[Congressional Record Volume 146, Number 20 (Tuesday, February 29, 2000)]
[Extensions of Remarks]
[Pages E197-E199]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


           HOUSING FINANCE REGULATORY IMPROVEMENT ACT OF 2000

                                 ______
                                 

                         HON. RICHARD H. BAKER

                              of louisiana

                    in the house of representatives

                       Tuesday, February 29, 2000

  Mr. BAKER. Mr. Speaker, today, Chairman Leach and I introduce a bill 
to improve the regulation of the three housing GSEs: FannieMae, 
FreddieMac, and the Federal Home Loan Banks.
  The bill is designed to implement a GAO recommendation to consolidate 
GSE regulation into one independent board. Currently, three agencies 
regulate the three housing GSEs. The Federal Housing Finance Board 
regulates the Federal Home Loan Banks for safety and soundness and 
mission compliance. HUD regulates the mission compliance of FannieMae 
and FreddieMac; the Office of Federal Housing Enterprise Oversight 
regulates them for safety and soundness.
  Based on several studies it conducted, GAO found that the creation of 
a single regulator to oversee both safety and soundness and mission 
compliance of the housing GSEs would lead to improved oversight. GAO 
identified these advantages:
  A single regulator could be more independent and objective than the 
separate regulatory bodies and could be more prominent than either 
OFHEO or FHFB.
  The regulators' expertise in evaluating GSE risk management could be 
shared more easily within one agency.
  A single regulator would be better positioned to be cognizant of 
specific mission requirements, such as special housing goals or new 
programs, and should be better able to assess their competitive effect 
of all three housing GSEs and ensure consistency of regulation for the 
GSEs.
  GAO analyzed different regulatory structures that could be used for a 
single housing GSE regulator. It found that an independent, arm's-
length, stand-alone regulatory body headed by a board would best fit 
its criteria for an effective regulatory agency. GAO cited these 
advantages:
  An independent regulatory body should be positioned to achieve the 
autonomy and prominence necessary to oversee the large and influential 
housing GSEs.
  Using a board would enable Congress to provide for representation 
that could help ensure the regulator's independence and provide 
appropriate balance and expertise in the regulators' deliberations of 
both safety and soundness and mission-related issues.
  A board could be structured to provide equal links to HUD, due to its 
role in housing policy, and Treasury, due to its roles in finance and 
financial institution oversight.
  I believe that an independent board consisting of five persons, 
including representatives from HUD and Treasury, is a more effective 
oversight agency for the three housing GSEs than the current regulatory 
system. The Federal Home Loan Banks, FannieMae, and FreddieMac have 
essentially the same mission: to provide access to mortgage credit for 
families throughout the United States. We should not have inconsistent 
regulations for them.
  In short, the bill seeks to improve supervision and to diminish the 
systemic risk of FannieMae, FreddieMac, and the Federal Home Loan 
Banks. The provisions in the bill intend to do the following:
  1. Consolidate regulation of the three housing GSEs.
  2. Reform the approval process for new GSE initiatives.
  3. Limit GSEs' non-mission related investments.
  4. Remove each GSE's line of credit with the Treasury.

[[Page E198]]

  5. Impose uniform risk-based capital requirements on the GSEs.
  6. Require annual credit ratings of each GSE.
  7. Puts into statute the current GSE practice of maintaining the 
conforming loan limit to reflect downward movement in average home 
prices.
  8. Equalize the capital treatment of GSE and private-label mortgage-
backed securities.
  9. Study the exposure of the deposit insurance funds to GSE failure.
  10. Gives authority to the new regulator; the power to appoint a 
receiver in case of GSE failure.
  Times of crises are never the best time to act because the focus is 
on past problems rather than on future risks. We must not forget the 
painful lessons from the 1980s. Taxpayers can be put at risk during 
systemic downturns in economic activity. The recommended actions in my 
legislation are
  The housing GSEs are large and growing larger. The total obligations 
of the three housing GSEs is about half of our $5.6 trillion federal 
debt. To assure they remain healthy throughout economic downturns and 
that taxpayers are never called upon to bail out GSEs, my bill aims to 
improve their supervision.
  I hope that the House of Representatives consider the merits of my 
legislation as I conduct a series of hearings.

