Housing Enterprises

GAO was asked for its analysis of the advantages and disadvantages of creating a single regulator for the three housing government-sponsored enterprises (GSE): the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Federal Home Loan Bank System. These GSEs were created to help make credit available to finance home purchases. GAO believes that the housing GSE regulators would be more effective if combined and authorized to oversee both safety and soundness and mission compliance. Combining oversight into one agency would have several advantages over separate regulators: such an agency could be more independent and objective; its expertise in evaluating GSE risk management could be shared more easily; and a single regulator would be in a better position to be cognizant of specific mission requirements. The one disadvantage to creating a single regulator would be whatever short-term disruption reorganization might cause to ongoing operations of the existing regulators. An independent, stand-alone regulatory body headed by a board would best fit GAO's criteria for an effective regulatory structure for housing GSEs.

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