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Statement of Congressman Gary G. Miller
Committee on Financial Services
September 25, 2003
The United States housing markets are the envy of the world. We enjoy the lowest interest rates and the highest homeownership rates of any developed nation in the world. When Americans are homeowners, it spurs economic and community development and provides residents with a sense of pride in their community. Homeownership is the single largest creator of wealth for most Americans. For these reasons, it is imperative that we work through this process to maintain a strong housing market.
The recent problems at Freddie Mac should prompt us to ensure that the two largest participants in the housing market - Fannie Mae and Freddie Mac – have appropriate oversight. Because the housing markets are such an integral part of the economy and they are such large participants, it is imperative they remain safe and sound. That's why I support moving regulatory oversight from the Office of Federal Housing Enterprise and Oversight to the Department of Treasury. I believe the Department of Treasury has the expertise necessary to appropriately regulate complex financial institutions such as Fannie Mae and Freddie Mac. They will reassure investors and the markets that these companies are sound and that their investments in America's housing markets are safe.
However, certain core housing mission-related oversight can be bener handled at the Department of Housing and Urban Development. Only HUD has the expertise to ensure certain aspects of Fannie Mae and Freddie Mac's business are in line with their congressionally-chartered mission of providing liquidity to the housing markets and meeting the markets demands for new programs for consumers.
I strongly believe that HUD should have the ability to pre-approve new programs for the GSEs. Quick and expeditious pre-approval of new programs allows Fannie Mae and Freddie Mac to quickly adapt in a changing marketplace. However, this is not to say HUD should have the ability to micromanage new products, which could cause disruption for homebuyers and lenders. To the contrary, Fannie Mae and Freddie Mac should retain the ability to quickly adapt to the marketplace and provide new products that are within their charters and mission. Anything to prohibit the free-flow of products to the marketplace is contrary to the American ideal of innovation and growth.
I have seen in my district how the ability to respond to local needs is vital in addressing affordable housing priorities. For example, in the cities of Brea and Anaheim, Fannie Mae has bought millions of dollars in Redevelopment Administration (RDA) loans to assist these cities with their redevelopment needs. In Whittier, Fannie Mae has worked with the city, its police force and local lenders to create an employer-assisted housing program for police officers so they can live in the communities they serve. They have created down payment assistance programs with various cities to help those families most in need with the biggest hurdle to buying a home - the down payment. And they have worked with Orange County to create a teacher's housing program to help teachers afford homes near the schools where they teach. All of these programs should not and cannot be subject to a radical program approval process that stifles innovation and the ability of the housing GSEs to meet the mission Congress set for them -- serving low, moderate and middle-income families all across this nation at all times.
Mr. Chairman, I thank you for holding this hearing. The goals of these two companies is so critical to the economy that I look forward to working on a clean bill that we can move out of the committee in an expeditious manner. I look forward to working with you and the other members of the committee to resolve this issue as quickly as possible.
Opening Statement of Rep. Ed Royce (CA-40)
25 September 2003
Mr. Chairman, thank you for holding this hearing on GSE Oversight. I commend you and Chairman Baker for your leadership on this topic. I look forward to hearing the testimony from our witnesses today. And, I would especially like to welcome a fellow Californian Mr. Dean Schultz, the President of the Home Loan Bank of San Francisco.
This Committee must include the Federal Home Loan Bank System in any legislation that would create a new regulatory body for housing Government Sponsored Enterprises (GSEs). Today I would once again like to publicly raise my own concerns with the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (Finance Board).
The arguments to include the FHLBanks in a better, stronger regulatory framework are consistent with the arguments to include Fannie Mae and Freddie Mac. The FHLBanks have debt outstanding and a derivatives portfolio comparable in size to both Fannie Mae and Freddie Mac. Additionally, the FHLBanks are changing the risk profile of the System through their rapidly growing mortgage assets. The Finance Board has neither the depth nor experience to oversee these risks.
All three GSEs need to hedge their portfolios against movement of interest rates. For this reason, Chairman Greenspan and Secretary Snow both make a compelling public policy case to create one regulator for all three GSEs. I believe that there is a political consensus building to act on the FHLBanks. However, at the end of the day if this Committee must choose between sound public policy and political consensus, the Committee should pick good public policy.
In my view, the benefits of better regulation would accrue not only to the taxpayer and financial system at-large but also to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The regulator must see the whole scope of risks in GSE housing finance to perform its duties well. Including the FHLBanks will allow Congress to construct the proper foundation for oversight.
I look forward to working with my colleagues from both sides of the aisle to create legislation that includes all three GSEs. I believe that legislation should adhere to the following principles:
The regulator should be independent just like the OCC and OTS,
The regulator should be independently funded outside of the Congressional
The regulator should recognize distinctions in the business models between Fannie Mae and Freddie Mac and the FHLBanks, and
With the exception of affordable housing goals, mission regulation should move to the new regulator.
