[EVIDENCE OVERWHELMINGLY SHOWS THAT DEMOCRATIC CONGRESSIONAL LEADERS AND BARACK OBAMA OPPOSED, DURING 2003 and 2005, MUCH-NEEDED STRUCTURAL REFORMS TO FANNIE MAE & FREDDIE MAC THAT WOULD HAVE MITIGATED THE RISKS POSED TO THE ENTIRE U.S. FINANCIAL SYSTEM. OBAMA et. al. OPPOSED SUCH CHANGES BECAUSE THEY WOULD DIMINISH THE CAPACITY OF THESE INSTITUTIONS TO PROVIDE HIGH-RISK 'AFFIRMATIVE ACTION' MORTGAGES TO LOW & MODERATE INCOME EARNERS WHO COULD ILL-AFFORD THEM IN THE FIRST PLACE. THESE ARE NOT THE 'INNOCENT HOMEOWNERS FACING FORECLOSURE' OF WHICH OBAMA SPEAKS.]
[THE FOLLOWING OFFICIAL EMAIL ISSUED BY THE OBAMA FOR PRESIDENT CAMPAIGN TO DEMOCRATIC PARTY VOTERS WHO REGISTERED ON THE OBAMA FOR PRESIDENT WEBSITE INTENTIONALLY OBFUSCATES THIS ELEMENT OF FANNIE MAE & FREDDIE MAC REFORM BY FOCUSING INSTEAD ON (DIVERTING PUBLIC ATTENTION TO) THE GREED OF WALL STREET. EACH OF THESE FACTORS, ALONG WITH LAX FEDERAL REGULATORY OVERSIGHT OF NON-BANK BANKS & HEDGE FUNDS, INSIDER TRADING, OVER-LEVERAGING, NONTRANSPARENCY, OFF-BALANCE SHEET ACCOUNTING & OTHER VIOLATIONS OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, INADEQUATE EQUITY CAPITALIZATION & EXECUTIVE OFFICER FRAUD & CORRUPTION, IS ALSO LARGELY TO BLAME FOR THE CURRENT FINANCIAL CRISIS.]
OBAMA CAMPAIGN E-MAIL COMMUNICATION:
Date: Wed, 24 Sep 2008
To: XXX
From: Barack Obama
Subject: Greed and irresponsibility
XXX
The era of greed and irresponsibility on Wall Street and in Washington has created a financial crisis as profound as any we have faced since the Great Depression. Congress and the President are debating a bailout of our financial institutions with a price tag of $700 billion or more in taxpayer dollars. We cannot underestimate our responsibility in taking such an enormous step. Whatever shape our recovery plan takes, it must be guided by core principles of fairness, balance, and responsibility to one another. http://my.barackobama.com/page/m2/55c134d6/507e2d16/75b57cc6/1188ae2c/1561710658/VEsH/
Please sign on to show your support for an economic recovery plan based on the following:
No Golden Parachutes -- Taxpayer dollars should not be used to reward the irresponsible Wall Street executives who helmed this disaster.
Main Street, Not Just Wall Street -- Any bailout plan must include a payback strategy for taxpayers who are footing the bill and aid to innocent homeowners who are facing foreclosure.
Bipartisan Oversight -- The staggering amount of taxpayer money involved > demands a bipartisan board to ensure accountability and oversight. Show your support and encourage your friends and family to join you: http://my.barackobama.com/page/m2/55c134d6/507e2d16/75b57cc6/1188ae2c/1561710658/VEsE/>http://my.barackobama.com/ourplan
The failed economic policies and the same corrupt culture that led us into this mess will not help get us out of it. We need to get to work immediately on reforming the broken government -- and the broken politics -- that allowed this crisis to happen in the first place. And we have to understand that a recovery package is just the beginning. We have a plan that will guarantee our long-term prosperity -- including tax cuts for 95 percent of families, an economic stimulus package that creates millions of new jobs and leads us towards energy independence, and health care that is affordable to every American. It won't be easy. The kind of change we're looking for never is. But if we work together and stand by these principles, we can get through this crisis and emerge a stronger nation. Thank you, Barack Paid for by Obama for America
[OBAMA IS AT IT AGAIN, AND TRYING TO DECEIVE THE AMERICAN PUBLIC ABOUT THE 'FAILED ECONOMIC POLICIES' THAT LED THE U.S. TO THIS CRISIS. ACTUALLY, THE CRISIS AROSE, IN PART, BECAUSE OF THE FAILURE OF CONGRESSIONAL REPRESENTATIVES LIKE OBAMA, THAT TORPEDOED PRIOR EFFORTS TO REFORM FANNIE MAE AND FREDDIE MAC.]
