Financial Services Committee Votes to Create Strong Regulator for the Secondary Mortgage Markets

May 26, 2005

The House Financial Services Committee today acted to strengthen the regulation of the nation’s secondary mortgage market, passing Rep. Richard Baker’s (LA) H.R. 1461, the Federal Housing Finance Reform Act of 2005 by a bipartisan vote of 65-5.

Regarding passage of the bill, Rep. Baker said, “Today the committee took a significant step toward fulfilling a goal I have championed for quite some time -- the creation of a professional financial regulator with full powers to oversee a huge and important part of our financial system. When I consider how far we’ve come in resolving so many issues that were once considered ‘controversial’ or ‘deal breakers,’ I am grateful for the assistance of Chairman Oxley and everyone on the committee who came together to forge consensus. And when I consider that this bill is as strong as, and in some ways stronger than, any of the others I’ve introduced in the last five years, I am even more determined than ever to seeing that we get this job done.

“I share the Administration's concerns about GSE portfolio holdings, and I am certain that the issue will not be closed with today’s committee vote. I will point out, however, that there is nothing in the bill as written that would stop the new regulator, whose director this administration would nominate, from pursuing exactly the same policies on portfolio that the Administration is calling for. More than anything, I hope to engage the Administration on this issue and to continue working together so that we can move forward on sweeping legislative reform and not be stymied by minor disagreements over a portfolio issue that nobody was even talking about six months ago.”

Rep. Baker is the author of the bill and the chairman of the Capital Markets, Insurance and Government-Sponsored Enterprises Subcommittee. Since the 106th Congress, there have been over 20 hearings on GSE oversight in the Financial Services Committee. Testimony has been taken from more than 100 witnesses on the issue.

House Majority Whip Roy Blunt (MO) said, "Chairmen Baker and Oxley have done some heavy lifting by crafting GSE reforms that will protect consumers, homebuyers, and taxpayers. Strengthening regulatory oversight of the GSEs will help ensure confidence in our housing market."

The Committee passed a manager’s amendment and an en bloc amendment offered by House Financial Services Chairman Michael G. Oxley (OH).

Regarding the passage of the bill, Chairman Oxley said, “We are here today because the system we have in place is broken. The regulators who oversee these entities currently do not have all of the tools they need to supervise these huge, sophisticated businesses. H.R. 1461 is a strong remedy for these problems.”

The bill would create an independent world-class regulator for the three government-sponsored enterprises (GSEs), Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The Federal Housing Finance Agency (FHFA) would be independently funded by assessments on the GSEs that would occur outside the congressional appropriations process.

The new regulator would be responsible for overseeing the achievement of the GSEs’ housing mission, as well for their safety and soundness. The new regulator and its powers are modeled after the bank regulators.

Under the new legislation, the regulator would have the power to increase minimum capital and risk-based capital standards. The legislation would grant the regulator authority to adjust the portfolio holdings of the GSEs. This could be done for either the purpose of increasing safety and soundness of the enterprises or fulfilling the housing mission. Additionally, the regulator would have to approve both new programs and new business activities of the GSEs.

Like bank regulators, the new agency could take prompt corrective actions and would have other enforcement powers. The director also may undertake a process of conservatorship or receivership, if a GSE becomes critically undercapitalized.

The legislation includes a new mandate for the GSEs to focus on affordable housing. A fund to accomplish this purpose would be created with the GSEs contributing five percent of their after-tax earnings.

The bill contains corporate governance improvements, enhanced authority to hire financial experts, and a requirement that the GSEs must register at least one class of stock with the U.S. Securities and Exchange Commission.

Rep. J. Gresham Barrett (SC) said, “I commend the leadership exemplified by Chairman Oxley, Chairman Baker, and my colleagues on the committee in reporting a bill that will provide the GSEs with a world-class regulator that will be better equipped to handle the secondary mortgage markets of today and tomorrow.”

Rep. Jim Ryun (KS) said, “I commend Chairman Oxley and Chairman Baker for their leadership in passing legislation that will help bolster confidence in our nation’s housing market. It is essential that our GSE’s have a world-class regulator, and we have accomplished the first step in that process today.”

Rep. Michael G. Fitzpatrick (PA) said, “The secondary mortgage market has grown and changed considerably in the past decade, however, the agency that regulates the industry has not. Representative Baker's reform bill will not only modernize the regulation of government sponsored enterprises, but place controls to prevent fraud and corporate malfeasance.”

The following amendments were approved by voice vote:

  • An amendment by Rep. Paul E. Gillmor (OH) to increase disclosure of the GSEs’ charitable contributions.
  • Of his amendment, Gillmor said, “Corporate misconduct remains on the minds of many Americans. It seems clear that corporations need to be more forthcoming about their expenses including charitable contributions to non-profits. Government Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac were established by congressional charter and given special privileges to provide a valuable service to the American people by increasing liquidity in our housing markets. Given their special government-sponsored status, it is both their shareholder’s and the American public’s right to know how their profits are being spent.”
  • Rep. Luis V. Gutierrez (IL) amendment that would define the term low-income area.
  • Rep. Spencer Bachus (AL) amendment would authorize a study on guarantee fees to be completed by the Comptroller General in consultation with the federal banking agencies and the new director of the FHFA.
  • Rep. Artur Davis (AL) amendment to require the new director to formulate standards by which mortgages are characterized as subprime.
  • Rep. Edward R. Royce (CA) amendment to make the new director a member of the Federal Financial Institutions Examination Council.
  • Rep. Gregory W. Meeks’ (NY) amendment to require the GSEs to review disparities in interest rates charged on mortgages for minority borrowers.
  • Rep. Maxine Waters’ (CA) amendment would prevent the distribution of subgrants to nonprofit entities.
  • Rep. Rick Renzi (AZ) amendment to expand the definition of rural to include tribal lands in order to foster mortgage lending on sovereign lands.
  • Gutierrez amendment to provide safe harbor to the GSEs and their employees when reporting suspicious activities to the director of the FHFA.
  • An affordable housing study related to long-term-care facilities offered by Rep. Jim Gerlach (PA).
  • Rep. Royce amendment to strike the age limitations on Fannie Mae and Freddie Mac board members.
  • Rep. Jeb Hensarling (TX) amendment to require a study of alternative secondary market systems.

Source: House Financial Services Committee

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