The Department of Housing and Urban Development’s ability to improve housing opportunities for America’s working families would be severely undermined if Congress were to agree to a Bush Administration plan to transfer the current program oversight of Fannie Mae and Freddie Mac from HUD to the Treasury Department, the nation’s home builders told lawmakers last month.
Testifying before the House Financial Services Committee, Kent Conine, president of the National Association of Home Builders and a home and apartment builder from Dallas, said such a change raises grave concerns about the future of the nation’s housing finance system.
“Moving program approval authority for Fannie Mae and Freddie Mac to the Treasury constitutes an attack on the mission of HUD by disrupting the capacity of the two giant mortgage lenders to provide the liquidity and stability needed to keep mortgage credit available at the lowest possible cost to home owners and rental housing providers,” said Conine.
The Administration’s plan would create a new federal agency within the Treasury Department to regulate and supervise the financial activities of Fannie Mae and Freddie Mac, housing-related government-sponsored enterprises.
The new agency would have general regulatory, supervisory and enforcement powers for GSE oversight, including the authority to establish, enforce and revise capital standards. In addition, oversight of existing GSE activities and approval of new activities would be shifted from HUD to the new Treasury agency. HUD would be left with minimal regulatory authority, limited to oversight of the annual affordable housing goals and a consultative role in program oversight.
In assessing the future regulatory framework for Fannie Mae and Freddie Mac, Conine cautioned lawmakers that it would be a tremendous mistake to turn discussion on GSE regulation into a referendum of the nation’s highly successful housing finance system.
The two major mortgage market intermediaries have made significant strides in expanding homeownership opportunities and increasing the supply of affordable rental housing in underserved areas by reducing mortgage rates, creating a reliable and stable flow of mortgage credit, eliminating regional disparities in interest rates and bringing standardization and innovation to the mortgage markets.
To ensure that the regulatory framework for the GSEs is credible and effective and to help them continue to advance successful programs to address the nation’s housing needs, Conine called on Congress to take the following actions:
• Retain HUD’s current status as the mission regulator for Fannie Mae and Freddie Mac, including its responsibility for approving new programs and establishing annual goals for affordable housing. HUD is the only cabinet agency with a thorough understanding of, and extensive involvement in, housing-related issues. It makes no sense, Conine noted, to transfer mission oversight of Fannie and Freddie to the Treasury, an agency that has virtually no experience in evaluating the effectiveness and appropriateness of housing policies, especially those pertaining to housing for working families.
• Maintain the current system of minimum and risk-based capital requirements for Fannie Mae and Freddie Mac. NAHB recommends against any immediate changes to the capital standards. While the regulator in the longer-term should have the flexibility to adjust risk-based capital standards as necessary, these standards are the product of years of careful analysis and effort, and should not be discarded before they have been tested.
• Transfer safety and soundness oversight of Fannie Mae and Freddie Mac from the Office of Federal Housing Enterprise Oversight, an independent agency within HUD, to an independent office within the Treasury Department. The Treasury is the premier financial institution regulator because of its expertise and experience with financial issues.
However, the safety and soundness regulator must be completely independent and statutorily protected from the Treasury’s politically-appointed policy makers. NAHB believes it is imperative that the new Treasury office focus exclusively on safety and soundness and not on mission regulation, specifically program oversight and housing goals.
• Keep HUD as the regulator to develop and enforce housing goals for Fannie Mae and Freddie Mac. NAHB agrees with HUD Secretary Mel Martinez, who said: “Institutionally, [HUD’s] mission is devoted to furthering the goal of affordable housing and homeownership and HUD has the most expertise in this area.”
• Support the Administration’s proposal to maintain the long-standing mission, charter and status of the GSEs. Any efforts to privatize or withdraw any of their federal privileges and legal exemptions would diminish their ability to provide housing financing at the lowest possible cost, said Conine.
• Oppose any efforts to bring another housing GSE, the Federal Home Loan Banks, under a new regulatory framework. The structure of the Federal Home Loan Bank System is unique and substantially different from that of Fannie Mae and Freddie Mac. The Federal Home Loan Banks should continue to have their own independent regulator, currently housed in the Federal Housing Finance Board.