Statement of Administration Policy: S. 2733 - Federal Housing Enterprises Regulatory Reform Act of 1992

(Senate)
(Riegle (D) Michigan)

The Administration has consistently supported legislation to ensure the financial safety and soundness of Government-sponsored Enterprises (GSEs). Many provisions of S. 2733 are consistent with this goal. However, some provisions limit unacceptably the President's authority to oversee the regulatory framework that the bill would establish. The Managers' amendment includes provisions that would remove or modify acceptably some of these provisions. (The Administration's concerns with these provisions are addressed in the Justice Department's April 7th letter to the Banking Committee. The Department indicated that the Attorney General would recommend a veto of S. 2733 if it were presented to the President in its current form.) If these Managers' amendment provisions are adopted, the Administration will support Senate passage of S. 2733, and seek to resolve its remaining objections to the bill in conference.

The Administration continues to oppose provisions of S. 2733 that make it inconsistent with the following three principles: (1) establishing a strong capital standard that includes appropriate risk-based measures; (2) authorizing the Director of the Office of Federal Housing Enterprise Oversight (OFHEO) to take prompt and effective enforcement actions to ensure both safe operation of the enterprises and compliance with statutory housing requirements; and (3) ensuring that the current general regulatory authority of the Secretary of Housing and Urban Development (HUD) over the housing GSEs is not eroded. The Administration will continue to work with Congress to improve the bill consistent with these principles as described below.

Capital Standards

• Strengthen the capital standards bv including all off-balance sheet commitments in the minimum and critical capital ratios. The GSEs' own financial statements recognize that commitments are clearly a risk. They are Included in the stress test established by the bill. They should be included in the leverage ratios, particularly in light of the delay in considering new business in the stress test.
  
  
• Allow the OFHEO Director the flexibility to choose appropriate business assumptions when implementing the risk-based stress test. In particular, the Director should be permitted to assume that the GSEs' behavior will be consistent with the requirement in their charters that they provide stability and ongoing assistance to the secondary market.

Enforcement Authority

• Strengthen the ability of the Director to ensure that the GSEs comply with their housing goals. The Director should have broader cease-and-desist and civil penalty authority. This will provide a stronger incentive for GSEs to submit acceptable affordable housing plans.
  
  
• Remove provisions requiring excessive process before the Director can act to enforce housing requirements. In its current form, S. 2733 would allow a GSE three or more hearings after failing to meet a housing goal.
  
  
• Eliminate excessive requirements for administrative hearings and provide a more flexible standard for institution of cease-and-desist proceedings. For example, a GSE should not be entitled to hearings both for a capital reclassification and for supervisory actions taken as a result of the reclassification. The standards of judicial review should be limited to determining whether the Director's decisions were "arbitrary or capricious."

HUD's General Regulatory Authority

• Restore HUD's general regulatory authority to ensure that the purposes of the GSEs' charter acts are carried out. Without general regulatory authority, S. 2733 does not provide sufficient regulatory flexibility to react to unforeseen conditions. It also undermines HDD's authority to approve underwriting guidelines for compliance with anti-discrimination and equal employment requirements. As written, it could result in challenges to HUD's authority to obtain information required for general oversight of GSE activities.
  
  
• Strengthen the standard of review for new programs. In S. 2733 a new program request can generally be denied during the transition period only If the OFHEO Director finds that "the program would risk significant deterioration of the financial condition of the enterprise." The Director should be able to turn down a risk-filled new program without finding that it threatens to bankrupt the enterprise. The Secretary must not be required to approve a program simply because it would provide for an increase in housing finance by the GSEs without regard for other public concerns, including private capital markets. The GSEs should not be authorized to provide advances secured by mortgages in competition with the Federal Home Loan Banks.

Affordable Housing and Other Issues

• Allow the Director the flexibility to lower the rent standard for family income. The 30 percent standard contained in the bill would result in 97 percent of all rental units qualifying as low- or moderate-income housing.
  
  
• Allow family-size adjustments for owner-occupied properties. This will allow the needs of families with children to be addressed.
  
  
• Change the effective date of the bill to the date of enactment, not when the Director of OFHEO is appointed. The bill requires activities, including the development of regulations, as soon as it is enacted. It does not, however, permit the regulator to charge the GSEs the cost of regulation until after the OFHEO Director is appointed.
  
  
• Remove the provisions of the bill exempting the OFHEO from the civil service pay scale. Because the OFHEO would be a division of HUD, its employees should be included in the civil service compensation structure.

Pay-As-You-Go Scoring

The Omnibus Budget Reconciliation Act (OBRA) requires that all revenue and direct spending legislation meet a pay-as-you-go requirement. That is, no such bill should result in an increase in the deficit; and if it does, it will trigger a sequester lf it is not fully offset. The Office of Management and Budget estimates that this bill will have a net zero PAYGO effect. Thus, considered alone, this bill meets the PAYGO requirement of OBRA.