ly clumsy matter now, when securities are actually held by brokerage firms and others, to actually go to an investor, require them to sign something, mail it back, be held on file somewhere. I am not sure that is a good idea, just at first blush. In terms of full disclosure, on our part, I believe that we should be extraordinarily forthcoming, in terms of disclosing exactly what the nature of the security and the guarantee is or is not.

Mr. Cox. Thank you, Mr. Chairman.

Chairman GONZALEZ. Well, thank you, Mr. Cox, if you will yield. You still have a little bit of time, I would like to pursue.

I think it is very fundamental-one of the first things I have always done when I have come aboard any subcommittee, and I did it when I came aboard this subcommittee 30 years ago-because this was one of the subcommittees I was assigned to right off the bat. It was not easy to do because the Chairman was Mr. Range, from Alabama, and he wanted to hold it to no more than seven members. I became the eighth, mostly because there was some intervention here, I think, from Ms. Maureen Maguire, who was Kennedy's Chairman of the Public Housing Commission and for whom I had worked for the San Antonio Public Housing Authority. Now, in reading that, and I don't know-I'm trying to remember how the legislation later in 1980-I forget now, because when I became chairman of this subsubcommittee, in 1981, that was one of the first things that hit us. That is how I met your predecessor.

What is a guarantee? The reason is that I remember FSLIC was very similarly structured. We were always told, oh no, there is no guarantee, there is an implied. Let's look at it. There were two reasons-two factors why these entities, including the Home Loan Bank Board and these two could get concessionary-what is called concessionary rates in the market. One, it has the ability to borrow from Treasury; and two, an implicit guarantee on securities. It was that language that I was trying to recall, and I going to instruct counsel to pin it down.

So, we were told by FSLIC, do not worry. I mean, there is nothing here that exposes, except in time of need, when you have to borrow. Well, we are in time of dire need, frankly. I do not think the perception is there as to how complicated, how deep, how serious, how-the size and scope and scale, or dimensions of the problem is in which all entities that have anything to do with financial transactions, including insurance companies.

Last week, we had the head of the California regulatory insurance body come before the Senate and say, gentlemen, we need Federal help. This subcommittee went-I wish I could have had every member, to Rhode Island on Friday. To show you the magnitude of the seriousness of the problem there, we had a turnout of about 1,000 people. We never had less than 500 present at one time or another. They had reached a point of 1,000.

That State is in-you can call it anything you want to; but it is in dire need. If you had heard the litany of citizen after citizen, you would know that the time has come when we are going have to get in there on an emergency basis. Because what we are facing is very serious, eventually, as I have been predicting, in the case of housing, social repercussions. We are going to have to pay a price.

In this case, though, I think it is important to understand that once the line to the Treasury is open, that you do have an advantage. This is a reason why these entities can compete in the private sector. This is the advantage over the private competitors. It is the only reason.

There is no question that insofar as the management and the administration (of your organizations) I do not think anybody can legitimately quarrel with the excellence of it. These are times in which even the excellent management of the insurance firms have been overwhelmed. We have got to confront that fact.

Mr. Cox, you have raised, I think, a very pertinent question. What I will have is the counsel-Ms. Fischer-and let me introduce them, because these hearings really should be a testimony to them. Ms. Fischer is the Counsel for the subcommittee. Mr. Frank DeStefano is the Staff Director, and has been with this subcommittee for years, and before that HUD and everybody else that you can think of that would give the expertise and we are very lucky to have that level of expertise on the congressional level.

I will ask them to prepare a briefing document to give you an understanding of the basics.

I have three questions I am going to submit in writing, gentlemen. There is one that I wanted to ask now, in view of our hearing in Boston. Last week we were in Boston, as I said. It had to do with the second mortgage scams.

Now, Massachusetts is a State that, surprisingly, you know, coming from Texas, where we look to some of these northern States as sort of leaders and pioneers in creative legislation. I was surprised to find they have no licensing or regulation of mortgage or second mortgages. In fact, we even had deacons that were hired and went and prayed over the families, not to ask too many questions. They would say, look, this is Deacon Jackson, please, let me assure you, let us pray. Do not ask these phony questions. They were with the poorest of the poor in the Boston area-and yet, I wish everybody could have been there. Because you would not think that this is going on in America.

