This sandrule what steps if any you have taken on this rule to make sure consumers are fully informed. I believe that is under the protection jurisdiction. We havent been actively involved in it. I do meet regularly with the director of the Consumer FinancialProtection Bureau to make sure that were not at odds, and were also member of the committee together, which allows us to Exchange Ideas at that level. But were not directly involved in that. Im sure that youre focused more on Real Estate Lending than some of the more general folks involved, and they benefit from your input. Your predecessor pushed for a lower conforming loan limit. You demonstrated your wisdom in going in a different direction. And action that has done more than anything else to impress me with your wisdom. Do you see that ugly proposal rearing its head again any time soon . Well, it has to, because it has to be reviewed regularly. We are almost constantly in the process of reviewing loan limits. So, yes, it will raise its head again. I look forward to continued wisdom on your part, and i yield back. The chair now recognizes the gentleman from new mexico for five minutes. Thank you mr. Chairman. Thank you, director. I know we havent alza greed, but ive always admired your plain language and straightforward responses. I find myself admiring that today. As we look back to the problems that put you in the conservatorship, weve found that fannie began and everyone began to expand the number of loans that were given to people that probably shouldnt have gotten them, and the o. I. T. In 2012 found that fannie faha was somewhat responsible because they overlooked the fact that fannie was beginning to relax its underwriting guidelines. They were beginning to buy loans that they said they wouldnt buy. They didnt accomplish that with a change in the law. They accomplished it with variances. I guess my question is, what are you all doing to see that the agency doesnt go around the rules again . They were being pushed not by the white house. As you said before, youre independent from the white house. I wonder if youre independent from us. Its members of this body who are pushing for the relaxing of those standards so that people can get loans. I hear some of the same language today. What are we doing to make sure this doesnt occur again . First of all, at that point, fannie and freddie were not in conservatorship, and so the regulatory role was a lot looser than the conservatorship role that we are playing now. Were involved in virtually every decision that fan sandee freddie makes, and we take very seriously our statutory mandate both to do things safely and soundly and to do things in a way that will provide liquidity in the Housing Finance market. Thats why i said in my Opening Statement were constantly walking that balance. We would be as responsible for those decisions now as fan sandee freddie would be, because they are in conservatorship, and its part of our conservatorship. But someday theyd be out of conservatorship. Again, i wonder about the oversight mechanism that will take a look at what theyre doing, because it was them that facilitated if fannie had not bought those mortgages, it would never pay off. They were able to get rid of them out of the banks and send them on to someone else and let them worry about it, and so as we go through into the future, i worry that the same thing i wonder also, so fannie and freddie are making a profit, and so i guess you were talking about the models that you have done. Have you got models that tell you at what rate of growth that were going to start to experience troubles, and should we increase our surveillance in what rate of growth would that be . Well, we dont do it at what rate of growth. We do it on a loanbyloan basis, and we set standards that apply to loans so we make sure we never get to determining where you fall off that cliff or dont fall off that cliff. Were nowhere close to the level of risk that was being assumed i have a run of business with 50 employees. I find it beyond imagination that you can take a trillion dollar portfolio and look loan by loan. I appreciate you saying it, but i find that really hard to believe. I afollow jies. That probably was an overstatement, but we set standards that have to apply to loan by loan by loan. Those standards existed before, and under the table or wherever the people who are getting tremendous bonuses at that period of time began to cheat the season system. They began to rig it to get bigger bonuses. Until you evaluate human nature, the last one i want to make is that another great pressure in the system was the low interest rate, and so at some point the federal reserve, whether they like it or not, is going to go up on interest rate. Thats going to put more pressure in the housing market. I see that if we dont have our ship really right when it goes into the troubled waters of lower growth rate, higher Interest Rates that were going to have exactly the same thing, the same problems with an agency that is way undercapitalized. You have to admit that theyre in shaky financial shape as we move forward and if we get into troubled waters. With that, i yield back my time. The chair now recognizes the gentle lady from wisconsin, Ranking Member of the Monetary Policy subcommittee. Thank you so much mr. Chairman, and Ranking Member. It is so good to see the honorable director watt here with us. He is near really good form, just the facts and really its a relief to have you around, that you havent rode off into the sunset. I would like to start out by making a comment before i engage the director in a question because much has been said today about the credit worthiness with the 3 down and there has been much swim station that lower income borrowers were the cause of the financial crisis in 2008. And so i just would like mr. Chairman to request unanimous consent to put into the record a report done by someone from Duke University and m. I. T. Without objection. Thank you. And from dartmouth and also from Harvard Business school. The