[Senate Hearing 116-1]
[From the U.S. Government Publishing Office]
S. Hrg. 116-1
NOMINATIONS OF BIMAL PATEL, TODD M. HARPER, RODNEY HOOD, AND MARK
ANTHONY CALABRIA
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
ON
NOMINATIONS OF:
Bimal Patel, of Georgia, to be an Assistant Secretary for Financial
Institutions, Department of Treasury
__________
Todd M. Harper, of Virginia, to be a Member of The National Credit
Union Administration Board
__________
Rodney Hood, of North Carolina, to be a Member of The National Credit
Union Administration Board
__________
Mark Anthony Calabria, of Virginia, to be Director of The Federal
Housing Finance Agency
__________
FEBRUARY 14, 2019
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania JACK REED, Rhode Island
TIM SCOTT, South Carolina ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska JON TESTER, Montana
TOM COTTON, Arkansas MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
MARTHA MCSALLY, Arizona DOUG JONES, Alabama
JERRY MORAN, Kansas TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota KYRSTEN SINEMA, Arizona
Gregg Richard, Staff Director
Joe Carapiet, Chief Counsel
Matt Jones, Counsel
Brandon Beall, Professional Staff Member
Laura Swanson, Democratic Deputy Staff Director
Elisha Tuku, Democratic Chief Counsel
Beth Cooper, Professional Staff Member
Corey Frayer, Professional Staff Member
Dawn Ratliff, Chief Clerk
Cameron Ricker, Deputy Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
THURSDAY, FEBRUARY 14, 2019
Page
Opening statement of Chairman Crapo.............................. 1
Prepared statement........................................... 41
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 3
Prepared statement....................................... 42
NOMINEES
Bimal Patel, of Georgia, to be an Assistant Secretary for
Financial Institutions, Department of Treasury................. 5
Prepared statement........................................... 43
Biographical sketch of nominee............................... 45
Responses to written questions of:
Senator Brown............................................ 106
Senator Moran............................................ 112
Senator Cortez Masto..................................... 113
Senator Sinema........................................... 114
Todd M. Harper, of Virginia, to be a Member of the National
Credit Union Administration Board.............................. 7
Prepared statement........................................... 52
Biographical sketch of nominee............................... 54
Responses to written questions of:
Senator Brown............................................ 114
Senator Rounds........................................... 119
Senator Moran............................................ 120
Senator Cortez Masto..................................... 123
Senator Jones............................................ 128
Senator Smith............................................ 130
Senator Sinema........................................... 131
Rodney Hood, of North Carolina, to be a Member of the National
Credit Union Administration Board.............................. 8
Prepared statement........................................... 65
Biographical sketch of nominee............................... 67
Responses to written questions of:
Senator Brown............................................ 131
Senator Rounds........................................... 136
Senator Moran............................................ 137
Senator Cortez Masto..................................... 139
Senator Jones............................................ 146
Senator Smith............................................ 147
Senator Sinema........................................... 148
Mark Anthony Calabria, of Virginia, to be Director of the Federal
Housing Finance Agency......................................... 10
Prepared statement........................................... 74
Biographical sketch of nominee............................... 76
Responses to written questions of:
Senator Brown............................................ 148
Senators Brown and Reed.................................. 158
(iii)
Page
Responses to written questions of: --Continued
Senator Scott............................................ 159
Senator Rounds........................................... 159
Senator Tillis........................................... 160
Senator Moran............................................ 161
Senator Reed............................................. 165
Senator Menendez......................................... 165
Senator Warner........................................... 169
Senator Schatz........................................... 171
Senator Cortez Masto..................................... 174
Senator Jones............................................ 182
Senator Sinema........................................... 184
Additional Material Supplied for the Record
Letters submitted by Chairman Crapo.............................. 186
Letter submitted by Senator Brown................................ 201
Letter submitted by Senator Tillis............................... 203
(iv)
NOMINATIONS OF BIMAL PATEL, TODD M. HARPER, RODNEY HOOD, AND MARK
ANTHONY CALABRIA
----------
THURSDAY, FEBRUARY 14, 2019
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:02 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Mike Crapo, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. The hearing will come to order.
This morning, we will hear testimony on the nominations of
Bimal Patel, to be Assistant Secretary of the Treasury for
Financial Institutions; Todd Harper, to be a Member of the
National Credit Union Administration Board; Rodney Hood, to be
another Member of the National Credit Union Administration
Board; and Mark Calabria, to be Director of the Federal Housing
Finance Agency.
Welcome to all of you. I see friends and family behind you,
and I welcome them here today as well.
Mr. Patel has been nominated to serve as the Assistant
Secretary of the Treasury for Financial Institutions. In this
role, Mr. Patel would be responsible for Treasury's efforts on
legislation and regulation concerning financial institutions
and overseeing the Terrorism Risk Insurance Program and the
Community Development Financial Institutions Fund.
Mr. Patel brings a wealth of knowledge on financial
services policy and regulation, stemming from extensive
experience in both the private and public sector.
Since May 2017, he has served as Treasury's Deputy
Assistant Secretary for Financial Stability Oversight Council,
or FSOC, where he is responsible for overseeing FSOC staff and
activities.
Prior to joining Treasury, Mr. Patel provided financial
policy and regulatory expertise as a partner at O'Melveny and
Myers, including as Head of the Financial Advisory and
Regulatory Practice, and served as senior advisor to Director
Jeremiah O. Norton at the Federal Deposit Insurance
Corporation.
Mr. Harper and Mr. Hood have both been nominated to the
Board of the National Credit Union Administration. The NCUA
plays a critical role in overseeing and insuring a major
segment of our Nation's community financial institutions--
federally insured credit unions.
Each of these nominees comes with prior NCUA experience.
Mr. Harper led the Office of Public and Congressional
Affairs and served as the Chief Policy Advisor to the NCUA
Chairman between 2011 and 2017. Before that, he had a long
career focusing on the financial services industry on Capitol
Hill, including as the staff director of the Subcommittee on
Capital Markets, Insurance and Government-Sponsored Enterprises
of the House Financial Services Committee, and as legislative
director for former Congressman Paul Kanjorski.
Mr. Hood currently serves as a corporate responsibility
manager for JPMorgan Chase, where he manages partnerships with
organizations that serve community development, civil rights,
and the disability community. Between 2005 and 2010, Mr. Hood
served as a member of the NCUA Board, including being elected
as its vice chairman. Before that, he served in the Senior
Executive Service as the Associate Administrator of the Rural
Housing Service at the U.S. Department of Agriculture.
Dr. Calabria is a leading expert on housing and mortgage
finance and a respected Ph.D. economist. He has nearly 30 years
of experience interacting with the housing market from the
perspective of academia, Government, industry, trade
associations, and think tanks.
Dr. Calabria has dedicated the majority of his career to
public service, including as Deputy Assistant Secretary of
Housing and Urban Development, nearly a decade as a Senior
Professional Staff Member to this Committee, and now as Chief
Economist in the Office of the Vice President.
Dr. Calabria has also worked for the National Association
of Realtors, the National Association of Home Builders, the
Farm Credit Council, the Harvard University Joint Center for
Housing Studies, and recently at the CATO Institute, as
director of Financial Regulation Studies.
Over the course of his public service career, Dr. Calabria
has a long history of working across the aisle to deliver
meaningful, lasting reforms. He played a key role in a number
of bipartisan legislative achievements, including the HEARTH
Act, which strengthened our Nation's homelessness assistance
programs, and HERA, the law which established FHFA and created
the position to which he has been nominated.
Throughout his career, Dr. Calabria has worked to champion
market reforms that benefit consumers and enhance the safety
and soundness of our housing finance system.
At FHFA, Dr. Calabria would continue to work toward these
objectives as regulator of Fannie Mae, Freddie Mac, and the
Federal Home Loan Bank system. He would also be charged with
protecting taxpayers, ensuring responsible access to mortgage
credit, and serving out FHFA's statutory mandate to conserve
and preserve the assets of Fannie Mae and Freddie Mac.
Members of this Committee are incredibly cognizant that a
full decade now has passed since the Government asserted
control of the GSEs. After 10 years of market recovery, these
mortgage giants remain stuck in conservatorship, with the
taxpayers still on the hook in the event of a housing market
downturn.
It appears that the old, failed status quo is slowly
beginning to take hold again, with the Government in some ways
expanding its reach even further, entering new markets where it
has never been before. The status quo is not a viable option,
and finding a comprehensive solution remains a top priority for
me.
It is my view that action on housing finance reform is the
prerogative of Congress, and my strong preference is for us to
explore a legislative pathway forward. However, FHFA can also
play an important role in helping us move forward to a more
sustainable housing finance system facilitated by an engaged
and strongly capitalized private sector.
If confirmed, I look forward to working with each of these
nominees on many important issues within each of their
respective policy areas, including: housing finance and other
issues critical to taxpayers and homebuyers; data privacy and
security; capital formation and corporate governance; and
continuing efforts from last Congress to provide meaningful
relief to homeowners, consumers, and smaller businesses.
Again, I thank you all for your willingness to serve and
for appearing before our Committee today.
Senator Brown.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman, for holding this
hearing today on the nominations of Bimal Patel, Todd Harper,
Rodney Hood, and Mark Calabria. Welcome, all four of you, to
the Committee. Congratulations to the nominees. I look forward
to their testimony and especially the responses from each of
you.
It is important that we consider new nominees in a timely
manner. Mr. Chairman, I appreciate your including Mr. Harper in
today's hearing.
I want to remind my colleagues of both sides, although many
more seem to be here on my side than yours. I want to remind my
colleagues that four noncontroversial nominees to the Export-
Import Bank never received a vote on the Senate floor last
Congress, while nominees that were sent up from the White House
much later were in fact confirmed. We also continue to wait on
the White House for nominees for the Democratic positions at
SEC and FDIC.
All of today's nominees have the opportunity to use their
positions, if confirmed, to improve the lives of American
families. They can make it easier for families to buy homes
with mortgages they can afford. They can encourage credit
unions to offer fair products to Americans left behind too
often by our banking system. They can support policies that
protect consumers and our financial system from risky
activities at financial institutions.
Mr. Patel has been nominated to the Treasury Department
Assistant Secretary for Financial Institutions. He would take
on a new role at Treasury that covers a broad range of policy
issues affecting financial institutions.
Mr. Harper and Mr. Hood have been nominated to the National
Credit Union Administration Board, an agency they are both
familiar with. Mr. Hood previously served as NCUA Board Member
from 2005 to '10. Mr. Harper worked in the NCUA's Office of
Public and Congressional Affairs, served as a chief policy
advisor to the chair from 2011 to '17. Both nominees are good
for us. Both nominees possess a deep understanding of credit
unions and the issues that affect them.
Finally, Dr. Calabria has been nominated to lead the
Federal Housing Finance Agency. Most Americans probably do not
know that FHFA even exists, but as the regulator of the GSEs,
it affects whether Americans can get a mortgage, how much they
pay for their mortgage, what kind of rental options they have.
This is particularly true for low- and moderate-income families
and for communities that have been abandoned by Wall Street.
The housing problems facing families are clear. Rent is too
expensive and in too many communities, particularly communities
of color, there is not access to safe, sustainable mortgages.
These are the problems that the next director should be working
to address.
Dr. Calabria has a long history in housing. He was a staff
member on the Committee when Congress passed the Housing and
Economic Recovery Act, creating FHFA, so he is well aware of
the significant influence that he would have in that job.
He has written extensively on the housing system,
particularly on GSEs. These writings raise serious questions
about the impact that Dr. Calabria's actions could have on the
housing market if his views are in fact implemented.
He has questioned the need for the 30-year fixed-rate
mortgage around which there has been in our society from
industry, homeowners, and Government alike, around which there
has been mostly consensus. He has advocated against a
Government guarantee for qualifying mortgage-backed securities.
These positions contradict what we have heard from housing
stakeholders time and time and time again who have appeared
before this Committee.
Dr. Calabria has called for repeal the GSEs' affordable
housing goals, which help ensure that Fannie and Freddie are
fulfilling their statutory missions to facilitate home
ownership and rental housing for low-income families. In the
last testimony he submitted to this Committee 4 years ago, Dr.
Calabria said the two primary tools facilitating private-market
home financing, the GSEs and FHA, ``should eventually be
eliminated.'' Through the hearing this morning, I hope to
understand if Dr. Calabria still believes that.
When work has dignity, everyone can afford housing in their
community. We know that is not true today. We are facing a
housing affordability crisis. Wages are lagging behind the
increase in home prices. One in four renters spends more than
half their income on rent--one in four.
Seven of the 10 fastest-growing occupations do not pay
enough to afford to rent a modest one-bedroom apartment, let
alone save for a downpayment. The next generation of potential
homebuyers is saddled with the maximum of student loan debt.
Borrowers of color were systematically shut out of the
housing market for generations. They suffered some of the
biggest losses during the financial crisis. They still face
discrimination when trying to get a loan.
Those are the challenges we must confront. We need a
strong, mission-driven housing finance system working to make
sure all Americans can afford safe and quality housing where
they live and work and send their children to school.
I will be listening to see how Dr. Calabria's plans align
with these goals.
Thank you.
Chairman Crapo. Thank you, Senator Brown.
Before I administer the oath, I would just respond on the
movement of nominees. I appreciate Senator Brown's
acknowledgement that this Committee has moved their nominees
promptly, and we will continue to do so.
There are many reasons why there has been delays on the
floor moving nominees, but I hope that we can work together in
this Congress to get this Committee's nominees all moved
forward promptly as we get them to the floor.
Senator Brown. Thank you, Mr. Chairman.
I ask that you use your immense--I know it is immense--
influence with the White House to get them to move on some of
the Democratic nominees that have not been offered up.
Chairman Crapo. I will work with you on that.
Senator Brown. Thanks.
Chairman Crapo. And we will work to get all of them moved.
At this point, would you all please stand. I will
administer the oath.
Please raise your right hand. Do you swear or affirm that
the testimony you are about to give is the truth, the whole
truth, and nothing but the truth, so help you God?
Mr. Patel. I do.
Mr. Harper. I do.
Mr. Hood. I do.
Mr. Calabria. I do.
Chairman Crapo. There is one more question. Do you agree to
appear and testify before any duly constituted committee of the
Senate?
Mr. Patel. I do.
Mr. Harper. I do.
Mr. Hood. I do.
Mr. Calabria. I do.
Chairman Crapo. Thank you. You may each be seated.
Each of your written testimonies will be made a part of the
record in their entirety.
Before you begin your statements, I invite you, if you
choose, to introduce anyone in your family or friends who is in
attendance with you.
I remind you, we have a 5-minute clock. I encourage you to
pay very close attention to it. I say the same thing to my
colleagues on the Committee when it is time for them to ask
their questions.
With that, Mr. Patel, you may proceed.
TESTIMONY OF BIMAL PATEL, OF GEORGIA, TO BE AN ASSISTANT
SECRETARY FOR FINANCIAL INSTITUTIONS, DEPARTMENT OF TREASURY
Mr. Patel. Thank you, Mr. Chairman.
Chairman Crapo, Ranking Member Brown, and Members of the
Committee, it is among the greatest privileges of my life to
appear before you today.
Thank you to the Senators and staff members with whom I
have met in advance of this hearing. If I am fortunate enough
to be confirmed, I look forward to meeting with and working
with all of you on the important issues in the portfolio of the
Assistant Secretary for Financial Institutions.
My story begins with my parents, who are seated behind me
today. Truthfully, neither my family nor I would be here today
if it were not for the United States of America and all it
stands for.
My dad grew up as a peanut farmer in rural India. Raised in
abject poverty, he was driven by an unshakeable determination
to build a better life. Lacking resources, he immigrated to the
U.S. primarily by boat. Here, he pursued higher education,
ultimately earning his Ph.D. from NYU. He worked incredibly
hard over a 50-plus-year career, including operating a number
of small businesses in my home State of Georgia and teaching at
Spelman College, a historically black all-women's college in
Atlanta.
Like my dad, my journey to being before you today was not
without adversity. I was born 3 months premature, weighing in
at just 2 pounds and 2 ounces. When I was 2 weeks old, doctors
put me in a room with a baby that had pneumonia. I contracted
the pneumonia, and my brain was damaged. Doctors told my
parents that I would never grow past 4 feet tall, that I would
be incapacitated, and that I would die. I am so fortunate that
the doctors saved my life and that my parents, particularly my
mom, always believed in me.
The common thread between my dad's path and mine is that
America made our improbable stories possible. Coming to America
with nothing, my dad found opportunities that only our country
provides to give my brother and me the chance to realize our
own dreams.
Likewise, America is probably the only country where a
child with brain damage and cerebral palsy would be accepted so
completely and encouraged so unfailingly to overcome such
obstacles.
This journey has motivated me to serve to try to repay the
enormous debt I owe to our country, and I am proud to have
accepted the call to public service when I have been asked.
From 2012 to 2015, I served as a senior advisor at the
FDIC, and I currently serve as the Deputy Assistant Secretary
of the Treasury for FSOC.
In addition to Government service, I have practiced law at
O'Melveny and Myers, most recently as a partner and the head of
the Financial Advisory and Regulation Practice. I represented
depository institutions of all sizes, including many community
banks and regional financial institutions.
I have also advised on credit union structural and
regulatory issues, and I have previously represented community
interest and charitable organizations on a pro bono basis on
matters relating to financial regulation.
One consistent objective of my work has been assisting
depository institutions to better serve their communities and
to provide a broader array of services to a greater number of
customers.
I also love teaching and mentoring the younger generation,
a passion that has led me to teach an undergraduate economics
course on Banking Regulation at my alma mater, Stanford
University, since 2014.
Above all, the thing that has drawn me to financial
services is the unique connection between our financial system
and American families and small businesses like those my dad
operated.
At its best, our financial system is the force multiplier
of our economy, linking savers to those who seek credit to
pursue education, build businesses, and help their families to
live better lives.
Financial services also assist Americans in saving for
retirement and in ensuring loved ones against difficult life
events and losses.
Thank you again for the opportunity and the honor of
appearing before you today. I would be happy to answer any
questions you have and would be humbled to earn your support
for my nomination.
Chairman Crapo. Thank you, Mr. Patel.
Mr. Harper.
TESTIMONY OF TODD M. HARPER, OF VIRGINIA, TO BE A MEMBER OF THE
NATIONAL CREDIT UNION ADMINISTRATION BOARD
Mr. Harper. Chairman Crapo, Ranking Member Brown, and
Members of the Committee, thank you for inviting me to testify
as a nominee to become a Board Member of the National Credit
Union Administration. If confirmed, it would be an honor and
privilege to serve.
Moreover, I am especially grateful to those who have
supported me in this process, including Chairman Crapo and his
staff who moved quickly to consider me.
In working over two decades for Congress and at the NCUA, I
have gained broad knowledge of financial services regulatory
matters and a deep understanding of many of the issues facing
federally insured credit unions.
But my commitment to public service really started with my
parents. As professional educators and community leaders, my
parents instilled in me a strong desire to give back to others.
They also taught me the importance of finding common ground
when making decisions.
You see, before they fell in love and married, my mother
was the president of the teachers union and my father was the
superintendent of schools. One was a Democrat; the other, a
Republican. Yet during negotiations, they would work together
to find the best possible deal for both sides.
In carrying their leadership lessons with me throughout my
career, I have skillfully solved complex problems, reached
bipartisan consensus where possible, and bridged differences
between business and Government to produce results.
As a senior advisor to former Congressman Kanjorski and
staff director for the House Financial Services Capital Markets
Subcommittee, I worked on every major financial services law
from the enactment of the Gramm-Leach-Bliley Act in 1999
through the passage of the Dodd-Frank Act in 2010.
Most notable, however, is my long track record on credit
union issues, which began when Congress considered and passed
the Credit Union Membership Access Act. This bipartisan law
responded to a Supreme Court ruling that threatened the long-
term viability of thousands of credit unions.
Subsequently, I led staff in drafting the Credit Union
Regulatory Improvements Act, which Congressmen Kanjorski and
Royce first introduced in 2003. Their bipartisan bill aimed to
strengthen capital standards, advance economic opportunity, and
provide targeted regulatory relief, three goals that continue
to guide me.
During the financial crisis, I later worked to convene the
first congressional hearing to explore the creation of the
Temporary Corporate Credit Union Stabilization Fund and
spearheaded staff efforts in the House to lower the costs of
managing both the Corporate Stabilization Fund and the Share
Insurance Fund.
Most recently, I served as NCUA's senior executive for
public and congressional affairs, as well as the chief policy
advisor to former Chairmen Debbie Matz and Rick Metsger.
My time at NCUA honed my management skills, and my
professional experience have informed my regulatory philosophy.
In my view, financial regulators need to be fair and forward
looking; innovative, inclusive, and independent; risk focused
and ready to act expeditiously when necessary; and
appropriately engaged with all stakeholders to develop
effective but not excessive regulation.
An NCUA Board Member should also be well informed, ask
tough questions, and make impartial judgments that balance
competing viewpoints in a transparent manner. If confirmed, I
am confident that I would do just that.
My top priority, unquestionably, would be to protect the
safety and soundness of federally insured credit unions and the
Share Insurance Fund. To do so, I would focus on the issues of
capital, liquidity, and cybersecurity. I would also prioritize
the agency's consumer protection responsibilities, consistent
with the law and work to support small credit unions, minority
depository institution, and low-income credit unions. These
institutions face the challenges of increased competition,
limited resources, and difficulties in achieving economies of
scale.
To expand economic opportunity, I believe that the NCUA
must also work to increase access to affordable financial
services for the unbanked and the underbanked. This, too, would
be a priority for my work.
Once again, it would be a tremendous honor to serve as an
NCUA Board Member, if confirmed. I would be pleased to answer
any questions.
Chairman Crapo. Thank you, Mr. Harper.
Mr. Hood.
TESTIMONY OF RODNEY HOOD, OF NORTH CAROLINA, TO BE A MEMBER OF
THE NATIONAL CREDIT UNION ADMINISTRATION BOARD
Mr. Hood. Thank you.
With me today, I have seventh grade students visiting from
Durham, North Carolina, from Durham Academy--Kayla, Michael,
and Emma--along with their chaperone, Stephen Barringer.
Chairman Crapo. Thank you. We welcome you.
Mr. Hood. Chairman Crapo, Ranking Member Brown, and
distinguished Members of the Committee, thank you so much for
the opportunity to meet with you as a nominee to serve on the
Board of the National Credit Union Administration.
It is indeed an honor and a privilege to be nominated to
the NCUA Board, and if confirmed, I will do my level best to
fulfill the trust placed in me by the President and the Senate.
I am especially grateful for strong support I have received
from the Senators of my home State, Senators Thom Tillis and
Richard Burr from North Carolina.
While my parents are not here in person, I feel the warmth
of their presence as they watch from heaven. I am thankful for
them for bequeathing me with a value system that reflects
humility, integrity, hard work, and compassion. These values
have helped me make a difference in the lives of many people
during my 25 years in the private sector and in public service.
Through my education and work experiences, I have developed
a broad knowledge of the financial services industry and have a
keen understanding of the responsibilities of regulators. NCUA
plays an important role both regulator and insurer to protect
the savings of more than 115 million hardworking Americans in
an industry with over $1.4 trillion in assets.
If confirmed by the Senate, I will work diligently to
ensure the continued safety and soundness of our Nation's
credit union system in today's dynamic marketplace.
I look forward to returning to NCUA and fulfilling the
duties and responsibilities of a Board Member. While my
paramount responsibility would be ensuring the safe and sound
operations of federally insured credit unions, additional
responsibilities will include ensuring that NCUA thoroughly
applies all relevant consumer protections, creates
opportunities to promote financial education and inclusion, and
fosters an environment where low-to-moderate income and
disabled individuals have access to affordable financial
services and economic mobility.
During the 4 years of my term at NCUA over a decade ago, I
worked to fairly and thoughtfully implement the Federal Credit
Union Act and maintain the safety of the National Credit Union
Share Insurance Fund. My regulatory philosophy remains the same
today as it was then that regulation needs to be effective but
not excessive.
My interest in serving vulnerable communities grew from my
volunteer work as a missionary in Africa and later as a banker
who became engaged in community and economic development. I
still today fondly remember the joy and excitement I saw when a
young woman who attended one of my bank's homebuyer education
classes realized that home ownership could be more than just a
dream for her and her family.
After attending a series of homebuyer education classes,
building a solid credit profile, and obtaining downpayment
assistance, she was able to purchase her first home. She later
showed her gratitude by inviting me to tour her new home and
share a meal with her family.
I recognize that credit unions are indeed a critical
element in helping families achieve their American dream of
home ownership, assisting entrepreneurs increasing small
businesses, and providing the trusted mechanisms for families
to save for the future.
My nearly three decades of public- and private-sector
experience have provided me with profound leadership
opportunities. This includes the importance of building solid
teams, paying close attention to the basics, and putting a face
in the decisions you make. These experiences have provided me
with a sound foundation for evaluating the policy issues facing
the NCUA Board and the credit union industry.
If confirmed by the Senate, I will return to NCUA with a
risk-based and market-oriented mindset based on the following
tenets. First, I will work to ensure that credit unions remain
safe and sound institutions. Second, I will strive to be
recognized as a fair and thoughtful regulator. Third, I will
bring focused leadership and management to NCUA while seeking
to ensure efficient operations and prudent use of resources.
Fourth and finally, I understand the importance of disclosure
and transparency, and I will work closely with all the Members
of Congress to ensure the financial integrity of credit unions
in today's ever-changing environment.
Chairman Crapo, Ranking Member Brown, and Members of the
Committee, I am deeply honored to appear before you this
morning and would like to thank you again for your courtesy and
consideration. I welcome any questions you may have.
Chairman Crapo. Thank you, Mr. Hood.
Dr. Calabria.
TESTIMONY OF MARK ANTHONY CALABRIA, OF VIRGINIA, TO BE DIRECTOR
OF THE FEDERAL HOUSING FINANCE AGENCY
Mr. Calabria. Chairman Crapo, Ranking Member Brown, and
distinguished Members of the Committee, I thank you for the
opportunity to appear before the Committee today as the nominee
for Director of the Federal Housing Finance Agency.
I also want to thank the President for the trust and
confidence placed in me for this nomination. Additionally, I
want to express my deep appreciation to Vice President Pence.
Serving as Chief Economist for the Vice President has truly
been one of the greatest honors of my life. It perhaps rivals
the other great privilege of my career, which has been to serve
on the staff of this Committee.
I take tremendous pride in having served on the Committee
staff under the leadership of Senator Shelby. While GSE reform
was eventually passed in 2008, the structure of that reform
largely mirrors the Shelby bills of 2004 and 2005. If anyone is
the legislative father of Federal Housing Finance Agency, it is
Senator Richard Shelby.
I believe being part of the process that resulted in the
Housing and Economic Recovery Act of 2008 has also given me
unique and valuable insights into the mission and history of
FHFA. I well remember the shortcomings of its predecessors, the
Office of Federal Housing Enterprise Oversight and the Federal
Housing Finance Board.
I was also extremely fortunate to serve on the Committee
staff during the leadership of Senator Paul Sarbanes. While I
did not always agree with Senator Sarbanes' policy positions, I
have always strived to live up to the standards of
professionalism and conduct he set for this Committee,
particularly Senator Sarbanes' belief that it is indeed
possible for us to disagree without being disagreeable.
I take great pride in the fact that I continue to count a
number of former Sarbanes staff as friends. Speaking of
friends, it is also a true pleasure to be sitting at the table
today with three gentlemen who I all consider friends.
I also want to recognize my partner who is here with me
today, Allison Randall. Allison's life-long work to end
domestic violence has been a daily inspiration to me. I have to
give a nod to the Committee here as well, since Allison and I
met while working on the 2005 reauthorization of the Violence
Against Women Act, whose Title VI, Housing Opportunities and
Safety for Battered Women and Children, was the product of this
Committee. And I take great pride in those efforts.
I also want to--since I do not get to brag on my sister a
lot and she is here today, I really do appreciate her 10-plus
years of service with Loudoun County, Virginia's Office of
Family Services.
I am also very fortunate to, last, have my mother with me
today, Janie Jones. Let me stress this is not my day; this is
her day. I would not be sitting at this table if not for the
many sacrifices made by the woman behind me. I could have not
done anywhere near the job she did for many years as a single
mother raising four children. She is an inspiration to me every
day. It is also my mother's 20-plus years working----
[Applause.]
Mr. Calabria. Somehow managing while raising four children,
my mother also managed to spend 20 years for the County of
Fairfax, Virginia, and her work there instilled a deep respect
for public service in me. However, since she also spent her
time at Fairfax County working for the Comptroller's Office,
she also instilled in me the unavoidable reality that whatever
the goals of Government, the numbers have to add up.
And while the primary focus of FHFA has been on our
Nation's mortgage markets, the last piece of legislation I was
privileged to work on for this Committee was the Homeless
Emergency Assistance and Rapid Transition to Housing Act of
2009. It was a particular honor working with Senator Jack Reed
and his staff, particularly my good friend Kara Stein who
clearly has gone on to bigger and better things, to strengthen
our Nation's homelessness assistance programs to better service
homeless families, especially those living in rural America.
Homelessness and rural housing are only a few of the areas
I have worked on. During my service on the Committee staff, I
worked on over 20 pieces of legislation that became law, mostly
in the areas of housing and mortgage finance, most of which
passed this Committee unanimously. And I believe we can get
back to that.
In addition to my Committee experience, I briefly oversaw
HUD's regulation of the mortgage market, primarily under the
Real Estate Settlement Procedures Act.
I have also spent a number of years performing economic
research on the housing and mortgage market for two of the
largest housing industry trade associations.
I have spent the last 20-some years researching and writing
about our Nation's housing and mortgage markets. I believe I
have successfully mastered not just the economics of our
housing and mortgage markets, but also the legal and policy
details. I believe that particular combination of skills and
strengths makes me uniquely qualified to serve as the director
of FHFA.
As perhaps Committee Members are aware, I have extensive
writings in the area of mortgage finance. I have on occasions
expressed strong opinions on the history and future of our
mortgage finance system. I have most definitely expressed, and
express here today, a frustration with the current state of our
mortgage finance system and the very strong need for reform.
Despite that frustration, I want to very clearly state to
this Committee that, if confirmed, my role as the Director of
FHFA is to carry out the clear intent of Congress, not to
impose my own vision.
I have even brought with me here today my, as you can see,
dog-eared, 10-year-old copy of HERA that I got here as a
Committee staffer, and I can guarantee you that whatever the
policy question, the first thing I will do is say to myself,
``What does the statute say?'' That is my guiding principle.
Let me emphasize and close that we are truly, in my
opinion, at a critical juncture in housing finance policy. As
the Ranking Member alluded to, families across America face
heavy burdens making their rent or mortgage payment in many
cities, towns, and States, as well as the unique barriers we
see faced in our rural and tribal communities.
I also strongly believe that shelter is one of the most
critical of basic human needs facing any family. Whether it is
rented or owned, American families need an affordable place to
call home.
I thank the Committee for your consideration. I look
forward to your questions.
Chairman Crapo. Thank you, Dr. Calabria, and I will start
with you and work back across the table through my questions.
As you know, Doctor, housing finance reform is a top
priority for me. It remains my view that it is the role of
Congress to deliver the solution, and we are currently
exploring a pathway forward.
My priorities are to establish stronger levels of taxpayer
protection, preserve the 30-year fixed-rate mortgage, increase
competition among mortgage guarantors, ensure a level playing
field for lenders of all sizes, and promote access to
affordable housing.
If confirmed, can you commit to working with Congress to
enact legislation that is consistent with these principles, and
would you please add what are your priorities?
Mr. Calabria. Mr. Chairman, first, let me commend you on
your recent introduction of a framework and principles. I share
all of those principles. I believe that a number of critical
elements need to take place in reform. For instance, I believe
one element that we all share is the greater need for
competition. This is a perfect example of where the regulator
cannot make these changes. For, ultimately, there to be open
charters, open competition is something Congress has to make.
So the very broad changes I think that need to happen in
mortgage finance system have to be done by Congress, and I
would pledge to work in consultation and partnership with this
Committee moving forward.
I do believe that it is, indeed, possible for us to have a
well-capitalized, strong system that preserves the 30-year
mortgage and does provide access to affordable housing. I think
we can achieve those goals, and I believe we can do it in a
bipartisan manner.
I will remind the Committee, the first floor vote, I
believe, on HERA, we got 84 votes, I believe. So I know that we
can get there.
Chairman Crapo. Well, thank you, and I agree with your
assessment. And I look forward to working with you and your
work with us to help us get to that point.
For Mr. Hood and Mr. Harper together, a recent Washington
Post article raised concerns over NCUA's expense reimbursement
policy. It is my understanding that the NCUA's reimbursement
policy may not be aligned with that of other Federal financial
regulators.
Mr. Hood and Mr. Harper, can you both commit to reviewing
the NCUA's expense reimbursement policy and making updates to
better align it with the policy of other Federal financial
regulators, as appropriate?
Mr. Hood. Thank you, Chairman Crapo, for that question,
and, yes, sir, if confirmed by the Senate, I pledge to you and
the Members of this body that on day one, I will work with
agency staff and leadership to, one, understand the current
reimbursement policy and take every step with them to ensure
that it is in alignment with the other financial regulators.
I recognize that those of us in public service must
continually garner public trust from the American people.
Chairman Crapo. All right. Thank you.
Mr. Harper.
Mr. Harper. Yes, Senator, I would certainly work on that,
starting on day one. It is important for me that the rules be
clear so that people understand them, that they be consistent
across regulators, and finally that they be communicated to
those who follow them so that they can follow them. And those
would be my guiding principles as I worked on this issue as
well, if confirmed.
Chairman Crapo. Thank you.
And, Mr. Patel, the Terrorism Risk Insurance Act of 2015,
or TRIA as we call it, expires at the end of 2020. Getting
terrorism risk insurance right is important in order to protect
taxpayers and limit the economic and physical impact of any
future terrorist attack on the United States.
As the Committee undertakes the program's reauthorization,
we will work to identify whether improvements can be made to
TRIA, such as increasing the recoupment and coinsurance levels.
The Office of Financial Institutions is responsible for
overseeing TRIA. Mr. Patel, if confirmed, can you commit to
working with Congress to enact legislation to achieve this
balance, and do you have any priorities in that context?
Mr. Patel. Mr. Chairman, thank you for the question. Let me
start out by saying I hope that we never have another terrorist
attack on U.S. soil. I understand how important it is to
address the economic harms that can come from these attacks,
and if confirmed, I look forward to working with you, your
team, the Committee, and the Congress on these important
issues.
With respect to my specific priorities in this portfolio,
these issues are not in my current portfolio. I am, however,
broadly familiar with some of the important debates surrounding
TRIA reauthorization, including program triggers, insurer
deductibles, and as you say, recoupment amounts.
So, if confirmed, I will work with you on all of those
issues.
Chairman Crapo. Thank you very much.
Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
Dr. Calabria, in 2012, following the financial crisis, in a
blog you wrote for CATO on a CATO website, you referred to
homeowners who might benefit from principal reduction as
``deadbeats.'' That year, a quarter of homeowners in my home
State of Ohio owed more on their mortgages than their homes
were worth. Last year, two cities in Ohio were on the list of
the 12 areas with the largest number of underwater homeowners.
A number of Senators on this Committee--Senators Sinema,
McSally, Perdue, Smith, Cortez-Masto, Toomey, Van Hollen, and
Warner--also had cities on that list. What makes these
borrowers deadbeats?
Mr. Calabria. First of all, Senator, let me emphasize I, in
no way, meant to have a broad generalization of all borrowers.
I think we do need to be able to figure out which borrowers can
pay and which borrowers cannot pay.
I will say from my own personal upbringing that if you are
someone who is raised by a divorced single mother and those
promised child support payments do not show up and you see
questions about whether an electricity bill is going to get
paid, you can sometimes develop strong feelings about those who
do not honor their obligations and not keep their promises.
Senator Brown. Well, I get that. I mean, you have a lot of
skill in answering questions like that. But, I mean, if the
housing market----
[Laughter.]
Senator Brown. I mean, you have been to this Committee.
If the housing market were to face another crisis--and I do
not want to make it personal in that if someone had referred to
your family if they could not make their mortgage payment--I
live in--as you have heard me say in this Committee, I live in
ZIP Code 44105. That ZIP Code in 2007 had more--the first half
of that year had more foreclosures than any ZIP Code in the
United States, and there is no way they were all deadbeats.
Mr. Calabria. And I----
Senator Brown. OK. If the housing market were to face
another crisis, would you support FHFA offering any help to
borrowers, which you sort of dismiss with that term
``deadbeats''?
Mr. Calabria. I absolutely believe it is appropriate for
FHFA to offer assistance. I do believe we should recognize and
applaud the efforts of Ed DeMarco and the wide-based
forbearance that was done by FHFA during the crisis.
I think you need to approach different borrowers
differently. There are some borrowers who might be facing a
shock in income because they have lost a job, but I do think
for those borrowers who can pay, I think it is important that
our mortgage market sets an expectation of those who can pay
should pay, and we should focus our efforts on those who cannot
pay and who need assistance.
Senator Brown. Well, thank you. I am not sure you made that
distinction in your choice of words then.
Last month in Politico, Comptroller Otting said there is a
clear mission that is outlined by the Treasury and the White
House what they want to accomplish in FHFA that he will try to
move down the rails before you are confirmed and you will
continue that mission.
Just 2 weeks later, Otting reportedly told FHFA staff that
you and Treasury had signed off on a path for the GSEs. What
exactly is he referring to, Dr. Calabria?
Mr. Calabria. Senator, if I can make a clarification on the
last part as well. I think it is important to keep in mind the
context of blogs and posts. I mean, a typical 2-, 300-word blog
does not tend to have a lot of nuance. I would be the first to
say that, and I would really encourage folks to look at a
broader range of what I have said.
Senator Brown. As I would too, Dr. Calabria, but in Trump's
America, we see a lot of name calling. And I am hopeful that as
a Trump nominee, you will sort of back off that part of your
life to label people--I do not know what that was about, but to
label people like that.
But go on to the next question with Mr. Otting.
Mr. Calabria. I appreciate that.
So let me first be very clear. Despite being a member of
the Vice President's office, I am here today only speaking for
myself. I have not heard Director Otting's words.
My read of what I believe he said, which again, I should
urge is just my read--my read of what he said is to convey a
sense of urgency to the FHA staff. What I believe he has
referred to in terms of me signing off, I believe he was
referring to my longstanding, loud support for reform, and I
believe that what he was trying to convey to the staff was
essentially a pep talk of we will move forward.
I think it is important to keep in mind this is an agency
for the last 10 years where the staff do not even know whether
this agency is going to be around in a couple years. That
really undermined staff morale. So, in my opinion, I believe
Mr. Otting was trying to essentially raise staff morale and say
we want to try to get to--and Mark is committed, if confirmed--
to getting to a spot where this agency and the staff have
certainty in their lives.
Senator Brown. Thank you.
In my office when we talked, you acknowledged that you had
left earlier and did not have these conversations, but before
you were selected, did you recommend specific things to the
Administration on the best path forward for GSEs?
Mr. Calabria. As you alluded to, Senator, once it became
clear that I was going to be the nominee or the choice for the
Administration, I pulled myself out of it.
Senator Brown. Before that. Before that.
Mr. Calabria. There were conversations I was involved in,
such as, for instance, in December of 2017, you remember the
amendments that allowed a $3 billion cushion to be built up by
the GSEs. I was part of those conversations.
Senator Brown. And you recommended what? If you are going
to be confirmed, we need to know what you think and what your
policies will be.
Mr. Calabria. This is an example of where I supported
allowing a modest capital buffer so that we would not have to
force a draw, partly because, of course, the impact of tax
reform and the deferred tax loss as being held by the GSEs.
