"Good Morning. I call this hearing to order.
"Today we meet to examine the private label mortgage backed securities market, the barriers that exist in the current market that prevent private capital from reentering, and how this market fits into any housing finance reform effort.
"At the height of the housing boom, private capital represented more than 50 percent of the mortgage market. Today, it is closer to 5 percent. While government backed loans represent 95 percent of the current market, the volume of government backed loans has not changed that much. What has changed is a major reduction in volume by the private market.
"I think we can all agree that the private market should play a more substantial role in our housing finance system than it is currently. That said, we must be certain that any new system we design will actually attract private capital.
"For securitization to work well, especially in the PLS market, the underlying loans must be well-underwritten and there should be greater transparency. The Wall Street Reform Act includes key reforms, such as QM, QRM and disclosure requirements, that will help prevent another crisis caused by high-risk loans that were bundled and sold to investors. Final rules, along with higher guarantee fees, will provide strong incentives for the private market to return.
"Additionally, the recent crisis showed us weaknesses in the current loss mitigation and foreclosure process. We should look at ways to eliminate barriers to reasonable loss mitigation efforts that are ultimately in the borrowers' and investors' interest.
"With any reform, we must create the necessary conditions to bring private investors into this market while at the same time sustaining structures like the To-Be-Announced market. The TBA market is a key component to ensure access, affordability, and liquidity for borrowers and investors, and it allows for the existence of the 30-year mortgage, important to millions of Americans. We will have future hearings on these issues, but if private capital were to take any first loss position ahead of a future government-guaranteed security, we must make sure it is compatible with the TBA market.
"These are extremely complex issues, and there are no easy answers. That is why we are exploring the role of private capital early in our series of in-depth housing finance reform hearings this fall. We must get this part right. As we have learned, private capital may not always participate in all segments of the housing finance market under all economic conditions. Any steps this Committee takes to refocus and redefine the government's role and improve the securitization process in the housing finance system must foster stable private capital flows, provide access to smaller lenders, and not price the middle class out of affordable mortgage products.
"Clearly, we have our work cut out for us, and I look forward to this morning's discussion."