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THE TREASURY DEPARTMENT’S

VIEWS ON THE REGULATION OF

GOVERNMENT SPONSORED ENTERPRISES

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

SEPTEMBER 10, 2003

Printed for the use of the Committee on Financial Services

Serial No. 108–51

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

CHARLES A. GONZALEZ, Texas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

ARTUR DAVIS, Alabama 

RAHM EMANUEL, Illinois 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

BERNARD SANDERS, Vermont

ROBERT U. FOSTER, III, Staff Director 

(III)

C O N T E N T S 

Page 

Hearing held on: 

September 10, 2003 .......................................................................................... 1

Appendix: 

September 10, 2003 .......................................................................................... 49

WITNESSES 

WEDNESDAY, SEPTEMBER 10, 2003

Martinez, Hon. Mel, Secretary, Department of Housing and Urban Development ...................................................................................................................... 13

Snow, Hon. John W., Secretary, Department of the Treasury ............................ 10

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 50

Baca, Hon. Joe (with attachments) ................................................................. 52

Baker, Hon. Richard H. ................................................................................... 59

Davis, Hon. Artur ............................................................................................. 61

Feeney, Hon. Tom ............................................................................................. 62

Gillmor, Hon. Paul E. ....................................................................................... 63

Gutierrez, Hon. Luis V. .................................................................................... 64

Hinojosa, Hon. Rube ́n ....................................................................................... 65

Kanjorski, Hon. Paul E. ................................................................................... 66

Miller, Hon. Gary G. ........................................................................................ 67

Royce, Hon. Edward R. .................................................................................... 68

Martinez, Hon. Mel .......................................................................................... 69

Snow, Hon. John W. ......................................................................................... 73

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Snow, Hon. John W.: 

Written response to questions from Hon. Joe Baca ....................................... 86

Written response to questions from Hon. Ginny Brown-Waite .................... 82

Written response to questions from Hon. Katherine Harris ......................... 82

Written response to questions from Hon. Barbara Lee ................................. 80

Written response to questions from Hon. Brad Sherman ............................. 85

Written response to questions from Hon. Nydia M. Vela ́zquez .................... 83

(1)

THE TREASURY DEPARTMENT’S 

VIEWS ON THE REGULATION OF 

GOVERNMENT SPONSORED ENTERPRISES 

Wednesday, September 10, 2003

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to call, at 10:06 a.m., in Room 

2128, Rayburn House Office Building, Hon. Michael G. Oxley 

[chairman of the committee] presiding. 

Present: Representatives Oxley, Leach, Baker, Bachus, Castle, 

Royce, Lucas, Ney, Kelly, Paul, Gillmor, Manzullo, Ose, Biggert, 

Toomey, Shays, Shadegg, Miller, Hart, Capito, Tiberi, Kennedy, 

Feeney, Hensarling, Garrett, Murphy, Brown-Waite, Barrett, Harris, Renzi, Frank, Kanjorski, Waters, Sanders, Maloney, Gutierrez, 

Vela ́zquez, Watt, Hooley, Carson, Sherman, Meeks, Lee, Inslee, 

Moore, Gonzalez, Ford, Hinojosa, Lucas, Crowley, Israel, Ross, 

McCarthy, Baca, Matheson, Miller, and Scott. 

The CHAIRMAN. The committee will come to order. 

The committee is meeting today to hear from the Secretary of 

Treasury and the Secretary of Housing and Urban Development regarding their views on the regulation of government sponsored enterprises. Pursuant to rule 3(f)(2) of the rules of the Committee on 

Financial Services for the 108th Congress, the Chair announces he 

will limit recognition for opening statements to the Chair and ranking minority member of the full committee and the Chair and ranking minority member of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, and the Subcommittee on Housing and Community Opportunity, or their respective designees, for a period not to exceed 22 minutes, evenly divided between the majority and the minority. 

Prepared statements of all members will be included in the 

record, and the Chair now recognizes himself for an opening statement. 

I want to first welcome Secretary Snow and Secretary Martinez 

back to the Financial Services Committee this morning to discuss 

the regulation of the housing government sponsored enterprises, or 

GSEs, and thank you both for joining us today. It is my understanding the Treasury Department and the Department of Housing 

and Urban Development have been working closely together with 

the President to develop a proposal to reform GSE regulation. I am 

looking forward to hearing your insights and recommendations. 

2

The U.S. Housing market has been the engine of growth for the 

domestic economy over the past several quarters. Despite a slowdown in nearly every economic sector, the housing market has remained vibrant. Now that an economic recovery seems to be on the 

horizon, it is important that we act in a reasonable manner to improve the regulation of the GSEs while at the same time ensuring 

that we do not have an adverse impact on housing or the equity 

markets. 

Ultimately, it is the U.S. Taxpayers and homeowners we must 

keep in mind as we seek to improve the current state of regulation. 

I hope to work in a bipartisan manner to ensure that any action 

this committee undertakes has broad support as well as input for 

the Administration. 

The housing GSEs were established to provide liquidity to the 

housing market and to facilitate access to affordable homes. These 

entities have been extremely successful in this role and have enabled millions of Americans to achieve homeownership. Their operations have been the model for housing finance around the world. 

However, the GSEs have developed over the years into much 

more sophisticated entities than originally envisioned. They have 

become highly complex financial institutions with obligations in the 

trillions of dollars. As such, it is important that the GSEs have a 

robust and sophisticated regulator to ensure that they continue to 

operate in a safe and sound manner. 

A strong regulator will send a signal to the markets that these 

entities have solid management practices. Confidence will be restored in the GSEs, and they will be able to get back to their important work without the distractions that have been plaguing 

them over the past several months. 

This is not to say that this committee will not continue to actively oversee their operations. If there is a change in the regulatory structure of the GSEs, this committee will have to closely 

monitor the development and actions of the regulator. 

In my opinion, the current regulators do not have the tools or the 

mandate to adequately regulate these enterprises. We have seen in 

recent months that mismanagement and questionable accounting 

practices went largely unnoticed by the Office of Federal Housing 

Enterprise Oversight. These problems only came to light when the 

company announced them on their own accord. It is encouraging to 

know that the boards of these companies are active and engaged, 

seeking to operate in the best interest of their shareholders. However, these irregularities which have been going on for several 

years should have been detected earlier by the regulator. 

I would like to thank subcommittee Chairman Baker for his hard 

work in reviewing the GSEs and highlighting for the committee the 

need for increased regulatory oversight of these entities. He has 

demonstrated true leadership on this important subject matter. As 

we move forward, I expect to draw on his expertise in this area. 

Secretary Snow and Secretary Martinez, I do indeed look forward 

to your testimony and welcome you back. 

And I now recognize the ranking member, the gentleman from 

Massachusetts, Mr. Frank. 

[The prepared statement of Hon. Michael G. Oxley can be found 

on page 50 in the appendix.] 

3

Mr. FRANK. Thank you, Mr. Chairman. 

I appreciate hearing from the two Cabinet secretaries, but I 

would say at the outset that before we move on any legislation, I 

would hope we would have some additional hearings. And, in particular, I think it is important that the variety of groups in our 

country who care about housing be invited, because that is my 

major focus here, as it has been during my service on this committee. 

I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, 

in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. 

We have recently had an accounting problem with Freddie Mac 

that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat 

to the Treasury. 

I must say we have an interesting example of self-fulfilling 

prophecy. Some of the critics of Fannie Mae and Freddie Mac say 

that the problem is that the Federal Government is obligated to 

bail out people who might lose money in connection with them. I 

do not believe that we have any such obligation. And as I said, it 

is a self-fulfilling prophecy by some people. 

So let me make it clear, I am a strong supporter of the role that 

Fannie Mae and Freddie Mac play in housing, but nobody who invests in them should come looking to me for a nickel—nor anybody 

else in the Federal Government. And if investors take some comfort 

and want to lend them a little money and less interest rates, because they like this set of affiliations, good, because housing will 

benefit. But there is no guarantee, there is no explicit guarantee, 

there is no implicit guarantee, there is no wink-and-nod guarantee. 

Invest, and you are on your own. 

Now, we have got a system that I think has worked very well 

to help housing. The high cost of housing is one of the great social 

bombs of this country. I would rank it second to the inadequacy of 

our health delivery system as a problem that afflicts many, many 

Americans. We have gotten recent reports about the difficulty here. 

Fannie Mae and Freddie Mac have played a very useful role in 

helping make housing more affordable, both in general through 

leveraging the mortgage market, and in particular, they have a 

mission that this Congress has given them in return for some of 

the arrangements which are of some benefit to them to focus on affordable housing, and that is what I am concerned about here. I believe that we, as the Federal Government, have probably done too 

little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals. I worry frankly that 

there is a tension here. 

The more people, in my judgment, exaggerate a threat of safety 

and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we 

see entities that are fundamentally sound financially and withstand some of the disastrous scenarios. And even if there were a 

problem, the Federal Government doesn’t bail them out. But the 

more pressure there is there, then the less I think we see in terms 

of affordable housing. 

4

I want Fannie Mae and Freddie Mac to continue as government 

sponsored enterprises with some beneficial arrangement with the 

Federal Government in return for which we get both the general 

lowering of housing costs and some specific attention to low-income 

housing. In particular, I am concerned right now that there has 

been—and it has been raised by Fannie Mae, it has been raised by 

one of the rating agencies that have been critical of the Federal 

Home Loan Bank—manufactured housing. 

Manufactured housing is a very important housing resource for 

low- and moderate-income people. You talk about increasing homeownership among low- and moderate-income people, and disproportionately, if you look at the increases in homeownership, it has 

come with their ability to get manufactured housing; and I do not 

want to see Fannie and Freddie pushed in the direction of being 

tougher on manufactured housing. And many of us will be in touch 

with Secretary Martinez to see how we can improve this. 

I have talked to my colleagues in the Congressional Black Caucus, and the Blue Dogs. This is a very important and, I think, 

somewhat underrated form of housing. I think we now see pressure 

on it that is generated in part by exaggerated fears of a financial 

crisis. 

So I am prepared to look at possibilities here, but in particular—

and this is the major point I want to make; I saw this in the letter 

from the homebuilders—I do not want to see any lessening of our 

commitment to getting low-income housing. 

And here is my concern: If you move the regulator to Treasury 

and you leave HUD with the mission, I am not sure that it isn’t 

‘‘mission impossible,’’ or at least implausible. What is HUD going 

to do, yell at them? I mean, if all the regulatory authority and all 

the clout is over in Treasury, what is left in HUD? And I noticed 

that the homebuilders raised that. 

So my threshold question is, if you move this regulator to Treasury, if you bifurcate in terms of the Cabinet departments the responsibility for the low-income housing mission, including manufactured housing—very important to me, as I said—and other forms 

of housing, if you bifurcate that, what real strength is there left behind the mission if most of the regulation and most of the teeth—

I guess if you put all the teeth from Treasury, having HUD gum 

them into doing more low-income housing doesn’t strike me as the 

ideal situation. 

And that is why I say, Mr. Chairman, in closing, that as we proceed on this, I would hope we would have a day when groups, a 

range of groups that are concerned with housing, could specifically 

address that. Thank you. 

The CHAIRMAN. I think the gentleman makes a good point, and 

we certainly will address that. 

The gentleman from Louisiana, the chairman of the Capital Markets, Insurance and GSEs Subcommittee. 

Mr. BAKER. Thank you, Mr. Chairman. I want to express my appreciation to you for your continuing leadership on this most difficult issue. Without your commitment, I am fairly confident we 

would not be in a hearing room today to discuss potential regulatory reform. So my deep appreciation to you for this. 

5

To Secretary Martinez and Secretary Snow, your willingness to 

participate here today is very warmly received. And let me just 

make a personal observation. Having worked with various folks 

over time, I have not enjoyed the professional leadership and responsiveness to what is a very difficult and controversial issue with 

more capability than you two gentlemen have exhibited. 

There was a prior occasion, Under Secretary Gensler, during the 

Clinton administration, testified and took a very brave stand on 

issues that led unfortunately to significant market disruption the 

following day. It is my opinion that given the way in which you 

have come at this issue, working now for many months to come to 

the best study positions that you could offer, that much of what 

you have in the testimony today reflects prior legislative approaches. Much of what is in 2575 is addressed in the testimony, 

and I just want to publicly commend both of you as public servants 

for the demonstrated leadership you have exhibited. 

I want to briefly and very briefly just characterize why we are 

here in light of the ranking member’s comments as to the necessity 

for this hearing today. Because many members would not want to 

sit down and read the history of Fannie or Freddie as light reading 

one evening, it was first created, Fannie, by the FHA Administrator back in 1938, but only authorized at that time to acquire 

FHA-insured mortgage loans. It was years later they were then expanded to acquire VA-insured mortgage loans. 

It wasn’t until 1970, 1970, that Freddie Mac was created and 

that Fannie and Freddie were both given the ability to acquire conventional mortgages before they were really on the road to the big 

time. 

There is one other additional historic period important to reflect 

on because of the view—what are we worried about—there is no 

problem, nothing bad can happen. It goes to the period when David 

Maxwell assumed the role as CEO of Fannie Mae in 1981. It is just 

instructive. 

On that day, Fannie was losing a million dollars a day. They had 

$56 billion of home mortgages that were under water. Now, it 

wasn’t of their own making. There were national economic circumstances no one could have predicted, but the fact is, they were 

in trouble. Had it not been for creative government accounting and 

the leadership of David Maxwell, Fannie Mae might not be with us 

today. 

More recent history has given us another unexpected and unfortunate lesson. If I had to construct a list of the potential concerns, 

managerial risk at Freddie Mac would have probably been 99 on 

a list of 100. Needless to say, we were all shocked to see the disclosure of these events of corporate governance mismanagement. 

These institutions had always been held up as the model for others 

to emulate, and appropriately so. 

The point to be made about these two brief scenarios of history 

is that the GSEs are just corporations. It is difficult to believe they 

are just like every other American corporation, but they are shareholder owned, good old American corporations, built in pursuit of 

profit, subject to the same earnings pressures as any other corporation. They are not infallible, although they have enjoyed acknowledged success. 

6

Given the environment and the concerns of the committee and 

this Congress about the reform of corporate governance, how appropriate is it for us in this environment to reflect upon these enterprises and determine how we can enhance safety and soundness? 

In recognizing there may be a potential for loss, we must also recognize that these individual institutions are unusual in that they 

have a direct responsibility between the losses of the enterprises 

and the taxpayer. Do not forget that a GSE model is unique. If 

they make a profit, they get to keep it. If they lose money, the taxpayer gets the right to pay it off. 

As of the last quarter of 2002, the combined outstanding debt of Fannie and Freddie was $1.99 trillion, not an insignificant number; 

and to appreciate it in the current context, consider the following 

remarks issued yesterday by the International Monetary Fund 

from its semiannual global financial stability report, released just 

yesterday: Recent developments have highlighted the extremely 

large, highly leveraged nature of these enterprises and the risks 

they are managing. 

Now, inappropriate or not, I find the IMF’s concern about capital 

adequacy rather unique, but if they now have this concern, certainly the Congress should share it. To provide any level of assurance to taxpayer protection, we must have world-class regulatory 

capability. 