Senator Brown. Could I get one more question, Mr. Chairman?
I am always doing this. All right.
Chairman Crapo. As the Ranking Member, you can, but do not
start a pattern.
Senator Brown. OK.
Chairman Crapo. Thanks.
Senator Brown. I inevitably will, but I apologize.
[Laughter.]
Chairman Crapo. Well, noted. I give notice to the other
Members, I will remind you that you do not have that right.
[Laughter.]
Senator Brown. Thank you, Mr. Chairman. Can I have two
questions?
Chairman Crapo. No.
[Laughter.]
Chairman Crapo. And this will be a short one.
Senator Brown. OK. It will be a short one. I do not know. I
am not sure about the answer.
You have advocated eliminating the affordable housing
goals. Is this your view, and do you similarly support
elimination of the GSEs' duty to serve?
Mr. Calabria. My concern about the affordable housing goals
in the past have taken place in the context of two large
institutions with essentially zero capital. I do believe we can
get to a spot where we can have risk-taking via affordable
housing goals if we can have an appropriate regulatory
structure that has capital backing those goals.
I am very concerned about any large financial institution
where we push it to take additional risk without the
appropriate regulatory structure in place.
My comments in the past about getting rid of the GSEs is
getting rid of the basic model of privatized gains and
socialized losses. I believe all large financial institutions
need to be ``well-capitalized, well-managed, and well-
regulated,'' a phrase I have heard a number of times from
Senator Shelby.
I believe it is fair to say that GSEs were none of the
above before the crisis, and so my concern is this fundamental
model of heads, the executives, of Fannie and Freddie walk out
with lots of money, and the rest of us get held in the bag.
I want these entities to be good corporate citizens. I want
them to be the model of how other corporations should want to
behave.
Chairman Crapo. Thank you.
Senator Shelby.
Senator Shelby. Mr. Chairman, I guess a former chairman
would not get that extra time. The current ranking guy would.
Chairman Crapo. Sorry.
Senator Shelby. I will not ask for it.
[Laughter.]
Senator Kennedy. The Chairman of Appropriations would,
though.
[Laughter.]
Senator Shelby. Thank you, Senator Kennedy.
Chairman Crapo. Yeah. Thanks, Senator Kennedy.
Senator Shelby. But we are in the Banking Committee.
Thank you very much.
All of you, I believe, are eminently qualified for your
positions.
Mr. Patel, you have a compelling story. I had a good
conversation with you in my office. I intend to support you. I
intend to support Mr. Harper. I intend to support Mr. Hood, and
I certainly intend to support Dr. Calabria, who worked right
here with us, hand in glove, day after day, and I believe in a
bipartisan way.
He mentioned Senator Sarbanes when he was Chairman and when
he was ranking when I was Chairman.
I do not know--and I associate my remarks with the Chairman
Crapo here about his background and his experience. Dr.
Calabria is eminently qualified for this position. I do not
know of anybody--I have been on this Committee--this is my 33rd
year--that would be more qualified and more concerned and more
diligently than Mark Calabria. We have been through this.
I would like to pose one question to you. What do you
consider to be the risk and cost of failing to reform the GSEs,
which we have struggled with? And we all know they play a
prominent role in our housing market. What is the risk of
failing to go forward after 10 years of conservatorship?
Mr. Calabria. Well, foremost, Senator, while I believe that
a number of sound economic policies have been put in place that
have created record job creation, I also believe that we have
not cured the business cycle. We have not cured the housing
cycle, and I believe if we do not reform the GSEs that there
will be significant losses. That we could be looking at tens of
billions, if not hundreds of billions of taxpayer losses.
I believe we potentially put a tremendous number of
families through the same sort of struggles and foreclosures
and losses to their wealth that we saw last time.
So, if I am driven by anything, it is fundamentally having
served on this Committee and lived through the crisis and not
ever wanting us to do that again. It does devastating things to
families. It does devastating things to taxpayers.
And I think, last, it is important to keep in mind, I
believe the bailouts of Fannie and Freddie as well as other
institutions really bred a lot of deep cynicism in the American
public about our political and financial system, and I believe
for us to heal some of the divides in our country, I believe we
must address these issues. And I believe another set of large
financial bailouts would just be devastating to the public
psyche.
Senator Shelby. Thank you.
My time is good. Thank you, Mr. Chair.
Chairman Crapo. Thank you.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Dr. Calabria, I appreciated our visit together in my
office.
I want to follow up, though, on Senator Brown's questions.
My home State of New Jersey had the third highest foreclosure
rate in the country, with nearly 8 percent of homes in
foreclosure in 2013.
New Jersey families are not deadbeats. They worked hard.
They played by the rules, and tens of thousands of them lost
everything when the crisis hit.
So why is it that your writings mysteriously omit any blame
for the true deadbeats of the crisis, the corporate deadbeats,
the banks that played fast and loose, steering borrowers into
risky products; the investors that demanded higher and higher
returns, no matter the impact on the economy? I see no mention
of that.
Mr. Calabria. Senator, I would be happy to submit
publications I have written on the record that have been very
critical of banks.
Let me say I take tremendous pride in having been part of
the Shelby team when we stood against the bank bailouts, and I
wish the rest of the country had listened. There was a better
way to do this than the bank bailouts.
I believe entities like Lehman got what they deserved, and
I have been very vocal in many things I have written. I am
deeply concerned that ``too big to fail'' is still a problem
that faces our financial system, and that many financial
institutions lack accountability. So I share that concern,
Senator.
And I will remind you that FHFA sits on FSOC, and I will
take financial stability and accountability for our largest
financial----
Senator Menendez. You may have had the view that bailing
them out was not the way to save the overall system, but I do
not see any of your writings calling them ``deadbeats'' at the
end of the day for driving people into products and investors
who wanted high rates of return at the end of the day.
But let me turn to something else. Let me move to another
key issue for New Jersey and several other States represented
by Members of both sides of this Committee.
You have proposed immediately reducing loan limits to
precrisis levels, with further annual reductions of $50,000.
You have gone so far as to say that loan limits should be
reduced to $200,000.
Fourteen of New Jersey's 21 counties have median home
prices above $200,000, meaning tens of thousands of people in
New Jersey could be locked out of purchasing a home under your
approach.
In 2017, 70 percent of new mortgage loans in New Jersey
were greater than $200,000.
So I know you are an economist, and I presume you have done
quite a bit of research on the numbers here. So let me ask you.
If you were to reduce conforming loan limits to, say, $200,000,
what percentage of those mortgages do you think would be pushed
out of the market altogether?
Mr. Calabria. First, Senator, let me clarify that the
setting of loan limits is in statute. It is mechanical. It is
not within the discretion of FHFA to set the loan limits, so I
would have no power, if confirmed, to change the loan limits.
That is appropriately in the purview of Congress. I think that
is the appropriate place for it to be.
Senator Menendez. Well, let me say--you said this to me
yesterday, so I did a little research. And I am glad to hear
that that is your reading of the statute. However, I have a
different understanding of what your authorities would be.
So that being said, since you have said this on the record
here as well as you said it to me privately, if you somehow
found out in the future that you do have the authority to
reduce conforming loan limits, would you do so in accordance
with what you have espoused in your writings?
Mr. Calabria. Senator--well, not knowing of a possible
legal argument for reducing the loan limits--I certainly have
heard commentators out there argue that the vast powers of a
conservator allow you to reduce loan limits. My belief is that
is an incorrect reading of the powers of a conservator, and
that the powers of conservator do not include reducing loan
limits. The powers of a conservator have to conserve the assets
and preserve the assets of the companies. I believe reducing
the loan limits would be inconsistent with the objectives of a
conservator.
So I think it is important to not prejudge. If someone
brings me new legal information, I have to be able to evaluate
that in a new sense.
I can commit to you today I know of nothing in front of me
that would suggest that the loan limits would be lowered.
Senator Menendez. So to satisfy my concerns, would you
follow up in writing to the Committee your analysis as to
whether you have authority to reduce conforming loan limits and
also follow up and provide analysis on the specific impacts to
pricing and mortgage rates in a State like New Jersey, for
example, if loan limits were to be reduced to the precrisis
levels or to $200,000? This is critical. Fourteen of my 21
counties are over this as median. Then, at the end of the day,
if the views that have been espoused by you in the past, if you
have that power, that is going to have a direct impact on
thousands of potential homeowners in my State and in other
States across the country.
Mr. Calabria. Understood.
Senator Menendez. You will do that?
Mr. Calabria. Yes, Senator.
Senator Menendez. Thank you.
Chairman Crapo. Thank you.
Senator Toomey.
Senator Toomey. Thanks very much, Mr. Chairman.
I want to thank each of the panelists we have today, the
nominees, because I think we have got a slate of just
terrifically qualified people with amazing life stories, and I
am grateful to each one of you for your willingness to serve.
And I think you are going to add a tremendous amount of
personal knowledge and expertise and judgment to some really
challenging circumstances, so thank you for that.
Dr. Calabria, I want to sort of ask you to share some
thoughts with us because I think about Fannie and Freddie as a
huge embarrassment for Congress. The fact that the two
institutions at Ground Zero of the financial crisis, which
deserve a very significant share of the blame for the debacle
that occurred, they have been allowed to grow. Their market
share is enormous. By any measure, they are enormous financial
institutions. They have no capital to speak of. They are in a
conservatorship, and we have done nothing to fundamentally
restructure these giant behemoths other than to sweep their
profits into the Treasury every quarter, leaving virtually no
cushion.
I share your view about a $3 billion capital buffer, but
let us be clear. That is trivial in the scheme of things.
So this, I think, is a big challenge. It is long, long
overdue that we address, and so I would just be grateful for
your thoughts, your advice on what we ought to do about this.
You will have certain powers and actually significant powers in
your role, but you pointed out correctly that, for instance,
creating a mortgage finance market where there is greater
competition and a much more robust role for private-sector
lenders, that probably requires legislation.
So help us in how we ought to think about moving forward on
this challenge, if you would.
Mr. Calabria. Thank you, Senator, and I really would agree
and emphasize that while I do believe that the regulator can
make a number of changes that can try to get the GSEs on a
stable footing for the next inevitable downturn so that we can
minimize losses and minimize damage done to families, I do
believe the fundamental things that need to be changed by the
system have to be changed by Congress. And I would urge that
those be done in a bipartisan manner within Senator Crapo's
framework and many others that talked about this.
Foremost, I believe we need an open, competitive market.
There is certainly part of me that I will say that has a
suspicion of monopolies and duopolies. I tend to think that if
we are going to--I do not like to see exclusive privileges
handed out. I think anybody who meets these charters should be
able to get them. So, again, I think we should, as an
assumption, be suspicious of duopolies.
I think, ultimately, it is not only important that we
should be suspicious--because that we know that monopolies and
duopolies tend not to pass on all their benefits to consumers
but tend to capture a large amount of those benefits for
themselves--so that consumers benefit from competition.
But I think just as importantly, as we have seen during the
financial crisis, having a competitive market will allow us to
better address the too-big-to-fail nature of these entities. If
we have got a dozen of these entities, we are less captive to
having to bail any one of them out, and I think that is
important to bring some market discipline and some
accountability.
So, A, competition is a big part of this. B, I think having
an explicit model where we know--where we get away from implied
guarantee. We know what is guaranteed. It is explicit. It is on
budget. It is clear.
I think the best analogy that is a model that we know that
works, if you think about how the FDIC works, there is an
explicit set of creditors who are protected. There are
obligations. There is competition. In theory, any depository
should be able to fail and go out of business in orderly
manner. I really think that that is broadly the kind of model
we should be looking at.
And I will last end with--because I still occasionally have
that voice of Senator Shelby in my head saying, ``Never see an
institution fail that was well-capitalized, well-managed, and
well-regulated,'' and I believe that is our objective is to
make sure that these entities are well-capitalized, well-
managed, well-regulated. And it is certainly worth remembering
the amount of leverage of these companies go into the crisis.
They were guaranteed to fail. It was an inevitability. It was a
guarantee.
And I do--and I was the first to say that a lot of my
motivation is having to solve this before the crisis, where it
was very difficult to get anybody to take it seriously. So I
wish we had fixed it then, and I hope we can fix it now, so
that we do not find ourselves back in this situation.
Senator Toomey. Thanks very much.
Thanks, Mr. Chairman.
Chairman Crapo. Senator Tester.
Senator Tester. Thank you, Mr. Chairman and Ranking Member
Brown, for the hearing today.
I want to thank all the nominees for being up here. I
appreciate it.
Dr. Calabria, there are some things you say that I agree
totally with, and a lot of other stuff, especially in your
writings in the past, have been disturbing.
For example, you have essentially blamed the Federal
Reserve for the financial crisis and said that the housing
crisis was not a result of predatory lending by lenders. Do you
still stand by that?
Mr. Calabria. Well, Senator, from a financial--well, first
of all, I appreciate you reading my work.
Senator Tester. Absolutely.
[Laughter.]
Mr. Calabria. And I do want to--and I do want to emphasize
that many things are in the form of blog posts and op-eds, and
again, 2- or 300 words sometimes lacks nuance.
Senator Tester. Yeah, but sometimes it shows truthfulness.
Mr. Calabria. Absolutely. And I stand by all of it, but let
me clarify.
So, certainly, in terms of monetary policy, I think from a
financial stability perspective, anytime we see a financial
system where you have got years on end, where the interest--
real interest rates are negative, I----
Senator Tester. Yeah. But let us go back to the original
question.
Mr. Calabria. You asked----
Senator Tester. And that was the blame was put on the
Federal Reserve, not on the predatory lenders. Do you still
stand by that?
Mr. Calabria. I believe there were a large number of
parties to blame, including predatory lenders.
Senator Tester. OK.
In the past, you have suggested that we raise guarantee
fees charged by Fannie and Freddie to pay down the debt. Is
that still your position?
Mr. Calabria. The decision on whether we use guarantee fees
for anything other than credit ultimately lies with Congress.
Senator Tester. I got that, but what is your position?
Mr. Calabria. I do not believe it is within the authority
of FHFA to do that, so I do not believe it is a decision I have
power to----
Senator Tester. But if you had the ability to make that
decision or the recommendation to other people to do that,
would you say let us raise the G-fees and you need to pay down
the debt? It is a simple philosophy. That is all.
Mr. Calabria. Understood. And I will note that that is a
proposal that the Congressional Budget Office has made.
Senator Tester. And what is your feeling?
Mr. Calabria. My feeling is I take the long-term debt
situation very serious.
Senator Tester. So do I. What is your feeling on using G-
fees to pay down the debt?
Mr. Calabria. I do not think it would get us there would be
my--would be my feeling. I do not think we could make a very
large impact on the debt that way, and I think we have to look
at a number of other avenues to look at that.
Senator Tester. So that is not still your position?
Mr. Calabria. That is correct.
Senator Tester. OK.
Do you believe that a 30-year fixed-rate mortgage can exist
without Government backing?
Mr. Calabria. I believe the history of the 30-year fixed-
rate mortgage has been popularized and created first by
guarantees provided by the Federal Housing Administration.
Senator Tester. That is OK. I do not need the history. I
just need to know--I just----
Mr. Calabria. Well, I think this is important.
Senator Tester. I know. I know it is important, but I just
need to know your philosophy.
Mr. Calabria. Senator, I will absolutely, if confirmed,
guarantee you today that at the end of my 5-year term, the 30-
year fixed-rate mortgage will be widely available. Guarantee.
Senator Tester. OK. Do you believe in Government guarantee
of that fixed-rate mortgage?
Mr. Calabria. I believe we will continue and should have
the Government guarantee behind that mortgage.
Senator Tester. OK. But you are not too gung-ho about the
Government guarantee portion, at least that is what writings in
the past have indicated?
Mr. Calabria. I believe that any sort of guarantee provided
creates moral hazard, and we have to have an appropriate
regulatory structure to manage that moral hazard. And my
concern, fundamentally in the past, is that we have lacked the
appropriate regulatory structures to control the risks that are
there.
Senator Tester. OK.
Mr. Calabria. I believe we can take all sorts of risks if
we have a structure that supports it.
Senator Tester. OK.
Dr. Calabria, I--and I apologize for saying ``Mr.
Calabria,'' if I have a few times.
Dr. Calabria, most of the stuff that I have read that you
have put forth would indicate that you are the last person in
the world that would want this job, and I think the last
sentence of your opening--the last page or two of your opening
actually referred to that. It said, ``Regardless of what I have
said in the past, I still want the job.''
I farm in my real life, and if I hated farming, I guarantee
you I would not be in that business. Why do you want this job?
Mr. Calabria. Senator, you know, as you heard from my
comments regarding the work of my mother, sister, my family, if
qualified people are not willing to stand up and take public
service and take responsibility, it is not----
Senator Tester. But if in your gut you want this agency to
go away----
Mr. Calabria. Senator----
Senator Tester. ----or at least be significantly
restructured, we got a problem.
Mr. Calabria. Senator, as a staff member of this Committee,
I helped create FHFA. I am proud of the work of FHFA. FHFA is
an absolutely necessary agency. In fact, I want to raise the
stature of FHFA.
I remember how the employees at its predecessor felt,
OFHEO. I remember how coward they were in their inability to
stand up and be able to do effective financial regulators.
I remember repeatedly Senator Shelby using the term
``world-class regulator.'' I am committed to seeing the work of
HERA finally completed and to turning FHFA into a world-class
regulator.
Senator Tester. Thank you, Dr. Calabria.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman.
Dr. Calabria, I am enjoying the back-and-forth here a
little bit, but I want to bring it back down a little bit. And
let us just have a little conversation here.
Number one, do you think that 30-year mortgage is an
important item to have?
Mr. Calabria. Absolutely. I have one myself. I would like
to keep it.
Senator Rounds. OK. Second of all----
[Laughter.]
Senator Rounds. Well, getting this job might just make that
possible.
What about--look, when it comes to a 30-year, is there any
question in your mind but that a secondary market for those
securities--is there any question in your mind that that is not
an important item to have?
Mr. Calabria. I believe we do need a vibrant secondary
market and a 30-year mortgage, and really to clarify some of
the questions that have been raised, in the past I have
expressed a frustration that we saw this during the crisis. We
saw this when we tried to get the HERA. That too often someone
would just invoke the 30-year mortgage and say, therefore, we
cannot touch any element of the existing system and no reform
is possible.
I believe what we need to do is we need to roll up our
sleeves, and we need to get our hands dirty and say what in our
system is crucial and critical to the 30-year mortgage and what
can we change.
So, again, my frustration in the past has been by this sort
pushback that somehow we are not supposed to talk about fixing
the system if we could just, you know, invoke 30-year mortgage,
end of conversation, we have to take the system as it is.
Senator Rounds. Yeah. Just think about what would have
happened if we would have taken the same approach with Social
Security and we were fixing it on a year-to-year basis so that
it would actually survive, so that we actually could guarantee
the next generation that it would be there.
The same kind of a thing comes in when we talk about a 30-
year mortgage or the opportunity for some sort of a guarantee,
so that that asset or that loan can be sold in a secondary
market.
These GSEs have done that in the past, but there has been a
real problem when Congress sometimes meddles and suggests that
things should be done.
When you talk about underwriting and understanding
standards, would it be fair to say that you simply believe that
underwriting standards are a critical part of maintaining long-
term successes of any mortgage of any size?
Mr. Calabria. Absolutely, Senator. I am a very ardent
believer in home ownership. I would go as far to say I view
home ownership as one of the fundamental planks of a free
society. I think it is critical to us, but I believe that home
ownership has to be sustainable. I believe we cannot just
funnel families through that are not going to survive home
ownership and are going to be worse off because of it, what it
devastates to do to them. So, to me, I want to make sure where
we are going, sustainable home ownership.
And I will last note I know Senator Shelby remembers every
time the Committee tried to do mortgage finance reform before
the crisis. We had parties out there saying, ``Oh, this is a
bill that destroys Fannie and Freddie and shut down Fannie and
Freddie.'' We know the truth was that Senator Shelby's efforts
and the efforts of this Committee before the crisis, we are
trying to avoid Fannie and Freddie from getting in trouble and
try to make sure that they were there.
And so let me be very clear. I am the last person who is
trying to disrupt the mortgage market. I am trying to stop the
mortgage market from disrupting itself.
Senator Rounds. And that requires a series of underwriting
guidelines that have been vetted. It requires discipline. It
requires a facility that allows for the open trade and
marketability of those products. It requires the availability
of liquidity. Are all of those items that have to go into a
good secondary market?
Mr. Calabria. Absolutely, Senator.
Senator Rounds. So what you are suggesting and what I hear
you saying is let us have some discipline in this. Let us make
this thing. Let us fix this thing. Let us not just simply
promise that everybody gets a 30-year mortgage, kind of like we
promise everybody that they put money into Social Security and
therefore we never have to look at it again and we will never
manage it. What we are really talking about here is taking
responsibility so that the next generation can have those same
guarantees. Fair statement?
Mr. Calabria. Absolutely, Senator.
Senator Rounds. Thank you.
Mr. Calabria. Thank you.
Senator Rounds. Thank you, Mr. Chairman.
Chairman Crapo. Thank you, Senator Rounds.
Senator Warner.
Senator Warner. Thank you, Mr. Chairman.
Dr. Calabria, I enjoyed our meeting. I do not necessarily
agree, but I appreciated our back-and-forth.
I want to start with an area. My understanding is you
believe that the FHFA Director can go ahead and unilaterally
require an increase in the capital reserves, capital
requirements for the GSEs. Is that correct?
Mr. Calabria. Not under the terms of the current preferred
share agreements. The previous director proposed a risk-based
capital rule, but that would have not taken place, even if it
was finalized within the existing framework. So for any
additional capital to be raised above the $3 billion that is
there requires an agreement to be----
Senator Warner. But you supported that, did not you, back
in an Urban Institute article in 2016?
Mr. Calabria. I believe----
Senator Warner. You supported that concept----
Mr. Calabria. I believe the----
Senator Warner. ----I guess, closer to bank-like capital.
Mr. Calabria. I support the concept of having significantly
more capital at the GSEs.
Senator Warner. I guess one of the concerns I have, if we
go to a bank-like capital requirements, that that is going to
dramatically increase the cost of borrowing, particularly for
low-income borrowers, borrowers of color or others. I think if
you currently have--currently, borrowers are basically requires
to pay about 30 basis points on the mortgages guaranteed by the
GSEs.
My calculation--and I am trying to do this on a
conservative basis--would be that if you raised GSEs' capital
to bank-like capital, you would be talking about at least a
tripling of the capital requirements. You can take this from
about 30 basis points to 90 basis points. That is close to a
full 1 percent increase. That on a traditional $300,000 loan
would be an increase in cost of over $60,000, and I think we
have got a housing affordability crisis in this country, and
that is just for a traditional lender.
If you go to a really at-risk lender, low-income, who
already pays significantly higher in terms of their costs of
loans, I mean, I have seen estimates that would have almost a
doubling of the cost to those low-income borrowers.
So if we are trying to grapple with affordability--and
clearly, we have talked about the need to make sure that the
GSEs are stronger and have more appropriate protections, but
holding bank-like capital reserves, how can you square that
with the concerns about the affordability, the crisis that we
have in the housing market?
Mr. Calabria. Well, first, let me emphasize my full
agreement with the affordability crisis facing this country.
Let me say on the capital, certainly, in an ideal world, it
would be nice to have lots of capital, given that I might want
to go here or here. So any kind of place between here and here,
I view as an improvement. So I can certainly commit to you I am
the last person to ever let the perfect be the enemy of the
good.
I think if we can get to a reasonable capital level that
avoids the losses during the crisis and does so--and I believe
we can do so in a way that will maintain affordability. It is
important to keep in mind that we see in the corporate debt
markets that the higher leverage a company has, the more it
pays on its debt, and primarily, the cost of mortgages for
Fannie and Freddie are not driven by the cost of capital but
driven by the cost of debt that, in fact, having some less
leverage should actually make it cheaper for them to borrow.
But, last, let me emphasize Fannie and Freddie's primary
role, in my opinion, is to be there during the downturn, and we
saw in 2009 and 2010 where they pulled back because they were
so highly leveraged, and they did not play the role they were
supposed to play because they did not have enough capital going
into the crisis.
Senator Warner. Well, again, I think as somebody who has
spent more time on this subject than I ever wanted to spend. I
think there are areas here where we can make improvements, but
I am terribly afraid that bank-like capital requirements of the
GSEs--one of the reasons why I think it is so essential that we
have this kind of a backstop would dramatically increase
affordability concerns.
I would also argue that one of the things that we need, and
some of us have proposed, is on any loan that was guaranteed, a
dedicated revenue stream that would go toward housing goals,
that would go toward low-income, first-time homebuyers, and
whatever reform takes place, I hope would include that.
Let me quickly, before the clock ticks down--one of the
areas that we have not touched on, we know you want to shrink
the footprint of the GSEs, but one of the areas that did not
create a crisis was multifamily. GSEs now have about nearly a
50 percent share of the multifamily. Do you think that we ought
to--this was an area that was not broke, but would you think
that we ought to dramatically shrink the GSE's footprint within
the multifamily range?
Mr. Calabria. Let me, first of all, fully agree the
multifamily portfolio seemed to perform well during the crisis,
and of course, they were much better underwritten than the
single-family portfolio. And I do not believe we needs the same
sort of changes in the multifamily side of the GSEs that we
need on the single family----
Senator Warner. Again, my concern is this is an area that
survived through the crisis. If we are going to deal with
affordability, multifamily is going to be an absolutely
critical component, and I would be very, very reluctant, even
as somebody who has advocated for some fairly major reform,
that we take that old admonition of ``first do no harm.''
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Kennedy.
Senator Kennedy. Thank you, Mr. Chairman.
Gentlemen, I only have 5 minutes, so I would ask you to
please answer my questions directly. I know you know a lot, but
try to answer my questions.
Mr. Patel, tell me what the community banks in our country
did to contribute to the 2008 meltdown.
Mr. Patel. Senator Kennedy, thank you for the question.
Senator Kennedy. You do not need to thank me. You can just
answer.
Mr. Patel. Sure. So I have deep background in----
Senator Kennedy. What did the community banks do to
contribute to the 2008 meltdown?
Mr. Patel. To answer your question, this is why the
Department of the Treasury is called for tailoring and why----
Senator Kennedy. Did the community banks in 2008 contribute
to the banking meltdown?
Mr. Patel. They were not a substantial part of the cause of
the----
Senator Kennedy. OK. Then why have we tried to regulate
them half to death?
Mr. Patel. Senator Kennedy, again, thank you.
I commend the work of this Committee on a bipartisan basis
to----
Senator Kennedy. Do you believe that we should--we should
lighten the regulation, not remove the regulation, but lighten
the burdensome regulation on community banks?
Mr. Patel. I fully support appropriate tailoring, which is
reflected in both the Treasury----
Senator Kennedy. That is a yes?
Mr. Patel. Yes.
Senator Kennedy. OK. Do you believe we still have banks
that are too big to fail?
Mr. Patel. Senator, I believe comparing to precrisis levels
that financial institutions on the whole are better----
Senator Kennedy. Do you believe that we still have banks
that are too big to fail?
Mr. Patel. Senator Kennedy, I again believe in the
aggregate that we have greater visibility and resolvability.
The system----
Senator Kennedy. Yeah. But do you believe we still have
banks that are too big to fail? Am I missing something here? I
am not connecting with you.
Mr. Patel. Yes. Sir----
Senator Kennedy. Do we still have banks that are too big to
fail? Now, you are going to run financial institutions in this
country. That is kind of a basic question.
Mr. Patel. It is, and I think that the circumstances
surrounding failure are very fact-dependent.
Senator Kennedy. Yeah. Do you think we--well, you are not
going to answer the question, are you?
Mr. Patel. Again----
Senator Kennedy. Let me try another one.
Mr. Patel. OK.
Senator Kennedy. We did have a financial meltdown in 2008,
right?
Mr. Patel. We did, yes.
Senator Kennedy. Oh, thank God.
Do you find it embarrassing that many financial
institutions that contributed to that meltdown were not held
accountable, and not just the institutions but the people
responsible?
Mr. Patel. Senator, I strongly believe in protecting
taxpayers, and I hope that we never have to live through
another set of events like the events from----
Senator Kennedy. Mr. Patel, I am not going to vote for you
if you do not answer my questions. I do not mean to be rude.
Mr. Patel. OK.
Senator Kennedy. But I need answers, OK? You know we have
limited time. I just burned about 20 seconds. We should get you
to do your job.
Mr. Patel. We should hold accountable those responsible.
Senator Kennedy. And we did not, did we?
Mr. Patel. In some cases, we did not.
Senator Kennedy. Right. See? That was easy.
Mr. Patel. I apologize.
Senator Kennedy. I mean, I am not against big. I am against
dumb. I am against not properly--I am not a big regulation kind
of guy, but I am against not properly regulating our financial
markets. The emphasis is properly, and you have got to do that.
Mr. Patel. I commit to you, sir, that if I am fortunate
enough to be confirmed, I will work with you and try to address
your concerns.
Senator Kennedy. And I appreciate that.
Doctor, let me ask you a question, please. You mentioned--
and if you could just give me a quick answer. You mentioned
there were alternatives to the bank bailouts?
Mr. Calabria. Yes.
Senator Kennedy. Briefly, what were they?
Mr. Calabria. So I think we could have essentially done
debt equity swaps that would have put the debtholders--at risk,
what we are trying to accomplish with TLAC.
Senator Kennedy. OK. What else?
Mr. Calabria. I think some of these companies just should
have gone to the bankruptcy. I think we could have done
prepackage bankruptcies, debt equity swaps. I think there are a
large number of options, and of course, I believe it is
important that we treated all institutions the same.
Senator, as you were alluding to, we let small banks fail,
and we did not let big banks fail.
Senator Kennedy. Let me ask you another question. This is
kind of open-ended, and I have got 40 seconds. So you are going
to have to give me the CliffsNotes versions.
You are King for a Day. Forget the politics. Forget the
personalities. What would you do, writing on a blank slate, to
fix the GSEs?
Mr. Calabria. I would make them subject to the same
regulatory and legal structures that every other large
financial institutions is subject to.
Senator Kennedy. Thank you.
Mr. Calabria. You are welcome, Senator.
Senator Kennedy. Thank you, Mr. Chairman.
Chairman Crapo. Thank you, Senator.
Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
Thank you all for being here today.
So for generations, buying a home has been the number one
way that working families build wealth, a home, not only a
place to live, but also an asset that may appreciate, that may
be collateral for a new business. If grandma can hang on to the
house until she dies, it boosts the chances for the next
generation.
So, for decades, America subsidized housing purchases for
white families, but this country deliberately discriminated
against black families trying to buy homes. Redlining and other
discriminatory tactics were outlawed more than 50 years ago,
but today, the gap in the home ownership rate between black
homeowners and white homeowners is bigger than it was back when
housing discrimination was legal.
So, Dr. Calabria, you are an economist who studied the
housing market for years. Are you concerned about the home
ownership gap between black and white Americans?
Mr. Calabria. Absolutely, Senator.
Senator Warren. Good. Me too.
So Congress requires the Federal Housing Finance Agency,
the FHFA that we are talking about today, to set affordable
housing goals. If you are confirmed as Director, that is going
to be your job. You are right in charge of that, and that is
what will determine whether or not lenders have the liquidity
they need to make mortgages to low and very low-income families
in poor neighborhoods, many of which are families of color.
But here is a problem. You have already made clear that you
want to gut these housing goals. You testified in 2011 that it
is ``beyond debate'' that these affordable housing goals
contributed to the financial crisis. You think that, but the
10-person Financial Crisis Inquiry Commission, which was
commissioned by Congress to make the definitive findings about
the causes of the financial crisis, concluded after a year-long
investigation that included 19 days of public hearing and the
review of millions of documents and interviews with more than
700 witnesses that the affordable housing goals did not cause
the subprime crisis. And in a separate 2014 study by the St.
Louis Fed, they reached the same conclusions.
So, Dr. Calabria, we have a lot more information about what
causes the financial crisis than we did back when you testified
in 2011.
So let me ask. Do you still think that the affordable
housing goals played a big role in the crisis?
Mr. Calabria. Senator, if I could just quickly read from
Chapter 17 of the Federal Crisis Inquiry Commission:
``Affordable housing goals imposed by the Department of Housing
and Urban Development did contribute marginally to these
practices.''
Senator Warren. Marginally.
Mr. Calabria. And I would agree with that statement,
marginally. That is my position today.
Senator Warren. So your shift--you have shifted from 2011.
You now say it had a marginal effect on it; is that right?
Mr. Calabria. Senator, I believe there is a marginal
effect, modest effect.
Senator Warren. And the 2014 study by the St. Louis Fed,
which says, no, it did not have any effect, do you agree with
them? I take it no.
Mr. Calabria. I have not read the study, Senator.
Senator Warren. OK. You have not looked at that study?
Mr. Calabria. I read a lot, but I cannot catch everything.
But I will--let me--let me absolutely commit to you.
Senator Warren. OK. Never mind. We are going to be out of
time here.
So by the early 2000s, home ownership rates for families of
color had finally begun to increase in a meaningful way, and
then the shady lenders move in. And they target black and brown
families with the worst scams and the most abusive mortgages.
According to the FDIC, these loans were rarely used to meet
affordable housing goals. When these loans blew up, that is
what crashed the economy, not affordable housing goals that
helped more than 25 million families, including many families
of color become homeowners.
So let me ask. If you are confirmed as Director of the
FHFA, will you commit to preserving strong affordable housing
goals?
Mr. Calabria. Within the confines and direction of the
statute, absolutely yes.
Senator Warren. All right. So that is important because--I
want to hear that. Today, the median black family in America
has about $2 in wealth for every $100 in wealth that the median
white family in America has. Fixing the home ownership gap is a
key element to addressing the racial wealth gap.
Home ownership is the American dream in no small part
because it provides financial security for families, and if we
have an FHFA Director who does not feel the urgency of opening
doors to home ownership for creditworthy families of color,
then we cannot go forward and cannot have my vote.
Mr. Calabria. Senator, I am absolutely committed to making
sure that those opportunities are there. My concern is simply
to make sure it is done is as sustainable manner that keeps
those families in those homes.
Senator Warren. So if they are creditworthy, though, you
are going to keep the door open on affordable housing goals.
Are we right?
Mr. Calabria. Absolutely yes.
Senator Warren. We understand this?
Mr. Calabria. We--meeting of the minds here, as lawyers
would say.
Senator Warren. All right. Thank you.
Chairman Crapo. Thank you.
Senator Tillis.
Senator Tillis. Thank you, Mr. Chairman.
Mr. Calabria, you are in luck. You are not going to get my
first question.
[Laughter.]
Mr. Calabria. Thank you, Senator.
Senator Tillis. Actually, before I get started, I have a
staff down at the end of the dais. So I would like for the
seventh graders who are in the audience to stand up really
quickly--I do not even know if this is within the rules--so we
can take a quick picture of you, and we will send it back to
you.
Welcome.
Yeah, right over there.
I am using my time here. So I do not know if that was
untoward, but----
Chairman Crapo. I was going to say you are using your time,
but you can go right ahead.
[Laughter.]
Senator Tillis. Of course.
This is the first time I have had to call you ``Mr. Hood.''
Normally, it is just ``Rodney.'' But it is good to see you
here, and thank you so much for your service on the Board of
Governors. You made me very proud there, and I know you are
going to make me proud here.
You have experience in the agency. You know me. Back in the
time that I was Speaker, I was all about lean regulations, not
un-regulating, but regulating in as lean a way possible.
Tell me--and then maybe you and Mr. Harper can determine
whether or not you agree or disagree on the approach, but tell
me what we can do to better streamline and reduce the
regulatory burden as long as we understand that--to a level
that we are managing the risk, what kind of priorities would
you try to set or encourage in your capacity back on the NCUA?
Mr. Hood. Thank you, Senator Tillis, for your time, your
support, and for your question this morning.
I am a safety and soundness regulator, sir, and if
confirmed, I would continue to work to make sure that
regulation at NCUA remains effective but not excessive.
In returning to the agency, when I was last there over a
decade ago, we as a board would review one-third of the credit
union regulations every year, such that in every 3-year cycle,
all 100 percent of those rules and regulations have been
evaluated so that we could determine which ones were still
relevant, which ones were still germane for maintaining safety
and soundness. So I will go back with that mindset.
Senator Tillis. Mr. Harper, would you agree with that
approach?
Mr. Harper. Yes, more or less.
The point I would make is that it is very important to
tailor the rules. Credit unions have a wide range in size. The
smallest is perhaps what? $20,000 in size?
Senator Tillis. I am glad to hear you say that because I
think, conceptually, you need to apply the same process that we
have suggested within 2155, the Regulatory Reform Act, for
baking institutions. You need to understand their activities,
their portfolios, their size. All of those play into the extent
to which they need to be regulated, and I hope you will go on
with that in mind because, frankly, I worry postcrisis about
the financial services ecosystem. I worry about de novo banks,
small banks, and credit unions play an important role in that.
They fared pretty well in the crisis, quite honestly, but they
have kind of gotten swept up in the regulatory reactions
afterwards.
So I am looking forward to you all getting in there and
getting to a lean place.
Mr. Patel, you have got an extraordinary story, you and
your parents, and I appreciate you being here. You are going to
be in the mix for FSOC, and I am a little bit worried about--
again, I am a lean regulation--everybody thinks lean regulation
means no regulation. I mean the least amount of regulation to
manage an identifiable risk out there.
But I am beginning to think there may be some drift in FSOC
to where nonbanking financial institutions could be swept in
and actually have additional regulations, even in this
Administration. What can you do to assure me that that is not
the path we are going to take, should you be confirmed?
Mr. Patel. Senator Tillis, thank you for the question.
The council is currently considering alternative approaches
to the previous council's nonbank's designations policy. Among
that, we are looking at things like increased transparency, the
inclusion of cost-benefit analysis requirements, which I think
is an important hallmark of all financial regulation.
Government policy should not be enacted if it does more harm
than good, and we should take stock of the burdens that
regulation imposes while being mindful of systemic risk.
Senator Tillis. Well, I appreciate you doing that because I
can tell you if you do not come back with a clear cost-benefit
analysis, count me in as the person writing the resolution of
disapproval to try and deprive you of having that authority
moving forward. So do not put me in a position where I would
have to do that.
Mr. Calabria--by the way, I am supporting all your
nominations. You have all done great work. Mr. Calabria, you
have done great work.
I guess I would give compliments to the other three of you
who have never posted a blog, apparently.
[Laughter.]
Senator Tillis. And, Mr. Calabria, I would just say I have
seen some of your writings. You are a brilliant person. We are
going to need your help in seeing if there is any way that we
can actually make progress on GSE reform. I am not sure that we
can in this Congress.
Thank you all for being here.
Chairman Crapo. Thank you.
Senator Smith. Thank you very much, Mr. Chair and Ranking
Member Brown, and thanks to all of you for being here today and
for your willingness to serve our country.
Dr. Calabria, you are back in the questioner's seat, I
think.
You said earlier that home ownership is a fundamental plank
in our country, and the problem, of course, is that that plank
cannot be found in a lot of parts of our country.
I appreciate you coming in and talking with me in my office
a couple of days ago, and we talked about the availability of
quality affordable housing in rural areas and what a challenge
that that presents to these communities' stability and growth
and economic development, not to mention the opportunity for
rural families. Of course, this issue is even greater for
Native Americans on tribal lands, even greater obstacles in
finding affordable housing and access to credit. And this is an
issue, a big issue in Minnesota and also around the country.
So when we talked about this in my office earlier, we had a
general conversation about how affordable housing is good, but
I want to dive into that a little bit.
