private market, not FHA, 
accepts that new market share.''
    And third: ``As we begin to pursue increased pricing for 
guarantees at Freddie and Fannie, we will also increase the 
price of FHA mortgage insurance.''
    If we look at that statement, and we look at the last 
year's actions to date, it is a dramatic 180-degrees 
difference. We are lowering premiums instead of raising them. 
You look at the private market share--FHA's market share is now 
at 40 percent; private market share is 35 percent, according to 
figures that I have, and a lot of the growth is basically 
probably as a result of the lowered premiums.
    How does that--the statement made in that report in 2011?
    Mr. Golding. Thank you for your question.
    Times have changed considerably since 2011. The simplest 
measure of our market share is in 2010, we were about 30 
percent of the purchase market by loan count. We have reduced 
that; that has been reduced to about 17.8 percent last year. So 
you have seen other players step into the market since the 2010 
period, when that statement was made.
    We did raise in the crisis--I can't remember the exact 
number; it may have been upwards of 8 times--the mortgage 
insurance premium. But as the fund stabilized, times change, 
and we try to set the mortgage insurance premium looking at the 
strength of the fund, how it is projected to grow, and the 
needs of the housing market.
    And I would also mention that while we did reduce the 
insurance premium to meet the market needs in the face of an 
improving insurance fund, we still are well above the historic 
level of insurance premiums for the FHA program.
    Chairman Luetkemeyer. Can you answer the question with 
regards to your basically absorbing more of the market versus 
the private sector? It looks to me like you are buying your way 
into the market with lowering your premiums. Is that a fair 
statement, or how would you refute that?
    Mr. Golding. As I said, by one measure we are down 
considerably from the 2010 period. Our market share is much 
closer to where it historically is. So historically, it is in 
the mid-teens.
    You referenced some numbers relative to, I think, the 
mortgage insurers in particular. I have read a few of their 
investor reports. I think their estimates of the effect of the 
MMIF reduction on their business was less than 5 percent.
    Chairman Luetkemeyer. Okay. I have a couple more questions, 
quickly.
    What is the profitability on your regular portfolio versus 
your reverse mortgage portfolio? What is the difference?
    Mr. Golding. I didn't hear the--
    Chairman Luetkemeyer. What is the difference in 
profitability between your--your loss ratio between your 
regulator home owners portfolio and your reverse mortgage 
portfolio?
    Mr. Golding. The easiest number that I have in my head--
    Chairman Luetkemeyer. And do that prior to 2014. Last year, 
2015, you got all these new mortgages on the books, which is 
going to skew your figure. Do you remember what it was prior to 
that, like at the end of 2014?
    Mr. Golding. No, I don't remember the exact number. But 
there is no doubt that--
    Chairman Luetkemeyer. Can you say just a rough difference? 
Is it more profitable with the regular homes versus reverse 
mortgage?
    Mr. Golding. Yes. The profitability or the negative subsidy 
rate for the forward market is about 4.5 percent; for the 
reverse mortgage the subsidy rate is about--negative subsidy 
rate is about 0.5 percent.
    So for every dollar of the forward market that we insure, 
we are expecting to bring in--or for every $100, $4.50 of extra 
income. That is for the reverse mortgage, or HECM, that number 
is a half a dollar.
    Chairman Luetkemeyer. So your profitability, your portfolio 
has increased significantly with reverse mortgages, which is a 
less profitable and more risky part of the business for the 
gains that you had with regards to the lowering of the 
guarantee fees and absorbing part of the market. Is that a fair 
statement?
    Mr. Golding. The HECM portfolio, reverse portfolio, can--is 
the riskier one. It was the one that grew greater in value last 
year.
    Chairman Luetkemeyer. So we took on more risk even though--
and more volume. The volume you took on is more risky. That is 
the point we are making, and that is what you just said.
    Mr. Golding. The volume of HECMs actually, because of many 
of the risk management improvements, is down significantly to 
about 60,000.
    Chairman Luetkemeyer. My time is up. Thank you, Mr. 
Golding.
    With that, we will go to the ranking member of the 
subcommittee, Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    During my opening statement, Mr. Golding, I spoke about my 
own family situation, and I did so because home ownership is an 
emotional kind of a thing for me. So I was somewhat disturbed 
when the Urban Institute reported that tight credit standards 
had prevented over 5.2 million mortgages between 2009 and 2014.
    Do you have any ideas on what we can do now to expand the 
access of home ownership with those kinds of staggering 
figures? What can we do?
    Mr. Golding. Thank you for the question.
    Home ownership is important. My father also had his first 
house financed by an FHA mortgage, having been returning as a 
World War II veteran, U.S. Army Air Corps. And I do remember 
that first house when I was age 4.
    So it is important. We are striving to fill that. I think 
the Urban Institute, now there is an estimated almost a million 
missing borrowers that are not out there.
    Some is obviously--I would think of on the demand side. The 
household formation hasn't been there, although there are good 
signs that that has improved last year.
    What FHA is doing is we are trying to make it a program 
where it is easier to do business and to offer the FHA product. 
And that really comes back down to offering greater clarity in 
our programs.
    We, for the first time in the history of the single-family 
business, put out a handbook that has all the rules in one 
place so you can look it up, so you can search it. That 
handbook was a big achievement.
    We have also been working on improving our risk management 
supplemental performance metric. So we are continuing to try to 
bring in new lenders who will be willing to offer FHA products 
to the American consumer, make it without--while still holding 
them to very high standards, making it easier to do business 
with FHA.
    Mr. Cleaver. I may come back to that later, but I am going 
to try to get a lot in.
    I have heard almost all my life that when people die--to 
grow, and probably generations keep passing it on. The same 
thing as parents say, ``My kid had a sugar rush.'' Scientists 
all agree there is no such thing as a sugar rush, yet people 
believe it.
    And then likewise, people continue to say that FHA is doing 
subprime loans. That is no different than the hair growing in 
the grave.
    So can you deal with that? Have you heard any of those 
three?
    Mr. Golding. Yes, I have heard all of them. I have said a 
few myself, except I have never said--FHA is definitely not in 
the subprime business. I have been in the mortgage business a 
long time. I was the damage done by subprime.
    FHA has always been a fully underwritten mortgage. We 
verify income. We make sure it is a sustainable mortgage for 
that usually first-time homebuyer.
    It is so far away from subprime.
    I think there is a tendency for people just to translate 
credit score into subprime. There are lots of reasons why our 
fellow citizens have a 660 credit score. It is medical 
expenses; it is unemployment; it is--there are things that 
cause you to be late a payment or two and have your credit 
score at 660. That doesn't mean that you shouldn't have a place 
to live and an opportunity for home ownership.
    Mr. Cleaver. Yes. I do think it is probably related to the 
credit score. But, as you said, that shouldn't be the only 
factor.
    Hopefully we will get--I will get a chance to raise the 
additional questions along those lines.
    I yield back, Mr. Chairman.
    Chairman Luetkemeyer. The gentleman yields back.
    With that, we go to the gentleman from Florida, Mr. Ross, 
for 5 minutes.
    Mr. Ross. Thank you, Mr. Chairman.
    And thank you, Mr. Golding, for being here. I am going to 
address some issues with you with regard to proposed 
administrative fee for administration, support, and IT.
    The President's budget in the HUD request has indicated 
that they are seeking to charge an administrative support fee 
on FHA lenders. And I think that has been rejected by Congress 
several times.
    I am glad to see that it at least has a sunset provision so 
that this proposed fee won't be in perpetuity. But my concern 
is that I believe your budget document states that the fee will 
be charged on a prospective basis, and yet the budget request 
says that the fee would be calculated based on mortgages that 
were insured under this title during the previous fiscal year.
    That seems to be a disparity. It is almost as though it is 
retroactive. Could you explain that?
    Mr. Golding. Yes. Thank you for the question, and thank you 
for the opportunity to clarify.
