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Statement of Congressman Charles Gonzalez (D-TX)

House Financial Service Committee Hearing on H.R. 2575, the Secondary Mortgage Market Enterprises Regulatory Improvement Act and the Administration's proposals on GSE regulation

September 25, 2003

I would like to welcome our distinguished guests to today's hearing on proposals to restructure federal oversight of Government Sponsored Enterprises. Thank you for joining us to offer your views on this critical issue.

As we all know, recent serious allegations of accounting improprieties at one of the GSE's has lead this Committee to review the safety and soundness oversight of these critical institutions. The GSE's are a critical part of our nation's economy and I am glad that we are looking at improving federal oversight of their business practices. In my opinion though, most Members of this Committee will support a transfer of safety and soundness jurisdiction to the Department of Treasury, provided that any such transfer would in no way weaken the housing mission of these institutions. The housing mission is the fundamental reason why the GSE's were created in the first place, and any structural changes to GSE oversight must ultimately result in housing becoming more affordable in America and not less.

There have been suggestions from some quarters that any changes to the GSE structure should include more aggressive review of their product development. I do support efforts to fully ensure that the safety and soundness oversight of these institutions is world class. But, we should not overburden these critical institutions with so much regulatory review that they lose the flexibility to quickly introduce new and creative products to the market. I will be looking closely at any proposals in this area to ensure that they result in more choices for consumers and not less.

Fannie Mae and Freddie Mac have been critical to making home ownership more affordable for millions of American families. I am firmly convinced that but for Fannie Mae and Freddie Mac we would not have ever increasing rates of home ownership especially in the Hispanic and African American communities. Whatever changes we consider over the next couple of weeks must have the interests of American consumers and taxpayers foremost in mind. I hope that during this process we do not lose sight of the fundamental purpose of the GSE's-to make housing more affordable for average Americans. Thank you and I yield back my time.





Mr. Chairman, before we hear today from our numerous witnesses about their views on the need to alter the current regulatory system for government-sponsored enterprises or GSEs, I believe it once again very important to highlight some of my current thoughts on these matters.

As my colleagues already know, I support strong GSE regulation. A strong regulator, in my view, will protect the continued viability of our capital markets and promote confidence in Fannie Mae and Freddie Mac. It will also insure taxpayers against systemic risk and expand housing opportunities for all Americans.

We must, however, tread carefully in developing any legislation to modify the GSE regulatory system. The housing marketplace is one of the most vibrant sectors in our struggling economy, and we must ensure that our actions in Washington will not lead to unintended consequences in places like Scranton, Baton Rouge, Findlay, or Fall River.

At our last hearing on GSE issues, senior officials within the Bush Administration indicated that there was no “crisis” that demanded the immediate attention of the Congress. Consequently, instead of rushing to judgment, we ought to move in a judicious and objective manner in these matters to make sure that we properly construct an appropriate regulatory system. In other words, the obligation to create an effective regulatory system should guide the timing of our deliberations instead of meeting some arbitrary deadline for taking action.

In developing any enhanced GSE regulatory system, I further believe that we should perform deliberate surgery. We should therefore abstain from considering radical proposals that would fundamentally change the ways in which the GSEs operate and the charters of the GSES. We must also ensure that the GSEs continue to achieve their statutory objective of advancing affordable housing opportunities for low- and middle-income families.

As you know, Mr. Chairman, at the start of our two most recent hearings on GSE matters, I have outlined five principles to guide our consideration of GSE regulatory reform legislation. Today, I feel it very important to expand my previous comments on one of these principles: regulatory autonomy.

In recent weeks, I have participated in numerous meetings with many experts on GSE matters. The majority of these individuals have counseled me that in order to maintain credibility and be effective, a strong GSE regulator must have genuine independence from the political system. In their prepared statements, many of today's witnesses also recognize the importance of and need for regulatory autonomy. Accordingly, they will call upon us to adopt such a system in any GSE regulatory reform bill.