Let me say in defense of OFHEO, it has been dramatically underfunded since its creation in 1992, and this lack of support translates into lack of resources and capabilities to analyze the world’s 

most sophisticated financial institutions. The regulator has not 

only been outmanned, it has been outlobbied. But those observations are not sufficient to explain why OFHEO has taken 10 years 

to develop a capital stress test and being underfunded does not explain how a glowing report of Freddie’s operations was released 

only hours before the managerial upheaval that followed. 

This is not world-class regulatory work. There are too many unanswered questions, the stakes, too high. It is up to the committee 

to take action needed to get appropriate answers. Taxpayers need 

to be assured. Potential homeowners need to have access to affordable homeownership opportunities. And contrary to the view of 

many, this effort will lead to enhanced mission compliance and opportunities for low-income and affordable housing. 

I am of the opinion, and have been of the opinion, these enterprises do not meet the satisfactory minimum level in providing 

homeownership opportunities to minorities and low-income individuals. We cannot let protest in the past keep us from doing what 

is right in the present. It is time we create a strong, independent 

regulator, independently funded with all the powers necessary to 

take on the task. 

I believe the Secretaries’ testimony is pivotal in setting out the 

initial step the committee must take. It is not time for additional 

reflection. I have been criticized in the past for having too many 

hearings and recommended legislative approaches. Now it is time 

to act and put this chapter behind us and move on to doing what 

is right for our American economy. 

Thank you, Mr. Chairman, for your courtesy. 

The CHAIRMAN. The gentleman’s time has expired. 

7

The gentleman from Pennsylvania, ranking member of the subcommittee. 

Mr. KANJORSKI. Mr. Chairman, before we hear from the Administration on the need to alter the current regulatory system for government sponsored enterprises, I feel it is very important to outline 

my views on these matters for our two distinguished witnesses who 

are appearing before us today. 

As I said in our very first hearing on GSE regulation in March 

2000, we need to have strong, independent regulators that have the 

resources they need to get the job done. I continue to support 

strong GSE regulation. A strong regulator, in my view, will protect 

the continued viability of our capital markets, promote confidence 

in Fannie Mae and Freddie Mac, insure taxpayers against systemic 

risk, and expand housing opportunities for all Americans. 

To ensure that we have strong GSE regulation, I further believe 

that any further legislative reform efforts should adhere to several 

principles. First, a strong regulator must have a single leader for 

a set term with sole responsibility for making decisions. In order 

to conduct robust supervision, a strong regulator must also have a 

funding stream separate and apart from the annual appropriations 

process and without improper administrative interference. Moreover, a strong regulator must have robust supervisory and enforcement powers. 

Accordingly, some have suggested that we should model GSE 

regulatory authority after those of other financial regulators. While 

these proposals have merit, we must determine the applicability 

and appropriateness of providing these banking standards to GSE 

before proceeding. 

In order to maintain credibility, a strong regulator must additionally have genuine independence. Unless I am convinced otherwise, such independence must consist of complete autonomy from 

the enterprises. It must also include sufficient protection from outside special interest groups. It must further have substantial freedom from political interference. 

The last point is especially important. As a result of my experience during the savings and loan bailout, I will approach any proposal to assert general oversight or supervisory controls by the Administration or the Congress over any GSE regulator with great 

skepticism. We must not allow politics to again cause systemic implications to our economy. Because our housing marketplace is one 

of the most important sectors in our struggling economy, we must 

also tread carefully on our forthcoming congressional examinations. 

In short, we have a delicate balancing act ahead of us as we 

work to develop any legislation to modify the regulation of GSEs. 

We must focus our work on regulatory proposals and not make fundamental changes in ways in which GSEs operate to their charter 

or to their mission. It is also my hope that we will develop a balanced bipartisan plan of action for addressing these issues. 

In closing, Mr. Chairman, I commend you for your leadership in 

these matters. I also look forward to working with you in a judicious and objective manner in order to ensure that we do not upset 

our securities markets or raise homeownership costs in the weeks 

ahead. 

The CHAIRMAN. The gentleman yields back. 

8

The Chair is now pleased to recognize the chairman of the Housing and Community Opportunity Subcommittee, the gentleman 

from Ohio, Mr. Ney. 

Mr. NEY. Thank you, Mr. Chairman. I want to thank you, Mr. 

Chairman, for the hearing. I appreciate the opportunity. I will 

make this a brief opening statement because I know you want to 

go on with the witnesses. 

I also want to start by thanking Secretary Martinez and Secretary Snow for being here. I know you have busy schedules, and 

as you know, this is an important issue. 

As chairman of the subcommittee, I have a keen interest in the 

strength of our Nation’s mortgage market as our members do on 

both sides of the aisle. 

GSE regulation is an incredibly important issue for all Americans. The United States mortgage and credit markets are the envy 

of the world. The mortgage market has single-handedly kept the 

economy afloat during the recent economic times. I know we are 

also aware of that. I think that a consensus has emerged that it 

is time to create a new safety and soundness regulator for Fannie 

Mae and Freddie Mac at the Treasury Department. 

The important role that GSEs play in the capital markets and 

the possible risks they could pose to the financial system, reconstituting a safety and soundness regulatory scheme, mechanism, 

under Treasury I believe is a prudent and necessary step. Such a 

move would send an important signal that we understand the importance of GSEs in the secondary mortgage markets in maintaining a stable economy and providing affordable housing to all Americans. 

While there is a consensus regarding the safety and soundness 

regulator, I am anxious to hear from our witnesses today on what 

they believe should be done with HUD’s oversight responsibilities 

for the important housing mission of the enterprises, including approval authority for any new program and enforcement of compliance with affordable housing goals. I want to commend HUD for 

all their diligence on this issue since I have been involved with 

working with HUD. 

I will be asking some specific questions on the issues, but I 

would like to make one personal observation. I think it is important to permit the housing GSEs to have sufficient flexibility to 

adapt to a changing mortgage market. We know today how things 

change quickly in the United States. The liquidity that Fannie Mae 

and Freddie Mac provide to the market should not be compromised 

by unnecessary government regulation. 

First, I believe that there are several important components that 

are integral to providing enhanced regulations for GSEs while not 

impeding their ability to support affordable housing in America. 

For example, I think it is imperative for HUD to continue to have 

an important role as it relates to the mission’s charter and affordable housing goals of Fannie Mae and Freddie Mac; that role of 

oversight will be good for consumers, good for the Nation, and good 

for housing. 

I also have no doubt that the Treasury Department is unparalleled in its ability to manage safety and soundness for these corporations. However, Congress has traditionally charged HUD with 

9

the job of supervising affordable and minority housing in our country, and I believe that these goals can be reached amicably. I believe the White House is going in the right direction, as are the 

committee and the members, and they will be able to express their 

views on the intricate details of how this bill gels through. 

I am also interested to hear what our witnesses think should be 

done regarding the capital requirements for Freddie Mac and 

Fannie Mae, if anything at all. Personally, I believe the minimum 

requirements Congress has mandated for GSEs have done a good 

job of setting a strong safety and soundness standard. I think it 

would be a mistake for this committee to change those requirements into a regulatory reform, massive bill. Likewise, I think we 

should allow the newly required risk-based capital requirement to 

take hold before we begin questioning it. I know there are many 

critics of OFHEO, obviously, and its risk-based capital regulation; 

however, we should allow a decent amount of time to evaluate its 

effects before we begin to completely dismantle it. 

The Department of Housing and Urban Development must maintain its role of leadership in promoting housing, as it has so effectively done under Secretary Martinez. This agency has an important role in ensuring that our Nation is focused on providing decent, affordable housing for all Americans. We must respect that 

mission. 

Mr. Chairman, I believe you are on the right track. I give you 

credit for this hearing, and I know that we need to do the job right 

versus just doing the job fast. Thank you. 

The CHAIRMAN. The gentleman yields back. 

The gentlelady from California, the ranking member of the subcommittee. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

Secretary Martinez, I am pleased that you are here, and I think 

that this is a most important hearing. I am told that there are 

some other members who have been talking about having more 

hearings on this subject and not rushing to judgment in any way 

about these proposed changes. 

Secretary Martinez, I oppose the transfer of program approval 

from HUD to Treasury and I oppose any expansion of new approval 

to include so-called ‘‘new activities.’’ it is important that the mission of affordable housing for low- and moderate-income people stay 

with HUD, without giving the Secretary any additional authority 

over the program activity business process of Fannie Mae and 

Freddie Mac. 

Under current law the GSEs must submit a new program approval request to HUD if the initiative is significantly different 

from a program that has been previously approved or it is an activity in which the GSEs have not previously engaged. Section 108 of 

H.R. 2575, Mr. Baker’s bill, would give HUD the ability to micromanage the GSEs. The process can only be intended to slow down 

the ability of the enterprises to partner with lenders to bring new 

mortgage products to market, including products that assist the 

disabled, provide needed housing rehabilitation and provide down 

payment assistance. Banks are not subject to such burdensome 

processes. 

10

Fannie Mae has worked with lenders to expand access to low 

down payment mortgages and to extend financing to those with imperfect credit. These innovations are possible because they are not 

stifled by an additional layer of government approval. 

This morning we have the opportunity to establish the framework of how the government sponsored enterprises, the Federal 

National Mortgage Association, Fannie Mae, and the Federal Home 

Loan Mortgage Corporation, Freddie Mac, will be regulated. Fannie 

Mae, as the number one provider of mortgage funds to low-income 

families, has been a strong and consistent partner in providing 

homeownership. Last year they served 2.9 million families in their 

affordable housing goals, and 1.8 million families were served in 

their underserved areas, geographically targeted goals. 

Nothing has happened with Freddie Mac that has raised any 

questions about the mission or charters of the two companies. 

Given housing’s importance to the economy and the importance of 

homeownership to America’s families and communities, there 

should be no interest in changing the GSE’s mission. 

Mr. Chairman, thank you. I yield back. 

The CHAIRMAN. The gentlelady yields back. 

We now turn to our distinguished panel and let me say at the 

outset, it is rare that any committee has two distinguished Secretaries from the Cabinet testify, and we are honored to have both 

of you here today. And also I think you can tell by the attendance 

by the members that we have a great deal of interest in this entire 

issue, and for that I am personally thankful to the members. 

And, Secretary Snow, we will begin with your testimony. Once 

again welcome back to the committee. You need to turn your mike 

on. 

STATEMENT OF HONORABLE JOHN W. SNOW, SECRETARY, U.S. 

DEPARTMENT OF THE TREASURY 

Secretary SNOW. See, HUD and Treasury are already working in 

a full state of cooperation. 

Thank you very much, Mr. Chairman, Ranking Member Frank, 

and members of the committee for this invitation to Secretary Martinez and me to appear before you today. 

This committee has demonstrated a strong record of interest in 

effective supervision of and regulation of the government sponsored 

entities, as well as in affordable housing and a strong, healthy 

housing market. There is general recognition that the supervision, 

the supervisory system for housing-related government sponsored 

entities, neither has the tools nor the stature today to deal effectively with the current size, complexity and importance of these entities which over the last decade or so have become among the largest and most far-reaching entities on the American financial scene. 

As we attempt to remedy this situation, we must be mindful that 

we have two corresponding objectives that should guide us: first, a 

sound and resilient financial system; and second, increased homeownership opportunities for less-advantaged Americans. 

I am here today to outline the Administration’s recommendation 

for important improvements that we think can be made to the 

oversight of our housing finance system. Secretary Martinez will 

discuss in particular the measures that the Administration would 

11

like to see implemented to reinforce and strengthen the focus on 

the objective of increasing ownership opportunities. 

First, let me outline the proposal itself, our recommendation. 

What is the Administration recommending? Well, we recommend 

that Congress enact legislation to create a new Federal agency to 

regulate and supervise the financial activities of our housing-related GSEs. Housing finance is so important, it is so far reaching, 

has such significance to the national economy that we need a 

strong, world-class regulatory agency to oversee the prudential operations of the GSEs and the safety and the soundness of their financial activities—consistent, however, with maintaining healthy 

national markets for housing finance, which always has to be a priority. 

Such legislation should fulfill this underlying purpose and not 

merely be an exercise in moving existing agencies from one part of 

the government to another part of the government. In other words, 

we are looking for a value-added proposal here that enables the 

new entity to be located within a Cabinet agency which will give 

it more heft, more significance and more expertise and better policy 

guidance. 

We should keep our eye on the crucial task of getting the regulatory organization right. We think that is the key thing here. In 

addition to the housing goals, which Secretary Martinez will discuss, the legislative objective should be to create a strong, credible 

and well-resourced supervisor with all the powers needed to do the 

job. 

Let me turn now to the issue of what those powers of the new 

agency should be. As we see it, this new agency’s power should be 

comparable in scope and in force and in effectiveness to those of 

other world-class financial supervisors, fully sufficient to carry out 

the agency’s mandate. What does this mean? Well, as we see it, it 

means that the agency should have broad, general, regulatory, supervisory and enforcement authority with respect to the enterprises. In my written testimony I give a detailed description of 

those powers. 

Another key issue with respect to financial regulation of the 

GSEs is capital and how capital will be treated. Capital, of course, 

is the fundamental element of the financial condition of an enterprise and the capital standards should not become the subject of 

frequent change. 

But having said this, I am in no way proposing a moratorium on 

making any adjustments to the risk-based capital standards. The 

existing statutes place a clear responsibility on GSE supervisors to 

ensure that each GSE retains adequate capital to support its risks 

and to give supervisors the power and the duty to require capital 

changes as risks change. We would fully expect the supervisors to 

make full and proper use of this authority as any need arises. 

At the same time, we feel that there is a need for the new agency 

to have even greater flexibility, even more authority to adjust riskbased capital standards for the GSEs than is provided under current law. Broad authority over capital standards and the ability to 

change them as appropriate are of vital importance to a credible, 

world-class financial regulator. Capital standards need to be flexible enough to employ the best regulatory thinking, conscious of the 

12

enterprise’ own measures of risk, and adequate to ensure that the 

enterprises operate in a safe and sound manner with capital and 

reserves sufficient to support the risks that arise in their business. 

We believe the legislation should provide the new agency with this 

more ample and more flexible authority. 

Where should the new agency be located? The administration is 

prepared to consider putting the new agency within a Cabinet department if, Congress considers the additional benefits of the stature and the policy support that can come with that to be valuable. 

Any such arrangement would need to protect the independence of 

the agency over specific matters of supervision, enforcement and 

access to the Federal courts. 

But it is our view that if real value is to be provided by the Cabinet agency by placing the new regulator within a Cabinet department, then we need to be able to draw upon the resources of that 

department for policy guidance and for expertise. At a minimum, 

the new agency should be required to clear new regulations and 

congressional testimony through the department. If that combination of operational independence and policy oversight is provided in 

the legislation, the Administration would be willing to support putting that new agency in the Department of the Treasury. 

Another subject of enormous importance with respect to the 

GSEs, of course, is corporate governance. Corporate governance, 

good corporate governance, as we have come to recognize, requires 

that there be great clarity that the people running large companies 

are there to serve the interests of the stockholders and that their 

incentives and loyalties be aligned with those of the stockholders. 

