[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                       THE TREASURY DEPARTMENT'S
                       VIEWS ON THE REGULATION OF
                    GOVERNMENT SPONSORED ENTERPRISES

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 10, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-51



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          CHARLES A. GONZALEZ, Texas
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California                 HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin                KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania      JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona             STEVE ISRAEL, New York
VITO FOSSELLA, New York              MIKE ROSS, Arkansas
GARY G. MILLER, California           CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania        JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia  JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota           ARTUR DAVIS, Alabama
TOM FEENEY, Florida                  RAHM EMANUEL, Illinois
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
TIM MURPHY, Pennsylvania              
GINNY BROWN-WAITE, Florida           BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 10, 2003...........................................     1
Appendix:
    September 10, 2003...........................................    49

                               WITNESSES
                     Wednesday, September 10, 2003

Martinez, Hon. Mel, Secretary, Department of Housing and Urban 
  Development....................................................    13
Snow, Hon. John W., Secretary, Department of the Treasury........    10

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    50
    Baca, Hon. Joe (with attachments)............................    52
    Baker, Hon. Richard H........................................    59
    Davis, Hon. Artur............................................    61
    Feeney, Hon. Tom.............................................    62
    Gillmor, Hon. Paul E.........................................    63
    Gutierrez, Hon. Luis V.......................................    64
    Hinojosa, Hon. Ruben.........................................    65
    Kanjorski, Hon. Paul E.......................................    66
    Miller, Hon. Gary G..........................................    67
    Royce, Hon. Edward R.........................................    68
    Martinez, Hon. Mel...........................................    69
    Snow, Hon. John W............................................    73

              Additional Material Submitted for the Record

Snow, Hon. John W.:
    Written response to questions from Hon. Joe Baca.............    86
    Written response to questions from Hon. Ginny Brown-Waite....    82
    Written response to questions from Hon. Katherine Harris.....    82
    Written response to questions from Hon. Barbara Lee..........    80
    Written response to questions from Hon. Brad Sherman.........    85
    Written response to questions from Hon. Nydia M. Velazquez...    83


                       THE TREASURY DEPARTMENT'S

                       VIEWS ON THE REGULATION OF

                    GOVERNMENT SPONSORED ENTERPRISES

                              ----------                              


                     Wednesday, September 10, 2003

             U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 10:06 a.m., in Room 
2128, Rayburn House Office Building, Hon. Michael G. Oxley 
[chairman of the committee] presiding.
    Present: Representatives Oxley, Leach, Baker, Bachus, 
Castle, Royce, Lucas, Ney, Kelly, Paul, Gillmor, Manzullo, Ose, 
Biggert, Toomey, Shays, Shadegg, Miller, Hart, Capito, Tiberi, 
Kennedy, Feeney, Hensarling, Garrett, Murphy, Brown-Waite, 
Barrett, Harris, Renzi, Frank, Kanjorski, Waters, Sanders, 
Maloney, Gutierrez, Velazquez, Watt, Hooley, Carson, Sherman, 
Meeks, Lee, Inslee, Moore, Gonzalez, Ford, Hinojosa, Lucas, 
Crowley, Israel, Ross, McCarthy, Baca, Matheson, Miller, and 
Scott.
    The Chairman. The committee will come to order.
    The committee is meeting today to hear from the Secretary 
of Treasury and the Secretary of Housing and Urban Development 
regarding their views on the regulation of government sponsored 
enterprises. Pursuant to rule 3(f)(2) of the rules of the 
Committee on Financial Services for the 108th Congress, the 
Chair announces he will limit recognition for opening 
statements to the Chair and ranking minority member of the full 
committee and the Chair and ranking minority member of the 
Subcommittee on Capital Markets, Insurance and Government 
Sponsored Enterprises, and the Subcommittee on Housing and 
Community Opportunity, or their respective designees, for a 
period not to exceed 22 minutes, evenly divided between the 
majority and the minority.
    Prepared statements of all members will be included in the 
record, and the Chair now recognizes himself for an opening 
statement.
    I want to first welcome Secretary Snow and Secretary 
Martinez back to the Financial Services Committee this morning 
to discuss the regulation of the housing government sponsored 
enterprises, or GSEs, and thank you both for joining us today. 
It is my understanding the Treasury Department and the 
Department of Housing and Urban Development have been working 
closely together with the President to develop a proposal to 
reform GSE regulation. I am looking forward to hearing your 
insights and recommendations.
    The U.S. Housing market has been the engine of growth for 
the domestic economy over the past several quarters. Despite a 
slowdown in nearly every economic sector, the housing market 
has remained vibrant. Now that an economic recovery seems to be 
on the horizon, it is important that we act in a reasonable 
manner to improve the regulation of the GSEs while at the same 
time ensuring that we do not have an adverse impact on housing 
or the equity markets.
    Ultimately, it is the U.S. Taxpayers and homeowners we must 
keep in mind as we seek to improve the current state of 
regulation. I hope to work in a bipartisan manner to ensure 
that any action this committee undertakes has broad support as 
well as input for the Administration.
    The housing GSEs were established to provide liquidity to 
the housing market and to facilitate access to affordable 
homes. These entities have been extremely successful in this 
role and have enabled millions of Americans to achieve 
homeownership. Their operations have been the model for housing 
finance around the world.
    However, the GSEs have developed over the years into much 
more sophisticated entities than originally envisioned. They 
have become highly complex financial institutions with 
obligations in the trillions of dollars. As such, it is 
important that the GSEs have a robust and sophisticated 
regulator to ensure that they continue to operate in a safe and 
sound manner.
    A strong regulator will send a signal to the markets that 
these entities have solid management practices. Confidence will 
be restored in the GSEs, and they will be able to get back to 
their important work without the distractions that have been 
plaguing them over the past several months.
    This is not to say that this committee will not continue to 
actively oversee their operations. If there is a change in the 
regulatory structure of the GSEs, this committee will have to 
closely monitor the development and actions of the regulator.
    In my opinion, the current regulators do not have the tools 
or the mandate to adequately regulate these enterprises. We 
have seen in recent months that mismanagement and questionable 
accounting practices went largely unnoticed by the Office of 
Federal Housing Enterprise Oversight. These problems only came 
to light when the company announced them on their own accord. 
It is encouraging to know that the boards of these companies 
are active and engaged, seeking to operate in the best interest 
of their shareholders. However, these irregularities which have 
been going on for several years should have been detected 
earlier by the regulator.
    I would like to thank subcommittee Chairman Baker for his 
hard work in reviewing the GSEs and highlighting for the 
committee the need for increased regulatory oversight of these 
entities. He has demonstrated true leadership on this important 
subject matter. As we move forward, I expect to draw on his 
expertise in this area.
    Secretary Snow and Secretary Martinez, I do indeed look 
forward to your testimony and welcome you back.
    And I now recognize the ranking member, the gentleman from 
Massachusetts, Mr. Frank.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 50 in the appendix.]
    Mr. Frank. Thank you, Mr. Chairman.
    I appreciate hearing from the two Cabinet secretaries, but 
I would say at the outset that before we move on any 
legislation, I would hope we would have some additional 
hearings. And, in particular, I think it is important that the 
variety of groups in our country who care about housing be 
invited, because that is my major focus here, as it has been 
during my service on this committee.
    I want to begin by saying that I am glad to consider the 
legislation, but I do not think we are facing any kind of a 
crisis. That is, in my view, the two government sponsored 
enterprises we are talking about here, Fannie Mae and Freddie 
Mac, are not in a crisis. We have recently had an accounting 
problem with Freddie Mac that has led to people being 
dismissed, as appears to be appropriate. I do not think at this 
point there is a problem with a threat to the Treasury.
    I must say we have an interesting example of self-
fulfilling prophecy. Some of the critics of Fannie Mae and 
Freddie Mac say that the problem is that the Federal Government 
is obligated to bail out people who might lose money in 
connection with them. I do not believe that we have any such 
obligation. And as I said, it is a self-fulfilling prophecy by 
some people.
    So let me make it clear, I am a strong supporter of the 
role that Fannie Mae and Freddie Mac play in housing, but 
nobody who invests in them should come looking to me for a 
nickel--nor anybody else in the Federal Government. And if 
investors take some comfort and want to lend them a little 
money and less interest rates, because they like this set of 
affiliations, good, because housing will benefit. But there is 
no guarantee, there is no explicit guarantee, there is no 
implicit guarantee, there is no wink-and-nod guarantee. Invest, 
and you are on your own.
    Now, we have got a system that I think has worked very well 
to help housing. The high cost of housing is one of the great 
social bombs of this country. I would rank it second to the 
inadequacy of our health delivery system as a problem that 
afflicts many, many Americans. We have gotten recent reports 
about the difficulty here.
    Fannie Mae and Freddie Mac have played a very useful role 
in helping make housing more affordable, both in general 
through leveraging the mortgage market, and in particular, they 
have a mission that this Congress has given them in return for 
some of the arrangements which are of some benefit to them to 
focus on affordable housing, and that is what I am concerned 
about here. I believe that we, as the Federal Government, have 
probably done too little rather than too much to push them to 
meet the goals of affordable housing and to set reasonable 
goals. I worry frankly that there is a tension here.
    The more people, in my judgment, exaggerate a threat of 
safety and soundness, the more people conjure up the 
possibility of serious financial losses to the Treasury, which 
I do not see. I think we see entities that are fundamentally 
sound financially and withstand some of the disastrous 
scenarios. And even if there were a problem, the Federal 
Government doesn't bail them out. But the more pressure there 
is there, then the less I think we see in terms of affordable 
housing.
    I want Fannie Mae and Freddie Mac to continue as government 
sponsored enterprises with some beneficial arrangement with the 
Federal Government in return for which we get both the general 
lowering of housing costs and some specific attention to low-
income housing. In particular, I am concerned right now that 
there has been--and it has been raised by Fannie Mae, it has 
been raised by one of the rating agencies that have been 
critical of the Federal Home Loan Bank--manufactured housing.
    Manufactured housing is a very important housing resource 
for low- and moderate-income people. You talk about increasing 
homeownership among low- and moderate-income people, and 
disproportionately, if you look at the increases in 
homeownership, it has come with their ability to get 
manufactured housing; and I do not want to see Fannie and 
Freddie pushed in the direction of being tougher on 
manufactured housing. And many of us will be in touch with 
Secretary Martinez to see how we can improve this.
    I have talked to my colleagues in the Congressional Black 
Caucus, and the Blue Dogs. This is a very important and, I 
think, somewhat underrated form of housing. I think we now see 
pressure on it that is generated in part by exaggerated fears 
of a financial crisis.
    So I am prepared to look at possibilities here, but in 
particular--and this is the major point I want to make; I saw 
this in the letter from the homebuilders--I do not want to see 
any lessening of our commitment to getting low-income housing.
    And here is my concern: If you move the regulator to 
Treasury and you leave HUD with the mission, I am not sure that 
it isn't ``mission impossible,'' or at least implausible. What 
is HUD going to do, yell at them? I mean, if all the regulatory 
authority and all the clout is over in Treasury, what is left 
in HUD? And I noticed that the homebuilders raised that.
    So my threshold question is, if you move this regulator to 
Treasury, if you bifurcate in terms of the Cabinet departments 
the responsibility for the low-income housing mission, 
including manufactured housing--very important to me, as I 
said--and other forms of housing, if you bifurcate that, what 
real strength is there left behind the mission if most of the 
regulation and most of the teeth--I guess if you put all the 
teeth from Treasury, having HUD gum them into doing more low-
income housing doesn't strike me as the ideal situation.
    And that is why I say, Mr. Chairman, in closing, that as we 
proceed on this, I would hope we would have a day when groups, 
a range of groups that are concerned with housing, could 
specifically address that. Thank you.
    The Chairman. I think the gentleman makes a good point, and 
we certainly will address that.
    The gentleman from Louisiana, the chairman of the Capital 
Markets, Insurance and GSEs Subcommittee.
    Mr. Baker. Thank you, Mr. Chairman. I want to express my 
appreciation to you for your continuing leadership on this most 
difficult issue. Without your commitment, I am fairly confident 
we would not be in a hearing room today to discuss potential 
regulatory reform. So my deep appreciation to you for this.
    To Secretary Martinez and Secretary Snow, your willingness 
to participate here today is very warmly received. And let me 
just make a personal observation. Having worked with various 
folks over time, I have not enjoyed the professional leadership 
and responsiveness to what is a very difficult and 
controversial issue with more capability than you two gentlemen 
have exhibited.
    There was a prior occasion, Under Secretary Gensler, during 
the Clinton administration, testified and took a very brave 
stand on issues that led unfortunately to significant market 
disruption the following day. It is my opinion that given the 
way in which you have come at this issue, working now for many 
months to come to the best study positions that you could 
offer, that much of what you have in the testimony today 
reflects prior legislative approaches. Much of what is in 2575 
is addressed in the testimony, and I just want to publicly 
commend both of you as public servants for the demonstrated 
leadership you have exhibited.
    I want to briefly and very briefly just characterize why we 
are here in light of the ranking member's comments as to the 
necessity for this hearing today. Because many members would 
not want to sit down and read the history of Fannie or Freddie 
as light reading one evening, it was first created, Fannie, by 
the FHA Administrator back in 1938, but only authorized at that 
time to acquire FHA-insured mortgage loans. It was years later 
they were then expanded to acquire VA-insured mortgage loans.
    It wasn't until 1970, 1970, that Freddie Mac was created 
and that Fannie and Freddie were both given the ability to 
acquire conventional mortgages before they were really on the 
road to the big time.
    There is one other additional historic period important to 
reflect on because of the view--what are we worried about--
there is no problem, nothing bad can happen. It goes to the 
period when David Maxwell assumed the role as CEO of Fannie Mae 
in 1981. It is just instructive.
    On that day, Fannie was losing a million dollars a day. 
They had $56 billion of home mortgages that were under water. 
Now, it wasn't of their own making. There were national 
economic circumstances no one could have predicted, but the 
fact is, they were in trouble. Had it not been for creative 
government accounting and the leadership of David Maxwell, 
Fannie Mae might not be with us today.
    More recent history has given us another unexpected and 
unfortunate lesson. If I had to construct a list of the 
potential concerns, managerial risk at Freddie Mac would have 
probably been 99 on a list of 100. Needless to say, we were all 
shocked to see the disclosure of these events of corporate 
governance mismanagement. These institutions had always been 
held up as the model for others to emulate, and appropriately 
so.
    The point to be made about these two brief scenarios of 
history is that the GSEs are just corporations. It is difficult 
to believe they are just like every other American corporation, 
but they are shareholder owned, good old American corporations, 
built in pursuit of profit, subject to the same earnings 
pressures as any other corporation. They are not infallible, 
although they have enjoyed acknowledged success.
    Given the environment and the concerns of the committee and 
this Congress about the reform of corporate governance, how 
appropriate is it for us in this environment to reflect upon 
these enterprises and determine how we can enhance safety and 
soundness? In recognizing there may be a potential for loss, we 
must also recognize that these individual institutions are 
unusual in that they have a direct responsibility between the 
losses of the enterprises and the taxpayer. Do not forget that 
a GSE model is unique. If they make a profit, they get to keep 
it. If they lose money, the taxpayer gets the right to pay it 
off.
    As of the last quarter of 2002, the combined outstanding 
debt of Fannie and Freddie was $1.99 trillion, not an 
insignificant number; and to appreciate it in the current 
context, consider the following remarks issued yesterday by the 
International Monetary Fund from its semiannual global 
financial stability report, released just yesterday: Recent 
developments have highlighted the extremely large, highly 
leveraged nature of these enterprises and the risks they are 
managing.
    Now, inappropriate or not, I find the IMF's concern about 
capital adequacy rather unique, but if they now have this 
concern, certainly the Congress should share it. To provide any 
level of assurance to taxpayer protection, we must have world-
class regulatory capability.
    Let me say in defense of OFHEO, it has been dramatically 
underfunded since its creation in 1992, and this lack of 
support translates into lack of resources and capabilities to 
analyze the world's most sophisticated financial institutions. 
The regulator has not only been outmanned, it has been 
outlobbied. But those observations are not sufficient to 
explain why OFHEO has taken 10 years to develop a capital 
stress test and being underfunded does not explain how a 
glowing report of Freddie's operations was released only hours 
before the managerial upheaval that followed.
    This is not world-class regulatory work. There are too many 
unanswered questions, the stakes, too high. It is up to the 
committee to take action needed to get appropriate answers. 
Taxpayers need to be assured. Potential homeowners need to have 
access to affordable homeownership opportunities. And contrary 
to the view of many, this effort will lead to enhanced mission 
compliance and opportunities for low-income and affordable 
housing.
    I am of the opinion, and have been of the opinion, these 
enterprises do not meet the satisfactory minimum level in 
providing homeownership opportunities to minorities and low-
income individuals. We cannot let protest in the past keep us 
from doing what is right in the present. It is time we create a 
strong, independent regulator, independently funded with all 
the powers necessary to take on the task.
    I believe the Secretaries' testimony is pivotal in setting 
out the initial step the committee must take. It is not time 
for additional reflection. I have been criticized in the past 
for having too many hearings and recommended legislative 
approaches. Now it is time to act and put this chapter behind 
us and move on to doing what is right for our American economy.
    Thank you, Mr. Chairman, for your courtesy.
    The Chairman. The gentleman's time has expired.
    The gentleman from Pennsylvania, ranking member of the 
subcommittee.
    Mr. Kanjorski. Mr. Chairman, before we hear from the 
Administration on the need to alter the current regulatory 
system for government sponsored enterprises, I feel it is very 
important to outline my views on these matters for our two 
distinguished witnesses who are appearing before us today.
    As I said in our very first hearing on GSE regulation in 
March 2000, we need to have strong, independent regulators that 
have the resources they need to get the job done. I continue to 
support strong GSE regulation. A strong regulator, in my view, 
will protect the continued viability of our capital markets, 
promote confidence in Fannie Mae and Freddie Mac, insure 
taxpayers against systemic risk, and expand housing 
opportunities for all Americans.
    To ensure that we have strong GSE regulation, I further 
believe that any further legislative reform efforts should 
adhere to several principles. First, a strong regulator must 
have a single leader for a set term with sole responsibility 
for making decisions. In order to conduct robust supervision, a 
strong regulator must also have a funding stream separate and 
apart from the annual appropriations process and without 
improper administrative interference. Moreover, a strong 
regulator must have robust supervisory and enforcement powers.
    Accordingly, some have suggested that we should model GSE 
regulatory authority after those of other financial regulators. 
While these proposals have merit, we must determine the 
applicability and appropriateness of providing these banking 
standards to GSE before proceeding.
    In order to maintain credibility, a strong regulator must 
additionally have genuine independence. Unless I am convinced 
otherwise, such independence must consist of complete autonomy 
from the enterprises. It must also include sufficient 
protection from outside special interest groups. It must 
further have substantial freedom from political interference.
    The last point is especially important. As a result of my 
experience during the savings and loan bailout, I will approach 
any proposal to assert general oversight or supervisory 
controls by the Administration or the Congress over any GSE 
regulator with great skepticism. We must not allow politics to 
again cause systemic implications to our economy. Because our 
housing marketplace is one of the most important sectors in our 
struggling economy, we must also tread carefully on our 
forthcoming congressional examinations.
    In short, we have a delicate balancing act ahead of us as 
we work to develop any legislation to modify the regulation of 
GSEs. We must focus our work on regulatory proposals and not 
make fundamental changes in ways in which GSEs operate to their 
charter or to their mission. It is also my hope that we will 
develop a balanced bipartisan plan of action for addressing 
these issues.
    In closing, Mr. Chairman, I commend you for your leadership 
in these matters. I also look forward to working with you in a 
judicious and objective manner in order to ensure that we do 
not upset our securities markets or raise homeownership costs 
in the weeks ahead.
    The Chairman. The gentleman yields back.
    The Chair is now pleased to recognize the chairman of the 
Housing and Community Opportunity Subcommittee, the gentleman 
from Ohio, Mr. Ney.
    Mr. Ney. Thank you, Mr. Chairman. I want to thank you, Mr. 
Chairman, for the hearing. I appreciate the opportunity. I will 
make this a brief opening statement because I know you want to 
go on with the witnesses.
    I also want to start by thanking Secretary Martinez and 
Secretary Snow for being here. I know you have busy schedules, 
and as you know, this is an important issue.
    As chairman of the subcommittee, I have a keen interest in 
the strength of our Nation's mortgage market as our members do 
on both sides of the aisle.
    GSE regulation is an incredibly important issue for all 
Americans. The United States mortgage and credit markets are 
the envy of the world. The mortgage market has single-handedly 
kept the economy afloat during the recent economic times. I 
know we are also aware of that. I think that a consensus has 
emerged that it is time to create a new safety and soundness 
regulator for Fannie Mae and Freddie Mac at the Treasury 
Department.
    The important role that GSEs play in the capital markets 
and the possible risks they could pose to the financial system, 
reconstituting a safety and soundness regulatory scheme, 
mechanism, under Treasury I believe is a prudent and necessary 
step. Such a move would send an important signal that we 
understand the importance of GSEs in the secondary mortgage 
markets in maintaining a stable economy and providing 
affordable housing to all Americans.
    While there is a consensus regarding the safety and 
soundness regulator, I am anxious to hear from our witnesses 
today on what they believe should be done with HUD's oversight 
responsibilities for the important housing mission of the 
enterprises, including approval authority for any new program 
and enforcement of compliance with affordable housing goals. I 
want to commend HUD for all their diligence on this issue since 
I have been involved with working with HUD.
    I will be asking some specific questions on the issues, but 
I would like to make one personal observation. I think it is 
important to permit the housing GSEs to have sufficient 
flexibility to adapt to a changing mortgage market. We know 
today how things change quickly in the United States. The 
liquidity that Fannie Mae and Freddie Mac provide to the market 
should not be compromised by unnecessary government regulation.
    First, I believe that there are several important 
components that are integral to providing enhanced regulations 
for GSEs while not impeding their ability to support affordable 
housing in America. For example, I think it is imperative for 
HUD to continue to have an important role as it relates to the 
mission's charter and affordable housing goals of Fannie Mae 
and Freddie Mac; that role of oversight will be good for 
consumers, good for the Nation, and good for housing.
    I also have no doubt that the Treasury Department is 
unparalleled in its ability to manage safety and soundness for 
these corporations. However, Congress has traditionally charged 
HUD with the job of supervising affordable and minority housing 
in our country, and I believe that these goals can be reached 
amicably. I believe the White House is going in the right 
direction, as are the committee and the members, and they will 
be able to express their views on the intricate details of how 
this bill gels through.
    I am also interested to hear what our witnesses think 
should be done regarding the capital requirements for Freddie 
Mac and Fannie Mae, if anything at all. Personally, I believe 
the minimum requirements Congress has mandated for GSEs have 
done a good job of setting a strong safety and soundness 
standard. I think it would be a mistake for this committee to 
change those requirements into a regulatory reform, massive 
bill. Likewise, I think we should allow the newly required 
risk-based capital requirement to take hold before we begin 
questioning it. I know there are many critics of OFHEO, 
obviously, and its risk-based capital regulation; however, we 
should allow a decent amount of time to evaluate its effects 
before we begin to completely dismantle it.
    The Department of Housing and Urban Development must 
maintain its role of leadership in promoting housing, as it has 
so effectively done under Secretary Martinez. This agency has 
an important role in ensuring that our Nation is focused on 
providing decent, affordable housing for all Americans. We must 
respect that mission.
    Mr. Chairman, I believe you are on the right track. I give 
you credit for this hearing, and I know that we need to do the 
job right versus just doing the job fast. Thank you.
    The Chairman. The gentleman yields back.
    The gentlelady from California, the ranking member of the 
subcommittee.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Secretary Martinez, I am pleased that you are here, and I 
think that this is a most important hearing. I am told that 
there are some other members who have been talking about having 
more hearings on this subject and not rushing to judgment in 
any way about these proposed changes.
    Secretary Martinez, I oppose the transfer of program 
approval from HUD to Treasury and I oppose any expansion of new 
approval to include so-called ``new activities.'' it is 
important that the mission of affordable housing for low- and 
moderate-income people stay with HUD, without giving the 
Secretary any additional authority over the program activity 
business process of Fannie Mae and Freddie Mac.
    Under current law the GSEs must submit a new program 
approval request to HUD if the initiative is significantly 
different from a program that has been previously approved or 
it is an activity in which the GSEs have not previously 
engaged. Section 108 of H.R. 2575, Mr. Baker's bill, would give 
HUD the ability to micromanage the GSEs. The process can only 
be intended to slow down the ability of the enterprises to 
partner with lenders to bring new mortgage products to market, 
including products that assist the disabled, provide needed 
housing rehabilitation and provide down payment assistance. 
Banks are not subject to such burdensome processes.
    Fannie Mae has worked with lenders to expand access to low 
down payment mortgages and to extend financing to those with 
imperfect credit. These innovations are possible because they 
are not stifled by an additional layer of government approval.
    This morning we have the opportunity to establish the 
framework of how the government sponsored enterprises, the 
Federal National Mortgage Association, Fannie Mae, and the 
Federal Home Loan Mortgage Corporation, Freddie Mac, will be 
regulated. Fannie Mae, as the number one provider of mortgage 
funds to low-income families, has been a strong and consistent 
partner in providing homeownership. Last year they served 2.9 
million families in their affordable housing goals, and 1.8 
million families were served in their underserved areas, 
geographically targeted goals.
    Nothing has happened with Freddie Mac that has raised any 
questions about the mission or charters of the two companies. 
Given housing's importance to the economy and the importance of 
homeownership to America's families and communities, there 
should be no interest in changing the GSE's mission.
    Mr. Chairman, thank you. I yield back.
    The Chairman. The gentlelady yields back.
    We now turn to our distinguished panel and let me say at 
the outset, it is rare that any committee has two distinguished 
Secretaries from the Cabinet testify, and we are honored to 
have both of you here today. And also I think you can tell by 
the attendance by the members that we have a great deal of 
interest in this entire issue, and for that I am personally 
thankful to the members.
    And, Secretary Snow, we will begin with your testimony. 
Once again welcome back to the committee. You need to turn your 
mike on.

