▶ 0:09:38real quick. We'll start momentarily.
▶ 0:10:20The Subcommittee on Housing and Insurance will come to order. Without objection, the chair is authorized to declare recess of the committee at any time. And a reminder, we will have votes sometime in the 11:00 hour this morning, and we will be breaking for that. This hearing is titled Diversifying Risk, The Benefits of Reinsurance and Credit Risk Transfers. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record.
▶ 0:10:48I now recognize myself for 4 minutes for an opening statement. First of all, I'd like to thank all of our witnesses for being with us today. I look forward to an interesting discussion focusing on reinsurance and credit risk transfer. Well, distinct in how they're used, both reinsurance and credit risk transfer or CRT are used for a common purpose. To distribute risk that would otherwise be concentrated in one entity across more market participants. Reinsurance does this by serving as insurance for insurers.
▶ 0:11:19Let's use an example to help demonstrate when an insurer might need reinsurance. Let's say a small mutual issuer, which I have a lot of in Nebraska, issues home insurance policies primarily in communities in western Nebraska. In most instances, that business model probably works pretty well. But, what if a severe storm moves through the panhandle pelting homes across the region with baseball-size hail and 60-mile-an-hour straight-line winds?
▶ 0:11:45That insurer could see a large portion of its insurance filed claims at the same time, a disaster that could even send the company into bankruptcy. One way for an insurer to deal with this is to get reinsurance, or insurance for the insurer, that would cover exactly the type of risk that would put them in a difficult position to pay claims.
▶ 0:12:03By purchasing reinsurance, the insurer covers themselves from a worst-case scenario, much like a homeowner uses insurance to cover themselves in the event of an extreme weather event that causes massive damage to their home. Similarly, CRT is used by Freddie Mac and Fannie Mae to distribute to distribute mortgage credit risk off of the enterprises' books.
▶ 0:12:27Much like reinsurance, CRT, if used properly, will help redistribute some of the risk on the GSEs' books to other financial actors, lessening the burden on the enterprises themselves. For those of us that are interested in lessening the taxpayers' potential liability from Fannie Mae and Freddie Mac, CRT is a tool that can help meet that goal. CRT is designed to put private capital ahead of the taxpayer in the case of mortgage defaults.
▶ 0:12:54When it operates properly, it both spreads the risk and lessens taxpayer exposure to downturns in the mortgage market. While this discussion will largely focus on transferring risk between insurers or the enterprises, both reinsurance and CRT have downstream effects on the insurance market and the mortgage market, including consumers. A market with concentrated risks is going to be more likely to have problems when unusual events arise.
▶ 0:13:21As a policyholder, you want your insurer to have diversified risk to ensure that when something happens to you, they pay your claim. As a prospective home buyer, when you are shopping for a mortgage, you want the best terms and the lowest interest rate possible, something that is easier to find when enterprises are healthy and conforming mortgage market is running smoothly. The bottom line, reinsurance and CRT help distribute risk across the market.
▶ 0:13:47Both make our insurance market and mortgage market operate safely and I'd like to add the following documents to the record for this hearing. An April 21, 2026 letter from the National Association of Realtors. Without objection, it is received. I look forward to hearing from our expert panelists today. I understand this is the first time in some almost 20 years that we've had this in front of our committee.
▶ 0:14:11I'm shocked that the paparazzi is not here checking in on what we're doing, but we are working on behalf of the taxpayers to make sure that the capital markets step in before they do in the event of a With that, I now recognize the ranking member of the subcommittee, Mr. Cleaver, for 4 minutes for an opening statement.
▶ 0:14:31Thank you, Mr. Chairman. I appreciate you calling this meeting together. Um I say meeting, it's more informational than it is uh going to be, you know, based on conflict and so forth. So, thank you very much. Uh I think this is helpful, and I'd like to thank our witnesses for being here with us.
▶ 0:14:49Uh risk transfer mechanisms, including reinsurance and credit risk transfers, CRT, are core tools used by primary insurers and government-backed entities to manage risk. Reinsurance is often referred to as insurance for the insurance companies.
▶ 0:15:08Primary insurers purchase reinsurance to seed concentrated exposures they prefer not to retain or must transfer to satisfy regulatory and capital Credit risk transfers are a type of reinsurance used by the enterprises to offload mortgages, mortgage credit risk to the private sector in exchange for a premium payment.
▶ 0:15:33Following the financial crisis, the Federal Housing Finance Agency, FHFA, wisely directed Fannie Mae and Freddie Mac, uh to reduce taxpayer exposure by transferring mortgage credit risk to private capital. These tools deliver multiple benefits, including taxpayer protection, distribution of systemic increased capacity, and the provision of price signals.
▶ 0:16:01Most of the federal insurance programs, including the Terrorism Risk Insurance Program and the National Flood Insurance Program, shift the risk from the private sector to the federal government. And by contrast, credit risk transfer, CRT, and the NFIP's use of insur- of reinsurance shift risk from the government to the private
▶ 0:16:25I appreciate our witnesses who will speak in detail about the mechanisms and benefits of these tools. It is important to note that reinsurance and CRT are not only are not the only ways to manage or distribute risk. Alternatives, including diversification, capital buffers, and However, they're widely recognized as critical components of the risk management toolkit.
▶ 0:16:53At the same time, they are most effective when paired with strong management of underlying risk. Since assuming his role as director, Mr. uh director of the Federal Housing Finance uh Agency, has taken a series of unprecedented actions, including appointing himself chair of both enterprises, removing the CEO of Freddie Mac, dismissing more than a dozen board members across the enterprises, dissolving the audit committee of Fannie Mae,
▶ 0:17:23and targeting officials appointed during the Biden-Harris administration, includ- including Lisa These developments have raised legitimate questions about the direction of US housing finance policy and the future of the enterprises and the secondary mortgage uh the market market mar- mortgage.
▶ 0:17:43American families have also faced sharply rising property insurance premiums since 2021, driven in part by the increasing frequency and severity of climate-related disasters. Addressing these pressures will require a greater focus on risk reduction, including mitigation, resilience, and climate adaptation to reduce underlying risk and overtime costs.
▶ 0:18:08The US Government Accountability Office has emphasized the importance of strengthening the delivery of federal disaster insurance assistance, including the National Flood Insurance Program, as disasters grow more frequent and severe. I look forward to hearing from our witnesses about this important reinsurance and CRT. We apologize for the crowded room. Thank you, Mr. Chairman.
▶ 0:18:32Gentleman yields back. I now recognize the chairman of the full committee, Mr. Hill, for 1 minute for an opening
▶ 0:18:39I thank the chairman, and I I know Cleaver and Flood always attract a a big paparazzi gathering, and I'm always taking pictures of both of you, so Really appreciate this panel. I think it's very important for our members to connect and think through the benefits of the use of reinsurance both in all of our federal risk categories, like the National Flood Program, like obviously offloading uh uh the risks in our government-sponsored enterprise mortgage portfolios,
▶ 0:19:09but how that's done is really important, and is the risk really laid off the taxpayers and is it the uh layer of risk and so this hearing's very important. I'm grateful for team of Flood and Cleaver and holding this hearing and I really look forward to discussion. I yield back.
