Federal Housing Enterprises

This report discusses the Department of Housing and Urban Development's (HUD) housing mission oversight of the two largest government-sponsored housing enterprises: the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. GAO found that (1) HUD adopted a generally conservative approach in 1995 to setting the final housing goals for 1996 through 1999 that placed a high priority on maintaining the enterprises' financial soundness and (2) Fannie Mae and Freddie Mac complied with the final housing goals in 1996 and 1997, according to data they submitted to HUD. GAO also found several weaknesses in HUD's mission oversight. Specifically, HUD has not implemented a program to assess the accuracy of their data on compliance with their housing goals, HUD's research agenda does not address several issues necessary to fully understand the extent to which the housing goals promote housing opportunities, and the agency has not yet fully implemented a process under its general regulatory and new mortgage program approval authorities to ensure that the enterprises' financial activities are consistent with their housing mission. GAO summarized this report in testimony before Congress; see: Federal Housing Enterprises: HUD's Implementation of Its Mission Oversight Needs to Be Strengthened, by Nancy Kingsbury, Assistant Comptroller General for General Government Programs, before the Subcommittee on Capital Markets, Securities and Government Sponsored Enterprises, House Committee on Banking and Financial Services. GAO/T-GGD-98-177, July 30 (16 pages).

GAO noted that: (1) the 1992 Act provides the HUD Secretary with the authority to set the final housing goals, and establish six general, but potentially competing, factors to guide the Secretary's decisionmaking process; (2) the 1992 Act directed the HUD Secretary to balance: (a) the ability of the enterprises to lead the (mortgage finance) industry in financing the mortgages of targeted groups; and (b) the need to maintain the enterprises' financial soundness; (3) available evidence for HUD's final housing goal rule indicates that the HUD Secretary generally adopted a conservative approach to setting the final goals in December 1995 for the period 1996 through 1999; (4) this conservative approach placed a high priority on maintaining the enterprises' financial soundness; (5) according to annual data that Fannie Mae and Freddie Mac provided to HUD, the enterprises have increased their share of targeted mortgage purchases since 1993 and were in compliance with the final housing goals in 1996 and 1997; (6) HUD has a basic oversight responsibility to determine whether the housing goals are resulting in enhanced housing opportunities for targeted groups because this was the intent of the 1992 Act; (7) HUD has ongoing research projects to assess housing needs and households served by goal-oriented mortgage purchases, but its current research agenda does not address several highly relevant issues that are necessary to fully understand the goals' impacts; (8) HUD has implemented some limited procedures to verify the accuracy of the enterprises' reported goal compliance data; (9) for an enterprise that is not in compliance with the housing goals, HUD's final housing goal rule may provide regulatory incentives to employ risk-management strategies that help the enterprise meet or exceed the numeric goals; (10) the effects of these risk management strategies on enhancing housing opportunities for targeted groups are not clear; (11) there is also available information suggesting that the enterprises' risk-management strategies involve offsetting tradeoffs that may serve to limit lenders' incentives to originate affordable multifamily mortgages; (12) HUD has not fully implemented a procedure to assess sophisticated enterprise financial activities under its general regulatory and new mortgage program approval authorities under the 1992 Act; and (13) HUD initiated a process to assess the relationship between the enterprises' nonmortgage investments and housing mission in 1997, but this process has not been completed.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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