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The top regulator of the Federal Housing Finance Agency said he won't rush the 12-bank cooperative to correct their balance sheets, but does expect some alteration soon.
May 18 -
Have the Federal Home Loan banks drifted too far from their original purpose? That's the fear among top officials at the Federal Housing Finance Agency, who have watched with alarm as the level of the banks' investments has surged, sometimes surpassing the level of their advances.
May 17 -
The regulator of Fannie Mae and Freddie Mac warned Thursday that congressional proposals to clamp down on the two GSEs could put taxpayers at greater risk.
March 31
WASHINGTON — After his
Edward DeMarco, acting director of the Federal Housing Finance Agency, returned to the House Financial Services' capital markets subcommittee to weigh in on seven House GOP proposals unveiled last week, including measures to restrict legal fees paid on behalf of GSE employees and subject the mortgage giants to the Freedom of Information Act.
DeMarco, who in March testimony took issue with an earlier round of bills, said Wednesday that some of the most recent proposed reforms were already being undertaken by his agency while others would have "unintended consequences."
For example, he said the bill limiting legal fees could expose GSE personnel to financial ruin. That proposal, by Rep. Randy Neugebauer, R-Texas, would allow taxpayer-funded legal fees for employees only if they met a certain threshold for being reasonable.
"An approach to clarify tests for reasonableness and for monitoring legal expenses has merit, but the implication that employees will not be indemnified nor have funds advanced for their legal protection would expose them to lawsuits that could potentially bankrupt them, even if they are found innocent of any charges," DeMarco said in prepared testimony.
Neugebauer argued the GSEs' policies for financing legal defenses are too open.
"While Fannie and Freddie's bylaws allow for the advancement of 'reasonable' legal fees, there are no criteria for what constitutes reasonable," he said at the hearing.
But DeMarco had other concerns. He said the proposal by Rep. Jason Chaffetz, R-Utah, to require compliance with FOIA requests could impede FHFA efforts to minimize taxpayer losses from the conservatorships.
"They will incur significant operational and compliance costs in establishing and administering a function to respond to such information requests," DeMarco said. "FOIA requests made to the enterprises would also lead directly to added legal administrative burdens on FHFA, as conservator."
With the seven Republican proposals, the lawmakers in the GOP-led House have now unveiled at least 15 bills to clamp down on the GSEs. But none have reached a full vote, and their chances in the Senate would be slim.
Rep. Scott Garrett, R-N.J., cited estimates that the federal government, through its control of the GSEs, underwrites 97% of the housing market. "Everyone on both sides of the aisle agrees that this number is completely unsustainable and must be reduced," said Garrett, who chairs the subcommittee.
But Rep. Maxine Waters, D-Calif., the ranking minority member, objected to there being so many "piecemeal bills" without consideration of broader reform.
"Instead, the subcommittee continues to offer bills that barely pick around the edges of reform, and appear to be going nowhere in the full committee," Waters said.
In his testimony DeMarco urged lawmakers to leave the agency with "sufficient flexibility" in handling GSE assets. One bill, from Rep. Robert Hurt, R-Va., would force officials to identify and dispose of noncritical assets. While DeMarco appeared willing to work with House staff to refine the draft, he urged the lawmakers not to steal "regulatory discretion" from the FHFA, which has already taken steps to address some of the issues targeted by the bill. "Discretion is particularly important when disposing of assets," he said.
DeMarco suggested some of the bills are redundant. For example, Rep. Edward Royce, R-Calif., has proposed prohibiting Fannie and Freddie from depositing money into accounts such as the Housing Trust Fund. But DeMarco said such a ban was already in practice. "It would be inappropriate for the enterprises to start making contributions to the funds now or at any time while they are in conservatorship and in debt to the taxpayer," he said.
DeMarco deferred to Congress on other issues, such as the future structure of the GSEs in the event they are wound down. Among the bills is a proposal by Rep. Steve Stivers, R-Ohio, to ensure a new housing finance model is not identical to Fannie and Freddie.
"We leave it to Congress to decide what should replace them and what level of government support to provide for the market," DeMarco said.