[FURTHERMORE, THERE ARE NO GUARANTEES IN LIFE. THUS, OBAMA'S STATEMENT THAT HIS "PLAN WILL GUARANTEE OUR LONGTERM PROSPERITY IS NOTHING BUT EMPTY WORDS. AMERICANS WANT TO SEE DEEDS; THEY DON'T WANT TO HEAR WORDS.]
------------------------------------------------------------------------------------------------http://digital.library.unt.edu/govdocs/crs/permalink/meta-crs-7896:1
Government-Sponsored Enterprises (GSEs): Regulatory Reform Legislation
CRS Report for Congress # RL32795
By Mark Jickling
Updated October 27, 2005
Government-sponsored enterprises (GSEs) are privately owned, congressionally chartered financial institutions created for specific public policy purposes. They benefit from certain exemptions and privileges, including an implied federal guarantee,1 intended to enhance their ability to borrow money. Two of the largest GSEs are Fannie Mae and Freddie Mac (herein referred to as the enterprises or GSEs).2 These institutions were created by Congress to establish and maintain a secondary mortgage market, increasing liquidity and improving the distribution of capital available for home mortgage financing.3 To help these institutions accomplish this mission, Congress has provided them with several benefits not available to other financial institutions.4 These statutory benefits provide the enterprises with lower funding costs, the ability to operate with less capital, and lower direct costs.5 The advantages of GSE status have enabled the enterprises to grow rapidly and become dominant players in the secondary mortgage market.
Congress has always been concerned that the safety and soundness of the enterprises be maintained so that they can meet their public policy mission and not pose risks to taxpayers. Prior to 1992, oversight was the responsibility of the Department of Housing and Urban Development (HUD) and the Federal Home Loan Bank Board. In 1992, Congress established the Office of Federal Housing Enterprise Oversight (OFHEO), an independent agency within HUD, to oversee the financial safety and soundness of the enterprises. The office is authorized to set capital requirements, conduct annual risk-based examinations, and generally enforce compliance with safety and soundness standards.
Since the creation of OFHEO, total assets at the GSEs have grown by more than 820% to $1.9 trillion.6 The GSEs have become two of the largest private debt issuers in the world. At the end of 2003, outstanding debt securities of the enterprises totaled $1.7 trillion — an amount equal to nearly half of all publicly held U.S. Treasury debt. In addition to enterprise debt, investors hold about $1.7 trillion in mortgage-backed securities issued by Fannie Mae and Freddie Mac.7 As a result of the rapid growth of these institutions and their implied federal backing, there has been an increasing concern that the enterprises may pose a problem of systemic risk to the financial system.8 Many financial institutions around the world hold large quantities of GSE debt and default by either GSE could have widespread, unpredictable, and potentially serious repercussions. Accordingly, questions have been raised about the effectiveness of the current regulatory environment.
Events of the past two years have brought a new urgency to the GSE reform issue. In 2003, Freddie Mac admitted that it had used improper accounting policies to create the appearance of steady earnings growth and issued a restatement of financial results, revising net income for 2000-2002 upwards by $5 billion.9 OFHEO imposed a $125 million fine and is pursuing civil actions against several former Freddie executives.
Following the special examination of Freddie Mac, OFHEO began to review the accounting policies and practices at Fannie Mae, and published its preliminary findings in September 2004.10 OFHEO charged that Fannie Mae did not follow generally accepted accounting practices in two critical areas: (1) amortization of discounts, premiums, and fees involved in the purchase of home mortgages and (2) accounting for financial derivatives contracts. According to OFHEO, these deviations from standard accounting rules allowed Fannie Mae to reduce volatility in reported earnings, present investors with an artificial picture of steadily growing profits, and, in at least one case, to meet financial performance targets that triggered the payment of bonuses to company executives.11 On December 15, 2004, the Securities and Exchange Commission (SEC) essentially endorsed OFHEO’s report and directed Fannie Mae to restate its accounting results since 2001 after finding inadequacies in Fannie’s accounting policies and methodologies. Fannie Mae’s CEO and CFO stepped down soon thereafter.
