FEDERAL HOUSING 

FINANCE AGENCY

Objectives Needed for 

the Future of Fannie 

Mae and Freddie Mac 

After Conservatorships

Report to the Chairman, Committee on 

Banking, Housing, and Urban Affairs 

U.S. Senate

November 2016

GAO-17-92

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-92, a report to the 

Chairman, Committee on Banking, Housing, 

and Urban Affairs, United States Senate

November 2016

FEDERAL HOUSING FINANCE AGENCY

Objectives Needed for the Future of Fannie 

Mae and Freddie Mac After Conservatorships

What GAO Found

The Federal Housing Finance Agency (FHFA) issued a new strategic plan for the 

conservatorships of Fannie Mae and Freddie Mac (the enterprises) in 2014 with 

reformulated goals and supporting actions that reflect a shift in priorities and 

changing market conditions. While the three goals in the 2014 strategic plan are 

broadly similar to those in the previous plan issued in 2012, FHFA changed the 

weight and wording of the goals (see table) to align the plan more closely with

FHFA’s statutory responsibilities. Specifically, compared with the 2012 plan 

FHFA (1) increased its emphasis on maintaining credit availability and 

foreclosure prevention options; (2) shifted away from shrinking the enterprises as 

a way to reduce taxpayer risk (focusing instead on transferring credit risk to 

private investors, for example); and (3) reduced the scope of the securitization 

infrastructure being built, such as a new technology platform for securitizing 

mortgages, to focus on meeting the enterprises’ current needs.

Changes in the Wording of the Federal Housing Finance Agency’s Goals for the 

Conservatorships of Fannie Mae and Freddie Mac between the 2012 and 2014 Strategic Plans

Goal 2012 plan wording 2014 plan wording

Maintain Maintain foreclosure 

prevention activities and 

credit availability for new 

and refinanced mortgages

Maintain, in a safe and sound manner, foreclosure 

prevention activities and credit availability for new and 

refinanced mortgages to foster liquid, efficient, 

competitive, and resilient national housing finance markets

Contract/

Reduce

Gradually contract the 

enterprises’ dominant 

presence in the marketplace 

while simplifying and 

shrinking their operations

Reduce taxpayer risk through increasing the role of private 

capital in the mortgage market

Build Build a new infrastructure for 

the secondary mortgage 

market

Build a new single-family securitization infrastructure for 

use by the enterprises and adaptable for use by other 

participants in the secondary market in the future

Source: GAO analysis of Federal Housing Finance Agency 2012 and 2014 strategic plans for the conservatorships. | GAO-17-92

In the absence of congressional direction, FHFA’s shift in priorities has altered 

market participants’ perceptions and expectations about the enterprises’ ongoing 

role and added to uncertainty about the future structure of the housing finance 

system. In particular, FHFA halted several actions aimed at reducing the scope

of enterprise activities and is seeking to maintain the enterprises in their current 

state. However, other actions (such as reducing their capital bases to $0 by 

January 2018) are written into agreements for capital support with the 

Department of the Treasury (Treasury) and continue to be implemented. In 

addition, the change in scope for the technology platform for securitization puts 

less emphasis on reducing barriers facing private entities than previously 

envisioned, and new initiatives to expand mortgage availability could crowd out 

market participants. Furthermore, some actions, such as transferring credit risk

to private investors, could decrease the likelihood of drawing on Treasury’s 

funding commitment, but others, such as reducing minimum down payments, 

could increase it. GAO has identified setting clear objectives as a key principle 

for providing government assistance to private market participants. Because

Congress has not established objectives for the future of the enterprises after 

conservatorships or the federal role in housing finance, FHFA’s ability to shift 

priorities may continue to contribute to market uncertainty.

View GAO-17-92. For more information, 

contact Lawrance L. Evans, Jr. at (202) 512-

8678 or evansl@gao.gov.

Why GAO Did This Study

In 2008, FHFA used its authority under 

the Housing and Economic Recovery 

Act to place Fannie Mae and Freddie 

Mac into conservatorships out of 

concern that their deteriorating 

financial condition threatened the 

stability of the financial market. Eight 

years later, the enterprises remain in 

conservatorships. However, FHFA 

says the conservatorships were not 

intended to be permanent. FHFA has 

issued two strategic plans for its 

conservatorship of the enterprises, one 

in 2012 and another in 2014.

GAO was asked to examine FHFA’s 

actions as conservator. This report 

addresses (1) the extent to which 

FHFA’s goals for the conservatorships 

have changed and (2) the implications

of FHFA’s actions for the future of the

enterprises and the broader secondary 

mortgage market. 

GAO analyzed and reviewed FHFA’s 

actions as conservator and supporting 

documents; legislative proposals for 

housing finance reform; the 

enterprises’ senior preferred stock 

agreements with Treasury; and GAO, 

Congressional Budget Office, and 

FHFA inspector general reports. GAO

also interviewed FHFA and Treasury 

officials and industry stakeholders.

What GAO Recommends

Congress should consider legislation 

that would establish clear objectives 

and a transition plan to a reformed 

housing finance system that enables 

the enterprises to exit conservatorship. 

FHFA agreed with our overall findings.
Page i GAO-17-92 Federal Housing Finance Agency

Letter 1

Background 3

FHFA’s Reformulated Goals for the Conservatorships and Its 

Supporting Actions Reflect a Shift in Priorities and Changing 

Market Conditions 8

In the Absence of Congressional Direction, FHFA’s Shift in 

Priorities Adds to Uncertainty about the Future Structure of the 

Housing Finance System 18

Conclusions 27

Matter for Congressional Consideration 27

Agency Comments 28

Appendix I Legislative Proposals Introduced in Congress that Address the Role of 

Fannie Mae and Freddie Mac in the Housing Finance System—March 

2013 to July 2016 29

Appendix II GAO Contact and Staff Acknowledgments 35

Tables

Table 1: Changes in the Wording of the Federal Housing Finance 

Agency’s Goals for the Conservatorships of Fannie Mae 

and Freddie Mac between the 2012 Strategic Plan and 

the 2014 Strategic Plan 9

Table 2: Legislative Proposals Introduced in Congress that 

Address the Role of Fannie Mae and Freddie Mac in the 

Housing Finance System—March 2013 to July 2016 29

Figures

Figure 1: Mortgage-Backed Securities Guaranteed by Fannie Mae 

and Freddie Mac (the Enterprises) and Mortgages Held in 

Banks’ Portfolios as a Percentage of First-Lien Mortgage 

Originations, 2002 through Second Quarter 2016 8

Figure 2: Enterprises’ Combined Potential Incremental Draws on 

the Capital Commitment from the Department of the 

Treasury under the Severely Adverse Scenario of the 

Dodd-Frank Act Stress Tests, 2014–2016 25

Contents
Page ii GAO-17-92 Federal Housing Finance Agency

Abbreviations

CBO Congressional Budget Office

CSP Common Securitization Platform 

CSS Common Securitization Solutions, LLC

FHA Federal Housing Administration

FHFA Federal Housing Finance Agency

FMIC Federal Mortgage Insurance Corporation

HERA Housing and Economic Recovery Act of 2008

HUD Department of Housing and Urban Development

MBS mortgage-backed securities

MFA Mortgage Finance Agency

MIF Mortgage Insurance Fund

SMAC Secondary Market Advisory Committee

SPSA Senior Preferred Stock Purchase Agreement

Treasury Department of the Treasury

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Page 1 GAO-17-92 Federal Housing Finance Agency

441 G St. N.W.

Washington, DC 20548

November 17, 2016

The Honorable Richard Shelby

Chairman

Committee on Banking, Housing, and Urban Affairs

United States Senate

Dear Mr. Chairman:

On September 6, 2008, the Federal Housing Finance Agency (FHFA) 

placed the government-sponsored enterprises Fannie Mae and Freddie 

Mac (the enterprises) into conservatorships out of concern that their 

deteriorating financial condition threatened the stability of financial 

markets. At the time, the enterprises guaranteed about $4.5 trillion in 

mortgage-backed securities (MBS), on par with their current exposure. 

The Department of the Treasury (Treasury) provided substantial capital 

support to the enterprises as part of senior preferred stock purchase 

agreements, as authorized under the Housing and Economic Recovery 

Act (HERA), so that the enterprises could continue to support mortgage 

finance through the secondary mortgage market in accordance with their 

charters.1 In doing so, Treasury committed to provide funds to the 

enterprises to avoid insolvency. Before receiving Treasury support, the 

enterprises’ guarantees had been viewed by the market as being 

implicitly backed by the federal government. This market perception 

lowered the enterprises’ overall cost of doing business. As of September 

2016, Treasury had provided about $187.5 billion in funds as capital 

support to the enterprises, with an additional $258.1 billion available to 

the enterprises should they need further assistance. In accordance with 

the terms of the agreements with Treasury, the enterprises had declared 

and paid dividends to Treasury totaling about $250.5 billion through 

September 2016.

Congress did not provide direction on reforming the enterprises when it 

granted conservatorship authority to FHFA. Although the 

conservatorships have lasted more than 8 years, FHFA has said that the 

conservatorships were not intended to be permanent.

 1

In the secondary mortgage market, institutions purchase loans from primary market loan 

originators and then either hold the loans in their own portfolios or bundle the loans into 

MBS that are sold to investors. The secondary market provides liquidity and reduces risk 

for mortgage originators.

Letter
Page 2 GAO-17-92 Federal Housing Finance Agency

You asked us to examine FHFA’s actions as conservator of the 

enterprises and the effects of its actions on the future of the enterprises 

and the secondary mortgage market. This report addresses (1) how 

FHFA’s goals for the conservatorships have changed over time and what 

actions FHFA has taken to further these goals, and (2) the implications of 

FHFA’s actions for the future of the enterprises and the broader 

secondary mortgage market.

To address our first objective, we reviewed relevant statutory provisions 

to understand FHFA’s authorities and responsibilities. We analyzed 

FHFA’s 2012 and 2014 strategic plans for the conservatorships to identify 

key differences in the goals FHFA established and any changes to the 

actions to be taken to further these goals. We also reviewed FHFA’s 

annual scorecards for the enterprises for 2012–2016 along with various 

progress reports FHFA issued related to the scorecards and specific 

initiatives for additional information about the actions FHFA was taking or 

planned to take.2 We reviewed public statements from the current FHFA 

Director and interviewed FHFA officials about the goals and actions to 

understand the rationale for differences we identified. We also reviewed 

the enterprises’ senior preferred stock purchase agreements with 

Treasury and interviewed Treasury officials to understand Treasury’s role 

and input into FHFA’s decisions and actions.