Now, while I know that Fannie Mae and Freddie Mac do not finance the scams that we reviewed, not directly, certainly, banks do. We had bankers there too.

The hearing underscored the need for community lending, particularly mortgage lending by regulated depository institutions. It was ironic that on that Saturday we had the best affirmation of why we need CRA.

Now this need for community lending according to the study of lender perceptions done by Freddie Mac may be inadvertently undercut by the secondary mortgage market need for uniformity. The questions were going to be, and I'll leave them with you so you can come back at some later date, what steps are you taking to ensure that the underwriting standards you use do not exclude creditworthy borrowers in low-income and inner-city areas?

There is no question that the banks in Boston are nowhere near and it was a shame to see these families not able to obtain credit. We had one witness, a truck driver, who by dint of hard work and everything else had an income of $60,000 a year, yet he couldn't get a bank loan. His father, who is illiterate, had tried to get a loan to

fix his little home, which they had paid out after many years. The bank said absolutely not, we can't. The next day they had a call on the phone and a knock on the door including a preacher or rather Deacon Jackson and they had a salesman from the mortgage and home improvements area and they said, look, we know you need help. I've got a form here-it was the bank mortgage loan form. It had the name of the bank on it. It wasn't a generic form. It was a bank form and he said I can help you get it. All you have to do is come with me tomorrow and we'll go sign some papers.

Well, what they didn't know was that they were going to get what ended up a $110,000 exposure and a original contract to repair at $40,000 which soon was doubled to $80,000 and the cost of processing the papers were over $35,000 and it wasn't until they discovered that the repair company, the construction company, couldn't do the job-in fact they left the house worse off than it was-that they began to ask questions and then they were told, well, if you don't pay $1,450 a month beginning this month, we're going to have to foreclose on you.

At this point their son came back from a run in the truck. Papa was crying and what-not so he goes and asks some questions. Now he's a pretty big fellow, about six foot one, and he demanded to see the head of the bank and the mortgage company and the construction company and of course I think once they looked at him, they began to have second thoughts about foreclosing.

The fact is though that they are left saddled there with still the threat that they could be under Massachusetts law.

Now why is it that the bank that was willing to let this construction and second mortgage firm approach those people and yet when they came directly to the bank they denied them?

We had been in Boston 2 years ago and we had a report from the Federal Reserve Bank there in Boston and their report showed clearly that the banks were not involved in these communitiesRoxbury, Dartmouth, and a few others.

Actually now these families were creditworthy so I wanted to compliment you all for the programs that you have done in these areas. You have done a good job, but I also want to make sure that we have some sensitivity about how your policies might be leading to these others and that the underwriting standards do not exclude these credit-worthy borrowers.

I wonder if you could provide the subcommittee with a breakdown of the geographic location of the mortgages held by census track. Now I don't know if that is going to be burdensome-but if it's possible, I would like very much to have that. If it is not possible, I want to know what the difficulties are so that we can find other methods of tracking.

With that, gentlemen, I want to thank you again as we started. You have been very patient. You have been here since 10 a.m. and we are grateful to you.

Mr. BRENDSEL. Thank you, Mr. Chairman.

Mr. JOHNSON. Thank you, Mr. Chairman.

Chairman GONZALEZ. And the subcommittee will stand adjourned until further call of the Chair-oh, I beg your pardon.

I was cutting off too early. We have the second panel-third panel: Mr. Daniel F. Evans, Jr., Chairman of the Federal Housing

Finance Board; and Mr. James D. Roy, President of Federal Home Loan Bank of Pittsburgh, Pittsburgh, PA.

We really owe you an apology because we were about half an hour behind what we thought at the most it would take to finish the first two panels.

Some of the members had indicated that they had passed over some luncheon commitments they had with some constituents but will be back. My understanding was that Mr. Kennedy was going to be here.

[Pause.]

Chairman GONZALEZ. Thank you very much. Is there any objection if I introduce you in the order that I listed you?

Mr. EVANS. No, sir.

Chairman GONZALEZ. If there is no time problem, Mr. Roy, we'll recognize Mr. Evans first and you might wish to identify the gentleman accompanying you.

