tv Key Capitol Hill Hearings CSPAN November 21, 2015 12:00am-8:01am EST
really screw the housing economy by the way. so anyway maybe it isn't the most relevant thing actually what is the homeownership rate. so i think what i'm going to do, for slides and because i do not have any original date i hope i can give you one or two semi original ideas. i want want to spend most of my time on the last slide. so first of all, one of the issues of our homelessness and housing is lack of love where these renters come. i think you got the answers from frank in a number of people. the question the question is where do they go? it turns out most of them actually between at least 2006 when we had about 10,000,000 single family rentals and 15 the late assessment i've latest estimate i've seen is that we have 15 million. so that is 5 million absorption from the great recession until now. in single-family homes.
that has always has always been a significant part of the rental landscape. family construction which we talked about before there's quite a bit going on, the highest highest in 30 years, maybe we so it is a million six of approximate and actually 5 million of single-family rental. that is where the renters have gone. now what is really interesting to me and this is the chart that i follow her and is about to be updated. this is obvious in some ways, we know that incomes have been stagnant, we know rents are rising but the spread between those two, which really you have to stabilize the dollars and one thing i can tell you for sure based on either of the projections that you just heard and what the fact that over 85% of the family construction is at the very high end.
this is not getting any better anytime soon. then we have just to make you feel even prouder of how good this housing economy is, we have a huge problem coming up over the next ten years in terms of the loss of already subsidize housing and the risk of loss can only be overcome if there's some dramatic change in the way the systems work. particularly the low income house credit. otherwise we'll lose substantial unit of currently affordable subsidize housing to the noun subsidize stock. so now that we are feeling really cheery, the three parts to any dynamic especially in the rental housing stream what is the way of the capital. sometimes they can drive a solution to these two but first of all you cannot build workforce housing. in other words anybody that we
call you can stratify this market at 60% of median income which is where subsidies essentially and. then you can start again at 100% at some form of the tax expenditure otherwise might take up or property tax production otherwise. so people between that 60 to to 100 is what i taught like to call workforce where people are -- i really call them the screwed bittle by the way they feel like they are not getting get over here, they can actually afford to buy but basically the problem is in order to rent in that workforce category you need to be paying about a dollar of her rent so you have an 800 square-foot apartment, you want to be able to pay about $800 in rent what is the problem, the problem to build a apartment complex today
two and a half dollars a foot or probably high in san francisco which is quite up noxious. there's a rat lot of reason for this and i don't want to go into all of them. i know you'll cover some in your question. but if you take increasing demand, what is assuming that you cannot build for this market without subsidizing. we assume there not any new subsidies coming down the pipe unless someone heard something different. and all the easy land for building is gone. so you if you talk to builders and he said why are you building? someone said the credit indexes getting better people are trying to make loans. great, why are they able to buy? will it is not just savings, there is not any
inventory in the certainly is in any starter home being built without subsidies. again, just to add everything, frank this is going to make you depressed, rates are going up. so if you if you take all of that together what can you possibly do? one thing is we have to think about the low income housing tax credit and how to increase it. two, start experimenting cognitively with research. evidence is good enough focuses on how single-family renters and convert them to owners. so let's talk about demand. demand is clear and you talk about it a great deal in the statistics. i think you have to again take the same dollars that you use for housing vouchers and think about how to expand and extend those. the assumption that about your has to be perpetual or that a family needs it for extended
periods of times, when many housing authorities in the united states have shut down even taking application, it's irrational. it should not be a lottery system. we talked about the fact we don't defy people by the zip code, color, et cetera, et cetera. let's define them in the fact that they got in the queue at a certain point time and just got lucky. luck should not dictate if you should get a housing subsidy. we need to to think about flexible housing vouchers, i'm sorry for my friends on the left in the right will be offended, but if you only have so many dollars and are serving 22% 2% of the demand, you do something about it. you don't sit on your hand and argue about how you reallocate the dollars with the same group. finally, capital. by the way there's plenty of capital. you saw the numbers of frank put up. the gse is a pumping money out and boy are they doing well. so are the lenders. what is what is the problem? fundamentally it is not necessarily the right cost per capital.
and able to build affordable housing complex in a multi- family sit, you need flexible capital, you need long-term capital. we need to take the same program we have which is quite successful, and expanded so that a concert not just mixed-income, but also lower income. we need to provide incentives for states to do that using the same subsidies system. >> okay thank you for inviting her to be part of this panel. i am the president. of about 35000 members across the country, and every year we
compile information from all of our chapters with research and data that is out there from all those sources. we put together the hispanic ownership report. this morning what morning what i want to do is share some of our findings that we compiled on that. i'm fortunate that art director of research has prepared it and gave me some latest tidbits that he compiled this morning. if you look at our hispanic population and how slow you'll see that hispanic household in the year 2014 increase by 320,000. that sprint households. those 40% of the u.s. household growth just for 2014. to the left you'll see that the hispanic population has grown about pipe and a 92 percent. by comparison the u.s. population overall has grown only 56 percent. that is in a stunning difference between the two figures. in the next light,
actually before i go on to the_i will give you more recent tidbits i received. when you compared this tidbits i received. when you compared this year loan 2015 when we're talking about third quarter hispanics achieved an aggressive 338,000 accounting for 86% of total net growth in the marketplace area that's in a stunning number. 86 percent. when you compare third quarter from 2000 until now, hispanics have accounted for 55% of net growth in all owner households. by for the compare seasons the third quarter of 2000, non-hispanic whites have a net loss of 400,000 while -- so i think that is startling numbers. that's pretty impressive to bear mine. but i move on to our buying power. in terms of income and purchasing power that hispanic community has, currently we are at 1.5 trillion. by 2020 will be a 2 trillion. at 1.5 trillion we have equal
buying power of the entire country of canada. hispanics as a whole has increased the overall income with 57% of hispanic households earning over 41,000 dollars or 40,000 dollars, or $40000, 41% earning over 50000.13% earning over 100,000 dollars. so i see a wide range but you see a positive increase throughout the categories. consumer attic tunes that we have an able to determine in the hispanic community, most hispanics above 50% expect their personal financial situation to improve. despite the fact that only one third of them say the economy is on the right track. there is some current concerns with employment, i think you see it through the segments but still there is an overall positive attitude about their financial situation and the feet to in the future. there is positive thoughts about being a homeowner in the
hispanic community. in terms of home buyer nuances that are neat unique to the hispanic community. look at the general characteristics we run the full spectrum of borrowers. we have folks on the lower threshold of income, some in the middle, and some in some in higher income. some self-employed, some working for companies, we have folks that run across the entire spectrum. 70% of hispanics are first-time homebuyers. i think when they mentioned in her study that you can see the numbers bear up with hispanics being a substantial amount of birch future first-time homebuyers. we have growing income but our house will amount to still lower. that is something we're trying to overcome but you see it growing. other characteristics that are common within the hispanic homeowners there are multiple co- borrowers. you may see three family members go ahead and borrow and apply
for a loan to try to secure financing. that's very common. i'm an attorney in chicago and a handle real estate law, represent a lot of purchasers and sellers the property. it's common for me to see two or three brothers within a family applying for a mortgage because that is the only way they can afford some. they will pool their resources. it happens all the time. the credit files is also a new one. a lot of folks who have not establish their credit history. sometime that stems from coming from latin american countries where there's a mistrust of banks as of that carries over here as well. a lot of folks really is said to save they would say i would rather put it under a mattress because i feel safer. that doesn't lead to a strong credit history. there is aversion to taking a credit card and debt as much as they can avoid. again, again, no opportunity to develop the thicker credit file.
a lot of our individuals are self-employed, seasonal workers, you see folks that have the traditional landscaping, restaurants, you name it. a lot of folks that are seldom point, entrepreneurial types that is a big portion of the hispanic community. that results in nontraditional income sources. a lot of folks have a good component if they're able to manage there's belief that property is a good way to build wealth. folks will try to effort that in purchase that to unit or three unit building so they are relying on income. not permanent residency is a fact within our community as well. immigration is a big issue to us, we have a lot of folks that do not have legal status or have temporary status and that is an obstacle we have to overcome. again, depending on where immigration goes in the future that's really can impact the
hispanic community greatly. multigenerational families is not uncommon to have three generations living under the same roof. grandma, grandsons, everyone is contributing to the family pot if you will. they they want to make sure the monthly payment is made, they are sacrifices made by everyone to contribute and make sure the mortgage payment is paid at the end of the month. multigenerational families the norm. honestly there is spanish speakers, abundance of of folks are still very comfortable communicating the spanish. there's always an issue in terms of securing financing to make sure i think that was mentioned early having folks that have similar background and can speak their language. they need to have that trust so when you apply for them mortgage. leslie want to go over the obstacles you'll see. the biggest problem you say within the hispanic community is the inventory shortages to
credit downpayments. affordable housing inventory is a challenge for us, that is why we have a discussion of rental properties and hispanics are no different than other folks. when they are first starting out with rental properties to establish themselves, in many markets where priced out because of the increased pricing and value of the property. mortgage qualifications are another challenge, the current credit system that exists really do not account for how we are talking about early how her thin credit files. there is lot of cash that a stump and in the current scoring models do not account for that. unfortunately people don't develop credit or have very little. downpayments are certainly a challenge as mentioned earlier. trying to accumulate a five or 10% down payment is going to be a challenge with some individuals.
that is it in a nutshell of what is happening within our world, the hispanic hispanic community and how we contribute. >> thank you all very much for four excellent presentations. very informative. but may actually start with the obvious question, that is the urban estimates have a homeownership rate going down 62.7% by 202020. the mba estimates the 2024 homeownership rate at 64.8, what are the largest differences in the assumptions? we all recognize the growing nonwhite population, we all recognize the aging of the population yet using the same ingredients we come up with very different numbers. >> i think the first thing i would say is we very much focused on this paper on overall housing demand and there'll be a
lot of demand for all types of housing. homeownership rate was a a secondary emphasis within this work. and part because we don't really know how the recession is going to impact people's beliefs about homeownership. homeownership. the risk tolerances and other things. there are a lot of unknowns here and we haven't yet had time to differentiate some of the trends from what really was a cyclical impact of a bad recession. that said, we also look back, remember i said we looked at 2014 was a well year. homeownership rates, 2014 when we look at age, race ethnicity, it was a good base case to look at. more importantly, taking into account what averages look like it gives us to housing demand whether not the supplies going
to step up in me, whether credit whether credit is going to allow these people to acquire and step into the wealth building opportunity of homeownership. it is not yet determined. over the next ten years we have believed that smart people in this room will help us figure that out. in particular, there's also markets and we believe households and firms though will respond to rent area and i don't believe rent is going to go up infinitely. that means homeownership may look more valuable or more interesting, more cost-effective. in general, we believe not only households but firms can move. they can choose lower-cost places to set up their jobs even more so than they can in the past. i think the data is starting to baris out in some of these things. we know in particular that hustled information has begun to pick up. we know homeownership rates have started to level out. we also believe that wages, real
wages will start increasing over the next year. there's some indication that has begun to happen. labor markets are back tightening. so, there's going to be a list that is going to come from improving labor markets. both housing markets and labor markets are still little scarred by the recession and are trying to work their way out, we think and the assumption using an average homeownership rate for these groups is one way of modeling and normalizing the market. >> so without going into the detective calla to set a hope you read about in the papers if you haven't seen it, what we do is look back, not just to 2000 but almost 100 years of data. we try to put the baby boom in context. if you look back that far at least to the 1930s what you see is the baby boomer era from 1945 or 1950 until about 2000 was extraordinary in american
history. we all know this. that was an extranet. we were emerged from world war ii, we grow our income phenomenally, we increase our home ownership rate from under 40's% over 60% in just 20 years. this is a tremendous time of boom and it is also demographic anomaly in american history. women and men are both getting married earlier, they're having more kids, and kids, and they're having them earlier. since 1980 those trends have been turning. the question is what will the millennial city look like? i think it looks different than what the baby boomers a built themselves before they got into their adulthood. if you see the secular trend from 1980 onward toward lower age and race specific homeownership rate which you do except for the hispanics you see
increasing diversity, you see smaller households, delays in marriage and childbearing and that may continue. that may even accelerate. those are secular trends. also we have been growing in different places, the midwest and northeast, detroit had the highest ownership rate among most metro areas in the united states. houston's homeownership rate is lower than that. that's a permanent thing and we are growing in parts of the united states that have more homeownership rates the mr. have in the midwest. then we have a crisis, big setback in transition into homeownership to young households even to middle-age households who are not yet owners. i've been thinking, that crisis may have accelerated the secular trend. it means we have a different starting point and we are getting to a new normal that is a different normal than the one we would have had i now. but one
that we may have been steered toward and away. considering all these demographic changes in the current policy environment, i think instead of focusing early on the rate it is important to think about the faces in which you are renting. the faces within the life force in your parent's home in which your red team in which you are owner. thinking about that whole thing is a life life course story, thinking about how to transition each of those parts of the life course so people achieve the financial security and help that the previous panel was talking about. it looks right now like we have a larger number people in our population that are going to be in that renting life force right now. that that makes sense later than before. it may be counterbalanced by people living in the house is for longer. to say they say stable even if they counterbalance perfectly, to stay that they say stable with people living longer and
rental houses and then living longer at the end, that is a completely different new normal than one in which we had those two life forces both short out. i would say let's stop obsessing about the rates and start about the quality of life they get is a renter before your rent and once your homeowner and if you choose to go back to renting. >> think very much. >> credit has a impact on the ability to purchase a home. what are the the policy actions that can be taken? so, i think one thing we have noticed and we have advocated while we are here is the fact that the court credit scoring models are solid data. when you look at them from the 80s and from our sector of the population it doesn't accurately account for how we spend our money, how bank doesn't always establish a credit history at all.
one of the first things that we would definitely proponents that we would be is to have those account for, i think when you look at the numbers that bears out the fact that hispanics are a significant driver of the residential marketplace, without that change you'll see some issues. in terms of other things that i would see through hard and through the geocities was that there is risks and warranties whenever lenders are making loans that seem to pop up and create overlays for loans that are issues especially to minority candidates. that becomes a burden for us because it becomes more costly for us to secure financing. i think there needs to be some sort of mechanism to be able to relieve that concern of risky buyers to understand that rates are a little unnecessary and situations. sometimes when when you look at actual credit files
you realize those that are being burdened by extra overlays is probably just as creditworthy as non-hispanic potential applicants. those are issues we need to address. >> do you have anything to add to that. >> from what judge is that i think a lot of folks focus on credit scores and a change in distribution of credit scores in the mortgage industry and maybe you'll speak to this more later, files have to be papers have to be filed procedurally. some people don't even want to undertake that process. more portly as a reference lenders, in order to expand the credit box really do need greater certainty around what they are originating in their liability they are originating. we make good progress and we
been working with fha to get greater certainty around the liability of originating loans but i think that is the greatest obstacle. >> anything you want to add. >> going back to the rental affordability question and even when you are a youth or teenager, it is not to early to be talking about those future homeowners. how do you do that, you think of little kids when they're little they get ideas of how executive function works in their life so if we think about the united states as a country that is going to grow by a net of a hundred million people between 92060, this is our secret weapon as a nation. this is how we are going to be prosperous in the future, again the previous panel has it right on. they can of every kid that is for a someone who they want to be homeowners at 35 we have to think about what we're doing to ensure they have that stability at five, ten, 15.
on the financial security said think about what they are learning in high school, how are are they getting their first car loan? the going going to be a good loan or predatory loan? they move into the rental market at what age are they going to do that. their decisions on how to do that are not just arbitrator nor are they hardwired into their bodies or their genetics, or their culture. i think there are ways to think about how to think about the whole lifeforce as a way to get people ready for homeownership so once they do get into homeownership they do it in a good neighborhood with schools that are good, where they feel financially secure and they can stay there achieve economic mobility which is really the ultimate goal. >> i'm going to do a reversal of the question is you fed into the question which is how do you turn renters into homeowners in
this environment. >> let me say that i agree because we should not obsess with the homeownership rate. >> i say that all the time there is nothing that says homeownership but it does talk about affordable housing, so the issue is housing stability and if you're going to address the issue which is a single negative issue about rental, the idea that you can either be evicted from your home or your rent can go up dramatically and you have no control over that environment, that seems to me, that's what makes homeownership aspirational, not necessarily that you're going to get 5% appreciation every year and never have maintenance costs. we kinda know that is not true. so the operational nature of it needs to feed into, first while we tend to agree that we have are ready gone through a change
with a description of kenya. one of the biggest reason is the divorce rate in the united states is down. that is really terrible for market lenders. probably good for culture, but what i would love to see his policy tools that enable people to save creating a different savings and credit culture, which we have talked a lot about financial inclusion, financial counseling, if you do that and you can create a policy to enable that you will address the single biggest reason people do not buy home. >> ..
in the potential to save money toward a down payment which will ultimately lead them to becoming a homeowner. making aspirational and linking it to savings, not getting ourselves all wound up about whether it's lower or higher today whether demographics will change that. can we continue to see ownership housing as at aspirational and desirable thing? >> thanks. the home ready program was targeted at the hispanic community by allowing income from those who are not on the markets to essentially count toward qualifying,
what do you think of this program? >> i think it is fantastic. definitely one step closer to what we would like to see be done a large-scale because what it really does is allows for borders, other family members, allows them to be counted and do a credit score or credit worthiness.worthiness. this model works well. we are talking about multigenerational multifamily households where we have individuals contributing to make that mortgage payment. this concept is a good one in the hispanic community. i would love to see a carryover to other lenders whether they develop products that have this sort of mentality factored into it. again, with hispanics you will have that unique household where you have folks contributing, and they
may not just appear. it appear. it is great concept, and we would love to see if be expanded whether it be within the government sector or adopted by private institutions. >> thank you very much. all the presentations mention that we need to do more to house the increased number of renters in that affordability is a huge issue. what would you do to increase the supply of affordable rental,, particularly the supply of low cost? >> you have to address the fact that as a federal government we have been reluctant to do anything that superimposes or overlays our desire for things that make sense on local communities and landfills. if you don't address the fact that density is not something that is easily obtained in many communities , it takes in some cases between three to 14 years to get entitlement for density to prove
anything, that someanything, that some communities simply don't allow you to build anything for a lot of other reasons. we have number one there is a way in the transportation bill to begin the conversation about whether at least we are funding mass transit we should be thinking not just about high density command i'm not talking ownership or rental. whatever makes sense for that committee by giving zoning new mass transit and making sure that a portion of the housing is inclusive. so that leads to the whole issue of how you use tax-exempt bonds which are a federal tax expenditure in the state tax expenditure? and the idea of targeting the more so that they create more inclusive housing and when rates go up this principle rise and the opportunity will rise from our bonds to be issued. how do we do this with maximum private sector engagement, limit the amount
of interaction that we need in the far future subsidies and soto create land that can be usable for high-density housing which addresses a whole bunch of logical things around transportation cost and so on. >> if you want to weigh in. >> she has not had hers. >> thank you. i think on the multifamily side there are a couple of things. i was was encouraged by jasons comments talking about land use regulation. done a lot of work in the boston area. cambridge earlier looking at the use of density bonuses that allow for basically the market to subsidize the development of lower rate or inclusionary units. there are tools like that that will likely be local in nature, butnature, but density is an important thing. one of the interesting facts , two thirds of our rental units are located in
buildings that have two to 12 units. a really small building rental stock,stock, and we have quit building those overtime. since the 1970s we quit building things like double-deckers. double and triple vectors. and there is reasons for that, but a lot of the reasons are zoning. and those are interesting products as well because they go back and forth. you can often have an owner in one unit and renters and other units. so i would like to get on the supply side. >> at this point our open it up for questions from the audience. in the unlikely event you guys don't have any i have enough to keep the panelists occupied. >> don bradley housing consultant.
we can't -- we can't look at the housing collapse of the great recession into many positive ways. one big positive outcome was the migration of the substantial number of single-family homes for rent market. one of the consequences of this is the number of bedroom units available, large bedroom units becomes much larger. the perpetual lack in the housing inventory of large family rental units has always been a perpetual problem. to some degree this was alleviated. one of the interesting questions, how do we maintain the single-family large bedroom unit, large family unit in the rental inventory? especially in the affordable rental inventory? which has always been the largest single demand.
