[Pages H5418-H5430]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

PARLIAMENTARY INQUIRY

Mr. FRANK of Massachusetts. Mr. Chairman, parliamentary inquiry.
The CHAIRMAN. The gentleman will state his parliamentary inquiry.
Mr. FRANK of Massachusetts. Do we not go back and forth between the
parties in recognition?
The CHAIRMAN. The Chair accords priority to members of the committee.
Mr. FRANK of Massachusetts. Without regard to party? The gentleman
from Colorado is a member of the committee.
The CHAIRMAN. The Chairman did not see the gentleman from Colorado
standing at the time he recognized the gentlewoman from Illinois.
The Chair will go to the gentlewoman from Illinois, and that will be
followed by the gentleman from Colorado. So there is an understanding,
the Chair intends to recognize members of the committee first in the
order in which they are standing, regardless of which side of the aisle
they may come from.
Mrs. BIGGERT. Mr. Chairman, I move to strike the requisite number of
words.
Mr. Chairman, I rise to support the amendment to strike the
Affordable Housing Fund.
I think the reason that we are having so much trouble talking about
this, I know that in our March 15 hearing we urged the chairman if we
could spend some time working this out prior to coming to the floor,
and obviously that hasn't happened. But I think, because of all the
questions, because we haven't had a hearing on this and we don't know
what the national fund is; and he keeps saying we have got an
Affordable Housing Fund now.
It is estimated by CBO that it is going to be $3 billion over a 5-
year period. If that is 1.2 basis points, then it will be the $3
billion. But there is still no dollar limit as to how large the fund
can become. Where will the money for the fund ultimately come from? We
don't know, talking about is it going to be from lower and middle
Americans, or is it going to be from shareholders?
But I think these are all things that need to be considered before we
have the fund. And I know it is, ``Trust me. We are going to have a
national fund and we will figure out how it is going to work.'' But I
think that, in this day and age, that we really need to give the
regulator some idea of what their job is.
I agree with so much of this bill. I think it is a shame. I voted for
the bill last time, and I was very proud to do that. A lot of people
didn't vote for the bill. And suddenly, most of the bill that was in
that bill is now in this bill.
But unlike last year's legislation, I think this bill has included in
this provision that doesn't permit the regulator to focus on the very
important duties in this bill, and rather to have this Affordable
Housing Trust Fund I think it is too bad. The new regulator has the
duty to write those regulations and then administer an Affordable
Housing Grant Fund program from day one, when we don't know what this
national trust fund is going to end up being. I don't think that this
is an appropriate time to do it.
So I urge that we would strike the Affordable Housing Trust Fund from
this bill, and would urge support of that amendment.
Mr. PERLMUTTER. Mr. Chairman, I move to strike the last word, and I
yield to Mr. Frank from Massachusetts.

[[Page H5419]]

Mr. FRANK of Massachusetts. I unfortunately have to again correct the
ranking member. There was no money for affordable housing construction
of any significance for Katrina affected areas.
The gentleman from Alabama incorrectly stated that we already voted
$3 billion for Katrina. In the bill that we passed for the hurricane,
there was one proposal for project-based section 8 that could help
build 4,500 units. There was no other money in that bill for housing
construction. Members will go back and read the debate, and they will
see it was always contemplated by those of us for the bill that would
be accompanied by this bill.
The assertion that this duplicates money voted for housing
construction in Katrina has zero accuracy. This was always contemplated
to be the second bill.
Additionally, the gentleman said I said the money wouldn't come from
anywhere. No, quite to the contrary. I said several times in this
hearing that it would come from the shareholders. I do not believe that
Fannie and Freddie have monopoly pricing power that allows them simply
to pass along every cost. Beyond that, I did note know that there were
other positions being taken that would reduce the portfolio of Fannie
and Freddie that would have far more impact on the profitability than
the housing fund.
So those who believe that when you impact Fannie and Freddie's
profitability you raise the cost of mortgages, they should not be for
any other reductions in the housing fund.
I thank the gentleman from Colorado and I return his time to him.
Mr. PERLMUTTER. I would like to say something to the gentlelady from
Illinois. The Affordable Housing Fund has specific and definite
parameters as to how it is derived and how it is built. So I am not
sure what she is saying is there is no certainty attached to it.
And the other thing is this is a classic tail wagging the dog
argument. My friends on the other side, here we have, as Mr. Bachus
aptly pointed out, an entity. And it is a government entity, these GSEs
with trillions of dollars of assets. And what we are talking about here
is $500 million of affordable housing passing from one government
entity to potentially another. It is less than one one-thousandth of
the overall asset base of the particular GSEs, and less than 10 or 13
percent of the several billion dollars misstatement in accounting,
which is what we are really trying to get to in this bill.
These entities could not account for their funds properly. They need
more oversight. And I find my friends on the other side disregarding
the purpose of this bill, which is the oversight to rail against the
affordable housing for people in low and very low income situations
from profits that are generated by a government entity.
They are saying that is wrong, that is socialism.
Mr. BACHUS. Mr. Chairman, will the gentleman yield?
Mr. PERLMUTTER. I yield to the gentleman from Alabama.
Mr. BACHUS. The gentleman keeps saying this is a government entity.
This actually is a government-sponsored entity. And what we do in this
bill is we try to separate and say that there is no implied guarantee
by the government for this entity; it needs to generate its own
profits. And it does that from homeowners whose mortgages they purchase
or back.
Mr. PERLMUTTER. Reclaiming my time. Government-sponsored entity,
government entity. In this instance, this is minute compared to the
assets of this government-sponsored entity, and this is a classic tail
wagging the dog. I would urge a ``no'' vote on this amendment.
Mr. GARRETT of New Jersey. Mr. Chairman, I move to strike the last
word.
First of all, let me commend the chairman on his work on this
legislation with regard to the underlying and the basic principle where
this whole legislation came from; and that is, to create a world class
regulator, I think was the buzz word when we first started working on
this, with regard to the GSEs. And when the night is done and we vote
on final passage of this, I hope that the language in the bill, I see
the chairman is leaving. But I hope that the chairman will stick to his
promise and the assertions that what we have in this is a good
regulator, and it will not have any amendments that will water that
down.
But to the point of the ranking member's amendment, I stand in
support of the amendment. We should look at this and realize that what
we have in this housing fund is an MTI, a mortgage tax increase. After
this bill becomes law and a prospective homeowner goes to buy his next
house and he sits there at the lawyer's office with the stack of papers
this high that they have to fill out, somewhere in those documents
buried in all the fine print and other costs that always are found in a
home purchase at the last minute will be increased costs to them, an
MTI, a mortgage tax increase.
Why is that? Because, as the ranking member indicates, you can't pull
money out of thin air. We are not creating perpetual motion by this
bill. They are trying to set with the housing fund a new flow of money
to go into this. But where does it come from?
Now, the chairman of the committee constantly retorts that it is not
coming from the perspective home buyer, it is not coming from the low
and moderate income individual, who is just getting enough money
together to buy that first house. And yet the door is slammed shut on
them because one more tax, an MTI, a mortgage tax increase, is coming
through this bill.
The chairman would suggest that it is coming exclusively from the
stockholders. I don't see the chairman on floor at this time, but I
would offer and entertain from the chairman whether he would accept an
amendment to the bill right now that would specifically say that: That
no increase in fees can be charged; that we cannot raise any taxes on
the individual; and that all the money has to come from the
stockholders.
Mr. FRANK of Massachusetts. Mr. Chairman, will the gentleman yield?
Mr. GARRETT of New Jersey. I yield to the gentleman from
Massachusetts.
Mr. FRANK of Massachusetts. I wouldn't accept such an amendment
because it would be impossible to enforce the economics of what's
involved, to the extent that an entity has pricing power, monopoly
pricing power or duopoly that can pass along the costs.
I would just note that the gentleman from New Jersey has an amendment
that would have a far more significant negative impact on the
profitability of these institutions than this bill.
Mr. GARRETT of New Jersey. Reclaiming my time. Because I have heard
the gentleman make that charge with regard to my amendment, which has
not come to the floor yet and I will be glad to get into a debate on my
amendment later on. But the amendment that is before us right now
addresses the issue as far as this MTI, mortgage tax increase.
And I appreciate the chairman now coming to the floor and saying
specifically that his comments earlier was not absolutely correct when
he said it would all come from the stockholders. Before he said it
would come from the stockholders and not from the home buyers. Now he
just indicated that you can't put that in language because you cannot
actually prove that is going to occur. And that is my point, that at
the end of the day the GSEs are in control of this. They will have the
tax on them; they will have to decide where this tax is going to be
placed. Is it on the poor, low income family, who has no bargaining
rights with the GSEs at all; or will be with their stockholders, which
the chairman just admitted that we as a legislative body cannot
control.
Mr. FRANK of Massachusetts. Mr. Chairman, will the gentleman yield?
Mr. GARRETT of New Jersey. I yield to the gentleman from
Massachusetts.
Mr. FRANK of Massachusetts. I am disappointed in the gentleman's
naive economics. No, you cannot by statute affect this economic
question.
My point is that is a measure of where the pricing power is, and it
is impossible to sort out where it comes from when you are talking
about profits. A corporation will maximize profit. One of the
restraints on that will be competition.
My belief is that there is sufficient competition in this field so
their ability to put all the costs on the customers and not have much
on the company shareholders is far less than the gentleman from New
Jersey thinks. That is not something you do by statute, as in every
other context he would recognize.

