Statement of Administration Policy: H.R. 2900 - Government-Sponsored Housing Enterprises Financial Safety and Soundness Act of 1991

SENT to House on 9/25/91
(House Rules)
(Gonzalez (D) Texas and 2 others)

The Administration supports the capital provisions (Title II and certain sections of Title 1) of H.R. 2900. These provisions put in place for the first time a comprehensive approach to help ensure the financial safety and soundness of the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). H.R. 2900 would implement major principles proposed in the Administration's legislation earlier this year by establishing: (1) a separate, arms-length Office of Secondary Market Examination and Oversight within the Department of Housing and Urban Development (HUD); (2) a three-part capital standard (including risk-based); and (3) authority for the Director of the new Office to take enforcement actions when capital is at unacceptable levels.

H.R. 2900 is not consistent with a major principle proposed by the Administration: that the HUD Secretary's current general regulatory authority must not be eroded. Because of the serious consequences of potential insolvency of the government sponsored enterprises (GSEs), the Administration, through HUD, must retain programmatic authority over the GSEs. Accordingly, the Administration will support enactment of H.R. 2900 only if it is ultimately amended to address the following concerns by:

Restoring Current Program Authority

• Reaffirming the Secretary's current authority to approve new programs, including the right to set terms, criteria, and conditions as part of approval.
  
  
• Clarifying that the Secretary's authority to require that certain portions of mortgage activity be secured by properties in central cities is not modified.
  
  
• Restoring the Secretary's authority to examine the books and records of the GSEs.
  
  
• Deleting sections 121(a) and 122(a)(1), which limit the Secretary's new program approval authority by allowing FNMA and FHLMC to purchase mortgages on nursing homes and congregate care facilities. The Secretary's approval is especially necessary in light of the Federal Housing Administration's (FHA) experience of very high foreclosures and losses on such properties.
  
  
• Restoring the Secretary's authority to establish low- and moderate-income housing objectives. H.R. 2900 appears to undercut HUD's current and proposed regulatory requirements that FNMA and FHLMC devote 30 percent of their mortgage purchases ($35 billion in 1990) to low- and moderate-income housing by establishing a lower goal for low-income housing and making it contingent on the availability of other Federal subsidies.

Other Issues

• Deleting section 201(d), which exempts from the bill's risk-based capital requirement assets related to low- and moderate-income housing. There is no compelling reason to exclude such assets from that capital requirement.
  
  
• Expanding the Director's authority to restrict dividend payouts to other forms of capital disbursements, including share repurchases.
  
  
• Allowing HUD to collect fees to cover all of the costs of regulation and supervision of FNMA and FHLMC, as proposed in the President's 1992 Budget. Other financial regulators have comparable authority.
  
  
• Requiring FNMA and FHLMC to act if they have evidence of discrimination by lenders or appraisers, rather than waiting for their regulator to inform them officially of such discrimination. The GSEs should also be required to ensure that their underwriting and appraisal criteria do not lead to discrimination.
  
  
• Deleting the exclusion of employees of the new Office of Secondary Market Examination and Oversight from the normal Federal employment provisions in title 5, United States Code. The Federal Employees Pay Comparability Act of 1990 provides sufficient pay flexibilities to ensure that the Office would be able to recruit and retain the caliber of employees it needs within the regular personnel system.
  
  
• Amending section 123 so that the positions of Director and Deputy Director of the new Office are placed at Level III and IV, respectively, instead of Levels II and III of the Executive Schedule. This would be consistent with the Executive Schedule levels of the heads of other financial institution regulatory agencies.
  
  
• Adding the Secretary of HUD, along with the Director, as a financial institutions regulator for Freedom of Information Act exemption purposes for the same examinations and records. It would otherwise be difficult for the Secretary to obtain information from the GSEs and to protect the information from disclosure.
  
  
• Amending section 201(f) to clarify that FNMA and FHLMC must provide to any individual the data necessary to run the risk-based capital test model. This would allow an individual other than the director to apply the test in the same manner as the Director.

Scoring for the Purposes of Pay-As-You-Go

OMB'S preliminary scoring estimates of this bill are presented below. Final scoring of this legislation may deviate from these estimates. If H.R. 2900 were enacted, final OMB scoring estimates would be published within five days of enactment, as required by the Omnibus Budget Reconciliation Act of 1990 (OBRA). The cumulative effect of all enacted legislation on direct spending and receipts will be issued in monthly reports transmitted to the Congress.

ESTIMATES FOR PAY-AS-YOU-GO
(receipts in millions)