House Democrats Urge the President to Focus on Affordable Housing in GSE Legislation (Flashback 04)

The Honorable George W. Bush
Presidenot f the United States
The White House
Washington,D C 20050
Dear Mr. President:

We urge you to reconsider your Administration's criticisms of the housing-related government sponsored enterprises (the "GSEs") and instead work with Congress to strengthen the mission and oversight of the GSEs.

We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing. Until recently, we have been disappointed that the Administration has not been more supportive of our efforts to press the GSEs to do more. We have been concerned that the Administration's legislative proposal regarding the GSEs would weaken affordable housing performance by the GSEs, by emphasizing only safety and soundness. While the GSEs' affordable housing mission is not in any way incompatible with their safety and soundness, an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable housing. We have been led to conclude that the Administration does not appreciate the importance of the GSE's affordable housing mission, as evidenced by its refusal to work with the House and Senate on this important legislation. It now appears that, because Congress has not been willing to jeopardize the GSE's mission, the Administration has turned to attacking the GSEs publicly. We are very concerned that the Administration would work to foster negative opinions in the financial markets regarding the GSEs, raising their cost of financing. If the intent is to get prohousing members of Congress to weaken their support of the GSEs' mission, it is a mistaken strategy.

Our position is not based on institutional loyalty, but on concern for the GSE's affordable housing function. We appeal to you to agree to work on legislative proposals that foster sound oversight and vigorous affordable housing efforts instead of mounting assaults in the press. We also ask you to support our efforts to push the GSEs to do more affordable housing. Specifically, join us in advocating for more innovative loan products and programs for people who desire to buy manufactured housing, similar products to preserve as affordable and rehabilitate aging affordable housing, and more meaningful GSE affordable housing goals from HUD.

For example,a s a President hath asa sincerea ppreciationfo r rural America,w e urge you to direct the Rural Housing Service to place a high priority on working with the GSEs to close as manyl oansa sp ossiblet his yeart o preserveth e Section5 15 rural housings tock, which is home to some of this country's poorest citizens. In closing, we reiterate that an exclusive emphasis on safety and soundness, without an appropriate balance in focus on the affordable housing mission of the GSEs, is misplaced.

Strong safety and soundness regulation and a vigorous affordable housing mission are not only compatible, but will reinforce each other. We ask you to work with us to craft legislation that achieves the proper balance in both areas.

Thanks for the head's up.

I now know what regulatory changes Bush proposed. (See: New Agency Proposed to Oversee Freddie Mac and Fannie Mae)

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.

Fannie Mae and Freddie Mac already had a regulator assigned to watch them --The Office of Federal Housing Enterprise Oversight.

So, Bush would rather create a new federal bureaucracy rather than fix the one already charged with oversight of Fannie and Freddie.

Of course, there's no guarantee that this new regulator would have done any better job guarding Fannie and Freddie than the existing one, however.

It's a mystery how the creation of yet another federal bureaucracy would've fixed the problem.

Here's what the OFHEO's web site says about their mission. (See: Supervision and Regulation)

The Federal Housing Enterprises Safety and Soundness Act of 1992 gives OFHEO a broad range of supervisory tools that the agency may employ not only to address Enterprise problems in a remedial fashion but also to take actions to prevent such problems from developing. The agency’s use of those authorities helps mitigate systemic risk by reducing the risk of failure of Fannie Mae and Freddie Mac.

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