Senate reviews role of GSEs in mortgage marketmortgagepress.comGSEs, regulation, affordable housing
On Feb. 10, the Senate Committee on Banking, Housing and Urban
Affairs held a hearing on the role of government-sponsored
enterprises (GSEs) in the mortgage market. Testimony was provided
by the Honorable John C. Weicher, assistant secretary for
Housing-Federal Housing Administration commissioner of the U.S.
Department of Housing and Urban Development; a number of experts
from various universities; and the Consumer Federation of
Committee Chair Richard Shelby launched the hearing by exhorting
the strengthening of the regulation of GSEs. Ranking Member Paul
Sarbanes, however, emphasized that when examining the regulation of
GSEs, the "housing mission" of Fannie Mae and Freddie Mac must not
be undermined. Sen. Elizabeth Dole promoted her recent legislation,
S190, which addresses the issue of GSE regulation. She claimed that
Fannie and Freddie have fallen short of their mission of providing
more affordable housing and then echoed President Bush's State of
the Union address by extolling the values of the American
"ownership society." The rest of the committee focused on one of
two concepts: the "housing mission" of the GSEs with respect to
low- and moderate-income families, and the emphasis on ensuring the
"safety and soundness" of the GSEs.
John Weicher testified that HUD's most recent final rule
regarding affordable housing reflects the administration's belief
that the GSEs can and should do more to promote access to mortgage
credit for those traditionally underserved by the mortgage markets.
HUD contends that this belief is fully consistent with Congress'
historical support for affordable housing and homeownership
opportunities, as well as HUD's long-standing commitment to
furthering these objectives. HUD's final rule implemented three
main changes to the housing goals:
•Goal levels are significantly higher than HUD's goals for
•The final goal levels rise in nearly equal stages from year
to year. This staging will allow the GSEs time to adjust their
business models to meet the required levels; and
•The final rule establishes home purchase sub-goals under
each housing goal.
Currently, GSEs lag behind the market in responding to
affordable housing needs, which directly conflicts with their
mission. By 2008, the new affordable housing goals will require
that the GSEs at least "meet the market," meaning that the GSEs'
purchases of mortgages in each goal category will be proportional
to the share of all mortgages in the conventional conforming market
that fall within that category. Mr. Weicher also expressed that the
new goals and sub-goals will particularly benefit first-time
homebuyers as well as fill in the "gaps in homeownership" that
exist in minority and low-income populations.
Other experts testified regarding the importance of the public
mission of the GSEs, how they promote affordable housing, and that
the benefits of GSEs outweigh the costs. The experts all agreed
that some reforms of the GSEs are necessary, but insisted that the
benefit the GSEs and secondary markets provide the American
consumer is a major contributory factor to the strength of
America's economy today and to the long-run stability of America's
economy going forward.