Lapas attēli
PDF
ePub

Mr. RAINES. We guarantee the timely payment of principal and interest on the obligations. This is looking at who has the interest rate risk, and contrary to opinion, Fannie Mae and Freddie Mac do not own the interest rate risk on all the mortgages in America. We have a combination of about 20 percent on our portfolio. The other 80 percent is in other institutions, many of them quite large.

The second point is: How much risk do they have and what do they do with that risk? Because that is where you have to determine what is happening. This is a complicated chart, but I will make it quite simple. It is just simply a measure of what is the growth risk you have, that 12 and 8 percent I said before. What is the net? What is left after you have hedged? Fannie and Freddie do a pretty good job of taking the risk that they got in the beginning and passing on about half of that risk to others. Look what happens when you get to depository institutions. They pass on almost none of the risk that they take on when they buy mortgages. They keep it. So again, if I am worried about risk in financial institutions, I would be a lot more worried about those who take it and keep it than those who pass it on.

Senator SARBANES. What percent of their assets in the financial institutions are reflected by mortgages?

Mr. RAINES. Today about 34 percent.

Senator SARBANES. I thought the figure was about 21 percent. Mr. RAINES. If you look at the financial assets of banks and thrifts, about 34 percent are made up of mortgage assets.

Senator SARBANES. What percent of your assets are made up of those items?

Mr. RAINES. Ninety-six. I mean we are specialists. This is what we do. In between banks and us would be thrifts, who have a large share as well.

Senator SARBANES. Would that not lead to the conclusion, if there is some concern about the risk here, and you are an institution in which 96 percent of your assets are in that category, that there is reason for heightened concern there as opposed to an institution in which 32 percent of its assets are in that category? Would that not simply follow, before you get to the hedging issue?

Mr. RAINES. You cannot ignore the hedging because we would not buy the asset if we did not do the hedging. It is not optional to us as to whether or not we are going to

Chairman SHELBY. Mr. Raines, just for the record, and I know it is Senator Sarbanes-Senator Dodd's time.

[Laughter.]

On the other hand, I think Senator Bennett's time is coming up. But, Chairman Raines, what is the source of your data, and would you furnish that for the record?

Mr. RAINES. I would be delighted to do that.

Chairman SHELBY. Because our Committee would like to see

that.

Mr. RAINES. I would be delighted to share it. This is an issue. that obviously we spend a lot of time on. But it is a question I think the Committee can rightly ask: Are you better off having people who specialize in an asset, and this is all they do, or are you better off to have someone who has assets all over the board? Banks do 20 different things. They do junk bonds. They do Third

World debt. In whose hands would you rather have these assets? Someone is going to have this risk, unless of course we tell consumers, you cannot have a fixed rate mortgage. We can solve this problem. It is solved all over the world by telling people, you have the risk, you the homeowner. We are not going to have the banks take the risk. You have it.

In this country we have done something different, and in fact, that is why Fannie Mae was created in 1938, was to buy this newfangled mortgage that someone came up with, which was the FHA 30-year, fixed-rate, refinanceable mortgage. Today, over 60 years later, we are still doing the same thing.

Senator SARBANES. Of course, Chairman Greenspan was critical yesterday of that concept. I mean he is in here in a sense pushing adjustable rate mortgages yesterday, and throwing this risk back on the consumer, and in fact made the argument that the consumer would come out ahead. Of course, that is going to, it seems to me, require a fairly smart consumer who is going to have to know when to jump in and jump out and so forth. But he, in effect, is downing the 30-year fixed rate mortgage and pushing up the adjustable rate mortgage.

Mr. RAINES. Absolutely, Senator. You said it as plainly as I think it can be said, and the choice is really Congress's choice. It is a choice of whether or not you think consumers should have access to long-term fixed rate mortgages or they should not. And one can disagree on that. It is not as though that there is only one answer, but if you want them to have that choice, this is the only country who has figured out how to do it, and we figured out how to do it with a housing finance system that works.

Senator DODD. Particularly, if you are talking about serving underserved constituency. Adjustable rate mortgages, for a low income constituency, is a nightmare.