    This is one of the cases I did a lot of math on in my youth 
when I was a student. It is easier probably to put down the 
algebra than the English words, which often fail us. But let me 
tell you what we think that means and how it actually would 
work.
    Basically--and we will go out for public comment and 
feedback however we would implement it, were it to pass. But it 
would be after the date. You would basically say for loans 
endorsed after the date of this public comment--
    Mr. Ross. So it would still be going forward.
    Mr. Golding. It would still very much be forward--
    Mr. Ross. For example, small lenders who have a small book 
of business, all of a sudden they can't plan based on this 
complex formula and suddenly they have received a fee for 
retroactive. You are telling me that wouldn't happen?
    Mr. Golding. It would not happen.
    Mr. Ross. At all?
    Mr. Golding. It would basically be at the end of the year 
you would then look back--
    Mr. Ross. Okay. But--
    Mr. Golding. --so it is not as--
    Mr. Ross. But they would have to anticipate that fee in 
writing that mortgage.
    Mr. Golding. They would--basically the comment would 
already say this is the rate, so it would be--
    Mr. Ross. Okay.
    Mr. Golding. --a simple multiplication of--
    Mr. Ross. Would it not be easier just to do--as we have 
been, as we put in the chairman's bill for the USDA--a nominal 
fee right at the time of lending?
    Mr. Golding. What we were giving some flexibility on the 
amount of the fee, but that would be another alternative--
    Mr. Ross. Okay. And on the amount of the fee, I understand 
that there has been a request--I think that you indicate that 
you may need about $30 million, but the language for the 
proposed fee says the fee could be as much as four basis 
points. And in light of $200 billion in business next year, 
those four basis points could equal $80 million. Why would you 
need that much when it is--it looks like you don't need that 
many basis points to assess--
    Mr. Golding. Yes. If volumes were projected still to be 
$200 billion you would need closer to the--or the two basis 
points, not the four basis points, correct.
    Mr. Ross. Right. But I guess my concern is keeping you 
within your requested amount of $30 million, as opposed to the 
potential of $80 million that--what would you do with the 
additional funds raised?
    Mr. Golding. As I think it was written, it would be any 
additional funds would not go to FHA, as the proposal was 
written on that--
    Mr. Ross. Let me talk to you--
    Mr. Golding. --but volumes do vary, so it depends on the 
origination and volumes.
    Mr. Ross. Let me talk to you quickly about risk-share 
transactions. Congratulations on being at 2 percent for your 
capital requirements. We would love to get you to the minimum 
industry standard of 25-to-one in capital requirements.
    But I think that in order to do this appropriately, to 
transition to what I believe is sufficient capacity in the 
private markets you have to be able to do some risk-share 
transactions. What efforts have been made by the FHA to enter 
into risk-sharing transactions where each one takes a certain 
portion, either the front end, back end, or however it is 
structured?
    Mr. Golding. Yes. We have been risk-sharing on the multi-
family side.
    On the single-family side we have had very preliminary 
discussions. With risk-sharing, it is one where it is very 
dependent on being able to change your systems, tracking 
things, and we would--one of the advantages of having 
additional resources--
    Mr. Ross. But there aren't any programs available yet?
    Mr. Golding. No. No programs are available.
    Mr. Ross. Do you anticipate any any time soon, meaning 
within the next year?
    Mr. Golding. No, I do not.
    Mr. Ross. Do you think it is an idea that ought to be 
continued to be pursued, or are you suggesting that maybe there 
should be no risk-sharing?
    Mr. Golding. There can be lots of value for risk-sharing. 
There are many ways that the private sector can help the FHA 
program. As I said, multi-family has highlighted some of it, 
and I think it has demonstrated that it can be very valuable.
    Mr. Ross. Finally, with regard to FICO scores--and Mr. 
Cleaver was talking about this--look, I have to suggest that I 
think everybody should have the opportunity for home 
ownership--that is as a matter of right, no; as a matter of 
opportunity, yes, to earn, absolutely.
    But the low FICO scores were--a private lender would never 
lend, and yet FHA is. Is not that indicative of a higher risk?
    Mr. Golding. Yes, it is a higher risk, but it is an 
insurable risk.
    Mr. Ross. By us.
    Mr. Golding. Pardon?
    Mr. Ross. Insurable by us, by taxpayers.
    Mr. Golding. Even the private sector will do unsecured 
lending--
    Mr. Ross. But not to the level that--
    Mr. Golding. --typically this has been FHA's role.
    Mr. Ross. Thank you. I yield back.
    Chairman Luetkemeyer. The gentleman yields back. His time 
has expired.
    With that, we go to the gentleman from Texas, Mr. Green. 
You are recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the ranking member, as well.
    And I thank the witness for appearing today.
    A word about FHA: 80 years of service, and I might add 
outstanding service; 34 million first-time homeowners; low-
income Americans have the opportunity to fulfill the American 
dream, have a place to call home. And FHA was in the business 
of lending when banks would not lend to each other.
    When we hit the crisis in 2008 and moved over into 2009 and 
other years, banks refused to lend money to each other. That is 
how frozen the market was. But FHA was still in business.
    That countercyclical function has served this country well, 
and we ought to salute FHA for the outstanding job that it has 
done. I do so.
    Your capital ratio is currently above 2 percent. If it were 
below 2 percent this hearing would be about that, but it is 
above 2 percent. Thank God for you and what you do.
    Now, you put a lot of emphasis in your statement on first-
time homebuyers. I am going to read a little bit here. You 
indicate that by making sure borrowers, particularly first-time 
homebuyers, have access to affordable credit to purchase homes.
    And further in your statement you indicate that over the 
course of your 81-year history, FHA has funded approximately 13 
percent of total market mortgage originations, but more than 50 
percent of all first-time homebuyer market purchase mortgages. 
That is on page three of your statement.
    I am focusing on this because I believe that there are 
people who pay light bills, gas bills, water bills, phone 
bills, cable bills; people who have other credit but they have 
what are called thin files. And they are currently making rent 
payments for some years that would exceed what a mortgage would 
be. If given the opportunity, they would have a monthly payment 
for housing that would be less than what their current payment 
is for rent.
    They have sound credit, but they don't have a fat file. It 
is my opinion that we should look at light bills, gas bills, 
water bills, and phone bills. Don't look at it in such a way as 
to only add to your score, but also cause your score to 
depreciate if it is negative. But we should look at this and we 
should do so in an automated fashion.
    It is my opinion that if we should do this, we will accord 
other persons the opportunity to own a home, who can pay the 
mortgage.
    I am interested in talking to you about this very briefly, 
with my 1 minute and 47 seconds left. Tell me, dear friend, do 
we find that this circumstance actually exists, first, where 
there are people who can afford a mortgage--thin files, not fat 
files--and they are paying rent that exceeds a mortgage 
payment?
    Mr. Golding. Thank you for your question. Absolutely, yes.
    There are a lot of people for whom rent is, in fact, over 
half of their income sometimes, and they are still paying. And 
as we know, the rent burden is even growing, so where home 
ownership may very well be the right answer and lower cost on 
that.
    And today, we strive to address those thin files. We use a 
scorecard but we also use manual underwriting if you do not get 
an ``accept'' on the scorecard. And it is those exact type of 
documents that we encourage lenders to look at.
    Mr. Green. With my 50 seconds left, let me intercede and 
say this: What we need is an automated process. We are doing it 
manually--and by the way, other lenders do it manually, too. 
They look at these things. But we need an automated process 
that will allow us to help more people in a much more 
expeditious fashion.
    Do you concur, my dear friend?
    Mr. Golding. Yes, is my second sentence. There are good 
things happening out there. People are starting to grab some of 
that data and we are looking to see how we can incorporate it 
into how--what we do in terms of underwriting FHA mortgages.
    Mr. Green. With my final 11 seconds, let me just say to you 
that I want to work with you to develop the automated process. 
I am working with my colleagues here in Congress, and there are 
many on both sides who favor this; we just haven't reached a 
proper conclusion yet.