While problems at Fannie Mae and Freddie Mac have provided the main impetus for reform, the regulation of the Federal Home Loan Banks (FHLBs) may also be affected by the GSE. The 12 FHLBs comprise one collective governmentsponsored enterprise. Originally chartered by Congress to provide liquidity to the nation’s predominant lenders for home mortgage loans — savings and loan associations and savings banks — the FHLBs have undergone a series of changes over the years as financial institutions have changed. Still a lender to lenders primarily for housing, the FHLBs can now lend for many other purposes as well, and have special responsibilities for low- and moderate-income housing, for debts incurred by the federal government in handling deposit insurance crises of the 1970s and 1980s, and for some community development projects.
Several bills were considered in the 108th Congress that would have restructured OFHEO. While the proposals took somewhat different approaches to regulatory reform, all appeared to:
1) abolish OFHEO and reconstitute the GSE regulator within the Department of the Treasury, or as an independent agency;12
2) increase the budget autonomy of the new office by exempting its assessments from the annual appropriations process; and
3) enhance the safety and soundness and enforcement tools available to the new regulator.
Legislative proposals in the 109th Congress incorporate most of the features of the 108th Congress bills, but also include significant new provisions...
The Bush Administration has generally supported GSE regulatory reform. Treasury Secretary John Snow issued a statement following the mark up of S. 190, praising the legislation, though noting that certain elements the Administration wanted were not present in the bill:
The legislation ... creates significantly enhanced market discipline and capital requirements for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The legislation strikes a proper and prudent balance in ensuring that the activities undertaken by these entities do not engender systemic risk while providing broad access to housing finance.13
Major Differences Between House and Senate Bills
The House and Senate bills take a common approach in the restructuring of the GSE regulator. There is a general consensus that OFHEO needs to be strengthened — given the importance of the GSEs to the financial system and the potential risks they pose, there is very little support for keeping the GSE regulator inside HUD.
Both H.R. 1461 and S. 190 give the new agency tools and authorities that resemble those of federal bank regulators. Where the bills differ most significantly is in their approaches to the business operations of the GSEs, particularly Fannie and Freddie.
...The House bill seeks to increase GSE support for low-income housing and would permit Fannie and Freddie to buy larger mortgages than current law permits, while the Senate bill seeks to shrink the companies’ portfolios by restricting the kinds of assets they can purchase.
Affordable Housing Fund
Section 128 of H.R. 1461 (as passed the House) requires Fannie and Freddie to establish affordable housing funds to increase homeownership among very low and extremely low income families, to increase investment in housing in low income and economically distressed areas, and to increase and preserve the supply of rental and owner-occupied housing for very low and extremely low income families.
...Proponents of the affordable housing funds recognize that Fannie and Freddie receive a valuable subsidy in the form of their GSE status, which permits them to borrow at lower rates than other private financial firms. The affordable housing fund proposal can be viewed as a means of capturing some of the value of this subsidy and applying it to a worthy policy objective.
Opponents argue that Fannie and Freddie would likely use the funds to reward political allies. During floor consideration of H.R. 1461, an amendment was adopted that prohibited the use of money disbursed by the affordable housing funds for political, lobbying, or advocacy purposes. Other amendments included a five-year sunset for the fund (with the Director of the new regulator to recommend to Congress whether the fund should be extended) and established a priority for activities in areas affected by Hurricanes Katrina and Rita, and in other areas designated by the President as major disaster areas.
Conforming Loan Limits
Current law sets a limit on the size of mortgages that Fannie and Freddie can buy. Mortgages above the limit, called jumbo loans, are less likely to be securitized than the conforming mortgages that Fannie and Freddie are allowed to purchase. Partly as a result, mortgage rates for nonconforming loans are slightly higher than conforming loan rates.14 Critics of the conforming loan limit argue that the limit has a disparate geographical effect: in some areas of the country the current limit, which is $359,650 for single-family homes, covers all but the high end of the market, while in other areas, such as San Francisco or New York City, virtually all real estate transactions take place over the limit.
H.R. 1461 would raise the conforming loan limit in metropolitan areas where the median home price exceeds the current limit. In those areas, the limit would be set at the median home price, up to a ceiling of 150% of the current limit. For more information on this proposal, see CRS Report RS22172, Proposed Changes to the Conforming Loan Limit.
...The Senate bill has no comparable provision.
Portfolio Limits
While the two House bill provisions discussed above seek to redistribute the fruits of the GSE subsidy, the Senate bill contains a provision that could dramatically reduce the value of that subsidy.