[[Page H5420]]

Mr. GARRETT of New Jersey. And I am not naive in my politics or on
economics at all. Because we know that, in business, at the end of the
day the cost of anything that we buy is eventually paid for by whom? By
the consumer.
You can say that you are pushing it off onto the stockholders or the
investors of the company, but at that point in time you realize that if
it raises the price too much for the stockholders or investors to
invest in that company, what will they do? They will step back and they
will not invest in that entity anymore, they will not invest in that
company anymore, which raises the overall cost for investment for that
entity. In this situation, then where does the cost go to? It goes to
the consumer.
Mr. Chairman, we should be opposed to this mortgage tax increase.

{time} 1745

Mr. SCOTT of Georgia. Mr. Chairman, I move to strike the last word.
Mr. Chairman, I want to talk about this for a moment. First of all,
let me just address the gentleman from Alabama's amendment, who's a
very honorable person and a very, very good and highly thought-of
colleague.
But it's very important that we recognize that his amendment is
designed to do one and one thing only, and that is to gut this bill.
And that's what the design is. So no matter which way you talk,
whatever the arguments you use, it's designed to gut the bill.
Now, for the last year and a half, 2 years in our Committee on
Financial Services, we've talked about the affordable housing trust
fund. It has been moved out in many respects as a bipartisan measure.
Now, this is tailored. It's tailored specifically. I want to put into
the Record a letter. It comes from the Most Reverend Nicholas DiMarzio,
who is the Bishop of Brooklyn, Chairman of the Domestic Policy
Committee for the United States Conference of Catholic Bishops. Here is
what he says.
He says, ``As Chairman of the Domestic Policy Committee of the United
States Conference of Catholic Bishops, I write in strong support of a
provision in H.R. 1427, the Federal Housing Financial Reform Act of
2007, that provides some $500 million a year from Fannie Mae and
Freddie Mac as a dedicated source of funding for an affordable housing
trust fund.
``As you know, the Catholic community serves tens of thousands of men
and women and children who struggle to avoid homelessness and maintain
adequate housing. Besides sheltering homeless people who turn to us for
help, our Catholic Charities, agencies, dioceses and parishes have
built and continue to maintain thousands of affordable units. But
despite our efforts and the efforts of so many others, there is just
not enough affordable housing available. And we believe that a trust
fund will be a stable source of money for building and rehabilitating
affordable housing for very low income people.
``Our experience demonstrates to us how homelessness and inadequate,
substandard housing destroys lives, undermines families, hurts
communities and weakens the very social fabric of our Nation. By
setting aside money for a National Housing Trust Fund, Congress acts to
make the shelter needs of low income families a national priority.''
This brings us to the crux of this matter. And the crux of this
matter, gentleman from Alabama, and my colleagues on the other side of
the aisle, is that we have a pressing need. We have a pressing need for
affordable housing. And nowhere is that pressing need more pressing
than in Louisiana and Mississippi, where this is targeted to.
How those people have suffered; how much they've begged and pleaded
for help. And yes, we have passed Katrina funds, but not for this.
And in committee, time and time again, we've raised these issues, and
your very amendment, my distinguished friend from Alabama, was defeated
in committee.
Now, it's very clear that 75 percent of the affordable housing funds
available in the first year will go to Louisiana. 25 percent of such
funds will go to Mississippi for affordable housing arising out of the
costs and out of the terrible agonies of Hurricanes Katrina and Rita.
It's about time that we responded to these needs. And there's no
better way of dealing with it than through Fannie Mae and Freddie Mac.
But I do want to set the record straight so we understand, from the
point from the gentleman from New Jersey and others, and the public
who's listening to this debate and watching this debate, to make sure
that you understand exactly what this housing fund is based upon. It is
funds and where the funds are derived from. They're derived through
contributions by Fannie Mae and Freddie Mac in amounts equal to 1.2
basic points on each GSE's total outstanding mortgages, including both
those held in the portfolio and those that have been securitized each
year, from 2007 through 2011. And the program sunsets in 5 years. This
is not a permanency. This is an emergency situation where affordable
housing is needed. We're infusing this in. We're targeting it to the
area in this country where the greatest need is, and then we're
sunsetting it in 5 years. That's the responsible way of doing it. And I
submit that the gentleman's amendment should be defeated.
Mr. HENSARLING. Mr. Chairman, I move to strike the requisite number
of words.
I'd like to yield 30 seconds to the ranking member.
Mr. BACHUS. I appreciate the gentleman from Texas.
Let me say this to the gentleman from Georgia. He said that my
amendment guts the bill because, as he sees it, the bill is this
pressing need for affordable housing, when I say this bill is all about
establishing an independent world class regulator for Fannie and
Freddie. So I think that is true. I think you're acknowledging that
what we're doing is establishing a strong regulator. What y'all are
doing is establishing an affordable housing fund.
Mr. SCOTT of Georgia. Will the gentleman yield for one moment,
please? Who better to deal with affordable housing than Fannie Mae and
Freddie Mac?
Mr. HENSARLING. Reclaiming my time.
The CHAIRMAN. The gentleman from Texas controls the time.
Mr. HENSARLING. Mr. Chairman, I heard the gentleman from Georgia
earlier read some correspondence from a bishop. I don't have any
correspondence from a bishop this evening, but I do have some
correspondence from some hard working families in the Fifth
Congressional District of Texas talking about what we could do to make
their housing affordable. And I think it's particularly important when
we think about my friends from the other side of the aisle earlier
today, literally just a couple of hours ago, passing the single largest
tax increase in American history that will amount to roughly $2,700 a
year on the families in the Fifth District of Texas.
I heard from the Freeman family in Mesquite, and they wrote me, that
``With the extra $2,700 being forced to pay to Washington, my family
could lose our home, or we may be forced to give up education because
the money won't be there to pay for it. It is really unfair that the
low man on the totem pole is always having to give everything up. These
extra taxes are not needed.''
Well, one way we can make housing affordable is not tax people with
homes in the first place.
I heard from the Kirkendoll family in Garland, Texas. ``Dear
Congressman Hensarling, I am unemployed on Social Security and my wife
works. At this point, between taxes and utilities, we're at the
breaking point of being able to keep a home.''
You know, one of the greatest ways that a home is affordable is you
don't take money away from the family in the first place. And so,
besides the single largest tax increase in American history that the
Democrat majority passed earlier today, now they want to pass on a
mortgage tax on hard working families struggling to make ends meet as
well.
I heard from the Stevens family in Mesquite, Texas. ``Congressman
Hensarling, I wanted to let you know that I'm a single mom that does
not receive any type of child support, and a tax increase of this
amount would break me. I would be at risk of losing my home with this
type of increase. I'm writing to ask your help to keep this from
happening. This will be devastating to middle income families and
families in my situation.''

