ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release April 19, 2005 #05-16
E-mail: [email protected]

ACB STRONGLY SUPPORTS IMPROVED REGULATORY SYSTEM FOR GSES

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WASHINGTON, D.C. — America’s Community Bankers said today that it strongly supports congressional efforts to improve the regulatory system for the housing government sponsored enterprises — Fannie Mae, Freddie Mac and the Federal Home Loan Bank System.

In testimony before the Senate Banking Committee, ACB Chairman Harry P. Doherty commended committee members on their current as well as past efforts on GSE reform, and said: “ACB is particularly gratified that the legislation the committee is considering” meets ACB’s broad criteria for legislation. Doherty is also vice chairman of the board of Independence Community Bank Corp., Brooklyn, N.Y.

ACB supports a regulatory structure that is independent of the political process; has budget authority outside of the congressional appropriations process; has supervisory and enforcement powers equivalent to those of the federal banking regulators, including the ability to set minimum and risk-based capital levels; and recognizes the unique differences between Fannie and Freddie and the FHLBanks. Doherty identified several issues, many of which are new to the debate this year, for discussion:

Federal Home Loan Bank System. He refuted testimony given at a hearing of the committee last week that FHLBank advances exist to fund jumbo loans. “System members have the best record of any lenders in providing loans to undeserved areas,” Doherty said. “Maintaining this record depends on access to services such as advances and the affordable housing subsidies provided by the FHLBanks.”

The average ACB member that uses the system has advances totaling 21 percent of liabilities, according to an ACB study. “Without the system, members of all sizes would have to drastically curtail lending,” Doherty added.

Doherty urged the committee to focus the legislation’s FHLBank provisions on safety and soundness and preserving the system’s unique cooperative structure, not on changing the activities of the FHLBanks. “In particular,” he said, “ACB does not support legislation encouraging the FHLBanks to securitize loans at this time.”

Growth Limits and Portfolio Caps. Doherty said he recognized that it may be necessary for the regulator to consider growth limits and caps for safety and soundness purposes, particularly related to mortgage backed securities portfolios. Because growth limits and caps are harsh regulatory tools, he said, the first objective should be to find alternative solutions. Doherty recommended giving the regulator a range of possible regulatory responses to safety and soundness concerns; to graduate regulatory responses and to use caps only when other methods fail.

Bright-Line Requirements. Doherty said ACB supports, with modification, language in S. 190 that would require the regulator to more clearly delineate the boundary between the primary and the secondary market. “We believe it is essential to modify the so-called bright-line section to avoid unintended consequences” that would force Fannie and Freddie to divest their automated underwriting systems and document and custodial functions.

Guarantee Fees. Doherty recommended including language to increase the transparency of guarantee fees. He said ACB does not support equalization or fixing of fees at specific levels.

Program and Product Approval. “ACB strongly supports regulatory authority to review and approve programs and products offered by the enterprises,” Doherty said. “The regulator should be directed to formulate an approval process that strikes a suitable balance that limits the enterprises to appropriate secondary market functions without hindering legitimate market innovation.”

Testimony

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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