STATEMENT OF HONORABLE JOHN W. SNOW, SECRETARY, U.S. DEPARTMENT 
                        OF THE TREASURY

    Secretary Snow. See, HUD and Treasury are already working 
in a full state of cooperation.
    Thank you very much, Mr. Chairman, Ranking Member Frank, 
and members of the committee for this invitation to Secretary 
Martinez and me to appear before you today.
    This committee has demonstrated a strong record of interest 
in effective supervision of and regulation of the government 
sponsored entities, as well as in affordable housing and a 
strong, healthy housing market. There is general recognition 
that the supervision, the supervisory system for housing-
related government sponsored entities, neither has the tools 
nor the stature today to deal effectively with the current 
size, complexity and importance of these entities which over 
the last decade or so have become among the largest and most 
far-reaching entities on the American financial scene.
    As we attempt to remedy this situation, we must be mindful 
that we have two corresponding objectives that should guide us: 
first, a sound and resilient financial system; and second, 
increased homeownership opportunities for less-advantaged 
Americans.
    I am here today to outline the Administration's 
recommendation for important improvements that we think can be 
made to the oversight of our housing finance system. Secretary 
Martinez will discuss in particular the measures that the 
Administration would like to see implemented to reinforce and 
strengthen the focus on the objective of increasing ownership 
opportunities.
    First, let me outline the proposal itself, our 
recommendation. What is the Administration recommending? Well, 
we recommend that Congress enact legislation to create a new 
Federal agency to regulate and supervise the financial 
activities of our housing-related GSEs. Housing finance is so 
important, it is so far reaching, has such significance to the 
national economy that we need a strong, world-class regulatory 
agency to oversee the prudential operations of the GSEs and the 
safety and the soundness of their financial activities--
consistent, however, with maintaining healthy national markets 
for housing finance, which always has to be a priority.
    Such legislation should fulfill this underlying purpose and 
not merely be an exercise in moving existing agencies from one 
part of the government to another part of the government. In 
other words, we are looking for a value-added proposal here 
that enables the new entity to be located within a Cabinet 
agency which will give it more heft, more significance and more 
expertise and better policy guidance.
    We should keep our eye on the crucial task of getting the 
regulatory organization right. We think that is the key thing 
here. In addition to the housing goals, which Secretary 
Martinez will discuss, the legislative objective should be to 
create a strong, credible and well-resourced supervisor with 
all the powers needed to do the job.
    Let me turn now to the issue of what those powers of the 
new agency should be. As we see it, this new agency's power 
should be comparable in scope and in force and in effectiveness 
to those of other world-class financial supervisors, fully 
sufficient to carry out the agency's mandate. What does this 
mean? Well, as we see it, it means that the agency should have 
broad, general, regulatory, supervisory and enforcement 
authority with respect to the enterprises. In my written 
testimony I give a detailed description of those powers.
    Another key issue with respect to financial regulation of 
the GSEs is capital and how capital will be treated. Capital, 
of course, is the fundamental element of the financial 
condition of an enterprise and the capital standards should not 
become the subject of frequent change.
    But having said this, I am in no way proposing a moratorium 
on making any adjustments to the risk-based capital standards. 
The existing statutes place a clear responsibility on GSE 
supervisors to ensure that each GSE retains adequate capital to 
support its risks and to give supervisors the power and the 
duty to require capital changes as risks change. We would fully 
expect the supervisors to make full and proper use of this 
authority as any need arises.
    At the same time, we feel that there is a need for the new 
agency to have even greater flexibility, even more authority to 
adjust risk-based capital standards for the GSEs than is 
provided under current law. Broad authority over capital 
standards and the ability to change them as appropriate are of 
vital importance to a credible, world-class financial 
regulator. Capital standards need to be flexible enough to 
employ the best regulatory thinking, conscious of the 
enterprise' own measures of risk, and adequate to ensure that 
the enterprises operate in a safe and sound manner with capital 
and reserves sufficient to support the risks that arise in 
their business. We believe the legislation should provide the 
new agency with this more ample and more flexible authority.
    Where should the new agency be located? The administration 
is prepared to consider putting the new agency within a Cabinet 
department if, Congress considers the additional benefits of 
the stature and the policy support that can come with that to 
be valuable. Any such arrangement would need to protect the 
independence of the agency over specific matters of 
supervision, enforcement and access to the Federal courts.
    But it is our view that if real value is to be provided by 
the Cabinet agency by placing the new regulator within a 
Cabinet department, then we need to be able to draw upon the 
resources of that department for policy guidance and for 
expertise. At a minimum, the new agency should be required to 
clear new regulations and congressional testimony through the 
department. If that combination of operational independence and 
policy oversight is provided in the legislation, the 
Administration would be willing to support putting that new 
agency in the Department of the Treasury.
    Another subject of enormous importance with respect to the 
GSEs, of course, is corporate governance. Corporate governance, 
good corporate governance, as we have come to recognize, 
requires that there be great clarity that the people running 
large companies are there to serve the interests of the 
stockholders and that their incentives and loyalties be aligned 
with those of the stockholders. The principle here, of course, 
is that one man cannot serve two masters simultaneously.
    Freddie Mac and Fannie Mae are large, experienced publicly 
traded enterprises that have grown significantly and taken 
important places in our capital markets. Reflecting on that 
fact, we would recommend that the Congress consider whether the 
statutory requirement for Presidential appointment of members 
to these publicly traded GSE boards of directors serves a 
useful purpose anymore; and if you are so disposed, we would 
support that--that is, the Administration would support their 
elimination, as well.
    The question arises, how broadly should these new 
regulatory powers be applied to the GSEs? Is it all GSEs or is 
it just Fannie Mae and Freddie Mac?
    I want to make it clear that I have not limited myself in 
my remarks to one group of housing GSEs. The importance of our 
housing finance markets requires that all of the housing GSEs 
be included in a system of world-class supervision. Therefore, 
we see the need for and the desirability of the Federal Home 
Loan Banks' being under such a regime, just as we see it 
desirable for Freddie Mac and for Fannie Mae. However, we 
recognize that while broad-based support appears to exist for 
action on how to provide that supervisory system for Fannie and 
Freddie, a similar consensus may not exist with respect to the 
Federal Home Loan Banks. We would, however, be willing to and 
would look forward to working with Congress, the Home Loan 
Banks and other interested parties to see if a resolution can 
be achieved on this issue as well.
    So, in conclusion, where are we? Let me review once again 
our main purpose in being here this morning. It is to discuss 
how best to promote the strength and the resilience of our 
housing finance markets in order to increase, make further 
progress in advancing homeownership throughout the Nation.
    The housing-related GSEs were created by Congress to assist 
in that very mission. Our aim must be to give them the caliber 
of supervisor that the importance of their mission requires. In 
so doing, I am confident we will promote greater confidence in 
the marketplace among investors in these entities and thus, in 
that way, we would advance the larger goal of homeownership.
    Thank you very much.
    The Chairman. Thank you, Mr. Secretary.
    [The prepared statement of Hon. John W. Snow can be found 
on page 73 in the appendix.]
    The Chairman. Secretary Martinez.

