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this authority to Treasury we fear would detract from maintaining important regulatory focus on the GSE's housing mission perform

ance.

And fifth and finally, we would like to see steps taken to strengthen the GSEs obligation to support its affordable housing related activities. We were pleased that Secretary Martinez in his testimony before the committee made a number of constructive proposals aimed at spurring additional improvements in the GSEs' affordable housing performance.

In particular, we were pleased that the Secretary asked for authority for HUD to impose enforceable sub-goals. Sub-goals are a logical tool to ensure that the GSEs adequately consider the most underserved segments of the mortgage market.

However, the Secretary's proposal is not sufficient unless HUD places greater emphasis than it has on performing these important responsibilities. For example, HUD let slip the establishment of new goals for 2004 and beyond. The existing goals were originally set to end at the end of this year, and HUD's failure to take action this year means that the current levels will roll over for at least another year.

In addition, we also believe that much more can be done to improve GSE performance in meeting their goals through expanded public focus on the GSEs' activities. And in my written testimony, I mention two of these areas.

One would be to improve the GSE public use data base which is administered by HUD to permit better local analysis of the GSEs' activities, and, two, to have better reporting to Congress on the GSEs' affordable housing activities and its departmental plans for establishing new goals or explanations for why a goal periods would need to be extended.

The CHAIRMAN. Can you sum up, Mr. Fishbein?

Mr. FISHBEIN. I am going to close by reiterating that we believe it is in everyone's interest to have strong regulatory oversight of the GSEs and in doing so we urge the committee to proceed with caution and resist the urge to make needless changes that detract from the GSEs' ability to perform their mission obligations.

Thank you, Mr. Chairman.

[The prepared statement of Allen Fishbein can be found on page 153 in the appendix.]

The CHAIRMAN. Ms. Montague?

STATEMENT OF TERRI MONTAGUE, PRESIDENT AND CEO, THE

ENTERPRISE FOUNDATION Ms. MONTAGUE. Thank you, Chairman Oxley and Ranking Member Frank and members of the committee, for this opportunity to testify. I am Terri Montague, President and Chief Operating Officer at the Enterprise Foundation.

Enterprise provides private capital to support affordable housing and economic development in low-income communities. To date, we have invested in excess of $4.4 billion to finance more than 144,000 affordable homes for low-income people, including more than 12,000 in 2002.

Fannie Mae and Freddie Mac are among Enterprise's most important partners. Without them much of our work simply would not be possible.

Congress is considering significant changes to the Federal Government's regulations of these GSEs. We encourage Congress to deal with these issues as expeditiously as possible to avoid any uncertainty in the mortgage markets.

As many have already testified, we too strongly support safety and soundness regulations. And we support strong affordable housing requirements.

We agree with the Administration that there is no reason to change the GSEs' mission, charter or status. We also agree with the Administration that HUD should remain responsible for ensuring the companies' compliance with their congressionally mandated affordable housing responsibilities.

Briefly, we have recommendations regarding three issues, the location of prior approval authority, the scope of approval authority, and the establishment and enforcement of the GSE affordable housing goals.

On the first point, the location of prior approval authority, the Administration has proposed transferring this authority from HUD to a new safety and soundness regulator. The new agency would consult with HUD on new programs.

We agree with Chairman Baker and other members of the committee that HUD should retain this responsibility. We are not aware of

any

evidence that HUD has failed to exercise approval authority appropriately. We see no advantage to shifting approval authority to a new safety and soundness regulator.

After all, HUD is the only federal agency with expertise in housing finance and a mission to advance affordable housing and only HUD has the benefit of more than a decade of experience evaluating new GSE housing programs.

Secondly, the scope of authority issue. Current law requires the GSEs to obtain HỦD approval for any new program. H.R. 2575 would substantially broaden this authority. It would require the companies to obtain HUD approval before engaging in a wide range of activities, not just new programs.