Both Fannie and Freddie hold large portfolios of mortgages and mortgage-backed securities, which generate interest income. They pay for those mortgage assets by issuing debt securities at rates below what the mortgages and mortgage-backed bonds pay. The difference between the yield on mortgage-related assets and the GSEs’ cost of funds is profit. Thus, the GSEs have a strong incentive to pursue portfolio growth: the two firms together have over $1.5 trillion in portfolio assets, leading some observers to describe them as the world’s largest savings and loan institutions. The size of their portfolios represents a concentration of mortgage market risk that has led Federal Reserve Board Chairman Alan Greenspan and others to urge Congress to consider ways to shrink the size of the GSEs’ asset portfolios.15
Section 109 of S. 190 as reported enumerates the types of “permissible assets” that Fannie and Freddie would be permitted to purchase. They would only be allowed to acquire mortgages and mortgage-backed securities for purposes of securitization, and for certain other limited purposes. Under this proposal, Fannie and Freddie’s business models would be considerably altered: instead of very large investment funds, they would be transformed into conduits, buying mortgages from the original lenders, pooling them, packaging them into mortgage-backed securities, and selling them to bond investors. This would greatly reduce their portfolio earnings, currently one of the chief sources of their profits.
Proponents of portfolio limits argue that this step is necessary to reduce the cost of the GSE subsidy to taxpayers, which takes the form not of annual appropriations, but of the assumption of risk — the potential cost to the Treasury of having to bail out either Fannie or Freddie to avoid the possibility of a systemic catastrophe in the financial markets, should either firm encounter serious difficulties. Opponents argue that reducing the GSE’s interest earnings would mean less support for low- and moderate-income housing goals. The House bill contains no similar provision.
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https://www.policyarchive.org/bitstream/handle/10207/4255/RS22307_20051021.pdf?sequence=1
Limiting Fannie Mae’s and Freddie Mac’s Portfolio Size
By Eric Weiss
CRS Report for Congress # RS22307
October 25, 2005
Federal Reserve Chairman Alan Greenspan and Treasury Secretary John W. Snow recently have urged the 109th Congress to pass legislation to limit the size of Fannie Mae’s and Freddie Mac’s portfolio to reduce the risk to the federal government and the economy. In 2003, these government-sponsored enterprises (GSEs) combined retained portfolio had risen to $1.6 trillion from $136 billion in 1990.
One of the more controversial aspects of GSE reform is this proposal to limit the size of the investment portfolios, which consist of mortgages and mortgage-backed securities (MBSs) that are subject to several types of financial risk. If these risks are not managed properly, or if market movements turn dramatically against the GSEs, the government may face two unsatisfactory alternatives: either let the GSE go into default and hope that the financial repercussions can be controlled, or step in and assume payments on the GSE debt at a significant cost to taxpayers. Proponents of portfolio limits argue that shrinking portfolio size reduces the likelihood and cost if this choice will ever have to be made. The GSEs and their supporters argue, on the other hand, that the profits generated by the investment portfolios enhance the GSEs’ ability to support affordable housing programs and reduce mortgage interest rates.
This report analyzes the types of risk that the GSEs pose to the economy, and the advantages and disadvantages of proposals to limit portfolio size.
...Recently Federal Reserve Chairman Alan Greenspan1 and Treasury Secretary John
Snow2 have warned that the mortgage portfolios of Fannie Mae and Freddie Mac (the housing government-sponsored enterprises, or GSEs for short) present a risk to the
nation’s financial system and federal government... Letter from Alan Greenspan, Chairman of the Federal Reserve, to the Honorable Robert F. Bennett, U.S. Senate, Sept. 2, 2005, at [http://online.wsj.com/public/resources/documents/Greenspan091505.pdf].
...Fannie Mae and Freddie Mac buy mortgages from the original lenders and package them into mortgage-backed securities (MBSs), which are either sold to investors or held in portfolio by the GSEs themselves.3 These portfolios are large and have grown rapidly, both in dollar terms and as a percentage of all MBSs outstanding. According to the most current complete information (the end of 2003),4 Fannie Mae’s retained mortgage portfolio was $902 billion5 and Freddie Mac’s was $661 billion.6 At the end of 2003, their combined portfolios were more than 11 times their size in 1990.
...GSE Risks
The GSEs share many risks with all business. These risks can affect the companies, stockholders, employees, bondholders, and business partners. The GSEs’ risks can also affect the nation’s financial system and the economy.