For our second objective, we reviewed documentation from FHFA, the 

enterprises, industry stakeholders, the Congressional Budget Office 

(CBO), the FHFA Inspector General, and our prior reports.3 In particular, 

we reviewed CBO’s 2014 report on transitioning to alternative structures 

for housing finance.4 We compared legislative proposals for reforming the 

housing finance system introduced from 2014 through 2016 with the 

alternative structures CBO outlined and with FHFA’s actions as 

conservator to assess whether FHFA’s actions appeared to be necessary 

to transition to alternative structures included in the various proposals. 

 2

FHFA developed scorecards that lay out specific actions the enterprises are to take to 

achieve the strategic goals in FHFA’s strategic plan for the conservatorships and the 

weight FHFA put on these activities.

3

See, for example, GAO, The Cooperative Model as a Potential Component of Structural 

Reform Options for Fannie Mae and Freddie Mac, GAO-11-33R (Washington, D.C.: Nov. 

15, 2010) and Fannie Mae and Freddie Mac: Analysis of Options for Revising the Housing 

Enterprises’ Long-term Structures, GAO-09-782 (Washington, D.C.: Sept. 10, 2009).

4

Congressional Budget Office, Transitioning to Alternative Structures for Housing Finance

(Washington, D.C.: December 2014).
Page 3 GAO-17-92 Federal Housing Finance Agency

Additionally, we reviewed the enterprises’ senior preferred stock purchase 

agreements with Treasury and the results of their annual stress tests for 

2014 through 2016 to identify potential implications of FHFA’s actions on 

the enterprises’ future structures and potential draws on Treasury’s 

capital commitment. We also interviewed FHFA officials and industry 

stakeholders and reviewed industry stakeholders’ comment letters to 

FHFA on a number of proposed and completed actions to understand the 

potential implications of these actions on the enterprises and the broader 

secondary market. Industry stakeholders we interviewed included 

members of an industry advisory group formed by the enterprises to 

provide feedback and share information on efforts to build a common 

securitization platform—the American Bankers Association, Mortgage 

Bankers Association, Securities Industry and Financial Markets 

Association, and Structured Finance Industry Group—as well as several 

members of the Association of Institutional Investors.

We conducted this performance audit from May 2016 to November 2016 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Congress chartered Fannie Mae and Freddie Mac as for-profit, 

shareholder-owned corporations in 1968 and 1989, respectively.5 They 

share a primary mission, which is to enhance the liquidity, stability, and 

affordability of mortgage credit. To accomplish this goal, the enterprises 

purchase conventional mortgages that meet their underwriting standards, 

known as conforming mortgages, from primary mortgage lenders such as 

 5

Congress initially chartered Fannie Mae in 1938 but did not establish it as a shareholderowned corporation until 1968. Congress initially established Freddie Mac in 1970 as an 

entity within the Federal Home Loan Bank System and reestablished it as a shareholderowned corporation in 1989.

Background

The Enterprises
Page 4 GAO-17-92 Federal Housing Finance Agency

banks or savings associations.6 Mortgage lenders sell mortgages to 

transfer risk (especially interest rate risk in the case of fixed-rate 

mortgages) or increase liquidity. They can use the proceeds from selling 

mortgages to the enterprises to originate additional mortgages, or they 

may exchange a pool of mortgages for enterprise-backed MBS, which 

they can keep or sell. The enterprises package mortgages they purchase 

into MBS, which are sold to investors in the secondary mortgage market. 

In exchange for a fee (the guarantee fee), the enterprises guarantee the

timely payment of interest and principal on MBS that they issue. These 

fees are typically incorporated into the interest rates charged to 

borrowers.7 The charter requirements for providing assistance to the 

secondary mortgage markets specify that those markets are to include 

mortgages on residences for low- and moderate-income families and 

require the enterprises to support mortgage financing in underserved 

areas.

HERA established FHFA as an independent agency responsible for the 

safety and soundness and housing mission oversight of the enterprises.8

FHFA took over the oversight of the enterprises from the Office of Federal 

Housing Enterprise Oversight, formerly an independent entity within the 

Department of Housing and Urban Development (HUD).9 FHFA has a 

statutory responsibility to ensure that the enterprises operate in a safe 

and sound manner and that the operations and activities of each 

 6

For example, the enterprises typically purchase mortgages with loan-to-value ratios of 80 

percent or less (mortgages with down payments of at least 20 percent) and require private 

mortgage insurance on mortgages with higher loan-to-value ratios. The enterprises also 

have a limit, known as the conforming loan limit, on the size of mortgages they purchase. 

Mortgages above this limit are called jumbo mortgages. The conforming conventional 

market differs from other markets, such as the subprime market, which generally have 

differing underwriting standards, or markets where mortgages are insured or guaranteed 

by the federal government, such as through programs that the Federal Housing 

Administration and the Department of Veterans Affairs administer.

7

However, because of the enterprises’ funding advantage relative to banks, interest rates 

for mortgages sold to the enterprises are often lower than interest rates banks would 

charge to hold those mortgages in portfolio.

8

Pub. L. No. 110-289, §§ 1101-1103, 122 Stat. 2654, 2661-2664 (codified at 12 U.S.C. §§ 

4511-4513).

9

Pub. L. No. 110-289, § 1301, 122 Stat. 2654, 2794 (codified at 12 U.S.C. § 4511 note). 

The Office of Federal Housing Enterprise Oversight was created by the Federal Housing 

Enterprises Financial Safety and Soundness Act of 1992, Pub. L. No. 102-550, tit. XIII, § 

1311, 106 Stat. 3941, 3944 (codified at 12 U.S.C. § 4511).

FHFA’s Authorities and the 

Conservatorships of the 

Enterprises
Page 5 GAO-17-92 Federal Housing Finance Agency

regulated entity foster liquid, efficient, competitive, and resilient national 

housing finance markets. Additionally, the Emergency Economic 

Stabilization Act of 2008 directed FHFA and other agencies to implement 

plans seeking to maximize assistance for homeowners and encourage 

mortgage servicers to take advantage of available programs to minimize 

foreclosures.10

HERA authorized the Director of FHFA to appoint FHFA as conservator 

or receiver for the enterprises for the purpose of reorganizing, 

rehabilitating, or winding up their affairs.11 As conservator, FHFA was 

authorized to take such action as may be necessary to put the regulated 

entity in a sound and solvent condition, as well as such action as may be 

appropriate to carry on the business of the regulated entity and to 

preserve and conserve the assets and property of the regulated entity.12

Upon placing the enterprises into conservatorships, FHFA succeeded by 

operation of law to the authority of the enterprises’ management, boards 

of directors, and shareholders during the period of the conservatorships. 

However, according to FHFA, it does not manage every aspect of the 

enterprises’ operations. Instead, FHFA reconstituted the enterprises’

boards of directors in 2008 and charged them with overseeing 

management’s day-to-day operation of the enterprises, subject to FHFA 

review and approval on certain matters. Fannie Mae and Freddie Mac 

retain their government charters and continue to operate legally as 

business corporations.

FHFA initially outlined its understanding of its conservatorship obligations 

and how it planned to fulfill those obligations in a 2010 letter to Congress. 

In February 2012, FHFA sent Congress a strategic plan that set three 

 10Pub. L. No. 110-343, § 110, 122 Stat. 3775 (codified at 12 U.S.C. § 5220). Mortgage 

servicers earn a fee for acting as the servicing agent on behalf of the owner of a loan. 

Servicing duties can involve sending borrowers monthly account statements, answering 

customer service inquiries, collecting monthly mortgage payments, maintaining escrow 

accounts for property taxes and hazard insurance, and forwarding proper payments to the 

mortgage owners. In the event that a borrower becomes delinquent on loan payments, 

servicers also initiate and conduct foreclosures in order to obtain the proceeds from the 

sale of the property on behalf of the owners of the loans.

11According to FHFA, conservatorship is the legal process in which a person or entity is 

appointed to establish control and oversight of a company to put it in a sound and solvent 

condition. In a conservatorship, the powers of the company’s directors, officers, and 

shareholders are transferred to the designated conservator. In contrast, receivership has 

the goal of liquidating an entity by selling or transferring its remaining assets. 

12Pub. L. No. 110-289, § 1145, 122 Stat. 2654, 2734 (codified at 12 U.S.C. § 4617).
Page 6 GAO-17-92 Federal Housing Finance Agency

strategic goals for conservatorship and elaborated on how FHFA planned 

to meet its conservatorship obligations. Most recently, under the current 

Director, whose term began in January 2014, FHFA issued an updated 

strategic plan in May 2014 that reformulated its three strategic goals.

Using its authority provided in HERA, Treasury provides capital support to 

the enterprises while in conservatorships through senior preferred stock 

purchase agreements. Under these agreements, Treasury committed to 

provide up to $445.6 billion in assistance to the enterprises, of which the 

enterprises have drawn $187.5 billion to date.13 In exchange, the 

enterprises pay quarterly dividends to Treasury. Under the current terms 

of the agreements as amended, Fannie Mae and Freddie Mac must pay 

to Treasury as dividends all of their quarterly positive net worth amount (if 

any) over a specified capital reserve amount upon declaration of 

dividends.14 However, the agreements reduce this capital reserve amount 

to zero in January 2018.

From 2008 through 2013, the federal government directly or indirectly 

supported over three-quarters of the value of new mortgage originations 

in the single-family housing market. Mortgages with federal support 

include those backed by the enterprises as well as mortgages insured by 

the Federal Housing Administration (FHA), which has experienced 

substantial growth in its insurance portfolio and significant financial 

difficulties. In light of developments concerning the enterprises and FHA, 

in 2013 we identified the role played by the federal government in the 

housing finance system as a high-risk area for the government.15

Subsequently, Congress considered a number of legislative proposals to 

make significant changes to the housing finance system. Three 

 13However, since the second quarter of 2012, neither enterprise has requested funds from 

Treasury because the enterprises’ total liabilities have not exceeded their assets.

14In lawsuits brought against Treasury and FHFA, shareholders have challenged the 2012 

amendment to the agreements. Thus far investors’ challenges have largely been 

unsuccessful. See Perry Capital LLC v. Lew, 70 F. Supp. 3d 208 (2014) (finding that 

HERA barred a group of investors’ actions seeking equitable relief against the FHFA and 

Treasury); Robinson v. The Federal Housing Finance Agency, No. 7:15-cv-109-KKC 

(E.D.Ky Sept. 9, 2016) (dismissing an investor’s claim that the 2012 amendment to the 

agreements materially damaged her investments in the enterprises). A number of lawsuits 

challenging FHFA’s and Treasury’s actions are still pending as of October 2016.

15GAO, High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: February 2013).