    But I want to work with you to get this done. It really is 
a good thing for not only the people who will benefit, but also 
for the American economy.
    I yield back the balance of my time, and I thank you for 
the extra 17 seconds.
    Chairman Luetkemeyer. The gentleman's time has expired.
    We now go to another gentleman from Texas, Mr. Williams, 
for 5 minutes.
    Mr. Williams. Thank you, Mr. Chairman.
    Mr. Golding, thank you for your testimony today. We 
appreciate it.
    I am a small business owner. I am from Texas, as you heard.
    I want to echo some of the statements made by my colleagues 
so far.
    In my mind it is simple. In my business, the car business, 
we do it all the time: If I want to gain a customer and prevent 
them from buying an automobile from a competitor, I will lower 
or cut their rates. We give the customer the best deal we can, 
just like what the FHA is doing.
    Now, lowering premiums--for example, rates--gives FHA a 
greater share of the market, a competitive advantage, we will 
say, over the rest of the industry. But the only difference is, 
we talked about earlier, is unlike the private market, which I 
am in, the taxpayer is providing the backstop. It is taxpayers' 
dollars, and fairly substantial ones, as we have already 
discussed.
    So a greater share of the market equals a greater 
liability. We see this with Fannie and Freddie; we see it with 
the National Flood Insurance Program, and on and on and on. 
Frankly, discouraging private sector participation is what the 
Federal Government is good at.
    So my first question is simple: Could we consider requiring 
that borrowers show that private mortgage insurance is 
unavailable before being able to obtain FHA mortgage insurance?
    Mr. Golding. Thank you for the question.
    I don't think that type of standard would be very easy to 
implement. As I mentioned earlier, if you look at some of the 
M.I.s, they said--they told their investors that under 5 
percent of their business was affected by the mortgage 
insurance premium--some overlap and some tension between the 
two.
    Mr. Williams. It is no. ``No'' would be the answer.
    Mr. Golding. No. I think--
    Mr. Williams. So what policy tool do you recommend, then, 
to ensure that the FHA's future role minimizes market 
distortion and preserves the financial condition of the FHA?
    Mr. Golding. I think in terms of getting private capital 
back in, especially as it relates to the mortgage insurance 
industry, their traditional market has been serving the 
conforming market and the GSEs, and the housing finance reform 
and getting real competition in is probably the most powerful 
tool for getting private capital back into the mortgage--
    Mr. Williams. ``Competition'' is the key word. I am glad 
you said that.
    Switching topics, let me go back to my own experience in 
selling automobiles for a living and use the FICO scores. Now, 
contrary to what some may believe, my industry heavily relies 
on one's credit history, as you probably know. In most cases, 
the borrower becomes riskier based on their credit score.
    I think everyone knows that. And in fact, there are some 
studies which show that loan performance deteriorates rapidly 
for borrowers with FICO scores below 660.
    The FHA currently allows homeowners with exceedingly low 
FICO scores by industry lending standards--and frankly, as low 
as 500--to qualify for its mortgage insurance. So should FHA be 
in the business of insuring loans to borrowers with credit 
scores so low--and frankly, that I can't even sell a car to--
that other private sector companies would deem too risky?
    In other words, as we talked about earlier, you really are 
in the subprime business.
    Mr. Golding. Thank you for your question.
    And the risk management and the use of credit scores and 
what the odds ratios are things that we study considerably on 
that. We have taken the important step that if you are below 
580 you need to put 10 percent down, so you have to have that 
compensating.
    And we take into account the credit score during the 
underwriting process, in particular the total scorecard. So if 
one has a 620, one needs other compensating factors, whether it 
is debt-to-income ratios or the amount of the downpayment.
    And we do look very carefully at the credit score in 
deciding what FHA mortgages to insure.
    Mr. Williams. Okay. And another question: Do you think that 
FHA has an obligation to underwrite mortgages for applicants 
with credit scores that are that low--are the low end of the 
FICO spectrum?
    Mr. Golding. Thank you for your question.
    It is always where exactly you do--what is the last loan in 
is always a difficult one. We look at our credit policies; we 
are comfortable with the credit policies we have today. And in 
fact, the credit mix that we are getting is actually quite 
good, with 680, which is higher than the historical average has 
been over those 82 years.
    Mr. Williams. All right. Thank you for being here.
    Mr. Chairman, I yield back.
    Chairman Luetkemeyer. The gentleman yields back the balance 
of his time.
    I now recognize the gentlelady from Ohio, Mrs. Beatty, for 
5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman.
    And thank you, to our ranking member.
    And also, I would like to thank our witness, Mr. Golding, 
today.
    Mr. Golding, I would like to start today by asking about 
the Distressed Asset Stabilization Program.
    I have an article from the New York Times, dated September 
2015, Mr. Chairman, which I would like to ask unanimous consent 
to be entered into the record.
    Chairman Luetkemeyer. Without objection, it is so ordered.
    Mrs. Beatty. This article brought to light the affinity 
which hedge fund and private equity funds have for buying 
discounted mortgages from HUD at auction under the Distressed 
Asset Stabilization Program. Many folks have expressed concern 
that these firms are too quick to push homes into foreclosure 
once they acquire the mortgage, and seem to be really less 
helpful than banks in negotiating loan modification.
    This article specifically mentions a couple from my 
district in Gahanna, Ohio. Their mortgage loan was sold at 
auction last summer by HUD, but prior to the auction JPMorgan 
Chase was working with this couple on a loan modification. But 
after the sale of their mortgage to Caliber, a private equity 
firm, loan modification talks were abruptly ended and the 
couple were met with a foreclosure notice.
    In fact, the Consumer Financial Protection Bureau has 
recently had over 1,000 complaints from consumers about Caliber 
alone, which has bought some 20,000 mortgages from HUD. That 
same company, as I understand it, is currently under 
investigation for its foreclosure practices by the New York 
attorney general.
    And I could go on and on. You get the gist of this.
    My question is, how can we get more nonprofit 
organizations, whose mission is neighborhood stabilization, to 
be more competitive in these auctions?
    Mr. Golding. Thank you for your question. It is one that is 
very important because I have always been a believer that the 
way to mitigate loss is to do loss mitigation, and foreclosure, 
REO, and then trying to sell the property should be a last 
resort--although, unfortunately, it is one that we too often 
have seen.
    So we do struggle to make sure that there is loss 
mitigation--we put loans into these pools that have largely 
exhausted attempts by the original servicer to do the loss 
mitigation.
    And as you point out, we do want--we have both neighborhood 
stabilization options, where we have minimum outcomes and we do 
a lot of smaller pools. Half of the last option went to the NSL 
option. And we have been working with different nonprofits with 
small pools, targeted pools, to try to get more nonprofits in. 
We have done a lot of outreach.
    I have to say, it is a difficult one for many nonprofits. 
They are good in--traditionally in dealing with actual houses 
and properties; servicing loans is new to many of them and it 
is very difficult.
    But I pledge to work hard to try to continue to do more, 
and I look forward to working with you on this.
    Mrs. Beatty. Thank you very much.
    Mr. Chairman, I yield back my time.
    Chairman Luetkemeyer. The gentlelady yields back.
    With that, we go to the gentleman from Pennsylvania, Mr. 
Rothfus, for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    And thank you, Mr. Golding, for being here today.
    You are currently the Principal Deputy Assistant Secretary 
for the Office of Housing. What was your position at HUD, and 
during what specific dates did you hold that position?
    Mr. Golding. I joined HUD in June--Principal Deputy 
Assistant Secretary in April 2015.
    Mr. Rothfus. Your biography on the HUD website says that 
you ``worked with the Department of Justice to craft consumer 
relief as part of mortgage settlements with the large lending 
institutions.'' These are the residential mortgage-backed 
securities, or RMBS settlements with JPMorgan Chase in November 
2013 and Citibank and Bank of America in July and August 2014?
