It was a raucous and heated session at the House Financial Services Committee Tuesday morning as Treasury Secretary Jacob Lew made his annual report on the Financial Stability Oversight Council.

Perhaps not as fiery as Monday’s hearing on the IRS scandal and the unbelievable claims by the embattled IRS commissioner about the cover up of lost emails, but heated nonetheless.

In fact the issue of the IRS’s lost emails came up repeatedly, as the Treasury secretary was drawn into the investigation of the IRS commissioner and the IRS’s role in targeting political opponents of the White House.

GSE reform and the issue of some firms being “too big to fail” also led the discussion Tuesday morning.

Lew faced a challenging crowd in the Republican-controlled committee, which passed several bills last week to overhaul the FSOC, including a bill that would put a six-month moratorium on the FSOC's ability to designate nonbank firms as systemically important financial institutions. The SIFI designation brings supervision from the Fed.

This could have direct impact on nonbanks handling MSRS like Ocwen Financial Services (OCN), Nationstar (NSM), and Walter Investment Management (WAC), should they be designated SIFIs. These nonbanks are already facing regulatory scrutiny, and analysts question whether more is needed.

Regulations under the Dodd-Frank legislation mandate that financial institutions that fit SIFI qualificationsl have to meet higher capital standards and develop contingency plans for potential future failures. 

Another bill the House committee approved would require the FSOC to meet in open session more often and would set up additional procedural hurdles prior to FSOC actions.

The committee was critical of Treasury’s actions on housing so far.

“The American people, regrettably but understandably, are becoming increasingly cynical and fearful of their government. There is a growing resentment of one set of rules for Washington and another set of rules for everyone else,” Chairman Jeb Hensarling, R-Texas, said. “Mr. Secretary, I trust you agree the American people deserve better.  It is past time for openness and transparency from this Administration about what you told this committee 13 months ago is your ‘highest priority.’”

Hensarling said ironically, the FSOC is ignoring the one area of the economy that was so much a catalyst for the economic recession that started in 2009.

“And while FSOC seems dead set on trying to find systemic risk where no one else seems to find it, a review of their latest report indicates it is willfully blind to the largest sources of systemic risk,” Hensarling said. “Hardly a mention of Fannie Mae or Freddie Mac; they were at the epicenter of the last financial crisis.  And without the leadership of the Administration to end permanent taxpayer subsidies, they are certain to be at the center of the next financial crisis.”

Ranking Democrat member Maxine Waters, D-California, defended the FSOC from measures she says would rein in the council.

"The Council’s work is critical to ensuring that our financial regulators are working collaboratively to identify and respond to emerging threats to financial stability," Waters said. "It remains a mystery to me why Republicans are spending the few legislative days we have left this session pushing partisan legislation that would hamstring the FSOC’s ability to protect homeowners, consumers and the American economy."

Lew touted the accomplishments in housing reform to date.

“The housing finance system continues to require significant reform to enhance financial stability…Increasing the presence of private capital and reducing risk to taxpayers in housing finance remains a priority,” Lew said. “Fannie Mae and Freddie Mac achieved their targets for risk-sharing transactions and reductions in their mortgage investment portfolios.”

Lew said that member agencies also made progress on the risk-retention rule, and infrastructure reforms such as the development of the Common Securitization Platform are moving forward.

“The annual report outlines the ongoing need for market participants, regulators, and Congress to work together to create structural reforms that will help reduce uncertainty in the housing finance market, provide access for creditworthy borrowers, and protect taxpayers,” Lew said. “In the past year, progress was made towards establishing a new framework for housing policy, but ultimately Congress must pass legislation to achieve comprehensive housing finance reform.”