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like to thank Chairman Greenspan for taking time from his busy schedule to show up before this Committee to testify. I have always valued his testimony before this Committee. And as Chairman of the Housing Subcommittee, reforming the GSE's is a topic in which I am keenly interested.

The housing market is no doubt a critical aspect of the U.S. economy. We have seen the housing market sustain itself during this last economic downturn that we had. It was actually a persistent bright spot that we had in our economy when everything else was not doing well. The financing of mortgages I think in recent years has helped to power the economy through the recent recession.

Now, the GSE's have been an active part of helping the American Dream come true for millions of families. The GSE's, though, are large, complex financial institutions that merit the highest levels of scrutiny. I believe alternative regulatory proposals to ensure the protection of the U.S. housing markets are necessary. This regulatory authority needs to rest on a strong, financially sound foundation, and I look forward to discussing the necessary elements a regulator must have to do its job effectively.

Though many items still need to be worked out as part of a new regulatory regime, I believe we are making progress, and I hope that we can all agree that we must have a strong regulator. We owe nothing less to the taxpayers and homeowners of the Nation.

I look forward to hearing from Chairman Greenspan and his thoughts on how we can reform and improve the regulatory structure for GSE's. Chairman SHELBY. Senator Dole.

STATEMENT OF SENATOR ELIZABETH DOLE Senator DOLE. Thank you, Mr. Chairman. I would like to express my appreciation for your continued leadership on this very important issue.

Last summer, Senators Hagel, Sununu, and I introduced S. 1508, the Federal Enterprise Regulatory Reform Act. I think my colleagues would agree that approximately 95 percent of this bill enjoys broad, bipartisan support. As for that remaining 5 percent, I am confident you will find agreement, Chairman Shelby, as you are working this issue.

The question of the proper powers and resources available to a regulator of the Government Sponsored Enterprises has proven to be a vexing issue. Chairman Shelby, you have been carefully crafting solutions to some of the more controversial proposals contained in the GSE reform package, and this Committee is very close, I believe, to achieving a consensus. After so much work, it is my hope that the consensus will earn all of our support.

I understand, Chairman Greenspan, that you have devoted a considerable amount of your time, in addition to that of your staff, on the risks and benefits of our GSE bill. I appreciate your willingness to weigh in on these important issues.

One issue of particular importance is the need to ensure that the regulator has the ability to control nonmortgage investments of the GSE's. In his testimony 2 weeks ago, the Comptroller General stated, “We again recommend that Congress legislate nonmortgage investment criteria for HUD or any new GSE regulator that may be

established through legislation.” The General Accounting Office has warned us that the incentives to use the benefits of Government sponsorship to increase shareholder value could, over time, erode the public mission. I believe every Member of this Committee is committed to ensuring that the mission to create greater opportunities for homeownership, especially for minority populations, is the number one priority for the GSE's. We must make sure that our effort gives this mission the focus and attention it deserves by all GSE's, and that there is no chance of erosion over time.

Thank you, Mr. Chairman.
Chairman SHELBY. Senator Carper.

Senator CARPER. Thanks, Mr. Chairman.

Chairman Greenspan, welcome. It seems like you were just here. In fact, I think you were. Welcome back.

I read in some of the briefing material for today's hearing an explanation I think it showed up in the American Banker-about different kinds of capital from minimum to risk-based accords, or a whole lot of others. And so the question that I am going to be asking you, just to telegraph my pitch, is to explain all those capital standards in ways that even former Governors can understand. And if you could do that today, you will get an A-plus from me, and maybe make those relevant to our discussion.

When I was Governor of Delaware, we used to have a slogan in our administration. You have all heard probably somewhere in your life the axiom, somebody who did a job, did not do it necessarily very well, you say, “That is good enough for Government work.” I never liked that.

Later on, I used to hear people say often, “If it ain't broke, do not fix it.” And that applies, I guess, to things inside as well outside of Government. And I have never been real crazy about that one either.