Mr. SYRON. If I may just inject something. Adjustable rate mortgages would have been a terrific instrument to have in the last 8 years or so when we have had one of great bull markets in bonds in the history of the republic. They would not have been such a great instrument to have had you taken out an adjustable rate mortgage in 1974, 1978, or any other points in the business cycle. The plain fact is, as a matter of national policy-it happens to be national policy I agree with, but as Frank says, it is your choice we have decided that as Americans that we would prefer to shift the risk, the interest rate risk from homeowners to a sector that is better able to bear it. Other nations have not tried to do that. Many are exploring doing it now. The EU, as you know, is looking at setting up a GSE, but that is a decision we have made. Chairman SHELBY. Senator Bennett, you have been very patient.

STATEMENT OF SENATOR ROBERT F. BENNETT

Senator BENNETT. Thank you, Mr. Chairman. I have had all my questions already asked.

[Laughter.]

There is an advantage of waiting.

I have not had this conversation with Chairman Greenspan, and I would like to because I would like to understand his thinking a

little better. All I have done is read about it in the newspaper, and I have long since learned that is not always a reliable source.

I think Chairman Greenspan shares my devotion to the market, and allowing the person who is getting the mortgage to make the choice whether he wants an ARM or a fixed rate. I have never had an ARM in my lifetime. I have always had a fixed rate. I have had various terms, 15 years as opposed to 30 years for a variety of reasons. No. As a matter of fact, I just signed up for an ARM. I lied. I am sorry.

[Laughter.]

Forgot that. That was just last week.

Chairman SHELBY. We will correct the record. [Laughter.]

Senator BENNETT. Yes, correct the record on that.

As I listen though I think you are saying that if we decide as a matter of national policy we are going to limit the ability of the GSE's to grow, that means once we reach the ceiling, however or whatever we choose as the way and place to set it, that means that you have to wait till somebody pays off his 30-year mortgage before somebody else can get one. Is that an oversimplification if the pot is full? Some of the people behind you are shaking their heads.

Mr. SYRON. It is not totally the case because we still could secure it, take and securitize the 30-year mortgage.

Senator BENNETT. I see. The limit would come only from that which is supported by debt?

Mr. SYRON. Yes, that is right. Before I give up totally, do not forget that if we were to do that, we would be giving up the ability to tap foreign capital markets.

Senator BENNETT. I understand that. So there would still be some growth.

Mr. SYRON. Yes, sir.

Senator BENNETT. But it would limit the amount.

Mr. SYRON. It would have some limit on the amount.

Senator BENNETT. Back to my philosophical point. I do not like any form of governmental wage and price or product control. I like to let the marketplace decide what people get paid and what they can buy, and I think you are saying that the consumer is choosing this; even though the ARM is available, the consumers are making a choice.

The question is: Is that choice subsidized by virtue of the implied guarantee? In business I have never been able to cash in on an implied guarantee. I always prefer it in black and white, and I still do not understand where the implied guarantee I guess it is the too-big-to-fail argument that we have heard here. Answer that question.

Mr. RAINES. There is no difference. We buy adjustable rate mortgages. We buy fixed rate mortgages. It is the consumer who is deciding, and consistently the consumer decides 80 percent of the time they would like a fixed rate mortgage. But in the market we are not in, in the jumbo market is only 50 percent fixed rate mortgages, and that is because the market we are not in cannot support the same level of fixed rate mortgages. In fact, right at the line where the loan limit exists, as soon as a loan falls into an area that we can buy, all of a sudden the market shifts over to fixed rate

mortgages. So this is the consumer's choice. Fannie Mae, today I believe, has 1,000 different adjustable rate mortgages that we are willing to buy. There is no lack of choice. You name an index. You name a feature. Somewhere in there we have in our system that mortgage and the ability to buy that mortgage.

Consumer choice is vital here, and every occasion I have seen where consumers have had the choice to fix their largest single expenditure, particularly in the lowest interest rate environment we have had in 30 years, they take that choice. Some people, because of the cost, have to take on more risk because they can get a lower initial rate. So they get that rate and take on that risk because they want to get in the home so badly, but as soon as they can, our experience is, they flip out of that adjustable rate mortgage into a fixed mortgage.

Senator BENNETT. Except for the jumbo market.

Mr. RAINES. Except in the jumbo market where it is simply so much more expensive that it just does not make as much sense for them to be in

Senator BENNETT. What is the line of the jumbo market these days?

