Senate Banking Committee Chair Asks GAO and CBO to Examine GSEs

Yesterday, Senate Banking Committee Chair Richard Shelby (R-AL) requested that both the Government Accountability Office (GAO) and the Congressional Budget Office (CBO) compose reports on matters relating to the Federal Housing Finance Agency (FHFA) and the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. In a press release announcing the requests, Shelby suggests that the reports will help Congress adequately oversee FHFA and the GSEs and, "ensure that Congress takes steps to protect American taxpayers from risk."

In a letter to Gene L. Doldaro, who administers GAO as Comptroller General of the United States, Shelby expresses concerns that recent FHFA actions, including authorizing the GSEs to offer principal reduction to a limited set of borrowers and reinstating the GSEs’ annual contributions to the Housing Trust Fund, risk increasing the GSEs’ role in the housing market. "Overall," Shelby argues, "these FHFA actions raise questions about the goals of the conservatorship and whether its ultimate purpose has changed." Shelby asks GAO to examine and report on how these recent policy decisions could impact the GSEs’ market presence, the ability for competitors to enter the secondary housing market, and the risk that the GSEs may have to receive federal assistance in the future.

Shelby also requests that GAO assess and report on several topics related to the housing market to, "enable Members of Congress to better understand the effects and consequences" of various housing finance reform proposals. These topics include: the varying capital standards that are applied to different types of mortgage loans; the use of geo-coding in underwriting and loan-level disclosures; how adopting residual income tests and risk-sharing arrangements would impact the Federal Housing Administration’s single-family programs; and how federal housing policy and programs can better encourage Americans to build home equity.

In his letter to CBO Director Keith Hall, Shelby cites FHFA Director Mel Watt’s recent speech warning that, because the GSEs are currently prohibited from building up capital, they may soon require assistance from the federal government. Shelby requests that CBO produce a report outlining the federal government’s financial obligations to the GSEs and how they might be impacted if the GSEs were allowed to retain more capital. The report will also address how an increase in the capitalization of the GSEs would impact the mortgage finance market.

Shelby asks that CBO complete its report by July, and that GAO try its best to finish its work, which Shelby anticipates will include multiple reports, by November 1.

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