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Tuesday, July 23, 2002
U.S. House of Representatives,
Subcommittee on Capital Markets, Insurance and
Government Sponsored Enterprises
Committee on Financial Services,
Washington, D.C.

    The subcommittee met, pursuant to call, at 2:15 p.m., in Room 2128, Rayburn House Office Building, Hon. Richard Baker [chairman of the subcommittee] presiding.

    Present: Representatives Baker, Ney, Shays, Gillmor, Lucas of Oklahoma, Oxley, Rogers, Bentsen, Maloney, Ford, Lucas of Kentucky, and Israel.

    Mr. BAKER. [Presiding.] I would like to call this meeting of the Capital Market Subcommittee to order.
    Today the Subcommittee meets to discuss the long-awaited results of OFHEO's risk-based capital rules for the housing government-sponsored enterprises Fannie Mae and Freddie Mac.
    The importance of this long-awaited test cannot be over emphasized because essentially what is at stake—giving both investors and taxpayers—is the clearest possible financial picture of the two government-backed companies with, today, having a combined debt of over $1 trillion, implicitly linked to taxpayer pockets.
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    Because of this importance, and in the context of the current market environment, demanding unprecedented fullness, accuracy and integrity in financial disclosure, I feel it important to recount the history behind the risk-based capital test and how we have, at long last, arrived here today.
    In 1992, a legislative act directed OFHEO to issue a risk-based capital rule within 18 months after the appointment of the director, in effect, by the end of 1994. OFHEO proposed rules for public comment, accordingly, in 1995, 1996 and 1999. In 1999, the proposed rule issued for comment actually included a table showing the required risk-based capital calculations for Fannie and Freddie as of September 30, 1996 and June 30, 1997.
    Interestingly enough, on both occasions, Fannie Mae had a deficit, while Freddie had a surplus on both accounts. Saying it another way, one GSE failed the proposed test as early as 1996 and 1997.
    On August 1st of 2001, Director Falcon testified that OFHEO would publish in early 2002 how the enterprises would fair under the rule then promulgated using fourth quarter, 2001 data.
    Subsequently, on September 13, 2001, OFHEO finalized the risk-based capital rule. However, due to apparent complications, by December 11th of 2001, OFHEO announced in light of the proposed changes in the rule, the agency would, instead, use first quarter 2002 numbers to calculate how the enterprises were gauged.
    Finally, after a ten-year process, OFHEO announced the results of its amended rule for the first quarter 2002, using the amended test, showing that both Fannie and Freddie had easily passed.
    We can be pleased with that report, but it was as we all should have expected in light of this important statement made by Director Falcon prior to announcing the results. with the proposed rule in referencing June of 1999, the enterprises then began a program of managing their activities to ensure they would meet the requirements of the rule. I take that to mean in the middle of 1999 the enterprises were advised and prepared to initiate business strategies to comply with any rule subsequently issued by OFHEO.
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    What is of importance to me today is to understand at least what changes were made in the rule initially promulgated that resulted in an additional delay in its implementation. Were the changes the result of the failure of either the GSEs to pass the test? Or was it an underlying failure in the adequacy of the test?
    Was the eight-and-three-quarter year period that developed the first test, subsequently modified in the 60 days following, was the result of running the test and determining that either GSE did not meet the minimal capital standards?
    Did either GSE request specific modifications?
    In my request of Director Falcon and OFHEO earlier this year, I specifically requested that the test be conducted in four different methodologies—prior to its modification in December; as promulgated after eight-and-a-half years of work on the last quarter of 2001; the first quarter of 2002; and, additionally, after the modification, as proposed by OFHEO on the same data set.
    It is my understanding in response to that request, the agency indicated that the data for the 2002 first quarter could be released publicly, but specific request was made of me in the committee not to release the information promulgated on the fourth quarter of 2001, specifically using the pre-amendment test.
    I am curious as to why that request was deemed to be confidential in the first place. I am understanding that the explanation was that the agencies were not managing to the standards of that test. I simply refer to the quote of the Director in 2002, which indicates, ''With the proposal of the rule in June 1999, the enterprises began a program of managing their activities to ensure they would meet the requirements of the rule.''
    Why is it so hard to get professional assessment of the enterprises that are so important to our economy without political manipulation? Taxpayers may or may not be at risk. We honestly just do not know. But in this environment of corporate questioning, where every accounting rule is studied and re-studied, where every CEO is questioned and re-questioned, are there those who suggest that these two corporations, so vital to our economic success, are above questioning?
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    I hope not.
    I would recognize Mr. Bentsen, now, for an opening statement.
    Mr. BENTSEN. I thank the chairman for recognizing me. And I thank him for calling this hearing today.
    The subcommittee will hear from Director Armando Falcon, the director of the Office of Federal Housing Enterprise Oversight on the final risk-based capital rule for Fannie Mae and Freddie Mac. And we are pleased to welcome Mr. Falcon back to the committee, of which he is a graduate as a former counsel to this committee.
    As the chairman mentioned, OFHEO was created in 1990 to act. And I would note that Mr. Falcon and his predecessor have undertaken, in many respects, not without criticism, a Herculean task of creating this risk-based capital rule and the analysis to go along with it. And doing it with a number of congressionally-mandated strictures that would not, otherwise, be in place for other types of analysis that are done within the market.
    I think it is also important that we hear from Mr. Falcon today because over the last several years, as we have had debates over the issue of the GSEs, often OFHEO has been overlooked as they have been toiling away and trying to come up with this rule.
    And I would also just remind the chairman that while there may be concern among some that the GSEs are managing their activities in order to meet the requirements of the rule, in fact, that is the whole idea of having rules, whether they are risk-based capital rules for GSEs or for banks for thrifts or for any other institution is, in fact, you want them to manage their operations in order to meet the confines of the rule.
    So, Mr. Chairman, I am glad to hear from Mr. Falcon today, look forward to his testimony and the opportunity to question him on the issues that you have raised and others.
    And I yield back.
    Mr. BAKER. Thank you, Mr. Bentsen.
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    Mr. Ney?
    Mr. NEY. Thank you, Mr. Chairman.
    Thank you for holding this—
    Mr. BAKER. Oh, I am sorry.
    Chairman Oxley, did you wish to be recognized at this time?
    Yield to Mr. Ney?
    Yes, sir?
    Mr. NEY. I am pleased that the committee has had a chance to review the final risk-based capital rule for Fannie Mae and Freddie Mac. This capital standard has been a long time coming and we are grateful that the process has now been concluded.
    We look forward to this rule being enforceable, hopefully, in the months ahead.
    The risk-based capital rule is designed to ensure that GSEs can survive the worst of housing downturns, with high credit losses and huge moves in interest rates over, basically, a ten-year period.
    This risk-based capital is unique because it requires the GSEs to operate their businesses in a way that creates an incentive for risk reduction activities. And I think it should be, really, a model for all companies these days.
    It is important for this subcommittee to realize, and I know they do, that the risk-based capital standard is just one piece of an overall safety and soundness regime for these congressionally chartered companies. To be clear, after the 1992 legislation, both of these companies were bound by minimum capital standards and continuous on-site examinations.
    Long before Enron and WorldCom, in October 2000, Fannie Mae and Freddie Mac announced six initiatives that the financial markets now rely upon to maximize financial transparency and market discipline. Unlike many other companies, these two companies have signed up for the annual credit rating; additional interest rate and credit risk disclosures; additional liquidity management; interim implementation of the risk-based capital standard; and the issuance of subordinated debt.
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    Less than two weeks ago, I did join SEC Chairman Harvey Pitt and Fannie and Freddie for an announcement where the two companies agreed to register their common stock under the 1934 SEC Act, which now binds these two companies to comply with SEC requirements for periodic corporate financial disclosures. In the press interviews after the announcement, Frank Raines committed on CNBC that Fannie Mae will—and I stress will—certify 2001 financial statements by mid-August, just as SEC Chairman Harvey Pitt has asked of the top 1,000 publicly traded companies in this country to do.
    In addition, I was pleased to hear this morning new light about the fact that both companies have announced they are recommending to their boards of directors that they begin expensing all stock-based compensation. In the current economic environment, few other companies are stepping up to the plate to lead on financial disclosure and transparency in the way I think these two are, although I predict many companies will with what is going on now in the United States.
    And, Mr. Chairman, I just want to, again, congratulate you, Chairman Baker, for all your work and I look forward to hearing Director Falcon.
    Thank you.
    Mr. BAKER. Thank you, Mr. Ney
    [The prepared statement of Hon. Bob W. Ney can be found on page 42 in the appendix.]
    Mr. Ford, did you have an opening statement?
    Mr. FORD. Chairman, I will defer to the witness and have statements once he finishes.
    Mr. BAKER. Thank you, Mr. Ford.
    Mr. Shays?
    Oh, excuse me, sir, Chairman Oxley?
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    Mr. OXLEY. Thank you, Mr. Chairman.
    And thank you for your leadership on this important issue.
    The Capital Market Subcommittee meets this afternoon to consider the new risk-based capital rule for Fannie Mae and Freddie Mac, which has been finalized by the regulator, the Office of Federal Housing Enterprise Oversight.
    OFHEO is responsible for ensuring that Fannie Mae and Freddie Mac are adequately capitalized and operating safely.
    The 1992 act which created OFHEO directed the agency to issue a risk-based capital rule tied to an enterprise's risk exposure, as well as the current leverage or capital rule is a minimum percentage of assets.
    I am pleased to welcome OFHEO's director, Armando Falcon, look forward to his presentation of the initial non-binding stress test results for the enterprises.
