Expanded powers, resources and efficiency for housing regulators are things the General accounting Office would like to see from a proposed merger of the Federal Home Loan Bank and the Office of Federal Housing Enterprise Oversight, and a report it issued Dec. 9 could have Washington policy makers considering it.
Regulation of Fannie Mae. Freddie Mac and the Federal Home Loan Bank system "could be done more effectively by a single independent regulator," the report said. It suggested the new Office of Federal Housing Enterprise Oversight, which has just established itself in the Office of Thrift Supervision headquarters in Washington. Such consolidation of the FHLB and the new regulator of Fannie and Freddie could result in better regulation at less cost, the Gao said.
The GAO report, Federal Home Loan Bank System Reforms Needed to Promote Its Safety, Soundness and Effectiveness, is one of the last of several reports examining the need for FHLB reform requested by Congress. Similar reports have been sought from the Congressional Budget Office, the Department of Housing and Urban Development, the Federal Housing Finance Board and the FHLB and its shareholders. The HUD report has yet to be released.
The report analyzes and discusses the safety and soundness of the FHLB system and suggests that if the two entities are merged. the OFHEO be given the authority to remove Fannie Mae or Freddie Mac officers under specified conditions. The FHLB already has that power, as do most regulating agencies, the report said.
The OFHEO had no immediate response.
The proposed merger would have some benefits, but may also create possible pitfalls. These include:
* Not Too Close. Not Too Far. The report suggested that FHLB would benefit from OFHEO's current arms-length regulating structure because OFHEO doesn't involve itself in managing Fannie or Freddie, but warned that difficulty could stem from the fact that OFHEO's future may depend on the continued existence of those agencies.
* A Household Word in Congress. Congressional and administration awareness was another point raise by the report. Inadequate prominence could make it more difficult for a GSE regulator to raise safety and soundness concerns to Congress and the administration in a timely manner. A combined regulator of all housing GSEs have more prominence, it said, than two individual entities.
* Spread the Overhead. Combining FHLB and OFHEO would spread the overhead of administrative staff, examiners, financial analysts, attorneys and an inspector general. The net result, the report said, should be lower costs than would be the case with two separate regulators. Merging the agencies would also cause a cross-pollination of housing regulatory skills. techniques and experiences.
