United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Capital Markets, Securities and

Government-Sponsored Enterprises,

Committee on Banking and Financial

Services, House of Representatives

July 1997 GOVERNMENTSPONSORED

ENTERPRISES

Advantages and

Disadvantages of Creating

a Single Housing GSE

Regulator

GAO/GGD-97-139

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-277390 

July 9, 1997

The Honorable Richard H. Baker

Chairman, Subcommittee on Capital Markets,

 Securities and Government-Sponsored Enterprises,

Committee on Banking and Financial Services

House of Representatives

Dear Mr. Chairman:

This report responds to your request for our analysis of the advantages

and disadvantages of creating a single regulator for the three housing

government-sponsored enterprises (GSE). You asked that we address the

question of whether safety and soundness and mission oversight should be

vested in the same regulatory body. On the basis of discussions with your

office, we also agreed to address the regulatory agency structure that

might best provide for protecting the government’s interest by ensuring

that the GSEs carry out their public purposes (mission) in a safe and sound

manner. To do so, we considered whether the regulator should be an

independent office within an agency, such as the Department of Housing

and Urban Development (HUD) or the Department of the Treasury

(Treasury), or a stand-alone, independent agency and whether it should be

governed by a board or director. Finally, we briefly discuss other issues

that are important in deciding how best to regulate the GSEs. The current

regulatory arrangement for the housing GSEs involves three regulators. The

Office of Federal Housing Enterprise Oversight (OFHEO) regulates the

safety and soundness of the Federal National Mortgage Association

(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie

Mac). HUD regulates Fannie Mae’s and Freddie Mac’s mission compliance

and has general regulatory authority over matters not made exclusive to

OFHEO by statute. The Federal Housing Finance Board (FHFB) regulates

both the safety and soundness and mission compliance of the Federal

Home Loan Bank System (FHLBank System).

Background Fannie Mae, Freddie Mac, and the FHLBank System are the GSEs Congress

created to help make credit available to finance home purchases, because

the private market was perceived as not effectively meeting credit needs.

The GSEs’ charters largely limit activities to their public missions, and they

receive financial benefits from the government that help them carry out

those public missions. For example, the three GSEs are exempt from

Securities and Exchange Commission registration requirements, and they

have conditional lines of credit with Treasury. They receive other benefits

Page 1 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

directly and indirectly related to their federal charters. Most importantly,

although the government has no legal obligation to protect GSE creditors,

federal ties with the GSEs have contributed to the perception by investors

that the federal government would not allow any of the GSEs to default on

their obligations.1

The mission of both Fannie Mae and Freddie Mac is to enhance the

availability of mortgage credit by creating and maintaining a secondary

market for residential mortgages. The Federal Housing Enterprises

Financial Safety and Soundness Act of 1992 (the 1992 Act) required HUD to

establish affordable housing goals directed at Fannie Mae’s and Freddie

Mac’s efforts to finance housing for low- and moderate-income families

and housing in central cities and other underserved areas.2

 Fannie Mae

and Freddie Mac borrow funds in the capital markets and use the funds to

purchase residential mortgages from lenders, such as banks and thrifts.

Fannie Mae and Freddie Mac retain some mortgages in portfolio but pool a

majority to create securities called mortgage-backed securities (MBS) that

they sell to investors in the secondary mortgage market. As of

December 31, 1996, Fannie Mae and Freddie Mac had total on balance

sheet assets of $351 billion and $174 billion, respectively, not including

MBS. Both GSEs are stockholder-owned corporations governed by boards of

directors. Each board of directors includes 13 members elected by

stockholders and 5 members appointed by the President of the United

States.

The 1992 Act established OFHEO as an independent entity within HUD to

oversee the safety and soundness of Fannie Mae and Freddie Mac. OFHEO is

led by a director who is presidentially appointed for a 5-year term and

confirmed by the Senate. Its statutory mission is to help ensure that

Fannie Mae and Freddie Mac are adequately capitalized and operate in a

safe and sound manner. OFHEO’s 1996 budget was $15 million; it had 72

full-time staff positions.

1

The federal government intervened when the Farm Credit System faced severe financial stress in the

mid-1980s. Congress authorized up to $4 billion in federal assistance and required extensive structural

and operational reform. It also established the System’s regulator as an arm’s-length regulator and gave

it new powers. See Farm Credit Amendments Act of 1985, Pub. L. No. 99-205 (Dec. 23, 1985); Farm

Credit Act Amendments of 1986, Pub. L. No. 99-509, Title I, Subtitle D. The government provided less

direct support to Fannie Mae in 1982 in the form of changes to its income tax treatment and regulatory

forbearance of its troubled condition. See Farm Credit System: Repayment of Federal Assistance and

Competitive Position (GAO/GGD-94-39, March 10, 1994); and Government-Sponsored Enterprises: A

Framework for Limiting the Government’s Exposure to Risks (GAO/GGD-91-90, May 22, 1991).

2

Pub. L. No. 102-550, Title XIII, codified at 12 U.S.C. §§ 4501, et seq. The provisions of the act

concerning HUD’s establishment of the housing goals are codified at 12 U.S.C.§§ 4561-4564.

Page 2 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

Other than safety and soundness and certain other matters that the 1992

Act specifies as exclusive to OFHEO, the 1992 Act gives general regulatory

power over Fannie Mae and Freddie Mac to the Secretary of HUD. This

includes the power to make rules and regulations necessary to ensure that

each GSE’s mission is being accomplished, including setting, monitoring,

and enforcing compliance with special housing goals.3

The FHLBank System comprises 12 district banks that extend mortgage

credit by making loans (called advances) to member institutions (thrifts,

commercial banks, and others), who in turn lend to home buyers for

mortgages. The advances are secured by home mortgage loans or other

collateral. Although the FHLBank System’s charter contains no explicit

statement of purpose, the history of the enabling legislation and

subsequent statutory language identify that purpose as supporting housing

finance. Each bank is governed by a board with at least 14 members,

including at least 6 members who are appointed by FHFB.

4

 The capital

stock of each bank is owned by its member institutions. As of

December 31, 1996, the FHLBank System had total assets of $292 billion,

with individual bank assets ranging from $13 to $52 billion.

FHFB was established in 1989 as the regulator of the FHLBank System and

charged with supervising System banks to ensure first, that they operate in

a safe and sound manner and also that they carry out their housing finance

mission.5 FHFB was authorized to issue consolidated obligations for the

System; it delegated this duty to the Office of Finance, which FHFB

established as a joint office of the System banks. In addition, Congress

required FHFB to establish and regulate standards for community

investment and an affordable housing program aimed at making credit

available to people of limited income and to the commercial and economic

development activities that benefit them.

