Remarks Secretary Mel Martinez
October 16, 2003
before the Committee on Banking, Housing
and Urban Affairs
Shelby, Ranking Member Sarbanes, Distinguished Members of the Committee:
welcome the opportunity to join Secretary Snow in outlining for
the Committee the Administration's proposal for strengthening the
regulatory structure of the GSEs, including Fannie Mae, Freddie
Mac, and the Federal Home Loan Banks.
believe that Congress and the Administration have an opportunity
- in fact, an obligation - to reform our regulatory oversight.
Mae and Freddie Mac have a vital public role to play in providing
homeownership opportunities to low- and moderate-income families.
The fact that we are a Nation of homeowners reflects the beneficial
impact that the role these companies were created to perform has
on American life. The Bush Administration is committed to creating
opportunities for homeownership in America, and that is why we believe
it is important that these companies fulfill their mission. The
best way to ensure that they do so is through real and lasting reform
that enhances their financial regulation while preserving and expanding
their commitment to affordable housing.
Administration is committed to a society where every individual
has the opportunity to gain the independence and dignity that come
from homeownership. This commitment is embodied in the President's
budget proposals, which have consistently increased funding for
successful initiatives like the HOME Investment Partnerships program,
housing counseling, and the Self-Help Homeownership Opportunity
program. The commitment is embodied in the President's challenge
to the housing industry to join with us in creating 5.5 million
new minority homeowners by the end of this decade. It is embodied
in the Blueprint for the American Dream Partnership, through which
HUD has brought together the private sector, non-for-profits, and
government agencies to meet the President's challenge.
Mae and Freddie Mac are founding members of the Blueprint Partnership,
and we appreciate their pledge to invest billions of dollars to
lift more families into homeownership.
Administration's commitment to homeownership opportunities is not
confined to our activities at HUD; it begins with the President
and stretches across the whole of the Federal government. And our
proposal today reaffirms that commitment.
reform proposal is consistent with the Administration's commitment
to do everything necessary to foster a healthy and vibrant housing
industry, which today accounts for roughly 14 percent of the Nation's
total Gross Domestic Product. The potential impact of Fannie Mae
and Freddie Mac upon the economy and housing programs makes it critical
that we ensure their safety and soundness.
be effective, a regulator charged with overseeing prudential operations,
including safety and soundness, needs the proper tools to do its
job. Currently, safety and soundness regulation is divided, with
new program approval authority at HUD and financial oversight at
the Office of Federal Housing Enterprise Oversight (OFHEO). It is
clear to this Administration that both elements of safety and soundness
regulation need to be consolidated in a single regulator; splitting
this regulation between two regulators weakens each one.
decision on whether to approve or deny a new activity is based partly
on its effect on the prudence of a company's operations. It makes
little sense to have one entity deciding whether or not to approve
a new activity, while another determines whether that activity meets
the prudential operation test.
activities oftentimes directly impact the housing and mortgage markets,
and for that reason the Administration believes that HUD should
retain a consultative role. Other new activities do not involve
housing or mortgage market issues, and are therefore most appropriately
addressed by a strengthened regulator. As part of its consultative
role, HUD will provide the benefit of its regulatory experience
on such issues. I do not see establishing a new and strong regulator,
potentially at the Treasury Department, as something that will harm
the housing market. I see the opposite result: a strengthened housing
finance system continuing to provide homeownership opportunities
for all Americans.
are not proposing to alter the congressional charter of Fannie Mae
and Freddie Mac, nor do we have any intention of stifling innovation
in the marketplace. Just as other financial institutions are subject
to new activity approval, yet have been leaders in mortgage innovation,
so too can Fannie Mae and Freddie Mac thrive under the Administration's
proposal. Any new business activity that Fannie Mae and Freddie
Mac wish to undertake will be reviewed with respect to consistency
with the charter act, with respect to whether it is in the public
interest, and with respect to safety and soundness. The Federal
Housing Enterprises Financial Safety and Soundness Act recognized
the need to take all of these concerns into account in the review
prudential operations regulation, including safety and soundness
regulation, should be exercised by a single, independent regulator,
the Administration strongly supports retaining and enhancing the
housing goals at HUD.
