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And I would be afraid of giving this to someone else who didn't have all that in front of them and, I would fear, drop the ball and let it escape or approve a program in a way that might be not as critical or disapprove of a program because they were not getting or were not as concerned about the goal.

Mr. SCOTT. Mr. Bartlett?
Mr. BARTLETT. Congressman Scott, thank you for the question.

First, Congressman, setting the GSE affordable housing goals under the Secretary's proposal, the two Secretaries, would remain at HUD. We believe and they believe that the process would be strengthened because there would be a transparent regulatory process that would be open for comment for all, and that is not the case today.

Secondly, I do agree that there is a special mission of Fannie and Freddie and the GSEs. In fact, and you have no way of knowing this, I was one of the principal authors of the 1983 act that started this, when it was much smaller.

And we set that mission, in layman's terms, as providing liquidity in the residential secondary mortgage market. It has succeeded beyond the wildest imagination, because by 1992, that was changed and Fannie would contend that it was significantly expanded.

But nevertheless, the regulatory structure was not caught up to it. A regulator was created that took—without the authority to adopt capital standards that every other regulator has always had, and it took eight years for them to issue their first regulation because of the statutory hamstring, not bad people.

So it has gotten to a $3.3 trillion overhang over the nation's economy. And unless strong, independent regulation is provided, the housing goals for Fannie and Freddie will go in the tank because the system will ultimately be in jeopardy. The system would be in jeopardy.

And that is why we are here, is to achieve those housing goals and make sure that we have strong capital standards to achieve them.

So I think this is a hearing and will be legislation that is designed to strengthen the system so that it can continue to provide housing and not allow it to be weakened.

Mr. FISHBEIN. Mr. Scott, can I answer that question as well?
Mr. SCOTT. Yes.

Mr. FISHBEIN. I certainly agree. It is our position, too, that mission responsibility should remain in HUD. But, in saying that, I would like to make some additional points.

First, that HUD is underfunded to do its present mission responsibility; that there are no special appropriations to perform this regulation; that HUD pays for funding for the staff—who are very dedicated, by the way, and very experienced from the general HUD operating budget. This sometime means that HUD has to make difficult budget choices.

So providing full funding, whether it be through an assessment process or a special appropriation, is absolutely critical.

Second, if the public mission function does get transferred, to Treasury, it is necessary to ensure that the director of this new office accountable for both functions. They should be judged by their ability to conduct safety and soundness oversight well, but also by their ability to discharge the function as public mission regulator.

Combining both functions into a single office is very difficult which is why we have some concerns about such a move.

Should the Congress in its wisdom decide to go ahead and do that, it is very important these two functions be viewed as equally important. Ultimately, the person who heads this office should have the responsibility for discharging both duties with equal seri


Mr. BAKER. Mr. Scott, in H.R. 2575, we have an independent assessment formula not only for safety and soundness within the OTS, but we also have a separate assessment in HUD for HUD's functions. So that is a very strong new, additional authority to ensure that your concerns about mission compliance is in hand.

Mr. TAYLOR. Could I comment on that last point?

We have heard today and we have talked a lot today about a world-class regulator. And I think we have heard testimony from Fannie Mae Chair Raines on this issue, and that is that he has investors that are not just in the United States but international, and that we are looking to create something to bring credibility to the marketplace.

And I would ask the question, what makes a regulator worldclass if we take away its independence? What if it does not have the ability to look at or set capital standards and has no oversight on product and services? So at the end of the day, if the idea behind this is to have a world-class regulator for the GSEs, and then we limit its ability to regulate, what have we really done?

Mr. BAKER. You done?
Okay, thank you, Mr. Scott.

Just for the record, I want to establish that the current bill pending, 2575, was actually introduced on June 24th. Since the 106th Congress, I have been a part of or participated in 15 hearings on the subject of GSE regulation. And with the conclusion of this panel, you will be pleased to know you are part of 81 witnesses who have come before the Capital Market Subcommittee or the full committee on this subject. I would hope that in view of that record one would come to the conclusion we are not particularly rushing to judgment here.

But with all that aside, I want to express my appreciation to each of you for your perspectives that you have brought to the table. I do believe it will be helpful to us in formulating whatever the final product will ultimately look like.

I think the combination, frankly, of safety and soundness with mission compliance are not mutually exclusive, that we can take actions that are not only good for the enterprises and their shareholders, but we can take action that is also beneficial to the taxpayer. There is a net win to this process and the mere examination of the subject has not caused the housing market nor interest rates to go anywhere but down.

Since 1991, when we first began the discussion of creation of OFHEO, and you look at all the hostilities back and forth from controversial matters that were introduced or hearings that were engaged in, I suggest to you the Alan Greenspan effect is much more powerful than all of this combined. And we are enjoying record-low interest rates for an extraordinarily long period of time. And if we are ever to engage in reformation of regulatory function, this window is a rare one indeed.

So not that it is our intent to have any person denied access to home ownership, in fact, I think the GSEs can do a great deal more in that regard than the do today. And I will join with my friends in seeking out statutory provisions to ensure that compliance.

But at the end of the day, this is far too important. They have grown so fast for too long that this issue does need a world-class regulator with the appropriate skills.

Ĩ also want to introduce into the record a statement by Mr. Rick Lazio, former member who now is President of the Financial Services Forum who could not be here but wanted to have that in the official hearing record.

[The following information can be found on page 246 in the appendix.]

Unless there are further comments, I thank you for your longsuffering patience. Meeting adjourned.

[Whereupon, at 4:20 p.m., the subcommittee was adjourned.]


September 25, 2003

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Today, the Financial Services Committee will hear from the regulators, the regulated, and outside parties interested in the oversight of the housing Government Sponsored Enterprises. Two weeks ago, Secretaries Snow and Martinez came to the Committee with the Administration's proposal to improve regulatory oversight of the GSEs. They proposed developing a "world-class” regulator with the tools to rigorously supervise the activities of these highly complex financial institutions.

The Secretaries called for the regulator to be housed in the Department of Treasury as an individual office, similar to that of the Office of the Comptroller of the Currency. Additionally, the proposal called for the Department of Housing and Urban Development to retain its role as regulator of the GSE's mission and to ensure that the agencies meet their affordable housing goals. HUD's expertise in this area is critical, and under the Administration's proposal, the Department would receive additional powers to enforce compliance with the housing goals.

There is broad agreement that the current regulatory structure for the GSEs is not operating as effectively as it should. The Office of Federal Housing Enterprise Oversight is under-funded, under-staffed, and unable to fully oversee the operations of these sophisticated enterprises. This was reflected in the surprise management reorganization by Freddie Mac, and by Wall Street reports stating that GSE oversight is viewed with skepticism because OFHEO is largely seen as a weak regulator.

A strengthened regulator will send the signal to the markets that these entities have solid management, and are engaging in safe and sound activities. Confidence will be restored in the GSEs, and they will be able to get back to their important work of expanding homeownership opportunities without the distractions that have been plaguing them over the past several months.

Fannie Mae and Freddie Mac have done a good job of promoting home ownership and providing liquidity to the secondary mortgage market. These GSEs have quickly grown into large financial institutions that have a major impact on the housing market and the domestic economy. We must ensure that they have competent and thorough oversight,

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