Improving the Effectiveness of GSE Oversight: Legislative Proposals in the 108th Congress

Publication Date: January 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Government

Type:

Abstract:

Fannie Mae and Freddie Mac, two of the largest government-sponsored enterprises (GSEs), were created to establish a secondary mortgage market in order to improve the distribution of capital available for home mortgage financing. To help these institutions accomplish this mission, Congress granted them several statutory benefits not available to other private companies. The advantages of GSE status have helped the enterprises to grow rapidly and become the dominant players in the secondary mortgage market.

In 1992, Congress established the Office of Federal Housing Enterprise Oversight (OFHEO), an independent agency within the Department of Housing and Urban Development (HUD), to oversee the financial safety and soundness of the enterprises. OFHEO is authorized to set capital requirements, conduct annual riskbased examinations, and generally enforce compliance with safety and soundness standards.

With the rapid growth in the GSEs, questions have been raised about the effectiveness of the current regulatory regime. Several legislative proposals introduced in the past addressed GSE regulatory reform, but Congress did not take action on them. However, with the recent accounting problems at both Fannie Mae and Freddie Mac, the adequacy of GSE regulation has become a prominent legislative issue once again.

Four bills were considered in the 108th Congress that aimed to strengthen the current regulatory framework and improve the effectiveness of GSE supervision: H.R. 2575 (Representative Baker), H.R. 2803 (Representative Royce), S. 1508 (Senators Hagel\Sununu\Dole), and S. 1656 (Senator Corzine). On March 26, 2004, Chairman Shelby of the Senate Banking Committee released a draft bill, which was offered as a substitute for S. 1508 during markup on April 1, 2004, and passed by the committee with several amendments. No further legislative action was taken during the 108th Congress.