The principle here, of course, is that one man cannot serve two 

masters simultaneously. 

Freddie Mac and Fannie Mae are large, experienced publicly 

traded enterprises that have grown significantly and taken important places in our capital markets. Reflecting on that fact, we 

would recommend that the Congress consider whether the statutory requirement for Presidential appointment of members to these 

publicly traded GSE boards of directors serves a useful purpose 

anymore; and if you are so disposed, we would support that—that 

is, the Administration would support their elimination, as well. 

The question arises, how broadly should these new regulatory 

powers be applied to the GSEs? Is it all GSEs or is it just Fannie 

Mae and Freddie Mac? 

I want to make it clear that I have not limited myself in my remarks to one group of housing GSEs. The importance of our housing finance markets requires that all of the housing GSEs be included in a system of world-class supervision. Therefore, we see the 

need for and the desirability of the Federal Home Loan Banks’ 

being under such a regime, just as we see it desirable for Freddie 

Mac and for Fannie Mae. However, we recognize that while broadbased support appears to exist for action on how to provide that supervisory system for Fannie and Freddie, a similar consensus may 

not exist with respect to the Federal Home Loan Banks. We would, 

however, be willing to and would look forward to working with 

Congress, the Home Loan Banks and other interested parties to see 

if a resolution can be achieved on this issue as well. 

13

So, in conclusion, where are we? Let me review once again our 

main purpose in being here this morning. It is to discuss how best 

to promote the strength and the resilience of our housing finance 

markets in order to increase, make further progress in advancing 

homeownership throughout the Nation. 

The housing-related GSEs were created by Congress to assist in 

that very mission. Our aim must be to give them the caliber of supervisor that the importance of their mission requires. In so doing, 

I am confident we will promote greater confidence in the marketplace among investors in these entities and thus, in that way, we 

would advance the larger goal of homeownership. 

Thank you very much. 

The CHAIRMAN. Thank you, Mr. Secretary. 

[The prepared statement of Hon. John W. Snow can be found on 

page 73 in the appendix.] 

The CHAIRMAN. Secretary Martinez. 

STATEMENT OF HONORABLE MEL MARTINEZ, SECRETARY, 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Secretary MARTINEZ. Chairman Oxley, it is a real pleasure to be 

with you today, and Ranking Member Frank and other members 

of the committee; and I really am delighted to have an opportunity 

to join my colleague, John Snow, Secretary of the Treasury, to discuss these important matters relating to GSE oversight and regulation. 

Secretary Snow has outlined the principles and priorities the Administration supports. 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 interest: the Administration, the Congress, Wall Street, investors worldwide and, most importantly, the American taxpayer. 

The administration has a dual goal. We must ensure that 

through the GSEs financing is available for low- and moderate-income families, and we must ensure that the GSEs are subject to 

rigorous oversight so that they are serving their public purpose. 

The housing sector directly accounts for about 14 percent of the 

Nation’s total gross domestic product and the housing market actively drives closely related components of the economy as well. 

The GSEs play an integral role in our Nation’s housing finance 

system by expanding the availability of mortgage credit. The liquidity and stability they provide have helped buoy the Nation’s 

economy. Because of the housing GSEs’ impact on the economy, it 

is critical that we ensure their safety and their soundness. 

The Office of Federal Housing Enterprise Oversight was established following the thrift crisis as an independent safety and 

soundness regulator. It was placed within HUD, and it was essentially to regulate Fannie and Freddie Mac. There is a misconception that HUD controls and has direct authority over OFHEO in 

the exercise of safety and soundness and duties. HUD does not. By 

statute, Congress has mandated that OFHEO’s safety and soundness determinations must be made independently of HUD. 

To ensure that the GSEs have appropriate financial oversight 

and are held accountable to their public mission, the AdministraVerDate 0ct 09 2002 12:55 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\DOCS\92231.TXT FIN1 PsN: MICAH
14

tion supports strengthening the power of the GSEs’ regulator. 

Doing so would make the regulator more comparable to the stature, 

powers, authority, and resources of other financial regulators 

charged with safety and soundness oversight. Such a concept has 

worked well for financial regulators in other instances, including 

the Comptroller of the Currency and the Office of Thrift Supervision. 

Currently, safety and soundness regulation is divided, with new 

program approvals at HUD and financial oversight at OFHEO. It 

is the position of the Administration that both elements of safety 

and soundness regulation need to be consolidated in a single regulator. As Secretary Snow noted, the Administration considers it appropriate to transfer authority over new program approval from 

HUD to a new, strengthened regulator. HUD supports transferring 

and strengthening such authority to include review of all activities, 

new and ongoing; and such changes will consolidate and enhance 

the regulator’s oversight responsibility and increase investor confidence in the GSEs. 

As part of this transfer, the Administration is also proposing that 

the HUD Secretary continue to be consulted on new activities requested by the GSEs. Many new activities directly impact the 

mortgage and housing markets where HUD has substantial expertise. This makes it essential that such consultation take place. 

While safety and soundness regulation should be exercised by a 

single independent regulator, the Administration strongly supports 

retaining another core element of the GSEs’ charter, the housing 

goals, at HUD. 

Congress 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. The affordable housing goals were created to ensure 

the GSEs are serving individuals in those communities that are 

most in need. These goals direct the GSEs to serve low- and moderate-income families and provide funding in underserved areas 

such as the central cities and rural areas. 

A third goal directs the GSEs to finance housing for very lowand low-income families. 

Today, the low- and moderate-income housing goals require that 

at least half of all of Fannie Mae and Freddie Mac’s mortgage purchases benefit families in those income brackets. But as the President’s budget noted in February, numerous HUD studies and independent analyses have shown that the GSEs have historically 

lagged the primary market, instead of led it, with respect to funding mortgages loans for low-income and minority households. The 

GSEs have also accounted for a relatively small share of first-time 

minority homebuyers. 

HUD 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 in this area. Furthermore, the housing industry 

looks to HUD as the agency in which this authority should reside. 

Therefore, to strengthen HUD’s housing goal authority, the Administration considers it appropriate to: 

15

Number one, create a new GSE housing office within HUD, independently funded by the GSEs to establish, maintain and enforce 

the housing goals; 

Number two, grant HUD new administrative authority to enforce 

its housing goals; 

Thirdly, to institute enhanced civil penalties for failure to meet 

the housing goals. Explicitly provide that the GSEs act to increase 

homeownership; and expand authority to set housing goals and 

subgoals beyond the three currently established for moderate-income, geographic area, and special affordable housing. 

Let me stress that we believe such a comprehensive change to 

the regulatory structure will strengthen 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 the American taxpayers will ultimately benefit. 

Secretary Snow and I look forward to working with the committee members to strengthen oversight of the housing GSEs, to 

ensure that they are in every way meeting their public purpose and 

that homeownership continues to be an affordable option for American families. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. Secretary. 

[The prepared statement of Hon. Mel Martinez can be found on 

page 69 in the appendix.] 

The CHAIRMAN. And to both of you, we thank you for your excellent testimony and your continued cooperation in this endeavor. 

And, indeed, it is an endeavor that will be successful only if we 

have an opportunity to work together to craft bipartisan legislation 

that deals with the goals, I think that all of us share, in terms of 

a world-class regulator for the GSEs, as well as a continued commitment on the part of HUD towards low-income housing. 

And I suspect that the turnout today from the members indicates 

that strong interest, and you both will be focal points moving forward to get legislation passed. 

I was reading a recent brokerage firm report that indicated that 

Congress’ efforts to strengthen the regulator for the GSEs will ultimately be looked on favorably by the capital markets, and I think 

both of you mentioned that a first-class regulatory structure is in 

the best interest of both the GSEs in this case and the markets, 

and that ultimately it would appear, based on this study, that that 

is the case. And that is clearly our effort. 

Secretary Martinez, you mentioned you were talking about housing goals within HUD. How much of that can be achieved through 

the regulatory structure and how much has to be achieved by legislation? 

Secretary MARTINEZ. I believe it is necessary for legislation to enhance the effectiveness of a regulator as it relates to goals. Right 

now, we can set goals, but we really need enhanced authority to 

enforce those goals, to enforce broader civil penalties so that, really, there will be teeth behind the goals that we set. 

We also want to make sure that we create a set of subgoals because, right now, the goals are a bit broad, and we want to make 

sure that by setting subgoals, we then can create the right regulatory framework to give some targets and also to have the enVerDate 0ct 09 2002 12:55 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 G:\DOCS\92231.TXT FIN1 PsN: MICAH
16

hanced oversight authority which would really have to come 

through legislation. 

The CHAIRMAN. So Congress would have to set up the overall 

structure of what you anticipate and then allow you to work within 

that framework? 

Secretary MARTINEZ. Correct. And then we can have regulations 

to follow. 

The CHAIRMAN. Secretary Snow, you mentioned the potential of 

including all GSEs in the regulatory change, specifically the Federal Home Loan Banks. 

It has been my observation, at least at the current time, that 

there is a divided opinion among the Federal Home Loan Banks, 

in a general sense of regional difference, I guess. It appears that 

the West Coast entities appear to be a lot more enthusiastic about 

being included. In my area, in the Midwest and, I suspect, the 

South, there is far less enthusiasm. 

Is it possible during a relatively short time period of passing legislation that we would be able to include the Federal Home Loan 

Banks without a consensus within that community? 

Secretary SNOW. Mr. Chairman, I doubt it. I think unless a consensus develops fairly quickly that we would get bogged down in 

lots and lots of time-consuming efforts that would jeopardize the 

larger objective here of putting in place that world-class regulator 

I talked about for Fannie Mae and Freddie Mac. So I would not 

personally want to see that issue get in the way of moving forward 

on legislation for which there seems to be pretty much broad-based 

support today. 

I would hope, though, that the Federal Home Loan Banks would 

caucus and would review the situation and meet with us and meet 

with Members of Congress and see if there could not be some resolution on that within the time frame to get this legislation done 

this year. 

The CHAIRMAN. Thank you, Mr. Secretary. 

Mr. Secretary—both of you actually—I would like you to indicate 

at least some general positions on the special exemptions that the 

GSEs currently now enjoy. Specifically, I think our members, and 

I certainly, would be interested in the tax status of GSEs and their 

exemption from registration under the 1933 Act. 

How does that play into what your testimony has stated and in 

terms of our trying to pass legislation? 

Secretary Snow? 

Secretary SNOW. Mr. Chairman, we do not propose addressing 

those issues in this legislation. And I think the important focus for 

this legislation is that strong, effective, world-class regulator. So it 

would be our view that those issues do not need to be addressed 

now. 

Some of those issues, like the 1933 Securities Act, we actually 

come down saying they should not be addressed on substantive 

grounds because we don’t see the need for Freddie or Fannie to be 

put under the 1933 Act. 

The 1933 Act basically deals with fraud in the issuance of securities. There is no evidence of that. The SEC itself has indicated, I 

understand, that they would not want to see that happen because 

given the volume of issuances by the two major GSEs, they would 

17

swamp the resource base of the SEC; and there is no evidence of 

any need to deal with the fraud issue. 

So we would actually oppose putting them under the 1933 Act. 

The CHAIRMAN. Secretary Martinez. 

Secretary MARTINEZ. I believe Secretary Snow and I have concluded that the most important thing we can accomplish through 

these hearings and with the proposed legislation we presented 

today is a strengthened regulator. 

There are many other issues that could arise, and we would be 

happy to continue to see the development of legislation. But today, 

our proposal is the focus of what we recommend, and I think it 

solely focuses on a strong regulator, a combined regulator for all of 

safety and soundness, and then the strengthened aspects of regulation at HUD to give us the real tool box that we need to enforce 

the parts of it that would remain at HUD. 

The CHAIRMAN. Thank you. My time has expired. 

The gentleman from Massachusetts. 

Mr. FRANK. Secretary Martinez, I was glad to hear you say that, 

and on page 3 you make some very strong statements about the 

need to enhance the Federal executive ability to impose the housing goals. 

Are you going to be developing specifics that give us these? 

Secretary MARTINEZ. Yes, sir. We would have very specific recommendations——

Mr. FRANK. I think that is very important. 

Secretary MARTINEZ. Yes. 

Mr. FRANK. The problem you have is, there could be a tension 

between the Treasury worrying about safety and soundness and 

HUD worrying about affordable housing; and there is a tension 

there. One way is that if affordable housing was as safe and sound 

as everything else, we wouldn’t need a government mandate to do 

it. There is a certain amount of greater risk. You want to minimize 

it. How does HUD stay equal in this tug-of-war? 

Secretary MARTINEZ. Those tensions exist today, but the problem 

today is that we don’t have—HUD doesn’t have the ability to really 

impact the regulatory framework within OFHEO, while at the 

same time there is this perception that there is some oversight that 

the Secretary of HUD may exercise. 

Mr. FRANK. I just want to tell you, I agree with the goals you 

spelled out. I am skeptical of what is going to happen to the housing mission if most of the regulation is in Treasury——

Secretary MARTINEZ. We still have a consulting role. I mean, in 

other words, as it relates to the mission, as it relates to new program approval, the proposal is going to continue to come to HUD 

for consultation before product approval of new products would 

happen. 

Mr. FRANK. I am unimpressed by the right to consult. By virtue 

of my job, I have got the right to consult with a lot of people who 

ignore the hell out of me, so that reinforces my fears. 

If Treasury regulates and HUD consults, Treasury wins. And you 

talk about more than consulting here in terms of the goals. 

Secretary MARTINEZ. Well, on the other part of it, see, the problem is that safety and soundness should all be in one place, and 

we believe that not only the ongoing mission of the GSEs and curVerDate 0ct 09 2002 12:55 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\DOCS\92231.TXT FIN1 PsN: MICAH
18

rent programs, but potential new programs should come under 

close scrutiny and regulation. 

Beyond that, we at HUD would then have the real enhanced type 

of regulation that would enable us to assist you as you are seeking 

to make sure that these entities are really meeting their housing 

goals. 

Mr. FRANK. Well, I am skeptical again if all the regulatory authority is there, they approve new programs. You set out some 

goals—new administrative authority went out, enforced housing 

goals, et cetera; and you have to show me that there is not going 

to be a situation where Treasury is pushing in one direction and 

affordable housing in the other. I will need to see specifics here to 

believe that——

Secretary MARTINEZ. We will give you some specifics. But the 

truth of the matter is, there is going to always be some tension between insisting on a certain set of goals and then also——

Mr. FRANK. I agree, Mr. Secretary, but here is my point. I think 

Treasury is going to be the big brother here, and if one set of goals 

is in Treasury and the other set is in HUD, I worry about an institutional disadvantage for the set of goals that are important to me. 

Let me, with that, turn to the Secretary of the Treasury, because 

what I am struck by here is what is not in here; and I am glad 

it is not in here. We have heard descriptions of the situation regarding GSEs as a great crisis and an imminent threat to financial 

stability. This does not change the essential relationship of the 

GSEs legally. 

