Barney Frank

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, I ask unanimous consent that all Members have 5 legislative days in which to revise and extend their remarks and include extraneous material with regard to this bill.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield back the balance of my time.

Mr. FRANK of Massachusetts. Will the gentlewoman yield?

Mr. FRANK of Massachusetts. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 5981) to increase the flexibility of the Secretary of Housing and Urban Development with respect to the amount of premiums charged for FHA single family housing mortgage insurance, and for other purposes.

Mr. FRANK of Massachusetts. My answer is absolutely, we will have the commissioner. I have to say HUD, the Secretary and the commissioner have been very cooperative, and we will have such a hearing in September.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself such time as I may consume. We have for these couple of years now had a bipartisan effort that began in the Bush administration and has been continued in the Obama administration--and it's been bipartisan on the Committee of Financial Services--to make sure that the FHA is both an effective and an efficient means for housing finance. Having a reliable way to provide the funding needed for housing finance in its various aspects is important both for the citizens who benefit from it and for the economy. The FHA had not been in a great shape. We have a package of measures and we have had administrations--and as I say it's been bipartisan on the two administrations in our committee--to improve the FHA's capacity, to increase its capacity, but also to provide that it will be done in a reasonable way. This House passed earlier this year overwhelmingly, by a bipartisan vote, a comprehensive reform of the FHA. It may shock the Members to know, Mr. Speaker, that the United States Senate has not acted expeditiously on this noncontroversial measure, and there are a couple of pieces of it that cannot wait. It is my intention--and I want to assure the gentlewoman from West Virginia, the ranking member of the subcommittee who put a lot of good work in this bill and who was responsible for some of its most important provisions and safeguards--that we do not intend to let those die. We will continue to press the Senate for the rest of this bill; and we will also, in accordance with what we have said, have the administrator of the FHA before us to talk about how this is being done. But what we need to do now is to take the authority we gave the FHA to raise the fees--this is a bill when it had the CBO certification they say doesn't result in any direct spending. In fact, it will save money. It will price the FHA appropriately. People have been worried about the FHA's fiscal solvency. This helps it. So it's a bill--and I will say finally, it's taken from the larger bill we have passed. We are reenacting today a small piece of a comprehensive bill because while I am still fully committed and I know others are to the comprehensive bill, it's important we do this now. We're about to be without legislative capacity for 6 weeks. So I urge that the House pass the bill. I reserve the balance of my time.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 5872) to provide adequate commitment authority for fiscal year 2010 for guaranteed loans that are obligations of the General and Special Risk Insurance Funds of the Department of Housing and Urban Development, as amended.

Mr. FRANK of Massachusetts. I ask unanimous consent that all Members have 5 legislative days within which to revise and extend their remarks and to insert extraneous materials on this bill.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself such time as I may consume. The FHA has become a very successful program. It has taken up a lot of the slack that was created by problems elsewhere in the housing area. It is being run very well. Secretary Donovan and Administrator Stevens deserve a great deal of credit. In a bipartisan way, the Committee on Financial Services has cooperated with them. We recently passed a bill, again a bipartisan bill, and the ranking member of the Housing Subcommittee, the gentlewoman from West Virginia (Mrs. Capito) is here, to enhance their authority to allow them to do a better job statutorily of guarding against abuse and fraud. The program's been sufficiently successful so that they have now run out of commitment authority. This bill would give them $5 billion more in commitment authority. But it is not an expenditure. Indeed, it is the opposite. This will save $94 million because we have structured the FHA today, and it's being run in a way that it makes a small profit for the Federal Government. If we do not pass this bill before the end of next week, us first and then the Senate, the FHA program will stop until October. That will deny people housing, and this is housing, homeownership and other forms of housing, that is responsibly done. It will be a further shot to the housing sector of the economy which is so important. I add letters from the American Bankers Association and a joint letter from virtually every organization that deals with housing from the standpoint of consumers, or from the standpoint of financing, also from the standpoint of people in the business of providing housing. So providers of housing, financers of housing, sellers of housing, consumers of housing all agree that we need this bill. It should not be controversial because it extends a very successful program, stops it from being interrupted between now and October, and it will present savings of $94 million. I reserve the balance of my time.

