Mr. FRANK. I would agree with that. I think basically the point that you just made in the conversation here is that we want to go beyond lower loans and maybe get into some deeper subsidies. But I have a couple of things here.

First of all, I have to disagree with the gentleman from Louisiana that there is some analogy between the low-income housing goals of Fannie Mae and Freddie Mac and CRA, Community Reinvestment Act. I have defended the Community Reinvestment Act, but it is not a very strong mandate. And I think it is really qualitatively different from the affordable housing goals, which go much more specific. The Community Reinvestment Act says you lend in your own area. And it is not just a comparable mandate.

And yes, I would like to see deeper subsidies. I think the analogy that I asked about before was the affordable housing program of the Federal home loan bank, which was created here under the chairmanship of the late Henry Gonzales. And that is an element of subsidy.

But here is my problem, and I ask you to address this. I worry about increasing the capital requirements and the inconsistency there with the subsidy program. I would like to get Fannie and Freddie more deeply into helping low-income housing and possibly moving into something that is more explicitly a subsidy.

My concern is that this would not be what would be a regulator at Treasury's idea of the best way to promote safety and soundness. And in fact, there is a tension between increasing the capital requirements and increasing the subsidy. I just think you cannot argue it at both ends.

Members of the panel, Mr. Fishbein, let me start with you, if you would comment on that.

Mr. FISHBEIN. Well, I agree with you, Mr. Frank. There was a lot of talk in the discussion today about bifurcation of function. But the reality is that safety and soundness regulation and capital requirements interrelate with public mission. There is always going to be a give and take and a certain tension between these various functions. Hopefully it is a creative one.

Therefore, the regulatory structure that is put into place and the way that communications occur and decisions are made are an extremely important detail that should be part of any restructuring legislation. One of our concerns about placing the vast part of both safety and soundness and mission oversight at Treasury is that we believe that Treasury's emphasis will tend to be on safety and soundness. This will make it hard, therefore, for some close calls about mission to prevail in that kind of environment.

So there has to be a balance. And the balance has to include equally strong regulatory structures that are in position to bring forth the counter balance and expertise in analysis to ultimately make sound judgments and make sure that one side of regulation does not automatically prevail.

Mr. FRANK. Anyone else wish to address that?

I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists. And it has been my experience that when that happens, people start worrying that

things are not secure. And the first thing that happens is the poor people get tossed over the side because, after all, they are the least good risk.

Mr. Bartlett?

Mr. BARTLETT. Ranking Member Frank, this is the same tension that occurs with the OTS and OCC. The point is that because of that tension, the capital standards should not be set by statute. It should be set by a transparent regulatory process, which is in place for all other regulators, and should be authorized by

Mr. FRANK. Well, I agree. I think my colleague may be asking you whether you think the regulator here, in fact, should more resemble the OTS and the OCC than some of the proposed statutes do.

But I would say this, yes, there is that same tension. But it is not the mission of either the OTS or the OCC to promote low-income housing. And that's the difference.

I don't want to treat Fannie Mae and Freddie Mac the same as I treat a regular bank. If I wanted them to be just like a regular bank, then we wouldn't need a Fannie Mae and a Freddie Mac. We could have a regular bank.

The theory is that we have these separate government-sponsored enterprises that do have some statutory advantages in return for which they focus on housing, and, specifically, we give them goals. We have the Community Reinvestment Act. Maybe if I filed a bill that gave every bank the same kind of low-income housing goals as Fannie and Freddie and some ability to-maybe I could get it passed. I don't think so.

And they are very different. OCC and OTS have a safety and soundness mandate entirely, with a little bit of social consciousness with the CRA. But the CRA basically says, "Do not suck too much money out of the community and do not put any back in."

It should be qualitatively different than the mandates we have given to Fannie and Freddie.

So I guess that may sum up to me why some of us have some differences on this. I do not want Fannie and Freddie to be just another bank. If they were not going to do more than another bank would because they have so many advantages, then we do not need them.

