Housing Enterprises:

Advantages and Disadvantages of Creating a Single Housing GSE Regulator

T-GGD-97-160: Published: Jul 24, 1997. Publicly Released: Jul 24, 1997.

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GAO discussed the advantages and disadvantages of creating a single regulator for the housing government-sponsored enterprises (GSE)--the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Bank System (FHLBank System).

GAO noted that: (1) in GAO's 1991 and 1993 reports on GSE, it identified five criteria that a GSE regulatory agency structure should meet to facilitate effective oversight; (2) the criteria specify that a GSE regulatory agency's structure should provide for: (a) objectivity and independence from the GSE; (b) prominence in government; (c) economy and efficiency; (d) consistency in regulation of similar markets; and (e) separation of primary and secondary market regulation; (3) the housing GSE regulators would be more effective if the regulatory function was combined and one regulator was authorized to oversee both safety and soundness and mission compliance; (4) GAO's analysis of different regulatory structures indicated that an independent, arms's-length, stand-alone regulatory body headed by a board would best fit its criteria for an effective regulatory agency structure; (5) although there have been changes in the structure of regulatory oversight for the housing GSEs since GAO first established its criteria, neither the Office of Federal Housing Enterprises Oversight (OFHEO), the Department of Housing and Urban Development (HUD), nor the Federal Housing Finance Board (FHFB) meets all five criteria; (6) a single housing GSE regulatory agency could be more independent and objective than separate regulatory bodies and could be more prominent than any one alone; (7) although the GSEs operate differently, the risks they manage and their missions are similar; and (8) a single regulator should be better able to assess the competitive effect of specific mission requirements, such as special housing goals, and new programs or initiatives on all three housing GSEs and better ensure consistency of regulation for GSEs that operate in similar markets.

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