GSE Legislation Overwhelmingly Approved, 331-90
|October 27, 2005|
Federal Housing Finance Reform Act of 2005|
(Engrossed as Agreed to or Passed by House) [pdf]
On Tuesday, the House passed H.R. 1461, the Federal Housing Finance Reform Act of 2005, by a vote of 331-90. Authored by House Financial Services Committee Chairman Michael G. Oxley (OH) and Capital Markets Subcommittee Chairman Richard H. Baker (LA), the bill would create a new and independent, world-class regulator for the government-sponsored enterprises (GSEs) Fannie Mae, Freddie Mac, and the Federal Home Loan Bank (FHLB) system. Additionally, the legislation would create a new, private fund for affordable housing and give priority to areas of the country affected by the recent spate of hurricanes.
Oxley said, “The bill will increase the supply of affordable housing and target it to the folks who need it. Additionally, it will protect taxpayers, homeowners, and shareholders by creating a new, more robust regulator to ensure that the GSEs safely and soundly accomplish their mission. Overall, the bill means that we will have an improved secondary mortgage market that better meets the housing needs that exist in this country.”
The new regulator and its powers are modeled after existing bank regulators. The Federal Housing Finance Agency (FHFA) would be independently funded by assessments on the GSEs that would occur outside the congressional appropriations process.
Subcommittee Chairman Baker said, "After five years of effort to legislate regulatory reforms for the housing GSEs, I am tremendously pleased by today's House passage of my bill. The need for stronger oversight of these institutions is greater now than ever before, and, after the unprecedented destruction of recent hurricanes, the need to expand affordable homeownership opportunities, particularly in my home state of Louisiana, is greater as well. This legislation provides for both, and its passage by the House represents major progress. While differences may remain over this or that provision, I believe consensus is not only reachable but essential, and the best place to reach it will be in the House-Senate conference."
Under the new legislation, the regulator would have the power to increase minimum capital and risk-based capital standards. The legislation would grant the regulator authority to adjust the portfolio holdings of the GSEs. This could be done for either the purpose of increasing safety and soundness of the enterprises or fulfilling the housing mission. Additionally, the regulator would have to approve both new programs and new business activities of the GSEs. Like bank regulators, the new agency could take prompt corrective actions and would have other enforcement powers. The director also may undertake a process of conservatorship or receivership, if a GSE becomes critically undercapitalized. The regulator may also require corporate governance improvements and hire examination and accounting experts. The legislation’s goal is to give the new GSE regulator both power and flexibility.
The bill contains a requirement that the GSEs must register at least one class of stock with the U.S. Securities and Exchange Commission.
The legislation includes a new mandate for the GSEs to focus on affordable housing. A fund to accomplish this purpose would be created for a period of five years, with Fannie Mae and Freddie Mac contributing a percentage of their after-tax earnings. A change offered by Oxley and Baker would give priority to affordable housing proposals from areas affected by the hurricanes. The fund would make approximately $450 - 650 million available annually to fund affordable housing proposals. It is modeled after the successful program being conducted by the FHLBs.
The GSEs are among the largest U.S. financial institutions, with $2.5 trillion in assets. Additionally, they are among the largest issuers of debt in the world. Fannie Mae and Freddie Mac own or guarantee nearly half of the residential mortgage market, and 8,000 banks, thrifts, and credit unions hold $550 billion in loans from the 12 FHLBs.
Since the 106th Congress, there have been over 20 hearings on GSE oversight in the Financial Services Committee. Testimony has been taken from more than 100 witnesses on the issue.
Source: House Financial Services Committee