>> so, that leads directly to the whole conversation again zoning which is the accessory dwelling unit issue. obviously there are some counties that permitted and others that don't. many people do it anyway. this is america after all. the question i think you are asking, given that not just housing prices have gone up but the average square footage of the house being built is even larger, so while our factcarfax content may be declining, housing square footage is going out. the problem i think with what you are saying is you need something like air b&b for accessory dwelling units figure out how to match that. i'm just trying out an idea. if you can figure out how to match that you would create a massive stock of available units at relatively affordable prices. >> anyone else want to weigh in?
>> so, i was a high school in dc yesterday at a lower income neighborhoods. when i asked the kids about debit cards and entering into the banking system ii immediately had responses, yes, i did that, tried that, but my summer income into a bank that they took the money for overdraft fees. ivan asked them about planning and where they sought resources and began to ask questions about people they turn to that sounded a lot like credit repair scammers and debt relief scammers. i found myself is somewhat of a loss to think of trusted mentors, one-on-one counselors. we have lots of great online resources, but i could not think of a sort of hud approved housing counselor that worked at that. and i wondered why that does not exist and whether there are thoughts on how we can
develop that. a lot of people are government, housing, capital providers of analysts, and why it is having been in this area for a long time i could not with these are schoolkids direct them to what i thought would really be trusted. >> it is actually beyond my area of deep expertise, but when i think about sending incentives and signals to states and to the private sector from the federal level, so probably some signal at the federal government could use about how i schools and junior high schools and middle schools are educating students. the previous panel would have a half-dozen ideas at the fingertips.
>> i would say that there are existing approved credit agencies that will work with individuals. a lot of first-time or financial literacy for younger children and first-time home buyers that might fit the bill of what you are describing, just to give them some basics and finances whether be maintaining a checking account. does do exist. often times i've had that question actively. you can look at local chambers of commerce. the approved credit counselors because of the last two years they're has been an emphasis on more financial literacy training as opposed to modification. now it isnow it is trying to train people how to get into a home. they are drilling down. >> questions?
>> traditional mortgage underwriting relies on the estimate of stable monthly income. there are a lot of families that have unstable monthly income. when i think about seasonal workers and self-employed workers, many of whom are hispanic, that is a population in the workforce that is very unstable and come. do you see that as a reliance on stable monthly income in the face of a lot of workers have unstable monthly income to be a barrier to mortgage credit access and if so, what is a policy prescription to address that? >> it absolutely is a barrier. there is no -- it is obvious.
the should be a preference to see. especially folks of color. at the same time. that's why we are advocating for there to be a little more leeway in terms of the programs are products because if you do allow, if you look at some of the borders, some of the other family members, it's not uncommon to have another family member said typically i would contribute $500. this month because the next three or four months my uncle is taking up snowplowing, i will increase my 500 to 900.
that's why we need to see more flexibility but how these products are created to account. at the end of the month having a roof over your family said is everything, and they will do everything within their means to make that mortgage payment. it is not uncommon. so that is what you will find. seasonal workers are no longer in the landscaping our construction and perhaps it picked up a snowplowing. picked up another position. so there has to be that flexibility that allows for that adjustment, especially for seasonal workers. >> time for one more question. and remember, however asked this question is standing between -- between this panel and lunch.
>> thank you for the pressure. [laughter] my question is, we heard earlier today about this rental construction boom, the largest it has been and 30 some odd years. and i have read from a lot of sources about 85 percent of rental construction is luxury apartments. that does not seem like what is needed right now. so why -- not why, but what is to stop that from continuing? what is going to change the market to start building more affordable and. >> the fundamentals of economics, looking your own jurisdiction. i don't know where you live.
the cost of the construction with all those delays is somewhere in the three or $4-foe building with all its amenities. cut out the club room in the sauna, but is still three bucks a foot and most of the renters we are talking about can afford $1. usually after reduce the construction cost of the risk or increased the subsidy to the individual. there is no magic. jurisdictions have to step up and enable density and support mixed income so you can serve these incomes in one place and integrate housing. support transit so it reduces transportation cost.
they are not paying another 10 percent for transit or 20. so everyone's household budget is what it is. you have to look at every component including transportation. if they were to get help have to be in the form of capital support like the low income housing tax credit which enables housing to be built for 30 years and be kept affordable. >> also, looking to the existing stock is the place we need to go. they came out with a story on the wire the 400,000 privately owned apartments have subsidies and risk of expiration the next two years.
and this is especially critical in places like dc were over a 3rda 3rd of the units a risk our neighbors of poverty rates below 10 percent which is exactly the kind of neighborhoods were low income renters will thrive the most. working with groups like neighborhood info dc, coalition for nonprofit housing to make sure we get ahead by catalog and working building by building to preserve them is a really important part. and looking to the single-family stock, established housing and thinking about how we can secure more of the established stock especially in iowa today neighborhoods. wewe have to go and it is so expensive to apply subsidies to knew construction. >> just one last. we normally do not build brand-new housing to be affordable.
it is normally a filtering mechanism whereby existing housing serves more affordable housing. to jason's point, greater zoning in this country and more restrictive zoning comeau we had a very distinct increase in the quality of housing has started to be built, and as i mentioned a moment ago, smaller, denser properties to be built. therebuilt. there is more research that we should be doing about understanding the supply of housing a small enough that is in the affordable range that is a legacy of years and years and years of zoning, not just was on the ground right now. >> inow. >> i would like to thank my wonderful panel. great job. [applause] is that working? >> thank you, everybody, for staying with us after lunch.
thank you for being here command we have an extraordinary panel. title and name, rank, serial number has been described. it is important to note that we have a group of leaders your who represent both a great deal of knowledge about the workings of a set of firms who are central to the systems and the outcomes that we have been talking about all day but also from their own roles in government and public policy have a really deep insight on how we make change and how the intersections between that policy sector and the housing issues we have been talking about come about. as i'm sure many of you know the governor was a successful two-term governor of minnesota and he has been leading the financial
services roundtable which is noan organization that represents a whole range of different kinds of companies in the financial services sector. sec. dalton has been president of the housing policy council which is a division of the financial services roundtable command many of us know him from his tenure as secretary of the navy, but he was secretary of the federal housing finance board. ubiquitous. his private prior -- private prior to the prior private sector work place or does fha commissioner which i know is a challenging task
and he certain probably the most challenging time to ever hold that office that a country is faced. we really have an extraordinary group. our goal is to try to lift up aa little bit from the conversation we were just having and put that in the larger policymaking context. i will start with you. it has been seven years since the worst moments of the crash. what about today's environment is something you would never have expected? >> well, thankwell, thank you for inviting us, and it is a delight to be with you and be part of this discussion. thank you to faith and others who are sponsoring this and to allow us to come and share a few thoughts. i am surprised about a number of things, one of which is we have two of the
actors that were part of an arguably substantially contributed to the crisis still in conservatorship with the congress that seems to be unwilling or unable to tackle the reforms necessary to put them in a better place. it is obviously unsustainable, acceptable, in my view ridiculous that we are seven years removed and congress is not tackled this issue. beyond that the change in the wake of the crisis was so large, onelarge, one of the worst economic crises in the history of the country. and of course there was going to be a transformational muscular response and there should have been. you would think even though it was big and complicated doing lots of things that it will be fully implemented.
the 2nd surprise would be the slow pace of implementation on aspects of .-dot frank. >> i want to come back to where they are today, but i wanted to 1st asked the others what surprised you most. >> well, you know, i think if we were to collapse what has occurred, i don't know how many of you remember that period in time command of 2,007, 2,008, watching institution after institution simply collapse. fannie and freddie were put in conservatorship. home prices dropped 30% from peak to trough hundreds of thousands of jobs, 600,000 jobs, 600,000 jobs a month we lost when president obama began his 1st term, and you know, so much damage, and liquid has come out of it. a lot of frustration on various issues and how certain things a been implemented and a lot of dynamic tension with the regulatory process, but in
many ways the market is functioning better than i would've ever expected given what happened preceding it. and today we are just passed implement in the final rule that was obligated under .-dot frank, housing markets improving. >> finally coming out. and that is only the final rule, and obligation. so we will talk of other things like enforcement and 30 in those kinds of things, but i really look at the fact that we have gotten through this and can now begin talking about opportunity at this point. as sort of a positive, most surprising outcome when really it was a pretty difficult scenario developing back a few years ago. >> when we were at that moment shortly after 2,007 there were two assumptions that were pretty widely shared. the 1st was that our lending had gotten completely out of control and the standards were way
too loose. from all sides of the political spectrum you have consensus. while there was not clarity about what to do in some ways fannie and freddie had to be repositioned, reorganized, broken apart. there was some kind of consensus that fannie and freddie had to change. when you look at today people are arguing the credit boxes to type and fannie and freddie, we can tweak it. there is at least a strong sense that is not so bad. did we learn the right lessons? with those early assumptions wrong? >> before our response to your question, 1st of all i want to thank you and the urban institute for having us and for all you do on issues that are important to us and what you do generally. and i also want to salute core logic and particularly
faith shorts who worked with us as the leader of hope now. the hope now alliance actually assisted 7 million people to avoid foreclosure and some 80 plus percent of those are still in their homes and doing well. i just want to thank you for the six years you lead hope now and worked with us. the fact that i remember just how deep at cavernous cavern was that we were in, and secretary paulson came to one of our fsr conferences. his face was white as a sheet. he had just come from meetings which i remember nike.
we were near real death crisis recession depression type situation command what surprises me is the resilience of our economy and the fact that we have come back as strong as we have. in terms of our industry, i think the fact that we are coming back and granted there are different parts of the country lacking, i was pleased to see recently housing prices in san francisco or higher than they were in 2,005. several hundred miles east, 40 percent below. it is clearly been uneven recovery, but we are admitting, loans are being made. the more the market is working, and there is an
imbalance. i am optimistic. >> you look like you're itching. a brand-new federal housing commission. early 2010 and i sat on the stage, the fact that the government guarantees 95 percent of all mortgages being created in this country is a sign of a sick system, i got lectured afterwards, public affairs guys. the media immediately glommed onto it. i will reiterate. they good news is that gse's have been there to quite frankly provide continuous
flow of capital. without those programs is housing market would be nowhere. dead on arrival. the only private mortgage being created in this country are going to affluent set of americans other than the few really isolated programs, some of which are talked about earlier today. so i think that we have support structures in place. it is not the market that ultimately the us housing system has to have to support itself. that will be a real struggle because ultimately we all want the same outcome. they can be a system that is entirely dependent on government guarantees. what have we done right so far?
to your peemack, the housing market we talked about this morning, a lot of people don't have access. they don't have the stability and security. house prices and markets, a lot of things we can talk about are not where we want them to be. but what did we do write that got us to hear? >> one thing we did write is reintroduce the notion of responsible underwriting. you can agree or disagree with the details, but the fact of the matter is we can all agree what was done precrisis was an abomination ridiculous,ridiculous, reckless, outrageous, nearly wrecked the economy, nearly wrecked the country command it is moving toward responsible underwriting with accountability directionally, it was a big improvement. >> and the other thing is that those risky loans and got us in the crisis, though
a huge majority if not all of them have been eliminated. they are no more. the regulators are requiring responsible lending. so i think the fact that the mistakes we made, hard to see how we can make the same mistakes again. >> the whole spectrum of the consumer experience from point a ten determination the terms are is you understand. based on what products pay more versus less letters to the benefit of the consumer or not.
the products are not regulated. they have to prove ability to replay. that is noble and a great way to have a market that protects consumers and finally how the consumer is treated and more importantly when they don't knowing what to expect in the event the enter crisis period, having standards that are hopefully applicable to everyone involved. there is confusion, but from front to back we have created the safest and sounding housing finance market in the history of the country command we should all collectively advocates command history that work together on these things regulators involved, that's a good outcome at a high level. >> and so you can talk about what is -- had gone less well and you can talk about what may be his yet. to some of the pieces
happening. but what do you think has either not gone right or really needs to be the focus of attention now? >> well, the fact that ability, lack of total credit availability. that is aa concern. we have significant new regulations to deal with. there is tighter requirements on loans. there are those that are not qualified. those people at the margin of being left out. we need to address that. it's difficult. we talk about concerns we may have in the rules i
often get calls trying to tear apart .-dot frank. in the effort to get this fixed everyone got involved. >> we went from an unregulated market recession only can argue clearly with evidence that the system is overall on the regulated and now we have everybody regulating. so i could.out policies are one federal requirement that does not comply with another i think in the effort to do all of this, the part we got wrong is not making clear authorities to determine outcomes for certain segments of the operational process of manufacturing mortgages and now theyhow they get created in such a manner that ultimately be created, and outcome to clean up in order to get
credit expansion to read ultimately needs to be. >> do you think the challenges we have the credit expansion our challenges that are really driven by the regulations, the relationships, the mechanisms of the system? is it the architecture producing -- the machine producing that result is that the larger set of issues? >> let's take the qualified mortgage will. the written rule itself would not be enough to support america. to the credit of the housing system as it would be eligible and said that beyond appendix q if it meets the accessible underwriting standards it also is acceptable under the safe harbor rule. safe harbor provision, had that not been in place would have a much tighter credit environment. there is a yes and no side.
we need to ultimately have the will stand on itself. whether is private capitol a government guarantee capitol the broadest accessible opportunities to apply words to the detriment of the consumer. easiest for the wealthier you are in the more assets you have an biggest tighter as you move down the curve. holding their credit policies back within the outside boundaries of what they could do. getting clarity and getting some revisions in a way that could help broaden that box
one after the other, but we need to recognize. we all talk among the monks ourselves often. but they're changes that must be made. go back out. the other place that i think , we have not done enough yet can't understand the system but we did not have before but we also have a lender who feel the average price costing is causing them to be a willing to take risks because they fear certain mortgages are more like. would you argue that is a
big area of unfinished business? >> there clearly are others. want to talk about gse's. that is a big one. the fact that lenders are getting used to these rags, it applies to loan originators and servicers. working their way through it. the system is working. earlier at the margin they are not being served. >> whether it is trying to find ways for managing risk, thematically most of these companies were reputable and say we can't take anymore so
you have to be inside this box. if you think the boxes here, internally a little tighter. ambiguity, uncertainty, they will air on the side of pulling in. we are not intentionally going to take on that extra income. >> let's talk about the gse's. a whole lot of regulatory action is going on around pieces of the system whether the common securitization platform they start to develop more crisply with the people met when they were talking about various
different reform proposals. as is moving toward they would it is possible to reach a consensus? >> i hope someone i do believe that. i think they deserve a lot of credit for moving forward like they did. we did cover a lot of the issues that are going to have to be resolved. moving the ball down the field, as far as the fh fa and the things that they are addressing, i think those are definitely very important and meaningful the setting the stage for legislation. and i think you know the list sharing, the front and backend, the single security
, what has been done with fh fa, what they had done with the rest of warrants and clearly there is a better understanding of what the limits are. each of those issues need to move forward and address and they are addressing them. >> clarity around issues like the goals and duty. >> i think so. clearly you have got the left and the right concerned about the left being concerned about another issue in the right being concerned with the guarantee. i think we have to have a backstop in order to have the 30 year fixed-rate mortgage which the american people want.
votingvoting with their pocketbooks is the 50s on that issue. and that is something that we as an industry want to provide for the. and so i think legislation is going to be required to do that. i think the things that fh fa can do will put us on the path for legislation. >> a massive issue. all kinds of opinions on how to get there. we are goingwe're going to have to find ways to create more common ground. here is where i think some of the core dynamics are. the system has to be accessible by everybody. large institutions, small institutions can't think of, non-bank, you can't create disadvantage in the structure. we would have had to get fixed in order to make sure there was a clear separation
the bifurcation of opinion. we won't get there unless we solve that. as we all know, one of the other big landmines important, how will we meet this whatever that topic, we need to have the system that while the federal guarantee command obligation to support communities that otherwise might not get from the private sector and so you need that continuous flow of capital. you. you are going to bring together all the stakeholders involved. i believe there are ways to get there. i think corker warner crypto deserve a lot of accolades for putting a lot of the debate in place. common security, risk chair,
those were ideas that started. items that we cannot pursuing regulatory front. also ideas are evolving. we don't create a needed disruption in the flow of the mortgage-backed securities market making the legislative of smaller and perhaps mortifying. protect the commonprotect the common elements that we need to absolutely maintain that exist today it is an interesting work product that will be a big challenge in the years ahead. >> we have been having a conversation that is comfortable and easy. outside the building is a national debate going on about essentially choosing a leadership. not only will we not every
or debate the presidential level, the structure of the common securities platform i hope but i -- what is interesting to me is that i see a general lack of interest in the housing policy fatigue around the mortgage market, homeownership. are any of the housing and consumer credit issues we have been talking about, how are they likely to find themselves in the presence of debate? >> unfortunately only moderately or almost invisibly so. if you think about it in macro political terms, the two things that rise above
everything else by far are the economy and security. everything else trails and a differenta different tear or maybe even two or three tiers below. add to that the complexity. every day folks. two things stick out against the complex background. there is a conspicuous he for disliking fannie and freddie. legos you set some these level and what to do about it. and also a political constituency around the issue of equal access and affordable housing issues. again, not the same as terrorism and the economy and jobs. at least in certain forms in certain settings trying to
get the support, at least some opportunity for the discussion. they have a great white paper. they are just -- it's crazy. you think that smart? hell no. people who are disadvantaged and have extra help in trying to get access to a decent safe and affordable housing within reason. >> people do not rent is going up and that it is harder to get a mortgage or they don't have the income
or ability to save the support down payment for my kids are living in the basements rather than out of their own. and i don't quite see those issues and housing terms. you think there will be other issues to be the proxy for economic and security? not all. not making labels. but the interesting thing as they tell you and your town hall meetings. but to your peemack, we are not doing a good enough job bringing housing to the forefront.