As you know, Fannie Mae and Freddie Mac have released their
first-ever Duty to Serve plans, as required under HERA, and
these 3-year plans list specific and measurable commitments to
invest in and to promote affordable mortgages in unserved
markets, like in rural markets and Native communities.
So, Dr. Calabria, how can you square what you have written
earlier around the elimination of GSE affordable housing goals,
and what is in these Duty to Serve plans and your vision for
the GSEs? How do you square that?
Mr. Calabria. So, Senator, I think one of the things that
makes me uniquely qualified is having been part of the
structure that came up with those, both the Duty to Serve, the
Trust Fund, as well as the Capital Magnet Fund, were largely
structured, crafted, drawn by myself and Senator Reed's staff.
So I have got the benefit of the legislative history that was
there, and I can certainly say my sense of that legislative
history is none of those things were meant to come at the
sacrifice of safety and soundness. And so my concerns that have
been expressed since the crisis is that there is not a
framework of safety and soundness or capital to protect us
against taking more risk.
I think the ultimate goal here is that we can come together
and build a framework for the GSEs where there is capital,
where there is sufficient regulation, and if we have got that
framework, I believe that we can make advances and take more
risks.
Senator Smith. So what will you do to ensure that the GSEs
continue their support for affordable housing and mortgage
lending in rural areas and Native communities?
Mr. Calabria. First, let me recognize having grown up in
rural America, I am very cognizant of the unique economic
issues that face it.
I also had the privilege, benefit, as a Committee staffer
to visit a number of tribal communities across this country,
and of course, one of the first things I would try to do is
have FHFA work with the Bureau of Indian Affairs. We know that
there are very unique titling problems in tribal communities
that make it very difficult to do standardized mortgage
lending.
Senator Smith. Yes, we talked about that.
Mr. Calabria. And I think that we really want to focus
that.
Let me also say, because I think it is incredibly
important--it is outside of the scope of FHFA--one of the
biggest constraints in affordable housing in this country is
zoning, and I really do think the recent changes in Minneapolis
are some smart moves that I hope a number of other cities
around America copy.
Senator Smith. Thank you. I think they have done some smart
things in Minneapolis, and I appreciate you mentioning that.
Let me ask you. Can you commit to retaining the targeted
initiatives for rural areas and tribal lands in the Duty to
Serve plans----
Mr. Calabria. Yep.
Senator Smith. ----if the GSEs are reformed or restructured
in any way?
Mr. Calabria. I absolutely, Senator, commit to having those
continue to be part of the process.
As an economist, I want to be able to also commit that we
collect data on this and we make sure that we are best
targeting these programs in a way that we are effective and
receive results.
Senator Smith. But does continuing to have them be part of
the process mean continuing to keep them in place?
Mr. Calabria. Keep them in place as long as the existing
regulatory structure is there.
Of course, I think if the Committee decides to take a
different route legislatively, I do believe we can look at a
number of options.
But within--if confirmed, within my authorities of
Director, I will be fully committed that as long as those are
the law and the statutes that I will carry them out as
intended.
Senator Smith. OK. I just have a couple of seconds left,
but I appreciate very much, Mr. Hood and Mr. Harper, you being
here. Credit unions are incredibly important in my State and
especially in rural areas. So would one of you just in the few
seconds that I have left--and I would love to submit my
question for the record to get your fuller response. Can you
tell me a little bit about the role that you see credit unions
playing in and creating better access to credit in rural areas?
Mr. Harper. I think that is an incredibly important issue
and that NCUA has adopted rules and regs that allow credit
unions and help facilitate getting into the rural areas, and if
confirmed, certainly underserved markets like rural areas would
continue to be a priority for me.
Senator Smith. Mr. Hood.
Mr. Hood. If I may, Senator Smith. I too agree that credit
unions can play a role in bringing affordable home ownership to
rural America.
Prior to joining NCUA over a decade ago, I worked at USDA
Rural Development, where I have managed the Single Family
Housing Programs. So I would like to find innovative ways to
engage credit unions in bringing home ownership opportunities
to areas such as yours in rural America.
Senator Smith. Thank you very much.
Chairman Crapo. Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman, and
congratulations to all of you on your nominations.
Mr. Calabria, there has been a lot of discussion about the
30-year mortgage and your views on the 30-year mortgage. So let
me see if I can just summarize what I understand is your
position. That you will not take any action under your
authority to reduce the current Government support for the 30-
year mortgage; is that right?
Mr. Calabria. That is correct, Senator.
And if I could take it a moment aside----
Senator Van Hollen. I am sorry.
Mr. Calabria. Quite all right.
Senator Van Hollen. I am just looking--as Senator Kennedy
said, time is short.
As you are well aware, there are articles that have been
put out that Mr. Otting at the OCC together with the
Administration, the White House and Treasury, have a plan to
reform the GSEs. Are you familiar with their plan?
Mr. Calabria. I have not seen anything that looks like a
plan.
Senator Van Hollen. OK. Because it is curious because they
say it is a White House-Treasury plan. Of course, you work for
the Vice President, but you are telling us today you have no
idea what they are talking about here.
Mr. Calabria. Senator, once it became clear in the fall
that I would be the nominee, I took myself out of any
internal--I felt it was important for maintaining the
independence of FHFA that I stopped being part of any internal
dialog, once again, that was inside my nomination.
Senator Van Hollen. I know the Ranking Member asked you
some questions on this. The fact that Mr. Otting has said that
you have signed off on this, you have not signed off? If you
have not seen a plan, you cannot sign off on it, right?
Mr. Calabria. Correct. If I could--my belief of what Mr.
Otting has said----
Senator Van Hollen. That is all right.
Mr. Calabria. That is all right.
Senator Van Hollen. You have not signed off on it. You do
not even know of any plan; is that correct?
Mr. Calabria. Correct.
Senator Van Hollen. You do not know of any plan. OK.
As you indicated, you were very much a part of writing the
HERA law, and as you indicated, the Housing Trust and Capital
Magnet Funds are big parts of that. In fact, just yesterday,
the CDF fund announced 38 organizations around the country
would receive funds from the Capital Magnet Fund, including
some from Baltimore in Maryland.
So, as I understand your testimony today, you are committed
to continuing to pursue those programs; is that correct?
Mr. Calabria. Within the confines of the statute, yes.
Senator Van Hollen. OK. So the statute, as I understand it,
says that you, if confirmed, would be able to temporarily
suspend the allocation of the funds if they contribute to
financial instability.
My question to you today is, Do you have any indication
today or in the foreseeable future that that standard would be
triggered?
Mr. Calabria. Senator, the trigger is mechanical. I do not
see anything today, of course, subject to--I am not inside the
agencies. I do not have access to confidential supervisory
information, but everything that I am aware of publicly would
suggest to me that that trigger is not in danger of being
tripped, if you will.
Senator Van Hollen. And so long as that trigger is not
tripped, you will continue to provide robust support; is that
right?
Mr. Calabria. That is correct.
Senator Van Hollen. OK, thanks.
Now, I do want to get at this issue my colleague has
raised--the Ranking Member mentioned your quote about
deadbeat--because it is important going forward to figure out
what the cause of 2008, and there were lots of causes. But
there is no doubt you have weighed in disproportionately on
this theory that it was caused by the GSEs and CRA.
Let me ask you about CRA. Do you agree it is an important
tool to prevent redlining and discrimination in lending?
Mr. Calabria. I agree it has been.
Senator Van Hollen. I am sorry?
Mr. Calabria. Yes.
Senator Van Hollen. And do you agree that we continue to
see redlining and discrimination in lending?
Mr. Calabria. I believe that we do.
I do want to clarify. I have never anywhere put CRA
anywhere in the top 10 of--I have talked about a number of
factors that I think have caused the crisis. I believe my
writings have all expressed that CRA and the housing goals were
modest, at best, and that there were much bigger causes.
Senator Van Hollen. Well, you have written about it. I
mean, I have an article here----
Mr. Calabria. That is right.
Senator Van Hollen. ----I think from 2009, and the headline
is ``Does CRA Undermine Bank Safety?'' And you go on. It is to
suggest that it was a not insignificant component, which is at
odds with other findings. I do not know if you want to----
Mr. Calabria. Senator, the blog post in question references
a study done by the Dallas Federal Reserve Bank that simply
found a relationship between poor CAMEL ratings and high CRA
ratings. I certainly think supervisors should take a look at
that and make sure that CRA ratings are achieved not at the
expense of safety and soundness, and I believe we can achieve
them not at the expense of safety and soundness.
Senator Van Hollen. I appreciate this because, as you know,
others have looked at this, including John Dugan, who was, of
course, OCC head during the crisis who said that the CRA is not
the culprit behind subprime mortgage lending.
So I do have concerns about the fact that the overwhelming
weight of your writing suggests that lending to minority
communities or communities that--while they have--can get good
credit ratings have been overlooked by the market were the
primary culprit. It just seems the overwhelming weight of
evidence does in the other direction.
I understand you are acknowledging that today when you
said, in response to Senator Warner's question, that it was
just marginal with respect to GSEs; is that right?
Mr. Calabria. That is right, and personally, I believe my
writing reflects those as being marginal causes.
Senator Van Hollen. OK. Thank you.
Thank you, Mr. Chair.
Chairman Crapo. Thank you.
Senator Cortez Masto.
Senator Cortez Masto. Thank you.
Welcome, gentlemen. Congratulations on your nominations.
Welcome to your families. It has been a long morning. I realize
that. You only have 10 minutes left, though, so we are almost
through it.
So for that reason, I have got 5 minutes. Dr. Calabria,
thank you for meeting with me. I really appreciate the
conversation in my office.
But let me jump back here because I heard you say that you
support affordable housing goals, but also incorporated within
that, you want sustainable home ownership; is that correct?
Mr. Calabria. That is correct.
Senator Cortez Masto. OK. So can I ask you do you believe
that--or let me ask you this. You oppose downpayments of less
than 5 percent and at times even want to see downpayments at 10
percent or higher. Is that true?
Mr. Calabria. I think we need to look at downpayments in a
holistic sense. I think it depends on other things such as DTI,
such as FICO scores. So I think we have to take each loan
holistically.
I think there are plenty of circumstances where even zero
downpayment lending is sustainable, but I do think we need to
avoid the risk layering that was such a problem during the
crisis.
Senator Cortez Masto. I am glad you brought up FICO scores
because you suggested also that only people with FICO credit
scores of 700 should be able to get a mortgage; is that true?
Mr. Calabria. That is a very broad statement.
I certainly do not think there should be any legal
prohibition in the mortgage market against any sort of FICO
score.
Senator Cortez Masto. Good, because that would affect half
of the people in the State of Nevada who have FICO scores under
700.
If you are appointed to head the Federal Housing Finance
Agency, will you insist that homeowners have $15,000 or $20,000
in cash before they can buy a home?
Mr. Calabria. Senator, the number--I do not believe I have
ever written that, but the number strikes me as a bit
arbitrary.
I do think it is important for people to have cash
reserves. That has clearly got to depend on the house in
question, the mortgage in question, the borrower in question.
So I do not think it is--probably more a ratio would be more
significant, but I do think we need to prepare families for
when the boiler goes out or a new roof. I mean, we need to make
sure that people can be prepared to meet the expenses of home
ownership when they are there.
Senator Cortez Masto. Well, can you identify for me what
you mean by sustainable home ownership and what you would do
differently?
Mr. Calabria. So what I would do differently is looking at
the factors that do not--that do not end up keeping--so that
they just do not funnel through. That they get a mortgage. They
are out of there 6 months, a year, 2 years. If we want to put a
number on it, I think the ability to sustain the mortgage
without defaulting--obviously, there are going to be life
events that may hit you, but if we are seeing these mortgages--
and we saw a lot of early payment defaults during the crisis.
If a mortgage goes bad in 3, 5, 6 months, there is something
wrong with that, whether it is the lender, the borrower, or
somebody, and so making sure----
Senator Cortez Masto. What if it is not the borrower's
fault?
Mr. Calabria. Then we should go after the lender. I have
made such proposals in the past. I have suggested, for
instance, that FHA be aggressive with lenders that default
within the first 6 months.
Senator Cortez Masto. I have got 2 minutes left. Thank you.
Let me ask you this. You have written about bringing back
recourse in the foreclosure plan, and what it sounds like to me
is you are willing to expand recourse lending; is that true?
Mr. Calabria. Well, first of all, many products, such as
the 203(b) FHA program are recourse products. I think what we
need to keep in mind is----
Senator Cortez Masto. But they are not--they are actually
not utilized, though, so that is my concern.
Mr. Calabria. But it is the law.
Senator Cortez Masto. Yeah.
Would you actually trigger that, and would you engage in
that or support recourse lending?
And let me just say this because I do not understand why a
mortgage lender, other than the underlying security or the loan
asset, which is the house, why they should get more than that,
why they should be able to go after a homeowner's car, their
retirement fund, their life savings on a mortgage loan----
Mr. Calabria. So, first, let me----
Senator Cortez Masto. ----instead of just the underlying
security, which is the house.
Mr. Calabria. Let me first emphasize that a lender should
never be able to get more than the size of the loan, but the
empirical evidence suggests that the existence of recourse
expands mortgage access and lower risk cost. And I think we
need to be looking at--cognizant of anything that we do that
reduces access and increases costs.
Senator Cortez Masto. So would you support that at the
Federal level, recourse--expanding recourse lending?
Mr. Calabria. I am comfortable with that remaining at the
State level.
Senator Cortez Masto. So you would not employ that at all--
--
Mr. Calabria. I do not believe that----
Senator Cortez Masto. ----and support it in any way at the
Federal level?
Mr. Calabria. I do not believe at the Federal level, other
than the Federal products that might already include that.
Senator Cortez Masto. Thank you.
I have got 30 seconds left. Let me ask Mr. Harper and Mr.
Hood very quickly. The NCUA has a proposed rule exempting
commercial loans under $1 million from appraisals. Do you have
any concerns that allowing loans of a million dollars without
appraisals could lead to higher defaults and a hit on the Share
Insurance Fund?
And let me start with Mr. Hood.
Mr. Hood. I am not totally familiar with what is taking
place now NCUA, Senator Cortez Masto. If confirmed, I would
work with agency staff to really understand what they are
implying with the exemption of the $1 million for commercial
loans.
Senator Cortez Masto. Thank you.
Mr. Harper.
Mr. Harper. I would agree with your concerns about raising
the appraisal.
One thing in particular that I would want to look at is
where the other regulators are, which I believe is at a
different level for that particular product, and for me,
consistency across regulations is an important thing.
Senator Cortez Masto. Thank you.
Thank you, gentlemen.
Chairman Crapo. Thank you.
Senator Reed.
Senator Reed. Well, thank you, Mr. Chairman.
I would like to say they have saved the best for last, but
all I can say with assurance is they saved the last for the
shortest Member of the Committee.
Dr. Calabria, let me begin by thanking you for your help in
2009 on the HEARTH Act. It is very important for homeless
individuals, and the problem is still with us, as you well
know.
But let me also try to complement and reaffirm Senator Van
Hollen's comments about the Capital Magnet Fund and Housing
Trust Fund.
On a bipartisan basis, we found that these are absolutely
crucial because they are outside the appropriations process.
They are dependable sources of funds for affordable rental
housing.
Indeed, Senator Collins and I just wrote to the FHFA's
Acting Director to ask him to maintain this critical funding.
So, in that spirit, will you commit to continue funding the
Capital Magnet Fund and the Housing Trust Fund if you are
confirmed?
Mr. Calabria. Within the confines of the statute,
absolutely yes.
Senator Reed. And from my listening to Senator Van Hollen's
questioning back and forth, there is a technical provision you
cited that may prevent you from doing that?
Mr. Calabria. It is a mechanical trigger, so it is not
discretionary.
I would put it this way. That mechanical trigger is only
going to be tripped. However, if the GSEs are essentially
failing, I certainly take very seriously that if confirmed, my
primary responsibility as a prudential regulator is to make
sure that does not happen.
Senator Reed. Thank you. Well, I will take that as an
optimistic, confident ``yes, I will.'' Thank you.
You were with us on March 15th, 2012, for a very good
hearing on the FHFA, and you said, and I quote, ``I agree that
I think that their conservatorship powers are quite broad.
Where I would draw the distinction is I do not believe they
allow, in my opinion, FHFA to take systemic overall marketwide
effects into account in what they do,'' which raises the
question: If you are confirmed, do you believe that you must
ignore the market impacts of the decisions you would make at
FHFA? For instance, if a particular decision would result in a
shrinking mortgage market or would squeeze out responsible
borrowers, would you be unable to take that into your
considerations?
Mr. Calabria. Senator, it would seem to me that since the
primary consideration of conservatorship is to protect the
safety and soundness of the entities, that anything that I
would do that would weaken and potentially push down the
housing market would obviously impact the safety and soundness
of the entities.
So, certainly, the broader macroeconomic impact that
undermines the purpose of the conservatorship would have to be
considered, in my opinion.
Senator Reed. It does seem to be somewhat different than
the comments you made at the hearing. Would you acknowledge
that?
Mr. Calabria. Senator, that was a number of years ago. I do
not have----
Senator Reed. No, this is not a, you know, ``gotcha.'' The
point is that your view is a holistic one, that significant
decisions you will make that would have an impact on the market
or looking at the market would inform those decisions, correct?
Mr. Calabria. Correct. And I do believe they would have to
have market-wide impacts. So there certainly could be modest
changes that do not impact the market overall that are not
relevant to the conservatorship that I do not believe I would
have the authority to address.
Senator Reed. But if it was a significant impact on
affordability of housing, on access to mortgages, those things,
you would have to take that into consideration?
Mr. Calabria. Absolutely, because that would directly
impact the safety and soundness of the enterprises.
Senator Reed. Thank you very much.
Gentlemen, good luck, and thank you very much.
Mr. Calabria. Thank you, Senator.
Chairman Crapo. Thank you, Senator Reed.
And that concludes the questioning for today's hearing.
For the Senators who wish to submit questions for the
record, those questions are due to the Committee this coming
Tuesday, February 19th.
And we ask our nominees to respond to those questions no
later than the close of Friday, February 22nd.
I thank you again to each of you for your willingness to
serve and for being here today, and with that, this hearing is
adjourned.
Mr. Hood. Thank you.
[Whereupon, at 11:52 a.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of nominees,
responses to written questions, and additional material
supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
This morning we will hear testimony on the nominations of Bimal
Patel, to be Assistant Secretary of the Treasury for Financial
Institutions; Todd Harper, to be a Member of the National Credit Union
Administration Board; Rodney Hood, to be another Member of the National
Credit Union Administration Board; and Mark Calabria, to be Director of
the Federal Housing Finance Agency.
Welcome, all of you. I see friends and family behind you, and I
welcome them here today as well.
Mr. Patel has been nominated to serve as Assistant Secretary of the
Treasury for Financial Institutions.
In this role, Mr. Patel would be responsible for Treasury's efforts
on legislation and regulation concerning financial institutions, and
overseeing the Terrorism Risk Insurance Program and Community
Development Financial Institutions Fund.
Mr. Patel brings a wealth of knowledge on financial services policy
and regulation, stemming from extensive experience in both the private
and public sector.
Since May 2017, he has served as Treasury's Deputy Assistant
Secretary for the Financial Stability Oversight Council, or FSOC, where
he is responsible for overseeing FSOC staff and activities.
Prior to joining Treasury, Mr. Patel provided financial policy and
regulatory expertise as a partner at O'Melveny and Myers, LLP,
including as Head of the Financial Advisory and Regulation Practice,
and served as senior advisor to Director Jeremiah O. Norton at the
Federal Deposit Insurance Corporation.
Mr. Harper and Mr. Hood have both been nominated to the board of
the National Credit Union Administration (NCUA).
The NCUA plays a critical role in overseeing and insuring a major
segment of our Nation's community financial institutions: federally
insured credit unions.
Each of these nominees comes with prior NCUA experience.
Mr. Harper led the Office of Public and Congressional Affairs and
served as the chief policy advisor to the NCUA Chairman between 2011
and 2017.
Before that, he had a long career focusing on the financial
services industry on Capitol Hill, including as the staff director of
the Subcommittee on Capital Markets, Insurance and Government Sponsored
Enterprises of the House Financial Services Committee, and as
legislative director for former Congressman Paul Kanjorski.
Mr. Hood currently serves as a corporate responsibility manager for
JPMorgan Chase, where he manages partnerships with organizations that
serve community development, civil rights and disability community.
Between 2005 and 2010, Mr. Hood served as a member of the NCUA,
including being elected as its vice chairman.
Before that, he served in the Senior Executive Service as the
Associate Administrator of the Rural Housing Service at the U.S.
Department of Agriculture.
Dr. Calabria is a leading expert on housing and mortgage finance,
and a respected Ph.D. economist.
He has nearly 30 years of experience interacting with the housing
market from the perspective of academia, Government, industry, trade
associations, and think tanks.
Dr. Calabria has dedicated the majority of his career to public
service, including as Deputy Assistant Secretary of Housing and Urban
Development, nearly a decade as a Senior Professional Staff Member to
this Committee, and now as Chief Economist in the Office of the Vice
President.
Dr. Calabria has also worked for the National Association of
Realtors, the National Association of Homebuilders, the Farm Credit
Council, the Harvard University Joint Center for Housing Studies, and
recently at the CATO Institute, as Director of Financial Regulation
Studies.
Over the course of his public service career, Dr. Calabria has a
long history of working across the aisle to deliver meaningful, lasting
reforms.
He played a key role in a number of bipartisan legislative
achievements, including the HEARTH Act, which strengthened our Nation's
homelessness assistance programs, and HERA, the law which established
FHFA and created the position to which he has been nominated.
Throughout his career, Dr. Calabria has worked to champion market
reforms that benefit consumers, and enhance the safety and soundness of
our housing finance system.
At FHFA, Dr. Calabria would continue to work toward these
objectives as regulator of Fannie Mae, Freddie Mac, and the Federal
Home Loan Bank system.
He would also be charged with protecting taxpayers, ensuring
responsible access to mortgage credit, and serving out FHFA's statutory
mandate to conserve and preserve the assets of Fannie Mae and Freddie
Mac.
Members of this Committee are incredibly cognizant that a full
decade has now passed since the Government asserted control of the
GSEs.
After 10 years of market recovery, these mortgage giants remain
stuck in conservatorship, with taxpayers still on the hook in the event
of a housing market downturn.
It appears that the old, failed status quo is slowly beginning to
take hold again, with the Government in some ways expanding its reach
even further, entering new markets where it has never been before.
The status quo is not a viable option, and finding a comprehensive
solution remains a top priority for me.
It is my view that action on housing finance reform is the
prerogative of Congress, and my strong preference is for us to explore
a legislative pathway forward.
However, FHFA can also play an important role in helping us move
toward a more sustainable housing finance system facilitated by an
engaged and strongly capitalized private sector.
If confirmed, I look forward to working with each of these nominees
on many important issues within each of their respective policy areas,
including: housing finance and other issues critical to taxpayers and
homebuyers; data privacy and security; capital formation and corporate
governance; and continuing efforts from last Congress to provide
meaningful relief to homeowners, consumers, and smaller businesses.
Thank you all for your willingness to serve and for appearing
before our Committee today.
______
PREPARED STATEMENT OF SENATOR SHERROD BROWN
Thank you, Chairman Crapo, for holding this hearing today on the
nominations of Mr. Bimal Patel, Mr. Todd Harper, Mr. Rodney Hood, and
Dr. Mark Calabria--congratulations to all of the nominees and welcome
to your families and guests. I look forward to their testimony and
responses to Members' questions.
While it is important that we consider new nominees in a timely
manner--Mr. Chairman, I appreciate you including Mr. Harper in today's
hearing--I want to remind my colleagues, four noncontroversial nominees
to the Export Import Bank never received a vote on the Senate floor
last Congress while nominees that were sent up from the White House
months later were confirmed. We also continue to wait on the White
House for nominees for Democratic positions at the SEC and FDIC.
All of today's nominees, if confirmed, have the opportunity to use
their positions to improve the lives of American families. They can
make it easier for families to buy homes with mortgages they can
afford, they can encourage credit unions to offer fair products to
Americans left behind by our banking system, and they can support
policies that protect consumers and our financial system from risky
activities at financial institutions.
Mr. Patel has been nominated to be Treasury Department Assistant
Secretary for Financial Institutions. If confirmed, Mr. Patel would
take on a new role at Treasury that covers a broad range of policy
issues affecting financial institutions.
Mr. Harper and Mr. Hood have been nominated to the Board of the
National Credit Union Administration, an agency they're both familiar
with. Mr. Hood previously served as an NCUA Board Member from 2005 to
2010. Mr. Harper worked in the NCUA's office of Public and
Congressional Affairs and served as the chief policy advisor to the
Chair from 2011 to 2017. Both nominees possess a deep understanding of
credit unions and the issues that affect them.
Finally, Dr. Calabria has been nominated to lead the Federal
Housing Finance Agency.
Most Americans probably don't know that F-H-F-A exists. But as the
regulator of the G-S-Es, it affects whether they can get a mortgage,
how much they pay for that mortgage, and what kind of rental options
they have. This is particularly true for low- and moderate-income
families, and for communities that have been abandoned by Wall Street
banks.
The housing problems facing families are clear: rent is too
expensive and too many communities--particularly communities of color--
can't access safe, sustainable mortgages. These are the problems the
next Director should be working to address. Dr. Calabria has a long
history in housing policy. He was a staff member on this Committee when
Congress passed the Housing and Economic Recovery Act creating F-H-F-A,
so he is well aware of the significant influence he would have.
He's written extensively on the housing system, and particularly on
the G-S-Es. Those writings raise serious questions about the impact
that Dr. Calabria's actions could have on the housing market if his
views are implemented. He has questioned the need for the 30-year
fixed-rate mortgage and advocated against a Government guarantee for
qualifying mortgage-backed securities. These positions contradict what
we have heard from housing stakeholders who have appeared before this
Committee over the past 4 years.
Dr. Calabria has also called for repeal of the G-S-Es' affordable
housing goals, which help ensure that Fannie Mae and Freddie Mac are
fulfilling their statutory missions to facilitate home ownership and
rental housing for low-income families. In the last testimony he
submitted to this Committee in 2015, Dr. Calabria said that the two
primary tools facilitating private market home financing, the G-S-Es
and F-H-A, ``should eventually be eliminated.''
Through the hearing this morning I hope to better understand if Dr.
Calabria still believes that. When work has dignity, everyone can
afford housing in their community. We know that's not true today. We're
facing a housing affordability crisis. Wages are lagging far behind the
increase in home prices. One in four renters spends more than half
their income on rent.
Seven of the 10 fastest growing occupations don't pay enough to
afford to rent a modest one-bedroom apartment, let alone save for a
downpayment. The next generation of potential homebuyers is saddled
with a mountain of student loan debt. Borrowers of color were
systematically shut out of the housing market for generations, they
suffered some of the biggest losses during the financial crisis, and
they still face discrimination when trying to get a loan.
Those are the challenges we have to confront. We need a strong,
mission-driven housing finance system working to make sure all
Americans can afford safe, quality housing where they live, work, and
send their kids to school.
I will be listening to see how Dr. Calabria's plans align with that
goal.
Thank you, Mr. Chairman.
______
PREPARED STATEMENT OF BIMAL PATEL
To be an Assistant Secretary for Financial Institutions, Department of
Treasury
February 14, 2019
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
it is among the greatest privileges of my life to appear before you
today. Thank you to the Senators and the staff members with whom I have
met in advance of this hearing. If I am fortunate enough to be
confirmed, I look forward to meeting with and working with all of you
on the important issues in the portfolio of the Assistant Secretary for
Financial Institutions.
My interest in serving our country begins with my parents, who are
seated behind me today. Truthfully, neither my family nor I would be
here today if it were not for the United States of America and all it
stands for.
My Dad grew up as a peanut farmer in rural India. Raised in abject
poverty, he was driven by an unshakeable determination to build a
better life. Lacking resources, he immigrated to the U.S. primarily by
boat. Here, he pursued higher education, ultimately earning his Ph.D.
from NYU. He worked incredibly hard over a 50-plus-year career,
including operating a number of small businesses in my home State of
Georgia and teaching at Spelman College, a Historically Black all-
women's college in Atlanta.
Like my Dad, my journey to being before you today was not without
adversity. I was born 3 months premature, weighing in at just two
pounds and two ounces. When I was 2 weeks old, doctors put me in a room
with a baby that had pneumonia. I contracted the pneumonia, and my
brain was damaged. Doctors told my parents that I would never grow past
four feet tall, that I would be incapacitated, and that I would die. I
am so fortunate that the doctors saved my life and that my parents,
particularly my Mom, always believed in me.
The common thread between my Dad's path and mine is that America
made our improbable stories possible. Coming to America with nothing,
my Dad found opportunities that only our country provides to give my
brother and me the chance to realize our own dreams. Likewise, America
is probably the only country where a child with brain damage and
Cerebral Palsy would be accepted so completely and encouraged so
unfailingly to overcome such obstacles.
This journey has motivated me to serve and to try to repay the
enormous debt I owe to our country, and I am proud to have accepted the
call to public service when I have been asked. From 2012-2015, I served
as a Senior Advisor at the FDIC, and I currently serve as the Deputy
Assistant Secretary of the Treasury for FSOC.
In addition to Government service, I have practiced law at
O'Melveny and Myers, most recently as a Partner and the Head of the
Financial Advisory and Regulation Practice. In that capacity, I
represented depository institutions of all sizes including many
community banks and regional financial institutions. I have also
advised on credit union structural and regulatory issues. And, I have
previously represented community interest and charitable organizations
on a pro bono basis on matters relating to financial regulation. One
consistent objective of my work has been assisting depository
institutions to better serve their communities and to provide a broader
array of services to a greater number of customers.
I also love teaching and mentoring the younger generation--a
passion that has led me to teach an undergraduate economics course on
Banking Regulation at my alma mater--Stanford University--since 2014.
Above all, the thing that has drawn me to financial services is the
unique connection between our financial system and American families
and small businesses like those my Dad operated. At its best, our
financial system is the force multiplier of our economy, linking savers
to those who seek credit to pursue education, build businesses, and
help their families to live better lives. Financial services also
assist Americans in saving for retirement and in insuring loved ones
against difficult life events and losses.
Thank you again for the opportunity and the honor of appearing
before you today. I would be would be happy to answer any questions you
have and would be humbled to earn your support for my nomination.
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PREPARED STATEMENT OF TODD M. HARPER
To be a Member of The National Credit Union Administration Board
February 14, 2019
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
thank you for the invitation to testify before you today as a nominee
to become a Board Member of the National Credit Union Administration.
If confirmed, it would be an honor and a privilege to serve.
Moreover, I am humbled by the trust and faith placed in me by the
Administration and the U.S. Senate. I am especially grateful to those
who have supported me in this process, including Chairman Crapo and his
staff who moved quickly to consider me, the President and his aides who
vetted and nominated me, and Democratic Leader Schumer and Ranking
Member Brown who recommended me.
With nearly 25 years of Government experience primarily working for
Congress on financial services matters and at the NCUA, I have gained
broad knowledge of financial services regulatory matters and a deep
understanding of the many policy issues facing the $1.4 trillion credit
union system and its 115.4 million members.
But my commitment to public service really started with my parents.
As professional educators and community leaders, my parents instilled
in me a strong desire to give back to others. They also taught me the
importance of finding common ground when making decisions.
You see, before they fell in love and married, my mother was the
president of the teacher's union and my father was the superintendent
of schools. One was a Democrat and the other a Republican, yet during
negotiations they would work together to reach the best possible deal
for both sides.
I have carried their leadership lessons with me throughout my
career. As a result, I have skillfully solved complex problems, reached
bipartisan consensus where possible, and bridged differences between
business and Government to produce results.
As a long-time congressional aide, I served as a senior advisor to
Congressman Paul E. Kanjorski of Pennsylvania and staff director of the
House Financial Services Subcommittee on Capital Markets, Insurance,
and Government Sponsored Enterprises. In these roles, I worked on every
major financial services law from the enactment of the Gramm-Leach-
Bliley Financial Services Modernization Act in 1999 through the passage
of the Dodd-Frank Wall Street Reform and Consumer Protection Act in
2010.
Most notable, however, is my long track record of working on credit
union issues, which began when Congress considered and passed the
Credit Union Membership Access Act. Introduced by Congressman Kanjorski
and Congressman Steve LaTourette of Ohio, the bipartisan law responded
to a U.S. Supreme Court ruling that threatened the long-term viability
of thousands of credit unions.
Subsequently, I led staff in drafting the first version of the
Credit Union Regulatory Improvements Act of 2003, bipartisan
legislation introduced by Congressman Kanjorski and Congressman Ed
Royce of California. Their bill aimed to strengthen capital standards,
advance economic opportunity, and provide targeted regulatory relief,
three goals that continue to guide me.
During the financial crisis, I worked to convene the first
congressional hearing to explore the creation of a Temporary Corporate
Credit Union Stabilization Fund. And in 2010, I spearheaded staff
efforts in the House to secure enactment of a law to lower the costs of
managing both the Corporate Stabilization Fund and the National Credit
Union Share Insurance Fund.
Most recently, I spent 6 years as NCUA's senior executive for
public and congressional affairs, as well as the chief policy advisor
to former Chairmen Debbie Matz and Rick Metsger. Ultimately, the time I
spent at NCUA strengthened my knowledge of the credit union system and
honed my management skills. In 2015, the agency recognized my
leadership abilities by selecting me as a supervisor of the year.
My professional experiences have also informed my regulatory
philosophy. In my view, financial regulators need to be fair and
forward looking; innovative, inclusive, and independent; risk focused
and ready to act expeditiously when necessary; and appropriately
engaged with all stakeholders to develop effective, but not excessive,
regulation.
Additionally, an NCUA Board Member should be well informed, ask
tough questions, and make impartial judgments that balance competing
viewpoints in a transparent manner. If confirmed, I am confident I
would do just that.
My priorities, first and foremost, would be to safeguard the safety
and soundness of federally insured credit unions, preserve the
integrity of the credit union industry in a continually evolving and
increasingly complex marketplace, and protect taxpayers and credit
union members from losses to the Share Insurance Fund. Accordingly, if
confirmed, I would focus on the issues of capital, liquidity, and
cybersecurity. I would also prioritize the agency's consumer protection
responsibilities, consistent with the law.
By law, the credit union system has a mission to promote thrift and
serve people of modest means. As such, if confirmed, I would work
diligently with my NCUA Board colleagues to foster an environment that
supports small credit unions, minority depository institutions, and
low-income credit unions, which face the challenges of increased
competition, limited resources, and difficulties in achieving economies
of scale.
Additionally, I am committed to increasing access to financial
services for both the unbanked and the underbanked. This, too, would be
a priority for my work.
In closing, it would be a tremendous honor, if confirmed, to serve
as an NCUA Board Member. I believe that my expertise on financial
services policy and credit union issues, prior experience as a senior
congressional and regulatory staffer, proven ability to fairly consider
and balance competing viewpoints, and demonstrated strategic leadership
and communications skills combine to make me well qualified to serve in
this position.
Thank you again for the chance to appear before you today and for
considering me for this role.
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PREPARED STATEMENT OF RODNEY HOOD
To be a Member of The National Credit Union Administration Board
February 14, 2019
Chairman Crapo, Ranking Member Brown, and Distinguished Members of
the Committee, Thank You for the opportunity to meet with you this
morning as a nominee to serve on the Board of the National Credit Union
Administration.
It is indeed an honor and a privilege to be nominated to the NCUA
Board, and if confirmed, I will do my level best to fulfill the trust
placed in me by the President and the U.S. Senate. I am especially
grateful for the unwavering support I have received from the Senators
of my home State, Senator Richard Burr and Senator Thom Tillis. I am
humbled by the gracious words expressed in their letter on my behalf
for the public record and applaud their remarkable leadership and
service to the State of North Carolina.
I also want to than NCUA Board Chairman J. Mark McWatters for his
encouragement, my fellow nominee, Todd Harper, for his patience and
tenacity, and the professional staff at the NCUA who provided me
thorough briefings and insights on the myriad issues facing the agency
and federally insured credit unions.
While my parents are not here in person, I feel the warmth of their
presence as they watch from heaven. I am thankful to them for
bequeathing to me a strong value system--a value system that
encompasses humility, integrity, hard work, and compassion. I believe
these values have helped me make a difference in the lives of many
people during my 25 years in the private sector and in public service.
Through my education and work experiences, I have developed and
nurtured a broad knowledge of the financial services industry and have
a keen understanding of the tremendous responsibilities of regulators.
The NCUA plays an important role as both regulator and insurer to
protect the savings of more than 105 million Americans in an industry
with more than $1.4 trillion in assets.
I also recognize credit unions play a critical role in helping
families achieve the American dream of home ownership; assisting
entrepreneurs in creating small businesses; and providing the trusted
affordable and essential financial services so families can save for
the future. If confirmed by the Senate, I will work diligently to
ensure the continued safety and soundness of our Nation's credit union
system as it competes in a dynamic and ever-changing marketplace.
I look forward to returning to NCUA and fulfilling the duties and
responsibilities of a Board Member. My paramount responsibility will be
ensuring the safe and sound operation of federally insured credit
unions. Additional responsibilities will include ensuring that NCUA
thoroughly applies all relevant consumer protections, creates
opportunities to promote financial education and financial inclusion,
and fosters an environment where low-to-moderate income and disabled
individuals have access to affordable financial services.
I am committed to listening carefully, working hard, and doing my
level best to ensure the safety and soundness of the Nation's credit
union system--both the financial institutions and the National Credit
Union Share Insurance Fund.
During the 4 years of my term at NCUA over a decade ago, I worked
diligently to fairly and thoughtfully implement the Federal Credit
Union Act and ensure the safety and soundness of the Nation's then
8,000 credit unions, which at the time more than 80 million member-
owners and had assets over $600 billion. My regulatory philosophy was,
and still remains, that regulation needs to be effective, but not
excessive.
One of my lasting accomplishments from my previous term at NCUA was
the launch of Enterprise Risk Management Summits that provided training
sessions to credit unions on how to mitigate and manage risks. Working
in collaboration with regulators from the Federal Reserve, OCC, FDIC,
Federal Home Loan Banks, and National Economic Council, I hosted
sessions with subject matter experts and credit union leaders that
addressed risk areas such as liquidity, interest rate, and
concentration. It was through my efforts that today Enterprise Risk
Management is embedded in the Agency's supervisory and examination
process.
My interest in serving vulnerable communities grew from my
volunteer work as a missionary in Africa and later as a banker engaged
in community development. I still fondly remember the joy and
excitement I saw when a young woman who attended one of my bank's
homebuyer education classes, learned that home ownership was not just a
dream for her and her family. She was able to attend a series of
homebuyer classes, build a credit profile and obtain downpayment
assistance to purchase her first home. She showed her appreciation by
inviting me to tour her new home and share a meal with her family.
I have heard it said, ``The true measure of compassion is more than
good intentions, it is good results.'' I have been blessed and
fortunate to spend over 25-years working with some of the country's
most respected financial institutions that sought to empower economic
stability and shared prosperity in our local communities. While at
North Carolina Mutual and Wells Fargo, I held management positions that
allowed me to promote community development and outreach initiatives to
underserved communities. I served on the board of the Wells Fargo
Housing Foundation, and managed public-private partnerships with
results-oriented organizations such as the Neighborhood Reinvestment
Corporation and Habitat for Humanity.
Having served as a Community Reinvestment Act Officer at Bank of
America and National Director of Affordable Housing at Wells Fargo, I
have been both an advocate for and provider of affordable housing and
small business lending. In those positions, I oversaw loan programs,
managed teams of regional community development managers, and worked
with our credit policy group to evaluate and manage risks. I have also
provided financial education to underserved communities by conducting
seminars on how to buy a home and obtain the financing necessary to
start a small business.