    Mr. Golding. I provided technical expertise and I am--I 
think those were the ones I was involved in, but I would have 
to go back and check my records.
    Mr. Rothfus. You said, ``technical expertise.'' What was 
your specific role in the negotiations?
    Mr. Golding. It was how to structure the consumer relief in 
order to bring sort of the greatest benefit. There were 
different parts of the settlements that the Justice Department 
entered into where specific actions in effect expanded 
servicing on some of the loans, loss mitigation, addressing 
blight. And it was that technical expertise.
    Mr. Rothfus. Was your involvement directed by anyone 
specifically?
    Mr. Golding. Again, I was sharing my technical expertise, 
so I--
    Mr. Rothfus. Who directed you to do it? The Secretary? 
Anybody at DOJ?
    Mr. Golding. I don't remember how I came upon that task. I 
can, again, check my records, but I--
    Mr. Rothfus. Did you negotiate directly with any of the 
banks yourself?
    Mr. Golding. I was in the room during negotiations. But as 
I said, I did not view my role as a negotiator, but rather to 
provide technical expertise in the area of consumer relief.
    Mr. Rothfus. Did you ever do that without anybody from DOJ 
being present?
    Mr. Golding. No, I don't remember ever being in a meeting 
without DOJ there.
    Mr. Rothfus. Did you ever work directly with any of the 
heads of the banks when working on your technical expertise?
    Mr. Golding. On these matters, I would be with the DOJ. 
Just in my role of FHA and my knowledge of the mortgage 
industry and at conferences, I have--
    Mr. Rothfus. This is when you were a senior advisor on 
housing--
    Mr. Golding. But not on these issues related to the 
settlements. It would have been with DOJ.
    Mr. Rothfus. Did you ever meet with Jamie Dimon at JPMorgan 
Chase with respect to these settlements?
    Mr. Golding. I have never met Jamie Dimon, to the best of 
my recollection.
    Mr. Rothfus. As part of the settlements the banks are 
directed to make payments to third-party groups who were not 
part of the settlements and were not directly harmed by the 
conduct of the banks, such as HUD-approved housing 
organizations and attorney state organizations. The settlements 
require that the banks pay $150 million to these organizations.
    Who came up with the idea of directing money to third-party 
groups? Did you?
    Mr. Golding. Again, I do not remember particular--it has 
been a few years here. I do not remember how that was put on 
the table.
    Mr. Rothfus. Did you speak to any of the organizations that 
are named as recipients of the funds in the RMBS settlements 
during or after the negotiations process?
    Mr. Golding. Again, I don't have a list in front of me, so 
I am not sure who they are or whether I have ever talked to 
them before, during, or after.
    Mr. Rothfus. So you don't recall ever having any 
conversations with anybody at La Raza, the National Urban 
League, NeighborWorks America, about any of these settlements?
    Mr. Golding. I don't remember having conversations with 
those parties about the settlements.
    Mr. Rothfus. Is it possible you had conversations with 
them?
    Mr. Golding. I may have had conversations about the 
mortgage market with them; I would not have had conversations 
about the settlement with them.
    Mr. Rothfus. Who, besides you, would have been involved 
with negotiating in any part of the RMBS settlements--anybody 
at HUD? Who besides yourself?
    Mr. Golding. I would have to--the Office of General Counsel 
was with me, I think, at all of those meetings.
    Mr. Rothfus. The settlements require that banks pay a 
certain fixed amount. Under the settlement, a dollar sent to 
the Treasury, as is the case with most law enforcement 
penalties, counts as one dollar towards the total. But in these 
settlements, a dollar sent to a third-party groups counts for 
more than one dollar towards the total.
    Do you know who came up with that plan?
    Mr. Golding. I don't know who came up with specific 
elements.
    Mr. Rothfus. Did you come up with that plan?
    Mr. Golding. As I said, I was there to provide technical 
expertise on that, so I would not have been the one who came up 
with or formulated these.
    Mr. Rothfus. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired.
    The gentleman from Michigan, Mr. Kildee, is now recognized 
for 5 minutes.
    Mr. Kildee. Thank you, Mr. Chairman.
    And, Mr. Golding, thank you for being here.
    There are two areas I would like to pursue. One has to do 
with the issue of disposition of REO owned by HUD, and then I 
would like to specifically ask a couple of questions about my 
hometown of Flint, Michigan.
    On the issue of REO, can you in rough form, not--you don't 
have to have specific numbers, but what is the current 
inventory held by the Department?
    Mr. Golding. I am going to have to get you that number. I 
think we dispose--I know the run rate. I think we dispose of 
something like 5,000 properties a month.
    Mr. Kildee. And those dispositions, are they through bulk 
dispositions? How are those executed? I guess I'll maybe just 
give you a general question: Is there preference given to 
public land bank authorities or neighborhood-based nonprofit 
organizations, over the private for-profit speculator market?
    Mr. Golding. They are. I will have to get back to you on 
specifics.
    We tend to sell them one at a time, manage that process. 
There are certain preferences, first-look types for certain 
groups, and I would have to get back to you on the details of 
that program.
    Mr. Kildee. Okay. I would appreciate that. I have some 
concerns, not so much about bulk disposition specifically, but 
bulk disposition that doesn't have the impact considered on 
external--the externalities considered when it comes to 
neighborhoods, especially those that are already struggling.
    I appreciate that. And if we could pursue some engagement 
on that subject, I would appreciate it.
    If you could help me think through, maybe offer some 
guidance on what the Department's role might be in providing 
direct assistance to people in Flint--and I am sure most of you 
are familiar with what has happened in Flint due to a series of 
decisions by the State-appointed emergency manager and then the 
lack of--and an extended period of time with high levels of 
lead leeching into the water system and having, obviously, a 
devastating effect on individuals, but particularly on 
children, which is the real tragedy.
    But part of the problem that we are seeing right now is 
that the City, which is a city of about 100,000 people, is now 
getting sort of a third hit to its housing market. The chronic 
abandonment as a result of population loss driven by 
globalization, racial avoidance, poor land-use planning, et 
cetera, was the first hit.
    The crisis, the housing collapse, was the second hit, which 
really drove down property values. In the last 7 years, for 
example, the real estate values in the City of Flint have been 
cut in half--just in 7 years.
    And now the crisis that we are facing with water is a third 
hit that I am not sure without some serious intervention, we 
are going to be able to recover from. We are seeing, for 
example, individuals not being able to close on sales--even 
sales that they are able to make, which is one question; who is 
going to buy one of these houses--but even when they can, not 
being able to get to closing because they can't provide the 
kinds of certifications regarding drinking water that would be 
required to close.
    Can you just address first of all whether or not the 
Department is thinking about this, and if so, what that 
thinking is? And if the answer is no on either one of those, 
how we can engage you?
    Mr. Golding. No, we are very engaged and very focused. The 
Secretary has made that very clear.
    Let me talk about what FHA is doing, because there are 
other activities at HUD. And it is something that is of grave 
concern.
    FHA tends to be the lender in communities like Flint. As 
you know, it is part--we talk about a countercyclical role, but 
sometimes that is not just the national recession; it is cities 
like Flint that have been hard hit. So we have stayed there and 
will stay there to be part of the mortgage market, because it 
is important to have lending.
    That said, it is also--we will lend only on houses that 
have safe potable water. It is part of our longstanding mission 
and goes back 82 years.
    And we have given guidance to the industry on how they can 
do both--how they can still continue lending. We will continue 
to monitor that.
    I would be glad to work with your office. It is so 
important to continue lending, because if you cut off lending, 
you basically will drop house prices even further.
    On the other hand, we have to make sure that the water is 
potable. And we have given clarity. We are looking to see 
whether certain waivers are necessary.
    Again, I would be glad to work closely with your office on 
this one.
    Mr. Kildee. Thank you very much. I see that my time has 
expired.
    Thank you, Mr. Chairman.
    Chairman Luetkemeyer. I thank the gentleman.