 STATEMENT OF HONORABLE MEL MARTINEZ, SECRETARY, DEPARTMENT OF 
                 HOUSING AND URBAN DEVELOPMENT

    Secretary Martinez. Chairman Oxley, it is a real pleasure 
to be with you today, and Ranking Member Frank and other 
members of the committee; and I really am delighted to have an 
opportunity to join my colleague, John Snow, Secretary of the 
Treasury, to discuss these important matters relating to GSE 
oversight and regulation.
    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 interest: the 
Administration, the 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 housing sector directly accounts for about 14 
percent of the Nation's total gross domestic product and the 
housing market actively drives closely related components of 
the economy as well.
    The GSEs play an integral role in our Nation's housing 
finance system by expanding the availability of mortgage 
credit. The liquidity and stability they provide have helped 
buoy the Nation's economy. Because of the housing GSEs' impact 
on the economy, it is critical that we ensure their safety and 
their soundness.
    The Office of Federal Housing Enterprise Oversight was 
established following the thrift crisis as an independent 
safety and soundness regulator. It was placed within HUD, and 
it was essentially to regulate Fannie and Freddie Mac. There is 
a misconception that HUD controls and has direct authority over 
OFHEO in the exercise of safety and soundness and 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 power 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 Comptroller of the 
Currency and the Office of Thrift Supervision.
    Currently, safety and soundness regulation is divided, with 
new program approvals 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; and 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 the 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 goals require 
that at least half of all of Fannie Mae and Freddie Mac's 
mortgage purchases benefit families in those income brackets. 
But as the President's budget noted in February, numerous HUD 
studies and independent analyses have shown that the GSEs have 
historically lagged the primary market, instead of led it, with 
respect to funding mortgages loans for low-income and minority 
households. The GSEs have also accounted for a relatively small 
share of first-time minority homebuyers.
    HUD is the appropriate agency to develop and enforce the 
housing goals. Institutionally our mission is devoted to 
furthering the goal of affordable housing and homeownership, 
and HUD has the most expertise in this area. Furthermore, the 
housing industry looks to HUD as the agency in which this 
authority should reside. Therefore, to strengthen HUD's housing 
goal authority, the Administration considers it appropriate to:
    Number one, create a new GSE housing office within HUD, 
independently funded by the GSEs to establish, maintain and 
enforce the housing goals;
    Number two, grant HUD new administrative authority to 
enforce its housing goals;
    Thirdly, to institute enhanced civil penalties for failure 
to meet the housing goals. Explicitly provide that the GSEs act 
to increase homeownership; and expand authority to set housing 
goals and subgoals beyond the three currently established for 
moderate-income, geographic area, and special affordable 
housing.
    Let me stress that we believe such a comprehensive change 
to the regulatory structure will strengthen the confidence of 
all GSE stakeholders. Investors will be better protected under 
a regulatory system that empowers the regulator to do the job 
we expect of them, and the American taxpayers will ultimately 
benefit.
    Secretary Snow and I look forward to working with the 
committee members to strengthen oversight of the housing GSEs, 
to ensure that they are in every way meeting their public 
purpose and that homeownership continues to be an affordable 
option for American families.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Secretary.
    [The prepared statement of Hon. Mel Martinez can be found 
on page 69 in the appendix.]
    The Chairman. And to both of you, we thank you for your 
excellent testimony and your continued cooperation in this 
endeavor. And, indeed, it is an endeavor that will be 
successful only if we have an opportunity to work together to 
craft bipartisan legislation that deals with the goals, I think 
that all of us share, in terms of a world-class regulator for 
the GSEs, as well as a continued commitment on the part of HUD 
towards low-income housing.
    And I suspect that the turnout today from the members 
indicates that strong interest, and you both will be focal 
points moving forward to get legislation passed.
    I was reading a recent brokerage firm report that indicated 
that Congress' efforts to strengthen the regulator for the GSEs 
will ultimately be looked on favorably by the capital markets, 
and I think both of you mentioned that a first-class regulatory 
structure is in the best interest of both the GSEs in this case 
and the markets, and that ultimately it would appear, based on 
this study, that that is the case. And that is clearly our 
effort.
    Secretary Martinez, you mentioned you were talking about 
housing goals within HUD. How much of that can be achieved 
through the regulatory structure and how much has to be 
achieved by legislation?
    Secretary Martinez. I believe it is necessary for 
legislation to enhance the effectiveness of a regulator as it 
relates to goals. Right now, we can set goals, but we really 
need enhanced authority to enforce those goals, to enforce 
broader civil penalties so that, really, there will be teeth 
behind the goals that we set.
    We also want to make sure that we create a set of subgoals 
because, right now, the goals are a bit broad, and we want to 
make sure that by setting subgoals, we then can create the 
right regulatory framework to give some targets and also to 
have the enhanced oversight authority which would really have 
to come through legislation.
    The Chairman. So Congress would have to set up the overall 
structure of what you anticipate and then allow you to work 
within that framework?
    Secretary Martinez. Correct. And then we can have 
regulations to follow.
    The Chairman. Secretary Snow, you mentioned the potential 
of including all GSEs in the regulatory change, specifically 
the Federal Home Loan Banks.
    It has been my observation, at least at the current time, 
that there is a divided opinion among the Federal Home Loan 
Banks, in a general sense of regional difference, I guess. It 
appears that the West Coast entities appear to be a lot more 
enthusiastic about being included. In my area, in the Midwest 
and, I suspect, the South, there is far less enthusiasm.
    Is it possible during a relatively short time period of 
passing legislation that we would be able to include the 
Federal Home Loan Banks without a consensus within that 
community?
    Secretary Snow. Mr. Chairman, I doubt it. I think unless a 
consensus develops fairly quickly that we would get bogged down 
in lots and lots of time-consuming efforts that would 
jeopardize the larger objective here of putting in place that 
world-class regulator I talked about for Fannie Mae and Freddie 
Mac. So I would not personally want to see that issue get in 
the way of moving forward on legislation for which there seems 
to be pretty much broad-based support today.
    I would hope, though, that the Federal Home Loan Banks 
would caucus and would review the situation and meet with us 
and meet with Members of Congress and see if there could not be 
some resolution on that within the time frame to get this 
legislation done this year.
    The Chairman. Thank you, Mr. Secretary.
    Mr. Secretary--both of you actually--I would like you to 
indicate at least some general positions on the special 
exemptions that the GSEs currently now enjoy. Specifically, I 
think our members, and I certainly, would be interested in the 
tax status of GSEs and their exemption from registration under 
the 1933 Act.
    How does that play into what your testimony has stated and 
in terms of our trying to pass legislation?
    Secretary Snow?
    Secretary Snow. Mr. Chairman, we do not propose addressing 
those issues in this legislation. And I think the important 
focus for this legislation is that strong, effective, world-
class regulator. So it would be our view that those issues do 
not need to be addressed now.
    Some of those issues, like the 1933 Securities Act, we 
actually come down saying they should not be addressed on 
substantive grounds because we don't see the need for Freddie 
or Fannie to be put under the 1933 Act.
    The 1933 Act basically deals with fraud in the issuance of 
securities. There is no evidence of that. The SEC itself has 
indicated, I understand, that they would not want to see that 
happen because given the volume of issuances by the two major 
GSEs, they would swamp the resource base of the SEC; and there 
is no evidence of any need to deal with the fraud issue.
    So we would actually oppose putting them under the 1933 
Act.
    The Chairman. Secretary Martinez.
    Secretary Martinez. I believe Secretary Snow and I have 
concluded that the most important thing we can accomplish 
through these hearings and with the proposed legislation we 
presented today is a strengthened regulator.
    There are many other issues that could arise, and we would 
be happy to continue to see the development of legislation. But 
today, our proposal is the focus of what we recommend, and I 
think it solely focuses on a strong regulator, a combined 
regulator for all of safety and soundness, and then the 
strengthened aspects of regulation at HUD to give us the real 
tool box that we need to enforce the parts of it that would 
remain at HUD.
    The Chairman. Thank you. My time has expired.
    The gentleman from Massachusetts.
    Mr. Frank. Secretary Martinez, I was glad to hear you say 
that, and on page 3 you make some very strong statements about 
the need to enhance the Federal executive ability to impose the 
housing goals.
    Are you going to be developing specifics that give us 
these?
    Secretary Martinez. Yes, sir. We would have very specific 
recommendations----
    Mr. Frank. I think that is very important.
    Secretary Martinez. Yes.
    Mr. Frank. The problem you have is, there could be a 
tension between the Treasury worrying about safety and 
soundness and HUD worrying about affordable housing; and there 
is a tension there. One way is that if affordable housing was 
as safe and sound as everything else, we wouldn't need a 
government mandate to do it. There is a certain amount of 
greater risk. You want to minimize it. How does HUD stay equal 
in this tug-of-war?
    Secretary Martinez. Those tensions exist today, but the 
problem today is that we don't have--HUD doesn't have the 
ability to really impact the regulatory framework within OFHEO, 
while at the same time there is this perception that there is 
some oversight that the Secretary of HUD may exercise.
    Mr. Frank. I just want to tell you, I agree with the goals 
you spelled out. I am skeptical of what is going to happen to 
the housing mission if most of the regulation is in Treasury--
--
    Secretary Martinez. We still have a consulting role. I 
mean, in other words, as it relates to the mission, as it 
relates to new program approval, the proposal is going to 
continue to come to HUD for consultation before product 
approval of new products would happen.
    Mr. Frank. I am unimpressed by the right to consult. By 
virtue of my job, I have got the right to consult with a lot of 
people who ignore the hell out of me, so that reinforces my 
fears.
    If Treasury regulates and HUD consults, Treasury wins. And 
you talk about more than consulting here in terms of the goals.
    Secretary Martinez. Well, on the other part of it, see, the 
problem is that safety and soundness should all be in one 
place, and we believe that not only the ongoing mission of the 
GSEs and current programs, but potential new programs should 
come under close scrutiny and regulation.
    Beyond that, we at HUD would then have the real enhanced 
type of regulation that would enable us to assist you as you 
are seeking to make sure that these entities are really meeting 
their housing goals.
    Mr. Frank. Well, I am skeptical again if all the regulatory 
authority is there, they approve new programs. You set out some 
goals--new administrative authority went out, enforced housing 
goals, et cetera; and you have to show me that there is not 
going to be a situation where Treasury is pushing in one 
direction and affordable housing in the other. I will need to 
see specifics here to believe that----
    Secretary Martinez. We will give you some specifics. But 
the truth of the matter is, there is going to always be some 
tension between insisting on a certain set of goals and then 
also----
    Mr. Frank. I agree, Mr. Secretary, but here is my point. I 
think Treasury is going to be the big brother here, and if one 
set of goals is in Treasury and the other set is in HUD, I 
worry about an institutional disadvantage for the set of goals 
that are important to me.
    Let me, with that, turn to the Secretary of the Treasury, 
because what I am struck by here is what is not in here; and I 
am glad it is not in here. We have heard descriptions of the 
situation regarding GSEs as a great crisis and an imminent 
threat to financial stability. This does not change the 
essential relationship of the GSEs legally.
    I am not for changing that, but I think we ought to note 
that this is not a document put forth by people who think that 
the sky is about to fall or that we are going to have serious 
damage; and I am struck by that moderate quality.
    Let me ask you, Mr. Secretary--and again I appreciate that 
there is not a lot of rhetoric in here about how terrible these 
are. I appreciate that you think we should enhance the 
regulation, but I get the impression that you were talking more 
about guarding against potential future problems developing, 
rather than feeling that there is an urgent need to stave off 
some crisis.
    Are we in a crisis now with these entities?
    Secretary Snow. No, that is a fair characterization, 
Congressman Frank, of our position. We are not putting this 
proposal before you because of some concern over some imminent 
danger to the financial system for housing; far from it. Rather 
what we are saying is, since 1992, or whenever it was that 
OFHEO was established by statute, over a decade ago, these 
housing markets have developed.
    Mr. Frank. Getting bigger.
    Secretary Snow. Huge. Hugely. And those entities have grown 
and become now very large players on the whole financial 
landscape of the United States. We just feel it is time to----
    Mr. Frank. Good. I think it is important to have that, to 
make it clear that that is the context.
    Let me just close by saying, I look forward to this, and I 
have given you my skepticism. Housing has been my primary 
issue, affordable housing has been my prime issue, and I need 
to be convinced. We haven't done as good a job as we should in 
enforcing those goals, but I will have to be convinced that 
they won't be at an institutional disadvantage.
    Secretary Snow. I don't think I will convince you by this, 
but as I view this institutional arrangement that we are 
proposing, Secretary Martinez and HUD would have the clear 
primacy on the question of what is the mission.
    Mr. Frank. And what happens if they don't meet the mission?
    Secretary Snow. If they don't meet the mission, the 
Secretary is asking for enhanced authority to have disciplinary 
powers to strengthen his hand in seeing that the entities do 
meet that.
    Mr. Frank. I just worry that we are going to get them in a 
situation where the most important question for Fannie Mae and 
Freddie Mac to answer is who do you like better, your mother or 
your father?
    Secretary Snow. Well, as Secretary of the Treasury, if this 
authority comes to Treasury, I would view our responsibility as 
soundness and safety within the larger parameter of the goals 
that are given to the GSEs by----
    Mr. Frank. I appreciate that. Ten more seconds. But 
obviously if we can find some way to write that sort of thing 
into the law, because personalities change, I would feel maybe 
a little less skeptical.
    The Chairman. The gentleman's time has expired.
    The gentleman from Louisiana Mr. Baker.
    Mr. Baker. I obviously have a number of subjects I would 
like to cover, but I am going to focus in this first 5-minute 
opportunity on two different approaches. One is just a 
clarification, as I understand, the explanations of intent. And 
two are--with regard to enhancements I see in your approach 
over H.R. 2575.
    With regard to capital, Secretary Snow, I was very pleased 
to hear your comments so forthrightly with regard to the 
moratoria issue. There has been much discussion that there 
would be some 5-year artificial prohibition on regulatory 
action. And I want to go just a bit further in understanding 
the broad authority for supervision of capital adequacy.
    My question goes to the point that although you preface it 
by saying, we do not intend in any way to adversely impact the 
risk-based capital standard recently promulgated by OFHEO, you 
do wish for the new regulator to have unbridled authority to 
adjust minimum risk-based capital adequacy based on an 
