Statement of Secretary Alphonso Jackson
April 7, 2005
before the United States Senate
Committee on Banking, Housing, and Urban Affairs
Shelby, Ranking Member Sarbanes, Distinguished Members of the Committee:
I welcome the opportunity to join Secretary Snow in discussing the
Administration's views on how best to improve and reform regulatory
oversight of the housing government-sponsored enterprises, or GSEs.
President has set an ambitious goal: to build an ownership society
where everyone has a chance to own a home and a retirement account
or health care plan, and to gain a permanent stake in the American
Dream. Ownership brings stability to our neighborhoods and security
to our families. To build an ownership society, the President is
committed to helping even more Americans buy homes. That 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, not-for-profits, and government agencies to
meet the President's challenge.
Administration has demonstrated a steadfast commitment to housing
and homeownership through programs such as the American Dream Downpayment
Initiative, the homeownership voucher, and the President's Blueprint
for the American Dream Partnership. Our interest in regulatory reform
builds on that commitment and is rooted in a responsibility to those
whom the GSEs were established to serve: low- and moderate-income
individuals who seek affordable homeownership opportunities.
Snow has outlined the core principles that the Administration believes
should underlie any GSE regulatory reform. He and I are in full
agreement. Congress and the Administration have an opportunity and
an obligation to strengthen the regulatory structure of the
GSEs. A strong regulator is in everyone's best interests - the Administration,
the Congress, the housing industry, Wall Street, investors worldwide,
and the American homebuyer.
Administration has two goals in this process. First, we must ensure
that the GSEs continue to fully carry out the mission granted to
them by Congress of promoting affordable housing and homeownership.
Second, we must ensure that the GSEs are subject to rigorous oversight,
so that they serve their public purpose.
AND THE ECONOMY
and the housing industry have a direct and substantial impact on
our nation's economy. The housing market continues to perform exceptionally
well; single-family housing starts posted a new monthly record in
February, while sales of new single-family homes rose to their fourth-highest
level in 42 years. The sales of both new and existing homes set
annual records in 2004.
the housing industry accounts for roughly 14 percent of the Nation's
total Gross Domestic Product. The potential impact of Fannie Mae,
Freddie Mac, and the Federal Home Loan Bank System upon the economy
and housing programs makes it critical that we ensure their safety
STRENGTHENING THE GSEs' REGULATOR
ensure that the GSEs have appropriate financial oversight and are
held accountable, the Administration supports strengthening the
powers of the GSEs' regulator. Doing so would make the regulator
more comparable in terms of stature, powers, authority, and resources
to other financial regulators charged with safety and soundness
Seventeen months ago, in the wake of Freddie Mac's 2003 accounting
scandal, Secretary Snow and then-Secretary Martinez came before
this Committee to make the case for reform. As Secretary Snow has
described in his testimony several other troubling problems impacting
the safety and soundness of the GSEs have come to light. In addition:
- In July 2004, HUD reported that Fannie Mae and Freddie Mac continued
to substantially lag the conventional market in serving first-time
homebuyers, especially minority first-time homebuyers.
- In October 2004, HUD determined that Freddie Mac had overstated
its 2002 performance under the Low- and Moderate Income and Underserved
Areas housing goals by double counting 45,000 units.
- Recently, HUD determined that some of Fannie Mae's international
activities may not be consistent with its charter purposes. Therefore,
HUD has advised Fannie that it must obtain prior written approval
from HUD before it engages in any international activity.
- Yesterday, HUD ordered Fannie Mae to cease and desist its third-party
Real Estate Owned (REO) management and servicing activities. Again,
this activity is inconsistent with its charter purposes.
best way to prevent similar - or worse - problems in the future
is through the oversight of a strong regulator, empowered to hold
Fannie Mae and Freddie Mac accountable to the high standards their
size and stature demand.
Snow has recommended that safety and soundness oversight of the
housing GSEs be consolidated and strengthened in a single regulator,
housed within the Treasury Department - and I agree. This regulator
would also have enhanced authority to review and approve new programs
and activities contemplated by the three housing GSEs, with a continued
strong role for HUD in this process. Treasury has a long history
of regulating safety and soundness matters throughout the financial
system. Treasury also has an institutional structure already in
place that would allow it to take on new responsibilities with minimal
Administration strongly supports retaining a core element of oversight
of Fannie Mae and Freddie Mac - setting and enforcing the affordable
housing goals - at HUD. Congress established the housing goals to
ensure that these GSEs fulfill their mandate to provide leadership
to the mortgage market. The goals direct Fannie Mae and Freddie
Mac to serve low- and moderate-income families and provide funding
in underserved areas, such as central cities and rural areas. A
third goal directs these GSEs to finance housing for very low and
low-income families in low-income areas.
better ensure these two GSEs' leadership in the mortgage market,
HUD recently strengthened the affordable housing goals. By 2008,
the new goals will require that the GSEs at least "meet the market"
- in other words, their purchases of mortgages in each goal category
must be proportional to the share of all mortgages in the conventional
conforming market that fall within that category. In the past, HUD's
goals have been set "below the market." Other conventional lenders
- without the GSEs' Charter Act privileges - have served lower-income
families and underserved areas better than the two GSEs have done.
HUD believes the GSEs can do at least as well as other conventional
expertise in developing and enforcing the housing goals makes it
appropriate that the Department retain this authority. Institutionally,
our mission is devoted to furthering the goal of affordable housing
and homeownership, and HUD has the most expertise in this area.
The housing industry looks to HUD as the agency in which this authority
should reside. And to transfer this role from HUD could delay for
years the implementation of a new regulatory plan.
Secretary Snow has mentioned, it is important to clarify the mission
that the Federal Home Loan Banks play in supporting affordable housing.
also consider it important that fair housing requirements and enforcement
that pertain to the housing GSEs remain at HUD, given HUD's expertise
in fighting housing discrimination. HUD should have full enforcement
power for those authorities, in the same way it enforces the Fair
Secretary Snow testified about additional powers for the new regulator,
and I would add one more - allowing the regulator to establish the
conforming loan limits on a local basis each year, using the best
available data, to more appropriately serve low- and moderate-income
at the housing GSEs during the past year have reinforced the Administration's
commitment to additional reforms of the GSEs and their regulator.
You have heard Secretary Snow and I testify about many of them.
However, there are other possible reforms that would also advance
our common interest in a strong and secure housing finance system.
The Administration is open to considering additional ideas for reform.
me stress that we believe such a comprehensive change to the regulatory
structure will boost the confidence of all GSE stakeholders. Investors
will be better protected under a regulatory system that empowers
the regulator to do the job we expect of them� and Americans will
ultimately benefit. At the same time, we will strengthen the GSEs'
ability to serve low- and moderate-income families pursuing affordable
join Secretary Snow in saying that I look forward to working with
the Committee members as we move forward.
Content Archived: June 25, 2010