[[Page H5421]]

Mr. Chairman, I have many more letters like this. And so we've heard
so much rhetoric from our friends on the other side of the aisle that
somehow we don't care about affordable housing. The greatest affordable
housing program in the history of this Nation is a good job and a low
tax rate. And yet, with the single largest tax increase in American
history passed by the majority earlier today, they threaten the almost
8 million new jobs empowering people to buy homes. You take the tax
relief away. You increase taxes on capital dividends, capital gains,
you start taking those jobs away.
And then you pass on this roughly $2,700 a year on hard working
families all over America, you've got a double whammy. You start taking
their jobs away, and then you start taking their ability to pay for
these mortgages.
I listened very closely to the chairman of the committee earlier when
he accused the gentleman of New Jersey from, I guess, subscribing to
naive economics. I will admit, it's been a number of years ago, but I
actually studied economics. I have a degree in economics. I spent 10
years in private business. And what I know about economics is that when
you have a government sanctioned duopoly, as opposed to an atomistic
competitive marketplace, they have a great ability to pass on costs to
their customers, in this case, ultimately, the homeowner.
So I guess the gentleman, our chairman, has studied a different
economics than I do. And I did listen when the chairman said that it's
the shareholders that will pay. So I'm offering an amendment later this
evening that says this so-called affordable housing fund will go away
if the regulator determines that interest rates go up. And since the
chairman believes that only shareholders will pay, I look forward to
him accepting that amendment.
Ms. WATERS. Mr. Chairman, I move to strike the requisite number of
words.
Mr. Chairman and Members, I am surprised at the information that is
being given from my friends on the opposite side of the aisle about
this bill. Mr. Garrett from New Jersey gets up and talks about the
mortgage tax increase. There is no MTI. He made that up. There is no
MTI identified in and for this bill. I don't know where they're getting
this from. They have vivid imaginations, and they would have you
believe that somehow, in order to create this housing trust fund and
have the GSEs participate in it, there must be something that they've
made up called a mortgage tax increase.
Did anyone tell my friends on the opposite side of the aisle that the
GSEs have many places they can take the money from?
First of all, it is important for everyone to know and understand,
this money does not come from the general fund. This money does not
come from something called an MTI. This is after-profit tax from the
GSEs. And they have all of these programs, they have not only programs
that they could eliminate, they could rearrange, and get millions of
dollars from, but the investors, instead of getting huge profits, they
could be reduced a little bit so that money could go into this housing
trust fund.
You would think that the Members on the opposite side of the aisle
don't have a housing crisis in their district. Well, I've been to
Alabama. I've been in Mr. Bachus' district. I want to tell you, he's
got some terrible housing problems. He's got a crisis.
But Mr. Hensarling does, too. I don't know where those letters are
coming from, but let me tell you about his district. Renter households,
81,740 including 14,931 extremely low income households in Mr.
Hensarling's district.
Of these extremely poor households, 56 percent of them are paying
more than half of their incomes for housing. In this district, there's
a deficit of 9,571 units that are affordable and available to extremely
poor households.
I don't mind speaking up for the least of these and poor. I don't
mind trying to help the people in my district. But I do mind carrying
the burden for all over America, for districts where there are people
in need, and somehow their representatives forget to represent them.
And my friend would have you believe that he's so concerned about the
safety and soundness of these GSEs, and that they want independent
world class regulation. And we've created that in this bill, we have
compromised, we have worked with them, we have put a new agency in. We
have done a great job.
Are you willing to sacrifice that because you don't believe the
government should participate in helping the least of these get some
low income housing? Are you willing to give up all that we have worked
for to ensure that we have GSEs that are safe and sound because you
don't want to help poor people, low income people, people who work
every day but simply cannot afford to own a home or have a decent place
to live?

{time} 1800

I don't think so. I know some of my friends on the opposite side of
the aisle may have some questions about how this is all going to work,
but I really don't believe that what you mean is that you would give up
this bill; that you would rather not see this bill passed, with all of
the good that is in it, even FM Watch that was organized some time ago
to deal with bringing down the GSEs or supporting this housing trust
fund. These are your friends that you have worked with. They like the
bill and they like the housing trust fund, and they have letters of
support that they have passed out all over this Congress.
So I would say that even if you have some questions, you don't quite
understand it, understand this: A housing crisis, people in need,
moneys that can be gotten from GSEs that does not create something
called an MTI, that can help people to have a decent quality of life.
Just understand that. And couple that with the knowledge that you have
worked very hard to make sure that these GSEs are safe and sound and
you don't want to give that up at this point.
The Acting CHAIRMAN (Mr. Hastings of Florida). The question is on the
amendment offered by the gentleman from Alabama (Mr. Bachus).
The question was taken; and the Acting Chairman announced that the
noes appeared to have it.
Mr. BACHUS. Mr. Chairman, I demand a recorded vote.
The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from Alabama will
be postponed.

Amendment No. 22 Offered by Mr. Kanjorski

Mr. KANJORSKI. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 22 offered by Mr. Kanjorski:
Page 300, line 24, strike ``, and'' and insert the
following: ``. The Federal Housing Enterprise Board may
recommend individuals who are identified by the Board's own
independent process or included on a list of individuals
recommended by the board of directors of the Bank involved,
which shall be submitted to the Federal Housing Enterprise
Board by such board of directors. The number of individuals
on any such list submitted by a Bank's board of directors
shall be equal to at least two times the number of
independent directorships to be filled. All independent
directors appointed''.

Mr. KANJORSKI. Mr. Chairman, this amendment is drawn for the purposes
of clarifying the process used by the new regulator's advisory
committee to recommend candidates to serve as independent directors on
the boards of each of the Federal Home Loan Banks. This proposal is a
simple, yet important, corporate governance reform.
Today, the Federal Home Loan Banks benefit from the service and the
guidance of individuals appointed by the regulator to serve on the
boards of each of the Federal Home Loan Banks in addition to those
board directors elected by member financial institutions. Because the
public-private partnership in guiding and monitoring the activities of
a Federal Home Loan Bank is an important one, H.R. 1427 would preserve
the election and appointment systems for constituting the Federal Home
Loan Bank boards.
Under the bill the advisory committee would recommend a list of
individuals to serve as appointed independent directors to the head of
the new regulatory agency. This individual would then make the final
determination about whom to appoint to the independent director seats
on the boards of each of the Federal Home Loan Banks.