assessment of risk and the leverage ratios of either 
enterprise. Is that a fair characterization?
    Secretary Snow. Yes, that is.
    Mr. Baker. Secondly, that with regard--and this is perhaps 
something for both gentlemen. With regard to product approval, 
as I read the testimony, it appears that the broad authority 
again granted or requested in that instance is not only to 
prospective, but to currently authorized products that you may 
wish to review for whatever reason. In other words, you are 
looking for a broad grant of authority with regard to product 
approval. Is that a fair characterization?
    Secretary Snow. Yes, sir.
    Mr. Baker. Then there are two points that I find very 
important that are beyond what has been proposed in 2575. One 
is with regard to the importance of the Presidential 
appointment of board members. Some have expressed concern that 
if the agency is located within the Treasury, that that will 
politicize the environment in which managerial decisions may be 
made. This sends an extraordinary message, in my opinion, to 
the broader market that you want the management of this 
enterprise to be separate and distinct from political 
appointment, which is a--the first time this proposal has been 
proffered. Is that correct?
    Secretary Snow. Yes. Very much so, Mr. Baker. We view these 
as large, substantial and important private enterprises, and 
private enterprises don't have their board membership 
determined by a political process involving the President of 
the United States. They have it through a nominating committee.
    And we think that normal corporate governance processes 
that apply to other major companies and other financial 
institutions, and which is now recognized as the right way to 
do things, that is the nominating committee taking the lead on 
board membership, should apply as well to Freddie and Fannie.
    Mr. Baker. Terrific.
    The next is, with regard to--I had recommended at one time 
consideration of a receivership process in the unlikely--
acknowledged unlikely event there would be adverse economic 
developments, and it would be a necessity to act. In lieu of 
granting the regulator customary receivership authority, what I 
understand is an enhanced conservatorship, fairly unlimited, 
where the regulator could make appropriate decisions on behalf 
of the taxpayer, liquidate assets as required, satisfy creditor 
claims, whatever is necessary up to the very last chapter of 
the process, which would be included in a receivership, but not 
in your plan, and that would call for the revocation of the 
charter, which would now, under this view, be left for 
congressional determination; that you view it appropriate for 
something of that magnitude to be determined as a matter of 
public policy, not as an executive responsibility to close out. 
Is that a fair description?
    Secretary Snow. That is precisely what we are suggesting.
    Mr. Baker. Well, let me say on both of those last two 
points, these are significant improvements over proposals in 
the past, and I think you are to be credited.
    I have a significant list of other things, but I will defer 
for other Members. Thank you very much, sir, for your 
leadership.
    The Chairman. The gentleman yields back.
    The gentleman from Pennsylvania Mr. Kanjorski.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    Mr. Secretary, let me get this straight. You did answer Mr. 
Frank's testimony that there is nothing occurring of high risk. 
And since we are talking about reforming some of the largest 
financial institutions and their regulatory mechanism, what is 
the pressure to do this in the next 6 weeks? Congress is 
anticipated to adjourn sometime late October, early November, 
and this proposal comes to us timely in terms of we are glad to 
have the Administration make a proposal. But I think to put a 
6-, 8-week time frame on it raises some interesting questions.
    Secretary Snow. Well, Congressman, obviously you will have 
to decide what priority to give it and whether to deal----
    Mr. Kanjorski. So there is nothing essential that we move 
through and have daily hearings here and move a piece of 
legislation because there is no high risk to the system?
    Secretary Snow. No. We are not before you, as I answered 
Congressman Frank, because of an imminent risk that we perceive 
of any kind. Rather there seems to be a coming together of the 
parties who take an interest in this subject behind a set of 
proposals that I think are pretty close to what I have outlined 
here, maybe not precisely, but pretty close, that gives us an 
opportunity to use that momentum to move forward, if the 
Congress chooses to do so, and we would urge you to do so.
    Mr. Kanjorski. I am impressed with the work you have done, 
but I worry about some of your definitions. I agree that we 
should have a strong, independent, world-class regulator. Now, 
my question to you is can you name any world-class regulator or 
financial institutions of the United States that has their 
policy set and their testimony reviewed by Treasury?
    Secretary Snow. No. We don't review the----
    Mr. Kanjorski. So are you using the terminology ``world-
class,'' but you are not talking about making the type of 
regulator here that regulates the banking system or other 
entities in this government? You are talking about a usurpation 
of authority over the regulator by Treasury.
    The idea--let me put it very succinctly. The idea that 
Treasury on behalf of the Administration would be reviewing 
testimony that is going to be made to this Congress is most 
offensive for a very simple reason. The World Trade Center 
disaster, the EPA's Administrator was going to release notice 
to the American people of hazardous materials in New York. It 
was this Administration that put a clamp on the release of that 
information.
    Why should we as the Congress in representing the American 
people assume that if there were real dire information that was 
going to be released or disclosed by the Administrator at a 
time that was not propitious to the Administration, politically 
or otherwise, that they wouldn't put a clamp on that testimony?
    Secretary Snow. Congressman, as I am sure you are aware 
that Treasury has that very authority today with respect to the 
IRS.
    Mr. Kanjorski. Well, the IRS----
    Secretary Snow. The IRS is an institution of great 
sensitivity.
    Mr. Kanjorski. I am not sure that quite frankly we should 
brag about the IRS. Didn't we just recently have to pass a 
Taxpayers' Bill of Rights?
    Secretary Snow. You asked me whether or--Congressman, 
whether or not there was any entity in Treasury which would 
serve as a predicate for this. I am saying the IRS is a 
predicate.
    Mr. Kanjorski. Well, if that is the best example you can 
give as a world-class regulator, the IRS, I don't think the 
American people----
    Secretary Snow. You asked for review of testimony, and I 
said Treasury does review IRS.
    Mr. Kanjorski. I asked for an example of a world-class, 
strong regulator.
    Secretary Snow. Until I think it is the mid-1990s, that 
Treasury did have that--did review the testimony of the OCC.
    Mr. Kanjorski. And thank heavens we put that aside. What I 
am suggesting is, look, I am one of the few members of this 
committee who was here in the S&L crisis, and I think if we are 
going to attach anything, it was a conference committee that 
adopted a piece of legislation in 1982 that almost destroyed 
the financial--the S&L industry in this country and caused a 
catastrophe 10 years later that we are still paying to bail out 
in this country.
    And I don't think that, one, we should rush to judgment. 
Two, I certainly don't want political influence, whether it be 
the Administration or this Congress, getting involved with an 
independent, strong, world-class regulator.
    The day that the Federal Reserve wants to concede that the 
Secretary of the Treasury and the White House should pass on 
its testimony, that is when we should allow the regulator of 
these entities to have their testimony passed on by the White 
House and Treasury, and not until that day, if we are going to 
use the term world-class, and I believe we should.
    And I think that using that term ``world-class'' sets a 
standard now for Treasury and for Housing to really work with 
this committee and the Congress to establish a world-class, 
independent, strong regulator, which doesn't mean that they 
have to carry their testimony and have it filtered by the 
Administration or Secretary of Treasury.
    Secretary Snow. Congressman, can I just respond to put 
this--to give you our perspective on it and why we are 
recommending it as we are?
    The Treasury's role would be limited basically to policy. 
The regulatory functions, the day-to-day supervision, the day-
to-day oversight, the enforcement actions, the litigation and 
so on would be fully and completely under the control of the 
new regulator.
    Mr. Kanjorski. The housekeeping would be under the 
regulator?
    Secretary Snow. I would not call litigation and enforcement 
housekeeping. That is the guts of what regulators do.
    Mr. Kanjorski. Regulators have a responsibility to come to 
this Congress and the American people and, without a filtering 
process, to tell us what the status is of the bodies they 
regulate, what they are in, what is the problem. They don't 
have the responsibility of coming up here and giving us 
filtered information that meets the considerations and the 
interests of the Administration at any given time.
    I am not just suggesting this Administration, but the 
policy we are talking about establishing here and the world-
class regulator is going to be in place for the next 10, 20, 30 
years, and I would not be very impressed with Mr. Greenspan 
coming up here and talking for an hour or two to tell us how 
the economy is if I knew that the Administration and the 
Treasury just spent the last 2 weeks filtering his testimony.
    The Chairman. The gentleman's time has expired.
    The gentleman from Iowa Mr. Leach.
    Mr. Leach. Let me just begin by thanking Chairman Baker and 
Chairman Oxley for an extraordinary job of bringing us to this 
point, and also the two Secretaries for moving their 
departments as far as they have. But, the big picture is, and I 
think it has to be emphasized, that these are two private 
sector enterprises, but they have public powers, and one of the 
great questions is should they be regulated at a different 
level than all other private sector organizations? And up to 
this point in time, regulation of these GSEs has been largely 
written by the GSEs, and that should be understood. And now the 
question becomes where do we go from here?
    And I think the Secretary is exactly right, that these 
should come under the executive branch. And clearly he was 
being a little understated when he said an executive branch 
department. It must be the Treasury.
    And here then the question becomes, what about the Federal 
Home Loan Bank System? It is absolutely imperative that they be 
regulated the same way, and there shouldn't be a compromise on 
this. It is just definitive that OFHEO is an inadequate 
regulator, well-meaning but inadequate. The Finance Board is 
grossly inadequate, and its inadequacy is so stunning that not 
to insist that it be brought under Treasury in the same kind of 
way at this time would be a massive mistake.
    Now, in the initial organization that we set up between 
OFHEO and Treasury and HUD, there is an effort by the GSEs to 
bifurcate responsibility and, for example, have the mission 
with HUD, and frankly, it is a mission that HUD has never 
looked at very seriously. I am not relating to any particular 
Secretary, it is just not a mission that HUD has taken 
seriously. I think it is clearcut that mission should go with 
the regulator. It should be at Treasury as well.
    Now, finally, there is a little bit in the background of 
this that I am uncomfortable with. And Chairman Baker was quite 
thoughtful in his delineation and questioning of you, Secretary 
Snow, but the press has reported that kind of in a compromised 
way that there have been quiet understandings that have been 
developed between Treasury and the GSEs about no change in some 
sort of regulatory framework that exists for a 5-year period. I 
will tell you that that is nonsense.
    The notion that a publicly empowered, private sector 
enterprise should have lower capital standards than a private 
sector enterprise is really defiant of common sense, and I 
think that you ought to have a full understanding that a 
regulator should respond to the public interests and to the 
competitive interests of the American enterprise in as 
equitable a way as possible, and that no new regulator should 
be shackled by any understandings prior to its establishment.
    And that doesn't mean that the current framework isn't--is 
all bad, because it certainly isn't. There are aspects that are 
quite thoughtful. But to shackle a new regulator with any 
implicit understandings to begin with, I think, would be 
defiant of the idea of the independence of that regulator and 
also defiant of common sense.
    Here, America is a little bit embarrassed. I mean, the IMF 
this week, of all things, and I am amazed that they have 
entered into this fray, but it suggested that the GSEs are 
undercapitalized. Whether they are right or not is not so much 
the question as it is--it is very interesting that you are 
getting both world and national attention to American 
regulatory oversight. And I think it is something we can't take 
lightly.
    And so I would be very, very concerned that there be 
implicit agreements made in advance that don't fit the 
circumstance, and I would also be very concerned if we don't do 
it in a profoundly correct direction rather than in a slightly 
correct direction at the very beginning.
    And, Mr. Secretary, I would like you to comment on that, if 
you would.
    Secretary Snow. Well, I am in very broad agreement with 
what you just said and don't take exception to it, to any of 
it.
    The legislation, in my mind, would be much better, as I 
suggested, if it could include the Federal Home Loan Banks. I 
think it--if it doesn't, then one big piece of this integrated 
set of relationships is left out, and I think will eventually 
be picked up, but the sooner it can be picked up, the more 
coherent the regulatory framework would be. I agree with you.
    On the issue of implicit understandings, there can't be 
any. There aren't any. There was some newspaper article to the 
effect of some 5-year moratorium. That is why I explicitly 
dealt with that in my comments. Where that came from I have no 
idea, but there can't be any shackles or any restrictions of 
that sort on the new regulator.
    At the same time, I make the point that things like these 
risk-based capital standards probably should not be changed 
willy-nilly. There is some logic in a regulator having some 
precedental value of rules that have been entered into. But 
what we are asking for here is that the current statutory 
restrictions on the regulator in the construct of those risk-
based standards be removed. That is the--that all of those 
restrictions, all of those definitions of how the regulator 
should do it be removed.
    So I am in broad agreement. There are no understandings, 
implicit or otherwise, that would restrict the new regulator. 
The new regulator, though, will enter the fray working with a 
set of arrangements that it will want to review, but which are 
in place, and which will set the rules of the road for some 
interim period of time as the new regulator begins to review 
and think through what, if any, more appropriate sets of 
arrangements should be established.
    The Chairman. The gentleman's time has expired.
    Secretary Martinez. May I just quickly comment, Mr. 
Chairman? Mr. Leach--and I don't take any personal offense 
about the comment about the seriousness with which HUD has 
approached its purpose, and I won't comment on prior HUD 
Secretaries, but I do want you to know that as I have looked at 
my responsibilities and tried to exercise them, that I have 
also found the resources that HUD has had available to exercise 
that mission seriously are not there, which is why I have 
insisted--and this proposal includes a number of things that I 
think are vitally important to us being able to fulfill that 
mission.
    One of them, for instance, which I think is tremendously 
important, is the assessment authority, to give us the teeth 
necessary to really enforce the goals that Fannie and Freddie--
which, by the way, I should also state they have always made 
and met the goals that HUD has set for them.
    But I still believe having an enhanced opportunity to do 
that type of mission would really be the kind of seriousness of 
purpose that would allow us to fulfill it.
    The Chairman. The gentleman's time has expired.
    The gentleman from Vermont Mr. Sanders.
    Mr. Sanders. Thank you very much, Mr. Chairman.
    And thank you both, Mr. Martinez and Mr. Snow, for being 
with us today.
    Let me begin, very briefly, by concurring with the 
statement that Mr. Frank made a few moments ago. Clearly there 
is a major housing crisis in this country. Barbara Lee and I 
and others are working on a national affordable housing trust 
fund concept, which has over 200 cosponsors.
    Mr. Chairman, I hope that this committee would be able to 
work with Mr. Martinez, putting on a major conference which 