                      Section by Section Analysis

       A Bill to consolidate and improve the regulation of the 
     housing-related government-sponsored enterprises and for 
     other purposes

                Title I--Housing Finance Oversight Board


                 Subtitle A--Improvement of Supervision

     Sec. 101. Establishment of Board
       The Housing Finance Oversight Board is established as an 
     independent agency in the executive branch. The Board 
     succeeds to the authority of the Director of the Office of 
     Federal Housing Enterprise Oversight (OFHEO), the Federal 
     Housing Finance Board (FHFB), and the Secretary of Housing 
     and Urban Development (HUD) in regard to the enterprises 
     (Fannie Mae and Freddie Mac).
       The Board consists of five full-time members, including the 
     Secretary of HUD, the Secretary of the Treasury, and three 
     U.S. citizens appointed by the President and confirmed by the 
     Senate for a term of six years.
       The appointed members must have extensive experience or 
     training in housing finance, financial institution 
     regulation, or capital markets. Not more than three members 
     may be from the same political party.
       No Board member may hold any office, position, or 
     employment with any FHLBank, enterprise, or FHLBank member, 
     or hold stock in any FHLBank member or enterprise.
       The President designates an appointed director to serve as 
     Chairperson of the Board. The Chairperson carries out the 
     Board's policies, acts as spokesperson for the Board, and 
     represents the Board in its official relations with the 
     federal government. The Chairperson acts as chief executive 
     officer of the Board, responsible for the operations and 
     management of the Board.
     Sec. 102. Duties and Authorities of Board
       The Board's principal duties are to ensure that the 
     enterprises and the FHLBanks operate in a financially safe 
     and sound manner, carry out their mission, and remain 
     adequately capitalized. The Board also exercises general 
     supervisory and regulatory authority over the enterprises and 
     the FHLBanks.
     Sec. 103. Public disclosure of Information
       The enterprises and the FHLBanks are required to publicly 
     disclose at least annually financial, business, and other 
     information that the Board determines is in the public 
     interest because the information would increase the 
     efficiency of the secondary mortgage market or the housing 
     finance system.
     Sec. 104. Personnel
       The Board may not delegate any function to any employee, 
     administrative unit of any FHLBank, or joint office of the 
     FHLBank System.
     Sec. 105. Assessments
       The Board may annually assess the enterprises for 
     reasonable costs and expenses, without Congressional 
     appropriations approval. Receipts from Board assessments on 
     the FHLBanks must be deposited in the same Treasury 
     Department Fund as assessments on the enterprises.
     Sec. 106. Public Disclosure of Final Orders and Agreements
       Public disclosure requirements of orders and agreements 
     concerning the enterprises are extended to the FHLBanks.
     Sec. 107. Limitation on Subsequent Employment
       The two-year limit on subsequent employment of former Board 
     officers or employees by the enterprises is extended to the 
     FHLBanks.
     Sec. 108. Regulations
       The Board must issue any regulations and orders necessary 
     to carry out its duties.
     Sec. 109. Termination of authority of HUD
       The Secretary of HUD's general regulatory authority over 
     the enterprises is removed, including affordable housing 
     goals. HUD retains Fair Housing Act responsibilities.
     Sec. 110. Approval of Board for New Activities
       The Board has the authority to approve new activities and 
     to review ongoing activities of an enterprise or a FHLBank to 
     ensure legal compliance.
       An enterprise or FHLBank may not commence any new activity 
     before obtaining the Board's approval. New activity is 
     defined for the enterprises and the FHLBanks, respectively. 
     The Board may approve a new activity only if it is authorized 
     by law, the Board determines the enterprise or FHLBank can 
     conduct the new activity in a safe and sound manner, and the 
     Board determines the new activity is in the public interest.
       An enterprise or FHLBank proposing to implement a new 
     activity must submit to the Board a written request for 
     approval; the Board will publish this request in the Federal 
     Register for at least a 30-day public comment period. Within 
     90 days of Federal Register publication, the Board will 
     approve or deny the request. If the Board denies a request, 
     the enterprise or FHLBank may seek judicial review of the 
     decision.
     Sec. 111. Limitation on Nonmission-related Assets
       The Board must limit the nonmission-related assets that the 
     enterprises and the FHLBanks may hold at any time.
     Sec. 112. Conforming Loan Limits
       Puts into statute the current GSE practice of maintaining 
     the conforming loan limit to reflect downward movement in 
     average home prices.
     Sec. 113. Definitions
       Inserts the new Board in the Definitions section.
     Sec. 114. Supervision of Federal Home Loan Bank System
       Makes the FHLBanks subject to the supervision and 
     regulation of the Board.
     Sec. 115 Amendments to Title 5, U.S. Code
       Strikes Director of OFHEO and Chairperson/Directors of FHFB 
     and inserts the new Board, with regard to executive schedule 
     pay rates.