Proposals to Reform the 

Housing Finance System
Page 7 GAO-17-92 Federal Housing Finance Agency

proposals—the Housing Finance Reform and Taxpayer Protection Act of 

2014, S. 1217; the FHA Solvency Act of 2013, S. 1376; and the 

Protecting American Taxpayers and Homeowners Act, H.R. 2767—were 

reported out of committee during the 113th Congress (January 2013–

January 2015), but no further action was taken.

From 2003 to 2006, the enterprises saw the share of total first-lien 

mortgage originations they securitized into MBS decline from 51 percent 

to 32 percent (see fig. 1).16 This decrease coincided with the rapid 

expansion of nonprime lending and private-label MBS.17 However, there 

have been very few new issuances of private-label MBS since 2007. As 

that segment of the market virtually disappeared, the enterprises’ market 

share increased to a high of 65 percent of total originations in 2008 (even 

as the dollar volume of originations they securitized decreased from 

2007) and remained nearly at that level for several years. Meanwhile, the 

share of first-lien mortgage originations that banks held in their portfolios 

generally decreased, from 34 percent in 2002 to a low of 12 percent in 

2009.18 However, the percentage of loans held in banks’ portfolios 

increased from less than 20 percent in 2013 to more than 30 percent in 

2014, where it remained through the first half of 2016. Simultaneously, 

the percentage of loan originations that the enterprises packaged into 

MBS and guaranteed dropped from 62 percent in 2013 to less than 50 

percent in 2014, and fell further to 43 percent during the first half of 2016.

 16A home mortgage is an instrument by which the borrower gives the lender a lien on 

residential property as security for the repayment of a loan. A first-lien mortgage creates a 

primary lien against real property and has priority over subsequent mortgages, which 

generally are known as junior, or second, mortgages. That is, first liens are the first to be 

paid when the property is sold.

17Nonprime mortgages include subprime and Alt-A loans, which have higher interest rates 

and fees than prime loans. Historically, subprime mortgages have been offered to 

borrowers who do not qualify for a prime loan, while Alt-A loans have been offered to 

borrowers who have some higher-risk characteristics, such as limited documentation of 

income or assets. Private-label MBS are securities that are not issued or guaranteed by a 

federal government agency or the enterprises.

18We estimated the percentage of first-lien originations held in banks’ portfolios based on 

the value of first-lien mortgages originated and the value of first-lien mortgages securitized 

by year as reported by Inside Mortgage Finance.

Enterprises’ Share of FirstLien Mortgage 

Originations
Page 8 GAO-17-92 Federal Housing Finance Agency

Figure 1: Mortgage-Backed Securities Guaranteed by Fannie Mae and Freddie Mac (the Enterprises) and Mortgages Held in 

Banks’ Portfolios as a Percentage of First-Lien Mortgage Originations, 2002 through Second Quarter 2016

Note: A first-lien mortgage creates a primary lien against real property and has priority over 

subsequent mortgages. First-lien mortgage originations held in banks’ portfolios were estimated from 

data on the value of mortgages originated and the value of mortgages securitized.

While the three goals FHFA outlined in its 2014 strategic plan for the 

conservatorships are similar to those in the previous 2012 plan in a 

number of ways, there are key differences that reflect a shift in priorities 

for the conservatorships and changing market conditions. Whereas in the 

2012 plan FHFA stated that its goals were aimed at establishing a 

foundation for a new housing finance system in the future, FHFA stated 

that the 2014 plan and goals emphasize overseeing and managing the 

enterprises in their current state in accordance with statutory mandates. 

This shift in priorities is evident in the goals’ relative importance as 

indicated by the weight given to each goal, as well as changes to the 

wording of the three goals between the 2012 and 2014 strategic plans 

(see table 1) and the actions FHFA is taking to further these goals. In 

addition, the previous strategic plan was produced while the enterprises 

were generating losses and the outlook for future losses was highly 

uncertain, according to FHFA, but the 2014 plan was issued after a string 

of profitable quarters for both enterprises.

FHFA’s Reformulated 

Goals for the 

Conservatorships and 

Its Supporting Actions 

Reflect a Shift in 

Priorities and 

Changing Market 

Conditions
Page 9 GAO-17-92 Federal Housing Finance Agency

Table 1: Changes in the Wording of the Federal Housing Finance Agency’s Goals for the Conservatorships of Fannie Mae and 

Freddie Mac between the 2012 Strategic Plan and the 2014 Strategic Plan

Goal 2012 plan wording 2014 plan wording

Maintain Maintain foreclosure prevention activities and credit 

availability for new and refinanced mortgages

Maintain, in a safe and sound manner, foreclosure 

prevention activities and credit availability for new 

and refinanced mortgages to foster liquid, efficient, 

competitive, and resilient national housing finance 

markets

Contract/Reduce Gradually contract the enterprises’ dominant 

presence in the marketplace while simplifying and 

shrinking their operations

Reduce taxpayer risk through increasing the role of 

private capital in the mortgage market

Build Build a new infrastructure for the secondary 

mortgage market

Build a new single-family securitization 

infrastructure for use by the enterprises and 

adaptable for use by other participants in the 

secondary market in the future

Source: GAO analysis of Federal Housing Finance Agency 2012 and 2014 strategic plans for the conservatorships. | GAO-17-92

In the 2014 plan, FHFA indicated it was placing greater emphasis on its 

goal for maintaining credit availability and foreclosure prevention options 

(Maintain goal). FHFA increased the weight given to this goal in its annual 

scorecards for the enterprises, from 20 percent in 2012 and 2013 to 40 

percent in 2014 through 2016. Additionally, FHFA changed the wording of 

the Maintain goal from “maintain foreclosure prevention activities and 

credit availability for new and refinanced mortgages” to “maintain, in a 

safe and sound manner, foreclosure prevention activities and credit 

availability for new and refinanced mortgages to foster liquid, efficient, 

competitive, and resilient national housing finance markets.” The new 

wording more closely aligns the goal with FHFA’s responsibilities outlined 

in statute and Congress’s stated purpose for the enterprises.19

 19The additional phrases in the 2014 Maintain goal come from HERA, which calls for the 

Director “to ensure that ... each regulated entity operates in a safe and sound manner ... 

[and] the operations and activities of each regulated entity foster liquid, efficient, 

competitive, and resilient national housing finance markets....” Pub. L. No. 110-289, § 

1102, 122 Stat. 2664. As noted earlier, the Emergency Economic Stabilization Act of 2008 

directed FHFA to implement a plan seeking to maximize assistance for homeowners and 

encourage servicers to take advantage of available programs to minimize foreclosures. 

Additionally, the enterprises’ charters state that Congress’ purpose in establishing them 

was to, among other things, “promote access to mortgage credit throughout the Nation 

(including central cities, rural areas, and underserved areas) by increasing the liquidity of 

mortgage investments and improving the distribution of investment capital available for 

residential mortgage financing.” 12 U.S.C. § 1716 and 12 U.S.C. § 1451 note.

FHFA Increased Its 

Emphasis on Maintaining 

Credit Availability and 

Foreclosure Prevention 

Options to Align with 

Statutory Responsibilities
Page 10 GAO-17-92 Federal Housing Finance Agency

Many of the activities that were identified in the 2012 plan under the 

Maintain goal continue to be stressed in the 2014 plan. These activities 

include the following:

• Representations and warranties framework. FHFA and the 

enterprises undertook a multiyear effort to develop a new framework 

governing representations and warranties—the assurances lenders 

provide that mortgage loans sold to the enterprises comply with the 

standards outlined in the enterprises’ selling and servicing guides, 

including underwriting and documentation. The objective of the 

framework is to enhance transparency and certainty for lenders by 

clarifying when a mortgage loan may be subject to repurchase.20 This 

clarity may give lenders more confidence to lend, which helps 

maintain borrowers’ access to credit. For example, currently lenders 

are eligible for relief from certain representations and warranties when 

borrowers make 36 consecutive payments with no more than two 

delinquencies of 30 days or less.21 The enterprises categorized loan 

origination and servicing defects and the appropriate remedies 

available to address them in the framework and established an 

independent dispute resolution program to resolve contested loanlevel disputes about repurchase requests. The final piece of the 

framework was put in place in February 2016.

• Loss mitigation and foreclosure prevention. In an effort to help 

borrowers avoid foreclosure, FHFA worked with the enterprises to 

align their servicing policies and develop loss mitigation tools that 

included loan modifications, streamlined refinance options, and 

foreclosure prevention actions including short sales and deeds-in-lieu 

of foreclosure.22 FHFA and the enterprises also made enhancements 

 20If lenders and servicers do not comply with the enterprises’ selling and servicing 

requirements, the enterprises may require them to repurchase the improperly underwritten 

or serviced loans from the enterprises.

21In the version of the framework in effect from January 1, 2013, through June 30, 2014, 

lenders were eligible for relief from representations and warranties when borrowers made 

36 consecutive payments with no delinquencies, or after 60 months with no more than two 

delinquencies of 30 days or less within the first 36 months.

22In a short sale, the mortgage holder agrees to accept proceeds from the sale of the 

home to a third party even though the sale price is less than the sum of the principal, 

accrued interest, and other expenses owed. For a deed-in-lieu of foreclosure, the 

mortgage holder opts to accept ownership of the property in place of the money owed on 

the mortgage. The homeowner voluntarily gives the mortgage holder the keys to the 

property and executes a deed to transfer title to the mortgage holder. The mortgage 

holder agrees to release the debtor from any liability on the outstanding mortgage 

balance.
Page 11 GAO-17-92 Federal Housing Finance Agency

to requirements related to foreclosure alternatives, unemployment 

forbearance, and rate-reset notifications. For example, the enterprises 

announced in June 2014 that mortgage servicers could approve 

eligible borrowers for extended unemployment forbearance without 

obtaining prior written authorization from the enterprises.23 Finally, the 

enterprises have used sales of nonperforming loans to transfer pools 

of severely delinquent loans to new buyers and servicers with the goal 

of providing more favorable outcomes for borrowers while also 

reducing losses to the enterprises and, therefore, to taxpayers.

In addition, FHFA identified a number of new activities, some of which the 

enterprises have begun implementing, that serve to expand its efforts to 

maintain credit availability and foreclosure prevention as market 

conditions improve, including

• lowering the minimum down payment from 5 percent to 3 percent;24

• providing for principal forgiveness for an estimated 30,000 borrowers 

in default;25

 23With an unemployment forbearance plan, the mortgage holder agrees to reduce or 

suspend payments for a specified period of time while the borrower is unemployed, during 

which a portion of the principal balance does not accrue interest. Usually, the mortgage 

holder will require the borrower to make up the difference at a later time. The enterprises 

have made unemployment forbearance available to eligible borrowers for 6 months, which 

can be extended for up to an additional 6 months.