gives us the opportunity to hear from housing advocates all 
over this country as to how we can solve the housing crisis. 
And I hope that that is something that we could do.
    But let me for a moment change directions and ask Secretary 
Snow a few questions. Mr. Secretary, let me begin by thanking 
you very much for the meeting that we held in your office last 
July with some Members of Congress, the AFL-CIO, the AARP and 
other groups who were very concerned about the proposed cash 
balance pension regulations that were drawn up by the Treasury 
Department.
    As you know, it is our view that these proposed regulations 
would not only be a disaster for older American workers, but 
that, in fact, they would be illegal and are in violation of 
Federal age discrimination law. Now, since that meeting that 
you graciously hosted, several positive developments have taken 
place for workers who have seen their pensions slashed by up to 
50 percent as a result of cash balance pension schemes.
    Number one, on July 31st, the Southern Illinois Federal 
District Court ruled that IBM's cash balance pension conversion 
violated the pension age discrimination laws that are on the 
books. They are illegal.
    Number two, just last night an amendment that I offered to 
the Treasury/Transportation appropriations bill to prohibit the 
Federal Government from using any taxpayer dollars to assist in 
overturning this pro-employee Federal court ruling won with 
overwhelming support, bipartisan support, 258 to 160.
    So what I would like to ask the Secretary are two 
questions. First, Mr. Secretary, given the IBM court decision 
and last night's overwhelming vote against cash balance plans, 
will you commit today to either withdraw the proposed 
regulations on cash balance plans or at least commit to not 
moving forward to finalize them?
    Second question, Mr. Secretary, I want to ask you about a 
very serious related issue. According to an article in today's 
Wall Street Journal, quote, ``in an unexpected move that 
involved doctored Treasury documents, the House passed an 
amendment that could prevent the Treasury from issuing 
controversial pension regulations.'' From the Wall Street 
Journal.
    On Monday, an IBM lobbyist, Susan M. Semantakowski, sent a 
document she called the, quote, ``Treasury Statement of 
Opposition,'' end of quote, to various lawmakers' staffs, 
including Mr. Gutknecht. The Treasury document on official 
Treasury letterhead, and I have that document here, noted, 
quote, ``Treasury strongly oppose the Sanders amendment,'' end 
quote, and advised lawmakers to oppose the amendment, which it 
said will weaken the defined benefit plan.
    Tara Bradshaw, a spokeswoman for the Treasury Department, 
said, ``the agency didn't issue the document. It is a Treasury-
generated fact sheet, stating our position on a set of past 
documents that were never offered.''
    However, they were not sent in the format that you 
provided, and therefore appear to have been doctored. We were 
not aware the document had been circulated beyond a very 
limited number of select staff.
    Mr. Secretary, my question to you, second question, is did 
the Treasury Department authorize sending out these talking 
points against this amendment? Your spokesperson indicates that 
it was not the case? Number two--well, can you tell me that, 
sir?
    Secretary Snow. I am not aware of any authorization for any 
talking points of the sort you are commenting on.
    Mr. Sanders. Do you agree with your spokeswoman, Tara 
Bradshaw, that the agency didn't issue this document?
    Secretary Snow. Yes. Certainly I am not aware of it. If she 
said it, then she would know, and I would agree with her.
    Mr. Sanders. If that is the case, would you agree with me 
that this is a very serious fraud? If IBM or any other company 
was sending around doctored Treasury documents using the 
letterhead of the U.S. Department of Treasury, is this a 
potentially very serious violation of Federal law?
    Secretary Snow. Congressman, I better not comment, because 
I really don't know the facts on this, but it is certainly 
something that I intend to look into, now that you have brought 
it to my attention. This is really the first I have heard of 
this.
    Mr. Sanders. Well, this was in the Wall Street Journal 
today.
    Sir, if your spokesperson is correct, and if a private 
corporation was using the letterhead of the Department of 
Treasury to fight against an amendment which, in fact, won 
overwhelmingly, I would hope that you would agree with me that 
is a hugely serious issue warranting an investigation by your 
Department and the Department of Justice. Can I have your 
commitment to go forward on that?
    Secretary Snow. I will certainly look into this and try and 
get at the base of what the facts are and take whatever steps 
are appropriate in response.
    Mr. Sanders. Can I expect to hear from you----
    The Chairman. The gentleman's time has expired.
    The gentleman from Ohio Mr. Ney.
    Mr. Ney. Thank you, Mr. Chairman. I want to ask a question 
of Secretary Snow.
    I am aware, as you are, of the strength of the housing 
market in the United States and how that has supported our 
Nation's economy, which, as I stated earlier during a recent 
economic downturn. The market, as you know, relies on a 
constant flow of liquidity provided by the secondary mortgage 
markets, and the strong capital base among the regulated 
companies. I think we can all agree that the stability of a 
strong capital regime is important not only for safety and 
soundness, but also to signal the strength of this sector of 
our economy.
    Now, it is my understanding that you are recommending no 
change to minimum capital standards for Fannie Mae and Freddie 
Mac and no current change to the newly adopted risk-based 
capital standards. I state this because it is important to have 
stability in the capital markets. Is that correct?
    Secretary Snow. Yes. That is right. What we are recommend--
no, we are not recommending any change in the current standards 
as part of this legislation. That is correct.
    Mr. Ney. Mr. Chairman, the second question, we all 
recognize the issue of GSE regulations as vital to our Nation's 
housing markets, and as Chairman of the housing subcommittee, I 
believe that your comments about the need to strengthen the 
safety and soundness are critical to the stability of the U.S. 
Housing markets. I commend you on that.
    As we move forward, I just want to make sure that we are 
all taking from the same page. So to be clear, what we are 
talking about today is moving safety and soundness regulation 
of Fannie Mae and Freddie Mac to the Treasury Department?
    Secretary Snow. Yes.
    Mr. Ney. We are not really talking about any adverse change 
to the housing mission, nor are we talking about any changing 
to the GSE charter or status in the marketplace. Is that 
correct?
    Secretary Snow. That is basically correct, although, as 
Secretary Martinez has said, the Administration is recommending 
strengthening the hand that HUD has on that side. And we are 
recommending one change, and that is that the President no 
longer have responsibility for appointing some number of 
directors to the two entities. Other than that, no.
    And we would, of course, want to see the strong regulator 
put in place, and then the strong regulator would deal with 
subsequently the issues you raise, like what are the 
appropriate risk-based capital standards. But we are not 
changing those in the legislation.
    Mr. Ney. Thank you, Mr. Secretary. Thank you.
    The Chairman. The gentleman's time has expired.
    The gentleman from Illinois Mr. Gutierrez.
    Mr. Gutierrez. I want to thank you. I want to thank 
Treasury Secretary Snow and HUD Secretary Martinez for 
appearing before us today. It is clear, after having read their 
statements and listening to their testimony, that they 
understand the vital role of GSEs in making home ownership a 
reality for low-income and minority families. And I want to 
tell them both that I look forward to working with them in this 
process to improve the financial regulation of the companies 
and allowing their important role to continue.
    You know, we have the best housing finance system in the 
world, but it is not for everyone. Home ownership rates are at 
historic highs, 68 percent, but it is only at 47 percent for 
African Americans and 46 percent for Hispanics. The GSEs have a 
congressionally chartered mission to make home ownership more 
affordable and more available.
    I want to make sure that in this legislative process, these 
companies are able to continue their work to reach potential 
homeowners in underserved populations and underserved areas of 
our Nation. HUD establishes clear goals that companies must 
meet in lending to low- and moderate-income Americans in 
underserved areas, and special needs populations, and I was 
delighted to hear from Secretary Martinez that they have always 
met the expectations of HUD.
    And I know the Secretary wants more resources in order to 
make those housing opportunities available to more. I know that 
many of us work with both Freddie Mac, and I particularly with 
Fannie Mae in my congressional district, and I understand they 
have pledged $700 million in housing capital to several--4.6 
million minority Americans by the end of the decade. I want to 
applaud those efforts.
    In whatever final regulatory structure is determined for 
housing GSEs, we should be careful to preserve the ability of 
all housing GSEs to improve the secondary mortgage market by 
developing innovative new products which are consistent with 
their mission. And they have many. Parents can help now. We 
have got it down to 5 percent. There is all kinds of things 
taken into consideration so that people can get into it, and I 
think that is what makes Fannie Mae and Freddie Mac unique.
    So I support strengthening. And I would just like to ask 
Secretary Martinez and Secretary Snow if they can just assure 
us today that the new structure that is being proposed will not 
disrupt the important mission these companies play for 
potential homeowners in underserved populations and in 
underserved areas of our Nation?
    Secretary Martinez.
    Secretary Martinez. Sir, I believe that it is important for 
us to keep in mind that the GSEs and Fannie and Freddie, 
specifically, play a vital role in the housing market in our 
country; that they have had a tremendous impact in the booming 
housing market that we have enjoyed over the last several 
years.
    In addition to that, I just also want to make sure that we 
state that President Bush is committed to increasing minority 
home ownership. We have had that as a focus in our Department. 
And Freddie Mac and Fannie Mae have been part of the 
Administration's American dream--Blueprint for the American 
dream, commitment partners in that effort. They do good work. 
We want to ensure that also is the case into the future. By 
providing us with some additional tools for us to fine-tune the 
housing goals, I think it would only enhance our ability to 
enforce the housing goals, but also their ability to meet them.
    I also believe, Congressman Gutierrez, that as we look to 
expand the role of homeowners, as you expressed and as we are 
working together to do, that creating more investor confidence 
in the GSEs, that giving the financial markets that confidence 
of a strong, world-class regulator will invite more investors 
to come into the housing market to invest, therefore providing 
more liquidity and hopefully lower mortgage rates, and that at 
the end of the day is the real key to increasing home ownership 
for low- and moderate-income people.
    Mr. Gutierrez. I thank you, Mr. Secretary, for that 
response. I look forward to working with you and Secretary Snow 
in achieving what we need to achieve to put confidence that is 
necessary into it, but allowing them the ability to be 
innovative, to be creative, and to put the products out there.
    I would like to yield the rest of my time to the gentleman 
from Vermont Mr. Sanders.
    Mr. Sanders. I thank my friend very much.
    Mr. Snow, you didn't get a chance to answer the question, 
the first question. That is, given the IBM decision from the 
Southern District of Illinois and last night's vote on cash 
balance plans, will you commit today to either withdrawing the 
proposed regulations, or at least commit to not moving forward 
to finalize them?
    Secretary Snow. Congressman, I want to review that 
legislation that carried last night. In the process of 
reviewing those court decisions, I have not yet fully digested 
the three major decisions that have come down since our good 
meeting over at Treasury, but let me say this to you. We take 
seriously these concerns that you, among others, have been in 
the forefront of raising. I think I expressed to you my 
commitment to deal with this issue with the utmost seriousness 
that it deserves. And let me say, without making the commitment 
you are asking me to make, that I will commit to work with you 
toward finding a satisfactory resolution to what now is a very, 
I will grant you, tangled situation.
    The Chairman. The gentleman's time has expired.
    The gentleman from the first State Mr. Castle.
    Mr. Castle. Thank you, Mr. Chairman.
    I would just like to thank the distinguished Cabinet 
Secretaries for being here, for making real proposals before 
this committee. We are used to attacking and defending. We 
often don't get red meat such as this to deal with. I for one 
have enjoyed this morning and enjoyed what you have done.
    I just would like to clarify a couple of things. Let me 
start with you, Secretary Snow. On page 6 of your written 
testimony, you stated in the context of this accommodation of 
operational independence and policy oversight, the 
Administration, quote, would be willing to support proposals to 
establish a new agency at the Bureau of the Treasury.
    That is not quite as strong as, we are proposing, or we 
absolutely agree with. Is there a reason why that is not quite 
as solid?
    Secretary Snow. Yes. I will tell you, Congressman Castle, 
what the hesitancy there is. We don't see a lot of merit in 
simply putting OFHEO in Treasury. If you want to do that, you 
might as well just leave it where it is. What we are talking 
about--and I understand this sensitivity on politicization, but 
what we are talking about is putting it in Treasury so that the 
policy resources of Treasury, the expertise of Treasury can be 
brought to bear on the new regulator not in a way that is 
politicized. I want to make that clear, but in a way that 
brings this--the range of expertise that Treasury has, dealing 
with all financial markets--to bear on the question of these 
important housing markets which also impinge on all of those.
    Mr. Castle. But it is not a hesitancy to have this 
regulatory agency in Treasury, it is more of what you just 
stated.
    Secretary Snow. No. If we got it on those terms, we would 
strongly recommend it.
    Mr. Castle. What about funding sources? You stated on page 
2, inadequate resources. Would the funding sources be dedicated 
sources or subject to appropriations? Have you given any 
thought to that?
    Secretary Snow. We feel that, again, it would be best and 
we would strongly recommend that it not go through the 
appropriations process. We think the strong, independent 
regulator concept is enhanced by the self-funding rather than 
being dependent on Congress, which opens it up to 
politicization.
    Mr. Castle. Thank you.
    Tell me the rationale--and honestly I don't understand the 
technical differences in some of these things as perhaps I 
should, but the inclusion of the Federal Home Loan Banks. Most 
of the concern here has been aimed at Fannie Mae, Freddie Mac, 
and you don't hear as much about the Federal Home Loan Banks. 
And I see in these proposals that they are included, probably 
rightfully so, but I would like to hear the rationale.
    Secretary Snow. The rationale is that the Federal Home Loan 
Banks, in the aggregate, have a very large impact on financial 
markets and raise similar sorts of soundness and safety issues, 
and are very similar in nature in many ways to the other 
government-sponsored entities, to Fannie and Freddie, and, 
therefore, we feel logically there is a fit. They are doing 
basically the same thing with the same sort of Federal 
involvement, and the same sort of soundness and safety issues. 
That is the rationale.
    Mr. Castle. Secretary Martinez, you sort of have been 
answering this through this morning, but just in sort of a 
general sense, it is your conclusion that if this restructuring 
took place pretty much as outlined by the two of you here this 
morning, either by legislation or fiat of the executive branch 
or whatever it may be, that the focus on housing that you speak 
about, particularly low-income and middle-income-type housing, 
is a mission that you could carry out better than you do today?
    Is the bottom line, is the scale--this would be an 
improvement in terms of the delivery of your services?
    Secretary Martinez. I think it would be a tremendous 
improvement because the real importance to our mission is in 
the housing goal--in the--is not in the new product approval, 
in which we would only have that consultation role. But it is 
in the other part, which is in the housing goals, and the 
setting of the goals, and the enforcing of these housing goals. 
I think that in that instance that we will have a tremendously 