Mr. Chairman, I commend your steadfast leadership on these issues. I yield back the balance of Statement of Steve Bartlett
President & CEO
on H.R. 2575, the Secondary Mortgage Market Regulatory Improvement
Act and the Administration's Proposal on GSE Regulation
September 25, 2003
Mr. Chairman, Ranking Member Frank, and members of the Committee on Financial Services, I am Steve Bartlett, President and CEO of The Financial Services Roundtable, and it is my pleasure to appear before the Committee on behalf of the Roundtable and its newly formed Housing Policy Council on the regulation of the housing GSEs.
The members of the Roundtable and the Housing Policy Council originate approximately 70 percent of the residential mortgages in the United States; our members strongly support the goal of homeownership for all Americans and help meet it everyday. Our members thoroughly understand the functions and operations of both the primary and secondary mortgage markets. The Housing Policy Council was formed to address the regulatory and legislative framework for housing finance.
Sound regulation of the housing GSEs is a priority issue for the Housing Policy Council. Toward that end, the Council has adopted five principles that we believe should guide the Committee as it considers a new regulatory structure for the housing GSEs. I am pleased to say that those principles are consistent with the proposal that Secretaries Snow and Martinez presented to this Committee in early September. The principles adopted by the Council are as follows:
The regulatory agency should be independent and housed with Treasury, much as the
The agency should be funded by non-appropriated funds.
All supervision and regulation should be in one agency, not divided among two or more Federal Government entities.
The agency should have an abundance of staff qualified to understand, analyze and supervise the quality and quantity of assets and liabilities of Fannie Mae and Freddie Mac, the risks of the business in which the enterprises engage, and the level of capital appropriate for them.
The enterprises should be required to provide disclosures and to participate in the registration requirements applicable to all other publicly traded companies.
Last week, the Council added a sixth principle to this list: the new bureau within the Treasury also should have regulatory and supervisory responsibility over the Federal Home Loan Banks.
The Council strongly supports the Administration's position. The Council members believe there should be an independent regulator in Treasury, the regulator should be free from the appropriation process, the President should not appoint board members to the boards of the GSEs, the safety and soundness regulation which includes the authority to review and approve new GSE activities should be transferred to the new bureau, existing restrictions on the authority of the bureau to establish capital standards should be lifted, and the enforcement capabilities of the agency should be as strong as that of the banking regulators. The Council, like Secretaries
Snow and Martinez, believes that the Treasury Department is the most appropriate cabinet agency to supervise and regulate the housing GSEs. Treasury has general authority over the state of the economy and our nation's financial markets, and the operations of the GSEs, including the Federal Home Loan Banks, have reached a level where their role and financial stability is of importance not only to housing and financial markets, but also to the economy as a whole. Moreover, Treasury has experience in managing two other safety and soundness regulators, the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
We believe that the new bureau within the Treasury should have responsibility for the safety and soundness of the housing GSEs and the Federal Home Loan Banks. Safety and soundness, of course, includes the authority to review and approve new activities contemplated by the supervised entities – they are not separate functions. With supervisory and regulatory responsibility for all aspects of the operations of these entities, the bureau would be properly suited to make decisions about the individual elements of their businesses. Divided supervisory authority seldom works efficiently, and no other major financial institutions are subject to divided supervision.
The OCC, for example, has the authority to supervise all aspects of a national bank's operations, including the review of new activities. It has fashioned over the years a system of product approval that both efficiently encourages innovation and effectively manages risk. New product approval procedures of the new regulator should be patterned after those procedures applicable to national banks and federal thrifts. There is no need to invent a new procedure.
Currently, the Office of Federal Housing Enterprise Oversight is subject to the annual federal appropriations process, even though its operating funds come from assessments imposed on the housing GSEs. Removing the new bureau from this process will free the bureau from the time-consuming appropriations process and will insulate it from undue political pressures. All other federal financial regulatory agencies, including the OCC and OTS, are exempt from the appropriations process.
The housing GSEs are also exempt from the requirements of the federal securities laws enacted in 1933 and 1934. As a result, they are not required to register under those laws or make the same types of disclosures imposed on all other public companies. Voluntary adherence to some or all of the parts of these laws is not the same as mandatory adherence. Thus, the exemptions for the housing GSEs should be removed.
Finally, the member companies of the Council have been in the forefront of providing affordable housing for low and moderate income citizens for years, and the Council heartily supports the intention of the Administration to continue to require the GSEs to expand their activities in this area. The mortgage originators throughout the country as well as the Home Loan Banks have been active participants and will continue to be under the new program outlined by the Administration. To that end, the Council supports the retention of the affordable housing goals by the Department of Housing and Urban Affairs, and we believe that if the transfer of mission authority from HUD to the new bureau is structured properly, there will be no diminution of those goals.