Freddie Mac, Fannie Mae need oversight, not overhauling

By Wm. Lacy Clay, Member of Congress

  There's a lot that can be said about a Government Sponsored Enterprise caught in a fix. However, solving the problem at the expense of the people the GSE is helping is not the answer.

  On Sept. 25, 2003 I spoke before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises on the "Regulatory Oversight of the Government Sponsored Enterprises." One of the agencies we discussed was Fannie Mae. Joining us with his testimony was Fannie Mae Chief Executive Franklin Raines.

  While a recent accounting controversy at Freddie Mac has raised the alarm of Congress, I think it is prudent that the problem be held in isolation from the kinds of results GSEs are beginning to produce.

  Mr. Raines must be applauded for the great job that he has done in leading Fannie Mae in its execution of the mission assigned it by Congress. The GSEs, of which Fannie Mae is the largest, are world leaders in the secondary mortgage markets. They were mandated by Congress to create a secondary trading market to improve the functioning of home mortgage markets. They exceeded expectations and have done so well that in excess of 60 percent of the growth in the U.S. economy during the past couple of years is attributed to housing.

  Mr. Raines is indeed one of the country's modern day "profiles in courage." While his tenure as chairman and CEO at Fannie Mae began in 1999, current improvements to GSE began more than a decade ago.

  In 1992, after exhaustive study, this Committee made improvements to the charter for Fannie Mae and Freddie Mac. One improvement was intended to help close the housing gap, which still exists between minority and majority homeowners. While the gap remains at more than 30 percentage points, I do not fault the GSEs for lack of trying. They work on a daily basis to create innovative products and programs that meet the needs of those denied the American dream of homeownership.

  Both Fannie Mae and Freddie Mac help to bring the dream of homeownership to thousands of my constituents on a regular basis. I have serious concerns that as we rectify the problems at one GSE that Congress does not give in to the business opponents of these GSEs who profit from predatory and subprime lending at the expense of affordable housing. I feel the minority homeownership achievements of these GSEs are on the right track.

  Additionally, these companies are important to our overall economy and to St. Louis in particular. Fannie Mae has been an active participant in our downtown renaissance. This is inclusive of innovative product and program offerings like the Downtown Employer Assisted Housing program that is administered by the Downtown St. Louis Partnership.

  Also, in February of this year, Saint Louis University held a press conference to introduce Hometown SLU, the University's new Employer Assisted Housing Initiative, which includes a financial incentive for employees purchasing a home near the University campuses as well as a technology platform, the Home Buyer's Assistance Site, that is available to all University employees regardless of where they purchase a home.

  Fannie Mae and Freddie Mae have met their housing goals every year. It is critical that these housing goals are not increased to the point that they threaten the safety and soundness and undermine the ability of the GSEs to serve a market that includes middle-class and low-income borrowers.

  Mr. Raines must be applauded for the great job that he has done in leading Fannie Mae.

  However, in light of the unfortunate problems at Freddie Mac, I support the creation of a new bureau within the Department of Treasury with the resources necessary to oversee the safety and soundness of Fannie Mae and Freddie Mac. Establishing a world class regulator for the GSEs would be a landmark achievement for the Bush Administration and the 108th Congress. Also, it would be in the best interests of Fannie Mae and Freddie Mac investors, the housing finance sector and the housing mission that we are serving.

  Fannie Mae and Freddie Mae play a critical role in a well functioning secondary market and I would be very concerned with any changes to their charter that would compromise their ability to deliver.

  I favor legislation that will strengthen the "safety and soundness" regulator for these GSEs without diminishing their mission emphasis or inhibiting their ability to expand homeownership.

  I will not support any wholesale change to their business model given the benefits they have yielded in promoting homeownership and affordable housing.

  Congress should act quickly, yet with care, so as to avoid harmful unintended consequences.