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Summary of Comments. Other commenters were generally supportive of the Department's proposal. One commenter called for an expansion of the proposal to include tribal service areas and urban living Native Americans. HUD's Determination. HUD evaluated Fannie Mae's recommendation to classify all American Indian and Alaskan Native AIAN areas as underserved areas, without regard to income or minority status, in light of the problems involved in obtaining a mortgage on even the very few higher-income or low minority tribal lands.

Bureau of the Census. HUD's analysis showed that, out of AIAN areas with sufficient population to determine an area median family income, 19 areas, or 6. The 19 areas include some with very low minority concentrations and some with very high median incomes. HUD believes that designating entire tracts or counties that contain qualifying tribal lands as underserved areas is not appropriate. The purpose of the definitional change in underserved areas to include all tribal lands is to focus attention on the mortgage financing needs of Native American communities. By designating the entire county or census tract as underserved by virtue of the presence of tribal lands in a portion of it, this focus is lost.

HUD believes that any geocoding problems arising from this proposal can be resolved. HUD will issue operational guidance on this matter prior to the effective date of this final rule. HUD believes that underserved areas must have relatively fixed definitions—tribal service areas are evolving over time. The underserved areas goal is defined broadly by both geographic and area wide demographic features so that borrowers living in underserved areas benefit from the increased attention paid to lending in such areas as a result of HUD's geographic goal.

In the proposed rule, comments were sought on possible changes to the current metropolitan underserved areas definition to better target underserved areas with higher mortgage denial rates and thereby promote better access to mortgage credit for these areas.

The proposed change would make the underserved areas definition used by the GSEs consistent with the requirements of Federally insured depository institutions under the Community Reinvestment Act CRA. The Department believes the concept has substantial merit, and there was a sizeable group of commenters that supported the concept, at least in part. However, there were a number of commenters, including the GSEs, that said that since the redesignation of census tracts as underserved would be based on data from the Census, and since data from the Census would not be available for a few years, it would not be appropriate to make such a change at this time.

Rather, they suggested that the Department wait until updated information from the Census is available to analyze. The Department agrees that, with more current information to become available from the Census in the near future, the timing is not optimal to make a change in the underserved areas designation. Once information from the Census is available, the Department will determine whether this proposal merits consideration.

Similarly, the proposed rule requested comment on another approach to target high mortgage denial rate areas. The alternative approach would be to increase the minority component required to identify an area as underserved by increasing the requirement from 30 percent to 50 percent minority. Several commenters noted that increasing the minority component of a census tract to qualify as underserved would have a disproportionately negative impact on the Hispanic population. Commenters observed that Hispanic residential living patterns are not as concentrated as those of other minority groups.

In addition, comments were provided suggesting that any changes in this area be considered once data from the Census is available before making a final determination in this regard. The Department has determined that it will obtain and analyze Census data and consider various minority population patterns and their relationship to the availability of mortgage credit before deciding whether this proposal continues to merit consideration.

The proposed rule requested comments on how best to define underserved rural areas, posing questions on whether the underserved rural areas should be identified by census tract or by county. HUD received comments that supported both approaches. Again, the commenters raised the issue of the Census. Consistent with the Department's other determinations regarding significant changes to the definition of underserved areas, HUD will not make any changes at this time in defining underserved rural areas and will wait for the opportunity to analyze the data from the Census. Comments received overwhelmingly supported the Department's proposal to increase the level of the affordable Start Printed Page housing goals.

Both GSEs commented that, while meeting these goals will be a challenge particularly the Underserved Areas Goal , they are committed to doing so. While some commenters, including the GSEs, expressed concern that the market scenarios used by HUD did not adequately consider an economic downturn, those commenters still felt that higher goals levels were appropriate.

This section of the final rule reviews the statutory factors the Department must consider in setting the level of the housing goals, specific comments on the housing goals including the market methodology, and the determination made with regard to the level for each of the housing goals. In establishing the housing goals, FHEFSSA requires the Department to consider six factors—national housing needs; economic, housing and demographic conditions; performance and effort of the GSEs toward achieving the goal in previous years; size of the conventional mortgage market serving the targeted population or areas, relative to the size of the overall conventional mortgage market; ability of the GSEs to lead the industry in making mortgage credit available for the targeted population or areas; and the need to maintain the sound financial condition of the GSEs.

