[Congressional Record Volume 151, Number 6 (Wednesday, January 26, 2005)]
[Senate]
[Pages S599-S600]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

         By Mr. HAGEL (for himself, Mr. Sununu, and Mrs. Dole):

  S. 190. A bill to address the regulation of secondary mortgage market 
enterprises, and for other purposes; to the Committee on Banking, 
Housing, and Urban Affairs.
  Mr. HAGEL. Mr. President, I rise today to introduce, along with my 
colleagues Senators Sununu and Dole, the Federal Housing Enterprise 
Regulatory Reform Act of 2005. This is needed regulatory reform at a 
critical time for the Federal National Mortgage Association (Fannie Mae 
the Federal Home Loan Mortgage Corporation, Freddie Mac, and the 
Federal Home Loan Banks.
  There is no doubt that our housing government sponsored enterprises 
GSEs, have been successful in carrying out their mission of providing 
liquidity for the housing market. The market has remained strong 
through tough economic times, and homeownership in this country is at 
an all-time high.
  The housing GSEs, however, are uncommon institutions with a unique 
set of responsibilities and stakeholders. Fannie and Freddie are 
chartered by Congress, limited in scope, and are subject to 
Congressional mandates, yet they are publicly traded companies with all 
the earnings pressure that Wall Street demands. Additionally, Fannie 
and Freddie enjoy an implicit

[[Page S600]]

guarantee by the Federal Government that has aided them in developing 
substantial clout on Wall Street. With their influence in the markets, 
their ability to raise capital at near-Treasury bill rates, and their 
use of the most sophisticated portfolio management tools, Fannie and 
Freddie today are no longer simply secondary market facilitators for 
mortgages.
  The significance of Fannie Mae and Freddie Mac to our economy cannot 
be overstated. Together, the companies own or guarantee roughly 45.6 
percent of all mortgage loans in the United States. The companies 
combined have issued over $3.9 trillion in obligations comprised of 
$2.2 trillion in mortgage backed securities and $1.7 trillion of GSE 
debt.
  It is clear that the recent revelations at both Freddie Mac and 
Fannie Mae precipitate the need for Congress to address GSE regulatory 
reform. In 2003, Freddie Mac found itself treading through a wave of 
accounting problems and questionable management actions. That led to an 
income restatement of $5 billion, a penalty of $125 million and the 
removal of several members of its executive management. One year later, 
a similar surge of questionable practices was discovered at Fannie Mae. 
That led to the retirement and resignation of two of Fannie Mae's top 
management officials, as well as last month's ruling by the Securities 
and Exchange Commission, SEC, that Fannie could face a $9 billion 
income restatement.
  At a minimum, the bar for a GSE should not be held lower than it is 
for any other company. In fact, given its congressionally chartered 
mission to serve a public interest, the bar should be held 
significantly higher. The operations of such companies should be 
managed with uncompromising integrity and unabridged transparency.
  Our legislation would create a new independent world class regulator 
for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Our bill 
provides the new regulator with enhanced regulatory flexibility and 
enforcement tools like those afforded to the Federal Deposit Insurance 
Corporation, the Federal Reserve System, the Office of the Comptroller 
of the Currency and the Office of Thrift Supervision. Furthermore, the 
bill would:
  Provide the new regulator the authority of receivership to close down 
a failing GSE and protect against a taxpayer bailout; provide the new 
regulator greater discretion in raising capital standards to protect 
against insolvency; provide the new regulator approval power over new 
programs and activities proposed by a GSE; provide the regulator with 
greater authority to limit exit compensation packages or golden 
parachutes for executives removed for cause; require the annual audits 
of Fannie Mae's and Freddie Mac's affordable housing programs to ensure 
that these programs support the enterprises' affordable housing 
mission; end presidential appointments to the board of directors of 
Fannie Mae and Freddie Mac, and would require all Federal Home Loan 
Bank directors to be elected.
  This reform is important to restoring and maintaining the confidence 
that investors and the markets require. In light of the recent problems 
at Freddie Mac and Fannie Mae, it is even more important. I urge my 
colleagues to support this reform effort and invite them to cosponsor 
our bill.
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