Government-Sponsored Enterprises

T-AFMD-89-16: Published: Sep 28, 1989. Publicly Released: Sep 28, 1989.

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GAO discussed government-sponsored enterprises (GSE), focusing on their budgetary implications for the federal government. GAO found that: (1) the federal government traditionally chartered privately owned entities as GSE to increase credit availability to such target groups as home buyers, farmers, and students; (2) most GSE borrowed from the public, sold mortgage-backed securities, or collected fees for their guarantees and other services to finance their operations; (3) the federal government did not guarantee most of the resulting debt and contingent liability; (4) in 1988, GSE disbursed about $414 billion, but their debt and outstanding mortgage-backed securities totalled about $725 billion; (5) because of their federal sponsorship, GSE could borrow funds at interest rates only slightly higher than the rates Treasury paid on its borrowings, but legislation did not usually provide for the use of government funds to help liquidate their debts; (6) the federal government traditionally excluded GSE from its budget activities because they were essentially private entities; (7) recent legislation created two GSE to borrow funds from the public for use in liquidating federal guaranteed obligations but, unlike traditional GSE, they were under complete government supervision; and (8) because the federal government established those GSE as off-budget entities, it will incur billions in extra costs for the savings and loan and farm credit institution crises. GAO believes that Congress needs meaningful criteria to decide whether it should establish a proposed activity as an on-budget federal entity or as GSE.

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