by the United States House of Representatives

“ RAINES. We believe that the regulator, whoever it is, should have a Congressionally determined standard as to on what basis could they turn down innovation. We have no question that on a safety and soundness basis if it were deemed not to be safe and sound, no question that the regulator, whoever it is, should be able to turn that down.
But that has rarely been the issue. The issue has been more likely that someone doesn't want innovation because sometimes innovation means cutting cost. Sometimes innovation means new products coming in, competing with old products. ”

“ We all think that part of the American dream is to be able to own a home. And all Americans think that we should figure out how to solve home-ownership.
So that is much more specific than the CRA requirement. And I think it affects people differently when they think about whether you are meeting that target. If I get on Fannie Mae or Freddie Mac for not meeting the home-ownership, I think people react differently than if I say a bank didn't do 30 percent of loans in some neighborhood, and I am amorphous about whether those are business loans or whatever. ”

“ So I guess our only point is, if we are not going to change minimum, do we construct a new regulator like every other financial regulator of every other financial institution who has that tool in his resume, recognizing that we are not going to change the minimum capital standards, but if risk profiles change and there is a need to change it, why should we have to come back to the Congress in order to adopt a minimum capital modification? ”

“ So whether it is our housing goals, which we have met every year, or whether it is low and moderate income borrowers, or it is borrowers in underserved areas, or whether it is minority goals, which we set ourselves—HUD does not have the authority to set a minority goal, we set that ourselves—in all those cases we lead the market, and we are quite proud of it. ”

“ It is my job to ensure that we are able to prevent problems before they develop and to ensure that the enterprises remain safe and sound. And I am asking for the authority that every other regulator has.
We exercise it in our best judgment, and while we have no plans currently to raise capital, if we consider that the condition of the companies, based on our knowledge of their activities through our examination process, ever required us proposing an increase in capital, we wouldn't just do it willy-nilly. ”

“ I think the combination, frankly, of safety and soundness with mission compliance are not mutually exclusive, that we can take actions that are not only good for the enterprises and their shareholders, but we can take action that is also beneficial to the taxpayer. There is a net win to this process and the mere examination of the subject has not caused the housing market nor interest rates to go anywhere but down. ”

“ Why the African American community? Is there something going on in that community that they are faced with that no one else has? I think we want to know that.
And if you could give us some clarity on how, on one hand, you favor what the Administration is doing, but then on the other hand you are fearful of what it is doing.
Mr. RAINES. Well, if I might start, Congressman. I think you put your finger on the conundrum that we face. We are vitally committed to our housing mission. It is what we do. It is who we are. And it is our number one priority. ”

“ I think that given the tremendous growth of the size of Fannie Mae and Freddie Mac over the past decade, and their importance to the housing market, we all agree that they must have strong, independent regulation.
A couple of weeks ago, this committee heard testimony from the Secretaries of Treasury and HUD about the Administration's plans to improve the oversight of Fannie Mae and Freddie Mac, safety and soundness, as well as their housing mission. And I believe that we have got to keep oversight focused foremost on what is in the best interests of the consumer and the market. ”

“ We should be enhancing regulation, not making fundamental change.
Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals.
What we need to do today is to focus on the regulator, and this must be done in a manner so as not to impede their affordable housing mission, a mission that has seen innovation flourish from desktop underwriting to 100 percent loans. ”

“ I am concerned that the Finance Board again failed to protect against systemic risk.
Home Loan Banks do not usually either suspend their dividend or dip into retained earnings to pay their dividend. And, Mr. Korsmo, you have seen this happen twice in this quarter.
I guess my question is, should Congress be concerned about this? And should Congress be concerned that our Treasury Secretary Snow and our Federal Chairman Greenspan and our GAO have called for combining regulation of all three GSEs at this time? ”

“ But nevertheless, the regulatory structure was not caught up to it. A regulator was created that took—without the authority to adopt capital standards that every other regulator has always had, and it took eight years for them to issue their first regulation because of the statutory hamstring, not bad people.
So it has gotten to a $3.3 trillion overhang over the nation's economy. And unless strong, independent regulation is provided, the housing goals for Fannie and Freddie will go in the tank because the system will ultimately be in jeopardy. ”

“ SPRIGGS. Well, again, because I think the reality is that the housing problem is complex, and it can't be solved only pointing at mortgage bankers or only pointing at Fannie Mae. And if a regulator has the responsibility of soundness primarily and comes from an institution that looks that way, I fear it would be like CRA. And those of us in many organizations have big struggles over getting the Community Reinvestment Act meaningfully enforced.
It is very rare to see a bank get a bad grade on their CRA. And it is not as if they are doing fantastic things. ”

“ As I mentioned, the hearing we held a couple weeks ago, as Chairman of the Housing Opportunities Subcommittee, I have a keen interest in the strength of our nation's housing market.
GSE regulation is an incredibly important issue for all Americans. One of the only things that held this economy together as we all know in the last two years was housing and automobiles. Right now, it is housing as an important part of the recovery.
The United States mortgage and credit markets are the envy of the world. ”

