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But is it now time for decisions. We don't need more inquiries, any more hearings. We have asked all the questions, and frankly heard all the various answers. It is now simply time for decisions.

I look forward to the completion of this work, and, Mr. Chairman, with your continuing strong leadership, consideration by the full House of this measure before the year is concluded.

I thank the chair.
The CHAIRMAN. The gentleman's time is expired.
The gentleman from Pennsylvania, Mr. Kanjorski?

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

As my colleagues already know, I support strong and independent 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 ensure 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.

In our last hearing on GSE issues, senior officials within the Bush Administration indicated that there was no crisis that demanded immediate attention of the Congress. Consequently, instead of rushing to judgment, we ought to move judiciously and objectively 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 obligation 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 GSEs, I have outlined five principles to guide our consideration of GSE regulatory reform legislation. Today I feel it is 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 a system in which the GSE regulatory reform bill can proceed in a proper and orderly manner.

Additionally, several others who will not testify 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 policymakers. We should heed their sensible advice.

The National Association of Realtors has also recommended that any 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 the OTS models provide us with an effective framework for constructing a new GSE safety and soundness regulator.

Specifically, this new agency should have the authority to submit testimony, recommendations and reports to the Congress without the prior review or approval of the Treasury 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 office with any other regulator.

In closing, Mr. Chairman, I commend you for your leadership in these matters. I look forward to continuing to work with you to develop a balanced and 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.

I yield back.

[The prepared statement of Hon. Paul E. Kanjorski can be found on page 117 in the appendix.]

The CHAIRMAN. The gentleman yields back.
The gentleman from California, Mr. Royce?

Mr. ROYCE. Thank you, Mr. Chairman, and thank you for holding this hearing. And I want to commend you, I want to commend Chairman Baker certainly, as well, for your leadership.

And I look forward to hearing the testimony of our witnesses today. Especially I look forward to welcoming a fellow Californian, Mr. Dean Schultz, who is with us, and he is the President of the Home Loan Bank of San Francisco.

This committee, in my view, must include the Federal Home Loan Bank system in any legislation that would create a new regulatory body for housing government-sponsored enterprises.

I think that today I would like to once again raise my own concerns with the Office of Federal Housing Enterprise Oversight and with the Federal Housing Finance Board.

The arguments to include the Federal Home Loan Banks in a better, stronger regulatory framework are consistent with the same arguments to include Fannie Mae and Freddie Mac. The Federal Home Loan Banks have debt outstanding and a derivatives portfolio comparable in size to both that of Fannie Mae and Freddie Mac.

Additionally, the Federal Home Loan Banks are changing the risk profile of the system through their rapidly growing mortgage assets.

The Finance Board has neither the depth nor the experience to oversee this risk. All three GSEs need to hedge their portfolios against movement of interest rates. And 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 Federal Home Loan Banks. However, at the end of the day, if this committee must choose between sound public policy on one hand and a unanimous political consensus on the other, the committee here should pick good public policy.

In my view, the benefits of better regulation would accrue not only to the taxpayer and to the financial system at large, but it is also going to accrue to Fannie Mae and Freddie Mac and to the Federal Home Loan Banks. And the reason that is the case is because, not only is there going to be better regulation, but there is going to be a lower cost of capital for those institutions.

The regulator must see the whole scope of risks in GSE housing finance to perform its duties well, including, if we go forward and we include the Federal Home Loan Banks, this is going to allow Congress to construct the proper foundation for this oversight.

So I look forward to working with my colleagues from both sides of the aisle to create legislation that includes all three GSEs. And that legislation should adhere to a few basic principles.

The regulator should be independent, like the OCC and the OTS. The regulator should be independently funded, outside of the congressional appropriations process. The regulator_should recognize distinctions in the business models between Fannie Mae and Freddie Mac and the Federal Home Loan Banks. And with the exception of affordable housing goals, with that exception, mission regulation should move to the new regulator.

And I thank you again for your leadership, Mr. Chairman.

[The prepared statement of Hon. Edward R. Royce can be found on page 122 in the appendix.]

The CHAIRMAN. Gentleman yields back.
Are there further opening statements?
Gentlelady from California?

Ms. WATERS. Thank you very much, Mr. Chairman. I am pleased that we are here today. And I do think this is a very important meeting.

The last time I heard testimony from Fannie Mae and Freddie Mac was May 16, 2000. As you know, I was a member of this distinguished committee when we enhanced the structure of these

GSEs in 1992 to assure safety and soundness in particularly their housing mission.

