WASHINGTON, D.C. – U.S. Representative Ritchie Torres (NY-15), as a member of the House Financial Services Committee, and considering current economic challenges in the nation’s housing market, today participated in an oversight hearing of the Federal Housing Finance Agency (FHFA) that examined a host of recent policy changes and other activities undertaken by the agency since its last oversight hearing in July 2022.
FHFA, the primary regulator of our housing finance system, is the independent agency responsible for overseeing the housing Government Sponsored Enterprises (GSEs), Fannie Mae, Freddie Mac, as well as the Federal Home Loan Banks (FHLBs). The agency’s primary statutory mission is to regulate GSEs to ensure that each regulated entity operates in a safe and sound manner. At the end of 2022, the GSEs combined owned and guaranteed approximately $7.4 trillion in single-family and multifamily mortgages, representing more than half of the $13 trillion plus U.S. mortgage market. The regulatory decisions FHFA makes, which cover the GSEs and the FHLBs, coupled with the operational decisions it has been making as the conservator of the GSEs, gives it tremendous influence over the availability of and access to mortgage credit for millions of Americans.
GSEs are private corporations chartered by the federal government with special benefits to help make homeownership more available and affordable for lower- and middle-income Americans. GSEs are not mortgage lenders and do not lend directly to individual borrowers. Instead, they purchase mortgages from lenders, guarantee them, and package them in mortgage-backed securities, which they either keep as investments or sell to institutional investors. Additional relevant background can be found here.
Testimony was provided by the Honorable Sandra L. Thompson, Director, Federal Housing Finance
VIDEO of Rep. Torres’s five minutes of questioning can be found here.
VIDEO of the full hearing can be found here.
A RUSH TRANSCRIPT of Rep. Torres’s remarks and questioning is below, as delivered:
REP. TORRES: Thank you, Chair. Even though the federal home loan bank system exists for the purpose of housing finance, as you know, Federal Home Loan Banks made $30 billion in advances to Silvergate, SVB, and Signature for reasons that appear to have nothing to do with housing finance. Silvergate specialized in banking the crypto industry. SVB specialized in banking the tech industry. Neither one had a particular focus on housing that would justify a massive liquidity injection. Do you think that $30 billion in advances to Silvergate and SVB are an example of mission creep on the part of the federal home loan bank system?
THE HON. SANDRA L. THOMPSON, Director, Federal Housing Finance Agency: I think that the activities of the bank itself are certainly up to the primary federal regulator. When an institution that’s a member of the Home Loan Bank system comes to the Home Loan Bank for advances, they have to provide collateral. And we haircut the collateral so that the advances are protected. When we provide advances or when the Home Loan Banks provide advances to the member, they should be using those funds to either buy mortgage backed securities or increase community lending or home lending in their respective communities. Many of these instances...
REP. TORRES: So, it sounds like you would agree that it was mission creep.
MS. THOMPSON: Well, I don’t know if their mission is, their mission is up to their primary federal regulator. Our role is to make sure that they tie their advances to home ownership. Whether it’s through MBS purchases…
REP. TORRES: Do you have any reason to think that those liquidity injections were related to homeownership?
MS. THOMPSON: Well, we’re doing a review of that…
REP. TORRES: You would be the only one who would believe that if that were true.
MS. THOMPSON: Excuse me?
REP. TORRES: You would be the only one that believes that if that were true. I’m not sure if anyone thinks
that that was related to…
MS. THOMPSON: We’ll find out the facts and put them in our report.
REP. TORRES: The banks that received the $30 billion were at imminent risk of failing and ultimately did fail. And if the federal government had never intervened to ensure the deposits of SVB and Signature, those FHLB funds would have been permanently lost. Do you think it was responsible for the Federal Home Loan Banks to inject $30 billion into failing banks?
MS. THOMPSON: Well, the advances are covered by collateral so the Home Loan Banks don’t lose funds at all. Nine times out of 10 they’re over collateralized. So, it’s not a loss for the Home Loan Banks.
REP. TORRES: Are you investigating whether these injections are related to housing financing?
MS. THOMPSON: We’re taking a holistic view at everything that happened that weekend.
REP. TORRES: What’s the timeline for the review?
MS. THOMPSON: September 30th.
REP. TORRES: Fox News had a headline that read “New Mortgage Rules Favor Buyers with Bad Credit”. The implication of the headline is that it just disfavors buyers with good credit. According to an Urban Institute analysis of the new pricing matrix, those with the lowest credit scores and down payments, would pay as much as 2.2% in LLPA fees. Whereas those with the highest credit scores and down payments would pay nothing in the LLPA fees. Does that strike you as a pricing model that in the words of Fox News favors buyers with bad credit?
MS. THOMPSON: Our new pricing grid in no way allows persons with high down payments and high credit scores to pay more than low. It just doesn’t work that way.
REP. TORRES: Quite the opposite. So the reporting on FHFA has not been fair and balanced.
MS. THOMPSON: Correct.
REP. TORRES: According to the Republican memo, the GSEs are private corporations, chartered by the federal government that special benefits to help make homeownership more available and affordable for lower- and middle-income Americans. Given that description, is it fair to say that the FHFA, as both a regulator and consultative of GSEs, has a statutory obligation to break down barriers to affordable homeownership for lower income Americans.
MS. THOMPSON: Yes
REP. TORRES: And those barriers include high fees, correct?
MS. THOMPSON: Many and we actually have equitable housing finance plans that look at what the barriers are and provide suggestions on how to remove those barriers for underserved areas.
REP. TORRES: But reducing fees for lower income, lower wealth borrowers, is not an act of radical redistribution on your part. It’s a fulfillment of the mission conferred upon you by Congress. Is that a fair assessment?
MS. THOMPSON: Yes, and we did eliminate the upfront fees for first-time homebuyers throughout the country. The way we were able to pay for that is through, the fees charged on second and vacation homes, investor homes, are well more than the fees that were eliminated for first-time homebuyers who are credit worthy but struggling to have a down payment. In the enterprises’ affordable programs, the average credit score for many of these borrowers, I think for Fanny it’s 743, and for Freddy it’s 742. So, we’re just talking about credit worthy people they just don’t have a down payment.
Rep. Ritchie Torres: Thank you.