An Obligation To Strengthen Oversight
Mr. Martinez, secretary of the Department of Housing and Urban Development, recently testified before a congressional panel considering changes to the oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
This viewpoint is an excerpt of his testimony.
Iwelcome the opportunity to join secretary (John) Snow in describing for the committee the administration's views on improving and reforming regulatory oversight of the housing government-sponsored enterprises. Secretary Snow has outlined the principles and priorities the administration supports. He and I are in full agreement. Congress and the administration have an opportunity and an obligation to strengthen the regulatory structure of the GSEs. A strong regulator is in everyone's best interests - the administration, Congress, Wall Street, investors worldwide, and most importantly, the American taxpayer.
The administration has a dual goal. We must ensure that, through the GSEs, financing is available for low- and moderate-income families. And we must ensure that the GSEs are subject to rigorous oversight, so that they are serving their public purpose.
The Office of Federal Housing Enterprise Oversight was established following the thrift crisis as an independent safety and soundness regulator, within HUD, for Fannie Mae and Freddie Mac. There is a misconception that HUD controls and has direct authority over OFHEO in the exercise of its safety and soundness duties. HUD does not. By statute, Congress has mandated that OFHEO's safety and soundness determinations must be made independently of HUD.
To ensure that the GSEs have appropriate financial oversight and are held accountable to their public mission, the administration supports strengthening the powers of the GSEs' regulator. Doing so would make the regulator more comparable to the stature, powers, authority, and resources of other financial regulators charged with safety and soundness oversight. Such a concept has worked well for financial regulators in other instances, including the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
Currently, safety and soundness regulation is divided, with new program approval authority at HUD and financial oversight at OFHEO. It is the position of the administration that both elements of safety and soundness regulation need to be consolidated in a single regulator.
As secretary Snow noted, the administration considers it appropriate to transfer authority over new program approval from HUD to a new, strengthened regulator. HUD supports transferring and strengthening such authority to include review of all activities, new and ongoing. Such changes will consolidate and enhance the regulator's oversight responsibility, and increase investor confidence in the GSEs.
As part of this transfer, the administration is also proposing that the HUD secretary continue to be consulted on new activities requested by the GSEs. Many new activities directly impact the mortgage and housing markets, where HUD has substantial expertise. This makes it essential that such consultation take place.
While safety and soundness regulation should be exercised by a single, independent regulator, the administration strongly supports retaining another core element of the GSEs' charter - the housing goals - at HUD.
Congress established Fannie Mae and Freddie Mac to provide market liquidity and to facilitate the financing of affordable housing for low- and moderate-income families. Congress also mandated that the HUD secretary set housing goals to ensure that those needs are met. The affordable housing goals were created to ensure the GSEs are serving individuals in those communities that are most in need.
These goals direct the GSEs to serve low- and moderate-income families and provide funding in underserved areas, such as central cities and rural areas. A third goal directs the GSEs to finance housing for very low and low-income families.
Today, the low- and moderate-income housing goal requires that at least half of all Fannie Mae and Freddie Mac mortgage purchases benefit families in this income bracket. As the president's budget noted in February, numerous HUD studies and independent analysis have shown that the GSEs have historically lagged the primary market, instead of led it, with respect to funding mortgage loans for low-income and minority homebuyers.
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