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Additional Issues

There are a couple of other matters I would like to briefly discuss. First, I agree

with Secretary Snow that the Presidentially appointed board positions should be

discontinued. This is not a reflection of current or former Presidentially appointed

directors. Rather, I think corporate governance would be enhanced if the shareholders

were allowed to select all members of the board. It is difficult for even the most

conscientious director to fully contribute when their terms are limited to one year and

reappointments are often denied for political reasons. Shareholder elected directors

usually are reappointed for up to ten years.

| also support the granting of authority to the safety and soundness regulator to

determine whether the activities of an Enterprise are consistent with its' charter

authority. This would mean that a single regulator would have the ability to review all of

the Enterprises' activities

new and existing. This change will consolidate the

supervision of the Enterprises in a manner consistent with authorities of other

regulators. I appreciate the concern expressed about the primacy of the Enterprises'

housing mission if and when the charter compliance responsibility is shifted. The goal,

in fact, of enforcing charter compliance is to ensure that the Enterprises remain properly

focused on their housing mission and not stray into extraneous ventures. Consistent

with that goal, I think a mechanism can be instituted to ensure that a new regulator

actively solicits and considers all views, including housing advocates, when exercising

its authority. The importance of their housing mission is actually why the Enterprises exist. Strengthening their safety and soundness regulation supports that mission by

ensuring that they are strong enough to provide the financial services that make that

mission a reality.

Conclusion

Mr. Chairman, that concludes my testimony. I look forward to working with the

Committee as this important legislation moves forward. I will be happy to answer

questions that you and the Committee may have.

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H.R. 2575, SECONDARY MORTGAGE MARKET ENTERPRISES
REGULATORY IMPROVEMENT ACT AND OTHER PROPOSALS ON GSE

REGULATION

SEPTEMBER 25, 2003

WASHINGTON, D.C.

1424 16th Street, N.W., Suite 604 · Washington, D.C. 20036 • (202) 387-6121 • www.consumerfed.org

Chairman Oxley, Representative Frank, members of the committee, my name is Allen
Fishbein and I am the Director of Housing and Credit Policy for the Consumer Federation
of America. I am testifying today on behalf of CFA, which is a non-profit association of
some 300 consumer organizations, with a combined membership of 50 million that was
founded in 1968 to advance the consumer interest through advocacy and education. CFA
and many of our members have had long-standing interest and involvement on housing
finance matters, including advocating for expanding the role of the GSEs in serving
important housing needs. As for my own background, I have been an advocate for many
years on GSE issues and have served at HUD as Senior Advisor for GSE Oversight,
where my responsibilities included assisting with supervision that led to the
establishment of the present affordable housing goals for Fannie Mae and Freddie Mac.
Thank you for affording us with the opportunity to present our views on various
proposals the committee is considering revising the regulatory structure governing these
two government sponsored housing enterprises.

Consumers – whether existing or future homebuyers, renters, or investors – have a great
stake in the outcome of these deliberations. Fannie Mae and Freddie Mac, along with the
Federal Home Loan Bank System are government sponsored enterprises (GSE) created
by Congress to help ensure the smooth flow of housing credit throughout the nation. CFA
believes that the GSEs' play an important, indeed essential role, in promoting a sound
housing market and by providing expanded homeownership and other housing
opportunities. The GSEs’ public charters limit their activities to their housing mission
and in return, they are afforded special competitive privileges not enjoyed by fully private
financial institutions. The GSEs also have additional statutory mandates that require
them to serve special housing finance needs, such as expanding mortgage credit
opportunities to low and oderate income households and underserved communities.
Changes to the GSEs' regulatory structure, therefore, must be undertaken with great care
and precision so as not to work at cross purposes with the GSEs' ability to carry out these
important mission activities.

Does the GSEs' regulatory structure require changing?

Fannie Mae and Freddie Mac are the nation's two largest home finance companies. Through their secondary market activities the two GSEs own or guarantee more than $3 trillion in mortgages --almost one-half of all outstanding mortgage debt -- and fund nearly 80

rcent of the estimated total of all conforming, non-government insured mortgages made. Further, because of their market dominance, the underwriting standards of the GSEs also have much sway over who is eligible for mortgage credit and on what

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terms.

The 12 Federal Home Loan Banks (FHLBs) that make up the Federal Home Loan Bank System are a somewhat different form of government sponsored enterprise, but one that is also mandated to serve broad housing finance needs as well as particular affordable housing needs. The system also provides an important source of funding for lenders,

which in turn, use these funds to finance home loans and other residential mortgages. The System has over 8,000 financial institution members at the end of 2002 and assets of over $700 billion. My written testimony today focuses largely on issues of oversight structure pertaining to Fannie Mae and Freddie Mac and not the FHLBanks since this seems to be the most immediate focus of the committee's deliberations. However, we are prepared to supplement this testimony by providing additional views on the merits of combining FHLB oversight what that of Fannie Mae and Freddie Mac.

Freddie Mac's announcement of plans to make a substantial restatement of its earnings for prior years, coupled with more recent revelations about the departure of its three top executives and other reports of irregularities attracted considerable attention this summer and seemed to have unnerved the financial markets. The sheer size of the GSEs and their importance to the housing market mean that investors are sensitive to any hint of trouble. We are aware that members of this committee expressed concerns that these difficulties were not detected earlier by regulators and do not believe the current structure has the capabilities to provide adequate oversight in this area.

Still others had called for a regulatory overhaul even before these recent developments came to light. Unquestionably, the tremendous growth in the size of the GSEs over the past decade has raised the stakes for regulatory oversight. Indeed, Fannie Mae's and Freddie Mac's mortgage investments have increased by over 620 percent and the GSES today are two of the largest private debt issuers in the world (CRS Report to Congress, September 8, 2003, 2). Similarly, the FHLB System's business has sextupled and its membership has more than tripled since 1992, with commercial banks instead of savings institutions now constituting a majority of the system's membership. Government, the GSEs, consumers, residents of underserved communities, lenders, the housing industry and taxpayers all have a strong interest in effective oversight of enterprises financial condition. Thus, it would be hard to argue against the need for Congress to review the adequacy of a regulatory structure that was put into place a decade or more ago.

The existing regulatory structure governing Fannie Mae and Freddie was established in 1992 as part of the Federal Housing Enterprises Safety and Soundness Act (or GSE Act). The GSE Act established OFHEO as an independent agency, within the U.S. Housing and Urban Development (HUD) to oversee the safety and soundness of the two enterprises and to help ensure that they are adequately capitalized. The GSE Act also reaffirmed HUD as the GSEs' mission regulator, with general regulatory responsibility for ensuring that Fannie Mae and Freddie Mac operate within their public charters and otherwise fulfill their statutory mandates, including authority to review the GSEs new mortgage programs, establish and monitor the GSEs' fulfillment of their annual affordable housing performance goals, and ensure that they abide by fair lending requirements.

Review of Proposed Changes

There appears to be some consensus for taking steps to enhance the safety and soundness oversight of the GSEs. There also is growing recognition that OFHEO does not have all

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