▶ 0:19:26Chairman yields back. I now recognize the ranking member of the full committee, Ms. Waters, for 1 minute for an opening statement.
▶ 0:19:45Mr. Chair, credit risk transfers or CRTs can offer benefits to our housing finance system. Uh they can provide insight about market perceptions of the devolved risk of the housing portfolios of Fannie Mae and Freddie Mac and may allow private capital to help absorb losses. But to be clear, CRTs will never replace the role of the federal government in housing finance.
▶ 0:20:15In order to address the affordable housing crisis, Congress must ensure that Fannie and Freddie meet their mission to provide liquidity, sustainability, and affordability to all housing markets in the United States and at all times.
▶ 0:20:32That is why this committee should consider every tool available to increase access to affordable housing, including ways to leverage and other forms of reinsurance when it makes good sense. I yield back.
▶ 0:20:49Gentlewoman yields back. Today we welcome the testimony of Mr. Anthony Vidovich, the executive vice president and general counsel of Everest Group, Mr. Ben Walker, an executive managing director at Aon, Mr. Jerry Theodoro, the director of the finance, insurance, and trade policy program at the R Street Institute, Dr.
▶ 0:21:12Susan Wachter, the Albert Sussman Professor, Professor of Real Estate, and Professor of Finance at the Wharton School and at of the University of Pennsylvania, and the co-director of the Penn Institute for Urban Research. We thank each of you for taking the time to be here. Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record.
▶ 0:21:37It looks like all of you have your microphones appropriately close to your uh mouth, but it does help if you speak right into them so that we can properly get it transcribed and that we can hear you. Uh Mr. Vidovic, you are now recognized for 5 minutes for your opening oral remarks.
▶ 0:21:55Chairman Flood, Ranking Member Cleaver, and members of the subcommittee, thank you for the opportunity to testify The RA also thanks Chairman Flood for his leadership in advocating for National Weather Service and the federal science infrastructure, personnel, and data that make forecasting and the assessment of natural hazard risk Federal science is foundational to an insurance system that makes it possible to build and buy homes, finance businesses,
▶ 0:22:25and sustain jobs across our country while helping families and communities recover and rebuild after disaster strikes. I am Anthony Vidovic of Everest Group testifying on behalf of the Reinsurance Association of America. Reinsurance, as the subcommittee has noted, is simply insurance for insurance companies.
▶ 0:22:48It is a cost-effective risk management tool used to share risk, limit liability, stabilize loss experience, protect against catastrophes, and increase capacity. It's not mandated. Insurers and government programs choose reinsurance because it is often a more cost-effective way to manage catastrophic risk and access additional capital at a lower cost than other forms of capital.
▶ 0:23:17The global capital of reinsurance For example, reinsurers paid roughly 28% of the more than $90 billion in insured losses from hurricanes Katrina, Rita, and Wilma, and more than half of the insured losses from the September 11th attacks.
▶ 0:23:37And reinsurers remained open for business throughout the COVID-19 For the federal government, reinsurance reduces taxpayer risk, shifting risk to private markets, lowering exposure, and providing a market-based signal of the true cost of that risk, and supporting the availability of credit as noted by the CBO.
▶ 0:24:03Several federal programs within this committee's jurisdiction are successfully using this risk management In 2013, the Federal Housing Finance Agency established a credit risk transfer program, which transferred more than $230 billion of credit risk on over $8 trillion of mortgage balances with over 30% of the risk transferred shared by 70
▶ 0:24:34National Flood Insurance Program has transferred approximately $18 billion in risk since 2017, around 9 billion of which was assumed by 48 traditional reinsurers who paid FEMA over a billion dollars in the program's first year after Hurricane Harvey In 2018, the Export-Import Bank of the United States launched a pilot reinsurance program with
▶ 0:25:0410 reinsurers providing approximately $1 billion in loss coverage in its first aircraft financing transaction supporting US exports and jobs. There is an opportunity to build on these successes by revising US bank capital rules that do not clearly permit the use of insurance and reinsurance for capital relief.
▶ 0:25:30Allowing banks to use reinsurance would help them better manage risk and support access to credit while maintaining strong regulatory oversight and enhancing the safety and soundness of the banking system.
▶ 0:25:46Reinsurance is already working across the US insurance industry and federal programs that help people buy homes and finance rental housing, protect homes and businesses from flooding, and support US exports and jobs.
▶ 0:26:03The opportunity today is to build on that success and make full use of a proven, cost-effective tool to better manage risk, expand access to credit, protect taxpayers, support economic growth, and strengthen the safety and soundness of our financial system and federal programs. Thank you for the honor of testifying today, and I look forward to your
▶ 0:26:30Thank you very much, Mr. Walker. You are now recognized for 5 minutes for your oral remarks.
▶ 0:26:37Chairman Flood, Ranking Member Cleaver, members of the subcommittee, thank you for the opportunity to appear in front of you today. My name is Ben Walker. I'm an Executive Managing Director at Aon Re, where I lead our global credit team. Aon works with major US government programs and government-sponsored enterprises, including Fannie Mae, Freddie Mac, the Export-Import Bank, FEMA's National Flood Insurance Program, and the US International Development Finance Corporation.
▶ 0:27:05Credit risk transfer, or CRT, is a proven, scalable way to mitigate risk to the federal balance sheet. It shares risk with private capital, protects taxpayers, and preserves access to credit through challenging economic In my brief time with you today, I'd like to answer three questions. What is CRT? How does CRT work? And why does CRT matter? First, what is CRT?
▶ 0:27:31Traditional reinsurance is used to transfer the cost of physical events, such as storms, floods, or wildfires to private markets. FEMA's NFIP reinsurance program, which had reinsurance recoveries after Hurricane Harvey, is one example of risk Credit risk transfer works similarly, but is applied to credit risk, which is the risk that borrowers don't repay their loans.
▶ 0:27:54Exim's $1 billion credit reinsurance program on aircraft loans, implemented at Congress's direction and funded from existing budget, is another example of how a federal agency can share risk with the private sector. Second, how does CRT work? After the financial crisis and while in conservatorship, Fannie Mae and Freddie Mac were directed to develop ways to better protect taxpayers through credit risk transfer.
▶ 0:28:19Typically, GSE CRT will cover a defined pool of mortgages and transfer a specific layer of potential losses above an attachment point and up to a detachment point. In exchange for loss protection, the GSEs pay an insurance premium. The design was intentional. It was aimed to cover losses on the scale of the Great Financial Crisis. The idea was that if we ever see that level of stress again, a substantial portion of losses would be paid by private investors rather than taxpayers.
▶ 0:28:49Since inception, nearly 70 reinsurance balance sheets have written close to 75 billion of CRT limit. Reinsurance adds value by providing more stable pricing across cycles and by offering forward coverage, which locks in protection before loans are Rather than 6 to 12 months afterwards. And third, why does CRT matter? Credit risk transfer is important for four key reasons.