    And I encourage you to work, Mr. Falcon, with this committee as OFHEO moves ahead later this year to implement and enforce the risk-based capital rule. It is important that both the risk-based and leverage capital requirements are in place and being implemented in tandem so that Fannie and Freddie can continue to perform their housing mission in a safe and sound manner.
    In addition, I would like to hear from you about what actions OFHEO will take in conjunction with the SEC to facilitate implementation of the voluntary compliance by Fannie and Freddie with SEC disclosure requirements under the Securities and Exchange Act of 1934, and to review the adequacy of information disclosures related to mortgage-backed securities.
    Mr. Chairman, this will be an important next step in the series of hearings that you have conducted. And I look forward to the response from the director.
    I yield back.
    Mr. BAKER. I thank you, Mr. Chairman.
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    Mr. Israel, did you have an opening statement?
    Mr. ISRAEL. Mr. Chairman, I will insert my statement for the record.
    [The prepared statement of Hon. Steve J. Israel can be found on page 41 in the appendix.]
    Mr. BAKER. Thank you, Mr. Israel.
    Mr. Shays?
    Mr. SHAYS. Thank you, Mr. Chairman.
    Mr. Chairman, thank you for holding these hearings. Mr. Oxley, for your fine work as chairman of this committee.
    I also welcome Mr. Falcon, director of OFHEO. I appreciate that he is here and I look forward to his testimony.
    I think with Mr. Falcon, we have, yet, another witness who recognizes that voluntary disclosure is not good enough, that disclosures need to be reviewed by the SEC for inadequacies. And, in other words, Fannie and Freddie will no longer act as their own securities regulator. And I emphasize that.
    The recent announcement that these two mortgage giants, Fannie Mae and Freddie Mac, will come under the SEC as it relates to the 1934 law is a huge turning point in the debate. And I congratulate them and the SEC and OFHEO for whatever involvement they had with this. But it does not relieve me of some of the questions that I still have and the committee still has.
    I think first and foremost, we need to know how these new disclosure requirements will be enforced and OFHEO's role in the rule making.
    Second, we need to know what are the policy reasons behind the continuing exclusion of Fannie Mae and Freddie Mac's mortgage-backed securities and debt securities from the full registration and disclosure requirements of the securities law.
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    Third, I think we need to know how did the administration reach this agreement with Fannie Mae and Freddie Mac, since I know of no precedent in which the publicly traded companies dictate to government regulators what laws they will comply with.
    And finally, I look forward to discussing Fannie and Freddie's safety and soundness and the results of the risk-based capital stress test with our director.
    Mr. BAKER. Thank you, Mr. Shays.
    Mr. Ford has reconsidered and would like to take advantage of his time.
    Mr. Ford?
    Mr. FORD. It is just for 30 seconds, Mr. Chairman.
    I, too, look forward—it was really Chairman Oxley's comments that spurred some thought on my part. So I appreciate his inspiration.
    Last week, as all of know, we held a hearing on both Fannie and Freddie's voluntary agreement to register their common stock with SEC. And I just wanted to point out—if someone already has not today—I know both of them have taken the bold voluntary step of announcing they will account stock option compensation as an expense against earnings. They are joining a growing number of companies in taking this step to enhance transparency and to inform shareholders.
    With these voluntary disclosures, Fannie and Freddie can focus, or continue to focus, on their primary mission, which is making home ownership available to all Americans. The home ownership rate is now 68 percent, at its highest level ever. And this is due, in no small part, to the liquidity that these two companies have provided to the primary mortgage market.
    I look forward to hearing from our witness today. And I look forward to doing all I can to ensure that Mr. Baker's concerns are addressed and that these two organizations can continue to provide home ownership opportunities for millions of Americans.
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    Thank you.
    Mr. BAKER. Thank you very much, Mr. Ford.
    Mr. Rogers?
    Mr. ROGERS. Thank you, Mr. Chairman.
    I want to thank you for having these hearings.
    And I want to thank this committee, under the leadership of Mr. Oxley and Marge Roukema, for already taking a huge step in home ownership. And today we are going to talk about regulations. We are going to talk about stress tests and common stock registrations, maybe—I mean, we may touch on those issues.
    But more importantly, when you get done with all of the technical parts of providing home ownership, the bottom line is what are we doing to provide the opportunity, including access to capital, for those who are trying to get into homes?
    And if we cannot take this to the lowest common denominator, we will never be successful.
    And I appreciate Fannie Mae and Freddie Mac's work in what they do and try to penetrate communities, especially under-served communities for having access to capital and getting into homes.
    And I look forward to your comments. And I suppose it is for us to wrestle over the details so that those individuals back home do not have to, that they can walk to that place, get access to that capital and have the joy of putting that key in the door and turning the key.
    And, again, under the leadership of this committee, as a whole, under Mr. Oxley, Mr. Baker, Mrs. Roukema, we have taken a huge step in improving the chances for most Americans to get into those homes.
    And I hope through the whole course of this we do not lose sight of that and the good work that both Fannie Mae and Freddie Mac have done and the better things that we can do to make sure that they are a stable force in the community to keep providing the access to that capital.
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    And I would yield back the remainder of my time.
    Thank you, Mr. Chair.
    Mr. BAKER. Thank you, Mr. Rogers.
    If there are no further opening statements, I wish to welcome back—no stranger to the committee—the Director of OFHEO, Mr. Armando Falcon.
    Welcome, Mr. Director.
    You will need to pull that microphone very close. We are having a hard time. Check the little button right down on the bottom; see if that does it.
    Mr. FALCON. How about this?
    Mr. BAKER. Now, you are cooking.


    Mr. FALCON. All right.
    Mr. Chairman, Congressman Bentsen and members of the subcommittee, I am pleased to be here today to report to you on OFHEO's activities and the safety and soundness of Fannie Mae and Freddie Mac.
    This is an important time in the short history of the agency, as OFHEO has just entered its 10th year. OFHEO began operating when its first employee, the first director, took office on June 1, 1993.
    The agency was built from the ground up and had to acquire staff and address hundreds of administrative issues involved in establishing an agency infrastructure. OFHEO needed to procure office space, equipment, computers, telecommunications and other logistical support for the lawyers, economists, examiners and administrative personnel who would carry out the duties of the agency.
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    In its early years, OFHEO's experienced staff worked to develop an in-depth understanding of the operations of the enterprises. OFHEO grew from a one-person agency into a strong and well-rounded regulator, fully capable of meeting its regulatory responsibilities.
    While the agency was being built, it was still obligated to fulfill its mission of regulating two extremely large and complex financial institutions. OFHEO's mandate is to ensure that the enterprises are safe and sound and adequately capitalized. In so doing, OFHEO helps ensure that the enterprises are able to provide liquidity to the mortgage markets and promote home ownership.
    I am pleased to report that OFHEO is meeting its mandates. We have found the enterprises to be safe and sound and adequately capitalized. The enterprises are providing unprecedented levels of liquidity and stability to the mortgage and housing markets.
    OFHEO looks forward to its second decade of pubic service.
    OFHEO's regulatory regime consists of three pillars. These are examination, capital standards and research. I will refer the subcommittee to my written testimony for a discussion of these topics and will use the remainder of my time to focus on the risk-based capital rule and disclosure.
    OFHEO's risk-based capital standard is unique among financial regulators. Unlike ratio-based capital standards, OFHEO's standard is based on a 10-year stress test. A stress test measures risk in the context of a company's overall portfolio, including the company's risk management activities. An enterprise can comply with OFHEO's risk-based capital standard by reducing risk or raising capital or a combination of both.
    The risk-based capital rule became effective last September. At that time, I appeared before this committee—the subcommittee—and was urged to consider whether refinements to the rule were necessary and, if so, to act quickly. I subsequently determined that modifications were appropriate and the rule was amended after a public rule making during the fourth quarter of last year.
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    We will use the rule to classify the enterprises, beginning with the third quarter of this year.
    In the interest of public disclosure and regulatory transparency, last month, OFHEO released the results of the risk-based capital test using the first quarter 2002 enterprise financial data.
    Attached to my testimony is the press release announcing the results.
    Both enterprises passed the stress test, due to effective risk management, including extensive interest rate hedging and the first quarter's economic environment. Interest rates are low; home values are rising; and borrower defaults are minimal. An enterprises risk-based capital requirements will vary from quarter to quarter, depending on the enterprises risk management decisions and market conditions.
    I have taken a very open approach to the implementation of these stress tests. I decided to release the actual stress test computer model or source code to the public. In addition, I rejected an interpretation of the one-year implementation period, which would have precluded the release of any results during that time period.
    And when I announced the stress results for the first quarter of this year, I did not just issue a pass-fail notice. I released the full results for both upright and downright scenarios.
    However, that openness must be balanced with some caution to ensure that no misleading information enters the public domain. That is why OFHEO will not be releasing to the public any stress test results other than the official quarterly announcements. That, of course, does not override this subcommittee's right to information.
    And so, I have promptly, ahead of schedule, supplied the subcommittee with all of the information it has requested. My only request was that the subcommittee respect the confidentiality of the information.
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    OFHEO considers this information confidential for a variety of legal reasons. But superior to all those considerations is concern about releasing misleading information about the enterprises financial condition that could disrupt the markets.
    We have developed a strong, rigorous risk-based capital standard. Now, the enterprises have one year to adapt and be in compliance before we enforce it.
    Congress wanted us to set up a new capital standard, not a trap. That is why it would be inappropriate to release results before the rule, as amended, was in place.