    I would be willing to yield you another 2 minutes if you 
have some more questions, because I think this is an issue of 
utmost importance, not only to you but for the country. And to 
have the gentleman here in front of you, and have him be able 
to be on record for some things, is going to be very helpful. 
We want to yield you 2 more minutes, sir, if you have some more 
questions.
    Mr. Kildee. I really appreciate that, Mr. Chairman. Thank 
you.
    I guess the specific question is whether you have been 
pursuing any direct relief? One of the things we are seeing 
right now, for example, in Flint, a lot of folks aren't paying 
their water bill, which often is an attachment to the tax bill, 
which can lead to delinquent taxes and even a potential tax 
foreclosure action.
    And again, when we see properties that may have a booked 
value of somewhere, even on the tax rolls, it is going to have 
a State taxable value assigned to it. But we know how markets 
work. Property is only worth--or any commodity--is only worth 
what somebody is willing to pay for it.
    And so I am concerned about whether or not this problem 
will double down in Flint by folks essentially not paying their 
water bill, not paying their property taxes, walking away from 
property. Is there any way or any thought you have about 
assistance--direct assistance to individuals to prevent the 
loss of their home, which would obviously affect them, but 
worse, would contribute to an oversupply of substandard housing 
in a weak market community already?
    Mr. Golding. I am going to have to check to see the tax and 
insurance defaults, which I have not--that has not risen to me 
of being an issue, but it is one that you have my personal 
commitment to monitor and make sure that we are responding 
appropriately. We don't want to foreclose because of a tax, and 
if someone is not paying their water bill it is sort of 
understandable on that one.
    So again, very much the entire Department is committed to 
doing what it can, is focused on this, and thank you for 
bringing this specific issue to my attention.
    Mr. Kildee. Thank you. And we will follow up with you and 
perhaps get together.
    Again, thank you, Mr. Chairman. I really appreciate that 
indulgence.
    Chairman Luetkemeyer. Absolutely. Hopefully, it can be 
helpful in many ways to work on your problem. This is of 
significant and national importance.
    With that, the gentleman yields back.
    The gentleman from New Mexico, Mr. Pearce, is recognized 
for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    And thank you, Mr. Golding, for being here.
    As we look at the CFPB, their required QM standards for 
loans, do the loans that you all insure comply with QM 
standards?
    Mr. Golding. Yes, we have. The statute--
    Mr. Pearce. All?
    Mr. Golding. --provided for a specific HUD-FHA QM standard, 
but we do.
    Mr. Pearce. All of them do?
    Mr. Golding. Yes.
    Mr. Pearce. Now, I note that you have the capacity to 
include mortgages up to $625,000. What percent of your 
portfolio would be houses above $200,000, say?
    Mr. Golding. The average is $190,000, so--or the median, so 
half are above $190,000. Our loan limits in most counties in 
this country are $271,000. It is only a few very high-cost 
areas that go up to the $625,000.
    Mr. Pearce. When I read your opening statement, you say 
that you are providing underserved borrowers, so people buying 
$270,000 houses are underserved?
    Mr. Golding. As I said, the highest in most communities--in 
most counties in this country is $271,000. The average is 
$190,000.
    Mr. Pearce. So, okay, we will use the $191,000. Are those 
people underserved?
    Mr. Golding. Typically, we do serve a market that--
    Mr. Pearce. Okay, but if your average is there, you have a 
lot above that. And so my question is, the people who are above 
$191,000, pulling your average up to that, are they 
underserved?
    Mr. Golding. They are not being served by the conforming 
market. The GSEs' average FICO score is, I think, around 750, 
760. So we are playing in a very different market than the 
conventional or private sector is playing in.
    Mr. Pearce. The average income in my district is maybe 
$31,000; 50 percent of the houses are manufactured housing. It 
is hard for me to sit here and believe that these people are 
underserved that you are telling me.
    And so I find maybe that all of the portfolio increases is 
you creating an artificial market in order to improve the 
balance sheet and improve what you report to us in order to 
delay and defer questions. And our questions are to keep people 
who are making $31,000 a year in my district from paying for 
the people who are making enough to borrow a $600,000 house and 
the government is insuring it. That is what the rub is about.
    Do you think that we are in a recovery market here? The 
President said in his State of the Union Address that we have 
recovered, and we recovered a long time ago, and it is now 
looking really good. Have we recovered?
    Mr. Golding. The housing market is recovering and has 
recovered. We now are seeing housing start--
    Mr. Pearce. How long has that recovery been going on?
    Mr. Golding. I don't remember the exact year where housing 
started to increase, probably around 2009, 2010.
    Mr. Pearce. 2009, 2010--in your opening statement you say 
you are a countercyclical force, so in the period that you say 
that we have been recovering, countercyclical means when the 
market is not recovering that you get in and when it is 
recovering you should be diminishing out because the private 
market is there.
    And so you say that the recovery started about 2009, but 
that is during the period when you are skyrocketing in your 
portfolio. Do you find that to be not consistent with your 
statements, not consistent with your stated objectives as an 
institution?
    Mr. Golding. Thank you for the question.
    The exact numbers of what it means to be countercyclical 
are sometimes difficult to measure. But as I said, we in--
    Mr. Pearce. Then why do you come and talk to us about it? 
If it is difficult to measure, why are you saying that in your 
opening statement, in your opening paragraph? You lead with 
that. Why don't you put it at the end where nobody is going to 
read down there if it is difficult to assess?
    Mr. Williams said, basically you are in the subprime 
business, and you made the comment that, ``We study the odds.'' 
What does that mean, that you study the odds?
    Mr. Golding. The odds ratio of defaults. As we--
    Mr. Pearce. So you think that the people who rate 500 in 
the private system of measuring are being unfairly evaluated 
and that you all have an evaluation system that is better than 
the 500 and you are going to go ahead and lend that money down 
there because these are insurable real estate, I think is what 
you said. Is that correct, that the private market is 
undervaluing the capability of people with these scores to make 
their payments back?
    Mr. Golding. The private market traditionally will not 
serve that market, correct--for a variety of reasons, but that 
is not where--
    Mr. Pearce. So what you are telling me is that your agency 
is willing to put my constituents at risk, who are making their 
lives work on $31,000 a year. You are willing to put them at 
risk to help somebody who bought a $600,000 house with a 500 
credit score because you have a system of measuring that is--
and the private market is inaccurate and yours is accurate.
    Sir, I have trouble believing it. I appreciate it.
    I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired.
    We now go to the gentleman from Minnesota, Mr. Ellison. He 
is recognized for 5 minutes.
    Mr. Ellison. Thank you, Mr. Chairman.
    Thanks to the ranking member, as well.
    Mr. Golding, thanks for joining us today. I have a chart I 
would like to direct your attention to, if we can get that up.
    My first question, Mr. Golding, is this--first of all, 
thanks for the good news you shared. It is clear that FHA is in 
good financial health.
    The FHA Mortgage Insurance Fund continues to grow stronger. 
That is a good thing.
    And we appreciate your team's effort to reduce risk, 
improve recoveries, and lower premiums. In my community in 
Minnesota and around the Nation, FHA remains a critical source 
of sustainable credit for American families.
    So here is what I would like to ask you: This chart I have 
up here shows that nationwide, we have a rental housing crisis. 
Current estimates are that nearly 12 million low-income people 
pay more than half of their income for rent.
    And according to a Harvard Joint Center for Housing Studies 
report, one in two households spend more than 30 percent of 
their gross income on rent and utilities; one in four 
households pay more than 50 percent of their gross income for 
rent and utilities. And in my district we have more than 10,000 
low-income families on a waiting list for assisted housing.
    So could you talk to us about what the FHA is doing to help 
us address the dire rental housing crisis for low-income 
families? And what more could the FHA do?
    Mr. Golding. Thank you for the question.
    And if you add in utilities, the number goes to over 11 
million paying over half, so we are, as you point out, 
definitely in a rental crisis.