[[Page H5422]]

Independent directors help to focus a Federal Home Loan Bank on its
statutory mission. These public appointees also help to ensure that
each board has the knowledge, skills, and expertise needed to properly
direct and supervise the management of the Federal Home Loan Bank. For
this appointment system to work best and for independent directors to
perform the role that Congress intended, the director of the new
regulatory agency overseeing the housing government-sponsored
enterprises should have a choice among a variety of qualified
candidates when making appointments just as the voters should have a
choice of candidates in elections. My amendment would allow such a
choice to occur via two specific methods:
First, it would allow the advisory board to establish its own
independent process for identifying individuals to serve as appointed
directors. Second, the amendment would build on the rulemaking recently
adopted by the existing regulator that has the boards at each of the
Federal Home Loan Banks recommending individuals to serve as
independent directors.
Under this second route, each board of directors at a Federal Home
Loan Bank would put forward at least two candidates for each vacant
independent director seat. If a board submitted just one name for
consideration, we could create a system by which the independent
directors could become beholden to the group that nominated them.
For the appointed directors to remain effective and push the system's
mission, we need to make sure that we keep their independence in place.
By mandating that a Federal Home Loan Bank board provide at least two
recommendations, we will help to prevent these unusually cozy
relationships from ever developing.
In sum, Mr. Chairman, my amendment refines the processes to be used
by the Federal Housing Enterprise Board in recommending individuals to
serve as appointed directors on the boards of the Federal Home Loan
Banks in a way that helps to preserve their independence and to ensure
that they help a Federal Home Loan Bank to achieve its intended
mandatory objectives.
I urge the adoption of this proposal.
Mr. FRANK of Massachusetts. Mr. Chairman, will the gentleman yield?
Mr. KANJORSKI. I yield to the gentleman from Massachusetts.
Mr. FRANK of Massachusetts. Mr. Chairman, I thank the gentleman for
yielding.
I want to express my support for this. We have talked to Members on
the other side. My understanding, this is one of nine that was going to
be agreed to.
The gentleman from Pennsylvania has been one of the leading Members
of the House in insisting on the public functioning of this board and
the members, and this is another chapter in the book he is writing
about how to protect the input here from citizens. So I strongly hope
that the amendment is adopted. It is my understanding that it was
acceptable on the Republican side as well.
Mr. HASTINGS of Florida. The question is on the amendment offered by
the gentleman from Pennsylvania (Mr. Kanjorski).
The amendment was agreed to.

Amendment No. 29 Offered by Mr. Hensarling

Mr. HENSARLING. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 29 offered by Mr. Hensarling:
Page 128, line 22, strike ``temporarily''.
Page 129, line 4, strike ``or''.
Page 129, line 7, strike the period and insert ``; or''.
Page 129, after line 7, insert the following:
``(D) are contributing to an increase in the cost of
mortgages to homebuyers.''.

Mr. HENSARLING. Mr. Chairman, I actually had alluded to this. I hope
that the chairman was able to listen at the time. This goes further
into the discussion of the mortgage tax that those of us on this side
of the aisle believe is being imposed upon the American people by this
so-called Affordable Housing Fund.
Earlier this evening the chairman said that he believes that this
will be paid by the shareholders. We believe on this side of the aisle
that, due to the duopoly power, the Fannie and Freddie, that they
already control roughly 80 percent of the market in which they operate,
that a substantial portion of the cost of the so-called Affordable
Housing Fund will, indeed, be imposed upon homeowners in the form of
higher mortgages, indeed, functionally a mortgage tax, a new mortgage
tax on the American people.
I was heartened to hear, although I disagree with his economic
analysis, that the chairman has concluded that this will be paid by the
shareholders.
My amendment is fairly simple. It amends the section dealing with
having the regulator suspend the program. Now, we know that within the
language the program can be suspended, essentially, dealing with
systemic risk of the economy. What my amendment does is, if the
regulator finds out that, contrary to the chairman's opinion, that
there is a mortgage tax, that indeed it has an adverse impact upon the
cost of housing in America, that mortgages rise, that the program will
be terminated.
So, again, I hope I understood the chairman correctly when he said
that he thought this cost would go to shareholders. If he does, I would
hope that he would accept the amendment. And if the chairman chooses
not to accept the amendment, and I am sure the gentleman will let us
know soon, then I guess what we are admitting is that, indeed, there is
a mortgage tax to be imposed on hardworking homeowners, some of which
we heard from earlier this evening from the Fifth District of Texas,
and we know how an additional tax is going to adversely impact them in
the ability to keep their homes.
So I hope the chairman is right that shareholders, as opposed to
homeowners, end up paying this if we are going to be stuck with this
particular program.
So this is a very simple amendment that says if we have a mortgage
tax, the program is suspended. If we are confident there is no mortgage
tax, then there shouldn't be any opposition to this particular
legislation.
With that, Mr. Chairman, I request an ``aye'' vote.
Mr. FRANK of Massachusetts. Mr. Chairman, I move to strike the last
word.
Mr. Chairman, this is another effort to try to kill the fund, this
time by obfuscation.
We have tried to work out some agreement. There are about 11
different amendments that try to do the same thing. Members should just
be ready to be here all night and maybe until Tuesday or come back on
Tuesday.
I understand the objections to the fund. What I don't understand is
why Members wouldn't be willing to accept two, maybe three chances to
defeat it.
Now, with regard to the economics, first of all, there is this myth
that we have said it's not coming from anywhere. We do believe that it
will come primarily from the shareholders.
By the way, in earlier debates on this, some of the opponents of the
bill said the same thing. If you go back and look at the transcripts of
our committee, although I can't understand why anybody would want to do
that, you will find people saying we were unfairly levying on the
shareholders. That didn't work.
There are people who do not believe that the Federal Government
should be encouraging the construction of affordable housing, and
understand that however we propose to do it, they will object to it. If
we try to do it through appropriations, that will be a problem because
of the deficit. Here we try to do it by taking, we believe, essentially
from the profits of Fannie Mae and Freddie Mac.
Now, as to the legitimacy of their concern, I will repeat, and the
gentleman from New Jersey seemed annoyed when I mentioned it, he has an
amendment that, by making restrictions on the portfolio of Fannie Mae
and Freddie Mac, their main profit generators, would hit their profits
far more than anything you could conceivably attribute to this
amendment. So it would have, if you believe that this is going to hurt
the borrowers, a much more negative effect.
I heard the gentleman from Texas say this is a government-sanctioned
duopoly. At one point it might have been. In fact, today, the
securitization

[[Page H5423]]

market is far more competitive. It's not atomistic, but there are
states, economic states, between duopoly and atomic, and this is where
we are here. There are significant private competitors to Fannie Mae
and Freddie Mac. You will know that because some Members, Mr. Chairman,
have heard from them who don't like what we are doing here. And we
believe that the primary burden here will come from the shareholders.
The notion that Fannie Mae and Freddie Mac can raise prices at will
does not seem to me to reflect economic reality.
Now, the gentleman from New Jersey said why don't you pass a statute
saying that? That is the naivete of economics. You can't pass a law
that says economic reality shall be X or Y or Z. There is an interplay
among various forces. We do believe that the great bulk of this will
come from the shareholders.
By the way, it amounts to 5 percent of the profit. Other amendments
would restrict the profit by far more. And if people legitimately
believe that any restriction on the profit was going to hurt the
mortgage borrowers, then they wouldn't be offering those other
amendments.
There is a common thread here. They don't think the Federal
Government should help build affordable housing. We strongly disagree
with that. We believe that the Federal Government should. The
calculation that is being asked to be made here is a very difficult one
to make.
The gentleman prides himself on his economic expertise that he
learned some time ago. I don't know where he learned that you could
easily make this kind of calculation. There will be legitimate debate.

