GSE Regulatory Reform

Our Position

Freddie Mac supports legislation that enhances the GSE regulatory structure in a way that ensures continued public confidence in the financial viability of the housing GSEs, which remain two key pillars of our nation's housing industry and broader economy.

We urge policymakers to take into account the full impact of proposed legislation on our continuing ability to serve the full breadth of our statutory mission of providing liquidity, stability and affordability to the nation's housing markets. We believe the successful implementation of this legislation will require striking a balance of three important areas: mission, capital and shareholder value.

We respectfully submit that in this time of relative weakness in the U.S. housing market, over-engineering the GSE-model of housing finance, including requiring capital in excess of actual risks, may lead to further market weakness, higher mortgage rates for borrowers and a diminished supply of long-term fixed-rate financing, that is critical to ensuring sustainable homeownership for America's families.

Legislative Proposals

On May 22, 2007, the U.S. House of Representatives passed H.R. 1427, which would overhaul the regulatory oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Senate may consider similar legislation in the future. It is our hope that each aspect of H.R. 1427 be measured against the twin criteria of safety and soundness and mission. The legislation should advance, or at least do no harm, to the safety and soundness of the GSEs. And it should advance, or at least do no harm, to the GSEs’ ability to fulfill their mission.

While fulfilling our mission and remaining safe and sound are both necessary, in practice, achieving them requires a delicate balance. We believe there are a number of legislative proposals that can be combined into a bill that strengthens regulatory oversight without upsetting that balance. But there are other combinations of provisions that could create significant tension between fulfilling our mission and ensuring safety and soundness, such as:

• Proposals that lead to higher borrowing costs or that significantly harm our ability to attract debt and equity investors;
• Requirements to hold capital beyond levels indicated by our actual risks;
• Potentially onerous new product or activity constraints that inhibit innovation and our ability to offer competitive products to our customers;
• Provisions that could lead to unwarranted restrictions on our investment portfolios; and
• Provisions that create a proliferation of affordable housing obligations rather than consolidating existing and new ideas into the most effective package.

These are challenging issues, but we believe that Congress will strike the right balance.

Read more:

• The Genius of the GSE Model
• Achieving Balance
• Systemic Risk Debate
• Capital Requirements
• GSE Mortgage Portfolios
• Prior Approval
• Affordable Housing