housing mission, housing expertise, and housing experience. We believe that HUD should also continue to set and enforce Fannie Mae's and Freddie Mac's affordable housing goals.

We agree that more needs to be done to encourage the GSE's to increase their activities in some market segments and believe that the best way to do this is through the bonus point incentives within the existing goals. We have laid out some specific recommendations within my written statement, Mr. Chairman.

Mr. Chairman, you also asked me to touch on the capital requirements of the GSE's. NAHB supports a strong capital system for GSE's. We also believe that there is a need for stability in capital standards. NAHB therefore cautions against any immediate changes in either the GSEs' risk-based or minimum capital standards.

Over the longer-term, we believe that the safety and soundness regulator should have the flexibility to adjust capital standards as necessary. However, a significant increase in the GSEs' minimum capital standard requirements would not be justified unless there is a measurable change in their risk profile. Overcapitalization of the GSE's beyond a level of reasonable risk would have unintended consequences for the housing markets by reducing the level of capital for housing and increasing mortgage rates.

You also asked for feedback on the idea of a stand-alone independent regulator. While not our first preference, NAHB would be open to exploring the concept depending on how the details are implemented. NAHB's primary concern in any regulatory scenario is that the mission regulator must have a housing focus and expertise. The safety and soundness regulator must have sufficient respect and authority to satisfy Congress and the capital markets. NAHB recommends such an agency should be governed by a board of directors rather than by a single agency head. In order to ensure a housing focus, the board must have a HUD representative among others with housing expertise.

It is also imperative to recognize the differences between Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. This can be done by establishing two divisions and maintaining separate funding for the cost of regulation.

In conclusion, NAHB appreciates the opportunity to share our views on the regulatory framework for the housing GSE's. We look forward to working with the Committee on fashioning a solution to the oversight of these important housing institutions.

Thank you.

Chairman SHELBY. I will start with Mr. Beller. Thank your appearance and for your detailed statement a few minutes ago.

Some people contend, Mr. Beller, that requiring the GSE's to register their debt under the Securities Act of 1933 would be impractical given the frequency with which the GSE's go to market.

The concern has been raised that registration of securities under the Securities Act of 1933 would be disruptive to funding practices because they would have to wait for the SEC to approve their filings.

Can you please comment on these concerns regarding the registration of GSE debt, and how has the SEC accommodated other large financial institutions that go to market on a regular basis?

In other words, is that a real concern, or is that just something that people are putting out there?

Mr. BELLER. There are certainly issues that are implicated by Securities Act registration that are not implicated by Exchange Act registration, and that is I think one of the reasons the focus of attention to date has been on the Exchange Act regulation, because from our point of view, it is essentially issue-free with respect to the things you are talking about.

Having said that, if the question is restricted to the straight debt, that is, the nonmortgage-backed debt of Fannie and Freddie, and to the debt of the Federal Home Loan Banks, their issuance would raise issues of timing. We do sometimes review registration statements. It is a fact of life that large, frequent corporate issuers face and live with on a frequent basis.

I will say to you, I guess, one that our self-registration process has made it much easier for large, frequent issuers to access the markets on what they consider to be a timely basis, and there are many, many large issuers, including financial institutions who, if they are not in the market every day, are certainly in the market very frequently.

We have in process some thoughts about modernizing our self system further that would accommodate large corporate issuers and the GSE's if they were to become registrants under the 1933 Securities Act.

But the timing issue is the principal question that I think one has to get comfortable with. My own view is that if you are talking about straight debt, it is manageable. The other side of that equation is you really do not get much more information, and as to the corporations themselves, you get no more information with Securities Act registration than you already get with Exchange Act registration given our integrated disclosure system.