...Credit Risk. Credit risk is the risk that the borrowers (mortgagors) will not repay
their loan on time — in other words, the risk of delinquency and default. When Fannie
and Freddie buy mortgages and combine them into MBSs, they add their guarantee that
the loans will be repaid on time...credit risk is not a serious problem.10
Prepayment Risk. Prepayment risk is potentially more serious. This is the risk
to an investor that a 30-year mortgage will be paid before the full 30 years is concluded...
As the cost of refinancing has declined over the last 10 years, the decline in interest rates
necessary to justify refinancing (with or without cash out or financing improvements to
the home) has been reduced. In recent years, the decline in mortgage rates has caused
prepayment rates to increase. This results in uncertainty for lenders and the holders of
MBSs.11
...Interest Rate Risk. Interest rate risk comes from financing the MBS portfolios by borrowing money (issuing bonds), and is related to prepayment risk. In 2003, Fannie had $962 billion of debt outstanding; Freddie had $740 billion...an increase or decrease in market rates can cause the GSEs’ unhedged portfolios to lose value.12...
...Interest rate risk can be very serious. Many savings and loan associations became insolvent in the early 1980s because of it. During that time, Fannie Mae’s portfolio was poorly hedged. According to Secretary Snow, “Fannie Mae became insolvent on a markto-market basis. Only a combination of legislative tax relief, regulatory forbearance, and a decline in interest rates allowed Fannie Mae to grow out of its problem.”13 Despite state-of-the-art hedging today, the GSEs’ portfolios have significant interest rate risk.
Operational Risk. Operational risk is the risk of loss due to inadequate or failed internal procedures and systems. It is addressed by the various reforms in the House and Senate bills that increase regulatory powers, and in S. 190 reducing the size of the GSEs’ portfolios...Fannie Mae’s current accounting problems, and those of Freddie Mac in 2003, raise questions about internal controls. Accounting systems provide the basis for portfolio adjustment decisions. If the accounting system is providing inaccurate information, the resulting portfolio adjustment decisions are likely to be incorrect.
...At a summary level, risk has two dimensions: the probability that the event will occur and the cost if it does...Reducing the size of the portfolios would reduce both dimensions.
...the implied guarantee allows the GSEs to grow without the usual market forces that would raise their costs as their risks rose. As a result, Fannie and Freddie represent significant systemic risk to the nation’s financial system, both because they can make mistakes and because their size and concentration raise the likelihood of high costs for the economy when they do. Reducing the seriousness of the systemic risk requires reducing the size of the implied guarantee.
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http://www.govtrack.us/congress/bill.xpd?bill=s109-190
S. 190 [109th]: Federal Housing Enterprise Regulatory Reform Act of 2005
This bill never became law. This bill was proposed in a previous session of Congress. Sessions of Congress last two years, and at the end of each session all proposed bills and resolutions that haven't passed are cleared from the books.
Last Action:
Jul 28, 2005: Committee on Banking, Housing, and Urban Affairs. Ordered to be reported with an amendment in the nature of a substitute favorably.
The following summary was written by the Congressional Research Service, a well-respected nonpartisan arm of the Library of Congress. GovTrack did not write and has no control over these summaries.
Sen. Charles Hagel [R-NE]
Cosponsors [as of 2007-01-08]
Sen. Elizabeth Dole [R-NC]
Sen. John McCain [R-AZ]
Sen. John Sununu [R-NH]
1/26/2005--Introduced.
Federal Housing Enterprise Regulatory Reform Act of 2005 - Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish:
(1) in lieu of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development (HUD), an independent Federal Housing Enterprise Regulatory Agency which shall have authority over the Federal Home Loan Bank Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac); and
(2) the Federal Housing Enterprise Board.
Sets forth operating, administrative, and regulatory provisions of the Agency, including provisions respecting:
(1) assessment authority;
(2) authority to limit nonmission-related assets;
(3) minimum and critical capital levels;
(4) risk-based capital test;
(5) capital classifications and undercapitalized enterprises;
(6) enforcement actions and penalties;
(7) golden parachutes; and
(8) reporting.
Amends the Federal Home Loan Bank Act to establish the Federal Home Loan Bank Finance Corporation. Transfers the functions of the Office of Finance of the Federal Home Loan Banks to such Corporation.
Excludes the Federal Home Loan Banks from certain securities reporting requirements.