▶ 0:29:15It strengthens taxpayer protection by shifting a clearly defined amount of loss from federal entities to private It supports system stability by diversifying trillions of dollars of mortgages and other credit exposure off federal balance sheet and into global It enhances market discipline because independent underwriting and pricing by reinsurers and investors provide a continuous check on risk management, which is complementary to regulatory efforts.
▶ 0:29:43And it delivers capital efficiency as CRT has often been cheaper than raising equivalent equity. This provides an overall lower cost of capital and supports stable or potentially even lower cost for Program design choices, such as where to set attachment points, are policy They determine how much protection CRT provides in a stress scenario and how much cost is borne in advance rather than during or after a crisis.
▶ 0:30:11From what we see in the market, there is significant private sector capacity to do more and to do it in a way that meaningfully protects tax taxpayers if so desired. I'll close by making the point that CRT is not theoretical and it is not partisan. It is a practical, tested mechanism that is already been used at the GSEs, at NFIP, and at EXIM.
▶ 0:30:34Whatever choice Congress ultimately makes about the long-term structure of housing finance and federal credit programs, CRT will be available as one of the most effective ways to reduce taxpayer exposure, improve the safety and soundness of the system, and leverage private expertise and capital in support of public objectives. Thank you, and I look forward to your
▶ 0:30:55Thank you for your testimony. Mr. Jerry Theodorou, the director of finance, insurance, and trade policy at the R Street Institute, you are recognized for your oral remarks for 5
▶ 0:31:06Chairman Flood, Ranking Member Cleaver, members of the subcommittee,
▶ 0:31:10Thank you for holding this hearing and for the invitation to testify. My goal is to present an overview of the complex global reinsurance industry. Reinsurers are dispersed across the globe with reinsurance hubs in five geographic clusters in continental Europe, Bermuda, the Lloyd's market, the US, and the Far East. Close to half of global reinsurance capital is in continental Europe.
▶ 0:31:36The big four continental reinsurers, Munich Re, Swiss Re, Hannover Re, and Scor, account for half the world's reinsurance market. If the primary insurance industry is effectively the economy's financial first responder, the reinsurance industry is the market's shock absorber. Several features of the reinsurance market are responsible for its role in the economy. Reinsurance diversifies risk.
▶ 0:32:04A strong illustration of this is reinsurers' reaction to the hurricane seasons of 2004 and 2005. In 2004, four catastrophic hurricanes struck Florida. Charlie, Frances, Ivan, and Jeanne. In 2005, Katrina, Rita, and Wilma hit the Gulf and Florida. Cumulative losses from these seven hurricanes reached about $100 billion, but more than half the losses were borne by overseas reinsurance.
▶ 0:32:34Were it not for insurers recovering the majority of 2004-2005 losses from global reinsurers, primary insurers would have shouldered the entirety of the $100 billion loss. The global reinsurance industry paid 61% of the losses from the 2005 hurricane season, and 60% of the losses from 9/11 were assumed by the global reinsurance industry. You see, global reinsurers take the financial sting out of disasters.
▶ 0:33:04The losses of 2004 and 2005 were significant for another reason. Responding to the depletion of capital from those two bad years, entrepreneurial insurance executives created eight new Bermuda reinsurance companies focusing on property catastrophe risk. This spawn of is called the class of 2005. Insurance companies have counterparty relationships with dozens of reinsurers.
▶ 0:33:33Medium-sized insurance companies typically obtain reinsurance from about 75 reinsurers, enabling the spread of Reinsurers perform other functions beyond diversification, including volatility management, retrocession, which is reinsurance for reinsurers, and serving as a flexible source of capital.
▶ 0:33:55After years of rate increases, reinsurers are now reducing rates as a response to below-average catastrophes in 2025 in the first quarter of this year. Just a few weeks ago, on April the 1st, property catastrophe rates came down by about 14%. Lower reinsurance cost means more competition and lower prices. Reinsurers take on more than just property catastrophe risk.
▶ 0:34:21They reinsure liability, cyber, and mortgage insurance portfolios, and they engage in credit risk transfer. This is a financial mechanism enabling government entities that hold credit risk to offload default risk to reinsurers. Government-sponsored enterprises, the GSEs, such as Fannie Mae and Freddie Mac, shift borrower default risk to reinsurers. Numerous reinsurers say serve as CRT counterparties.
▶ 0:34:50These include the European Big Four, Bermuda, and Lloyd's. Reinsurer responses to the large disaster toll of 2004 and 2005 showed that it was not government action that paved the way out for a capital-deprived industry. It was private investors who recognized uncorrelated insurance risk as a diversifying asset strategy.
▶ 0:35:14Over the years, there have been proposals introduced in Congress to federal reinsurance entities offering reinsurance products at below market rates. Such initiatives are ill-advised for three reasons. First, government provided reinsurance would displace private market reinsurance. Second, underpriced government reinsurance would undermine incentives for mitigating risk by suppressing transmission of price signals.
▶ 0:35:42Third, underpriced government reinsurance means policyholders with low risk subsidize those with elevated risk. Thank you for holding this hearing and for consideration of my views. I look forward to your questions.
▶ 0:35:57Thank you very much. Dr. Wachter, you are now recognized for 5 minutes for your oral remarks.
▶ 0:36:04Chairman Hill, Ranking Member Cleaver, and members of the subcommittee. Thank you for the opportunity to testify at today's hearing. I am Susan Wachter, Professor of real estate Susman Professor of real estate and Professor of Finance at the Wharton School of the University of Since their introduction and 2012, CRTs have become a cornerstone of post-crisis housing finance.
▶ 0:36:32At their core, CRTs are instruments that allow the government-sponsored enterprises to transfer a portion of mortgage credit risk from their balance sheets to private investors.
▶ 0:36:46CRTs trade and price and identify credit Rather than concentrating risk within the GSEs and exposing taxpayers, CRTs distribute risk across a broad base of market participants, including institutional investors and reinsurers.
▶ 0:37:08This structure enhances systemic The CRT market has grown substantially over time both in size and CRT issuance has transferred hundreds of billions of dollars in mortgage credit risk to the private sector.
▶ 0:37:28This growth has not only reduced taxpayer exposure, but has also created a mechanism through which credit risk is continuously priced by market It is useful to identify the two complementary CRT markets that coexist. The first is the reinsurance market in which reinsurers assume mortgage credit risk through structured agreements.
▶ 0:37:57The second is the capital markets CRT segment in which risk is transferred through tradeable securities. These securities are issued to investors and actively traded, providing ongoing price discovery of risk. The availability of such information is for financial stability.
▶ 0:38:22Accurate pricing of credit risk can as an early warning system of potential catastrophe, signaling structural weaknesses before they escalate into systemic crises. By contrast, when risk is underpriced and obscured, as was the case in the run-up to the 2008 financial crisis, risk can build unchecked.
▶ 0:38:52CRTs help prevent the catastrophic outcome of of this catastrophic outcome by embedding transparency and market discipline directly into the housing finance system. Thus, the CRT market is a vital component of a modern, resilient housing finance system.