The final point I would make is that-and my testimony reflects this-we are in no way opposed to Securities Act registration. We believe in the benefits that the securities laws and our processes provide for investors. But we do believe when it comes to the mortgage-backed securities and the mortgage-related securities of Fannie Mae and Freddie Mac that we would note that the Commission recommendation in 1992 in the joint report did not extend to the mortgage-backed securities, and we believe that this Committee and the Congress in considering whether to extend Securities Act registration to those securities should properly take into account what the impact would be on the mortgage market and particularly on the TBA market. We are not experts in being able to determine that impact, but we do believe it is one of the subjects that should be on the table because of the importance of the TBA market particularly in setting mortgage rates.

Chairman SHELBY. Thank you.

Professor Carnell, your statement earlier of having a strong executive regulator that would be able to run the regulatory structure, I totally, totally agree with you on. You reference maybe a threeperson board. While we are doing these hearings thoroughly and measured, because this is important legislation, as you well know, I had thrown out the idea-and this is just an idea of maybe having an independent board, having the Secretary of the Treasury on

that board, having the HUD Secretary on that board because of the housing issue, having perhaps the Federal Reserve Chairman on that board and the SEC Chairman on that board. I believe that would be four. I did not think about it until we had the GAO Comptroller General here; he serves on some boards, and of course, we will discuss this ourselves.

But I think it is very important, as you pointed out, to have a strong executive, to have, as Senator Sarbanes mentioned, and he is absolutely right on this, independent funding and maybe a fiveperson board.

Do you want to elaborate a little?

Mr. CARNELL. Well, if you were going to go the route of a fivemember board, I like your composition-that is, to have the Treasury and HUD on there, I think is fundamental. And of course, there would be an appointed chair, I presume, a chair appointed by the President an confirmed by the Senate, who would be the executive head of the agency.

Chairman SHELBY. Sure.

Mr. CARNELL. That would be my approach with a three-member board.

If you were going to go to a five-member board, having the two additional people be from the SEC and the Fed I think is excellent, because these are people who have existing Government responsibilities.

Chairman SHELBY. Knowledge base, too.

Mr. CARNELL. Knowledge base, and those are prestigious agencies. Those are good jobs. So you are going to be able to get capable people to come and do that, as opposed to having somebody come to essentially be a drone, an extra couple of wheels on an agency, and if they try to do anything, they will be doing back door diplomacy with the GSE's or trying to micromanage the agency staff. It is just not a good idea.

Chairman SHELBY. We have talked all morning and in other hearings, and we will have some more hearings here before we move on proposed legislation, on the ambiguity in the Government, our relationship with the GSE. It is there, as you pointed out so aptly. I do not know how we resolve that ambiguity, but clear language is important.

Mr. CARNELL. One suggestion, Mr. Chairman, would be that in my testimony I point out how the existing disclaimers of Government liability that, for example, the GSE's have to put in their securities, and there are also disclaimers in law-all three of them are fundamentally flawed because they do not speak to the real question here. In other words, they look like they are answering the question, but they are answering a different question.

So, I do not think they do what Congress meant for them to do. Chairman SHELBY. Okay.

Mr. Rayburn, in your testimony, you suggest that removing any of the GSEs' legal exemptions would diminish their ability to meet their mission. How would greater transparency of their financial activities impede the mission? It looks to me like it would strengthen their mission-if they have nothing to hide.

Mr. RAYBURN. Mr. Chairman, we are for transparency in this whole issue. I think the central focus here is an issue that this

Congress decided already some 50, 60, 70 years ago when the Congress decided that housing should have a special preference, housing should have the utmost and have the ability of the American people to be able to get into homeownership and the creation of wealth.

We are for a strong regulator. We are looking for a regulator also separately, as my testimony points out, that adheres to the mission of housing and housing affordability as well as additional affordable housing goals.

Chairman SHELBY. Well, a lot of us are committed to the housing goal, but we are also committed to safety and soundness, and I think that with balance, we can have both.

Mr. RAYBURN. One reason, Mr. Chairman, that we believe there should be a division or something outside of Treasury as far as mission and the affordable housing goals is because we believe that Treasury has a bias against housing, as has been proven over the years.

Chairman SHELBY. Well, my suggestion was an independent regulator outside of Treasury.

