PACB Letter to U.S. Senator Rick Santorum

July 28, 2005

The Honorable Rick Santorum
United States Senate
511 Dirksen Senate Office Building
Washington, DC 20510

Dear Senator Santorum:

The Pennsylvania Association of Community Banks (PACB) strongly supports congressional efforts to improve the regulation of the housing GSEs. These institutions give community banks access to the capital markets on an equitable basis that is vital to our customers’ ability to obtain home financing.

PACB believes it is essential that any housing GSE regulatory legislation establish an independent, properly funded, world-class regulator. It is also essential that Congress ensure that the new regulator maintain the unique structure and mission of the Federal Home Loan Bank System, preserve the GSE status of the enterprises, and protect the stability of the housing markets.

Given these principles and concerns, PACB makes the following recommendations:

Do Not Require GSEs to Register Under the ’33 Act. The GSEs have agreed to register securities under the Securities Exchange Act of 1934. This will provide investors with regular disclosures so that they may make informed decisions when considering investing in the debt and (in the case of Fannie Mae and Freddie Mac) the stock of the GSEs. (We note that S. 190 includes clarifications that will direct the SEC to recognize the unique nature of the Federal Home Loan Banks.) However, requiring the GSEs to register their debt under the Securities Act of 1933 would be tremendously disruptive to the home lending market. These companies raise funds in the debt market many times each trading day. The smooth operation of these transactions is critical to homebuyers.

Limit the Regulator’s Authority to Liquidate and Merge FHLBanks to Safety and Soundness. As the law is re-written to create a new regulator for GSEs with the powers of traditional bank regulators, PACB recommends that Congress clarify that the new regulator may require the merger of existing Federal Home Loan Banks only for safety and soundness purposes. Existing law allows the regulator to force the liquidation or merger of FHLBanks to promote efficiency when there is no safety and soundness basis to do so. Absent safety and soundness concerns, this should be a business decision for the FHLBanks and their shareholders to make, not the regulator.

Give the Regulator Flexible Capital Authority. The new GSE regulator should have capital authority similar to that employed by bank regulators to make adjustments to ensure the safety and soundness of the enterprises.

In conclusion, PACB appreciates your willingness to consider our concerns as the Banking Committee moves forward on legislation to improve the regulation of the housing GSEs. We look forward to working with you as this legislation moves through the process.

Sincerely,

Frank A. Pinto
President/CEO