{time} 1815

And by the way, what he does say here is that if at any point it
turns out that there is an impact, you know, things can happen slow,
the competitive situation can be more or less, a lot of factors will
affect this. If at any point it happens, then the fund is permanently
shut down. You will note that he strikes the word ``temporarily.'' This
is an effort, once again, to kill the fund.
Mr. HENSARLING. Will the gentleman yield?
Mr. FRANK of Massachusetts. Not yet.
I understand people who don't like it. And by the way, I would note
again, not the gentleman from Texas, but 209 Republicans in October
2005 voted for legislation that included exactly this sort of fund.
Some of us voted against it because of a provision that is not now in
this bill that would have kept the Catholic Church and others in the
religious field from building housing. But I don't understand why, if
it's so terrible today, it wasn't then.
Mr. Chairman, now I will yield to the gentleman.
Mr. HENSARLING. I thank the chairman for yielding.
I want to make it very clear; I have agendas, I don't have hidden
agendas. I want to make it very clear, I do disagree with this program.
But if we are going to have the program----
Mr. FRANK of Massachusetts. I'm sorry, I didn't hear what you said.
Mr. HENSARLING. Again, I thank the chairman for yielding.
I simply said that you seem to imply that this was designed to
somehow kill the program. I just wanted to make it very clear that any
way I could get rid of this program, I would. But I would ask the
chairman for a clarification.
Mr. FRANK of Massachusetts. I thank the gentleman, and I understand
that. And that's clearly what's involved here. And we will hear four or
five different ways to do it.
Let me just say this; this has now become a late night TV commercial,
it might be a late night debate. It will slice, it will dice, it will
cut. We are going to see the magic nine cut knife as a way to kill the
Affordable Housing Program. And we will have everybody but a TV
pitchman demonstrating it. And maybe he will throw in a few Ginsu
knives as well to knock off a couple other programs, but this is simply
one more assault out of many that we will hear today on affordable
housing.
Mr. PRICE of Georgia. Mr. Chairman, I move to strike the last word,
and I yield to the gentleman from Texas.
Mr. HENSARLING. I thank the gentleman for yielding.
I was going to ask the chairman for a clarification. What I heard
earlier in the evening is that shareholders will pay the cost of the
Affordable Housing Fund. And what I think I'm hearing now is that the
shareholders will pay substantially most of the housing fund, which
leaves some portion paid by somebody else.
So I am asking the chairman, in his opinion, if it is no longer being
paid totally by the shareholders, doesn't that mean that some portion
is indeed being paid by the homeowner? Thus, we can debate the quantity
of the mortgage tax that will be imposed upon the homeowner. But it
seems to me if we've gone from total shareholder payment to substantial
shareholder payment, there is a mortgage tax. And I might request the
gentleman from Georgia to yield to the chairman for clarification.
Mr. PRICE of Georgia. I yield to the chairman.
Mr. FRANK of Massachusetts. Well, in the first place, the universe is
not exhausted by the borrowers and the shareholders. There are banks
involved. There are many other people in the transaction. And yes, I
think there will be various distributions, of course, and it will
differ at different times and different economic circumstances,
depending on the competitive situation.
I believe that it is possible in some circumstances a very small
percentage of the 5 percent might go on to the mortgages. It is likely
to be de minimis. And the answer is it doesn't come just from the
shareholders, it comes from the banks, from the mortgage brokers----
Mr. HENSARLING. Thank you.
Mr. PRICE of Georgia. Reclaiming my time.
Mr. FRANK of Massachusetts. I'm sorry for trying to answer the
question.
Mr. PRICE of Georgia. I appreciate the chairman's candor, because
what we have just heard from the chairman is important because it's the
first time that the chairman has recognized and appreciated that, in
fact, mortgages will go up, and they will go up on individuals that may
be the least able to afford them in this Nation. And therefore, I think
the contention of my good friend from Texas, that this is indeed a
mortgage tax on individuals least likely to be able to afford them is
accurate. I appreciate the gentleman pointing that out.
Mr. BLUMENAUER. Mr. Chairman, I move to strike the requisite words.
Mr. Chairman, one listens to the ebb and flow of this debate, and you
sort of lose track of what it is that we are about here this evening.
As Senator Moynihan said, that we're entitled to our own opinions,
we're not entitled to our own facts. And perhaps if my friend from
Texas had spent less time making up things to try and scare people back
home in terms of political fantasy and spent some time dealing with the
substance that we have here this evening, we would have less
disagreement.
It was cited earlier that this proposal is an experiment in
socialism. Well, one can look at the history of how the special status
of these entities evolved from being government agencies to being in
this special hybrid status of the government-sponsored enterprises. The
fact is that the Federal Government sets the ground rules. Congress
sets the ground rules.
As my friend, the chairman of the committee, pointed out, that there
are costs associated with everything we do. Goals for affordable
housing entail some cost. The regulations entail some cost and
consequence. Focusing in on the lowest income has some costs and
consequences. This is all right. This is what we are about here this
evening is to determine whether or not, as Congress exercises its
oversight, its focus, that it is appropriate in nature and it is
reasonable in its outcome.
Mr. Frank has pointed out that what we are talking about here, in
terms of this fund, is a tiny fraction of the overall profits of multi
trillion dollar holdings. He has also pointed out, and something that
has not been refuted by our friends who are trying to kill it, is that
there are other proposals that they are talking about which would bear
far greater impact on the profitability of the enterprises. The
question we should be asking is whether the goal is one that is
appropriate. And it seems to me very strongly that what has been
identified here is an appropriate goal. It is consistent with the

[[Page H5424]]

creation of these entities. It speaks to a crying need in community
after community.
I would strongly urge that we vote down this and each of these
proposals to gut this essential provision that would help us make
substantial progress in providing affordable housing for those who need
it most.
Mr. SCOTT of Georgia. Mr. Chairman, I move to strike the last word.
Mr. Chairman, I really believe that it is so comical to see our
friends on the other side of the aisle come up with the various and
different ways to so-called ``skin this cat'' and gut the bill. This is
very clever way my great friend from Texas, whom I have great respect
for (Mr. Hensarling), but, Mr. Chairman, let me just read for the
Record exactly what his amendment says so that we can really fully
understand the lengths to creative linguistic judgments that they will
go to cleverly try to skin the cat and gut the bill.
Mr. Hensarling says his amendment will permanently eliminate the
Affordable Housing Fund contributions in the case of certain factors in
the bill that, as written, merely require a suspension of fund
contributions. And two, also requires permanent eliminations of the
Affordable Housing Fund contributions if a determination is made that
such contributions are contributing to an increase in the cost of
mortgages to home buyers. Putting the issue in a considerably complex
box.
Now, we know from the dynamics of economics what is happening in our
society today, especially in the housing market. We know what the
ravages of Hurricane Rita and Katrina has done to the area which we are
targeting the bill. We also know that there is no segment in society
that is most impacted and in need of affordable housing than the very,
very poor, those people who need the help. This is where this bill is
being targeted.
And his amendment would prevent the reinstatement of affordable
housing funds when a GSE's financial problems temporarily cause a
suspension of funds contributions is resolved, and would also create a
new condition to shut down the fund that could arbitrarily result in
the permanent elimination of the Affordable Housing Fund. That is
exactly what the gentleman's amendment does, and that is exactly why we
need to defeat it.
The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Texas (Mr. Hensarling).
The question was taken; and the Acting Chairman announced that the
noes appeared to have it.
Mr. HENSARLING. Mr. Chairman, I demand a recorded vote.
The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from Texas will
be postponed.

Amendment No. 21 Offered by Mr. Hinojosa

Mr. HINOJOSA. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 21 offered by Mr. Hinojosa:
Page 140, line 3, before the semicolon insert the
following: ``; except that the Director may, at the request
of a State, waive the requirements of this subparagraph with
respect to a geographic area or areas within the State if (i)
the travel time or distance involved in providing counseling
with respect to such area or areas, as otherwise required
under this subparagraph, on an in-person basis is excessive
or the cost of such travel is prohibitive, and (ii) the State
provides alternative forms of counseling for such area or
areas, which may include interactive telephone counseling,
on-line counseling, interactive video counseling, and
interactive home study counseling''.

