Table Of ContentHUD'S REPORT TO CONGRESS ON
THE FEDERAL HOME LOAN SYSTEM
Y 4, B 22/1:103-143
HUD's Report to Congress on the Fed... j-^yx^
BEFORE THE
SUBCOMMITTEE ON
GENERAL OVERSIGHT, INVESTIGATIONS,
AND THE RESOLUTION OP
FAILED FINANCLUj INSTITUTIONS
OF THE
COMMITTEE ON FINANCE AND
BANKING,
URBAN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
MAY 24, 1994
Printed for the use of the Committee on Banking, Finance and Urban Affairs
Serial No. 103-143
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U.S. GOVERNMENT PRINTING OFFICE
79-751CC WASHINGTON : 1995
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-046509-5
HUD'S REPORT TO CONGRESS ON
THE FEDERAL HOME LOAN SYSTEM
Y 4.B 22/1:103-143
HUD's Report to Congress on the Fed. ING
BEFORE THE
SUBCOMMITTEE ON
GENERAL OVERSIGHT, INVESTIGATIONS,
AND THE RESOLUTION OP
FAILED FINANCUL INSTITUTIONS
OF THE
COMMITTEE ON FINANCE AND
BANKING,
URBAN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
MAY 24, 1994
Printed for the use of the Committee on Banking, Finance and Urban Affairs
Serial No. 103-143
U.S. GOVERNMENT PRINTING OFFICE
79-751CC WASHINGTON : 1995
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments.CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-046509-5
HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
HENRY B. GONZALEZ, Texas, Chairman
STEPHEN L. NEAL, North Carolina JAMES A. LEACH, Iowa
JOHNJ. LaFALCE, New York BILL McCOLLUM, Florida
BRUCE F. VENTO, Minnesota MARGE ROUKEMA, New Jersey
CHARLES E. SCHUMER, New York DOUG BEREUTER, Nebraska
BARNEY FRANK. Massachusetts THOMAS J. RIDGE, Pennsj'lvania
PAUL E. KANJORSKI, Pennsylvania TOBY ROTH, Wisconsin
JOSEPH P. KENTSTEDY II, Massachusetts ALFRED A. (AL) McCANDLESS, California
FLOYD H. FLAKE, New York RICHARD H. BAKER. Louisiana
KWEISI MFUME, Maryland JIM NUSSLE, Iowa
MAXINE WATERS, California CRAIG THOMAS, Wyoming
LARRY LaROCCO, Idaho SAM JOHNSON, Texas
BILL ORTON, Utah DEBORAH PRYCE, Ohio
JIM BACCHUS, Florida JOHN LINDER, Georgia
HERBERT C. KLEIN, New Jersey JOE KNOLLENBERG, Michigan
CAROLYN B. MALONEY, New York RICK LAZIO, New York
PETER DEUTSCH, Florida ROD GRAMS, Minnesota
LUIS V. GUTIERREZ, Illinois SPENCER BACHUS, Alabama
BOBBY L. RUSH. Illinois MIKE HUFFINGTON, California
LUCILLE ROYBAI^ALLARD, California MICHAEL CASTLE, Delaware
THOMAS M. BARRETT. Wisconsin PETER KING, New York
ELIZABETH FURSE, Oregon
NYDIA M. VELAZQUEZ, New York BERNARD SANDERS, Vermont
ALBERT R. WYNN, Maryland
CLEO FIELDS, Louisiana
MELVIN WATT. North Carolina
MAURICE HINCHEY, New York
CALVIN M. DOOLEY, California
RON KLINK, Pennsylvania
ERIC FINGERHUT, Ohio
Subcommittee on General Oversight, Investigations, and the Resolution
OF Failed Financial Institutions
FLOYD H. FLAKE, New York, Chairman
STEPHEN L. NEAL, North Carolina TOBY ROTH, Wisconsin
NYDIA M. VELAZQUEZ, New York THOMAS RIDGE, Pennsylvania
MAURICE HINCHEY. New York
(II)
CONTENTS
Page
Hearingheldon:
May 24, 1994 1
Appendix:
May 24, 1994 51
WITNESSES
Tuesday, May 24, 1994
Champagne, Gerald J., representing Michael A. Jessee, President, Federal
Home Loan Bank ofBoston 21
CCorsotwilgeliyo,,MLiacwhraeenlceT,.,DCirheacitromr,anH,ouFseidnergaFliHnaonmcee BLooaarndStockbroker Study Com- 9
DelmliitBtocvGi, AlfredA., Presid•e••nt, Federal Home Loan Ba..n..k.*>>o.fNew•••Yor..k...•.••....•••• o1y8
Faulstich,JamesR., President, Federal Home Loan Bank ofSeattle 27
Holland, David F., Chairman, President, and ChiefExecutive OfTicer, Boston
Federal Savings Bank ••— 41
Retsinas, Nicolas, Federal Housing Commissioner, Department of Housing
andUrban Development 3
Schultz, Dean, President, Federal Home Loan Bank ofSan Francisco 24
APPENDIX
Prepared statements:
Champagne, GeraldJ 78
Crowley, Michael T 153
DelliBovi, AlfredA 70
Faulstich,James R 149
Holland, DavidF. 170
Jessee, Michael A. (with attachments) 91
Retsinas, Nicolas 52
Schultz, Dean 133
(HI)
HUD'S REPORT TO CONGRESS ON THE
FEDERAL HOME LOAN SYSTEM
MAY
TUESDAY, 24, 1994
House of Representatives, Subcommittee on Gen-
eral Oversight, Investigations, and the Resolu-
tion OF Failed Financial Institutions, Committee
ON Banking, Finance and Urban Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:04 a.m., in room
2222, Rayburn House Office Building, Hon. Floyd H. Flake [chair-
man ofthe subcommittee! presiding.