24In December 2014, the enterprises announced they would begin offering mortgages with 

a 3 percent down payment for certain low- to moderate-income borrowers in order to 

increase access to credit for these borrowers. To qualify, a mortgage must be for a oneunit principal residence and have a fixed interest rate and a term of 30 years or less. In 

addition, the borrower or coborrower must not have an ownership interest in any other 

residential dwelling.

25The Principal Reduction Modification Program is a one-time offer for underwater 

borrowers (that is, borrowers who owe more on their mortgages than their properties are 

worth) with mortgages guaranteed by the enterprises. The program offers capitalization of 

outstanding debt, lowered interest rates, an extension of loan terms to 40 years, and 

forbearance of principal. Upon completion of three timely payments and acceptance of the 

final modification, the principal forbearance amount will instead be forgiven. The program 

is available to approximately 30,000 eligible borrowers who were at least 90-days 

delinquent as of March 1, 2016, had unpaid principal balances of less than $250,000, and 

were owner-occupants, among other requirements. The main objective of the program is 

to help borrowers avoid foreclosure without increasing risk for the enterprises.
Page 12 GAO-17-92 Federal Housing Finance Agency

• issuing proposed rules outlining the enterprises’ duty to serve certain 

underserved segments of the market;26 and

• transferring funds to a statutory housing trust fund that will be 

distributed through grants made to the states.27

FHFA also reframed the enterprises’ actions in multifamily production to 

focus on maintaining credit availability rather than on reducing their 

market share.28 Beginning in 2013, FHFA imposed a production cap on 

the enterprises’ multifamily business. However, since 2014 FHFA has 

allowed the enterprises to exclude from the caps affordable housing 

loans, loans to small multifamily properties, and loans to manufactured 

housing rental communities. In addition, FHFA increased the 2016 

multifamily lending caps for the enterprises from $31 billion to $36.5 

 26In December 2015, FHFA issued a proposed rule to implement statutory provisions that 

require the enterprises to serve three specified underserved markets: manufactured 

housing, affordable housing preservation, and rural markets. See Enterprise Duty to Serve 

Underserved Markets, 80 Fed. Reg. 79,182 (Dec. 18, 2015). The proposed rule would 

require the enterprises to adopt plans covering a 3-year period to improve the distribution 

and availability of mortgage financing for residential properties that serve very low-, low-, 

and moderate-income families in three specified underserved markets. The proposed rule 

would also provide credit to the enterprises for eligible activities that facilitate a secondary 

market for mortgages on residential properties in these markets. FHFA would also 

evaluate the enterprises’ performance using the following categories: development of loan 

products, flexible underwriting guidelines, and other innovative approaches to financing in 

each market; outreach to qualified loan sellers and underserved market participants; 

volume of purchased loans in each underserved market relative to the market 

opportunities available to the enterprise; and investment in projects assisting the 

underserved markets. FHFA accepted public comments on the proposed rule through 

March 17, 2016, and stated that it is reviewing them as it works to develop a final rule. 

Enterprise Duty to Serve Underserved Markets, 80 Fed. Reg. 79,182 (December 18, 

2015).

27The National Housing Trust Fund is a permanent federal fund established by HERA to 

support affordable rental housing for extremely low-income households or those earning 

below the federal poverty line through block grants to states. It is funded by the 

enterprises and administered by HUD, which is responsible for distributing grants to the 

states, which then distribute the funds in accordance with annual allocation plans. States 

qualify for grants based on factors, including rental housing shortages for extremely or 

very low income households, the number of extremely or very low-income renters living in 

substandard or unaffordable units, and local construction costs. FHFA had prohibited the 

enterprises from contributing to the fund while in conservatorship. However, in December 

2014, FHFA directed the enterprises to begin setting aside funds in 2015 and make them 

available to the fund by March 1, 2016. The enterprises’ first payments to the fund totaled 

$186 million.

28In its 2014 progress report on the implementation of the 2014 plan, FHFA stated that the 

multifamily lending caps were intended to further FHFA’s strategic goal of maintaining the 

presence of the enterprises as a backstop for the multifamily housing finance market while 

not impeding the participation of private capital.
Page 13 GAO-17-92 Federal Housing Finance Agency

billion.29 The adjustment for 2016 was based on increased estimates of 

the overall size of the 2016 multifamily finance market due to continued 

high levels of property acquisitions and deliveries of newly constructed 

apartment units, as well as record levels of maturing loans that required 

refinancing.

FHFA’s second goal in the 2014 plan, like the corresponding goal in the 

2012 plan, is aimed at transferring risk from the enterprises (and 

taxpayers) to private investors. However, the two goals are worded 

differently due to different approaches to decreasing risk. In 2012, the 

goal was to “gradually contract the enterprises’ dominant presence in the

marketplace while simplifying and shrinking their operations” (Contract 

goal). The 2014 plan rephrases the goal as to “reduce taxpayer risk 

through increasing the role of private capital in the mortgage market”

(Reduce goal) and shifts away from decreasing the enterprises’ role in the 

housing market. In addition, FHFA reduced the weight that activities 

under the second goal were given in FHFA’s annual scorecards, from 50 

percent in 2013 to 30 percent in 2014 through 2016.

As FHFA noted in the 2014 strategic plan, its statutory responsibilities as 

conservator do not include making policy decisions on the future of 

housing finance reform. FHFA officials told us that the current Director did 

not believe that shrinking the enterprises’ dominant presence in the 

market was FHFA’s decision to make because Congress had not yet 

acted on housing finance reform.

Additionally, FHFA noted that it was concerned about the effects of 

shrinking the enterprises’ operations on mortgage market liquidity and the 

availability of mortgage credit, which it was seeking to support through its 

Maintain goal. In other words, there may have been tension between the 

Contract goal and the Maintain goal in the 2012 plan, and shifting risk 

from taxpayers to private market participants without contracting the 

enterprises’ presence in the market helped eliminate this tension. As a 

result, one of the actions outlined in the 2012 plan related to efforts to 

contract the enterprises’ role—continued gradual increases in the 

 29FHFA reviews the estimates for the size of the multifamily finance market each quarter 

and increases the caps, if warranted.

FHFA Shifted Efforts for 

Reducing Taxpayer Risk 

Away from Decreasing the 

Enterprises’ Role
Page 14 GAO-17-92 Federal Housing Finance Agency

enterprises’ guarantee fee pricing—was eliminated.30 Another action was 

reframed: the multifamily production activities that in the 2014 plan focus 

on maintaining access to credit and are therefore included in the Maintain 

goal, as discussed previously.

In its efforts to support the new focus of the Reduce goal, FHFA has 

taken several actions, including the following:

• Credit risk transfers. FHFA directed the enterprises to transfer a 

portion of the credit risk they face on the mortgages they securitize to 

private investors. These transfers of risk can occur either before 

(“front-end”) or after (“back-end”) the enterprises purchase mortgages. 

The enterprises primarily employed back-end risk transfers in the first 

3 years of the initiative (2013–2015), but recently they have been 

trying various structures, including some front-end transfers.31 Under 

the debt issuance structure for credit risk transfers (the structure the 

enterprises have used most), the enterprises sell debt to investors 

and receive payment up front at the time of the sale. The enterprises 

repay the debt based on the performance of a reference pool of 

mortgages, in which the investor earns a higher return if the 

mortgages perform well and a lower return should they perform 

poorly. From 2013 through 2015, the enterprises completed 70 

transactions that transferred credit risk totaling $30.6 billion on singlefamily mortgages with an unpaid principal balance of about $838 

billion. In June 2016, FHFA issued a request for input on proposals for 

the enterprises to adopt a number of front-end credit risk transfer 

structures.

 30Overall, FHFA reported that guarantee fees increased from an average of 22 basis 

points in 2009 to 59 basis points in 2015. In 2012 and 2013, FHFA proposed two 

additional increases to guarantee fees. But after considering public input and conducting 

its own reviews, FHFA decided in 2015 not to go forward with either proposal. Instead, 

FHFA stated that the current average level of guarantee fees appropriately reflected the 

current costs and risks associated with providing the enterprises’ credit guarantee. We did 

not independently assess FHFA’s analyses. 

31Other methods for credit risk sharing with private entities include insurance risk 

transfers, where the enterprises pay reinsurance companies to take on some of the credit 

risk on pools of mortgages the enterprises own; deeper mortgage insurance, where 

mortgage insurers agree ahead of time to cover more losses than they currently agree to 

cover; front-end collateralized lender recourse transactions, where originating lenders or 

aggregators retain a portion of the credit risk associated with the mortgages they sell to 

the enterprises in exchange for a reduced guarantee fee charge on the loans from the 

enterprises; and senior-subordinate securitization, where subordinate tranches of MBS 

sold to investors are subject to credit loss and senior tranches sold to investors are 

guaranteed repayment.
Page 15 GAO-17-92 Federal Housing Finance Agency

• Private mortgage insurance standards. FHFA and the enterprises 

updated eligibility requirements for private mortgage insurers seeking 

to insure loans that are eligible for purchase by the enterprises. These 

requirements help to ensure the stability of mortgage insurance 

companies that are counterparties of the enterprises, reducing 

counterparty risk to the enterprises and, by extension, risk to 

taxpayers. Among other things, the requirements establish financial 

standards for private mortgage insurers to demonstrate adequate 

resources to pay claims and operational standards relating to quality 

control processes and performance metrics. The enterprises began 

implementing the requirements in the second half of 2015, and all the 

revised requirements were effective December 31, 2015.

FHFA narrowed the focus of its goal of building a securitization 

infrastructure (Build goal) from creating a new secondary mortgage 

market infrastructure to primarily addressing the enterprises’ current 

operational needs. But FHFA kept the weight assigned to this goal in the 

annual scorecards it issued for the enterprises at 30 percent (which is the 

weight it was given each year from 2012 through 2016). The reduction in 

scope is evident in the changed wording of the goal, from “build a new 

infrastructure for the secondary mortgage market” to “build a new singlefamily securitization infrastructure for use by the enterprises and 

adaptable for use by other participants in the secondary market in the 

future.”

One example of refining the goal’s scope was discontinuing the effort to 

develop a model contractual and disclosure framework. Since 2012, the 

enterprises had been working to develop the framework to align the 

contracts and data disclosures that supported fully guaranteed MBS 

issued by the enterprises and craft a set of uniform contractual terms and 

standards for transparency for MBS that carried no or only a partial 

federal guarantee and that could be broadly accepted by issuers and 

investors. To develop this framework, FHFA was incorporating input it

received in 2012 on a proposal for a standardized pooling and servicing 

agreement. According to FHFA, by the end of 2013 the enterprises had 

made progress toward developing preliminary recommendations for the 

framework. However, the 2014 strategic plan did not mention the 

framework.32 FHFA officials said that the effort to develop the framework 

 32FHFA officials told us that two initiatives begun as part of developing the framework—

aligning the enterprises’ MBS disclosures and loan buyout policies—were used in 

developing the Single Security, which is discussed later in the report.

