« iepriekšējāTurpināt »
Mr. GOULD. There are few things I am totally sure of, but I am totally sure of that.
Chairman SHELBY. Would it be a substantial one?
Mr. GOULD. Yes, sir. I think we have said it would be something, a $4.5 billion after tax number, or maybe somewhat higher, I believe, was the nature of our public announcements.
Chairman SHELBY. Senator Crapo, I know you have been gone and busy.
Senator CRAPO. Since I have not been here, maybe you should let Senator Sununu go ahead.
Senator SUNUNU. Thank you. If we were to extend Senator Bennett's line of questioning, I am afraid the next question would be when is an economic hedge not an economic hedge? And I think my friend Peter would be the only person who would enjoy that discussion. So, I am going to change the subject.
Mr. Gould, is the prepayment rate in the mortgage-backed security portfolio that Freddie Mac holds different than the prepayment rate associated with the mortgage-backed securities that are sold into the secondary market?
Mr. GOULD. Not intentionally, but there has been a period here, which I believe has now been almost entirely corrected, when it appeared that that actually occurred. And to the best of my knowledge, the research internally that we undertook to see why that was happening, it had to do in particular with a number or several, not a number, several people who were very large sellers of mortgages to us. And we happened to securitize those. And it would appear that, for whatever reasons in their initiation of those mortgages, they had a population that prepaid earlier. But there was a differential, that is correct.
Senator SUNUNU. There were unusual demographics in two distinct blocks of mortgages that were rolled into a mortgage-backed security? Is that correct?
Mr. GOULD. There were.
Senator SUNUNU. Was it coincidence that you had this type of a prepayment demographic rolled into one security? Or was it good fortune?
Mr. GOULD. You have to look at, to answer that question properly, our pattern of mortgages purchases. We have steady customers who sell us mortgages on a regular basis. And occasionally we have large financial institutions who originate mortgages that will sell us a large bundle of mortgages.
You can get as technical as you wish, but the fact is that in a very steep yield curve, a lot of these banks find it more profitable to hold mortgages than they did with a flatter curve, so they accumulate mortgages and hold for a while because it is economic to them. And then they might crawl up and say how would you like $20 billion of mortgages?
So there are periods when you buy a large pool of mortgages and then you turn around with those mortgages and either retain some of them for your own portfolio, or you securitize some of them. So it is not a steady, even pattern. So once in a while you can have instances where there may be difference of demographics or geography that particular affects some issue of mortgage-backed securities. Yes, sir.
Senator SUNUNU. A final question. Mr. Raines, you talked about in your testimony the assessment fees or the fees that are used to finance a new regulator. I did not see in your testimony a final number. How much? How much do you think we should provide for the new regulator? How much is enough for them to do a good job?
Mr. RAINES. I think that should be left up to the regulator, with some supervision by some outside entity that would simply have a reasonableness test or simply have them announce publicly what it is going to be and give an opportunity for people to comment.
But I do not think that there should be any artificial limitation on their resources, but I just worry. Having been a former budget director, I worry a little bit about when you have an unlimited source of money, that you have an unlimited need.
Senator SUNUNU. Fannie Mae does not represent an unlimited source of money. That is a slight exaggeration.
Mr. RAINES. I think that some believe that to be true, and I just hope it is not our regulator who has that belief.
Senator SUNUNU. Let me ask it a slightly different way. The $30 million that is currently appropriated for OFHEO, is that enough?
Mr. RAINES. Well, they have asked for more. And we have had a policy of never commenting in the appropriations process on what their appropriations should be. So we have never taken a position one way or another. We have left it up to the appropriators to pick the right number.
Senator SUNUNU. Thank you. Thank you, Mr. Chairman.
Let me first apologize to the members of the panel. I had other obligations that took me away, and so I was not able to be here when you made your presentations, although I have read your testimony and am familiar with it.
I want to use my time here talking to Mr. Rice about the Federal Home Loan Bank issue. You thought you were going to get off the seat.
Mr. RICE. I sure did.