▶ 0:39:17By transforming risk to the private sector, providing transparent and continuous pricing of credit risk, CRTs enhance both market efficiency and financial stability. CRTs, however, are not a substitute for managing risk, particularly if and as the private privatization of the GSEs is contemplated.
▶ 0:39:41A recent convening by the Penn Institute for Urban Research, which I co-direct, brought together leading public and private sector stakeholders to affirm key principles for the reform of Fannie and Freddie Mac in contemplation of privatization. Foremost among them are, first, pre- preserving affordability public mission of the GSEs, and second, ensuring market stability.
▶ 0:40:10Embracing these principles must be a foremost priority in ensuring a resilient housing market to safeguard taxpayers, promote long-term financial stability, and support broad-based access to sustainable homeownership. Thank you. I look forward to your
▶ 0:40:30Thank you for your testimony. We'll now turn to member questions. I now recognize myself for 5 minutes for questioning. Mr. Vitovec, can you help us understand how the reinsurance market currently views US catastrophic risk? And are they willing to take on catastrophic risk in higher risk areas?
▶ 0:40:51Uh thank you for the question. Uh the reinsurance industry is quite vibrant. Uh capital is continuing to enter that market. Uh and rates for catastrophe reinsurance in a number of cat prone areas uh are declining because we are seeing increased competition because of that inflow of capital. For example, in Florida, which we have heard from Mr.
▶ 0:41:19Theodoro and in my own remarks, has a history of being prone uh to a number of cat risks including uh hurricanes, we are seeing uh significant new capital come into that market, which is driving down the cost of cat reinsurance premiums. We're also seeing new entrants come into that market to assume that risk. So, the private market is responding and is quite vibrant.
▶ 0:41:48Continuing with you, sir. Um how could catastrophe bonds fit into the broader risk sharing ecosystem as we look forward? Uh first, for those at home who may not know, just maybe explain what a catastrophe bond is and then speak to the role catastrophe bonds play in the property and casualty market.
▶ 0:42:08Of course. So, a catastrophe bond is a bond, uh but it at its core is a reinsurance contract. An insurance company will seed risk to a special purpose vehicle which will issue bonds to other capital providers.
▶ 0:42:25The cost of those bonds are used to as collateral to ensure that the losses are paid and those bondholders get an interest payment or a coupon based on the investment income that those assets earn, but also based on the premium paid by the seeding insurer for that type of reinsurance.
▶ 0:42:45So just to clarify, there's room for both catastrophe bonds and reinsurance in our market.
▶ 0:42:51Actually, catastrophe bonds are simply a form of reinsurance. So reinsurance is an umbrella term, so the answer to your question is absolutely there's room for both. It is a type of tool.
▶ 0:43:03I appreciate that. Let's pivot to CRT only because I'm limited on time. Mr. Walker, as it relates to credit risk transfer, what types of investors are most interested in CRT and what typically drives that interest?
▶ 0:43:17Thank you for the question. I can speak to the reinsurance marketplace for CRT which is comprised of US insurance companies, Bermudian reinsurance companies, Lloyd's of London entities, as well as Continental European reinsurers. It's a diverse global, you know, financial system supporting US CRT. The draw is that it's a diversifying risk.
▶ 0:43:40There's a significant amount of data available to price and analyze the risk and so reinsurers are eager to continue to diversify their balance sheets and evaluate the risk that's highly data rich.
▶ 0:43:51Can you, Mr. Walker, speak to how the enterprises have been using CRT since the latest iteration of the capital rule back in 2020? And then also, do you anticipate any changes to attachment points for CRT in the future?
▶ 0:44:06Yeah, I mean the GSEs have more or less continuously used CRT since its inception in 2013. When the enterprise regulatory capital framework was released in 2020, finalized in 2021, uh we did see some change in the GSE attachment points and detachment points driven by uh dynamic aspects of that capital framework.
▶ 0:44:29Uh it's something that as a broker we work all the time with the GSEs on trying to figure out how to evaluate the structures, make them capital efficient, and balance risk transfer in the process.
▶ 0:44:40All right, I want to switch briefly to the National Flood Insurance Program or NFIP. This is for Mr. Vitovec and Mr. Walker. Can you speak very briefly, I only have 50 seconds, to how the NFIP uses reinsurance? What kinds of reinsurance does it use and what risk does it usually use it on?
▶ 0:44:58So, briefly, it uses uh a number of different types of reinsurance, but including traditional treaty reinsurance, which transfers the risk of flood losses to the private market.
▶ 0:45:10Mr. Walker.
▶ 0:45:12Yeah, I don't have anything to add other than traditional reinsurance and catastrophe bonds are both part of their
▶ 0:45:17I'd just add that I think it's imperative that the NFIP be buying uh uh for its policy holders and for the taxpayers. With that, I yield back and it's my pleasure to introduce the ranking member of the Subcommittee on Housing and Insurance, Mr. Cleaver. You are recognized.
▶ 0:45:36Thank you, Mr. Chairman. the FHFA attachment points uh since 2022 uh the enterprises have shifted toward higher attachment points for uh CRT.
▶ 0:45:58Some have have have even argued that this leaves more risk with taxpayers that private capital should absorb and has an impact on the CRT's market discipline function. Uh Mr. Walker, you uh talked about this in in uh your um testimony uh today.
▶ 0:46:17Uh and finding attachment points that balance risk transfer and cost uh capital would move the program closer to its original What in your opinion should this balance look like?
▶ 0:46:39Thank you for the question. As I mentioned in my statement, um that is a policy question, but at the end of the day, what we're trying to do is figure out how to kind of be effective in the capital relief that the GSEs are getting and balancing the risk that's being transferred and shared uh with private capital. So, those attachment points currently would not transfer a significant portion of a great financial crisis.
▶ 0:47:05It would be largely retained by the GSEs under the CRT programs that they're currently buying prior to 2020 in the enterprise regulatory capital framework, those were much closer to the risk sharing a lot more risk with the private sector.
▶ 0:47:19Thank you. Uh uh that's helpful. Um uh I want to move over um and to conservatorship. Facilitating uh a a robust and competitive CRT market uh improves and the value of taxpayer investments in the enterprises.
▶ 0:47:49Uh one of the the the the vital reforms for future success in whatever form the GSEs may may take uh, is um, uh, entrenching and codifying the CRT and re-insurance programs. Uh, uh, Ms. Wachter, thank you so much for for being here. Every time we send out the signal, thank you very much.
▶ 0:48:13Uh, you've testified, uh, in the past about uh, what works and what considerations for future GSE reform should be scrutinized. What should what should we what should this committee uh, keep in mind during these discussions? What what are the important things you would like for us to address?
▶ 0:48:37Thank you so much for the question. I think there are two major points that we can take from our experience with CRTs and tremendous amount of work that has gone into developing and implementing the CRT market on the part of the GSEs and private sector participants. And those two are the following.
▶ 0:48:57First, the CRT market works to offload risk and in any privatization plan, in any contemplation of privatization, we absolutely should preserve the CRT function. That should be codified in the privatization.
