H.R. 3703—THE HOUSING FINANCE REGULATORY IMPROVEMENT ACT—PART 2
THURSDAY, JUNE 15, 2000
U.S. House of Representatives
Subcommittee on Capital Markets, Securities, and Government Sponsored Enterprises
Committee on Banking and Financial Services
Washington, DC.
Just for local color, an exchange between Oregon Rep. Darlene Hooley and Ralph Nader, who was advocating for “a more rational and stronger regulatory system” for the GSE (Government Sponsored Enterprise) entities Sallie Mae and Freddie Mac, and warning that they had become corporations “where much of the risk remains with the Government and the taxpayers while the profits flow to private shareholders.”
Ms. HOOLEY. Thank you, Mr. Chair. I have a question for several of the members of the panel.
Thank you very much for being here. This has been very helpful.
Mr. Nader, what do you think is the most egregious benefit that the GSEs receive?
How does that negatively affect the consumer and home buyer?
And what would be the benefit of eliminating whatever benefit you think is the most egregious?
Mr. NADER. Well I mentioned them in the testimony. I do not want to take the time up just to repeat them. But there are two ways to look at the benefits.
One is, what is the quid pro quo? If the Government is going to in indirect and direct ways subsidize these corporations, what are we getting in return? What is the taxpayer getting in return?
And the second is whether these subsidies can be reduced or eliminated and still, given the fact that Fannie Mae and Freddie Mac have a lot of public subsidy built into their net worth over the years, still hold them to fulfilling certain housing goals, as the witnesses have described. That is the way I would frame it.
I think now they are so rich and so powerful that they can be held to these housing goals without basically having an implied bailout potential.
There is a fellow named Stanton who wrote a book about fifteen years ago on the really risk levels of Fannie Mae and Freddie Mac, and do we want to go through that route again?
I mean, do they operate in a way where they say “Uncle Sam will bail us out? We can have low ratios in terms of our capital,” and so forth.
You know, that is what you have to ask yourself. I mean, are you ready for it if something happens? And if that is going to be the case, then you have got to hold them to a much higher standard than private corporations are held.
Ms. HOOLEY. But the question is, how will the consumers benefit if you eliminate those benefits? I mean, that is what I am interested in is how are we going to benefit the consumers?
Mr. NADER. Apart from the taxpayers, you mean? How are you going to benefit the consumers?
Ms. HOOLEY. How are we going to benefit the consumers?
Mr. NADER. Well if you withhold the subsidy, you benefit the taxpayers. The consumers relate to the housing goals of HUD and how that relates to Fannie Mae. Those are two different subjects.