Additionally, several others who will not testify before us at this hearing have noted the importance of statutorily protecting any new GSE regulator from improper political influence. For example, the Independent Community Bankers Association has strongly urged us to

“construct legislation containing appropriate firewalls and independence” between any new safety and soundness regulator for Fannie Mae and Freddie Mac and the Treasury Department's “politically appointed policy makers.” We should heed their sensible advice.

The National Association of Realtors has also recommended that any new GSE regulator within the Treasury Department should have “necessary and sufficient firewalls to ensure its political and operating independence” comparable to those that presently exist for the Office of the Comptroller of the Currency and the Office of Thrift Supervision. I wholeheartedly agree. The OCC and OTS models provide us with an effective framework for constructing a new GSE safety and soundness regulator.

Specifically, if we ultimately decide to alter the safety and soundness regulation of Fannie Mae and Freddie Mac and to move the regulator to the Treasury Department, this new agency should have the authority to submit testimony, recommendations and reports to Congress without the prior review or approval of the Secretary. It should further have the ability to issue rules and regulations without the review and approval of the Secretary. Additionally, it should have the power to initiate and complete supervisory and enforcement actions without intervention by the Secretary. It should also have independent litigation authority. Finally, we should prohibit the Secretary from merging the responsibilities of this new office with any other regulator.

In closing, Mr. Chairman, I commend you for your leadership in these matters. I also look forward to continuing to work with you to develop a balanced, bipartisan plan of action for reforming GSE safety and soundness regulation, ensuring the independence of the new regulator, and preserving the affordable housing mission of Fannie Mae and Freddie Mac.

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Mr. Chairman, I'd first like to commend you for keeping this process focused on the regulatory structure in place for our GSEs and not making dramatic changes to the companies themselves. Regardless of whatever flaws may exist in our current system, we have a housing finance industry that is the envy of the world.

As you and the members of this Committee are well aware, this system requires the GSES to hold capital that is commensurate with the risks they take. I am pleased that the Administration is not supporting the complete overhaul of a capital regime that has worked well. I'm also pleased to see that our goal here is to perfect this system, and not do away with it entirely.

At the same time, however, keeping the minimum capital standards in statute and at their current levels – again, as the Administration has proposed – gives an assurance to the market that mortgage capital will continue to flow unimpeded into our housing markets.

Thank you,

Mr. Chairman

AQOM 2453

(202) 225-5731


ROON 320

1440) 352-3939



(440) 542-9300



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This hearing is likely the last before the Committee moves to a mark up of legislation that will reform the GSE regulators. As we move forward in this process, our focus should be on strengthening areas where regulation has proven weak while treading carefully so as to not adversely affect our nation's incredibly successful, diverse housing markets.

I look forward to hearing the perspectives of today's witnesses: the current GSE regulators, the GSEs themselves, housing industry representatives and consumer groups. As I listen to the testimony, I come to today's hearing hoping they build on some of the themes that I believe were established at our last meeting.

No matter where it is located, to be successful the new GSE regulator must be fully independent and free of political interference and from yearly appropriations. Without the ability to take independent positions before Congress, its authority will constantly be in question and different parties will attempt to influence regulatory outcomes by appealing to higher levels in the Treasury Department. Capital Markets Subcommittee Ranking Member Kanjorski has highlighted this issue and I am in agreement with his position.

I also agree with Ranking Member Frank that we must maintain as the focus of the GSES' mission providing liquidity for low and moderate income housing. The GSEs provide for lower mortgage rates for millions of our constituents and I am convinced that if such mission oriented entities did not exist today we would be working to create them.

I also have a special interest in the Federal Home Loan Bank System as we work on this legislation. If Congress is going to create a new first class GSE regulator the Committee should closely consider whether including the Bank System in this effort is appropriate. As the Committee is aware, in 1997 the GAO concluded that a single regulator would have several advantages over the current structure.

Whatever we produce, we must continue to step forward and not back in increasing homeownership. While overall homeownership levels are 68 percent nationally, minority levels track far behind - with African-Americans at 47 percent and Hispanics and Latinos at 46 percent. Homeownership in New York City lage far behind national levels. This is my focus as we work on this bill.


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