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Pressure Grows to Rein in Fannie Mae, Freddie Mac
Through two Cabinet-level announcements and a Senate Banking Committee hearing on the accounting deficiencies at Fannie Mae, the Bush Administration and Congress last week put pressure on Fannie Mae and Freddie Mac to limit their business.
On June 13, the Treasury Department and Department of Housing and Urban Development announced they would each undertake studies on the feasibility of acting administratively to rein in the debt issuance and holdings of the two housing government-sponsored enterprises through existing laws and regulatory enforcement procedures.
In a June 13 address in Washington to a Women in Housing and Finance breakfast, Treasury Undersecretary Randy Quarles said his agency would “review its debt approval process to ensure that we continue to act as appropriate custodians of the power that Congress gave us when the charters of Fannie Mae and Freddie Mac were created.”
He added that the “process review does not of itself presuppose any conclusion about outcomes. Treasury will carefully consider the market impact of any future action.”
Separately, and nearly simultaneously, HUD Secretary Alphonso Jackson announced at a congressional caucus breakfast that his department would review the holdings and investments of the two major mortgage finance entities.
“I look forward to working with Congress on establishing a strong new regulator, but until this legislation is passed, I intend to use authority granted me by the Federal Housing Enterprises Financial Safety and Soundness Act to increase the transparency of the GSEs,” said Jackson.
Jackson said the review will focus on transactions classified as “other assets/other liabilities” to ensure that Fannie and Freddie are in compliance with their government charter.
Senate Banking Committee Chairman Richard Shelby (R-Ala.) held a panel hearing on June 15 that included testimony from Fannie Mae Chairman Stephen Ashley and President and CEO Daniel Mudd. Also appearing in a separate panel were Securities and Exchange Commission Chairman Christopher Cox and James Lockhart, director of the Office of Federal Housing Enterprise Oversight.
Shelby used the hearing to generate momentum for Senate bill S. 190, which narrowly passed his committee last summer along partisan lines. The measure would severely curtail the investment portfolios of Fannie and Freddie. The legislation has the strong backing of the Administration.
NAHB opposes the bill because it would remove an effective GSE tool to funnel capital into the housing market and could disrupt the mortgage markets and harm the housing finance system.
Because Senate Democrats and Republicans remain deadlocked on the portfolio issue, it is uncertain whether the legislation will ultimately go to the Senate floor.
NAHB supports H.R. 1461, the “Federal Housing Finance Reform Act of 2005,” which was adopted by the House last year by a wide margin.
“H.R. 1461 provides the appropriate regulatory structure that allows the GSEs to fulfill their housing mission and to deliver the necessary credit to the housing market while, at the same time, guaranteeing that the GSEs operate on a safe and sound basis,” said NAHB Executive Vice President and CEO Jerry Howard.
As the GSE debate unfolds, NAHB will continue to monitor the situation closely.
To read legislation, click here and enter the bill number in the box at the center of the page.
For more information, e-mail Scott Meyer at NAHB, or call him at 800-368-5242 x8144.
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