Mr. FRANK of Massachusetts. I yield myself 1\1/2\ minutes to say that some of the homeownership parts will continue, but there are very important pieces here involving health care facilities, involving multi-family housing, and there is some homeownership which would be lost if we were not able to do this. So I am glad to be joined by my colleague from West Virginia, and I hope that the House will promptly pass this bill and that the Senate will even promptly pass this bill, although that's always a greater hope. July 28, 2010. Hon. Barney Frank, House of Representatives, Washington, DC. Dear Representative Frank: Our organizations would like to express strong support for H.R. 5872, The General and Special Risk Insurance Funds Availability Act of 2010. Recently, the Federal Housing Administration (FHA) notified Congress that it had exceeded 75 percent of its commitment authority to insure mortgages under the General Insurance and Special Risk Insurance (GI/SRI) Fund. FHA Commissioner David Stevens further warned that without an additional $5 billion in commitment authority, the agency's current limitation would be fully exhausted by late August or September. FHA is now facing the real possibility that it will have to shut down the multifamily and health care insurance programs. Without swift passage of H.R. 5872, needed affordable rental housing and health care facilities could be at risk of losing time-sensitive financing and subsidy commitments as a result. Properties with maturing loans that must refinance could be at risk of losing the only source of refinancing available in the market at this time. The consequence is the delay or loss of bringing affordable housing to those people who need it so much. As you know, during this period of significant turmoil in the credit markets, FHA's multifamily and health care programs have been a critical source of stable and affordable financing. We cannot afford a suspension of these important programs now. We strongly urge Congress to act expeditiously to provide FHA with the additional commitment authority it is seeking. Failure to do so before Congress recesses this summer will cause significant disruptions to financing for apartment, hospital, and health care facilities that serve millions of Americans. We thank you in advance for your support for H.R. 5872. Sincerely, American Health Care Association; American Association of Homes and Services for the Aging; American Seniors Housing Association; Assisted Living Federation of America; Coalition for Seniors Health Care Reform; Council for Affordable Rural Housing; Committee on Health Care Financing; Housing Partnership Network; Institute of Real Estate Management; Institute for Responsible Housing Preservation; Mortgage Bankers Association; National Apartment Association; National Affordable Housing Management Association; National Association of Affordable Housing Lenders; National Association of Home Builders; National Association of Realtors; National Council of State Housing Agencies; National Leased Housing Association; National Multi Housing Council; New York Housing Coalition; Settlement Housing Fund; Stewards of Affordable Housing for the Future; Volunteers of America.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. I appreciate it, and I hope he would then join me in something really significant like getting our troops out of Iraq for a year and a half and save about a thousand times as much as this motion to recommit.

Mr. FRANK of Massachusetts. Will the gentleman yield?

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, I yield 13 minutes of my time to the gentleman from Minnesota (Mr. Peterson), the chairman of the Agriculture Committee, our co-conferee, and ask unanimous consent that he control that time.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield 4 minutes to the gentlewoman from California (Ms. Waters), one of the leaders in housing and matters of fairness in our committee, the chairman of the Housing Subcommittee.

