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Federal Housing Enterprises: HUD's Mission Oversight Needs to Be Strengthened

GGD-98-173 Published: Jul 28, 1998. Publicly Released: Jul 28, 1998.
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Highlights

Pursuant to a congressional request, GAO assessed the Department of Housing and Urban Development's (HUD) overall housing mission oversight of the two largest government-sponsored enterprises, which are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Corporation (Freddie Mac), focusing on: (1) HUD's legal basis, approach, and rationale for setting the numeric housing goals at their current levels; (2) the enterprises' compliance with the goals and HUD's assessment of the goals' impacts on promoting homeownership and housing opportunities; (3) HUD's procedures and efforts to verify goal compliance data; (4) the enterprises' multifamily mortgage purchase activities under the housing goals and HUD's assessment of these activities' effects on promoting housing opportunities; and (5) HUD's implementation of its general regulatory and new mortgage program approval oversight authorities under the 1992 Federal Housing Enterprises Financial Safety and Soundness Act.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Housing and Urban Development To strengthen HUD's capacity as the enterprises' housing mission regulator and enhance, to the extent consistent with financial soundness concerns, housing affordability and opportunities for targeted borrowers, the Secretary of Housing and Urban Development should develop and implement a program to assess the accuracy of housing goal compliance data. The HUD Secretary should also coordinate any such reviews with the Office of Federal Housing Enterprise Oversight.
Closed – Implemented
HUD is awarding a contract to a vendor by September 30, 2000, to implement a program to assess the accuracy of housing goal compliance data.
Department of Housing and Urban Development To strengthen HUD's capacity as the enterprises' housing mission regulator and enhance, to the extent consistent with financial soundness concerns, housing affordability and opportunities for targeted borrowers, the Secretary of Housing and Urban Development should develop a better understanding of whether the housing goals are enhancing housing affordability and opportunities for targeted groups as intended by the 1992 Act by conducting research on the following issues: (1) the goals' effects on mortgage interest rates and associated loan terms for targeted groups; (2) the effects of credit enhancements on enhancing housing opportunities; and (3) the extent to which the housing goal rule may provide the enterprises with regulatory incentives to use credit enhancements.
Closed – Implemented
HUD has entered into contracts with the Urban Institute, Abt Associates, and academic economists to address these issues. Some of the studies are completed and some are ongoing. These studies include underwriting, default analyses, CRA securitization, capital flows in underserved neighborhoods, and long-term impacts of GSE funding in underserved neighborhoods. HUD has also conducted in-house research cataloging the use of credit enhancements in financing single-family and multifamily properties with comparison between GSE and non-GSE financial providers.
Department of Housing and Urban Development To strengthen HUD's capacity as the enterprises' housing mission regulator and enhance, to the extent consistent with financial soundness concerns, housing affordability and opportunities for targeted borrowers, the Secretary of Housing and Urban Development should continue implementing the existing process to monitor the enterprises' use of nonmortgage investments. Ensure that expertise is available to help ensure that the enterprises' financial activities are consistent with their housing mission.
Closed – Implemented
HUD contracted with Abt Associates to review the enterprises' nonmortgage investments and to provide expert financial market expertise. Abt has made an expert with financial market expertise available and is nearing completion on its study on nonmortgage investments.
Department of Housing and Urban Development To strengthen HUD's capacity as the enterprises' housing mission regulator and enhance, to the extent consistent with financial soundness concerns, housing affordability and opportunities for targeted borrowers, the Secretary of Housing and Urban Development should collect information on the necessary costs for effectively overseeing the enterprises, including the necessary costs to implement the recommendations in this report, and develop a proposal for congressional consideration that would require the enterprises to reimburse HUD for these costs.
Closed – Implemented
On January 6, 1999, HUD submitted a cost proposal and proposed statutory language to OMB. HUD subsequently submitted this information to the House Committee on Appropriations, Subcommittee on VA, HUD, and Independent Agencies.

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Topics

Federal aid for housingFinancial managementGovernment sponsored enterprisesHousing programsMortgage loansMortgage programsPerformance measuresProgram evaluationMortgage creditMortgages