United States Government Publishing Office publisher pbl distributor dst United States Government Accountability Office General Government Division author aut Government Organization text government publication eng GAOREPORTS Legislative Agency Publications gao legislative 2010-08-12 U.S. Government Printing Office 1998-03-11 monographic deposited born digital 93 p. GA 1.13:GGD-98-48 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-98-48 P0b002ee1803858da f:gg98048 DGPO 2010-08-12 2011-03-28 GAOREPORTS-GGD-98-48 machine generated eng fdlp REPORT GAOREPORTS-GGD-98-48 GGD-98-48 Government sponsored enterprises Mortgage programs Financial management Arbitrage Securities Investments Federal corporations Agency missions Farm Credit System Letter Report GGD

Pursuant to a congressional request, GAO reviewed the nonmortgage investment activities at 3 government-sponsored enterprises (GSEs)-- the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae), and the Federal Agricultural Mortgage Corporation (Farmer Mac)--focusing on the: (1) enterprises' legal authority for making nonmortgage investments and federal regulatory oversight of that activity; (2) relationship between nonmortgage investment policies and practices and missions of the enterprises; and (3) extent to which the enterprises have undertaken nonmortgage investments for arbitrage profits--using the funding advantage from government sponsorship to purchase nonmortgage investments that generate profits.<p/>GAO noted that: (1) legally, the enterprises have broad investment authority; (2) to date, regulatory oversight activities for the three enterprises have focused on whether nonmortgage investments are safe and sound and not on whether the nonmortgage investment policies and practices are mission-related; (3) the Department of Housing and Urban Development has not developed criteria to determine if nonmortgage investments are consistent with enterprise charter purposes; (4) in October 1997, the Farm Credit Administration (FCA) indicated that it did not have concerns that Farmer Mac's nonmortgage investment activity is inconsistent with its charter mission, but FCA also stated that the debt issuance strategy associated with the investments is intended to be temporary and to develop over a reasonable period of time; (5) therefore, according to FCA, its position could change if over time evidence does not show that such investments play a role in helping Farmer Mac achieve its mission; (6) enterprises have invested in nonmortgage assets to varying degrees with somewhat different rationales for how these investments further their charter purposes; (7) each enterprise has an investment policy that specifies permissible credit ratings, maturities, and concentration limits and describes the relationship of investments to earnings and to achievement of the enterprise's mission; (8) Freddie Mac officials indicated that its nonmortgage investments have been held for cash management purposes and as an investment vehicle, which could make capital available to help fund future anticipated demand for residential mortgages; (9) the relationship between longer term nonmortgage investments and the enterprises' mission goals is not always clear, because long term nonmortgage investments may not facilitate liquidity in the residential mortgage market as well as short-term investments; (10) however, it is clear that nonmortgage investments generate arbitrage profits; (11) in its analysis, GAO found that the various nonmortgage investments fall along a continuum representing the degree to which they facilitate liquidity in the residential mortgage market and thus are more clearly related to the enterprises' missions; and (12) GAO's review of compensation practices and board member responsibilities at the enterprises suggests that individual incentives to generate corporate profits are structured in a manner that is fairly typical of major corporations and financial institutions without federal charters limiting their activities. https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-98-48/html/GAOREPORTS-GGD-98-48.htm https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-98-48/pdf/GAOREPORTS-GGD-98-48.pdf GAO/GGD-98-48 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-98-48 Letter Report GAO/GGD-98-48; Government-Sponsored Enterprises: Federal Oversight Needed for Nonmortgage Investments; Government sponsored enterprises Mortgage programs Financial management Arbitrage Securities Investments Federal corporations Agency missions Farm Credit System Title 12 Section 2279aa-11(a)(3)(c) 12 U.S.C. 2279aa-11(a)(3)(c) Public Law 102-550