My current work in the Corporate Responsibility Group at JPMorgan
Chase provides me with opportunities to manage national partnerships
with nonprofit organizations such as the NAACP, National Urban League,
NeighborWorks America, National Disability Institute and RespectAbility
in promoting financial inclusion and shared prosperity in underserved
communities. I also work with regulators from the OCC, FDIC, Federal
Reserve, and CFPB in hosting Financial Inclusion Summits for the
disabled community. These experiences directly exposed me to the
importance of regulatory review, financial soundness, and risk
management.
My public sector experience includes serving as the Associate
Administrator of the Rural Housing Service at the U.S. Department of
Agriculture, where I helped administer a $43 billion loan portfolio of
over 400,000 homeowners. I also served on the Board of NeighborWorks
America with leaders from the Federal banking regulators and the
Federal Housing Commissioner. Additional public sector experience
includes my term as a member of the University of North Carolina System
Board of Governors--the policy and oversight body for North Carolina's
public college system--serving 17 universities, more than 220,000
students and the UNC Hospital System. In that role, I served as the
Vice Chairman of the Board's Audit, Risk Management, and Compliance
Committee.
My experiences in the private and public sectors have provided me
with leadership opportunities and have taught me valuable lessons about
responsibility, accountability, and transparency. This includes the
importance of building solid teams, paying attention to the basics, and
putting a face on the decisions you make. These experiences have
provided me with a sound foundation and robust skill set for evaluating
the policy issues facing the NCUA Board.
If confirmed by the Senate, I will return to the NCUA with a risk-
based and market-oriented mindset based on the following tenets:
First, I will work to ensure that credit unions remain safe
and sound institutions.
Second, I will strive to be recognized as a fair and
thoughtful regulator--one who realizes the value and necessity
of regulation while also being cognizant of the impact of
excessive regulation.
Third, I will bring focused leadership and management to
the NCUA while seeking to ensure efficient operations and
prudent use of resources.
Fourth and finally understand the importance of disclosure
and transparency and will work closely with the Members of this
Committee, and all members of Congress, to ensure the financial
integrity of credit unions in an ever-changing and dynamic
environment.
Mr. Chairman and Members of the Committee, I am honored to appear
before you this morning and would like to thank you again for your
courtesy and consideration. I welcome any questions you may have.
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PREPARED STATEMENT OF MARK ANTHONY CALABRIA
To be Director of The Federal Housing Finance Agency
February 14, 2019
Chairman Crapo, Ranking Member Brown, and distinguished Members of
the Committee, I thank you for the opportunity to appear before the
Committee today as the nominee for Director of the Federal Housing
Finance Agency (FHFA).
I also want to thank the President for the trust and confidence
placed in me for this nomination. Additionally I want to express my
deep appreciation to Vice President Pence. Serving as Chief Economist
for the Vice President has been one of the greatest honors of my life.
It perhaps rivals the other great privilege of my career, which has
been to serve on the staff of this Committee. I take tremendous pride
in having served on the Committee staff under Senator Shelby. While GSE
reform was eventually passed in 2008, the structure of that reform
largely mirrors the Shelby bills of 2004 and 2005. If anyone is the
legislative father of FHFA, it is Senator Shelby.
I believe being part of the process that resulted in the Housing
and Economic Recovery Act of 2008 (HERA) has also given me unique and
valuable insights into the mission and history of FHFA. I well remember
the short comings of its predecessors, OFHEO and the FHFB.
I was also extremely fortunate to serve on the Committee staff
during the leadership of Senator Paul Sarbanes. While I did not always
agree with his policy positions, I have strived to live up to the
standards of professionalism and conduct he set for this Committee.
Particularly Senator Sarbanes' belief that it is indeed possible to
disagree without being disagreeable.
I take great pride in the fact that I continue to count a number of
former Sarbanes staff as friends.
Speaking of friends, it is also a true pleasure to be sitting at
the table today with three gentlemen I have the privilege of calling
friends.
I also want to recognize my partner, Allison Randall, who is here
with me today. Allison's life-long work to end domestic violence has
been a daily inspiration to me.
I have to thank the Committee here as well, as Allison and I met
working on the 2005 reauthorization of the Violence Against Women Act,
whose Title VI: Housing Opportunities and Safety for Battered Women and
Children, was the product of this Committee.
Lastly, I want to recognize my mother, Janie Jones, who is here
with me today. I know my sitting at this table is only possible due to
the many sacrifices made by my mother. I doubt I could have done half
the job she did, for many years as a single mother raising four
children.
It was also my mother's 20-plus years working for the County of
Fairfax Virginia that instilled in me a deep respect for public
service.
As she spent her service there in the Comptroller's office, she
also instilled in me the unavoidable reality that whatever the goals of
Government, the numbers have to add up.
While the primary focus of FHFA is on our Nation's mortgage
markets, the last piece of legislation I was privileged to work on for
this Committee was the Homeless Emergency Assistance and Rapid
Transition to Housing Act of 2009. It was a particular honor working
with Senator Reed and his staff to strengthen our Nation's homelessness
assistance programs to better service homeless families, especially
those living in rural America.
Homelessness and rural housing are only a few of the areas I have
worked on. During my service on the Committee staff I worked on over 20
pieces of legislation that became law, mostly in the areas of housing
and mortgage finance.
In addition to my Committee experience, I briefly oversaw HUD's
regulation of the mortgage market, primarily under RESPA.
I have also spent a number of years performing economic research on
the housing and mortgage market for two of the largest housing industry
trade associations.
I have spent the last 20-some years researching and writing about
our Nation's housing and mortgage markets. I believe I have
successfully mastered not just the economics of our housing and
mortgage markets, but also the legal and policy details. I believe that
particular combination of skills and strengths makes me uniquely
qualified to serve as the director of FHFA.
As the Members of the Committee are perhaps aware, I have an
extensive record of writings in the area of mortgage finance. I have on
a few occasions expressed strong opinions on the history and future of
our mortgage finance system. I have most definitely expressed, and
express here today, a frustration with the current state of our
mortgage system and the need for reform.
Despite that frustration, I want to very clearly state to this
Committee, that if confirmed, my role as Director of FHFA is to carry
out the clear intent of Congress, not to impose my own vision.
I have even brought with me today my nearly decade old, dog-eared
personal copy of HERA. Whatever the policy issue, my first question
will always be ``what does the statute say?''
Let me close by emphasizing that I believe we are truly at a
critical juncture in housing finance policy. Families across America
face heavy burdens making their rent or mortgage payments in many
cities, towns and States, as well as the unique barriers faced in our
rural and tribal communities.
I also strongly believe that shelter is one of the most critical of
basic needs facing any family. Whether it is rented or owned, American
families need an affordable place to call home.
I thank you for your consideration today and look forward to your
questions.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM BIMAL PATEL
Q.1. Capital Magnet Fund--The Community Development Financial
Institutions (CDFI) Fund is tasked with disbursing Capital
Magnet Fund (CMF) contributions from Fannie Mae and Freddie Mac
(the Enterprises). If confirmed, the CDFI Fund and its CMF
disbursements will be under your administrative purview.
In 2018, the Administration proposed to rescind the
Enterprises' Capital Magnet Fund contributions, rather than
disburse them. The Administration made this proposal despite
the fact that families across the country are suffering from an
affordable rental housing shortage. I am pleased that Congress
rejected this proposal.
I am also pleased that two Ohio organizations, National
Church Residences and the Ohio Capital Finance Corporation,
were recently awarded a combined $13.5 million of CMF funding
to help create and preserve affordable housing in Ohio and in
other States. As required, these organizations will leverage at
least $10 for every $1 awarded by CMF.
Given that 1 in 4 renter households are spending more than
half of their incomes on housing costs, do you agree with the
Administration's proposal to block the distribution of Capital
Magnet Funds?
A.1. The CDFI Fund is statutorily required to administer the
Capital Magnet Fund Program allocation when received. If
confirmed, I will continue to administer the program consistent
with these requirements.
Q.2. How do you intend to advise the Administration on any
future budget proposals to rescind CMF funding?
A.2. If confirmed, I will provide the Administration with
information on programmatic and awardee activity as requested.
Q.3. In any year in which the Enterprises transfer funds to
CMF, will you commit:
To promptly issue a CMF Notice of Funding Availability
(NOFA) without regard to any Administration proposal to rescind
such funding?
A.3. Upon receipt of funding, the CDFI Fund administers the
program, including release of the NOFA, in accordance with
statutory and regulatory program guidelines. If confirmed, I
will continue to administer the program consistent with these
requirements.
Q.4. To promptly award funds in response to that NOFA without
regard to any Administration proposal to rescind such funding?
A.4. As required by law, the CDFI Fund administers the Capital
Magnet Fund program rounds once funding is received. If
confirmed, I will continue to administer the program consistent
with these requirements.
Q.5. Community Development Financial Institutions (CDFI) Fund--
The CDFI Fund promotes community and economic development by
providing financial and technical assistance to CDFIs so that
they can expand access to financial services and affordable
credit to underserved people and communities, including those
in distressed urban, rural, suburban, Tribal, and Alaska and
Hawaiian Native areas. For FY2019, the Administration proposed
to eliminate new funding for CDFI discretionary programs
including the Bank Enterprise Award Program, CDFI program, the
Native American CDFI Assistance Program, and the Healthy Food
Financing Initiative. I am pleased that Congress rejected this
proposal.
Do you agree with the Administration's proposal to
eliminate new funding for CDFI discretionary programs?
A.5. If confirmed, I will continue to administer the program at
funding levels appropriated by the Congress.
Q.6. How do you intend to advise the Administration on any
future budget proposals to eliminate CDFI discretionary
funding?
A.6. If confirmed, I will provide the Administration with
information on programmatic and awardee activity as requested.
Q.7. Capital/TBTF/FSOC/Shadow Banking--Your former boss at the
FDIC, Jeremiah Norton, worked with former FDIC Chair Gruenberg
and Vice Chair Hoenig to strengthen leverage capital
requirements. But you know that the financial crisis wasn't
caused by only the risky behavior at the banks, there were
significant risks in the nonbanks and shadow banks as well.
That said, at FSOC, you supported the Secretary's efforts to
de-designate AIG and Prudential. Because of these efforts,
there is now not a single nonbank ``Systemically Important
Financial Institution'' or ``SIFI'' that has Federal oversight,
and we see significant risks growing in the shadow banks.
If confirmed as Assistant Secretary for Financial
Institutions, you will have financial regulation in your
portfolio. In light of experience at the FDIC, do you agree
with efforts at the Federal Reserve to weaken leverage capital
requirements?
A.7. I support simple, transparent, and strong capital
requirements for banks. It is important that the banking system
be appropriately capitalized to protect taxpayers and to
facilitate economic growth. The regulatory capital framework in
the U.S. possesses several components, which should each be
meaningful: risk-based, leverage, and supervisory stress-test
based capital requirements. Achieving the right calibrations
for each regime is the responsibility of our independent
banking regulators, who are currently undertaking open
rulemakings. As such, it would be inappropriate for me to
comment on an open rulemaking.
Q.8. In your response to Senator Kennedy's question, you said
that you believe ``Too-Big-To-Fail'' banks still exist.
Notwithstanding increases in capital since the crisis, how
would you propose to address this issue, including risks from
interconnectivity, if you are confirmed?
A.8. Current law requires that bankruptcy be the presumptive
path for resolving large and complex financial institutions. In
order to protect taxpayers, we must continue to enhance the
resolvability of banks. To that end, in its February 2018
report on Orderly Liquidation Authority and Bankruptcy Reform,
Treasury recommended a series of proposed reforms aimed at
improving the resolvability of financial institutions under
bankruptcy. The Treasury report states that improving the
Bankruptcy Code, ``would build on the resolution planning
process under Title I of the Dodd-Frank Act and other
postcrisis developments that have made U.S. financial companies
more readily resolvable in bankruptcy--including major
increases in usable capital and liquidity buffers, elimination
of significant short-term debt at the bank holding company
level, and efforts to simplify and rationalize corporate entity
structure.'' Treasury also recommended certain measures be
taken to enhance taxpayer protections under OLA.
With respect to risks related to interconnectivity, on
August 6, 2018, the Board of Governors of the Federal Reserve
System published a final rule requiring single counterparty
credit limits under Section 165(e) of the Dodd-Frank Act, and
the Federal Reserve should continue to monitor the
implementation of this rule.
Q.9. Section 165(d) of the Dodd-Frank Act, commonly referred to
as the ``living wills'' requirement, was designed to simplify
large, complex financial institutions so they would no longer
be a threat to financial stability. Large, complex financial
institutions are required to prove they can undergo an orderly
bankruptcy under current law. Do you think all financial
institutions are currently meeting these requirements? Do you
think these large, complex financial institutions should be
simplified so they can undergo an orderly bankruptcy, as
current law requires? Would changes to the bankruptcy code made
specifically for large, complex firms weaken this requirement
and preserve the existence of the kinds of financial
institutions whose mismanagement precipitated a worldwide
financial crisis?
A.9. I have not had the opportunity to review resolution plans
in my current capacity and thus do not have a view on whether
banking organizations are satisfying the resolvability
requirements under Section 165(d). I strongly support ensuring
that large, complex financial institutions satisfy applicable
legal requirements under Section 165(d). In order to protect
taxpayers, we must continue to enhance the resolvability of
banks.
Q.10. What was your role in FSOC's de-designation of AIG and
Prudential?
A.10. The reevaluation of nonbank financial companies is
required not less than annually pursuant to Section 113 of the
Dodd-Frank Act. With respect to the Council's determination to
rescind the designation of AIG, I coordinated the staff-level
analysis that Council members considered in their
determination. With respect the reevaluation of Prudential, I
am recused and did not materially participate in the matter.
The Council's reevaluation process of nonbank financial
companies under Section 113 of the Dodd-Frank Act is a months-
long process that is extensive and thorough. The Council's
analysis has previously considered financial stability risks
through several transmission channels, including exposures,
asset liquidation, and critical function or services. The
Council has also considered complexity and resolvability and
existing regulatory scrutiny in its analysis.
Q.11. Do you believe there are no nonbank ``SIFIs'' in the
U.S.?
A.11. There are currently no nonbank financial companies that
the Council has determined under Dodd-Frank Section 113 should
be subject to Federal Reserve supervision and enhanced
prudential standards. The Council noted in its 2018 Annual
Report, that ``[s]ince [December 2017], the Council has not
advanced any nonbank financial companies to Stage 3 or made a
proposed or final determination [of systemic importance]
regarding any nonbank financial company.''
Q.12. If confirmed as Assistant Secretary for Financial
Institutions, what will you propose to address growing risks in
the shadow banking sector?
A.12. It is important that banking regulators possess the data
and information necessary to address risks that might arise
from nonbank counterparty relationships. If confirmed, I will
work with banking regulators to monitor and address these risks
as appropriate.
Q.13. Insurance--One of your roles as Assistant Secretary for
Financial Institutions will be to oversee the Federal Insurance
Office (FIO), which has the authority to monitor the insurance
industry, including identifying issues or gaps in the
regulation of insurers that could contribute to a systemic
crisis in the insurance industry of the United States financial
system.
What specific steps will you take to identify issues or
gaps in the regulation of insurers that could contribute to a
systemic crisis in the insurance industry of the United States
financial system?
A.13. One of the Federal Insurance Office's (FIO) statutory
authorities is to monitor the insurance industry for issues
that could contribute to a systemic crisis in the U.S.
insurance industry. Among other things, FIO also serves as a
source of insurance policy expertise in the Federal Government
and coordinates Federal efforts and develops policy on
prudential aspects of international insurance. FIO monitors the
insurance industry through its active participation in both its
domestic work and its international engagement at the
International Association of Insurance Supervisors. FIO also
issues a host of reports assessing many of these risks,
including: annual reports to the Congress, reports on the
Terrorism Risk Insurance Program, a report on efforts to
increase transparency at international standard-setting bodies,
and others, which highlights its important work in these areas.
If confirmed, I will work closely with FIO to continue these
efforts, and to continue reporting on these important issues to
the Congress.
Q.14. If confirmed, you would oversee the FIO, which serves as
a nonvoting FSOC member and has authority to recommend to FSOC
that it designate an insurer as an entity subject to regulation
by the Board of Governors. Under what circumstances would you
recommend that the FSOC designate or redesignate an insurer as
a SIFI?
A.14. Under Section 113 of the Dodd-Frank Act, if the Council
determines that the material financial distress at a U.S.
nonbank financial company, or the nature, scope, size, scale,
concentration, interconnectedness, or mix of the activities of
a U.S. nonbank financial company, could pose a threat to the
financial stability of the United States, they may subject that
firm to Federal Reserve supervision and enhanced prudential
standards. Treasury recommended in its November 17, 2017,
report on FSOC designations that the Council should prioritize
identifying particular financial activities or products that
could pose risks to U.S. financial stability and also
recommended enhancements to the designation process under
Section 113 to include cost-benefit analysis, consideration of
likelihood of material financial distress and pre- and post-
designation off ramps. Council members are considering the
recommendations made in the report, which, if adopted, would
have implications for the designation process and analysis. If
confirmed, I will work closely with the Federal Insurance
Office (FIO) to monitor the risks facing the U.S. insurance
industry.
Q.15. In your view, what are the current risks facing large
insurance companies and how are they different from those that
existed during the financial crisis? How do you propose to
address these risks if confirmed as Assistant Secretary for
Financial institutions?
A.15. Since the financial crisis, the set of possible risks
facing the U.S. financial system, including U.S. insurers,
continues to evolve. As noted in FSOC's 2018 annual report, as
the financial system, including insurers, increase its reliance
on information technology, there is an increasing risk that a
cybersecurity event will have severe negative consequences,
potentially entailing systemic implications for the U.S.
insurance sector. If confirmed, I will have FIO and the Office
of Critical Infrastructure Protection and Compliance Policy
continue to work together on these important cybersecurity
issues. Additionally, it is important that FIO continue to
monitor how changes in technology create both potential
opportunities and risks for the U.S. insurance sector, and if
confirmed, I will work to ensure it does so.
Q.16. Treasury Reports--You played a role in several of the
reports released by the Treasury Department in 2018 pursuant to
President Trump's Executive Order 13772 on Financial
Regulation.
Which reports did you work on and what was your role in the
writing of each of those reports?
A.16. I oversaw the staff drafting of the report on Financial
Stability Oversight Council Designations. I also participated,
to various degrees, in the development of the Treasury's
reports on Banks and Credit Unions, Asset Management and
Insurance, and Nonbank Financials, FinTech, and Innovation and
the Orderly Liquidation Authority and Bankruptcy Reform.
Q.17. Many of the recommendations in the Treasury's reports
look like the wish lists of the financial industry. Treasury
disclosed the meetings it took in preparation for the reports
and it met overwhelmingly with industry compared to civil
rights and consumer advocacy groups. Were you a participant in
these meetings? Why did you meet with more industry
representatives than groups that advocate for consumers,
workers, and families?
A.17. I believe that public policy is substantially improved
when considering a diverse set of viewpoints, and if confirmed,
I will continue to seek a diverse set of perspectives in my
work. During the development of the reports, Treasury consulted
extensively with a wide range of stakeholders, including trade
associations, financial services firms, consumer advocacy
groups and community interest organizations, academics, and
other experts. Treasury also reviewed a wide range of data,
research, and published material from both public and private
sector sources.
Q.18. If confirmed, what will be your role in carrying out all/
any of the unimplemented recommendations in these reports? What
recommendations will you prioritize?
A.18. The vast majority of recommendations made in the Treasury
reports require action by the financial regulatory agencies or
the Congress. If confirmed I look forward to engaging with both
the Congress and the financial regulatory agencies should they
choose to implement any of the policy recommendations.
Q.19. Treasury's Nonbanks, FinTech, and Innovation report
advocated that the CFPB rescind its payday lending rule. Do you
support CFPB Director Kraninger's efforts to repeal the ability
to repay and repeat loan limit provisions of the payday lending
rule?
A.19. I recognize the importance of small-dollar credit to
American families, particularly middle-class and lower-income
families. I also support appropriate consumer protections that
allow consumers to make informed decisions and preserve
availability of consumer financial products. The Bureau is
currently undertaking an open rulemaking on this issue. As
such, it would be inappropriate for me to comment on an open
rulemaking.
Q.20. What recommendations do you believe would most benefit
American families?
A.20. The Treasury reports made a number of recommendations,
many of which would benefit U.S. consumers, businesses, and the
overall economy. Two examples include encouraging
simplification of the de novo bank application process to allow
banks to serve a greater number of consumers and communities,
and minimizing burden on rural and agricultural lenders, as
appropriate, to help families in rural and agricultural
communities.
Q.21. FinTech--You have written and testified on expanding
financial technology and worked on the Treasury report on
Nonbanks, FinTech, and Innovation. I am skeptical of making it
easier for nonbank financial institutions to avoid State and
Federal consumer protection laws. Many innovative financial
products are already offered under the existing regulatory
framework without violating the law.
Q.21. What is your position on nonbanks accessing consumer data
and providing financial products without the same safety and
soundness regulations and consumer protections that community
banks are required to comply with?
A.22. The current practice of data sharing between banks and
nonbank firms can deliver real benefits to consumers looking to
lower the cost of borrowing, better manage their expenses, and
save for the future. At the same time, I think that the current
methods for sharing data need to be improved to allow for more
responsible and secure sharing of consumer financial data, and
to address key issues around security and liability. If
confirmed, I would be happy to work with the Congress as it
considers what potential revisions to the legislative and
regulatory frameworks around consumer financial data or data
aggregation might be needed.
Q.22. Prior to the 2008 financial crisis, the financial
services and banking industry claimed that dangerous subprime
mortgages were ``innovative'' and would ``increase access to
credit'' for millions of families that they ended up grievously
harming. How are the ``innovations'' you hope to encourage by
weakening laws and regulations different from the
``innovations'' promised by subprime mortgage lenders?
A.23. Innovation must be undertaken in a responsible manner,
one that protects consumer data privacy and enables consumers
to make informed choices regarding the use of financial
services. Fraudulent products designed to interfere with
consumers' ability to make such informed choices should be
restricted in favor of products that offer clear disclosures.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM BIMAL PATEL
Q.1. In the Midwest, where there is substantial need for
investment but generally fewer CDFIs to help raise, leverage,
and deploy capital. Although making grants to start new CDFIs
is part of the solution over the long-term, this process takes
time to accelerate and do responsibly. Actively fostering
partnerships is key to the success of the CDFI fund--between
existing CDFIs and community banks to jointly lend to community
projects; between CDFIs and local networks of nonprofits for
grants and loans for small businesses in rural communities; and
between larger national CDFIs and local CDFIs to jointly lend
larger, long-term loans. It seems there is more Treasury and
the CDFI Fund can do to further incentivize and promote this
type of collaboration that is essential to the Midwest.
In your role leading the Office of Financial Institutions
and in turn, the Office of Financial Institutions Policy, how
can Treasury and the CDFI Fund be more committed and creative
to meeting this need for collaborative efforts?
A.1. The CDFI Fund currently promotes partnerships with banks
and other financing partners through a variety of measures. For
example, through an innovation prize competition, the CDFI Fund
supported the development of an online platform to match small
businesses declined for loans by banks or online lenders with a
CDFI that may be able to meet their needs. If confirmed, I look
forward to working with you to promote investment in rural
communities.
Q.2. Can you share your thoughts about what more the CDFI Fund
can do to promote such investment in rural communities?
A.2. The CDFI Fund currently has a strong commitment to serving
rural communities. If confirmed, I intend to keep that
commitment, and look forward to working with you to promote
investment in rural communities and increase access to capital
in underserved rural areas. Although only 15 percent of the
U.S. population is located in nonmetropolitan areas, about 21
percent of New Markets Tax Credit investments and 18 percent of
CDFI awardee investments are located in such areas (using the
OMB/U.S. Census Bureau definition for nonmetropolitan
counties). Similarly, of the 38 Capital Magnet Fund awardees,
24 percent will invest at least half of their award dollars in
rural areas.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM BIMAL PATEL
Q.1. Providing banking services for firms that provide cannabis
remains a problem. Not just for the cannabis firms but for
their vendors.
What would you do meet the banking needs of cannabis firms?
A.1. Treasury has stated that financial institutions are
expected to follow the law and reasonably manage their anti-
money-laundering risks. Treasury has noted the importance of
working towards a solution on this issue and has noted
associated risks in areas such as tax collection and illicit
finance. I understand clarity surrounding this issue is
important to constituents in Nevada, and, if confirmed, I will
work with you to better understand your perspectives on this
issue.
Q.2. When I was Attorney General, there was not adequate
research on risks in the financial market that would soon
devastate Nevada. I am concerned that the enormous reduction of
staffing at the Office of Financial Research will result in
weaker analysis.
How will you make sure that the OFR's research is thorough
and easily comprehensible and accessible to policymakers all
across the country, academics, researchers and business
leaders?
A.2. Analytical rigor in policymaking is extremely important to
me. If confirmed, I will continue to work with OFR to support
high standards of quality in policymaking and research. The
OFR's annual reports, working papers, briefs, monitors, and
other products are widely available on the OFR's website for
public use.
Q.3. In your current position, you are part of Treasury's
efforts regarding cryptocurrencies. I am deeply concerned by
cryptocurrencies' potential to be used to commit crimes, such
as human and drug trafficking.
In your conversations with Treasury's working group, have
you discussed cryptocurrencies' potential to be used to commit
crimes?
A.3. Treasury has discussed these concerns with the members of
the FSOC Digital Assets and Distributed Ledger Technology (DLT)
Working Group. Additionally, Treasury's Office of Terrorism and
Financial Intelligence has been working closely with financial
regulators and partners in law enforcement to proactively
address these concerns and prosecute crimes.
Q.4. The Assistant Secretary of Treasury for Financial
Institutions is also responsible for overseeing legislation
that affects agencies which regulate or insure financial
institutions, such as the Federal Home Loan Bank System.
Recently, the Federal Home Loan Banks issued a proposal to
modify their affordable housing goals.
Do you support the affordable housing and community
development mission of the Federal Home Loan Banks?
A.4. I am in favor of a housing finance policy that promotes
consumer access to mortgage credit, while protecting the
interests of taxpayers. The FHLBanks are overseen by an
independent regulator, FHFA, and I would defer questions on
FHLBank affordable housing and community development activities
to FHFA.
Q.5. Do you support the Affordable Housing goals as recently
proposed?
A.5. I am in favor of a housing finance policy that promotes
consumer access to mortgage credit, while protecting the
interests of taxpayers. The FHLBanks are overseen by an
independent regulator, FHFA, and I would defer questions on
FHLBank affordable housing and community development activities
to FHFA.
Q.6. How will you urge the Federal Home Loan Banks to expand on
their community development mission?
A.6. I am in favor of a housing finance policy that promotes
consumer access to mortgage credit, while protecting the
interests of taxpayers. The FHLBanks are overseen by an
independent regulator, FHFA, and I would defer questions on
FHLBank affordable housing and community development activities
to FHFA.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM BIMAL PATEL
Q.1. In Arizona, voters approved cannabis for medical use in
2010. Following the rescission of the Cole Memorandum in
January 2018, financial institutions reacted with concern and
uncertainty in how to provide banking services to legal
cannabis and cannabis-related businesses. If confirmed, how
will you work to ensure that State laws like Arizona's are
respected and that these legal Arizona businesses can access
essential banking services?
A.1. Treasury has stated that financial institutions are
expected to follow the law and reasonably manage their anti-
money-laundering risks. Treasury has noted the importance of
working towards a solution on this issue and has noted
associated risks in areas such as tax collection and illicit
finance. I understand clarity surrounding this issue is
important to constituents in Arizona, and, if confirmed, I will
work with you to better understand your perspectives on this
issue.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM TODD M. HARPER
Q.1. Credit Union Fees--Last fall, the New York Times reported
on high fees and interest rates charged to members of the
Marriott Employees' Federal Credit Union--a credit union that
was formed so that employees would have access to low-cost
financial services. Marriott Employees' Federal Credit Union
has a low-income designation meaning 50 percent of its members
have family incomes of less than 80 percent of the median
income in the areas it serves.
As the article indicated, many of these workers are
struggling to make ends meet, and these fees make their
economic situations worse. In the same article, it was reported
that some of the executives and management of Marriott who also
use the credit union are receiving million-dollar mortgages and
car loans at below-market interest rates.
If confirmed, will you commit to review credit unions' fees
like overdraft and minimum balance charges as described in the
article? Will you commit to crack down on fees if they are
inconsistent with the credit union system's mission of
providing affordable financial services to working families?
A.1. Yes. If confirmed, I will commit to reviewing such fees
and taking appropriate action, consistent with Federal consumer
protection laws and the NCUA's regulations. I will also explore
how the NCUA presently monitors the performance of credit
unions receiving the low-income designation to determine
whether new or modified procedures should be adopted to ensure
that these credit unions fulfill their statutory mission of
promoting thrift, especially for people of modest means. In my
view, our Nation's system of cooperative credit ought to serve
everyone.
Q.2. Financial Crisis--You advised former NCUA Chair Debbie
Matz during and after the 2008 financial crisis. What lessons
did you learn about credit union regulation from that time?
What issues will you approach differently now because of that
experience?
A.2. Several lessons stand out. First, consistent with their
risk profiles, federally insured credit unions need to build up
and maintain enough reserves of high-quality capital during
good times to survive economic downturns. Second, the agency
must maintain appropriate levels of experienced staff and
funding in good economic cycles to be prepared to conduct
effective, timely, and thorough examinations during challenging
economic periods. Third, supervisory activities should be
focused on those institutions and activities that pose the
greatest risk to the National Credit Union Share Insurance
Fund. To address such risks, the NCUA Board in the years
immediately following the financial crisis adopted important
rules on stress testing, emergency liquidity, and risk-based
capital, among others, to address the problems identified
during the crisis.
The financial crisis also shaped my thinking about
regulatory readiness. It is imperative for financial regulators
to always maintain an open mind about where risks might rise.
While my safety-and-soundness focus would be on the issues of
capital, liquidity, and cybersecurity, I recognize that in our
Nation's complex financial system new, more pressing threats
may quickly develop. Regulators, therefore, need to have the
agility and ability to quickly respond to such threats in order
to protect the safety and soundness of the financial
institutions they charter, supervise, or insure, and to
safeguard taxpayers from losses to the share and deposit
insurance funds. Finally, the NCUA must work vigilantly to
mitigate threats within the credit union system.
Q.3. Underbanked and Unbanked--In your testimony you indicated
that one of your top priorities is to increase access for the
unbanked and underbanked to credit union products and services.
If confirmed, what will you propose to achieve this objective?
A.3. Just as there are food deserts where residents lack access
to grocery stores, there are financial deserts where residents
lack access to affordable products offered by mainstream
financial services providers. If confirmed, I would undertake
several actions to expand access to mainstream financial
services for the unbanked and underbanked. For example, I would
publicly support legislative efforts in Congress to allow
Federal credit unions of all charter types to add underserved
areas to their fields of membership. This change to the law
would likely have the greatest impact on expanding access to
affordable financial services for the unbanked and underbanked.
Additionally, if confirmed, I would publicly support
efforts to maintain or increase appropriations for the
Community Development Revolving Loan Fund and the Community
Development Financial Institutions Fund. Both programs support
efforts to expand access to financial services in low-income
communities.
If confirmed, I would also work to ensure that the NCUA's
Office of Consumer Financial Protection has the resources it
needs to conduct effective financial literacy outreach to the
unbanked and underbanked. Similarly, I would work to ensure
that the NCUA's Office of Credit Union Resources and Expansion
has the staffing and funding needed to conduct outreach to
credit unions through webinars, in-person conferences, one-on-
one assistance, and the distribution of best practices about
providing financial services to the unbanked and underbanked.
Additionally, I would ask the office to explore whether there
are ways to streamline and simplify the application process for
chartering new credit unions aimed at serving the unbanked and
underbanked.
Finally, and perhaps most importantly, I would set a tone
at the top of the organization by speaking often and regularly
about the need for credit unions to expand their services to
the unbanked and underbanked. In this regard, I would explore
whether to convene a series of collaborative workshops across
the country to focus more on this issue, like the Partnering
and Leadership Successes forums convened more than 15 years
ago.
Q.4. Mergers, Acquisitions, and Consolidation--There has been a
trend in consolidation in the financial industry, including
among credit unions. NCUA approved 53 mergers in the fourth
quarter of 2018 and credit union mergers and acquisitions have
increased the size of the average credit union. What do you
think is the impact of consolidation on credit union members?
What can be done, if anything, to slow down or reverse this
trend?
A.4. The consolidation trend among all types of depository
institutions has remained relatively constant and consistent
across all economic cycles for more than three decades. Two of
the leading causes of consolidations in the credit union system
include a lack of succession planning by small credit unions
and the need to achieve economies of scale to provide the
services that members want. While consolidations unquestionably
limit consumer choice in selecting their financial providers,
many consumers ultimately receive access to a greater array of
services.
Nevertheless, I recognize the real need to support and
assist smaller, federally insured credit unions, especially
those with $100 million or less in assets. These small credit
unions make up more than 70 percent of the units in the system.
If confirmed to the NCUA Board, I would work to ensure that the
NCUA's Office of Credit Union Resources and Expansion has the
funding and staffing needed to reach out to these financial
institutions to assist them in succession planning and
identifying opportunities for growth, consistent with safety
and soundness.
Finally, I would work to further tailor and target the
NCUA's rules to reduce the regulatory and supervisory burdens
for small credit unions, when possible. Such regulatory relief
would help to level the playing field for smaller credit unions
without substantially increasing risk to the Share Insurance
Fund.
Q.5. If confirmed, when approving credit union mergers or
acquisitions, how will you ensure that continued presence and
investment in the local community are taken into consideration
so that working families continue to have access to financial
services?
A.5. If confirmed, I would work with staff and my Board
colleagues to review the agency's existing policies and
procedures for handling credit union mergers, acquisitions, and
charter expansions. When the NCUA charters a new credit union,
approves a field-of-membership expansion for an existing
community-based credit union, or permits a credit union to
convert to a community charter, the credit union must have in
place a business and marketing plan, which the agency then
monitors for compliance over a period of several years. A
similar process could be used after mergers and acquisitions to
ensure the continued access of working families to financial
services.
Q.6. Pentagon Federal Credit Union Merger--Earlier this year,
Pentagon Federal Credit Union (PenFed), a credit union with $23
billion in assets and over 1.6 million members, acquired
Progressive Credit Union, a New York State-chartered credit
union with $383 million in assets and an open charter. While
PenFed has said it will not use the open charter, if it were to
change its mind in the future, would you support that decision?
A.6. Presently, the Federal Credit Union Act does not allow for
the chartering of a Federal credit union with an open field of
membership. In this instance, however, through an emergency
voluntary merger Pen Fed acquired a State-chartered credit
union which had an open field of membership for many decades.
If confirmed, I would have serious reservations if PenFed used
the open charter to expand its membership. In my view, our
Nation's system of cooperative credit should serve everyone.
Therefore, I would want to understand how PenFed planned to
promote thrift and ensure access to affordable financial
services, especially for people of modest means.
Q.7. If so, should the NCUA change how it regulates a large
credit union with no restrictions on its field of membership?
A.7. The use of an open field of membership by a large Federal
credit union would cause me concerns, especially as to whether
the institution is serving all communities, including financial
deserts with many underserved and underbanked consumers. If
confirmed to the NCUA Board, I would explore how the NCUA's
Office of National Examinations and Supervision, which oversees
and examines credit unions with $10 billion or more in assets,
presently assesses the performance of a large Federal credit
union in serving its field of membership and consider with my
Board colleagues how such oversight should change. I would act
to ensure that such oversight remains consistent with the
requirements of the Federal Credit Union Act, consumer
protection laws, and other legal requirements.
Q.8. Field of Membership--Over time, State regulators and the
NCUA have expanded field-of-membership rules, to expand access
to financial services for a greater number of consumers.
Expanding access to the financial system is extremely
important, but it is just as important to ensure those same
credit unions are serving all members of these increasingly
larger communities and fields of membership. What does the NCUA
currently do to evaluate a credit union's performance in
serving all of its members?
A.8. It is a priority for me to expand access to financial
services for the underserved and underbanked. When the NCUA
charters a new credit union, approves a field-of-membership
expansion for an existing community-based credit union, or
permits a credit union to convert to a community charter, the
credit union must have in place a business and marketing plan,
which the agency then monitors for compliance over a period of
several years. If confirmed to the NCUA Board, I would evaluate
the effectiveness of this practice, as well as any other of the
agency's current policies for ensuring that Federal credit
unions with an expanded field of membership are appropriately
serving all their members.
Q.9. Are there any improvements for which you would advocate if
confirmed?
A.9. As mentioned above, when the NCUA charters a new credit
union, approves a field-of-membership expansion for an existing
community-based credit union, or permits a credit union to
convert to a community charter, the credit union must have in
place a business and marketing plan, which the agency then
monitors for compliance over a period of several years. A
similar process could be used to evaluate the performance of
credit unions serving larger fields of membership to determine
whether they are appropriately serving all their members. Such
a review would be consistent with the statutory mission of
credit unions to promote thrift, especially for people of
modest means.
Q.10. Payday Alternative Loans (PALs)--The CFPB Director
recently proposed drastically weakening the agency's payday
rule. Will you pledge not to follow in Director Kraninger's
footsteps and work to maintain the restrictions, fee limits,
and current interest rate caps on the NCUA's Payday Alternative
Loan (PAL) product?
A.10. The NCUA's PAL product is designed to expand access to
affordable financial services in a safe-and-sound manner. It
provides an affordable alternative to predatory payday and
title loans. In my view, it is very important to maintain the
consumer protections built into the current NCUA regulation,
including maintaining appropriate limits on fees, interest
rates, and rollovers.
The NCUA Board has also proposed a rule that would expand
the ability of credit unions to offer more PALs products to
their members. If confirmed to the NCUA Board, I would work
with my Board colleagues to ensure appropriate consumer
protections remain in place, like those related to limits on
fees, interest rates, and rollovers. It is also important to
ensure that members receiving a payday alternative loan can
repay the loan so that they can build a positive credit history
and gain access to more affordable loan products offered by
federally insured credit unions and other mainstream financial
services providers.
Q.11. NCUA Spending--At your confirmation hearing, Chairman
Crapo asked about recent press reports about excessive spending
by the current chair of the NCUA Board. While some of the
spending is allowed under NCUA policies, some of it was not, as
confirmed by the NCUA Inspector General Report. You committed
to Chairman Crapo that you would review these policies if
confirmed, which I support. You have worked at the NCUA before,
are there certain items you believe should not be reimbursed
for Board members or staff by a Federal agency?
A.11. The NCUA should work with its sister regulators to
develop a common reimbursement policy for representation and
travel expenses modeled on the rules in place at other Federal
regulatory agencies. In my view, such a policy should not allow
for the purchase of alcohol by an individual Board Member or
staff, although it may be permissible to serve alcohol at
widely attended conferences and meetings. If confirmed, I would
work with my NCUA Board colleagues to ensure that the rules in
this area are clear, consistent, and communicated. Finally, if
confirmed to the NCUA Board, I would commit to not seeking
reimbursement for alcohol purchases regardless of the policy.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM TODD M. HARPER
Q.1. Last Congress, I was the Senate sponsor of S. 3750, the
Common Sense Credit Union Capital Relief Act of 2018. It would
call for a delay in the implementation of the NCUA's risk-based
capital rule. What are your thoughts on the risk-based capital
rule? Should implementation of the rule be delayed? Should
Congress reevaluate the need for the rule entirely?
A.1. In my view, it is important for all financial institutions
backed by Federal deposit or share insurance to hold capital
commensurate with the risks held on their balance sheets. In
the case of federally insured credit unions, such capital will
protect taxpayers by helping to prevent or mitigate losses to
the National Credit Union Share Insurance Fund when a credit
union fails.
