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WASHINGTON – The legislative clock ran out last year before Congress and the Senate were able to get legislation passed that would tighten the regulation of the housing Government Sponsored Enterprises. This year the chairman of the House Financial Services Subcommittee on Insurance, Capital Markets and Government Sponsored Enterprises, is more certain the House and Senate will pass GSE reform legislation in 2005. Rep. Richard Baker (R-La.), bolstered by the Fannie Mae accounting mismanagement situation on the heels of the Freddie Mac accounting scandal, said he expects to introduce his regulatory reform bill by mid-March, and said his new bill will be “more expansive” than the previous one he introduced to reform the GSEs’ regulation. He is currently working with House Financial Services Committee Chairman Mike Oxley (R-Ohio) in crafting the lower chamber’s version of a GSE reform bill. Baker’s first bill – H.R. 2575, the Secondary Mortgage Market Enterprises Regulatory Improvement Act – that he introduced in July 2003 would have abolished the Office of Federal Housing Enterprise Oversight (OFHEO) and created a new government regulator for the GSE. Baker was pushing for the regulation to be moved under the Treasury. That bill saw last major action Sept. 25, 2003 at a Subcommittee hearing. In April 2004, the Senate Banking Committee marked up similar legislation drafted by Chairman Sen. Richard Shelby (R-Ala.) and ranking member Sen. Paul Sarbanes (D-Md.). Baker’s and Shelby’s respective bills each garnered a good number of co-sponsors, but neither one made it out of committee. In his opening statement at the Capital Markets Subcommittee hearing on “Accounting Irregularities at Fannie Mae” on Feb. 9 – the first meeting of the subcommittee in the 109th Congress – Baker clarified the reason for the subcommittee convening while “not a pleasant task, it is an essential one.” He accused Fannie Mae of being able for many years “to bully their way through myriad regulatory processes and political engagements unscathed.” He further told the subcommittee members that he hoped “the committee will produce legislation responsive to what is now a fact, and that is that Fannie Mae was not and is not the institution that we had all hoped. They were subject to the same pernicious forces that affected others in the pursuit of profit.It is now our task to return them to their principle task, to pave the way to home ownership for all Americans, but with emphasis on those who have never had the opportunity to own their own home. It is also necessary to insure that their risk taking does not put at risk hardworking taxpayers of this country.It is my intention to see this happen during this session of Congress.” Ranking Subcommittee Democratic Member Paul Kanjorski stated that his primary focus “will be to determine whether other public entities that use derivatives could also have difficulty in accounting for those complex financial instruments. “Although derivatives serve a useful purpose in spreading risk, I am concerned that if Fannie Mae encountered difficulties in accounting for these contracts, then other financial services providers may also have comparable problems that could cause difficulties for our economy.” Kanjorski reaffirmed his position concerning the need to have “strong, independent regulators that have the resources they need to get the job done. I can assure everyone that I continue to support strong, world-class and independent regulation for Fannie Mae and Freddie Mac.” Also speaking at the opening day of the hearing were Subcommittee members Reps. Paul Gillmor (R-Ohio), Ruben Hinojosa (D-Texas), and Wm. Lacy Clay (D-Mo.). Donald Nicolaisen, chief accounting for the SEC also addressed the Subcommittee. -

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