Mr. RAYBURN. But you put the Secretary of Treasury on there. Chairman SHELBY. And also I would put some others on there with a lot of expertise. You would also create a strong executive. Mr. RAYBURN. I think we could agree with that, and I have a concept paper here that I would like to leave with you

Chairman SHELBY. We will take that.

Mr. RAYBURN. but as long as the central mission of this whole process dealt with housing and affordable housing. Chairman SHELBY. Okay.

Mr. Beller, should Congress be wary-those of us up here of applying to the banks a disclosure scheme that was intended for public companies-in other words, the Federal Home Loan Banks?

Mr. BELLER. I think very strongly that you should not be wary or words.

Chairman SHELBY. Not be; okay.

Mr. BELLER. As I said before, we have very significant numbers of companies who are registered and report with us solely because they issue public debt securities over 100.

Senator SARBANES. Mr. Chairman, could I pipe in right here
Chairman SHELBY. Senator Sarbanes.

Senator SARBANES. -because I think that is a very important question. There have been these activities going on under certain rules, and it seems to me that the transition over is important.

I have information here that says that, "In the first 6 months of 2003, the Federal Home Loan Banks went to the market 7,000 times and raised $349 billion."

Chairman SHELBY. Seven thousand times.

Senator SARBANES. "A large market debt issuer and SEC registrant, GE, raised $42 billion in 249 bond issues. Ford Motor Company raised $8.5 billion in 236 bond issues. Total debt issuance in 2003-the U.S. Treasury, $625 billion, Federal Home Loan Banks, $550 billion, in 11,500 separate deals."

I am concerned about these figures with respect to the Federal Home Loan Banks. It is one of the things we are wrestling with. But it does seem to me that this order of magnitude of difference

gives me some pause or concern with respect to your assurance that there is not a problem, that it is not something we need to think through and worry about.

Mr. BELLER. With respect to Exchange Act registration which would get investors the information about the Banks that we believe they deserve to have, the number of offerings and issuance is really not a relevant consideration. They would file annual reports, they would file quarterly reports, they would file current reports, as any other registrant. But the actual offering of securities would not trigger a registration requirement, and that is why I said earlier the Exchange Act registration issue is really issue-free as to straight debt.

As Chairman Shelby pointed out, and as you are both very correctly focusing on, the issue of timing of offering transactions by the Federal Home Loan Banks, while I believe we could use our existing processes to make it manageable, does raise issues with respect to timing and filings the Exchange Act registration proposal does not raise, and at the same time, with Exchange Act registration, you are getting basically all the corporate information that you would get under Securities Act registration anyway.

Senator SARBANES. But you are drawing a distinction, then, or a line between-you would not apply, or at least have concern about just applying full-scale, what applies to a private corporation; is that right?

Mr. BELLER. We would have no issues applying Exchange Act registration and all the requirements of the Exchange Act to a debt-only issuer to the Federal Home Loan Banks.

Senator SARBANES. What would you have a problem with?

Mr. BELLER. We believe, as my testimony indicates, that this Committee and the Congress should consider, and we are happy to consider with you, the timing issues that would be raised by extending the registration requirement to Securities Act registration as well as Exchange Act registration.

Senator SARBANES. I see. Okay.

Thank you, Mr. Chairman. Sorry.

Chairman SHELBY. These are very important questions, and I know Senator Sununu has been very patient, and I have a couple of other things I want to touch on.

Financial statements of the Federal Home Loan Banks-could you touch on how the SEC would treat, if you thought this out, the combined financial statements of the Federal Home Loan Banks and what authority would the SEC have to address material misstatements in the combined financial statements?

Mr. BELLER. That is an issue that we have been thinking hard about and talking to the Finance Board about, because there is no registrant, there is no issuer with respect to the combined financial statements. They roll up the financial statements of the 12 Federal Home Loan Banks.

What we have proposed to the Finance Board-the Finance Board has the right to review and approve the combined financial statements under its current regulations is a mechanism whereby they would-and I think this would be workable with any regulator who had that authority-in connection with their approval provide us with an opportunity to review and give comments on the com