enhanced ability to do the job.
    I believe also, dovetailing into the answer that Secretary 
Snow gave to you with respect to the location of the regulator, 
I believe it is tremendously important that we have a world-
class, fine regulator with all of the tools needed in that tool 
box to be an effective regulator. That is far more important 
than the location of the regulator. And in the way we have 
described it here, safety and soundness, including current and 
new program approval, should be under one roof with one 
regulator, not bifurcated, not divided.
    And then the second part, the housing goals would remain at 
HUD. And also very important, the fair lending--observance of 
fair lending would also remain at HUD. But with the scheme we 
are proposing, it will enhance our ability to meet the desired 
goals of why the GSEs were created, which is providing mortgage 
money to low- and moderate-income families, to first-time home 
buyers and minority home buyers.
    Mr. Castle. Thank you, gentlemen. I agree with what you are 
trying to do. I hope we can work together to make sure we do it 
correctly.
    I yield back.
    The Chairman. The gentleman yields back.
    The gentlelady from California Ms. Waters.
    Ms. Waters. Thank you very much.
    First of all, let my say to Secretary Snow that when I 
rushed in this morning and gave my opening statement, I failed 
to acknowledge you, and let me apologize for that. I am 
certainly pleased that you are here and have enjoined working 
with you, and appreciate the assistance that you gave to us on 
the Haiti issue. So welcome.
    Secretary Snow. Thank you very much.
    Ms. Waters. We are glad that you are here.
    My question is directed to toward Secretary Martinez. In 
your testimony, you described how you would like to strengthen 
HUD's housing goal authority by way of creating a new GSE 
housing office within HUD, independently funded by the GSEs to 
establish, maintain and enforce the housing goals.
    You also go on to describe that it would grant HUD new 
administrative authority to enforce its housing goals, 
institute and enhance civil penalties for failure to meet 
housing goals, explicitly provide that the GSEs act to increase 
home ownership and expand authority to set housing goals, set 
goals beyond the three currently established for moderate-
income, geographic area and special affordable housing.
    Mr. Martinez, I am very much aware of Fannie Mae's 
contribution to affordable housing. Fannie Mae provides the 
most affordable housing capital for low- and moderate-income 
and minority households of any company in the Nation. In 2002, 
Fannie Mae financed over $136 billion in loans to nearly 
985,000 minority families.
    Fannie Mae also, I am told, must achieve specific 
affordable housing goals set for the company by you, the 
Department of Housing and Urban Development. And the company 
has surpassed every goal since HUD first began setting goals in 
1994.
    Above and beyond the HUD goals, Fannie Mae leads the market 
in providing home financing, of course, to minorities.
    Secretary Martinez, if it ain't broke, why do you want to 
fix it? Have the GSEs ever missed their housing goals?
    Secretary Martinez. The housing goals as formulated 
currently have always been met by the GSEs, but what we are 
talking about here is to enhance those goals, because while I 
am not here to suggest to you that GSEs are not valuable and 
have not played a tremendously important role, and that they 
are a tremendous asset to the housing market, I also must point 
out to you that our studies show, and other independent studies 
also show, that they have historically lagged the primary 
market instead of led it with respect to funding mortgage loans 
for low-income and minority home buyers.
    So they have also accounted for a relatively small share of 
first-time minority home buyers as compared to the market at 
large, without the advantages of being a government-sponsored 
enterprise.
    Ms. Waters. As compared to the market at large?
    Secretary Martinez. Correct.
    Ms. Waters. Meaning all of the banks and financial 
institutions and the mortgage companies, they have lagged in 
first-time home buyers?
    Secretary Martinez. Correct.
    Ms. Waters. I would like to see that study.
    Secretary Martinez. Well, my point in that is not to 
suggest that we don't value their contribution. We tremendously 
value it. But at the same time we also believe that in order 
for us to fulfill our mission like you expect us to do, that we 
have got to have the tools to do it. We need to have an office 
that is devoted to GSE oversight and regulation, those parts of 
it that we will keep at HUD.
    In addition to that, we need to have the financial ability 
for assessment, just like other regulators of financial 
institutions do, so that it is depoliticized and it is handled 
as a regulatory matter. We believe that those things being done 
in the way we are proposing here will enhance what you and I 
are both trying to do, which is get more home ownership 
opportunities into minority households and into low- and 
moderate-income people so they can taste the dream of owning a 
home.
    Ms. Waters. Well, certainly, Mr. Secretary, we certainly do 
have the same goals. What I don't want to see is an expanded 
bureaucracy. You are talking about setting up a whole new 
office, and you are talking about having them pay for it. As 
you know, many communities depend on these GSEs for all kinds 
of new activity that will lead to home ownership. And they 
support this in many different ways, and sometimes some very 
constructive ways. I don't want that stifled. I don't want 
another layer of bureaucracy to prevent that kind of 
flexibility. And I am really worried about them, if they have 
met all of their goals, and you think that they need to have 
new goals set because they are good at what they do, why don't 
you just set new goals and let them continue to do what they 
do, rather than setting up a whole new bureaucracy to do it?
    Secretary Martinez. Because right now we don't have the 
ability to fine-tune the goals, to set them the way that we 
want to set them. That is why we are asking for the additional 
power through this legislation. In addition to that, I truly 
believe----
    Ms. Waters. And you are saying that you have to have a 
whole new office to do that?
    Secretary Martinez. Here is what I want you to understand. 
I don't want to juxtapose your appreciation for GSEs and mine. 
We are on the same boat. We agree that they have been good and 
valuable, they do a lot of good in neighborhoods. They have 
created liquidity in the mortgage markets.
    What I am looking to do is to enhance that opportunity, to 
give the markets more confidence in the GSEs, and then give us 
the ability to live up to the responsibility we are given by 
Congress, which is to oversight appropriately.
    In order for us to get it done and get it done right, I 
believe that we need these enhanced opportunities and these 
enhanced powers, and that really is as a result of having been 
in HUD for a couple of years, having had an opportunity to look 
at issues that have come up, and not always felt like we had--
we had the expectations that we would carry it out, but not 
always the ability to carry out our mandate.
    Ms. Waters. We may not have--is my time up? Okay. Thank 
you.
    Mr. Baker. [Presiding.] Mr. Royce.
    Mr. Ross. Thank you, Mr. Chairman.
    Secretary Snow and Secretary Martinez, we thank you both 
for your testimony. And I want to share with you, I have 
proposed to create an independent regulator in the Treasury 
Department with greater enforcement powers to oversee the three 
housing GSEs, Fannie, Freddie and the Federal Home Loan Banks.
    And I think this proposal is important not only because it 
creates a new agency in Treasury, but also because it includes 
regulation of all three housing GSEs, and it mandates the new 
agency Director to work with other financial institution 
regulators through FFEIC. This country needs a world-class 
regulator of the housing finance sector, and I think we all 
know that Treasury has the expertise to create one.
    Experts believe that all three GSEs need to be in the mix 
if we want to achieve effective safety and soundness oversight. 
These are the largest derivative players in the world. We are 
talking in each case about portfolios that are in excess of 
half a trillion dollars in interest rate derivatives. So the 
new regulator needs to see the whole market to ensure the best 
practices of risk management.
    There is another argument for including all three GSEs in 
regulatory reform. The bond market experts that I have talked 
to have told me that if Fannie and Freddie receive a new 
regulator under Treasury, and if the home loans remain under 
the finance board, then on a relative basis, Fannie and Freddie 
would have a competitive advantage in the bond market, and thus 
a lower cost of capital.
    We should not enact legislation that favors one group of 
GSEs over the other. I know some of my colleagues are concerned 
that while right on the merits, inclusion of the Home Loan 
Banks could derail regulatory restructuring for Fannie and 
Freddie, and others have suggested that we should not include 
the home loans in any legislative effort because it is 
politically difficult.
    Well, I disagree with both of those views. Over the last 2 
months, I have sensed momentum building for this proposal to 
include the three GSEs. Some of the most significant players in 
the bank system have endorsed this concept. These are not just 
west coast players. I know this as a fact. I have had 
conversations with them. I believe support is much broader than 
the Chairman indicated. And as the others understand they are 
going to be at a cost of capital disadvantage, they will come 
around as well.
    So, Secretary Snow, we have an historic opportunity here to 
create the optimal world-class regulatory framework to protect 
the financial system and the taxpayer, and I think this is the 
time for us to show leadership. We heard from Federal Reserve 
Chairman Greenspan. He said we need all three GSEs included, to 
view GSEs in total. You have said all three should be in. We 
know it is the right thing to do. We know momentum is building 
for it. Why don't we just do it?
    Secretary Snow. Well, Congressman, I am in broad agreement 
with everything you have said. And I, of course, reviewed, 
before coming up here today, H.R. 2803, your legislation, and 
see, as you know, broad complementarity between your 
legislation and what we are proposing as a set of concepts.
    No, for the reasons you state, this is one market. They are 
part of this market, and they ought to be included. And the 
reason I suggested earlier that I thought that, despite some 
holding back on their part now, there was a good prospect that 
they could come aboard, is the very cost of capital discrepancy 
which would be created, which I think there is a growing 
recognition of. And that will compel their entry into this 
regulatory system, or else they will be at a terrible 
competitive disadvantage. So I think, at least I am hopeful, 
that as they see this legislation moving, they are going to 
want to be aboard.
    Mr. Royce. Well, I think we should include--you know, as we 
move forward, I think for all of the reasons that you have 
indicated, Secretary Martinez has indicated, we should put 
forward this legislation in the optimal version and see if we 
cannot gather political support for it as we mark up the 
legislation. That is what I am proposing.
    Secretary Snow. Congressman, I would very much agree with 
you and hope that we can do that. I do want to make this point 
clear, though, that from the Administration's point of view, 
from Treasury's point of view in particular, just changing the 
geography creates no rationale to put it in Treasury.
    The rationale for putting it in Treasury is this broader 
market knowledge which can be brought to bear on these issues 
because these markets integrate with lots of other markets.
    Mr. Royce. And the expertise and managing those and so 
forth. Thank you, Mr. Chairman.
    Mr. Baker. The gentleman's time has expired.
    Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman.
    I thank you, Secretary Snow and Martinez, for your 
testimony, and I am pleased that the Administration has joined 
the debate on reform of the GSE regulators. I personally have 
long believed that the GSE regulators should be strong and 
independent and not subject to the yearly appropriations 
process to preserve safety and soundness, and I have 
cosponsored legislation in the past, advocating this position. 
I believe the current situation where OFHEO's resources appear 
to be stretched thin as it deals with the Freddie Mac 
restatement is an example of why this reform is needed.
    But before I get into specific questioning, I also want to 
say that I am very concerned with the developments at the 
Federal Housing Finance Board on the issue of multidistrict 
bank membership. If we are going to have a 21st century Federal 
Home Loan Bank system, I believe it needs to reflect the 
reality of today's financial services industry where company 
operations are no longer confined by region or state lines. And 
I want to let you know that I want to work with you to resolve 
this issue, if it is determined that legislation is needed to 
make multidistrict membership possible.
    My first question deals with GSE loan limits. Currently the 
GSE loan limit is well below the cost of the average moderate 
family home in the district that I represent, and many others 
across the nation. And I would like to know, is there any 
inclination on behalf of the Administration to further reduce 
that limit in any legislation, and do you favor keeping the 
process the same for setting the loan limits?
    Secretary Martinez. Congresswoman Maloney, if I might try 
to answer that. I would say that we have reviewed that at HUD 
from time to time, and have concluded that under the various 
suggestions that have been made, the limits would probably 
remain the same, given a different way of analyzing it from 
what currently is done.
    And at this time we would be willing to discuss this 
further with Members if this is your desire, but we do not have 
a proposal to alter the current way in which the loan limits 
are set. It is not part of what we are proposing today, but we 
would be open to discussing it further.
    Mrs. Maloney. Thank you.
    And, Mr. Snow, you mentioned the wider range of knowledge 
of Treasury, and I would like to really question how GSEs would 
fit into Treasury's role as a participant in the capital 
markets. And as you know, the Federal deficit will well exceed 
a record half trillion dollars in fiscal year 2004, and are you 
concerned that there could be a potential conflict between 
Treasury's role as a participant in the capital markets 
actively working to finance the U.S. debt, which now will be 
with us for many years, and the role as a regulator of GSEs, 
who are massive participants in the markets in their own right, 
and would--do you see a conflict, or would you favor specific 
measures to prevent conflicts?
    Secretary Snow. Congresswoman, today, recognizing that both 
Treasury and the GSEs are large participants in the debt 
markets of the United States, we have a process for very close 
coordination. And before the GSEs go into the market with their 
debt instruments, they coordinate with Treasury so as to make 
sure that we know what they are doing, and we aren't acting in 
some way which exacerbates some market condition.
    I don't see any reason why that would change. And whether 
we go forward with--whether you go forward with legislation to 
create this new entity, or whether that entity is in or out of 
the Treasury, that coordination, which is a well-established 
practice, would continue.
    Mrs. Maloney. So you don't think there would ever be a 
situation where Treasury would threaten GSEs because of how 
their debt issuances could increase competition with the U.S. 
government and the debt market?
    Secretary Snow. No, ``threaten'' is the wrong word. There 
is an interesting coordination, though, and that coordination 
goes on today where we regularly are in conversations with the 
GSEs about their debt issuances. That is I think an important 
practice, to continue to preserve orderly markets, but it is 
not a matter of threatening. It is a matter of maintaining 
orderly markets.
    Mrs. Maloney. My time is up. Thank you very much.
    Mr. Baker. I thank the gentlewoman for yielding.
    Mrs. Kelly.
    Mrs. Kelly. Secretary Martinez and Secretary Snow, thank 
you very much for your patience with our questions.
    Secretary Snow, I want to congratulate you on the structure 
of what I perceive to be an attempt to remove politics from a 
regulating system. The independent funding that you have asked 
for the new agency is one step. The other step is the fact that 
you would remove all presidential appointments from the boards. 
I think that limiting those two political possibilities with 
regard to this new agency really goes a long step toward 
removing politics, and I congratulate you on that because I 
think the American public really does not want a political 
situation. This is a financial situation and should be not 
involved in political structures, but if you are asking for no 
presidential appointments on the Fannie and Freddie boards, 
