And the finance Agency Director mel watt. On the status of the Housing Finance system, fannie mae and freddie mac have been in conservatorship for close to 9 years. In september of 2008, hank paulson famously described the conservatorships as a timeout. Fannie and freddie along with fha continue to dominate the Mortgage Market. 70 of the mortgages are backed by the federal government. Fannie and freddie currently earning profits at the Housing Market experiences a downturn, taxpayers could be on the hook for billions of dollars. The status quo is not a viable option. The Housing Finance system dependent on two governmentsponsored enterprises and perpetual conservatorship is not a sustainable solution. Taxpayers today bear too much risk and the government plays too bigger role in the Mortgage Market. A number of groups release proposals for reform in recent months including the mba, i cba, milliken institute, several coauthors writing jointly for the urban institute and many others. The committee is considering all these proposals as well as other ideas about what the future system should look like. In the meantime f hfa continues to serve as conservator and regulator and as regulator of the federal home loan banks. As conservator of the gscs, fha is obligated to conserve and preserve the assets of fannie mae and freddie mac. F hfa has undertaken a number of initiatives in recent years including some that begin prior to director mel watts tenure. One undertaking is the creation of the securitization platform. It was originally intended to function like a market utility independent from the Enterprise Institute that would be used to issue Agency Security and privatelabel securities. The platform has instead been developed specifically for securities issued by fannie mae and freddie mac. One important question as we embark on Housing Finance reform is whether we should utilize the csp or consider other alternatives such as expanding the jenny may platform. Another Important Development and Housing Finance is increased transfer of credit risk from the Enterprise Institute to the private sector. I encourage f hfa and the enterprises to continue to experiment with different forms of Risk Transfer including front end and back end structures. Transferring credit risk away from the government into the private sector is essential to protect taxpayers and build a more robust and sustainable market. Increasing the amount of credit risk worn by the private sector. And what the committee decides to take. And policies and options, and hiving Housing Finance reform, following the financial crisis. 7 republicans and 6 democrats, in this committee, and the Housing Finance reform bill, a key priority this time is to build on that bipartisan legacy, and the Housing Finance system for future generations. Thanks to see you again, thanks for your public service, the Bipartisan Committee process by which we consider, and Housing Finance reform is easy, some calling it an easy win for the Trump Administration, and restructuring of fifth of the economy is far from easy, should avoid considering how the Housing Market, and how to prevent emergency government and taxpayer intervention. And the governmentsponsored enterprises, gscs are prohibited from retaining any capital at the end of each following quarter despite the fact Companies Back more than 5 trillion in the Mortgage Market. Director watt has been raging his concerns about the capital levels of the gscs for some time. He was one of the first members of the house of representatives to warn about predatory lending prior to the housing crisis. And and to retain capital levels. And the old structure of gscs. This is surely a straw man. Protecting taxpayers in the near term should be a shared bipartisan goal. The committee should continue its work examining the gaps in the Housing Market and the housing crisis exposed. Exotic products putting prime borrowers at risk, and lack standardized terms and responsibilities for trustees and a nearcomplete breakdown in Mortgage Servicing and the ability of monoline mortgage insurers to fulfill their commitments. They certainly made mistakes to chase the market, to purchase pls, provide price and discounts to lenders based on volume using price advantage is to achieve shareholder gains rather than passing those benefits to borrowers. And lenders that serve underserved communities. Gsc admission is to provide a stable, liquid, National Mortgage market. Something we should all want it any Housing Finance system, and it was finalized in december. And and the changes congress makes, will impact any affordable fixedrate mortgage in the future. And who has access to it. The decisions will impact how easily and quickly a growing family can sell their current home and buy it more expensively. The decisions would impact which lenders have access to the system. Whether a homebuyer can do mortgage from a small lender in her town. These decisions are not just about backoffice operations or faraway capital markets, they have substantial impact on households across the country, whether renters or homes. Thank you for joining us, the Committee Seeks to understand the status of gscs and how we move forward without harming homeowners and buyers or protect taxpayers a greater risk. I welcome you, we appreciate the service we are continuing to give to deal with the Housing Finance policy of the nation. Honoring the 5minute role, the question of periods for those in line to get the