Mr. RAINES. $333,700.

Senator BENNETT. You can see where I am going. My concern I have expressed to Mr. Rice when we had this hearing before, obviously safety and soundness has to be our primary goal here, but at the same time the way to be sure we have absolute safety and soundness is to require you to keep gold and make no loans whatsoever. That is pretty safe and sound, although with the commodity price maybe not even that is very good. We had to perform the mission. The question before the Committee, I believe, Mr. Chairman and Senator Shelby, is how do we construct a regulatory framework that gives us the ability to sleep at night on the safety and soundness issue and does not constrain the mission which the three of you and the organizations you represent have taken on and performed so admirably, that we do indeed lead the world by a very wide margin-this is not a close horse race a very wide margin of homeownership, and that is a very difficult balancing act, and into it comes the new element that I had not thought of before this recent controversy raised by Chairman Greenspan of how do we do it in such a way that does not distort the market choices of the consumers that are taking out the mortgages, which is part, in my view, of fulfilling your mission. But it is a part which I had not addressed before. We have to make sure that the Government does not start picking winners and losers in product that is made available to the individual who takes out his mortgage, that he or she remains free to make, unimpeded by Government regulatory pressure, the right choice for him, and to switch if he decides he starts with an ARM and wants to go, we have to make sure that product is available for him to go. Is that a fair summary of the dilemma that we are facing here?

Mr. RAINES. It is, Senator, and it is going to get harder for you because the demand for mortgage credit in this decade, as I mentioned before, is going to double, and so we not only have to figure out how we continue to raise the $7 trillion that we are raising now, but we are also going to have to figure out how we get to $11

to $13 trillion while maintaining consumer choice and holding risk down.

If we had a static world where all we were doing was having to move around the current problem, it would be a lot easier, but we do not have a static world. These companies are going to have to figure out what investor have we not tapped? What part of the world has not invested enough in the United States? Who are we going to get to invest more than they have ever invested before in our housing market as opposed to their housing market? Our challenge is huge. This is what I worry about all the time. I do not worry about whether or not we know how to manage the mortgages we have on our books today. I worry about where we are going to find the money that is going to house this 30 million people who are going to be here in 2010, because if we do not, it is going to be a very simple result. We are going to have a shortage of housing capital. There will be higher prices to clear the market. Fewer people will qualify. So we will have a lower homeownership rate in the future than we have today, fewer people becoming homeowners, because we failed to come up with that additional $6 trillion of capital. So this is a huge, huge problem.

One of the reasons that I am so anxious for this Committee and this Congress to resolve these regulatory issues is so we can get about the work of doing this. We need a stable structure in order to take on this job. If it is up in the air, I cannot tell you that as we have in these prior decades, that we will be able to meet the task in the coming years.

Chairman SHELBY. Stable structure including a stable regulator. Mr. RAINES. Exactly.

Senator BENNETT. If I can just ask one question, to which I do. not want an answer, but to get it on the record so that we might look at it, I wonder if some study could be made of how much that increased demand is being driven by our present tax laws that say you cannot deduct credit card debt but you can deduct home debt, and how much demand for mortgages is being driven by an effort to get their debt into a situation where the interest can be deductible, as it used to be? I remember filling out my 1040 and used to be able to deduct interest in any place, and now the only place it is deductible-and you see all of the ads on the television saying: Consolidate all your bills and get yourself into our home mortgage situation and then all the interest is deductible. At some point we should have a study done to see whether or not the tax laws are driving an artificial amount of people going into their home loans that might be changed. As I say, it is a question to which I do not want an answer here. Thank you for your indulgence.

Chairman SHELBY. Before I call on Senator Carper I just want to respond to something you said, Chairman Raines. You were talking about specialization earlier. Banks have asked for expanded authority over the years for activities, as they say, to reduce risk through diversification. Fannie, as I understood it now, is engaging in one less risky activity. Does that not contradict the standard investment theory to spread your risk? You see what I am getting at? Mr. RAINES. Actually, Mr. Chairman, there is a lot of debate and there has been some good work on this question of how much you can diversify away certain risk. It is not clear to me, and I think

« iepriekšējāTurpināt »