Key Takeaways
- •The hearing highlighted significant uncertainty and debate surrounding the future of Fannie Mae and Freddie Mac, particularly regarding their 18-year conservatorship and recent FHFA policy shifts.
- •Dr. Sharon Cornelissen stated that FHFA has undermined its mission by reducing affordable housing goals, impacting 177,000 working families, and rolling back fair housing efforts.
- •Rep. Waters (D) pressed Dr. Cornelissen on FHFA Director Polte's alleged political weaponization of the agency and his failure to make housing affordable, with Dr. Cornelissen agreeing it was inappropriate.
- •Democrats, like Rep. Tlaib and Rep. Williams, criticized FHFA's recent actions, including ending appraisal bias work and reducing affordable housing goals, arguing they worsen housing inequality.
- •Members discussed the need for congressional involvement in any GSE reform, with Rep. Fitzgerald (R) announcing upcoming legislation to end conservatorship and encourage credit risk transfers.
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Hearing Analysis
Overview
field name: Summary value: On February 11, 2026, the House Financial Services Subcommittee on Housing and Insurance held a hearing titled "Homeownership and the Role of the Secondary Mortgage Market." Chaired by Rep. Mike Flood (R-NE-1), the session examined the mechanics of the secondary mortgage market, the ongoing conservatorship of Fannie Mae and Freddie Mac (the Government-Sponsored Enterprises or GSEs), and the impact of recent Federal Housing Finance Agency (FHFA) policies on housing affordability and market stability. The hearing occurred against the backdrop of an 18-year conservatorship and a national housing crisis characterized by high interest rates and low inventory.
The hearing’s primary purpose was to educate members on the "plumbing" of the mortgage market. Chairman Flood and Chairman J. Hill (R-AR-2) emphasized that the secondary market provides essential liquidity by allowing lenders to sell originated loans, thereby freeing up capital for new lending. Witnesses Michael Bright, CEO of the Structured Finance Association, and Robert D. Broeksmit, President and CEO of the Mortgage Bankers Association (MBA), highlighted that this system is what enables the 30-year fixed-rate, prepayable mortgage—a product unique to the United States that protects borrowers from interest rate volatility.
Key Testimony
A significant portion of the testimony focused on the future of Fannie Mae and Freddie Mac. Mr. Bright and Mr. Broeksmit noted that while the GSEs are currently undercapitalized by approximately $200 billion relative to 2022 regulatory frameworks, they are significantly safer than they were prior to the 2008 financial crisis due to higher underwriting standards and the use of Credit Risk Transfers (CRT). Conversely, Dr. Norbert J. Michel of the Cato Institute argued for the total dissolution of the GSEs, asserting that government guarantees are unnecessary for robust homeownership and actually drive up home prices by encouraging excessive leverage.
Policy proposals and recent administrative actions drew sharp partisan divides. Ranking Member Emanuel Cleaver (D-MO-5) and Ranking Member Maxine Waters (D-CA-43) expressed deep concern over the leadership of FHFA Director Bill Polte. Rep. Waters criticized Polte for proposing "absurd" 50-year mortgages and allegedly weaponizing the agency against political rivals. Dr. Sharon Cornelissen of the Consumer Federation of America testified that a 50-year mortgage would trap borrowers in debt with minimal equity gain, noting that a 40-year-old first-time buyer would still be paying the loan well into their 90s.
Overview
Democrats also focused on the erosion of fair housing protections. Rep. Rashida Tlaib (D-MI-12) and Dr. Cornelissen discussed the FHFA’s recent decision to end fair lending enforcement and retract equitable housing finance plans. They argued these moves would exacerbate the racial homeownership gap and appraisal bias. Rep. Ritchie Torres (D-NY-15) questioned the FHFA’s directive for the GSEs to purchase $200 billion in mortgage-backed securities (MBS), characterizing it as "shadow quantitative easing" intended to manipulate interest rates without congressional oversight.
On the Republican side, Rep. Scott Fitzgerald (R-WI-5) announced plans to introduce legislation to end the GSE conservatorship by codifying reforms such as increased CRT usage and a "utility model" framework. This model would limit the GSEs' return on equity to ensure they remain focused on their core mission rather than expanding into primary market activities. Rep. Fitzgerald also proposed tying conforming loan limits to median income rather than home price appreciation to prevent the GSEs from crowding out private capital in high-cost areas.
The hearing also addressed the Private Label Securities (PLS) market. Mr. Bright urged the Securities and Exchange Commission (SEC) to update the "Reg AB II" framework to jumpstart public issuance of non-taxpayer-backed MBS. Additionally, Mr. Broeksmit highlighted the negative impact of Basel III capital requirements on banks, specifically the 250% risk weight on mortgage servicing assets, which he argued has driven community banks out of the servicing business.