To maintain the safety and soundness of federally insured
credit unions, the Federal Credit Union Act currently requires
the NCUA Board to issue regulations to create a system of
prompt corrective action. This system must be consistent with
the requirements of the Federal Credit Union Act and comparable
to the rules of Federal banking regulators. It must also take
into account the cooperative character of credit unions.
In 2013, the Federal banking agencies adopted new risk-
based capital rules. To maintain comparability with these
rules, the NCUA Board moved ahead with efforts to modify its
risk-based capital rule. Action on this regulation was also
recommended by the Government Accountability Office and the
NCUA's Inspector General.
The NCUA Board finalized its risk-based capital rule in
late 2015. As initially approved, this rule applied to complex
credit unions with $100 million or more in assets and provided
for an implementation period of more than 3 years. Last year,
while your legislation was pending, the NCUA Board increased
the threshold to $500 million and extended the implementation
period for an additional year. The new effective date for
compliance is January 1, 2020.
As I understand it, nearly all federally insured credit
unions covered by the current risk-based capital rule would be
subject to the lower leverage capital requirement contained in
the Federal Credit Union Act. In all, less than 20 federally
insured credit unions would be subject to the higher risk-based
capital requirement contained in the agency's revised rule.
These 20 or so credit unions engage in riskier activities or
hold higher concentrations of certain assets on their books.
If confirmed, I would keep your concerns in mind and take a
fresh look at this issue. First, I would want to know the
actual capital held at each of these 20 or so credit unions
before making any decision about whether to further delay the
rule. As I understand it, many of them have recently increased
the capital held on their books in response to the NCUA Board's
rulemaking. I would also want to know what Federal banking
regulators have done with their risk-based capital rules given
the comparability requirements of the Federal Credit Union Act.
Finally, during the last 2 years, the failure of several
federally insured credit unions that concentrated in taxi-
medallion lending have resulted in large losses for the Share
Insurance Fund. If the NCUA's risk-based capital rule had been
in effect earlier, some of these losses might have been
mitigated. If confirmed, I would keep this recent history at
the forefront of my mind when making any decision about whether
to further delay implementation of the NCUA's risk-based
capital regulation.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM TODD M. HARPER
Q.1. In addition to voluntarily following the spirit of the
President's Executive Order to reduce regulatory burden, the
current NCUA Board has focused much of its recent rulemaking
activity on reducing unnecessary regulatory burden. Do you
agree with voluntarily following the Executive Order, and will
you do so if confirmed?
A.1. The NCUA has a long history of voluntarily complying with
Executive Orders so long as the order does not compromise the
mission of the agency, conflict with statutory law, or
undermine the safety and soundness of credit unions. In my
view, these efforts have generally improved the quality of
rulemaking over time and addressed pressing regulatory concerns
at the time. If confirmed, I would support the continuation of
the agency's long-standing practice of voluntarily following
Executive Orders, as appropriate.
Q.2. With regard to future NCUA rulemakings, what approach will
you take in terms of focusing on a reduction of unnecessary
regulatory burden?
A.2. For several of its rules, the NCUA has tailored regulatory
requirements based on the asset size of the credit union.
Currently, more than 70 percent of federally insured credit
unions have $100 million or less in assets. In my view, it is
especially important that the NCUA work to minimize the
regulatory burdens of these financial institutions so that they
can instead focus on serving the needs of their members and
building net worth, as appropriate. If confirmed, I would
examine how the NCUA could further tailor its rules to limit
regulatory burdens based on the size, scale, and scope of a
credit union and its activities, consistent with the statutory
requirements established by Congress and the need to protect
both consumers and the safety and soundness of the credit union
system.
Q.3. Credit unions, as not-for-profit, member-owned
institutions, are inherently different than for-profit banks.
It is critical that a member of the NCUA Board appreciate this
difference and support the credit union philosophy of people
helping people. While it is inevitable that some credit unions
will occasionally choose to switch from a credit union to a
bank charter, what will you do to uphold the core philosophy of
credit unions to ensure they remain a viable source of
financial services for Americans?
A.3. In my many years working at the NCUA and for Congress, I
have gained a great appreciation for the credit union
philosophy and the uniqueness of the credit union charter.
Therefore, if confirmed, I would set a tone at the top by
regularly reminding credit unions of their statutory mission to
promote thrift, especially for people of modest means. I would
also closely monitor the composition of the lending portfolio
of both the credit union system and individual credit unions to
determine whether consumer financial needs are being met.
Generally, the credit union system remains very focused on
serving members' financial needs. Of the $1 trillion in loans
presently held on the books of federally insured credit unions,
residential mortgages account for nearly 45 percent of the
total, auto loans for 35 percent, and credit card debt for
approximately 5 percent. Additionally, while federally insured
credit unions constitute just 7 percent of the assets of our
Nation's financial institutions, they provide 11.5 percent of
consumer loans. Together, these metrics provide a way for
quickly assessing whether credit unions are remaining a viable
source of financial services for Americans.
Q.4. The NCUA is unique from other Federal financial regulatory
agencies in that it is an independent regulator and insurer of
credit unions. Do you support the agency's continued
independence?
A.4. Yes. In the aftermath of the savings-and-loan crisis,
Congress worked to strengthen Federal financial institutions
regulators by providing independence in setting budgets and
collecting fees, submitting testimony to Congress, and allowing
for rulemaking outside of the OMB-approval process used for
other executive branch agencies, among other things. Such
independence helps to ensure the effective supervision of the
credit union system and protects against inappropriate
political interference.
Q.5. What can the NCUA do to ensure it is able to maintain its
current status as an independent regulator and insurer?
A.5. First and foremost, the NCUA must continue to ensure the
safety and soundness of the credit union system and protect the
National Credit Union Share Insurance Fund from losses. The
agency must also maintain an arm's-length distance from the
entities it charters, regulates, or insures. Appropriate
engagement with all stakeholders is important to develop
effective, but not excessive, regulation and supervision, but
it must be done in a way to prevent regulatory capture.
If confirmed, I would also work with my colleagues on the
NCUA Board and staff to ensure that the agency is transparent
in its regulatory actions and budgeting process, fair and
forward-looking, innovative and inclusive, and risk-focused and
ready to act expeditiously when necessary. Together, these
steps would help to maintain the independence of the agency
going forward.
Q.6. As the prudential regulator and Federal insurer, the NCUA
retains oversight over the vast majority of a credit union's
operations. However, there are numerous areas where there is
overlap with other regulatory agencies, such as the Consumer
Financial Protection Bureau (CFPB) in regard to certain
consumer financial protection laws and regulations, as well as
some areas where other agencies maintain exclusive authority
over certain issues, such as the Federal Communications
Commission in regard to certain consumer protections, including
the Telephone Consumer Protection Act. Do you appreciate the
importance of the NCUA's continued coordination with other
Federal regulatory agencies?
A.6. Absolutely. Early in my career, I spent 4 years at the
Occupational Safety and Health Administration. In this role, I
worked on several matters, including interagency jurisdictional
issues. While at the NCUA, I also advised agency officials
about matters related to the Federal Financial Institutions
Examination Council, the interagency body empowered to
prescribe uniform principles, standards, and report forms for
the Federal examination of financial institutions, and the
Financial Stability Oversight Council. As a result, I recognize
that Government agencies need to work together to minimize
conflicts, inform decision making, collaborate, and coordinate.
If confirmed, I would work to do just that.
Q.7. How will you ensure the NCUA works in close collaboration
with other agencies on issues and rulemakings that directly
impact credit unions?
A.7. In my view, effective regulation and supervision require
appropriate engagement with all stakeholders, including Federal
financial regulators, State regulators, and other Government
agencies. If confirmed, I would work to maintain collaborative
relationships with the NCUA's sister agencies at the State and
Federal levels, as well as through the Federal Financial
Institutions Examination Council. I would also work with my
colleagues on the NCUA Board to conduct outreach to other
agencies on a case-by-case basis. When done well, such
cooperation should produce better policy outcomes.
Q.8. One of the important responsibilities of the NCUA Board is
oversight and management of the National Credit Union
Administration Central Liquidity Facility (CLF), an
instrumentality of the United States whose purpose is ``to
improve general financial stability by meeting the liquidity
needs of credit unions and thereby encourage savings, support
consumer and mortgage lending, and provide basic financial
resources to all segments of the economy.''
Since this is the 40th anniversary year of the CLF's
establishment and the credit union industry has changed
significantly over that course of years in many respects,
including the number of credit unions and the services they
provide, if confirmed would you make a review of the CLF during
this anniversary year a priority, with an eye towards making
improvements that may be warranted based on the changes that
have occurred since its founding?
A.8. In the aftermath of the financial crisis, the NCUA Board
approved its emergency liquidity rule. Among other things, this
rule requires credit unions above $250 million in assets to
maintain access to a federally backed liquidity provider like
the NCUA's Central Liquidity Facility or the Federal Reserve's
Discount Window. After the rule's implementation, there was an
initial uptick in the number of credit unions purchasing stock
in the CLF. Since then, as I understand it, the number of
members of the CLF has remained relatively constant.
If confirmed, I would work with my colleagues on the NCUA
Board to determine whether a comprehensive review the
operations of the CLF and the NCUA's emergency liquidity
requirements is needed at this time. I would approach any such
review with an open mind and an eye on identifying improvements
to the CLF's operations as you suggest. In my view, the CLF
should examine the creditworthiness of the credit unions to
which it lends money. I would also want to reexamine the
agency's prior legislative proposals to enhance access to
emergency liquidity for the credit union system by making
targeted changes to the CLF and expanding the agency's access
to the U.S. Treasury.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM TODD M. HARPER
Q.1. The National Credit Union Administration staff has been
through a major consolidation--a shrinking to three regional
offices from five. How will you manage this transition so that
the staff remain focused on their mission and have the
resources they need? Does the consolidation present any
concerns?
A.1. As I understand it, the NCUA completed the consolidation
of its regional offices at the start of 2019. Therefore, if
confirmed, my concerns going forward would be to identify and
ameliorate any unintended consequences from the consolidation.
First, it is important to learn the views of credit unions
about any problems resulting from the consolidation, such as
additional costs and increased staff time for some credit
unions to travel to meet with regional office leaders.
Additionally, I have concerns about the ability of regional
offices to effectively coordinate across a greater number of
States. As such, I would want to learn more about their
experiences by speaking with both regional directors and State
regulators. In a dual-chartering system, open and frequent
dialogue between Federal and State regulators is important to
maintain safety and soundness and achieve the requirements of
the Federal Credit Union Act and other laws.
Finally, the NCUA's staff is the agency's most important
asset. I would, therefore, want to speak with the workforce to
determine their impressions of the reorganization. I
particularly would like to see how the structural changes have
affected the employee engagement and satisfaction metrics in
the annual Employee Viewpoint Survey compiled by the
Partnership for Public Service. If confirmed, I would work with
my colleagues on the NCUA Board to determine ways we could
improve those scores going forward if they have declined.
Q.2. Nationwide, nearly 20 million families live in
manufactured homes, about 7 percent of the housing stock. The
quality of the homes is good but at times, the financing can be
predatory. The duty-to-serve requirements of Fannie Mae and
Freddie Mac could provide an opportunity for credit unions to
increase their lending to manufactured home buyers.
Do you see an opportunity for credit unions to provide more
loans to people wishing to buy a manufactured home? If so, what
will you do to help credit unions serve manufactured home
buyers?
A.2. Yes. As I understand it, Fannie Mae and Freddie Mac are
currently implementing the duty-to-serve rule adopted by the
Federal Housing Finance Agency in 2016. Among other
requirements, the enterprises must support the manufactured
housing industry. Eligible activities include manufactured
homes titled as real property, manufactured homes titled as
personal property, and blanket loans for certain categories of
manufactured housing communities.
Presently, 47 percent of federally insured credit unions
have the low-income designation, which generally means that a
majority of the credit union's members live in areas where
residents earn 80 percent or less than the median family income
for the metropolitan area or the national metropolitan area,
whichever is greater. Because such households are more likely
to purchase manufactured housing, these low-income credit
unions are uniquely situated to make the most of this
opportunity and better serve their members.
If confirmed to the NCUA Board, I would work to raise the
awareness of all credit unions about the ongoing and evolving
efforts of Fannie Mae and Freddie Mac to support manufactured
housing. I would also work to encourage low-income credit
unions to collaborate with both enterprises through convening
meetings with interested parties, writing opinion pieces, and
sharing information as appropriate. Further, I would explore
how the NCUA's current rules for manufactured housing loans are
working. These rules were last updated more than a decade ago
and may need further refinements. Finally, I would support
financial literacy efforts by the NCUA's Office of Consumer
Financial Protection to educate consumers about manufactured
housing loans so they can make more informed decisions when
purchasing a home.
Q.3. This Committee has invested a fair bit of time trying to
stop money laundering and terrorist financing while also
keeping access to the financial system for cash businesses,
humanitarian groups and people sending remittances abroad to
fragile Nations.
Do you have any advice for us on how to improve the Bank
Secrecy Act and Anti- Money-Laundering statutes that detect
such dangerous activities while avoiding harmful derisking for
legitimate actors?
A.3. As I understand it, Bank Secrecy Act and Anti- Money-
Laundering regulations apply to all credit unions regardless of
asset size. Accordingly, the NCUA has put in place rules to
require all federally insured credit unions to develop a
written, risk-based Bank Secrecy Act compliance program.
Smaller credit unions also encounter compliance challenges,
resulting from a lack of staffing and expertise, the migration
of high-risk activities into the credit union space, and a
delay in adapting training and independent testing programs. In
establishing a new statutory system, Congress should remain
mindful of these regulatory burdens.
Q.4. Do you have recommendations to implement?
A.4. In my view, Congress should keep the experiences of small
credit unions in mind when updating the Bank Secrecy Act and
related laws. In developing a new system, priority should be
given to:
focusing first on targeting and identifying
criminal activity;
reducing unnecessary paperwork burdens;
using artificial intelligence to determine
incidents of money laundering just as credit card
providers use such technology to identify
irregularities in consumer purchases;
allowing regulators to tailor statutory
requirements, where possible, to minimize burdens for
smaller financial institutions; and
permitting the sharing of information between
financial institutions.
Equally important is ensuring the ability of immigrants to
send money back home to support the legitimate needs of their
families and friends, such as shelter, food, and clothing, to
name a few. If confirmed, I would further explore how to update
the law with the NCUA's experts.
Q.5. The NCUA is unique from other Federal financial regulatory
agencies in that it is an independent regulator and insurer of
credit unions. Do you support the agency's continued
independence?
A.5. Yes. In the aftermath of the savings-and-loan crisis,
Congress worked to strengthen Federal financial institutions
regulators by providing independence in setting budgets and
collecting fees, submitting testimony to Congress, and allowing
for rulemaking outside of the OMB-approval process used for
other executive branch agencies, among other things. Such
independence helps to ensure the effective supervision of the
credit union system and protects against inappropriate
political interference.
Q.6. What can the NCUA do to ensure it is able to maintain its
current status as an independent regulator and insurer?
A.6. First and foremost, the NCUA must continue to ensure the
safety and soundness of the credit union system and protect the
National Credit Union Share Insurance Fund from losses. The
agency must also maintain an arm's-length distance from the
entities it charters, regulates, or insures. Appropriate
engagement with all stakeholders is important to develop
effective, but not excessive, regulation and supervision, but
it must be done in a way to prevent regulatory capture.
If confirmed, I would also work with my colleagues on the
NCUA Board and staff to ensure that the agency is transparent
in its regulatory actions and budgeting process, fair and
forward-looking, innovative and inclusive, and risk-focused and
ready to act expeditiously when necessary. Together, these
steps would help to maintain the independence of the agency
going forward.
Q.7. As the prudential regulator and Federal insurer, the NCUA
retains oversight over the vast majority of a credit union's
operations. However, there are numerous areas where there is
overlap with other regulatory agencies, such as the Consumer
Financial Protection Bureau in regard to certain consumer
financial protection laws and regulations, as well as some
areas where other agencies maintain exclusive authority over
certain issues, such as the Federal Communications Commission
in regard to certain consumer protections, including the
Telephone Consumer Protection Act.
Do you appreciate the importance of the NCUA's continued
coordination with other Federal regulatory agencies?
A.7. Absolutely. Early in my career, I spent 4 years at the
Occupational Safety and Health Administration. In this role, I
worked on several matters, including interagency jurisdictional
issues. While at the NCUA, I also advised agency officials
about matters related to the Federal Financial Institutions
Examination Council, the interagency body empowered to
prescribe uniform principles, standards, and report forms for
the Federal examination of financial institutions, and the
Financial Stability Oversight Council. As a result, I recognize
that Government agencies need to work together to minimize
conflicts, inform decision making, collaborate, and coordinate.
If confirmed, I would work to do just that.
Q.8. How will you ensure the NCUA works in close collaboration
with other agencies on issues and rulemakings that directly
impact credit unions?
A.8. In my view, effective regulation and supervision require
appropriate engagement with all stakeholders, including Federal
financial regulators, State regulators, and other Government
agencies. If confirmed, I would work to maintain collaborative
relationships with the NCUA's sister agencies at the State and
Federal levels, as well as through the Federal Financial
Institutions Examination Council. I would also work with my
colleagues on the NCUA Board to conduct outreach to other
agencies on a case-by-case basis. When done well, such
cooperation should produce better policy outcomes.
Q.9. Last summer, NCUA proposed significant changes to the
program it calls ``Payday Alternative Loans,'' or ``PAL''. For
nearly a decade, this program has permitted Federal credit
unions, on loans up to $1,000, to charge more than the Federal
credit union interest rate limit (28 percent instead of 18
percent) as well as an application fee of up to $20 per loan.
But it has always included an important limit--it limits the
number of these $20 fees to three every 6 months--a measure
that prevents credit unions from abusing the program by
repeatedly charging $20 on even very small loans, keeping
customers in a cycle of repeat loans that mirrors the payday
loan debt trap itself.
But in its 2018 proposal, NCUA inexplicably proposed
lifting this limit--a proposal that was opposed by more than
100 civil rights, faith, consumer and community groups, as well
as the National Federation of Community Development Credit
Unions (now Inclusiv)--because it would make it easier for
credit unions to trap customers in unaffordable short-term
loans. NCUA has not yet finalized this proposal.
Would you oppose sanctioning the ability of Federal credit
unions to put members into an unlimited number of high-cost
short-term loans?
A.9. Yes. In my view, allowing for unlimited rollovers has the
potential to trap individuals in a cycle of debt. If confirmed
to the NCUA Board, I would explore how to expand consumer
access to affordable, short-term credit products while also
maintaining the safety and soundness of credit unions. Allowing
for unlimited rollovers and unlimited fees associated with such
rollovers would be inconsistent with my views. I believe credit
unions should provide access to affordable financial products
for their members, especially those of modest means.
Q.10. If the CFPB's commonsense payday loan rule was repealed,
the new PAL proposal would permit a 1-month, $100 loan with two
semimonthly payments, at an effective APR of 345 percent,
flipped 11 times in a year (so, 12 loans total). This is an
annual cost of $240, plus 28 percent interest, for effectively
$100 in credit. Does this sound like the kind of behavior NCUA
should be encouraging, especially when it has a near decade-old
policy that would limit high-cost loans to three loans every 6
months?
A.10. The NCUA's current PALs product is designed to expand
access to affordable financial services in a safe-and-sound
manner. It provides an affordable alternative to predatory
payday and title loans for consumers. In my view, it is very
important to maintain the consumer protections built into the
current regulation, including appropriate limits on fees,
interest rates, and rollovers.
With respect to the proposed rule, if confirmed, I would
work with my colleagues to ensure appropriate consumer
protections remain in place, like those related to limits on
fees, interest rates, and rollovers. When working on these
issues, I also would apply the lessons I learned when working
for Congress on issues like mortgage servicing, escrows, and
appraisals to hopefully reach consensus with my colleagues,
effectively protect consumers, and expand the ability of credit
unions to meet the needs of their members.
Q.11. The ``ability to repay'' concept exists in virtually
every regulatory or legislative precedent. It includes an
assessment not only of income--or the lender's ability to seize
that income on payday--but also of obligations or expenses.
Should a Federal credit union make loans based on a
determination that the borrower has the ability to repay the
loan?
A.11. Yes. It is important to ensure that Federal credit union
members receiving a payday alternative loan can repay the
advance so that they can build a positive credit history and
gain access to more affordable loan products offered by
federally insured credit unions and other mainstream financial
services providers. As I understand it, the guidance covering
the current payday alternative loan rule contains best
practices for responsible underwriting, including obtaining
documentation of income, as well as reviewing account activity
for existing members, for determining the ability of an
individual to repay the short-term loan. It is important to
continue this practice.
Q.12. Currently, NCUA rules severely limit the ability of
Federal credit unions to hedge the interest rate risk of having
long-term loans, such as mortgages, and short-term deposits.
Other financial institutions do not have this restriction.
Should credit unions be able to hedge this interest rate
risk for the safety of the credit unions and the insurance
fund? Why or why not?
A.12. To manage the risk on their balance sheets, credit unions
need to have the ability hedge their interest rate risk. In
2014, the NCUA Board approved a final rule to provide approved
Federal credit unions with limited authority to mitigate
interest rate risk by allowing the purchase of specified,
``plain vanilla'' derivatives. As I understand it, this
regulation applies only to Federal credit unions, and is not
applicable to federally insured, State-chartered credit unions,
except where States have provided approval for such authority.
As part of its current regulatory reform agenda, the NCUA
has proposed revisiting this regulation. If confirmed, I would
approach this issue with an open mind. When done well, the use
of hedges can reduce risks for the credit union and the Share
Insurance Fund. When done poorly, however, such hedging could
pose substantial risks for the credit union system.
In looking at this policy issue, if confirmed, I would want
to explore the complexity of the hedging product, the
sophistication of the credit union and its staff, and the risks
posed to the Share Insurance Fund, among other things. My
findings on each of these issues would inform my determination
about whether to support or oppose changes the agency's
existing regulations in this area.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM TODD M. HARPER
Q.1. Mr. Harper, credit unions play a critical role in
providing financial services to underserved communities.
However, given their traditional structure, credit unions have
not been included in the Community Reinvestment Act (CRA). As
you know, the Federal financial regulators are currently
considering updates to the implementation of CRA. Given the
change in business models, practices, and technology in both
banks and credit unions in the years since CRA was last
updated, I believe this is an opportunity to take a
comprehensive look at how institutions of all type serve their
communities.
While Congress would need to act to apply CRA to credit
unions, do you believe there are steps NCUA can take to ensure
that credit unions of all sizes are adequately providing
services to underserved communities?
A.1. First and foremost, if confirmed as an NCUA Board Member,
I would set a tone at the top by regularly reminding credit
unions of their statutory mission to promote thrift, especially
for people of modest means. Additionally, I would publicly
support legislative efforts in Congress to allow all Federal
credit unions to add underserved areas to their fields of
membership. This change to the law would likely have the
greatest impact on expanding access to affordable financial
services for the unbanked and underbanked.
Additionally, I would support the ongoing efforts of the
agency to use data collected under the Home Mortgage Disclosure
Act to determine whether credit unions are fulfilling their
fair lending responsibilities. Specifically, the agency's
Office of Consumer Financial Protection actively analyzes this
data to assist in identifying possible discriminatory lending
patterns and enforcing antidiscrimination statutes. To
effectively enforce such laws, the office also relies on
observations and recommendations from the NCUA's field
examiners, compliance violations reported in the NCUA's
examination tool, and member complaints. If confirmed, I would
review these existing efforts to determine whether any further
changes are merited.
Finally, when the NCUA charters a new credit union,
approves a field-of-membership expansion for an existing
community-based credit union, or permits a credit union to
convert to a community charter, the credit union must have in
place a business and marketing plan, which the agency then
monitors for compliance over a period of several years.
Consistent with the Federal Credit Union Act and other Federal
laws, the NCUA Board could consider putting in place a similar
process to evaluate whether certain credit unions are
adequately providing financial services to underserved
communities.
In applying such a rule, the NCUA could focus on Federal
credit unions having: a community charter, an underserved area
in the field of membership, or assets above a predetermined
threshold. However, in adopting any such rule, the agency would
need to ensure that it is properly scoped, minimally
burdensome, and effectively tailored to meet the purposes of
such a rule. If confirmed, I would work with my fellow Board
Members and agency staff to further explore this issue.
Q.2. Mr. Harper, credit unions, along with banks, money service
businesses and other financial institutions, are tasked with
being on the ``front lines'' of our current Anti- Money-
Laundering (AML) regime. There is currently bipartisan
agreement that our current AML system is in need of updating
and reform. The system is too often inefficient and expensive
while not adequately providing law enforcement with the
information they need to pursue criminals. In addition, there
is broad agreement that there should be broad collection of
beneficial ownership information. Specifically, what do you
believe should be priorities for creating a modern risk-based
AML system?
A.2. As I understand it, Bank Secrecy Act and Anti- Money-
Laundering regulations apply to all credit unions regardless of
asset size. Accordingly, the NCUA has put in place rules to
require all federally insured credit unions to develop a
written, risk-based Bank Secrecy Act compliance program.
Smaller credit unions also encounter compliance challenges,
resulting from a lack of staffing and expertise, the migration
of high-risk activities into the credit union space, and a
delay in adapting training and independent testing programs.
In my view, Congress should keep the experiences of small
credit unions in mind when updating the Bank Secrecy Act and
related laws. In developing a new system, priority should be
given to:
focusing first on targeting and identifying
criminal activity;
reducing unnecessary paperwork burdens;
using artificial intelligence to determine
incidents of money laundering just as credit card
providers use such technology to identify
irregularities in consumer purchases;
allowing regulators to tailor statutory
requirements, where possible, to minimize burdens for
smaller financial institutions; and
permitting the sharing of information between
financial institutions.
If confirmed, I would further explore how to update the law
with the NCUA's experts.
Q.3. Mr. Harper, credit unions play a critical role in
providing financial services to underserved communities.
However, given their traditional structure, credit unions have
not been included in the Community Reinvestment Act (CRA).
As you know, the Federal financial regulators are currently
considering updates to the implementation of CRA. Given the
change in business models, practices, and technology in both
banks and credit unions in the years since CRA was last
updated, I believe this is an opportunity to take a
comprehensive look at how institutions of all types serve their
communities.
While Congress would need to act to apply CRA to credit
unions, do you believe there are steps NCUA can take to ensure
that credit unions of all sizes are adequately providing
services to underserved communities?
A.3. See the answer to your first question above.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SMITH
FROM TODD M. HARPER
Q.1. I often hear stories about a difficult barrier to
constructing new housing in rural areas and tribal lands--both
affordable housing and workforce housing. That barrier is
access to lenders and financial institutions. What role should
credit unions play in ensuring that new housing construction in
rural areas and tribal lands is adequately financed?
A.1. If confirmed to the NCUA Board, providing financial
services to the unbanked and underbanked would be one of my
priorities. In my view, given their statutory mission to
promote thrift, especially for people of modest means, Federal
credit unions serving rural areas and tribal reservations have
a unique opportunity to finance affordable housing and
workforce housing. Accordingly, I would work to advance that
goal.
As I understand it, Fannie Mae and Freddie Mac are
currently implementing the duty-to-serve rule adopted by the
Federal Housing Finance Agency in 2016. Among other
requirements, the enterprises must support housing for high-
needs rural populations, including individuals living on tribal
reservations and agricultural workers.
Credit unions with a field of membership that includes
rural communities or tribal areas are especially well situated
to address this affordable housing need as they know the
communities they serve. If confirmed to the NCUA Board, I
would, therefore, work to raise the awareness of credit unions
about the ongoing and evolving efforts of Fannie Mae and
Freddie Mac to support affordable housing in rural communities
and tribal areas. I would also work to encourage credit unions
to collaborate with both enterprises through convening meetings
with interested parties, writing opinion pieces, and sharing
information as appropriate.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM TODD M. HARPER
Q.1. Unlike other Federal financial regulatory agencies, the
NCUA is an independent regulator and insurer of credit unions.
How will you ensure the agency continues to be independent and
vigilant in protecting the safety and soundness of credit
unions in Arizona?
A.1. First and foremost, the NCUA must continue to ensure the
safety and soundness of the credit union system and protect the
National Credit Union Share Insurance Fund from losses.
Accordingly, my focus would be on capital, liquidity, and
cybersecurity. I would also work to ensure that the agency has
enough staff and funding to conduct timely and adequate
supervision of federally insured credit unions in Arizona and
across the country.
The agency must also maintain an arm's-length distance from
the entities it charters, regulates, or insures. Appropriate
engagement with all stakeholders is important to develop
effective, but not excessive, regulation and supervision, but
it must be done in a way to prevent regulatory capture.
Finally, if confirmed, I would work with my colleagues on
the NCUA Board and staff to ensure that the agency is open
about its regulatory actions and transparent in its budgeting
process, an issue that you have personally worked on. The NCUA
should also be fair and forward-looking, innovative and
inclusive, and risk-focused and ready to act expeditiously when
necessary. Together, these steps would help to maintain the
independence of the agency going forward.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM RODNEY HOOD
Q.1. Fees--Last fall, the New York Times reported on high fees
and interest rates charged to members of the Marriott
Employees' Federal Credit Union--a credit union that was formed
so that employees would have access to low cost financial
services. \1\ Marriott Employees' Federal Credit Union has a
low income designation meaning 50 percent of its members have
family incomes of less than 80 percent of the median income in
the areas it serves.
---------------------------------------------------------------------------
\1\ ``Marriott Workers Struggle To Pay Bills, Credit Union
Feeds'', the New York Times, October 11, 2018, available at https://
www.nytimes.com/2018/10/11/business/marriott-credit-union-employee-
strike.html.
---------------------------------------------------------------------------
As the article indicated, many of these workers are
struggling to make ends meet, and these fees make their
economic situations worse. In the same article, it was reported
that some of the executives and management of Marriott who also
use the credit union are receiving million dollar mortgages and
car loans at below-market interest rates.
If confirmed, will you commit to review credit unions' fees
like overdraft and minimum balance charges as described in the
article? Will you commit to crack down on fees if they are
inconsistent with the credit union system's mission of
providing affordable financial services to working families?
A.1. If confirmed to the NCUA Board, I commit to reviewing
credit unions' fees and working to prevent the collection of
fees that are inconsistent with the credit union system's
mission of providing affordable financial services to working
families. While I understand and believe that certain fees are
a necessary part of credit union operations, I pledge to do my
level best to ensure that any fees which are collected are
consistent with the credit union mission of ``people helping
people'' and do not needlessly penalize the underserved and
those of lesser means.
Q.2. Financial Crisis--You served on the Board of the NCUA from
2005 to 2010--the years leading up to and during the financial
crisis. What lessons did you learn about credit union
regulation from that time? What issues will you approach
differently now because of that experience?
A.2. It was my great honor and privilege to serve as an NCUA
Board Member for 4 years, from 2005-2009. My time there, as
well as my education and my experiences both before and after
my NCUA tenure, shaped my regulatory philosophy that regulation
needs to be effective, but not excessive. To that end, if I am
confirmed to the NCUA Board, I would support a regulatory
regime that is risk focused and market-oriented. While my
paramount responsibility would be ensuring the safe and sound
operation of federally insured credit unions, I also would
strive to be recognized as a fair and thoughtful regulator, one
who realizes the value and necessity of regulation while
remaining cognizant of the impact of excessive regulation. I,
therefore, would support appropriately tailored regulations,
scaled to an institution's size and complexity. I believe that
such targeted regulations provide an environment that better
protects the credit union system and the National Credit Union
Share Insurance Fund and is friendlier to credit unions.
One of my lasting accomplishments from my previous term
focused on risk management, as years of experience in the
financial services industry has taught me that financial
institutions cannot avoid all risks and should instead take
appropriate steps to mitigate and manage risks. As an NCUA
Board Member, I launched a series of Enterprise Risk Management
Summits, which provided training to credit unions on how to do
just that. Working in collaboration with regulators from the
Federal Reserve, the OCC, the FDIC, the Federal Home Loan
Banks, and the National Economic Council, I hosted sessions
with subject matter experts and credit union leaders in risk
areas such as liquidity, interest rate, and concentration risk.
If confirmed to the NCUA Board, I would continue my efforts in
this important area, with a particular focus on cybersecurity
risk.
Additionally, the financial crisis and my time at the NCUA
emphasized to me the crucial role the NCUA and the credit union
industry can--and must--play in improving financial access for
vulnerable communities. If confirmed, one of my top priorities
would be to ensure that the NCUA creates opportunities to
promote financial education and financial inclusion and fosters
an environment where low-to-moderate income and disabled
individuals have access to affordable financial services.
Q.3. Underbanked and Unbanked--In your testimony you indicated
that one of your top priorities is to increase access for the
unbanked and underbanked to credit union products and services.
If confirmed, what will you propose to achieve this objective?
A.3. As I noted in my testimony, my interest in serving
vulnerable communities grew from my volunteer work as a
missionary in Africa and later as a banker engaged in community
development. I have been fortunate to spend over 25 years
working with some of the country's most respected financial
institutions that sought to empower economic stability and
shared prosperity in our local communities. I have held
management positions that allowed me to promote community
development and outreach initiatives to underserved
communities. As a provider of affordable housing and small
business lending, I oversaw loan programs, managed teams of
regional community development managers, and worked with credit
policy groups to evaluate and manage risks. It literally has
been my life's work, and this work dovetails seamlessly with
the ethos of the credit union industry, which is ``people
helping people.'' It is work that I hope to continue at the
NCUA, if confirmed again to the NCUA Board. If confirmed, I
would explore all avenues within the NCUA's authority to
increase access for unbanked and underbanked individuals to
credit union products and services, including building upon the
NCUA's already impressive financial literacy efforts.
In addition to working to improve unbanked and underbanked
individuals' access to credit union services under the NCUA's
current authority, I would also like to work with Congress on
legislative changes to allow all Federal credit unions,
regardless of charter type, to add underserved areas to their
fields of membership. Doing so would allow these institutions
to offer financial services to those with no or limited access
to credit union membership.
Q.4. Mergers, Acquisitions, and Consolidation--There has been a
trend in consolidation in the financial industry, including
among credit unions. NCUA approved 53 mergers in the fourth
quarter of 2018 and credit union mergers and acquisitions have
increased the size of the average credit union. What do you
think is the impact of consolidation on credit union members?
What can be done, if anything, to slow down or reverse this
trend?
A.4. While I share your concern about consolidation's
potentially negative impact on credit union members, I also
believe that consolidation can, and often does, have a positive
impact. In many cases, credit unions involved in mergers are
quite small and have limited hours, locations, services, and
product availability. In such cases, members can access an
expanded set of services and products through a merger. The
merging credit unions can take advantage of better economies of
scale, thus improving their competitiveness against larger
financial institutions.
When mergers between credit unions do occur, a credit
union's members--its owners and customers--generally vote on
whether to permit the merger. This ownership structure provides
some degree of assurance that the merger will be good for
consumers. In such merger votes, the potential benefits to
members, including lower loan rates or higher rates on
deposits, often plays a key role in determining whether the
merger occurs.
If confirmed, I commit to working with credit unions, and
small credit unions in particular, to ensure their continued
viability in this ever-changing financial services marketplace.
At the same time, I will continue to support a credit union's
decision to merge with another credit union if that is the will
of its membership.
Q.5. If confirmed, when approving credit union mergers or
acquisitions, how will you ensure that continued presence and
investment in the local community are taken into consideration
so that working families continue to have access to financial
services?
A.5. Credit unions, like all financial institutions, are
undergoing consolidation. I believe that many factors are
responsible for this trend, including economies of scale and
the burden of regulatory compliance. In some cases, a credit
union may seek a merger when a sponsor that has been supporting
the credit union's operating expenses or providing office space
withdraws that support. If confirmed to the NCUA Board, an
important consideration for me in the approval of mergers or
acquisitions would be continuity of service to the members of
the impacted financial institutions. From discussions with
agency staff, I understand that, in most mergers of credit
unions, the continuing credit union retains most or all of the
merging credit union's locations and staff. When retaining the
location of a merging credit union is impracticable or
impossible, such as when a merging credit union's facility is
located in a factory or building of the sponsor discontinuing
support, the merging credit union's board of directors often
favors a merger partner with a nearby location. I further
understand that, in the current approval process, the NCUA
takes account of such factors as continued presence and service
in the local community. If confirmed to the NCUA Board, I would
support that current practice and would explore other avenues
within the NCUA's current authority to ensure that working
families do not lose access to critical financial services due
to a merger or acquisition of their credit unions.
Q.6. Pentagon Federal Credit Union Merger--Earlier this year,
Pentagon Federal Credit Union (PenFed), a credit union with $23
billion in assets and over 1.6 million members, acquired
Progressive Credit Union, a NY State chartered credit union
with $383 million in assets and an open charter. While PenFed
has said it will not use the open charter, if it were to change
its mind in the future, would you support that decision? If so,
should the NCUA change how it regulates a large credit union
with no restrictions on its field of membership?
A.6. As I understand it, the situation with PenFed is a unique
one resulting from an emergency merger with Progressive Credit
Union, a State-chartered credit union that held a
(grandfathered) national field of membership from the State of
New York. I further understand that very few credit unions
maintain such a broad field of membership. If confirmed to the
NCUA Board, I would not necessarily object to PenFed's business
decision to use the open charter it acquired through a legal
merger process. Before making any decision, however, I would
consult with the agency's staff to ensure that PenFed would be
able to continue to operate in a safe and sound manner and to
fulfill its mission to provide affordable financial services to
all of its members, particularly those of modest means.
Q.7. Field of Membership--Over time, State regulators and the
NCUA have expanded field of membership rules, to expand access
to financial services for a greater number of consumers.
Expanding access to the financial system is extremely
important, but it is just as important to ensure those same
credit unions are serving all members of these increasingly
larger communities and fields of membership. What does the NCUA
currently do to evaluate a credit union's performance in
serving all of its members? Are there any improvements for
which you would advocate if confirmed?
A.7. NCUA's Office of Credit Union Resources and Expansion
(CURE) oversees the performance of Federal credit unions in
serving all their members and ensuring that all members,
including those in underserved communities and particularly in
urban areas and rural districts, have access to credit union
services. I understand that the NCUA requires a newly chartered
or newly expanded community credit to submit business and
marketing plans for its new community, including underserved
areas. It then reviews the credit union's compliance with those
plans for several years after the charter is granted or
expanded. If confirmed to the NCUA Board, I would work closely
with the NCUA's CURE office to explore all avenues within the
NCUA's authority to increase the number of new charters and
expanded community charters to facilitate access for unbanked
and underbanked individuals to credit union products and
services. As well, if confirmed, I would like to work with
Congress on legislative changes to allow all Federal credit
unions, regardless of charter type, to add underserved areas to
their fields of membership. Doing so would allow these
institutions to offer financial services to those with no or
limited access to credit union membership.
Q.8. Payday Alternative Loan (PALs)--The CFPB Director recently
proposed drastically weakening the agency's payday rule. Will
you pledge not to follow in Director Kraninger's footsteps and
work to maintain the restrictions, fee limits, and current
interest rate caps on the NCUA's Payday Alternative Loan (PAL)
product?
A.8. If confirmed to the NCUA Board, I pledge to carefully
consider a variety of factors to inform my regulatory approach
to the NCUA's PALs rule. These factors include, but are not
limited to, careful consideration of stakeholder input, the
supervisory framework of my Federal banking agency
counterparts, and thoughtful evaluation of any unintended
consequences of changes. My goal with respect to the NCUA's
PALs rule is that it will continue to help consumers find a
path to mainstream, lower-cost financial products and services,
and I will not support changes to the rule that contravene this
objective.