absurd on the earlier foundation. our whole past is to try to get the candidates thinking about housing is no issue. in new hampshire recently. very difficult to get the candidates to even talk about housing is subject. yet when you look at the data how many americans are living in poverty and can't afford rent. part of that is not opportunity in this next election. until there is not currently will not focus on it. >> the energy around fannie and freddie it exists in some subpopulations, i think it is emblematic of a larger attitude about institutions. a large institution, particularly those in the financial system that still is a legacy.
there is a deep-seated belief that what the financial system does rather than facilitating the real economy and facilitating consumer lives it somehow or other intention with the needs and interest of the average american. i think you see candidates on the right and left of politicians on the right and left appealing to that. the industries and institutions you represent have a role to play in trying to demonstrate where that narrative is and is not fair? >> obviously we do. my organization represents almost every lender profile it exists in this country in the event a lot of conversation how we change the narrative. every time i see a new
headline financial institutions related to the mortgage business, not positive of course,course, it becomes pretty difficult to change that narrative. i have been doing outreach to regulators start talking about how safe and sound the housing finance system. we should be recognizing the fact that despite the disagreements we created a safe aa safe a set of consumer protections this country is ever seen. it is safe to go get a mortgage. i don't here that message coming out. can talk about loan officers , but we need more of that? academics and policymakers. war-torn and tired, a lot of battles along the way. can't forget the uniforms.
at the end of the day we need to change that narrative. it is important to create confidence in the system, create confidence in the market to get the participants involved the trust, and trust was a deficit that was using was created as aa result of bad practices from our industry combat regulatory oversight, investors with insatiable appetites, consumers may bad decisions. we all that collectively. we have fixed so much of that. it is critically important to turn the page. that does not mean don't forget the protections we need to keep in place, but turn the page on the narrative. we don't start doing that we will keep the type that still exists today. it's so extraordinary right now.
>> elevating housing, the people in this room might take some solace from the reality on the ground as a policy matter. if you head of the real estate developers, agents, suppliers, builders, contractors, originators, underwriters, servicers, financiers like consultants advocates for affordable housing and advocates for different housing policy and go from far left a far right and that is what is the housing cabal i don't think you look at that and walk away from the discussion saying our problem is this group doesn't have enough influence in washington dc. in his housing is one direction. sometimes marking irresponsible.
>> and i feel like the balance of the conversation, is the question and narrative question? is it somehow that we have to be able to describe what we do differently? or is there a question about how financial firms can do -- can try to find more ways to meet the needs and we had a panel a talked about the volatility in income, but most of our financial products are designed for a world in which you assume everyone pays the same amount all the time. is there something beyond narrative that we need to do to be more responsive to the economy and demonstrate value? >> the narrative is the easy one.
you brought up the service in question. how it structured. we need to get into the weeds, but i put them in three large buckets. one called confidence to lend which comes into clarity, motivating institutions to expand the credit box in a way that does not but the men extraordinary risk. confidence to borrow, and then we need confidence in the system itself. what is going to be the financial structure? under those are a bunch of work streams. >> we are going to ask all of you to join the conversation. if you could raise your hand we will bring in mike to you. here we go.
>> tim duncan. two or three buyers for every home that is for sale. everyone would acknowledge we are pretty close to the speed limit in terms of home price increases. again, how is expanding the credit box really relevant in that environment? obviously if we look across the country most of the markets, the constraint is in the supply. how is it going to impact the market that expanding the credit box? we have plenty of lenders and plenty of mortgages available. the constraint is really the homes for sale. >> yes. you take your market where
the demand is far greater than supply. that is a different challenge. it is a supply challenge. if you go to detroit, detroit,detroit, fresno, still parts of florida, parts of nevada, there are still -- home prices have not fully recovered. there is a lot more diversity in some of these communities. making sure we are providing has brought a credit box, creating a sustainable world to take advantage. but john pointed this out early, some markets have robustly recovered and others are not they're yet. i saw your point earlier, something that is a whole other set of dialogues about how we create affordable supply. interesting points about all
of these incentives or lack thereof that are impacting the supply issues. >> geographic variation in the problem definition is even within market. if you think and you are in the neighborhood, there is robust economic activity going on and house prices are appreciating but gradually. the resonance of those neighborhood may eveneven as the savings don't have the same credit profiles. because of that access to credit is really tough. so it is a much more grandeur market by market analysis. >> take yourself out. the two you just mentioned, look at the difference in what is happening. demographics are different and likewise the hp ipaq is different.
there is a lot of work to be done on the criticized. >> one over here. >> it sounds like we are in a pretty stable system, legislation. on some sort of glide path toward the future of makes sense. we just saw gsc take a job. presumably at some point there will be a recession. from the dramatic to the more sublime. somebody put a dirty bomb in washington dc tomorrow, pretty significant of people. you have a seven-year recovery that has been fairly anemic by historical
standards. while we are all hopeful for continued positive direction you have recession. where seven years into a recovery and there is no guarantee this doesn't turn down six months from now. that is an intermediate level of concern. tactical things that would be disruptive for people like large banks what could disrupt the relative calm the samples along the roadway. >> the fact that we have had
our to gsc's any and freddie with no real plan insight we really do have to fix that. it is something that we cannot continue to have these institutions and conservatorship. i would like to see something that worked well like the base closure commission and congressionally chartered and maintained that would look at the issues and bring it to congress and have them act on it. closure was something that had to be done but each senator and each congressman would not have any part of it.
but when you put the totality and presented to the congress they had to require an up or down vote, they got something done. that kind of thing is what we should consider doing with respect to housing finance reform. >> i want to just be clear. in the opening comments i said it is remarkable that we are a stable as we are. i think we have great risk ahead of us. we need to resolve command i worry every time i see a piece of legislation or see some regulator focusing in on one segment of industry. going back to licensing for some companies. an exception for banks versus nonbanks for qam. all of this is sort of -- there have been over 30 pieces of legislation between the hundred and 14th and hundred and
15th congress. there is constant tinkering the matter how stable people think it is. we have huge risk. in the interest rates start rising we need to worry about sources of liquidity to provide finance and capital to the remaining mortgage finance system because it is true, you can'ttrue, you can't rely on the large banks to support the housing system. a bunch of dynamic new institutions in the marketplace today. a lot of work to make sure the whole infrastructure does not fall particularly for the credit spreads change. we have a lot of work to do, but we are right now andin a far more stable environment than i thought we would be, and that was the good side. >> time for one more question. thank you.
>> this is for you. seems to show you an agreement and having struck the right balance in reducing mortgage insurance. but at least for now to be cautious about reducing them further. also recently fha has taken action to change the regulations. in terms of positive action what could the administration or any government housing entity undertake between now and next year at the end of next year that would open up the credit marks. >> again, fhs got over the 2 pee requirement. most of that increase came from the reverse program which has been extremely volatile year-end out.
my own sense of this is the last thing fha can afford to do is put itself in the position of being a political risk. if you were to swing the other way and go back under 2% he would not want that to be on the heels of doing in mip reaction too soon. there will be one, but keep the powder dry, using what we needed to be stimulative let's build more capital into the capitol reserve. rates are extremely low. i low. i do not think they are the heavier. fha has no obligation to create clarity in the mortgage certification. there is other work to be done in servicing, but today the use of false claims and dublin have damages, new regime that never existed prior puts every lender in america a greater risk than ever before, unlike anything
or any other type of origination in the country which is why you hear particularly right now almost championing the fact that they are exiting the fha program and it is almost a race away from the fha program that is so critically needed to support first-time homeownership. what fha could do right now more than anything else is create greater clarity so that lenders are held accountable for egregious material errors but also make clear that for minor mistakes that will never meet the test of the false claims act under department of justice legal action because if we don't make that change initially nothing else really matters. we will continue to see lenders pulling away from the program. affordable housing on the homeownership side should be championing in mostar. it is the biggest issue that had faces. >> we are about out of time.
as was mentioned, we represent not just banks but insurance companies payment companies, asset managers. we pick up things that sometimes have parallel up likability to certain discussions. think about the world we live in and where we are going. the difficulty of the mortgage process from a user experience pinpoint is suboptimal. we have other institutions that are operating very complex products with a lot of what you call underwriting behind it. very soon getting to the.of being able to say to a person simply peers are proposition. and for example in the life insurance face it is a difficult process and it is deterring lots of people. people are moving to a much simpler, quicker user interface. there is a problematic side, the way they no so much about you such that you
don't need to fill out forms and do this stuff andthere's a lot of legal and ethical issues around that, setting that aside for purposes of this discussion, the idea that we put individual or families through what amounts to a long, difficult march to get a mortgage is not -- i just can't see it as a sustainable experience or at least an optimal experience given what we know about how consumers are interfacing with products and services through technology platforms. one tactical thing that we can do to improve this including the potential of getting people in prequalified or at least mostly qualified state maybe even in some sort of legal safe harbor state and make it easy for them to provide some nice benefit and value to the user to the customer in the process. i'm a lawyer and a persistent. i can barely stand it.
>> maybe that is the perfect place for us to close. embedded in that comment is both some potential dangerous pitfalls but also reasons for optimism about the future that the consumer can really understand and engage in. please join me in thanking our panel. [applause] >> today we heard a lot about the consumer which is nice for the financial services industry start talking about the consumer. in the 1st panel was excellent talking about both the strengths and the challenges for the consumer post crisis along with the changing demographic.
we continue to move on options for how we can get financing and open it up. the back end of the process, the financing, the dominance of the government. we are fortunate to have two government officials here who represent a huge portion of mortgage origination from both the csc which oversees both and richard had and then to make sure we still have that consumer and community impact that we could talk about. going to represent that perspective. equally important, the lender, the investor, the certainty of how we get funds to baselevel consumers is what does it mean when there is litigation and risks inherent in the what
is the path forward as we move forward? so i will ask each of you. five to seven minutes. big picture and then i will have a few questions. i wanted to open it up to this group. i think there will be a lot of great questions. so we will start with bob ryan 1st. bob is the acting deputy director of the division of conservatorship and also special advisor to director want. and bob is known as a trusted official from the government. i know him well from his days at freddie mac and certainly from the industry. thank you for joining us. i'm going to start with you. >> i thought i would spend a couple of minutes this
afternoon and talk about some of the key areas we are focused on. just to put it into context, how we have been talking about it all focus most of my remarks on the gse's. facilitating that. and do so in the context of how we communicate with them , these objectives and goals. so in that framing we will talk a little bit about the big items that we are trying to wrap up in carryover certainly into many of 2016. so one is the maintain part which is really about with the fha faa working with the enterprises are doing about trying to maintain and meet their obligations according
to the current statutes and mandates. and making sure that there is broad liquid and brought assets of liquidity in the mortgage market, housing finance market and to do so in a safe and sound manner. most of the vast majority of activities. one area we continue to focus on his access to credit. as you heard, many of the speakers have expressed lots of comments on the challenges in that area. we have done a fair amount with the enterprises. they have done tremendous work in developing that. part of what we have been addressing his again, the enterprise credit box, the terms under which they will perk is -- purchase mortgage , it is less the issue.
a very healthy spot that reflects many of the changes and lessons learned out of the crisis but also supplies more than adequate room to address the needs of the financing needs in the marketplace. we have been working on the issues, the constraints within the lending community to be able to exercise and use the totality of that credit box. the big developments have been around the records in warwick framework. trying to quantify and minimize the risk to the lenders of a put back or some unforeseen cost which would as contributed to expansion of the market and also there willingness. it is not the only issue and challenge but it is certainly the one that is within the fha faa and the enterprise control. and so over the course of
the last two years that have been tremendous work. we are wrapping up most of that. we have made tremendous progress. if you have a defective loan, lender, there are remedies other than the repurchase articulating what those are, with the conditions are providing greater certainty around that. many will get resolved. that is an important piece. there is another piece in the works that has been highlighted somewhat but not complete yet which is an independent dispute resolution process. one of the final steps in this process to say if all the back and forth between the lender and enterprise, the terms and conditions of the contracts, this is one independent view to work through that. there is still more work to be done.
work and effort on quantifying defects in the servicing side of the business and trying to clarify that, provide more certainty to lenders as to when they will -- they are in violation of those terms and what the consequences would be. another similar view of the defect and remedy and one of the big pieces of this is articulating that and locking it down up front so that it is not open-ended and you don't understand the exposure. and we are starting to see. there is clearly some movement in the mix of loans that are coming through the process. areas that have come out of this, fannie mae in particular has rolled out a home ready product all was about ready to roll it out.
moving through implementation. another great development and a lot of the work and research they have done. thethe enterprises are spending time and energy. get activities. the other thing we have done in the space that we are hopefully wrapping up is the conservator will which will address many of those md a proposed. so that is forthcoming. within this area there also have been lots of focus on loss mitigation activity in keeping borrowers in their homes. how you deal with aged inventory, stabilize neighborhoods in the nonperforming loan sale has been a big component of that. we think we have worked hard to address some of the issues and challenges but that part of the marketplace. there is more to be done.
the enterprises are making sure that we are getting those to the best buyers. give them another chance a modification. so that has been a big piece. the reduced part of the scorecard is a very billion dramatic change from where the gse enterprises were at the time of the crisis or just after the crisis. so while the footprint if you think about the gse footprint in the marketplace and if you think about that in terms of market share of loans purchased or loans financed, it still large. the risk position is dramatically, dramatically smaller, and it continues. if you go down there were obtained portfolio, under half the size that they were before, underwriting
guidelines, delinquencies are down, loss mitigation foreclosures credit risk transfers, the risk profile in the risk footprint is down dramatically. it's a very different housing finance system in that sense with those rules in addition to things like iq and will and so forth. a big reduction. as it happens in the single-family arena and the multifamily arena. transferring large amounts of the risks they bring on board. big movement. a very different way of looking at it. not what they touch on but also the risk distribution. finally, the last peace i want to touch on is the build part. this is an area, credit risk transfers, areas where
policymakers can learn and understand and we can help inform some of the potential decisions or potential policies and actions that can inform future housing finance. building that on the securitization side to say how canales utilizes down the road? first focus has been on the enterprises. when we came in and wanted to scope that down and make sure we had something that had a chance of succeeding in making sure it could get up and running. scope that down and focus on business that the enterprises do all the time. and do it specifically for theirs, their business line. that was another big component. and better than that is also movement to a single
security. that is to help improve liquidity in the overall marketplace and reduce the cost to the taxpayers associated. >> thank you. that's great. senior advisor for housing finance. before joining had richard was the director of the university of southern california center for real estate. we are welcoming you back. welcome. >> i wanted to spend a little bit of time talking about the access to credit issue. are we where we need to be? i think the answer is no. two uncomplicated fax and
one complicated one. there was a report out by the in crc a couple days ago on lending to minorities. we don't have a lot of things we call controls in my business. fewer than 3 percent are going to african-americans. going to fewer. second thing, the risks being presented to the broader economy have been considerably lower.
one might ask whether it has not gotten a little too low. if you look at default rates , they are extraordinarily low. the question is what is the right default rate? that is a question we must ask ourselves seriously. we don't want to go back to the way things were couple people in houses that we will have to kick them out of. in this case the pendulum metaphor applies. the extraordinarily low rates, basis points of default affected the credit boxes to type. there's something going on that is a problem. the 3rd factor is a little more complicated because it involves a regression. this is what people like me
do for entertainment. i will tell you about the following regression. take a regression explaining homeownership. millions of observations. you look at homeownership is a function of how all people are comeau whether they are married or not, hownot, how well-educated they are, what there income is what city they are living in, race, ethnicity. take that regression, get a model and use that model to forecast what happens ten years later. nails it. it nails the homeownership rate. let's run it forward and see where we are. there is a lot of stuff cousin the homeownership rate to define -- decline.
he put in marriage, race and ethnicity which are tending to depress homeownership. that will tend to push it up. and you through those things together and look at the forecast, the homeownership rate is three percentage points lower than that model predicts. one step further, let's look at differences in racial outcomes for housing homeownership. after controls are in place african-american 25 years25 years ago or 14 percentage points less likely to be homeowners than non-hispanic whites.
from that forward 25 years and is now 17 percentage points. what i call the unexplained gap has gotten bigger. you look at latinos, smaller difference. you get a similar kind of trajectory. why has this happened? and i step back and think it is an access to credit issue. we don't have wealth. and we don't have credit scores. wealth is much as the americans like to think wealth is largely a product of our own good hard work and to a very large extent it is, it also has a lot to do with who are parents are. and i am grateful for the following fact,fact, pretty much every day my parents picked my college education. it was much easier for me to
establish good credit history and much easier for me to say for a down payment to buy a house. that intergenerational transfer wealth is a big deal. again, psycho, if you are in a strong position to begin with this is much easier to get to a high 700 fica score. everything that you have to pay for costs you more money. if you don't have a lot of money. that makes getting up to the stronger score more difficult. so those are two key components in the credit box. down payment and fica. here is the question. still be responsible in light of these phenomena. and i want to suggest there are a number of things will talk about.