A five-member Board of Directors governs FHFB, which is an independent

agency in the executive branch. Four full-time members are appointed by

the president with the advice and consent of the Senate for 7-year terms;

the president designates one of the four as Chair. The Secretary of HUD is

3

For discussion of HUD’s promulgation of regulations setting annual goals for each enterprise, see

Housing Enterprises: Potential Impacts of Severing Government Sponsorship (GAO/GGD-96-120,

May 30, 1996), pp. 80-84.

4

FHFB can authorize a board of more than 14 members (8 elected) for districts that include 5 or more

states.

5

Congress created FHFB as the successor to the Federal Home Loan Bank Board, with respect to the

Federal Home Loan Banks, in Title VII of the Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA), Pub. L. 101-73 § 702, 12 U.S.C. § 1422a.

Page 3 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

the fifth member. At least one member is to be chosen from an

organization representing consumer or community interests in banking

services, credit needs, housing, or financial consumer protection. FHFB’s

1996 budget was $16.1 million; it had a staff of about 120.

In our 1991 and 1993 reports on GSEs we identified five criteria that a GSE

regulatory agency structure should meet to facilitate effective oversight.6

The criteria specify that a GSE regulatory agency’s structure should provide

for (1) objectivity and arm’s-length status from the GSE, (2) prominence in

government, (3) economy and efficiency, (4) consistency in regulation of

similar markets, and (5) separation of primary and secondary market

regulation. We developed these criteria on the basis of our own knowledge

and experience in reviewing federal financial institution regulation; our

review of related literature and regulatory law; the then-current

arrangement and operations of the GSEs; and discussions with the GSEs,

federal regulators, and other experts. On the basis of these criteria, we

stated in 1991 that regulation of a GSE’s mission-related activities cannot be

effectively separated from oversight of safety and soundness. In 1993,

again on the basis of these criteria, we recommended merging the safety

and soundness functions of the housing GSE regulators.

Results in Brief Our ongoing work has strengthened our belief that the housing GSE

regulators would be more effective if combined and authorized to oversee

both safety and soundness and mission compliance. Nothing we have

observed has caused us to modify our criteria for an appropriate

regulatory structure. Although there have been changes in the regulatory

oversight of the housing GSEs since we first established these criteria,

neither OFHEO, HUD, nor FHFB meets all five criteria. In particular, we note

that FHFB is not an arm’s-length regulator, and it is still involved in

governance of the FHLBank System. In addition, regulation of Fannie

Mae’s and Freddie Mac’s mission compliance and safety and soundness is

the responsibility of HUD and OFHEO, respectively.

Combining oversight into one agency would have several advantages. Such

an agency could be more independent and objective than the separate

regulatory bodies and could be more prominent than either one alone.

Although the GSEs operate differently, the risks they manage and their

missions are similar. The regulators’ expertise in evaluating GSE risk

management could be shared more easily within one agency. In addition, a

6

GAO/GGD-91-90 and Federal Home Loan Bank System: Reforms Needed to Promote Its Safety,

Soundness, and Effectiveness (GAO/GGD-94-38, Dec. 8, 1993).

Page 4 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

single regulator would be better positioned to be cognizant of specific

mission requirements, such as special housing goals and new programs or

initiatives any of the GSEs might undertake, and should be better able to

assess their competitive effect on all three housing GSEs and better ensure

consistency of regulation for GSEs that operate in similar markets.

Coordination and sharing of expertise among staff responsible for safety

and soundness and mission compliance should be facilitated by having all

staff in one regulatory agency. The primary disadvantage to combining

oversight into one agency would be whatever short-term disruption

reorganization might cause to the ongoing operations of the regulators.

Our analysis of different regulatory structures indicates that an

independent, arm’s-length, stand-alone regulatory body headed by a board

would best fit our criteria for an effective regulatory agency structure for

the housing GSEs. An independent regulatory body, as opposed to one

within an executive branch department, should be better positioned to

achieve the autonomy and prominence necessary to oversee the large and

influential housing GSEs. Using a board to govern the independent

regulatory agency would enable Congress to provide for representation

that could help ensure the regulator’s independence and provide

appropriate balance and expertise in the regulators’ deliberations of both

safety and soundness and mission-related issues. Having an independent

board would allow it to be structured to provide equal links to HUD, due to

its role in housing policy, and Treasury, due to its roles in finance and

financial institution oversight. Having a single director, rather than a

board, as head of the regulatory agency might provide for management

efficiencies and clearer accountability. However, such an arrangement

would sacrifice the advantages of having the different perspectives,

expertise, prestige, and stability a board could provide.

Scope and

Methodology

Because we had done a substantial amount of work on these GSEs in the

past, we relied heavily upon that work. However, we reviewed our

historical positions in light of the current regulatory structure and GSE

activities. In addition to reviewing our past and ongoing work related to

these GSEs and their regulators and consistent with our methodology in our

earlier work, we solicited views of housing, GSE, and regulatory officials.

They included officials from OFHEO, FHFB, Fannie Mae, Freddie Mac, the

FHLBank System, HUD, and Treasury.

We requested oral comments on a draft of this report from the Chief

Executive Officers, or their designees, of Fannie Mae, Freddie Mac, the

Page 5 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

Council of the FHLBanks of which 9 of the 12 FHLBanks are members,

and the FHLBanks of New York and Chicago;7

 and the heads, or their

designees, of OFHEO, FHFB, HUD, and Treasury. Their comments are

discussed at the end of this report.

We did our work in Washington, D.C., between May and June 1997 in

accordance with generally accepted government auditing standards.

We Continue to

Support a Single

Housing GSE

Regulator

In our 1991 report on GSEs, we recommended that Congress create a single

regulator for all GSEs. We determined that a single regulatory body could

best fit our criteria of being (1) independent and objective, (2) prominent

in government, (3) able to achieve economy and efficiency, and (4) able to

provide consistency in regulation. We also maintained that regulation of

primary and secondary markets could be separated within a single

regulator to avoid potential conflicts. In that report we discussed an

option that involved regulation of the GSEs according to the markets they

serve, such as housing. In our subsequent 1993 report on the FHLBank

System, we recommended that a single regulator be created for the three

housing GSEs that would assume the duties of OFHEO and FHFB. In that

report, we concluded that the new regulator would have the following

attributes.

• The regulator would be more independent and objective than separate

regulatory bodies can be. Because the operations and interests of the

FHLBank System, Fannie Mae, and Freddie Mac do not align precisely,

there should be a healthy tension in the oversight of the entities that could

help prevent the regulator from being “captured” by the GSEs.

• The regulator would be more prominent in government than either OFHEO

or FHFB can be individually.