    On the FHA--and HUD in general, but FHA specifically--is on 
its multi-family program we support construction of new 
properties. We, in fact, recently reduced--for affordable 
properties, we reduced the insurance premium in order to 
attract more capital into that sector so that we would get more 
construction, more units, and more proceeds for rehab also. So 
it is not just the construction, but it is a substantial rehab. 
And our multi-family program is continuing to focus on that 
area.
    As you know, our Rental Assistance Demonstration Program is 
also putting more capital--we are nearing the $2 billion and 
about 35,000 units preserved in terms of affordable housing.
    But with those numbers up there, we clearly are only 
chipping away at what is a huge problem.
    Mr. Ellison. Thank you very much.
    Let me ask you now about manufactured housing finance. A 
year ago, the Consumer Financial Protection Bureau published a 
report noting that manufactured home buyers have more expensive 
loans. It noted that two of three manufacturing homeowners 
eligible for a mortgage financed with more expensive personal 
property loans instead.
    On the screen is a CFPB chart on FHA requirements for 
manufactured home loans. Can you briefly explain the types of 
financing FHA provides to manufactured home buyers?
    Mr. Golding. Yes. We have both Title 1 and Title 2 loans 
for manufactured housing. Title 2 requires that it be real 
property, and Title 1 will also be for just--for property that 
is chatteled. We do try to provide financing to--through both 
of those FHA programs.
    Mr. Ellison. The CFPB report said that the FHA-guaranteed 
loans constituted about a fifth of the manufactured housing 
loans for home purchases in 2012. That seems a little low, 
especially since about half of all African-American and 
Hispanic households seeking mortgages have relied on FHA for 
financing since 2008. Contrast 20 percent to 50 percent.
    What can the FHA do to improve the financing options for 
people who buy manufactured homes?
    Mr. Golding. It is an area where the demand has been 
declining. I will commit to working with you and your office to 
see what more we can do in this area. As you point out, it is 
an important source of affordable first-time home ownership.
    Mr. Ellison. Quickly, in Minnesota we have eight 
manufactured home communities that are resident-owned, which we 
are very proud of. Can FHA help those residents buy their 
property?
    Mr. Golding. Again, thank you for the question. I will have 
to work with you on that.
    Mr. Ellison. It would be a good thing if we could.
    Thank you.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the gentleman from New Jersey, Mr. 
Garrett, chairman of our Capital Markets Subcommittee. He is 
recognized for 5 minutes.
    Mr. Garrett. I thank the chairman.
    And I thank the Secretary for coming here to testify.
    And I thank anyone else who is here from the Department 
coming to testify.
    By the way, who else is here from the Department? Can they 
raise their hands? Anybody else? That's it?
    Thank you. About a third of the audience.
    So the past news in these hearings was, as has already been 
talked about, that the MMI has consistently in the past been 
below the 2 percent minimum capital requirements, as required 
by law since 2009. You have indicated it is now above that 
level.
    It should be noted that the 2008 downturn was not foreseen 
or expected by anyone. The taxpayers are still on the hook for 
over $1 trillion of FHA-insured mortgages.
    Here is the difference, Mr. Secretary: Unlike other 
financial entities subject to the Dodd-Frank Act and the 
Federal Reserve requirements, FHA's 2 percent minimum capital 
ratio has not been increased ever, right? It is still 2 percent 
and it was 2 percent.
    I know in previous hearings on this matter, Mark Zandi 
recommended an increase of the minimum capital to 4.5 percent. 
Why did he say that? To withstand the effects of another 
financial crisis, which all the experts tell us there will be 
another financial crisis.
    So, quick question: Do you believe that FHA is strong 
enough to withhold and withstand another Great Recession at its 
level right now? Or do you believe, as other testimony has 
given us, that we should increase it to something above 4 
percent, instead of 2 percent?
    Mr. Golding. Thank you for your question.
    If a Great Recession were to start tomorrow, I don't 
believe that we would be able to sustain a positive capital 
reserve ratio.
    Mr. Garrett. What is the level that it should be increased, 
do you think?
    Mr. Golding. I actually think that the 2 percent standard 
is a good standard.
    Mr. Garrett. But you just said that it was not strong 
enough to meet the next recession, so what would be one that 
would be able to withstand it?
    Mr. Golding. We are growing and it is projected to--the 
fund--there is the question of the standard. I don't expect the 
Great Recession to start tomorrow. But we are building reserves 
above--
    Mr. Garrett. That is good.
    Mr. Golding. --that 2 percent.
    Mr. Garrett. And I appreciate that. So what is the goal, 
what is the target you are trying to get to?
    Mr. Golding. We have, again, no specific target. We have a 
statutory 2 percent standard.
    Mr. Garrett. Right. So what should the--since you have just 
testified that the 2 percent level is not strong enough for the 
next recession, wouldn't it be incumbent upon us--either you or 
Congress--to set a standard that is your target? Maybe you 
can't get there tomorrow or next week or next month or by the 
end of the year, but shouldn't either you or us set that target 
now?
    Mr. Golding. As I said, if the Great Recession starts 
tomorrow, we can withstand some recessions on that. And we 
would be glad to work with your office to try to come up with 
what the number is that we would be--in order to survive 
another Great Recession.
    Mr. Garrett. That would be great, and--that would be 
fantastic, actually, if you could provide us with that number.
    Now, private financial institutions have to go through 
stress tests to deal with that situation, to try to prepare for 
that. You do not, correct?
    Mr. Golding. Correct.
    Mr. Garrett. Is that something that we should require or 
you should do voluntarily--do your own stress tests?
    Mr. Golding. The independent actuarial does do scenario 
analysis, which is similar to a stress test--
    Mr. Garrett. But isn't it true that when they do those, 
they do so based upon your assumptions?
    Mr. Golding. They do a variety of assumptions. Many of 
these assumptions are taken from third parties, some from OMB, 
but they all--
    Mr. Garrett. Isn't it true that some of your assumptions 
are not accurate or are faulty assumptions, and that they 
recommend other assumptions?
    Mr. Golding. I--
    Mr. Garrett. That is my understanding.
    Mr. Golding. Okay. I will have to go back and look at the 
exact report on--
    Mr. Garrett. So would you be averse to having--either have 
the Congress order or you can do this independently--you have 
the power to do a--your own stress test that is akin to or 
similar to or the same as what the Fed requires of private 
institutions? Why wouldn't that be fair and good to do?
    Mr. Golding. As I said, we do--there are scenario 
analyses--
    Mr. Garrett. But you agree that these are not the same 
stress tests that the Fed requires in private institutions? We 
agree on that, don't we?
    Mr. Golding. They are not exactly the same. They are 
similar.
    Mr. Garrett. Right. So wouldn't it be good to do those 
same--similar stress tests, just like the private sector would, 
that would give us a best picture?
    Mr. Golding. It always is good to look at different 
scenarios.
    Mr. Garrett. Would you commit today, then, to reaching out 
to them so you could do the exact same stress tests so we could 
come back and put everything on an even keel?
    Mr. Golding. It is very difficult to know exactly what the 
Fed--we are--
    Mr. Garrett. You could do this by yourself, adopt those 
standards and do your own stress tests. Would you commit to 
doing that right now so we can know conceivably that these are 
on the same level as the other private institutions have to 
deal with? That would be great if you could say that.
    Mr. Golding. We do and continue to look at different 
scenarios. Not being regulated by the Fed, it is very difficult 
for me to make a commitment that we will match exactly what the 
Fed does.
    Chairman Luetkemeyer. The gentleman's time has expired.
    We now go to the gentleman from Missouri, Mr. Clay, for 5 
minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    And thank you, Mr. Golding, for being here today.
    It has been over a year since the FHA made the decision to 
reduce annual premiums for new borrowers by half of a percent, 
despite Republican criticisms that the MMIF was not strong 
enough to handle this change. What can you tell us now about 
the impact of the premium reduction and the validity of 
Republican criticisms against the decision?