And so therefore, I do think I do not want the same kind of focus on safety and soundness that we have in OCC and OTS. I want to roll the dice a little bit more in this situation towards subsidized housing.

My time has expired, Mr. Chairman.

Mr. BAKER. Mr. Kanjorski?

Mr. KANJORSKI. Thank you, Mr. Chairman.

Listening to that discussion, I tend to agree that this is a very delicate area on how we handle mission and how we deal with what really independent strong role plus regulation will be and to tailor those two situations to these particular entities, not counting the fact that we have some earlier testimony about throwing in the Federal home loan bank system, which creates an entirely different problem we would have to address.

First of all, is anyone on the panel aware of a crisis situation where we have to do this in the next two or three weeks?

Do you really believe that some of the issues that have been raised here in the discussion with this panel, that this can all be accomplished with deliberative speed in a short period of time, like two or three weeks?

Mr. BARTLETT. Mr. Kanjorski, our organization and our companies have been quite concerned about this from a safety and soundness as well as a mission for the last several years. We have communicated that concern. But recently, that concern seems to have been highlighted by a number of factors.

So, yes, sir, I believe there is an urgency that is to the tune of some $3.3 trillion that is either owned or guaranteed by these two agencies that all the testimony that you have heard today bring in some question as to whether they are being properly regulated. So we think they are not being properly regulated. And we believe that with $3.3 trillion, you do not want to wait too long. And now is the time to act.

Mr. KANJORSKI. I would not suggest that everyone has questioned whether or not we can construct a better regulatory authority than what we presently have. I do not know whether we want to put a qualitative standard on what has existed. But my question is, we have so many fundamental questions, particularly missions and what is a strong independent regulator.

It seems to be we are going to have to wrestle a lot of things. Somebody suggested we write the mission. I think it was Mr. Raines. I venture to say I could anticipate taking weeks and weeks and weeks hammering that around and just what that description in statute should be of what the mission is so that it can be more readily applied.

My problem is I think we have a lot of haste here. We are going to run down and, Steve, having served on this committee before, you know what happens in haste. We sometimes do not dot all of our i's and cross all of our t's. And we can leave some awfully large holes in this mission.

Example, we are just starting to get down to people using the same description of what-you use the term independent and strong independent regulator and gave the example of the OCC and the OTS.

The Secretary, last week, said independent, strong, world-class regulator and gave the example of the IRS. I see a world of difference in that. And he may be more correct than we are or vice versa. But it seems we have to work.

If we are not defining our terms in the same way, we are going to put out a news release that Congress has passed a world-class, strong, independent regulator who cannot come up and talk to Congress, who cannot decide policy questions, who has limitations on supervision, has limitations on prosecutions, et cetera, et cetera, and going right down the line.

Or else, if we all put our minds to it and things do crystallize, we can come up with it.

I am just worried about doing in the limited amount of time left in this session. And I, myself, would like to have the legislation float for a while, so a lot of people could give us critiques of some of the problems that they see every day.

I left this session three or four times and met with people who critiqued me on various things happening here. I find that very informative and helpful, because, obviously, I do not think any of us on the committee are real experts in this area.

We are trying to craft language that will reflect expertise beyond the committee, actually.

With that, I appreciate all of the testimony of the panel. I look forward to hearing from you. As one member of Congress, look, if you see something happening, our names, you just have to call the Capitol operator and get a hold of us, give us some insight and some input as to, you know, how that big truck isn't going to fit in that little garage before we construct the garage.

And other than that, let's hope we can do something really contributory here to this system instead of ending up with just a whitewash on the garage door because there has been some circumstances that have brought this along.

With that, thank you very much for your testimony.

Mr. Chairman, I yield back.

Mr. BAKER. Mr. Scott?