gentlelady will suspend. We seem to have a little audio problem here. Try again. Thank you. This is a 42page report, mr. Director and mr. Chairman. But its conclusions are that the higher default rate can be attributed to loans made to middle and upper income folks and not lowincome folks. And so i just wanted to clarify for the one millionth time that the lower income borrowers were not the primary reason for the financial meltdown. I dont know if you have any comment about that research, but i would like to enter that into the record. Im glad i dont have to participate in that debate anymore. Ok. Thank you. I was looking through your prepared testimony and you talked about Mortgage Servicing and it wasnt really clear to me through your testimony what was the was the product there hasnt been changes in the compensation structure, better aligning of Services Incentives with those of the enterprises, and i was wondering how that translated into Better Mortgage service fog the customers. Well, thats a very difficult subject because its massive. What happened over time is the result of the meltdown, servicing went from just collecting money on mortgages to a much, much more difficult process of dealing with people who were in default. That whole industry has evolved , and most of it was done originally by lenders themselves in house, and much of it now has gone to outside people who specialize in servicing. And that has created a set of issues that weve had to deal with because some of them, even though they might have been better servicers were not necessarily as financially sound for the long term so weve had to deal with that. There is a wonderful study that was just put out by the urban institute that talks about that evolution and the costs that have been associated with servicing where you can service a loan for like 50 of the loan and now its up or 50, a fee to a servicer. Now its up to well over 2,000 as a result of the increaseed responsibility. But its a very difficult area and we internally have had difficulty because this whole meltdown has put stresses on the servicing industry. I made a switch, and it was easy to service when all you had to do was collect money. It is very difficult servicing mortgage now when people recall. Reclaiming my time. I would assume well, i have another question. The gentlelady may have another question. Shes just simply out of time, so she can submit the question for the record, and the witness can respond. Time for the gentlelady has expired. The chair now recognizes the gentleman from North Carolina. Thank you mr. Chairman. Mr. Watt good to see my friend from charlotte. You seem to be relishing your new job, and we wish you well. Frankly, we want you to be successful. As noted by our comments today, we have the concern that of what would come out of the current policies of easy credit. We believe it was complicit in the housing crisis that we have just previously experienced. Mel, as you know the former acting director, he proposed these increases for the fees to charge the lenders. Under your leadership, you suspended the implementation of those increases. This last december, you made a Public Statement or report that suggested how we should attract new capital into the secondary mortgages, and i could quote them. They stated policy makers should continue to increase the two g. S. E. s, guarantee fees to attract new private capital to the secondary market. And even a small increase in guaranteed fees from the present level would allow private to immediately compete for the highest quality loans. Youve also stated that you want to find ways to bring additional private capital into the system in order to record taxpayer risk. Now, your own decision, youve chosen to go against the former director, and youve chosen against the taking of the c. B. O. Of if you are not willing to increase the guaranteed fees, what additional steps would you recommend to increase the role of private capital and to decrease the role of exposure to fannie and freddie and frankly, the american taxpayer. Let me put in perspective one thing. Ive never done anything in opposition to the former acting director. I have the greatest amount of request for the acting director and the decisions. So i just want to be on record as making that clear. And ive taken some abuse for saying that, but i just have to say it. The primary means that we are using is to test different risk sharing models. Theyve been very successful. We have tripled quadrupled the amount of risk sharing weve done in the one year that ive been there. The goal was 30 billion in 2013. We increased it in the scorecard to 90 billion and shot right past it before the Third Quarter was over of 2014. Weve increased it again in the 2015 scorecard. Were encouraging them to look at different risk sharing alternative models to do it not just the one that have already proven successful. Weve encouraged them to look at whether it is practical to even go back and risk share some of the legacy books of loans. All of this risk sharing weve done essentially has been with new loans, the most pristine loans. We are very active in that space. Were also looking at the questions, the conclusion that you reached that we are not going to change or are going to change i think is premature. We dont know whether or not were going to change them, and were taking into account the study that was done our own study, the input that we got to a series of very cogent questions about how g. P. Should be spent what factors should be considered in setting guarantees. When we come out with our report hopefully by the end of this quarter, i think well add a lot of information. In fact, even in the request for input we put a lot of information out there that people have never known about how g. P. s were set. Quickly may i ask. You have suggested you stated one of your changes is you allowed these down payments to be as little as 3 . You stated well, theres other offsetting measures that you would implement. Would you give a clarity to what those are . We believe