    I will now turn to corporate disclosure. OFHEO safety and soundness responsibility includes an obligation to ensure that the enterprise financial disclosures are adequate. Our agency began the comprehensive review of enterprise disclosure in April of 2002. In May, OMB requested that OFHEO specifically consider a rule that would ensure enterprise financial disclosures were comparable to those of other publicly held companies.
    In June, I responded to OMB's letter. I agreed that voluntary compliance was inadequate and that given the enterprises exemptions from the securities laws, OFHEO needed to promulgate enforceable rules in this area.
    I am pleased that OFHEO's objective will now be accomplished in a most efficient manner. The enterprises voluntarily agreed to subject themselves to mandatory regulation by the SEC under the Securities and Exchange Act of 1934.
    I would like to highlight several key points about the agreement. The enterprises will become registered companies bound by the 1934 act. Absent the agreement, OFHEO would have adopted its own disclosure regime, based on the securities laws.
    Second, and most significant, the disclosures will be reviewed by the SEC and OFHEO. Currently, it is the enterprises that determine what corporate information is material and must be disclosed. Once registered, that will change and the ultimate arbitrator of what must be disclosed will be the SEC and OFHEO, acting in the public interest.
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    Finally, the disclosure reports will be available from the SEC essential repository for corporate disclosure reports of all registered companies.
    In order to facilitate the application of the 1934 act to the enterprises, OFHEO will promulgate the rule concerning the filing of all required periodic reports. Registration with the SEC does not, in any way, limit OFHEO's ability to act in the interest of safety and soundness. In fact, as part of the rule I have mentioned, OFHEO is considering requiring supplemental disclosures beyond those required by the SEC.
    In addition, OFHEO, the SEC and Treasury will conduct a review of disclosures relating to the offering of mortgage-backed securities by the enterprises and other issuers. The review will consider the appropriate manner for creating a more level playing field and greater comparability of disclosures that will enhance enterprise safety and soundness.
    I will note that OFHEO's goal is disclosure, not registration. After all, disclosure is the rationale underlying registration. Accordingly, OFHEO will not pursue a registration regime at this time. if our disclosures can be met without registration, and I am confident that they can be, then registration is unnecessary. However, until the review is completed, OFHEO, as the safety and soundness regulator, cannot and should not rule out registration in some form as a possibility.
    In response to the subcommittee's request last week, I have conferred with the SEC and Treasury and we have agreed to make every effort to complete the review by year end.
    Mr. Chairman, you have been a strong supporter of our budget requests in the past and have indicated support for permanent funding of OFHEO. OFHEO, as the agency responsible for the financial health of two companies with combined credit exposure of a little over $3 trillion, should be permanently funded, as are the other safety and soundness regulators. There is simply too much at stake not to take this prudent step.
    The administration supports this in its fiscal year 2003 budget request for OFHEO. I urge the subcommittee to support legislation that would bring about this result.
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    In conclusion, as I stated earlier, Fannie Mae and Freddie Mac are safe and sound and well capitalized. We all can see their financial health at the beginning of any discussion about them. We are able to have this discussion against such a healthy backdrop due, in part, to the hard work of OFHEO's employees. I do not mean to minimize the efforts of the enterprises' management, but through our regulatory program we constantly probe for weaknesses and vulnerabilities and assure that the enterprises maintain the highest standards of sound management.
    We have a state-of-the-art risk-based capital rule in place. We are expanding our examination program, building our regulatory infrastructure and conducting valuable research. The OFHEO of 2002, which I am proud to direct, gets the job done.
    Thank you, Mr. Chairman. And I look forward to answering any questions the subcommittee may have.

    [The prepared statement of Armando Falcon Jr. can be found on page 43 in the appendix.]
    Mr. BAKER. Thank you, Mr. Falcon.
    I do appreciate your willingness to appear here today and certainly understand the complexity and difficulty of establishing a test for what are very large and complex organizations.
    But I want to make it clear that my line of questioning today results from a great deal of frustration about the process and where I think we find ourselves, as of this moment.
    It took eight-and-a-half years and considerable encouragement from the committee and others, including defense of appropriations process, to make sure that OFHEO had the resources to ultimately prepare the most professional analysis possible for this committee and for the benefit of taxpayers.
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    I find it troubling that at the end of that eight-and-a-half year period, we then had an approximately 60-day period, of which I am told by the agency it was a result of my request asking you to be thorough and thoughtful in the process, that it took as long as it did to make the subsequent modification, resulting in the post-amendment stress test, as we have it today.
    As I understand it, the elements that were involved in that critical analysis related to the level of haircut, as opposed to AA rated—AAA rated mortgage insurance companies; funding costs; and certain multi-housing questions; and perhaps technical issues.
    Were there any other elements in the modification to the eight-and-a-half year test made by the 60-day test that I am not aware of, other than those four principle areas? And I will recite them again: AA, AAA haircut mortgage insurance companies; multi-housing issues; funding costs; and technical issues.
    Mr. FALCON. I believe that covers all of them, Mr. Chairman.
    The technical issues: I want to get into more detail later about what was in those technical details. Some might have risen to the level of more than just technical. Others may have been truly technical.
    Mr. BAKER. So it is your testimony that those, in general—and I am using ''technical'' as defined by the agency in my discussions with agency personnel.
    Three principles were as outlined and then dogs and cats were described as technical issues. And so I am saying in that context, those are the four areas in which the modifications were made resulting in the test that is finally to be promulgated?
    Mr. FALCON. Yes. I believe that is right.
    Mr. BAKER. Did you have staff run the test prior to its final promulgation, prior to the modification? In other words, the September developed test, which was then subsequently modified December-January, was that test run by the agency and producing results before it was made public?
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    Mr. FALCON. The version that was final pre-amendment, Mr. Chairman? Is that the one you are talking about?
    Mr. BAKER. Pre-amendment.
    Mr. FALCON. We had a—yes—a working version of the computer code. We did.
    Mr. BAKER. And what were the results, not in specific detail, but in generic terms? Were there difficulties with the way in which the test concluded its analysis? Were either of the GSEs or both GSEs found to have difficulties with that test? What is your remembrance of what happened with that pre-amendment test?
    Mr. FALCON. There were many bugs that were being worked out at that time, Mr. Chairman.
    Mr. BAKER. Was one of the bugs the result? Or be more specific.
    Mr. FALCON. You could not get an accurate result if you did not have the bugs worked out. The bugs were two times, primarily. The bugs were with the computer code, itself, as well as getting the data right so that it would plug into the computer code and then produce an accurate number.
    Mr. BAKER. So once you got the bugs of the computer code behind you, let's assume we have a de-bugged test, built on the principles which you have enunciated, were there further modifications beyond the de-bugging?
    Mr. FALCON. We have been doing some de-bugging for the past—
    Mr. BAKER. I understand, but what—
    Mr. FALCON. —beyond September.
    Mr. BAKER. Let's put the bugs on the shelf. We found the major bugs and we might have had a small bug or two remaining that were later to be discovered.
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    As of September 2001, bug issue principally resolved, were there other elements that were of concern to the agency that needed to be modified?
    Mr. FALCON. Well, I would not say that the bugs were resolved after September 1. We continued to resolve bugs after that point.
    Mr. BAKER. Okay. Well, I give you bugs, too. Let's assume there are bugs and bugs B; were there other issues besides bugs and bugs B that were of concern?
    Mr. FALCON. As far as the computer model working?
    Mr. BAKER. No.
    Mr. FALCON. No?
    Mr. BAKER. Forget the computer. We are off of computer. We are off of bugs, bugs one, bugs two. We are now on to factual determinations beyond bugs, as in the case of the amount of haircut for AA versus AAA, as in multi-housing adjustments, as in funding cost adjustment, any other adjustment.
    Mr. FALCON. I mean, there are a variety of issues and they are referenced in the risk-based capital rule, both in the final rule where we indicate areas of further research—
    Mr. BAKER. Well, let me ask it a different way. Did you consult or did the GSEs consult with you prior to the promulgation of the final rule and such consultation resulting in any modification to the final promulgated rule?
    Mr. FALCON. When we announced that we were going to amend this rule, we received comments from many interested parties about the rule. That is pursuant to notice and comment process.
    Mr. BAKER. Sure. No. I am not suggesting anything inappropriate. I am trying to find out the facts.
    Did Freddie review the rule and its function and make recommendations to you for modification, on which you subsequently acted?
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    Mr. FALCON. No.
    Mr. BAKER. Okay. Thank you.
    Is it your view that the changes made in the post-amendment rule were primarily technical in nature and that did not have any substantive change that would either detract or enhance the GSE's capital adequacy?
    Mr. FALCON. It is a little difficult for me to track of the exact time period and version of the rule you are making reference to, Mr. Chairman.
    Mr. BAKER. The final rule.
    Mr. FALCON. The final rule, the post-amendment?
    Mr. BAKER. Correct.
    Mr. FALCON. And I am sorry, but the question regarding the post-amendment rule?
    Mr. BAKER. Were there any modifications made to the post-amendment rule that, in your judgment, would result in a significant capital adjustment in the conclusions the test would reach?
    Mr. FALCON. For which quarter?
    Mr. BAKER. Any quarter, whatever makes you happy.
    Mr. FALCON. Okay. There were still various modeling issues that we were working out related to various activities of the enterprises. There were some issues with respect to remmicks and swaptions, I think was an area that we were working at, coming to the final conclusion and getting the final bugs worked out in a few areas like those.
    Mr. BAKER. Okay. Well, let me go at it another way. When I wrote you in February, I suggested that the test be run four ways: pre-amendment; post-amendment; each test last quarter 2001; first quarter 2002. You have achieved that; I got the results for fourth quarter pre-amendment test yesterday. And for that I thank you.
