Freddie Mac Is Highly Accountable

Freddie Mac is held to high standards of accountability. From direct Congressional oversight, to our comprehensive regulatory regime, to our numerous public disclosures, we strive to earn and maintain public trust.

Because Freddie Mac was created to fulfill a public mission of providing liquidity, stability and affordability in the residential mortgage market, Congress keeps careful watch over our activities. The House Financial Services Committee and the Senate Committee on Banking, Housing and Urban Affairs each have jurisdiction over GSE matters. Over the past five years, Congress has held nearly a dozen hearings on the GSEs.

In addition to Congressional oversight, the GSEs answer to several different regulators.

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (the GSE Act) created a comprehensive GSE regulatory oversight structure to address both our housing mission and safety and soundness.

• The U.S. Department of Housing and Urban Development (HUD) has oversight responsibilities for the housing mission of Freddie Mac. The affordable housing goals set by HUD require that over 50 percent of the mortgages we purchase support financing for housing low- and moderate-income families. Since 1996, the HUD affordable housing goals have risen steadily. Each year HUD ascertains whether or not we have met the goals. Further, we submit a public accounting of all our affordable housing activities in an annual report to HUD.

  Under the GSE Act, Freddie Mac also must obtain the approval of the Secretary of HUD for any new programs we undertake that are significantly different from programs that have been previously approved. HUD also has authority to ensure that our programs and products fully comply with fair lending law.

• Safety and soundness regulation is vested in the Office of Federal Housing Enterprise Oversight (OFHEO). OFHEO implements, monitors and enforces the safety and soundness standards of Freddie Mac through examinations and capital standards.

  OFHEO's regulatory capital requirements include a ratio-based minimum capital requirement and a risk-based capital requirement designed to ensure that we maintain sufficient capital to survive a sustained severe downturn in the economic environment. OFHEO classifies our capital quarterly and has never classified us as anything other than "adequately capitalized," the highest possible classification.

• Under the Freddie Mac Act, the Secretary of the Treasury has approval authority over all of our issuances of notes, debentures and substantially identical types of unsecured debt obligations as well as new types of mortgage-related securities issued subsequent to the enactment of the FIRREA legislation in 1989.

In addition to HUD and OFHEO, Freddie Mac is subject to the SEC's antifraud rules and has voluntarily registered our common stock with the SEC under the Securities Exchange Act of 1934. As a result, we are required to file periodic reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Finally, each year the Office of Management and Budget provides a critical assessment of our activities in the Economic Report of the President.

Freddie Mac's financial condition is also closely watched by the three nationally recognized statistical rating agencies. Freddie Mac discloses to the public its credit rating assessing risk-to-the-government or independent financial strength. Both of these ratings are maintained on a surveillance basis, which means that the rating agencies are committed to notify the public if the rating is ever affected by a change in our financial condition.

At this juncture, regulatory reform is needed to maintain public trust, but overregulation could do more harm than good. While some adjustments certainly can be accommodated within the existing GSE structure, the system is not infinitely elastic. Certain legislative proposals risk upending this remarkable balance and could make it extremely difficult for the GSEs to continue to attract private capital to achieve the important public purposes Congress has ascribed for them to achieve. Freddie Mac supports sound, effective reform legislation that preserves the vibrancy of our system of housing finance.