    Mr. Golding. Thank you for the question.
    The concern when you do--we have clearly reduced the 
premium in order to lower the cost of housing and for new 
first-time homebuyers. And as my written testimony points out, 
we actually exceeded our expectations. We had expected 75,000 
new first-time homebuyers. The data suggests it is over 
106,000.
    So we have had--on the benefit side, we clearly did better 
than expected. On the cost side, you are cutting your per-loan 
revenue, but you also are increasing volume.
    And there I turn to the independent actuary, which 
basically estimated how those two balanced out. And the 
understandable concern was the lost revenue would be greater 
than the expanded value.
    The independent actuary showed those were basically a wash, 
so the cost was actually lower than expected. So greater 
benefits than expected, lower costs than expected.
    Mr. Clay. And under what conditions might the FHA consider 
decreasing premiums further?
    Mr. Golding. In general, when one looks at what the 
appropriate premium is what you do is you look at the strength 
of the fund, you look at what track it is on, what are the 
projections. And then you also look at the market conditions in 
the housing market: How healthy is it? Are people getting the 
credit they need? Is housing affordable?
    Mr. Clay. Is HUD considering changing the requirement that 
borrowers pay premiums for the life of the loan?
    Mr. Golding. Again, I am not considering a change in that. 
I view the life of the loan--a lot of our defaults occur much 
longer after origination than people expect. This is true of 
all mortgages. And so, the losses are fairly long-lived.
    And I also will point out that the GSEs do not--their 
guarantee fee is also for the life of the loan. So I am 
actually not considering changes to the life of the loan 
policy.
    Mr. Clay. How would you consider the health of the housing 
market? I met with some homebuilders yesterday, and apparently 
it is increasing, but they complained about some of the 
regulatory obstacles. And they think it is a little more 
difficult, especially with some of the hurdles that they have 
to jump through in relation to the Clean Water Act and things 
like that.
    What are you seeing?
    Mr. Golding. Yes. So especially for new construction 
largely driven by household formation, and that has come--is 
much stronger than it had been. It is over a million 
households.
    There is no doubt that getting the land and getting it 
permitted are tough issues, and it is community by community. 
There is not just one national policy there. As they say, real 
estate is local no more than when you are building.
    Mr. Clay. Okay. And do you--despite the premium reduction 
announced in January of last year, the FHA premiums remain high 
by historical standards. Many have pushed for an even larger 
reduction.
    The most recent independent actuarial report on the Mutual 
Mortgage Insurance Fund shows it to be in a strong financial 
condition. And is HUD now considering further premium 
reductions or other steps?
    Mr. Golding. We have no plans at this time. Again, it is a 
very--it is one of these things that we evaluate. It depends, 
as I have pointed out, on the strength of the fund, its 
trajectory, and the needs of the housing market.
    Mr. Clay. I see. Thank you very much for your answers.
    And I yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    With that, we go to the gentleman from California, Mr. 
Royce, for 5 minutes.
    Mr. Royce. Thank you very much, Mr. Chairman.
    And, Mr. Golding, thanks for being with us this morning.
    The GSEs, under the direction of the FHA, have engaged in 
innovative methods of offloading risk to shield the American 
taxpayers currently holding the back for Fannie and Freddie 
losses. And I have been encouraged by the progress that the 
GSEs have made in this regard, although I think a lot more 
could be done.
    Risk-sharing with the private sector is a way to slowly but 
quite surely remove the Federal Government's grip on the 
housing market and introduce private capital in a way that lets 
us better price risk and avoid a calamity. So it is my belief 
that the FHA has the authority to do risk-share transactions, 
or at least co-insurance to reduce the risk.
    We had a conversation with Secretary Castro here and he 
told me we can find ways to introduce more private capital into 
the market. And I was going to ask, what are you doing to work 
with the private sector to--in mortgage finance with an eye to 
avoiding the need down the road, should troubled waters be 
ahead, of avoiding any taxpayer-funded bailout?
    Mr. Golding. Thank you for the question.
    And I am aware of what the GSEs have done, some of their 
innovative products. As I mentioned before, on the multi-family 
side, we do risk-sharing. I would also mention that there is a 
lot of private capital in the FHA market in terms of the 
origination, the servicing, and actually the funding of the 
mortgages.
    As it relates to credit risk, it is a difficult one on the 
single-family side for FHA to share credit risk. As I am sure 
the GSEs will tell you, there is a lot of systems work involved 
in setting up these programs. I know many of the individuals 
over there working on that. So it is very difficult.
    The other thing I would point out is you are also giving up 
significant income. So while you are shedding some of the 
downside, you are also shedding considerable revenue when you 
do do a risk-sharing transaction.
    Mr. Royce. The question I will ask you about--and I saw Mr. 
Garrett had inquired about capital--your target capital ratio. 
And I remember a conversation I had with Mark Zandi after he 
finished his book, and in particular we were talking about the 
GSEs.
    For FHA, the issue of a target capital ratio of 2 percent--
I know you are looking at this--he felt that 4.5 percent was 
the proper capital ratio, at least 4.5 percent. And so, since I 
know you are looking at analyzing where will you go on that 
target, I would just suggest that I think with an eye toward 
experience, that would be a wise objective. And I just wanted 
to get your feedback on that.
    Mr. Golding. I have been looking at capital ratios for most 
of my career in the mortgage market. Yes, it's a tough question 
exactly what the right level is.
    I will point out we have had--the 2 percent target has 
served us well, that while we came through the Great Recession 
there was a mandatory appropriation. I think FHA came through, 
as all the mortgage--of all the major participants in the 
mortgage market that I know of, FHA came through this crisis 
better than any of them did.
    So I do think that we have the wherewithal. And these 
numbers, the 2 percent works. It is a projection of whether we 
are going to run out of cash in year 27.
    Mr. Royce. Right.
    Mr. Golding. It is not an immediate cash need. We have lots 
of cash at hand.
    But we would be glad to continue the discussion of what a 
different target might be.
    Mr. Royce. Thank you, Mr. Golding.
    I will yield back, Mr. Chairman.
    Chairman Luetkemeyer. The gentleman yields back.
    I now recognize the gentlelady from California, Ms. Waters, 
who is the ranking member of the full Financial Services 
Committee. She is recognized for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman and members.
    I am very pleased that we are here today and the committee 
has invited you, Mr. Golding, to speak with us, because it does 
give us an opportunity to highlight the very positive results 
that were included in the most recent independent actuarial 
report on the health of the Mutual Mortgage Insurance Fund.
    The report showed that the fund has now reached and 
exceeded the capital ratio requirement and now stands at 2.07 
percent. The economic net worth of the fund is now at $23.8 
billion, which is up $19 billion from the previous year. The 
report also shows that delinquency rates and foreclosures 
started to decrease substantially.
    Exactly 1 year ago, this committee held an oversight 
hearing on the FHA, for which Secretary Castro came to testify. 
At that hearing the Republicans criticized the Secretary for 
his decision to decrease premiums, saying that the decision was 
irresponsible and that the fund was not strong enough to handle 
a premium decrease.
    But here we are 1 year later and the fund has reached and 
exceeded the capital ratio earlier than expected, and it is in 
strong financial shape. Moreover, the premium reduction is 
helping thousands more borrowers access affordable home 
ownership.
    So thank you very much for your work, and for Mr. Castro's 
leadership on this issue.
    I have a few issues that I would like to bring to your 
attention.
    Let me just ask about the reverse mortgage program. We had 
some interaction with HUD, particularly about the spouses of 
deceased individuals who were the mortgage-holders, and an 
inability for them to stay in their homes, et cetera, et 
cetera. I understand that a lot of work has been done on this 
issue and that you are continuing to work on this.
    But I am concerned about the reverse mortgage program in 
general. I see a lot of advertising that continues to go on, a 
lot of lack of information that seniors don't have, a lot--
information that they don't have.
    And so what is the future of this reverse mortgage program? 