▶ 0:49:15We should not enable privatization without continuous exposure of the risk that occurs under the GSEs, whether they're privatized or not, to public uh, uh, identification and potential response.
▶ 0:49:33Second, using the CRT market to continuously price risk is appropriate for information purposes, but it would be pro-cyclical and potentially if privatized entities, the GSEs as privatized, would use the price of risk for their pricing of default.
▶ 0:49:57That is a problem that has not yet been resolved in terms of the considerization consideration of how the GSEs are to be privatized. How will G fees be determined? G fees are the public facing public charge charged to more mortgage holders for risk.
▶ 0:50:19If that G fee were to be driven by CRT pricing, it could be potentially very destabilizing to the system. And the research that we've seen and the experience we've seen underlies that. So, those are the two principles that I would argue for in terms of contemplation of privatization.
▶ 0:50:40Thank you. Thank you very much. Thank you, Ms. Shelton.
▶ 0:50:42The gentleman yields back. The gentleman from Wisconsin, Mr. Fitzgerald, is now recognized for 5 minutes.
▶ 0:50:48Thank you, Chairman. Mr. Walker, private So, private mortgage insurance helps first-time and I would say working-class buyers access homeownership. It and it safeguards taxpayers from credit risk. it's kind of the original form of credit risk transfer, I guess you could describe it as.
▶ 0:51:13Uh the industry has grown more resilient through consistent mortgage insurance CRT transactions, uh which has been, I guess, ensuring support for new buyers and claim uh during all kinds of economic turmoil. Can you discuss how mortgage insurers use CRT to manage risk?
▶ 0:51:32Uh And how has it made the housing market And then, that would also include forward covering any of the future business and how it's has supported efforts to uh diversify the the industry's capital base.
▶ 0:51:56Thank you. That's a great question. And I would agree with your statement that private mortgage insurance is, you know, an original form of credit risk transfer, which is important note. Um the mortgage insurers have actually gained the same benefits that we've been discussing here today from credit risk transfer that the GSEs do.
▶ 0:52:14And most importantly, you've heard all the panel members here talk a lot about Um it's effectively taking what is largely mono-line mortgage risk in a private mortgage insurer and sharing it and spreading it out with a bunch of private entities either in bond form or in reinsurance form. And so the mortgage insurance industry has really leaned into credit risk transfer. Um they've been consistently purchasing it since 2012 or 2013.
▶ 0:52:41And they use it to transfer both risk and get favorable capital relief from those transactions. In the last couple of years, they've really leaned into forward reinsurance protection, which provides them coverage on loans that they will insure in the future. And that's very helpful to them because it gives them clarity and certainty as to the amount of protection that they have in place as well as the price of that protection in place.
▶ 0:53:08Which has really been a huge benefit to the mortgage insurance industry and has made them much more resilient compared to pre-Great Financial Crisis where they retained most of the risk themselves.
▶ 0:53:18Very good. Thank you. Uh Dr. Wachter, I believe that credit risk transfer can play a role in continuing to ensure uh Fannie and Freddie are significantly less risky than before the financial but I think there is a concern about CRT that it's been underused tool by them for in recent years, I guess you could say.
▶ 0:53:42So, what are your thoughts on CRT using Fannie and Freddie regarding concerns of the ability for CRT to be uh counter uh cyclical and pre-ma- prepayment risk eroding there uh it it could be, I guess, characterized as under-collateralized counterpart counterparty risk.
▶ 0:54:09Um I know it's kind of that question's kind of all over the place, but if you could try to respond to that.
▶ 0:54:16Thank you so much for the question. the use of CRT can evolve over time. It already has. It's become more sophisticated and it can evolve further. Uh but the use of security CRT, which I uh base my response to your question on, uh definitely it depends on the capital rule.
▶ 0:54:36Uh many economists um consensus There's a consensus among many economists that the capital rule is too stringent and may actually be undermining of future profitability. If so, with And I do think capital is a very important, obviously, uh economists agree on that. Uh it's not a sub- CRT is not a substitute for capital at all. But if the capital rule is less stringent, there will be more of a role for CRT. So, I see that as a likely happening going forward.
▶ 0:55:06Very good. Mr. Videovich, uh do you believe that Fannie Mae and Freddie Mac's regulatory capital rules are sufficiently aligned with the actual credit risk of the underlying mortgages, such as loan-to-value ratios, borrower credit scores, debt-to-income ratios, and product structure?
▶ 0:55:33Thank you for the question. Uh in our view at the RAA, uh, and in the reinsurance industry, we think the GSEs have effectively used CRT to address and align interest along the lines that you've described. Uh, but as Mr. Walker has uh, stated in uh, answers to his questions and testimony, we think there is additional opportunity to leverage the private markets
▶ 0:55:58I'm sorry to interrupt, but the gentleman's time is up.
▶ 0:56:00taxpayer exposure.
▶ 0:56:01The gentleman's time is expired.
▶ 0:56:02Thank you.
▶ 0:56:04Thank you. Gentleman yields back. The ranking member of the Financial Services Committee, the gentle lady from California, Ms. Waters, is now recognized for 5 minutes.
▶ 0:56:22Uh, Dr. Wachter, the Trump appointee, the FHFA uh, Bill has taken unprecedented action that calls the government of FHA, uh, and the GSEs into question.
▶ 0:56:39He has illegally appointed himself chairman of both enterprises, fired their most experienced leadership, and weaponized the GSEs for political Now, instead of addressing the affordable housing crisis, Pulte has exacerbated it by rolling back and weakening critical policies like fair fair housing, affordable housing finance plans, and the affordable housing goals.
▶ 0:57:09He rescinded earlier guidance of the GSEs on how best to identify and assess climate risk, and has offered unserious housing proposals like the 50-year mortgage, which would lock homeowners into mortgage debt for the rest of their Dr.
▶ 0:57:29Wachter, are there tools available to Congress that we should consider so that we can respond and mitigate the kinds of governance risks posed by the director through our housing finance market?
▶ 0:57:44Thank you for the question. As a nation, we are in the middle of a housing affordability crisis, which hits young households and underserved communities very even more strongly than the case for for most Americans. If you don't own a house today and you're young, this is a crisis.
▶ 0:58:06I do believe that there are tools that are available, and I do believe that there these tools can be used more than they are right now. So, I thank you for the question.
▶ 0:58:19Dr. Walter, if the enterprises has created innovative pilot programs for new mortgage products, for instance, related to manufactured housing or small dollar loans, how could CRTs be used to manage the default risk with those pilot programs as the pilots are being
▶ 0:58:39Uh Chairman Congressman Waters, this is not an area in which I specialize. However, there's an excellent paper that I would like to reference by David Brickman, and he has a proposal that goes directly along those lines, which absolutely should be
▶ 0:58:54Well, could there be a staggered approaches taken to test this type of approach? For instance, where pilot volumes are initially held small and GSEs held a higher portion of the risk, do you see this as an effective use of CRTs?