easy credit, we saw the chart earlier, was a major factor in the current demise. Please answer, please. Homeownership counseling, mortgage Insurance Private mortgage insurance, higher fico scores i mean, there are a number of factors were taking into account that would offset the lower down payment. The time of the gentleman has expired. The chair now recognizes the gentleman from minnesota. Thank you mr. Chairman and Ranking Member. I just wanted to say that i was glad to see that we had 61 members of congress including every half of this committee almost half of this committee, agree that your action to understand the temporary suspension of contributions to fan sandee freddie to the House Trust Fund was the right thing to do. Very happy about it. Its already in the record, so i dont need to enter it in, but i want to make note of that. I also want to comment too that its true that you have to face a lot of questions from folks who believe the real problem of the crisis of 2008 was g. S. E. s and borrowers, but its also true that you have to contend with people who think that you ought to be moving faster in the other direction. I know that because ive had constituents of mine say well, why doesnt director watt you know, do this and do that and move quicker, things like that. I think one of the other things that your office has done after taking a lot of care a lot of time, a lot of research is decided to review the process the transaction and not doing any transactions and reviewing the policy. I wonder could you talk about some of the thinking that you entertained as you were reviewing that policy and why it is that you came out the way that you did. Well, there was a conclusion that if you allowed a borrower to default and then turn around and buy a piece of property at a lower rate that you would be incentivizing that kind of negative behavior. And that had kind of taken hold and was wagging the dog. There probably are 1 , 2 , 3 of the people in the world who could think that far ahead that they would default on a loan and then after foreclosure go back and buy it at a lower price and come out better. We thought the moral hazard, which is what people were causing, were calling that we could minimize that by putting some prudential factors around that decision, and so thats what we did. Its not automatic that somebody can do that, go back and buy the home back for a lower price. We put a time period on it so that we could test it going forward. To make sure we didnt do something that was irresponsible. But it was a slow Research Process as every one of these things. You kind of put your finger on something. What i found in this position is that theres nothing generally as simple as i thought it was, right . All of these decisions are very difficult and require good research, and thats what we try to bring to every decision. I also want to say that youve been available to talk to everybody who wants to talk to you. Youve met with ordinary homeowners. Youve met with policy makers. You have a pretty good staff member. She used to work in my office. Shes gone on to bigger and better things, but im glad shes landed in the right place over there. Can you fwalk all this research youve done. Well, i think one of the members over here pointed out that they appreciated plain talk. Theres a lot of misinformation in this territory and i think the more you can kind of break things down and explain them in terms that borrowers can understand, that the public can understand demystify this whole process, the better off we are. But most of the outreach we have done and going out has been about specific things that would benefit borrowers such as the hawk program or the Neighborhood Stabilization initiative in detroit. Ive kept a very, very low profile. I have no interest in being in front of a camera. The gentlemans time has expired. We got a different approach to it now. The chair recognizes four or five minutes from pennsylvania. Welcome back to the committee for a couple of hours anyway. I want to talk a little bit about the 3 down payment program. Fabi mae in its 10q that it filed with the s. E. C. In 2014 mentioned the program, and heres what they said. They also plan to offer a 97 ratio product to all customers in 2015. To the extent we are able to encourage lenders to increase access to mortgage credit we may acquire a greater number of Single Family loans with higher risk characteristics than we acquired in recent periods. However, we believe this will continue to have a strong overall Credit Profile current our standards and product design. It seems to me that fannie mae in its filing has admitted that the program is going result in loans with a higher risk. Would you agree with that assessment . I would admit that possibility exists if youre not careful, which is exactly why were being careful. That was the Third Quarter analysis and you notice they didnt announce this until december because we were putting all of these con streants around them to make sure that we minimized that risk. So when i look at when they file i would not expect to see Something Like that. You may see something similar to that, yeah, because, you know 10qs, as you know, are designed to give the public and people out there the worst possible case that you could present to them. Are they aware of the risks . The administration in 2011 released a white paper entitled reforming americas Housing Finance market. Page 14 of that document, the administration recommends that the f. A. A. Market shares should be reduced. Two, f. H. A. Should return to its precrisis role as a targeted provider for low and moderate income americans. And three, f. H. A. Mortgage insurance should be increased. The administration recommends that a coordination between fannie, freddie and f. H. A. To help ensure the private market not f. H. A. Fills the Market Opportunities created by reform. Do you believe the recent policy announcement by h. U. D. Affected yesterday to lower f. H. A. Annual mortgage premiums by 50 basis points will affect the ret