The House approved legislation last year to beef up oversight of the GSEs after the current regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), proved powerless to prevent massive accounting scandals at the GSEs in recent years. However, GSE reform has stalled in the Senate, despite the administration’s strong backing of the House-passed bill.
At Thursday’s hearing, Dodd pleaded with lawmakers to move beyond the ideological debate over the existence of the GSEs. “We need to get down to the hard work of crafting a balanced bill that will create the kind of regulator we all agree is needed.”
Yet he appeared far apart from Shelby and other panel Republicans on reforming Fannie and Freddie. He said the GSEs were “riding to the rescue” in the current housing crisis and argued they ought to do even more to help troubled borrowers.
Meanwhile, Shelby seemed loath to expand their role. He blasted the loan limit increase as reckless in his testimony, saying it represents a 75 percent rise “despite the fact that this committee has not held one hearing, has built no record and has no clear picture as to the status of the jumbo market and whether it really needs this kind of help at this time.”
He asserted that by lifting the loan limits, Congress and the administration would be lending a hand to the rich while putting taxpayers at risk.
“Just so we are clear, an individual would need a yearly income in excess of $150,000 to even qualify for a $700,000 home loan,” Shelby read from prepared remarks. “Once again, instead of thinking of ways to protect the American taxpayers, we are actually considering ways to further expose them for the benefit of those making healthy six-figure salaries.”
OFHEO Director James B. Lockhart III, who has been pressing Congress for GSE reform, warned that the GSEs had lower capital than other financial institutions, despite the capital surcharges imposed on them after their accounting misadventures.
Their mortgage purchases as a share of total new originations have more than doubled from 2006 to the end of 2007, he said, adding that this activity has begun to take a toll: Both companies are expected to report annual losses for 2007.
Meanwhile, one of the GSEs’ biggest champions, Sen. Charles Schumer (D-N.Y.), criticized them for not doing more to help rescue sub-prime borrowers, pointing out the favorable borrowing costs they enjoy due to their quasi-government status.
“This is not acceptable,” he said.
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