October 12, 2017
House Financial Services Committee “The Future of Housing in America: Oversight of the Department of Housing and Urban Development”
Key Topics & Takeaways
- Housing Finance Reform: Carson fielded several questions on housing finance reform throughout the hearing, mainly from Republican Representatives. Carson committed HUD to participating in housing finance reform discussions and said he supported a system that provides access to credit to worthy borrowers who are ready to own a home while reducing taxpayer exposure to risk and involving more private sector capital.
- Credit Risk Transfers: Rep. Ed Royce (R-Calif.) told Carson that he has introduced a bill to require the GSEs to engage in more credit risk transfers (CRT). Royce then noted that FHA may be able to engage in additional forms of risk sharing, such as “co-insurance” to reduce taxpayer exposure to the GSEs portfolio of loans. Royce asked Carson if he would support legislation that would empower FHA to explore alternative credit risk sharing models. Carson said that HUD is considering alternatives, and that he looks forward to finally having an FHA commissioner.
- The Honorable Dr. Ben Carson, Secretary, U.S. Department of Housing and Urban Development
Chairman Jeb Hensarling (R-Texas)
In his opening statement, Chairman Jeb Hensarling (R-Texas) discussed Secretary Carson’s background, as a former resident of public housing. Hensarling then offered a partial critique of the Department of Housing and Urban Development (HUD) saying that “for the able-bodied, there is no better affordable housing program than a growing economy.” Hensarling closed by discussing the in-development Republican party’s tax reform plan and said it offered a path forward for struggling Americans.
Ranking Member Maxine Waters (D-Calif.)
In her opening statement, Ranking Member Maxine Waters (D-Calif.) discussed the “crisis” created by a lack of available rental housing, especially for low-income Americans. Waters also deplored low home ownership rates (especially in minority communities) and “crisis-levels” of homelessness. Waters criticized Carson sharply, saying she has seen “nothing” that shows he is up to the task accomplishing HUD’s mission. Waters closed by criticizing previous comments made by Carson, as well as his support of the Trump Administration’s proposed FY18 budget for HUD.
The Honorable Dr. Ben Carson, Secretary, U.S. Department of Housing and Urban Development
In his testimony, Secretary Carson began by describing HUD’s response to Hurricanes Harvey, Irma, and Maria. Carson then discussed the “Forward Initiative” which is an internal review program for HUD to assess its practices and operations. Carson said that HUD will work to meet the deregulatory goals of the Trump Administration and is reviewing its existing regulations to identify rules that can be amended. Carson closed by discussing housing finance reform, as well as the Federal Housing Finance Administration (FHFA) and Fannie Mae and Freddie Mac (collectively, the GSEs) and said that HUD would be an “active participant” in housing finance reform talks with other policymakers. Carson said that any reforms should ensure the housing finance system provides access to credit to worthy borrowers who are ready to own a home while reducing taxpayer exposure to risk and involving more private sector capital.
Question and Answer
Housing Finance Reform
Hensarling used the bulk of his allotted time to ask Carson about housing finance reform. He began by asking Carson if the time is right for housing finance reform, to prevent the current status quo arrangement from becoming permanent, and Carson agreed. Carson also noted that FHA is one of the largest players in the domestic mortgage market and said it should be an important part of any new system. Hensarling asked Carson if Congress should establish a loan limit for FHA mortgages to keep its focus on first-time and low-to-moderate income homebuyers. Carson defended FHA’s practices, noting that 95% of FHA’s loans fall in the $200,000 range, though he conceded that there are outliers.
Rep. Carolyn Maloney (D-N.Y.) noted that FHA’s market share in the mortgage lending business has “substantially diminished” since the 2008 crisis, but said that critics still lambast the FHA for playing an “outsized role” in the market. Maloney asked Carson if he thought FHA’s market share was too large. Carson said the HUD controls approximately 13.2% of the mortgage lending market, but declined to comment on the appropriateness of this level.
Rep. Brad Sherman (D-Calif.) noted that one of the Trump Administration’s first actions was to undo a 25-basis point reduction in FHA mortgage insurance premiums that had been planned by the outgoing Obama Administration. Sherman asked Carson if HUD had assessed the previously planned reduction and if the Department had a new plan for it. Carson responded by saying HUDs mission is to make homeownership as affordable as possible while protecting taxpayers.