                 Subtitle B--Reduction of Systemic Risk

     Sec. 131. Annual Review of Enterprises by Rating 
         Organizations
       The Board will annually provide for two nationally 
     recognized statistical rating organizations to assess the 
     financial condition of each enterprise, each FHLBank, and the 
     FHLBank System to determine the level of risk that they will 
     be unable to meet financial obligations, taking into 
     consideration the legal status that those obligations are not 
     guaranteed by the United States. These assessment must 
     include assigning a credit rating, using a scale similar to 
     what the organizations use for the obligations of other 
     financial institutions.
     Sec. 132. Annual Reports
       Requirements for annual reports and enforcement action 
     reports concerning the enterprises are extended to the 
     FHLBanks.
     Sec. 133. Risk-based Capital Test for Enterprises
       Allows the Board to make changes in the stress period 
     circumstances of the risk based capital test for the 
     enterprises.
     Sec. 134. Effective Date for Supervisory Actions
       Shortens from one year to six months the effective date for 
     supervisory actions applicable to undercapitalized 
     enterprises, subsequent to the risk based capital test taking 
     effect for the enterprises.
     Sec. 135. Appointment of Receivers
       If an enterprise is critically undercapitalized or a 
     FHLBank does not comply with its leverage and risk-based 
     capital requirements, the Board may appoint a receiver to 
     liquidate or wind up the affairs of the enterprise or 
     FHLBank.
     Sec. 136. Repeal of Treasury Lines of Credit
       Repeals the $2.25 billion line of credit from the Treasury 
     Department for each enterprise and the $4 billion line of 
     credit from the Treasury Department for the FHLBanks.
     Sec. 137. Board Membership on Federal Financial Institutions 
         Examination Council
       Makes the Board a member of the Federal Financial 
     Institutions Examination Council (FIFIEC).
     Sec. 138. Elimination of Super-lien for Federal Home Loan 
         Banks
       Eliminates the priority given a FHLBank's security interest 
     in the assets of a member financial institution that fails.
     Sec. 139. Federal Home Loan Bank Finance Corporation
       Establishes a FHLBank Finance Corporation as a federally-
     chartered instrumentality to issue and service the debt 
     obligations of the FHLBanks. Management of the Corporation is 
     vested in a board of directors, with each FHLBank having one 
     representative (an officer or director of the FHLBank) on the 
     Board. Consolidated obligations issued by the Corporation 
     shall be the joint and several obligations of all the 
     FHLBanks.
     Sec. 140. Capital Treatment of Private Label Mortgage-backed 
         Securities
       Expresses the sense of Congress that proposed agency rules 
     addressing the treatment of privately issued mortgage backed 
     securities under risk-based capital requirements are 
     appropriate and the final rules should not be significantly 
     altered.

[[Page E199]]

     Sec. 141. Study of Effects of GSE Failure on Depository 
         Institutions
       The Federal Deposit Insurance Corporation, in consultation 
     with the Federal Reserve Board, will conduct a study of the 
     existing exposure of depository institutions to default or 
     failure of the enterprises and FHLBanks and the effects such 
     failures would have on depository institutions. The study 
     will determine: (1) the extent of equity, debt, and mortgage-
     backed securities issued by the GSEs that is held by 
     depository institutions; (2) the likely implications for 
     depository institutions arising from such holdings if any GSE 
     fails to meet risk-based capital requirements, is more 
     severely undercapitalized, or defaults on its financial 
     obligations; and (3) the effects on the financial exposure of 
     depository institutions to GSEs from restricting loans to a 
     single borrower.


                     Subtitle C--General Provisions

     Sec. 161. Conforming and Technical Amendments
       Amends statutes to insert the new Board.
     Sec. 162. Effective Date
       The effective date is 270 days following enactment.

        TITLE II--TRANSFER OF FUNCTIONS, PERSONNEL, AND PROPERTY

     Sec. 201. Abolishment of OFHEO and Federal Housing Finance 
         Board
       The OFHEO and the FHFB are abolished, effective 270 days 
     following enactment. Various issues are addressed to 
     facilitate an orderly transfer of functions to the Board.
     Sec. 202. Continuation and Coordination of Certain 
         Regulations
       All OFHEO, FHFB, and HUD (related to the enterprises) 
     regulations and orders in effect upon abolishment must remain 
     in effect and be enforceable by the Board until determined 
     otherwise.
     Sec. 203. Transfer and Rights of Employees of Abolished 
         Agencies
       OFHEO and FHFB employees will be transferred to the Board. 
     Such employees are guaranteed a position with the same 
     status, tenure, grade, and pay as previously held. Each 
     employee cannot be involuntarily separated or reduced in 
     grade or compensation for 18 months following the transfer, 
     except for cause or temporary employee status. Membership in 
     employee benefit programs is also retained for 18 months.
     Sec. 204. Transfer of Property and Facilities
       Upon abolishment, all OFHEO and FHFB property transfers to 
     the Board.

     

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