Mr. HINOJOSA. Mr. Chairman, today I am offering an amendment to the
housing counseling amendment that I passed in committee. Today's
amendment will permit States to seek a waiver of the in-person pre-
purchase housing counseling requirement if the person obtaining the
mortgage lives in a remote area of the country, which includes the
majority of rural America.
I urge my colleagues to support the amendment.
Mr. Chairman, during the Financial Services Committee mark up of H.R.
1427, I offered an amendment to the Affordable Housing Fund section of
H.R. 1427 that requires that homebuyers who fall below 50 percent of
the median income obtain pre-purchase in-person housing counseling. The
Committee adopted the amendment by voice vote.
My amendment recognizes the fact that we have a very unstable housing
market at the moment.
It also acknowledges that minorities are becoming victims of
predatory lending, and that the poorest of the poor, which includes a
considerable percentage of my congressional district and other rural
districts, need financial literacy in general--and in-person housing
counseling in particular--before they enter into any kind of loan
agreement.
The amendment that passed in committee does not require any funding
from the Affordable Housing Fund. The funding for such counseling
usually comes from the Department of Housing and Urban Development or
the States. My amendment merely requires that existing counseling
information be provided in-person for those who fall below 50 percent
of the median income, which tends to be renters.
Today, I am offering an amendment to the housing counseling amendment
that passed in committee. Today's amendment will permit states to seek
a waiver of the in-person pre-purchase housing counseling requirement
if the person obtaining that mortgage lives in a remote area of the
country, which includes the majority of rural America.
The alternative forms of housing counseling may include interactive
telephone counseling, on-line counseling, interactive video
conferencing, or interactive home study counseling. A complete waiver
of the counseling requirement under Section (g)(2)(d) may be granted
only for borrowers for whom it is not possible to provide such
alternative forms of counseling. Very few households meet this
criteria.
Mr. Chairman, I believe that this amendment No. 21, provides states
with the appropriate waiver authority they need to take into account
the difficulties of providing in-person housing counseling, Financial
Literacy Education, to those living in remote areas of the United
States.
I urge my colleagues to support amendment No. 21.
Mr. FRANK of Massachusetts. Mr. Chairman, I am impressed with the
precision and exactitude of my friend from Texas. I am actually used to
Texans talking slower. I appreciate my friend getting to the point so
quickly, and I apologize for my not being there.
It is a very good amendment and I think has been agreed to by both
sides.
The gentleman from Texas has been a strong proponent of housing
counseling. We all agree that if we had had more of that earlier, we
might have less of a problem than we have today. He has been very
strong on the questions of literacy. So I very much appreciate this
amendment and hope it is adopted.
Mr. HINOJOSA. Mr. Chairman, I yield to the gentleman from Texas (Mr.
Neugebauer).
Mr. NEUGEBAUER. Mr. Chairman, we have no objection to the amendment.
Mr. FRANK of Massachusetts. Thank you, Mr. Chairman. Not elegant, but
effective. I hope the amendment is adopted.
The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Texas (Mr. Hinojosa).
The amendment was agreed to.

Amendment No. 4 Offered by Mr. Neugebauer

Mr. NEUGEBAUER. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 4 offered by Mr. Neugebauer:
Page 60, line 2, after ``posed'' insert ``to the
enterprises''.

{time} 1830

Mr. NEUGEBAUER. Mr. Chairman, I rise tonight to make a clarifying
amendment on this bill. One of the things that this bill does is it
clarifies the amendment to ensure that the portfolio standard be based
solely on the safety and soundness to the enterprises and not any of
the broader systemic concerns.
We have the financial housing industry financing model of the world.
Because of the model we have in place today, America enjoys one of the
highest home ownership rates in the history of this country. More
people own a home today than at any time in the history of this
country. Primarily a lot of that housing affordability and the ability
for Americans has been because of our tremendous secondary market, the
ability to provide home mortgages for Americans all over this country.

[[Page H5425]]

This legislation clarifies that when the regulator looks at
regulating this entity, that he looks at the safety and soundness of
that entity and not external factors. Just like when we regulate banks,
we set certain standards for their capital, for their loan ratios and
all of those other factors, and we should not look at this entity any
different than we look at other entities. So really this is a
clarifying amendment. It just says we are going to look at the safety
and soundness of how this company is running their business.
We shouldn't put things out there that the regulator is not able to,
quite honestly, articulate, because what is a systemic risk? That
becomes a point of order that sometimes the regulator cannot explain
what exactly the systemic risk is they believe it is. It is a way to
limit their portfolios.
I want to thank Ms. Bean of Illinois and Mr. Moore of Kansas and Mr.
Miller of California for joining me in clarifying the importance of
making sure that as we put together a first class world regulator for
these very important entities to the American home ownership, that we
do not put in place things that would inhibit the ability of these
entities to be able to deliver the quality mortgage products that they
have delivered to the country over these years.
So I think this is a very clear amendment. It clarifies the language
and makes sure we don't have any question about what the intent of the
regulator is and what the duty of the regulator is. I encourage my
colleagues to support this amendment.
Ms. BEAN. Mr. Chairman, I move to strike the last word.
Mr. Chairman, I rise today in support of H.R. 1427. I want to thank
Chairman Frank for his hard work in crafting such a strong GSE reform
bill, and I am pleased that the Financial Services Committee was able
to move this bill to the floor so quickly. Passage of this legislation
is necessary to further strengthen the U.S. financial system and is
essential in establishing a sound regulatory environment for the
housing GSEs, Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
In order to ensure that the GSEs are able to perform their
Congressionally chartered functions as efficiently, successfully and
safely as possible, Congress must put into place a robust, world class
regulator capable of overseeing the safety and soundness of Fannie Mae
and Freddie Mac's operations as well as their housing mission.
However, over the last several months, as Congress has considered how
best to achieve this goal, much attention has been drawn to the scope
of the new regulator's authority in developing criteria to oversee
Fannie Mae and Freddie Mac's portfolios, which are critical in
providing liquidity and stability to our Nation's housing market.
On this issue in particular, I believe Chairman Frank's intent in
crafting this legislation has been clear from the beginning, to provide
bank-like oversight authority, to ensure the safe and sound operations
of the GSE portfolios.
However, when asked about the portfolio language Chairman Frank
negotiated with Secretary Paulson, James Lockhart, the current GSE
regulator, was quoted in January as saying, ``My view is that inherent
in any safety and soundness activity, one has to be concerned about
systemic risk, and I don't think it has to say the word to have that as
a potential consideration.'' In contrast, during the committee's
oversight hearing, Chairman Frank once again reiterated what has been
his consistent view, that the language was envisioned to only cover
mission and safety and soundness concerns.
This apparent ambiguity about the interpretation of the bill's
portfolio language fueled concerns on both sides of the aisle and
underscores the need to clarify its intent.
Mr. Chairman, the term ``safety and soundness'' is a well-defined
term in banking law and regulation. What is less clear is the
application of a so-called systemic risk standard. First, there is no
systemic risk standard applicable to banks or financial services
holding companies, and certainly no such standard imposed on the
mortgages they hold.
Second, the question of whether or not to apply a systemic risk
standard to Fannie Mae and Freddie Mac has already been asked and
answered definitively by this House. In the 109th Congress,
Representative Royce offered an amendment to the GSE reform authorizing
systemic risk as a consideration for regulating the GSE portfolios.
This amendment was overwhelmingly rejected on a bipartisan vote of 346-
73.
Such a strong repudiation highlights several of the questions the
proponents of systemic risk have been unable to adequately address.
Number one, how to define it; two, demonstrate how there could be a
systemic risk to the overall economy that would not first trigger
safety and soundness concerns to the enterprises themselves; and,
three, why should GSEs be held to a different standard than other
holders of mortgage assets.
Furthermore, Mr. Chairman, I was extremely concerned yesterday
following the administration's release of its official Statement of
Administration Policy. In it, the administration suggests that the
portfolio authority contained in H.R. 1427 helps to address the
systemic risk that Fannie Mae and Freddie Mac pose to our financial
system.
The SAP leaves no doubt that the administration interprets the
current language of H.R. 1427 to authorize an application of systemic
risk, which is why I urge my colleagues to support this bipartisan
amendment I am offering today with Representatives Neugebauer, Moore
and Miller. As it did in the 109th Congress, the House must once again
reject the vague notion of systemic risk and be clear that it is not
intended to be a criterion applied by the new GSE regulator.
This amendment is very straightforward. It would ensure if there is
sufficient risk posed to each company, the regulator would have the
authority to adjust the portfolio. However, the regulator would not be
authorized to shrink, cap or limit the size of the GSE portfolios based
simply upon a nebulous determination that the portfolios are too large
or that they might pose a risk to the overall system.
Again, I want to thank Representatives Randy Neugebauer, Dennis Moore
and Gary Miller for their support and hard work on this issue. I am
pleased the amendment has received such strong and broad-based support.
I am equally pleased to see that portrayed associations representing
the leaders have endorsed this amendment.
Mr. GARY G. MILLER of California. Mr. Chairman, I move to strike the
requisite word.
I rise in support of this amendment. The GSE regulator should have
authority to limit the size and growth of a GSE portfolio, but
specifically addressing safety and soundness are mission concerns with
respect to the institution. This was clearly the intent of the language
that was introduced within the bill, and this merely clarifies the
language in this amendment.
This is a clarifying amendment, not a weakening of the regulator, and
that needs to be clearly understood. The amendment mitigates concerns
that the regulator could establish an overly broad scope in viewing
possible risk to the portfolio.
The goal of this bill is to create a strong regulator. This bill
creates that. But such an overly broad view could lead to unnecessary
limits on the enterprise's portfolio activity to the detriment of the
housing financing system.
The amendment would simply add three words, those are ``to the
enterprise,'' to Factor 6 of section 115, so the language would read
``any potential risks posed to the enterprise by the nature of the
portfolio holding.''
Systemic risk can be considered by the regulator, it just must be in
the context of safety and soundness and the mission of a GSE. The
problems we are having in the housing market today are basically in the
subprime and the jumbo market. The reason is because about 18.1 percent
of those loans are fixed-rate, 30-year loans. If you look at the
conforming marketplace, 82 percent is a fixed-rate, 30-year loan.
The problem in the marketplace is not GSEs in the conforming. The
problem is in the subprime and jumbo. So you don't want a regulator to
look at the problem in the marketplace and say let's limit the
portfolio of a GSE, and restrict the only sector of the marketplace
that is not having a high amount of defaults and foreclosures, to the
detriment of the marketplace.
If you go back to the 1980s and the 1990s when this country was in a
major