Mr. SCOTT. Thank you, Mr. Chairman. I appreciate it so much. Needless to say, this is an extraordinarily important issue to my constituents. I represent four of the fastest growing counties in the United States-middle-class, moderate, and lower-income. There is no greater need than housing.

The fundamental question that I have, and I would like to get a response first from Mr. Bartlett and Mr. Spriggs, because I think between the two of your testimony rests one of the fundamental issues that must be resolved. And that is this: There are some special reasons that Freddie Mac and Fannie Mae were put together. They have a special mission.

And there is much concern that this shift away from HUD over to the Treasury Department is in effect, throwing the baby out with the bath. There are concerns, especially from the minority community, and of those minority communities, as I pointed out, from this home-ownership rates, there is not one group within the minority groups that are suffering more than the African-Ameri

cans.

It is the only group in this country in which home ownership rates have gone down in this past year.

The others have increased bit by bit, and in African-American communities, it has gone down.

The reason I point that out is because there are some special peculiarities, sensitivities, that obviously affect the African-American community in terms of home ownership than any other group.

We are concerned that in this move that, at least with HUD, in terms of its comprehensive dealing with housing, the history, all of that there, that something will get lost in the move of this oversight to the Treasury Department.

I have some great appreciation for the safeness and the soundness aspect of this measure, and I certainly commend Congressman Baker on that pursuit.

But I think he along with all of us here on this panel must be assured that we are not losing any priority, any understanding, and in fact will strengthen any effort to move, or we don't move

it, because I don't think that the American people would go along with that. The American people are fair people, and understanding people, and keep in mind there is a mission here that must not be compromised.

And I would like to hear from you, Mr. Spriggs, and you, Mr. Bartlett, because I think the two of you, again, represent a solution to this, coming from two different sides. You are supporting this move to the Treasury, and Mr. Spriggs is saying there must be caution on it.

But first, Mr. Spriggs, what safeguards, what assurances would you be looking for in this area?

Mr. SPRIGGS. Well, again, because I think the reality is that the housing problem is complex, and it can't be solved only pointing at mortgage bankers or only pointing at Fannie Mae. And if a regulator has the responsibility of soundness primarily and comes from an institution that looks that way, I fear it would be like CRA. And those of us in many organizations have big struggles over getting the Community Reinvestment Act meaningfully enforced.

It is very rare to see a bank get a bad grade on their CRA. And it is not as if they are doing fantastic things. But it is just simply not the primary responsibility in evaluating them, to get meaningful about what are their real CRA activities.

And we are asking Fannie Mae to participate in something key and fundamental. As you said, Congressman, Americans are fair. And there are certain common values we have. Home-ownership is just one of those mom-and-apple-pie things. We all think that part of the American dream is to be able to own a home. And all Americans think that we should figure out how to solve home-ownership. So that is much more specific than the CRA requirement. And I think it affects people differently when they think about whether you are meeting that target. If I get on Fannie Mae or Freddie Mac for not meeting the home-ownership, I think people react differently than if I say a bank didn't do 30 percent of loans in some neighborhood, and I am amorphous about whether those are business loans or whatever. I mean it just doesn't sound-it sounds like I am forcing the bank to do something bad.

Home-ownership is something everybody agrees is something we want to take place. So if it is a specific goal, it is a goal that needs to be integrated into a whole program; you can't just do it with one program. And it needs a whole Department, like HUD, to think through what are all the components, what is the realistic goal, because HUD has to deal with this. They can't give an unrealistic goal. What is the realistic goal?

And then to look at a program and be able to say, "Well, we have these programs. We know what they can do." If you are coming up with a program that is not going to get to that goal, we have all the metrics to compare it and tell you, that is not really a meaningful program. It may sound good on paper, but it is not a meaningful program.

So the theory is that we want it with an agency that has the expertise, that will set and is used to setting these specific and reasonable goals, and is thinking in a comprehensive way about how does that goal and how do the programs that are in place to meet that goal, how do they all fit together.