opportunities. What i would ask you to give your full statement, children please proceed at this time. Ranking member brown, but members of the committee, thank you for inviting me to testify. You are well aware conservatorships of fannie mae and freddie mac, is Enterprises Supports over 5 trillion in mortgages. Of additional importance is taxpayer backing under the preferred stock purchase agreement, limited to 118 billion for fannie mae, and 141 billion for freddie mac and additional drops will reduce these commitments further. I will focus on three points in my Opening Statement. My first point is fhs a has made numerous important reforms to the enterprises during conservatorship that are beneficial to the Housing Finance system, my written statement discusses a number of these reforms and provide links to detailed reports. Despite these reforms, i regularly hear assertions that fannie mae and freddie mac are the same today as they were when they were placed into conservatorship. It is important to be aware these assertions to ensure those already made are not disregarded. Despite the reforms already made, fhfa is aware Housing Finance reform will involve many crucial decisions that go far beyond these reforms. The second point i want to make unequivocally as it is the role of congress, not fhsa, that shop the path out of conservatorship into the future of Housing Finance system. Among the important decisions for congress are the following. One, how much backing if any should the federal government provide and in what form. 2, what transition process should be followed to avoid disruption to the finance market and who should implement the process. 3, what roles should any, and how they play those roles effectively. And was Regulatory Framework and authorities are needed in a reforms system. And who will have the responsibility. I reiterate it is the role of congress to do Housing Finance reform and i encourage you to do so expeditiously. My final point is to identify and discuss the most significant challenge fhsa faces reform. Additional withdrawals reduce the amount of taxpayer backing and the foreseeable risk that uncertainty could adversely impact the Housing Finance market. This challenge is significantly greater today than it has been and will continue to increase if not addressed. When i first discussed this in 2016 each enterprise had 1. 2 billion under the psd as as a buffer about additional withdrawals of taxpayer support in the event of an operating loss in any quarter. On january 1, 2017, the psp a buffer reduced to 600 million and on january 1, 2018, it will reduce to 0. At that point, neither enterprise will whether any quarterly loss without drying further taxpayer support. The gap accounting for any number of noncredit related benefactors in the ordinary course of business regularly results in large fluctuations in gains or losses. And the value of the deferred tax assets. Like any business, against shortterm operating losses. In fact, it is especially irresponsible for the enterprises, not have a limited buffer, and an additional withdrawal of taxpayer support and reduced treasuries, fixed dollar commitments under the psp a, the we reasonably foresee this could he wrote investors, and increase the cost of mortgage credit borrowers. As conservator, fhsa, cannot risk these consequences and meet our statutory obligation to ensure that each enterprise fosters, quote, liquid, efficient, competitive, and resilient, national Housing Finance markets. In our conservatorship role, fhsable take actions as necessary to prevent additional withdrawal of taxpayer support. Neither this committee nor anyone else should view such actions either as interference with the prerogatives of congress, we will take only such actions is necessary to avoid normal operating losses, thank you you stand ready to assist the committee, and anyways we are requested to do so. Thank you very much. My first question i would like to focus on Credit Capital. Among the reforms listed in your written testimony more fully, you discuss the efforts the agency has undertaken to increase participation of private capital in the markets. An important component of the scorecard has been reducing taxpayer risk by attracting Credit Capital and shrinking the footprint of the enterprise system. Under your leadership fhsa has seen a significant increase, and i encourage you to increase. In addition to existing Risk Transfer deals, what can fhsa due to increased taxpayer risk and attract more private capital to the Mortgage Markets . The first thing we do regularly is not take loans people cannot afford to pay. We have a defined credit box and we tried to encourage lenders to use that credit box but we will not take a loan outside the credit box. One thing we have done is innovate in the Risk Transfer space. Moving first, the second lost position or intermediary positions but moving to first loss positions when it is financially feasible to do so. I think the objective here is to make the whole system as responsible and not move back to the practices that were taking place. Achieving this objective is one of the important things we seem to do here, to withdraw Housing Finance policy, in this round to capital at the enterprise that you discussed with us. On january 1, 2018, the Capital Buffers of the enterprises will drop down to 0 requiring fannie mae and freddie mac to draw on their lines of credit with quarterly loss. This reinforces why conservatorship is