Credit Risk Transfers
Rep. Ed Royce (R-Calif.) told Carson that he has introduced a bill to require the GSEs to engage in more credit risk transfers (CRT). Royce noted that FHA may be able to engage in additional forms of risk sharing, such as “co-insurance” to reduce taxpayer exposure to the GSEs portfolio of loans. Royce asked Carson if he would support legislation that would empower FHA to explore alternative credit risk sharing models. Carson said that HUD is considering alternatives, and that he looks forward to finally having an FHA commissioner.
False Claims Act Use
Rep. Roger Williams (R-Texas) argued that when lenders are forced to pay penalties for loans that are not up to FHA standards, despite the loans having been reviewed by FHA and HUD, other lenders are discouraged from participating in FHA programs. Williams asked Carson to clarify the circumstances under which lenders can be penalized in situations where FHA and HUD have approved their loans. Carson said that HUD is working with the Department of Justice (DOJ) on the issue, and that he was cognizant that this practice can discourage lending.
Rep. David Trott (R-Mich.) began by discussing the “unprecedented” use of the False Claims Act by the previous administration to penalize mortgage lenders. Trott said that the practice of forcing lenders to settle with “outrageous” penalties, sometimes for honest mistakes, has made homeownership more expensive for people that depend on FHA loans. Carson readily agreed, saying the use of the Act was “ridiculous” and that HUD and the Department of Justice are working to resolve the issue.
Royce noted that HUD is currently reviewing its current policy allowing Property-Assessed Clean Energy (PACE) liens on FHA-financed loans, and asked when HUD will announce its new treatment of PACE liens. Carson said that HUD will make a decision soon and that having PACE liens in a first position is “very serious.”
HUD Operations and Budget
Rep. Ann Wagner (R-Mo.) noted that the Community Development Block Grant (CDBG) disaster relief program was recently granted $7.4 billion in funding from Congress, and asked Carson how he plans to ensure the funds are not misused. Carson said that HUD is constantly reviewing its expenditures to ensure taxpayer money is well-spent. Rep. Keith Rothfus (R-Penn.) asked Carson to elaborate on previous statements he has made about CDBG failures, and Carson said he has seen evidence of CDBG funds not helping their intended target (namely, low-income Americans). Carson said that HUD was working to improve the efficiency of the program to ensure it better accomplishes its mission.
The Moving to Work (MTW) program, which allocates Federal money to public housing authorities and allows them to design and test innovative, locally-designed strategies to help residents become self-sufficient and improve housing options, was a frequent topic of questions, mainly from Republican Representatives. Rothfus asked Carson if he supported expanding MTW, and Carson said that he did. Royce asked Carson to elaborate on some of MTWs successes, and Carson praised MTW for allowing “innovation” at the local level. Rep. Dennis Ross (R-Fla.) asked Carson how MTW can help elderly Americans, and Carson said it is important that MTW programs aimed at the elderly are properly tailored and do not withdraw assistance too soon. Rep. Mia Love (R-Utah) asked Carson to elaborate on whether HUD is adding new qualifying regulations to MTW, and asked how Congress can help HUD expand the program. Carson assured Love that he has no intention of adding regulation to MTW, and said the expansion of MTW should go “far beyond” the 100 housing authorities slated for the next expansion round.
Rep. Greg Meeks (D-N.Y.) asked Carson about the Distressed Asset Stabilization Program (DASP), which he said is selling homes to private equity firms who have no homeownership enhancing mission. Carson said that programs like DASP have safeguards to ensure that people in DASP housing cannot be immediately expelled after a sale, and defended the program on the grounds that HUD has responsibilities to taxpayers.
Rep. Denny Heck (D-Wa.) asked Carson about the Home Equity Conversion Mortgage (HECM) program, which allows senior citizens to take advantage of reverse mortgages. Heck noted that HECMs actuarial numbers swing “wildly” from year-to-year, despite the program’s small size, and asked if HECM should be moved out of the Mutual Mortgage Insurance Fund (MMI). Carson said that would be a “worthy pursuit.” Maloney asked Carson if he was open to co-op owners joining HECM, and Carson said he was open to a “conversation” on the topic.
Throughout the hearing, numerous Democratic Representatives were also sharply critical of the Trump Administration’s proposed FY18 budget for HUD, and asked Carson questions about the impact of cuts on HUD’s operations.
Democrats on the Committee were sharply critical of the Administration’s response to Hurricane Maria and demanded answers from Carson regarding HUD’s rebuilding efforts, as well as about his personal views regarding the President’s comments about Puerto Rico.
For more information on this hearing, please click here.