Government-Sponsored Enterprises:

Creation of a Single Housing GSE Regulator

T-GGD-00-200: Published: Sep 12, 2000. Publicly Released: Sep 12, 2000.

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Pursuant to a congressional request, GAO discussed the regulation of the housing government-sponsored enterprises (GSE).

GAO noted that: (1) GAO supports a single housing GSE regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System; (2) selecting a stand-alone agency with a governing board would better ensure the independence and prominence of the regulator and allow it to act independently of the influence of the housing GSEs, which are large and politically influential; (3) the Office of Federal Housing Enterprise Oversight (OFHEO) regulates Fannie Mae and Freddie Mac on matters of safety and soundness, while the Department of Housing and Urban Development (HUD) is the mission regulator; (4) in 1992, Congress passed the Federal Housing Enterprises Financial Safety and Soundness Act to minimize the risks that the enterprise pose to U.S. taxpayers while ensuring that they meet the housing needs of all Americans; (5) OFHEO's primary strategies to fulfilling its mission are to establish risk-based capital standards and an examination program; (6) although OFHEO got off to a slow start in implementing its responsibilities, the risk-based capital standards are to be established by year-end 2000, and the examination program is in place; (7) the act directed HUD to set housing goals, which require the enterprises to meet specified criteria for the purchase of mortgages serving low- and moderate-income individuals; (8) in 1995, HUD established conservative housing goals for the enterprises; (9) Congress recognized, in passing the Act, that the enterprises face a natural tension between maximizing profitability for their shareholders and fulfilling their housing mission; (10) therefore, the act also defined HUD's general regulatory authority to ensure that the enterprises' activities are consistent with their housing mission; (11) GAO's review of Federal Housing Finance Board (FHFB) raised several questions about its oversight: (a) FHFB did not ensure that its annual examinations met its internal standards for assessing safety and soundness; (b) off-site monitoring and supervisory enforcement program needed improvements; and (c) its mission oversight lacked comprehensive policies and procedures to determine whether the Federal Home Loan Banks (FHLBanks) were supporting their public mission; (12) in addition, GAO found that FHFB's involvement in FHLBank System corporate governance and promoting certain programs could complicate its primary duty as a safety and soundness regulator and raised questions about its objectivity; and (13) since GAO's review, it has addressed some of the concerns relating to its examination program, and in June 2000, FHFB approved a rule governing mission activities.

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