▶ 0:59:13Uh so, again, this is a a very important issue and one which I'm grateful to have David Brickman's expertise, and I think it needs to be considered.
▶ 0:59:25But effective.
▶ 0:59:27Well, I have I can't speak to the intricacies because I haven't studied it as yet. Thank you.
▶ 0:59:33Well, I thank you and if you believe there [clears throat] are things that we could do, we could be using
▶ 0:59:40some of the rules that we have available to us then I'd like to talk with you a little bit more and we can begin to identify what those are so that we can utilize them because this is an important time for the us to address these issues.
▶ 0:59:56I appreciate that. Thank you.
▶ 0:59:58Okay, thank you for being here. I appreciate your assistance and I yield
▶ 1:00:05The lady yields back. The chairman of the full Financial Services Committee, the gentleman from Arkansas, Mr. Hill is now recognized for 5 minutes.
▶ 1:00:13Thank you, chairman. Again, thanks to our witnesses. Appreciate you helping us work through the issues surrounding the use of of reinsurance. And so much of this is offsetting loss for the taxpayers and at the end of the day when the losses come due, trying to figure out who's left to make those major payments.
▶ 1:00:31And risk transfer tools as we've established today in reinsurance, credit risk transfer all help answer that question on who picks up those by bringing private capital in before losses or or fall on the backs of So, I thought we might I might focus on how the tools work actually in practice start with you uh Mr.
▶ 1:00:54Walker um Credit risk transfer was designed to move mortgage risk off the GSEs balance sheets and bring in private capital, but the real question is not whether the risk is transferable, what layer of risk is actually transferred. I referenced this in my opening comments and if if uh the CRT buyers get the easy part, uh then that's that gives a modest benefit, but you know, I'm interested in the structure.
▶ 1:01:20So, as CRT structures have evolved, they've shifted towards higher attachment points that leave GSEs retaining more expected losses while transferring only the more remote tail end of the risk. Is that Mr. Walker, is that true?
▶ 1:01:38Yeah, thank you for the question. Um it is true that the attachment points on GSE CRT programs have increased in the last couple of years. Uh but recently we're actually seeing a trend where they're starting to come down a little bit. So, it is something that we're currently evaluating and constantly looking at.
▶ 1:01:53What what would be the reason for that? Would it be that the perception is that the CR the uh Fannie and Freddie uh underwriting is weakened and therefore uh that reinsurance is less likely to take um a broader selection of the losses or or what what accounted for that attachment point issue?
▶ 1:02:15I think the increase in attachment points was a balancing procedure around effective cost of capital and building retained earnings, which the GSEs are allowed to do at this point in time. And the subsequent, you know, slight decrease in attachment points has been part of the constant evaluation of market pricing, risk transfer, and capital relief.
▶ 1:02:39How should we balance that trade-off when we ask questions about it or think about it? How do you think we should be as as we review the potential release of Fannie Mae and Freddie Mac from conservatorship? How should members think think about that?
▶ 1:02:55I agree with the Dr. Walker that under any future vision for the GSEs, credit risk transfer will be an important component. And I think the determination of what the correct attachment points will be is solely a function of how much risk you want the GSEs to retain versus how much risk you want shared with the private industry. Let me turn to you, Mr. Theodoro.
▶ 1:03:22we've heard for a new when I travel around the country, I'll occasionally go to an insurance brokerage type meeting uh there's no risk that they wouldn't like to see transferred to the federal government in in some of those meetings. And so, there's a decade-old effort to have a massive form of government-backed reinsurance. But, the purpose of risk transfer is to move risk away from taxpayers and create a new pathway for the government to take it instead of in creating new ways for the government to increase its exposure.
▶ 1:03:53When there major losses hit, shouldn't the answer be more private capital, not less? What do you think, Mr. Theodoro?
▶ 1:04:00Well, now there is more capital. As as we've heard, the catastrophe bond market insurance-linked securities is very vibrant. Last year was the strongest year on record for issuance of catastrophe bonds. Uh you have other risks that are also being the subject of catastrophe bonds as the industry matures, including wildfire and cyber and liability risks, which were sort of off-limits because of the long duration of the claim.
▶ 1:04:28So, you've got more private capital that's coming in. There's more interest in the reinsurance and insurance industry. When we spoke about uh Florida before, new capital is coming in. And also, another indicator of the health of the of the of the market is uh look at What does Wall Street say? The biggest Florida insurance company is Universal. A year ago, it was trading at $16 a share. Yesterday, it closed at about 34. So, more than doubled. So, Wall Street analysts like insurance.
▶ 1:04:58They think that insurance companies and reinsurance companies are doing a good job with their uh calculations of probable maximum loss and maximum possible loss. It's a much more sophisticated industry than it has been for the the 25, 30 years. So, yes, more private capital coming in.
▶ 1:05:14Very good. Well, thank you for that. Mr. Flood, thank you for this hearing. Yield
▶ 1:05:17Gentleman yields back. The gentlewoman from Colorado, Ms. Pettersen, is now recognized for 5 minutes.
▶ 1:05:23Thank you, Mr. Chairman, and thank you all for being here today for such an important discussion. I you know, the national state housing is and is dire. Nationally, home prices have surged nearly 50% and rent is up nearly 25% in just last 5 years alone.
▶ 1:05:42And on top of this, we're seeing a drastic increase in insurance prices, which is making it just untenable for families, especially in Colorado, as we have contributing factors of hail damage that are the number one reason for increasing costs, but also wildfire risk. So, Mr.
▶ 1:05:59Walker, given the risks from extreme weather that are growing and compounding, such as droughts contributing to extreme fire risk and landslides following flooding and wildfires, how are current and future climate risks assessed by the reinsurance and credit risk transfer
▶ 1:06:19Thank you for your question. Um I'll answer that question from a credit risk transfer perspective as I'm not a property expert, but property risk does come into play with credit risk transfer. Um those protections are in place regardless of the reason a borrower defaults. So, if there is a natural catastrophe and a default happens because of it, uh credit risk transfer is there to kind of cover those claims. So, reinsurers do evaluate their credit risk transfer exposure from a natural catastrophe perspective.
▶ 1:06:50Uh and the current reality is there's not as much risk being transferred given the attachment points of those programs, but they do evaluate it and they have modeling to kind of evaluate and price it.
▶ 1:07:04Dr. Wakter, while the severity and frequency of high loss events continue to increase, unfortunately, the FH the FHFA, oh my goodness, sorry about that, has taken multiple actions undermined climate risk transparency including revoking climate risk management requirements for government-sponsored enterprises and withdrawing from the network of central banks and supervisors supervisors for greening the financial system.
▶ 1:07:32Is there a risk of investors pulling back from the American housing market and how might that [clears throat] impact prices for American home buyers?
▶ 1:07:40Thank you. Thank you for the question. Uh if I may, um with uh co-authors, we have a recent paper that was published uh just um in on climate risk in mortgage markets and I would like to point to the work there which shows that CRTs do indeed uh the risk that comes from climate events.