Notable exchanges included a discussion on the feasibility of a GSE Initial Public Offering (IPO). Chairman Hill noted that even the world's largest IPO, Saudi Aramco at $30 billion, would not cover the $200 billion capital shortfall of the GSEs. Rep. Janelle Bynum (D-OR-5) proposed that if a capital raise were to occur, the proceeds should be reinvested directly into housing supply and infrastructure rather than the general Treasury fund.
The hearing concluded with a consensus on the importance of the 30-year mortgage but deep disagreement on the regulatory path forward. While Republicans advocated for a structured exit from conservatorship and a reduction in the government's footprint, Democrats emphasized the need for a mission-driven FHFA that prioritizes consumer protection and affordable housing goals. Future actions are expected to center on Rep. Fitzgerald’s forthcoming bill and potential oversight investigations into the FHFA’s recent policy shifts.
Transcript
The Subcommittee on Housing and Insurance will come to order. Without objection, the chair is authorized to declare a recess of the committee at any time. This hearing is titled Homeownership and the Role of the Secondary Mortgage Market. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. I now recognize myself for four minutes for an opening statement. I'd like to thank our witnesses for being with us today, and I very much look forward to an interesting discussion of our secondary mortgage market and the enterprises Fannie Mae and Freddie Mac. When witnesses refer to the secondary mortgage market during this hearing, please note that they are not referring to direct mortgage lending. In the case of the conforming market or the market that runs through Freddie and Fannie, they are referring to a chain of interactions between separate actors. Number one, the lender who sells a loan they originated to Freddie Mac or Fannie Mae. Number two, the securitization of that loan into a mortgage-backed security. And number three, the investors who purchase those mortgage-backed securities. The private-label securitization market works in a similar manner but with fully private entities working to securitize the mortgage products instead of Fannie Mae and Freddie Mac. The secondary mortgage market works to provide greater liquidity for lenders and results in greater access to mortgage lending for borrowers. In today's banking regulatory climate, holding a mortgage on a bank's balance sheet can result in significant capital costs. If instead the lender sells the mortgage they originate on the secondary market, their balance sheet is comparatively free to originate new loans. This creates an incentive for originators to utilize the secondary mortgage market rather than hold those loans on their own books. Next, I'd like to touch on the origin of the enterprises. Fannie Mae was established back in 1938 under the National Housing Act to provide liquidity in the mortgage market. In 1954, Congress passed the Federal National Mortgage Association Charter Act, which converted Fannie Mae into a public-private mixed-ownership corporation. Then in 1968, Fannie Mae became entirely privately owned. Freddie Mac was chartered by Congress in 1970 as a private company to create competition with Fannie Mae. Around the same time, Ginnie Mae issued the first modern mortgage-backed securities or MBS. Mortgage-backed securities grew in popularity in the 1980s and became a major tool for both Fannie and Freddie to provide liquidity in the conforming mortgage market. Before the financial crisis in 2008, Fannie and Freddie were private entities. However, when mortgage delinquencies rose sharply in late 2007, the GSEs' large retained mortgage portfolios exposed them to significant losses in the collapsing housing market. Congress enacted the Housing and Economic Recovery Act of 2008, which created today's FHFA and provided the government with the authority to provide further support to the enterprises. Later that same year, as the enterprises eroded further, Treasury committed up to $100 billion per GSE in exchange for senior preferred stock, warrants for 79.9 percent of the company's common equity, and a dividend. This intervention effectively ended both Fannie and Freddie's status as fully private companies. They now were both entered into what's called a conservatorship. Their board and CEOs were removed and the government had the ability to closely manage enterprises and conserve their important secondary market function. Freddie and Fannie have remained in conservatorship ever since. My hope with this hearing is that we will provide members of this subcommittee with an opportunity to closely examine two very important topics. Number one, the mechanics of the secondary mortgage market. How does it work? What are the incentives of the relevant actors in the space and what does this all mean for a prospective homebuyer? And number two, the role of Fannie and Freddie in the secondary mortgage market and the policy implications of their ongoing status in conservatorship. Keen observers of this committee may note something unusual about the structure of this hearing. There is no legislation noticed to our discussion today. The lack of legislation noticed to this hearing was an intentional choice. While there are absolutely important policy issues to be discussed regarding the secondary mortgage market and GSEs, I felt it was imperative that we begin our subcommittee's work by focusing on the underlying subject matter. With that, I yield my time back. I now recognize the ranking member of the subcommittee, Mr. Cleaver, for four minutes for an opening statement.
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