“ RAINES. Well, we are going to see tremendous growth in the Hispanic community. By 2020, we are going to see the growth in the Hispanic community of about 75 percent growth, 28 percent growth in the African-American community, 80 percent growth in the Asian community, at the same time the non-Hispanic white community's going to grow by 9 percent.
So quite clearly, the future of home ownership, the future of housing in America is going to be around this growing population that is going to need not only access to capital in theory, but in fact. ”

“ Would you, based on your operational experience and your ability to make credit available to your customers and your ability to move in the markets, have you found that capital standard to be an inhibition to your success—either one of the Home Loan Bank folks—and would you recommend to us that if we were all together, everybody would have the same capital standard? ”

“ By allowing a regulator in the future, not today, no one is suggesting the immediate or imminent adjustment to either risk based or minimum capital standards—what would be your view, from your organization's perspective, given your broad scope of mortgage finance activities, as to the effect of allowing the regulator to have that authority? ”

“ And in private corporations, I know they do that on a regular basis, but whether or not with your special feature, having at least in the marketplace the implication of full faith and credit of the government, whether we like the idea that there is so much attention being paid by the board or the corporate family as to what profits look like and for reasons that I am trying to determine in my mind, why is the board so worried whether or not there are spikes in income. ”

“ FALCON. I think it would be appropriate to consolidate charter compliance authority with the safety and soundness regulator. All other safety and soundness regulators have the authority to interpret the charters of the entities that they regulate.
Now, as I see it, it is a matter of, as I put it, charter compliance. It is not a matter of, for us, new product approval authority. Charter compliance would go to every activity of the company. ”

“ There has been a long evolution of the method of financing in the housing market, which has benefited the homeowner and has benefited the consumer in that respect. A lot of that has been innovation that we would be anxious not to stultify people's imagination as to what products or programs could be created as long as they are safe and sound. ”

“ It doesn't do anyone any good to put someone into a home and then as soon as they get into a little bit of trouble, foreclose on it. And it doesn't do any good to have a bunch of foreclosed houses sitting abandoned in a community. That is why Fannie Mae fixes up houses before we
sell them back so that people are getting a house that is in good shape. And we do that very quickly.
But it is absolutely a critical part of what we and our lenders do, is to ensure that people who get into homes can stay there and to take whatever steps we need. ”

“ We have two companies that are remarkably effective in the mission of providing affordable mortgage financing, to move more low-income families into home owning.
Fannie Mae plays an essential role in helping to finance affordable housing throughout the United States. One reason Fannie Mae has been successful is because the current status encourages them to be innovative, I state, be innovative, to introduce new products and to partner with other institutions to be proactive in reaching out to low-income families, I state, low-income families unembedded with corporate culture. ”

“ If we don't hold mortgages, some other investor, one with greater credit losses, a weaker hedging strategy, a lower credit rating and perhaps taxpayer-backed deposits at risk will have to hold them.
Now Congress is reviewing our regulatory framework a little more than a decade after the 1992 act, and I am heartened to see that there is a general consensus that everything Congress did to advance our charter, mission and status in 1992 has worked very well, and in many ways better than anyone could have imagined. ”

“ On the other hand, if we go backward and change the standard and make it so that if every time we change a process or an activity then that has to be approved, then I think it will bring innovation within the housing finance industry to a screeching halt. ”

“ The concern that I have is—and I have spent time in the Government and I have spent time in the private sector—that if it depends on a Government agency approving everything and making up its own mind about each and every item, it will take forever to get approvals done simply by the normal process of Government. So the bias should be toward ‘‘it is approved’’ unless it is found not to be consistent with the charter and not consistent with the mission. ”

“ So not that it is our intent to have any person denied access to home ownership, in fact, I think the GSEs can do a great deal more in that regard than the do today. And I will join with my friends in seeking out statutory provisions to ensure that compliance.
But at the end of the day, this is far too important. They have grown so fast for too long that this issue does need a world-class regulator with the appropriate skills. ”

“ But it is also leading the market to make sure that people have the information they need so they know how to get a loan. It is also leading the market to make sure that discriminatory practices are taken out of underwriting. And it is also leading the market to be the largest investor in low-income housing tax credits, which is the single largest vehicle for financing affordable rental housing. None of those are captured by the HUD goals. ”

“ I have some great appreciation for the safeness and the soundness aspect of this measure, and I certainly commend Congressman Baker on that pursuit.
But I think he along with all of us here on this panel must be assured that we are not losing any priority, any understanding, and in fact will strengthen any effort to move, or we don't move it, because I don't think that the American people would go along with that. The American people are fair people, and understanding people, and keep in mind there is a mission here that must not be compromised. ”

“ In 2000, after we met this pledge, we launched a redoubled new pledge, our American Dream Commitment, to provide $2 trillion for 18 million underserved families before this decade is over.
We also set a voluntary goal: to lead the market in serving minority families. We pledged to provide $420 billion to help serve 3 million minority families. And when President Bush challenged the private sector to help create 5.5 million new minority homeowners by the end of the decade, Fannie Mae boosted our pledge to $700 billion as part of a 10-point plan to support the Administration's initiative. ”