▶ 1:08:07And that so that it's very useful for that purpose as well. Uh I am aware that FHFA has pulled back its climate uh research. I do think more data on climate risk and uh is is absolutely critical and mortgage market it's particularly important for. So, I would hope to see more research going forward.
▶ 1:08:33Thank you and uh another follow-up question, Dr. Wachter, as communities are becoming increasingly at risk of devastating losses, they're also facing uncertainty as insurance companies are completely pulling coverage out from communities.
▶ 1:08:47When I meet with some small business owners, you know, just outside of the suburbs, even in Evergreen, Colorado, they're they're unable to uh insure their businesses and homeowners who are unable to find insurance options and are are fleeing these communities because of uh the inability to to find any options.
▶ 1:09:11So, what happens to the communities that don't have anywhere to turn for insurance options?
▶ 1:09:20This is obviously incredible incredibly important problem, particularly for uh states that are exposed to risk, including Florida, California for wildfires, and there's ongoing work, but there needs to be much more. In particular, what I would like to see is more cooperative work among reinsurers, insurers, and communities, particularly the communities that are in harm's way, to increase the availability of
▶ 1:09:54that leads me uh to well, another piece of this, which what role does AI play in modeling risk, in managing reinsurance portfolios, clarifying risk mitigation, and processing claims, and what measures are being taken to ensure that consumer interests and data are being adequately You have 4 seconds.
▶ 1:10:21Not enough.
▶ 1:10:24All right, thank you very much.
▶ 1:10:26The gentlewoman yields back. I'd like to ask unanimous consent to enter the following letters into the record. We have one from the Smart Safer Coalition dated April 22nd, 2026, and we have one from the Arch Mortgage Insurance Company dated April 27th 22nd, 2026. Without objections, these will be received. The gentleman from Tennessee, Mr. Rose, is now recognized for 5 minutes.
▶ 1:10:50Thank you, Chairman Flood and and Ranking Member Cleaver for holding this important hearing, and thank you to our witnesses for being with us today. Mr. Vodopivec, in your testimony you note that increased capital and competition have helped drive down the cost of making it more attractive risk management tool, making it a more attractive risk risk management tool for programs like the National Flood Insurance Program.
▶ 1:11:14You also point out that in some years reinsurers have paid out nearly as much or more than they collect in premium premiums. Given that context, how durable is the current pricing environment? If conditions shift and reinsurance costs begin to rise, is the industry well positioned to manage those price swings? What would that mean for the affordability and availability of coverage for federal programs that rely on it?
▶ 1:11:41Thank you for the question, Congressman. The industry is quite resilient and capable of meeting risks today and into the future. If we just look at the increased frequency and severity of catastrophic weather-related events, the industry has seen what used to be an exceptional year of a hundred billion dollars of insured losses.
▶ 1:12:05We've seen that seven out of the last ten years, and we've seen losses in excess of that every year for the last five years. Notwithstanding that, capital is moving into the reinsurance space, as I said earlier. In Florida in particular, we are seeing the price of catastrophe reinsurance drop because of the fact that capital is coming in to support the market. There is a home for this risk in the private
▶ 1:12:32Thank you, I appreciate that. Dr. Wachter, in your testimony you emphasize that the credit risk transfer market provides a forward-looking market-based signal of mortgage credit risk, where investors actively put capital at risk based on their assessments. How effective is the credit risk transfer market in identifying early signs of deterioration in housing market conditions or the build-up of systemic risk compared to traditional indicators like delinquencies or foreclosures.
▶ 1:13:05It is extremely efficient. Uh in comparison with existing measures. The existing measures are often delayed, or simply don't operate. So, for example, default and foreclosure happen after the crisis. Particularly, foreclosure can be months, years after crisis. So, it's not a signal at all. Default itself is not a signal of a bubble that's building.
▶ 1:13:35Because as a bubble builds, prices increase. And as prices increase, then we have less default currently, but more danger of over-leverage and increased defaults and foreclosure in the future. But no sign of it.
▶ 1:13:53So, as I was watching the leverage and risk build-up in the great the build-up the great financial crisis, I with others was noting, and we weren't surprised, that default simply did not Default is a reaction to a crisis. Because after the crisis was revealed, then entities imploded, and at that point defaults increased as prices fell. So, they respond to prices.
▶ 1:14:22And in the build-up, prices go up. On the other hand, it appears and from our research, we have very good information showing that yes, the credit risk transfer market is operating exactly as it should, and it does accurately price risk. It does price risk in very very subtle risk even it does price. We see that in the risk of coming from Hurricane Harvey and Katrina in the paper that sorry Harvey and Irma that I paper I referenced earlier.
▶ 1:14:51And we also see it in the COVID experience. In the COVID experience CRT prices gapped out tremendously as they appropriately should have. And that
▶ 1:15:04I'm sorry to interrupt you but in the interest of time is there a way as policy makers that we can because what you're saying makes complete sense to me is there a way we can tap into that information and use it more effectively to avert future financial crisis.
▶ 1:15:20Absolutely there's a way to tap into that. And there is this trades continuously. FRED has the data continuously so you can watch it, look at it. And in particular I think it would be useful at moments of crisis such as COVID. To to consider it all policy makers can and should make use of this information. I'm sure many are and there can be more it's a bit of an obscure market but it's working.
▶ 1:15:45Thank you. I see my time is expired. I yield back.
▶ 1:15:47Gentleman yields back to the gentlewoman from Georgia, Ms. Williams is now recognized for 5 minutes.
▶ 1:15:52Thank you Chairman Flood and Ranking Member Cleaver for holding this hearing and thank you to all of our witnesses because we are going through a housing crisis in my hometown of Atlanta, Georgia and I welcome your expertise Owning a home is one of the most important ways American families build wealth. It's how working families get a foothold in the middle class. And if we want to expand home ownership in this country, we need the systems behind mortgage lending to work well and fairly.
▶ 1:16:21So let me explain what we're talking about today and perhaps you can help me with this explanation for the people back home. When you buy a home, your bank doesn't just hold your It bundles your loan with thousands of others and sells them to Fannie Mae, Freddie Mac. But when those companies are holding all that risk and loans go bad, taxpayers, homeowners, my constituents, the American people, they're on the hook. We learned that the hard way in 2008.
▶ 1:16:48Following the 2008 collapse, institutional investors bought thousands of single-family homes on the cheap, turning Atlanta into ground zero for an investor takeover of the housing market. Credit risk transfer could have mitigated this risk of corporate landlords in Atlanta by enhancing market discipline on risk pricing and reducing the volume of distressed assets available for acquisition.
▶ 1:17:10Established CRT markets might have diverted private capital into financial securities rather than the bulk of purchase of physical single-family homes, according to an analysis of CRT mechanisms in a report from the Federal Reserve Bank of New York. The 2008 crash directly contributed to Atlanta's current high-cost housing market.
▶ 1:17:29The massive conversion of homes into rentals by investors, coupled with long-term underbuilding of homes after 2008, created a persistent housing shortage that has fueled an affordability crisis that continues to loom in Atlanta today. So, CRT lets Fannie and Freddie pass some of that default risk to private investors, so losses don't fall entirely on the American people.