the statistics dominate your sticks. what do i mean? let's not use overlays. these are model -based scorecards. you know they do a pretty good job. put an overlay on it. 43 percent dti overlay and suddenly people who arewere deemed creditworthy are no longer able to get access to credit. they are less likely to be kicked out. in the 2nd thing it does is worsen the risk characteristics. how could that be? if you are a high-scoring person they are less likely
than a lower score in person so they do an awful lot of damage from the standpoint of access to credit and the standpoint managing credit risk. the 2nd thing is the whole points of automated underwriting, freeing up time. by unstable i don't mean that they are unstable. seasonal employment that is hard to underwrite. that is where judgment from manual underwriting makes a big difference to a lot of people. they may get income for three years, four years and it comes in fits and starts. you will make a very different decision about them is a manual underwriter
that someone who essentially does not have any income at all. in terms of the credit box we have to think about really using with the walls allow us to do and taking advantage of the fact that it frees us up to look more seriously and those that might not easily fit inside. >> thank you. , john roth whom
homeland security subcommittee on oversight and management efficiency in the governmental affairs on subcommittee on regulatory affairs and federal management will come to order. the purpose of this hearing is to examine failures at the u.s. secret service and their implications governmentwide. the chair recognizes himself for an opening statement. in september, the the dhs office of inspector general of the oig released a report on its four month long investigation into improper access and distribution of information within the secret service. the findings were alarming. widespread violation of the privacy act and agency policy occurred by secret service employees who access and distributed information on a number of congress' past employment application and senior management did nothing immediately to stop it.
inspector general john roth stated the episode was deeply disturbing. in addition, director clancy announced he had a different account different account of what he initially told oig. investigators had to re- interview clancy and issue an addendum to the report. this incident leaves questions unanswered. how did this happen? why did secret service leadership not act? and why and how did rector clancy change his account almost immediately after the oig report was released? the american people deserve answers. dhs must hold all employees involved a properly accountable. as deterred disturbing as this is, it is only one example of other instances where secret service employees short poor judgment and leadership ltac. earlier this year senior agents who may be under the influence of alcohol compromised an area at the white house being investigated for a suspicious package. director clancy was again not immediately informed. late last year, oig also reported about a 2011 incident
where agents were diverted to investigate an accident at correction in incident at the home of the director which appeared to be the misuse of agency resources in violation of the code of ethics. the findings in the oig report is another example of the damage to american people's trust in the secret service. when scandal after scandal emerges, and management is ill-informed or fails to act, the american people has cause for great concern. we entrust the secret service with tremendous authority and tools. when they have blooms those authorities they violate their contract with the american people. because of the services recent failure, dhs secretary jay johnson convened a panel of experts last year to recommend changes to improve the service.
panel made recommendations in 2014 related to training and personnel, personal security, technology, and operation, and leadership. the report provided a and leadership. the report provided a broad roadmap to begin reforming the service. i expect rector clancy to fully explain today, what progress has been made in implementing the recommendations. while congress has responsible responsibility to conduct oversight we must also understand what is being done to improve the overall management of the secret service. i am also concerned that similar abuses and shortcomings could occur in other federal law-enforcement agencies. it is important to understand what policies and safeguards, if any are in place to prevent similar abuse regardless if it is a member of congress or one of our constituents back home. if it happened at the service, what is to say other federal agencies are any better? today's hearing must be more about pointing fingers, the the american people have high expectations, as they should, for the secret service and what the agency to be successful.
it is actually critical to our nation's well-being as an we saw from excellent work during the papal visit, and united nations general assembly, the service can succeed with proper focus and leadership. i. i look forward to hearing more from our witnesses on how the secret service can best overcome recent obstacles to improve the management and reform the culture of this critical agency. the chair now recognizes the chairman of the senate committee on homeland security, the gentleman from oklahoma, for his statement. >> thank you very much. thank you for holding this joint hearing with our subcommittee as well. good morning abroad. i'm trying to think of a more awkward situation than how we are currently seated here, i'm sure there is a way, we are so far away from each other on the panel setting. i appreciate everyone here and hope this is an open dialogue. i do hope this shed some
important light on the situation where we are with the circus secret service. i like to acknowledge the essential rule the secret service bills and its incredible dedication to our country. we appreciate very much the service they provide to our nation and what it has done historically and what it continues to do. however, recent history however, recent history of high profile and immersing profiles in the dhs findings of wrongdoing can't be swept under the rug, as i know secret service is not doing. these investigation reveals unauthorized database searches, protected information began during the house oversight and government reform hearing in march of this year. in the days days that followed the secret service continue to misuse their authority to access employment history of the chairman. the oig report 60 incidents of unauthorized access violated the privacy act.
as well as internal dhs policies. the report also noted that 18 senior secret secret service executives failed to stop the access or inform director clancy of the access. in in fairness, it does reflect that once special agent directed her subordinates to cease accessing the database. the oig did not question those involved if this was the only time that inappropriately in it use the database. in the internet age everyone is concerned about the possibility personal information could be stolen or misuse. our elite on perforce when agencies are not above the law. those responsible must face consequences. to me, me, there is a bigger issue. millions of americans personal data stored across government agencies, the g.i. report released this year on the federal information security showed alarming findings. from 2009 until 2014 the number of information security incidences involving personally identifiable information has
more than doubled. geo has stated many agencies had failed to fully implement the hundreds of recommendations previously made to remedy security control vulnerabilities. these weaknesses exist with personal data of millions of americans house by the irs, hhs, ba, and other agencies. just this month, the social security ministration's office released a security ministration's office released a report showing the social security administration pay monetary awards to 50 employees were previously discovered to have access personal information of others without authorization. fifty federal employees who access the personal information of others without authorization, yet incredibly in the end they were rewarded despite raking the law. another example, the senate the senate homeland security committee received testimony that a whistleblower was retaliated against by shedding light on inadequate suicide
prevention at a virginia hospital. they they learned that the employees illegally accessed private " records after he brought to light the shameful behavior occurring at the virginia hospital. the question is now, how do we fix this palm so that americans believe that government will protect their information and not use it for other means? i'm hopeful today we will take a step or to address this issue, i'd like to thank the director, and all for your testimony today. i look forward forward to examining the challenges with you. >> we now recognize from new jersey. >> thank you mr. chairman and ranking member for holding today's hearing. director clancy i want to first extend my condolences in person on the loss of your father.
director and inspector general roth, mr. williamson, i think you free testimony. i also want to thank the men and women of the secret service for their diligence and hard work during the recent poppel visit in the 70th anniversary of the united nations general assembly. as a member of the committee on homeland security, and the committee of oversight and government reform i am well aware of the gravity of the secret service mission. particularly regarding its duty to protect the president along with foreign dignitaries, and to to oversee security at major events, domestically and abroad. i'm confident the overwhelming majority of the men and women of the secret service take their job seriously and express the highest greater professionalism, i'm appalled by the recent reports of operational lapses and poor judgment by senior level management. it is obvious he there is a widespread lack of consistent leadership and management within the secret service. however, this did not just begin
hundred clancy's leadership. these issues have been going on a number of years. of years. last year, secretary johnson commissioned the independent panel to evaluate the secret service. according to the panel's report the secret service needed to undergo or a cultural change and that included leadership that was capable of fostering greater accountability among all staff, modernizing a ministry to functions, including adjusting hours, special agents, and uniform and uniform division personnel must work and improving training. after the panel the inspector general continue to cooperate their findings. it they have issued to memoranda regarding misconduct among senior secret service personnel and to management advisories. the most recent management advisory was issued on october 21, personnel were found sleeping on the job. the inspector general found staffing and scheduling practices of the secret service
contributes to officer fatigue and this could pose the immediate danger to protect these. instead of addressing the root of the problem of having overworked agents, the secret service considered the findings in isolated incidents. furthermore, the inspector general most recent advisory on improper database access of the secret service shows the agency has a deeply rooted cultural problem that is not being addressed. the inspector general found over 40 agents improperly access the personal records of a member of congress through an antiquated database. according to the inspector general findings, secret service leadership including the director and deputy director did not recognize the severity of the situation and dismissed that data breach as a rumor. the inspector general found that instead of dealing with the situation the director of the secret service found the -- what
is even far more glaring as the inspector general found the assistant director of training appointed by director clancy to manage and direct all aspects of personal career development and operational training for the agency, suggested the information contained in this database be leaked to embarrass the congressman. mr. chairman, while this incident is reprehensible, it is not beneficial for us to be here today and isolation. we must have a broader productive discussion about the secret service management and culture. finally, another secret service cannot improve without help from congress. therefore, i need to know from the director what he needs from us to not only make the adequate changes for staffing, but also the technological advances for personal databases. i also need to know from the director what his plan for the agency are,
when he has top level management that turns a blind eye instead of addressing issues. with that mr. chairman, i yielded back the balance of my time. >> thank you. we now recognize the ranking minority member of the senate from north carolina. >> thank you chairman. chairman lange and welcome mr. clancy, mr. roth, mr. williamson. i first want to say thank you to the brave men and brave women who serve in the secret service. while i understand the last few months and few years have been marked by high-profile incidents of agency misconduct, i know and you know the majority of our agents work hard and put their life on the line every day to protect the white house, past presidents, presidential candidates, and many administrative officials and former dignitaries. i also know firsthand as a former leader of a law-enforcement agency what the bad actions of two, three, or
four agents can do to the morale of an entire organization. i know that just looking at the faces behind you mr. clancy, i know the effect that these high profile discussions have had. i am here in the spirit of let's work together. let's make this certain secret service what it should be, the most trusted law-enforcement agency in america. let's restore the morale of your agents, let's work together in a management collaboration and cooperation to change this dynamic and once again have your agents stand tall, if they tell their friends and neighbors that they work for the secret service. that is a big part of why am here today. to remember and to remind, i think everyone on the status that there are literally of thousands been in women who every day, walk alongside cars willing to sacrifice their life
in protection of leaders of this country. nothing that can be done by one person can take away the bravery of those men and women. so, clearly we have some issues to discuss, there is there is no doubt about that, clearly you have already heard the concerns we have here today. my reason for being here ever been interested in this topic is really to restore the morale and restore the integrity of the secret service so that all the brave men and women, who have done nothing wrong in the secret service, can once again hold their heads high. with that, i yield back the balance of my time. >> thank you. the chair now recognizes the ranking minority member of the house committee on homeland security, the gentleman from mississippi for his statement. >> thank you very much. i think the oversight and management subcommittee and set
it subcommittee and regulatory affairs and federal management for holding today's hearing. i also welcome director clancy and inspector general roth and williamson here today. i'm joining my colleagues in already said he for me, and thanking the men and women of the secret service for their work during both the papal visit and the 70th anniversary of the united nations. the dedication of the agents of the secret service is wonderful, fortunately there to work is overshadowed by the x mosher of problems within the agency. the issues that lie within the secret service existed long before director clancy's appointment. however, as head of the agency the congress, the public, public, the officers and agency leads hold him accountable. prior to director clancy's appointment, serious operational
lapses and leadership failures led to secretary johnson's appointment of an independent panel to review the secret service. this panel known as a protected mission panel had several glaring findings and recommendations. one of these findings is what i realize and articulated through many years of oversight of the secret service, the law-enforcement agency needs to undergo a cultural change that includes leadership that is capable of fostering greater accountability. the panel stated the agency is starved for leadership. unfortunately, it still seems as if the secret service has yet to be fed. the sense that panel completed its review the office of inspector general has led investigations into misconduct involving secret service supervisors on more than one occasion. inspector general found that in
march, at least four supervisors turned a blind eye went to veteran agents, including the head of the presidents protected detail disrupted a bomb investigation by allegedly driving impaired through a barricade at the white house. last month, the inspector general found at least 45 agents improperly assessed a 1980s mainframe to personal database to retrieve information in an attempt to embarrass a member of congress. of those agents who may have broken the law, i am, approximately 18 of them were at the gs 15 and scs levels. the findings findings also concluded the director of the secret service, his deputy directors, his chief of staff failed to take seriously that agents were discussing information about the
congressman's personnel file. inspector general also made the finding that the assistant director of training, the person appointed by director clancy to manage and direct all aspects of personnel, career development, and professionalism suggested the information found in the database the leaked in retaliation to congressional oversight. the ig findings further illustrates there is a lack of leadership and accountability from the top down. in this instance, instance, little leadership and accountability was shown. rector clancy has indicated the secret service will be expanding and undergoing a rigorous and necessary hiring. the new hires will be looking to their leaders for guidance. as a secret service expands it is our responsibility of congress to assist the secret service with adequate funding
for his mission. both the protective mission panel and inspector general have indicated that officer fatigue can place protective at risk. the agency also needs to have the capacity to properly vet employees before they begin work, whether continuing the practice of unclear personnel working in sensitive areas such as the white house. the new recruits should represent america and have opportunities for advancement. as of right now, the secret service direct diversity numbers are dismal. furthermore, it would it would be hard for the law-enforcement agencies commitment to equal opportunity and inclusion to be taken seriously with the class action racial discrimination lawsuit still hanging over the secret service his head, and the secret service using every delay tactic it can instead of resolving the
lawsuit amicably. there must be some changes made at the secret service. i know the deeply rooted problems will not cease overnight, but we must get to the source of them instead of continuously glossing over, putting on band-aids, and going forward with business as usual. i look forward to working with the secret service to advance its mission. with that, i yield the back back. >> the chair thinks the gentleman. chairman reminds other members of the subcommittee that opening statements may be submitted for the record. we we are pleased to have a distinguished panel of witnesses before us today on this important topic. the witnesses entire written statements will appear in the record. the chair will introduce all the witnesses first and then recognize each of you for your testimony. mr. joseph clancy was
appointed director of the united states secret service in february 2015, after service as acting director since 2014. previously, he served as special agent in charge of the presidential protective division. mr. clancy began his career with secret service in 1984 in the philadelphia field office, welcome. the honorable john roth assumed the post of inspector general for the department of homeland of homeland security in march of 2014. previously he served as director of the office of criminal investigation at the fda and as assistant u.s. attorney for the eastern district of michigan. welcome. mr. joe williamson. he is managing director of the information technology issues at the government accountability office, the gao where he leads the evaluations of information technology across the federal government. since joining gao in 1979, he has led 79, he has led numerous reviews of information technology systems and management at a variety of federal agencies. welcome. thank
you for being here, the chair now recognizes mr. clancy for his opening statement. >> good morning mr. chairman, chairman langford, chairman perry, chairman johnson, ranking member and distinguish members of the committee. thank you for the opportunity to testify today. i plan to address the findings with the recent oig report and many improvements implement it over the past years designed to address the protective mission panel findings. i also look look for to discussing the numerous organizational changes we have made at the united states secret service and would like to express my gratitude and recognize the support of secretary johnson and the congress and making many of these changes possible. i said before you today, a proud representative of thousands of men and women who selflessly execute the mission of this agency on a daily basis. recent accomplishments including four near simultaneous special
security events surrounding the papal visit and the united nations general assembly, as well as a number of high-profile high profile cyber investigation served to reinforce this feeling. in fact, in addition to initiating protection of two presidential candidates last week, secret service personnel are at this very moment, deployed around the world ensuring the president safety while in southeast asia. yet another example of their commitment and dedication to the mission. despite the secret service is many recent successes, i recognize the primary reason we are here today is to address the misconduct detailed in the oig's report. this investigation arose from allegations that secret service employees and appropriately utilized an internal database to access the applicant record of an individual who is now a member of congress. the misconduct outlined in the reports is inexcusable and unacceptable.
this conduct is not supportive of the agency's unique position of public trust. on behalf of the men and women of the secret service i would like to publicly renew my apology for this breach of trust and affirm my commitment to restrain it. the oig reported these employees violated existing secret service and dhs policies pertaining to the handling of the privacy act protected information. at the time these violations occurred, relevant policies and procedures were in place and can be found at a number of locations including the secret service ethics guy, the policy policy manuals, and required online training courses. i was angered by the willful disregard of these policies. i am determined to ensure all employees are held to the highest standards of professional conduct. as i have stated on prior occasions i am committed to ensuring accountability in this matter regardless of rank or seniority. secretary johnson and i stand together on this point. today, several dozen employees have been issued disciplinary proposals relating to these
events. more are on the way. the discipline is being administrated in accordance with the hs and secret service policy. i'm confident these actions will be fair, appropriate, and completed in a timely fashion. a contributive factor that allowed multiple individuals to improperly access this information with the nature of the information system that housed the data. secret service recognizes deficiency some years ago and began a process to modernize its it infrastructure to allow for such data to be compartmentalized. it would restrict the access to those without an official need to know. this process was completed this past june. at this time the mci system has been officially retired. with respect to applicant records the number of plays with access to the system has been reduced by no more than 95%.
finally, much as been made of my statements and decision of the oig to reopen the investigation on october 5, 2015. prior to publicly releasing the report in september 30, the oig gave me a draft copy that reflected my statement that i became aware of the rumor on april 1. as my colleagues and i review the draft, i was reminded that i had in fact been made aware of the rumor on march 25. however, let me be clear that what i was made aware of was a rumor, no indication of employees misconduct or employees accessing internal databases. in order to ensure the accuracy of the report and knowing the concern it would cause, i took the initiative to contact mr. roth prior to the report's publication to ensure the report was accurate and correct on this point. with respect to the recommendations of the panel, tremendous panel has been made in all areas. i am proud to say we have significantly altered the way the secret service is structured and manage.
we have made strides in hiring new members of our workforce and expanding training opportunities for current members. i'm also realistic and knowing that many of the changes we're making will take time and we must continue to community these changes to our workforce. in the interest of time, i will point you to my written testimony submitted in advance of this hearing for a more thorough description of this process and i look for for to discussing our progress on these recommendations with each of you today. i would like to close by remembering a remarkable leader and true friends, former assistant director jerry parr. jerry is widely known for his decisive actions he took during the march 30, 1981 assassination at tempt on president ronald reagan. the decision he made that day including evacuating the president directly to the hospital, likely save the life
of the president. as i reflected on his passion, i have the opportunity to review a speech he made it to a graduating a graduating special agent training class in 1994. he stated, and i quote. >> and organizational culture is a product of time, successes, sufferings, failures, and just plain hard work. after 100 years or so deep roots are developed in a corporate memory evolves. while another agency can purchase persons comic women, technology technology similar to the secret service, it cannot buy this corporate memory. this is a priceless commodity.". as the men and women of this agency traverse these challenging times it is important to remember that culture involves more than an agency's failures and the successes derived will prevail as the lasting memory of the secret service. thank you, i welcome any questions you have. >> thank you mr. clancy. the chair now recognizes mr. roth for an opening statement. >> chairman, and ranking mentors
members, think you provide me here to testify. we have conducted investigations, audits, and inspections, and we have a number of we have a number of ongoing projects. my written testimony describe some of that work and discusses the implications. for my oral remarks i will discuss our investigation into the allegation of the secret service agents improperly access to the restricted database to as well as some other ongoing work. we found the application entry contained within the secret service data best of the master central database was accessed on approximately 60 occasions between march 25 and april 2 of this year. we can concluded the vast majority of those who access the information did so in violation of the privacy act of 1974, as well secret service and dhs policy.