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    In the letter responding to me on both instances, you indicated that we should treat or your request of the committee was to treat those calculations as confidential.
    I direct your attention to the 1999 test in which Fannie was found, under your promulgation, not to meet the minimum requirement. That is the 1999 data promulgated and published by your pre-amendment rule discussion.
    If you could print and publish that in 1999, showing there is a deficiency, what is the distinction between releasing the information you have given to the committee today and the 1999 publication, which you issued?
    Mr. FALCON. Mr. Chairman, at that time, it was essential. In order to allow full notice and comment, it was essential to release to the public some information about the way the rule works, the release of not just results. In 1999 we released results based on 1997 data.
    In order to allow robust notice and comment, we needed to give the public some indication about not just results, but also sensitivity analysis.
    And so what we had in the proposed rule was not just results, but we broke it down for the public among various types of risk and showed what the sensitivity of the stress test was as allocated among different types of risk.
    Mr. BAKER. One more question because I have exceeded my time.
    Have you, prior to the hearing today, released the data to any other third party, any members of Congress, anybody else besides my office and yours?
    Mr. FALCON. The enterprises have a working version of the code, Mr. Chairman—
    Mr. BAKER. The specific question is, the answer to the letter I wrote in February, which you responded and said, ''We will provide you with the information,'' which you provided the last piece of which to the committee as of yesterday—
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    Mr. FALCON. Yes.
    Mr. BAKER. —has that information—four parts—been released to anyone else other than my office, as of this moment?
    Mr. FALCON. No. It has not even been released to the enterprises, Mr. Chairman.
    Mr. BAKER. Well, I have been told other members of Congress have it.
    Mr. Bentsen?
    Mr. FALCON. Mr. Chairman, may I correct myself in the form that we did give the information to Congressman Kanjorski?
    Mr. BAKER. Okay. And nobody else?
    Mr. FALCON. No, sir.
    Mr. BAKER. Thank you.
    Mr. BENTSEN. Thank you, Mr. Chairman.
    Mr. Falcon, the first quarter numbers that you released and the fourth quarter numbers that Mr. Baker and Mr. Kanjorski have, which I do not, under the post-amendment rules—well, the fourth quarter would be commensurate with the first quarter of 2002, is that accurate?
    Mr. FALCON. Right. The chairman has numbers that he has requested and we have supplied to him which applies the stress test to the fourth quarter. And we released, publicly, results applying to the first quarter of this year.
    Mr. BENTSEN. All right.
    The chairman seems to be raising a concern about what numbers pre-amendment versus post-amendment might look like with respect to Fannie or Freddie. I guess I would ask you from your interpretation of the law, the 1992 act and the administrative procedures act that governs your rule making process, I assume, the post-amendment rule is the rule.
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    Mr. FALCON. Yes.
    Mr. BENTSEN. And so for purposes of how OFHEO should conduct its stress test, under the law, it should use the post-amendment rule. Is that right?
    Mr. FALCON. Yes, Congressman.
    Mr. BENTSEN. And so the amendments that were made to the rule are what those, you know, the haircuts and the servicing ratings and issues that you and the chairman conversed on; those are the changes, some of which were brought up in an earlier hearing before this subcommittee. So nothing, just to reiterate what you—restate from what you responded to the chairman in the earlier line of questioning, there is nothing new here, in the amendments, that should be a surprise to anyone on this committee. Is that correct?
    Mr. FALCON. All the changes we made to the rule were done pursuant to notice and comment. We issued a proposed amendment to the rule as it stood in September. And, in fact, I was urged to make any changes only pursuant to notice and comment, and I fully agreed with that.
    We put out for public comment the changes that we were contemplating, received comment from many parties and then proceeded with what we thought was the right thing to do in crafting this risk-based capital rule.
    Mr. BENTSEN. So to argue that numbers that are run using an unfinished rule are somehow indicative of the financial condition of one of the GSEs on their face would be inaccurate because that is not what the rule is, right? I mean, the rule is what the final published rule, after the amendments, is—I mean, that is what it is, right?
    Mr. FALCON. Right. That is what is currently in effect.
    Mr. BENTSEN. And that is the rule that the GSEs will be required to manage their operations accordingly. And then the third quarter or after the third quarter when you begin to classify the GSEs, then they will be required if they are not already, will then be required to come into compliance at any time they are out of that.
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    Mr. FALCON. Right.
    Some might argue that the one-year implementation period would mean that there should not be any results released until the one-year period ends. I have taken a more open approach to that and have said, in fact, and released numbers and that I would release numbers as soon as the rules were clearly in place.
    And since the rule was subject to amendment in the fourth quarter of last year, the rules were not clearly in place. We published the final rule in the fourth quarter of last year. so the rules were in place at that time. And that is why I said that we would release results for the first quarter of 2002.
    Mr. BENTSEN. Upon issuance of the final rule, was there comment or much comment, subsequent to that, criticizing the standards that are being used? I mean, it is the accepted rule; it is under the APA. It is the law or it is the regulation. But I mean, is there still criticism of that, of the standards that are being used?
    Mr. FALCON. Every so often you might hear some criticism about the rules. Some think it is too lenient, some think it is too tough. What we have done is craft a rule which closely ties capital to risk. It is based on sound, historical analysis, historical data and our best judgment about the risk associated with all the different activities at the enterprises.
    I think it is a very strong, robust rule. And I am proud of the work the agency did to put this together. It has never been done before by any regulator.
    Mr. BENTSEN. Thank you.
    Thank you, Mr. Chairman.
    Mr. BAKER. Thank you, Mr. Bentsen.
    Mr. Ney?
    Mr. NEY. Thank you, Mr. Chairman.
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    The question I had—I know you have had a lot of wrangling at yourself by others for a delay of a risk-based capital standard. But it was written in 1992. It was conceived on the heels of the savings and loan and really was constructed to look at a financial collapse of the like we have never seen. And I think that, you know, was part of it.
    The model measures depression-like credit risk fluctuations and then adds another I think it is 30 percent for operational risk.
    Are any other financial service companies subjected to a risk-based capital test comparable to what GSEs now face?
    Mr. FALCON. Thank you, Congressman. That is a good question. This is unique among capital standards for any regulator. It is one that was mandated by Congress.
    Other financial institutions like banks and thrifts have a risk-based capital standard, but that is more of a risk-weighted leverage type standard. This is unique because it places the enterprises' balance sheets under severe economic stress and requires, through a financial simulation model, that they hold enough stress over that 10-year period, every quarter in that period such that they never become under-capitalized at any point during the 10-year period.
    This is unique. It has not been done by any other regulator up to now. I am proud of what the agency has accomplished.
    Mr. NEY. Well, like I said, I think you have done good. It is just I know you got a lot of heat getting there.
    Mr. FALCON. Yes.
    Mr. NEY. So—
    Thank you, Mr. Chairman.
    Mr. FALCON. Thank you.
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    Mr. BAKER. Thank you, Mr. Ney.
    Mr. Ford?
    Mr. FORD. Let me sort of walk back through just one or two things. They passed the test; is that what you are saying?
    Mr. FALCON. Yes, Congressman. For the first quarter of 2002, the only numbers we have released, they do pass the test.
    Mr. FORD. And you will not release the fourth quarter numbers, again, for what reason?
    Mr. FALCON. The standard I have set is that I was going to release the results for the first quarter after which all the rules were in place. Since this rule was subject to an amendment in the fall of 2001, the first quarter for which the rules were in place would be that first quarter of 2002. That is why that is the first quarter that we have released.
    Mr. FORD. So, in other words, you did not release the fourth quarter because the rules have changed. And now that the rules—now everyone is playing under the same set of rules and you feel pretty confident this is the definite, that this is the set of rules that everyone would have to play under. And based on that, they passed.
    Mr. FALCON. Yes, Congressman.
    Mr. FORD. Let me ask you this, what more do you need to do your job better, do you think, if anything?
    Mr. FALCON. I appreciate that.
    Mr. FORD. Let's be honest, that is why we are here. I am just wondering what more do you think you need, if anything?
    Mr. FALCON. I appreciate that. Now that the agency has moved forward, we have got the risk-based capital rule done, I am moving to try to strengthen the agency for the long term. And we have got several items we would like to undertake.
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    We would like to double the size of our examination staff. They are very talented and capable. But there are new challenges for them to meet. And to do so, they need to do their job with greater depth and with more resources.
    We need to continue to enhance our analytical resources so that we can utilize the stress test not just as a capital standard, but also as an analytical tool to help us do our probing for weaknesses and vulnerabilities. And then that work, in turn, goes towards our examination staff to our research staff to do their work.
    So I think all that comes down to additional resources for the agency. And the only sure way for us to do some long-term planning is for us to be permanently funded, as are every other safety and soundness regulator. And I think that is especially critical to the long-term success of the agency now that we have come this far in the first nine years.
    Mr. FORD. Let me ask you this just taking you back, do you believe you have been as—I know the chairman had some questions about documents and materials, the request that has been furnished in a timely way. Do you feel that you have complied with the law in terms of furnishing this committee with everything we have asked for—or members of this committee or, for that matter, the Congress—what they have asked for?
    Mr. FALCON. Yes, Congressman. We supplied the committee with all the information it has requested. In fact, our schedule was to try to get the information to the committee by the end of July. Given the fact that the hearing is taking place on the 23rd, we had to re-double our efforts and work evenings and weekends to make sure that we could meet the chairman's deadline, which we have.
    Mr. FORD. Do you feel like you will be able to meet that deadline now that we have got these new rules and everybody is fine?