[[Page H5426]]

housing recession, if you went to a lender, it was almost impossible to
get a loan if you did not comply with the conforming requirements. They
would not make you a loan to build a house. And if you wanted to buy a
house, it had to be based on the underwriting criteria of the
conforming marketplace. Thereby, the lender could take and sell that
loan off to the conforming market, which are the GSEs.
Lenders at that point in time were facing foreclosures and default
rates and having to set aside reserves to deal with it. They did not
have the assets to go make loans and hold those loans in their
portfolios, because they were limited based on the defaults they
currently had. But they would make loans that met the criteria of the
GSEs and the conforming marketplaces. Thereby you could go get loans.
This amendment takes no authority out of the regulator's hands to
address systemic risk related to safety and soundness or mission of the
enterprise. But that is what we need to understand. If the enterprises'
portfolio are properly regulated from the standpoint of safety and
soundness, the issue of systemic risk becomes moot. Therefore, a
broader scope of regulation of portfolios is overreaching and
unnecessary in addressing this safety and soundness.
The House previously rejected systemic risk in an amendment in the
2005 bill by a vote of 73 to 346. At that point in the bill, in the
109th Congress, we wanted to make sure that systemic risk only applied
within the GSEs, not something outside, and it was clearly defeated. We
did the right thing.
The amendment is consistent with the agreement and with the
statements by the Treasury and OFHEO and the portfolio provisions. The
language is not intended in any way to weaken the agreement with the
Treasury. Rather, it is an attempt to clarify the language in the bill
to better reflect that agreement.
As an original cosponsor of this bill, I believe this amendment is
consistent with our intention for the portfolio provisions. Treasury
Under Secretary Robert Steel confirmed this in his testimony to the
committee on March 15 in an exchange with Chairman Frank, when Chairman
Frank noticed that the current language ``could go beyond the safety
and soundness mission.''
Chairman Frank suggested to Secretary Steel that the language should
be improved to ensure that the provisions would not be used beyond the
scope, and Steel agreed at that point in time.
Similarly, OFHEO Director Lockhart testified, ``My reading of the
systemic risk is it's part of a regulator's job; it's part of safety
and soundness.''
Further, in a letter following the hearing, Lockhart wrote, ``We did
agree that systemic risk outside of safety and soundness should not be
a part of the regulator's approach.''
What they are saying in our bill is that this needs to be clarified.
This language does that. It is harmful to the housing markets to reduce
GSE portfolios when it is absolutely unnecessary.
We have to look at history and this GSE market has been very good.
This amendment has been supported by the National Association of
Realtors, the National Association of Homebuilders, the National
Association of Mortgage Brokers, the National Association of Federal
Credit Unions and the Independent Community Bankers of America.
This is a good amendment, and I request an ``aye'' vote.
Mr. MOORE of Kansas. Mr. Chairman, I move to strike the last word.
As a cosponsor of this amendment, I rise in support of the effort of
my colleagues from Illinois, Texas and California to amend and clarify
language in H.R. 1427. I have served on the Financial Services
Committee since I was elected to Congress in 1998, and in that time I
have learned about the regulation of financial institutions.
I strongly believe, Mr. Chairman, that the regulators of financial
institutions likes GSEs, should have its authority to assess the risk
of an enterprise and to protect the safety and soundness of those
entities.
H.R. 1427 grants the new regulators strong authority to promote
safety and soundness. Within the scope of that authority is the power
to require the GSEs to alter their portfolios in accordance with that
goal. I am not aware of any financial institution whose regulator has
the power to alter their business on the basis of potential risks it
poses to the broader financial markets.
Passage of this amendment would clarify the duties of the new
regulator to focus on risk to the enterprises, which is consistent with
the authority that other regulators to financial institutions currently
possess.
Mr. Chairman, GSEs fill a vital role in the housing market by
providing stability, liquidity and affordability. The new regulator has
the responsibility of ensuring the safety and soundness of GSEs, and in
doing so it will protect the viability of the GSEs.
In keeping with the purpose of H.R. 1427, the Bean-Neugebauer-Moore-
Miller amendment will ensure that there is certainty within the markets
so that Freddie Mac and Fannie Mae will be able to continue to serve
their charter, while being subject to new, robust regulation.
Mr. Chairman, I urge my colleagues to adopt this.

{time} 1845

Mr. BAKER. Mr. Chairman, I move to strike the last word.
Mr. Chairman, reluctantly, I must speak with concern about the
gentleman's underlying proposed amendment. There are more than
sufficient reasons for me to express these concerns in my opinion.
Going back briefly into the record of the difficulties of Fannie Mae
and Freddie Mac of their derivatives portfolio, I bring to the House's
attention this OFHEO special report issued in 2003 in which they
determined that senior management and the board were quite aware that
the skills and systems in corporate accounting were at the least
challenged, and that the derivatives group lacked sufficient knowledge
and training to administer the risk.
Nonetheless, they chose to move forward with an approach to FAS 133
hedging that was complicated requiring huge volume of monthly
accounting events as hedges were designated, and chose to structure
some very complicated securitization transactions without proper
guidance.
In looking at the annual shareholder report, under their derivatives
disclosure, they state: ``We principally used the following types of
derivatives: Euro Interbank offered rate interest rate swaps; LIBOR
based options including swaptions; LIBOR exchange traded futures and
foreign currency swaps.
If we go further and look to the counterparties with which the
enterprises now must engage hedging strategies, we find that Deutsche
Bank holds $38.952 billion of Freddie's; BNP Paribas, $28.156 billion;
Barclays, $22 billion; Dresdner Bank, $4 billion; and please excuse me
because my German is poor, Kreditanstalt fur Wiederaufbau holds $2.5
billion.
Now in understanding why we should have concern about the restraint
of a regulator's authority to analyze the portfolio, the underlying
safety and soundness conditions, and the elements of world economy that
surround their hedging strategies, one only has to remember for a short
moment the days surrounding LTCM when there was a Russian currency
liquidity crisis, and people who had no expectation across several
different currency transactions and swaps, were called upon to
liquidate their positions and make cash available and were unable to do
so.
It led the Federal Reserve to meet an emergency session in the New
York Fed office, and they were surprised to see who was sitting around
the table holding these positions, including many commercial banks of
whom they had no knowledge were participants.
Let me say it this way, if you don't care about any of that, of our
insured depository institutions in this country, almost 8,000, of the
tier one capital requirement, that is money you have to have by law in
your sock drawer. That says if it rains, you have money to mop up the
floor. Almost 50 percent of them meet their tier one capital
requirement by holding GSE securities. My goodness, if there were to be
the slightest of stumble, it goes to the core of our financial
depository institution's safety and soundness.
There are foreign central banks invested in Fannies and Freddies, and
if you don't care about that, at least think about your pensioners.
There are billions of dollars of Fannies and