we identified one individual who acknowledged disclosing information protected by the privacy act to an outside source. however, because the number of individuals with access to this information is so great we were unable to identify others who may have disclose protected information to third parties. we found the access began minutes after clancy began test of moni on march 24 and continued in the days following. the application was widespread, fueled and by improper access of the database. we found a number of senior managers new agents were accessing the mci improperly and some of them accessed it themselves. other senior managers were aware that he once applied to the secret service but apparently did not comprehend seriousness of what was developing. as a result, no one acted until it was too late to stop this on authorized and unlawful activity.
our investigation also revealed that the mci and case management tool implement it in 1984 to not have the audit and access controls of a modern it system to appropriately segregate information. such can trolls and segregation may have prevented or minimize the behavior we discovered. this also appears to run counter to the privacy act which requires agencies to establish approach. safeguards to ensure the safety, and security of the confidentiality of the records. additionally, the secret service must ensure only relevant records are maintained in these type of databases. the privacy act requires the agency maintain its records only such information about an individual as is relevant and necessary to accomplish the purpose of the agency. the fact that the mci had records of an unsuccessful application from 12 years years earlier, which contain sensitive information which could lead to identity
theft violated the provision the privacy act. finally, although all agents were trained in the use of the system and receive yearly refresher training, it was apparent many of the agents disregarded the training. the secret service recently reported that it retired the mci and migrated all data to five other secret service information service in september 2015. our office information technology audits is currently conducting a technical security assessment of the information systems that the secret service now uses to retrieve the information. we expect to complete that assessment and issue a final report in february 2016. over the past year and a half as part of our independent oversight effort, we have investigated various incidents root involving misconduct by secret service employees and other issues related to the secret service organization. the results of our investigation and reviews.ongoing organizational it challenges.
the secret service has certainly taken steps to address these challenges but not always successfully. additionally, we are reviewing three incidents involving potential security lapses. for each incident, shots being fired at the white house from constitution avenue, an intruder jumping over a fence and entering the white house, and i'm guard coming close proximity to the president, we are determining whether the secret service policy followed its own policies when actions were taken to correct deficiencies and whether these corrections were adequate. the ultimate ultimate aim of our review is to determine and understand the root causes of these lapses. this fiscal year we plan to issue three report from these incidents as well as the capping report that identifies the root causes. i welcome any questions you or other members of the subcommittee may have. >> thank you mr. roth. the turnout recognizes
mr. williamson for opening statement. >> thank you to the full committee, members of the subcommittee. thank you for him biting geo to testify today. as requested i will briefly summarize our statement on information security across the federal government. gao has long-standing concerns about the state of information security in the federal government. we initially identified several information security as a governmentwide high risk area 18 years ago. we subsequently expanded this high-risk designation to include computerized system supporting the nation's critical infrastructure and the protection of privacy and personally identifiable information. the cyber threats facing our country continue to be very
serious the impact of these threats is highlighted by recent incidents involving breaches of sensitive personally identifiable information and the sharp increase in information security incidents reported by federal agencies over the last several years. they have risen from 5,502,006 to around 67000 in 2014. given the risk posed by external and internal threats and the increasing number of incidents, it is crucial that federal agencies take appropriate steps to secure their systems and data. however, we and inspectors general have continued to identify significant weaknesses in needed security controls. for for example, in fiscal year 201,419 of 24 major federal agencies declared information security as a material weakness or significant deficiency.
most of these agencies have reported weaknesses in the key control areas we track, including controls controls intended to prevent limit, or detect unauthorized or inappropriate access to networks and data. in particular, our work has often shown that too many agency employees have too much unnecessary access to too many databases. agencies need to implement clear policies on access to sensitive information. they need to grant access to users at the minimum level necessary to perform legitimate job-related tasks on a need to know basis, deploying effective monitoring to track user activities is also essential to see that they are quickly detected and remedied.
to address the many information security weaknesses that federal agency gao and inspectors general made thousands of recommendations. over the last six year gao has made around 2000 recommendations to improve information security programs and controls. today, about 58% of these recommendations have been implemented. until agencies take action to address weaknesses and implement geo and recommendations, federal networks networks and sensitive information including personally identifiable information will be at increased risk from internal and external threats. actions to implement recommendations will strengthen systems and data security, and reduce the risk of cyber intrusions or attacks. that concludes a summary of my statement, i look forward to it addressing your questions. thank you.
>> the chair now recognizes himself or some question. i'll begin with mr. roth. mr. roth, how many subpoenas regarding the chafe is incidents and the mci, how many subpoenas were issued? >> i believe it was only one subpoena. >> so why, why, if there were multiple individuals that admittedly breached the information and may have compromised it, why would only one subpoena be issued? why would there not be multiple subpoenas issued for multiple individuals? >> most of the information we received were from government data systems so no subpoena would be necessary. the only time we have to subpoena is if we go to a third-party like a telephone provider. typically. typically is our policy in these kinds of circumstances to have a
level of predication before we go and subpoena someone's personal telephone records. we have predication only on one individual rather than the hundreds who may have had access to that information. >> even those who committed to wrongdoing. >> that is correct. >> was the index search for other improper access incidences? >> it was not. the index itself was created in 1984, do not have the ability to readily do the kinds of forensics that you would do it on modern data system. in fact what we were required to do, what the ministers of the database were required to do is actually write scripts or programs to be able to find access to this information. it was a highly time-consuming type of thing. thing. because of the necessity for finding answers as quickly as we could, we only restricted it to chairman chafe its name. >> based on that, would it be correct to say that we have absolutely no idea at this point, regarding that day the
system, if any other americans, any other citizens have had similar things occur regarding their personally i don't viable information. whether it was search, or divulge, we, we have no idea? >> that is correct. >> that is a bit unsettling. director clancy. are you familiar with operation moonlight? >> i am familiar with some details of that, yes. >> i understand you have thousands of employees. this hearing is not meant impugn the credibility of your agency, i think americans have the highest regard and want to have that. but but how does something like that happen? >> so secret service agents use government information, access databases and then you seek women, time, material to survey
all essentially a private citizen's property without any due cause of anything. that is my narrative. what is yours. >> and how does that happen. >> sir, forgive me i was not here during that timeframe. i will allow some briefings when i first came in as acting director. it was found from the oig report that people may very poor decisions, there is misjudgment, should not have happened. there were some changes made in our management. >> i will tell you, i looked at and i imagine you're familiar with it, i will just redo the subject is directive 2015, 02015, 09. disciplinary and adverse actions. it is from your agency and it moving forward based on what has occurred regarding the information of the data breach. i want to give you a flavor of what i see here. an employee is entitled the
employee to, the employees entitled to. i'm just kinda going through each paragraph. the employee will be provided with, the employee shall have an opportunity to, the employee is entitled to. you kinda get my just and the reason i say that is what i'm wondering is, and what a lot of people are wondering is, what are the consequences of the actions of 45 or 41 employees who access mr. chafe its data and then whoever disseminated it, up to 60 times, what are the consequences to those individuals? we see what the employees rights are. >> yes or. >> but what are the consequences -- how does mr. chafe its get his reputation back? >> what is going to happen to these individuals what do things stand? >> secretary johnson and i met and talked about this in a true sense of transparency because myself and my executive staff have been all interviewed in
this case. we made a joint decision that the department of homeland security would make the proposals, in this case i will tell you -- and i've heard the comments made today, reprehensible, disturbing, and nursing. i agree with everything that is being said here today. my workforce does as well. the hearing today will help me get the word out and the importance of protecting pii. we have all the training and the ethics guide, we go out and trey are new recruits, but a hearing like this puts a definitive stamp at our failures. in this case the individual stance or question mr. chairman, in this case we are proposing as of today, approximately 42, don't home it to that number, approximately 42 will be 42 will be issued a proposal of discipline ranging anywhere from three days up to 12 day suspension. >> so the maximum is a 12 days
-- and the chairman is going to indulge himself. so the maximum penalty, the maximum repercussion for going -- will know when you look at these computer system there's a warning of front that is to be used for official business only. we all know. as your folks do i hold a secret security clearance, everybody in the room knows, everyone in your agency knows that using this information for what it was used for was incorrect, improper, unauthorized, illegal. the most we can hopeful, the the toughest disciplinary action is not loss of your clearance, not loss of your employment, it's 12 day suspension? i just want to be clear. is that correct request mark. >> that is the grades at 15 and below for those proposals as of today, pretty sure that. the fes level folks have not had their discipline proposed as of the state.
>> as mr. lowery and ses level employee? what is the range of options or discipline of consequence for mr. laurie, if you can inform, i'm not asking you to tell is what it is maybe you are still completing your investigation. but what we expect? >> a letter of reprimand up to a letter of removal. >> i now recognize gentleman from oklahoma. >> i will divert my time. >> thank you chairman lang. mr. clancy, every incident that we know of there seems like there was not an adult in the room. there is no one who provided that voice of saying hey guys,
this is not the way to do this. hey, we have a responsibility that is higher. so, while we look at management and resources, you said in your testimony you talked about how the corporate culture of the secret service is a priceless commodity. every day that priceless commodity gets threatened by agents not willing to be the adult in the room. not willing to be the person who stands up and says, knock it off. because, you can't do it just from a management standpoint, you have to change the culture at the bottom. i think that is one of the concerns we have. it seems all of this has happened with the great impunity and almost you can't touch me, as the chairman just talked about or, it is okay to do this. so i want to know as we look at management changes, as we look at systemic rules and policies, those rules and policies are only as good as the commitment that people at every level within the secret service have for change. so, what are you doing within the secret service to build
capacity for people to be the adult in the room? to stop at the source and say this is not what we do in the secret service? >> thank you senator. the system that we have in place now is relatively new. it is approximately two years old. this includes a table of penalties. in the past, this one was handed at a more local level. now everything is funneled up to our office of integrity. >> i don't mean to interrupt and not talk about discipline. i'm talking about culture and obviously consequences are part of changing that culture. but what about the integrity at every level of basically saying, we don't do this, we don't go to hotels and higher people to service us. we don't drive into the white house and disrupt a major investigation.
we don't access a congressman's secret records. we don't do that. do that. who is the person and how are we training people at every level to stand up and stop this behavior because i don't think we can do it just having hearings like this. i think we have got to restore this priceless commodity that you're talking about which is the integrity element of the men and women at every level, knowing that it is their responsibility to help maintain the integrity of the secret service. >> i agree with you senator. we have to do more in terms of communicating with our people. we can have all the training exercises and all the online training, for example i have been to approximately ten of our field offices, i speak personally to our agents. i walk around the white house and talk to the officers. i meet all of the recruits prior to their graduation and tell them what they represent and what is expected of them. i have to do more of that as well as our staff. we have to keep communicating to our people. again, what the congress is doing today is a help to a centaur agency because again,
the seriousness of what we have done in this particular case resonates by these types of hearings. >> i think the issue of culture has a lot to do with what we have been experiencing and the last that has occurred. ester director. i i want to talk about the panel's recommendation one of the things i think was noted in the panel was that we needed to breathe new leadership from outside this organization that didn't have the long-term relationship and might be somehow influenced by the relationship it did have.
you have a 27 year record, or experience with the agency. clearly you are an insider. there was a removal of a number of deputies and they were replaced, the majority of the deputies that were replaced were also from within the agency with long service records. my question is, how do we change the culture of the organization if the very top leadership has been a part of that culture, and and perhaps only sees this organization from within? would we have not been better served had you identified the capacity to go to the outside and find people certain skills, leadership abilities, accountabilities, that would
have transcended the relationships that individuals may have had? could that possibly have helped us become more efficient, more effective, and more accountable as an agency? >> thank you for that question. i. i will tell you out of respect with you that many thought that its position should have been someone from the outside. there's good reason for that, i understand that. i consider the fact that i left the service for three years, worked in private industry, has allowed me to bring in some outside views on how to run a business and how to run this agency. so what i did do, first of all i brought in as chief office operating officer, civilian from outside the agency. that coo is the equivalent of the deputy director. additionally, we have created a lot of subject matter expert positions where traditionally the answer to agents. prior to me arriving here, all of the top level security was run by agents. some of them scantily were not
subject matter experts. for example, finance. we finance. we now have a chief financial officer who does not report to an agent, she is the chief financial officer. chief technology officer is an engineer not an agent. chief strategy officer chief strategy officer is a lawyer who is not an agent. a few others as well. we are trying to bring in outside perspective to run this business but also move the agents into our core mission of protection and investigation. >> so talk to me a little bit about your ability to bring in not only new people into the agency but more diverse people. the information i read regarding the secret service was that it is predominantly white male, there is a small percentage of women, not consistent with across-the-board and federal government. what are you doing to address
the issue of lack of diversity in terms of race, ethnic city, gender, impositions and what are you doing to address the long-standing and outstanding issue with the civil rights complaint? beyond them as opposed to using the system to delay the implementation of the corrective actions that could be taken place. thank you. >> entrance of diversity i would ask you first to look at my executive staff. on the staff of approximately 12 people, we have five african americans, six females, but going down throughout the ranks you are correct. we are not where we want to be with diversity. we are targeting universities that provide diversity for us. we have shortened our hiring process where we can go to these universities over a weekend
period of time, do a testing, interview, and polygraph if the first two steps are met. we are targeting specific areas of the country to really work on this diversity. we are deficient in that area, certainly with females as well. we are working diligently to try to improve that diversity. >> thank you, i yield back. >> chair thinks the general lady, the chair now recognizes mr. johnson from wisconsin. >> think mr. chairman. inspector general roth in your written testimony quote, you state information was accessed by secret service employees on approximately 60 occasions between march 25 and april 2 of this year. you went on to say that we concluded the vast majority of those who access this information did so in violation of the privacy act of 1974.
what are the penalties for violating the privacy act of 1974? >> there are several penalties for the agency that is involved if there is a widespread global gross negligence standard. their civil penalties, monetary penalty for the agency of all. for individuals who accessed the system improperly, knowing it was protected under the privacy act, that is a misdemeanor which has a fine as a penalty. but no custodial no custodial sentence. >> is there any department of justice investigation being undertaken right now to determine whether those misdemeanors were in fact prosecuted. >> no. during the the course of our investigation we presented a case of the most compelling case we had and it was declined by the u.s. attorney's office. >> why would that be question. >> there are several reasons. first of all, each individual agent has a fifth amendment right to not speak to us if in fact they are under criminal jeopardy. we cannot interview which were
compel their interview which we had to do. the level of evidence the department of justice had was not sufficient for them to move forward. additionally, when one, when one looks at the penalty it was simply a matter of competing resources. >> director clancy, i got involved in looking into the culture problems with the secret service back in early 2012 after events. this is not why i ran for united states senate, was to look into the secret service and be able to see that we all want to have a high credibility and as you stated in your testimony the culture in many respects is almost beyond reproach me. it's a fabulous agency and they do great work. on the other hand, other hand, there is a real cultural problem. what are you going to do about
it? i hear communication, i understand communication but actions speak far louder than words. we're talking about a a disciplinary process when their violations of privacy act and there are no prosecutions of it, nobody is held to misdemeanor penalties, there is nothing more corrosive in an organization that has culture problem when misdeeds go unpunished. so what actions are going to be taking? >> this is three years now, this occurred in april 2012. where 2013, 2014, 2015, three years later we have a number of members of the secret service violating the privacy act, violating the dhs and secret service procedures. it does not seem like we are getting a hand of of the culture problem within the secret service. >> mr. chairman, thank you for the question. we have remove people from the
secret service. you mentioned that several were removed in that case. as of today, we are up in the process of proposing the removal of an individual unrelated to this. people are removed in the secret service. this penalty and we refer to it a few times here, we have benchmark that with other agencies. we want to be consistent with what is being done across the board. just recently i publish for the first time to our entire workforce, the discipline over the past year. so they can see what types of cases are out there, our supervisors being disciplined equal to the workforce, we are trying to be transparent. that communication is critical here. we are trying to be more transparent and driving home the point that people will be held accountable. in this case, they will be held accountable.