• The regulator would create some economies and efficiencies. Staff could

share expertise in such areas as examinations, credit and interest rate risk

monitoring, financial analysis, and economic research. Administrative

support functions could be combined.

• The regulator would provide consistent regulation for GSEs serving the

same economic sector and sharing the public purpose of providing credit

for housing. Although the System, Fannie Mae, and Freddie Mac do not

directly compete in all of their activities, they are all participants in the

residential mortgage market. Consolidating their regulation would enable

a regulator to take into account the competitive effects that regulatory

7

The FHLBank of Dallas declined to comment on the draft.

Page 6 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

decisions made concerning Fannie Mae and Freddie Mac would have on

the FHLBank System, and vice versa.

The criterion of separating primary and secondary market regulation

would not be violated, because the new regulatory entity would not be

responsible for overseeing other regulated entities that are counterparties

(customers) of the three GSEs, such as banks and thrifts.

Since we did our work in 1991 and 1993, we have continued to monitor

and evaluate the GSEs and their regulators. We have found no evidence that

would cause us to alter our previous positions. Rather, our ongoing work

has strengthened our belief that OFHEO and FHFB would be more effective if

combined. A single, more prominent regulatory agency could help attract

and retain staff with the special mix of expertise and experience needed to

examine and monitor these sophisticated GSEs. Our 1995 report and

preliminary information from ongoing reviews of OFHEO operations show

that hiring and retaining expert staff has been an ongoing concern for

OFHEO.

8

 In our ongoing work, OFHEO officials told us that because there are

a limited number of individuals with the particular skills and experience

that OFHEO needs, it must compete with other financial regulators as well

as private firms for staff. Although a new regulator may have to compete

with private firms and banking regulators for staff and would be somewhat

new and unknown, the new entity should be able to provide greater

opportunities for staff growth and advancement than either OFHEO or FHFB

separately.

Several officials we spoke with believed that establishing a single

regulator for the housing GSEs to assume the responsibilities of OFHEO and

FHFB would create valuable synergies among regulatory staff. We concur

with this view. Although the GSEs operate differently, the risks they

manage are similar. OFHEO must evaluate its GSEs’ management of credit

risk associated with mortgages they purchase and management of interest

rate and other risks associated with the portfolio operations. Similarly,

FHFB must evaluate the credit risk of mortgages FHLBanks receive from

members as collateral for advances. FHFB must also oversee FHLBank

management of interest rate and other risks.

8

See Government-Sponsored Enterprises: Development of the Federal Housing Enterprise Financial

Regulator (GAO/GGD-95-123, May 30, 1995), a study required by the Federal Housing Enterprises

Financial Safety and Soundness Act of 1992. In addition, Section 430 of the Department of Veterans

Affairs/Department of Housing and Urban Development Appropriations Act of 1997 required us to

assess OFHEO’s operations and determine whether its resources are adequate and being used

appropriately to fulfill its critical safety and soundness mission. This work is ongoing.

Page 7 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

In addition, OFHEO’s current work in setting capital standards and

developing a stress test for its GSEs could be useful in government

oversight of the FHLBank System. In our 1991 report, we recommended

that adequate capital standards be set for all housing GSEs based on the

risks they undertake.9 OFHEO is developing what is to be a comprehensive

financial modeling capability to determine how much capital Fannie Mae

and Freddie Mac are required to hold to withstand a variety of credit and

interest rate scenarios. The results of this work may be helpful in

evaluating the risks to the FHLBank System and the adequacy of its

capital.

Further, certain GSE programs could foster competition among the three

GSEs, and a single regulator could provide consistent rules and

interpretations more easily than three different regulators. Under the

existing regulatory structure, there would be no provision for the regulator

to consider how such programs would affect enterprises it did not

regulate. For example, in 1996 and 1997, FHFB approved three FHLBank

pilot programs that involved services Fannie Mae or Freddie Mac could

have or already did provide. One bank is to purchase senior interests in

certain whole mortgages and other related loans. The loans would be

acquired from both member and nonmember institutions and would

include loans members have made to low- and moderate-income

borrowers. Another FHLBank is to fund and hold mortgages originated by

its member institutions. FHFB found that this pilot program would provide

member institutions a way to move mortgages off their books without

having to pay fees associated with selling mortgages to Fannie Mae or

Freddie Mac or to other secondary market participants. According to

OFHEO officials, they independently assessed the competitive impact of

these programs on Fannie Mae and Freddie Mac. However, had a single

regulator been responsible for all three GSEs, a single assessment could

have combined consideration of all competitive effects and ensured

regulatory consistency of oversight. Such an assessment could be difficult,

however, because of possible conflicting interests of the housing GSEs in

pursuing their lines of business and missions.

According to some officials with whom we met, the primary disadvantage

of creating a single regulator for these GSEs is the short-term disruption

that would come with any type of change. Combining staffs and creating a

single system for administrative matters, such as personnel, contracting,

and budgeting, could be time consuming and potentially disruptive at the

time. Establishing procedures for decisionmaking and working toward

9

GAO/GGD-91-90.

Page 8 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

consistency in regulation and examination, where appropriate, would be a

challenge. Important work at both OFHEO and FHFB could be disrupted. For

example, OFHEO’s efforts to develop a stress test necessary for setting

capital standards for Fannie Mae and Freddie Mac could be delayed if key

staff left or their time was directed to other work. On the other hand, these

effects should be short term.

Regulation of Mission

and Safety and

Soundness Would Be

More Effective If

Combined

In our May 1991 report on GSEs, we stated that regulation of a GSE’s mission

cannot be effectively separated from safety and soundness, and we still

support this position.10 A regulator that performs both roles, however,

must be fully independent and at arm’s length from the GSEs it regulates to

ensure its objectivity. As we noted in 1991, there is a distinction between a

safety and soundness regulator that confirms a GSE’s compliance with its

statutory purposes and one that participates in the corporate governance

of a GSE. Currently, OFHEO does neither and FHFB does both. Our past work

on GSEs suggests that one regulator could oversee both compliance with

the statutory purposes and the financial health of a GSE, provided that the

regulator has no other responsibilities, such as corporate governance, that

could create a conflict of interest in its oversight of the GSE. Our 1991

report on GSEs, which discussed the thrift crisis of the late 1980s and the

thrift regulator at that time, showed that a regulator responsible for

mission-related and safety and soundness oversight should not participate

in the promotion or corporate governance of the entities being regulated.11

In the 1992 Act, Congress separated responsibility for mission regulation

(in HUD) from safety and soundness (in OFHEO). There was no conference

report explaining the rationale for the separation. Therefore, we reviewed

House and Senate Committee reports on their respective bills that

culminated in the final legislation. Although these reports differed in

details, they generally indicated that the regulatory structure for OFHEO

was designed to provide for effective supervision and oversight by a safety

and soundness regulator sensitive to the GSEs’ critical housing missions.12

10GAO/GGD-91-90, pages 29-31. In commenting on the 1991 report, Fannie Mae, Freddie Mac, and

FHFB all agreed with our position that safety and soundness could not be effectively separated from

statutory activities (mission). HUD took no position.