[[Page H5427]]

Freddies spread across this economic fabric woven together in an
extrinsically complicated matter, and we are going to tell this
regulator you can only look through the keyhole, you can't look at the
room? It makes no sense.
Now I know I will probably lose on this position. The home builders
are a powerful enterprise. But for the record, I want to be loud and
clear, this is a mistake.
Mr. Chairman, I would be happy to yield to the gentleman from
Massachusetts.
Mr. FRANK of Massachusetts. The gentleman from Louisiana has
consistently been one of the most constructive Members in this regard.
Some of us were not as tuned in as we should have been earlier, and I
appreciate that.
I differ with him somewhat in emphasis here because I do think if
there were to be any of the threats that he very lucidly and cogently
outlines, they would have to involve a threat to the safety and
soundness of Freddie and Fannie. That is, I have a metaphor problem. I
don't see Freddie and Fannie as pulling down the temple without getting
a couple of rocks in their own head. But I do understand it is a matter
of concern.
Let me also add, I have some uneasiness because I have worked very
closely, and all of us here have been the beneficiary of the very
thoughtful approach of Secretary of the Treasury Paulson and Under
Secretary Steel. We have come to some agreements.
The Acting CHAIRMAN. The time of the gentleman from Louisiana has
expired.
Mr. FRANK of Massachusetts. Mr. Chairman, I move to strike the last
word.
As I was saying, Secretary Paulson and Under Secretary Steel made it
possible for us to come to agreement.
I would like to say to Mr. Baker, as he looks and as I look at who
has come there, and I think some statements were made that shouldn't
have been made that made people nervous. I want to give my friend from
Louisiana and others the assurance, Mr. Chairman, that assuming this
wins, and it looks likely to, I don't consider it to be the last word
on the subject. I think the concerns he has talked about are
legitimate.
We are going to have a bill from the other body, and we will get to a
conference. I want to promise that I plan to continue to work with the
gentleman from Louisiana, as well as the ranking members on the other
side, the Secretary of the Treasury. We win here and we are going
there. Maybe we have to move back a little bit. I understand where this
comes from.
I agree with him that I don't think there is a point now in trying to
fight it here, but I do want to acknowledge that I don't consider it a
solely settled issue, and I am hoping that we will find some way to
accommodate the very legitimate concerns that he has as we go further.
Mr. BAKER. Mr. Chairman, will the gentleman yield?
Mr. FRANK of Massachusetts. I yield to the gentleman from Louisiana.
Mr. BAKER. I certainly appreciate the chairman's comments and his
recognition that the posture of the bill, if this amendment is adopted,
may need further examination. I look forward to working with him on it.
On a broader matter, let me say as to the construction of the bill
generally, the chairman has done an extraordinary job of giving the
regulator the powers and tools that he needs, save in this one area. I
hope in moving forward, we can construct a box that makes appropriate
regulatory sense. The Treasury has expressed these concerns to me
tonight, and I am expressing those views on their behalf as well.
Mr. FRANK of Massachusetts. Let me say, I appreciate that. The
Treasury has chosen well in having you do it. I just want to give you
my commitment that we will continue to work on this issue.
Mr. HENSARLING. Mr. Chairman, I move to strike the last word.
Mr. Chairman, I wish to associate myself with the comments of the
gentleman from Louisiana. I, too, wish to raise my voice loud and clear
on the issue, but certainly in a far less articulate manner than the
gentleman from Louisiana who is well versed on this issue.
In my opinion, Mr. Chairman, the only thing worse than a regulated
monopoly is an unregulated monopoly. I don't necessarily trust private
companies. I trust competitive marketplaces, and wherever Fannie and
Freddie goes, I feel the competitive marketplace leaves.
Since I have been on the committee 4\1/2\ years now, we have heard
frequently from our past Federal Reserve chairman and our present
Federal Reserve chairman. Their voices could not be more clear on the
matter that they believe the GSEs pose a very significant systemic risk
to our economy.
Now in a competitive marketplace, you are punished for misleading
accounting. In a competitive marketplace, you are punished for bad
business decisions. In a competitive marketplace, you are certainly,
certainly punished for fraud. We no longer have an Enron. We no longer
have a WorldCom. We no longer have an Arthur Andersen. We no longer
have a New Century.
A competitive marketplace, before they could lead to systemic risk,
took care of those who may have engaged in faulty accounting, fraud, or
poor business decisions.
But that is not the case with Fannie and Freddie. And now where we
finally have empowered the regulator to do something, the first thing
we do is clip his wings. I just feel on this matter, I am going to
listen to Chairman Greenspan and I am going to listen to Chairman
Bernanke, and I don't totally know the impact of the language of the
people who offered the amendment, including my dear friend from Texas,
completely, I don't know if I completely understand its impact, but
what it seems to do, all of a sudden it seems to say well, the
regulator can make sure that Fannie and Freddie can't harm themselves,
but they can't make sure that they don't harm the rest of us. That is
my interpretation of this amendment.
So again, if we are going to sanction a government, if we are going
to create essentially a duopoly, and the last time I looked at the
records controlled 80 percent of the market in which they operate, and
as opposed to retrenching, they seem to prosper when they misstate
their earnings, when they have billions and billions of misstated
earnings, when they mislead the government and when they mislead their
investors, when they couldn't produce audited financials in years, and,
I believe, hold more debt than the publicly held debt of the Federal
Government, I think we ought to err on the side of strengthening the
regulator's ability to protect us by the systemic risk of what we, we
in Congress, have created in the first place.
So I, too, wanted to raise my voice loud and clear on this issue. I
certainly appreciate the chairman's willingness to work with the
gentleman from Louisiana and others of us on the committee who are very
concerned about the potential systemic risk posed by the activities of
Fannie and Freddie.
The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Texas (Mr. Neugebauer).
The amendment was agreed to.

Amendment En Bloc Offered by Mr. Frank of Massachusetts.

Mr. FRANK of Massachusetts. Mr. Chairman, as the designee of the
Members I am about to name, I ask unanimous consent that the following
amendments be considered en bloc: No. 2 from Ms. Eddie Bernice Johnson
of Texas with a modification which is at the desk; No. 3 from Mr.
Boozman; No. 6 from Mr. Terry; No. 7 from Mr. Donnelly; No. 11 from Mr.
Blunt; No. 20 from Mr. McCaul of Texas; and No. 31 from Mr. Baker.
I ask further that the debate on the amendment en bloc and any
amendment thereto be limited to 20 minutes, equally divided and
controlled by the majority and minority.
I am proud to report that I am the designee of all these people. I
have rarely been so popular.
The Acting CHAIRMAN. The Clerk will designate the amendments.
Amendment en bloc consisting of amendment Nos. 2, 3, 6, 7, 11, 20 and
31 offered by Mr. Frank of Massachusetts:

Amendment No. 2 Offered by Ms. Eddie Bernice Johnson of Texas