GSE Debate Continues on Capitol Hill
Several new developments emerged last week in the ongoing debate on how best to revamp the regulatory structure of the government-sponsored enterprises (GSEs) Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Rep. Richard Baker (R-La.) introduced legislation that would give a new GSE regulator broad powers to limit the growth, or even curtail the value of their loan portfolios; Federal Reserve Chairman Alan Greenspan, Treasury Secretary John Snow and HUD Secretary Alphonso Jackson aired their views in two days of testimony before the Senate Banking Committee; and Armando Falcon, director of the Office of Federal Housing Enterprise Oversight (OFHEO), the agency that oversees Fannie Mae and Freddie Mac, announced that he would step down on May 20. NAHB is monitoring the situation closely and remains in contact with leaders on the House Financial Services Committee and Senate Banking Committee, the panels with principal congressional oversight of the GSEs. As the legislative process moves forward, the nation’s home builders continue to work with lawmakers to craft legislation that will ensure the safety and soundness of the GSEs and protect their ability to continue to successfully fulfill their congressional mandate to provide low-cost and readily available housing credit to consumers. In addition, the more than 800 builders from across the country in Washington, D.C. on April 13 to attend NAHB’s Legislative Conference will be discussing this issue with their lawmakers on Capitol Hill. (Talking points on GSEs and further information on NAHB’s legislative priorities are available to members at www.nahb.org/legcon. To register for the conference, e-mail Jessica Boyce at NAHB.) Rep. Baker’s legislation, which is cosponsored by House Financial Services Committee Chairman Michael Oxley (R-Ohio), would create an independent Federal Housing Finance Agency to replace OFHEO, an agency within HUD, as the regulatory overseer of the GSEs. Under the Baker proposal, the regulator would be granted broad authority to determine the size of Fannie Mae’s and Freddie Mac’s mortgage portfolios, raise their minimum and risk-based capital standards, approve new programs or pilot projects and place them into receivership in times of crisis. Greenspan told lawmakers that the “GSEs need a regulator with authority on a par with banking regulators, with a free hand to set appropriate capital standards and with a clear and credible process sanctioned by the Congress for placing a GSE in receivership where the conditions under which debt holders take losses are made clear.” The Fed chairman also reiterated his call for decreasing Fannie Mae’s and Freddie Mac’s portfolios, though he did not suggest a specific limit on their holdings. Previously, he has advocated that each of the secondary mortgage financial institutions hold no more than about $200 billion in their mortgage investment portfolios. Currently, their combined portfolios total roughly $1.5 trillion. Testifying the following day on behalf of the Administration, Snow and Jackson said that they favored the creation of a new independent regulator, perhaps within the Treasury Department. The Cabinet secretaries also backed calls to grant the regulator sufficient powers to curb the growth of Fannie Mae and Freddie Mac, adjust their minimum capital requirements and place them into receivership, if necessary. Meanwhile, Senate Banking Committee member Charles Schumer (D-N.Y.) urged his colleagues to proceed carefully before deciding on any changes to the GSEs that could have unintended consequences for the housing market. “We ought to proceed with a great deal of caution and maybe some humility,” he said. “Things are good in the housing market. Why are people entertaining radical change?” | 