11GAO/GGD-91-90.

12See S. Rep. No. 102-282 at 12-14 (1992) (to accompany S. 2733, the “Federal Housing Enterprises

Regulatory Reform Act of 1992”); H.R. Rep. No. 102-206 at 51-52 (1991) (to accompany H.R. 2900, the

“Government-Sponsored Housing Enterprises Financial Safety and Soundness Act of 1991”). Congress

did not hold a formal conference to reconcile these bills. The compromise resulting in the 1992 Act

was added as Title XIII to the Housing and Community Development Act of 1992, Pub. L. No. 102-550,

103 Stat. 3672 (1992).

Page 9 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

The reports indicated that Congress gave OFHEO exclusive authority over

safety and soundness matters to ensure that the agency would have

sufficient independence to develop and maintain a primary focus on GSE

financial health and safety. The reports noted that GSE financial regulation

would thus be immune from political pressures and programs competing

for agency resources. On the other hand, the reports indicate that

Congress realized the importance of maintaining a link between OFHEO and

HUD to ensure that safety and soundness regulation would not undermine

the integrity of the GSEs’ programmatic missions. Accordingly, Congress

established OFHEO as an office within HUD, and HUD retained general

regulatory authority over the housing GSEs as well as specific authority

over their housing goals requirements. The existing regulatory structure is

one way to accomplish the objectives of maintaining a link with HUD and

also having a safety and soundness regulator with sufficient independence.

In addition, we discuss other options in the following sections.

Combining Mission and

Safety and Soundness

Regulation Can Be Done

Without Creating Conflicts

of Interest

In the past, conflicts arose when the Federal Home Loan Bank Board, the

FHFB’s predecessor agency, functioned as the promoter and regulator for

the thrift industry. Although Congress responded, in part, by enhancing the

independence of the System’s regulator, FHFB still participates in System

business, which we have stated in previous work is inappropriate for a

regulator and presents potential for conflict.13 For example, FHFB is

required to appoint six directors to each bank’s board and approve

applications for the Affordable Housing Program.14

FHFB has delegated some duties related to System business. However, the

Chair of FHFB told us FHFB cannot fully delegate some of these duties,

because they are assigned to FHFB in statute. For example, the law

provides for banks to set bank directors’ compensation subject to FHFB’s

approval.15 Effective September 20, 1996, FHFB gave the banks authority to

set bank directors’ compensation but within certain reasonable limits.16

Some FHLBank officials told us they disagree with the FHFB

13GAO/GGD-91-90 and GAO/GGD-94-38.

14The Affordable Housing Program Regulations are set forth at 12 C.F.R. Part 960. The Board’s

approval procedures are contained in 12 C.F.R. § 960.5. On June 25, 1997, FHFB delegated authority to

approve Affordable Housing Program applications, within stated guidelines, to the FHLBanks effective

January 1, 1998.

1512 U.S.C. § 1427(i).

1612 C.F.R. § 932.27. FHFB also has approval authority over the compensation of each bank president

and sets salary ranges for bank officers. See 12 C.F.R. § 932.41.

Page 10 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

implementation of the statutes on some of these issues and believe these

business matters should be fully delegated to the banks.

We found no reason to expect that combining mission and safety and

soundness regulation in one arm’s-length, independent regulator would

necessarily create conflicts. Rather, our analysis indicates that a healthy

tension should be created with the potential for balanced oversight. In

addition, oversight by one regulator could facilitate congressional

monitoring of the housing GSEs. Congress has an interest in monitoring the

benefits taxpayers derive in exchange for the benefits granted to the GSEs.17

According to some regulatory officials we spoke with, the tension caused

by having both private and public characteristics would be best

understood and accounted for by having a single regulator that has

complete knowledge of financial condition, regulates the mission goals

Congress sets, and assesses efforts to fulfill them in the context of the

GSEs’ financial health. This arrangement assumes a governing structure for

the regulatory agency that includes people with expertise in safety and

soundness and mission. We discuss different governing structures in

subsequent sections of this report.

Further, the GSEs’ charters provide some safeguards to help ensure proper

balance in oversight. GSE charters acknowledge that economic

considerations of the activities undertaken cannot be ignored, especially

where special mission requirements are addressed. For example, Fannie

Mae’s and Freddie Mac’s charters specify that as part of their purpose,

they will provide “ongoing assistance to the secondary market for

residential mortgages (including activities relating to mortgages on

housing for low-and moderate-income families involving a reasonable

economic return that may be less than the return earned on other

activities)....[emphasis added]”18 Similarly, the Federal Home Loan Bank

Act (Bank Act) requires each bank to establish a program to fund

members’ community development lending and stipulates that advances

for these programs “be priced at the cost of consolidated Federal Home

Loan Bank obligations of comparable maturities, taking into account

reasonable administrative costs. [emphasis added]”19 The Bank Act is even

17We estimated that the value of the federal sponsorship to Fannie Mae and Freddie Mac in 1995

ranged from about $2.2 billion to $8.3 billion on a before-tax basis and from about $1.6 billion to

$5.9 billion on an after-tax basis. See GAO/GGD-96-120, p. 6. Freddie Mac officials stated that they

continue to believe, as mentioned in our 1996 report, that our estimates of the benefits associated with

government sponsorship are overstated.

1812 U.S.C. §§ 1451 note, 1716.

1912 U.S.C. § 1430(i).

Page 11 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

more specific in providing that bank-required participation in the

Affordable Housing Program should not contribute to financial instability.20

It specifies grounds for suspending a bank’s required contributions and

requires FHFB to notify Congress of such a suspension.21

Given the current financial strength of Fannie Mae and Freddie Mac and

the overall economic environment, we determined that there should be

little tension between mission compliance and safety and soundness

concerns. At year-end 1996, Fannie Mae and Freddie Mac reported that

they both complied with the affordable housing goals established by HUD

and had return on equity of 24.4 and 22 percent, respectively. However,

should economic conditions change for the worse, more tension could be

created between mission-related compliance and safety and soundness as

Fannie Mae and Freddie Mac try to provide acceptable returns to their

shareholders while continuing to comply with HUD’s goals. At year-end

1996, the FHLBank System reported return on equity of 8.3 percent and

accrued $120 million to help finance special housing needs for 1997 under

its Affordable Housing Program.