Present: Chairman Flake, Representatives Hinchey and Roth.
Also present: Representative Baker.
Chairman Flake. Good morning. We would like to welcome
members and witnesses who came for this hearing before the Sub-
committee on General Oversight, Investigations, and the Resolu-
tion ofFailed Financial Institutions.
I am certain each of you is aware of my strong interest in re-
building America's distressed and rural communities. Toward that
end, today's hearing will focus on issues that I believe are critical
to the economic stabilization ofthese financially underserved insti-
tutions and communities.
Following the publication ofthe final report in a series mandated
by the Housing and Community Development Act of 1992, I believe
today's hearing is a necessary continuation of a dialog that this
subcommittee began last year in a review of the role of existing fi-
nancial intermediaries in support of community and economic de-
velopment. These analyses by HUD, the Federal Housing Finance
Board, the GAO, the CBO, and the members of the Federal Home
Loan Bank System advanced several possibilities for reform of the
Federal Home Loan Bank System.
It has always been my sincere belief that our Nation's existing
financial infi-astructure has the capacity to revitalize all of Ameri-
ca's distressed communities. What is needed now is a willingness
to recognize this vast potential market and incentives to encourage
all financial service entities to participate in this rebuilding proc-
ess. Indeed, I often suggest that one ofthe most fertile fields of op-
portunity that has often been ignored by our financial entities has
been these communities that are underserved.
With that in mind, the administrative reform of the Community
Reinvestment Act and the Community Development Financial In-
stitutions legislation are merely the beginning of an economic ren-
aissance in this country. By no means should these efforts be
(1)
viewed as the only metnods for achieving permanent revitalization
ofdistressed communities.
HUD, for example, has some exciting ideas for community re-
newal in its legislative reauthorization proposal which I look for-
ward to examining further when it is marked up by the Banking
Committee. Along those same lines, the GSEs have enormous po-
tential, consistent with their public policy purposes, to make a dif-
ference in how credit is provided to all American citizens.
In that regard, this subcommittee received testimony last April
from Mr. DelliBovi and Mr. Schultz on the Federal Home Loan
Bank Board System's success with the Affordable Housing Pro-
gram, which is the acronjon AHP, and the Community Investment
Program [CIP]. The AHP's subsidies total $233.9 million and have
leveraged $3.3 billion in community development. Moreover,
through the CIP, the Federal Home Loan Bank System has dis-
bursed $4.5 billion in advances at its cost of funds to be used by
members for low- and moderate-income housing loans and economic
development in distressed areas.
I believe that there is enormous potential for community and eco-
nomic development in activities of the Federal Home Loan Bank
System through its many members. The Federal Home Loan Bank
System has a unique position in that it is able to advance funds
to community portfolio lenders which provide nonconforming loans
to finance affordable housing and community development initia-
tives.
The mortgage finance system has indeed changed dramatically in
the last 20 years, and I look forward to assisting you in reshaping
your role in this system, one which complements the activities of
the secondary mortgage market. Federal National Mortgage Asso-
ciation, and the Federal Home Loan Mortgage Corporation.
Last month, we heard from Fannie Mae and Freddie Mac on
their compliance with HUD's affordable housing goals and deter-
mined that more needs to be done to provide all Americans with
equal access to all credit and financial opportunities. The Federal
Home Loan Bank System occupies a unique position in this mosaic,
and I look forward to working closely with this administration in
the next year to develop a legislative initiative that will reform and
enhance the Federal Home Loan Bank System and protect the es-
sential programs and opportunities it provides for America's com-
munity developers.
Today, I look forward to each witness' thoughts on the 14 ques-
tions posed by the Congress, especially the statutory mission and
its achievement ofpublic policy goals.
Because of the number of witnesses, we will have three panels
this morning. We will introduce them after we hear the opening
statement by the ranking minority Member of this subcommittee,
Mr. Toby Roth ofWisconsin.
Mr. Roth. Thank you, Mr. Chairman. HUD
It is a pleasure for us to be here today. The long-awaited
Report on the system is now complete and before us. The rec-
ommended reforms are ready for congressional consideration. I
think, Mr. Chairman, you touched on that in your statement.
HUD
Our subcommittee hearing today is the first on the Report.
I look forward to receiving this testimony about these reforms.