Mr. FRANK of Massachusetts. I yield the gentleman 15 additional seconds. And the gentleman is absolutely right. We do differentiate between end users and others. The marginal requirements are not on end users. They are only on the financial and major swap participants. And they are permissive. They are not mandatory, and they are going to be done, I think, with an appropriate touch. U.S. Senate, Washington, DC, June 30, 2010. Hon. Chairman Barney Frank, Financial Services Committee, House of Representatives, Rayburn House Office Building, Washington, DC. Hon. Chairman Collin Peterson, Committee on Agriculture, House of Representatives, Longworth House Office Building, Washington, DC. Dear Chairmen Frank and Peterson: Whether swaps are used by an airline hedging its fuel costs or a global manufacturing company hedging interest rate risk, derivatives are an important tool businesses use to manage costs and market volatility. This legislation will preserve that tool. Regulators, namely the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and the prudential regulators, must not make hedging so costly it becomes prohibitively expensive for end users to manage their risk. This letter seeks to provide some additional background on legislative intent on some, but not all, of the various sections of Title VII of H.R. 4173, the Dodd-Frank Act. The legislation does not authorize the regulators to impose margin on end users, those exempt entities that use swaps to hedge or mitigate commercial risk. If regulators raise the costs of end user transactions, they may create more risk. It is imperative that the regulators do not unnecessarily divert working capital from our economy into margin accounts, in a way that would discourage hedging by end users or impair economic growth. Again, Congress clearly stated in this bill that the margin and capital requirements are not to be imposed on end users, nor can the regulators require clearing for end user trades. Regulators are charged with establishing rules for the capital requirements, as well as the margin requirements for all uncleared trades, but rules may not be set in a way that requires the imposition of margin requirements on the end user side of a lawful transaction. In cases where a Swap Dealer enters into an uncleared swap with an end user, margin on the dealer side of the transaction should reflect the counterparty risk of the transaction. Congress strongly encourages regulators to establish margin requirements for such swaps or security-based swaps in a manner that is consistent with the Congressional intent to protect end users from burdensome costs. In harmonizing the different approaches taken by the House and Senate in their respective derivatives titles, a number of provisions were deleted by the Conference Committee to avoid redundancy and to streamline the regulatory framework. However, a consistent Congressional directive throughout all drafts of this legislation, and in Congressional debate, has been to protect end users from burdensome costs associated with margin requirements and mandatory clearing. Accordingly, changes made in Conference to the section of the bill regulating capital and margin requirements for Swap Dealers and Major Swap Participants should not be construed as changing this important Congressional interest in protecting end users. In fact, the House offer amending the capital and margin provisions of Sections 731 and 764 expressly stated that the strike to the base text was made ``to eliminate redundancy.'' Capital and margin standards should be set to mitigate risk in our financial system, not punish those who are trying to hedge their own commercial risk. Congress recognized that the individualized credit arrangements worked out between counterparties in a bilateral transaction can be important components of business risk management. That is why Congress specifically mandates that regulators permit the use of non-cash collateral for counterparty arrangements with Swap Dealers and Major Swap Participants to permit flexibility. Mitigating risk is one of the most important reasons for passing this legislation. Congress determined that clearing is at the heart of reform--bringing transactions and counterparties into a robust, conservative and transparent risk management framework. Congress also acknowledged that clearing may not be suitable for every transaction or every counterparty. End users who hedge their risks may find it challenging to use a standard derivative contracts to exactly match up their risks with counterparties willing to purchase their specific exposures. Standardized derivative contracts may not be suitable for every transaction. Congress recognized that imposing the clearing and exchange trading requirement on commercial end-users could raise transaction costs where there is a substantial public interest in keeping such costs low (i.e., to provide consumers with stable, low prices, promote investment, and create jobs.) Congress recognized this concern and created a robust end user clearing exemption for those entities that are using the swaps market to hedge or mitigate commercial risk. These entities could be anything ranging from car companies to airlines or energy companies who produce and distribute power to farm machinery manufacturers. They also include captive finance affiliates, finance arms that are hedging in support of manufacturing or other commercial companies. The end user exemption also may apply to our smaller financial entities-- credit unions, community banks, and farm credit institutions. These entities did not get us into this crisis and should not be punished for Wall Street's excesses. They help to finance jobs and provide lending for communities all across this nation. That is why Congress provided regulators the authority to exempt these institutions. This is also why we narrowed the scope of the Swap Dealer and Major Swap Participant definitions. We should not inadvertently pull in entities that are appropriately managing their risk. In implementing the Swap Dealer and Major Swap Participant provisions, Congress expects the regulators to maintain through rulemaking that the definition of Major Swap Participant does not capture companies simply because they use swaps to hedge risk in their ordinary course of business. Congress does not intend to regulate end-users as Major Swap Participants or Swap Dealers just because they use swaps to hedge or manage the commercial risks associated with their business. For example, the Major Swap Participant and Swap Dealer definitions are not intended to include an electric or gas utility that purchases commodities that are used either as a source of fuel to produce electricity or to supply gas to retail customers and that uses swaps to hedge or manage the commercial risks associated with its business. Congress incorporated a de minimis exception to the Swap Dealer definition to ensure that smaller institutions that are responsibly managing their commercial risk are not inadvertently pulled into additional regulation. Just as Congress has heard the end user community, regulators must carefully take into consideration the impact of regulation and capital and margin on these entities. It is also imperative that regulators do not assume that all over-the-counter transactions share the same risk profile. While uncleared swaps should be looked at closely, regulators must carefully analyze the risk associated with cleared and uncleared swaps and apply that analysis when setting capital standards for Swap Dealers and Major Swap Participants. As regulators set capital and margin standards on Swap Dealers or Major Swap Participants, they must set the appropriate standards relative to the risks associated with trading. Regulators must carefully consider the potential burdens that Swap Dealers and Major Swap Participants may impose on end user counterparties--especially if those requirements will discourage the use of swaps by end users or harm economic growth. Regulators should seek to impose margins to the extent they are necessary to ensure the safety and soundness of the Swap Dealers and Major Swap Participants. Congress determined that end users must be empowered in their counterparty relationships, especially relationships with swap dealers. This is why Congress explicitly gave to end users the option to clear swaps contracts, the option to choose their clearinghouse or clearing agency, and the option to segregate margin with an independent 3rd party custodian. In implementing the derivatives title, Congress encourages the CFTC to clarify through rulemaking that the exclusion from the definition of swap for ``any sale of a nonfinancial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled'' is intended to be consistent with the forward contract exclusion that is currently in the Commodity Exchange Act and the CFTC's established policy and orders on this subject, including situations where commercial parties agree to ``book-out'' their physical delivery obligations under a forward contract. Congress recognized that the capital and margin requirements in this bill could have an impact on swaps contracts currently in existence. For this reason, we provided legal certainty to those contracts currently in existence, providing that no contract could be terminated, renegotiated, modified, amended, or supplemented (unless otherwise specified in the contract) based on the implementation of any requirement in this Act, including requirements on Swap Dealers and Major Swap Participants. It is imperative that we provide certainty to these existing contracts for the sake of our economy and financial system. Regulators must carefully follow Congressional intent in implementing this bill. While Congress may not have the expertise to set specific standards, we have laid out our criteria and guidelines for implementing reform. It is imperative that these standards are not punitive to the end users, that we encourage the management of commercial risk, and that we build a strong but responsive framework for regulating the derivatives market. Sincerely, Chairman Christopher Dodd, Senate Committee on Banking, Housing, and Urban Affairs, U.S. Senate. Chairman Blanche Lincoln, Senate Committee on Agriculture, Nutrition, and Forestry, U.S. Senate.