Q.9. NCUA Spending--At your confirmation hearing, Chairman
Crapo asked about recent press reports about excessive spending
by the current chair of the NCUA Board. While some of the
spending is allowed under NCUA policies, some of it was not, as
confirmed by the NCUA Inspector General Report. You committed
to Chairman Crapo that you would review these policies if
confirmed, which I support. You have served on the NCUA Board
before, are there certain items you believe should not be
reimbursed for Board members or staff by a Federal agency?
A.9. As I committed during my confirmation hearing, if
confirmed to the NCUA Board, I will work to ensure the NCUA's
spending policies are clearly written and consistent with the
other Federal banking regulators. In direct response to your
question, I believe only expenses with a business purpose
related directly to the mission of the agency should be
reimbursed, so that excludes reimbursement for expenses that
would be considered entertainment. Moreover, while the
reimbursement for alcohol-related representational expenses is
legal, as noted by the Office of Inspector General, I would
seek a policy change to exclude it as a future reimbursable
expense to individual Board members or NCUA staff.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM RODNEY HOOD
Q.1. Last Congress I was the Senate sponsor of S. 3750, the
Common Sense Credit Union Capital Relief Act of 2018. It would
call for a delay in the implementation of the NCUA's Risk-Based
Capital Rule. What are your thoughts on the RBC Rule? Should
implementation of the Rule be delayed? Should Congress
reevaluate the need for the Rule entirely?
A.1. If confirmed to the NCUA Board, I would support a further
delay to the implementation of the RBC Rule, so that I and my
fellow Board Members can further study and assess its real
effects on the credit union system. I note that the NCUA will
have two new Board Members if my fellow nominee, Todd Harper,
and I are both confirmed. Therefore, I think this is the
appropriate time to stop and study the RBC Rule. Only after
that careful consideration of the costs and benefits should the
NCUA Board decide whether to proceed with the RBC Rule and, if
so, when. I respectfully note that the question of whether
Congress should reevaluate the need for the RBC Rule rests with
Congress.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM RODNEY HOOD
Q.1. In addition to voluntarily following the spirit of the
President's Executive Order to reduce regulatory burden, the
current NCUA Board has focused much of its recent rulemaking
activity on reducing unnecessary regulatory burden. Do you
agree with voluntarily following the Executive Order, and will
you do so if confirmed?
A.1. Yes, I agree with the current NCUA Board's decision to
voluntarily follow the spirit of the Executive Order by
amending or repealing regulatory requirements that are
outdated, ineffective, or excessively burdensome. If confirmed,
I am fully committed to complying with this aim and providing
regulatory relief where it makes sense to do so. As articulated
in my testimony, I believe in developing effective, but not
excessive, regulation that safeguards the safety and soundness
of federally insured credit unions, preserves the integrity of
the credit union industry, and protects the National Credit
Union Share Insurance Fund from losses.
Q.2. With regard to future NCUA rulemakings, what approach will
you take in terms of focusing on a reduction of unnecessary
regulatory burden?
A.2. As stated above and in my testimony, if confirmed, I would
fully support amending or repealing regulatory requirements
that are outdated, ineffective, or excessively burdensome. I
believe that the regulatory reform agenda that the current NCUA
Board has adopted is a good start to improving credit unions'
regulatory landscape. More specifically, I would advocate for
the continued modernization and tailoring of regulatory
requirements to reduce unnecessary burdens and make regulations
commensurate with an individual credit union's size,
complexity, and risk profile. If confirmed, I would return to
the NCUA Board with a risk-based and market-oriented mindset
based on several tenets, including being recognized as a fair
and thoughtful regulator who realizes the value and necessity
of regulation but remains cognizant of the impact of excessive
regulation.
Q.3. Credit unions, as not-for-profit, member owned
institutions, are inherently different than for-profit banks.
It is critical that a member of the NCUA Board appreciate this
difference and support the credit union philosophy of people
helping people. While it is inevitable that some credit unions
will occasionally choose to switch from a credit union to a
bank charter, what will you do to uphold the core philosophy of
credit unions to ensure they remain a viable source of
financial services for Americans?
A.3. My work spanning over 25 years in the financial services
industry fits seamlessly with the core philosophy of credit
unions, which is ``people helping people.'' Through my
education and that work, including many years focused on
community development and my prior service on the NCUA Board, I
have developed a keen understanding of the tremendous
responsibilities of regulators. The NCUA plays a vital role as
both regulator and insurer to protect the savings of more than
100 million American in an industry with more than $1.4
trillion in assets. If confirmed for another term as an NCUA
Board Member, I will return to the NCUA with a risk-based and
market-oriented mindset based on the following tenets:
working to ensure that federally insured credit
unions remain safe and sound institutions;
striving to be recognized as a fair and thoughtful
regulator who realizes the value and necessity of
regulation but remains cognizant of the burdensome
impact of excessive regulation;
bringing focused leadership and management to the
NCUA while seeking to ensure efficient operations and
prudent use of resources; and
understanding the important of disclosure and
transparency to a wide variety of stakeholders.
A.4. If confirmed, I would explore all avenues within the
NCUA's current authority to increase access for unbanked and
underbanked individuals, especially those in our Nation's most
vulnerable communities, to credit union products and services.
Moreover, I would also like to work with Congress on
legislative changes to allow all Federal credit unions,
regardless of charter type, to add underserved areas to their
fields of membership. Doing so would allow these institutions
to offer financial services to those with no or limited access
to credit union membership. I believe that all of these
experiences, philosophies, and priorities would benefit the
credit union system by helping to ensure that credit unions
continue to be fulfill their statutory mission of helping
people, particularly those of modest means.
Q.4. One of the important responsibilities of the NCUA Board is
oversight and management of the National Credit Union
Administration Central Liquidity Facility (CLF), an
instrumentality of the United States whose purpose is ``to
improve general financial stability by meeting the liquidity
needs of credit unions and thereby encourage savings, support
consumer and mortgage lending, and provide basic financial
resources to all segments of the economy.'' Since this is the
40th anniversary year of the CLF's establishment and the credit
union industry has changed significantly over that course of
years in many respects, including the number of credit unions
and the services they provide, if confirmed would you make a
review of the CLF during this anniversary year a priority, with
an eye towards making improvements that may be warranted based
on the changes that have occurred since its founding?
A.5. Yes, I believe it would be a fitting time to reexamine the
CLF to determine what changes would benefit this very important
liquidity tool for credit unions. If confirmed, I would work
with my fellow Board Members to explore all avenues within the
NCUA's current authority to update and modernize the CLF.
Further, I would welcome the opportunity to work with Congress
on legislative changes needed to improve the CLF's
effectiveness and utility to the credit union system. Given the
important role the CLF plays in providing a liquidity source to
credit unions, if confirmed, I would support efforts to improve
the CLF's operations and functionality.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM RODNEY HOOD
Q.1. Mr. Hood, you served on the NCUA board prior to the
Financial Crisis. We know that a number of credit unions
purchased mortgage-backed securities that resulted in their
institutions failing. What have you learned about avoiding risk
that you would do differently during your service this time?
A.1. There were four corporate, or wholesale, credit unions
that failed because the AAA- and AA-rated private label
mortgage-backed securities they purchased experienced large
losses when the underlying mortgages experienced high levels of
default during the Great Recession. Consumer, or retail, credit
unions largely avoided these types of securities, and thus none
failed from losses on such securities. The biggest lesson
learned for me is just how important it is that an enterprise
have the necessary expertise and strong governance when
investing in more complex or risky financial products. Good
risk management and governance will result in proper control
over how much exposure an institution takes relative to its
capacity to handle the risk in relation to capital and
liquidity levels. Regulators need to ensure this expertise and
strong governance is in place and operating effectively for
credit unions with complex or risky assets, or high
concentrations of certain assets.
Q.2. Mr. Hood, please tell me more about how you think NCUA can
support financial inclusion for people with disabilities? Both
as employees and in ensuring credit unions provide access for
people who may be blind, hard of hearing or have another
disability?
A.2. If confirmed to the NCUA Board, I would bring with me a
strong commitment to diversity and inclusion in all things and
on all levels, including financial inclusion for people with
disabilities. I believe all persons should enjoy equal and fair
access to quality, safe, and affordable financial products and
services. As an NCUA Board Member, I would continue my work to
advance inclusion for people with disabilities by ensuring
everyone has equal and fair access to mainstream financial
services. I would work to encourage credit unions to provide
financial education, savings, and other products and services
that meet the needs of all members, including those with
disabilities. Moreover, I would work to ensure that, as the
regulator, the NCUA is sensitive to and considers the needs of
the individuals with disabilities when issuing regulations.
I believe that the NCUA can support financial inclusion for
people with disabilities in many different ways and, if
confirmed, I would prioritize working with agency staff in the
following ways to advance inclusion:
The NCUA's Office of Credit Union Resources and
Expansion provides resources, such as grants and web-
based training, to credit unions. If confirmed as an
NCUA Board Member, I would like to see the office
expand their offerings to include grants, training, and
educational resources specifically designed to
stimulate financial inclusion for people with
disabilities. I would work to ensure this training is
relevant and accessible to individuals with
disabilities so they, too, can obtain the training they
need to be successful.
One of the charges of the NCUA's Office of Minority
and Women Inclusion is to monitor and assess diversity
and inclusion in the credit union industry. To that
end, the OMWI office, through presentations and written
publications, actively encourages credit unions to
embrace diversity and inclusion in the workplace, in
the boardroom and in the products and services they
offer. If confirmed, I would support this effort and
work with the office to encourage credit unions to
develop products such as home and vehicle modification
loans to enable people with disabilities to meet their
unique challenges.
The NCUA must be diligent in ensuring that its
regulations do not place an undue burden on any group,
including people with disabilities. It is also critical
that the NCUA enable and encourage credit unions to
establish products and services that enhance the
financial inclusion of this community. For example,
many mainstream matched savings products specify that
deposits come from earned income, which by default may
exclude some individuals with disabilities as many
depend on a wide variety of public benefits for their
income and other needs. Being inclusive requires that
public benefits and other nonearned income sources also
be considered for such product types.
The NCUA can also work to expand savings programs
like ABLE Accounts. These tax-advantaged matched
savings accounts for individuals with disabilities and
their families were created with the passage of the
Achieving a Better Life Experience Act of 2014, better
known as the ABLE Act. Such programs can ease the
significant financial burden faced by people with
disabilities that require expensive accommodations and
services.
Research has shown that people with disabilities
are more likely than people without a disability to be
unbanked or underbanked. The NCUA's Office of Minority
and Women Inclusion can encourage credit unions to
partner with organizations offering programs designed
to serve the unbanked or underbanked such as the
Volunteer Income Tax Assistance program. The VITA
program provides free tax assistance and tax
preparation services to the unbanked and underbanked
and those with disabilities. These services are
generally paired with financial education, savings, and
other products and services specifically designed for
this population. Additionally, the VITA program helps
ensure people with disabilities are aware of and
benefit from all available tax credits, thus providing
participants with additional income and greater
financial stability.
I believe ensuring access to financial services for
individuals with disabilities is an opportunity, not a burden,
for credit unions. Reducing barriers and encouraging equal
access for all leads to stronger communities and a stronger
Nation.
Q.3. Mr. Hood, you have served on the Neighborworks board. In
FY18, the median credit score for 9,903 Neighborworks clients
was 694. As you know, Neighborworks borrowers succeed at home
ownership despite having low credit scores. If policies were
changed to require a 700 credit score, what would the impact be
on home buyers served by credit unions and other entities?
A.3. Having the good fortune of working for more than 25 years
in the financial services sector, during which I provided
financial education to underserved communities by conducting
homebuyer education classes, I keenly appreciate that the
availability of mortgages is the cornerstone of American home
ownership. For decades, America's credit unions and other
financial institutions have enabled home ownership by
originating mortgages not just to those with pristine credit,
but also to those with imperfect credit histories. I believe
that establishing an artificial floor on borrower credit scores
would jeopardize that dream for many would-be borrowers,
including a significant number of minority households.
A score of 700 would reflect an extraordinarily high
threshold; indeed, reports indicate that figure is above the
U.S. average credit score. Moreover, it should be noted that
mortgage underwriters take into account many factors when
evaluating loans. I believe that a credit score floor of 700
would inappropriately ignore such considerations, like the size
of the borrower downpayment and the debt service burden. A hard
floor would seem misguided, as many loans with borrower credit
scores of less than 700 are extraordinarily safe from a credit
risk perspective.
A final point is that there is great imprecision associated
with credit scores. As credit risk modelers readily concede,
although credit scores are correlated with the likelihood that
a borrower will make payments, there is significant ``noise''
in such measurement. A given borrower with a credit score of
690 may, in fact, be just as likely to make payments as someone
with a score of 710. Credit scores are merely statistical
measures that make use of ``hard'' information in credit
repositories. Such information can be flawed and, in fact, does
not reflect a complete picture of the borrower's financial
condition. Accordingly, I believe that great care must be
exercised when considering the imposition of a fixed credit
score floor.
Q.4. Mr. Hood, you noted your opposition to rulemaking that was
``excessive.'' Please identify at least three rules that
pertain to credit unions that you believe are ``excessive.''
What changes would you recommend to those rules?
A.4. The current NCUA Board has adopted and published a
regulatory reform agenda that identifies regulations that it
has determined are outdated, ineffective, or excessively
burdensome. If confirmed to the NCUA Board, I intend to work
with my fellow Board Members and agency staff swiftly yet
judiciously to implement this agenda. Among the many regulatory
changes identified in the agenda, I believe that the following
three regulations are excessive in their current form and that
their amendment would greatly benefit the credit union
industry: (1) modernization of the Federal credit union bylaws;
(2) modernization of the NCUA's regulations governing credit
union investments; and (3) modernization of the Bank Secrecy
Act requirements applicable to credit unions.
First, I believe that the Federal credit union bylaws need
to be modernized. An update to the form of bylaws that the NCUA
has adopted is long overdue. In fact, as I understand it, the
form of bylaws was last updated during my prior tenure on the
NCUA Board. Fortunately, the current NCUA Board has already
issued a proposed rule to update, clarify, and simplify the
Federal credit union bylaws and remove outdated, obsolete, or
excessively burdensome provisions. If confirmed, I look forward
to reviewing the comments received on the proposal and
assisting in the development of a final rule to modernize the
bylaws so that they provide flexibility in governance for both
credit unions and their members.
The second regulatory change I would like to see made is
the modernization of the NCUA's regulations governing credit
union investments to remove unnecessary restrictions that are
not statutorily required and not required from a safety and
soundness perspective. The NCUA's regulatory reform agenda
suggests a change to a more principles-based approach.
Finally, I would like to work to update credit union Bank
Secrecy Act requirements. While the NCUA has limited authority
in this area, I believe that the NCUA needs to continue working
on an interagency basis and with Congress to modernize Bank
Secrecy Act requirements so that they are both more effective
and less burdensome on financial institutions.
Q.5. The National Credit Union Administration staff has been
through a major consolidation--shrinking to three regional
offices from five. How will you manage this transition so that
the staff remain focused on their mission and have the
resources they need? Does the consolidation present any
concerns?
A.5. From my briefings with agency leadership, the transition
was completed as of January 1, 2019, with as minimal disruption
as possible to staff and operations. The NCUA completed its
restructuring of the agency's headquarters at the start of
2018, while the regional office restructure was completed at
the start of 2019. If confirmed, I plan to continue the
dialogue I have already started with each agency office head to
ensure proper balancing of sufficient resources to meet the
agency's mission with the substantial savings the restructuring
provided to the credit unions that fund the agency's budget. As
well, from my first term as an NCUA Board Member, I know that
the NCUA's staff are second-to-none in their professionalism,
enthusiasm, and dedication to the agency's mission. If
confirmed for another term as an NCUA Board Member, I would
work diligently to ensure that nothing from this recent
consolidation has changed that.
Q.6. Nationwide, nearly 20 million families live in
manufactured homes: about 7 percent of the housing stock. The
quality of the homes is good but at times, the financing can be
predatory. The duty-to-serve requirements of Fannie Mae and
Freddie Mac could provide an opportunity for credit unions to
increase their lending to manufactured home buyers. Do you see
an opportunity for credit unions to provide more loans to
people wishing to buy a manufactured home? If so, what will you
do to help credit unions serve manufactured home buyers?
A.6. Yes, I see a ripe opportunity for credit unions to
continue to support the manufactured home markets in a safe and
sound manner. Loans for manufactured housing and mobile homes
is an important service that credit unions provide and, if
confirmed, I would work to make sure credit unions have the
flexibility they need to make these loans, consistent with
safety and soundness principles. In 2005, the NCUA amended its
regulations to provide that manufactured housing can qualify
for mortgages of up to 20 years. If confirmed to the NCUA
Board, I would work with my fellow Board Members and agency
staff to explore all available avenues to provide additional
flexibilities for manufactured housing lending.
Q.7. This Committee has invested a fair bit of time trying to
stop money laundering and terrorist financing while also
keeping access to the financial system for cash businesses,
humanitarian groups and people sending remittances abroad to
fragile Nations. Do you have any advice for us on how to
improve the Bank Secrecy Act and Anti- Money-Laundering
statutes that detect such dangerous activities while avoiding
harmful derisking for legitimate actors? Do you have
recommendations to implement?
A.7. The current Bank Secrecy Act and Anti- Money-Laundering
(AML) statutes place a great deal of responsibility on
financial institutions to detect and report illicit financial
activity. A risk-based system provides greater flexibility, but
also creates uncertainty and requires greater judgment about
when to report something. Hence, financial institutions
ultimately may choose to avoid providing service to higher risk
customers, where the cost of servicing certain accounts to a
satisfactory degree of certainty outweighs the benefits.
Modernizing the AML system to target the highest priority risks
and automate the reporting requirements for lower risks would
help alleviate this uncertainty. In addition, I believe that
providing more clarity about reporting requirements for
financial institutions would reduce burden and unnecessary de-
risking by financial institutions. Finally, as noted above, if
confirmed, I would like to work to update credit union Bank
Secrecy Act requirements. While the NCUA has limited authority
in this area, I believe that the NCUA needs to continue working
on an interagency basis and with Congress to modernize Bank
Secrecy Act requirements so that they are both more effective
and less burdensome on financial institutions.
Q.8. The NCUA is unique from other Federal financial regulatory
agencies in that it is an independent regulator and insurer of
credit unions. Do you support the agency's continued
independence?
A.8. Yes, I support the continued independence of the NCUA, as
well as that of the other Federal financial regulatory
agencies. Such independence, particularly in the areas of
budgeting and rulemaking, enables the NCUA and its peer
agencies to be effective at maintaining confidence in the
Nation's federally insured financial system and nimble in
responding to changing financial conditions, whether in the
general economy or at specific institutions. While it's true
that the NCUA is unique among Federal financial regulatory
agencies by maintaining dual roles as an independent regulator
and an insurer, whereas those functions are housed in separate
agencies in the Federal banking regulatory system, I note that
Congress has uniformly entrusted these functions to independent
agencies.
Q.9. What can the NCUA do to ensure it is able to maintain its
current status as an independent regulator and insurer?
A.9. If confirmed, my paramount responsibility as an NCUA Board
Member would be to protect the safety and soundness of the
credit union system and the health of the National Credit Union
Share Insurance Fund. I would work with my fellow Board Members
to take actions, including the promulgation of necessary
regulations, in furtherance of that shared responsibility. I
also would work with fellow financial regulators at both the
Federal and State levels to ensure the continued confidence in
our Nation's federally insured financial system. Moreover, if
confirmed, I would like to continue the agency's current focus
on transparency and accountability in all aspects of the NCUA's
operations.
Q.10. As the prudential regulator and Federal insurer, the NCUA
retains oversight over the vast majority of a credit union's
operations. However, there are numerous areas where there is
overlap with other regulatory agencies, such as the Consumer
Financial Protection Bureau in regard to certain consumer
financial protection laws and regulations, as well as some
areas where other agencies maintain exclusive authority over
certain issues, such as the Federal Communications Commission
in regard to certain consumer protections, including the
Telephone Consumer Protection Act. Do you appreciate the
importance of the NCUA's continued coordination with other
Federal regulatory agencies?
A.10. Yes, I absolutely appreciate the importance of the NCUA's
continued coordination with other Federal regulatory agencies.
As a Federal financial regulatory agency, the NCUA serves on a
number of interagency panels, including the Federal Financial
Institutions Examination Council (FFIEC) and the Financial
Stability Oversight Council (FSOC), that coordinate supervisory
policy and regulation across all types of financial
institutions. This type of interagency collaboration is
critical to ensure consistency among depository financial
institutions and continued confidence in the Nation's federally
insured financial system.
During my previous term as an NCUA Board Member, I launched
a series of Enterprise Risk Management Summits, which provided
training to credit unions on how to mitigate and manage risks.
Working in collaboration with regulators from the Federal
Reserve, the OCC, the FDIC, the Federal Home Loan Banks, and
the National Economic Council, I hosted sessions with subject
matter experts and credit union leaders in various risk areas.
The interagency collaboration was invaluable to these efforts.
If confirmed to the NCUA Board, I welcome the opportunity to
continue my work in this important area, with a particular
focus on cybersecurity and the risk it poses across the entire
financial system.
Q.11. How will you ensure the NCUA works in close collaboration
with other agencies on issues and rulemakings that directly
impact credit unions?
A.11. If confirmed as an NCUA Board Member, I would work with
agency staff to monitor legislative and regulatory developments
that could directly impact credit unions. Where appropriate, I
would reach out to my colleagues at other Federal regulators to
highlight the unique nature of the credit union industry and to
encourage greater collaboration and information sharing on
regulatory initiatives. I would also hope to have the honor of
working with fellow regulators on my Enterprise Risk Management
Summits and through organizations like Neighborworks.
Q.12. Last summer, NCUA proposed significant changes to the
program it calls ``Payday Alternative Loans'', or ``PAL''. For
nearly a decade, this program has permitted Federal credit
unions, on loans up to $1,000, to charge more than the Federal
credit union interest rate limit (28 percent instead of 18
percent) as well as an application fee of up to $20 per loan.
But it has always included an important limit--it limits the
number of these $20 fees to three every 6 months--a measure
that prevents credit unions from abusing the program by
repeatedly charging $20 on even very small loans, keeping
customers in a cycle of repeat loans that mirrors the payday
loan debt trap itself.
But in its 2018 proposal, NCUA inexplicably proposed
lifting this limit--a proposal that was opposed by more than
100 civil rights, faith, consumer and community groups, as well
as the National Federation of Community Development Credit
Unions (now Inclusiv)--because it would make it easier for
credit unions to trap customers in unaffordable short-term
loans. NCUA has not yet finalized this proposal. Would you
oppose sanctioning the ability of Federal credit unions to put
members into an unlimited number of high-cost short-term loans?
A.12. If confirmed to the NCUA Board, I would work with my
fellow Board Members to ensure that Federal credit unions
continue to provide their members a considerably lower cost
alternative to products offered by traditional predatory payday
lenders. Although I would approach this, and any, issue with an
open mind, I would be reluctant to sanction any initiative that
would not support a consumer's ability to break the crippling
cycle of high-cost payday loans.
Q.13. If the CFPB's commonsense payday loan rule was to
repealed, the new PAL proposal would permit a 1-month, $100
loan with two semimonthly payments, at an effective APR of 345
percent, flipped 11 times in a year (so, 12 loans total). This
is an annual cost of $240, plus 28 percent interest, for
effectively $100 in credit. Does this sound like the kind of
behavior NCUA should be encouraging, especially when it has a
near decade-old policy that would limit high-cost loans to
three loans every 6 months?
A.13. As noted above, if confirmed, I would hesitate to approve
any regulatory change that would not support a consumer's
ability to break the cycle of predatory payday loans.
Q.14. The ``ability to repay'' concept exists is virtually
every regulatory or legislative precedent. It includes an
assessment not only of income--or the lender's ability to seize
that income on payday--but also of obligations or expenses.
Should a Federal credit union make loans based on a
determination that the borrower has the ability to repay the
loan?
A.14. If confirmed to the NCUA Board, I would work to ensure
that a credit union makes a PALs loan with its member's best
interests in mind, including the amount granted, the loan term,
the total cost, and the member's ability to repay the loan.
These are all factors that play an important role in a
consumer's ability to break the crippling cycle of predatory
payday lending.
Q.15. Currently, NCUA rules severely limit the ability of
Federal credit unions to hedge the interest rate risk of having
long-term loans, such as mortgages, and short-term deposits.
Other financial institutions do not have this restriction.
Should credit unions be able to hedge this interest rate risk
for the safety of the credit unions and the insurance fund? Why
or why not?
A.15. I believe that credit unions with the requisite expertise
should be able to use derivatives to hedge against interest
rate risk. I understand that, in 2014, the NCUA finalized a
rule permitting Federal credit unions to use derivatives to
mitigate interest rate risk. Applicable State law governs
whether federally insured, State-chartered credit unions can
similarly use derivatives as a hedge against interest rate
risk. As part of its regulatory reform agenda, the current NCUA
Board has indicated its willingness to explore whether to
provide Federal credit unions with additional flexibility in
using derivatives to manage interest rate risk. If confirmed, I
would support that effort, provided that any such derivatives
instruments and programs are executed and implemented in
accordance with strong safety and soundness principles.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM RODNEY HOOD
Q.1. Mr. Hood, credit unions play a critical role in providing
financial services to underserved communities. However, given
their traditional structure, credit unions have not been
included in the Community Reinvestment Act (CRA). As you know,
the Federal financial regulators are currently considering
updates to the implementation of CRA. Given the change in
business models, practices, and technology in both banks and
credit unions in the years since CRA was last updated, I
believe this is an opportunity to take a comprehensive look at
how institutions of all type serve their communities. While
Congress would need to act to apply CRA to credit unions, do
you believe there are steps NCUA can take to ensure that credit
unions of all sizes are adequately providing services to
underserved communities?
A.1. Serving the underserved is a core part of the credit union
mission and philosophy, which is to meet the credit and savings
needs of consumers, especially persons of modest means.
Further, as part of the NCUA's mission to protect the safety
and soundness of the credit union system, the agency has
developed initiatives to facilitate credit unions more
effectively serving their memberships, especially those in
underserved areas. I believe that credit unions are fulfilling
that mission now and, if confirmed to the NCUA Board, would
explore all avenues within the NCUA's authority to increase
access for unbanked and underbanked individuals to credit union
products and services, including building upon the NCUA's
financial literacy efforts.
In addition to working to improve unbanked and underbanked
individuals' access to credit union services under the NCUA's
current authority, if confirmed, I would also like to work with
Congress on legislative changes to the Federal Credit Union
Act, such as allowing all Federal credit unions, regardless of
charter type, to add underserved areas to their fields of
membership. Doing so would allow these institutions to offer
financial services to those with no or limited access to credit
union membership.
Q.2. Mr. Hood, credit unions, along with banks, money service
businesses and other financial institutions, are tasked with
being on the ``front lines'' of our current Anti- Money-
Laundering (AML) regime. There is currently bipartisan
agreement that our current AML system is need of updating and
reform. The system is too often inefficient and expensive while
not adequately providing law enforcement with the information
they need to pursue criminals. In addition, there is broad
agreement that there should be broad collection of beneficial
ownership information. Specifically, what do you believe should
be priorities for creating a modern risk-based AML system?
A.2. I believe that a modern risk-based AML system must move
away from the current process, which is largely manual and very
burdensome, and instead leverage technology, such as machine
learning and artificial intelligence. For example, if confirmed
to the NCUA Board, I would work with law enforcement, my fellow
regulators, and the financial community to develop and
implement an automated data reporting framework to replace
Currency and Transaction Reports. I also would work with
stakeholders to ensure that all financial institutions,
including credit unions, could run algorithms designed to
address the needs of law enforcement to automate identifying
accounts. Overall, I believe that AML requirements need to be
flexible to allow resources to be directed toward the greatest
priorities and to fit a range of new business models,
specifically those that leverage technology and other forms of
value exchange such as cryptocurrency.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SMITH
FROM RODNEY HOOD
Q.1. I often hear stories about a difficult barrier to
constructing new housing in rural areas and tribal lands--both
affordable housing and workforce housing. That barrier is
access to lenders and financial institutions. What role should
credit unions play in ensuring that new housing construction in
rural areas and tribal lands is adequately financed?
A.1. I believe that credit unions play a critical role in
helping families achieve the American dream of home ownership.
And I believe they can do even more to help residents of rural
areas and tribal lands, many of whom are unbanked or
underbanked. As noted in my testimony, one of my top priorities
as an NCUA Board Member, if confirmed, would be to ensure that
the NCUA creates opportunities to promote financial education
and financial inclusion. I would work with my fellow Board
Members and agency staff, particularly in the NCUA's Office of
Credit Union Resources and Expansion (CURE), to explore all
avenues within the NCUA's authority to increase access for
unbanked and underbanked individuals to credit union products
and services, including building upon the NCUA's already
impressive financial literacy efforts. Moreover, I would
leverage my experience as a former Associate Administrator of
the Rural Housing Service at the U.S. Department of
Agriculture, where I helped administer a $43 billion loan
portfolio of over 400,000 homeowners, to seek opportunities to
connect credit unions and their members in rural areas to
existing public sector lending programs.
In addition to working to improve unbanked and underbanked
individuals' access to credit union services under the NCUA's
current authority, I would also like to work with Congress on
legislative changes to the Federal Credit Union Act, such as
allowing all Federal credit unions, regardless of charter type,
to add underserved areas to their fields of membership. Doing
so would allow these institutions to offer financial services
to those with no or limited access to credit union membership.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM RODNEY HOOD
Q.1. Unlike other Federal financial regulatory agencies, the
NCUA is an independent regulator and insurer of credit unions.
How will you ensure the agency continues to be independent and
vigilant in protecting the safety and soundness of credit
unions in Arizona?
A.1. If confirmed, my paramount responsibility as an NCUA Board
Member would be to protect the safety and soundness of the
credit union system, including credit unions in Arizona, and
the health of the National Credit Union Share Insurance Fund. I
would work with my fellow Board Members to take actions,
including the promulgation of necessary regulations, in
furtherance of that shared responsibility. I also would work
with fellow financial regulators at both the Federal and State
levels to ensure the continued confidence in our Nation's
federally insured financial system. Moreover, if confirmed, I
would like to continue the agency's current focus on
transparency and accountability in all aspects of the NCUA's
operations.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM MARK ANTHONY CALABRIA
Q.1. FHFA Director/Administrative Actions--During your
testimony, you stated that the FHFA Director ``can make a
number of changes that can try to get the GSEs on stable
footing'' without additional legislation.
Please list all changes that you believe the FHFA Director
can make, either independently or in cooperation with executive
branch agencies, to achieve this goal.
A.1. In the absence of a full legal review, as well as a review
of current confidential supervisory information regarding the
GSEs, listing ``all'' possible changes is not feasible.
Q.2. If you are confirmed, which of these policies do you
intend to pursue?
A.2. Not being privy to confidential supervisory information
regarding entities under the supervision of FHFA, I am not in a
position to commit to any particular set of policies or
actions.
Q.3. PSPAs and Capital--You coauthored a paper which asserts
that ``Treasury's and FHFA's actions in the conservatorships of
the Companies after the 2012 Third Amendment and the advent of
the net worth sweeps violate . . . the express requirements of
HERA.'' \1\
---------------------------------------------------------------------------
\1\ See ``The Conservatorships of Fannie Mae and Freddie Mac:
Actions Violate HERA and Established Insolvency Principles'', Michael
Krimminger and Mark Calabria, February 9, 2015, available at https://
www.cato.org/publications/working-paper/conservatorships-fannie-mae-
freddie-mac-actions-violate-hera-established.
---------------------------------------------------------------------------
Just last month, FHFA and Treasury defended the Third
Amendment in court. Specifically, FHFA argued that the
``Conservator's execution of the Third Amendment fell squarely
within its broad statutory powers and functions, including to
``take over the assets of and operate the [Enterprises],''
``carry on [their] business,'' ``perform all functions'' of the
Enterprises, ``contract'' on their behalf, and ``conduct all
business of the [Enterprises]''--all in the manner the
Conservator ``determines is in the best interests of the
[Enterprises] or the Agency.'' \2\
---------------------------------------------------------------------------
\2\ See ``En Banc Supplemental Brief of Defendants-Appellees'',
Federal Housing Finance Agency and Joseph M. Otting, Patrick J.
Collins, et al. v. Steven T. Mnuchin, et al., No. 17-20364.
---------------------------------------------------------------------------
Do you still believe that the Third Amendment violates
HERA?
A.3. I believe there continue to be significant legal questions
regarding the Third Amendment. My analysis was based solely on
publicly available information. If confirmed, I will examine
FHFA internal legal documents on this issue and consult with
relevant FHFA personnel before reaching any further
conclusions.
Q.4. As FHFA Director, would you continue to defend the actions
of FHFA, including the Third Amendment, in court?
A.4. Any further defense of currently on-going legal matters
would depend upon a review of internal FHFA legal documents,
which I have not been privy to, as well consultation with FHFA
counsel.
Q.5. If you continue to assert that FHFA's actions violate the
law, what actions would you take as FHFA Director to change the
Third Amendment and comply with HERA as you read it? Would
those actions result in FHFA acting as conservator or receiver
of the Enterprises?
A.5. After review of internal FHFA legal documents, and
appropriate legal consultation, if there is a conclusion that
the law has been violated, I would make every effort to bring
FHFA into compliance within the authorities of FHFA.
Q.6. Regardless of your answers above, if confirmed do you
intend to operate the Enterprises in conservatorship or
receivership status prior to any legislative changes to the
Enterprises?
A.6. As the Enterprises are currently in conservatorship, if
confirmed I would expect to continue to operate the Enterprises
in conservatorship until the conditions have been established
that would mandate an exit from conservatorship.
Q.7. During your testimony you emphasized the importance of
capital at the GSEs. But you also noted that, for capital to be
increased above the current $3 billion retained at each
Enterprise, there would need to be an agreement between
Treasury and FHFA to allow them to retain additional earnings.
As FHFA Director, would you seek to increase the amount of
capital supporting each Enterprise outside of the current
Treasury backstop prior to any legislative reforms?
A.7. Yes, as Section 1102 of HERA places among the Director's
duties the maintenance of adequate capital.
Q.8. If so, what steps would be necessary to build that
capital? Would this require an amendment or other alteration to
the Senior Preferred Stock Purchase Agreements? Would all
capital come from retained earnings?
A.8. An amendment may be required. However, a more precise
answer to these questions would require an extensive analysis
of the Enterprises' financial condition, as well as future
forecasts of such, an exercise which I have not yet performed.
Q.9. If not, why not?
A.9. See answer immediately above.
Q.10. During your testimony, you stated that you ``support the
concept of having significantly more capital at the GSEs.''
What amount of capital, either in dollar or percentage
terms, would you seek to attain at the GSEs if the GSEs were to
rebuild capital in their current state and continue serving the
same segments of the market, notwithstanding the existing Third
Amendment to the Senior Preferred Stock Purchase Agreements?
A.10. I believe the Director is obligated to try to achieve the
minimum capital levels specified in Section 1362 of the 1992
Act, as amended by HERA.
Q.11. What amount of this capital do you believe should be
common equity? What amount, if any, of this capital could be
achieved, or by what amount could this capital requirement be
lowered, in the single-family portfolio with risk transfer to
approved counterparties including private mortgage insurers,
reinsurers, and the capital markets?
A.11. I believe the composition of GSE capital must be
consistent with Sections 1303(4) and 1362 of the 1992 Act, as
amended by HERA. Changes to the risk-based capital levels can
consider risk transfers.
Q.12. In 2018, FHFA published a Notice of Proposed Rulemaking
(NPRM) to establish Enterprise risk-based capital requirements.
While proposed capital requirements would not be applicable
while the current Senior Preferred Stock Purchase Agreements
(PSPAs) are in place, the proposal outlines a framework for
regulatory capital for financially healthy Enterprises and
establishes the capital structure used to determine whether
pricing is appropriate and Enterprise activities are economical
under the PSPAs. The comment period for the NPRM closed on
November 16, 2018.
Do you believe FHFA's 2018 proposal outlines an appropriate
framework for establishing capital requirements at the
Enterprises? If not, why not?
A.12. I have not yet read the proposed risk-based capital rule.
Q.13. If confirmed, will you review the comments submitted and
continue the current risk-based capital rulemaking; start a new
rulemaking; or stop all capital rulemakings for the
Enterprises? If you intend to propose a new rule or stop
capital rulemakings, please explain how you will approach the
regulation of capital at the Enterprises.
A.13. If confirmed, I intend to review the comments and
proposed rule and take the appropriate actions as warranted by
that review.
Q.14. Credit Risk Transfer--In its regular credit risk transfer
(CRT) reports, FHFA states that it assesses CRT programs and
transfers on a set of principles, including that the
Enterprises transfer risk when it is ``economically sensible to
do so.'' FHFA defines economical CRT transactions as
``transactions in which the cost to the Enterprise for
transferring the credit risk does not meaningfully exceed the
cost to the Enterprise of self-insuring the credit risk being
transferred.'' \3\
---------------------------------------------------------------------------
\3\ ``Credit Risk Transfer Progress Report: Second Quarter 2018,''
FHFA, available at https://www.fhfa.gov/AboutUs/Reports/
ReportDocuments/CRT-Progress-Report-2Q18.pdf.
---------------------------------------------------------------------------
Do you support the principle that all Enterprise credit
risk transfer should be economically sensible? If not, why not?
A.14. I have not had the opportunity to review FHFA guidelines
in this area. If confirmed, I intend to do so.
Q.15. During an economic downturn, certain types of credit risk
transfer could become more expensive and therefore
uneconomical. If credit risk transfer became uneconomical,
would you support modifying transfer volume to allow only those
transfers that remain economical? If not, why not?
A.15. During an economic downturn, I would support reviewing
existing credit risk transfers in light of the macroeconomic
conditions and taking any actions that are warranted,
consistent with the statutory framework.
Q.16. Structure of FHFA--As you noted during your testimony,
you worked on the Housing and Economic Recovery Act (HERA),
which created the FHFA, and the two housing finance bills that
preceded it, S. 1508, the Federal Enterprise Regulatory Reform
Act of 2003 and S. 190, the Federal Housing Regulatory Reform
Act of 2005. All three pieces of legislation created a
regulator for Fannie Mae and Freddie Mac headed by a single
director appointed by the President with the advice and consent
of the Senate. The 2005 legislation and HERA, which ultimately
became law, were clear that the agency director would only be
removable for cause.
If confirmed as FHFA Director, will you defend the single
director structure of FHFA?
A.16. Yes.
Q.17. Do you believe an independent agency with FHFA's breadth
of authority and a single director removable only for cause is
constitutional? If not, why did you help draft and why have you
consistently defended two laws that you believe to be
unconstitutional?
A.17. I am not a lawyer or constitutional scholar so this is
not my area of expertise, but my own view is that FHFA's
structure is lawful.
Q.18. Independence--In our private meeting and during your
testimony, you stated that you removed yourself from all
internal discussions about the future of the housing finance
system within the Administration upon notice that you would be
nominated because it was important ``for maintaining the FHFA
is ``an independent regulator that the President is supposed to
have no control over.'' \4\
---------------------------------------------------------------------------
\4\ ``Random Thoughts on Obama's New Mortgage Plan'', Mark A.
Calabria, October 25, 2011, available at https://www.cato.org/blog/
random-thoughts-obamas-new-mortgage-plan.
---------------------------------------------------------------------------
As a member of the Committee staff that worked on HERA and
the creation of FHFA as an independent agency, how does the
President's choice of an Acting Director at FHFA who is
simultaneously a member of an executive branch agency within a
larger agency, the Treasury Department, which is part of the
President's Cabinet, preserve that independence? How can a
single individual be both an appointee within a Cabinet-level
agency and independent of the President?