unsustainable. Taxpayers on the hook for losses and the government effectively taking all the risk. I understand you have concerns with Capital Buffers, and address this issue. It does not change the need for longterm Housing Finance reform. Suspending Dividend Payments, reform is not urgent and maintaining the status quo is sustainable. Could you please respond to that . First of all, let me say we will try to avoid a draw at all costs because risks associated with it and as conservator, our position is a little different than anybody else. I like and it to the situation several weeks ago when i went home and had a letter in my mailbox that said my car was subject to recall because of the airbag. A number of people saying the risk of you driving that car is minimal and i absolutely agree. I was the responsible party and my family was going to have to ride in that car. In this situation, the card you have given us, fannie mae and freddie mac, our responsibility to keep them safe and sound, to make them efficient while they are in conservatorship and it is your responsibility to change cause if you want to after that. Do you believe the f hfa has the authority to withhold Dividend Payment . Without the consent of treasury . Yes. I also want to assure you my first option obviously would be to work with the secretary of the treasury. These are contractual agreements, not legislative agreements. It is a contractual agreement between us and the secretary of treasury. Modest changes is the first and most prudent, the responsibility for that risk falls on me as the consumer. Why you believe you have any authority, without getting agreement from secretary of treasury and dealing with this. You talk about potential and swat impending concerns about tax reform and shortterm losses. The Corporate Tax rate, and others come to that, you dont know yet, and f hfa limits, they retain capital, as you spoke about, prohibits capital next year. And what it would do to access to mortgages in the broader Housing Market. If you would dig down a little deeper on what tax reform goes. They can range, from our analysis, 5 billion up to 25, 26 billion. Obviously the extent of those tax reforms, that is a shortterm impact, it is not a commentary on the value of the reduction in Corporate Tax rate, we are talking about the shortterm impact of that tax rate cut, and one of the things we are regularly doing is talking to treasury and monitoring what is happening in that taxcut space. And if possible, they could phase in the first tax cuts, to protect enterprises in conservatorship. And evaluate them. We are constantly making that evaluation. It leads to quarterly losses about accounting principles. How you account for hedging against risk. Those are things that have nothing to do with whether you extended good or bad credit, no credit related factors, but the enterprises losses bounce around regularly, going to 0 in a buffer could come in any quarter, put us into a situation where we could end up making a draw. One could have impact, and the gse bulk contracts. These contracts, and in cincinnati in cleveland, you prohibits bidders, and using contract for deed and on any singlefamily rental deals Going Forward. We look at that, Ranking Member brown. We always change prospectively, those and criteria requirements, the we impose on, we are looking at that issue. Thanks for being here today. Thanks for the job you are doing, in multiple conversations, the future of Housing Finance reform, you are relying on us to make that happen. There is a lefty think tank and writey think tank, the chairman and Ranking Member wish to take set up in the near future and your perspective, and how we determine the future of these entities, we have made some reforms of the enterprises, i dont want those disregarded because the conservatorship process i outlined a number of them in my testimony. Didnt have a chance to do it in the short time in the Opening Statement, they are outlined specifically to my longer form written testimony with links with details about them and in a sense, gse reform, and the committees responsibility and congresss responsibility is Housing Finance reform. I dont want the issue, we had a recent conversation last quarter regarding the building up of capital within the entities. The two entities have 258 billion worth of capital. There are motions of running out of resources, a baseless issue. It changes the dynamic of what is happening, makes it appeal that there is a different approach taken by the administration. The administration is working with us to move ahead with reform but all of a sudden a little lateral step, 58 billion of capital, and we have exactly that same type of thing to fannie and freddie, 258 billion worth right now, to act as if drying of this made available credit, when us taxpayers already are 100 backing of these entities, creates a different direction which sends us a signal to the world Something Different is occurring, we established today you have 258 billion available if you draw up on it that is what it is for. In no way affects the credit or anybodys perception of securities being put out. I hope you address that is forthright as i could in my Opening Statement, i have addressed it repeatedly. I hope you heard the analogy i used, you gave this car to drive for five years, you said keep them safe and found, make them efficient and if there is a risk, that a draw or a reduction in the commitment that backs these enterprises would interrupt