When mission and safety and soundness regulation are performed by

different regulators, even if activities are coordinated, there is the

potential for the GSEs to try to pit the regulators against each other,

according to some regulatory officials. In addition, possible conflicts

between rulings on safety and soundness and mission, such as whether a

GSE is financially able to meet certain special housing goals, could be

better prevented with one regulatory body as decisionmaker. It seems that

coordination between regulatory staff responsible for safety and

soundness and those responsible for setting, monitoring, and enforcing

compliance with the housing mission and special goals could be facilitated

if staff were in the same agency. Also, having only one regulator to report

to should simplify the GSEs’ reporting. Finally, having one regulator

responsible for safety and soundness and mission should preclude most

misunderstandings about, or conflicts in, regulatory rulings.

For example, any review or approval of new activities or programs would

involve only one GSE regulator. Currently, OFHEO has responsibility to

determine the effect on safety and soundness of any new program

20Congress required the FHLBank System to establish an Affordable Housing Program to help finance

housing for households with very low, low, and moderate incomes. Each bank is required to contribute

a set amount to the program annually. Beginning in 1995 and subsequent years, the amount is 10

percent of the preceding year’s net income, or a prorated amount so that the aggregate contribution of

the banks totals not less than $100 million. 12 U.S.C. § 1430(j)(5).

2112 U.S.C. § 1430(j)(6).

Page 12 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

introduced by Fannie Mae or Freddie Mac.22 HUD is responsible for

approving new programs concerning conventional mortgages based on

whether such programs are authorized by certain provisions of those GSEs’

respective charter acts.23 Pursuant to this responsibility, HUD and OFHEO

have recently reviewed and did not object to a Fannie Mae proposal—a

mortgage protection plan that includes an investment in cash value life

insurance.24

Other financial institution regulators oversee both mission compliance and

safety and soundness. For example, banks and thrifts have special

mission-related obligations under the Community Reinvestment Act and a

variety of consumer-oriented laws and regulations. Their respective

regulators, the Office of the Comptroller of the Currency (OCC), the

Federal Reserve System, the Federal Deposit Insurance Corporation, and

the Office of Thrift Supervision (OTS), oversee performance in both

mission and financial condition. So, too, does the Farm Credit

Administration (FCA), regulator of the Farm Credit System—the GSE that

provides credit to the agricultural sector of the economy.25 According to

some FHLBank System officials, because they believe their mission is

adequately stated in statute, Congress is the appropriate entity to directly

oversee compliance with their mission. This would not seem to us to be a

practical alternative given Congress’ many duties. In addition, Congress

has indicated a preference for entrusting similar oversight responsibilities

to other GSE and financial institution regulators.

Finally, combining mission and safety and soundness regulation would

facilitate assessing Fannie Mae and Freddie Mac for the cost of overseeing

their compliance with housing goals. In our previous reports on GSE

oversight, we recommended that GSE regulators have authority to assess

the GSEs for the costs of federal oversight. This practice would help ensure

that the costs of regulation are borne by the GSEs that benefit from ties to

the government. Further, imposing assessments helps ensure that funding

for oversight is not constrained by competing federal responsibilities.

Currently, the cost of Fannie Mae’s and Freddie Mac’s mission oversight is

22Currently, OFHEO has explicit authority to determine whether a new program would risk significant

deterioration of the GSE’s financial condition. This authority expires 12 months after the effective date

of the risk-based capital test OFHEO must promulgate as required by the 1992 Act. 12 U.S.C. §

4542(b)(2).

23HUD’s approval authority for new programs is set forth at 12 U.S.C. § 4542.

24We addressed issues related to the mortgage protection plan and HUD’s and OFHEO’s

responsibilities as part of an interim letter on our review of nonmortgage investment practices at

Freddie Mac and Fannie Mae. See Housing Enterprises: Investment Authority, Policies, and Practices

(GAO/GGD-97-137R, June 27, 1997).

25In a study completed in 1994, we found FCA to be an effective regulator. See Farm Credit System:

Farm Credit Administration Effectively Addresses Identified Problems (GAO/GGD-94-14, Jan. 7, 1994).

Page 13 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

borne by the taxpayer as part of HUD’s budget. The cost of OFHEO’s

oversight is paid by Fannie Mae and Freddie Mac through annual

assessments. The FHLBank System is assessed by FHFB for both safety and

soundness and mission oversight.

Advantages and

Disadvantages of

Having a Stand-Alone

Independent Agency

or an Independent

Office Within an

Executive Branch

Agency

A single independent regulator for housing GSEs could be a stand-alone

agency or an office within an executive branch agency, such as HUD or

Treasury. Existing structures for financial regulators illustrate that either

arrangement is plausible;26 each has its advantages and disadvantages. One

of the most important considerations in establishing a single housing GSE

regulator would be to ensure that it has the independence and prominence

that would allow it to act independently of the influence of the housing

GSEs, which are large and politically influential institutions. If a GSE had

more political clout and prominence than its regulator, it would be that

much more difficult for the regulator to implement corrective action. We

believe a stand-alone agency would best meet the criteria, which we

established in past GSE reports, of independence and prominence in

government.27

One of the primary advantages of creating a stand-alone agency, rather

than an independent agency within a department, is that it should be

better able to establish independence and be further removed from the

potential political influence of a cabinet-level department. A stand-alone

agency should also be in a better position to avoid potential conflicts in

ensuring that regulation is carried out at arm’s length, because it would

not have a parent organization with its own particular interests. In

addition, a stand-alone agency may be in a better position to ensure that

safety and soundness and mission are more equitably overseen, because it

would not be affiliated with a government department that has another

focus, such as HUD.

28

One disadvantage of having a stand-alone agency is that the administration

may not be able to exercise direct control as easily over the agency even if

there were a perceived need to do so in the public interest. A stand-alone

agency would not have a formal relationship with a potentially powerful

ally, such as a cabinet-level department, that could facilitate seeking

26Most regulators of financial institutions are stand-alone agencies; however, a few are independent

offices within executive branch agencies.

27GAO/GGD-91-90 and GAO/GGD-94-38.

28Congress removed FCA from the Department of Agriculture in 1953 and established it as an

independent agency to insulate it from political influence. See GAO/GGD-91-90.

Page 14 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

assistance or other support. Further, a new stand-alone agency would

probably be relatively small with no track record other than that of the

predecessor agencies to rely upon and lend credibility to its actions.

Although it would be larger than FHFB and OFHEO are individually, it might

not immediately acquire the level of government prominence needed for

overseeing Fannie Mae, Freddie Mac, and the FHLBank System.

Nonetheless, a stand-alone agency structure for a combined regulator

would probably have greater prominence than either FHFB or OFHEO

individually.

