It is time for GSEs to give up ties to the federal government that have made them poster children for corporate welfare, said consumer advocate and Green Party presidential candidate Ralph Nader at the most recent hearing on a bill that would strengthen regulation of the government sponsored enterprises.
Consumer groups led the charge at the third hearing on the bill last week, which would strengthen regulation of the government sponsored enterprises - Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System. Minority and low-income homeowners shortly became the focus of the hearing on HR 3703 - The Housing Finance Regulatory Improvement Act.
Consumer interests were chosen this time around because, "It is important as well that we explore and understand the effects on the people not directly involved in the mortgage finance business," said U.S. Rep. Richard Baker (R., La.), sponsor of the bill and chair of the House Capital Markets subcommittee.
Rep. Marge Roukema (R., N.J.) expressed concern that while consumer groups agree that changes are necessary, they do not agree on which changes should be made.
The bill would tie the safety and soundness and mission regulators of the three agencies into one independent board, strip their lines of credit to the U.S. Treasury and require additional data disclosure.
Perhaps one result of this legislation would be that instead of cutting lines of credit altogether, which total $8.5 billion, the line could be kept by attaining mission compliance. Purchasing more loans from low-income and minority homeowners was one example of reaching goals.
Nader pointed out that only 32% of Freddie Mac's and 33% of Fannie Mae's loan purchases involved mortgages for low and moderate income homebuyers. "This committee needs to do more to examine the adequacy of the housing goals and the performance of the GSEs on affordable housing in low and moderate income and minority neighborhoods," he said.
In agreement, William Cunningham, member of the Board of Pensions of the Evangelical Lutheran Church in America, said, "I would like to see the GSEs become much more active in the low end of the housing market," adding that a history of discrimination has led to insufficient data on payment performance for minority loan borrowers.
"I suggest the GSE's renew their involvement in the home ownership process by designing new financial products tailored to the needs of homebuyers in the lower end on the market, enabling and facilitating others as they take the prudent lending risks outlined above," he said.
Among other issues brought up was one regarding moving the bill out of committee. While Baker has stated at previous hearings he wants a thorough analysis of the bill before moving it, press reports in recent weeks have led to speculation that the bill will be brought up in Congress before the end of this legislative session.
Nader supports the idea of moving the bill this session, while Roukema stated, "Quick action on this would be ill advised."
As the bill currently stands, market observers see little chance of the bill getting out of committee this year.
"I don't see the bill, the way it's worded, actually getting passed," said Jeff Given, a fund manager at John Hancock Advisors, calling the issue a "political game" between the Treasury and the agencies.
"With the decrease in issuance and the buybacks going on, the Treasury playing less and less of a important role, they don't want to see the agencies taking over their former role as being a benchmark security," he added.
However, Given does see more restraints being put on the agencies, especially as Freddie Mac and Fannie Mae move into purchasing home-equity loans and other subprime products. "In some way you can make an argument: Well, that is to the lower-income borrowers, but it's also to some extent price gouging.' It could be argued by the consumer groups ... if they see agency interest, they want to see interest rates charged on those types of loans decrease substantially," he said.