banks, will there be a permanent increase in our cost of funds, which would be reflected through our not being able to achieve our mission? So those are the concerns about competitiveness. And if you ask me to delineate all of the things I can think of, I can't go very far beyond that because I can't see the future. But I would be concerned with being treated differently if you choose to move the other two entities to a different regulator. Mr. HENSARLING. Well, once again I apologize for plowing over old ground, but I missed part of the testimony. Mr. Hehman, would you comment please? Mr. HEHMAN. Yes, sir. Our concern about being put together with the other two GSES is very simple, that we are not like them. We are a banking system that lends money to community-based institutions. We are a different animal. We are a different GSE. So our concern is really to be lumped in with two other GSEs who do something, who are very involved in housing, clearly, but have a totally different delivery system, in my judgment, than the core mission of the Federal Home Loan Banks. So our position is that the Home Loan Banks are different enough that the current regulatory system has done the job and that, in a sense, leave well enough alone. Mr. HENSARLING. Thank you. I see my time has expired. The CHAIRMAN. Gentleman yields back. Mr. SCOTT. Yes, thank you very much, Mr. Chairman. To Mr. Raines and to Mr. Gould, I want to make sure we are clear here because I am tending to get kind of a schizophrenic response from the two of you in terms of your two feelings about the proposed legislation, the President's proposal, Administration's proposal. On the one hand, I am hearing you say you basically support the Administration's proposal. In your interchange with Mr. Baker, I think you have tended to say you support basically that. But there was-Mr. Baker came back and said there was one point of disagreement there that I did not get picked up, but I want to. This is an extraordinarily important hearing in that the people of America, I think, are listening and watching to get a clear signal where we go because what you all do is so critically important in the mission. But on the other hand, I hear you saying that you are very fearful of moving from where we are, from HUD, because it may lower the priority in terms of the housing goals that we reach. And I am very concerned about this. I represent a district in Georgia where we have four of the fastest growing counties, 11 counties around metro Atlanta. And just to point out my concern, you were tacking off some figures about what you have done, and I commend you for that. But if you look at what happened between 2001 and 2002 in terms of home ownership rates among white, black, Hispanic, other races, central cities and the suburbs, in every single category there was a little bit of movement. For example, among whites, from 74.3 percent to 74.5; from Hispanic, 47.3 percent to 48.2; central cities, 58 to 59, 74.6 to 74.7. The only area which there was a decrease was in the home ownership of African Americans, one of the four most critical groups to be sustained. So I would like to give me a little answer to that as to why that decrease? Why the African American community? Is there something going on in that community that they are faced with that no one else has? I think we want to know that. And if you could give us some clarity on how, on one hand, you favor what the Administration is doing, but then on the other hand you are fearful of what it is doing. Mr. RAINES. Well, if I might start, Congressman. I think you put your finger on the conundrum that we face. We are vitally committed to our housing mission. It is what we do. It is who we are. And it is our number one priority. Our housing mission, however, does require us to raise capital around the world. Our investors invest in Fannie Mae not because they necessarily share our housing mission, but because they think that Fannie Mae will be a good steward of the capital. And so we need to have a regulatory regime that both helps us raise the capital and helps us do our mission. And finding that right mix is the conundrum you point to. And what we are struggling with here is what is that right mix of things that helps us raise the capital and helps us do our mission. As I understand the Treasury proposal-and we don't agree with every line of the proposal-but as I understand the Treasury proposal, it would help us raise the capital and if properly prepared would help us do our housing mission. If it would not help us do our housing mission, then we would oppose the legislation. And that is why, for example, we were quite firm on the point, if the proposal is to increase our minimum capital standards, we will oppose the proposal. And there should be no question I think in anyone's mind about that. Why? Because it would undermine our housing mission. It would allow us to do less. If you double our minimum capital, you cut in half what we can do. But this is why I think you are feeling this tension, is that we need both. We need the access to the capital markets in order to do our mission. And that is why I, in my testimony, tried to lay out the history of how the Congress has dealt with this. And each time, it has, I believe, reached the right balance in those things. It has not said that safety and soundness is more important than our mission. If that were true, then they should shut us down. The most safe and sound course is to have no obligations outstanding. But instead, Congress has reached a different balance. So today, do we have a lot of obligations? Absolutely. But for every $2 that we have in debt and obligations, we have got $3 in collateral in American homes. And that has been successful. The CHAIRMAN. The gentleman's time has expired. The gentleman from North Carolina, Mr. Miller? Mr. BRAD MILLER OF NORTH CAROLINA. Thank you, Mr. Chair man. Mr. Raines, you just said the word balance. And that is the first time I think I have heard this, because I think most of the debate has been about either considering safety and soundness or considering how to make credit available for home ownership, particularly among underserved populations, racial and ethnic minorities and just low-wealth families in general. But I have seen this as a balance, as trying to strike a balance between those competing concerns. And we strike balances all the time in every area of the law. Harry Truman said he wanted to meet a one-handed economist because he got tired of hearing on the one hand, on the other hand from his economists. But he really should have talked to a lawyer if he wanted to hear about on the one hand, on the other hand. Most of the debate, I have thought about which box to put this product approval in had to do with whether in striking that balance the bias would be on the side of safety and soundness or the bias would be in favor of encouraging home ownership. Those who oppose putting it in Treasury thought the bias would be in favor of safety and soundness. Those who wanted it-opposed having it in HUD thought the bias would be in favor of encouraging home ownership at the expense of safety and soundness. I understand that you have said earlier that you do not care where it is, which box it is in, but that you think that the standard by which it should be subject, new product approval should be subjected, should be judged, should not consider safety and soundness at all? At the initial stage it should not-that product approval should