>> as the chairman is pointing out there are objections for the employees and the actual agents, but again it is hard to see the accountability. if i meant to be a problem? are you constrained and what actions you would like to take based on all the protections for the agents? should we have, should we be looking at the law there and making sure the agencies having a power to actually help people? >> i think the service would allow us to speed up that proposal in the discipline process. i know sometimes we are delayed in the process as we move forward. >> so you would like the ability to take stronger action, quicker? >> yes. >> good, i think we need to take that into account. >> the chair now recognizes a gentleman gentleman from mississippi,. >> thank you very much. almost to the member before me
the conversation has been about the culture of the organization. i think it speaks to whether or not internally we can fix it, or do we just cover it up? i'll get to specifics, shortly. inspector roth, in your review of the secret service, how would you describe the culture within the service, especially at the executive level question marks. >> as we noted in the report on the access to chairman shea fits implement record, we found a number of supervisors who them in fact had access to mci, to me that was a very troubling incident. additionally, few people then elevated their concern or the fact that this is being used to
a high enough level of management for something to be done. that was really troubling behavior that we identified. >> so, let me -- senior-level people accessing information, then we had that information being noted by people above those individuals, and is your testimony that nothing happened? >> that is correct. i will give two examples, if i may. the first was a special agent charge of the washington field office came to understand some of her employees were accessing the mci to understand whether or
not that rumor existed. she ordered her individuals, her subordinates to cut it out, her exact words were knock it off or quit fooling around with the mci database. in fact, that is what occurred in the washington field office. unfortunately, throughout the country other individuals were doing that. that would be one example. the second example is the special agent in charge in the indianapolis field of vision who was frankly curious why it was in his view chairman shea fits was so hard on director clancy. he just out of idle curiosity access the database himself to this cover himself that chairman jay pitts was a prior applicant. he did nothing with that information, did not elevated up, or do any other type of conduct. there of conduct. there are number of examples like that. >> so, thank you very much. so director clancy, i hope you since the memberships concerned about the culture. i would hope that going forward
you would take this hearing as you said as a moment of instruction to try to fix it. the men and women deserve, they do a wonderful job, but it is about leadership. it is absolutely important. as you you know, i've been talking to you since the summer, a smaller issue than some, it is relative to the fact that we found out there were 643 employees assigned to duty that required a security clearance. they were working for the department without the completion of the clearance. i had asked you for the
demographics of those individuals. as of this date, i don't have the information. i know you have been busy but can you give me some indication when i can expect to receive the demographics of those 643 employees? >> yes sir, first of all my apologies that you have not received that information. 640 individuals i am assuming made the be departmentwide. i think in the secret service we did have people working that did not have their security clearance. i think was much less than that. we will get you an answer in the coming days on that issue. >> will, it was departmentwide over a five-year period. my point is, some of us men and women around the country
indicate that i am tried to get employed with the secret service but they tell me i can't get considered for employment because i haven't been cleared. i can't can go to training, i can't do a lot of things. but what trouble some of us is when we are already employing people whose job required clearance on the other hand. so i don't know if that is favoritism or what. it is real concerning. >> i i will follow up on that server. i can tell you we don't look at that diversity in terms of who gets his security clearance and who does not. in this case, the one that you referenced now speak of the secret service, we were delinquent as we went through this hiring process. we did not get people there security clearance in a timely manner. some, and they were assigned to positions outside of the washington for the most part. what we we have done now is brought in some contractors, an
additional 14 contractors to ensure this never happens again where someone goes through our training and when they graduate they should have their clearance. that has been resolved now within the secret service. >> thank you. so it is your testimony that nobody working for the secret service right now is without a security clearance? >> that is correct. to to the best of my knowledge, that is correct. >> can you verify that for the committee? >> yes. >> i yelled back. >> the chairman now recognizes a gentleman from georgia. >> thank you mr. chairman and for you all for being here. this is especially troubling for me as we look back over the history of this incredible agency, the service, it is an icon of what i think is american
exceptionalism. the actions we have seen take place, of course it tarnishes the reputation of the service, but more so i think it really turn us is the image of the american people have of what they have always elevated as being exceptional service. not just in the nation, but in the world. i think it is imperative that we address these issues, not just in hindsight, but in going forward to make sure we restore the trust of the american people, the trust of congress, and the trust of the protect these. mr. roth. mr. roth, you said something in your written statement that really struck me here. the secret service has certainly taken steps to address these challenges, but not always successfully. these persistent challenges may not be easily to resolve expediently, they may require
more fundamental change that addresses the root of the misconduct. i think that is where we need to focus. where where is the root, and euro opinion? what is the root of the problem? >> when you look at guidance in regards to creating an ethical culture, they say it comes in three dimensions. one is tone at the top which is not just at the very top it all through the leadership of the organization. the leaders have to set the tone. the second is to have a code of conduct in a code of ethics that is truly meaningful, the the third is to enforce that code of conduct in a way that expresses to the ranking file that you mean what you say in regard to that tone at the top. you have to look at all three of those things. director clancy has said, i think the middle part the code of conduct, was not there and there have been steps that i've been taken since then to restore a policy.
that is certainly an improvement we think is well-deserved or a positive step in the right direction. again, it has to be tone all the way through the organization as well as a meaningful enforcement of that code of conduct. >> i have a timeline of misconduct that went back prior to cartagena, goes back to 2011. up until that time i don't recall, there's mr. conduct in any organization, is there history like we're seeing now that you are aware of? prior to the last four or five years? >> i am not aware of it. i just don't have any insight into it. certainly we are only as good as the audits we do in the investigations we do, we do not have anything before that. >> thank you. mr. clancy, i applied your efforts. you have a difficult task, you have have been in the agency for
quite a while. do you recall that there is the level or consistency of misconduct previously in the agency? or is this something that mac. >> i think any agency has had some misconduct. the secret service has had misconduct in the past. more attention has been brought to misconduct in the last several years, that is a good thing. i applaud inspector general office for that. this has. this has to be brought out in the open. these misconduct episodes, otherwise we will not correct it. >> make sure i understood it right, you said you're trying to benchmark you disciplinary actions of other agency, is that what you're referring to looking at other agencies. >> yes, i understand with a table of penalties were built out, our legal team worked with other agencies to see what they were doing from discipline
standpoint, what their table of penalties were. we took their best ideas, best practices, built ours. >> i would suggest, you guys have to be a little stronger, little better. the nature of the work that you do is so important to this nation. one last thing, i think we have talked a lot about culture in here and that is true. what you're getting at is the culture of the agency it is -- you are in the secret service, you have an obligation to the integrity, the honor, and the dignity to uphold this agency. i think that may be what is missing. somewhere, just real real quickly i was going over this timeline and there seems to be a common element with a lot of these. i look at catania, alcoholism ball, june 213, alcohol,
november november 2013, abuse of alcohol, march, alcohol, june 2013, alcohol. 13, alcohol. there seems to be this continual cycle of alcohol abuse associated with this which from my experience in the military usually indicates there is a morale issue. i will let you comment and i will yield back after that. >> yes, you are correct congressman. we do have a morale issue and a lot of it is because of our staffing. that is one of the things we need to do his work with our staffing so that we can build up our staffing level. we can can get more training which are people want, get them a better quality of life which will help their quality morale as well. to your point here today the accountability and discipline matters also helps that morale. are we going to hold people accountable question but i will tell you the episode since i've been here, you mention the marco individuals after retirement party drove through the white house. i can tell you retirement parties now, i don't don't know
of any that are taking place. people got that message. what we are talking about today, pii, people are getting this message. unfortunately it takes the significant errors of misconduct to resonate sometime with our people. i want to also say one thing, less than 1% of our people are involved in this misconduct. truly, 99% as% as some of you mentioned are doing the right thing. they're working very hard. we have to focus on that less than 1% because we are held at a very high, and rightfully so, at a high level. >> i hope you can get the service back to the point where people aren't doing the right thing because they're afraid of the discipline, they are doing the right thing because they are dedicated to their job, the service, the spirit of the service, and their oath to the
constitution. thank you sir. mr. >> the chair thinks a gentleman and now recognizes the chair of california. >> thank you mr. chairman. director clancy, just to be to have some statistics here on the record, according to the partnership for public service the agency is 74% male, is that correct? >> 75%, let me just check that real quick. that sounds correct. >> 72% white, leaving it severely out of step with other agencies, women make up 25% of the agency's workforce, but only about 11% of the agents in uniform officers. >> you are correct, yes. >> you talked about your
outreach efforts with universities and targeting certain areas of the nation. how do you engage on employment agency to help you or to advise you in finding a more diverse workforce? >> i am not aware that we have taken that step yet but it is an excellent suggestion we will look into. when we go into the different areas of the country we have a very diverse group recruiting that tries to encourage females to apply as well as across-the-board and diversity in diversity. >> are you targeting also the military? law-enforcement agencies looking for - like they're great people working. >> absolute, we do it in military bases, we run the lacks, entry-level recruitment
centers. if you want to apply for job at a secret service we can do it testing initially, if you pass the test that very day we can do a super interview if you, again if it looks like you're a good candidate will move you to a polygraph, all within polygraph, all within one weekend to try to speed up the process. absolutely on military bases, we found personally people (military background service very well. >> well they have a high work ethic. >> they do. >> they understand the pecking order. they understand the need to serve. i am disturbed by the incidence, i am happy to hear that it is a reflection on less than 1% of the workforce but by no means it doesn't make me feel better or safer. so, would you say you have an agent problem or do you have a management problem?
>> is a management problem, and it starts with me. it is a management problem, leadership problem, and i have to find an answer to. >> have you taken steps to ensure that when we are coming down on agents that tougher disciplinary actions are taken upon the people who supervise them? >> supervisors are held accountable. again, we put this out trying to be transparent to shore workforce. >> are there policies in place to ensure that whistleblowers are protected? >> yes, everyone in the service knows that whistleblowers perform a vital function in the -- there is no retaliation, you have to let them go. >> so there are disciplinary steps that the agency takes when
the department rules are violated? >> there are disciplinary steps the department takes when our laws are broken. >> yes. >> the agents are read miranda rights, is that what you are referring to in an earlier question? >> no, they, they are not read miranda rights. they are red alkynes or garrity's, let the inspector general correct me if i am wrong. that's what their rank is. >> i come from a civilian part of law-enforcement so, pardon -- so criminal charges are filed, whether they are felony charges or misdemeanor charges, what steps do you take during that process question marks. >> if criminal charges are filed
we typically immediately move to removing the security clearance so this individual can no longer have access to any protected facilities, any access to any of our prick tease of course -- >> surette harris happens to the rest of the department that are working with that employee in the process of a criminal investigation and the supervisor question work. >> at that point, we remove all of their badges, their equipment then it goes through the normal course of criminal justice system. >> my time is out but what i'm trying to figure out is, if you have a rotten apple, how do you ensure the whole bowl is a bad question work. >> we can remove them very quickly in that case. mr. chairman if i could just correct the record for one item,
ranking member thompson had asked me about security clearances, our agents and officers some of them in training now have not had their clearances settled. they will will buy graduation. so anyone who graduates from our academy will have security clearance. while they they're going through training some may not have. >> but as of the summer when we talked, that was not the case. >> that's correct, that was not the case. you are absolute correct. >> thank you. >> the chair now recognizes gentleman from florida. >> sorry to hear about your dad. >> thank you sir. >> greatest generation. >> it was, i know many here have lost their from the generation and we learn from th. >> was your data that. >> as he was. >> yeah i know about this, just mature mom. it's the generation of your
glass half full, go to church on sunday the rest answers itself. >> yes or. >> we are lucky to have those kind of folks. although we do little for country now, without ever saying that they remind us that compared to what they did, we don't do much. >> that is correct. >> i fully respect the operation for you and your dad. i've also always thought of organization culture being the combination of performance and behavior. therefore how your agents and your employees think of themselves dependent on those two things. they all see it. when bad behaviors not dealt dealt with quickly and impacts that culture and how we view each other because it discourages good performers that are doing their job every day. everything tells me these
incidents of bad behavior are to be isolated, put up in lights for everyone to see, and action and action needs to be taken quickly. therefore, and that really is the responsibility of the leadership. therefore, when it drags on and on, when it drags on and on, it really sends a bad message to this corporate culture that you referred to earlier. why so slow? i mean, systematically, you're the chief and you are the head of homeland security. let's go, let's take some action so you can do what's right and preserve the culture for all your great performers, am i missing something on that? why so slow? >> you are correct on that. if there's criminal activity it is much quicker. we can remove we can remove their securities clearance right away. other types of problems do take time for the following investigation.
in transparency, we have the oig handle this investigation to do a very thorough investigation and then once that was completed then we could move forward with that discipline. under title v, the federal employees are given certain rights and we follow that process. eventually we will get to where we need to be. >> what's going pretty slow for my taste and for the sake of your organization i would be pushing this as hard as i can because typical folks that run large organization don't understand this kind of length of time. it just festers because you don't put it behind you. so my point on that is let's get going. i have found an organizational change that if you do not change
one third of your people in positions of responsibility you will not change culture. they will outweigh you. they always outweigh you. if you change more than 50% that he may then you may have a problem with the institutional memory that you discussed earlier. i'm really bad that you brought diversity and experience in your direct reports. but they will outweigh you. so, no rule of thumb is a hundred% for sure. if i'm sitting in your chair and not changing one third of my managers, and you are thinking you're going to change your organization, good luck. don't believe it. so i don't know if you have thought of bout it in numeric terms but let's get a performance culture going without washing away the memory of the successes of the past. i'm all am all for having both and i don't think if you apply this in your earlier comment, i don't think it is one or the other. change your culture and preserve
the successes of the past. islamic sense question marks. >> it does, yes or. >> as they anything i said you disagree with? >> no i wouldn't sir. >> look, we want you to succeed and we could talk all day about whether you should do the job or not but you are in the job. we need you to be successful so anything i can do or our group, we want you to succeed. look, i really like the tone at the top, so let's get him. >> thank you sir. >> the chair thinks the gentleman, now recognizes a gentleman from georgia, mr. carter. >> thank you mr. chairman that they can for being here. mr. clancy, how many times -- when did you become the acting director? >> on october 6, i believe of 2014. >> comedy times have you appear before congress? >> i believe this may be my sixth or seventh. you know, i've been here since january 6 and i think this is the fourth time i've seen you. obviously we have concerns here
and there seems to be an ongoing problem. as he might know, i'm very fortunate to have the federal law enforcement training center in georgia in my district. i'm familiar with the training that takes place with the secret service agents down there, i think they do an excellent job. i also want to remind you of the protective mission panel that came out and actually said the amount of training the secret service agents were getting were far below what it should be, in fact i think at one time it was equaled only to 25 minutes for each 1300 uniformed officers. what are we doing to change that? >> well, you're absolutely correct. i've been out here federal law-enforcement training center. they do a great job down there. they help us as we job down there. they help us as we try to build our staffing levels. in terms of what we have done, uniformed division 99% have gone through a building defense exercise training mission, a ten hour block.
additionally, approximately 700 of our uniform officers have gone through three day training. or they do their firearms, emergency medicine, control tactics, number of things. the agents of the president detail, we increase increase in the number of agents on the presidents detailed by the second quarter early january we increase the numbers by 85 which was recommended by the blue-ribbon panel. >> .. 85% on the president's del in the past year. mr. carter: specifically, let's get to what we are here about today and that is chairman chaffetz and that situation. inspector roth has stated that several of the agents that violated the secret service and the homeland security policies, when they accessed his records, this is a criminal offense, don't you think? director clancy: it's on the books as a criminal offense. mr. carter: tell me what you have done. have these people been fired? have they been disciplined at all? a criminal offense by an agency
that we hold to the highest standard. by an agency that we hold to the highest standard. i am a little bit frustrated by something i have heard here. keep in mind that we are experts at spin and pivoting. that was his favorite word. all of a sudden i here you talking about data. give me a break. if they wanted to see this they would see it. how can you let this go on? why haven't you fire these people? don't you agree? they knew this was wrong. >> i do agree answer later is misconduct. the discipline for those but the data is also important as a sidestep. >> i understand andi understand and respect and acknowledge that it is important that it be protected. still,still, the basic premises that they knew what they were doing was wrong.
>> they should've no what they were doing was wrong. >> should have known? home at the highest level. i just can't go along with that. inexcusable and it deserves discipline. i am a small business man. when something like this happens -- and i'm not trying to tell you how to run your business, but when you know it is going to destroy-year-olddestroy -year-old business, and you have got to get rid of this cancer. you have an opportunity to set an example. what they did was wrong. they deserve discipline and they deserve to be let go. >> some of these people have
spent 28 years with no discipline in their history. some of them self-reported. there obviously all very remorseful. it was wrong yes, but we look at the whole picture and the whole person, their career. >> and i get that. i want to make sure that the punishment that fits thefits the crime, and i understand that and you should look at the whole career. at the same time you have been here six times since he took office. we want you to succeed. wesucceed. we don't want to see you fail. we don't want to see you here anymore. we want you to do this and we want you to do well. but we have to have your help. mr. chairman, i yield back. >> the chair thanks the gentleman and recognizes the gentleman from oklahoma. >> we still have a little ways to go. let me state a couple of
things i picked up the conversation today and i want to walk through multiple. there are a lot of issues with secret service that have been well-documented and i want to talk about that a little bit. i think someone from the inside is to be there to fix it. the same law enforcement background, the same sense of corporate identity with secret service walks in as an outsider and has a different opinion on it. someone from the inside could walk in. i appreciate. i will come back to that in just a little bit. let me ask you a question. for these individuals access to database it was the 1st time for them to access a database like this? did anyone ever asked them, maybe i should go look in jason's records. well, maybe we can get access to that.
if you're interested in someone they can go public. >> i think it ran the gamut depending on the agent we talk to. some did not think it was wrong at all. one of the other larger criminal databases. this was run by the secret service and saw nothing wrong with that.it. others did not understand it was wrong until after they did it. >> there is a training that happens multiple times a year, both orally and electronically. for official use only. it still your perception that some individuals ignored all of that. >> that's correct. >> well, the problem with that is if they can pull a member of congress, any individual, that means a new neighbor a new neighbor down
the street i can go check my records. some new guy can go pull his family and pull the records on it, someone they don't like they can pull the records. the va became a whistleblower. they were pulling records. the challenge that we have is access to data, official and not official and how we track it. is it your perception this has been an ongoing issue for some employees just to be able to use the database, as i can go look at it and blur the lines? >> that is the since we got. >> how do we deal with this? social security was identified, 50 different individuals were given merit bonuses.
for unofficial purposes. grabbing information and look at it. that's a whistleblower. how many agencies have good systems in place to be able to audit how individuals access the sensitive databases? >> this particular access problem is probably the most common issue that we see only are doing detailed information security audits. too many people have access to things they don't need access to. it is not part of their job description. they don't have a need to know but are given access. access is a real issue. i would say it's probably the most frequent. another issue that is interesting is, when you are collecting pii one of the things you do, scheduling a record notice, tell them how
long your going to keep the files before you dispose of it. i was curious about why application file from 2,003 would be 12 years later. those kinds of things should be disposed of fairly quickly. hopefully that is part of what the service will be doing going forward. disposed to schedule records out of dispose of them in a certain date. sometimes one year, sometimes five years. >> there are two different sets. paper records. it is my understanding that there are still some offices that of the access has been changed electronically, if you go into a file room is old application files may still be there in paper form as well. >> we are moving forward with applicants. every few years those files will recur. rightrecur. right now there is an
investigation going on with the inspector general, so some of that will be delayed slightly, but that is the plan. and also with the applicants in mind 95% of95 percent of the people that have access no longer we will have access. >> paper and electronic. offices around the country still have access to paper records? >> it back to you. >> evaluate as well. with the electronic version access.which agency would you identify and say this agency is a good model example about a hand personally identifiable information? they are model agency. >> don't have one.
>> somewhat depressing. >> yes it is. on a more optimistic note, since the opm cyber disaster this is become a major priority. the agency has now recognize this is a critical issue. when we 1st announced information security chicken little the sky is falling. >> the sky fell. >> the challenge we have, let me give you one example. for years and years identified. how does this get better, how do we prevent unauthorized access of medical information and a private information form for veterans? >> veterans affairs has a significantly high percentage of systems that
are considered high impact systems. that is called the disclosure of the data or the modification of the data because of the medical records is considered to be severe in terms of the possible impact if lost, stolen, or reviewed by others. given that you have to put much stricter controls in place including monitoring users and what they are doing and if they have any atypical patterns. >> is this an audit or an algorithm? >> this is an audit and an algorithm. you can do it automatically. we have to put these controls in place to prevent the situation you describe. >> i don't know if we're going to do a 2nd round of questions.
