A plan for tighter supervision of Fannie Mae and Freddie Mac passed the U.S. House of Representatives Wednesday with added elements creating a private fund for affordable housing and giving priority to hurricane-affected areas.
H.R. 1461, the Federal Housing Finance Reform Act of 2005, passed the House Wednesday by a vote of 331-90. The bill must be passed by the Senate to become law.
The bill would create a new, independent regulator for the government-sponsored enterprises and the Federal Home Loan Bank system. It was authored by House Financial Services Committee Chairman Michael G. Oxley (Ohio) and Capital Markets Subcommittee Chairman Richard H. Baker (La.)
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.
A senior vice president of Fannie Mae applauded the bill’s passage.
“The legislation passed today by the House of Representatives is an important step forward and represents strong legislation that will strengthen the safety and soundness oversight of our company and the GSEs,” said Chuck Greener of Fannie Mae.
Subcommittee Chairman Baker said, “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 home-ownership 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, Baker said he believes consensus on the bill “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 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 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.
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