Mr. EVANS. Yes, sir.

Chairman GONZALEZ. For the reporter-that is, his name and

title.

Mr. EVANS. Yes. To my left, Mr. Chair to your right, is J. Stephen Britt, the Executive Director of the Federal Housing Finance Board. To my right, your left, is Mr. Roy, as you previously indicated, the President of the Federal Home Loan Bank of Pittsburgh. Chairman GONZALEZ. Yes. We have him on his own right as a witness.

STATEMENT OF DANIEL F. EVANS, JR., CHAIRMAN, THE FEDERAL HOUSING FINANCE BOARD; ACCOMPANIED BY J. STEPHEN BRITT, EXECUTIVE DIRECTOR, FEDERAL HOUSING FINANCE BOARD

Mr. EVANS. First of all, let me thank you, Mr. Chairman, for being so patient this morning. Sitting behind me are a number of people who worked all throughout the holiday to see to it that these documents were provided to your subcommittee staff on a timely basis and I know they——

Chairman GONZALEZ. Yes, if you'll yield to me, I wanted to thank you and Mr. Roy for providing us with your statements. We had enough time to look them over and they were delivered to the members of the subcommittee in time, so thank you very much, Mr. Evans.

Mr. EVANS. Well, we therefore will not read the statements. We'll take the cue of the previous witnesses and the Chair and just hit a few highlights and then I'll turn it over to Mr. Roy and all three of us will be available to answer any questions that might arise.

First of all, I would like to refer the Chair to our written testimony, which contains at the very back of it a chart which I can hold up and you can probably see from there. The big tall black lines, Mr. Chairman, are our capital. The little short stubby lines are the capital of the other GSES. We appear before you today in a unique position, almost an anticlimactic position and is we come to you with too much capital, not too little capital. Conspicuous by its absence in the Treasury report or the Treasury legislation is any ref

erence to the Federal Home Loan bank system requirements and I think that's because at this particular moment in time we have 7 percent capital and on any risk adjusted basis we're well off the end of any of any chart in that regard.

All of the reports, the CBO, the GAO and the Treasury report indicated that the Federal Home Loan Bank System was overcapitalized, therefore putting its members on anything other than a level playing field with respect to the cost of doing business and raising funds within the system.

The Home Owners Loan Act of 1933, which is the organic statute that started the process that led to today and formed the Federal Home Loan Bank Board itself led to a system that to this very moment in time has never experienced a loss, not one. The Federal Home Loan Bank System is a collateral lender, a portfolio lender. The term secondary market doesn't truly apply to us.

We lend money to our members and they give us collateral, period. That means that a number of our members who are unable to efficiently raise money through securitization are able to do so through Federal Home Loan Bank advances.

I find it interesting, Mr. Chairman, that you went to the Northeast over the weekend. The northeast is the site of the Federal Home Loan Bank of Boston, which through a very aggressive program of pricing and product has been able to increase its market penetration in that part of the country while commercial banks and others are decreasing their home loan portfolios in that part of the country.

We recognized early on that that part of the country would be severely affected by the Recession and the crimp in housing and the Federal Home Loan Bank of Boston sprung to action in order to provide liquidity.

First of all, with respect to safety and soundness, the primary focus of the Treasury legislation, it's interesting that all the proposals that Treasury makes for the other GSES we already have. We already have sufficient statutory authority to discharge our responsibilities. We already have, albeit in a short period of time and in view of our short history an examination staff, and even though we have been in existence for a little over a year post-FIRREA, we have already conducted examinations of the district banks.

Number two, the implementation of the Affordable Housing Program.

As you alluded to, Mr. Chairman, in your meeting with Brian Dittenhafer, the Chairman of the Federal Home Loan Bank of New York, the Federal Home Loan Bank system as a whole has been extremely aggressive in affordable housing and community investment programs.

The community investment program started in 1977 with thenchairman McKinney, ironically also from my home town, Indianapolis, IN, and since that time has put billions of dollars into the marketplace on community investment loans.

There also is attached to the back of our testimony an exhibit that shows the leverage ratio for the affordable housing program and the number of units created in the program, and I think it's not an overstatement to say that it has been a tremendous success.