Legislation is being prepared within the House of Representatives to consolidate the regulating and supervising bodies of Fannie Mae, Freddie Mac and the Federal Home Loan Bank System into one agency.

This proposal comes two weeks after the House banking committee, subcommittee on housing, threw around a proposal to remove Ginnie Mae and the Federal Housing Administration from the Department of Housing and Urban Development (MBSL 1/24/00).

The legislation is being prepared by Rep. Richard Baker (R, La.), chair of the House banking committee's subcommittee on capital markets, securitization and government-sponsored enterprises. Under the legislation, a new independent agency would be created. The agency, which has yet to be named, is speculated to be headed by a five-member board consisting of three members appointed by the president, along with one member occupied by each of HUD and the U.S. Treasury Department.

"The simplest reason [for the creation of the bill] has to do with the larger the GSEs grow, and the small resources, say the FHFB has, just the capacity to have sufficient oversight regulation," said a spokesman from Baker's office. "There probably needs to be some more manpower and just more people acting together to watch."

Baker wants to create a more authoritative and efficient entity to restrict non-mission related investments of the GSEs and to review new activities. "[Baker] is just concerned about the possibility of GSEs moving into areas of the market that they might have undue advantage as a government sponsored enterprise over existing private sector businesses," said the spokesman. "But I think just how that approval process will change, probably will be determined by hearings of the bill itself."

While the official language of the bill has not been presented, those affected by the legislation have hinted that there is a strong possibility that the oversight agencies would be merged into the new agency.

Included would be the Office of Federal Housing Enterprise Oversight, which oversees the safety and soundness of GSEs, the department of HUD that oversees Fannie Mae and Freddie Mac, and the Federal Home Finance Board, which oversees the mission, safety and soundness of the FHLBank System. Baker hopes to present the bill in approximately two weeks.

"I think you could argue OFHEO would cease to exist," said an industry source.

Tepid Reaction

The bill is garnering mixed reviews in the market. While some market observers feel that there are some concerns with consolidating the oversight agencies, those directly affected by it have had positive reactions.

"The activities that Fannie Mae and Freddie Mac engage in are different than the approach taken by the Federal Home Loan Bank System," said a source. "We think the two approaches - whether we may have, at some point in time, differences in what the different GSEs do and whether we support certain activities or programs of them - they share a different role in the marketplace, and they complement each other in that regard."

The source went on to say that a separate regulator and strong regulation, "certainly on the safety and soundness side," should exist for the GSEs, but that the FHLBank System should be regulated independently. "So, as far as merging the regulators, or combining them, we have some concerns about that."

However, the FHFB is supportive of the legislation. "In general, it's always been the position of our chairman, Bruce Morrison, that we should definitely have a structure where you have one regulator for both safety and soundness, and mission," said FHFB spokesman Bill Glavin. "Baker had some hearings about two years ago, and chairman Morrison was asked at the time what he thought about it, and he thought whoever is the regulator should have both safety and soundness and mission. But he also said he would be in favor of that structure, the one regulator."

OFHEO had a similar reaction. "Because Richard Baker is one of the most well-informed members of Congress when it comes to GSE issues, I'm sure his bill will take a thoughtful and constructive approach to GSE regulation," said OFHEO Director Armando Falcon. "One thing is for sure - we share the goal of ensuring that our nation has a vibrant secondary mortgage market which is safe and sound and meets the needs of consumers."

Glavin said that he thinks the new bill would have more of effect on OFHEO than the FHFB because "they don't even have a board structure."

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