>> thank you. and i will suspend your questions. >> mr. chairman, i know we were here. my colleagues want us to focus on what happened to the chairman j fits. if i were he will probably want this to go away now. fun the lessons that you need to learn. i really don't think you need to have this continuing story. and it does speak that needs
i would have liked to have known steps you're taking. >> i just think in terms of the overall culture of these give you one example. service on the internet. our agents and officers can send in suggestions, what we should be doing better. we get other people looking at that and they can like that. very positive already within a few weeks. people have taken ownership of their agency.
it's the individuals who have to take ownership. i will say again, 99 percent of our people do have that. >> i have been on the executive branch of government. i know it takes that kind of expectation, plan of action and whether or not your hiring people from the outside you look at these issues and work through groups, down through the organization. at some point i would like to know if you're planning those kind of action steps. i really do want to know, is there some sort of way that there is a notification of accessing information when you are not -- when it is out of order for what your doing, not related to your case, your identification number signals whether or not you are or are not the right person to be access this information. as a follow-up.
>> my understanding, and the other gentlemen may be able to answer this better command requires constant monitoring and auditing. there is no automatic notice the someone has access someone's data inappropriately. >> there is administrator for each of these buckets of information. that administrator has to control who has access, the need to no that information. with our human resources we have approximately 260 who have access to our applicant data with this new system, and that administrator would have to ensure that anyone else who enters has access. >> if i may just as an example, the dhs tech system
is one in which for example, if there have been a record created and i access to the director would get an e-mail that i was the one who access the record. not only what the director was talking about, you can run reports by the system administrator, but there are also real-time controls on modern it systems. >> thank you. >> the chair thanks the gentle lady from new jersey. >> thank you. the audit system will be the key. whatever percentage that is, to be able to have for this computer at this spot, here is everything that you ran and that they know at some point someone is going to just spot audit you. just a simple accountability that sits out there somewhere to know there is not residents running, files that don't seem to be consistent with official records. a spot audit, you may come
in. all of those things become important. we have a tremendousa tremendous number of people that work on the federal workforce that are great people that generally love the country. the problem is, you mentioned the 1 percent. i had to smile as we were walking through some of the conversation about secret service. i hope we are really not picking on you. this has become the latest example of multiple examples , this visual example again. but as i listened to the conversations on the days about challenges with public relations nightmares, employees not doing their job, we could quite frankly flip the tables on members of congress and have the same accusation. i assure you it's more than 1 percent of members of congress have these exact
same issues. so it's a human behavior issue but it's also professionalism issue of taking a serious. so going to give you an unfair list command just to walk few a few things. as i have tried to start walking through some of the issues, the oldest general law enforcement entity in our country, and incredibly valuable resource to our nation. but my fear is changes have been put in place have brought about moralebond about morale shifts. i'm trying to figure out how we should morale back and get on top of this? otherwise it's whack a mole. over time seems to come up over and over again. getting some sort of standard practice with counterpart agencies. accountability of leadership that is not tolerable. when you actually confront issues everyone knows that is the standard.
if there is a bad apple or at some point flippant about it, everyone works down to that level. i find that the secret service is not giving a top priority for some of the newest technology. i think it is demeaning and sends a false message. not as valuable as some of the other aspects. the responsibility seem to be getting cluttered. the clarity where it has been historically, there seem to be other duties that are creeping into it that distract from the core mission. the consistent career track seems to be a consistent theme that i have heard over and over again. no one really knows what path there on. in my off on any of these?
>> you are correct, and i will comment on the career track. we brought in a workforce of agents at different levels to try to look at the best career track moving forward. i just announced a couple months ago a new career track for our agents so that they can plan their future. you don't know if you will come to washington. again, listening to our workforce trying to find solutions. >> that's one of the things you can do. i encourage you, the possibility that individuals on the previous career track still could finish that out and be grandfathered in or choose to shift to the other one. i feel like the new guy has the new stuff. but also have something to say i start on this. as they walk through this corporate identity is extremely important and valuable. i fear that there is a growing sense of lack of importance of people that
are incredibly important to our nation. never want secret service folks to feel like they just our doors for a living. the morale and what you said will be incredibly important for years to come. if there is a silver lining in this historically the secret service have had a bad time when a president was shot. no one has been shot. there are just some things that were messed up. it is a unique moment to reevaluate who we are, where we are going command i encourage you if there are issues in the scheme of things these committees need to know it. as we want to make sure all of the families all feel equal levels of importance. their secret service transition pretty quickly and all the restructuring in your now one of many rather than the big dog a treasury which has benefits and
challenges. wewe need to know and have some way to help communicate so that we can help engage because we are not only advocates. today probably feels like accountability. we will need to no that. >> that's fair. >> if i could comment on one thing. i know it has given me comfort. i went through this papal visit as well as the un. i can tell you, this was a defining moment for our agency. i talk to these people and look in their eyes. they want to be successful. this was an unprecedented time in our history. are peopleour people were determined to make this successful and we did it without incident.
our people felt proud about that. now, we have to correct these other things and will. we have people that are working very hard for the american people. >> we do and acknowledge that. that me ask you this as well. is there any independent agency or agencies that is an executive agency that you think has a higher risk or has no system of tracking, the highest risk and part of my question, do we know for certain that they have audited a process? risk, and part of my question are the independent agencies, do we know for certain that they have auditing process because they handle incredibly sensitive financial data on americans? mr. willemssen: i would point to those agencies who have the most p.i.i., personally identifiable information as reason to make sure that they are doing everything they can to protect that. you start with social security administration who has p.i. on almost every citizen.
v.a. you already mentioned definitely an issue. independent agencies, do we know for certain that they have department of education probably somewhat overlooked because they have a tremendous amount of p.i.i. because of the student loans not only on the student but sometimes the parents. i would be most concerned about where the p.i.i. is most significant. senator lankford: let me ask you about things like f.c.c. or cfpb, they have a tremendous amount of data. do we know on their employees how they have access anti-limitations they have? mr. willemssen: we know that they have at least three sets of data collection that includes p.i.i., maybe more. arbitration case records, bank account and transaction level data, and storefront payday loans. senator lankford: we did make a recommendation in terms of the -- we previously had done work and made a recommendation related to their privacy impact assessment. whenever you correct p.i.i., you have to do a privacy impact
assessment that lets everyone know what are we collecting, why are we collecting it, how are we going to use it, how are we not going to use it, and when are we going to dispose of it? they had not fully done those when we did our work that we maimed a recommendation on that. that's something i can follow up on. senator lankford: i know cfpb has requested again another incredibly large jump of information they are gathering on americans and databases. that seems to exceed even what was originally designed in dodd-frank. mr. willemssen: it may be more than what we had mentioned in our report then. they may have further expanded t senator lankford: it's a fairly recent expansion. what we are trying to figure out who has access to that and how often.
mr. willemssen: we can follow up for you on that. senator lankford: that would be helpful. gentlemen, i thank you for your participation today. mr. perry: the chair thanks the gentleman from oklahoma. before i close out i have a couple of questions. mr. willemssen, you are from the government accountability office, i read through your information. i'm just wondering if you can provide any clarity on other agencies regarding penalties, regarding accountability for actions that have been -- that they have engaged in regarding security clearances. that might be out of your wheelhouse mr. willemssen: i can talk about numerous -- some of the major incidents over time. probably the first major incident we had with inappropriate browsing was at the i.r.s. in the mid 1990's. several employees decided to start browsing celebrity's tax returns, as a result of that there was an act passed that
taxpayer browsing protection act, 1997, and that among other things has the penalties of up to $1,000 fine and imprisonment of not more than one year. mr. perry: do you know if anybody was prosecuted under that and subjected to those penalties at all? mr. willemssen: do not know that, sir. but i can -- we can follow up on that with i.r.s. mr. perry: i actually wish you would just so we know. director, you also mentioned that i think you had -- there are limitations, right, what you can do regarding accountability, punishment for actions that are beneath the standard, is that correct? director clancy: yes. we are not able to fire at will. mr. perry: so we need to know, the members of this board and congress in general, needs to know what you need us to do for you to be successful, for you to manage it for us. we need your direct recommendations. that's as said so many times in the room, we want you to be successful. if we are standing in the way, you need to let us know what we can do, what we should do, so you can be successful. i have served for over 30 years
in the united states military, if you're familiar with the army, i can guarantee you if there is a question of your security clearance and activities regarding the security clearance, that is suspended on an interim basis pending an investigation. if you're found to have been at fault and have breached, it's serious. incredibly serious for the most minor infractions. it's not meant to be a culture of punishment and fear, but it's meant to keep honest people honest. and to raise the level of importance of those things that should be important. i would just suggest that maybe that would be something you might want to look at for suspension of security clearances, which i would imagine in your business a suspension of a security clearance, certainly on an interim basis, but -- maybe on an interim basis but absolutely on a permanent basis means loss
of employment because you can't be employed without it, right? director clancy: that's correct. mr. perry: that gets to where we want to be. you are the top dog, and you are in charge, but i will tell you this -- whether it's in my family or my military or running my business, bad information does not get better with time. there must be a culture of something happened, who needs to know, and we get the information to the top of the chain as quickly as possible. if your subordinates don't know that is your expectation, we are going to have a continuation of this, which none of us want. you are sitting in front of us and defending your agency and agents, as you should. you probably also know 95% of your time will be spent on a 5% of your people. director, i've been out to your operation, and i've been impressed.
all of us want to hold up the secret service as the standard. americans desperately want that. these things are incredibly hurtful when we hear them in the news. there's a bigger picture. i think your employees need to understand, it is not their system. ,t is the taxpayers database and it is not their information. it is the individuals information. you don't own it. to use it willy-nilly is reprehensible in an age when, as the senator talked about, the information the government has gathered, the private sector is gathering, what happens to it, and the force of law under the aca, which says you must submit your information, to think and wonder somebody might be using that for their personal whatever, that's a problem for the american citizen trusting their government, and your employees have a direct
connection. they must understand that. you've been questioned a couple times on diversity and filling your ranks and keeping your people employed and keeping them in sent defies. we understand you have challenges in complying with the law. i would say from this person's perspective, i want you to get the best. you get the best to do the job. finally, i noticed a couple times you said, you are trying to be consistent with other agencies. i understand where you want to be, but this is the secret service, the premier organization of your type in the united states government, in the world. how about if you lead? whoou can't find somebody meets the standards you want set in government agencies, go outside. if you need help from us, ask for it. thank you very much for your time.
gentlemen, i think you, the witnesses, all for your valuable testimony and for the members and their questions. members may have additional question is -- questions come and we ask you respond to those in writing. without objection, this subcommittee stands adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]
i then asked them about planning and where they saw resources and asked questions about people they turned to the sound like credit repair scanners and debt relief scanners and found myself at a loss to think of trusted mentors, one on one counselors, we have great resources, many of you have good resources but i couldn't think of a hud approved housing counselor entering market. and how we could develop that
and a lot of people in the room our government, housing, capital providers, and in this area for a long time, these guys will kids direct them to what would be trusted. >> area of deep expertise, when i think about how we make changed over the long term is a lot about sending citizens signals to states and the private sector from the federal level so probably there are signals the federal government could use about half of high schools and junior high schools and middle schools are educating students but private-sector actions could be induced in innovation for young people with no gains and i think maybe the bonus from the previous panel --
>> credit agencies work with individuals, first-time financial literacy for children and free and first-time home builders what they're describing, which finances whether it is maintaining checking accounts, how you prepare to cover first time homeowner, those do exist and you find community groups often times you find them and look at local chambers of commerce and see if they had referrals, look at local hud centers having approved credit counselors, over the last two years there was an emphasis on financial literacy training with modifications and now is training people how to get into a home and they are kind of drilling down the kids at grade school level or high school level.
>> questions, frank? >> the core logic, traditional mortgage underwriting, not stable monthly income, a lot of families have unstable monthly income. when i think about seasonal workers and self-employed workers, many of whom are hispanic that is the population for rework forced the that is very unstable income. do you see that? reliance on stable monthly income in the face of a lot of workers who are unstable to be a barrier to mortgage credit access and if so, what is a policy prescription to address that? >> it is a barrier because there
is no -- it is obvious, a preference you would rather avoid spikes so it does become a hindrance to folks especially folks of color to market places but at the same time because you have that multi family household you have other individuals at will pick up the slack and just increase the amount they contribute at the end of the month and it happens quite frequently and that is why there is a little more leeway in terms of these programs, and talking about this, when we talk about borders it is not uncommon to have another family members that i could contribute $500 towards the mortgage payment because the next three or four months my uncle is maybe taking up snow plowing is as opposed to
landscapeing point increase to $900 so that is why we really need to see more flexibility with how these are created to account for those things because we will say this. at an end of the month especially in the hispanic community having a roof over your family's head is everything and they will do everything in their means to be able to make that mortgage payment. it is not uncommon to have two or three jobs as well so that is what you will find, when seasonal workers are within there no longer landscaping or construction they picked up a snow plow depending where they've been but picked up another position somewhere else so there is that flexibility that allows for that adjustment especially for seasonal workers. >> one more question. and remember who ever asked this question is standing between
this panel and lunch. >> thank you for that pressure. my question is we heard earlier today about this rental construction boom, a largest it has been in 30 some odd years and i read a lot of sources that 85% of rental construction of luxury apartments and also hearing that, that doesn't seem like what is needed now, the printers are paying 30% of their income so i guess not why, but what is to stop that from continuing? what is going to change the market to start building more affordable rental units? >> the fundamentals of economics, looking your own jurisdiction, i don't know where you live better option the land and get the zoning and in title and, three to five years before
taking the ground and another two or three four i can actually start ranting and the cost of that construction is somewhere in the $3 or $4 a foot to construct that building with all of the amenities, you can cut out the club room and the ssun . or increase the subsidy. it is income support for capital support. there is no magic whatsoever said jurisdictions have to step up, start enabled in density, they have to support mixed incomes so that you can serve these in one place and integrate housing that way, support extra transits for transportation
costs so even someone paying 50% of the income to rent is there's not another 10% for transit or 20 and three or four so everyone's household budget is what it is and you have to look at every component including transportation. but i do think there are communities that are working on this idea, getting help from the federal government. if they were to get help it would have to be in the form of capital support like low-income tax credit which enables housing to be built for 30 years and be kept affordable. >> also looking at existing stock again is where we need to go. one thing about urban -- came out with the story on but urban wire, 400,000 privately owned apartment and subsidies at risk of exploration in the next two
years that renew their contracts and this is especially critical in places like d.c. where a third of the units at risk our neighborhoods below 10%. and the neighborhoods where low-income renters will drive the most and working with groups in d.c. and the loss of affordability by cataloging, and an important part, the small multifamily stock, established housing and thinking about a lot more with high opportunity neighborhoods where we have to go and it is so expensive to new construction. >> we normally don't build brand
new housing, it is a filtering mechanism whereby existing housing serves, more restrictive zoning, we have a very distinct increase in quality of housing starting to be built, and smaller, dancer properties like double deckers being built and more research we should be doing, and distending the supply of housing that is small enough but not in the affordable range, year's figures of zoning, not just what is on the ground right now. >> i thank the wonderful panel, great job. and going to lunch and the next panel will be here.
>> staying with us after lunch, we intend to make this lively, all the blood rushedes will nonetheless, thank you for being here and an extraordinary panel. described by state, but i it is important to note, to represent both a great deal of knowledge about the workings of a set of firms who are central to the systems and outcomes we words were talking about but also their own roles in government and public policy have a really deep insight about how we make change and the intersection between that policy and housing
issues. i am sure tim pawlenty you know was a successful two term governor from minnesota and since 2012 has been leading the round table in the organization that represents a range of different companies in the financial service sector and insurance companies, banking, asset management, finance and credit card lending firms. secretary dalton has been president of the housing policy council which was the division of the financial services round table and many of us know him from his tenure as secretary of the navy of the clinton administration, and head of the federal housing finance board in the 1970s. dave stevens, anyone in this room, he is everywhere, dave stevens, president of mortgage bankers association of america, his private prior private-sector work includes tours of duty at wells fargo, freddie mac, a savings of mom and foster and
served as at age a commissioner which i know from that time in that office is a challenging task and serve in the most challenging time to hold that office that our country has faced. we really have an extraordinary group and i think our goal here is to try to lift a little bit from the conversation we were just having and put that in a larger policymaking contacts. i will start with you if i might. it has been seven years since the worst moments of the crash and if you put yourself back to what you saw there, what about today's environment is something you would never have expected back then? what surprises you most about where we are today? >> thank you for inviting us. a delight to be with you and be part of this discussion. thank you to others who are sponsoring this and allow us to
share a few thoughts. i am surprised about and number of things, one of which is we have two of the actors that were part of and arguably substantially contributed to the crisis, namely fannie and freddie, still in conserve bettership with a congress that seems unwilling and unable to tackle the reforms necessary to put fannie and freddie in a better place so obviously it is unsustainable, it is unacceptable, it might be ridiculous the we're seven years removed from the crisis and congress hasn't tackled this issue. beyond that, the change in the wake of the crisis, one of the worst economic crises in the history of the country, brought the economy and the country to its knees and there was going to be a transformational muscular response and there should have been, congress enacted this legislation called dodd-frank, you would think even though it
was big and complicated doing lots of things seven years removed but that it would be fully implemented, the slow pace of implementation of aspects of dodd-frank. >> i want to get us to come back to where fannie and freddie are today but what surprises you most? >> if we were to collapse what has occurred i don't know how many of you remember is that period of time in 2007-2008 we were watching institution after institution simply collapse. fannie and freddie put into conservatorshipship, home prices dropped 30%, hundreds of thousands of jobs lost when president obama began his first term, the lot of frustration and various issues and how certain
things have been implemented and a lot of dynamic tension with the regulatory process but in many ways the market is functioning better than i would never have expected given what happened preceding it. and implementing the final rule on dodd-frank, we got -- that is the final rule, and clarity and other things, i really look at the fact we have gotten through this and talk about opportunity at this point. a surprising outcome when we have a difficult scenario. >> when we were at that moment in 2007, two assumptions were
widely shared, the first was the lending had gotten completely out of control, and the consensus on that point and the second one there was not clarity of what to do, to be repositioned and reorganized and broken apart, there was some kind of consensus fannie and freddie had to change. when you look at today people are arguing the credit box is too tight. and there's a strong set of people, this is okay. and those early assumptions were wrong? >> before i respond, the urban institute for having this and for all you do issues that are important to us and what you do
generally and i want to salute core logic, the hope now, actually assists in 7 million people to avoid foreclosure and some 80% of those are still in their homes and doing well and i want to thank you for the six years you worked with us on that. with respect to the surprise question, i think the fact that i remembered just how deep the cavernous cavern was but we were in and hank paulson, secretary paulson stock conferences and his face as wide as a sheet,
then with chairman bernie gm leaders of congress and we were near real real debt, prices, recession, depression tight situation and what surprises me is not resilience of our economy and the fact the we have come back as strong as we have. in terms of our industry, the fact the we are coming back and granted their different parts of the country that were lagging. i was pleased to see recently that housing prices in san francisco were higher than they were in 2005 and go 2 and did miles east of las vegas and 40% below their peak, and there was
clearly an uneven recovery, loans are being a, the more the market is working, i am optimistic. >> were those lessons with tight credit and the role of the psc. >> a brand-new federal housing commission of human for, went to the nba secondary conference in early 2010, and i said on stage the fact that the government guarantees 95% which it was at the time of all mortgages being created in the country is a sign of the 6 system, that is a phrase onions, i got lectured afterwards by my public affairs guys at hud but immediately got on to it and i will reiterate
the point, the good news is the g s es have provided continuous capitols in housing markets, this housing market would be nowhere. dead on arrival. we know the only private mortgages being created in this country are going to a very affluent set of americans. ended and the few isolated programs some of which were talked about onstage earlier today. i think we have support structures in place, and has to support itself and that will be the real struggle we need to work through because i think we all want the same outcome and how we structure it ultimately can't be a system dependent on government guarantees but makes no sense. >> one more minute looking back
to the discussion, what have we done right so far to your point, the housing market we talk about this morning. do not have stability and security, this enormous house prices and markets, a lot of things are not where they want them to be, what did we do right. >> we reintroduced the notion of responsible underwriting and you can agree or disagree with the details and all the rest and the fact of the matter is we can agree what was done free crisis was the abomination, it was reckless and outrageous, nearly wrecked the country. and moving towards responsibility into the 24 it. and it was a big improvement.