FHFA Has Reduced the 

Scope of the Securitization 

Infrastructure Being Built, 

Focusing Instead on 

Initiatives for the 

Enterprises
Page 16 GAO-17-92 Federal Housing Finance Agency

was distracting FHFA from focusing on addressing the enterprises’

securitization infrastructure needs, particularly those related to the 

implementation of a Single Security (discussed later). They said 

discontinuing the work on the framework was part of a strategy to mitigate 

risk through managing the scope of the infrastructure they were building. 

Additionally, the officials said that private industry groups commented to 

FHFA that such an effort should be left to the private sector.

Despite the change in goal’s scope in the 2014 plan, FHFA is continuing 

efforts begun earlier to create a new securitization infrastructure—most 

notably, a common securitization platform. The common securitization 

platform is a technology and operational platform that will perform many 

of the enterprises’ current securitization functions for single-family 

mortgages on behalf of the enterprises. FHFA directed the enterprises to 

develop a common platform to replace the information technology 

platforms at each enterprise that support their securitization activities.33

While the common platform is designed to meet the current securitization 

activities of the enterprises, it is being built using open architecture and 

industry standard software, systems, and data requirements with the goal 

of being adaptable for use by other market participants in the future. 

According to FHFA officials, focusing first on meeting the known 

requirements of the enterprises made the most sense for defining the 

scope of the work and managing the project. Nonetheless, they said the 

ultimate goal of building an infrastructure that can be used by other 

market participants remains an important part of the Build goal and has 

informed many decisions FHFA has made.

FHFA expects the platform to be implemented in two releases:

• Implementation of the first release is scheduled to occur before the 

end of 2016 and should allow Freddie Mac to use the platform to 

issue its current single-class securities. In preparation for the first 

release, Freddie Mac and Common Securitization Solutions, LLC, a 

joint venture of the enterprises that was formed to operate the 

platform, successfully completed system-to-system and end-to-end 

testing of the functionality of the platform in early 2016.

• The second release is scheduled for 2018, when both enterprises 

plan to use the platform to issue a Single Security, which FHFA is 

 33These activities include data acceptance, issuance support, disclosures, and bond 

administration.
Page 17 GAO-17-92 Federal Housing Finance Agency

developing to replace the different MBS they currently offer. Unlike the 

enterprises’ current products, the new securities will have the same 

features, and the goal is for the market to treat them as fungible 

irrespective of the enterprise that issued them.34 In addition, the 

enterprises will be able to commingle first-level and second-level 

securities from either enterprise in the second-level securities they 

issue.35 As of July 2016, FHFA had finalized the features of the Single 

Security after soliciting and incorporating input from the public. FHFA 

also updated loan-level disclosures and announced that the 

enterprises will begin issuing these securities in 2018.

To support the Build goal, FHFA and the enterprises continue to develop 

mortgage data standards for the single family loans they purchase 

through the Uniform Mortgage Data Program. This program has provided 

lenders with common and consistent definitions and specification for 

various mortgage data, including appraisal, loan delivery, mortgage loan 

application, and closing disclosure information. The enterprises currently 

collect standardized appraisal and loan delivery data, and expect to 

implement a data collection system for the closing disclosure dataset in 

the third quarter of 2017. As part of a new mortgage loan application, the 

enterprises released technical requirements and an associated dataset to 

electronically capture loan application information to the industry in the 

third quarter of 2016. Implementation of the new loan application and 

associated dataset is likely to be in the first quarter of 2019, according to 

FHFA.

 34According to FHFA, one of the primary objectives of developing a Single Security is to 

reduce the costs to Freddie Mac and taxpayers that result from the persistent difference in 

the liquidity of Freddie Mac securities relative to Fannie Mae securities. Historically, 

certain Fannie Mae securities have been much more liquid than comparable Freddie Mac 

securities. The lower liquidity and prices of Freddie Mac securities result in Freddie Mac 

spending significant sums each year to subsidize the guarantee fees it charges sellers to 

induce sellers to do business with Freddie Mac. This imposes a significant cost on Freddie 

Mac and, ultimately, on taxpayers, since it lowers the dividend payments by Freddie Mac 

to Treasury under the senior preferred stock purchase agreement. 

35A first-level security is collateralized by a single pool of mortgage loans. A second-level 

security is collateralized by a group of previously issued first- or second-level securities.
Page 18 GAO-17-92 Federal Housing Finance Agency

Prior to 2014, FHFA was taking explicit steps to shrink the enterprises’

role in the secondary market.36 These actions included gradual increases 

in guarantee fees and strict caps on the total amount of multifamily loans 

that the enterprises could purchase.37 As discussed earlier, these actions 

were stopped by the current Director and FHFA’s adoption of the 2014 

strategic plan. However, other actions that serve to reduce the depth and 

breadth of the enterprises’ activities and that are written into the 

enterprises’ agreements with Treasury continue. These actions include 

 36In 2011, the administration released a plan for reforming the housing finance system 

that also aimed to reduce the enterprises’ role in the secondary mortgage market. See 

Department of the Treasury and Department of Housing and Urban Development, 

Reforming America’s Housing Finance Market: A Report to Congress (Washington, D.C.: 

February 2011).

37In 2013, FHFA also indicated it was contemplating a reduction in loan purchase limits for 

the enterprises as a means of reducing their market footprint. See Fannie Mae and 

Freddie Mac Loan Purchase Limits: Request for Public Input on Implementation Issues, 

78 Fed. Reg. 77,450 (Dec. 23, 2013).

In the Absence of 

Congressional 

Direction, FHFA’s 

Shift in Priorities Adds 

to Uncertainty about 

the Future Structure 

of the Housing 

Finance System

FHFA Partially Changed 

Direction on Reducing the 

Enterprises’ Role in 

Housing Finance
Page 19 GAO-17-92 Federal Housing Finance Agency

reducing retained mortgage portfolios and reducing the enterprises’

capital bases to $0 by January 2018.38

FHFA stated that it changed its strategy for the conservatorships and took 

actions to maintain the enterprises’ current state and role in the 

secondary market in the absence of congressional direction on housing 

finance system reform. At the same time, FHFA officials told us that the 

strategy was intended to be neutral in terms of the enterprises’ future 

structure and left all reform options open. Our analysis comparing FHFA’s 

actions with legislative proposals to reform the enterprises’ structure 

found that some proposals continue or build upon actions FHFA has 

taken, such as the common securitization platform and credit risk 

transfers. However, proposals that incorporate the same future structure 

for the enterprises do not consistently build upon the same actions. For 

example, one legislative proposal that replaces the enterprises with a 

single federal agency builds upon FHFA’s credit risk transfer initiative, but 

other similar proposals do not explicitly address credit risk transfers. As a 

result, FHFA’s actions are not necessary to transitioning to the particular 

structures in any of these proposals, such as a single governmental 

agency or fully privatized companies.39 In addition, we found that the 

same actions were included in multiple proposals that envisioned different 

future structures for the enterprises.

 38The enterprises’ retained portfolios include mortgages they purchased but did not 

securitize, mortgages bought out of securities due to delinquency status or other reasons, 

MBS they purchased from each other or from private issuers, and their own MBS 

repurchased from other investors. The senior preferred stock purchase agreements set 

annual caps on the retained portfolios that decrease each year. The enterprises have 

been able to meet these caps each year through a number of activities. Most of the annual 

reductions in the retained portfolios were the result of voluntary and involuntary 

prepayments. In addition, the enterprises have sold less-liquid assets (mostly private-label 

securities and nonperforming loans) to private investors through auctions. For 2016, the 

cap on retained portfolios for each enterprise is $339 billion, which the enterprises must 

meet by December 31; through the first quarter of 2016, Fannie Mae’s portfolio stood at 

$328 billion while Freddie Mac’s was $334 billion.

39In a 2014 report on transitioning to alternative structures for housing finance, CBO 

identified four possible future structures: (1) a market with a single, fully federal agency; 

(2) a hybrid public-private market; (3) a market with the government as guarantor of last 

resort; and (4) a largely private secondary market. CBO laid out illustrative transition paths 

that included combinations of a few specific actions FHFA could take to help move to the 

different structures. Increasing guarantee fees, changing the maximum loan limits, and 

using credit risk transfers were among the actions CBO highlighted. See Congressional 

Budget Office, Transitioning to Alternative Structures for Housing Finance (Washington, 

D.C.: December 2014).
Page 20 GAO-17-92 Federal Housing Finance Agency

Industry stakeholders generally said that FHFA’s recent actions have not 

advanced or constrained any of the future structures for the enterprises 

outlined in legislative proposals. Representatives from two industry 

associations told us that FHFA’s recent actions have been neutral as to 

the future structure. However, other industry stakeholders who are 

members of a third industry association noted that FHFA had taken steps 

prior to 2014 to harmonize the enterprises’ policies, procedures, and 

products, some of which continued after the publication of the 2014 plan, 

such as the development of a Single Security and the common 

securitization platform. Taking these steps could facilitate (but would not 

require) merging the enterprises into a single entity. But whether that 

single entity would be a government agency, government corporation, or 

private entity was unclear to these stakeholders. Officials from another 

industry association said that instead the enterprises could be 

recapitalized as competitors to one another but that it was unclear how 

they would be able to balance competing against each other with working 

together to ensure the common securitization platform works well.40

As outlined in the 2012 strategic plan, FHFA set out to address a number 

of barriers to entry into the secondary mortgage market. By creating a 

common securitization platform using open architecture, a model pooling 

and servicing agreement (which evolved into the contractual and 

disclosure framework discussed previously), and standardized mortgage 

data, along with contracting the enterprises’ presence through increased 

guarantee fees, FHFA sought to make entry into the secondary market 

easier for private entities. However, over time most of these actions were 

scoped down or eliminated, resulting in a reduced emphasis on 

addressing barriers. Some industry stakeholders said that FHFA’s shift in 

direction sent mixed messages to market participants and increased 

uncertainty about the role private entities should be playing in the 

secondary mortgage market.

For example, some industry stakeholders we spoke with perceived a 

technological barrier to entry into the secondary mortgage market.41 The 

 40As noted earlier, the enterprises formed a joint venture, Common Securitization 

Solutions, LLC, to develop and operate the platform.

41Industry stakeholders with whom we spoke had differing views about whether 

technology for securitization was a barrier to entry into the secondary market. Some 

stakeholders told us that large lenders have their own securitization platforms that support 

more complex and innovative securitization structures than what the enterprises offer and 

may not have a reason to use the common securitization platform.