would you also call for no presidential boards on the boards of 
the Federal Home Loan Banks?
    Secretary Snow. That is an issue that I have not addressed 
in my testimony and for some reason have not had a chance to 
give much thought to. Let me think about that and get back to 
you because I have not. Maybe Secretary Martinez----
    Secretary Martinez. I believe that currently board members 
of the home loan bank boards are not Presidential appointments.
    Secretary Snow. The Federal Housing----
    Mr. Martinez. That is right. There are no Presidential 
appointments.
    Mrs. Kelly. So what you are saying then, there would be no 
Presidential appointments to the boards of Fannie, Freddie, any 
of the GSEs, including the Federal Home Loan Banks, if the 
Federal Home Loan Banks were to be a part of this agency; is 
that correct?
    Secretary Snow. That is my understanding. Because they are 
currently appointed by their----
    Secretary Martinez. Members of the Federal Housing Finance 
Board.
    Secretary Snow. By their board members, yes.
    Mrs. Kelly. I wanted to ask one more question, and that is, 
in your testimony, you talk about timely corrective action. 
Would you be willing, both of you, to talk about what you 
consider to be timely corrective action? What do you envision 
in terms of some kind of an absolute stringent action and a 
strong fine? What are we talking about here?
    Secretary Martinez. Well, I would say--and, by the way, I 
also want to point out that our request is also that those 
parts of HUD's oversight over the GSEs that remain would also 
be independently funded, just as the Treasury would be. But I 
would say that, for instance, if we were to find a deficiency 
in meeting housing goals that we would immediately have the 
opportunity for enhanced civil penalties that could accrue or 
to take other administrative actions to enforce our housing 
goals so that we could direct the GSEs to take certain actions 
to enforce the housing goals. Right now, while they have always 
met them in the past, I think the goal setting as well as our 
enforcing of the failure to meet them would be a little up in 
the air.
    Mrs. Kelly. Secretary Snow, do you want to answer that?
    Secretary Snow. With respect to the soundness and safety 
and that whole range of the regulatory jurisdictions, the 
timing would depend on the regulator's determination of what is 
needed. I wouldn't put any strictures or constraints on the 
regulator.
    Mrs. Kelly. So you would leave it up to the regulators?
    Secretary Snow. To act as needed, yes.
    Mrs. Kelly. I would like to explore that with both of you a 
little bit more, but I am going to yield my time. Thank you 
very much for being here.
    Mr. Baker. [Presiding.] I thank the gentlelady for yielding 
back.
    Mr. Gonzalez.
    Mr. Gonzalez. Thank you, Mr. Chairman.
    I am going to make some general observations which will be 
the backdrop for the questions.
    You have heard a lot about consensus. My understanding of 
the consensus that has been reached among members is that OFHEO 
did not do a great job, and we can improve on it, and we should 
improve on it. That is our responsibility and duty. But I 
haven't heard the consensus that we are going to change the 
character or the purpose of a GSE. Because I would challenge 
everyone to say if you don't have them in the present capacity 
in what they do, then who would fill that void? And there is 
room for everyone out there. I truly believe that. I believe in 
the competition and I believe in the products being out there, 
whether it is the private sector or GSE. It is a combination. 
But there is a demonstrated need for the GSE. That is why they 
were created and why they continue to be viable today.
    There should be constant, effective oversight. How are we 
going to do that? We can do it better than OFHEO. My fear, 
though, which you all have outlined, and my understanding is 
that you all are in agreement, there is a meeting of the minds 
that you understand GSE's role, how pivotal and important they 
are, and you want to maintain that. So I am hoping that I am 
reading that correctly.
    Secretary Martinez. Let me leave no doubt about that. You 
are reading that totally correctly. There is no 
misunderstanding there.
    Mr. Gonzalez. I appreciate that because then we are all on 
the same page when it comes to that. Let us just see when we 
get to the last chapter it remains in that form.
    My question to you is, my fear is--which you have 
outlined--really it does contemplate indirectly or de facto 
changing the charter, changing the mission, changing the 
status, and even micromanaging GSEs if you think about what you 
all are proposing. Because if you go over just your statements, 
which are general in nature, I know, but the powers are going 
to be so broad that this world-class regulatory agency is going 
to have that they could affect it, and I can say de facto or 
even directly with some of the powers that you would have.
    So the first question, and it will address it and will 
allow you to elaborate on it, let us say Secretary Martinez is 
in sync with the GSEs as to the goals, the mission, the product 
that gets them there, the means to the end. But you are only 
consulting. They only consult you, this world-class regulatory 
agency that may be within Treasury or I don't know where. 
Which--my second question is world-class regulators require 
world-class expenditures and finances, but that is the second 
part of the question. The first one is the Secretary is in sync 
with GSE and such, they know the products that will get them 
there but wouldn't Treasury, if the regulator was in Treasury, 
have the final say? Don't they trump you? Don't they trump the 
GSE, which goes back to micromanagement?
    Secretary Martinez. What I view as a more important 
function of HUD's role as the housing-oriented department is 
the housing goals. I believe that as to safety and soundness, 
where now we have absolutely no oversight over the GSEs because 
it is done by OFHEO which by statute is independent of HUD and 
the only change would be that also the current and new programs 
would then be reviewed by Treasury or by the new regulator, the 
fact of the matter is that new program approval is not as vital 
a function towards the housing goals of the GSEs as the goals 
themselves. So we believe that under this regulatory scheme it 
will not lead to necessary conflict but it also will enhance 
our ability to enforce the goals and set the goals more 
appropriately, while giving Treasury the ability to do 
appropriate oversight over safety and soundness.
    Don't forget that we are looking now at entities that are 
in the neighborhood of $1.5 trillion. These are very vital 
entities to the American economy, and I believe that by 
definition HUD is not a financial regulator. Some of these 
other regulations that you might define as micromanaging are 
really no different than the regulations that today any 
commercial bank has to live by in terms of bank examiners and 
other bank regulators.
    So I don't believe that we are really looking to 
micromanage the entities. In fact, they are successful, and 
they are vital. What we are looking to do is enhance the 
confidence that the investor community would have in this 
regulatory scheme that would then give them an enhanced ability 
to continue to attract more and more market from around the 
world into the housing market for the American taxpayer.
    Mr. Gonzalez. But the new regulator has the final say as to 
how you get from A to B?
    Secretary Martinez. It has the final say as to safety, 
soundness and current and new product approval, but it does not 
have the final say as to what the housing goals should be. And 
even today we have that current tension.
    Mr. Gonzalez. I understand that, but how you achieve those 
goals is pretty important, isn't it?
    Secretary Martinez. Yes. But the regulator doesn't tell 
Freddie and Fannie--HUD doesn't tell Fannie Mae and Freddie how 
to achieve those goals. We tell them here are the housing 
goals----
    Mr. Gonzalez. The Treasury, would because they would have 
final say over a particular product at any given point in time.
    Mr. Baker. That has to be the gentleman's last question 
because he has expired his time. But would you care to respond?
    Mr. Gonzalez. If Secretary Snow or Secretary Martinez would 
answer.
    Secretary Martinez. I think since I have been in the line 
of questioning maybe I should finish what I started, but I do 
believe that at the end of the day with consultation from HUD 
that we would achieve the kind of joint decision that is 
necessary and that responsibly we should come to it. I mean, it 
is not an either/or. I think we can work together to get this 
done; and, frankly, I would be greatly relieved not to have the 
appearance of authority without the actual authority that 
currently HUD enjoys.
    Secretary Snow. Could I just respond as well that we think 
of this new regulator--the GSEs take their mission and their 
goals from HUD and, within those set of parameters, the new 
regulator would regulate with respect to safety and soundness. 
On this issue of micromanagement, the powers that we are 
seeking to give the new regulator are the powers that first-
class bank regulators have, that the OCC has or Federal Reserve 
has, and I do not think anybody says that the Federal Reserve 
or the OCC is micromanaging the Nation's banks and neither by 
using these powers will the new regulator be involved in 
micromanaging these financial institutions.
    Mr. Baker. The gentleman's time has expired.
    Mr. Paul.
    Mr. Paul. Thank you, Mr. Chairman.
    I first want to compliment Mr. Baker for having pursued 
this issue. He has been looking at it for quite a few years and 
has kept it alive, trying to point out some of the problems 
that the GSEs face with the excess of debt and some of the 
problems that we face. But I think that, from the conversation 
I have heard today, the consensus is that we just do not have 
enough regulations and all we need is a world-class regulator 
and everything is going to be okay.
    I think we are failing to look at the real problem and the 
cause of our crisis we face. I am concerned that we are going 
to have a world-class adjustment to the distortions that we, 
the Congress, the Fed, and the Treasury have created over these 
last several decades; and it seems like there is essentially no 
concern about that.
    These programs were originally set up to help poor people 
get affordable housing; today we have a program that helps 
people buy a house for over $300,000 and get subsidy for their 
mortgage payment. At the same time, the administrators of these 
programs make millions of dollars. So I think we have lost our 
way on this.
    But the biggest concern I have is that Congress is not 
looking at the real problem, and to me it has been this implied 
credit and implied guarantee of this credit, are we going to 
get rid of this line of credit? Not likely, because that would 
cause a bit of chaos. But that is what has really blown these 
markets up, and they are distorted.
    Also, we have the Fed very much involved in this. They 
probably wouldn't admit it, but the Fed on occasion will buy 
GSE securities. Foreign central banks buy these securities 
because it is implied that the Fed is going to come to the 
rescue.
    Right now, overseas foreigners are buying less of these 
securities, and the dollar is a little weaker, and what is 
going to happen when they quit buying them or selling them and 
what is going to happen to our investors who buy Ginnie Mae and 
Freddie Mac? When the dollar weakens, interest rates go up. 
Already the interest rates are rising long term. Could a world 
class regulator deal with that? Not likely. I mean, I am 
concerned that there is going to be a panic out of these 
things. As the dollar goes down, interest rates go up. And we 
still haven't looked at the problem and that is this allocation 
of credit, taking money out of the market, excess of credit to 
begin with because the Fed is pumping it up just like they 
pumped up the credit into the NASDAQ and you had to have a 
burst in that bubble.
    Some people think there could be a bubble here. Who knows, 
though? It might be a great bit of distortion, but there will 
be a correction.
    I am concerned, and I would like Secretary Snow to comment 
on this. Do you have a concern yourself about what could happen 
here? This is a huge amount of debt, a lot of investors, a lot 
at stake. What happens if mortgage rates go up three points in 
the next year and the dollar keeps weakening? We have a huge 
current account deficit, and the currency always goes down when 
you run an account deficit like this.
    So I would say that we are missing the whole point here 
thinking that all we need to do is come up with a new agency 
and a world-class regulator and we are going to do some good if 
we don't address the subject of the dollar and interest rates.
    Secretary Snow. Congressman, as you know, the dollar and 
the interest rates are largely a function of monetary policy, 
right? And, no, we are not proposing to put the Fed under this 
new regulator. What we are proposing to do is to put these 
housing entities that have such impact on financial markets 
under this new regulator and give that new regulator the 
complete authority that would be needed to deal with the 
soundness and safety of the financial system that it oversees. 
That would be helpful.
    Some of the issues you deal with are properly approached 
through a sophisticated, risk-based set of capital standards 
with a sophisticated regulator applying those risk-based 
capital standards and adjusting the capital requirements to the 
risks; and those risks include the ones you have outlined, the 
risks of interest rates going up 300 basis points or falling 
300 basis points. That is what that sophisticated new regulator 
would be required to look at.
    We are saying, remove the current statutory restrictions on 
how you look at risk-based capital. Let the regulator free to 
apply the most sophisticated and current and modern approaches 
to the question of appropriate capital structure for these 
entities.
    So, no, we do not go the whole way here in dealing with 
some of the external factors that drive these markets, but 
taking those external factors is something we cannot control 
through this entity. We give the entity the ability to set the 
capital standards in a way to take those factors into account.
    The Chairman. [Presiding.] The gentleman's time has 
expired.
    The gentleman from North Carolina, Mr. Watt. Do you want to 
try the other mike? This is not a conspiracy. It is like 
pitching from the stretch.
    Mr. Watt. Nice to know that my baseball coach is not 
conspiring against me.
    The Chairman. Only once a year.
    Mr. Watt. Thank you, Mr. Chairman.
    I thank Secretary Martinez and Secretary Snow for being 
with us. It has been interesting.
    I guess I have the capacity intellectually to differentiate 
between regulation of safety and soundness on one hand and the 
mission of the GSEs on the other hand as a practical matter. 
However, there are some real concerns that I have and I guess I 
need to put them out not necessarily for an answer today but to 
try to talk through publicly what my attitude might be unless 
some of these questions can get answered.
    It is a very powerful statement in your testimony, 
Secretary Snow, and that you have reinforced, that this 
Administration views the GSEs as, quote, ``private 
enterprises.'' private enterprises really have not done very 
well in achieving things other than making money. Most them do 
not really give much of a damn about poor people and whether 
they have housing or not, and it seems to me that an 
overemphasis in that direction can only make matters worse.
    Secretary Martinez was absolutely right in his response to 
an earlier question when he said that the problem is that HUD 
has never had the resources to meet the mission that it has 
been given, and I wonder whether this further bifurcation 
doesn't exacerbate that.
    I also wonder whether this may be a massive shell game, 
much on the order of what we did with the INS when this 
Administration decided we didn't need something called an INS 
anymore. Let us transfer the responsibilities over to the 
Attorney General and let the Attorney General deal with this.
    There seems to be a growing first and second team, first 
and second class of departments and the importance of 
departments in this Administration. Those that control the 
financial aspects of what is going on in the world and the 
security aspects of what is going on in the world seem to be 
getting bigger and bigger and bigger, and the ones that have 
some involvement with the human aspects of what is going on in 
our domestic environment seem to be getting smaller and smaller 
and smaller with less emphasis. So I am worried about that.
    I do not know how transferring oversight from OFHEO to the 
Treasury does anything other than move a shell. It is kind of 
enlightening to me that there is nobody here at this table to 
testify on behalf of OFHEO. Where are they? What do they think 
about this? Are they so second class now in this hierarchy that 
we are not even going to regard their opinion? They have been 
the regulators. They are the regulators currently.
    So there are some bigger issues going on here that I have 
