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Washington
GAO analyzes Fannie Freddie options
WASHINGTON (9/11/09)—The Government Accountability Office (GAO) released a study Thursday that analyzes options for revising the long-term structure of the government-sponsored enterprises, Fannie Mae and Freddie Mac. Just over a year ago, on Sept. 8, the Federal Housing Finance Agency (FHFA) placed the GSEs into conservatorship due to concern that their deteriorating financial condition—identified as $5.4 trillion in outstanding obligations-- would destabilize the financial system. “With estimates that the conservatorship will cost taxpayers nearly $400 billion, GAO initiated this report under the Comptroller General’s authority to help inform the forthcoming congressional debate on the enterprises’ future structures,” the report explains. The report discusses the enterprises’ performance in meeting mission requirements, identifies and analyzes options to revise their structures, and discusses key transition issues. It concludes that it will be necessary for Congress to “reevaluate the roles, structures, and performance of the enterprises, and to consider options to facilitate mortgage finance while mitigating safety and soundness and systemic risk concerns.” Among the options noted by GAO are the following:
* Reconstitute the enterprises as for-profit corporations with government sponsorship, but place additional restrictions on them. While restoring the enterprises to their previous status, this option would add controls to minimize risk; * Establish the enterprises as government corporations or agencies that would focus on purchasing qualifying mortgages and issuing mortgage-backed securities, but eliminate their mortgage portfolios. The Federal Housing Administration (FHA), which insures mortgages for low-income and first-time borrowers, could assume additional responsibilities for promoting homeownership for targeted groups; and * Privatize or terminate them. This option would abolish the enterprises in their current form and disperse mortgage lending and risk management throughout the private sector. Some proposals involve the establishment of a federal mortgage insurer to help protect mortgage lenders against catastrophic mortgage losses.
GAO, as is its practice, took no position on whether to privatize the GSEs or make them fully public, but the report did indicate that both options could have their problems and inefficiencies--like increasing mortgage rates. To read more, use the resource link below.
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