    Mr. FALCON. Yes. We supplied the chairman with the information yesterday—the last part of it.
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    Mr. FORD. My last question may be outside of your realm and you may not want to comment on it, but do you think it is a good thing that Fannie and Freddie decided to expense these stock options since, obviously, part of what we are feeling here, in the Congress, is the need to respond to the accounting scandals and the corporate fraud that—it is not as pervasive as the headlines suggest, but clearly has served to rock the markets in negative ways?
    Do you believe that their efforts to do these things are positives—if you can answer that question, if you feel comfortable in your capacity answering that question as a witness representing OFHEO this afternoon?
    Mr. FALCON. Sure. I think it is a very positive step by the enterprises. I think it represents their desire to maintain best-in-class standards of management at the enterprises. So I think it is a positive step. I certainly support the step they have taken today.
    Mr. FORD. The zeal with which we do some of these, Mr. Chairman, I do also hope that we—the Congress, here, will act to get this corporate accounting—this corporate governance bill real soon and we will also even ensure that the SEC has what it needs. I would imagine that would be helpful in some ways to our witness today.
    With that, I yield back the balance of my time, Mr. Chairman.
    Mr. BAKER. Thank you, Mr. Ford.
    Mr. Lucas?
    Mr. LUCAS OF OKLAHOMA. Mr. Chairman, I do not have any questions, but I would gladly yield my time to the chair.
    Mr. BAKER. Well, I thank you for that courtesy.
    Let me return to the point that a couple of members made. One, Mr. Bentsen talking about the construction of the rule, as modified, that there were no significant modifications of consequence, to which I certainly agree, from a material financial calculation to Mr. Ney's comment that the rule was built to withstand depression-like scenarios that no other financial institution must meet. I, perhaps, agree with that.
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    And I think we have established in my first exchange that changes were made independent of GSE influence, pre-amendment, post-amendment; that the changes were minor; and that you do not feel it appropriate to release the fourth quarter 2001 pre-amendment results because one, the GSEs were not managing to that rule and secondly, it is somehow unfair to make that information available.
    In your March 21 response to me, you went on at length, indicating that you would comply with my request for the four differing sets of standards, indicating a two date delivery promise, one early for the post-amendment test analysis, one later for the pre-amendment analysis, but in no manner or measure did you indicate to me in that letter of March 21 that that data should be treated as confidential.
    Secondly, in light of the 1999 data—why don't you move that? Nobody can see that. It is like being in the bleachers at Tiger Stadium. Move that thing over here somewhere.
    Watch yourself, now.
    We are going to move it over here a little closer. But you can go ahead and put the other one up. But move the whole thing over.
    The 1999 data shows that Fannie Mae was not adequately capitalized for the purposes of the stress test. Now—
    That is fine. Just tell him to come on in closer. I still cannot see it. Come down over here, behind this row of chairs right in front and kind of turn it toward the director so he can see, as well as members.
    That is good right there.
    I do not know if that is close enough or not.
    Mr. BENTSEN. Everybody on this panel, except Mr. Ford, is over 30 and so most of us cannot see that well.
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    Mr. BAKER. Yes. We are going to need binoculars. We may need interpreters to understand it, too.
    Now, this is the long-awaited challenge, not-to-be-released data, which is historic in nature. And I want my two colleagues who remain to be comfortable with this.
    There is nothing in the data that pre-judges current operating condition or in any way impugns current management or in any way says that either Fannie and Freddie are not properly managed. But let's put this in its context.
    They were operating in the last quarter of 2001, which was a very volatile financial marketplace. And the eight-and-a-half year test was then applied to the two enterprises.
    What this says is that Fannie missed the mark by $600 million, whereas if you use the post-amendment test, they were in excess of the requirement by $2.4 billion.
    Is that correct?
    Mr. FALCON. Billion.
    Mr. BAKER. Billion.
    So it is a $3 billion swing from one test to the other.
    Now, we have all heard that it was—the modifications were made without GSE influence. The modifications were minor. They are of no market consequence.
    My view of the GSEs does not change as a result of this analysis. My evaluation is changing with regard to the agency. That is my point.
    And now whether or not the enterprise was in any financial duress or not is only something probably the GSE knows. But if the modifications to this test were made as a result of staff determination as to de-bugging—as to haircuts, as to multi-housing, as to funding costs and it results in a $3 billion swing, you have got to ask one of two questions. Is the test valid? Or were the changes made as a result of some political involvement in the management of the structure of this test?
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    And that is where I am.
    And now I am not going to ask the director any more questions on that point because you have made your case quite clear. You have established the test based on what you believe to be the most valid professional standards. You subsequently had staff modify the test, based on what you believe to be professional standards. And you stand by the test.
    Now let's go back to the fourth quarter of 2002 and Mr. Ney's comments. And I would certainly reserve time for Mr. Ney to come back and speak if he chose.
    But he said the rule was built to depression-like standards of conduct.
    Last quarter 2001 was a volatile financial quarter, but it was not depression-like in its nature. There was nothing that changes in the business structure of Fannie from the last quarter of 2001 to the first quarter of 2002 that makes any structural difference.
    I am just having a really difficult time in understanding how that test applied to Fannie Mae in the last quarter of 2001 could result in the analysis we get and the new test applied to the same quarter results in a $2.4 billion capital surplus.
    It does not make sense.
    Jump in, Mr. Director.
    Mr. FALCON. Sure. I would like to, Mr. Chairman.
    First with respect to your point about me not asking in I think the March letter that the information be confidential, your letter to me requesting the information did not indicate that you intended to make the information public, so I did not feel any need at that point—
    Mr. BAKER. Any time a member of Congress asks you anything, you have got to assume there is a press conference in the offing. I mean, you have been around here long enough.
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    Mr. FALCON. I know, Mr. Chairman, that—
    Mr. BAKER. And let me say this, not to be frivolous, we debated this a long time. From your first announcement that you wanted us to keep this confidential, it caused me great angst. But we have gone through all the public records documents for you, everything we can come up with to determine whether it was or is not appropriate, and, basically, it was your request to me and that was it.
    It is a public document, as a result of a government agency work product, provided to a member of Congress that has been shared with another member of Congress. So there is no question about it.
    So let's move on beyond the debate of whether we should or we should not. The more important thing is about the facts.
    Mr. FALCON. Right. And to that point, my request is certainly not binding on the subcommittee, Mr. Chairman, all I can do is make the request. And certainly it is—
    Mr. BAKER. But historical analysis is not going to make any difference to the market.
    Mr. FALCON. Let me address the issue of this chart here, please, Mr. Chairman.
    First off, this does not—this is not all the information. If we are going to put this information out in the public, I think, so that this is not taken out of context, this should be put in place with everything else that I sent you.
    Now, what the stress test shows for Freddie Mac, I am not sure if that is going to be released by the subcommittee, as well, but there is essentially little change in the numbers for Freddie Mac.
    Mr. BAKER. I would be happy to discuss that and I want to know why the discrepancy.
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    Mr. FALCON. Well, Mr. Chairman, with respect to this data, itself, if you are suggesting that we made any changes to the risk-based capital to try to effect the outcome for the enterprise in the fourth quarter, I think that is just incorrect.
    First, we did not have any fourth quarter information before us when we made decisions about how to modify the stress test. So there is no way that we could have tried to gauge the stress test to try to make them pass.
    And secondly, we had no idea of knowing which scenario would be binding—the up or the down scenario—
    Mr. BAKER. Well, let me ask you on that point, if you did not have fourth quarter, that does not really matter. You could run the test on any quarter and I suspect—
    Mr. FALCON. You cannot run the test on any quarter, Mr. Chairman, each—that requires an extensive amount of data for each quarter. The enterprises have to assemble vast amounts of data, millions of points of data, parts of information are collected and are aggregated to create what we call a risk-based capital report—
    Mr. BAKER. That would lead me to ask this question, are you then telling me that you did not run the test at all before you released it to the GSEs? You just said, ''Here is the test, figure it out.''
    Mr. FALCON. We had some idea, based on our understanding of how the risk-based capital worked, about what might be some general—how the capital standard might be impacted by modification of the risk-based capital rule. And at the time that we published the final rule on this risk-based capital amendment, we said in the amendment that our anticipation is that the effects of this will be minimal and, in essence, a wash.
    Now what you do not have up here is the up rate for Fannie Mae.
    Mr. BAKER. I am sorry, the what for Fannie Mae?
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    Mr. FALCON. The up rate; this is just the down rate scenario for Fannie Mae. You do not have the up rate here, which shows that we actually increased our capital requirement by $5 billion.
    Now, here you are saying that we decreased it by $3 billion, well we did not know which scenario would be binding. We did not even have this information in front of us. so we could just as easily have increased our capital requirement by $5 billion.
    Now you are suggesting we intentionally decreased it by $3 billion; that is not true.
    Mr. BAKER. So you are telling me if you took the fourth quarter of 2001 and ran the post-amendment test and took the same data and ran the pre-amendment test, that the differences between the two conclusions are what—minimal, not important, not clear?
    Mr. FALCON. I am not sure how they are relevant.
    Mr. BAKER. The same data, the same quarter, two different tests, one gives one result, the other gives another. They are relevant. There were modifications made to the test that caused the results to be different.
    Mr. FALCON. Oh, absolutely. I agree with that.
    Now, did we know what the results of the modifications would be? As I said, the fourth quarter was not even closed yet when I made these decisions on what modifications to make to the stress tests. So to suggest that we were results-oriented in making these changes, it is just not correct.
    Mr. BAKER. Mr. Lucas has expired his time.
    Mr. Bentsen, we come back to your side.
