GSEs: New regulators for old?
With new, more powerful ’safety and soundness’ GSE regulation widely expected to be enacted in 2005, what form will it take? Clues come from two recent developments:
- Legislation introduced, possibly as a placeholder, by three prominent Banking Committee senators.
- The chairman’s legislative priorities and timetable.
To wit:
1. Legislation introduced. Last week, Senators Chuck Hagel (R-NE), John Sununu (R-NH), and Elizabeth Dole (R-NC), introduced S. 190, the Federal Housing Enterprise Regulatory Reform Act of 2005. As Senator Hagel’s press release puts it:
The legislation would:
• Create an independent world class regulator to oversee the safety and soundness of the housing enterprises;
• Give the new regulator the authority to close down a failing GSE and protect against a taxpayer bailout;
• Give the new regulator greater discretion in raising capital standards to protect against insolvency;
• Give the new regulator approval power over new programs and activities proposed by a GSE;
• Require the annual audits of Fannie Mae’s and Freddie Mac’s affordable housing programs to ensure that these programs support the enterprises’ affordable housing mission;
• End presidential appointments to the board of directors of Fannie Mae and Freddie Mac, and require all Federal Home Loan Bank directors to be elected.
All three introducing senators are part of the Banking Committee majority, whose number now includes newly elected Florida Senator Mel Martinez, who as a former HUD Secretary (and hence OFHEO’s ultimate boss), can be expected to have a particular interest in the proceedings.
2. Chairman’s perspective. GSE regulation is number one on the committee’s announced legislation priorities, even ahead of terrorism risk insurance. And at a press conference, FM Policy Focus quotes Chairman Richard Shelby (R-AL) as saying that:
A new regulator for the GSEs must include three essential components:
1. Power to set minimum capital requirements
2. Ability to place a GSE into receivership
3. Oversight authority of GSE programs
All three such powers figure prominently in the legislation just introduced.
Chairman Shelby indicated that his preferred strategy will be to build on last year’s legislation to replace the Office of Federal Housing Enterprise Oversight with a new, independent regulator.
The Chairman announced plans to hold hearings on GSE regulatory reform in February, though he announced no further timetable for legislative action.
Though the Senate is much more collegial and bipartisan than the House, the majority will lead the Senate, and the Chair will lead the majority. Congressional hearings — at which I’ve had the honor and great pleasure of testifying a half-dozen times — are a wonderful form of reality television (often shove live on C-SPAN!), both unscripted and structured as the senators themselves wish. Who is called to testify, and what those witnesses say, may go a long way to revealing where Chairman Shelby and the committee intend to go.