Mr. FRANK of Massachusetts. I yield 1\1/2\ minutes to a very diligent member of our committee who has fought hard for the manufacturing interests of this country, the gentleman from Michigan (Mr. Peters).

Mr. FRANK of Massachusetts. Mr. Speaker, I yield 1 minute to the gentleman from Maryland (Mr. Hoyer), the majority leader.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield 1 minute to the gentleman from Pennsylvania (Mr. Fattah), who gave us an inspiration for trying to help unemployed people with their mortgages.

Mr. FRANK of Massachusetts. I yield 3\1/2\ minutes to the gentleman from Illinois (Mr. Gutierrez), who's the chairman of the Financial Institution Subcommittee and has done a great deal of work to improve our financial situation through this bill.

Mr. FRANK of Massachusetts. We do want to make sure it's an informed choice, and we're going to work on financial literacy. But, no, it is not our intention to deny anybody that choice.

Mr. FRANK of Massachusetts. Mr. Speaker, to begin, I want to yield for a colloquy 3 minutes to one of the leaders in the House and certainly in our committee in forging this particular legislation and in fighting to make sure that fairness is done throughout all of our efforts, the gentlewoman from California (Ms. Waters).

Mr. FRANK of Massachusetts. I yield 1 minute to my colleague, the gentleman from Minnesota (Mr. Peterson), the chairman of the Agriculture Committee.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield the gentleman 1 additional minute.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. If the gentleman will yield again, yes, he is exactly right. And just to sum it up, we want regulated some activities and not regulated other activities when you have a hybrid kind of situation, and what the gentleman has described is how you accomplish that.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Madam Speaker, the gentleman from California still won't be forthright about this. The Republican-controlled House, chaired by Mr. Oxley in the committee, passed the bill that he objected to. He said I was successful in defeating it. No, I played a fairly minor role under Mr. DeLay and the Republican leadership. Mr. DeLay did not take advice from me. If Mr. DeLay took advice from me, he wouldn't have gone on the dance show. I would have advised him against it. The fact is that it was a Republican House that passed the bill the gentleman is denouncing, and I don't know why he keeps mentioning history and leaving that out until he has to be reminded. He did offer an amendment. He was overwhelmingly defeated. More than two-thirds of the Republicans voted against him. By the way, as to my own view, yes, in 2003 I said there was no problem. In 2004, after President Bush, while the Republicans controlled Congress and didn't hinder him, ordered Fannie Mae and Freddie Mac to increase their purchase of loans from people below the median, I changed my position. So I joined the Republican leadership of the House as a fairly minor player in supporting legislation. He was against it, and I would just make that point again.