not-it should be about whether it is consistent with your charter, and that is the extent of the analysis. Mr. RAINES. And then the safety and soundness regulator would determine what the capital would be to ensure safety and sound ness. So there is a separation between consistency with our charter and our mission and what the appropriate capital is for it. The safety and soundness regulator will always establish what the capital is, whether it has gone through the approval process or not. Anything we come up with, they establish the capital requirement. Mr. BRAD MILLER OF NORTH CAROLINA. But my understanding of what you said earlier-and I have had the same experience everybody else had of being in and out of this hearing, it is a great frustration of serving in the House and trying to be a conscientious member of a committee-but my understanding is that your proposal or what you favor, that would come later. Mr. RAINES. No, I think in reality what has happened currently is it comes almost simultaneously because the two of them will consult. That is what happens today. Today, OFHEO has the ability to establish whether or not it meets safety and soundness standards and what the capital should be and HUD decides whether or not it is consistent with our charter and our mission. So we have that bifurcation today. And I think that part of the process works reasonably well. I think the greater difficulty is simply what the standard is. On what basis should I decide this is okay or not okay? And I always thought it was clear. But some of our experience says there seems to be some ambiguity about it, and I am asking the committee to resolve the ambiguity in favor of housing. Mr. BRAD MILLER OF NORTH CAROLINA. I yield back. The gentlelady from Indiana? Ms. CARSON. Thank you very much, Mr. Chairman. I am probably the only one on the committee having some unreadiness about transferring all this oversight and stuff like that because it appears to me that if Treasury can indeed establish some safe and soundness in terms of your capital risk and your capital investment then it ought to expand that work out to the whole United States of America, since we are on the brink of economic disaster. But I do not understand the part that is proposed in terms of the Treasury Department having oversight and decision-making in terms of new missions and how this new regulator discerns what is a legitimate or a necessary new mission, new goals, new modus operandus. And I heard all of you wonderful gentleman talk about you agree with all of this. But how does the Treasury Department discern what is a viable mission, what is a viable new mission or a new investment or am I making my question clear? Mr. GOULD. Well, in my testimony Ms. CARSON. I apologize, I have been Mr. GOULD. That is perfectly all right. The way Freddie Mac has looked at it is that the mission goals and the definition of the mission has been set by HUD for many years. We think that is still appropriate for them to do so. They have the experience and the background to do so. At the same time, it helps us do our mission and serve affordable housing to have the lowest cost of funding that we can achieve. And that is best achieved by having the market perceive us to have a very credible regulator. Credible in the sense of saying that we are safe and sound. And there is no better entity in that regard than the U.S. Treasury. So this bifurcation, we feel, serves both our purposes: a safety and soundness regulator with credibility and an experienced organization in terms of what our mission should be. Now, I do agree very much with Mr. Raines that we must be very careful of dampening innovation, particularly because the point that Mr. Scott made, Mr. Davis made and others, is as we go forward here, a clear part of our mission is going to be to try to serve the underserved parts of America. And that means in order to remain safe and sound in doing so that we are going to need some innovation. We are going to need some financial vehicles that can provide funds flow to those areas and still not engender something that would disturb the markets in being unsafe. So there is work to be done here. But neither one of these decisions are going to be made in the abstract. The Treasury should not just sit there and make safety and soundness decisions without consultation with the person in charge, HUD in our view, of our mission. That is not the way things should work and not the way things really do work. So there is going to be a constant interchange or so-called working together here in order to accomplish what we have to do, which is to get the percentage of housing for minority groups in this country higher so that it is matching the white population. And that is going to take some innovation and that is going to take some work and that is going to take some commitment. And I know Fannie Mae has spoken out about this and we have too. This is something we are both dedicated to and we are trying to find the best way to do it. Ms. CARSON. If I may ask one more quick question, Mr. Chairman? And maybe this is not the right group to pose the question to. In Indianapolis, where I am from, we have the highest rates of home foreclosures in the country. A lot of that has been naivete on the part of the consumer and all that and we recognize all of that and that needs to be fixed, that is broken. But more importantly, our economy, our jobs are dissipating. We just last week got word that our biggest foundry is closing, 1,000 employees. United was there, they left, 2,000 people. For the most part, those people are homeowners. Now, do you get the blame for all of these foreclosures that come up when you have been out in the market with these innovative programs? And I might hasten to add that at the foundry especially 80 percent of those are people of color. They are going to lose their homes. Do you have in this risk, capital risk management apparatus some forecast that say, "Hey, you better not loan that guy that money because he is going to lose his job next year"? Now, that sounds like a dumb question and perhaps this isn't the panel that should address that. Mr. RAINES. No, it is not at all an inappropriate question because it is the heart of what we do. We always are trying to find how can we help more and more people and do that within safe and sound principles. And our experience has been quite good actually. Our experience has been quite good. Indeed, even for people who get into trouble and get behind in their mortgages, we have found that we have been able to keep half of them in their homes and not go to foreclosure by working with them as they work through periods of unemployment or sickness or divorce or other issues. So it is exactly the right question. And avoiding foreclosure is as important as making the original loan. It doesn't do anyone any good to put someone into a home and then as soon as they get into a little bit of trouble, foreclose on it. And it doesn't do any good to have a bunch of foreclosed houses sitting abandoned in a community. That is why Fannie Mae fixes up houses before we sell them back so that people are getting a house that is in good shape. And we do that very quickly. But it is absolutely a critical part of what we and our lenders do, is to ensure that people who get into homes can stay there and to take whatever steps we need. But I can tell you, we have been expanding into low down payment lending and to credit-impaired lending and the results have |