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Just Who Does Congress Listen To?

A search of the U.S. General Accountability Office’s ‘reports and testimonies’ database for “Fannie Mae” found 36 publications. The two most recent ones dealing with Fannie Mae were:

  • Housing Government-Sponsored Enterprises: A Single Regulator Will Better Ensure Safety and Soundness and Mission Achievement (GAO-08-563T, March 6, 2008)
  • Housing Government-Sponsored Enterprises: A New Oversight Structure Is Needed (GAO-05-576T, April 21, 2005)

GAO, the so-called auditing arm of the U.S. Congress, performed the 2008 study because “concerns exist that the fragmented oversight structure for the (government-sponsored enterprises) is not well-positioned to help ensure that they operate in a safe and sound manner and fulfill their housing missions.”

GAO testified to the U.S. Senate’s Committee on Banking, Housing and Urban Affairs in 2008 that “housing GSE activities involve significant risks,” saying specifically:

“While the housing GSEs have generated public benefits, their large size and activities pose potentially significant risks to taxpayers. As a result of their activities, the GSEs’ outstanding debt and off-balance sheet financial obligations total more than $6 trillion. The GSEs face the risk of losses primarily from credit risk, interest rate risk, and operational risks. Although the federal government explicitly does not guarantee the obligations of GSEs, it is generally assumed on Wall Street that assistance would be provided in a financial emergency. In fact, during the 1980s, the federal government provided financial assistance to both Fannie Mae and the Farm Credit System (another GSE) when they experienced difficulties due to sharply rising interest rates and declining agricultural land values, respectively.”

GAO also testified that recently “the housing GSEs have experienced a variety of operational and financial challenges, including:

“Starting in 2003, first Freddie Mac and then Fannie Mae were found to have engaged in misapplication of relevant accounting standards and earnings manipulation. The GSEs also misstated their incomes by billions of dollars. Consequently, OFHEO required Fannie Mae and Freddie Mac to develop capital restoration plans and both GSEs are still operating under regulatory agreements, which require improvements in their operations.

“Fannie Mae reported that rising mortgage defaults and falling home prices contributed to a $3.6 billion loss for the company in the last quarter of 2007. The GSE predicted that housing prices will continue to fall and that its financial performance will deteriorate further. Similarly, Freddie Mac reported a loss of about $2.5 billion for the same period, of which approximately $2.3 billion is attributed to losses on derivative trades.”

Unfortunately, there is no evidence that either report was acted upon. Taxpayers may want to read both of the above reports before calling their Congressional representatives. By the way, the chairman of the U.S. Senate’s Committee on Banking, Housing and Urban Affairs is Christopher Dodd (D-CT) and the senior Republican is Richard Shelby (AL). The committee’s webpage contains such useful information as statements on various legislation.


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