Not so long ago, the notion was widespread the system had out-
lived its usefulness. In 1992, Congress directed studies from the
GAO, Congressional Budget Office, and the Federal Housing Fi-
nance Record. All studies are now complete. The consensus is that
the Federal Home Loan Bank Board System does have an impor-
tant role to play.
The System itself has changed enormously. Commercial bank
members outnumber savings and loan members by 1,536 to 1,759.
Advances to members have turned upward to $103 billion in 1993,
up from $76 billion in 1992.
I think the question we are asking ourselves is, where do we go
from here? The HUD Report says a new mission statement is need-
ed. What capital structure should the System have? Should mem-
bership be voluntary? What should be done about the annual $300
million RefCorp payment on the S&L bailout? How can we
strengthen the Affordable Housing Program, which we are told has
flourished without much heavy-handed regulation? This morning's
testimony is a start toward building a record of legislative action.
Mr. Chairman, other members have been calling and have asked
that they would like to submit additional questions for answering
in the record. If that is permissible with you, I would like to ask
you to comply with their wishes and allow them to do that.
Chairman Flake. By unanimous consent we will do so, Mr. Roth.
Mr. Roth. Thank you, Mr. Chairman.
Chairman Flake. Our first panel consists of two persons with
whom I have had numerous conversations in relation to community
development. Mr. Nicolas Retsinas, who was with us last month
HUD
and has been working diligently at to propose legislation that
I think will be helpful to all of us as we begin the process of re-
building this third world nation within our borders. I would like to
put that out and not let it drop.
Mr. Larry Costiglio, who has had firsthand observation of what
we tried to do in New York, what I tried to do as a community de-
veloper and advocate. I certainly am happy to welcome you as a
member of the Finance Board this morning to come and testify be-
fore this subcommittee.
You have the option of summarizing your statements and then
being prepared to respond to questions that we might pose to you.
I know that Mr. Baker will be here soon and has some questions
that he would like to ask. Ifhe is not here, we will have unanimous
consent that he will submit those questions to you.
We will start with you, Mr. Retsinas. Happy to welcome you
again.
STATEMENT OF NICOLAS RETSINAS, FEDERAL HOUSING
COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT
Mr. Retsinas. It is indeed a pleasure to be here before this sub-
committee once again.
As you recall, Mr. Chairman, it was but a month ago that I testi-
fied before this subcommittee on assessing the initial year of per-
formance of the GSE, in particular Fannie Mae and Freddie Mac
as relates to affordable housing goals. I found that testimony very
useful in summarizing information, and I think it will contribute
to ongoing deliberations about their role.
It is appropriate today that we focus attention on the Federal
Home Loan Bank System as a different kind of GSE but one we
believe has enormous potential to further the cause of developmen-
tal lending which you so persuasively, in my mind, argued for.
I also want to thank you, if I may, Mr. Chairman, for the kind
reference to our own Department's Reauthorization bill. That in-
cludes many initiatives we think will be supportive oftrying to un-
dertake a broader sense of empowering our communities to ensure
they are on the road to recovery.
I also want, if I may, to make note of my colleague here this
morning, Larry Costiglio. Larry is a Director of the Federal Hous-
ing Finance Boar—d, has been a long-term Director of the Board and
is an important provides an important source of history and fu-
ture in terms ofwhere the Board is going.
Being cognizant of the time constraints of this panel and under-
standing th—e impressive list of witnesses that you have on the next
two panels some of our best bank presidents from around the
country as well—as very appropriate representatives ofshareholders
in the system I would like to take advantage of your offer and
just orally summarize the longer written statement that I would
like to submit for the record. In so doing, I would maximize the
time we have for questions that you may have or other members
ofthe subcommittee may have.
As Congressman Roth indicated, HUD within the last 3 weeks
has completed the last of five mandated studies of the Federal
Home Loan Bank System. Let me say at the outset how pleased
I am that this subcommittee has so expeditiously gone from the
publication of that report to the conducting of this hearing. This is
the appropriate next step in the process.
The study was just that, a study. It is not the end of a process.
It is the next step in the process, a process that will eventually cul-
minate in legislation for this subcommittee and your colleagues to
consider in the days and weeks ahead.
What I would like to do this morning is summarize the central
conclusion—s of the HUD Report, not walk —through each of the 14
questions our written testimony does that but really focus on is-
sues we think undergird consideration of where we are going, the
Federal Home Loan Bank System. —
As we all know, as our study reviews as the other studies re-
view, the Federal Home Loan Bank System itself was created back
in 1932. It was created as one of a number of institutions created
by the Federal Government to try to deal with the economic recov-
ery, to try to get this country out ofa depression.
The world in 1932, to say the obvious, was very different than
the world in 1994. There is a very different system of housing fi-
nance. There is a very different system of capital markets, the
emergence of secondary markets. The way they function today was
unheard ofand unthought ofback then.
The first question addressed by the HUD study was the question
posed in your opening statement. Is there still a need for the Fed-
eral Home Loan Bank System? Does it still make sense? Is it still
worthwhile?