I am not for changing that, but I think we ought to note that this 

is not a document put forth by people who think that the sky is 

about to fall or that we are going to have serious damage; and I 

am struck by that moderate quality. 

Let me ask you, Mr. Secretary—and again I appreciate that 

there is not a lot of rhetoric in here about how terrible these are. 

I appreciate that you think we should enhance the regulation, but 

I get the impression that you were talking more about guarding 

against potential future problems developing, rather than feeling 

that there is an urgent need to stave off some crisis. 

Are we in a crisis now with these entities? 

Secretary SNOW. No, that is a fair characterization, Congressman 

Frank, of our position. We are not putting this proposal before you 

because of some concern over some imminent danger to the financial system for housing; far from it. Rather what we are saying is, 

since 1992, or whenever it was that OFHEO was established by 

statute, over a decade ago, these housing markets have developed. 

Mr. FRANK. Getting bigger. 

Secretary SNOW. Huge. Hugely. And those entities have grown 

and become now very large players on the whole financial landscape of the United States. We just feel it is time to——

Mr. FRANK. Good. I think it is important to have that, to make 

it clear that that is the context. 

Let me just close by saying, I look forward to this, and I have 

given you my skepticism. Housing has been my primary issue, affordable housing has been my prime issue, and I need to be convinced. We haven’t done as good a job as we should in enforcing 

19

those goals, but I will have to be convinced that they won’t be at 

an institutional disadvantage. 

Secretary SNOW. I don’t think I will convince you by this, but as 

I view this institutional arrangement that we are proposing, Secretary Martinez and HUD would have the clear primacy on the 

question of what is the mission. 

Mr. FRANK. And what happens if they don’t meet the mission? 

Secretary SNOW. If they don’t meet the mission, the Secretary is 

asking for enhanced authority to have disciplinary powers to 

strengthen his hand in seeing that the entities do meet that. 

Mr. FRANK. I just worry that we are going to get them in a situation where the most important question for Fannie Mae and 

Freddie Mac to answer is who do you like better, your mother or 

your father? 

Secretary SNOW. Well, as Secretary of the Treasury, if this authority comes to Treasury, I would view our responsibility as 

soundness and safety within the larger parameter of the goals that 

are given to the GSEs by——

Mr. FRANK. I appreciate that. Ten more seconds. But obviously 

if we can find some way to write that sort of thing into the law, 

because personalities change, I would feel maybe a little less skeptical. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Louisiana Mr. Baker. 

Mr. BAKER. I obviously have a number of subjects I would like 

to cover, but I am going to focus in this first 5-minute opportunity 

on two different approaches. One is just a clarification, as I understand, the explanations of intent. And two are—with regard to enhancements I see in your approach over H.R. 2575. 

With regard to capital, Secretary Snow, I was very pleased to 

hear your comments so forthrightly with regard to the moratoria 

issue. There has been much discussion that there would be some 

5-year artificial prohibition on regulatory action. And I want to go 

just a bit further in understanding the broad authority for supervision of capital adequacy. 

My question goes to the point that although you preface it by 

saying, we do not intend in any way to adversely impact the riskbased capital standard recently promulgated by OFHEO, you do 

wish for the new regulator to have unbridled authority to adjust 

minimum risk-based capital adequacy based on an assessment of 

risk and the leverage ratios of either enterprise. Is that a fair characterization? 

Secretary SNOW. Yes, that is. 

Mr. BAKER. Secondly, that with regard—and this is perhaps 

something for both gentlemen. With regard to product approval, as 

I read the testimony, it appears that the broad authority again 

granted or requested in that instance is not only to prospective, but 

to currently authorized products that you may wish to review for 

whatever reason. In other words, you are looking for a broad grant 

of authority with regard to product approval. Is that a fair characterization? 

Secretary SNOW. Yes, sir. 

Mr. BAKER. Then there are two points that I find very important 

that are beyond what has been proposed in 2575. One is with reVerDate 0ct 09 2002 12:55 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 G:\DOCS\92231.TXT FIN1 PsN: MICAH
20

gard to the importance of the Presidential appointment of board 

members. Some have expressed concern that if the agency is located within the Treasury, that that will politicize the environment 

in which managerial decisions may be made. This sends an extraordinary message, in my opinion, to the broader market that 

you want the management of this enterprise to be separate and 

distinct from political appointment, which is a—the first time this 

proposal has been proffered. Is that correct? 

Secretary SNOW. Yes. Very much so, Mr. Baker. We view these 

as large, substantial and important private enterprises, and private 

enterprises don’t have their board membership determined by a political process involving the President of the United States. They 

have it through a nominating committee. 

And we think that normal corporate governance processes that 

apply to other major companies and other financial institutions, 

and which is now recognized as the right way to do things, that is 

the nominating committee taking the lead on board membership, 

should apply as well to Freddie and Fannie. 

Mr. BAKER. Terrific. 

The next is, with regard to—I had recommended at one time consideration of a receivership process in the unlikely—acknowledged 

unlikely event there would be adverse economic developments, and 

it would be a necessity to act. In lieu of granting the regulator customary receivership authority, what I understand is an enhanced 

conservatorship, fairly unlimited, where the regulator could make 

appropriate decisions on behalf of the taxpayer, liquidate assets as 

required, satisfy creditor claims, whatever is necessary up to the 

very last chapter of the process, which would be included in a receivership, but not in your plan, and that would call for the revocation of the charter, which would now, under this view, be left for 

congressional determination; that you view it appropriate for something of that magnitude to be determined as a matter of public policy, not as an executive responsibility to close out. Is that a fair description? 

Secretary SNOW. That is precisely what we are suggesting. 

Mr. BAKER. Well, let me say on both of those last two points, 

these are significant improvements over proposals in the past, and 

I think you are to be credited. 

I have a significant list of other things, but I will defer for other 

Members. Thank you very much, sir, for your leadership. 

The CHAIRMAN. The gentleman yields back. 

The gentleman from Pennsylvania Mr. Kanjorski. 

Mr. KANJORSKI. Thank you, Mr. Chairman. 

Mr. Secretary, let me get this straight. You did answer Mr. 

Frank’s testimony that there is nothing occurring of high risk. And 

since we are talking about reforming some of the largest financial 

institutions and their regulatory mechanism, what is the pressure 

to do this in the next 6 weeks? Congress is anticipated to adjourn 

sometime late October, early November, and this proposal comes to 

us timely in terms of we are glad to have the Administration make 

a proposal. But I think to put a 6-, 8-week time frame on it raises 

some interesting questions. 

Secretary SNOW. Well, Congressman, obviously you will have to 

decide what priority to give it and whether to deal——

21

Mr. KANJORSKI. So there is nothing essential that we move 

through and have daily hearings here and move a piece of legislation because there is no high risk to the system? 

Secretary SNOW. No. We are not before you, as I answered Congressman Frank, because of an imminent risk that we perceive of 

any kind. Rather there seems to be a coming together of the parties 

who take an interest in this subject behind a set of proposals that 

I think are pretty close to what I have outlined here, maybe not 

precisely, but pretty close, that gives us an opportunity to use that 

momentum to move forward, if the Congress chooses to do so, and 

we would urge you to do so. 

Mr. KANJORSKI. I am impressed with the work you have done, 

but I worry about some of your definitions. I agree that we should 

have a strong, independent, world-class regulator. Now, my question to you is can you name any world-class regulator or financial 

institutions of the United States that has their policy set and their 

testimony reviewed by Treasury? 

Secretary SNOW. No. We don’t review the——

Mr. KANJORSKI. So are you using the terminology ‘‘world-class,’’ 

but you are not talking about making the type of regulator here 

that regulates the banking system or other entities in this government? You are talking about a usurpation of authority over the 

regulator by Treasury. 

The idea—let me put it very succinctly. The idea that Treasury 

on behalf of the Administration would be reviewing testimony that 

is going to be made to this Congress is most offensive for a very 

simple reason. The World Trade Center disaster, the EPA’s Administrator was going to release notice to the American people of hazardous materials in New York. It was this Administration that put 

a clamp on the release of that information. 

Why should we as the Congress in representing the American 

people assume that if there were real dire information that was 

going to be released or disclosed by the Administrator at a time 

that was not propitious to the Administration, politically or otherwise, that they wouldn’t put a clamp on that testimony? 

Secretary SNOW. Congressman, as I am sure you are aware that 

Treasury has that very authority today with respect to the IRS. 

Mr. KANJORSKI. Well, the IRS——

Secretary SNOW. The IRS is an institution of great sensitivity. 

Mr. KANJORSKI. I am not sure that quite frankly we should brag 

about the IRS. Didn’t we just recently have to pass a Taxpayers’ 

Bill of Rights? 

Secretary SNOW. You asked me whether or—Congressman, 

whether or not there was any entity in Treasury which would serve 

as a predicate for this. I am saying the IRS is a predicate. 

Mr. KANJORSKI. Well, if that is the best example you can give as 

a world-class regulator, the IRS, I don’t think the American people——

Secretary SNOW. You asked for review of testimony, and I said 

Treasury does review IRS. 

Mr. KANJORSKI. I asked for an example of a world-class, strong 

regulator. 

Secretary SNOW. Until I think it is the mid-1990s, that Treasury 

did have that—did review the testimony of the OCC. 

22

Mr. KANJORSKI. And thank heavens we put that aside. What I 

am suggesting is, look, I am one of the few members of this committee who was here in the S&L crisis, and I think if we are going 

to attach anything, it was a conference committee that adopted a 

piece of legislation in 1982 that almost destroyed the financial—the 

S&L industry in this country and caused a catastrophe 10 years 

later that we are still paying to bail out in this country. 

And I don’t think that, one, we should rush to judgment. Two, 

I certainly don’t want political influence, whether it be the Administration or this Congress, getting involved with an independent, 

strong, world-class regulator. 

The day that the Federal Reserve wants to concede that the Secretary of the Treasury and the White House should pass on its testimony, that is when we should allow the regulator of these entities 

to have their testimony passed on by the White House and Treasury, and not until that day, if we are going to use the term worldclass, and I believe we should. 

And I think that using that term ‘‘world-class’’ sets a standard 

now for Treasury and for Housing to really work with this committee and the Congress to establish a world-class, independent, 

strong regulator, which doesn’t mean that they have to carry their 

testimony and have it filtered by the Administration or Secretary 

of Treasury. 

Secretary SNOW. Congressman, can I just respond to put this—

to give you our perspective on it and why we are recommending it 

as we are? 

The Treasury’s role would be limited basically to policy. The regulatory functions, the day-to-day supervision, the day-to-day oversight, the enforcement actions, the litigation and so on would be 

fully and completely under the control of the new regulator. 

Mr. KANJORSKI. The housekeeping would be under the regulator? 

Secretary SNOW. I would not call litigation and enforcement 

housekeeping. That is the guts of what regulators do. 

Mr. KANJORSKI. Regulators have a responsibility to come to this 

Congress and the American people and, without a filtering process, 

to tell us what the status is of the bodies they regulate, what they 

are in, what is the problem. They don’t have the responsibility of 

coming up here and giving us filtered information that meets the 

considerations and the interests of the Administration at any given 

time. 

I am not just suggesting this Administration, but the policy we 

are talking about establishing here and the world-class regulator is 

going to be in place for the next 10, 20, 30 years, and I would not 

be very impressed with Mr. Greenspan coming up here and talking 

for an hour or two to tell us how the economy is if I knew that the 

Administration and the Treasury just spent the last 2 weeks filtering his testimony. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Iowa Mr. Leach. 

Mr. LEACH. Let me just begin by thanking Chairman Baker and 

Chairman Oxley for an extraordinary job of bringing us to this 

point, and also the two Secretaries for moving their departments 

as far as they have. But, the big picture is, and I think it has to 

be emphasized, that these are two private sector enterprises, but 

23

they have public powers, and one of the great questions is should 

they be regulated at a different level than all other private sector 

organizations? And up to this point in time, regulation of these 

GSEs has been largely written by the GSEs, and that should be 

understood. And now the question becomes where do we go from 

here? 

And I think the Secretary is exactly right, that these should 

come under the executive branch. And clearly he was being a little 

understated when he said an executive branch department. It must 

be the Treasury. 

And here then the question becomes, what about the Federal 

Home Loan Bank System? It is absolutely imperative that they be 

regulated the same way, and there shouldn’t be a compromise on 

this. It is just definitive that OFHEO is an inadequate regulator, 

well-meaning but inadequate. The Finance Board is grossly inadequate, and its inadequacy is so stunning that not to insist that it 

be brought under Treasury in the same kind of way at this time 

would be a massive mistake. 

Now, in the initial organization that we set up between OFHEO 

and Treasury and HUD, there is an effort by the GSEs to bifurcate 

responsibility and, for example, have the mission with HUD, and 

frankly, it is a mission that HUD has never looked at very seriously. I am not relating to any particular Secretary, it is just not 

a mission that HUD has taken seriously. I think it is clearcut that 

mission should go with the regulator. It should be at Treasury as 

well. 

Now, finally, there is a little bit in the background of this that 

I am uncomfortable with. And Chairman Baker was quite thoughtful in his delineation and questioning of you, Secretary Snow, but 

the press has reported that kind of in a compromised way that 

there have been quiet understandings that have been developed between Treasury and the GSEs about no change in some sort of regulatory framework that exists for a 5-year period. I will tell you 

that that is nonsense. 

The notion that a publicly empowered, private sector enterprise 

should have lower capital standards than a private sector enterprise is really defiant of common sense, and I think that you ought 

to have a full understanding that a regulator should respond to the 

public interests and to the competitive interests of the American 

enterprise in as equitable a way as possible, and that no new regulator should be shackled by any understandings prior to its establishment. 

And that doesn’t mean that the current framework isn’t—is all 

bad, because it certainly isn’t. There are aspects that are quite 

thoughtful. But to shackle a new regulator with any implicit understandings to begin with, I think, would be defiant of the idea of the 

independence of that regulator and also defiant of common sense. 

Here, America is a little bit embarrassed. I mean, the IMF this 

week, of all things, and I am amazed that they have entered into 

this fray, but it suggested that the GSEs are undercapitalized. 

Whether they are right or not is not so much the question as it is—

it is very interesting that you are getting both world and national 

attention to American regulatory oversight. And I think it is something we can’t take lightly. 

24

And so I would be very, very concerned that there be implicit 

agreements made in advance that don’t fit the circumstance, and 

I would also be very concerned if we don’t do it in a profoundly correct direction rather than in a slightly correct direction at the very 

beginning. 

And, Mr. Secretary, I would like you to comment on that, if you 

would. 

Secretary SNOW. Well, I am in very broad agreement with what 

you just said and don’t take exception to it, to any of it. 

The legislation, in my mind, would be much better, as I suggested, if it could include the Federal Home Loan Banks. I think 

it—if it doesn’t, then one big piece of this integrated set of relationships is left out, and I think will eventually be picked up, but the 

sooner it can be picked up, the more coherent the regulatory framework would be. I agree with you. 

On the issue of implicit understandings, there can’t be any. 