Abolishes the Federal Housing Finance Board.
GovTrack.us. S. 190--109th Congress (2005): Federal Housing Enterprise Regulatory Reform Act of 2005, GovTrack.us (database of federal legislation) http://www.govtrack.us/congress/bill.xpd?bill=s109-190&tab=summary (accessed Sep 24, 2008)
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http://www.govtrack.us/congress/bill.xpd?bill=h109-1461
H.R. 1461 [109th]: Federal Housing Finance Reform Act of 2005
This bill never became law. This bill was proposed in a previous session of Congress. Sessions of Congress last two years, and at the end of each session all proposed bills and resolutions that haven't passed are cleared from the books.
Last Action:
Oct 31, 2005: Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
The following summary was written by the Congressional Research Service, a well-respected nonpartisan arm of the Library of Congress. GovTrack did not write and has no control over these summaries.
10/26/2005--Passed House amended.
Federal Housing Finance Reform Act of 2005 -
Title I - Reform of Regulation of Enterprises and Federal Home Loan Banks
Subtitle A - Improvement of Safety and Soundness
Section 101 -
Amends the Housing and Community Development Act of 1992 (Act) to establish the Federal Housing Finance Agency (FHFA), which shall have supervisory and regulatory authority over the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (both hereinafter referred to as the "enterprises") and the Federal Home Loan Banks.
Section 102 -
Sets forth duties and authorities of the Director of FHFA, which include regulating and overseeing the operations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (all three of which referred to as "regulated entities").
Section 103 -
Establishes the Housing Finance Oversight Board to advise the Director.
Section 104 -
States that the Director, with respect to regulated entities: (1) may require regular reports on condition, management, activities, or operations, and any special reports; (2) shall require reports of fraudulent financial transactions; (3) shall require annual reports of charitable contributions; (4) shall collect annual assessments; and (5) shall establish risk-based capital requirements for the regulated entities.
Section 112 -
Authorizes the Director to: (1) raise minimum capital levels to ensure that regulated entities operate in a safe and sound manner; (2) establish temporary minimum capital increases; and (3) establish additional capital and reserve requirements for a particular program.
Requires the Director to periodically review, and adjust as necessary, the capital levels of regulated entities.
Section 113 -
Requires the Director to periodically review enterprise assets and liabilities. Authorizes the Director to require the disposition or acquisition of certain assets and liabilities as appropriate.
Section 114 -
Sets forth enterprise governing provisions.
Section 115 -
Requires each regulated entity to register at least one class of stock with the Securities and Exchange Commission (SEC).
Section 116 -
Amends the Federal Financial Institutions Examination Council Act of 1978 to include the Director on the Federal Financial Institutions Examination Council (FFIEC).
Section 117 -
Directs the Government Accountability Office (GAO) to study regulated entity pricing, transparency, and reporting of guarantee fees.
Subtitle B - Improvement of Mission Supervision
Section 121 -
Amends the Act to transfer authority to approve programs and to oversee the mission requirements of the enterprises from the Department of Housing and Urban Development (HUD) to FHFA.
Section 122 -
Requires Director review and approval of an enterprise's new programs and activities, including pilot programs. Sets forth review and approval provisions.
Section 123 -
Sets forth enterprise conforming loan limits for single-, two-family, three-family, and four-family residences.
Provides for: (1) annual loan limit increases or decreases; and (2) loan limit increases in areas where the median home price is greater than the conforming loan limit.
Requires the Director to: (1) develop a Housing Price Index, which shall be subject to a GAO audit on Index methodology and timing; and (2) conduct a study of issues related to loan limits in high cost areas.
Section 124 -
Requires the Director to report annually to the appropriate congressional committees respecting each regulated entity's activities.
Section 125 -
Replaces current housing goals with three single-family housing goals and a multifamily special affordable housing goal, to be established annually.
Requires: (1) an enterprise to disclose information to allow the Director to assess if there are interest rate disparities between minorities and non-minorities of similar creditworthiness; and (2) that if interest rate disparities exist, those findings must be reported to Congress and the Director must instruct the enterprise to take appropriate remedial action.
Requires the Director to establish (and authorizes increases of) an annual purchase goal for each enterprise for conventional, conforming, single-family, owner-occupied, and purchase money mortgages financing housing for: (1) low-income families; (2) families residing in low-income areas; and (3) very low-income families.
