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Legislative Updates

June 26, 2007

This update covers developments since the last update (4/17/07).

I. GSE Regulatory Reform

As the 110th Congress enters the mid-point in its first term, changing the regulatory structure for the GSEs has made progress, good progress, on its way to final passage. On May 22, the House of Representatives passed H.R. 1427 by a very respectable margin of 313-104. Significant obstacles remain, and it may end up that this legislation, like so many bills before it, will only go over to the Senate to die.

Senate Banking Committee Chairman Chris Dodd (D-CT) has not given any timetable for Senate consideration, and action in the near future is unlikely. Part of this is due to the fact that his schedule is dominated by his campaign for the Democratic presidential nomination. Part of this is the fact that the Senate Democrats were never as enthusiastic about reining in Fannie Mae and Freddie Mac as their House counterparts.

The main issues in the Senate, as in the House, will be the creation of an Affordable Housing Fund (AHF) for Fannie Mae and Freddie Mac similar to the FHLBank Affordable Housing Program and the ability of the regulator to control portfolio growth at Fannie Mae and Freddie Mac.

II. Update on Legislation to Allow FHLBank Standby Letters of Credit (SLOCs) on Certain Tax-exempt Bonds

H.R. 2091 was introduced on May 1 by Rep. Sander Levin (D-MI), a member of the Ways and Means Committee. He was joined as original cosponsors by Ways and Means member Phil English (R-PA), the Chairman and Ranking Member of the House Capital Markets Subcommittee Rep. Paul Kanjorski (D-PA) and Rep. Deborah Pryce (R-OH).

H.R. 2091 amends Section 149 of the Internal Revenue Code (IRC) to add FHLBanks to the list of GSEs that can credit enhance tax-exempt municipal, industrial development and other private activity bonds. Fannie Mae, Freddie Mac, Ginnie Mae, FHA, and VA have been permitted since 1984, under the IRC, to provide such credit support. FHLBanks are currently limited to SLOCs for taxable bonds and tax-exempt housing bonds.

At the national level, H.R. 2091 is supported by America’s Community Bankers, the American Bankers Association, the Independent Community Bankers of America, the Mortgage Bankers Association, the National Association of Homebuilders, the National League of Cities, the US Conference of Mayors and others.

In addition to Representatives English and Kanjorski, House cosponsors from the FHLBank Pittsburgh district include Rep. Jason Altmire (D-PA), Rep. Robert A. Brady (D-PA), Rep. Shelley Moore Capito (R-WV), Rep. Michael F. Doyle (D-PA), Rep. Jim Gerlach (R-PA), Rep. Tim Holden (D-PA), Rep. John P. Murtha (D-PA), Rep. Todd Russell Platts (R-PA), Rep. Nick J. Rahall, II (D-WV), and Rep. Allyson Y. Schwartz (D-PA).

III. The Horizons Project

The Farm Credit System (FCS) is a GSE chartered by Congress to provide credit to farmers, ranchers, farmer-owned businesses, and rural home owners. Unlike FHLBanks, the FCS has the authority to engage in direct lending. The FCS is seeking a rewrite of the Farm Credit Act, which has become known as the “Horizons Project.” Horizons would allow the FCS to make mortgage loans in communities up to 50,000 (up from the current 2,500) and allow a broad expansion of direct commercial lending to anyone who supports farmers or ranchers. This language would allow almost unfettered commercial lending in rural communities.

The Horizons Project is being considered as part of this year’s omnibus Farm Bill, which re-authorizes a broad range of programs before the expiration of existing authority on October 1, 2007. All the major banking trades oppose the Horizons project and are seeking to separate it from the Farm Bill.

On May 23, the key subcommittee of the House Agriculture Committee, chaired by Rep. Tim Holden, reported out language that allows the FCS to make mortgage loans in communities up to 6,000 and make commercial loans to businesses that support “renewable energy.” This language is extremely broad.

The full Agriculture committee will take up the legislation in July. The Senate schedule has not yet been announced.