Housing Enterprises: Potential Impacts of Severing Government Sponsorship
(Testimony, 06/12/96, GAO/T-GGD-96-134).

GAO discussed the potential effects of privatizing the Federal National
Mortgage Association (Fannie Mae) and the Government National Mortgage
Association (Freddie Mac). GAO noted that: (1) the privatization of
Fannie Mae and Freddie Mac would have a major impact on both the
secondary and primary mortgage markets; (2) if the implied federal
guarantee on mortgage-backed securities and debt were eliminated or
reduced, the two government sponsored enterprises' (GSE) borrowing costs
could increase from 30 to 106 basis points; (3) the significant risks
and costs of continued federal sponsorship include potential taxpayer
liability totalling $1.4 trillion in enterprise obligations,
underinvestment in other economic sectors, and limited competition in
the secondary mortgage market; (4) privatizing GSE would eliminate GSE
funding advantages and tax and registration exemptions, increase
operating costs, increase other business opportunities in the secondary
mortgage market, and decrease their profits, stock values, and market
shares; (5) privatization could prevent regional disparities in the
securities market; (6) privatization would require GSE to be more
dependent on their strategic business decisions and total quality
management; (7) the potential effects of privatization on homebuyers
includes a decrease in taxpayers' risk exposure to enterprise
obligations and an increase in interest rates of about 15 to 35 basis
points; and (8) alternative initiatives such as imposing a mortgage fee
should be studied to limit the level of taxpayers' risk.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-96-134
     TITLE:  Housing Enterprises: Potential Impacts of Severing 
             Government Sponsorship
      DATE:  06/12/96
   SUBJECT:  Government sponsored enterprises
             Federal aid for housing
             Federal agency reorganization
             Mortgage programs
             Federal corporations
             Privatization
             Mortgage-backed securities
             Economic analysis
             Mortgage loans
             Government guaranteed loans