There aren’t any. There was some newspaper article to the effect 

of some 5-year moratorium. That is why I explicitly dealt with that 

in my comments. Where that came from I have no idea, but there 

can’t be any shackles or any restrictions of that sort on the new 

regulator. 

At the same time, I make the point that things like these riskbased capital standards probably should not be changed willy-nilly. 

There is some logic in a regulator having some precedental value 

of rules that have been entered into. But what we are asking for 

here is that the current statutory restrictions on the regulator in 

the construct of those risk-based standards be removed. That is 

the—that all of those restrictions, all of those definitions of how the 

regulator should do it be removed. 

So I am in broad agreement. There are no understandings, implicit or otherwise, that would restrict the new regulator. The new 

regulator, though, will enter the fray working with a set of arrangements that it will want to review, but which are in place, and 

which will set the rules of the road for some interim period of time 

as the new regulator begins to review and think through what, if 

any, more appropriate sets of arrangements should be established. 

The CHAIRMAN. The gentleman’s time has expired. 

Secretary MARTINEZ. May I just quickly comment, Mr. Chairman? Mr. Leach—and I don’t take any personal offense about the 

comment about the seriousness with which HUD has approached 

its purpose, and I won’t comment on prior HUD Secretaries, but I 

do want you to know that as I have looked at my responsibilities 

and tried to exercise them, that I have also found the resources 

that HUD has had available to exercise that mission seriously are 

not there, which is why I have insisted—and this proposal includes 

a number of things that I think are vitally important to us being 

able to fulfill that mission. 

One of them, for instance, which I think is tremendously important, is the assessment authority, to give us the teeth necessary to 

really enforce the goals that Fannie and Freddie—which, by the 

way, I should also state they have always made and met the goals 

that HUD has set for them. 

25

But I still believe having an enhanced opportunity to do that 

type of mission would really be the kind of seriousness of purpose 

that would allow us to fulfill it. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Vermont Mr. Sanders. 

Mr. SANDERS. Thank you very much, Mr. Chairman. 

And thank you both, Mr. Martinez and Mr. Snow, for being with 

us today. 

Let me begin, very briefly, by concurring with the statement that 

Mr. Frank made a few moments ago. Clearly there is a major housing crisis in this country. Barbara Lee and I and others are working on a national affordable housing trust fund concept, which has 

over 200 cosponsors. 

Mr. Chairman, I hope that this committee would be able to work 

with Mr. Martinez, putting on a major conference which gives us 

the opportunity to hear from housing advocates all over this country as to how we can solve the housing crisis. And I hope that that 

is something that we could do. 

But let me for a moment change directions and ask Secretary 

Snow a few questions. Mr. Secretary, let me begin by thanking you 

very much for the meeting that we held in your office last July 

with some Members of Congress, the AFL-CIO, the AARP and 

other groups who were very concerned about the proposed cash balance pension regulations that were drawn up by the Treasury Department. 

As you know, it is our view that these proposed regulations 

would not only be a disaster for older American workers, but that, 

in fact, they would be illegal and are in violation of Federal age 

discrimination law. Now, since that meeting that you graciously 

hosted, several positive developments have taken place for workers 

who have seen their pensions slashed by up to 50 percent as a result of cash balance pension schemes. 

Number one, on July 31st, the Southern Illinois Federal District 

Court ruled that IBM’s cash balance pension conversion violated 

the pension age discrimination laws that are on the books. They 

are illegal. 

Number two, just last night an amendment that I offered to the 

Treasury/Transportation appropriations bill to prohibit the Federal 

Government from using any taxpayer dollars to assist in overturning this pro-employee Federal court ruling won with overwhelming support, bipartisan support, 258 to 160. 

So what I would like to ask the Secretary are two questions. 

First, Mr. Secretary, given the IBM court decision and last night’s 

overwhelming vote against cash balance plans, will you commit 

today to either withdraw the proposed regulations on cash balance 

plans or at least commit to not moving forward to finalize them? 

Second question, Mr. Secretary, I want to ask you about a very 

serious related issue. According to an article in today’s Wall Street 

Journal, quote, ‘‘in an unexpected move that involved doctored 

Treasury documents, the House passed an amendment that could 

prevent the Treasury from issuing controversial pension regulations.’’ From the Wall Street Journal. 

On Monday, an IBM lobbyist, Susan M. Semantakowski, sent a 

document she called the, quote, ‘‘Treasury Statement of OpposiVerDate 0ct 09 2002 12:55 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 G:\DOCS\92231.TXT FIN1 PsN: MICAH
26

tion,’’ end of quote, to various lawmakers’ staffs, including Mr. Gutknecht. The Treasury document on official Treasury letterhead, 

and I have that document here, noted, quote, ‘‘Treasury strongly 

oppose the Sanders amendment,’’ end quote, and advised lawmakers to oppose the amendment, which it said will weaken the 

defined benefit plan. 

Tara Bradshaw, a spokeswoman for the Treasury Department, 

said, ‘‘the agency didn’t issue the document. It is a Treasury-generated fact sheet, stating our position on a set of past documents 

that were never offered.’’

However, they were not sent in the format that you provided, 

and therefore appear to have been doctored. We were not aware the 

document had been circulated beyond a very limited number of select staff. 

Mr. Secretary, my question to you, second question, is did the 

Treasury Department authorize sending out these talking points 

against this amendment? Your spokesperson indicates that it was 

not the case? Number two—well, can you tell me that, sir? 

Secretary SNOW. I am not aware of any authorization for any 

talking points of the sort you are commenting on. 

Mr. SANDERS. Do you agree with your spokeswoman, Tara Bradshaw, that the agency didn’t issue this document? 

Secretary SNOW. Yes. Certainly I am not aware of it. If she said 

it, then she would know, and I would agree with her. 

Mr. SANDERS. If that is the case, would you agree with me that 

this is a very serious fraud? If IBM or any other company was 

sending around doctored Treasury documents using the letterhead 

of the U.S. Department of Treasury, is this a potentially very serious violation of Federal law? 

Secretary SNOW. Congressman, I better not comment, because I 

really don’t know the facts on this, but it is certainly something 

that I intend to look into, now that you have brought it to my attention. This is really the first I have heard of this. 

Mr. SANDERS. Well, this was in the Wall Street Journal today. 

Sir, if your spokesperson is correct, and if a private corporation 

was using the letterhead of the Department of Treasury to fight 

against an amendment which, in fact, won overwhelmingly, I would 

hope that you would agree with me that is a hugely serious issue 

warranting an investigation by your Department and the Department of Justice. Can I have your commitment to go forward on 

that? 

Secretary SNOW. I will certainly look into this and try and get 

at the base of what the facts are and take whatever steps are appropriate in response. 

Mr. SANDERS. Can I expect to hear from you——

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Ohio Mr. Ney. 

Mr. NEY. Thank you, Mr. Chairman. I want to ask a question of 

Secretary Snow.

I am aware, as you are, of the strength of the housing market 

in the United States and how that has supported our Nation’s 

economy, which, as I stated earlier during a recent economic downturn. The market, as you know, relies on a constant flow of liquidity provided by the secondary mortgage markets, and the strong 

27

capital base among the regulated companies. I think we can all 

agree that the stability of a strong capital regime is important not 

only for safety and soundness, but also to signal the strength of 

this sector of our economy. 

Now, it is my understanding that you are recommending no 

change to minimum capital standards for Fannie Mae and Freddie 

Mac and no current change to the newly adopted risk-based capital 

standards. I state this because it is important to have stability in 

the capital markets. Is that correct? 

Secretary SNOW. Yes. That is right. What we are recommend—

no, we are not recommending any change in the current standards 

as part of this legislation. That is correct. 

Mr. NEY. Mr. Chairman, the second question, we all recognize 

the issue of GSE regulations as vital to our Nation’s housing markets, and as Chairman of the housing subcommittee, I believe that 

your comments about the need to strengthen the safety and soundness are critical to the stability of the U.S. Housing markets. I 

commend you on that. 

As we move forward, I just want to make sure that we are all 

taking from the same page. So to be clear, what we are talking 

about today is moving safety and soundness regulation of Fannie 

Mae and Freddie Mac to the Treasury Department? 

Secretary SNOW. Yes. 

Mr. NEY. We are not really talking about any adverse change to 

the housing mission, nor are we talking about any changing to the 

GSE charter or status in the marketplace. Is that correct? 

Secretary SNOW. That is basically correct, although, as Secretary 

Martinez has said, the Administration is recommending strengthening the hand that HUD has on that side. And we are recommending one change, and that is that the President no longer have 

responsibility for appointing some number of directors to the two 

entities. Other than that, no. 

And we would, of course, want to see the strong regulator put in 

place, and then the strong regulator would deal with subsequently 

the issues you raise, like what are the appropriate risk-based capital standards. But we are not changing those in the legislation. 

Mr. NEY. Thank you, Mr. Secretary. Thank you. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Illinois Mr. Gutierrez. 

Mr. GUTIERREZ. I want to thank you. I want to thank Treasury 

Secretary Snow and HUD Secretary Martinez for appearing before 

us today. It is clear, after having read their statements and listening to their testimony, that they understand the vital role of GSEs 

in making home ownership a reality for low-income and minority 

families. And I want to tell them both that I look forward to working with them in this process to improve the financial regulation 

of the companies and allowing their important role to continue. 

You know, we have the best housing finance system in the world, 

but it is not for everyone. Home ownership rates are at historic 

highs, 68 percent, but it is only at 47 percent for African Americans 

and 46 percent for Hispanics. The GSEs have a congressionally 

chartered mission to make home ownership more affordable and 

more available. 

28

I want to make sure that in this legislative process, these companies are able to continue their work to reach potential homeowners 

in underserved populations and underserved areas of our Nation. 

HUD establishes clear goals that companies must meet in lending 

to low- and moderate-income Americans in underserved areas, and 

special needs populations, and I was delighted to hear from Secretary Martinez that they have always met the expectations of 

HUD. 

And I know the Secretary wants more resources in order to make 

those housing opportunities available to more. I know that many 

of us work with both Freddie Mac, and I particularly with Fannie 

Mae in my congressional district, and I understand they have 

pledged $700 million in housing capital to several—4.6 million minority Americans by the end of the decade. I want to applaud those 

efforts. 

In whatever final regulatory structure is determined for housing 

GSEs, we should be careful to preserve the ability of all housing 

GSEs to improve the secondary mortgage market by developing innovative new products which are consistent with their mission. 

And they have many. Parents can help now. We have got it down 

to 5 percent. There is all kinds of things taken into consideration 

so that people can get into it, and I think that is what makes 

Fannie Mae and Freddie Mac unique. 

So I support strengthening. And I would just like to ask Secretary Martinez and Secretary Snow if they can just assure us 

today that the new structure that is being proposed will not disrupt 

the important mission these companies play for potential homeowners in underserved populations and in underserved areas of our 

Nation? 

Secretary Martinez. 

Secretary MARTINEZ. Sir, I believe that it is important for us to 

keep in mind that the GSEs and Fannie and Freddie, specifically, 

play a vital role in the housing market in our country; that they 

have had a tremendous impact in the booming housing market that 

we have enjoyed over the last several years. 

In addition to that, I just also want to make sure that we state 

that President Bush is committed to increasing minority home 

ownership. We have had that as a focus in our Department. And 

Freddie Mac and Fannie Mae have been part of the Administration’s American dream—Blueprint for the American dream, commitment partners in that effort. They do good work. We want to 

ensure that also is the case into the future. By providing us with 

some additional tools for us to fine-tune the housing goals, I think 

it would only enhance our ability to enforce the housing goals, but 

also their ability to meet them. 

I also believe, Congressman Gutierrez, that as we look to expand 

the role of homeowners, as you expressed and as we are working 

together to do, that creating more investor confidence in the GSEs, 

that giving the financial markets that confidence of a strong, 

world-class regulator will invite more investors to come into the 

housing market to invest, therefore providing more liquidity and 

hopefully lower mortgage rates, and that at the end of the day is 

the real key to increasing home ownership for low- and moderateincome people. 

29

Mr. GUTIERREZ. I thank you, Mr. Secretary, for that response. I 

look forward to working with you and Secretary Snow in achieving 

what we need to achieve to put confidence that is necessary into 

it, but allowing them the ability to be innovative, to be creative, 

and to put the products out there. 

I would like to yield the rest of my time to the gentleman from 

Vermont Mr. Sanders. 

Mr. SANDERS. I thank my friend very much. 

Mr. Snow, you didn’t get a chance to answer the question, the 

first question. That is, given the IBM decision from the Southern 

District of Illinois and last night’s vote on cash balance plans, will 

you commit today to either withdrawing the proposed regulations, 

or at least commit to not moving forward to finalize them? 

Secretary SNOW. Congressman, I want to review that legislation 

that carried last night. In the process of reviewing those court decisions, I have not yet fully digested the three major decisions that 

have come down since our good meeting over at Treasury, but let 

me say this to you. We take seriously these concerns that you, 

among others, have been in the forefront of raising. I think I expressed to you my commitment to deal with this issue with the utmost seriousness that it deserves. And let me say, without making 

the commitment you are asking me to make, that I will commit to 

work with you toward finding a satisfactory resolution to what now 

is a very, I will grant you, tangled situation. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from the first State Mr. Castle. 

Mr. CASTLE. Thank you, Mr. Chairman. 

I would just like to thank the distinguished Cabinet Secretaries 

for being here, for making real proposals before this committee. We 

are used to attacking and defending. We often don’t get red meat 

such as this to deal with. I for one have enjoyed this morning and 

enjoyed what you have done. 

I just would like to clarify a couple of things. Let me start with 

you, Secretary Snow. On page 6 of your written testimony, you 

stated in the context of this accommodation of operational independence and policy oversight, the Administration, quote, would be 

willing to support proposals to establish a new agency at the Bureau of the Treasury. 

That is not quite as strong as, we are proposing, or we absolutely 

agree with. Is there a reason why that is not quite as solid? 

Secretary SNOW. Yes. I will tell you, Congressman Castle, what 

the hesitancy there is. We don’t see a lot of merit in simply putting 

OFHEO in Treasury. If you want to do that, you might as well just 

leave it where it is. What we are talking about—and I understand 

this sensitivity on politicization, but what we are talking about is 

putting it in Treasury so that the policy resources of Treasury, the 

expertise of Treasury can be brought to bear on the new regulator 

not in a way that is politicized. I want to make that clear, but in 

a way that brings this—the range of expertise that Treasury has, 

dealing with all financial markets—to bear on the question of these 

important housing markets which also impinge on all of those. 

Mr. CASTLE. But it is not a hesitancy to have this regulatory 

agency in Treasury, it is more of what you just stated. 

30

Secretary SNOW. No. If we got it on those terms, we would 

strongly recommend it. 

Mr. CASTLE. What about funding sources? You stated on page 2, 

inadequate resources. Would the funding sources be dedicated 

sources or subject to appropriations? Have you given any thought 

to that? 

Secretary SNOW. We feel that, again, it would be best and we 

would strongly recommend that it not go through the appropriations process. We think the strong, independent regulator concept 

is enhanced by the self-funding rather than being dependent on 

Congress, which opens it up to politicization. 