FHFA’s Change in 

Priorities Puts Less 

Emphasis on Addressing 

Barriers to Entry into the 

Secondary Mortgage 

Market, Adding to 

Uncertainty
Page 21 GAO-17-92 Federal Housing Finance Agency

shift in the Build goal from 2012 to 2014 related to the common 

securitization platform does not clearly address this barrier as it is less 

clear whether private entities will be able to use the platform. According to 

FHFA officials, many decisions remain to be made about whether, when, 

and for what purposes private entities will be able to use the platform, 

which adds to uncertainty.

As another example, FHFA and the enterprises began developing a 

contractual and disclosure framework but decided to halt the effort in 

2014. The framework had the potential to help address some of the 

governance issues that some industry stakeholders said were holding 

back the secondary mortgage market’s private-label MBS. These 

governance issues include a lack of alignment of interests among parties 

to a securitization transaction and processes for holding servicers for the 

underlying mortgages accountable for their performance. Some industry 

stakeholders we spoke to said that completing the framework, while 

potentially helpful in addressing some issues, would have been unlikely to 

fully address the barriers that continue to prevent the private-label MBS 

market from growing. According to FHFA officials, the private sector has

worked on developing its own framework, and this effort is ongoing.

Further, changes to FHFA’s Maintain goal from the 2012 plan to the 2014 

plan have expanded the enterprises’ reach to put them in competition with 

other market participants. Rather than addressing barriers to entry for 

private entities, these actions may enhance rather than lessen the 

enterprises’ existing advantages, which serve as barriers to entry and add 

to market participants’ uncertainty about their role in the market relative to 

the enterprises. For example, allowing down payments as low as 3 

percent expands the market segments the enterprises serve. According 

to an industry stakeholder, doing so could push other market participants 

out of these segments because the enterprises have built-in 

advantages—such as lower cost of funding and a government 

guarantee—that may make their products more attractive. Another 

stakeholder said the proposed rule on the enterprises’ duty to serve 

underserved markets, could also increase the enterprises’ competition 

with private entities, depending on future decisions.42

 42HERA requires the enterprises to provide leadership to facilitate a secondary market for 

mortgages for very low-, low-, and moderate-income families in three underserved 

markets specified in the statute: manufactured housing, affordable housing preservation, 

and rural housing.
Page 22 GAO-17-92 Federal Housing Finance Agency

Increases in guarantee fees that occurred in the first few years of the 

conservatorship began to address the barrier posed by the enterprises’

pricing advantage. According to the Urban Institute, other options for 

lenders, such as holding certain loans in portfolio, made more financial 

sense as the cost of selling loans to the enterprises increased.43

However, not continuing the increases as envisioned in the 2012 plan 

under the Contract goal could make these options less attractive than 

selling to the enterprises, according to an industry stakeholder. As a 

result, lenders may focus on making loans that can be sold to the 

enterprises and place less emphasis on reaching segments of the 

population that do not qualify for those loans. On the other hand, lower 

guarantee fees keep mortgages affordable, which has been the aim of the 

Maintain goal in both the 2012 and 2014 plans.

In addition, the Reduce goal includes developing new front-end credit risk 

transfers to increase the amount of risk borne by private entities. Some 

industry stakeholders expressed concern that possible options for frontend credit risk transfer transactions could increase barriers to entry for 

mortgage originators, depending on how the transactions are structured. 

FHFA officials noted that they would be reviewing comments on how to 

structure these front-end transactions after the close of the comment 

period on October 13, 2016.

FHFA has taken some actions that could increase the likelihood of 

drawing on Treasury’s capital commitment under the agreements as well 

as other actions that could have the opposite effect, and the net effect of 

these actions is uncertain. Some of FHFA’s newer actions supporting the 

2014 plan could increase credit risk and therefore the likelihood of

needing further assistance from Treasury. For example, one industry 

stakeholder said allowing the enterprises to purchase riskier mortgages, 

such as those with a 3 percent down payment and expanding the 

enterprises’ service to certain underserved segments of the market, could 

increase the likelihood of a draw on Treasury under the agreements. 

However, the underwriting requirements for these mortgages and the fees 

the enterprises collect help offset the increased risk. In addition, FHFA 

officials noted that these actions currently represent a small portion of the 

 43See, for example, Laurie S. Goodman and Jun Zhu, The GSE Reform Debate: How 

Much Capital Is Enough? (Washington, D.C.: Urban Institute, Oct. 24, 2013).

Whether FHFA’s Actions 

Reduce the Likelihood of 

Drawing on Treasury’s 

Capital Commitment Is 

Uncertain
Page 23 GAO-17-92 Federal Housing Finance Agency

enterprises’ business and therefore would have a minimal impact on the 

likelihood of drawing on Treasury’s funding commitment.

Several actions FHFA is taking, such as credit risk transfers and the 

Single Security, would reduce the likelihood of needing additional 

Treasury support, according to FHFA. These and other actions, including 

private mortgage insurer standards, the representations and warranties 

framework, and loss mitigation and foreclosure prevention activities, 

reduce credit risk or counterparty risk to the enterprises.44 While FHFA 

has directed the enterprises to engage in a growing set of credit risk 

transfers including front-end transfers, such as deeper mortgage 

insurance, the enterprises (as of 2016) have mostly conducted back-end 

risk transfers.45 With back-end transfers, the enterprises hold the credit 

risk until they complete the credit risk transfer transactions. In front-end 

transactions, private entities agree to take on a portion of the credit risk 

before or at the same time the loans are delivered to the enterprises.46

FHFA has stated that the enterprises need to issue a large enough 

volume of transactions to ensure a liquid market for credit risk transfer 

products. But FHFA has also stated that the enterprises need to avoid an 

excess supply of any particular product to the market that, for example, 

causes investors to abandon the market because the value of their 

existing holdings is reduced. Some industry stakeholders we spoke with 

noted that the enterprises have not been particularly attuned to investor 

demand when determining the timing, volume, and pricing of credit risk

transfer transactions. As a result, investors’ demand for credit risk transfer 

transactions may not meet the volume offered, and the enterprises could 

find themselves retaining more risk than planned.

 44Under the Emergency Economic Stabilization Act of 2008, FHFA must consider the net 

present value to taxpayers of any action undertaken to minimize foreclosures. Pub. L. No. 

110–343, § 110, 122 Stat. 3765, 3775 (codified at 12 U.S.C. § 5220).

45As noted previously, FHFA issued a request for input on proposals for the enterprises to 

adopt a number of front-end credit risk transfer structures in June 2016. The comment 

period closed October 13, 2016.

46FHFA officials noted that because the enterprises provide a full guarantee to MBS 

purchasers, the enterprises are responsible for the timely payment of principal and interest 

even when another entity has contractually agreed to hold the credit risk through either a 

front-end or back-end transaction. The enterprises would need to make those payments 

even if the counterparty failed to cover its portion of credit losses in a timely manner.
Page 24 GAO-17-92 Federal Housing Finance Agency

The enterprises’ results from their annual stress tests have improved 

each year since 2014 (see fig. 2).47 Although linking the changes in 

results to specific actions they and FHFA have taken is difficult, these 

results suggest that draws from Treasury due to negative economic 

conditions are less likely than they were several years ago. FHFA officials 

stated that loss mitigation actions, sales of illiquid assets from retained 

portfolios, and better credit quality in newer loans all contribute to the 

improved results, along with improved market factors such as house price 

appreciation. According to FHFA, credit risk transfers would also have an 

impact on the stress test results, even though the overall effect has been 

small given that the program is in the relatively early stages.48 However, 

the stress tests show that both enterprises would still need capital support 

from Treasury under a severely adverse economic scenario. As noted 

earlier, in January 2018 the enterprises’ capital reserve amount will fall to 

$0 as required by the agreements with Treasury, meaning any quarterly 

losses—including those due to market fluctuations and not necessarily to 

economic conditions—will require additional draws from Treasury under 

the agreements.49

 47The enterprises are required to conduct annual stress tests under Section 165(i)(2) of 

the Dodd-Frank Wall Street Reform and Consumer Protection Act. FHFA requires the 

enterprises to submit the results of stress tests to FHFA based on three scenarios—

baseline, adverse, and severely adverse—and to publish results of the severely adverse 

scenario each year.

48In addition, FHFA officials stated that the timing of when costs and benefits are 

recognized from an accounting perspective could affect whether the likelihood of a draw 

increases or decreases. For example, the enterprises recognize losses for accounting 

purposes months or years before the benefits from credit risk transfer transactions are 

recorded, according to FHFA.

49The current FHFA Director has stated that the enterprises’ lack of capital is the most 

serious risk they face. Specifically, he noted that without capital, the enterprises will have 

no capital buffer and no ability to weather quarterly losses, which could trigger a draw on 

Treasury’s commitment. He observed that “future draws that chip away at the backing 

available by the Treasury Department under the [preferred stock purchase agreements] 

could undermine confidence in the housing finance market...and future draws could lead 

to a legislative response adopted in haste or without the kind of forethought it should be 

given. I have been clear that conservatorship is not a desirable end state and that 

Congress needs to tackle the important work of housing finance reform.” See Melvin L. 

Watt, Director, Federal Housing Finance Agency, prepared remarks for the Bipartisan 

Policy Center, February 18, 2016, accessed September 22, 2016, 

http://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-Melvin-Watt-atBPC.aspx. 
Page 25 GAO-17-92 Federal Housing Finance Agency

Figure 2: Enterprises’ Combined Potential Incremental Draws on the Capital 

Commitment from the Department of the Treasury under the Severely Adverse 

Scenario of the Dodd-Frank Act Stress Tests, 2014–2016

Notes: Fannie Mae and Freddie Mac (the enterprises) are required to conduct annual stress tests 

under Section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank Act). FHFA requires the enterprises to submit the results of stress tests to FHFA based on 

three scenarios—baseline, adverse, and severely adverse—and to publish results of the severely 

adverse scenario each year. The severely adverse scenario is similar to the 2007–2009 crisis—a 

deep protracted recession, high unemployment, low GDP growth, deteriorating credit, low interest 

rates, falling home values, and a global economic shock, among others.