What are you doing, and do you think that we need to either 
talk about how we wind this down, or can it be fixed in a way 
that seniors understand it, and that they are fairly 
compensated while they are alive, and that they don't end up 
basically losing property that is valued much higher than what 
they have gotten out of it? What do you think about this?
    Mr. Golding. Thank you for the question.
    Reverse mortgage is a really tough question, and I struggle 
with it too. Thanks to this committee, we have made important 
changes in this program, and I am--what is being originated now 
I generally think is good for allowing seniors to age in place.
    There is a very important role for counseling so that 
individuals know what they are getting. And, quite frankly, we 
encourage families and heirs and non-bearing spouses to be part 
of that counseling.
    So I think the program now is on the steady keel. Its 
volumes are way down as a result, but it is one that needs to 
be monitored closely, as we learn more about the program.
    Ms. Waters. We are going to be paying very close attention 
to it and trying to address some of the concerns that we have 
identified.
    Let me just move on. Since HUD announced its multi-family 
transformation initiative, I have been active in opposing this 
dramatic consolidation of HUD's multi-family field offices 
throughout the country. This plan seems to ignore the 
importance of local offices, and I am concerned that it will 
adversely affect the delivery of services by reducing staff's 
ability to effectively respond to local concerns.
    That is why I successfully introduced an amendment to the 
2015 HUD funding bill to ensure that HUD is not requiring the 
consolidation of asset management staff. However, I am very 
disappointed that HUD is circumventing the intent of this 
legislation and to keep asset management in every field office 
by failing to backfill these positions. Some offices are 
already completely vacant because HUD has not replaced asset 
management staff in those locations.
    And I have also heard from affected HUD staff that HUD is 
penalizing asset management staff who are not choosing to 
relocate by sending the message that there will be no 
opportunities for career advancement rules--they voluntarily 
relocate to a hub office. Is this true?
    Mr. Golding. Our current plans have been to, when vacancies 
were to occur--now, it is a fairly new program so I will have 
to get to you on the number of vacancies--but our current plan 
has been to fill those at one of either the hub or the 
satellite offices.
    Ms. Waters. Is there any intimidation going on with 
employees because you would like to or you are trying to 
circumvent what I successfully had passed?
    Mr. Golding. Let me look into that. We don't tolerate 
intimidation, so please, I will work with your office on that 
one.
    Ms. Waters. Thank you very much.
    I yield back.
    Chairman Luetkemeyer. The gentlelady's time has expired.
    With that, we go to the gentleman from Kentucky, Mr. Barr, 
for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman. Thanks for holding this 
hearing.
    Mr. Golding, thanks for your testimony and your service.
    I want to follow up on the line of questioning from Mr. 
Garrett and Mr. Royce on what is the appropriate capital 
reserve ratio. I think we are all happy to see the positive 
development of exceeding the 2 percent target, but we continue 
to be concerned that target may be inadequate.
    The Government Accountability Office found that the 
statutory target of 2 percent is insufficient to ensure the 
stability of the FHA in the event of another crisis. I think 
Mr. Royce mentioned economists like Mr. Zandi, who said that we 
need a capital ratio of at least 4.5 percent.
    And then, of course, just the history of a $1.7 billion 
mandatory appropriation suggests that a 2 percent capital ratio 
requirement may not be adequate in a stress scenario.
    So, given those realities, and given the decision by the 
FHA to reduce the mortgage insurance premiums, what was the 
decision-making process in making that decision to reduce 
premiums? And are you in any way concerned that may deteriorate 
a more realistic target where we need to go?
    Mr. Golding. I appreciate the question, and it is an 
important one because the strength of the fund is very 
important, and one that I, too, have always been concerned 
about.
    The track is strong. We raised--I don't remember the exact 
number, but I think we raised the mortgage insurance premium 
about 8 times. The last one was a step back as market 
conditions had changed and the like, where we thought it was 
important to get it at a level that promoted affordability.
    And as I said, the actuary has showed that it didn't really 
have an effect on the trajectory of how fast we are growing. In 
fact, they are now projecting that we are going to grow faster 
than they did last year before the cut.
    Mr. Barr. I appreciate the goal and the mission of 
affordability. But according to the National Association of 
Insurance Commissioners, their model act on mortgage insurance, 
any mortgage insurance company that has outstanding total 
liability greater than 25 times its capital is required to 
cease operations until it rebuilds capital.
    Obviously, the FHA is competing and supplanting PMI. Its 
capital requirements arguably should be at least similar to 
private markets, but the FHA baseline is 50-to-one, meaning 
that it is operating with only 2 cents on hand for every dollar 
of risk, which is half the minimum amount required by State 
regulators.
    So, given that, what should be the proper balance in market 
share between FHA and private mortgage insurance, and where is 
it now?
    Mr. Golding. In terms of, as I said, in terms of 
insurance--and these are rough numbers, but for a very high LTV 
above--basically above 80 LTV, where the M.I.s play, where we 
play, the rough breakdown is basically 40 percent M.I., 40 
percent FHA, and about 20 percent VA is where it is.
    Mr. Barr. So 40-40-20?
    Mr. Golding. Roughly.
    Mr. Barr. Okay.
    Mr. Golding. It bounces around, but that is my rule of 
thumb.
    Mr. Barr. Do you all look at the substitution effect that 
you all are having when you lower premiums, when you have lower 
capital requirements versus the private sector? Do you all 
actually look at the displacement that your policies create?
    And don't we want to invite more private mortgage 
insurance? Forty percent seems like a low number.
    Mr. Golding. Now look, we look at it, I read what the M.I. 
said. One of them told their investors that the net reduction 
had less than a 5 percent effect on their business.
    So I am definitely aware of the fact that there is overlap. 
But if you step back, we really do operate in largely different 
markets. Our core market and their core market--
    Mr. Barr. But in the high-income areas you are talking 
about loans of $625,000, and I know that that is a high-income 
place or standard, but where I come from, a $625,000 mortgage 
is a very significant amount of debt.
    But in any event, my time has expired. I would just 
encourage FHA to--we want to make sure risk is on the private 
sector, not on the taxpayer.
    I yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    With that, we are finished with our witnesses.
    And I will thank Mr. Golding for being here today.
    I just have a few closing comments. I still have concerns 
and, to your testimony today, sir, I appreciate some of your 
remarks, and I am glad to see your capital has improved. I 
think that is fantastic.
    But if you take the report, as I initially started my 
discussion with, in 2011, you are diametrically opposed with 
the way you are operating today compared to what that report 
was trying to give you the guidelines in the future. And so you 
were talking about raising premiums; now you are lowering 
premiums. You were talking about trying to shift stuff to the 
private market; through many of our Members' questions and what 
have you today, that is not happening.
    So your comment a while ago was with regards to all the 
underwriting you did. The chart on the screen right now shows 
that for 10 years, underwriting went downhill, or your profits 
went downhill, or negative, in fact, as a result of the 
underwriting practice that you were using.
    In 2009, you switched and got back on a sound basis, and 
now you have actually made money, which is fantastic.
    The problem and the concern that I have, though, is that 
you testified a minute ago, whenever I was discussing it with 
you, with regards to the reverse mortgages, that you are taking 
on higher loan levels with more risk, and doing it with less 
income associated with that risk. That is a recipe for 
disaster.
    And so hopefully, there isn't a downturn. Hopefully, we can 
work our way out of this. But I think it is incumbent on us as 
a committee to continue to watch what goes on here very 
carefully because I think you are treading on some very thin 
ice with the way that you are running the Department, 
especially with getting into the reverse mortgage market with 
less income to protect it.
    So with that, we certainly want to, again, thank you for 
your participation today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative 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 materials to the Chair for inclusion in the 
record.
    And with that, this hearing is adjourned.
    [Whereupon, at 11:07 a.m., the hearing was adjourned.]





                            A P P E N D I X



                           February 11, 2016
                           
                           
                           
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