▶ 1:17:55Today, I want to understand how well it's working for the financial system and for the families that I represent. Dr. Wachter, in your testimony, you described CRT as a tool for spreading risk broadly so it doesn't pile up in one place. But what happens when things go wrong anyway? If we hit a severe economic downturn and private investors start pulling back, what does that mean for homeowners who are still making their payments every month? Does stress in the CRT market ripple back to the people at their kitchen table?
▶ 1:18:24Thank you for that question. It's a very important question. Uh what we saw in COVID was that indeed uh in March 2020 2020, the price of risk increased dramatically as unemployment increased to 15%. Fastest rise in unemployment that we had ever seen. And this was a moment of potential disaster for the United States. There was response and it was important for the response.
▶ 1:18:53The CARES Act, forbearance. These were important programs. The indicators of risk including the elevated unemployment rate, including the pricing of CRT were indicators and I'm sure helped inform these this important policy of Let me just go to more specifically your Using this example. After COVID the G fees were not increased. Do in immediately post COVID in 2020.
▶ 1:19:23And mortgage rates weren't increased. Fannie and Freddie stayed in the market. If they had been privatized this would not have occurred. And the health crisis that we as a country were undergoing would have been accompanied by a financial crisis as
▶ 1:19:47Thank you Dr. Wachter. And Mr. Vidovic, am I pronouncing that correctly? My name's Nekima so I try to get the names right.
▶ 1:19:54It's Vidovic but thank you.
▶ 1:19:55Vidovic. Mr. Vidovic, expanding affordable home ownership is a priority for many of us on this committee on both sides of the aisle because we know how this is impacting our constituents regardless of what party they vote for. If Fannie and Freddie develop new mortgage products aimed at getting more families into homes, is the private market capable of stepping up and pricing that kind of risk?
▶ 1:20:18So it would depend on the laws and the regulations that would be governing those new programs but critical to the evaluation of the default risk would be the available data on the portfolios that would be constructed as a result of those new products. Our industry stands ready where we are able to evaluate the data and define the risk to provide a private solution, but it would depend on the availability of that data to assess the risk.
▶ 1:20:47Thank you so much. Your testimony today has made it clear that this market is doing important work and not just to protect taxpayers, but open doors for more American families. I want to leave here today committed to making that happen. And with that, Mr. Chairman, I yield back.
▶ 1:21:01The gentle lady yields back. The gentleman from Montana, Mr. Daines, is now recognized for 5 minutes.
▶ 1:21:06Thank you, Mr. Chairman, and thank you to the witnesses. Uh I I'm I'm happy we're having this hearing to explore ways that federally backed programs can and have been reducing the risk of losses borne by Of particular interest to me has been NFIP, the National Flood Insurance Uh and I want to make sure that Montana ratepayers and taxpayers are not penalized with higher premiums or uh exposure there to subsidize lower rates in high-risk areas.
▶ 1:21:36That's been a concern of mine. I'm a former insurance commissioner. I've been thinking about this for a while. Uh but I'm going to start uh a little bit broader about a proposal that's been circulating in Congress and among some think tanks of the idea of creating a federal property reinsurer. And I firmly believe that the federal government should get out of the business of insurance uh to the greatest extent possible. And uh that's one of the reasons that I have a bill to eliminate FIO, the Federal Insurance Office.
▶ 1:22:05I really believe in um state-based regulation. I I believe the private market should take this up. I you know, so uh something that I'm supporting. So, I'm going to start with Mr. Theodoro. You know, you've opined on this topic before. And can you explain why federalizing reinsurance continues to be a terrible idea and one that runs the risk of shifting costs of living in riskier areas along the coast to people living in places like Montana.
▶ 1:22:30Yeah, thank you for the question. Indeed, I have seen that federally backed or federal reinsurance is is not a good idea because it does the opposite of what reinsurance is designed to do. achieves a spread of risk. Whereas if you remove the providers of the risk from the global environment and it's strictly done in the United States, then you're concentrating risk because the US actually has more natural catastrophes than other regions of the world.
▶ 1:23:00So, uh it it's not a good idea from that point. last hearing is Congressman Flood indicated on this subject on reinsurance was in 2007. And at that hearing, the chairman of the Council of Economic Advisers, Ed Lazear, made a really passionate presentation on why, after 2004-2005, the federal reinsurer is not the answer.
▶ 1:23:24The um uh I've indicated in my testimony earlier that if you have federal reinsurance that crowds out the private market and it suppresses the transmission of signal of price and also it does a counter uh subsidy of uh subsidizing those with large million-dollar homes and smaller ones pay for it. So, on many fronts it was uh bad idea. Fortunately, it wasn't carried through, but it has come up a few times.
▶ 1:23:50With uh uh these the similar kind of proposal.
▶ 1:23:54Well, I
▶ 1:23:55I I appreciate that. Thank you for that uh uh for your testimony there. Um uh to shift gears really quickly, Mr. Chairman, I request unanimous consent to submit for the record Mr. Theodorou's piece titled Why a Federal Reinsurer remains a bad idea.
▶ 1:24:08Without objection.
▶ 1:24:09Thank you. Um Now, on NFIP specifically, I'm going to move to Mr. Walker here. Can you describe how the NFIP has benefited from private insurance?
▶ 1:24:23Well, as discussed,
▶ 1:24:24Thank you for the question. So, as discussed on this panel, you know, diversification and private capital has been immensely helpful to a lot of private or public entities. The reinsurance marketplace provides pricing feedback and provides, you know, capital that can pay claims in a fast amount of time. So, after Hurricane Harvey, for example, the program in its inception year recovered a billion dollars from the reinsurance paid in timely fashion.
▶ 1:24:54Yeah, there was a notable increase in reinsurance participation in NFIP program from 24 to 25. Um just just to go on what why why do you think that is?
▶ 1:25:09I'm not an expert in the NFIP program myself, but as Mr. Bodewig has testified, um there is more capital available in the reinsurance industry to take on property catastrophe risks, which I assume is
▶ 1:25:21Thank you. I'm I'll move to Mr. Bodewig. Can you discuss how the NFIP uses the insurance-linked securities markets to transfer risk?
▶ 1:25:30Yes, so in addition of Thank you for the question. Yes, in addition to the use of traditional treaty reinsurance, the NFIP gone into the catastrophe bond space and used catastrophe bonds as a way to protect the NFIP from extreme tail risk. you know, this strategy compared to traditional reinsurance, what are the advantages and disadvantages?
▶ 1:25:55Um as I testified earlier, reinsurance has a number of different takes a number of different forms, and catastrophe meet the investment needs of a group that see them attractive for that extreme tail risk.
▶ 1:26:13Yeah, well, thank you. Unfortunately, we ran out of time. uh Chair, I yield.
▶ 1:26:16Gentleman yields back. I'd like to thank all the witnesses [clears throat] for your testimony today. Without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for their response. Witnesses, please respond no later than May 27th, 2026. With that, this hearing is adjourned.