HUD's Regulation of
Government-Sponsored Enterprises

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:

	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.
	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.
	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.