Government-Sponsored Enterprises: Federal Oversight Needed for Nonmortgage Investments
GGD-98-48
Published: Mar 11, 1998. Publicly Released: Mar 25, 1998.
Skip to Highlights
Highlights
Pursuant to a congressional request, GAO reviewed the nonmortgage investment activities at 3 government-sponsored enterprises (GSEs)--the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae), and the Federal Agricultural Mortgage Corporation (Farmer Mac)--focusing on the: (1) enterprises' legal authority for making nonmortgage investments and federal regulatory oversight of that activity; (2) relationship between nonmortgage investment policies and practices and missions of the enterprises; and (3) extent to which the enterprises have undertaken nonmortgage investments for arbitrage profits--using the funding advantage from government sponsorship to purchase nonmortgage investments that generate profits.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| To help ensure that the enterprises' nonmortgage investments appropriately support their public missions, the appropriate congressional committees may wish to monitor HUD and FCA actions to establish criteria and procedures for carrying out their general regulatory authorities. Such oversight is important to help ensure that corporate incentives to increase shareholder value do not erode the enterprises' public mission. If adequate progress is not made in a timely way, Congress may wish to consider providing further guidance to the regulatory agencies. |
Closed – Implemented
|
On March 22, 2000, the House Subcommittee on Capital Markets, Securities, and Government Sponsored Enterprises held a hearing a which HUD's proposed rulemaking activities for GSE nonmortgage investments were discussed. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Housing and Urban Development | To provide more focused oversight of the housing enterprises' nonmortgage investments, the Secretary of Housing and Urban Development should promptly implement HUD's stated intention to develop criteria through appropriate rulemaking processes to help ensure that the housing enterprises' nonmortgage investments are consistent with the purposes expressed in their charter acts. |
Closed – Not Implemented
HUD never implemented criteria for nonmortgage investments. Under the Housing and Economic Recovery Act of 2008, this function was transferred from HUD to the Federal Housing Finance Agency.
|
| Farm Credit Administration | The Chairman of the FCA Board should direct the Office of Secondary Market Oversight to develop the requisite criteria and report periodically, such as through its semiannual reports to the House Agriculture Committee and the Senate Agriculture Committee, on the relationship of Farmer Mac's debt issuance strategy to the achievement of Farmer Mac's mission. |
Closed – Implemented
FCA's December 31, 2000, semiannual report to Congress states that "The (Farmer Mac) board has adopted specific policy limitations on total debt obligations that may be outstanding at any one time and on total investments in assets other than the Farmer Mac I and II Program assets. These limitations may be changed by the (Farmer Mac) board as business conditions require." The FCA official who is in charge of Farmer Mac supervision provided guidance to Farmer Mac's board on numerous occasions, including at a presentation on August 3, 2000, focusing on the need for a sound relationship between Farmer Mac's investments and its mission. As of June 30, 2001, Farmer Mac non-mission investments had fallen to about one-third the level of its on- and off-balance sheet mission assets.
|
Full Report
GAO Contacts
Office of Public Affairs
Topics
Agency missionsArbitrageFederal corporationsFinancial managementGovernment sponsored enterprisesInvestmentsMortgage programsSecuritiesHousing enterprisesMortgages