However, I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke. Housing is the economic engine of our economy, and in no community does this engine need to work more than in mine. With last week's hurricane and the drain on the economy from the war in Iraq, we should do no harm to these GSEs. We should be enhancing regulation, not making fundamental change.

Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals.

What we need to do today is to focus on the regulator, and this must be done in a manner so as not to impede their affordable housing mission, a mission that has seen innovation flourish from desktop underwriting to 100 percent loans.

We must be mindful that capital allows these GSEs to perform their mission. Nothing in the concerns at Freddie Mae had to do with their capital.

In this regard, I am pleased that Secretary Snow has communicated that Treasury has no intent to change the GSE's minimum capital or risk-based capital. Their risk-based capital requirements are subject to a decade-long, and I quote, “nuclear winter or deeply adverse credit and interest rate environment."

These GSEs have more than adequate capital for the business they are in: providing affordable housing. As I mentioned, we should not be making radical or fundamental change.

I also have several concerns, which I raised at last week's hearing, and I need to further set the record straight.

First, these GSEs lead, not lag the primary market in funding mortgage loans for low-income and minority home buyers. The goals we put in place in 1992 work.

In 2002 alone, Fannie Mae provided $279 billion in credit serving low-and moderate-income households.

Fannie Mae's $136.2 billion investment in mortgages to minority families exceed that of any private financial services institutionand may I say particularly Wells Fargo and their other competitors, who thrive in subprime and predatory lending-and even greatly exceeded the FHĀ’s $46.4 billion in minority loan originations.

Moreover, since the inception of goals from 1993 to 2002, loans to African-Americans increased 219 percent and loans to Hispanics increased 244 percent, while loans to non-minorities increased 62 percent.

Additionally, in 2001, 43.1 percent of Fannie Mae's single-family business served low-and moderate-income borrowers compared to 42 percent for the conventional conforming market as described by the HMDA data. A total of 23 percent of Fannie Mae's business served minority home buyers, compared to 21.3 percent for the conventional conforming market.

Mr. Chairman and members, the GSEs are working. That is why I oppose the transfer of program approval to Treasury and expansions into new activities by either Treasury or HUD. I am opposed


to a new bureaucracy at HUD to track sub-goals. We should focus on those banks, many of them competitors of these GSEs, who avoid CRA and practice predatory lending.

In addition, less than 17 percent of OPO's budget was used for examinations. Reallocations of funds, not a new and expensive bureaucracy, is what is needed.

I also oppose the tinkering with the GSEs' status and indicia of GSEs' status. Leave the Presidential appointment of directors alone. Don't rattle the domestic and international markets with this tinkering.

Mr. Chairman, let me just close by saying, it is almost unfair to the regulatory agency at this point to simply criticize them for not exercising the kind of oversight that is now being concluded that they should be exercising without a real examination of their resources and their power and all that should go along with any regulatory agency.

If there is anything to fix or improve, it is the regulatory agency.

And again, I suppose I take a position that is somewhat different from some of my colleagues. I am absolutely, unequivocally opposed to the transfer to Treasury and the expansion into new activities by either Treasury or HUD.

I yield back the balance of my time.
The CHAIRMAN. Gentlelady yields back.
Are there further opening statements?
The gentleman from Ohio, Mr. Ney?

Mr. NEY. Thank you, Mr. Chairman. I think we all can say that we appreciate your holding this hearing. It is important we proceed cautiously, but expeditiously and carefully on the issues of providing a new regulator for GSEs, and you have done that.

I want to thank our many witnesses who will be here today, the current panel and also upcoming panel. David Hehman, who is President and CEO of the Cincinnati Federal Home Loan Bank will be here today.

As I mentioned, the hearing we held a couple weeks ago, as Chairman of the Housing Opportunities Subcommittee, I have a keen interest in the strength of our nation's housing market.

GSE regulation is an incredibly important issue for all Americans. One of the only things that held this economy together as we all know in the last two years was housing and automobiles. Right now, it is housing as an important part of the recovery.

The United States mortgage and credit markets are the envy of the world. The mortgage market has singlehandedly kept the economy afloat during the recent difficult economic times, and housing has proven to be the greatest single generator of wealth in our nation.

As our last hearing demonstrated, a consensus has begun to emerge that it is time to create a new safety and soundness regulator for Fannie Mae and Freddie Mac at the Treasury Department. With the important role the GSEs play in the capital markets and the possible risks they could pose to the financial system, reconstituting their safety and soundness regulator at Treasury is a prudent step at this time.

Such a move would send an important signal that we understand the importance of the GSEs and the secondary mortgage markets

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