A bill is making progress in Congress that would move the agency that oversees Fannie Mae and Freddie Mac from the Department of Housing and Urban Development to the Treasury Department. Both HUD and the agency - the Office of Federal Housing Enterprise Oversight (OFHEO) - are opposed to the shift.

Aida Alvarez, who heads the office, explained her position recently at the Eastern Secondary Mortgage Market Conference in Raleigh, N.C. Excerpts appear below.

Let me summarize the difficulties I see with the proposal.

It represents loss of regulatory independence for OFHEO. Independence is the hallmark of the government's system of financial oversight. All of the government's financial overseers - the Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision - operate with a large measure of independence. OFHEO was created as a peer of these agencies.

Regulatory authority could be compromised. Under the provision, the "powers and rights" of OFHEO would be transferred to the Treasury secretary, but not OFHEO's duties and responsibilities. Instead of the regulatory requirements currently imposed by Congress, regulation and supervision of Fannie Mae and Freddie Mac would be an optional federal government function. Dissolving this structure of mandatory oversight, in my view, significantly increases the risk of future regulatory failure.

There are no budget savings. OFHEO's operating cost to the government is zero now, and would remain so under the proposed change.

The traditional legislative process is being sidetracked. OFHEO's legislation was the product of lengthy study by Congress and other parties. There were public hearings and debate. Today, a proposed change in an important regulatory relationship is being offered as part of an appropriations bill with no hearings and little to no opportunity for public comment.

Finally, OFHEO's present format is working well. The office is up and running, staffed with a small team of talented employees. No one on the public record has suggested that OFHEO, in its present structure, is faltering. On the contrary, it has been suggested by many that OFHEO is doing exactly what Congress intended, and doing it well.

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