WASHINGTON - Senate subcommittee members showed little appetite at a hearing Tuesday for legislation that would toughen regulation of Fannie Mae and Freddie Mac.
The hearing before the Banking Committee's housing subcommittee was chaired by Sen. Wayne Allard of Colorado but attracted no other Republicans. A rotating cast of five Democrats drifted in and out of the meeting room throughout the morning, including the panel's ranking member, Sen. Jack Reed of Rhode Island, and Sen. Paul S. Sarbanes of Maryland, the ranking member of the full committee.
Democrats controlled the tone of the meeting, which was generally friendly toward both the GSEs and their regulator.
Sen. Debbie A. Stabenow, D-Mich., said she sees no need to "radically disrupt" oversight of the companies with a new law.
Sen. Sarbanes echoed her. "I don't think we need any new legislation in this area. What we need is more oversight."
Armando Falcon, the director of the Office of Federal Housing Enterprise Oversight, began by testifying to the safety and soundness of the two companies.
He reported that a risk-based capital standard for them, which Congress directed his agency to produce in 1992, had officially submitted in March to the Office of Management and Budget for clearance. He told the committee that he expects to see a final rule published this summer.
Members of the committee expressed frustration that the rule had taken so long to produce, but largely absolved Mr. Falcon, saying that he had "inherited" the problem from previous directors.
Sen. Allard gave Mr. Falcon the opportunity to respond to claims by other lawmakers - particularly Rep. Richard H. Baker, R-La., - that his agency is an ineffective regulator, and that authority over the GSEs should be transferred to the Federal Reserve Board. Rep. Baker, chairman of the House Financial Services capital markets subcommittee, introduced legislation to that effect April 4.
Mr. Falcon said he believes that OFHEO is already an effective regulator. It could be improved in several ways, he said, and the best would be to remove it from the appropriations process, so it could respond faster to changes in its funding needs.
On the hearing's second panel of witnesses were Franklin D. Raines and Leland C. Brendsel, the chairmen and chief executive officers of Fannie and Freddie, respectively.
Both praised their regulator.
"OFHEO put a great deal of its emphasis on its supervisory role by hiring very experienced examiners," Mr. Raines said. Fannie has 13 examiners assigned to it specifically, he said, and he noted that a comparable number are assigned to supervise Citigroup. "We think they do a very professional job," he said.
Both Mr. Raines and Mr. Brendsel said that they wish the risk-based capital rule had been produced earlier, but that they are confident the end product will be state-of-the-art.
Finally, several members of the committee challenged the GSEs to increase their commitment to improving access to credit in underserved populations. Sen. Sarbanes asked them to explore ways to channel more liquidity to "reputable" subprime lenders whose reputations, he said, are being tainted by a small number of predatory lenders.
Sen. Stabenow also urged the companies to press further into the subprime market, saying their credibility in the financial world could improve mortgage availability among the poor and minorities.
"In fact, failure to get involved in these markets could almost be seen as contrary to their mission," she said.