The advantages and disadvantages of having a new regulator that is set up

as an independent office within an executive branch agency would vary

depending on the agency. HUD and Treasury would be the most appropriate

agencies to be considered because of their roles in housing and finance.

These roles are the basis for some advantages but also create the potential

for conflicts. HUD is the principal federal department responsible for

programs dealing with housing, community development, and fair housing

opportunities. HUD’s public policy focus on housing could serve to help

ensure that the GSEs fulfilled their mission of supporting housing. Further,

HUD has knowledge about the housing finance system that would be useful.

Although OFHEO has functioned independently within HUD, establishing a

new housing GSE regulator within HUD could create the potential for

conflict with HUD’s role as a housing promoter, unless the new regulatory

office had at least the same level of independence as OFHEO. Having an

office within HUD responsible for safety and soundness supervision may

conflict with some partnership arrangements HUD has initiated with Fannie

Mae, Freddie Mac, and other HUD-affiliated agencies, such as the Federal

Housing Administration and the Government National Mortgage

Association.29 Finally, HUD’s history of operational weaknesses and

inefficiencies could taint the reputation and hamper the effectiveness of

any office within it.30 However, we have not reviewed OFHEO’s relationship

with HUD or potential impacts this arrangement may have on OFHEO’s

operations.

29The Federal Housing Administration is a federally sponsored agency that insures lenders against loss

on residential mortgages.

The Government National Mortgage Association is a government-owned corporation within HUD that

establishes secondary market facilities for residential mortgages, guarantees mortgage-backed

securities composed of FHA-insured loans that are issued by private lenders, and increases the overall

supply of credit available for housing by providing a vehicle for channeling funds from the securities

market into the mortgage market.

30For additional information on our concerns with HUD’s management and operations and HUD’s

ongoing plans for improvement, see High-Risk Series: Department of Housing and Urban Development

(HR-97-12, Feb. 1997). On June 26, 1997, HUD announced a management reform plan—called HUD

2020—to stamp out fraud, waste, and abuse and improve performance.

Page 15 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

If the office were created within Treasury, it could benefit from Treasury’s

financial expertise and prominence. A Treasury affiliation could also

create more opportunities for coordination with OTS and OCC, both of

which are independent offices within Treasury. OTS and OCC examiners and

other staff could share expertise with the GSE regulator’s staff. Currently,

OFHEO supplements its examination staff with examiners from OCC. Finally,

this affiliation would also reinforce the importance of safety and

soundness oversight as the regulator’s top priority to protect the

government from risk should any GSE fail and would ensure that the GSEs

remain strong enough to carry out their missions.

Having an office within Treasury also has several disadvantages. GSEs

could be viewed as a Treasury competitor because they issue what could

be viewed as competing debt, and Treasury could become a GSE creditor.

Under these circumstances, its objectivity and arm’s-length status could be

questioned. This potential conflict stems from Treasury having two

specific responsibilities relating to GSEs. First, Treasury is authorized to

approve or disapprove the timing and terms of new GSE debt issuances.31

Because GSE debt is part of the U.S. agency debt market, these issuances

could compete in some way with Treasury’s own debt securities. Second,

Treasury is authorized to extend credit to the housing GSEs, among others.

Specifically, the FHLBank System has a $4 billion line of credit with

Treasury, while Fannie Mae and Freddie Mac each have a $2.25 billion line

of credit. Use of the lines of credit is subject to Treasury’s discretion, and,

according to Treasury officials, there are no rules or guidelines governing

situations when such credit may be granted. An additional disadvantage of

establishing an independent office within Treasury is that this could

strengthen the belief among GSE investors that their obligations have an

implicit government backing.

Board Versus

Directorship

We considered both a board and a single director structure for governing a

single regulatory agency and found that the board structure best fits our

criteria for an effective regulator for many of the same reasons that a

stand-alone agency is preferable to an executive branch agency. In fact,

the stand-alone independent financial regulatory agencies—the Board of

Governors of the Federal Reserve, Federal Deposit Insurance Corporation,

National Credit Union Administration, Securities and Exchange

31For years, Treasury scheduled GSE offerings to prevent timing conflicts among the GSEs that might

prove to be disruptive to the government securities market. On March 8, 1996, however, Treasury

eliminated its scheduling procedures for GSE securities offerings. GSEs have developed a voluntary,

cooperative scheduling system that eliminated the need for Treasury’s queuing process. Treasury’s

statutory authority to approve the timing and terms of GSE securities has not changed.

Page 16 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

Commission, and Commodity Futures Trading Commission—have boards

or commissions. Among stand-alone GSE regulators, both FCA and FHFB are

led by boards. In contrast, financial regulators, such as OCC, OTS, and,

among the GSEs, OFHEO, which are executive branch agencies, are led by

individual directors. Both structures have advantages and disadvantages,

and their strengths can also be weaknesses depending on the context.

We believe one advantage would be that a new regulator led by a board

would best be able to establish the requisite independence in government

and would also allow Congress to provide balance for the regulator’s

decisionmaking body. For example, Treasury and HUD could be

permanently represented on the board. Another advantage would be that

the Secretaries, or their designees, would provide valuable experience in

safety and soundness oversight, finance, and housing policy. They would

also provide important links to the two government departments most

affected by the GSEs’ performance while affording a structure where any

potential conflicts could be addressed. A chair could be appointed by the

president with the advice and consent of Congress. A larger board could

include a person with expertise in the low- and moderate-income housing

fields. To help provide stability and political balance, terms could exceed 4

years and be staggered.

According to some officials with whom we spoke, one disadvantage in

having a board is that it could be less efficient than a single director.

Having a board necessarily involves consultation among its members

directly or through staff. It is logical to assume that resulting inefficiencies

would increase as board size increased. Thus, a small board can be more

efficient than a large board. Unlike a directorship where there is a single

person accountable, another disadvantage of a board structure is that it

may make determining individual accountability for actions difficult.

However, part of this potential inefficiency can be overcome by placing a

presidentially appointed chair or chief executive officer in charge of daily

operations of the agency and having other members of the board serve

part time.32 Another disadvantage of a small board structure is that it may

face challenges in complying with the Government in the Sunshine Act,

which generally requires meetings held by regulatory bodies to be public.33

Because a meeting requires a quorum, the Government in the Sunshine Act

32Whether board members should serve in a full- or part-time capacity is debatable. Opinions varied on

whether part-time positions would attract more or less qualified candidates.

33See Pub. L. No. 94-409 (1976) 5 U.S.C. § 552b. The Government in the Sunshine Act requires that

every agency meeting must be open to the public unless the meeting falls within a delineated

exemption.

