May 20, 2005

The Honorable Michael Oxley
Chairman
Committee on Financial Services
United States House of Representatives
2129 Rayburn House Office Building
Washington, D.C. 20515

The Honorable Barney Frank
Ranking Member
Committee on Financial Services
United States House of Representatives
B-310C Rayburn House Office Building
Washington, D.C. 20515

Dear Chairman Oxley and Ranking Member Frank:

As the Committee continues its deliberations regarding GSE regulatory reform, our organizations, which represent a full spectrum of industry, housing and consumer groups, would like to present our views regarding GSE program approval issues.

The undersigned groups agree with Chairman Oxley and Chairman Baker that the GSEs should establish a consultative relationship with their regulator that enables the regulator to make timely and accurate assessments regarding the introduction of new GSE programs. We believe the regulator should have appropriate authority to ensure that the GSEs’ activities meet charter requirements and safety and soundness standards. However, we also have serious concerns about imposing program and product approval processes that diminish marketplace innovation, hamper consumer initiatives, or reduce competitiveness. Finding the right balance between these competing policy objectives is a critical decision facing the committee as it considers GSE legislation.

In an effort to provide a constructive contribution to the Committee, our group has drafted the attached amendment to HR 1461. Utilizing the basic structure of the approval process in HR 1461, we have attempted to strengthen the bill with minimal technical changes and revisions to the bill as introduced. These changes accomplish several things:

1. Endorses dual structure of a notice and comment, prior approval process for major “new programs,” and a more streamlined notice-based process for new business activities of HR 1461.

2. Narrowly defines "new mortgage product" and ensures that new mortgage products are subject to the streamlined new activity review, and not the more cumbersome new program approval process. The proposed amendment protects mortgage originators’ access the GSEs automated underwriting. The proposed amendment preserves “first mover” benefits for private lenders to engage in product development with the GSEs, and ensures that these and other product-related initiatives can be carried out in an expedited manner that is responsive to market conditions and consumer needs.

3. Permits the Director, at his or her discretion, to approve some new programs that are pilot programs on an expedited basis.

4. Clarifies that the new business activity review process permits activities that meet certain requirements to move ahead unless disapproved by the Director within 30 days, but allows even faster time-to-market if the Director issues a written approval or no action letter before the 30 day period expires.

5. Eliminates the requirement to establish definitions of the primary and secondary mortgage markets. Regulatory intervention to freeze these fluid markets are unnecessary with the strong new program and new activity approval regime established by these amendments.

6. Insures that activities with non-profit organizations and consumer initiatives are not subject to the new program approval process and are consistent with its charter, mission, and public purpose to expand homeownership to undeserved markets and minorities.

The approach outlined here has broad support from diverse constituencies. We believe that it achieves the goals that HR 1461 sponsors seek to achieve. We hope that you find this to be a constructive recommendation.

Sincerely,

Asian Real Estate Association of America
Consumer Federation of America
Independent Community Bankers of America
National Alliance of Independent Mortgage Bankers
National Apartment Association
National Association of Hispanic Real Estate Professionals
National Association of Mortgage Brokers
National Association of Local Housing Finance Agencies
National Association of Realtors?
National Community Reinvestment Coalition
National Housing Conference
National Multi-Housing Council



Cc: House Financial Services Committee