Mr. CASTLE. Thank you. 

Tell me the rationale—and honestly I don’t understand the technical differences in some of these things as perhaps I should, but 

the inclusion of the Federal Home Loan Banks. Most of the concern 

here has been aimed at Fannie Mae, Freddie Mac, and you don’t 

hear as much about the Federal Home Loan Banks. And I see in 

these proposals that they are included, probably rightfully so, but 

I would like to hear the rationale. 

Secretary SNOW. The rationale is that the Federal Home Loan 

Banks, in the aggregate, have a very large impact on financial markets and raise similar sorts of soundness and safety issues, and are 

very similar in nature in many ways to the other government-sponsored entities, to Fannie and Freddie, and, therefore, we feel logically there is a fit. They are doing basically the same thing with 

the same sort of Federal involvement, and the same sort of soundness and safety issues. That is the rationale. 

Mr. CASTLE. Secretary Martinez, you sort of have been answering 

this through this morning, but just in sort of a general sense, it is 

your conclusion that if this restructuring took place pretty much as 

outlined by the two of you here this morning, either by legislation 

or fiat of the executive branch or whatever it may be, that the focus 

on housing that you speak about, particularly low-income and middle-income-type housing, is a mission that you could carry out better than you do today? 

Is the bottom line, is the scale—this would be an improvement 

in terms of the delivery of your services? 

Secretary MARTINEZ. I think it would be a tremendous improvement because the real importance to our mission is in the housing 

goal—in the—is not in the new product approval, in which we 

would only have that consultation role. But it is in the other part, 

which is in the housing goals, and the setting of the goals, and the 

enforcing of these housing goals. I think that in that instance that 

we will have a tremendously enhanced ability to do the job. 

I believe also, dovetailing into the answer that Secretary Snow 

gave to you with respect to the location of the regulator, I believe 

it is tremendously important that we have a world-class, fine regulator with all of the tools needed in that tool box to be an effective 

regulator. That is far more important than the location of the regulator. And in the way we have described it here, safety and soundness, including current and new program approval, should be 

under one roof with one regulator, not bifurcated, not divided. 

And then the second part, the housing goals would remain at 

HUD. And also very important, the fair lending—observance of fair 

31

lending would also remain at HUD. But with the scheme we are 

proposing, it will enhance our ability to meet the desired goals of 

why the GSEs were created, which is providing mortgage money to 

low- and moderate-income families, to first-time home buyers and 

minority home buyers. 

Mr. CASTLE. Thank you, gentlemen. I agree with what you are 

trying to do. I hope we can work together to make sure we do it 

correctly. 

I yield back. 

The CHAIRMAN. The gentleman yields back. 

The gentlelady from California Ms. Waters. 

Ms. WATERS. Thank you very much. 

First of all, let my say to Secretary Snow that when I rushed in 

this morning and gave my opening statement, I failed to acknowledge you, and let me apologize for that. I am certainly pleased that 

you are here and have enjoined working with you, and appreciate 

the assistance that you gave to us on the Haiti issue. So welcome. 

Secretary SNOW. Thank you very much. 

Ms. WATERS. We are glad that you are here. 

My question is directed to toward Secretary Martinez. In your 

testimony, you described how you would like to strengthen HUD’s 

housing goal authority by way of creating a new GSE housing office 

within HUD, independently funded by the GSEs to establish, maintain and enforce the housing goals. 

You also go on to describe that it would grant HUD new administrative authority to enforce its housing goals, institute and enhance 

civil penalties for failure to meet housing goals, explicitly provide 

that the GSEs act to increase home ownership and expand authority to set housing goals, set goals beyond the three currently established for moderate-income, geographic area and special affordable 

housing. 

Mr. Martinez, I am very much aware of Fannie Mae’s contribution to affordable housing. Fannie Mae provides the most affordable housing capital for low- and moderate-income and minority 

households of any company in the Nation. In 2002, Fannie Mae financed over $136 billion in loans to nearly 985,000 minority families. 

Fannie Mae also, I am told, must achieve specific affordable 

housing goals set for the company by you, the Department of Housing and Urban Development. And the company has surpassed 

every goal since HUD first began setting goals in 1994. 

Above and beyond the HUD goals, Fannie Mae leads the market 

in providing home financing, of course, to minorities. 

Secretary Martinez, if it ain’t broke, why do you want to fix it? 

Have the GSEs ever missed their housing goals? 

Secretary MARTINEZ. The housing goals as formulated currently 

have always been met by the GSEs, but what we are talking about 

here is to enhance those goals, because while I am not here to suggest to you that GSEs are not valuable and have not played a tremendously important role, and that they are a tremendous asset to 

the housing market, I also must point out to you that our studies 

show, and other independent studies also show, that they have historically lagged the primary market instead of led it with respect 

32

to funding mortgage loans for low-income and minority home buyers. 

So they have also accounted for a relatively small share of firsttime minority home buyers as compared to the market at large, 

without the advantages of being a government-sponsored enterprise. 

Ms. WATERS. As compared to the market at large? 

Secretary MARTINEZ. Correct. 

Ms. WATERS. Meaning all of the banks and financial institutions 

and the mortgage companies, they have lagged in first-time home 

buyers? 

Secretary MARTINEZ. Correct. 

Ms. WATERS. I would like to see that study. 

Secretary MARTINEZ. Well, my point in that is not to suggest that 

we don’t value their contribution. We tremendously value it. But at 

the same time we also believe that in order for us to fulfill our mission like you expect us to do, that we have got to have the tools 

to do it. We need to have an office that is devoted to GSE oversight 

and regulation, those parts of it that we will keep at HUD. 

In addition to that, we need to have the financial ability for assessment, just like other regulators of financial institutions do, so 

that it is depoliticized and it is handled as a regulatory matter. We 

believe that those things being done in the way we are proposing 

here will enhance what you and I are both trying to do, which is 

get more home ownership opportunities into minority households 

and into low- and moderate-income people so they can taste the 

dream of owning a home. 

Ms. WATERS. Well, certainly, Mr. Secretary, we certainly do have 

the same goals. What I don’t want to see is an expanded bureaucracy. You are talking about setting up a whole new office, and you 

are talking about having them pay for it. As you know, many communities depend on these GSEs for all kinds of new activity that 

will lead to home ownership. And they support this in many different ways, and sometimes some very constructive ways. I don’t 

want that stifled. I don’t want another layer of bureaucracy to prevent that kind of flexibility. And I am really worried about them, 

if they have met all of their goals, and you think that they need 

to have new goals set because they are good at what they do, why 

don’t you just set new goals and let them continue to do what they 

do, rather than setting up a whole new bureaucracy to do it? 

Secretary MARTINEZ. Because right now we don’t have the ability 

to fine-tune the goals, to set them the way that we want to set 

them. That is why we are asking for the additional power through 

this legislation. In addition to that, I truly believe——

Ms. WATERS. And you are saying that you have to have a whole 

new office to do that? 

Secretary MARTINEZ. Here is what I want you to understand. I 

don’t want to juxtapose your appreciation for GSEs and mine. We 

are on the same boat. We agree that they have been good and valuable, they do a lot of good in neighborhoods. They have created liquidity in the mortgage markets. 

What I am looking to do is to enhance that opportunity, to give 

the markets more confidence in the GSEs, and then give us the 

33

ability to live up to the responsibility we are given by Congress, 

which is to oversight appropriately. 

In order for us to get it done and get it done right, I believe that 

we need these enhanced opportunities and these enhanced powers, 

and that really is as a result of having been in HUD for a couple 

of years, having had an opportunity to look at issues that have 

come up, and not always felt like we had—we had the expectations 

that we would carry it out, but not always the ability to carry out 

our mandate. 

Ms. WATERS. We may not have—is my time up? Okay. Thank 

you. 

Mr. BAKER. [Presiding.] Mr. Royce. 

Mr. ROSS. Thank you, Mr. Chairman. 

Secretary Snow and Secretary Martinez, we thank you both for 

your testimony. And I want to share with you, I have proposed to 

create an independent regulator in the Treasury Department with 

greater enforcement powers to oversee the three housing GSEs, 

Fannie, Freddie and the Federal Home Loan Banks. 

And I think this proposal is important not only because it creates 

a new agency in Treasury, but also because it includes regulation 

of all three housing GSEs, and it mandates the new agency Director to work with other financial institution regulators through 

FFEIC. This country needs a world-class regulator of the housing 

finance sector, and I think we all know that Treasury has the expertise to create one. 

Experts believe that all three GSEs need to be in the mix if we 

want to achieve effective safety and soundness oversight. These are 

the largest derivative players in the world. We are talking in each 

case about portfolios that are in excess of half a trillion dollars in 

interest rate derivatives. So the new regulator needs to see the 

whole market to ensure the best practices of risk management. 

There is another argument for including all three GSEs in regulatory reform. The bond market experts that I have talked to have 

told me that if Fannie and Freddie receive a new regulator under 

Treasury, and if the home loans remain under the finance board, 

then on a relative basis, Fannie and Freddie would have a competitive advantage in the bond market, and thus a lower cost of capital. 

We should not enact legislation that favors one group of GSEs 

over the other. I know some of my colleagues are concerned that 

while right on the merits, inclusion of the Home Loan Banks could 

derail regulatory restructuring for Fannie and Freddie, and others 

have suggested that we should not include the home loans in any 

legislative effort because it is politically difficult. 

Well, I disagree with both of those views. Over the last 2 months, 

I have sensed momentum building for this proposal to include the 

three GSEs. Some of the most significant players in the bank system have endorsed this concept. These are not just west coast players. I know this as a fact. I have had conversations with them. I 

believe support is much broader than the Chairman indicated. And 

as the others understand they are going to be at a cost of capital 

disadvantage, they will come around as well. 

So, Secretary Snow, we have an historic opportunity here to create the optimal world-class regulatory framework to protect the financial system and the taxpayer, and I think this is the time for 

34

us to show leadership. We heard from Federal Reserve Chairman 

Greenspan. He said we need all three GSEs included, to view GSEs 

in total. You have said all three should be in. We know it is the 

right thing to do. We know momentum is building for it. Why don’t 

we just do it? 

Secretary SNOW. Well, Congressman, I am in broad agreement 

with everything you have said. And I, of course, reviewed, before 

coming up here today, H.R. 2803, your legislation, and see, as you 

know, broad complementarity between your legislation and what 

we are proposing as a set of concepts. 

No, for the reasons you state, this is one market. They are part 

of this market, and they ought to be included. And the reason I 

suggested earlier that I thought that, despite some holding back on 

their part now, there was a good prospect that they could come 

aboard, is the very cost of capital discrepancy which would be created, which I think there is a growing recognition of. And that will 

compel their entry into this regulatory system, or else they will be 

at a terrible competitive disadvantage. So I think, at least I am 

hopeful, that as they see this legislation moving, they are going to 

want to be aboard. 

Mr. ROYCE. Well, I think we should include—you know, as we 

move forward, I think for all of the reasons that you have indicated, Secretary Martinez has indicated, we should put forward 

this legislation in the optimal version and see if we cannot gather 

political support for it as we mark up the legislation. That is what 

I am proposing. 

Secretary SNOW. Congressman, I would very much agree with 

you and hope that we can do that. I do want to make this point 

clear, though, that from the Administration’s point of view, from 

Treasury’s point of view in particular, just changing the geography 

creates no rationale to put it in Treasury. 

The rationale for putting it in Treasury is this broader market 

knowledge which can be brought to bear on these issues because 

these markets integrate with lots of other markets. 

Mr. ROYCE. And the expertise and managing those and so forth. 

Thank you, Mr. Chairman. 

Mr. BAKER. The gentleman’s time has expired. 

Mrs. Maloney. 

Mrs. MALONEY. Thank you, Mr. Chairman. 

I thank you, Secretary Snow and Martinez, for your testimony, 

and I am pleased that the Administration has joined the debate on 

reform of the GSE regulators. I personally have long believed that 

the GSE regulators should be strong and independent and not subject to the yearly appropriations process to preserve safety and 

soundness, and I have cosponsored legislation in the past, advocating this position. I believe the current situation where OFHEO’s 

resources appear to be stretched thin as it deals with the Freddie 

Mac restatement is an example of why this reform is needed. 

But before I get into specific questioning, I also want to say that 

I am very concerned with the developments at the Federal Housing 

Finance Board on the issue of multidistrict bank membership. If we 

are going to have a 21st century Federal Home Loan Bank system, 

I believe it needs to reflect the reality of today’s financial services 

industry where company operations are no longer confined by reVerDate 0ct 09 2002 12:55 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 G:\DOCS\92231.TXT FIN1 PsN: MICAH
35

gion or state lines. And I want to let you know that I want to work 

with you to resolve this issue, if it is determined that legislation 

is needed to make multidistrict membership possible. 

My first question deals with GSE loan limits. Currently the GSE 

loan limit is well below the cost of the average moderate family 

home in the district that I represent, and many others across the 

nation. And I would like to know, is there any inclination on behalf 

of the Administration to further reduce that limit in any legislation, and do you favor keeping the process the same for setting the 

loan limits? 

Secretary MARTINEZ. Congresswoman Maloney, if I might try to 

answer that. I would say that we have reviewed that at HUD from 

time to time, and have concluded that under the various suggestions that have been made, the limits would probably remain the 

same, given a different way of analyzing it from what currently is 

done. 

And at this time we would be willing to discuss this further with 

Members if this is your desire, but we do not have a proposal to 

alter the current way in which the loan limits are set. It is not part 

of what we are proposing today, but we would be open to discussing 

it further. 

Mrs. MALONEY. Thank you. 

And, Mr. Snow, you mentioned the wider range of knowledge of 

Treasury, and I would like to really question how GSEs would fit 

into Treasury’s role as a participant in the capital markets. And as 

you know, the Federal deficit will well exceed a record half trillion 

dollars in fiscal year 2004, and are you concerned that there could 

be a potential conflict between Treasury’s role as a participant in 

the capital markets actively working to finance the U.S. debt, 

which now will be with us for many years, and the role as a regulator of GSEs, who are massive participants in the markets in their 

own right, and would—do you see a conflict, or would you favor 

specific measures to prevent conflicts? 

Secretary SNOW. Congresswoman, today, recognizing that both 

Treasury and the GSEs are large participants in the debt markets 

of the United States, we have a process for very close coordination. 

And before the GSEs go into the market with their debt instruments, they coordinate with Treasury so as to make sure that we 

know what they are doing, and we aren’t acting in some way which 

exacerbates some market condition. 

I don’t see any reason why that would change. And whether we 

go forward with—whether you go forward with legislation to create 

this new entity, or whether that entity is in or out of the Treasury, 

that coordination, which is a well-established practice, would continue. 

Mrs. MALONEY. So you don’t think there would ever be a situation where Treasury would threaten GSEs because of how their 

debt issuances could increase competition with the U.S. government and the debt market? 