established Fannie Mae and Freddie Mac to provide market liquidity
and to facilitate the financing of affordable housing for low- and
moderate-income families. Congress also mandated that the HUD Secretary
set housing goals to ensure that those needs are met.
affordable housing goals require Fannie Mae and Freddie Mac to focus
on individuals in those communities most in need. This includes
very low-income families and low-income families in low-income areas,
low- and moderate-income families, and underserved areas such as
central cities and rural areas.
the low- and moderate-income housing goal requires that at least
half of all Fannie Mae and Freddie Mac mortgage purchases benefit
families in this income bracket. As the President's budget noted
in February, numerous HUD studies and independent analysis have
shown that the GSEs have historically lagged the primary market,
instead of led it, with respect to funding mortgage loans for low-income
and minority homebuyers. The GSEs have also accounted for a relatively
small share of first-time minority homebuyers.
national home purchase goal we have proposed is a tool to specifically
promote affordable homeownership. As the Members know, low interest
rates in recent years have led to a boom in refinancings. Although
Fannie Mae and Freddie Mac provide liquidity in refinancing, the
share of funding they provide for home purchases declines during
years in which refinancings are high. Our intent is not to saddle
Fannie Mae and Freddie Mac with a series of stifling mandates, as
the opponents of reform have suggested, but to ensure - through
a national home purchase goal - that they do not overlook those
to whom they owe their primary devotion. This goal will certainly
not unduly limit the ability of Fannie Mae and Freddie Mac to serve
the refinance market or the multifamily market.
me also to clarify this proposal for a new goal, as some confusion
has arisen over it. HUD is not asking for the authority to set overall
home purchase levels for Fannie Mae and Freddie Mac, but instead
is asking for the authority to ensure that the home purchase activity
that takes place be equitably distributed among central cities and
rural areas, low- and moderate-income families, special affordable
homebuyers, and first-time homebuyers, just as HUD does for the
existing housing goals. That is why HUD has asked for the authority
to establish home purchase subgoals corresponding to these four
categories, similar to the subgoal authority it presently has under
the three existing goals. HUD is not asking for the authority to
set home purchase subgoals in individual metropolitan and regional
markets. HUD seeks only to set national subgoals so that Fannie
Mae's and Freddie Mac's home purchase efforts are fairly spread
among these four categories. HUD also asks that these subgoals be
is the appropriate agency to develop and enforce the housing goals.
Institutionally, our mission is devoted to furthering the goal of
affordable housing and homeownership, and HUD has the most expertise
of any Federal agency in this area. Furthermore, the housing industry
looks to HUD as the agency in which this authority should reside.
the Administration's proposal, HUD will not only retain authority
to set meaningful housing goals, but will be better equipped to
ensure that Fannie Mae and Freddie Mac meet them. There will be
sufficient funding, more accountability for Fannie Mae and Freddie
Mac, and strengthened housing goals.
of the ways in which the Administration has proposed strengthening
HUD's housing goal authority is by creating a new GSE Housing Office
within HUD, funded by the GSEs, to establish, maintain, and enforce
the housing goals. We also need to improve the Secretary's enforcement
authorities with respect to the goals, and have proposed doing so.
is also very important that fair housing requirements and enforcement
that pertain to Fannie Mae and Freddie Mac remain at HUD, given
HUD's expertise in fighting housing discrimination. HUD will have
full enforcement power for those authorities, in the same way it
enforces the Fair Housing Act.
strengthened regulator is in everyone's best interests: the Administration,
Congress, Wall Street, investors worldwide, and most importantly,
the American homebuyer. The importance of Fannie Mae and Freddie
Mac in the housing financial system is undeniable, and real reform
is necessary to ensure the public of the ability of the two companies
to make low-cost mortgage financing available to low- and moderate-income
Snow and I look forward to working with the Committee members to
strengthen oversight of Fannie Mae and Freddie Mac. Real reform
will provide market and consumer confidence in two companies that
play a crucial role in providing affordable housing opportunities
to millions of families.
Content Archived: June 25, 2010