The slogan that we adopted for 8 years was, “If it is not perfect, make it better.” And I think when we look at the way that we regulate our GSE's, it is not perfect. We can make it better. But as we approach the job of doing that, I think it is important for us to keep in mind that today in this country, almost 70 percent of the people live in a home that they own. And it is a remarkable success story.

In my little State, our homeownership rate is actually approaching 75 percent. And as we try to make what is not perfect more perfect, I think it is important that we do so in a way that does not undermine the remarkable success that we have had in fostering homeownership.

Welcome back. We look forward to your testimony.
Chairman SHELBY. Senator Bunning.

Senator BUNNING. Thank you, Mr. Chairman.

Just less than 2 weeks ago, Chairman Greenspan, you testified before this Committee about monetary policy, and at the time I criticized you for allowing yourself and the Fed to be drawn into things that have nothing to do with monetary policy. I do not think that studies on home interest rates and whether GSE's help or hurt homeownership have much to do with monetary policy. However, your monetary policy decisions, comments, and studies can have a great influence on home interest rates and whether or not someone can purchase a home.

I was very surprised to hear about the recent Fed GSE study. I was surprised it stated that Fannie and Freddie are responsible for an average of 7-basis-point decrease on home mortgages.

I have two Kentucky papers in front of me. Both have mortgage surveys. Both of them show a 25- to 50-basis-point difference between 30-year fixed-rate mortgages that GSE's can buy and 30-year jumbo mortgages which GSE's cannot buy. I would like to know your opinion on why there is such a difference between the rates of the jumbo and the fixed-rate loans and if these differences are consistent with the recent Fed study.

I was also struck by a comment in your speech yesterday to the credit unions. You stated, “Recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward."

Of course, if homeowners knew that rates would be lower, they would have used adjustable rate mortgages. But most homeowners do not know what rates are going to be for the next 30 years. That is why they buy fixed-rate mortgages. Not very many homeowners have the resources that the Fed has in being able to predict longterm interest rates. So they buy fixed-rates despite the fact that they are more expensive to hedge against risk.

For the average American, losing your home is not worth the risk of possibly saving some money on a 30-year adjustable mortgage. Rates were low in the last decade, historically low. But most of us here remember the 1970's and early 1980's and how high rates were then. If rates started to rise to Carter-level rates, I am fairly certain that no one would want an adjustable rate mortgage.

You are always warning economic institutions, public and private, that they must hedge against risk. I agree with you and

and think it is very prudent advice. But I also think the average American should hedge against risk for their most important investmenttheir home.

Once again, thank you for coming today. I look forward to your testimony. Chairman SHELBY. Senator Reed.

STATEMENT OF SENATOR JACK REED Senator REED. Thank you very much, Mr. Chairman, for scheduling these_hearings on this very important topic of Government Sponsored Enterprises, and thank you, Chairman Greenspan, for attending

There are a host of technical issues that we have to consider, things such as the merger of the various regulatory agencies, whether or not there should be a statutory standard for capital, the potential impact on all of these things. But what most concerns me is how we can harness these organizations, both Fannie Mae and

Freddie Mac and the Federal Home Loan Banks, to provide affordable housing opportunities for our citizens. Because as I go about this country, that is one of the great sources of concern and difficulty for families all across this country. Housing prices are soaring. The housing markets are doing extremely well. As a result, rental markets are appreciating dramatically. It is impossible for anyone making a minimum wage job to afford even a decent rental unit in most places, probably every place in the country.

We have to do something. And, to date, we have been unable to harness in a proactive way the Federal policy for a housing trust fund or anything that will stimulate production and try to generate more opportunities. And if not by design, then by default, we have to rely upon some of these private entities.

