Build on Progress Fifth, legislation should build on the progress we have made over the last ten years. Regulating Fannie Mae and Freddie Mac requires a specialized skill set. The capacity to model the cash flows of all the mortgages, debt, and other financial instruments owned, issued, or guaranteed by the Enterprises, needed for the stress test, is unique among financial institution regulators. Expertise in how these two secondary mortgage market companies manage mortgage risk, including the broad use of sophisticated derivatives and collectable debt is vital for effective regulation. In addition, an understanding of how the Enterprises are affected by the markets in which they operate is extremely important. Over the past ten years, OFHEO has developed the specialized expertise, from our examiners and financial analysts, to our researchers and capital analysts, that is necessary to supervise these two unique companies. The cost in terms of lost regulatory capacity spent while trying to rebuild that infrastructure would be substantial. That is why I recommend that, if a new regulator is established in the Treasury department, OFHEO's personnel, regulations, and administrative infrastructure should be transferred intact to the new agency. It would be highly counterproductive to do otherwise. Additional Issues There are a couple of other matters I would like to briefly discuss. First, I agree with Secretary Snow that the Presidentially appointed board positions should be discontinued. This is not a reflection of current or former Presidentially appointed directors. Rather, I think corporate governance would be enhanced if the shareholders were allowed to select all members of the board. It is difficult for even the most conscientious director to fully contribute when their terms are limited to one year and reappointments are often denied for political reasons. Shareholder elected directors usually are reappointed for up to ten years. I also support the granting of authority to the safety and soundness regulator to determine whether the activities of an Enterprise are consistent with its' charter authority. This would mean that a single regulator would have the ability to review all of the Enterprises' activities new and existing. This change will consolidate the supervision of the Enterprises in a manner consistent with authorities of other regulators. I appreciate the concern expressed about the primacy of the Enterprises' housing mission if and when the charter compliance responsibility is shifted. The goal, in fact, of enforcing charter compliance is to ensure that the Enterprises remain properly focused on their housing mission and not stray into extraneous ventures. Consistent with that goal, I think a mechanism can be instituted to ensure that a new regulator actively solicits and considers all views, including housing advocates, when exercising its authority. The importance of their housing mission is actually why the Enterprises exist. Strengthening their safety and soundness regulation supports that mission by ensuring that they are strong enough to provide the financial services that make that mission a reality. Conclusion Mr. Chairman, that concludes my testimony. I look forward to working with the Committee as this important legislation moves forward. I will be happy to answer questions that you and the Committee may have. CFA Consumer Federation of America TESTIMONY OF ALLEN J. FISHBEIN DIRECTOR FOR HOUSING AND CREDIT POLICY BEFORE THE COMMITTEE ON FINANCIAL SERVICES REGARDING H.R. 2575, THE SECONDARY MORTGAGE MARKET ENTERPRISES REGULATION SEPTEMBER 25, 2003 WASHINGTON, D.C. 1424 16th Street, N.W., Suite 604 Washington, D.C. 20036 (202) 387-6121 www.consumerfed.org Chairman Oxley, Representative Frank, members of the committee, my name is Allen Fishbein and I am the Director of Housing and Credit Policy for the Consumer Federation of America. I am testifying today on behalf of CFA, which is a non-profit association of some 300 consumer organizations, with a combined membership of 50 million that was founded in 1968 to advance the consumer interest through advocacy and education. CFA and many of our members have had long-standing interest and involvement on housing finance matters, including advocating for expanding the role of the GSEs in serving important housing needs. As for my own background, I have been an advocate for many years on GSE issues and have served at HUD as Senior Advisor for GSE Oversight, where my responsibilities included assisting with supervision that led to the establishment of the present affordable housing goals for Fannie Mae and Freddie Mac. Thank you for affording us with the opportunity to present our views on various proposals the committee is considering revising the regulatory structure governing these two government sponsored housing enterprises. Consumers - whether existing or future homebuyers, renters, or investors - have a great stake in the outcome of these deliberations. Fannie Mae and Freddie Mac, along with the Federal Home Loan Bank System are government sponsored enterprises (GSEs) created by Congress to help ensure the smooth flow of housing credit throughout the nation. CFA believes that the GSEs' play an important, indeed essential role, in promoting a sound housing market and by providing expanded homeownership and other housing opportunities. The GSES' public charters limit their activities to their housing mission and in return, they are afforded special competitive privileges not enjoyed by fully private financial institutions. The GSEs also have additional statutory mandates that require them to serve special housing finance needs, such as expanding mortgage credit opportunities to low and moderate income households and underserved communities. Changes to the GSEs' regulatory structure, therefore, must be undertaken with great care and precision so as not to work at cross purposes with the GSES' ability to carry out these important mission activities. Does the GSEs' regulatory structure require changing? Fannie Mae and Freddie Mac are the nation's two largest home finance companies. Through their secondary market activities the two GSEs own or guarantee more than $3 trillion in mortgages --almost one-half of all outstanding mortgage debt -- and fund nearly 80 percent of the estimated total of all conforming, non-government insured mortgages made. Further, because of their market dominance, the underwriting standards of the GSES also have much sway over who is eligible for mortgage credit and on what terms. The 12 Federal Home Loan Banks (FHLBS) that make up the Federal Home Loan Bank System are a somewhat different form of government sponsored enterprise, but one that is also mandated to serve broad housing finance needs as well as particular affordable housing needs. The system also provides an important source of funding for lenders, |