A.18. I have not examined this legal question.
Q.19. As a member of the Committee staff that created a
legislative process for selecting an Acting Director of FHFA
from among the three Deputy Directors at FHFA in the event of a
vacancy, are you concerned that the President did not follow
the process established by Congress?
A.19. I have not examined this legal question.
Q.20. Did you continue meeting with housing finance industry
stakeholders or regulated entities in your official capacity as
Chief Economist to the Vice President between September 2018
and your nomination hearing? If so, how were you able to convey
the stakeholders' concerns and the Administration's views if
you had removed yourself from internal deliberations?
A.20. Yes. I did not, in general, convey the substance of those
meetings to others and instead urged stakeholders to directly
engage with the President's staff or relevant agency personnel.
Q.21. World Class Regulator--During your testimony, you said
that you are ``committed to seeing the work of HERA finally
completed and turning FHFA into a world-class regulator.''
What does it take to be a world-class regulator? If you do
not believe that FHFA is currently a world-class regulator,
what changes do you believe are necessary to make it one?
A.21. I believe FHFA should be granted the full range of
regulatory authorities granted to most other financial
regulators. For instance in the area of capital, bank
regulators, especially under Section 38 of the Federal Deposit
Insurance Act, have considerable authority which FHFA lacks. It
is my intent, if confirmed, to deliver to the Committee a list
of authorities held by other regulators which FHFA currently
lacks.
Q.22. Are there other parts of HERA that you believe are not
complete or fully implemented? What steps do you believe are
necessary to see the work of HERA completed?
A.22. See answer above. Additionally a world-class regulator
should be viewed as a significant source of research and
information on the policy issues under its purview. Currently,
for instance, the Federal Reserve System does far more research
and analysis on our mortgage markets and mortgage policy than
does FHFA. I would intend to close that gap.
Q.23. Multiple Guarantors--In response to questions during your
nomination hearing, you stated that ``one element [you] believe
we all share is a greater need for competition.''
Were you referring to competition in the primary market,
the secondary market, or both? If it is competition in the
secondary market, what factors do you believe secondary market
entities should compete on?
A.23. Both. Other than any sort of explicit Government
guarantee, which should only be provided by a nonprofit, FDIC
style model, all other elements of the secondary market should
be open to competition.
Q.24. How would additional competition in the secondary market
impact liquidity and pricing in the To-Be-Announced (TBA)
market?
A.24. I believe competition would improve liquidity and pricing
in the TBA market. As is well established in the economics
literature on market structure, competitive markets result, in
general, with better pricing for the consumer than monopolistic
markets or duopolies.
Q.25. Multifamily--As you stated during your nomination
hearing, our country is facing a housing affordability crisis.
About a quarter of renters currently spend more than half of
their income on housing, and there is no market where a person
working 40 hours per week at minimum wage can afford a modest
two-bedroom apartment.
Do you believe there is a role for the Enterprises to play
in addressing the rental affordability crisis? If so, if
confirmed, what changes in the Enterprises' policies or
products would you support to address this affordability
crisis?
A.25. Yes. Before engaging in any changes in this area, I
believe an appropriate review of the effectiveness of those
policies and programs would be warranted and that any changes
flow from that review.
Q.26. If confirmed, would you support a continued Government
guarantee on multifamily loans through the Enterprises? If so,
would you support that guarantee being extended to the same or
a greater population of loans and products?
A.26. Before lending support to any set of proposals, I would
need to engage in considerable review and examination of those
policies.
Q.27. The Enterprises' primary multifamily products--Fannie
Mae's Delegated Underwriting System (DUS) and Freddie Mac's K
Deal Program--differ in their risk-sharing models. Do you
believe these products are treated appropriately in FHFA's
Enterprise Capital Requirements NPRM?
A.27. I have not read the referenced NPRM.
Q.28. Fair Housing/Fair Lending--There remains an enormous
racial gap in home ownership and wealth, and in many cities
redlining still defines the occupancy of neighborhoods. You
have written that ``the vast majority, if not all, of the
racial home ownership gap is explained by factors such as age,
income, family status, wealth and local housing costs,'' so we
should stop trying to ``socially engineer a specific home
ownership rate.'' \5\
---------------------------------------------------------------------------
\5\ ``Race and Homeownership: Historical Trends'', Mark A.
Calabria, January 13, 2011, available at https://www.cato.org/blog/
race-homeownership-historical-trends.
---------------------------------------------------------------------------
Do you believe systemic discrimination exists in the
housing market today? If not, when do you believe it ended and
how?
A.28. Yes.
Q.29. What if any role should FHFA play in addressing the
effects of past and present systemic discrimination in today's
home ownership and rental housing markets?
A.29. FHFA has an important role in insuring that all entities
under its supervision fully comply with our Nation's Fair
Housing Laws. FHFA also has a role in making sure that the
activities of entities under its supervision do not contribute
to further segregation. Additionally FHFA has a role in making
sure that efforts to extent home ownership are done in a
sustainable manner that do not leave vulnerable families worse
off.
Q.30. 30-Year Fixed-Rate Mortgage--In response to a question
from Senator Tester, you stated that, if confirmed, at the end
of your 5-year term, ``the 30-year fixed-rate mortgage will be
widely available.''
Do you believe that, if confirmed, at the end of your term
secondary market financing for the 30-year fixed-rate mortgage
will be available in the conventional market to the same or a
larger population of borrowers to whom it is available today at
the same or lower cost (not including market changes in
interest rates)?
A.30. Yes.
Q.31. If not, what changes would you expect to see and what
populations of lenders and borrowers are those changes most
likely to effect in the primary market?
A.31. N/A.
Q.32. G-Fees--You have written that the GSEs should be
guaranteeing a smaller subset of loans--those with higher FICO
scores, higher downpayments, and lower loan amounts. \6\ You've
also said that the GSEs should be charging more for their
guarantee. \7\ During your testimony before the Committee, you
clarified that we should look at each loan holistically to
evaluate whether or not it is eligible for guarantee.
---------------------------------------------------------------------------
\6\ See ``If We Decide To Keep Fannie Mae Around . . . '', Mark A.
Calabria, February 18, 2015, available at https://www.cato.org/blog/we-
decide-keep-fannie-mae-around; Testimony before the U.S. House of
Representatives Committee on Financial Services, ``A Legislative
Proposal To Protect American Taxpayers and Homeowners by Creating a
Sustainable Housing Finance System'', Mark A. Calabria, July 18, 2013,
available at https://www.cato.org/publications/testimony/legislative-
proposal-protect-american-taxpayers-homeowners-creating.
\7\ See Testimony before the U.S. Senate Committee on Banking,
Housing, and Urban Affairs, ``The State of the Housing Market'', Mark
A. Calabria, March 9, 2011, available at https://www.cato.org/
publications/congressional-testimony/state-housing-market.
---------------------------------------------------------------------------
Looking holistically at the loans being guaranteed by the
Enterprises today, are there loans being purchased or products
being offered at either Enterprise that you would eliminate or
increase the price for? If so, please name those products and
what if any price changes are necessary.
A.32. Without a full review of the GSEs' current business and
loan performance, including examination of confidential
supervisory information, I do not have the full set of
information necessary to answer this question.
Q.33. If you are confirmed, would you maintain the existing
guarantee fee framework, or would you adjust the existing
pricing grids, including any loan-level price adjustments,
either by product or by borrower characteristic? If you would
adjust the pricing grids, please explain any proposed changes.
A.33. Without a full review of the GSEs' current business and
loan performance, including examination of confidential
supervisory information, I do not have the full set of
information necessary to speak to this issue.
Q.34. Have you studied how many borrowers would no longer have
access to a loan or would pay more for it if you made the
changes noted in the prior two answers?
A.34. No.
Q.35. Fannie Mae and Freddie Mac have historically offered
lenders volume-based discounts for loans that will be
guaranteed by the Enterprises. These discounts disadvantaged
small lenders that could be forced to sell loans to a larger
competitor or face higher transaction costs. Under the
regulation of FHFA, volume-based discounts have been
eliminated.
If confirmed, do you commit to maintain equal guarantee fee
pricing for all lenders, regardless of the number of loans they
deliver to an Enterprise or the form in which those loans are
delivered?
A.35. I am generally supportive of the elimination of volume
discounts, but without a full examination of the issue, and
without access to any internal FHFA analysis, I believe it
would be inappropriate to commit to any particular course of
action at this point.
Q.36. If confirmed, do you commit to support equal guarantee
fee pricing for all lenders, regardless of the number of loans
they deliver to an Enterprise or the form in which those loans
are delivered in any future secondary market system?
A.36. Without a full examination of the issue, and without
access to any internal FHFA analysis, I believe it would be
inappropriate to commit to any particular course of action at
this point.
Q.37. Underwriting--If you are confirmed, would you make any
changes to the Enterprises' underwriting standards as they
exist today? If so, please detail any proposed changes and
provide an analysis of the impact that such changes would
likely have on prospective mortgagors.
A.37. Without a full review of the GSEs' current business and
loan performance, including examination of confidential
supervisory information, I do not have the full set of
information necessary to answer this question.
Q.38. In response to a question from Senator Cortez Masto
regarding your previous suggestion that only borrowers with 700
FICO scores should get loans, you replied that you `` . . .
certainly don't think there should be any legal prohibition in
the mortgage market against any sort of FICO score.''
Do you believe that FHFA should prohibit the Enterprises
from guaranteeing loans or securities containing loans to
borrowers with FICO scores below 700?
A.38. No.
Q.39. If not, do you believe that the Enterprises should charge
more to guarantee loans with FICO scores below 700 than they
currently charge? If so, how much more?
A.39. Without a full review of the GSEs' current business and
loan performance, including examination of confidential
supervisory information, I do not have the full set of
information necessary to answer this question.
Q.40. Affordable Housing Goals--You told the Committee that
``we can get to a spot where we can have risk-taking via
affordable housing goals if we can have an appropriate
regulatory structure that has capital backing those goals.''
You later told the Committee that you would preserve the
affordable housing goals ``within the confines and direction of
the statute.''
What is an appropriate regulatory structure for the
affordable housing goals? How does an appropriate structure
differ from the regulatory structure that exists today?
A.40. There is essentially no capital backing the GSEs today. I
believe that is not an appropriate capital or regulatory
structure.
Q.41. What is the appropriate capital backing the affordable
housing goals? How much of that capital would come from
guarantee fees or other charges assessed to the homeowners
whose loans were part of the single-family housing goals, and
how would those guarantee fees or other charges differ from the
charges assessed to homeowners whose loans were not included
within the goals?
A.41. Without a full review of the GSEs' current business and
loan performance, including examination of confidential
supervisory information, I do not have the full set of
information necessary to comment.
Q.42. What parts of the statute would prohibit you from
preserving and implementing the affordable housing goals in any
given year? How would you determine whether that statute would
apply in any quarter or year?
A.42. Section 1131 of HERA. I have not seen a legal opinion as
to whether the Section 1131 determination is quarterly or
annual or of a different frequency altogether.
Q.43. Duty To Serve Underserved Markets--You testified before
the Committee that, if you are confirmed, the GSEs' duty to
serve underserved markets would be ``part of the process'' and
that the requirements would remain in place ``as long as the
existing regulatory structure is there.''
You were very forthcoming with the Committee about the type
of secondary market structure you would promote if confirmed.
If confirmed, would you similarly support maintaining a
statutory duty to serve underserved markets for all secondary
market participants regulated by FHFA or any regulator that
replaces it?
A.43. Support for any legislative proposal would dependent upon
the full details of that proposal.
Q.44. If confirmed, will you support all Enterprise activities
in fulfillment of their duty to serve plans as published and
amended in 2017 and 2018 while you await legislative changes to
the secondary market?
A.44. I have not had the opportunity to review the duty to
serve plans published and amended in 2017 and 2018.
Q.45. CSP--The Common Securitization Platform (CSP) has been
under development for over 5 years and is scheduled to begin
issuing a single security for both Fannie Mae and Freddie Mac
mortgage-backed securities in less than 4 months. Market
participants and regulators have been working to address
outstanding regulatory and practical questions posed by the
single security. But you have written that ``[w]asting money on
the CSP is another classic Washington boondoggle, fundamentally
misdiagnosing the problem and building a new organization to
provide a solution that no one in the market asked for.'' \8\
---------------------------------------------------------------------------
\8\ ``Can the Private Market Return to Home Lending?'', Ike
Brannon and Mark A. Calabria, July 14, 2016, available at https://
www.cato.org/publications/commentary/bna-insights-can-private-market-
return-home-lending.
---------------------------------------------------------------------------
If confirmed, do you intend to finalize the rulemaking for
the single security, and begin issuance of a single security in
June 2019?
A.45. Assuming that issuance is feasible and practicable at
that point, then yes, but that decision would also be subject
to a review of the progress to date.
Q.46. What impact, if any, do you believe a single security
will have on the size and liquidity of the secondary market?
A.46. I understand the intent is to have a more standardized
secondary market that is larger and with more liquidity.
Q.47. If confirmed, do you intend to continue developing the
CSP? Do you expect the CSP to have additional functionalities
beyond its current role in the issuance of a single security in
the coming years? If so, what functionalities do you expect
that the CSP will build?
A.47. I have no expectations as to additional functionalities,
but am open to the possibility of such.
Q.48. CEOs--Both Fannie Mae and Freddie Mac are in the process
of selecting new Chief Executive Officers (CEOs). In its
capacity as regulator, FHFA is responsible for overseeing
Enterprise compliance with 12 U.S.C. 4520, ``Minority and women
inclusion; diversity requirements'' and its implementing
regulations. Furthermore, as conservator, FHFA succeeds to
``all rights, titles, powers, and privileges of the regulated
entity, and of any stockholder, officer, or director of such
regulated entity.'' \9\ Both as regulator and conservator, FHFA
has substantial influence over the selection process for and
hiring of senior Enterprise leadership.
---------------------------------------------------------------------------
\9\ 12 U.S.C. 4617(b)(2)(B)(i).
---------------------------------------------------------------------------
If confirmed, will you commit to ensure that a diverse set
of candidates are considered to fill both CEO vacancies and any
other future leadership vacancies at the Enterprises, the
Federal Home Loan Banks, and FHFA during your tenure?
A.48. Yes.
Q.49. FSOC--If confirmed as FHFA Director, you will also serve
as a voting member of the Financial Stability Oversight Council
(FSOC), which is responsible for identifying risks to the
financial stability of the United States; promoting market
discipline; and responding to emerging risks to the stability
of the United States' financial system.
What do you see as the current threats to U.S. financial
stability and what are the emerging risks? What steps to do you
believe FSOC should take to address these risks?
A.49. Property markets, over any sufficient time horizon, are
almost always financial stability concerns and should be
monitored constantly. The slowing global economy, for instance
any adverse impact from Brexit, needs to be monitored. Given
that our financial markets and institutions will always face
risks, I believe the best approach is to make sure that those
institutions are well-capitalized, well-regulated, and well-
managed. The continued normalization of interest rates and its
impact on financial institutions should also be closely
monitored.
Q.50. In your written testimony, you said that your first
question when deciding what actions to take as FHFA Director
would be ``what does the statute say?'' Would that approach be
the same as a member of FSOC?
A.50. Yes.
Q.51. Do you believe that FSOC is currently fulfilling all of
its statutory requirements? If not, which requirements are not
fulfilled and what steps would you take to fulfill all
requirements?
A.51. My impression is yes, but I intend to more closely
examine this issue if confirmed.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATORS
BROWN AND REED FROM MARK ANTHONY CALABRIA
Q.1. Housing Trust Fund/Capital Magnet Fund--During your
nomination hearing, you stated that there is a ``mechanical
trigger'' that requires or bars the transmission of Enterprise
funds to the Housing Trust Fund (HTF) and Capital Magnet Fund
(CMF).
What, specifically, is the mechanical trigger that would
lead the FHFA to bar transmission of funds from the Enterprises
to the HTF and CMF?
A.1. The trigger mechanism is detailed in Section 1131 of HERA,
codified in 12 U.S.C. 4567.
Q.1. What changes in the Enterprises' status, including changes
to the Senior Preferred Stock Purchase Agreements, the
Enterprises' capital restoration plan, or the Enterprises'
status in conservatorship or receivership, would bar annual
transmission of funds to the HTF and CMF?
A.1. Only those changes having the impacts detailed in Section
1131 of HERA.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM MARK ANTHONY CALABRIA
Q.1. Last Congress, this Committee moved historic bipartisan
legislation. In particular, S. 2155 included my language to
make it easier for the banking underserved to gain access to
credit. Sec. 310 is designed to increase competition and
innovation for credit scoring, with the goal of allowing
lenders the option of choosing from among multiple validated
and approved scoring models when originating mortgage loans.
There is currently only one credit scoring model permitted in
the housing finance space.
I am concerned that the proposed rulemaking, released under
prior Director Watt, hinders the opportunity for robust
competition that this legislation intends to generate. Sec.
310's Congressional intent is to ensure innovation that expands
the options available to lenders so that Americans from all
backgrounds have more access to credit and are able to reach
the ``American dream''. I am concerned the proposed rulemaking
does not fulfill that.
Dr. Calabria, I would like to take this opportunity to
follow up with you on your appearance before the Senate Banking
Committee regarding your nomination to be Director of the
Federal Housing Finance Agency. I appreciated your comments and
commitment to increase competition in the housing finance
sector.
Please answer the following with specificity:
If confirmed, will you commit to ensuring and prioritizing
that the proposed rulemaking of Sec. 310 follows Congressional
intent?
A.1. Yes.
Q.2. FHFA informed some Members of this Committee in July of
2018 that it would be difficult to fulfill the statutory
timeline for full implementation of Sec. 310 as passed by
Congress and as signed into law by the President. Will you
commit to doing all in your power to accomplish complete
implementation of Sec. 310 as required by statute or as soon
thereafter as possible?
A.2. Yes.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM MARK ANTHONY CALABRIA
Q.1. I understand that one plan under consideration for GSE
reform is recap and release. In essence this entails allowing
Fannie and Freddie to build a capital buffer back up and then
releasing them from conservatorship. However, I am concerned
that recap and release--without additional reforms--would take
us back to right where we started precrisis. What are the most
important reforms that you believe need to be made to the GSEs
before they're released from conservatorship?
A.1. I share your concerns and believe a simple ``recap and
release'' that goes back to the preconservatorship model would
be a mistake. Foremost the GSEs require significantly higher
capital than their preconservatorship levels. It would also be
preferable for Congress to open up the model to competition,
allowing the regulator to charter new entrants. Improving the
resolution framework to allow for an orderly reorganization or
liquidation of a failing GSE is also needed.
Q.2. Following our exchange during the Banking Committee's
hearing, it's clear we both agree about the importance of
private capital in the mortgage market. Since FHFA was created
it has used a number of pilot programs, such as the IMAGIN
program, to attract private capital to the secondary market and
reduce risks borne by the American taxpayer. If confirmed as
Director, will you continue to find ways to adopt policies that
reduce risks to the American taxpayer and lower costs for
borrowers?
A.2. Yes, as the GSEs are not currently building sufficient
capital on their own, I believe it is critical that FHFA
continue to examine and pursue other alternatives for
transferring that risk to other market participants who do
maintain sufficient capital.
Q.3. From a good governance standpoint, I am concerned that in
some instances the GSEs have also used pilot programs as a
means to circumvent the normal Federal notice and comment
process. This has created inappropriate competition with the
private market in certain circumstances. Do you intend to use
the standard Administrative Procedures Act process to help
promote transparency at FHFA?
A.3. I share the concerns regarding previous practices in the
areas of pilot and new programs at the GSEs. I am committed to
increasing the transparency of that process and minimizing any
adverse impact on competition.
Q.4. I would like to better understand your views on the Fannie
and Freddie duopoly, particularly while they've been in
conservatorship, and the impact on purely private players who
don't have the implicit Government guarantee. Has the continued
GSE conservatorship perpetuated a Fannie and Freddie duopoly in
the housing market? And should the GSEs remain focused on their
primary mission, which is providing liquidity to the secondary
market?
A.4. Ultimately I believe Congress should open the GSEs'
charters to competition. I do believe that the current
conservatorship has further entrenched the GSEs and reduced
competition in the secondary mortgage market. Part of this
reduced competition has been the result of exempting the GSEs
from rules that apply to other market participants. I believe
the GSEs and other financial institutions should, to the
greatest degree possible, operate on a level regulatory playing
field. I share the concerns that the GSEs could leverage their
market power to vertically integrate into other segments of the
mortgage market. Accordingly I believe the GSEs should remain
focused on their primary mission, providing liquidity to the
secondary mortgage market.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM MARK ANTHONY CALABRIA
Q.1. Former Director Mel Watt issued a proposed rule on
enterprise capital as applied to multifamily housing capital
standards. The proposed rule would require approximately three-
and-a-half times the credit risk capital that single-family
homes required during such times of stress, even though single
family losses were demonstrably higher during the last
recession. The credit performance of the GSE book of
multifamily loans dramatically outperformed single family.
Can you commit that any postconservator capital standard or
in-conservatorship guidelines that you may be in charge of
implementing will be reflective of the historical performance
of that asset class? Will such standards be based on
transparent, real data, and risk-based pricing and analysis?
A.1. While I have not had an opportunity to read the proposed
rule, I do strongly believe that any risk-based capital
standard should incorporate historical loan performance data
and be based on transparent, real data as well as risk-based
pricing and analysis.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM MARK ANTHONY CALABRIA
Q.1. Communities around the country, including in my State, are
experiencing a shortage of buildable lots and homes. In NAHB
surveys, two-thirds of builders currently report a low or very-
low supply of lots. This lack of supply is driving up prices
and impacting housing affordability, especially for entry level
and first-time home buyers. One way to help fix this problem is
to ensure an adequate pipeline of acquisition, development, and
construction financing for land developers and builders.
What role do you see Fannie Mae and Freddie Mac having to
solve barriers for housing supply, such as through construction
loans and other financing for builders?
A.1. Lack of supply is, in my opinion, the number one obstacle
to more affordable housing in our Nation. The decline in the
number of small banks since the passage of Dodd-Frank has
placed a particular drag on the availability of acquisition,
development and construction (ADC) lending. I believe the GSEs
can and should play a constructive role in facilitating ADC
lending, especially among smaller lenders. If confirmed, I
intend to review the GSEs' activities in this area and make any
regulatory changes warranted.
Q.2. Our Nation's residential home builders rely on
acquisition, development, and construction (AD&C) lending to
provide the capital necessary to meet the growing needs of the
Nation's housing market. Small builders, who construct
approximately 80 percent of all new housing in America each
year, don't have access to Wall Street financing, and thus must
rely on community banks to provide this much-needed liquidity
as they tend to understand local housing markets better than
larger lenders. However, community banks have not been able to
meet current construction financing needs. While the stock of
outstanding home building construction loans has grown by 95
percent, an increase of $38 billion, since the first quarter of
2013, lending remains much reduced from years past. In fact the
current stock of existing residential AD&C loans now stands 61
percent lower than the peak level of residential construction
lending of $203.8 billion reached during the first quarter of
2008. Clearly more needs to be done to encourage community bank
lending and facilitate the flow of AD&C financing.
Given the damage to both home builders and community banks
during the economic downturn which has resulted in limited AD&C
liquidity, how would a properly structured Government guarantee
for AD&C loans help make financing for builders more
consistently available and support our Nation's builders and
community banks during future economic downturns?
A.2. The financial crisis, as well as Dodd-Frank, have been
accompanied by a significant reduction in the number of
community banks, as well as a reduction in their activity. I
believe, as expressed in S. 2155 passed last Congress, that
community bank relief should remain an important and continued
focus for Congress. I am committed to examining a number of
options for increasing community bank participation with the
GSEs, and insuring that such is done in a safe and sound
manner.
Q.3. It appears to be a direct conflict of interest for the
same people who are setting the private mortgage insurers'
capital and operational standards to also be developing a
program that will allow the GSEs to essentially self-insure--or
at a minimum, to set up structures that will have less players,
transparency, and stability through cycles--that amounts to
what the GSEs perceive as an additional market advantage. Do
you agree?
A.3. I believe private mortgage insurers have an important role
to play in our mortgage markets. I have not had the opportunity
to fully examine FHFA and the GSEs' activities in this area,
but intend to examine and evaluate the impact of the GSEs on
competition in the mortgage insurance area.
Q.4. I am troubled by the possibility of the GSEs using
inconsistent standards--applying one approach to an industry or
company and another in the same area of activity--for self-
benefit. This behavior would unlikely be tolerated by Federal
bank regulators.
How will you enforce fair standards and limit conflicts of
interest by the GSEs?
A.4. I feel very strongly that both FHFA and the GSEs have an
obligation to treat all market participants fairly and
consistently, and those activities should parallel those of
other Federal financial regulators and entities as closely as
practicable. I would also view addressing conflicts of interest
and failures of internal controls at the GSEs as one of my
highest priorities.
Q.5. As Director, how would you consider the GSEs' Charters
when deciding whether to authorize a pilot--i.e., is any
activity permitted based on a colorable reading of the
Charters? Or is there an effort to ensure the GSEs are
responding appropriately to other market stakeholders?
A.5. Foremost would be a consideration of if the activity is
permitted by the Charters. If such activity is permitted, the
second question is whether such activity is consistent with
safety and soundness, as well as the overall mission of the
GSEs. In any determination, I would consult with other
stakeholders and carefully weigh the competitive aspects of any
new activities or programs.
Q.6. Would you consult with other Federal or State regulators
in order to assess regulatory or market effects, including with
Treasury on the financial effects of pilot activity?
A.6. Yes.
Q.7. Could a new Director eliminate the pilot approach and
terminate all existing pilots? If the effect would be material,
would this warrant additional disclosure, oversight, and
participation by market stakeholders in the piloting process?
A.7. I am not aware of the correct legal interpretation in
terms of terminating existing pilots. If confirmed, I would
consult with FHFA's General Counsel on this issue. Whatever
actions taken in this area would be done in a transparent
manner, seeking input from relevant stakeholders.
Q.8. In the last year, the issue of pilot programs initiated by
Fannie Mae or Freddie Mac have raised concerns. A January 2019
GAO report said these pilot programs widen the scope of
activities of the companies and, ``allow them to become more
dominant by potentially growing their role beyond the secondary
market and into the primary market.'' I have concerns about the
impact these pilots potentially have on fair and free
competition. The secretive nature of these pilots can have the
effect of unfairly disrupting the market, especially when only
one or two companies participate and therefore functionally get
a leg up on the market.
What steps can FHFA take to ensure pilots don't unfairly
advantage one company in the market?
A.8. FHFA can first conduct an economic analysis looking at
potential competitive market effects of new programs. Second,
FHFA, can, to the extent practicable and consistent with HERA,
encourage the GSEs to begin any pilot programs with
participation by a reasonable number of companies.
Q.9. How will you enforce fair standards and limit conflicts of
interest by the GSEs?
A.9. By fully reviewing the current examination procedures and,
if warranted, increasing the amount of examination time devoted
to enforcing fair standards and conflicts of interest. If
warranted, I would consider hiring additional FHFA staff to
specifically monitor these specific issues.
Q.10. That same GAO report said, ``According to FHFA, the
enterprises' boards of directors oversee day-to-day operations,
but certain matters are subject to FHFA review and approval.
For example, FHFA officials told us that FHFA reviews and
approves some pilot programs.''
What criteria does FHFA use to determine which pilot
programs it should review and approve and which pilot programs
FHFA should not review or approve?
A.10. As I have not been at FHFA, I am not familiar with the
internal criteria used. If confirmed, I intend to examine and
review this criteria.
Q.11. What oversight does FHFA conduct of the GSEs when it
comes to pilots? Do FHFA experts and economists help design the
metrics and criteria for determining success?
A.11. As I have not been at FHFA, I am not familiar with the
internal oversight currently conducted on pilot programs. If
confirmed, I intend to examine and review these oversight
efforts.
Q.12. A September 2018 White Paper by FHFA's Office of the
Inspector General said ``FHFA does not consider the IMAGIN
pilot program to constitute primary market activity because
Freddie Mac is not originating loans under this pilot
program.''
Short of originating loans, what activities are outside the
GSEs' charters?
A.12. I have not conducted a legal review of this question, nor
am I privy to any internal FHFA review of this question. I do,
however, believe that FHFA should, if it has not done so
already, examine this question. It is fully my intent, if
confirmed, to see that the GSEs operate fully within their
charters.
Q.13. Each year the FHFA publishes a conservatorship scorecard.
This scorecard is supposed to reflect the metrics that FHFA
uses to review proposals from the GSEs in a year. It makes
sense that as conservator, FHFA would direct the GSEs to only
consider pilots that have a strong link to one of those items
on the score card, with pilots on mortgage insurance, single
family rentals, and appraisal data.
Is it safe to assume that we won't see a pilot on products
that are outside the score card items, like title insurance or
real estate brokerages?
A.13. As a general approach, I believe that new activities,
products or programs done within a conservatorship must be
consistent with the objectives of the conservatorship.
Q.14. I've worked my colleagues on both sides of the aisle to
reform our broken housing finance system. We came close in
2014, when we passed a bipartisan product out of this
Committee, but Harry Reid never moved our bill. While we are
not giving up in Congress, the FHFA no doubt will play a large
role in housing finance reform and there are a number of
Administrative actions that can be taken to help or hurt
taxpayers, lenders, consumers, etc. Frankly, a lot of time and
attention of the GSE reform debate focuses on the single family
piece of the business, but as someone who cares a great deal
about renters too, I am concerned about how recent actions
taken by the FHFA under the leadership of Mel Watt could impact
affordable housing and workforce housing. In fact, the FHFA has
considered a rule that affects multifamily housing finance
liquidity.
I know you can't comment on the rule, but can you commit to
the Committee that you will not do anything that will directly
increase the cost to millions of renters of multifamily
housing?
A.14. It is not my intent to increase the cost of rental
housing. If confirmed, every reasonable effort will be made to
consider any direct impact on rental costs.
Q.15. Securitization has been crucial in transitioning billions
of dollars in credit risk away from the American taxpayer
through the GSEs' CRT (credit risk transfer) program.
Securitization can play a critical complimentary role in any
reformed housing finance system by expanding private credit's
role via private label MBS while the GSE footprint shrinks.
With this in mind, how will you encourage the return of a
healthy and responsible securitization market if confirmed as
Director of the FHFA?
A.15. I believe FHFA's Director can play an important role in
encouraging a healthy, responsible and competitive secondary
mortgage market. Foremost, if confirmed, I would work with my
fellow regulators on FSOC to address broader issues related to
securitization to help improve the functioning of the
securitized mortgage market. Creating a level and transparent
playing field is essential in this area, especially in terms of
gaining investor confidence. I would also devote considerable
time and attention to first listening to the concerns of
stakeholders in securitization and working to address obstacles
to responsible, private label securitization.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM MARK ANTHONY CALABRIA
Q.1. If confirmed, you'll have immense authority over our
housing policy and effectively, the homes and lives of many
Americans. You have said that the Housing and Economic Recovery
Act is being violated, so what would you do about it if you are
confirmed? Would you continue Mr. DeMarco's and Mr. Watt's
policy? Would you put the Enterprises into conservatorship? Or
would you put the Enterprises into receivership? Could you
please provide your economic analysis to assess the likely
impact of any of these choices on our housing markets,
particularly mortgage rates and housing prices?
A.1. My previous writings in relation to HERA's Section 1145
are based solely upon publicly available data and analysis. As
I have not been privy to any internal FHFA analysis on these
questions, my first action, in regard to this area, would be to
review any internal work done on this question. I fully
recognize that regulatory actions can often look different on
the ``outside'' than on the inside of a regulator. My writings
on this area are also focused upon decisions made primarily in
the fall of 2008 and immediately thereafter. As I am not privy
to any confidential supervisory information regarding entities
regulated by FHFA, any actions taken would have to be based
upon current supervisory information. If confirmed, I would
consult such information.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM MARK ANTHONY CALABRIA
Q.1. As conservator, in which role FHFA succeeds to ``all
rights, titles, powers, and privileges of the regulated entity,
and of any stockholder, officer, or director of such regulated
entity,'' \1\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 4617(b)(2)(A)(i).
---------------------------------------------------------------------------
Do you have the authority to reduce, not increase, or
otherwise alter the maximum loan amount of the single-family
loans that either Enterprise may guarantee, either in regular
or high-cost areas?
A.1. No.
Q.2. If you do have that authority, would you use that
authority to reduce, not increase, or otherwise alter the
maximum loan amount of the single-family loans that either
Enterprise may guarantee, either in regular or high-cost areas?
A.2. N/A.
Q.3. If you do not have that authority, please provide the
legal analysis supporting your conclusion that you do not have
that authority. Additionally, please state whether you would
reduce or not increase the maximum loan amount that may be
guaranteed by an Enterprise if you later found that you had the
statutory authority to do so.
A.3. I simply see no statutory basis for exercising said
authority. If such authority is granted, I would at that time
consider how best to exercise such authority.
Q.4. Please provide analysis on the specific impacts to pricing
and mortgage rates in New Jersey if loan limits were to be
reduced to: (a) precrisis levels ($417,000); and (b) $200,000.
Additionally please provide estimates on what this volume
reduction would mean for pricing and mortgage rates nationally.
A.4. The following analysis is based upon the United States
Census Bureau's American Community Survey, which reports a
median home value for the State of New Jersey of $334,900. For
select urban areas in New Jersey, the current loan limit is
$726,525, for the remainder of the state the loan limit is
currently $484,350.
My estimate is that the current loan limits cover
approximately 90 percent of the owner occupied homes in New
Jersey. Returning to the precrisis conforming loan limit of
$417,000 would cover approximately two-thirds of owner-occupied
homes in New Jersey. A loan limit of $200,000 would cover
approximately a third of owner-occupied homes in New Jersey.
Since mid-2013, mortgage rates on jumbo loans have been
below that of GSE conforming loans by an average of 33 basis
points. \2\ Adjusting for differences in credit quality and
other relevant characteristics still leaves mortgage rates on
jumbo non-GSE loans below that of GSE conforming loans by an
average of 5 basis points. \3\
---------------------------------------------------------------------------
\2\ https://www.corelogic.com/blog/2018/08/why-are-jumbo-loans-
cheaper-than-conforming-loans.aspx
\3\ https://www.corelogic.com/blog/2018/10/jumbo-conforming-
spread-risk-location-scale-economies-affect-rate.aspx
Q.5. Do you have plans to take other steps to reduce loan
volume at the Enterprises, whether through pricing, limiting
---------------------------------------------------------------------------
certain loan products, and reducing the credit box?
A.5. Without a full review of the GSEs' current business and
loan performance, including examination of confidential
supervisory information, I do not have the full set of
information necessary to make this decision.
Q.6. In the context of changes to loan limits or other
restrictions to the Enterprises' footprint, what do you
consider to be small or incremental?
A.6. Changes that do not significantly shift the overall
contours of the market and that are easily reversed.
Q.7. What specific economic evidence do have that small or
incremental changes will not still cause significant market
disruption?
A.7. While the future is inherently unknowable, I believe there
is high degree of certainly that if the current status quo
persists, there will be significant costs to the taxpayer,
investors, and borrowers during the next housing downturn. We
have seen repeated instances of changes to the GSE market
shares and have some sense of the modest impact these have had
on the market place.
Q.8. What specific data or market impacts would cause you to
reevaluate and reverse course of any changes?
A.8. Disruptions in the agency debt market, significant changes
in the Treasury-mortgage spread, significant swings in home
buying and selling activity. There are a large number of
macroeconomic indicators for our housing and mortgage markets.
Q.9. Will you commit that you will not use pricing schemes that
unfairly penalize larger cost loans that still fall within the
conforming loan limits?
A.9. Yes.
Q.10. Do you believe that a Government guarantee is critical to
the liquidity and stability of the TBA market? If so, how would
you balance the stability of the TBA market with any planned
reductions to the role of the Government in the housing market
overall?
A.10. I believe Government guarantees, particularly FHA and VA,
have historically provided the basis for broad market
acceptance of the secondary mortgage market.
Q.11. HUD-approved housing counseling agencies work primarily
with low- and moderate-income households, preparing homebuyers
for responsible home ownership and helping financially
challenged homeowners work with their mortgage servicers to get
loan workouts or other solutions. Recent studies show positive
outcomes by families who receive housing counseling, including
significantly lower default rates and more successful loan
modifications.
Given the effectiveness of housing counseling in helping
low- and moderate-income households to help themselves to
responsibly achieve the dream of home ownership, how would you
utilize housing counseling programs to strengthen GSE lending
and servicing? Additionally, how would you recommend funding
the provision of housing counseling services?
A.11. I believe quality housing counseling programs can provide
significant benefits to borrowers, while if structured
appropriately, also reducing defaults. I believe lenders should
be encouraged to fund additional counseling activities.
Q.12. What is your opinion of FHFA's notice of proposed
rulemaking to implement Section 310 of S. 2155, the Economic
Growth, Regulatory Relief, and Consumer Protection Act?
A.12. I have not had an opportunity to read the proposed
rulemaking.
Q.13. Over the last few decades, the Enterprises have been
critical providers of multifamily housing financing across all
income levels. What role do you see the agencies playing in the
multifamily space going forward?
A.13. The Enterprises' multifamily business performed
significantly better than its single family business during the
crisis and was not the source of the Enterprises' failures.
Accordingly the multifamily business can provide some important
lessons for the single family business. While reform debates
have focused largely on the single family business, I do
believe it is critical for Congress to appropriately examine
the future of the GSEs' role in the multifamily mortgage
market.
Q.14. You have advocated for requiring minimum downpayments of
5 percent or more and minimum FICO scores of 700. Please
provide detailed analysis of how such restrictions would impact
pricing and accessibility of single-family mortgage loans both
nationally, and in New Jersey.
A.14. As pricing is related to default, any efforts that
increase FICO and downpayments would reduce the mortgage
pricing. The existing economic literature suggests that such
would not impact home ownership rates, but would delay the
timing of first home purchase.
Q.15. What evidence do you have that these borrowers will find
affordable home ownership options in the private market?
A.15. I believe we can appropriately manage the risk of the
GSEs without adversely impacting home ownership options.
Q.16. If these borrowers cannot access home ownership and join
the population of renters, where are we going to get the needed
rental stock when we are already in the midst of an affordable
housing crisis?
A.16. We are indeed facing an affordable housing crisis and I
believe local and State governments need to reform their land
use policies so that more affordable housing can be built.
Q.17. What are the effects on rents if we add a large number of
new households, in other words demand, to the rental market?
A.17. One cannot determine the impact of demand shifts on
prices without an analysis of supply shifts.
Q.18. Do you have a plan to develop new rental housing?
A.18. Yes, we must reform the land use policies (often
exclusionary zoning) that make it so difficult to supply
housing in too much of our Nation.
Q.19. Will you commit to preserving lower downpayment programs
at the Enterprises that make home ownership accessible to
underserved communities?
A.19. Yes, to the extent that such are done in a sustainable,
responsible manner.
Q.20. In our individual meeting, you said it is your view that
you would not have statutory authority to suspend contributions
to the housing trust fund and capital magnet fund.
Does that mean that former FHFA Director DeMarco was in
violation of statute while he had temporarily suspended
contributions to the funds?
A.20. No, as there are conditions under Section 1131 where the
contributions are required to be suspended. I have not seen
evidence that those conditions were not met at the time that
Director DeMarco acted.
Q.21. You have justified eliminating the 30-year fixed-rate
mortgage based on the presence of such a rate in the private
market for jumbo loans.
If there was no Government-backed 30-year fixed-rate
mortgage, how much more would it cost for borrowers to purchase
a home with a 30-year fixed-rate mortgage?