These factors are discussed in more detail in the following sections of this preamble and in the Appendices to this rule. A summary of HUD's findings relative to each factor follows:. National Housing Needs. Analysis and research by HUD and others in the housing industry indicate that there are, and will continue to be in the foreseeable future, substantial unmet housing needs among lower-income and minority families. Data from the American Housing Surveys demonstrate that there are substantial unmet housing needs among lower-income families. Many households are burdened by high homeownership costs or rent payments and will likely continue to face serious housing problems, given the dim prospects for earnings growth in entry-level occupations.

A Brief History of Fannie Mae and Freddie Mac

Affordability problems were even more common among renters, with 40 percent paying more than 30 percent of their income for rent in Despite the growth during the s in affordable housing lending, disparities in the mortgage market remain, with certain minorities, particularly African-American and Hispanic families, lagging the overall market in rate of homeownership. In addition, there is evidence that the aging stocks of single family rental properties and small multifamily properties with units, which play a key role in lower-income housing, have experienced difficulties in obtaining financing.

The ability of the nation to maintain the quality and availability of the existing affordable housing stock and to stabilize neighborhoods depends on an adequate supply of affordable credit to rehabilitate and repair older units. Many younger, minority, and lower-income families did not become homeowners during the s due to the slow growth of earnings, high real interest rates, and continued house price increases. Over the past several years, economic expansion, accompanied by low interest rates and increased outreach on the part of the mortgage industry, has improved affordability conditions for lower-income families.

Between and , record numbers of lower-income and minority families purchased homes. First time homeowners have become a major driving force in the home purchase market over the past five years. Thus, the s have seen the development of a strong affordable lending market. Despite the growth of lending to minorities, disparities in the mortgage market remain. For example, African-American applicants are still twice as likely to be denied a loan as white applicants, even after controlling for income.

Since the early s, the multifamily mortgage market has become more closely integrated with global capital markets, although not to the same degree as the single family mortgage market. Loans on multifamily properties are still viewed as riskier by some than mortgages on single family properties. Property values, vacancy rates, and market rents of multifamily properties appear to be highly correlated with local job market conditions, creating greater sensitivity of loan performance to economic conditions than may be experienced for single family mortgages.

There is a need for an on-going GSE presence in the multifamily secondary market both to increase liquidity and to further affordable housing efforts. The potential for an increased GSE presence is enhanced by the fact that an increasing proportion of multifamily mortgages are now originated in accordance with secondary market standards.

The GSEs can play a role in promoting liquidity for multifamily mortgages and increasing the availability of long-term, fixed rate financing for these properties. Increased GSE presence would provide greater liquidity to lenders, i. It appears that the financing of small multifamily rental properties with units, where a substantial portion of the nation's affordable housing stock is concentrated, have been adversely affected by excessive borrowing costs. Multifamily properties with significant rehabilitation needs also appear to have experienced difficulty gaining access to mortgage financing.

Moreover, the flow of capital into multifamily housing for seniors has been historically characterized by a great deal of volatility. Economic, Housing, and Demographic Conditions.

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Studies indicate that changing population demographics will result in a need for the mortgage market to meet nontraditional credit needs and to respond to diverse housing preferences. The U. In particular, the continued influx of immigrants will increase the demand for rental housing while those who immigrated during the s will be in the market to purchase owner-occupied housing. The aging of the baby-boom generation and the entry of the small baby-bust generation into prime home buying age is expected, however, to result in a lessening of housing demand.

To Be Announced (TBA)

Non-traditional households have, and will, become more important as overall household formation rates slow down. With later marriages, divorce, and non-traditional living arrangements, the fastest growing household groups have been single parent and single person households. There will also be increased credit needs from new and expanding market sectors, such as manufactured housing and housing for senior citizens. These demographic trends will lead to greater diversity in the homebuying market, which, in turn, will require greater adaptation by the primary and secondary mortgage markets.