Requires the Director to establish a Multifamily Special Affordable Goal for mortgages that finance dwelling units: (1) for low-income families; (2) for very low-income families; and (3) assisted by the low-income housing tax credit. Requires the Director to establish additional requirements within the Multifamily Special Affordable Goal for small loans measured by either mortgage amounts or number of dwelling units in the project or both.
Authorizes an enterprise to petition the Director for a housing goal reduction.
Section 126 -
States that each enterprise shall: (1) undertake activities relating to mortgages on housing for very low-, low-, and moderate-income families involving a reasonable economic return that may be less than the return earned on other activities; and (2) have the duty to increase the liquidity of mortgage investments and improve the distribution of investment capital available for mortgage financing for underserved markets.
Section 127 -
Sets forth housing goal monitoring and enforcement provisions.
Section 128 -
Requires each enterprise to establish an affordable housing fund to: (1) increase homeownership for extremely low- and very low-income families, (2) increase investment in housing in low-income areas and areas designated as qualified census tracts or an area of chronic economic distress; (3) increase and preserve the supply of rental and owner-occupied housing for extremely low- and very low-income families; and (4) increase investment in economic and community development in economically underserved areas.
Sets forth fund allocation provisions. Sunsets such required funding five years after the sixth month after enactment of this Act.
Sets forth recipient (for-profit, governmental, and other than for-profit entities) and activity (including leveraged grants and homeownership) eligibility provisions.
Requires each enterprise to submit quarterly reports to the Director and the affordable housing board.
Requires the Director to appoint an affordable housing board.
Section 130 -
Authorizes the Director to issue cease and desist orders and impose civil money penalties on an enterprise that has failed to: (1) meet a housing goal; (2) submit certain reports; (3) submit an acceptable housing plan; or (4) comply with a housing plan.
Subtitle C - Prompt Corrective Action
Section 141 -
Amends the Act to require the Director to establish capital classifications for regulated entities.
Revises capital classification provisions. Prohibits, with a specified exception, a regulated entity from making a capital distribution that would result in such entity's undercapitalization.
Section 142 -
Sets forth supervisory action applicable to undercapitalized regulated entities, including restrictions on asset growth.
Section 143 -
Sets forth supervisory actions applicable to significantly undercapitalized regulated entities, including: (1) making current discretionary actions mandatory; and (2) limiting executive officer compensation or bonuses.
Section 144 -
Authorizes the Director to establish a conservatorship or receivership over a critically undercapitalized regulated entity in order to reorganize, rehabilitate, or terminate the entity's affairs. Requires that FHFA be appointed as conservator or receiver.
Sets forth provisions respecting: (1) grounds for conservator or receiver appointment; (2) FHFA duties and powers as conservator or receiver; and (3) judicial review.
Subtitle D - Enforcement Actions
Section 161 -
Authorizes the Director to: (1) issue a cease and desist order if a regulated entity or affiliated party is engaged in an unsafe or an unsound practice or is violating a rule or condition; and (2) deem a regulated entity to be engaged in unsafe and unsound practices if such entity receives a less than satisfactory rating for asset quality, management, earnings, or liquidity in its most recent exam.
Section 162 -
Authorizes the Director to: (1) issue a temporary cease and desist order if the violation or threatened violation or unsafe or unsound practice specified in the notice of charges is likely to cause insolvency or a significant dissipation of assets or earnings or is likely to weaken the condition of the regulated entity prior to completion of the proceedings for issuance of a permanent cease-and-desist order; and (2) enforce such orders by a court injunction.
Section 163 -
Authorizes the Director to seek prejudgment attachment.
Section 164 -
Authorizes the Director to seek judicial enforcement of this title in U.S. district court.
Section 165 -
Sets forth civil money penalties.
Section 166 -
Authorizes the Director to issue removal and prohibition orders against a party for the protection of the regulated entity, including suspension or removal of a party charged with a felony.
Section 167 -
Provides that a person who is subject to a removal or prohibition order and who knowingly participated in the conduct of the affairs of any regulated entity shall be fined not more than $1 million, imprisoned for up to five years, or both.
Section 168 -
Grants the Director subpoena authority.
Subtitle E - General Provisions
Section 181 -
States that the boards of directors of Fannie Mae and Freddie Mac, respectively, shall have between 7 and 15 members. (Current law requires 18 members.)
Section 182 -
Requires the Director to report to Congress respecting: (1) the portfolio holdings of Fannie Mae and Freddie Mac; and (2) alternative secondary market systems.
