In remarks delivered today to the Senate Banking, Housing and Urban Affairs Committee, Office of Federal Housing Enterprice Oversight director James Lockhart said that the need for GSE reform was "critical" as Congress considers raising the conforming limit as part of a pending economic stimulus package. "Given the tremendous stresses on the mortgage markets, the American people cannot afford to have Fannie Mae, Freddie Mac, or the 12 FHLBanks incapable of serving their mission," Lockhart said.
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Lockhart's not kidding -- I'd suspect even many mortgage market participants would be surprised to see just how big the GSEs really are; the graph to the right shows GSE debt relative to the entire public debt of the United States. Lockhart pressed Senate committee members to couple any increase in the conforming loan limit with "quick enactment of comprehensive GSE reform," citing many of the challenges that have been reported on by HW in the past, including the new capital needed to successfully operate in jumbo lending. "Underwriting them [jumbos] successfully will require new models and systems to ensure safe and sound implementation," Lockhart said. The OFHEO director outlined a key reform measure, suggesting that a new regulator for the housing GSEs be established. "We need a stronger, single and unified regulator for the housing GSEs," Lockhart said. "That regulator needs to have all the powers of the bank regulators and more given the Enterprises size, systemic importance, and GSE status." "We have this strange budget mixture where we are funded by Freddie Mac and Fannie Mae, but yet we are appropriated by Congress as if we were funded by taxpayers," he said. "In only two of our fifteen years has OFHEO known how much money we had to spend when the year started. Uncertain funding levels and the resulting under-staffing is not the way to run a regulator." Lockhart's full testimony is available here.