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Letter to the Honorable Paul S. Sarbanes 1 (January 2003)

handle is hein.congrec/cbo9065 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE Dan L. Crippen, Director U.S. Congress Washington, DC 20515 January 3, 2003 Honorable Paul S. Sarbanes Chairman, Committee on Banking, Housing, and Urban Affairs United States Senate Washington, DC 20510 Dear Mr. Chairman: The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 established the Office of Federal Housing Enterprise Oversight (OFHEO) and directed it to develop a risk-based capital standard that would enable Fannie Mae and Freddie Mac to survive a sustained period of economic distress. That law also required the Director of the Congressional Budget Office (CBO) to report to the Congress on the advisability and appropriate form of one of the many specified features of the stress test that is used to develop a measure of capital adequacy for Fannie Mae and Freddie Mac. In particular, the law mandated a report on the legislated assumption that those enterprises would not conduct new business during a period of financial stress. The attachment to this letter fulfills that requirement. Although the report makes no recommendations, most of the issues considered seem to argue for retaining the current assumption rather than attempting to model the potential effects of new business on the enterprises' capital requirements. If you would like further information on this feature of OFHEO's risk-based capital standard, we would be pleased to provide it. The CBO contacts are Charles Capone (226-2949) and Marvin Phaup (226-2640). Copies of this report are being sent to the Director of OFHEO, and the Chief Executive Officers of Fannie Mae and Freddie Mac. Sincerely, Dan L. Crippen Director Attachment Identical letters sent to: Honorable Phil Gramm, Honorable Michael G. Oxley, Honorable John J. LaFalce, Honorable Richard Baker, Honorable Paul Kanjorski

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