Title II - Federal Home Loan Banks
Section 201 -
Amends the Federal Home Loan Bank Act to define "Director" and "Agency" (FHFA) for purposes of such Act.
Section 202 -
Revises Federal Home Loan Bank board of director provisions, including the number of directors for each bank and their qualifications and terms of office.
Section 203 -
Replaces the Federal Housing Finance Board with FHFA.
Section 204 -
Authorizes two or more Federal Home Loan Banks to establish a joint office in order to perform functions for, or providing services to, the Banks on a common or collective basis.
Section 205 -
Requires the Director to prescribe rules to ensure that each Federal Home Loan Bank has access to information to determine the nature and extent of its joint and several liability.
Section 206 -
Authorizes Bank mergers.
Section 207 -
Exempts Federal Home Loan Banks from certain disclosure requirements respecting: (1) capital stock; (2) tender requirements; and (3) reporting requirements.
Section 208 -
Redefines "community financial institution" to raise the maximum asset level to $1 billion. Permits such institutions to use advances for community development lending.
Section 210 -
Directs that GAO study the use of the Federal Home Loan Banks' affordable housing program to fund long-term care facilities for low- and moderate-income individuals.
Title III - Transfer of Functions, Personnel, and Property of Office of Federal Housing Enterprise Oversight, Federal Housing Finance Board, and Department of Housing and Urban Development
Subtitle A - Office of Federal Housing Enterprise Oversight
Section 301 -
Abolishes the Office of Federal Housing Enterprise Oversight (OFHEO) of HUD and the positions of the Director and Deputy Director six months after enactment of this Act.
Section 302 -
Sets forth provisions respecting: (1) continuation and coordination of operations; and (2) transfer (and rights) of OFHEO employees, property, and facilities to FHFA.
Subtitle B - Federal Housing Finance Board
Section 321 -
Abolishes the Federal Housing Finance Board six months after enactment of this Act.
Section 322 -
Sets forth provisions respecting: (1) continuation and coordination of operations; and (2) transfer (and rights) of Board employees, property, and facilities to FHFA.
Subtitle C - Department of Housing and Urban Development
Section 341 -
Directs the Secretary of HUD to determine and transfer the enterprise-related functions and employees of HUD to FHFA within six months of enactment of this Act. Provides that during the six-month period after enactment of this Act HUD will continue to oversee the affordable housing goals, new programs, and mission of the enterprises.
Section 342 -
Sets forth provisions respecting: (1) continuation and coordination of operations; and (2) transfer (and rights) of employees, property, and facilities.
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New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON
New York Times
September 11, 2003
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.
Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.
The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws.
The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.
After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.
''The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,'' Mr. Oxley said at the hearing. ''We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,'' the independent agency that now regulates the companies.
''These irregularities, which have been going on for several years, should have been detected earlier by the regulator,'' he added.
The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in 1992 after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.
At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve.
Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. This year, however, the chances of passing legislation to tighten the oversight are better than in the past.
Reflecting the changing political climate, both Fannie Mae and its leading rivals applauded the administration's package. The support from Fannie Mae came after a round of discussions between it and the administration and assurances from the Treasury that it would not seek to change the company's mission.
After those assurances, Franklin D. Raines, Fannie Mae's chief executive, endorsed the shift of regulatory oversight to the Treasury Department, as well as other elements of the plan.
''We welcome the administration's approach outlined today,'' Mr. Raines said. The company opposes some smaller elements of the package, like one that eliminates the authority of the president to appoint 5 of the company's 18 board members.
Company executives said that the company preferred having the president select some directors. The company is also likely to lobby against the efforts that give regulators too much authority to approve its products.
Freddie Mac, whose accounting is under investigation by the Securities and Exchange Commission and a United States attorney in Virginia, issued a statement calling the administration plan a ''responsible proposal.''
The stocks of Freddie Mac and Fannie Mae fell while the prices of their bonds generally rose. Shares of Freddie Mac fell $2.04, or 3.7 percent, to $53.40, while Fannie Mae was down $1.62, or 2.4 percent, to $66.74. The price of a Fannie Mae bond due in March 2013 rose to 97.337 from 96.525.Its yield fell to 4.726 percent from 4.835 percent on Tuesday.
Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.
''The regulator has not only been outmanned, it has been outlobbied,'' said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ''Being underfunded does not explain how a glowing report of Freddie's operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.''
Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.
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Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
New York Times
September 30, 1999
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