Deferred tax assets refer to assets on the enterprises’ consolidated balance sheets that are 

attributable to differences between the financial statement carrying amounts of existing assets and 

liabilities and their respective tax bases and to tax credits. The realization of deferred tax assets is 

dependent upon the generation of sufficient future taxable income. If the enterprises’ future 

operations do not generate sufficient taxable income to allow them to realize their deferred tax assets, 

they may be required to establish a valuation allowance for these assets.
Page 26 GAO-17-92 Federal Housing Finance Agency

In the 8 years since the enterprises were placed in conservatorships, 

Congress has not enacted legislation that establishes objectives for 

concluding the conservatorships and the future structure of the 

enterprises. One of the long-standing principles we have identified that 

should serve as a guide for providing government assistance to private 

market participants is setting clear objectives.50 In this case, clarity on 

issues related to comprehensive housing finance system reform is 

needed in order for the enterprises to exit conservatorship. According to 

FHFA, setting objectives for the conclusion of the conservatorships 

should be left to Congress.51 In a 2014 report, we outlined a framework 

consisting of nine elements that Congress could use to assess or craft 

proposals as it considers changes to the housing finance system.52 These 

elements are

• clearly defined and prioritized housing finance system goals;

• policies and mechanisms that are aligned with goals and other 

economic policies;

• adherence to an appropriate financial regulatory framework;

• government entities that have capacity to manage risks;

• protections for mortgage borrowers and reductions in barriers to 

mortgage market access;

• protection for mortgage securities investors;

• consideration of cyclical nature of housing finance and impact of 

housing finance on financial stability;

• recognition and control of fiscal exposure and mitigation of moral 

hazard; and

• emphasis on implications of the transition.

 50GAO, Financial Assistance: Ongoing Challenges and Guiding Principles Related to 

Government Assistance For Private Sector Companies, GAO-10-719 (Washington, D.C.: 

Aug. 3, 2010) and Guidelines for Rescuing Large Failing Firms and Municipalities, 

GAO/GGD-84-34 (Washington, D.C.: Mar. 29, 1984).

51The Consolidated Appropriations Act, 2016 expressed the sense of the Congress that 

Congress should pass and the President should sign into law legislation determining the 

future of Fannie Mae and Freddie Mac. Pub. L. No. 114-113, Title VII, § 702(c), 129 Stat. 

2242, 3025. 

52GAO, Housing Finance System: A Framework for Assessing Potential Changes, 

GAO-15-131 (Washington, D.C.: Oct. 7, 2014).

Congress Has Not Defined 

Objectives for Concluding 

the Conservatorships That 

Would Address 

Uncertainty
Page 27 GAO-17-92 Federal Housing Finance Agency

As noted earlier, the 113th Congress considered a number of proposals 

for reforming the housing finance system, but none were enacted. Other 

proposals have been introduced in the 114th Congress but have not yet 

been passed by either the Senate or the House of Representatives (see 

app. I). These include the Financial Regulatory Improvement Act of 2015, 

S. 1484; Mortgage Finance Act of 2015, S. 495; Housing Finance 

Restructuring Act of 2016, H.R. 4913; and Partnership to Strengthen 

Homeownership Act of 2015, H.R. 1491. Given the unknown duration of 

the conservatorships, without Congress providing explicit direction for the 

future of the enterprises, a change in leadership at FHFA could again shift 

priorities for the conservatorships and set the enterprises on a new path 

with another vision for their role and future structure. Such changes in 

direction could send mixed messages to market participants and add to 

existing uncertainty.

Eight years after entering conservatorship, the enterprises’ futures remain 

uncertain and billions of taxpayer dollars remain at risk. Although FHFA 

has established goals for the conservatorships, its goals have been 

somewhat in tension with each other. In addition, the actions taken by 

FHFA to implement its goals have lacked a consistent direction over time, 

and FHFA has not clarified how to balance different priorities. As we have 

previously found, the federal government should set clear goals and 

objectives when providing financial assistance to private market 

participants. However, Congress has yet to establish objectives for the 

future of the enterprises after conservatorship or the future federal role in 

housing finance. Without Congress providing explicit direction for the 

future of the enterprises, the conservatorships will continue. Prolonged 

conservatorships and a change in leadership at FHFA could again shift 

priorities for the conservatorships, which in turn could send mixed 

messages and create uncertainties for market participants and hinder the 

development of the broader secondary mortgage market. By setting a 

clear direction for the future of the housing finance system, Congress 

would enable FHFA to use the conservatorships of the enterprises to 

facilitate the transition to a new structure.

To reduce uncertainty and provide FHFA sufficient direction for carrying 

out its responsibilities as conservator of the enterprises, Congress should 

consider legislation that establishes objectives for the future federal role 

in housing finance, including the structure of the enterprises, and a 

transition plan to a reformed housing finance system that enables the 

enterprises to exit conservatorship.

Conclusions

Matter for 

Congressional 

Consideration
Page 28 GAO-17-92 Federal Housing Finance Agency

We requested comments on a draft of this product from FHFA, Treasury, 

and the previous FHFA Acting Director. The Acting Deputy Director of the 

Division of Conservatorship provided us with oral comments, stating that 

FHFA agreed with our overall findings. He also provided some technical 

clarifications, which we incorporated as appropriate. The previous FHFA 

Acting Director also provided us with technical comments in an e-mail, 

which we incorporated as appropriate. Treasury did not provide 

comments.

We are sending copies of this report to the appropriate congressional 

committees, the Director of FHFA, and the Secretary of the Treasury. In 

addition, the report is available at no charge on the GAO website at 

http://www.gao.gov.

If you or your staffs have any questions about this report, please contact 

me at (202) 512-8678 or evansl@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made major contributions to this report 

are listed in appendix II.

Sincerely yours,

Lawrance L. Evans, Jr.

Director, Financial Markets and

Community Investment

Agency Comments
Appendix I: Legislative Proposals Introduced 

in Congress that Address the Role of Fannie 

Mae and Freddie Mac in the Housing Finance 

System—March 2013 to July 2016

Page 29 GAO-17-92 Federal Housing Finance Agency

This appendix discusses the legislative proposals that were introduced in 

the United States Senate and the House of Representatives between 

March 2013 and July 2016 that addressed the future structure of Fannie 

Mae and Freddie Mac and the secondary mortgage market.

Table 2: Legislative Proposals Introduced in Congress that Address the Role of Fannie Mae and Freddie Mac in the Housing 

Finance System—March 2013 to July 2016

Bill name, number, major 

actions, and sponsor

Summary

114th Congress

Senate bills

Financial Regulatory Improvement 

Act of 2015

S. 1484

Introduced June 2, 2015; Hearings 

held July 23, 2015

Sponsor: Sen. Richard Shelby (RAL)

This bill consists of eight titles that together address a broad reform of the US financial regulatory 

system. Title VII of the bill addresses the protection of taxpayers and promotes market access for 

mortgage finance. Among other reforms, Title VII of this bill:

• Prohibits the scoring of legislation that would increase guarantee fees for purposes of 

determining budgetary impacts under the Congressional Budget Act of 1974 with respect to 

budget authority, outlays, or revenues, except in certain circumstances.

• Prohibits the Department of the Treasury (Treasury) from disposing of any outstanding 

shares of senior preferred stock in Fannie Mae or Freddie Mac (the enterprises) until a law is 

signed into effect which includes a specific instruction to the Treasury regarding the stocks’

disposition.

• Directs the Federal Housing Finance Agency (FHFA), Common Securitization Solutions, 

LLC (CSS), and the enterprises to establish the Secondary Market Advisory Committee 

(SMAC) to advise the enterprises on decisions related to the development of secondary 

mortgage market infrastructure. SMAC must include private market participants that 

represent multiple aspects of the mortgage market, including mortgage lenders and poolers 

of mortgage-backed securities.

• Requires FHFA to submit a plan that transitions the Common Securitization Platform (CSP) 

from the ownership of the enterprises and their joint venture CSS to an independent 

nonprofit entity dedicated to fostering a deep, liquid, and resilient secondary market for 

mortgage-backed securities.

• Instructs FHFA to reconstitute CSS’s board of directors to include more private industry 

players.

• Prohibits CSS from certain activities, including: (1) guaranteeing mortgage loans or 

mortgage-backed securities; (2) assuming or holding mortgage loan credit risk; and (3) 

owning or holding mortgage loans or mortgage-backed securities for investment purposes.

• Grants FHFA general regulatory authority over CSS and its private successor.

• Requires FHFA to transfer to CSS any funds necessary to implement CSP activities and 

operations.

• Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to 

require the enterprises to engage in expanded credit risk-sharing programs.

Appendix I: Legislative Proposals Introduced in 

Congress that Address the Role of Fannie Mae 

and Freddie Mac in the Housing Finance 

System—March 2013 to July 2016
Appendix I: Legislative Proposals Introduced 

in Congress that Address the Role of Fannie 

Mae and Freddie Mac in the Housing Finance 

System—March 2013 to July 2016

Page 30 GAO-17-92 Federal Housing Finance Agency

Bill name, number, major 

actions, and sponsor

Summary

Senate bills

Mortgage Finance Act of 2015

S. 495

Introduced February 12, 2015

Sponsor: Sen. Johnny Isakson (RGA)

This bill would:

• Establish the Mortgage Finance Agency (MFA) as an independent agency of the federal 

government to:

• guarantee securities issued by qualified issuers and collateralized by pools of qualified 

residential mortgages in order to provide a dependable, transparent, and liquid market 

for high-quality mortgages and multifamily mortgages for securitization;

• charge and collect a guarantee fee sufficient to protect MFA and the Treasury from the 

risks of guaranteeing the timely payment of principal and interest on qualified mortgagebacked securities;

• establish and maintain a catastrophic fund to minimize the burden on the federal 

government by setting aside amounts that will be available solely to pay obligations 

under the MFA guarantee in the event of any future mortgage market collapse;

• guarantee the timely payment of the principal and interest to holders of qualified 

mortgage-back securities;

• cover any shortfalls to security holders; and

• purchase supplemental insurance coverage.

• Place the enterprises in an irrevocable receivership with the FHFA, effective on the date on 

which MFA is operational and able to perform the guarantee function for qualified mortgagebacked securities collateralized by qualified residential mortgages.

• Direct FHFA to commence liquidating the enterprises immediately after they are placed in 

receivership.

• Repeal the charters of Fannie Mae and Freddie Mac.

• Require FHFA to use all proceeds from the enterprises’ operations in receivership—after 

fully satisfying the enterprises’ outstanding obligations—to repay the General Fund of the 

Treasury for certain government-provided assistance.

• Require FHFA as receiver to manage the combined assets of the enterprises to obtain 

resolutions that maximize the return for the taxpayer.

House bills

Housing Finance Restructuring Act 

of 2016

H.R. 4913

Introduced April 12, 2016

Sponsor: Rep. Mick Mulvaney (RSC)

In order to recapitalize and terminate the conservatorship of the enterprises, and to prevent 

future government bailouts of the enterprises, this bill:

• Directs Treasury to modify the senior preferred stock purchase agreement (SPSA) for each 

of the enterprises to reduce to zero the liquidation preference of the senior preferred stock 

and require redemption of the stock, deeming it no longer outstanding and terminating all 

shareholder rights.

