Officials at the Federal Home Loan Bank of Boston, which is located at the Hub’s One Financial Center, believe the FHLB should not be regulated by the same entity as mortgage lenders Fannie Mae and Freddie Mac.

Due to the bookkeeping controversy at Freddie Mac last year, and the following investigations into fellow national mortgage lender Fannie Mae, Congress has made several attempts to establish new regulations, including proposing the Department of the Treasury as the new regulator for government-sponsored enterprises.

After almost three weeks of debate in the Senate Banking Committee, however, industry professionals predict this issue will die out and new regulation will not surface.

Banking and mortgage professions say the discussions and proposals for new regulation is a reaction to the Enron scandals, in which the company was trying to hide expenses, because of the accounting issues that originated from Freddie Mac. But where Enron was trying to hide expenses, Freddie Mac was trying to even out the revenues, according to some industry insiders.

But the real debate came when the Senate Banking Committee decided to throw the nation’s Federal Home Loan Banks, which reported significant losses in last quarter’s earnings results, into the same regulatory category as GSEs.

Although the FHLB is linked to GSEs, unlike Fannie Mae and Freddie Mac, the FHLB does not pay taxes and its stock is not publicly traded, making it a different entity to regulate altogether.

“At the Federal Home Loan Bank of Boston, we oppose inclusion of the Federal Home Loan Banks in legislation creating a new regulator for Fannie Mae and Freddie Mac under the [U.S.] Treasury,” said Bill Hamilton, senior vice president of public relations at the FHLBB. “Our current regulator – the Federal Housing Finance Board – is a strong regulator and [is] placing increased emphasis on increasing safety and soundness. Also, banks are significantly different than Freddie and Fannie, so it makes sense to have separate regulators. One of our concerns is that with a new regulator, they wouldn’t appreciate the uniqueness of the bank systems, and that would inhibit us from serving our members.”

‘Strike a Balance’

Earlier this month, the Senate Banking Committee convened to review the current regulation of the housing government-sponsored enterprises. Last week, the committee heard testimony from various members of Congress, the Department of Housing and Urban Development, Fannie Mae, Freddie Mac and bankers and mortgage professionals concerned about the lack of enforcement of GSEs.

The problems at Freddie Mac brought renewed interest in reforming regulation of both GSEs’ safety and soundness, and the Bush administration had proposed shifting regulation of the GSEs’ safety and soundness from HUD to the Department of the Treasury.

However, Fannie Mae Chief Executive Officer Franklin D. Raines said during a speech given at a GSE general session last week that he agrees with increased regulation, but needs to proceed with caution.

“We need to protect the best housing finance system in the world,” he said. “Right now, there is a proposal to shift regulation of Fannie Mae and Freddie Mac to the Treasury. And done right, I think that could work – we want a strong, well-funded, credible regulator. But we think Congress should strike a balance that assures regulation while preserving the best mortgage system in the world.”

But, in the same speech, Raines said he believes strong support exists for moving safety and soundness regulation to the Treasury, but that efforts to add others to the mix, such as the Federal Home Loan Banks, could “hijack” the process.

“I think there is broad, bipartisan support for regulation in the Treasury, and if I think it were that simple, it could be done quickly. But it’s not that simple,” he said. “I think we will eventually get back to the focus, which is a well-funded regulator in the Treasury Department. I think there is overwhelming support for that in the House and Senate, and if we can stay focused on that goal, it can happen quickly. But if it is hijacked, then I think it’s going to be difficult.”

Some members of the mortgage and banking industry have continued to voice concern over adding new regulators to Fannie and Freddie.

According to Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, the impact of stability, with respect to capital standards at Fannie and Freddie, is something that Congress should consider before proceeding with additional regulators.

Cuff said unnecessary increases to the capital standards on the agencies may result in limiting their innovation critical to reaching under-served populations, which in turn could result in higher costs for both lenders and homebuyers.

“Financial regulators recognize that capital standards should not be subject to frequent change. The livelihood of our members rests on the efficiencies of our markets, and we depend on our abilities of providing homeownership opportunities to consumers,” said Cuff. “The MMBA believes that it is critical to consider the importance of stability within capital standards. Unnecessary increases to capital standards on these agencies might result in higher costs to homebuyers and lenders.”

Some mortgage and banking industry officials throughout the Bay State, however, say the proposed amended regulation to enforce new regulators on GSEs is a dead issue.

According to Hamilton, “from all reports in Washington, the whole thing has gotten bogged down [this session].” While some members of Congress said the issue may get attention next year, Hamilton said this “may be difficult to revive next year … it will be tough to see how this plays out.”

Still, members of the mortgage industry are dotting their I’s and crossing their T’s until any final decisions have been made and are urging members of the Banking Committee to proceed with caution when reviewing new regulatory plans for GSEs.

“[Congress needs to recognize] the importance of housing and real estate finance to the otherwise sluggish U.S. economy and the equal importance of homeownership to America’s families and communities,” said Cuff. “While we continue to support ensuring that these agencies have a strong, credible and well-funded safety and soundness regulator, it is important there be no fundamental change to their charters or mission.”

Melanie Nayer may be reached at mnayer@thewarrengroup.com.