Page 17 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

can create a problem for three-member boards to the extent that

discussions between two members could be subject to the Government in

the Sunshine Act.

Other officials we spoke with view a directorship as a higher profile

position than board membership and thought that this would be an

advantage and make a director-led agency more prominent and ultimately

lead to more qualified nominees for the position. Another advantage is that

a director-led agency would establish a clear line of accountability. One

possible disadvantage is that if the director were viewed as weak or

inappropriately influenced by the regulatees, there is no means to bring

balance to the oversight. Additionally, although vacancies on a board can

impede oversight, a single-director structure has a more serious problem

when the position is left vacant for long periods.34

Among the financial regulators, we could not find any examples of

stand-alone agencies that were not headed by boards or commissions. It

seems there are good reasons for these structures being linked. That is,

although a stand-alone agency structure provides independence and

prominence in government, the board structure has the advantages of

allowing different perspectives, providing stability, and bringing prestige

to the agency, as well as allowing Congress to provide balance for the

regulator’s decisionmaking body by requiring that members have certain

expertise.

Other Issues Creating a well-functioning regulator for housing GSEs cannot be achieved

by simply merging the functions of OFHEO and FHFB, because regulatory

issues would have to be addressed. In our 1991 report on GSEs, we

identified the following issues as important. First, as mentioned in our

discussion, if mission and safety and soundness oversight are vested in the

same regulatory body, the regulator should not have a role, other than

oversight, in the governance of corporate affairs of GSEs. Second, GSEs

should be responsible for funding all of the costs associated with their

federal oversight. Therefore, Fannie Mae and Freddie Mac should be

paying for their mission-related oversight through assessments.

34With respect to OFHEO, the 1992 Act provides that the Deputy Director shall serve as the acting

Director in the event of the Director’s death, resignation, sickness, or absence until the Director’s

return or the appointment of a successor by the president with the advice and consent of the Senate.

12 U.S.C. § 4512(e)(2). Statutory schemes also exist for filling vacancies and absences in other offices

led by a Director. See 12 U.S.C. § 4 (OCC) and 12 U.S.C. § 1462a(c)(3) (OTS). Under the OCC

provision, the First Deputy Comptroller would be first among the Deputy Comptrollers to succeed or

act in the capacity of the Comptroller. Under the OTS provision, a vacancy is to be filled by

presidential appointment, with the advice and consent of the Senate.

Page 18 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

Third, the regulator should have all the powers and authorities granted

other safety and soundness regulators. Specifically, it should have the

authority to set rules that establish boundaries for safe GSE operations in

order to protect the government’s interest in achieving a GSE’s public

purpose. A regulator should also have the authority and responsibility to

monitor and examine all GSE operations and have access to all GSE books

and records. The purpose of this authority is to have an ongoing

assessment of the financial health of each GSE and to ensure that its

operations are advancing the purposes of its charter. The regulator needs

the authority to establish capital standards to provide some ensurance that

an adequate buffer exists to absorb unforeseen losses and keep them from

becoming taxpayer losses. Further, the regulator must have the authority

to enforce regulations and capital requirements through enforcement

actions. Finally, the regulator would need the authority to levy

assessments to cover costs of supervision.

An additional issue that may need to be addressed is whether a new

regulatory agency should be excluded from the appropriations process.

Most financial institution regulators, including OFHEO and FHFB, assess the

institutions they oversee for the cost of regulation. Thus, they are not

funded from tax revenues and typically are not subject to appropriations.

OFHEO, however, is subject to the appropriations process and, compared

with other regulators, has less control over its resources. The

appropriations process could subject the agency to budgetary pressures

that could conflict with the agency’s needs as a safety and soundness

regulator. On the other hand, the appropriations process does provide an

additional mechanism for Congressional oversight.

Agency Comments

and Our Evaluation

On June 30 and July 1, 1997, we obtained oral comments on a draft of this

report from senior officials responsible for GSE oversight at OFHEO, FHFB,

HUD, and Treasury and from senior officials of Fannie Mae, Freddie Mac,

and FHLBanks. Specifically, we met with OFHEO’s Acting Director, Chief

Economist, and Director of Congressional Relations; FHFB’s Managing

Director and Director of Congressional Relations; HUD’s Director,

Government-Sponsored Enterprises, Associate Deputy Assistant Secretary

for Economic Affairs, Assistant General Council for GSEs/RESPA Division,

and Program Analyst; Treasury’s Acting Director for the Office of Policy,

Planning and Analysis and Economist from the Office of Financial

Institutions; Fannie Mae’s Director of Regulatory Policy; Freddie Mac’s

Director of Agency Relations, Director of Public Policy, Assistant General

Council, and Vice President of Financial Research; Senior Vice Presidents

Page 19 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

from the FHLBanks of Atlanta, Boston, and San Francisco representing

the Council of FHLBanks; FHLBank of Chicago’s President and External

Affairs Representative; and FHLBank of New York’s President.

OFHEO, HUD, FHFB, Fannie Mae, and Freddie Mac officials noted that the

current oversight arrangement is working well and they saw no compelling

reasons for change. OFHEO officials noted that although in theory there is

merit in creating a single regulator for the housing GSEs and in combining

safety and soundness regulation, the current arrangement appears to be

working well. To date, they said, coordination with HUD in reviewing new

GSE programs has worked well. HUD officials also said that the relationship

with OFHEO has been working well and provides appropriate coordination

for avoiding unnecessary duplication. FHFB officials added that if changes

were to be made, they would prefer an oversight arrangement that

combined safety and soundness with mission oversight in one independent

regulatory body. We have not studied the regulatory effectiveness of FHFB,

OFHEO, or HUD, or the effectiveness of coordination between OFHEO and

HUD. Therefore, we have no position on the effectiveness of the current

regulatory oversight of the housing GSEs. However, our experience in

studying the regulation of financial institutions has shown that it is best to

make improvements in regulatory oversight before crises occur and the

government is forced to make quick and costly decisions.

FHFB, Fannie Mae, and Freddie Mac officials said they doubted that

efficiencies or cost savings could be achieved by creating a single

regulator. In addition, Fannie Mae and Freddie Mac officials said any

change would be disruptive without providing the benefits contemplated.

We do not claim that significant costs could be saved by creating a single

regulator, although some costs could be saved by combining

administrative functions. However, as we note in the report, the more

important efficiencies to be attained relate to sharing of expertise and

synergies that could be created among examinations staff and other

technical experts.

OFHEO officials said they believe OFHEO has established a strong record as

an independent regulator. They agreed with the report’s observations on

the appropriations process and expressed some concern that a GSE could

attempt to use the appropriations process to change a regulator’s budget

or influence a regulatory decision. They noted, and we agree, that

addressing this issue would not require making an organizational change

in the housing GSE regulators.

