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ICBA Statement on GSE Regulatory Structure

Washington, D.C. (Sept. 24, 2003) - The housing sector has been the key pillar of strength in our economy. Our system of housing finance is unique in the world and is the foundation of robust homeownership levels that are the envy of the world. Fannie Mae and Freddie Mac's secondary market activities are an integral part of that foundation. Community banks are in the business of making housing loans. Many of these loans are sold into the secondary market through Fannie Mae and Freddie Mac, providing community banks greater liquidity that enables additional lending.

Who regulates Fannie Mae and Freddie Mac is an enormously significant public policy question with ramifications for a key sector of our economy and for the tens of millions of Americans who own a home or aspire to do so.

Regulatory shortfalls in supervising Freddie Mac have led to administration proposals to strip Fannie Mae and Freddie Mac mission and program oversight from the Department of Housing and Urban Development and transfer them to the Department of the Treasury. Additionally, as we understand the Treasury proposal, final budget and spending authority, and clearance of regulations and congressional testimony would rest with politically appointed officials at the Treasury rather than with the new supervisory authority that would be established in the Treasury.

The Independent Community Bankers of America opposes the establishment of a politically controlled regulator at the Treasury. The ICBA is also greatly concerned about the removal of HUD's mission and program regulatory authority over Fannie Mae and Freddie Mac. The National Association of Home Builders has said it well: "Without a strong housing market the nation's economy would be foundering. If capital flows away from housing, it might help Wall Street but it would kill Main Street. We are not sure that Congress realizes just how dangerous this plan is."

The ICBA would support moving the safety and soundness regulation of Fannie Mae and Freddie Mac to an independent regulatory agency in the Treasury modeled after the Office of the Comptroller of the Currency. The ICBA has always supported independent, top-notch regulatory agencies like the Federal Reserve, the Federal Deposit Insurance Corporation and the OCC. Their strength and the strength of the American financial system rest on the fact that these regulators have effective firewalls insulating them from political interference. Because the regulatory oversight model adopted for Fannie Mae and Freddie Mac could be precedent setting, it makes it even more critical that this regulatory restructuring be done right.

In ICBA's view it would be highly premature and unwise to change the Federal Housing Finance Board's responsibilities for regulation of the mission and safety and soundness of the Federal Home Loan Bank System in legislation changing the regulator of Fannie Mae and Freddie Mac. The Federal Home Loan Banks should continue to be regulated separately from Fannie Mae and Freddie Mac by an independent agency whose board does not include a Treasury official.

As the Congress considers how best to ensure high quality regulatory oversight of Fannie Mae and Freddie Mac, it is important not to throw the baby out with the bath water and jeopardize the successful housing sector so critical to the growth and health of our economy. Doing so would undermine housing and the American Dream of homeownership for millions of Americans. Giving Treasury the broad authorities it has requested could be an irrevocable step down this road.

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