Housing Finance:

Agency Issuance of Real Estate Mortgage Investment Conduits

GGD-88-111: Published: Sep 2, 1988. Publicly Released: Sep 2, 1988.

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Pursuant to a congressional request, GAO examined the effects of permitting the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) to issue Real Estate Mortgage Investment Conduits (REMIC), specifically whether: (1) FNMA and FHLMC have the legal authority to issue REMIC; (2) FNMA and FHLMC have a competitive advantage over private issuers in issuing REMIC; (3) agency issuance of REMIC has beneficial effects on the housing and mortgage markets; and (4) agency-issued REMIC would lead the thrift industry to lose deposits.

GAO found that: (1) the FNMA and FHLMC charters did not preclude FNMA and FHLMC from issuing REMIC; (2) FNMA and FHLMC have pricing and cost advantages over large private issuers of REMIC, but there is no evidence that they are using their advantages to drive private issuers out of the REMIC market; (3) private issuers have advantages in terms of their established distribution network and their ability to structure specialized REMIC classes, which may limit the agencies' ability to dominate the market; (4) some thrift industries believed that the agency REMIC would cause them to lose deposits, but there was little evidence to support this concern; and (5) the range of investment alternatives to deposits is sufficiently broad that REMIC should have only a marginal impact on the thrift industry.

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