Page 20 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

HUD officials criticized the report for not adequately reflecting regulatory

changes made since the 1992 Act became effective or how well the current

structure is working in regard to Fannie Mae and Freddie Mac. They felt

that their efforts in establishing affordable housing goals were largely

unacknowledged in the draft. The regulatory changes made since 1992

were described in the background section of the draft. We added a

reference to some of our previous work that addressed HUD’s efforts in

establishing affordable housing goals (see pp. 2 and 3). We note that the

current report was not intended to evaluate those efforts or HUD’s

performance.

In addition, HUD officials pointed out that their expertise goes beyond

housing finance. They also questioned whether an independent regulator

would have as much stature as a cabinet-level agency. We specifically

noted that a board structure would provide the opportunity for HUD’s

expertise to be represented by including the Secretary of HUD. A board, we

noted, would also provide different perspectives, prestige, and stability for

a GSE regulator. We also pointed out that a potential disadvantage of an

independent agency was that it lacks the backing of a cabinet-level agency.

Both Fannie Mae and Freddie Mac officials emphasized that they believe

that the differences in the mission, structure, and operations of their

businesses and the FHLBank System make the application of our

principles regarding a single housing GSE regulator inappropriate. System

officials had mixed views on this issue. As we noted in our draft, although

the GSEs operate differently, there are similarities in the risks they manage

and in their missions. We believe the housing GSE regulators would be

more effective if combined and authorized to oversee both safety and

soundness and mission compliance and that such a combined regulator

could take into account differences in operations.

The Council did not have a position on creating a single housing GSE

regulator or whether safety and soundness and mission compliance

oversight should be vested in the same regulatory entity. It raised the issue

of whether there should be an oversight mechanism for the regulator. We

note that Congress performs a general oversight role and it typically has

provided us the authority to audit and review GSE regulators in its behalf.

Another vehicle for congressional oversight is inspectors general. The

Chicago and New York bank officials generally agreed with our report.

Page 21 GAO/GGD-97-139 Single Housing GSE Regulator
B-277390 

The Department of the Treasury does not have a position on whether a

single housing GSE regulator should be created, according to officials with

whom we spoke.

All officials provided some technical comments that we incorporated in

the text as appropriate.

As arranged with your office, unless you publicly announce the contents of

this report earlier, we plan no further distribution until 10 days after the

date of this letter. At that time, we will distribute copies of the report to

the Ranking Minority Member of your Subcommittee; the Chairman and

Ranking Minority Member of the Subcommittee on Financial Institutions

and Regulatory Relief, Senate Banking Committee; the Acting Director of

OFHEO; the Chairman of FHFB; the Secretary of the Department of Housing

and Urban Development; the Secretary of the Treasury; Fannie Mae;

Freddie Mac; the FHLBanks; and other interested parties. Copies will also

be made available to others upon request.

Major contributors to this report are listed in the appendix. If you have any

questions about the report, please call me or M. Kay Harris on

(202) 512-8678.

Sincerely yours,

Jean Gleason Stromberg

Director, Financial Institutions

 and Markets Issues

Page 22 GAO/GGD-97-139 Single Housing GSE Regulator
Page 23 GAO/GGD-97-139 Single Housing GSE Regulator
Contents

Letter 1

Appendix 

Major Contributors to

This Report

26

Related GAO Products 28

Abbreviations

FCA Farm Credit Administration

FHFB Federal Housing Finance Board

FIRREA Financial Institutions Reform, Recovery, and Enforcement

Act

GSE government-sponsored enterprise

HUD Department of Housing and Urban Development

MBS mortgage-backed securities

OCC Office of the Comptroller of the Currency

OFHEO Office of Federal Housing Enterprise Oversight

OTS Office of Thrift Supervision

Page 24 GAO/GGD-97-139 Single Housing GSE Regulator
Page 25 GAO/GGD-97-139 Single Housing GSE Regulator
Appendix 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Thomas J. McCool, Associate Director, Financial Institutions

 and Markets Issues

M. Kay Harris, Assistant Director

Orice M. Williams, Evaluator-in-Charge

Katherine D. Kitzmiller, Secretary

Donna M. Leiss, Communication Analyst

Office of General

Counsel, Washington,

D.C.

Paul G. Thompson, Senior Attorney

Page 26 GAO/GGD-97-139 Single Housing GSE Regulator
Page 27 GAO/GGD-97-139 Single Housing GSE Regulator
Related GAO Products

Housing Enterprises: Investment, Authority, Policies, and Practices

(GAO/GGD-97-137R, June 27, 1997).

Comments on “The Enterprise Resource Bank Act of 1996”

(GAO/GGD-96-104R, June 27, 1996).

Housing Enterprises: Potential Impacts of Severing Government

Sponsorship (GAO/GGD-96-120, May 13, 1996).

Letter from James L. Bothwell, Director, Financial Institutions and

Markets Issues, GAO, to the Honorable James A. Leach, Chairman,

Committee on Banking and Financial Services, U.S. House of

Representatives, Re GAO views on the “Federal Home Loan Bank System

Modernization Act of 1995” (B-260498, Oct. 11, 1995).

FHLBank System: Reforms Needed to Promote Its Safety, Soundness, and

Effectiveness, GAO/T-GGD-95-244, Sept. 27, 1995.

Housing Finance: Improving the Federal Home Loan Bank System’s

Affordable Housing Program (GAO/RCED-95-82, June 9, 1995).

Government-Sponsored Enterprises: Development of the Federal Housing

Enterprise Financial Regulator (GAO/GGD-95-123, May 30, 1995).

Farm Credit System: Repayment of Federal Assistance and Competitive

Position (GAO/GGD-94-39, March 10, 1994).

Farm Credit System: Farm Credit Administration Effectively Addresses

Identified Problems (GAO/GGD-94-14, Jan. 7, 1994).

Federal Home Loan Bank System: Reforms Needed to Promote Its Safety,

Soundness, and Effectiveness (GAO/GGD-94-38, Dec. 8, 1993).

Improved Regulatory Structure and Minimum Capital Standards Are

Needed for Government-Sponsored Enterprises (GAO/T-GGD-91-41, June 11,

1991).

Government-Sponsored Enterprises: A Framework for Limiting the

Government’s Exposure to Risks (GAO/GGD-91-90, May 22, 1991).

Government-Sponsored Enterprises: The Government’s Exposure to Risks

(GAO/GGD-90-97, Aug. 15, 1990).

(233521) Page 28 GAO/GGD-97-139 Single Housing GSE Regulator
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 6015

Gaithersburg, MD 20884-6015

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100