Again, HÚD has not used its approval authority inappropriately. HUĎ also has the authority under current law, which it has previously exercised, to itself initiate a request for information from the GŠEs regarding what it considers possible new programs.

Requiring the companies to seek federal signoff on new activities could curtail their ability to respond effectively to changes in the mortgage markets, such as rising interest rates. It also almost certainly would impede the GSEs' ability and incentive to innovate.

Low-income consumers and communities which often benefit most from GSE innovations could lose out.

We wonder whether Fannie Mae would have been able to pioneer use of the low-income housing tax credit if the company had been subject to the approval requirements the bill would impose.

As you may recall, in the credits early days, hardly any corporations were willing to commit capital to the program, as it was seen as too risky. And few Federal Officials understood the program in that it was too new.

Fannie Mae stepped up when others would not and helped convince other corporations to invest. Fannie Mae and Freddie Mac committed to this fledgling Federal incentive, and in doing so, sent a strong signal to the marketplace that the credit was a sound investment.

The housing credit is now perhaps the most important Federal incentive for the development of rental housing for low-income people. And it is truly impossible to imagine such success without Fannie Mae and Freddie Mac's early and sustained participation.

On the third issue: In 1992, the GSE legislation requires the GSEs to dedicate substantial portions of their business to serving low-income people and communities. The Administration has proposed expanding HUD's ability to establish and enforce the GSE affordable housing goals.

We see no reason to change the statutory framework for the affordable housing goals at this time. HUD has the authority already to increase the percentage of business targets in each statutorygoal category.

HUD also has the authority under current law to incent the GSEs to achieve more specific affordable housing objectives. HUD has utilized this authority effectively in the past, resulting in substantial increases in the GSE's affordable housing financing.

HUD's most recent regulatory revision of the affordable housing goals resulting in the GSE's increasing their mortgage financing for low-income and underserved people and communities by nearly half a billion dollars between 2001 and 2011.

Let me be very clear: Enterprise has long urged Fannie Mae and Freddie Mac to increase their affordable housing activity. The companies could and should do more. We welcome the opportunity to work with HUD, the GSEs and other housing organizations to explore strengthening the goal levels and objectives. But we urge Congress and HUD not to proceed with any affordable housing goal revisions without seeking the advice and assistance of a wide range of housing organizations, as it always has in the past.

I would be pleased to answer any questions that you have.

[The prepared statement of Terri Y. Montague can be found on page 191 in the appendix.]

The CHAIRMAN. Thank you for your testimony.

Dr. Spriggs? STATEMENT OF WILLIAM SPRIGGS, EXECUTIVE DIRECTOR, IN

STITUTE FOR OPPORTUNITY AND EQUALITY, NATIONAL URBAN LEAGUE

Mr. SPRIGGS. Thank you, Congressman, and thank you, Congressman Frank, for this opportunity.

My name is William Spriggs. I am the executive director for the National Urban League's Institute for Opportunity and Equality. I am joined today Marvin Owens, who is the head of our housing department out of our New York headquarters.

The Congress here has gathered because the size of the securities and mortgage-backed security instruments issued by GSEs is now almost as large, in fact, a little larger than the U.S. Treasury-note market. And so that means that all of us should be concerned about the safety and soundness of these enterprises, and that they are very important to the security of the American economy, if not the world's capital markets.

However, it is equally important to remember why Congress created the GSEs, and that has to do with capital markets.

In the case of the housing GSEs, the purpose was to create an effective market for residential mortgages, and this was in response to the lessons taught by history.

The leverage given to the housing GSEs by Congress was to establish increasing access to home mortgages for underserved areas, and this mission must remain paramount in assessing different measures of safety and soundness.

For instance, the risk-based capital standards that were put in place last year are an example of how it is important to try and keep the minimum capital requirements low so that we can have a larger pool of funds available for mortgages.

The primary concern of the League in this issue is the maintenance of the housing GSE mission. Our housing office partners with both Fannie Mae and Freddie Mac to deliver a set of services that we integrate with programs from the banking industry, the Department of Housing and Urban Development and others to try to increase home ownership in the African-American community.