• Instructs Treasury to exercise the warrants for the purchase of common stock of the 

enterprises under SPSA, ultimately terminating SPSA.

• Requires FHFA to recapitalize the enterprises by mandating that the net income of each 

enterprise for the fiscal year be retained as capital reserves.

• Instructs FHFA to report a capital restoration plan for each enterprise.

• Terminates the conservatorship of an enterprise when it attains capital equal to or exceeding 

5 percent of its risk-weighted assets.

• Authorizes any individual or entity adversely affected or aggrieved by an action or inaction 

on the part of FHFA or Treasury in violation of the bill or the Federal Housing Enterprises 

Financial Safety and Soundness Act of 1992 to commence a civil action in a US district court 

for prospective equitable relief.
Appendix I: Legislative Proposals Introduced 

in Congress that Address the Role of Fannie 

Mae and Freddie Mac in the Housing Finance 

System—March 2013 to July 2016

Page 31 GAO-17-92 Federal Housing Finance Agency

Bill name, number, major 

actions, and sponsor

Summary

House bills

Partnership to Strengthen 

Homeownership Act of 2015

H.R. 1491

Introduced March 19, 2015

Sponsor: Rep. John Delaney (DMD)

The proposed legislation addresses winding down the enterprises and transferring the 

responsibilities of the enterprises to Ginnie Mae. To accomplish these goals the bill would:

• Separate Ginnie Mae from the Department of Housing and Urban Development (HUD) and 

establish Ginnie Mae as an independent entity.

• Abolish FHFA and appoint Ginnie Mae as the conservator over the enterprises until they 

enter a mandatory receivership.

• Require appointment of Ginnie Mae as receiver and prescribes requirements for winding 

down the enterprises and repealing their charters.

• Establish within Ginnie Mae an issuing platform to issue standardized mortgage-backed 

securities and require Ginnie Mae to insure the securities issued by the platform

• Require the enterprises to create a risk-sharing pilot program, which would develop privatesector first-loss positions on mortgage-backed securities (MBS).

• Instruct the Director of Ginnie Mae to strive to obtain a return on taxpayer investment from 

the enterprises while using the receivership to remove barriers for private sector competition 

in the housing finance market.

• Require that Ginnie Mae impose limits on the enterprises’ business after specific dates.

• Direct Ginnie Mae to restructure SPSA and compensate the Federal Government for the 

financial support given to the enterprises. Ginnie Mae would be authorized to exchange any 

securities insured by the enterprises to Ginnie Mae at the request of the holder.

GSE Review and Reform Act of 

2016

H.R. 5505

Introduced June 16, 2016

Sponsor: Rep. J. French Hill (RAR)

This bill requires Treasury to conduct a study and submit a report each year regarding an end to 

the conservatorship of the enterprises and submit recommendations developed from that study to 

the President and the House Financial Services Committee and the Senate Banking Committee. 

The proposal further mandates that the Secretary of the Treasury appear before the committees

each year for hearings regarding these reports.
Appendix I: Legislative Proposals Introduced 

in Congress that Address the Role of Fannie 

Mae and Freddie Mac in the Housing Finance 

System—March 2013 to July 2016

Page 32 GAO-17-92 Federal Housing Finance Agency

Bill name, number, major 

actions, and sponsor

Summary

Let the Enterprises Pay Us Back 

Act of 2015

H.R. 1036

Introduced February 24, 2015

Sponsor: Rep. Michael Capuano 

(D-MA)

This bill alters the enterprises’ current conservatorship scheme by:

• Directing the Secretary of the Treasury and the enterprises to enter into an agreement 

modifying the current SPSA to provide that:

• any senior preferred stock purchased by the Treasury under SPSA shall accrue no 

further dividends

• any amounts received by the enterprise, before or after the modification, during a single 

year as a draw upon the Treasury’s commitment under SPSA shall be treated as a loan 

by the Treasury to the enterprise.

• Specifying that under the modified SPSA this loan be treated as though originated on the 

date of the last such draw during that year, with: (1) an original principal obligation equal to 

the aggregate amount of such draws, (2) a 30-year term, (3) an annual interest rate of 5 

percent, and (4) requirements for full amortization of the loan over the 30-year term.

• Requiring the enterprises to repay the loan in accordance with the amortization schedule 

established.

• Requiring any dividends paid by the enterprises to the Treasury under SPSA before the 

modification to be treated as payments of principal and interest due under the loan, to be 

credited against payments due, first to the loan with the earliest origination date that has not 

yet been fully repaid until it is repaid, and then to the loan having the next earliest origination 

date until it is repaid.

113th Congress

Senate bills

Housing Finance Reform and 

Taxpayer Protection Act of 2014

S. 1217

Introduced June 25, 2013; Ordered 

to be reported with an amendment 

in the nature of a substitute 

favorably May 15, 2014

Sponsor: Sen. Bob Corker (R-TN)

This version of S.1217, as amended in committee, addresses secondary market reform by 

winding down the enterprises and creating a federal mortgage insurer to protect MBS investors 

against catastrophic loss, establishing a regulatory structure to oversee the secondary market, 

and imposing secondary market fees that would provide a funding stream to address low-tomoderate homeownership and rental housing needs. To accomplish these goals the bill, among 

other things:

• Transforms FHFA into an independent office under a new agency, the Federal Mortgage 

Insurance Corporation (FMIC). FHFA would be responsible for overseeing the enterprises as 

they wind down over a 5 year transitory period.

• Requires FMIC to maintain the Mortgage Insurance Fund (MIF), a reinsurance fund for 

FMIC-guaranteed securities. MIF would fund claims for principle and interest on FMICguaranteed securities if losses exceed a required private market first loss position.

• Instructs FMIC to establish a securitization platform to purchase mortgage loans or securities 

collateralized by mortgage loans for securitization and issue standardized FMIC-guaranteed 

securities.

• Funds MIF through initial assessments on the enterprises and through fees on FMIC-insured 

securities. MIF is to attain a capital reserve ratio of 1.25 percent of the outstanding principal 

balance of FMIC-backed securities within 5 years, and to maintain a permanent capital 

reserve ratio of 2.5 percent after 10 years. 
Appendix I: Legislative Proposals Introduced 

in Congress that Address the Role of Fannie 

Mae and Freddie Mac in the Housing Finance 

System—March 2013 to July 2016

Page 33 GAO-17-92 Federal Housing Finance Agency

Bill name, number, major 

actions, and sponsor

Summary

Senate bills

Housing Finance Reform and 

Taxpayer Protection Act of 2013

S. 1217

Introduced June 25, 2013; Ordered 

to be reported with an amendment 

in the nature of a substitute 

favorably May 15, 2014

Sponsor: Sen. Bob Corker (R-TN)

The originally introduced version of the 2014 bill, supra, also establishes FMIC and MIF, but 

differs in how the changes are implemented. Among other requirements, this version of the bill:

• Creates a new agency, FMIC, and transfers the functions of the FHFA to FMIC.

• Directs MIC to wind down the enterprises.

• Establishes:

• MIF, to covered insured losses when they exceed the required private first loss position;

• The FMIC Mutual Securitization Company, to be owned by credit unions, community 

and mid-size banks, and non-depository mortgage originators, to securitize member 

mortgages;

• The Office of Federal Home Loan Bank Supervision, to oversee the Federal Home Loan 

Banks and the Federal Home Loan Bank System; and

• An Office of Underwriting within FMIC, to ensure that mortgages that underlie FMICguaranteed securities meet certain standards.

• Requires FMIC to develop standard risk-sharing mechanisms, products, and contracts within 

five years of enactment.

• Assures full-faith-and-credit government guarantees for MIF insurance. 

House bills

Partnership to Strengthen 

Homeownership Act of 2014

H.R. 5055

Introduced July 10, 2014

Sponsor: Rep. John Delaney (DMD)

The proposal addresses secondary market reform by winding down the enterprises and creating 

a federal mortgage insurer to protect mortgage-backed securities investors against catastrophic 

loss, establishing a new regulatory structure for certain secondary market participants, and 

imposing secondary market fees to fund low-income housing initiatives. To accomplish these 

goals the bill would:

• Separate Ginnie Mae from HUD and establish Ginnie Mae as an independent agency.

• Abolish FHFA and transfer all FHFA functions and staff to Ginnie Mae, which would assume 

regulatory authority over financial institutions insuring securities issued by the securitization 

platform or aggregating mortgages that collateralize securities issued by the platform.

• Instruct Ginnie Mae to establish a securitization platform and a reinsurance fund or guarantor 

program and an insurance fund to cover losses incurred with respect to mortgage-backed 

securities.

• Wind down the enterprises.

• Require Ginnie Mae to promulgate uniform standards for MBS issued by the platform and 

participating mortgage originators or aggregators.

• Mandate that Ginnie Mae consult and coordinate with other agencies and work to avoid 

duplication with the regulatory activities of other agencies.

• Create the Market Access Fund to increase the supply of affordable housing for low-income 

families.
Appendix I: Legislative Proposals Introduced 

in Congress that Address the Role of Fannie 

Mae and Freddie Mac in the Housing Finance 

System—March 2013 to July 2016

Page 34 GAO-17-92 Federal Housing Finance Agency

Bill name, number, major 

actions, and sponsor

Summary

House bills

Protecting American Taxpayers 

and Homeowners Act of 2013

H.R. 2767

Introduced July 22, 2013

Sponsor: Rep. Scott Garrett (R-NJ)

This bill aims to address the primary and secondary mortgage markets. Among other things, this 

proposal would:

• Terminate conservatorship of the enterprises five years from the date of enactment, requiring 

the FHFA director to act as receiver of the enterprises and terminate their authority to 

conduct new business.

• Authorize FHFA to issue a charter for a national mortgage market utility, to be organized, 

operated, and managed by the private sector, which will manage the common securitization 

platform being developed by the enterprises.

Source: GAO analysis of proposed legislation. | GAO-17-92
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 35 GAO-17-92 Federal Housing Finance Agency

Lawrance L. Evans, Jr., (202) 512-8678 or evansl@gao.gov

In addition to the contact named above, Karen Tremba (Assistant 

Director), Don Brown (Analyst-in-Charge), Giselle Cubillos-Moraga, 

Rachel DeMarcus, Davis Judson, Risto Laboski, Marc Molino, Jennifer 

Schwartz, Mathew Scirè (retired), Tyler Spunaugle, and Jessica Walker 

made significant contributions to this report.

Appendix II: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(100897)
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 36 GAO-17-92 Federal Housing Finance Agency

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