    Mr. Shays?
    Mr. SHAYS. I am happy to listen to questions or ask them. Which do you want me to do?
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    Mr. BAKER. Take off.
    Mr. SHAYS. Okay.
    I have already welcomed you, so I will not do that again. But it is good to have you here.
    And I would like to ask, you know, on April 8, OFHEO announced it would conduct a comprehensive review of the financial disclosure policies and practices of Fannie Mae and Freddie Mac. Can you advise this committee whether OFHEO was still pursuing this review? And when can we expect its release?
    Mr. FALCON. Yes. Thank you, Congressman.
    We are still pursuing the review with the SEC and the Treasury. And we are expecting to try to complete it by the end of the year.
    Now, that is our goal. We are going to use our best efforts to see if we can meet that goal. But we will see; maybe we will try to give you a mid-term report about how it is going.
    Mr. SHAYS. When you say join it with the SEC and Treasury, who is doing the bulk of the work?
    Mr. FALCON. That has not been established yet, Congressman. I imagine—
    Mr. SHAYS. Is the work being done now? Or is it still not—
    Mr. FALCON. Oh, yes, the work is currently being done. We are—
    Mr. SHAYS. Okay. So who is doing most of the work so far?
    Mr. FALCON. Well, we are doing a lot of research on the various types of mortgage-backed securities that are out there, the differential types of information that is released, along with each type of mortgage-backed security. And that will form the basis for us to undertake a comparison of the type of disclosures by issuer.
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    Mr. SHAYS. Can you explain to me why OFHEO has been charged with promulgating a rule that will facilitate the implementation of Fannie Mae and Freddie Mac's agreement to register and disclose to another agency the SEC?
    Mr. FALCON. As part of this arrangement where the enterprises will voluntarily register under the 1934 act, OFHEO still maintains its safety and soundness authority. And it is not in any way limited by this functional regulation, you could call it, of Fannie Mae's and Freddie Mac's security disclosures.
    In so doing, we will promulgate a rule to require that these disclosures that are filed with the SEC also get filed concurrently with OFHEO. And there are two sections in the 1934 act, Sections 14 and 16, dealing with insider trades and proxies which, because of the operation of some of the language in those sections, it is necessary for OFHEO to promulgate a rule requiring the application of those sections to Fannie and Freddie. And then, in order to comply with our rule on those two sections, all they have to do is submit the reports to the SEC.
    Mr. SHAYS. Is it unusual for one agency to basically, in essence, write the rule for another agency?
    Mr. FALCON. That is not what we will be doing, Congressman. They would be required to submit, well, for the balance, for every part of the 1934 act, except these two sections, they are voluntarily submitting themselves to the jurisdiction of the SEC for purposes of the 1934 act. And so we are not going to facilitate that implementation.
    But there are two sections for which require a little bit of a special treatment. And we are not going to promulgate a rule that in any way delegates OFHEO's safety and soundness authority. In fact, we will require compliance with Sections 14 and 16 and compliance would be through OFHEO. However, they would be able to satisfy our regulatory requirement by submitting reports to the SEC.
    Mr. SHAYS. When do you expect the rule making to be completed?
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    Mr. FALCON. I am hoping we can get that done in just a couple of months, Congressman.
    Mr. SHAYS. So by October 1 do you expect to have it done?
    Mr. FALCON. We will try—October 1.
    Mr. SHAYS. Do you expect it to be open for public comment?
    Mr. FALCON. Absolutely, Congressman.
    Mr. SHAYS. And when is the latest it would likely to take effect?
    Mr. FALCON. I think, depending on what else is in there, we may—that will affect length of the comment period. As I said in my testimony, we may include in this rule additional disclosures, supplements of those that would be required in the 1934 act. And if we do so, we will want to be sure to allow sufficient time for notice and comment.
    It could be anywhere from 30 to 60 or 90 days.
    Mr. SHAYS. What role did OFHEO play in arranging the agreement between the SEC and the two GSEs?
    Mr. FALCON. We worked with the SEC and the Treasury to make sure that this could and would work. Once we were all satisfied that this would work, we then went about just making sure that we had a meeting of minds between the three of us about how this would work.
    Mr. SHAYS. And what role will OFHEO continue to play to ensure the agreement has teeth?
    Mr. FALCON. We will require that the reports they file with the SEC also get filed with OFHEO. Our safety and soundness authority and responsibility is not, in any way, limited by the enterprises voluntary registration under the 1934 act.
    So we will continue to review them pursuant to our safety and soundness authority and review those reports, as well. And should we ever see any shortcomings, we would consult with the SEC about that.
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    Mr. SHAYS. Last week, Fannie Mae's quarterly analyst, Tim Howard, the company's CFO stated, ''We sought and obtained written concurrence from the SEC that voluntary registration under the 1934 act would not change the fact that, among other things, securities issued or guaranteed by Fannie Mae are exempt securities under the Securities Act of 1933 and may be sold without registration under that act.''
    Is Fannie Mae trying to have it both ways by assuring the administration and Congress that it will submit to the government regulation and assuring Wall Street that it will remain exempt from government regulation?
    And let me just ask this, is this an attempt by the company to perpetuate its implicit government guarantee? What is your opinion?
    Mr. FALCON. Well, what I think the statement is in reference to is, it is a statement that the waiver of their exempt status under the 1934 act does not mean that they are waiving their exemption under the 1933 act. I think that is what the statement was going towards.
    Mr. SHAYS. Have you seen this written concurrence? If so, will it be released to the public?
    Mr. FALCON. I am not sure what the written concurrence is, Mr. Chairman. And I am not sure I have seen it.
    Mr. SHAYS. Okay.
    Mr. Chairman, are we aware of what if there is anything in writing?
    Mr. BAKER. I am not.
    Mr. SHAYS. Okay.
    You know, I would just make a request that we get access to that.
    I know my red light is on and so I will come back for a second round. But I do want to acknowledge that in the questions that we had asked before—and maybe this was pointed out—it was basically—maybe in your statement as well—I am happy that Fannie Mae and Freddie Mac will have to restate earnings. And they wanted our office to know that they were going to do that on August 14. And when we asked the Treasury, they did not know, but evidently that is going to happen. And I think that is a positive thing.
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    Mr. BAKER. Thank you, Mr. Shays.
    Mr. Bentsen?
    Mr. BENTSEN. Thank you, Mr. Chairman.
    And Mr. Shays, I might recommend to you that in the testimony, Mr. Falcon's testimony on page six in the—I do not know if it is the carryover—you know, it is the first paragraph—in the fourth line it states that the ultimate arbiter of what must be disclosed will be the SEC and OFHEO.
    The testimony goes into great detail about what OFHEO is doing. I think they are to be commended for that because they are the congressionally mandated regulator for safety and soundness over the GSEs. And, in fact, they seem to be working arm-in-arm with the SEC on trying to figure out how to merge the financials for purposes of disclosure—
    Mr. BENTSEN. Our witness, I think, is very capable. So it is—but he was on this side of the aisle before. And he is a Texan, also, Mr. Shays, which is probably the main reason.
    I want to go back to the line of questioning that the chairman had on the comparison of enterprise capital requirements, pre and post final rule amendment.
    Let me restate, again, the rule went through the normal procedure. It went through the comment period. In fact, maybe even more so than normal procedure. You came and testified before this panel. You may have testified before a panel of the other body, I do not know. And had all the hoops you have to jump through with which to promulgate a rule under the laws of the United States, right?
    And so the rule is the final rule and that is what you are required by law, to calculate the risk-based capital and minimum capital standards of the GSEs, right?
    Mr. FALCON. Absolutely—that is right, Congressman.
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    Mr. BENTSEN. Now, Mr. Baker raises the concern—the broad variation in the fourth quarter Fannie Mae and first quarter—fourth quarter 2001 and first quarter 2002 Fannie Mae numbers as opposed to Freddie Mac. And I appreciate your concern of laying out unfinished work in a volatile marketplace and saying, ''Well, gee, if you looked at it this way, even though that is not what the rule says, but if you made these assumptions for whatever reason, things might look worse than they really are—''
    Mr. BAKER. Would the gentleman yield just a minute?
    Mr. BENTSEN. I may have to yield.
    Mr. BAKER. Just to clarify, the pre-amendment test was also promulgated. It was not a hip-pocket version that was short-circuited and then later saved by 60-day amendment process. It was an eight-and-a-half year product which was subsequently amended by a 60-day process. Just for the sake of understanding.
    Mr. BENTSEN. Fair enough. But nonetheless, all following the APA and the enacting legislation. But nonetheless, back to my point, I understand your concern about saying, you know, putting out supplemental data, which, at least legally, and perhaps mathematically maybe has minimal value, but in a volatile marketplace could have substantial effect.
    The changes in the amendment were primarily the haircut rules for derivative products and which would have affected the amount of capital or the amount of derivatives that the amount of capital set aside for purposes of the haircuts or the amount of derivatives that might be used for hedging purposes, and thus, the amount of capital that could be put at risk.
    And I guess it affected the service, the ratings of the servicers and the amount of capital that might have to be set aside to account for those ratings.
    And I assume there were some other technical changes.
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    Are you able to tell us, you know, since we have now delved into these numbers, perhaps more than we should, are you able to tell us what were the main reasons for the changes in the final numbers? Was it the haircut rule? Was it the servicing rating rules?
    Mr. FALCON. It was based on additional information. We ground this rule very much in data and research and analysis and try to assess the risk of the various activities of the enterprises, based on our knowledge of how mortgages perform historically, based on differing loan characteristics, for instance. And as we get additional information to better understand various risks of the enterprises, we will undertake to make modifications to the stress tests.