trouble dealing with, and I will keep trying to grapple with 
them. I am trying to keep an open mind about this. I am not 
adverse to what is being proposed. I just don't see much other 
than a shell game going on here, moving something from one 
agency to another and in the process weakening the bargaining 
power of poor people and lower income and middle income people 
who need housing, when it is quite obvious to me that the 
private enterprise mentality of the GSEs and this 
Administration is directly at odds with the public mission of 
providing more housing to lower income people.
    The Chairman. The gentleman's time has expired. You may 
respond.
    Secretary Martinez. If I may comment on a couple of issues 
that Mr. Watt has raised.
    First of all, Mr. Watt, let me say that I don't believe we 
are intrinsically changing the mission of the GSEs, because we 
are not touching the charter, and their mission is really given 
by their charter, not by what we are talking about here, which 
is the regulations of their safety/soundness, new program 
approval, and their housing goals.
    Secondly, sir, I hope you will support this proposal that 
we have, because we are not going to create a smaller HUD. We 
are going to strengthen HUD. You are going to give me by this 
legislation a new GSE housing office within HUD. You are going 
to give me the ability to have that office independently funded 
so I do not have to have that office be only funded through the 
political process, and that is the way other financial 
regulators are funded. You are going to also give me the 
ability to have enhanced administrative authority to ensure 
those housing goals that we set are being followed. I am going 
to have enhanced civil penalties to enforce those housing 
goals, and the housing goals essentially are what you and I----
    Mr. Watt. Until the Treasury tells you, you can't do it.
    Secretary Martinez. That is not correct. That aspect of 
what I do will not in any way be under Treasury. The part that 
is less important to what we do but that is more connected to 
safety and soundness has to do with new and current program 
approval. Those things are more closely connected to safety and 
soundness. They should be under one regulator, not divided 
under two regulators.
    The Chairman. The gentleman's time has expired again.
    Secretary Martinez. One last thing, if I may say, if in 
fact there is an inference that right now because OFHEO somehow 
is under HUD that OFHEO and I are working together in oversight 
of GSEs, that is a misperception.
    Mr. Watt. All the more reason they should be on the table, 
it seems to me.
    The Chairman. The gentleman from Connecticut.
    Mr. Shays. I want to thank you both for being here.
    As someone who is tremendously concerned about the GSEs, I 
think this Office of Housing Finance Supervision is a step in 
the right direction. When I hear some of my colleagues talk 
about the present system working so well, in my judgment OFHEO 
is a joke. Congress gives them about one-third the money to 
regulate, and you all are asking that this office of 
supervision have no more power than the OCC, the FDIC, the 
Federal Reserve, and OTS, Office of Thrift Savings. So you are 
asking that they have no more power, but people in this 
committee do not think that the 20th and 40th largest companies 
or the second and fourth largest financial institutions should 
have the same kind of regulation. It blows me away.
    Now, I have to say to you, Secretary Snow, you blew me away 
when you said this, that you didn't think they should come 
under any security regulation in the 1933 Act because you said 
there is no evidence of fraud or corruption within any of the 
GSEs, which I think is about as an irrelevant a comment as you 
can think of.
    That is like saying the S&Ls, no problem here, but it blew 
up in our face. The auditors doing consulting, this committee 
came and said, no, we don't mind auditors doing consulting. 
That blew up in our face.
    Enron, the directors didn't direct, the managers didn't 
manage, the employees didn't speak out, the lawyers didn't do 
their job, the auditors didn't do their job, the bankers didn't 
do their job, the investors didn't do due diligence, the rating 
agencies didn't do their job, but we saw no problem with Enron.
    But when we saw the problem with Enron, we then said we are 
going to have Sarbanes-Oxley. And, Secretary Snow, when we did 
Sarbanes-Oxley, the GSEs didn't come under it because they 
didn't come under the '33 and 1934 Act. So then what did we do? 
We voluntarily got them to comply to the 1934 Act.
    I don't understand how we can say that trillions of dollars 
of transactions shouldn't be looked at. And could you explain 
to me why your position would be diametrically opposite to 
Allen Greenspan who didn't say we haven't seen corruption? He 
said, of course they should be under it. They are a Fortune 500 
company. Please explain to me why.
    Secretary Snow. Well, Congressman, as you I think know, we 
have been in the forefront of urging both Fannie, Freddie and 
the home loan banks to go under the 1934 Act.
    Mr. Shays. Why urge? Why is it their decision? And Freddie 
hasn't even done it yet. And let me ask you this: With all due 
respect, isn't it true that Freddie is in a little problem 
right now?
    Secretary Snow. If I could just complete the answer, 
because I think you will get the full picture then.
    Mr. Shays. I am sorry.
    Secretary Snow. We don't have the authority to mandate they 
go under the '34----
    Mr. Shays. You can recommend.
    Secretary Snow. Well, that is what I am saying.
    Mr. Shays. But you recommended they may not.
    Secretary Snow. No. Let me just finish the answer, and then 
I think you will get the full story.
    We have urged them to go under the 1934 Act. Now, you know 
the 1934 Act. The 1934 Act deals with corporate disclosures. It 
is the act which is the subject of Sarbanes-Oxley, and it is 
the fundamental act to oversee the regulation of the securities 
markets. We think it is essential that those entities all be 
under the 1934 Act.
    Mr. Shays. What about the 1933 Act?
    Secretary Snow. Now let me move to the 1933 Act and make a 
distinction. The 1933 Act deals with a different subject. It 
deals with registration of securities, which is a separate 
subject, related but separate.
    Mr. Shays. You don't think that is important?
    Secretary Snow. If you will let me, I will finish and tell 
you what I do think. I think that there is no need demonstrated 
for those entities to go under the 1933 Act. And maybe you 
weren't here when I addressed this earlier, but what I said 
earlier is----
    Mr. Shays. I just don't want to take my time. You have said 
there is no need, and I understand. We just have a dispute.
    Secretary Snow. But I am trying to explain why there is no 
need. There is no evidence of any fraud in the issuance of 
securities.
    Now, what the 1933 Act deals with----
    Mr. Shays. I need to interrupt you because you have just 
repeated your statement. But the bottom line is it has a lot to 
do with their reserve requirements, and we know that these 
institutions have half the reserves set aside, and I just want 
to get to the second point. You, to Mr. Baker, said that this 
new authority can exchange reserve requirements, correct?
    Secretary Snow. Yes. We----
    Mr. Shays. But you said----
    Secretary Snow.----are proposing a broad expansion in the 
authority with respect to risk-based reserves.
    Mr. Shays. But not minimum?
    The Chairman. The gentleman's time has expired.
    Mr. Shays. Can he answer that question? Not the minimum?
    The Chairman. The gentleman's time has expired. The 
Secretary could answer----
    Mr. Shays. The gentleman was allowed to answer the 
question----
    The Chairman. The Secretary may respond.
    Secretary Snow. We see no need to change the minimum 
standards now. What we are proposing, though, is that the 
agency have all the authority it needs to deal with capital 
standards, and my comments I think were misconstrued by you 
when you said I was making some observations with respect to 
general practices at these agencies. I was simply talking about 
the 1933 Act, and there we see no need for inclusion. In fact, 
as I said earlier, I think the SEC has observed that they don't 
want to see that happen because the issuances are so vast that 
they would overwhelm the process. Congressman, as you probably 
know, today, the Treasury has authority with respect to the 
issuance of debt instruments by those entities, and we have 
seen no necessity to exercise that jurisdiction.
    The Chairman. The gentleman from New York, Mr. Crowley.
    Mr. Crowley. I thank the Chairman.
    I sat here through two and a half hours of testimony, and I 
appreciate it, and I know both of you gentlemen have as well. 
Both Secretaries have given--it is interesting to me in sitting 
here listening to the discussion and your testimony earlier 
that two Secretaries woke up one morning and decided that one 
would transfer part of their jurisdiction to the other without 
considerable amount of discussion and including discussion I am 
assuming with the apolitical wing of the White House in 
drafting just how that would come about, and I am sure there 
was considerable discussion, Secretary Martinez, within your 
agency as to whether or not this should happen in the first 
place.
    Obviously, transferring jurisdiction means responsibility 
shifting and a failure to some degree of HUD, not speaking 
specifically of your reign during this time but certainly 
throughout the history of HUD to properly investigate and to 
oversee these entities and now shifting them to Secretary 
Snow's division.
    I know back in 2002 there was an amendment of VA HUD that 
was proposed I believe by Mr. Hinchey to increase the funding 
for OFHEO to help them in terms of their needs to properly 
regulate Freddie Mac and Fannie Mae, and I will just note that 
that amendment was defeated. If it was even allowed to be 
brought up on the floor I believe it was defeated by this 
Congress.
    I think it is interesting that back in 2002 there was an 
attempt made to try to bolster the oversight capabilities of 
HUD, that it was defeated by this Congress and now the result 
is that we see that the answer is to shift responsibility from 
the entity that we did not properly in my opinion give 
resources to enough to do the job, and we all have had problems 
with the oversight, to properly do the job, so the answer is 
let us not try to fix it within HUD, let us transfer 
responsibility, in fact creating more bureaucracy. I think it 
is interesting under this Administration of a Republican 
presidency and Republican government both in the House and the 
Senate they are actually creating more bureaucracy, is rather 
interesting from my point of view as a Democrat.
    Secretary Snow, I can't help but have you here in front of 
me as well at this time to just comment on the overall issue 
that really I think is the heart of what Americans are 
concerned about right now. Some of it relates to what we are 
talking about. You mentioned earlier that there is no apparent 
immediate need to do this. I am concerned somewhat about what 
effect this may have on the overall market, the secondary 
market but also the market in general.
    We know that jobs continue to be lost in this country. I 
just note for August alone 93,000 jobs were lost in this 
country. That was after the $350 billion tax cut. The 
President's package went into effect, and we were told we were 
going to see an increase in job creation. In fact, we continue 
to lose jobs. At this rate, the President will not see the 1.4 
million jobs that he has promised through the end of 2004 if 
this continues, and I believe it probably will continue.
    My question really is, what is happening in this economy? I 
asked the same question of Chairman Greenspan and got a 
roundabout answer. And where are the jobs that this country 
needs in order to get us back on our feet?
    Secretary Snow. Jobs depend upon growth and getting a 
strong recovery. The recovery is beginning to get under way. In 
fact, it is accelerating; and with the recovery I am confident 
we will see jobs expand and unemployment come down. But 
employment is a lagging indicator, and one of the things that 
is remarkable, Congressman, about the American economy today is 
the intensity with which companies and businesses are pursuing 
productivity.
    The last 3 years have been a period of relatively weak 
demand following periods of ebullient demand, very strong 
demand, and now without that strong demand, companies have 
looked at their cost structures and they have taken out an 
extraordinary amount of costs. They have learned to do more 
with less. They have gotten more productive, as revealed by 
those productivity numbers that came out for the last quarter. 
While that is good in the long run because it make the pie 
bigger and creates more overall wealth, it is complicating in 
some ways this jobs picture. But with the strong growth we are 
going to see, I am confident, in the quarters ahead as growth 
is now forecast at over 4 percent by many outside forecasters 
for the second half and over 4 for '04. We will see those jobs 
come back.
    Mr. Crowley. Do you want to change the President's 
anticipation of job growth of 1.4 million?
    The Chairman. The gentleman's time has expired.
    Before I recognize the gentleman from Texas, I know, Mr. 
Secretary, you have a very important appointment at the White 
House at one o'clock; is that correct?
    Secretary Snow. Yes, Mr. Chairman.
    The Chairman. We will be recognizing Mr. Hensarling for the 
last round of questioning, and the Chair would indicate that 
members have 30 days in which to submit written questions to 
either you or to Mr. Martinez. The gentleman from Texas.
    Mr. Hensarling. Thank you, Mr. Chairman. Not wanting to 
hold up the President of the United States, I shall be brief.
    Not long ago, the Administration nominated Mark Brickell to 
head up OFHEO. Should Congress pass legislation transferring 
OFHEO's responsibilities to a new agency, is it the 
Administration's intention to nominate Mr. Brickell to head 
that agency? Do either of you gentlemen have insight into that?
    Secretary Martinez. I don't believe I have any information 
about that that I can share with you.
    Mr. Hensarling. Secretary Snow?
    Secretary Snow. Neither do I, except to say we have a high 
regard and support the pending nomination of Mr. Brickell.
    Mr. Hensarling. There was an article in the Wall Street 
Journal today alluding to a study floating around in the other 
body indicating that a failure of the GSEs could cost the 
taxpayers hundreds of billions of dollars. I am curious, are 
you familiar with the study and, if so, do you consider it 
unduly alarmist? What opinion might you have on potential 
taxpayer exposure?
    Secretary Snow. I have not seen that study. I just saw the 
newspaper reference to it, Congressman. We look forward to 
getting into that, but, no, I have not seen it.
    Mr. Hensarling. Finally, in the discussion of including the 
Federal Home Loan Banks into the ambit of potential 
legislation, do you consider the safety and soundness issues to 
be similar, or to be identical? Also, given that the Federal 
Home Loan Banks are not publicly traded companies, should they 
be under the same regulatory burden and financial disclosure of 
publicly traded companies?
    Secretary Snow. As you know, some of them have sought to 
get under, to make the same disclosures as publicly traded 
companies and probably will move in that direction in the 
future. Yes, I think for reasons I went over earlier that they 
present the same sorts of issues. They are in the same 
fundamental markets, and their soundness and safety regulation 
ought to be comparable to the other GSEs.
    Mr. Hensarling. Mr. Chairman, I yield the balance of my 
time to Mr. Baker.
    The Chairman. I thank the gentleman.
    Mr. Baker. Mr. Chairman, I believe the gentleman is going 
to yield to me.
    The Chairman. I am sorry.
    Mr. Baker. I will make it real quick.
    Just for points of clarification, Mr. Secretary, on the 
capital issue, I understand the position currently is we do not 
seek nor do we expect to change any capital standard 
immediately on establishing whatever this new regulatory body 
would look like. But coupled with that is the statement that we 
do not, however, wish to limit our authority to change capital 
standards as we see fit both with regard to minimum or risk-
based, based on a staff analysis of the risk assessment of the 
institutions or leverage or whatever standards professionals 
may choose to use. You do not want to have a regulatory system 
that constrains your ability to act in the public interest.
    Secretary Snow. That is right. That ought to be the 
decision of the new regulator.
    Mr. Baker. Thank you. I thank the gentleman for yielding.
    The Chairman. The gentleman's time has expired.
    On behalf of the entire committee, let me thank both of you 
gentlemen for what was an extraordinary hearing. We have 
covered a lot of ground. We appreciate both your strong 
leadership on this issue, and the committee now stands 
adjourned.
    [Whereupon, at 12:45 p.m., the committee was adjourned.]


                            A P P E N D I X

                           September 10, 2003

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