There is no simple answer to the disparity in home ownership rates between African-Americans and whites. Access to credit is one part of the answer. Credit counseling is another part of the answer.

As an example, our program with Fannie Mae began in November 2002 with the signing of a five-year memorandum of understanding that launched a demonstration project in six and then seven and now eight of our affiliates, including Houston, Dallas, Tucson, Rochester, Seattle, Atlanta, and Stamford.

Working with J.P. Morgan Chase, the project has put more than 500 families into homes and got an additional 200 families prepared for home ownership, and it has moved over $43 million in loans.

Several of those affiliates are now at various stages in creating community housing development organizations, the next step in solving housing problems for low-income and African-American households in their cities.

So the Fannie Mae relationship is a catalyst that those affiliates have leveraged. The League has a similar program with Freddie Mac.

The key lesson learned from the experience of the National Urban League's housing department is that increasing home ownership requires a comprehensive approach. It was with this foresight that the housing GSEs were put within HUD. The housing GSEs should be viewed as a tool among others that can address the complexity of causes of the disparity in home ownership rates in America.

And it is in that regard that the National Urban League would be very concerned if program oversight were moved from HUD, even if safety and soundness oversight was moved to Treasury as some have proposed.

Program oversight should ensure that the housing GSEs keep to their charter and mission, but should also ensure that the housing GSE programs fit into a coherent set of programs at HUD to create the largest affordable housing stock available for America, and that huge disparities in home ownership faced by African-Americans and Hispanics can be closed.

We would be concerned if the programs of the housing GSEs are evaluated out of context, out of the context of a comprehensive housing program, and that faulty conclusions could be reached from the effectiveness or appropriateness of the programs of the housing GSEs, and that inappropriate safety and soundness standards might then cloud the mission of the housing GSES.

Still, we believe that important improvements could be made in program oversight. Organizations like the National Urban League, and you heard from The Enterprise Foundation just a second ago, and other community-based and nongovernment organizations have worked to address the housing needs of underserved communities.

Beyond comments to proposed rules, we hope that Congress will create a new way of rule-setting to ensure a transparent mechanism, to ensure HUD incorporates the views of such organizations in setting rules and regulations toward goal-setting for the housing GSEs and in program oversight.

To us, the key is not just mission, but whether the program proposals from the housing GSEs would actually lead to the housing targets established by HUD. And as I just explained, we think this is the responsibility of HUD, not just of the housing GSEs, that is, reaching affordable housing targets.

We think that this would incorporate the lessons learned by these organizations-Enterprise, the National Urban League, and others-on the front lines of address the housing problem and into assessing the likely effectiveness of the proposed program enclosing the home ownership gaps experienced by underserved markets.

Thank you.

[The prepared statement of William E. Spriggs can be found on page 236 in the appendix.]

Mr. BAKER. Thank you, Doctor.
Mr. Courson?

STATEMENT OF JOHN COURSON, PRESIDENT AND CEO, PA

CIFIC MORTGAGE COMPANY, ON BEHALF OF THE MORTGAGE BANKERS' ASSOCIATION OF AMERICA Mr. COURSON. Thank you, Mr. Baker, Ranking Member Frank, distinguished committee members, thank you inviting the Mortgage Bankers to speak at this important hearing.

MBA members originate loans in the primary market that Fannie Mae and Freddie Mac purchase. MBA, therefore, has a keen interest in maintaining the safety and soundness of our country's real estate finance system.

Fannie Mae and Freddie Mac play two important roles in the American finance system. First, they provide market liquidity, and second, they buy affordable housing loans from lenders so that lower-income Americans, and those living in underserved areas, can get access to housing credit.

Obviously, it is imperative to have effective oversight of the GSEs. The Mortgage Bankers endorse the principles for GSE regulation played out by Secretary Snow and Secretary Martinez before

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