Secretary SNOW. No, ‘‘threaten’’ is the wrong word. There is an 

interesting coordination, though, and that coordination goes on 

today where we regularly are in conversations with the GSEs about 

their debt issuances. That is I think an important practice, to conVerDate 0ct 09 2002 12:55 Mar 05, 2004 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 G:\DOCS\92231.TXT FIN1 PsN: MICAH
36

tinue to preserve orderly markets, but it is not a matter of threatening. It is a matter of maintaining orderly markets. 

Mrs. MALONEY. My time is up. Thank you very much. 

Mr. BAKER. I thank the gentlewoman for yielding. 

Mrs. Kelly. 

Mrs. KELLY. Secretary Martinez and Secretary Snow, thank you 

very much for your patience with our questions. 

Secretary Snow, I want to congratulate you on the structure of 

what I perceive to be an attempt to remove politics from a regulating system. The independent funding that you have asked for 

the new agency is one step. The other step is the fact that you 

would remove all presidential appointments from the boards. I 

think that limiting those two political possibilities with regard to 

this new agency really goes a long step toward removing politics, 

and I congratulate you on that because I think the American public 

really does not want a political situation. This is a financial situation and should be not involved in political structures, but if you 

are asking for no presidential appointments on the Fannie and 

Freddie boards, would you also call for no presidential boards on 

the boards of the Federal Home Loan Banks? 

Secretary SNOW. That is an issue that I have not addressed in 

my testimony and for some reason have not had a chance to give 

much thought to. Let me think about that and get back to you because I have not. Maybe Secretary Martinez——

Secretary MARTINEZ. I believe that currently board members of 

the home loan bank boards are not Presidential appointments. 

Secretary SNOW. The Federal Housing——

Mr. MARTINEZ. That is right. There are no Presidential appointments. 

Mrs. KELLY. So what you are saying then, there would be no 

Presidential appointments to the boards of Fannie, Freddie, any of 

the GSEs, including the Federal Home Loan Banks, if the Federal 

Home Loan Banks were to be a part of this agency; is that correct? 

Secretary SNOW. That is my understanding. Because they are 

currently appointed by their——

Secretary MARTINEZ. Members of the Federal Housing Finance 

Board. 

Secretary SNOW. By their board members, yes. 

Mrs. KELLY. I wanted to ask one more question, and that is, in 

your testimony, you talk about timely corrective action. Would you 

be willing, both of you, to talk about what you consider to be timely 

corrective action? What do you envision in terms of some kind of 

an absolute stringent action and a strong fine? What are we talking about here? 

Secretary MARTINEZ. Well, I would say—and, by the way, I also 

want to point out that our request is also that those parts of HUD’s 

oversight over the GSEs that remain would also be independently 

funded, just as the Treasury would be. But I would say that, for 

instance, if we were to find a deficiency in meeting housing goals 

that we would immediately have the opportunity for enhanced civil 

penalties that could accrue or to take other administrative actions 

to enforce our housing goals so that we could direct the GSEs to 

take certain actions to enforce the housing goals. Right now, while 

they have always met them in the past, I think the goal setting as 

37

well as our enforcing of the failure to meet them would be a little 

up in the air. 

Mrs. KELLY. Secretary Snow, do you want to answer that? 

Secretary SNOW. With respect to the soundness and safety and 

that whole range of the regulatory jurisdictions, the timing would 

depend on the regulator’s determination of what is needed. I 

wouldn’t put any strictures or constraints on the regulator. 

Mrs. KELLY. So you would leave it up to the regulators? 

Secretary SNOW. To act as needed, yes. 

Mrs. KELLY. I would like to explore that with both of you a little 

bit more, but I am going to yield my time. Thank you very much 

for being here. 

Mr. BAKER. [Presiding.] I thank the gentlelady for yielding back. 

Mr. Gonzalez. 

Mr. GONZALEZ. Thank you, Mr. Chairman. 

I am going to make some general observations which will be the 

backdrop for the questions. 

You have heard a lot about consensus. My understanding of the 

consensus that has been reached among members is that OFHEO 

did not do a great job, and we can improve on it, and we should 

improve on it. That is our responsibility and duty. But I haven’t 

heard the consensus that we are going to change the character or 

the purpose of a GSE. Because I would challenge everyone to say 

if you don’t have them in the present capacity in what they do, 

then who would fill that void? And there is room for everyone out 

there. I truly believe that. I believe in the competition and I believe 

in the products being out there, whether it is the private sector or 

GSE. It is a combination. But there is a demonstrated need for the 

GSE. That is why they were created and why they continue to be 

viable today. 

There should be constant, effective oversight. How are we going 

to do that? We can do it better than OFHEO. My fear, though, 

which you all have outlined, and my understanding is that you all 

are in agreement, there is a meeting of the minds that you understand GSE’s role, how pivotal and important they are, and you 

want to maintain that. So I am hoping that I am reading that correctly. 

Secretary MARTINEZ. Let me leave no doubt about that. You are 

reading that totally correctly. There is no misunderstanding there. 

Mr. GONZALEZ. I appreciate that because then we are all on the 

same page when it comes to that. Let us just see when we get to 

the last chapter it remains in that form. 

My question to you is, my fear is—which you have outlined—

really it does contemplate indirectly or de facto changing the charter, changing the mission, changing the status, and even micromanaging GSEs if you think about what you all are proposing. Because if you go over just your statements, which are general in nature, I know, but the powers are going to be so broad that this 

world-class regulatory agency is going to have that they could affect it, and I can say de facto or even directly with some of the powers that you would have. 

So the first question, and it will address it and will allow you to 

elaborate on it, let us say Secretary Martinez is in sync with the 

GSEs as to the goals, the mission, the product that gets them 

38

there, the means to the end. But you are only consulting. They only 

consult you, this world-class regulatory agency that may be within 

Treasury or I don’t know where. Which—my second question is 

world-class regulators require world-class expenditures and finances, but that is the second part of the question. The first one 

is the Secretary is in sync with GSE and such, they know the products that will get them there but wouldn’t Treasury, if the regulator was in Treasury, have the final say? Don’t they trump you? 

Don’t they trump the GSE, which goes back to micromanagement? 

Secretary MARTINEZ. What I view as a more important function 

of HUD’s role as the housing-oriented department is the housing 

goals. I believe that as to safety and soundness, where now we 

have absolutely no oversight over the GSEs because it is done by 

OFHEO which by statute is independent of HUD and the only 

change would be that also the current and new programs would 

then be reviewed by Treasury or by the new regulator, the fact of 

the matter is that new program approval is not as vital a function 

towards the housing goals of the GSEs as the goals themselves. So 

we believe that under this regulatory scheme it will not lead to 

necessary conflict but it also will enhance our ability to enforce the 

goals and set the goals more appropriately, while giving Treasury 

the ability to do appropriate oversight over safety and soundness. 

Don’t forget that we are looking now at entities that are in the 

neighborhood of $1.5 trillion. These are very vital entities to the 

American economy, and I believe that by definition HUD is not a 

financial regulator. Some of these other regulations that you might 

define as micromanaging are really no different than the regulations that today any commercial bank has to live by in terms of 

bank examiners and other bank regulators. 

So I don’t believe that we are really looking to micromanage the 

entities. In fact, they are successful, and they are vital. What we 

are looking to do is enhance the confidence that the investor community would have in this regulatory scheme that would then give 

them an enhanced ability to continue to attract more and more 

market from around the world into the housing market for the 

American taxpayer. 

Mr. GONZALEZ. But the new regulator has the final say as to how 

you get from A to B? 

Secretary MARTINEZ. It has the final say as to safety, soundness 

and current and new product approval, but it does not have the 

final say as to what the housing goals should be. And even today 

we have that current tension. 

Mr. GONZALEZ. I understand that, but how you achieve those 

goals is pretty important, isn’t it? 

Secretary MARTINEZ. Yes. But the regulator doesn’t tell Freddie 

and Fannie—HUD doesn’t tell Fannie Mae and Freddie how to 

achieve those goals. We tell them here are the housing goals——

Mr. GONZALEZ. The Treasury, would because they would have 

final say over a particular product at any given point in time. 

Mr. BAKER. That has to be the gentleman’s last question because 

he has expired his time. But would you care to respond? 

Mr. GONZALEZ. If Secretary Snow or Secretary Martinez would 

answer. 

39

Secretary MARTINEZ. I think since I have been in the line of 

questioning maybe I should finish what I started, but I do believe 

that at the end of the day with consultation from HUD that we 

would achieve the kind of joint decision that is necessary and that 

responsibly we should come to it. I mean, it is not an either/or. I 

think we can work together to get this done; and, frankly, I would 

be greatly relieved not to have the appearance of authority without 

the actual authority that currently HUD enjoys. 

Secretary SNOW. Could I just respond as well that we think of 

this new regulator—the GSEs take their mission and their goals 

from HUD and, within those set of parameters, the new regulator 

would regulate with respect to safety and soundness. On this issue 

of micromanagement, the powers that we are seeking to give the 

new regulator are the powers that first-class bank regulators have, 

that the OCC has or Federal Reserve has, and I do not think anybody says that the Federal Reserve or the OCC is micromanaging 

the Nation’s banks and neither by using these powers will the new 

regulator be involved in micromanaging these financial institutions. 

Mr. BAKER. The gentleman’s time has expired. 

Mr. Paul. 

Mr. PAUL. Thank you, Mr. Chairman. 

I first want to compliment Mr. Baker for having pursued this 

issue. He has been looking at it for quite a few years and has kept 

it alive, trying to point out some of the problems that the GSEs 

face with the excess of debt and some of the problems that we face. 

But I think that, from the conversation I have heard today, the 

consensus is that we just do not have enough regulations and all 

we need is a world-class regulator and everything is going to be 

okay. 

I think we are failing to look at the real problem and the cause 

of our crisis we face. I am concerned that we are going to have a 

world-class adjustment to the distortions that we, the Congress, the 

Fed, and the Treasury have created over these last several decades; 

and it seems like there is essentially no concern about that. 

These programs were originally set up to help poor people get affordable housing; today we have a program that helps people buy 

a house for over $300,000 and get subsidy for their mortgage payment. At the same time, the administrators of these programs 

make millions of dollars. So I think we have lost our way on this. 

But the biggest concern I have is that Congress is not looking at 

the real problem, and to me it has been this implied credit and implied guarantee of this credit, are we going to get rid of this line 

of credit? Not likely, because that would cause a bit of chaos. But 

that is what has really blown these markets up, and they are distorted. 

Also, we have the Fed very much involved in this. They probably 

wouldn’t admit it, but the Fed on occasion will buy GSE securities. 

Foreign central banks buy these securities because it is implied 

that the Fed is going to come to the rescue. 

Right now, overseas foreigners are buying less of these securities, 

and the dollar is a little weaker, and what is going to happen when 

they quit buying them or selling them and what is going to happen 

to our investors who buy Ginnie Mae and Freddie Mac? When the 

40

dollar weakens, interest rates go up. Already the interest rates are 

rising long term. Could a world class regulator deal with that? Not 

likely. I mean, I am concerned that there is going to be a panic out 

of these things. As the dollar goes down, interest rates go up. And 

we still haven’t looked at the problem and that is this allocation 

of credit, taking money out of the market, excess of credit to begin 

with because the Fed is pumping it up just like they pumped up 

the credit into the NASDAQ and you had to have a burst in that 

bubble. 

Some people think there could be a bubble here. Who knows, 

though? It might be a great bit of distortion, but there will be a 

correction. 

I am concerned, and I would like Secretary Snow to comment on 

this. Do you have a concern yourself about what could happen 

here? This is a huge amount of debt, a lot of investors, a lot at 

stake. What happens if mortgage rates go up three points in the 

next year and the dollar keeps weakening? We have a huge current 

account deficit, and the currency always goes down when you run 

an account deficit like this. 

So I would say that we are missing the whole point here thinking 

that all we need to do is come up with a new agency and a worldclass regulator and we are going to do some good if we don’t address the subject of the dollar and interest rates. 

Secretary SNOW. Congressman, as you know, the dollar and the 

interest rates are largely a function of monetary policy, right? And, 

no, we are not proposing to put the Fed under this new regulator. 

What we are proposing to do is to put these housing entities that 

have such impact on financial markets under this new regulator 

and give that new regulator the complete authority that would be 

needed to deal with the soundness and safety of the financial system that it oversees. That would be helpful. 

Some of the issues you deal with are properly approached 

through a sophisticated, risk-based set of capital standards with a 

sophisticated regulator applying those risk-based capital standards 

and adjusting the capital requirements to the risks; and those risks 

include the ones you have outlined, the risks of interest rates going 

up 300 basis points or falling 300 basis points. That is what that 

sophisticated new regulator would be required to look at. 

We are saying, remove the current statutory restrictions on how 

you look at risk-based capital. Let the regulator free to apply the 

most sophisticated and current and modern approaches to the 

question of appropriate capital structure for these entities. 

So, no, we do not go the whole way here in dealing with some 

of the external factors that drive these markets, but taking those 

external factors is something we cannot control through this entity. 

We give the entity the ability to set the capital standards in a way 

to take those factors into account. 

The CHAIRMAN. [Presiding.] The gentleman’s time has expired. 

The gentleman from North Carolina, Mr. Watt. Do you want to 

try the other mike? This is not a conspiracy. It is like pitching from 

the stretch. 

Mr. WATT. Nice to know that my baseball coach is not conspiring 

against me. 

The CHAIRMAN. Only once a year. 

41

Mr. WATT. Thank you, Mr. Chairman. 

I thank Secretary Martinez and Secretary Snow for being with 

us. It has been interesting. 

I guess I have the capacity intellectually to differentiate between 

regulation of safety and soundness on one hand and the mission of 

the GSEs on the other hand as a practical matter. However, there 

are some real concerns that I have and I guess I need to put them 

out not necessarily for an answer today but to try to talk through 

publicly what my attitude might be unless some of these questions 

can get answered. 

It is a very powerful statement in your testimony, Secretary 

Snow, and that you have reinforced, that this Administration views 

the GSEs as, quote, ‘‘private enterprises.’’ private enterprises really 

have not done very well in achieving things other than making 

money. Most them do not really give much of a damn about poor 

people and whether they have housing or not, and it seems to me 

that an overemphasis in that direction can only make matters 

worse. 

Secretary Martinez was absolutely right in his response to an 

earlier question when he said that the problem is that HUD has 

never had the resources to meet the mission that it has been given, 

and I wonder whether this further bifurcation doesn’t exacerbate 

that. 

I also wonder whether this may be a massive shell game, much 

on the order of what we did with the INS when this Administration 

decided we didn’t need something called an INS anymore. Let us 

transfer the responsibilities over to the Attorney General and let 

the Attorney General deal with this. 

There seems to be a growing first and second team, first and second class of departments and the importance of departments in 

this Administration. Those that control the financial aspects of 

what is going on in the world and the security aspects of what is 

going on in the world seem to be getting bigger and bigger and bigger, and the ones that have some involvement with the human aspects of what is going on in our domestic environment seem to be 

getting smaller and smaller and smaller with less emphasis. So I 

am worried about that. 

I do not know how transferring oversight from OFHEO to the 

Treasury does anything other than move a shell. It is kind of enlightening to me that there is nobody here at this table to testify 

on behalf of OFHEO. Where are they? What do they think about 

this? Are they so second class now in this hierarchy that we are 

not even going to regard their opinion? They have been the regulators. They are the regulators currently. 

