Ofheo

Key Takeaways

• OFHEO was an independent entity within HUD created in 1992.
• The FHFA replaced OFHEO in 2008, overseeing housing GSEs.
• FHFA serves as conservator for Fannie Mae and Freddie Mac.
• The FHFA absorbed OFHEO’s regulatory authority over housing GSEs.
• FHFA works to ensure safe, sound, and competitive housing finance markets.12

What Is the Office of Federal Housing Enterprise Oversight (OFHEO)?

The Office of Federal Housing Enterprise Oversight (OFHEO) was the regulator responsible for the financial safety, soundness, and capital adequacy of Fannie Mae and Freddie Mac, which supported a stable national housing finance system.

It operated as an independent office within HUD starting in 1992, then its functions moved to the Federal Housing Finance Agency (FHFA) under the Housing and Economic Recovery Act of 2008, as Fannie and Freddie entered conservatorship during the financial crisis.1

How the OFHEO Ensured Financial Safety for Housing Enterprises

The Office of Federal Housing Enterprise Oversight (OFHEO) worked to ensure the capital adequacy and financial safety of the two housing GSEs, Fannie Mae and Freddie Mac. The OFHEO was established as an independent entity within the Department of Housing and Urban Development (HUD) by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.1

OFHEO's mission was to promote housing and a robust national housing finance system by ensuring the safety and soundness of Fannie and Freddie. One way the OFHEO did this was by setting annual conforming loan limits. In 2008, the OFHEO (along with the Federal Housing Finance Board and other functioning divisions) was abolished to create the FHFA.1

The FHFA absorbed the regulatory authority of the entities it replaced, including the power to place the housing GSEs into receivership or conservatorship.2 Other GSEs include the Federal Home Loan Banks and Federal Farm Credit Banks, among others.34

The FHFA's Role as Conservator for Fannie Mae and Freddie Mac

The FHFA has served as conservator of Fannie Mae and Freddie Mac since 2008. This allowed government intervention in response to financial pressures from the deterioration of the housing market during the Great Recession. Without this intervention, Fannie and Freddie Mac could not meet their missions.5 Though the U.S. government does not explicitly guarantee the housing GSEs, many investors assume there exists an implicit guarantee that the government will not allow them to fail.6

Fannie and Freddie's aggregate loans in the secondary market make them among the largest financial institutions in the United States. Their collapse could lead to a severe market downturn, which could cause an economic crisis. Following the 2007-2008 subprime meltdown, Fannie Mae and Freddie Mac received federal assistance to mitigate the economic impact of subprime loan defaults.5

As of 2019, the FHFA is pursuing these three goals in its conservatorship of Fannie and Freddie:

Foster competitive, liquid, efficient, and resilient national housing finance markets that support homeownership and affordable rental housing.

Operate in a safe and sound manner appropriate for the GSEs in conservatorship.

Prepare for the eventual exit of the GSEs from conservatorship.7

Secondary Market and the Federal Home Loan Banking System

The secondary mortgage market trades existing mortgages and mortgage-backed securities. The Federal Home Loan Bank System that FHFA oversees provides funding for the U.S. mortgage markets and financial institutions. It renders a source of financing to member thrift institutions, commercial banks, credit unions, insurance companies, and certified community development financial institutions. These funds facilitate mortgages and asset-liability management, liquidity for short-term needs, and additional funds for housing finance and community development.8

The director of FHFA serves on the Financial Stability Oversight Council, which is charged with identifying risks and responding to emerging threats to the stability of the U.S. financial system.9