    And so this will be a dynamic stress test.
    If a year or two from now we have more information which allows us to fine tune this even better, we may come out with an additional amendment. The idea is to continue to refine this.
    We put out version 1.0 of this stress test. We will work towards version 2.0 and 3.0 over time.
    I think part of the difficulty for the agency in trying to get this stress test done was trying to come out with version 5.0 at the beginning. So what we have got is a very robust, strong stress test.
    Mr. BENTSEN. If I might, with the chairman's indulgence, the new information, is that information applied uniformly to both GSEs? Or is it information that is specific to one portfolio or another?
    Mr. FALCON. It is information that is general information; it might be data, combined enterprise data. It might be research produced by either OFHEO or by some other third party about the performance of mortgages as a better estimation of counter parties.
    It does not necessarily have to be enterprise specific data or analysis. In fact, it usually is not.
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    Mr. BENTSEN. I yield back.
    Mr. BAKER. Thank you, Mr. Bentsen.
    Mr. BENTSEN. Thank you.
    Mr. BAKER. I am going to go to Mr. Shays. He has schedule constraints.
    Mr. Shays?
    Mr. SHAYS. Thank you very much.
    Thank you, Mr. Chairman, for yielding to me.
    And I would like to turn our attention to mortgage-backed securities and have you share with us whether Fannie Mae and Freddie Mac should continue to enjoy an exemption from disclosure in what is their mortgage pools. You know these two companies better than just about anyone. So I am particularly interested in your views on this issue. And are you comfortable with the continued exemption?
    Mr. FALCON. Mr. Chairman, I think rather than give any opinions at this point, that is, I want to have the best possible information in front of me before I form judgments like that. That is why we are undertaking this study with the SEC and the Treasury.
    Mr. SHAYS. Do you have a lean one way or the other?
    Mr. FALCON. I cannot say right now, Congressman, because I have not reviewed the information that is put out by non-GSE issuers of mortgage-backed securities. So I would want to first compare what they put out versus what the enterprises put out.
    Mr. SHAYS. But it is true that Wells Fargo, for instance, would have to disclose when they put together a pool. So I mean, it is just not some kind of strange activity for the business to have to do, correct? I mean, we have certain parallels that we can look at, correct?
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    Mr. FALCON. Right. Any issuer of debt, just by virtue of what the market will demand, will put out some level of disclosure that a companies that debt. That is your—
    Mr. SHAYS. Last week, Treasury Undersecretary Peter Fisher testified, quote, ''The time has come for Fannie and Freddie's investors to be assured that the level and quality of the corporate disclosure they receive are the same as those that are made by any other company that actively participates in our capital markets.''
    In your own testimony, you stated that OFHEO is, quote, ''prepared to issue a rule requiring disclosure that would be, at a minimum, comparable to those of other trading companies'', end of quote.
    I do not quite understand this. How can we profess to want to treat Fannie and Freddie like any other publicly traded company and then qualify these statements by talking of continuing their exemptions from one of the two major security disclosure laws?
    Mr. FALCON. I think that is—what is important here is the disclosure. The benefit you get with registration is the disclosure. And what we are trying to do with this study is ensure that there is a level playing field and adequate information that accompanies the issuance of mortgage-backed securities.
    If we can, as I said in my testimony, if we can accomplish that, and I am very confident that we can establish adequate information, as well as the level playing field, through the cooperation and the joint study by ourselves and the SEC and Treasury, then registration is unnecessary. I am confident that we can get there with the right disclosure rules.
    Mr. SHAYS. Isn't basically registration and disclosure somewhat parallel?
    Mr. FALCON. I think that is right.
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    Mr. SHAYS. Yes. So the question is do you stand by your statement that OFHEO is prepared to issue a rule requiring disclosures that will be, at a minimum, comparable to those of other trading companies?
    Mr. FALCON. Which—are you reading from my testimony, Mr. Chairman?
    Mr. SHAYS. Yes.
    Mr. FALCON. I think what I said—that at—prior to the enterprises' voluntary registration under the 1934 Act, we were prepared to issue a rule which would place them under requirements similar to the securities laws.
    But since they have voluntarily submitted themselves under the 1934 act, we are not going to pursue a registration regime at this time. And the issue, with respect to the application of the 1933 Act and disclosures on their mortgage-backed securities—focus there will be on the adequacy of disclosures and the level playing field.
    Mr. SHAYS. Mr. Fisher made it very clear to us that he certainly encouraged Fannie and Freddie to be under the 1934 Act. And I am interested to know, did you play that same kind of role? Or were you passive on this?
    Mr. FALCON. We were certainly supportive of the enterprises coming under a mandatory disclosure regime. And if it was not going to be under 1934 Act, then OFHEO was prepared to issue such a regulation. And I said so in response to an OMB prompt letter on the subject, as well.
    Mr. SHAYS. Okay.
    Can you explain—and I am pursuing this a little more deeply—can you explain why Fannie and Freddie will continue to enjoy an exemption from registering their MBSs? I would like for you to answer this question keeping in mind that companies in the jumbo market, in which Fannie and Freddie do not participate, are required to register their mortgage-backed securities. What makes Fannie and Freddie's mortgage-backed securities different, for instance, than the mortgage-backed securities, again, of Wells Fargo?
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    Mr. FALCON. I am not sure I can answer, Congressman, that is a judgment that Congress has made. And I would just defer to Congress' rationale for doing that when it granted the enterprises that exemption.
    Mr. SHAYS. You that—you are on a little bit dangerous ground only because that would imply that you do not have opinions that you would present to Congress. Do you not ever have an opinion or a suggestion that you would make to Congress?
    Mr. FALCON. No, Congressman. It is just in this area where we are studying the adequacy and the comparability of mortgage-backed security disclosures—it is just in this area where I am trying to approach this with an open mind and not pre-judging the issues as we go forward with that study.
    Mr. SHAYS. Just one other, may I, Mr. Chairman, just pursue one other short line of questions?
    Regarding the interagency review of mortgage-backed securities that will be conducted by SEC and OFHEO and the Treasury, can you tell me whether this study will examine both disclosure and registration of mortgage-backed securities? If not, why not?
    And I will put this question out on the floor, too, just so—will the study investigate allegations that Fannie and Freddie cherry-picked the mortgage-backed securities, leaving lower quality mortgage pools for investors?
    By the way, I want to say that Fannie Mae and Freddie Mac say this does not happen. And I am just suggesting that there is a question of whether it does or not and want to know if cherry-picking will be one of the issues you look at in your review.
    Mr. FALCON. I think that is certainly an issue we will give some review, Congressman.
    Mr. SHAYS. Okay.
    Thank you, Mr. Chairman, for your patience and for yielding to me.
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    Mr. BAKER. Thank you, Mr. Shays.
    Mr. Ford, please?
    Mr. FORD. Thank you, Mr. Chairman.
    This has become somewhat humorous, Director. We are glad you are here, but we are debating something up here and you are just caught in the middle of this thing. so we apologize for you having to answer things that sometimes you feel uncomfortable and maybe even inappropriate.
    But I am going to try to ask you something that I think is appropriate. And, obviously, I am a little biased about it.
    But if you would not mind, forgive me, to compare and contrast the regulatory regime for Fannie Mae and Freddie Mac as it relates to safety and soundness. I imagine that you do not necessarily—at least not in this life you are not crafting things for these private enterprises, but if you would not mind giving us a sense, if you have a knowledge of that—if you could speak to that, I would appreciate that.
    Mr. FALCON. Sure. Our regulatory program, Congressman, is very much identical to the type of regulatory program that banks have. We have very talented and skilled examination program, much like the bank regulators. We have a regulatory infrastructure which sets standards and expectations that we have for the enterprises, along with other informal types of standards, guidances, agency interpretations.
    We have an active research group which helps us understand developments in the marketplace and the changing risk profiles of the enterprises. You know, we have talented financial analysts that can look at the enterprises balance sheets and results from the stress tests and try to help us better understand their vulnerabilities.
    So our program is very comparable to that of any other bank regulator.
    Mr. FORD. As it relates to—and this is a similar question, I am just trying to get it all on the record here, but how would—under this risk-based capital standard, how would other companies, primarily private banks, fair under this thing? I am not asking you to grade my bank, or for that matter, any other bank, but just a sense, because, again, we are—Chris Shays is my good buddy and he is writing a lot of things, particularly campaign reform. Richard Baker and I are good friends. He 's writing is lot of things, too.
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    And I do hope the kinds of questions that we are asking Fannie and Freddie—I hope at some point we can also bring in these doggoned credit reporting agencies and ask them—put up some charts like that and explain how they misreport peoples' stuff and how they go about fixing it.
    But since they are not here, in terms of risk-based capital centers, how do you—how would they fair, some of these other companies fair in comparison to how Fannie and Freddie fair?
    Mr. FALCON. I could not say without having, you know, a broad range of financial information about those companies. We get very deeply into Fannie and Freddie's activities beyond just what they might release in—
    Mr. FORD. Forgive me for asking you to go beyond, but just, even if you do not feel like answering it, do not answer it, I just thought I would just put it out there because I think it—
    Mr. FALCON. It is a very rigorous stress test. It imposes very stressful economic conditions on their balance sheets. You know, it is not the type of stress test that any other financial company has to be able to withstand, as a capital standard.
    It would, I think, pose a challenge to many institutions to try to survive this.
    Mr. FORD. I would if it would be appropriate, the chairman knows a lot more about these issues than I do, but I would hope—and I will yield back my time—I would hope that maybe we can even add and not to put any of these institutions on the spot, including my own financial institutions.