So there are some bigger issues going on here that I have trouble 

dealing with, and I will keep trying to grapple with them. I am trying to keep an open mind about this. I am not adverse to what is 

being proposed. I just don’t see much other than a shell game going 

on here, moving something from one agency to another and in the 

process weakening the bargaining power of poor people and lower 

income and middle income people who need housing, when it is 

quite obvious to me that the private enterprise mentality of the 

GSEs and this Administration is directly at odds with the public 

mission of providing more housing to lower income people. 

42

The CHAIRMAN. The gentleman’s time has expired. You may respond. 

Secretary MARTINEZ. If I may comment on a couple of issues that 

Mr. Watt has raised. 

First of all, Mr. Watt, let me say that I don’t believe we are intrinsically changing the mission of the GSEs, because we are not 

touching the charter, and their mission is really given by their 

charter, not by what we are talking about here, which is the regulations of their safety/soundness, new program approval, and their 

housing goals. 

Secondly, sir, I hope you will support this proposal that we have, 

because we are not going to create a smaller HUD. We are going 

to strengthen HUD. You are going to give me by this legislation a 

new GSE housing office within HUD. You are going to give me the 

ability to have that office independently funded so I do not have 

to have that office be only funded through the political process, and 

that is the way other financial regulators are funded. You are going 

to also give me the ability to have enhanced administrative authority to ensure those housing goals that we set are being followed. 

I am going to have enhanced civil penalties to enforce those housing goals, and the housing goals essentially are what you and I——

Mr. WATT. Until the Treasury tells you, you can’t do it. 

Secretary MARTINEZ. That is not correct. That aspect of what I 

do will not in any way be under Treasury. The part that is less important to what we do but that is more connected to safety and 

soundness has to do with new and current program approval. 

Those things are more closely connected to safety and soundness. 

They should be under one regulator, not divided under two regulators. 

The CHAIRMAN. The gentleman’s time has expired again. 

Secretary MARTINEZ. One last thing, if I may say, if in fact there 

is an inference that right now because OFHEO somehow is under 

HUD that OFHEO and I are working together in oversight of 

GSEs, that is a misperception. 

Mr. WATT. All the more reason they should be on the table, it 

seems to me. 

The CHAIRMAN. The gentleman from Connecticut. 

Mr. SHAYS. I want to thank you both for being here. 

As someone who is tremendously concerned about the GSEs, I 

think this Office of Housing Finance Supervision is a step in the 

right direction. When I hear some of my colleagues talk about the 

present system working so well, in my judgment OFHEO is a joke. 

Congress gives them about one-third the money to regulate, and 

you all are asking that this office of supervision have no more 

power than the OCC, the FDIC, the Federal Reserve, and OTS, Office of Thrift Savings. So you are asking that they have no more 

power, but people in this committee do not think that the 20th and 

40th largest companies or the second and fourth largest financial 

institutions should have the same kind of regulation. It blows me 

away. 

Now, I have to say to you, Secretary Snow, you blew me away 

when you said this, that you didn’t think they should come under 

any security regulation in the 1933 Act because you said there is 

43

no evidence of fraud or corruption within any of the GSEs, which 

I think is about as an irrelevant a comment as you can think of. 

That is like saying the S&Ls, no problem here, but it blew up 

in our face. The auditors doing consulting, this committee came 

and said, no, we don’t mind auditors doing consulting. That blew 

up in our face. 

Enron, the directors didn’t direct, the managers didn’t manage, 

the employees didn’t speak out, the lawyers didn’t do their job, the 

auditors didn’t do their job, the bankers didn’t do their job, the investors didn’t do due diligence, the rating agencies didn’t do their 

job, but we saw no problem with Enron. 

But when we saw the problem with Enron, we then said we are 

going to have Sarbanes-Oxley. And, Secretary Snow, when we did 

Sarbanes-Oxley, the GSEs didn’t come under it because they didn’t 

come under the ’33 and 1934 Act. So then what did we do? We voluntarily got them to comply to the 1934 Act. 

I don’t understand how we can say that trillions of dollars of 

transactions shouldn’t be looked at. And could you explain to me 

why your position would be diametrically opposite to Allen Greenspan who didn’t say we haven’t seen corruption? He said, of course 

they should be under it. They are a Fortune 500 company. Please 

explain to me why. 

Secretary SNOW. Well, Congressman, as you I think know, we 

have been in the forefront of urging both Fannie, Freddie and the 

home loan banks to go under the 1934 Act. 

Mr. SHAYS. Why urge? Why is it their decision? And Freddie 

hasn’t even done it yet. And let me ask you this: With all due respect, isn’t it true that Freddie is in a little problem right now? 

Secretary SNOW. If I could just complete the answer, because I 

think you will get the full picture then. 

Mr. SHAYS. I am sorry. 

Secretary SNOW. We don’t have the authority to mandate they go 

under the ’34——

Mr. SHAYS. You can recommend. 

Secretary SNOW. Well, that is what I am saying. 

Mr. SHAYS. But you recommended they may not. 

Secretary SNOW. No. Let me just finish the answer, and then I 

think you will get the full story. 

We have urged them to go under the 1934 Act. Now, you know 

the 1934 Act. The 1934 Act deals with corporate disclosures. It is 

the act which is the subject of Sarbanes-Oxley, and it is the fundamental act to oversee the regulation of the securities markets. We 

think it is essential that those entities all be under the 1934 Act. 

Mr. SHAYS. What about the 1933 Act? 

Secretary SNOW. Now let me move to the 1933 Act and make a 

distinction. The 1933 Act deals with a different subject. It deals 

with registration of securities, which is a separate subject, related 

but separate. 

Mr. SHAYS. You don’t think that is important? 

Secretary SNOW. If you will let me, I will finish and tell you what 

I do think. I think that there is no need demonstrated for those entities to go under the 1933 Act. And maybe you weren’t here when 

I addressed this earlier, but what I said earlier is——

44

Mr. SHAYS. I just don’t want to take my time. You have said 

there is no need, and I understand. We just have a dispute. 

Secretary SNOW. But I am trying to explain why there is no need. 

There is no evidence of any fraud in the issuance of securities. 

Now, what the 1933 Act deals with——

Mr. SHAYS. I need to interrupt you because you have just repeated your statement. But the bottom line is it has a lot to do 

with their reserve requirements, and we know that these institutions have half the reserves set aside, and I just want to get to the 

second point. You, to Mr. Baker, said that this new authority can 

exchange reserve requirements, correct? 

Secretary SNOW. Yes. We——

Mr. SHAYS. But you said——

Secretary SNOW.——are proposing a broad expansion in the authority with respect to risk-based reserves. 

Mr. SHAYS. But not minimum? 

The CHAIRMAN. The gentleman’s time has expired. 

Mr. SHAYS. Can he answer that question? Not the minimum? 

The CHAIRMAN. The gentleman’s time has expired. The Secretary 

could answer——

Mr. SHAYS. The gentleman was allowed to answer the question——

The CHAIRMAN. The Secretary may respond. 

Secretary SNOW. We see no need to change the minimum standards now. What we are proposing, though, is that the agency have 

all the authority it needs to deal with capital standards, and my 

comments I think were misconstrued by you when you said I was 

making some observations with respect to general practices at 

these agencies. I was simply talking about the 1933 Act, and there 

we see no need for inclusion. In fact, as I said earlier, I think the 

SEC has observed that they don’t want to see that happen because 

the issuances are so vast that they would overwhelm the process. 

Congressman, as you probably know, today, the Treasury has authority with respect to the issuance of debt instruments by those 

entities, and we have seen no necessity to exercise that jurisdiction. 

The CHAIRMAN. The gentleman from New York, Mr. Crowley. 

Mr. CROWLEY. I thank the Chairman. 

I sat here through two and a half hours of testimony, and I appreciate it, and I know both of you gentlemen have as well. Both 

Secretaries have given—it is interesting to me in sitting here listening to the discussion and your testimony earlier that two Secretaries woke up one morning and decided that one would transfer 

part of their jurisdiction to the other without considerable amount 

of discussion and including discussion I am assuming with the apolitical wing of the White House in drafting just how that would 

come about, and I am sure there was considerable discussion, Secretary Martinez, within your agency as to whether or not this 

should happen in the first place. 

Obviously, transferring jurisdiction means responsibility shifting 

and a failure to some degree of HUD, not speaking specifically of 

your reign during this time but certainly throughout the history of 

HUD to properly investigate and to oversee these entities and now 

shifting them to Secretary Snow’s division. 

45

I know back in 2002 there was an amendment of VA HUD that 

was proposed I believe by Mr. Hinchey to increase the funding for 

OFHEO to help them in terms of their needs to properly regulate 

Freddie Mac and Fannie Mae, and I will just note that that amendment was defeated. If it was even allowed to be brought up on the 

floor I believe it was defeated by this Congress. 

I think it is interesting that back in 2002 there was an attempt 

made to try to bolster the oversight capabilities of HUD, that it 

was defeated by this Congress and now the result is that we see 

that the answer is to shift responsibility from the entity that we 

did not properly in my opinion give resources to enough to do the 

job, and we all have had problems with the oversight, to properly 

do the job, so the answer is let us not try to fix it within HUD, 

let us transfer responsibility, in fact creating more bureaucracy. I 

think it is interesting under this Administration of a Republican 

presidency and Republican government both in the House and the 

Senate they are actually creating more bureaucracy, is rather interesting from my point of view as a Democrat. 

Secretary Snow, I can’t help but have you here in front of me as 

well at this time to just comment on the overall issue that really 

I think is the heart of what Americans are concerned about right 

now. Some of it relates to what we are talking about. You mentioned earlier that there is no apparent immediate need to do this. 

I am concerned somewhat about what effect this may have on the 

overall market, the secondary market but also the market in general. 

We know that jobs continue to be lost in this country. I just note 

for August alone 93,000 jobs were lost in this country. That was 

after the $350 billion tax cut. The President’s package went into effect, and we were told we were going to see an increase in job creation. In fact, we continue to lose jobs. At this rate, the President 

will not see the 1.4 million jobs that he has promised through the 

end of 2004 if this continues, and I believe it probably will continue. 

My question really is, what is happening in this economy? I 

asked the same question of Chairman Greenspan and got a roundabout answer. And where are the jobs that this country needs in 

order to get us back on our feet? 

Secretary SNOW. Jobs depend upon growth and getting a strong 

recovery. The recovery is beginning to get under way. In fact, it is 

accelerating; and with the recovery I am confident we will see jobs 

expand and unemployment come down. But employment is a lagging indicator, and one of the things that is remarkable, Congressman, about the American economy today is the intensity with 

which companies and businesses are pursuing productivity. 

The last 3 years have been a period of relatively weak demand 

following periods of ebullient demand, very strong demand, and 

now without that strong demand, companies have looked at their 

cost structures and they have taken out an extraordinary amount 

of costs. They have learned to do more with less. They have gotten 

more productive, as revealed by those productivity numbers that 

came out for the last quarter. While that is good in the long run 

because it make the pie bigger and creates more overall wealth, it 

is complicating in some ways this jobs picture. But with the strong 

46

growth we are going to see, I am confident, in the quarters ahead 

as growth is now forecast at over 4 percent by many outside forecasters for the second half and over 4 for ’04. We will see those jobs 

come back. 

Mr. CROWLEY. Do you want to change the President’s anticipation of job growth of 1.4 million? 

The CHAIRMAN. The gentleman’s time has expired. 

Before I recognize the gentleman from Texas, I know, Mr. Secretary, you have a very important appointment at the White House 

at one o’clock; is that correct? 

Secretary SNOW. Yes, Mr. Chairman. 

The CHAIRMAN. We will be recognizing Mr. Hensarling for the 

last round of questioning, and the Chair would indicate that members have 30 days in which to submit written questions to either 

you or to Mr. Martinez. The gentleman from Texas. 

Mr. HENSARLING. Thank you, Mr. Chairman. Not wanting to hold 

up the President of the United States, I shall be brief. 

Not long ago, the Administration nominated Mark Brickell to 

head up OFHEO. Should Congress pass legislation transferring 

OFHEO’s responsibilities to a new agency, is it the Administration’s intention to nominate Mr. Brickell to head that agency? Do 

either of you gentlemen have insight into that? 

Secretary MARTINEZ. I don’t believe I have any information about 

that that I can share with you. 

Mr. HENSARLING. Secretary Snow? 

Secretary SNOW. Neither do I, except to say we have a high regard and support the pending nomination of Mr. Brickell. 

Mr. HENSARLING. There was an article in the Wall Street Journal 

today alluding to a study floating around in the other body indicating that a failure of the GSEs could cost the taxpayers hundreds 

of billions of dollars. I am curious, are you familiar with the study 

and, if so, do you consider it unduly alarmist? What opinion might 

you have on potential taxpayer exposure? 

Secretary SNOW. I have not seen that study. I just saw the newspaper reference to it, Congressman. We look forward to getting into 

that, but, no, I have not seen it. 

Mr. HENSARLING. Finally, in the discussion of including the Federal Home Loan Banks into the ambit of potential legislation, do 

you consider the safety and soundness issues to be similar, or to 

be identical? Also, given that the Federal Home Loan Banks are 

not publicly traded companies, should they be under the same regulatory burden and financial disclosure of publicly traded companies? 

Secretary SNOW. As you know, some of them have sought to get 

under, to make the same disclosures as publicly traded companies 

and probably will move in that direction in the future. Yes, I think 

for reasons I went over earlier that they present the same sorts of 

issues. They are in the same fundamental markets, and their 

soundness and safety regulation ought to be comparable to the 

other GSEs. 

Mr. HENSARLING. Mr. Chairman, I yield the balance of my time 

to Mr. Baker. 

The CHAIRMAN. I thank the gentleman. 

47

Mr. BAKER. Mr. Chairman, I believe the gentleman is going to 

yield to me. 

The CHAIRMAN. I am sorry. 

Mr. BAKER. I will make it real quick. 

Just for points of clarification, Mr. Secretary, on the capital 

issue, I understand the position currently is we do not seek nor do 

we expect to change any capital standard immediately on establishing whatever this new regulatory body would look like. But coupled with that is the statement that we do not, however, wish to 

limit our authority to change capital standards as we see fit both 

with regard to minimum or risk-based, based on a staff analysis of 

the risk assessment of the institutions or leverage or whatever 

standards professionals may choose to use. You do not want to 

have a regulatory system that constrains your ability to act in the 

public interest. 

Secretary SNOW. That is right. That ought to be the decision of 

the new regulator. 

Mr. BAKER. Thank you. I thank the gentleman for yielding. 

The CHAIRMAN. The gentleman’s time has expired. 

On behalf of the entire committee, let me thank both of you gentlemen for what was an extraordinary hearing. We have covered a 

lot of ground. We appreciate both your strong leadership on this 

issue, and the committee now stands adjourned. 

[Whereupon, at 12:45 p.m., the committee was adjourned.] 

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A P P E N D I X

September 10, 2003

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