FEDERAL

Section 2: FHFA and GSE Operations
Overview
In July 2008, HERA created FHFA to oversee
vital components of our nation’s secondary
mortgage market. 7 FHFA is responsible for the
effective supervision, regulation, and housing
mission oversight of Fannie Mae, Freddie Mac, the
FHLBanks, and the FHLBanks’ Office of Finance to
promote their safety and soundness and to support
housing finance, affordable housing, and a stable and
liquid market. 8
In this section, we provide an overview of FHFA and
its relationship with the GSEs; a brief discussion of
the GSEs’ business models and the primary reasons
for their improved financial results; and a summary of
selected FHFA and GSE activities.
FHFA and the Enterprises
Under HERA, FHFA was appointed conservator of
the enterprises on September 6, 2008, and it serves
as their regulator and conservator. As regulator, the
agency’s mission is to ensure the enterprises operate
in a safe and sound manner and that their operations
and activities contribute to a liquid, efficient,
competitive, and resilient housing finance market. 9 As
conservator, the agency seeks to conserve and preserve
enterprise assets.
FHFA accomplishes its mission by performing
onsite examinations of the enterprises; coordinating
congressional, public, and consumer inquiries;
assisting the enterprises with foreclosure prevention
actions; and developing and implementing a
strategic plan for the future of the enterprises’
conservatorships. 10
The enterprises were chartered by Congress to
provide stability and liquidity in the secondary
market for home mortgages. They fulfill this charter
by purchasing residential loans from loan originators
that can use the sales proceeds to make additional
loans.
Under HERA, the enterprises receive financial
support from Treasury to prevent their liabilities from
exceeding their assets, subject to a cap. 11
FHFA and the Enterprises’ Role in Housing
Finance
As the regulator of the enterprises, FHFA has a
statutory responsibility to ensure that they operate
in a safe and sound manner and that their activities
support a stable and liquid housing finance market. 12
As Figure 10 (see page 39) illustrates, the
enterprises support the nation’s housing finance
system by providing liquidity to the secondary
mortgage market. Liquidity is created when the
enterprises purchase mortgages that lenders—such
as banks, credit unions, and other retail financial
institutions—originated for homeowners.
These mortgages are securitized by pooling and
packaging them into MBS and are either sold or
kept by the enterprises as an investment. As part of
this process, the enterprises—for a fee—guarantee
payment of principal and interest on the mortgages.
Historically, the enterprises have benefited from an
implied guarantee that the federal government
would prevent default on their financial obligations,
and the enterprises assumed dominant positions in
the residential housing finance market. 13
38 Federal Housing Finance Agency Office of Inspector General