    But at the same time, if we are going to be as demanding on these two organizations as we are—for good reason—and hopefully what will come out of this hearing is a safer and sounder system, then we should probably ask some of these other companies to provide or furnish us with this same kind of data.
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    I do not know if you want to, necessarily, do it, Director, but if, indeed these tests are conducted. But I would ask the chairman if we could take a look or if he would consider doing it. I know I would support an effort to do that.
    And with that, I yield back the balance of my time.
    Mr. BAKER. Thank you, Mr. Ford.
    I guess I can best express my situation this way, Mr. Falcon, after eight-and-a-half years, we had a test. We gave the test; one GSE passed; one GSE failed. Ninety days later, we have another test. Amazingly enough, both GSEs passed.
    Imagine what our public school system would look like if we gave everybody in the class a test. And then 30 days later, we came back and gave them exactly the same test with prior announcement. I bet our test scores would go up.
    Or if, before our children could go out to play in the afternoon, we asked them, ''Did you clean up your room?'' ''Oh, yes, dad, sure. But could you come back about seven and check it out?''
    That is my problem here. We have a test that was developed after eight-and-a-half years of very intense, very hard work with congressional oversight, people fighting to protect your budget, get you the staff you needed. And I feel, frankly, very let down. At the end of the day, we have got a process, by virtue of haircuts on mortgage insurance companies, multi-family housing treatment, funding costs and some technical stuff I do not understand that we find such an erratic swing in the financial adequacy in relation to the stress test of one GSE.
    I have just got to tell you that I am not comforted either by the written or oral explanations of how we are where we are. Something has to be done about this.
    Now, I am not faulting you, individually. I may be faulting the process. I may be faulting the structure of OFHEO. It is, after all, the only regulatory body in the financial world that is funded by congressional appropriation instead of fees on the regulated enterprises.
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    There may be other regulatory powers you need you do not have.
    But I have just got to tell you, this is unacceptable that—I do not know where we go from here. But there has got to be another place to land that can give the taxpayer of this country an accurate honest assessment of the true risk exposure they face in the indirect support of two enterprises which have over $3 trillion of exposure to this economy. That is enormous.
    And in light of the financial conditions of the market we face today, giving all the allegations that are floating—thank goodness we are not hearing any of that about Fannie or Freddie. I can only imagine the consequences if one of these two corporations were to report a financial irregularity.
    I am not alleging today that either of the enterprises are mismanaged—that they are taking on risk that they should not take. But I do not know what the road holds ahead. I do not know if the current management is going to be there 10 years from now. I do not know that the tools OFHEO has are going to be adequate as the enterprises continue to grow and expand.
    If we look back a decade and see what they looked like then and look at them today, there is a dramatic change in the risk profile of the two enterprises. One has a fairly significant amount of hedges in relation to the debt issued. The other one does not. Does that mean the other one is not appropriately managed? I do not think so.
    But we need to have a better, clearer insight which leads to less debate.
    I have not heard any explanation as to why the changes that were made—one, were made; two, as to how they could result in a $3 billion shift in the calculation resulting on the last quarter's calculations of 2001; and why I should be comforted in the manner in which the discussions have resulted in this foster.
    And, again, I say this having been in the trenches with you and fought the appropriators for a long time to get you into the place where I felt like we had the resources to at least stand toe-to-toe with them.
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    I really do not have anything else to add. I just, over the August recess, I am going to give this a lot of thought—try to come back with something that is constructive. And I hope we can find a way to, once and for all, answer the questions that I know every taxpayer has got to want to know—am I safe? Given the volatility in the markets we face, we do not need this additional concern added into the financial calculus.
    And I, please, want to afford you the opportunity to make any comments you wish.
    Mr. FALCON. I appreciate that, Mr. Chairman. And you have always been the—supportive of OFHEO when we have needed it in our budgets. It often feels like a form of tough love that you have for the agency.
    But it is, I think, you are well intentioned about trying to support the agency.
    I would just suggest to you that the information that you put up here on the chart—I do not think it is an accurate demonstration of what we have done with this risk-based capital rule.
    In addition, the reason I think this information is also somewhat misleading about the enterprises' financial condition and what we have done is that I announced early in the fourth quarter that we were not going to release fourth quarter data. Now, had the enterprises understood that I was going to release fourth quarter data, would they have done something differently? Well, I do not know.
    Mr. BAKER. But on that point—let's take the issue—they did not know, so they were not managing to it. They were taking risks we did not understand? Are you telling me we should not give pop quizzes? That we should drop in as a regulator—as an unannounced inspector of the credit files and see what is going on in the inner-enterprise? Are you telling me we have to give them a certified notice, ''We have coming June 14, 2003. Get your lipstick and your hair done''? I mean, come on.
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    Mr. FALCON. It depends on what you want out of the capital standards. I do not use them as a game of ''Gotcha.''
    Mr. BAKER. No, I do not either, but I want to know what real risk is involved in the real world and what we are taking on. And apparently—
    Mr. FALCON. And I think this rule does that. You know, I would like to have an opportunity, going forward, to try to persuade you that we have promulgated a very robust and strong risk-based capital rule. And we will be glad to give you a more in-depth explanation about the changes we have made.
    They are certainly well explained in the final rule that implemented the modifications—
    Mr. BAKER. Well, the only—last point is that let's assume for the moment I am wrong on every point and that there is no merit to any of the criticisms I have leveled here today—why are we waiting until the first quarter of 2003 to implement the rule—to make it enforceable?
    Mr. FALCON. That is what the statute provides, Mr. Chairman. The statute says that this shall not be enforceable until one year after it is effective. That is what the statute says.
    Mr. BAKER. One year from September 2002 or—
    Mr. FALCON. One year from September 2001.
    Mr. BAKER. So that would be September 2002?
    Mr. FALCON. Yes.
    Mr. BAKER. So why are we waiting until the first quarter of 2003?
    Mr. FALCON. We are not. this rule will be—
    Mr. BAKER. Well, that is good news. I was under the impression you were not going to have it enforceable in 2003.
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    Regardless, I am saying to you that there is significant problems with the structure we now have. We need to make some modifications. We have got the August recess to see if we can figure out some solutions.
    I look forward to talking to you.
    Unless Mr. Bentsen—yes—well, please, Mr. Bentsen?
    Mr. BENTSEN. Thank you, Mr. Chairman.
    And, again, let me thank you for calling this hearing. And even when we do not agree, I appreciate the amount of time and effort you put into this.
    I think, though, we need to make clear that there may be two issues here. One may be a process issue, although I would argue that we followed the—you know, we have been going through this with the APA. We had a hearing before this committee. Members of this committee on both sides of the aisle raised concerns about the proposed final rule. Amendments were made under the APA. And that is the final rule.
    And so on the one hand, we can raise concerns about the process. And they are legitimate. But on the other hand—and on any rule-making procedure. On the other hand, the question really has to be are you satisfied with the formula for the risk-base analysis and the minimum capital analysis? And if you are satisfied, then it is what it is. And if you are not satisfied, then that is another matter to look at.
    Perhaps the committee ought to take a look at whether or not we think, after all this work and the eight—10 years that the staff and analysts have been looking at this—whether or not the math is right or not, but the math is what it is.
    And we have to live with that and then in September they will begin to classify. And you have to pick markers in time with which they meet.
    I agree with you that—I mean, as I understand the laws and the way it works, OFHEO is in the GSEs. They are, as in many respects, the same way that bank examiners are in the bank. But they have to look at quarterly mileposts as they go through this to determine where they are in terms of capital.
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    But, again, it is gone through the APA and maybe our debate has to come down to we do not like what you finally came up with. But you put a lot of time into it and we have not heard a lot of people come back and say, ''We think your formulas are wrong.''
    And maybe that is what they need to do, but they have not done it yet.
    Mr. BAKER. And I would suspect that there are not a lot of people in the world who sit around their breakfast table in the morning discussing the stress test adequacy of the government-sponsored enterprises.
    Mr. BENTSEN. Only in Baton Rouge, I think.
    Mr. BAKER. I can assure you when I get home I turn into a real person.
    Let me express this perspective, just to keep it in its proper context. When I wrote the letter to Mr. Falcon asking for the four permutations of the test, I really had no anticipation—nobody could have—as to exactly what the consequences. Because Mr. Falcon has testified that he did not know what the results of the test would be. It took considerable effort and time to run the test.
    I was kind of hoping that they would all come out within margin of error of each other and we could go on about our business. But I thought it would be a great thing for this committee to have, as a platform for future analysis, the four tests on two quarters run and we could then judge future test results by that platform.
    And I had a hint, when it took so long to get number four, that there was something up. But I had no substantive knowledge that the end result of that last test would be to show a GSE insufficient in relation to the test standard.
    That really was it.
    But now that it has occurred and I am trying to understand why and how, I am not at all happy with the consequences or the explanation as to how we got where we are. Because a $3 billion swing, even in GSE light world, is a significant swing.
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    So for the record, I appreciate the long-standing effort.
    I appreciate, certainly, the gentleman's work from Texas in sitting through these hearings. You have been one of the few who has been able to make it through all of these.
    I am sincere in my concerns. I do not feel I know today any more about the true financial picture of the GSEs than I did five years ago. And after time, money and effort spent in this effort, that is, I think, rather disappointing.
    So I thank the gentleman for his testimony, his willingness to be here today. I am confident the release of this data has no consequence to the market performance whatsoever.
    And I look forward to working with the members of the committee on resolution of these matters in the coming months.
    Meeting adjourned.
    [Whereupon, at 3:53 p.m., the subcommittee was adjourned.]