>> the other thing is those risky loans that got us in the crisis, i huge majority if not all of them. and responsible ending and it is hard to make the same mistakes again. >> the whole spectrum of the consumer experience from point a determination of the loan. no matter how challenging it was easier to understand, payback from lenders to the operational challenge as consumers come in. and compensation is control. and the market based on what
products pay them more, and the consumer or not. and writing standards that are regulated, to repay, that is extremely noble and a market that protect consumers and the consumers treated when you make the payments and more importantly when they don't make the payments knowing what to expect, having standards applicable to everybody involved. that is the separate side of it. from front end to back end we created the housing finance market in the history of this country and we would collectively advocate, industry, worked together on these things, that is a good outcome and a high-level. >> so you can talk about what had gone less well and talk
about what may -- i would like to get to them, although to some extent pieces of reform are happening. what do we think has not gone right or really needs to be the focus of attention right now. you want to start? >> the fact that credit availability, there is lack of total credit availability and that is a concern. we do have significant new regulations to deal with, lenders are feeling their way with respect to that and there are tighter requirements on loans and there are those that are not qualifying, those people on the margin are being left out and we need to address that.
>> it is difficult because when we talk about things that concern us in the rules, we try to tear apart dodd-frank because nothing could be further from the truth. in the effort to get this fixed, the framework of protections in place to make sure the system operated well everybody -- it went from under regulated market for the recession, when we could argue clearly with evidence that the system was underunregulated, we have everybody regulating and it has created confusion and policies where one federal requirement under one agency does not comply with another regulator's obligations of in but effort to do this process i think the part we got wrong is not making clear of florida is to determine outcomes for certain segments of operational process of manufacturing mortgages and how they get
created in such unmannered the we had an outcome to clean up that to get credit expansion where it ultimately needs to be. >> do you think the challenges we having credit expansion unchallengeds that are driven by the regulation, the relationship, the mechanisms of the scope, is it in fact the architecture that is producing a machine that is producing that result, is that a larger set of issues? >> let's take a qualified mortgage role. the written rule itself would not be enough to support america, but to the credit of the housing system if it went beyond the role and said beyond the 43 ratio, if it meets the acceptable underwriting standards of freddie mac and fannie mae, it also is acceptable under the safe harbor role, and if they harbor
provision. had that not in place we would have a tighter credit environment. there's a yes and no side but ultimately the rule would stand on itself which would not depend on freddie mac and fannie may's underwriting decision, whether it is private capital government guaranteed capital, the role itself and shores of the broadest successful opportunity for home ownership to the point of the consumer, and sustainability and i don't think we have gotten there. we created the financial system is easiest for the wealthy you are and the more assets you have and it is tighter as we move down the curve. lenders and their inability to rationalize the confusion in rulemaking are holding their credit policies back on the outside boundaries of what they could do. getting clarity and some revisions in a way that could help broaden that box to that
same boundary i think is where the opportunity lies to move forward. one after the other, we need to recognize changes need to happen for that that can stand on its own and provide warrants and other things i know we talked about among ourselves often that there are changes that have to be made to bring clarity and policy. >> to go back again, the other place i think the reaction, one place we haven't -- the servicing system. and a kind of depth of it. but we also have lenders who feel average price cost saving is causing them to be unwilling
to take risks, mortgages are likely to have higher service and cuts. when you argue that is a big area of unfinished business and are there others? >> there are clearly others and use that we talk about g s es, that is the big one. and applies to low originators, working their way through it, the system is working, it is not working for everybody and at the margin they are not being served. >> whether it finds ways to get to the end as david said of the outer limits of credit box and thematically those who are reputable are saying we can't
take any more high profile lawsuits or big dreams to our reputation, too much legal and operational risks and you have to be inside the box here, and a little tighter to give any margin of error. there are 15 things to contribute to and uncertainty, and there on the side of -- the reputable ones i saying we will stumble but we are not intentionally going to take on that interest -- extra income. >> obviously the prospect for near-term legislation are relatively slim. there's a lot of regulatory action going on around pieces of the system. that start to develop more
crisply what people meant when they talk about reforms for both. is this process moving toward the day it is impossible to reach consensus for t s 8 reform. >> i do believe that and senators corker, warner and johnson develop a lot of credit for moving the debate forward like that but we didn't get a bill passed, and they are resolved, moving ball down the field. as far as at age f a, and for
legislation, the risk sharing, the front end and back end, the pollinization platform, and deserves a lot of credit for arrests and warrants. and let us have a better understanding of what their limits are. and each of those issues -- >> iron they going to become important to move forward? >> i think so. pulte you have the left and right concern about the left by those issues, we have to have a
backstop in order to have the 30-year fixed-rate mortgage which the american people won't. they have been voting with pocketbook since the 50s on that issue, we as an industry want to provide for them. legislation is going to be required to do that and i think the things they can do, backed legislation. >> this massive issue, the kind of opinions here on how to get there. and more common ground, and the court dynamics. and small institutions, bag, not bad. and tried to get fixed in order to make sure there was a clear
separation, originators can equally access the system and a level playing field because that created a lot of bifurcation, we salt that. one of the other big land mines which is really important to the role g s es are playing is how do we meet this, and whenever the topic we bucket it into, we need to have a system that is going to have an obligation to support communities that otherwise may not get capital from the private sector particularly in bad markets to get capital, we need a continuous flow of capital defined where you don't bring stakeholders, i actually believe there are ways to get there and talk about how to get their but to john's point, deserve a lot
of accolades for putting a lot of debate in place. and items that we pursue a regulatory front, many of us, how we get there, our ideas are evolve in but the best way to get there is we don't create an needed disruption in the flow of the mortgage-backed securities market that we depend on to make housing happen and other steps that can happen in the short run to take legislative lifts perhaps more defiant, but, and balance to maintain, to stay going forward, it is an interesting work product, a challenge in a few years ahead. >> we are having a conversation to people in this room that is comfortable and easy, we are outside this building or national debate going on about
choosing our leadership for the next four year period, not only -- and the common security platform, and i hope. >> the rates are going down. >> the general lack of interest of housing quality fatigue, the mortgage market, home ownership, access to credit issues. i start with you, are any of the housing consumer credit issues we have been talking about today, how will they find themselves in the presidential debate? >> unfortunately only moderately or almost invisibly so.
if you think of it in macro political terms of u.s. the american people what concerns you most, what things ride above everything else by far are the economy and security or as some people say put money in my pocket, keep us safe, give me a good job, keep us safe and everything else in a different year or two or tweet years below that. and add to that the complexity, listening to john and david hauck hal k , in -- interesting here, there's a constituency for disliking fannie and freddie and disliking that g s e, there's juice at that level and what to do about it and also political constituency around the issue of equal access and affordable housing issues, those are not the same as terrorism, economy,
jobs and the like. at least in certain forms and certain settings if you are trying to get the support of 3% over year and 3% over there, there is opportunity for the discussion but it has to be at a high level, people are not sitting around wearing jackets drinking miller lite, playing a raffle, and a great paper and the white paper and just like more of our table pounding, crazy there you got something called fannie and freddie, government-backed, 90% of mortgages in the country and you think people who are disadvantaged have some extra help in trying to get access to a decent safe affordable housing for whatever reason and that is as detailed as they get. >> people do know rents ago link
up in their cities and they know it is harder to get a mortgage or they don't having come toward the ability to save that their kids of living in their basements rather than on their own in the market. do you think there will be other issues for the property economic and security? >> as tim says, we talk to some of the candidates on both sides of the party for president, not all of them have a chance, not making labels. back as they tell you, go back and do round tables in their communities, nobody is saying what will you do about freddie mae and freddie mac, no one knows what those institutions
do, we are not doing a good job bringing housing to the forefront of their issues. i served on the bipartisan group to what the foundation and we get candidates thinking about how is an issue. we meet with them in new hampshire and we are going to other states and it is difficult to get candidates to even talk about housing as a subject, when you look at the data being presented here, in the markets on how many americans are living in poverty and can't afford their rent, and part of that is an opportunity, but until there is an outcry they are not going to focus on it and that is where we stand right now. >> the energy around fannie and freddie the exists in some populations, it is emblematic of a larger attitude about
institutions, large institutions, institutions in the financial system that is a legacy of people's personal experiences in the financial crisis, there is a deep-seated belief that what the financial system does is, rather than being a facilitating of the economy and consumer lives is somehow or other in tension with the needs and to interests of average americans. and you see candidates on the right and left and politicians on the right and left instead of appealing to that. do the industry's and institutions you represent have our role to play in trying to demonstrate where the narrative is and isn't fair? >> obviously we do. my organization represents almost every lender profile that
exists in the country and we have a lot of conversation how to change the narrative. i will tell you every time i see a new headline there were couple big ones about financial institutions related to the mortgage business, not positive of course, it becomes difficult to change that narrative. i really have been doing out reach to regulators, folks in the white house, start talking house safe and sound housing finance system, we should really recognize the fact that despite disagreements along the way we have created the safest set of consumer protection the country has ever seen, it is safe to get a mortgage, disclosure and protections for american home ownership of never been better. i don't see that message coming out. we can talk about it with loan officers at the street level and real-estate agents try to do that in the communities that we need more from academics and policymakers despite internal discussions, they worked for a
lot of battles along the way, they forget the uniforms they are wearing, at the end of the day we really do need to unchanged and narrative. it is important to create confidence in the system, to create confidence in the market to get participants involved and trust is a deficit that is huge, that was created as a result of bad practices, bad regulatory oversight, consumers made bad decisions, real-estate agents made those decisions, we fix so much of that now, it is critically important to turn the page, we don't protect what we need to keep in place. and don't start doing that we will keep what still exists at some level because the anxiety,
anti financial service sentiment is so extraordinary. >> may be more practically, elevate housing to be taught your presidential issue which may be unrealistic in the near term, but people in this room might take solace from the reality on the ground as a policy matter. if you add up the real-estate developers, agents, suppliers, builders, contractors, originators, underwriters, servicers, finance years, consultants to all those people, advocates for affordable housing and advocates for different policy and go from far left to far right and at up what is the housing cobol, i don't think you would look at that and walk away from the discussion and said our problem is this group doesn't have enough influence in washington d.c. that is a false premise, this call that is
that put them in three large bites. i put in a bucket called confidence to lend and competence to ban comes into all clarity, motivating institutions to be able to expand the credit box in a way that doesn't put them at extraordinary risk, competence to borrow, consumers have confidence in a system that works and in the system itself. where does capital get formed, how do we resolve the gsp issue, i put those in three buckets and those were extremes we have to work toward. >> we will ask all of you to join the conversation, people wandering around with mike's and if you could raise your hand we will bring the mic to you.
>> there we go. >> in boston, i spoke before, in boston two three buyers for every home for sale. i think everybody will acknowledge we are close to the speed limit in terms of home price increases. lot of talk about bubbles already again. out is expanding the credit box relevant in that environment? detroit is different from boston but if you look across the country most of the markets, the constraint is in the supply, houses for sale, how will that impact the markets by expanding
the credit box? >> you take your markets where the demand is far greater than supply, boston, washington d.c. san francisco, that is a different challenge, a supply challenge, if you go to detours, fresno, still parts of florida, parts of nevada, home prices have not fully recovered and there's a lot more diversity in some of these communities, so making sure we are providing as broad a credit box, sustainable borrowers can take advantage of meeting those markets but john pointed out some markets robustly recovered, other markets are not there yet and the needs of each of those markets is different. i got the point earlier in the previous panel, something that is another set of dialogue, and
interesting points about all of these incentives or lack thereof impacting the supply issues affect a community like you are focusing on? >> geographic variation, even within markets. if you think about 7 and 8 and in the neighborhoods around new york, robust economic activity going on there and house prices are appreciating but gradually, and they have the same credit profiles and underwriting standards access to credit in those neighborhoods is really tough so is a much more granular and local market by market. >> like the two you just mentioned look at the difference in what is happening with home prices in prince george county,
and the h p i have is different. there is a lot of work to be done on the credit side. [inaudible conversations] >> it was a stable system, we are on a glide path towards the future that makes sense. where are the sources of instability. we just saw them take a draw with capital coverage. at some point there will be at recession again. where are nothing that could up and the quiet past we are on? >> any number of things. from the dramatic to the more sublime, somebody put a dirty bombing to washington dc tomorrow and you have significant upheaval in the economy and housing markets with change fundamentally. that is one and one is a
continuing. the other -- you have a seven year recovery that has been fairly anemic by historical standards and while we are all hopeful for a continued positive direction in that regard, you could have a recession, by historical standards, we're seven years into a recovery, six months from now. and tactical level things, people like large banks say not worth our time or trouble to be part of the program. too risky. and too costly. and ten more of those say that. if you look at the continuum of what could disrupt the relative calm of the gentlemen to the left, samples along the roadway.
>> to follow up on the governor's comments, a fact that we had a two gee s es, fannie and freddie income serve bettership for 7-1/2 years with no real plan in sight to fix that, there won't be legislation in this congress this year or next year but we really do have to fix that. it is you know, it is something we cannot continue to have these major institutions in conservatorship. i think i would like to see something that worked well, like the economic closure commission and congressional the chartered and maintained a group that looks at the issue and bring it to congress and have them act on
it. but they would not have any part of it but when you put the whole totality presented to congress and they had to require an up or down vote they had to get something done. that kind of thing is what we should consider doing with respect to housing. >> i want to declare i didn't say things -- the opening comment it is remarkable, i think actually we have great risk ahead of us that we need to resolve and i worry when i see a piece of legislation or i see some regulator focusing on one segment of the industry. goes back to licensing for some countries and exception for banks vs. non banks, all of this
is fodder, 30 pieces of legislation, on the congress, and how unstable people think it is we have huge risks and when interest rates start rising we have to worry about sources of liquidity to provide financing and capital to the remaining mortgage finance system supplying homeownership opportunities in this country because it is true, you can't rely on banks to support the housing system, we have a whole bunch of dynamic new institutions in the marketplace today so we have a lot of work to do to make sure this infrastructure doesn't fall articulately where credit spreads change. from that standpoint we have a lot of work to do but we are right now in a far more stable environment and i thought we would be a few years ago and that was a good sign of the double-edged sword.
>> one more question. thank you. >> national association of real-estate professionals. media accounts show you in agreement with secretary william castro having struck the right balance in mortgage insurance premiums but for now to be cautious about seeing them further, recently there has been action to change the regulations of condos. in terms of positive actions, the administration or any government housing entity between now and next year it, the end of next year moving up the credit box. >> again, at h a just got over the 2% capital reserve requirement, most of that increase came from the reverse
program which has been volatile year in and year out, and in political risk, if it is on a different forecast next year, under 2%, you would not want that on the heels of doing a reduction too soon. i think there will be one, but keep the powder dry, use it when we needed to be stimulative or more capital into capital reserve. that is how i would do that. rates are extremely low. i don't think there is an inhibitor to access to credit. i think if a has an obligation to create clarity in the mortgage certification, there is other work to be done servicing as well but today the use of false claims and damages is a new regime that never existed prior to 2011, put every lender in america at greater risk than
ever before to mortgage, unlike anything to do with the s es or any or origination in this country and that is why you hear particularly right now larger institutions almost championing that they are accepting the program and it is almost a race away from the f h a program that is critically needed to support first-time home ownership. what that age they could do right now more than anything else is create greater clarity so lenders are held accountable for egregious material errors but also make clear that for minor mistakes in loan file that will never meet the test of a false claims act under a department of justice legal action, if we don't make that change initially nothing else matters. we will continue to surrender points away from the program. is intolerable and any affordable housing homeownership side should be championing most
are right now. it is the biggest issue had faces. >> we are about out of time. as was mentioned earlier we represent not just banks but insurance companies, asset managers and other institutions to pick up some things that have any parallel applicability to the discussion. think about the world we live in and where we are going, the difficulty of the mortgage process for a user experience and.is to put it charitably, sub of, very complex product with a lot of underwriting behind it but very soon getting to the point of being able to say to a person simply here is our proposition, by now, one click, in the life-insurance place. it is a difficult process that is deterring lots of people and people moving to a much simpler,
quicker, there is a problematic side to that which is they know so much about use of the you don't need to fill out forms and do this stuff, big data analytics and difficult issues around that but setting that aside for purposes of the discussion the idea that we put an individual or family what amounts to a long, difficult march to getting a mortgage is not going to -- i can see it as a sustainable experience or optimal experience given what we know about how consumers are interfacing with products and services through technology platforms. one tactical thing we can do to improve this including potential of getting people in pre qualified or at least most requalify states, maybe even some sort of legal safe harbor state and make it easy for them
to provide some benefit, value for the user, the customer in the process. i am all lawyer and persistent in type a and i can barely stand it. >> maybe that is a perfect place for us to close because embedded in that comment is both some potential dangerous pitfalls but also reasons for optimism about the future that the consumer and stands to engage in. ..