Senator CRAPO. I apologize if these things have already been addressed by others, but it is my understanding that there is not consensus among the Federal Home Loan Banks as to whether they support the establishment of a new independent regulator, as you do. Could you tell me why there is that lack of consensus?
Mr. RICE. First of all, as I said earlier in my testimony, there is consensus around the four principles that I laid out. And that is clear. Three banks have no desire to be under Treasury and believe that the status quo is fine.
I think if you asked any individual bank president, no one would say that we have something broke that needs to be fixed. But if we are talking about the future and where we are going to go, I think there are more presidents who say if you are going to make a change this is the way you should do it. And that is where we are moving.
I think that if Congress were to create an independent regulatory agency outside of Treasury, there may be more banks who would work to be supportive. I think the big issue is to get consensus over
the idea of whether it is an independent regulatory agent under Treasury.
Senator CRAPO. So independence really is the critical issue?
Mr. RICE. Yes, it is. And I think it is important, no matter how you shape it, regulator should have independence. And I think also having the flexibility to make changes to consider who we are and move in that direction. Because you are going to have a strong regulator.
Senator CRAPO. We have had some testimony, or actually some comments that were made earlier by some of the members of the panel, of the Senate panel here, to the effect that there are differences between Fannie and Freddie and the Federal Home Loan Banks. How would you—and I know you probably went into this somebut how would you propose that this independent regulator approach those differences?
Mr. RICE. Well, one of the things I believe is, first of all, to recognize that there are differences and therefore shape the organization of the agency in a way that recognizes how we do our business and how we move forward.
There are some people who want to say that maybe we could have consistency across all the housing GSE's. I do not think you can because the cooperative nature of the Federal Home Loan Banks lends itself to a different type of structure. And I think that we want to have a regulator who understands that.
So, I would see something along the lines of where there would be a regulator with divisions. One would deal with the Federal Home Loan Bank and the other would deal with the Fannie and Freddie. I think there will be some things that they will have to look at across those three GSE's, but I still think it is the regulator that would have to shape that.
Senator CRAPO. So there would be a benefit to having the single regulator, but that there should be divisions among that regulator's focus?
Mr. RICE. I think so.
Senator CRAPO. Can you just tell me briefly, for a minute, how the Federal Home Loan Banks accomplish their affordable housing mission?
Mr. RICE. By statute, 10 percent of our net income goes toward affordable housing. And that was crafted by Congress, to achieve those objectives. We use our affordable housing allocation to target households and neighborhoods with incomes lower than those that qualify even under the housing goals for HUD.
Each bank has an advisory committee that sets standards and objectives within that 10 percent affordable housing goal and then we allocate along those lines. We have about 50 percent of our affordable grants go for multifamily and 50 percent go for single family, but under those guidelines.
Basically, the banks are collectively the largest source of private funding for affordable housing, and we probably are the largest contributor to Habitat for Humanity.
So we are consistent in this area and we like the 10 percent that we have. I do not know what would happen if you move us into a new regulatory agency. Would we go under HUD's goal? Or would you keep the 10 percent affordable housing goal that we have? I think it is cleaner and easier to manage with our 10 percent.
Senator CRAPO. All right. Thank you very much.
I have other questions for each member of the panel, and perhaps the Chairman would allow us to submit questions.
Chairman SHELBY. We will. We are going to keep the record open. Senator Sarbanes and I have a number of questions.
Senator CRAPO. And again, Mr. Chairman, I appreciate your cooperation here. I had to leave for an extended period of time and I appreciate the fact that you were still going when I got back so I could ask some of my questions. Chairman SHELBY. Important hearings. Senator CRAPO. Thank you. Chairman SHELBY. Thank you.
As I said earlier, we are going to continue some hearings. We want to hear from the housing end of this because I think the mission of Fannie Mae and Freddie Mac and the Federal Home Loan Bank are very important. We know they are different. We believe, I think most people believe here, that a strong regulator is important, a regulator that knows what is going on, that has the means to know what is going on.
