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GSE Risk Controls Mulled

APRIL 30, 2004


GSE Risk Controls Mulled

The Office of Federal Housing Enterprise Oversight, Freddie Mac's and Fannie Mae's safety and soundness regulator, is developing regulations to address how it would put the two government sponsored enterprises into a "liquidating conservatorship" since legislation giving a new regulator full receivership powers has stalled. OFHEO does not have authority to put the GSEs into receivership, but it can put them into a conservatorship. The new regulations would establish a process to appoint a conservator to run a GSE facing financial difficulty, liquidate its assets and pay its creditors.

Meanwhile, the Treasury is considering ways to address risks its sees posed by Fannie Mae and Freddie Mae. The administration and the Treasury have expressed concerns about the growth of the two GSEs and the risks to the government and taxpayers should they face serious financial difficulties.

Assistant Treasury Secretary Wayne Abernathy hinted this week that the Treasury is looking at ways to limit the issuance of debt by the two GSEs. Abernathy told reporters that Treasury is examining its authorities and tools to see what can be used to supervise the GSEs and mitigate the risks they present to the financial system.

He noted a statutory provision requiring the GSEs to go through a Treasury "screen" whenever they go to market. "And the question is, what kind of obligations does that impose upon Treasury with regard to issues of safety and soundness, and so forth, and those are questions we've been examining," he told reporters.

Also, this week, responding to questions following a speech, Federal Reserve Governor Susan Bies said that the mortgage portfolios held by Fannie Mae and Freddie Mac raise their exposure to swings in interest rates. The two GSEs have come under criticism for the amount of mortgages they hold on their books rather than packaging and selling them as mortgage-backed securities to investors.