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homeownership also-property taxes contributed approximately $285 billion to state
and local budgets in 2002.
To maintain the vitality and stability of our housing finance system and of our financial
markets in general, it is imperative to have effective oversight of the GSEs. Recently,
we have seen examples in other industries of what can happen without effective
oversight, and the Mortgage Bankers applaud this Committee's efforts to prevent future
problems from arising in our housing finance system.
The Mortgage Bankers endorse the principles for GSE regulation laid out by the
Secretary of the Treasury John Snow and the Secretary of Housing and Urban
Development (HUD) Mel Martinez before this Committee earlier this month. Further,
the Mortgage Bankers support certain core principles for effective regulation of Fannie
Mae and Freddie Mac.
First, effective safety and soundness oversight, the reason all of us are here today, is
necessary. The Treasury Department successfully regulates both national banks and
federal thrifts, and has successfully demonstrated its ability to fulfill the role of a
financial safety and soundness regulator. The Mortgage Bankers support establishing
Treasury as the safety and soundness regulator for Fannie Mae and Freddie Mac.
Second, the GSE regulators, both within Treasury and HUD, need to have adequate
funding if they are to live up to their important duties. That funding should not be
subject to either annual or permanent Congressional appropriations, so the regulators
will be equipped to fulfill their missions, even in cases like the current one, where a
major problem arises very suddenly. Such a funding arrangement has worked well for
OTS. Changing the current annual appropriation to a permanent appropriation will not
strengthen the regulators, that is, it will not meet Congress's current goal
strengthening GSE regulation. The Mortgage Bankers urge this Committee to look to
the OTS funding arrangement in drafting legislation.
Third, the safety and soundness regulator needs flexibility in setting capital standards.
MBA does not mean to imply that today's capital requirements are inappropriate or
inadequate in any way. Rather, MBA believes that the regulator needs the tools to
respond to changing marketplace conditions - capital standards are the fundamental
tool in this regard. A statute should not unduly tie a regulator's hands.
Fourth, a regulator needs adequate enforcement authority to correct any problems that
may arise, and, more importantly, to deter problems in the first place. The Mortgage
Bankers believe that the enforcement tools that the banking agencies share have
proven their effectiveness over the years, and supports including such tools for the GSE
Within these four core principles, one issue stands out to MBA as the most
fundamentally important for the mortgage industry – the safety and soundness of GSE
programs and activities. The programs in which GSEs engage, that is, what the GSES
do every day, is the basic determinant of their safety and soundness. When they
implement a new program, when they purchase mortgage-backed securities, when they
try a new way to hedge their interest rate risk, when they find a new source of debt,
when they do the things day in and day out as a normal part of their business
operations, they put their safety and soundness at issue.
Fannie Mae and Freddie Mac are so large that when they undertake some activity, it
has ramifications throughout the American mortgage market and, indeed, throughout
domestic and international economies. The GSEs' risks are more than a mere question
of housing, their risks are of central concern to financial regulators around the world.
Because the GSEs' actions sway our economy, it is imperative that their activities be
conducted safely and soundly. We certainly do not believe that any GSE would
intentionally risk harming their financial standing or the state of the economy. Yet, the
fact is that the GSEs are so large that they do affect our economy. For these reasons, their activities must be safe and sound - all of their activities, not just some. Congress
cannot give the GSEs or their safety and soundness regulator an exemption from their
obligation to ensure that new programs are consistent with prudent financial
management and sound business operations. We believe that the approval of new
programs and activities is intrinsically linked to financial safety and soundness.
The safety and soundness regulator, for these reasons, is in the best position to
evaluate the appropriateness of new or proposed GSE programs. The regulatory
approval system should be robust, and should have a clear definition of what requires prior regulatory review. Congress should draw a clear line between the primary and
secondary mortgage markets -- in no event should the GSEs be permitted to encroach
upon the mortgage origination process. In no event should the GSEs be permitted to
use their government-sponsored benefits to distort the competitive landscape of the
primary mortgage market.
The Mortgage Bankers also believe that it is important that the regulator not
micromanage the GSEs, and that it not unduly constrain the GSEs' ability to respond in
a timely manner to marketplace needs. Regulatory approval for new programs must
come in a timely manner, and should be based on a clear and well-defined criteria.
Fannie Mae and Freddie Mac enjoy the benefits of government sponsorship so they
can assist Americans with their housing needs. MBA very strongly supports the
affordable housing goals for Fannie Mae and Freddie Mac because the goals require
the GSEs to focus their activities on lower income Americans and those living in
underserved areas. MBA endorses HUD's role in setting and enforcing those goals
because HUD has extensive experience in this area. The goals are set based on
extensive and complex research and analysis. The Mortgage Bankers support giving
HUD flexible authority to set and enforce appropriate affordable housing goals for
Fannie Mae and Freddie Mac.
The Mortgage Bankers strongly urge Congress to reform the oversight of Fannie Mae
and Freddie Mac in this manner so that they can continue their role in supporting
housing, especially affordable housing, in this country.
Thank you for asking the Mortgage Bankers to testify today on these important issues.
We would be happy to supply you with any additional information you wish. I am happy
to answer any questions the distinguished members of this Committee may have.
Statement of The Honorable Armando Falcon, Jr.
U.S. House of Representatives
September 25, 2003
Chairman Oxley, Ranking Member Frank, and Members of the Committee.
Thank you for inviting me to appear before you today. I am pleased to provide my
views on improvements that can and should be made to the regulatory oversight of
Fannie Mae and Freddie Mac. My views are my own and are not necessarily those of
the President or the Secretary of Housing and Urban Development.
I would like to begin by stating upfront that I support legislation to strengthen the
supervision of Fannie Mae and Freddie Mac. Upon taking office as Director of Office of
Federal Housing Enterprise Oversight (OFHEO) in October of 1999, I quickly realized
that the Agency's long-term success was jeopardized by inadequate resources, a
constraining funding mechanism, and a lack of powers equal to those of other
regulators. Over the past four years, I have been a consistent advocate of legislation
designed to address those shortcomings, and so I was encouraged by the
Administration's comprehensive proposal and your efforts, Mr. Chairman, to move
forward. While I am in general agreement with the well-considered proposal that
Secretaries Snow and Martinez have presented to the Committee, but I do have a few
concerns that I hope can be properly addressed.