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

As my colleagues already know, I support strong 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 insure 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.

At our last hearing on GSE issues, senior officials within the Bush Administration indicated that there was no “crisis” that demanded the immediate attention of the Congress. Consequently, instead of rushing to judgment, we ought to move in a judicious and objective manner 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 objective 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 GSE matters, I have outlined five principles to guide our consideration of GSE regulatory reform legislation. Today, I feel it 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 such a system in any GSE regulatory reform bill.

Additionally, several others who will not testify before us 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 policy makers.” We should heed their sensible advice.

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

Specifically, if we ultimately decide to alter the safety and soundness regulation of Fannie Mae and Freddie Mac and to move the regulator to the Treasury Department, this new agency should have the authority to submit testimony, recommendations and reports to Congress without the prior review or approval of the 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 new office with any other regulator.

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

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Mr. Chairman, I'd first like to commend you for keeping this process focused on the regulatory structure in place for our GSEs and not making dramatic changes to the companies themselves. Regardless of whatever flaws may exist in our current system, we have a housing finance industry that is the envy of the world.

As you and the members of this Committee are well aware, this system requires the GSES to hold capital that is commensurate with the risks they take. I am pleased that the Administration is not supporting the complete overhaul of a capital regime that has worked well. I'm also pleased to see that our goal here is to perfect this system, and not do away with it entirely.

At the same time, however, keeping the minimum capital standards in statute and at their current levels – again, as the Administration has proposed – gives an assurance to the market that mortgage capital will continue to flow unimpeded into our housing markets.



Mr. Chairman.

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Congress of the United States

House of Representatibus

Hashington, BC 20515–3214
Statement of Rep. Carolyn B. Maloney (D-NY)

Committee on Fheancial Services
Reform of GSE Regulation

September 25, 2003 This bearing is likely the last before the Committee moves to a mark up of legislation that will reform the GSE regulators. As we move forward in this process, our focus sbould be on strengthening areas where regulation has proven weak while treading carefully so as to not adversely affect our nation's incredibly successful, diverse housing markets. I look forward to hearing the perspectives of today's witnesses: the current GSE regulators, the GSEs themselves, housing industry representatives and consumer groups. As I listen to the testimony, I come to today's bearing hoping they build on some of the themes that I believe were established at our last meeting.

No matter where it is located, to be successful the new GSE regulator must be fully independent and free of political interference and ftom yearly appropriations. Without the ability to take independent positions before Congress, its authority will constantly be in question and different parties will attempt to influence regulatory outcomes by appealing to higher levels in the Treasury Department. Capital Markets Subcommittee Ranking Member Kanjorski has highlighted this issue and I am in agreement with his position. I also agree with Ranking Member Frank that we must maintain as the focus of the GSEs' mission providing liquidity for low and moderate income housing. The GSEs provide for lower mortgage rates for millions of our constituents and I am convinced that if such mission oriented entities did not exist today we would be working to create them.

I also have a special interest in the Federal Home Loan Bank System as we work on this legislation. If Congress is going to create a new first class GSE regulator the Committee should closely consider whether including the Bank System in this effort is appropriate. As the Committee is aware, in 1997 the GAO concluded that a single regulator would have several advantages over the current structure.

Whatever we produce, we must continue to step forward and not back in increasing homeownership. While overall homeownership levels are 68 percent nationally, minority levels track far behind – with African-Americans at 47 percent and Hispanics and Latinos at 46 percent. Homeownership in New York City lags far behind national levels. This is my focus as we work on this bill.


Statement of Congressman Gary G. Miller
Hearing on Regulatory Oversight of the Government Sponsored Enterprises

Committee on Financial Services

September 25, 2003

The United States housing markets are the envy of the world. We enjoy the lowest interest rates and the highest homeownership rates of any developed nation in the world. When Americans are homeowners, it spurs economic and community development and provides residents with a sense of pride in their community. Homeownership is the single largest creator of wealth for most Americans. For these reasons, is imperative that we work through this process to maintain a strong housing market.

The recent problems at Freddie Mac should prompt us to ensure that the two largest participants in the housing market - Fannie Mae and Freddie Mac – have appropriate oversight. Because the housing markets are such an integral part of the economy and they are such large participants, it is imperative they remain safe and sound. That's why I support moving regulatory oversight from the Office of Federal Housing Enterprise and Oversight to the Department of Treasury. I believe the Department of Treasury has the expertise necessary to appropriately regulate complex financial institutions such as Fannie Mae and Freddie Mac. They will reassure investors and the markets that these companies are sound and that their investments in America's housing markets are safe.

However, certain core housing mission-related oversight can be bener handled at the Department of Housing and Urban Development. Only HUD has the expertise to ensure certain aspects of Fannie Mae and Freddie Mac's business are in line with their congressionally-chartered mission of providing liquidity to the housing markets and meeting the markets demands for new programs for consumers.

I strongly believe that HUD should have the ability to pre-approve new programs for the GSES. Quick and expeditious pre-approval of new programs allows Fannie Mae and Freddie Mac to quickly adapt in a changing marketplace. However, this is not to say HUD should have the ability to micromanage new products, which could cause disruption for homebuyers and lenders. To the contrary, Fannie Mae and Freddie Mac should retain the ability to quickly adapt to the marketplace and provide new products that are within their charters and mission. Anything to prohibit the free-flow of products to the marketplace is contrary to the American ideal of innovation and growth.

I have seen in my district how the ability to respond to local needs is vital in addressing affordable housing priorities. For example, in the cities of Brea and Anaheim, Fannie Mae has bought millions of dollars in Redevelopment Administration (RDA) loans to assist these cities with their redevelopment needs. In Whittier, Fannie Mac has worked with the city, its police force and local lenders to create an employer-assisted housing program for police officers so they can live in the communities they serve. They have created down payment assistance programs with various cities to help those families most in need with the biggest hurdle to buying a home

the down payment. And they have worked with Orange County to create a teacher's housing program to help teachers afford homes near the schools where they teach. All of these programs should not and cannot be subject to a radical program approval process that stifles innovation and the ability of the housing GSEs to meet the mission Congress set for them- serving low, moderate and middle-income families all across this nation at all times.

Mr. Chairman, I thank you for holding this hearing. The goals of these two companies is so critical to the economy that I look forward to working on a clean bill that we can move out of the committee in an expeditious manner. I look forward to working with you and the other members of the committee to resolve this issue as quickly as possible.

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