The Congressional Research Service ("CRS") reviewed the regulatory status of Fannie Mae and Freddie Mac and issues that the government-sponsored enterprises ("GSEs") would face when emerging from conservatorship. In the report, the CRS summarized GSEs' secondary mortgage market activities, including the retention of mortgage credit risk, the transfer of prepayment risk and the liquidity risk in the markets for mortgage-backed securities. The CRS also outlined the priorities of the Federal Housing Finance Agency (or "FHFA"), which regulates the GSEs.
CRS explained that there may not be an easy path to the GSEs exiting conservatorship, as they will still have to achieve their mission-oriented statutory goals. These include obligations to (i) purchase certain percentages of mortgages for families with very low and extremely low incomes, (ii) preserve manufactured, rural and affordable housing, and (iii) make cash contributions to the Housing Trust Fund and the Capital Magnet Fund.
CRS cautioned that the GSEs' ability to maintain capital has not been observed under different interest rate, housing market and business cycle environments. As a result, predicting the GSEs' financial condition under the recently imposed capital regulatory framework is a "challenge," the research service said.
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