[Congressional Record (Bound Edition), Volume 150 (2004), Part 4]
[House]
[Page 4618]
[From the U.S. Government Publishing Office, www.gpo.gov]




 THE ROLE OF HOUSING-RELATED GOVERNMENT-SPONSORED ENTITIES IN THE U.S. 
                                ECONOMY

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Rhode Island (Mr. Langevin) is recognized for 5 minutes.
  Mr. LANGEVIN. Mr. Speaker, today I rise in response to Federal 
Reserve Chairman Alan Greenspan's recent remarks about the role of 
housing-related government-sponsored entities, otherwise known as GSEs, 
and our economy.
  A day before Chairman Greenspan's controversial testimony regarding 
Social Security, his comments on a different issue caught my attention. 
While testifying before the Senate Banking Committee on February 24, he 
mentioned that the two largest housing GSEs, Fannie Mae and Freddie 
Mac, have grown so large that they could threaten the foundation of the 
entire United States economy if risks are not properly managed. I know 
that Chairman Greenspan is normally reserved in discussing financial 
markets because he understands the power that his words hold with 
investors. Therefore, his assessment of the GSE situation alarmed me.
  Greenspan's comments brought back painful memories of the 1990 Rhode 
Island banking crisis when fraud at the private deposit insurer 
resulted in the temporary closing of 45 financial institutions and the 
freezing of $1.7 billion in customer deposits. Due to negligence and 
mismanagement, Rhode Islanders could not touch their assets for up to 
36 days before the banks reopened, making it impossible for many 
families to pay their mortgages or rent, or to even buy food. The 
thought that more than a decade later, a similar crisis on a much 
broader scale could occur is cause for great concern.
  Greenspan fears that many investors are under the false impression 
that GSEs are backed up by the full faith and credit of the United 
States. Well, because of this incorrect assumption, investors believe 
they can accept higher risks because the government will bail out GSEs 
if they are insolvent or default, as occurred in the 1980s. As 
Greenspan noted, GSEs now stand behind more than $4 trillion of 
mortgages, and the government can ill afford such a bailout in the wake 
of a housing crisis or corporate mismanagement.
  It appears as though the increased risks the GSEs have been taking on 
is not related to their primary operation of purchasing affordable 
housing loans in the secondary market. Rather, much of their risk comes 
from derivative investments in an effort to maximize profits for 
shareholders. Now, as we learned from Enron, complex derivative schemes 
may boost profits in the short term, but the long-run risks can be too 
difficult to manage.
  Congress needs to approach this issue very seriously and take 
appropriate corrective steps before it is too late. It is essential 
that we ensure that GSEs better manage risks without hampering their 
mission, which is to expand opportunities for home ownership and 
affordable rental housing. Among the options being discussed, we should 
be aware that if Fannie Mae and Freddie Mac are privatized or if debt 
caps limit the amount of mortgages that can be acquired, affordable 
housing is likely to be hurt the most because it is the least 
profitable part of the GSE business. Now, in addition, limited mortgage 
financing for home buyers could negatively affect the housing market by 
stunning growth.
  In light of past financial problems and Greenspan's comments, I 
believe Congress should begin by considering oversight from an 
independent regulator with housing expertise. A strong regulator with a 
background in housing will ensure that home ownership opportunities 
continue to grow, while guarding against the potential of an Enron-like 
collapse that could devastate the United States' economy.
  Mr. Speaker, I urge my colleagues in Congress to give this issue 
their immediate attention. We must act prudently and look at a range of 
options to ensure the solvency of Fannie Mae and Freddie Mac. We need 
to guarantee the mission of the GSEs is not compromised but, at the 
same time, ensure proper oversight and ethical behavior. Fannie Mae and 
Freddie Mac must continue to bring the American dream to as many people 
as possible while we strive to reduce the risk of fraud of a GSE 
derailing the United States economy.
  Mr. Speaker, I look forward to working with my colleagues to address 
this important issue before it is too late.

                          ____________________