Fannie Mae and Freddie Mac  retain their government charters and continue to operate legally as  business corporations. Using its authority provided in HERA, Treasury provides capital support to  the enterprises while in conservatorships through senior preferred stock  purchase agreements. FHFA’s Reformulated Goals for the Conservatorships and Its Supporting Actions Reflect a Shift in Priorities and Changing Market Conditions

While the three goals FHFA outlined in its 2014 strategic plan for the  conservatorships are similar to those in the previous 2012 plan in a  number of ways, there are key differences that reflect a shift in priorities  for the conservatorships and changing market conditions. FHFA Increased Its Emphasis on Maintaining Credit Availability and Foreclosure Prevention Options to Align with Statutory Responsibilities

In the 2014 plan, FHFA indicated it was placing greater emphasis on its  goal for maintaining credit availability and foreclosure prevention options  (Maintain goal). Additionally, FHFA changed the wording of  the Maintain goal from “maintain foreclosure prevention activities and  credit availability for new and refinanced mortgages” to “maintain, in a  safe and sound manner, foreclosure prevention activities and credit  availability for new and refinanced mortgages to foster liquid, efficient,  competitive, and resilient national housing finance markets.” The new  wording more closely aligns the goal with FHFA’s responsibilities outlined  in statute and Congress’s stated purpose for the enterprises. FHFA Shifted Efforts for Reducing Taxpayer Risk Away from Decreasing the Enterprises’ Role

FHFA’s second goal in the 2014 plan, like the corresponding goal in the  2012 plan, is aimed at transferring risk from the enterprises (and  taxpayers) to private investors. FHFA Has Reduced the Scope of the Securitization Infrastructure Being Built, Focusing Instead on Initiatives for the Enterprises

FHFA narrowed the focus of its goal of building a securitization  infrastructure (Build goal) from creating a new secondary mortgage  market infrastructure to primarily addressing the enterprises’ current  operational needs. In the Absence of Congressional Direction, FHFA’s Shift in Priorities Adds to Uncertainty about the Future Structure of the Housing Finance System

		FHFA Partially Changed Direction on Reducing the Enterprises’ Role in Housing Finance

Prior to 2014, FHFA was taking explicit steps to shrink the enterprises’  role in the secondary market. However, other actions that serve to reduce the depth and  breadth of the enterprises’ activities and that are written into the  enterprises’ agreements with Treasury continue. These actions include  reducing retained mortgage portfolios and reducing the enterprises’  capital bases to $0 by January 2018. Our analysis comparing FHFA’s  actions with legislative proposals to reform the enterprises’ structure  found that some proposals continue or build upon actions FHFA has  taken, such as the common securitization platform and credit risk  transfers. Whether FHFA’s Actions Reduce the Likelihood of Drawing on Treasury’s Capital Commitment Is Uncertain

FHFA has taken some actions that could increase the likelihood of  drawing on Treasury’s capital commitment under the agreements as well  as other actions that could have the opposite effect, and the net effect of  these actions is uncertain. One of the long-standing principles we have identified that  should serve as a guide for providing government assistance to private  market participants is setting clear objectives. As we have  previously found, the federal government should set clear goals and  objectives when providing financial assistance to private market  participants. However, Congress has yet to establish objectives for the  future of the enterprises after conservatorship or the future federal role in  housing finance. Matter for Congressional Consideration

To reduce uncertainty and provide FHFA sufficient direction for carrying  out its responsibilities as conservator of the enterprises, Congress should  consider legislation that establishes objectives for the future federal role  in housing finance, including the structure of the enterprises, and a  transition plan to a reformed housing finance system that enables the  enterprises to exit conservatorship.
Why GAO Did This Study

In 2008, FHFA used its authority under the Housing and Economic Recovery Act to place Fannie Mae and Freddie Mac into conservatorships out of concern that their deteriorating financial condition threatened the stability of the financial market. Eight years later, the enterprises remain in conservatorships. However, FHFA says the conservatorships were not intended to be permanent. FHFA has issued two strategic plans for its conservatorship of the enterprises, one in 2012 and another in 2014.
GAO was asked to examine FHFA's actions as conservator. This report addresses (1) the extent to which FHFA's goals for the conservatorships have changed and (2) the implications of FHFA's actions for the future of the enterprises and the broader secondary mortgage market.
GAO analyzed and reviewed FHFA's actions as conservator and supporting documents; legislative proposals for housing finance reform; the enterprises' senior preferred stock agreements with Treasury; and GAO, Congressional Budget Office, and FHFA inspector general reports. GAO also interviewed FHFA and Treasury officials and industry stakeholders.

What GAO Found

The Federal Housing Finance Agency (FHFA) issued a new strategic plan for the conservatorships of Fannie Mae and Freddie Mac (the enterprises) in 2014 with reformulated goals and supporting actions that reflect a shift in priorities and changing market conditions. While the three goals in the 2014 strategic plan are broadly similar to those in the previous plan issued in 2012, FHFA changed the weight and wording of the goals (see table) to align the plan more closely with FHFA's statutory responsibilities. Specifically, compared with the 2012 plan FHFA (1) increased its emphasis on maintaining credit availability and foreclosure prevention options; (2) shifted away from shrinking the enterprises as a way to reduce taxpayer risk (focusing instead on transferring credit risk to private investors, for example); and (3) reduced the scope of the securitization infrastructure being built, such as a new technology platform for securitizing mortgages, to focus on meeting the enterprises' current needs.
In the absence of congressional direction, FHFA's shift in priorities has altered market participants' perceptions and expectations about the enterprises' ongoing role and added to uncertainty about the future structure of the housing finance system. In particular, FHFA halted several actions aimed at reducing the scope of enterprise activities and is seeking to maintain the enterprises in their current state. However, other actions (such as reducing their capital bases to $0 by January 2018) are written into agreements for capital support with the Department of the Treasury (Treasury) and continue to be implemented. In addition, the change in scope for the technology platform for securitization puts less emphasis on reducing barriers facing private entities than previously envisioned, and new initiatives to expand mortgage availability could crowd out market participants. Furthermore, some actions, such as transferring credit risk to private investors, could decrease the likelihood of drawing on Treasury's funding commitment, but others, such as reducing minimum down payments, could increase it. GAO has identified setting clear objectives as a key principle for providing government assistance to private market participants. Because Congress has not established objectives for the future of the enterprises after conservatorships or the federal role in housing finance, FHFA's ability to shift priorities may continue to contribute to market uncertainty.

What GAO Recommends

Congress should consider legislation that would establish clear objectives and a transition plan to a reformed housing finance system that enables the enterprises to exit conservatorship. FHFA agreed with our overall findings.