I frankly think we have to challenge all of these entities to do more, not just rhetorically but practically, to provide opportunity for affordable housing, not simply to provide mortgage support for people who can afford to buy expensive homes or even mid-priced homes, but to look out and make sure that we have a place so that all of our families can find a place. I hope in the context of these discussions that you can give us your advice on that point also.

Thank you, Mr. Chairman.
Chairman SHELBY. Senator Crapo.

STATEMENT OF SENATOR MIKE CRAPO Senator CRAPO. Thank you very much, Mr. Chairman.

Mr. Greenspan, again, we thank you for sharing your wisdom and being with us here today.

I think my focus today is going to be, as I think is indicated by Senator Carper, on the capital standards issue. Obviously, there are a lot of issues that we need to deal with as we address the relationship in the home mortgage industry between Fannie and Freddie, the Federal Home Loan Banks, and the private sector lending institutions.

To me, one of the questions that is clearly in the forefront is the question of capital standards, the questions like: Should the ute, if we pass one, set a floor? Or should the statute establish any type of capital standard as opposed to letting it be set regulatorily by any new regulator that might be established? Questions like: Should the capital requirements be different for different types of institutions depending on the nature of risk which they incur? Should capital standards be imposed that extend beyond the level of risk? And is establishment of a capital standard that exceeds risk economically inefficient?

It is questions like this which I believe we must address as we address the question of establishing a new regulator and setting the parameters and the scope of authority of such a new regulator.

I know that you have looked at this very closely, and I look forward to your testimony today. And, Mr. Chairman, I also look forward to working with you as we put this together. Thank you.

Chairman SHELBY. Absolutely.
Senator Enzi.

STATEMENT OF SENATOR MICHAEL B. ENZI Senator Enzi. Thank you, Mr. Chairman. I appreciate your holding this hearing. I would ask that my full statement be a part of the record.

Chairman SHELBY. Without objection, it is so ordered.

Senator ENZI. I would mention something a little more basic on getting homes, and that is having jobs. I passed the Workforce Investment Act, and I am going to be pressing both sides to come up with conferees for that so that people can upgrade their skills, make a little bit more money, and be able to afford houses.

Thank you, Mr. Chairman.
Chairman SHELBY. Senator Sarbanes.

STATEMENT OF SENATOR PAUL S. SARBANES Senator SARBANES. Mr. Chairman, first of all, I want to express my appreciation to you once again for continuing the Committee's thorough and careful examination of the issue of the regulation of the housing GSE's. This is an important series of hearings, and obviously, I hope at the end of it we will be able to develop a consensus with respect to a world-class regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

I think it is always important, of course, to remind ourselves that the primary purpose of Fannie Mae and Freddie Mac is to maintain a strong, liquid, stable secondary market for residential mortgages, including multifamily mortgages. I think most people feel they have done this well over the years and it is reflected in the rates of homeownership that exist in this country when compared with what exists elsewhere in the world.

The other primary purpose of these Enterprises is to expand access to affordable housing for low-income families and for those who live in underserved areas. We have sought to accomplish this by setting certain affordable housing goals, and while those targets have been met, there is some considerable sentiment that more could be done to expand housing opportunities.

Housing has a special place in American society. A home of one's own is part of the American Dream. Both the current and previous Administrations have made expanded homeownership, particularly for minorities, an important goal. And, indeed, I think it should be. Homeownership is associated with a whole set of social and civic virtues, from better school performance to lower levels of juvenile delinquency, to higher levels of voting and civic participation. And I think we need to keep that in mind as we consider the framework within which these institutions will operate.

The considerable question has been raised as to the adequacy of existing regulations, with considerable concern about the Federal Housing Finance Board, whose examination and supervisory capacity is being far short of what is required. OFHEO, which has been working quite hard recently to catch up on its responsibilities, seems not to have been aware of the depth of the problems at Freddie Mac. And because the housing GSE's are so important to our economy and our financial system, obviously we have an important responsibility to ensure that they are properly supervised and regulated.

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