HUD
regulates the two housing government-sponsored enterprises, Fannie Mae and Freddie
Mac (the GSEs), which were chartered by Congress to create a secondary market
for residential mortgage loans. These
GSEs are the largest source of housing finance
in the United States. They are considered to be "government sponsored" because
Congress authorized their creation and established their public purposes. Their
Congressional charters require each corporation to achieve public purposes that
include providing stability and liquidity in the secondary mortgage market, providing
secondary market assistance relating to mortgages for low-and moderate-income
families, and promoting access to mortgage credit throughout the Nation, including
underserved areas. In
exchange for carrying out these public purposes, the GSEs are accorded various
privileges that provide them with some advantages not available to other private
corporations, including an implicit benefit that allows them to borrow money at
rates which are lower than rates competitors must pay.
Even though Fannie
Mae and Freddie Mac are Congressionally chartered, they are also private, shareholder
owned corporations that have been regulated by HUD since 1968 and 1989, respectively.
Both GSEs fund residential mortgages by purchasing loans directly from primary
market mortgage originators, such as mortgage bankers and depository institutions,
and holding these loans in portfolio or by issuing mortgage-backed securities
which are sold to a wide variety of investors in the capital markets. The
Secretary of HUD is the mission regulator for Fannie Mae and Freddie Mac, with
oversight authority to ensure that both GSEs comply with the public purposes set
forth in their Charters. An independent office of HUD, the Office of Federal Housing
Enterprise Oversight (OFHEO), regulates both GSEs for safety and soundness, by
ensuring that they are adequately capitalized and operating their businesses in
a financially sound manner. The
GSE Act: The
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (the GSE
Act) established the current regulatory structure for the GSEs. The legislation
divided the Federal government's regulatory responsibilities over Fannie Mae and
Freddie Mac between the Secretary of HUD and the Director of OFHEO. Under the
GSE Act, the Secretary of HUD is charged with general regulatory authority over
Fannie Mae and Freddie Mac in all areas other than the GSEs' financial safety
and soundness which is the responsibility of the Director of OFHEO.
Specifically, the Secretary's authority includes setting and enforcing three affordable
housing goals, monitoring compliance with fair lending principles, collecting
loan-level data from the GSEs on their loan purchase activities, creating and
distributing a public use data base of non-proprietary GSE purchase data, and
providing oversight for new program approval.
HUD has published two rules under the GSE Act, one in 1995 and the current rule
in 2000. Both rules established the percentage-of-business affordable housing
goals Congress required in the GSE Act. HUD
Increased the GSEs' Affordable Housing Goals for 2001-2003:In
October 2000, HUD published a new final rule which significantly increased the
percentage of business the GSEs are required to devote to specific affordable
housing goals. These goals are:
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Low-and
Moderate-Income Goal. At least 50 percent of the dwelling units financed by each
GSE's mortgage purchases must be for families with incomes no greater than the
area median income (AMI), defined as median income for the metropolitan area or
nonmetropolitan county. The corresponding goal was 42 percent for 1997-2000.
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Special Affordable Goal. At least 20 percent of the dwelling units financed by
each GSE's mortgage purchases must be for very low-income families (those with
incomes no greater than 60 percent of AMI) or for low-income families (those with
incomes no greater than 80 percent of AMI) living in low-income areas. The corresponding
goal was 14 percent for 1997-2000. Special Affordable Multifamily Subgoal:
HUD establishes a dollar-based multifamily subgoal which stipulates a minimum
volume of qualifying multifamily loan purchases each GSE must meet annually. In
2001 this subgoal increased for Fannie Mae from $1.29 billion in 1997-2000 to
$2.85 billion in 2001-2003. For Freddie Mac, the subgoal increased from $.99 billion
to $2.11 billion, respectively. |
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Geographically Targeted (underserved areas) Goal. At least 31 percent of the dwelling
units financed by each GSE's mortgage purchases must be for units located in underserved
areas, including central cities, rural areas, and other areas as defined in HUD's
rule. The corresponding goal was 24 percent for 1997-2000. |
In
addition to increasing the goals, HUD's 2000 final rule provided for the award
of bonus points (double credit) toward the goals for both GSEs' mortgage purchases
that financed single family, owner-occupied 2-4 unit properties and 5-50 unit
multifamily properties. Under a temporary adjustment factor (TAF), the rule also
awarded Freddie Mac 1.2 units credit for each multifamily unit in a property over
50 units. Congress increased the level of the TAF to 1.35 per unit. The 2000 final
rule made clear, however, that both of these measures were temporary, intended
to encourage the GSEs to ramp up their efforts to meet financing needs that had
not been well served. During the three years for which the bonus points and TAF
were established, HUD expected the GSEs to develop new, sustainable business relationships
and purchasing strategies for the targeted needs.
At the end of the three years (2001-2003), the Department determined that it would
not extend the bonus points or TAF. The approach taken in the 2000 final rule
had proven to be successful, and data indicate that both GSEs increased their
financing of units targeted by the bonus points and TAF. The Department is currently
engaged in rulemaking to establish new housing goals beginning in 2005.
The GSEs Affordable
Housing Performance under the GSE Act: Each
year HUD prepares and makes available a public use database which includes loan-level
information on each GSE's loan purchases during the year. HUD also publishes reports
and various analyses on Fannie Mae's and Freddie Mac's performance in serving
the affordable housing marketplace.
To find out more about HUD's regulation of the GSEs, including how the GSEs have
performed under the GSE Act, please go to our reports
and data website. |