Treasury Secretary John W. Snow asked Congress yesterday for stronger government oversight of mortgage giants Fannie Mae and Freddie Mac, saying “we cannot be complacent” about the housing finance market.
Mr. Snow put forward an administration proposal that would shift financial regulation of the two government-sponsored companies to the Treasury Department from the Department of Housing and Urban Development. The plan would widen the government’s authority over the two biggest players in the multitrillion-dollar home mortgage market.
“Housing finance is so important to our national economy that we need a strong, world-class regulatory agency to oversee the prudential operations” of Fannie Mae and Freddie Mac, he told the House Financial Services Committee.
Accounting turmoil at Freddie Mac has brought the departure of two chief executives since early June.
Mr. Snow did not specifically mention the McLean company’s accounting and management troubles. He did express regret that the company has not fulfilled its pledge to comply with federal financial-disclosure rules that apply to nearly all other publicly traded corporations.
He said the government must pay close attention “to the resilience of our system of housing finance.”
“That system is the envy of the world, but we cannot be complacent,” he told the lawmakers.
Mr. Snow also floated the idea of abolishing presidential appointments for some directorships on the two companies’ boards.
Congress created the companies and has been loath to upset the housing market. But lawmakers now may be receptive to such a plan.
Committee Chairman Rep. Michael G. Oxley, Ohio Republican, told reporters before the hearing that he sees a “better-than-even chance” of legislative success for the plan.
“I think you would have a very credible regulator at Treasury that would have a solid impact on the market, on interest rates,” he said.
But Rep. Barney Frank of Massachusetts, the panel’s senior Democrat, said, “I do not believe we are facing any kind of a crisis.”
In what was described as a compromise, the administration proposal would leave HUD with authority over Fannie Mae and Freddie Mac’s mission to expand homeownership, especially among lower-income people, while moving financial regulation to Treasury.
HUD Secretary Mel Martinez, appearing with Mr. Snow, said, “HUD is the appropriate agency to develop and enforce the housing goals.”
Mr. Frank expressed skepticism, saying it could be difficult for HUD to make the two companies meet the goals if regulatory power only resided in Treasury.
“What’s HUD going to do, yell at them?” he asked Mr. Martinez.
The HUD agency that oversees Fannie Mae and Freddie Mac has been criticized by some lawmakers as weak and ineffective and too slow to investigate Freddie Mac.
Its director Armando Falcon, a Clinton appointee who is leaving the post soon, said in a statement yesterday that if his agency is shifted to Treasury, “We must ensure that it remains an independent regulator.”
Freddie Mac, in a statement, said the administration’s plan appears “on initial review to be a responsible proposal … toward our shared goal of maintaining and enhancing strong, credible regulatory oversight.”