The corporation would continue to be granted limited immunity from anti-trust and mortgage foreclosure moratoria. Litigation involving the corporation could continue to be removed to the federal courts to ensure consistent nationwide interpretation of the corporation's contracts with its seller/servicers. - The bill also enables the corporation to expand its services to housing. I have already discussed the major program innovation contained in the bill a guarantor program based on that of the Government National Mortgage Association. In addition, the range of permitted programs would be broadened to include all second mortgages. Current statutory mortgage limits would be removed although the corporation would retain authority to set limits. Once restructured, the corporation would gain operating flexibility to offer new programs to meet housing needs on a more timely and efficient basis. Relationship to FNMA During my meetings with some members of this Committee, I have been asked to contrast the restructured Mortgage Corporation with the Federal National Mortgage Association. In my view, although there would still be a number of differences between the corporations, our proposal represents a balanced approach. FNMA will, however, retain a most significant advantage over the Mortgage Corporation--that is its $2.25 billion line of credit to the Treasury Department. and those of the restructured corporation for the record. I would now like to turn to a series of issues concerning the relationship of our proposed legislation to the Federal National Mortgage Association. I understand that FNMA has suggested to members of this Committee that if this legislation is passed, FN MA will be injured financially. I want to state for the record in the strongest possible terms that I believe the more the Federal National Mortgage Association prospers the greater will be the success of the restructured Mortgage Corporation I have described today. In fact, the entire market for securities of federally chartered corporations stands to gain from FNMA's recovery. I would not be putting forth the corporation's proposal if I believed that it would result in harm to FNMA. I am also confident that if the investment banking firms which service both corporations and the federal instrumentality market in general shared a pessimistic view of the effect of this legislation, they would be trying to pursuade the Mortgage Corporation to postpone it. On the contrary, the corporation's legislation enjoys strong support in the investment community. FNMA's future financial results appear to be more closely related to interest rates in the general capital markets, particularly the market for debt. As of December 31, 1981, FNMA had total debt of $58.7 billion at an average maturity of 31 months. of that amount, $43 billion must be rolled over during the next five years. The future activities of the Mortgage Corporation, which currently has less than $5 billion in outstanding debt, are not expected to have a material impact on debt rates or capital market rates in general. For the sake of emphasis, the Federal Home Loan Mortgage Corporation has traditionally been a relatively small borrower in the debt markets. The passage of the corporation's recapitalization bill will not lead to an increase in debt financing on the part of the corporation. In fact, we anticipate actually reducing our debt outstanding in the future. While it is true that passage of the recapitalization bill will enable us to guarantee a greater volume of mortgage pass-through securities, such as our PCs, which will ultimately be sold in the capital markets, the increased volume of this type of security will not have a negative impact on the debt financing costs of quasigovernment agencies, most notably FNMA, because PCs are not competing with debt obligations. The Mortgage Corporation will continue to sell mortgages in the form of PCs rather than financing such loans though debt. Since the PC is a thirty year instrument priced from a 12 year life assumption, the traditional investors in the PC market have not been the same as those who invest in the 3-5 year agency debt market. The Mortgage Corporation's plans to market stock to investors obviously will have no impact on FNMA's borrowing costs. One can only conclude that the legislation before you is completely unrelated to FNMA's financial future. Unlike our debt securities which are a direct source of financing for the corporation, the PC is actually a source of financing for the homeowner through the lenders who sell the mortgages to us for the PC pools. The Mortgage Corporation PC is the most efficient vehicle in the market today through which the homeowner can compete for capital market funds. If the homeowner did not have this access to the capital markets, his cost of financing would increase significantly since the availability of mortgage funds would be curtailed. Competition In my view, there is healthy program competition between the Mortgage Corporation and the Federal National Mortgage Association. This view is shared by the lengthy list of organizations which have endorsed our legislation. While we are striving to have a structure that is more like that of FNMA, FNMA is striving to adopt the financing strategies, including issuance of mortgage securities, which over the past decade have served the Mortgage Corporation well. In addition, we are now expanding our customer base to include more activity from mortgage bankers, FNMA's traditional customers. At the same time, FNMA is making strong inroads to our traditional customer base, the savings and loan associations. Under the very able leadership of David Maxwell, FNMA has offered many new services and programs over the past year. While many of these have been a part of the Mortgage Corporation's baseline programs for some time, these actions do not amount to a duplication of efforts. Competition is dictating that the corporations strive for a minimum of red tape, competitive fees and pricing, and efficient delivery. The housing and mortgage finance industry has no interest in the elimination of either corporation, or in the consolidation of the two into a "super-corporation" where one firm would dictate the shape of the marketplace. In fact, the overriding reason for strengthening and expanding both FNMA and FHLMC lies in the fact that the job of providing secondary market services in the future is far too large to be handled except through the development of many similar entities. Summary In summary, we are offering this Committee a proposal that involves no government expenditure of funds, reduces the financial government ties of a multibillion federal instrumentality, provides a new source of revenue for the federal government through the payment of taxes by the corporation and holds the potential to pump $30 billion to $40 billion in private funds into housing each year. |