A.21. I have not called for eliminating the 30-year fixed-rate
mortgage. Jumbo nonagency loan rates are currently below those
for agency-backed loans.
Q.22. Who might no longer have access to a 30-year product?
A.22. I believe we can maintain access to the 30-year fixed-
rate mortgage and still have a well-capitalized, well-regulated
mortgage finance system.
Q.23. In place of the 30-year fixed-rate mortgage, you have
suggested that borrowers should instead move to adjustable rate
mortgages because they would ``likely see a reduction in their
mortgage rate'' during a recession. \4\ But of course, the
opposite is also true, in a time of growth, borrowers could see
their rates rise dramatically. And with home prices increasing
at twice the rate of income growth, borrowers with adjustable
rate mortgages could be in serious trouble.
---------------------------------------------------------------------------
\4\ https://www.cato.org/blog/arms-automatic-stabilizers
---------------------------------------------------------------------------
How does your proposal work in the current economic
environment? Please be detailed in your answer.
A.23. Yes, any truly countercyclical policy is designed to
reduce both busts and booms. And of course the interest rate
risk inherent in long term fixed mortgages does not disappear
in the securitization process. I have simply called for a more
transparent accounting of the actual risks in our financial
system so as to better manage those risks and minimize both the
severity and frequency of future crises.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
FROM MARK ANTHONY CALABRIA
Q.1. In your testimony, you said that if confirmed you would
look to do what the law requires you to do. Is it true that in
an Urban Institute article in 2016, and elsewhere, you
advocated for requiring the GSEs to hold the same capital as
the largest banks, saying that the FHFA Director is REQUIRED to
increase GSE capital to match that held by the largest banks as
a result of the Temporary Payroll Tax Cut Continuation Act of
2011?
A.1. I have not, to the best of my knowledge, claimed that FHFA
is currently required to increase GSE capital to bank like
levels. My Urban Institute article can be found here: https://
www.urban.org/policy-centers/housing-finance-policy-center/
projects/housing-finance-reform-incubator/mark-calabria-coming-
full-circle-mortgage-finance.
Q.2. While the GSEs are not permitted to build significant
amounts of capital under the PSPAs, would you support requiring
the GSEs to hold bank-like capital were the PSPAs not an
obstacle?
A.2. Yes, ultimately I would recommend Congress give the
regulator authorities over capital that mirror those of Section
38 of the Federal Deposit Insurance Act.
Q.3. The GSEs are currently run as if they were required to
hold between 2-2.5 percent capital. Even if the PSPAs are not
amended, would you support requiring the GSEs to price mortgage
loans as if they were required to hold bank-like capital so as
to equalize the playing field between GSEs and banks?
A.3. To the extent that such a pricing change was consistent
with and required by law, then yes.
Q.4. Do you believe the FHFA director currently has the ability
to reduce product availability by removing the GSEs' ability to
guarantee investor loans, loans for second homes, and cash-out
refinancing?
Would you support those product limitations?
A.4. I have not yet seen a legal analysis of this question.
Before making any conclusions I would need to consult FHFA's
legal staff and any other appropriate parties.
Q.5. Do you believe risk-based capital should be the binding
limitation on the GSEs, or should a leverage ratio be binding?
A.5. Historically the leverage ratio has been the only binding
capital constraint on the GSEs. The extent to which a risk-
based or leverage standard should bind would depend upon the
particular parameters of those standards. So short answer is:
It depends. That said, I believe that, even with a well-
constructed risk-based capital rule, given the limitations and
historical performance of risk-based capital standards, there
should continue to be a leverage ratio for all large federally
chartered financial institutions, including the GSEs.
Q.6. Should each borrower have to pay the full cost of capital
required to guarantee their mortgage based on the perceived
riskiness of that mortgage?
A.6. No, not necessarily.
Q.7. We discussed in our meeting the need for congressional
action on comprehensive housing finance reform.
What actions can you take if confirmed as Director to
encourage congressional action?
A.7. Foremost, the Director can help to create both a public
and Congressional ``sense of urgency'' regarding the need for
reform; second, the Director can submit proposals and
suggestions to Congress for reform; third, the Director can
help to assemble the various stakeholders and push for a reform
consensus; and lastly, the Director can create, within the
confines of the statute, regulatory changes that lay the ground
work for reform, such as the single security platform.
Q.8. Even if this Congress were to adopt legislation supporting
the principles you have outlined, the transition to that future
state could take a number of years. No matter which
congressional plan is adopted, nearly all market structures
rely on a central utility that builds on the work done to date
to create a common security, such as selling the GSEs'
automatic underwriting system and data to the utility and
giving the utility responsibility for master servicing. These
actions would reduce the centrality of the GSEs to the housing
finance system and begin some of the transition work that would
take years and is necessary to a legislative solution to the
GSEs. Furthermore it would be in your power as conservator to
begin taking these actions to encourage congressional action on
reform.
Will you take these steps if confirmed as director?
A.8. Yes, I would, if confirmed, continue in the direction of
creating common infrastructure, within the confines of the
existing statutory framework.
Q.9. In 2017, the GSEs had a nearly 50 percent market share in
multifamily loans. Do you think the GSEs do too much business
in the multifamily sector and that the private sector should
shoulder a greater loan of multifamily loans?
A.9. At a very general level, yes.
Q.10. The GSEs have exemptions from their multifamily purchase
caps if they meet certain affordability requirements in their
deals. Do you think that exemption is appropriate? Should it be
narrowed?
A.10. I have not closely examined the current exemptions. I
would plan to review such exemptions and make any changes
deemed necessary. Such changes could include a narrow or a
broadening, depending upon the circumstances.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ
FROM MARK ANTHONY CALABRIA
Q.1. You have previously written that Federal policy puts too
much focus on home ownership--that there is nothing wrong with
renting. When we spoke recently about the housing challenges
facing Hawaii, you mentioned that, in certain markets, reducing
barriers to construction is not enough to spur affordable and
workforce multifamily housing construction and more needs to be
done.
What steps would you take as Director to increase
affordable and workforce housing supply?
A.1. I generally see the primary obstacles to increasing the
supply of affordable and workforce housing being driven by
lending, labor, and land constraints. For the constraints
outside the direct purview of FHFA, such as land use, I would
intend to be a public voice for addressing those constraints
and bringing additional public attention to the need for
additional affordable housing. Within the direct purview of
FHFA, I would first improve the evaluation of the existing
programs, such as the housing trust fund, the capital magnet
fund and the FHLB's affordable housing fund. I believe it is
critical that we maximize the impact of these programs. I would
also focus on evaluating and reducing barriers to small
mortgage lending. Often the hardest mortgages to make are those
under $50,000, yet in some areas, these smaller units provide
an important source of affordable housing. I would also
research the unique obstacles faced in the mortgage market by
micro-units and small homes. I have personally seen a large
range of home designs on the Hawaiian Islands, especially some
of the smaller units build to house lava evacuees on the Big
Island. Given the unique housing needs on the Hawaiian Islands,
I would strengthen the relationship between FHFA, the entities
under its supervision and the Hawaiian Department of Hawaiian
Home Lands.
Q.2. You have written that you do not think HMDA data
collection should exist. \1\
---------------------------------------------------------------------------
\1\ https://www.cato.org/blog/observations-mortgage-market-2011-
hmda-data
---------------------------------------------------------------------------
Without HMDA, would anyone have a window into who was being
served by the housing market--and who was not?
A.2. I remain concerned that advances in data analysis can
enable the combining of HMDA data with publicly available data,
such as court house mortgage and property records, so as to
``de-mask'' individual loan applicants, threatening the privacy
of those loan applicants and leaving them vulnerable to
identity theft. There are a range of options to minimize these
risks. One option would be to return to the earlier use of
HMDA, where the individual applicant data was solely used for
internal enforcement purposes and individual applicant data was
not publicly released. In this instance regulators could still
release to the public aggregates, even aggregates for
individual financial institutions. I take very seriously
threats to consumer privacy and would work diligently to best
protect consumers from the potential for ``de-masking'' or
other forms of hacking. This includes how regulators and
supervised entities store confidential data.
Q.3. You have called for mortgage lending to return to the days
of loans being originated and held on a bank's balance sheet.
You acknowledge that, in the days before securitization,
markets were fragmented and it was easier to get loans in some
communities than others, yet you believe that local banks can
better serve homebuyers who don't fit the traditional credit
box. During your confirmation hearing, you stated that you
would commit to collecting data on affordable housing and
mortgage lending activities at the community level.
How would you gather the data to evaluate whether your
position on underserved borrowers is correct in an ``originate
and hold'' model like the one you recommended in 2016?
If we were to return to this model, would not it be in the
Government's best interest to know how and where loans were
being made?
A.3. I do believe it is critical for policymakers to receive
timely data on the performance of the mortgage market. A number
of existing data collections, such as HMDA, are collected
whether the loan is securitized or held in portfolio. When HMDA
was originally passed, in 1975, securitization was relatively
small percentage of the mortgage market. I do believe it is
possible for financial regulators to continue to collect
mortgage data on loans held in portfolio, and to occasionally
publish public aggregates of that data. Researchers at the
financial regulators can also conduct statistical analysis of
loan and applicant level data in a secure environment.
To clarify my previous writings, I have not called for an
end or ban to securitization but rather leveling the regulatory
playing field between the ``originate-and-hold'' model and the
``originate-and-sell'' model. Whether a mortgage is held as a
whole loan or within a securitized pool, it ultimately rests of
some institution's balance sheet. My objective is that
whoever's balance sheet the loan ultimately rests on, that
there be sufficient capital and an appropriate regulatory
structure to manage that risk.
Q.4. In December, FHFA released a proposed rule outlining
standards and processes for Fannie and Freddie to use in
considering alternative credit scoring models.
The rule would prohibit the GSEs from considering any
credit score model developed by a company owned or affiliated
with a ``consumer data providers'' such as the credit bureau. I
have previously raised concerns with vertical integration and
anticompetitive behavior if the GSEs were allowed to use a
credit score from a company that is owned or affiliated with
consumer data providers.
What is your view of the proposed rule and your position on
the importance of independent credit score model providers?
A.4. I have not had an opportunity to read the proposed rule.
That said, I am generally familiar with the issue. I do
appreciate your concerns about vertical integration, and also
concerns that others have raised about relying too heavily on a
single credit bureau. Given the central importance of the
credit rating process in determining both access to and the
pricing of mortgage credit, I plan to carefully review this
issue more generally, and more specifically, the proposed rule
before FHFA.
Q.5. The President's 2018 and 2019 budgets and rescission
request eliminated funding for the Housing Trust Fund and
Capital Magnet Fund.
Did you advise the President or any other White House or
Office of Management and Budget staff on this cut? What advice
did you provide? Would you end the allocation to the funds as
Director?
A.5. I was not involved in this particular budget issue. I take
the independence of FHFA very seriously, including budgetary
issues. Section 1131 of the Housing and Economic Recovery Act
of 2008 establishes a mandatory process for determining
contributions to both the Trust Fund and the Capital Magnet
Fund, as well as determining any suspensions. It is my intent
to comply fully with the mandatory process established in
Section 1131, which I do not believe gives the Director the
discretion to simply end contributions.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM MARK ANTHONY CALABRIA
Q.1. If you are confirmed to this position, you will lead an
accomplished staff at the Federal Housing Finance Agency. Their
work has stabilized the housing market and our economy. Many
families can still sell their homes to families who can afford
to buy them.
Name three things that the FHFA has done under Director Mel
Watt that you support, will continue and even build on.
A.1. (1) I will continue the recruitment and expansion of
career staff hires with a background in financial regulation;
(2) I will continue and expand the research and economics
function at FHFA; and (3) I will continue and expand the
borrower education and financial literacy activities under
FHFA.
Q.2. Name three things that you will change at the FHFA if you
were to become its new director.
A.2. As I am not currently at FHFA, I will approach the agency
with an open mind in terms of changes. With that in mind, my
impression is that the agency may not always be perceived as a
welcoming and supportive work-place. First, it is my objective
for all employees at FHFA to feel free of any harassment or
intimidation. Strengthening the core human resources function
is a high priority. Second, it is critical for the Director to
have a constant sense of the housing and mortgage markets, so I
intend to create an economics and statistics function with a
direct report to the Director. Third, I believe it is critical,
given the affordability crisis facing so much of our Nation,
that the Director become a vocal spokesperson for an affordable
and vibrant national housing market.
Q.3. Why do you think the FHFA is not a ``world class
regulator'' now? What changes will you implement to reach your
vision of an FHFA that is a ``world class regulator''?
A.3. Foremost the FHFA lacks statutory authorities, such as
that over capital, which other financial regulators possess. It
is my intent to submit to Congress a proposed list of statutory
changes that would better align FHFA with the regulatory
authorities found at other financial regulators.
Q.4. Will you consider yourself an employee of the FHFA and
comply with all employee guidance related to appropriate
workplace behavior, expense reimbursement, etc.
A.4. Yes.
Q.5. What are your goals for the Office of Minority and Women
Inclusion?
A.5. Foremost to make FHFA an inclusive and safe workplace.
Second to see that qualified applicants from all backgrounds
are considered for any open career positions and that FHFA, in
its recruitment efforts, reach out to historically
underrepresented communities.
Q.6. At your nomination hearing, we discussed ``sustainable
home ownership.'' You stated that facilitating sustainable home
ownership is ``looking at the factors that don't end up . . .
so they don't just funnel through, that they get a mortgage,
they're out of there in 6 months, a year, 2 years . . . you
know if we want to put a number on it, I think the ability to
sustain the mortgage without defaulting, obviously there are
going to be life events that hit you, but if we're seeing these
mortgages, and we saw a lot of early payment defaults during
the crisis. If a mortgage goes bad in 3, 5, 6 months, there's
something wrong with that, whether it's the lender, the
borrower, or somebody.''
In your opinion, what factors contribute to sustainable
home ownership? Please note which elements you think must meet
minimal guidelines such as a certain FICO score, a percent of
downpayment/minimum loan-to-value ratio, a maximum debt-to-
income ratio, mortgage loan terms, quality housing counseling,
etc., for single-family loans to qualify for purchase by Fannie
Mae and Freddie Mac. If you think flexibility is warranted
within some conditions, please note those conditions.
A.6. Recognizing the difficulties that have been experienced
with implementation of the Qualified Mortgage rule, with its
``hard lines'', I believe flexibility is warranted. That
flexibility should avoid undue risk-laying, so that
compensating differentials can be factored into underwriting
decisions. Other than those explicitly required in statute, it
is not my intent to draw hard lines around any one specific
underwriting criteria. That said, FHFA has an important role in
monitoring loan performance. Practices that result in excessive
delinquencies would be examined, both from a prudential
standpoint but also from a sustainable home ownership
perspective.
Q.7. Do you believe the FHFA plays a role in facilitating
sustainable home ownership? If so, what recommendations would
you implement?
A.7. Yes, as unsustainable home ownership is a direct threat to
the prudential operations of the regulated entities, as well as
a threat to a resilient housing market. My first actions would
be to conduct a series of stress-tests on the regulated
entities. As I do not currently have access to confidential
supervisory information regarding the regulated entities, I
cannot yet know what specific reforms I might seek to
implement.
Q.8. If confirmed, what are your plans to change the
Government's role in the housing finance system?
A.8. The most important elements of our housing finance system
in need of change, such as greater competition, can only be
achieved by Congress. My most immediate plan is to work with
Congress to build the necessary momentum for reform. The FHFA
Director's ability to change the Government's role in housing
finance is quite limited within the statutory confines of HERA
and the GSE Charter Acts.
Q.9. You have previously argued that the 2008 Financial Crisis
was exacerbated by homeowners buying homes with low
downpayments, which you argued were unsuitable for sustainable
home ownership. \1\ You suggest requiring downpayments of 5
percent, 10 percent or higher. \2\ However, there is data that
shows it would take nearly two decades for homebuyers to save
up for a 20 percent downpayment. According to the U.S. Mortgage
Insurers, it would 19 years for the average family to save up
for a 20 percent downpayment. For the typical African American
family, it would take 29 years, and for Latino families, it
would take 24 years. \3\ A recent study indicated it would two-
thirds of millennials at least 20 years to save up for a 20
percent downpayment on a median priced condo in their housing
market. Downpayments well below 20 percent and even below 5
percent may be required for many to access home ownership.
---------------------------------------------------------------------------
\1\ Calabria, Mark A. ``A Fake Financial Fix'', Cato Institute.
June 18, 2009. Available at: https://www.cato.org/publications/
commentary/fake-financial-fix.
\2\ Calabria, Mark A. ``FHA Bailout Is Inevitable, But Taxpayer
Pain Is Not'', Cato Institute. January 5, 2013. Available at: https://
www.cato.org/publications/commentary/fha-bailout-inevitable-taxpayer-
pain-not.
\3\ U.S. Mortgage Insurers. ``Mortgage Insurance: Helping Nevada
Families Get Into Homes'', U.S.M.I. Accessed February 13, 2019.
---------------------------------------------------------------------------
Will you consider making any changes to minimum downpayment
requirements for loans purchased by the Enterprises or the
FHLBanks?
A.9. I have no immediate plans to change downpayment
requirements. Any such future changes would have to take place
in the context of FHFA's statutory authorities and be directly
driven by statutory duties of the Director.
Q.10. If confirmed, will you use your ``bully pulpit'' to urge
for higher downpayments? If so, what will you recommend?
A.10. FHFA supports borrower education. It would be my intent
to make sure that borrowers are properly educated as to both
the rewards and risks from home ownership. Borrowers should be
free to make their own decisions, but FHFA does have a role in
helping to make sure that those decisions are informed.
Q.11. In your 2012 op-ed, you asked why retirees should accept
less of a return from their pension fund investments in
mortgage-backed securities in order to help young people buy
homes they can afford. \4\ If you are able to implement your
vision for bigger downpayments, higher interest rates and
higher FICO scores, it will take decades for the average
Latino, African American, and millennial households to buy a
home. Especially as more than 1 in 4 Latinos and 1 in 4 African
Americans are credit invisible. This decade, 7 of 10 new
households are households of color. Next decade, 9 of 10 new
households are going to be Hispanic, African American, Native
American, or Asian Pacific American.
---------------------------------------------------------------------------
\4\ Calabria, Mark A. ``Taxpayers Shouldn't Have To Pay for
Underwater Mortgages'', Cato Institute. February 6, 2012. Available at:
https://www.cato.org/publications/commentary/taxpayers-shouldnt-have-
pay-underwater-mortgages.
---------------------------------------------------------------------------
If you change requirements to make it more expensive to buy
a home, who do you think will buy the homes of retirees when
they want to downsize or move? Investors? Will such purchases
be at reduced prices because of a lack of competition as young
families will not be able to afford them?
A.11. Consistent with the Director's statutory duties and
authorities, I have no interest in making home ownership more
expensive, quite the opposite, I would work to make home
ownership less expensive.
Q.12. Will you change policies to allow Fannie Mae and Freddie
Mac to resume providing financing to investors to purchase
homes in bulk through the REO program or something similar?
A.12. I have not examined the current policies in this area in
sufficient detail. If such policies were to change, it would
only be after a deliberative process.
Q.13. After the Financial Crisis, Nevada had the highest
foreclosure rate in the country for nearly 5 years. We had more
than 219,000 foreclosures. In Nevada, home values plummeted
from $265,000 in January 2008 to $122,000 in December 2011--
that's a 54 percent drop. In early 2010, 77 percent of homes in
Las Vegas held negative equity. In your writings, you refer to
homeowners in harsh terms. \5\ In your writings, you were more
sympathetic to investors who were going to receive less of a
profit than expected than to homeowners experiencing job loss,
foreclosure, and bankruptcy. \6\
---------------------------------------------------------------------------
\5\ Calabria, Mark A. ``Ed DeMarco Deserves a Medal'', Cato
Institute. March 13, 2012. Available at: https://www.cato.org/blog/ed-
demarco-deserves-medal.
\6\ Ibid.
---------------------------------------------------------------------------
Can you point to any of your publications where you
criticized organizations or corporations that also defaulted on
their mortgages? For example, did you publish anything about
the Mortgage Bankers of America which borrowed $75 million in
2007 to buy a 10-story headquarters building in Washington, DC?
When MBA chose not to make its payments and sold that building
for $41 million, they shorted its lenders. Donald Trump made
four trips to bankruptcy court for his casinos leaving lenders
in a lurch. Did you write about the Trump's corporation
numerous bankruptcies?
A.13. https://www.cato.org/publications/commentary/big-banks-
you-aint-cheating-you-aint-trying;
https://www.cato.org/publications/commentary/too-big-fail;
https://www.cato.org/publications/commentary/letting-
lehman-fail-was-choice-it-was-right-one;
https://www.cato.org/publications/commentary/fed-proposal-
end-bailouts-falls-short;
https://www.cato.org/publications/commentary/are-some-
banks-still-too-big-jail;
https://www.cato.org/publications/commentary/are-banks-too-
big-jail;
https://www.cato.org/publications/commentary/get-mortgage-
industry-out-taxpayers-pockets;
Q.14. Numerous economic analysts have found that adjusting the
loan terms for borrowers facing a hardship, such as extending
the terms, lowering the interest rate, shared appreciation,
principal reduction, etc., can be less costly to the investor
than foreclosure especially when the forces driving defaults
are macroeconomic as they were in Nevada and much of the
Nation. Forcing a borrower from a home and then selling that
home for one-third or half of the previous value, could be more
costly than foreclosure mitigation for some families. Please
explain how you differentiate a ``deserving borrower'' who
should be offered a modification rather than one who should
not? What economic evidence do you rely on to promote more
foreclosures instead of mitigation?
A.14. I have supported a number of mitigation tools, for
instance praising FHFA's forbearance efforts. In any particular
case, the appropriate response will depend on the specific
circumstances of the borrower. Accordingly, borrowers in
default will need to be evaluated on their current
circumstances. I would point to the following as a sample of
research that has informed by views:
``Mortgage-Default Research and the Recent Foreclosure
Crisis'', Paul Willen and Christopher L. Foote. 2018. Annual
Review of Financial Economics 10: 59-100.
``Identifying the Effect of Securitization on Foreclosure
and Modification Rates Using Early-Payment Defaults'', Paul
Willen with Manuel Adelino and Kris Gerardi. 2014. Journal of
Real Estate Finance and Economics 49(3): 352-378.
``Why Don't Lenders Renegotiate More Home Mortgages?
Redefaults, Self-Cures and Securitizations'', Paul Willen,
Manuel Adelino, and Kris Gerardi. 2013. Journal of Monetary
Economics 60(7): 835-853.
``Do Borrower Rights Improve Borrower Outcomes? Evidence
From the Foreclosure Process'', Paul Willen, Kris Gerardi, and
Lauren Lambie-Hanson. 2013. Journal of Urban Economics 73(1):
1-17.
``Reducing Foreclosures: No Easy Answers'', Paul Willen,
Christopher Foote, Kristopher S. Gerardi, and Lorenz Goette.
2009. NBER Macroeconomics Annual 2009 24: 89-138.
``Subprime Mortgages, Foreclosures, and Urban
Neighborhoods'', Paul Willen, Kristopher S. Gerardi. 2009.
Berkeley Electronic Journal of Economic Analysis and Policy
9(3): 1-37.
``Making Sense of the Subprime Crisis'', Paul Willen,
Kristopher S. Gerardi, Andreas Lehnert, and Shane Sherlund.
2008. Brookings Papers on Economic Activity 39(2): 69-145.
``Just the Facts: An Initial Analysis of the Subprime
Crisis'', Paul Willen, Christopher Foote, Kristopher S.
Gerardi, and Lorenz Goette. 2008. Journal of Housing Economics
17(4): 291-305.
``Negative Equity and Foreclosure: Theory and Evidence'',
Paul Willen, Christopher Foote, and Kristopher S. Gerardi.
2008. Journal of Urban Economics 64(2): 234-245.
Q.15. You have urged an end to judicial foreclosures despite
numerous evidence of illegal foreclosure activities such as
robo-signing, inadequate review of documents, lenders taking
homes from which they lacked title, etc. \7\ How do you protect
the rights of homeowners without a judicial foreclosure
process?
---------------------------------------------------------------------------
\7\ Calabria, Mark A. ``Are Courts Dragging Out the Housing
Crisis?'' Cato Institute. March 8, 2012. Available at: https://
www.cato.org/blog/are-courts-dragging-out-housing-crisis.
A.15. I have raised questions as to the costs and benefits of
judicial versus administrative foreclosures. No foreclose
system is without trade-offs. My writings have attempted to
raise these issues so that policy makers can make more informed
judgements regarding these unavoidable trade-offs.
As I state in your citation: ``Now, I am a big believer in
respecting contracts, and the existing legal environment is
part of the contract, so I'm not advocating that States change
their foreclosure process for existing loans. For loans not yet
made, however, there appears to me to be the case for at least
examining the merits of judicial foreclosure (or even better
let borrowers and lenders freely contract to choose their own
rules).'' This is not a call for ending judicial foreclosure
but rather a call for examining its merits. I believe all
public policies should be subject to regular examination.
Q.16. In 2011, you wrote, ``the most important driver of
housing demand is income, which is driven by jobs.'' \8\ Yet,
the gap between wages and housing costs remain too high. The
cost to build a home--even in communities with few zoning
restrictions--can be higher than a family can afford. The
enactment of the affordable housing goals corresponded with a
substantial increase in funding to low- and moderate-income
homeowners and multifamily properties.
---------------------------------------------------------------------------
\8\ Calabria, Mark A. ``Winners, Losers and Government'', Cato
Institute. June 2, 2011. Available at: https://www.cato.org/
publications/commentary/winners-losers-government.
---------------------------------------------------------------------------
If you are confirmed to lead the Federal Housing Finance
Agency, what will you do to help the more than 12 million very
low-income families struggling to find a safe home they can
afford?
A.16. Please see my response to Senator Brian Schatz.
Q.17. Did you advise the President on his budget proposals to
eliminate allocations to the Capital Magnet Fund and Housing
Trust Fund in FY2018 and FY2019? Do you agree with the
elimination of those funds that were included in the
President's budget?
A.17. Please see my response to Senator Brian Schatz.
Q.18. If you are confirmed to lead FHFA, under what
circumstances could you defund the Housing Trust Fund (HTF) and
the Capital Magnet Fund (CMF)?
A.18. Please see my response to Senator Brian Schatz.
Q.19. Will you support and enforce the duty-to-serve
requirements for affordable housing preservation, manufactured
housing and rural housing as they are currently? Will you seek
any changes to the DTS or HTF or CMF in the existing Fannie and
Freddie system? If so, what changes will you pursue? Would you
advice changes to the DTS and the Funds in a new approach?
A.19. I will carry out the statue as written. Any potential
changes would only be undertaken following careful review and
in accordance with all appropriate administrative processes.
Q.20. The GSEs' affordable housing goals changed institutional
behavior; the GSEs offer more flexible lending programs;
developed partnerships with other agencies and mortgage
insurers; funded employer-assisted housing; engaged in special
efforts in rural areas, on tribal lands, and for elderly
borrowers; made investments in low-income rental housing and
State housing finance agency bonds; and have made millions in
loan purchases that qualify for the affordable housing goals.
Today, the Enterprises have significant staff dedicated to
affordable housing, they have affordable mortgage products and
pilot programs (e.g., Home Ready and Home Possible loan
products), they conduct significant market research and do
outreach to key industry and other stakeholders in LMI and
minority neighborhoods in order to facilitate home ownership
and mortgage purchases in those communities. This work is
driven by the affordable housing goals.
Do you agree that it is important for FHFA to continue to
provide assistance to and encourage the GSEs to facilitate
financing for affordable housing?
A.20. Yes.
Q.21. Do you seek any changes to the number of staff focused on
affordable housing at the Enterprises; do you believe today's
level is too low, too high or just about right? Do you seek any
changes in the areas of focus?
A.21. I do not currently have an opinion on the appropriate
staffing levels. I do, however, see as the Director's
responsibility to ensure that staffing levels in all of FHFA's
functions are appropriate.
Q.22. Multifamily purchases by the GSEs are currently capped at
$35 billion each, $70 billion in total. The GSEs combined can
buy no more than $70 in debt backed by multifamily (>5 units)
properties. Units that meet certain ``affordable'' requirements
are exempt from these caps. This ``excluded category'' section
of the market has been where most of the multifamily growth has
been recently, with 2017 seeing about $70 billion in lending in
that space alone, in addition to the $70 billion that was
covered by the caps for a total of $140 billion in lending.
Will you consider raising the multifamily mortgage cap that
has been set at $35 billion per enterprise? Would you consider
encouraging more rental housing within or outside of that cap
for families and singles earning low to moderate wages?
A.22. Consistent with the statute, I would consider revisiting
the current multifamily portfolio caps and making any
appropriate changes. Within any appropriate changes would be an
examination of current income targeting, as I do believe it is
necessary that we incentivize recourses to be directed at those
most in need.
Q.23. Nationwide, nearly 20 million families live in
manufactured homes; about 7 percent of the housing stock. The
quality of the homes is good but at times, the financing can be
predatory. Just recently, Fannie Mae and Freddie Mac were
assigned a duty-to-serve manufactured homeowners. They are in
the early stages of meeting the financing needs of manufactured
homeowners. In Nevada, Fannie Mae estimates it owns
approximately 3,500 loans with a little under 1,000 purchased
last year.
What changes would you make to the GSEs' requirements to
serve people who buy manufactured homes either with mortgages
or with chattel loans?
A.23. During my tenure at HUD, I oversaw HUD's regulation of
manufactured housing. I recognize there are a number of
challenges facing this segment of the market, and commit to
examining those challenges. Any changes would have to follow
from that careful examination.
Q.24. Fannie Mae and Freddie Mac finance manufactured housing
communities. In Nevada, in 2018, they purchased 62 loans of
manufactured housing investors. What changes will you implement
to ensure that those loans facilitate community ownership for
owners who provide robust tenant protections? Are there things
Fannie and Freddie can do to ensure that the manufactured home
communities they finance do not have abusive practices such as
high lot rents and fines, unfair evictions, limitations on
tenant associations, etc.?
A.24. I strongly share the concern that the GSEs not facilitate
abusive practices. It would be my intention to review the GSEs'
activities in this area, and if warranted, pursue appropriate
changes to their policies that would better protect borrowers
and tenants.
Q.25. Most of the banks and credit unions in Nevada are small.
They do not necessarily have the deposits that enable them to
hold mortgage loans on their balance sheets. Nor do they
necessarily want to bear the credit and interest rate risk for
each loan they make. Securitization--selling loans on the
secondary market in a responsible way--can lower their risk and
free up cash for more loans.
Recently, the FHFA issued a proposal to modify the Federal
Home Loan Banks' affordable housing goals.
Do you support the affordable housing and community
development mission of the Federal Home Loan Banks (FHLBs)?
A.25. Yes.
Q.26. Do you support the FHLB affordable housing goals as
recently proposed? If not, what changes would you make?
A.26. I have not had an opportunity to read the recent
proposal.
Q.27. Do you support the recently modified FHLB Affordable
Housing Program rule? If not, what changes would you make?
A.27. I have not had an opportunity to read the recently
modified rule.
Q.28. What will you focus on to ensure the FHLBs meet their
economic development mission?
A.28. Increased data collection and evaluation of those
activities to ensure they produce the intended results.
Q.29. In 2017, Latinos received 19 percent of home loans,
compared with 76 percent of home loans made to Whites. Latino
home ownership in Nevada, at a rate of 42.8 percent, lags-
behind the State's overall home ownership rate of 54.9 percent.
In your role as Director of the FHFA, what is your plan to
oversee the Enterprises' programs and initiatives to facilitate
home lending to Latinos and communities of color?
A.29. First to ensure that the enterprises are fully compliant
with our Nation's fair housing laws; second to ensure that
existing programs and initiatives are focused on sustainable
home ownership; and third to engage in extensive program
evaluation to ensure that those programs and initiatives are
actually achieving the goal of sustainable home ownership.
Given the dramatic harm done to Latinos and communities of
color during the housing bust, it is my intention to avoid a
repeat of that crisis.
Q.30. Do you believe that the Government should play a role in
ensuring that communities of color and low- and moderate-income
buyers have access to an affordable home loan? What actions do
you think the FHLBanks, Fannie, and Freddie should do
differently?
A.30. Yes, foremost I would research, examine, and evaluate
current activities to make sure that the regulated entities'
are currently acting in a manner consistent with that
objective. To the degree that the regulated entities are not, I
would seek changes, consistent with the statutory framework, to
address those shortcomings. To the extent that such an
examination suggests new actions, those would be evaluated and
implemented, to the extent they are consistent with the
statutory framework.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM MARK ANTHONY CALABRIA
Q.1. Dr. Calabria, over 40 percent of Alabama's residents are
rural, which include a large portion of our low and moderate
income homebuyers and our homebuyers of color. These rural
communities overwhelmingly have a financing model that involves
their community bank or credit union, and Fannie Mae and
Freddie Mac are critical to providing a secondary market for
these mortgages.
Should you consider actions to ``shrink the footprint'' of
the Fannie Mae and Freddie Mac (the Enterprises), will you
commit to maintain a pathway that preserves and expands access
to traditional mortgage financing in rural areas?
A.1. Yes.
Q.2. Dr. Calabria, in a 2011 blog post about the racial home
ownership gap, you wrote that we should ``abandon efforts to
socially engineer specific home ownership rates.''
Specifically what policies were you referring to in this
reference? Do you maintain those views today?
A.2. The long term reduction in underwriting standards, as well
as attempts to target a specific home ownership number. I
believe our objective should be sustainable home ownership and
we should not target a specific home ownership number.
Q.3. Do you believe the Federal Government's discriminatory
policies led to the creation of a racial home ownership gap?'
A.3. Yes.
Q.4. Do you believe the Federal Government has a role in
addressing that gap today?
A.4. Yes.
Q.5. Specifically, what can you do as FHFA Director to address
this gap?
A.5. Ensure that the GSEs' offer products that create
sustainable home ownership.
Q.6. If confirmed, will you commit to maintain policies that
facilitate traditional mortgage credit to the underserved
market of minority borrowers, across income ranges?
A.6. Yes.
Q.7. Do you believe FHFA, as a regulator of the Enterprises,
has a role in the implementation and enforcement Federal fair
housing laws, including the Fair Housing Act, the Equal Credit
Opportunity Act, and the Truth-In-Lending Act?
A.7. Yes, working in concert with the primary regulators of
these statues.
Q.8. Dr. Calabria, previously you have written that you believe
Congress should ``repeal outright'' the Community Reinvestment
Act (CRA).
Do you continue to believe that Congress should repeal the
CRA?
A.8. I believe appropriate safeguards should be put in place to
maintain an adequate regulatory framework around CRA lending.
Q.9. If not, can you describe what evidence changed your view?
A.9. There is currently an on-going regulatory effort to
strengthen some of the problems in CRA. Before any
consideration of statutory changes, I believe we should wait
for outcomes of that regulatory process.
Q.10. Do you believe the Federal Government has any role to
compel financial institutions to serve the communities in which
they are located, including low and moderate income
communities?
A.10. Yes.
Q.11. As a member of the Financial Stability Oversight Counsel,
the FHFA Director plays a critical role in the overall
stability of our financial system. Given your comments in
hearing about the role the CRA played in the financial crisis,
do you currently believe that the CRA in any way poses a
systemic risk to financial stability?
A.11. I believe all lending poses some degree of risk and
should be regulated and monitored appropriately.
Q.12. Dr. Calabria, previously you have written that you
believe that the downpayment and credit score requirements for
the Enterprises should be raised dramatically. In Alabama, the
median income is $46,000, and the median income for African
American families is roughly $30,000. The current median
listing price for a home in Alabama is just over $200,000. For
that median African American family, if they were saving 10
percent of their monthly income, every month, it would take
them nearly 7 years to save for a 10 percent downpayment.
What impact do you believe raising downpayment requirements
for the GSEs would have on first time homebuyers? What do you
believe the impact would be on overall home ownership rates,
including specifically on home ownership rates among minority
communities?
A.12. I believe we can appropriately manage underwriting
standards in such a manner that would improve safety and
soundness without any loss in home ownership rates.
Q.13. Statewide in Alabama, average credit scores are 680. In
Birmingham and in Montgomery the averages are below 630. In a
2015 blog post, you proposed minimum FICO scores of 700.
Mortgages to many of these borrowers are currently eligible
for purchase by the Enterprises--but presumably would not be
under your proposals.
A.13. I believe the Enterprises should be focused on
sustainable home ownership.
Q.14. What impact do you believe higher credit score
requirements would have on home ownership rates in communities
with large number of residents with below average or nonprime
credit scores?
A.14. I believe we can appropriately manage underwriting
standards in such a manner that would improve safety and
soundness without any loss in home ownership rates.
Q.15. As you may know, in the years following the financial
crisis, there have been no people of color or women serving as
CEOs of Fannie Mae or Freddie Mac. In addition, currently,
there are no people of color serving as President of a Federal
Home Loan Bank.
Dr. Calabria, do you believe it is important for there to
be diversity among Federal financial regulators, their senior
staff, and in the case of FHFA, among senior leadership at
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks? If
so, why?
A.15. Yes, I have written, for instance, about a lack of
diversity at the Federal Reserve.
Q.16. If confirmed as FHFA Director, will you commit to working
with Congress to find ways to increase diversity among FHFA
leadership and senior staff, as well as leadership at the
Enterprises (including the Federal Home Loan Banks)?
A.16. Yes.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM MARK ANTHONY CALABRIA
Q.1. The 2008 housing crisis hit Arizona particularly hard, but
the impact was not uniformly felt because Fannie Mae and
Freddie Mac's multifamily housing programs included taxpayer
protection tenets that appropriately distributed risk.
Following their move to conservatorship, these GSEs serve an
essential role in the multifamily housing market and have
delivered $34 billion in net profits. As Congress considers
housing finance reform, what lessons can be applied from the
success of multifamily housing programs?
A.1. The primary reason the GSE multifamily portfolios
performed so much better than the single family, despite
similar declines in the value of multifamily properties, was
the much more conservative nature of the mortgage underwriting
applied in the multifamily space. The primary lesson here is
that strong, sensible underwriting is critical.
Q.2. In 2013, in testimony before the House Financial Services
Committee, you stated that a 2-year path to receivership for
Fannie Mae and Freddie Mac would be ``more than sufficient time
to prepare.'' Does the Housing and Economic Recovery Act of
2008, which created the position you now seek, give the FHFA
Director authority to move GSEs into receivership--in 2 years
or otherwise--without Congressional approval?
A.2. The receivership provisions, contained in Section 1145 of
HERA, do not require Congressional approval for either a
mandatory or discretionary invoking of receivership. These
provisions are structured to mirror the receivership provisions
of the Federal Deposit Insurance Act (Sections 11 and 13),
which also does not contain a requirement for Congressional
approval. Relatedly, Title II of Dodd-Frank establishes a
similar resolution mechanism that also does not require
Congressional approval. That being said, I intend to consult
closely with Congress on any reforms of the GSEs.
Q.3. Action in the face of the 2008 housing crisis was
necessary to prevent further loss, foreclosure, and hardship
for Arizona families and small businesses. If confirmed, and
should a housing crisis occur under your tenure, what if any
actions as FHFA Director would you consider taking to stabilize
the market? Are there any actions you would definitively rule
out, irrespective of economic circumstance, despite having the
authority to do so? If so, why?
A.3. I believe FHFA has a responsibility to work to stabilize
the housing market. I would consider any options that are
within the authorities of FHFA and would not rule out any
specific actions that are within the authorities of FHFA. For
instance, I believe the broad based forbearance given to GSEs'
borrowers during the last crisis was appropriate given the
particular facts and circumstances.
Additional Material Supplied for the Record
LETTERS SUBMITTED BY CHAIRMAN CRAPO
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