Housing Enterprises:

The Roles of Fannie Mae and Freddie Mac in the U.S. Housing Finance System

T-GGD-00-182: Published: Jul 25, 2000. Publicly Released: Jul 25, 2000.

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Thomas J. McCool
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Pursuant to a congressional request, GAO discussed the roles of Fannie Mae and Freddie Mac in the U.S. housing finance system, focusing on: (1) the benefits and costs of the enterprises' housing finance activities; (2) federal efforts to ensure the enterprises' safety and soundness; and (3) federal efforts to ensure that the enterprises promote home ownership opportunities for all Americans.

GAO noted that: (1) the enterprises are hybrid organizations that contain elements of both private- and public-sector organizations; (2) like many private companies, the enterprises issue equity and debt instruments to the investing public; (3) the enterprises have also developed compensation packages that reward top executives for increasing shareholder value; (4) an important benefit is an indirect one--the perception in the financial markets that the government would not allow the enterprises to fail, which allows them to borrow and issue mortgage-backed securities (MBS) to finance mortgage purchases at relatively lower cost than private firms; (5) federal sponsorship of the enterprises' activities as government sponsored enterprises also creates significant risks and costs; (6) the potential exists that U.S. taxpayers would end up paying for a portion of the enterprises' debt and MBS obligations, which stood at over $2 trillion at the end of 1999; (7) to help ensure that the enterprises conduct their business in a safe and sound manner and use their government-provided benefits to achieve a public purpose, in 1992 Congress passed the Federal Housing Enterprises Financial Safety and Soundness Act; (8) the 1992 Act established the Office of Federal Housing Enterprise Oversight (OFHEO) to ensure that the enterprises are adequately capitalized and operating safely; (9) OFHEO also has the authority to establish an examination program to monitor the enterprises' management and financial condition; (10) OFHEO's examination staff has generally found that the enterprises have been operated in a safe and sound manner; (11) the Department of Housing and Urban Development (HUD) has statutory authority to ensure that the enterprises fulfill their mission of promoting housing and home ownership opportunities for all Americans; (12) HUD's proposed housing goals are set higher than the goals set for the period 1996 through 1999; (13) according to HUD, the enterprises' share of the affordable housing market remains below desired levels; (14) HUD believes that the proposed housing goals will provide strong incentives for the enterprises to more fully meet the housing needs of targeted groups; (15) HUD has the general regulatory authority to ensure that the enterprises' activities are consistent with their housing mission; and (16) however, HUD has not yet developed criteria for overseeing the enterprises' nonmortgage investments.

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