But I think we have to balance this. I think Senator Reed said it fairly well earlier. We might have two centers of gravity here. We are all interested in housing, from the President of the United States to every Member of Congress. And we realize how important that is, not only socially but also to our economy. So we have to balance this.
I think we can do this. We know it is difficult to do but we are trying to make sure that we are not part of the problem down the road. I think all of you recognize this.
We thank you for your patience, and the hearing is adjourned. [Whereupon, at 2:03 p.m., the hearing was adjourned.]
[Prepared statements, response to written questions, and additional material supplied for the record follow:]
PREPARED STATEMENT OF SENATOR CHARLES E. SCHUMER Thank you Mr. Chairman, Ranking Member Sarbanes, and our distinguished panel. Thank you for coming. This is an important subject, one of the most important topics before our Committee in some time. I have only a brief statement to make.
You know there is an old expression, “if it ain't broke, don't fix it.” I think some of us here in the Senate believe that when we try to fix things that are not really broken, we can end up doing more harm than good.
In today's hearing we are considering potential large-scale changes in one of the few areas that is working in our economy—housing. It is a critical area to get right for the country, and it is an area where Fannie Mae and Freddie Mac play a vital role.
We had an accounting issue at Freddie Mac—but we should note that it was a problem some of us would love to have, they had understated their earnings! I agree we need to address the issue of the best regulation of Fannie Mae and Freddie Mac for all the stakeholders involved. But I have not heard why that should lead us down the path of potentially changing capital standards or changing the method and authority for approving the kinds of business Fannie and Freddie can engage in or potentially politicizing the management of the GSE's. That seems to be going too far—to run the risk of fixing what is not broken.
It seems that instead of treading carefully, if we rush to judgement now we could be opening the door to all sorts of changes unrelated to the specific problem at hand, and going down a path that may not be where we want to head.
So, I will be very interested to hear Treasury's specific evidence that the capital standards at the GSE's—minimum and risk based capital-are too low or too high. I hope they will share that data with us today or in the future. I did not see it in Secretary Snow's testimony.
I am also very interested in whether Treasury can give us a report or findings that show where the current “new program approval” authority, which is today at HUD, has consistently broken down or hurt the economy.
I am also curious to hear the level of capital that Fannie or Freddie would be required to hold under the Basel I and the proposed Basel II Accords. Are their current capital amounts too high or too low versus these standards? I am assuming Treasury has done that analysis or will do that analysis shortly.
We are all also very sensitive to the impact of that a change in capital could have to the GSE's ability to fulfill their vital housing mission and to their stock prices. They are after all publicly held companies.
So, I hope Treasury will walk us through an analysis of what a potential change in minimum capital standards, some have suggested these levels should double, would mean in terms of Fannie's and Freddie's ability to fulfill their housing mission.
For example, how many units of housing could be impacted if they need to hold funds in reserve and not put them into the housing market? And what would be the npact on the stock prices, since any capital reserves would come out of the companies earnings?
Again, I am assuming Treasury has done all this analysis—it seems critical to the decisions we need to make. But to date I have not seen it.
Mr. Chairman, if we do not have that data and have fully aired those findingsand they are but a few examples of the consideration needed to carefully address these issues—I wonder how we can know whether or not we have a problem or whether or not we should make changes. If we do not have any data to look at, if it is all simply conjecture-one opinion versus another—do we risk making some enormous and potentially damaging mistakes?
It seems like a dangerous way to make public policy in one of the few areas that is working in the economy.
Mr. Chairman, you and Ranking Member Sarbanes, have always chosen a careful and considered approach, and I trust you will lead us in that direction again. I look forward to future hearings on this important subject.
PREPARED STATEMENT OF SENATOR DEBBIE STABENOW Thank you, Mr. Chairman. Today's hearing is an important opportunity to re-examine the regulatory structure in place for Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System.
Ever since accounting problems were reported at Freddie Mac earlier this year, there has been a growing interest in strengthening our housing finance regulators.