As a result of the above demographic forces, housing starts are expected to average 1. However, the GSEs' mortgage purchases continue to lag the overall market in providing financing for affordable housing to low- and moderate-income families, underserved borrowers and their neighborhoods, indicating that there is more that the GSEs can do to improve their performance. In addition, a large percentage of the lower-income loans purchased by the GSEs have relatively high down payments, which raises questions about whether the GSEs are adequately meeting the needs of those lower-income families who have little cash for making large down payments but can fully meet their monthly payment obligations.

The discussion of the performance and effort of the GSEs toward achieving the housing goals in previous years is specific to each of the three housing goals.

Fannie Mae, Sallie Mae, and Freddie Mac: Who are These People?

This topic is discussed below and further details are provided in the Appendices to this rule. The Department's analyses indicate that the size of the conventional, conforming market relative to each housing goal is greater than earlier estimates based mainly on HMDA data for through used in establishing the housing goals.

The discussion of the size of the conventional mortgage market serving targeted populations or areas relative to the size of the overall conventional, conforming mortgage market is specific to each of the three housing goals. The Department's estimate of the size of the conventional mortgage market is discussed below and further details are provided in the Appendices to this rule. Research concludes that the GSEs have generally not been leading the market, but have lagged behind the primary market in financing housing for lower-income families and housing in underserved areas.

However, the GSEs' state-of-the-art technology, staff resources, share of the total conventional, conforming market, and their financial strength suggest that the GSEs have the ability to lead the industry in making mortgage credit available for lower-income families and underserved neighborhoods. The legislative history of FHEFSSA indicates Congress's strong concern that the GSEs need to do more to benefit low- and moderate-income families and residents of underserved areas that lack access to credit. While leadership may be exhibited through the GSEs' introduction of innovative products, technology, and processes and through establishing partnerships and alliances with local communities and community groups, leadership must always involve increasing the availability of financing for homeownership and affordable rental housing.

Thus, the GSEs' obligation to lead the industry entails leadership in facilitating access to affordable credit in the primary market for borrowers at different income levels and housing needs, as well as for underserved urban and rural areas. While the GSEs cannot be expected to solve all of the nation's housing problems, the efforts of Fannie Mae and Freddie Mac have not matched the opportunities that are available in the primary mortgage market.

Although the GSEs were directed by Congress to lead the mortgage finance industry in making mortgage credit available for low- and moderate-income families, depository and other lending institutions have been more successful than the GSEs in providing affordable loans to lower-income borrowers and in historically underserved neighborhoods.

In for example, very low-income borrowers accounted for 9. Similarly, mortgage purchases on properties located in underserved areas accounted for Between and , Fannie Mae improved its affordable lending performance and made progress toward closing the gap between its performance and that of the overall mortgage market. During that period Freddie Mac showed less improvement and, as a result, did not make as much progress in closing the gap between its performance and that of the overall market for home loans.

What's the Difference between Fannie Mae and Freddie Mac?

However, during , Freddie Mac's purchases of goals qualifying home loans increased significantly relative to Fannie Mae's purchases and, as a result Freddie Mac now matches or out-performs Fannie Mae in several affordable lending categories. For example, during , very low-income borrowers accounted for Similarly, mortgages on properties in underserved census tracts accounted for The extent to which Freddie Mac has closed its performance gap relative to depositories and the overall market will be clarified once HUD has the opportunity to analyze HMDA data for metropolitan areas. The Department estimates the GSEs provided financing for 55 percent of units financed by conventional, conforming mortgages in While the GSEs accounted for about 68 percent of the owner-occupied units financed in the primary market in that year, their role was much less in the market for mortgages on rental properties.

Thus, the GSEs' presence in the rental mortgage market was well under half their presence in the market for mortgages on Start Printed Page single family owner-occupied properties. Within the rental category, GSE purchases have accounted for 29 percent of the multifamily dwelling units that were financed in The GSEs have yet to play a major role in financing mortgages for rental units in single family rental properties those with at least one rental unit and no more than four units in total , where their market share was only 19 percent.

As noted above, the GSEs continue to lag the overall conforming, conventional market in providing affordable home purchase loans to lower-income families and for properties in underserved neighborhoods. Additionally, a large percentage of the lower-income loans purchased by both GSEs have relatively high down payments, which raises questions about whether the GSEs are adequately meeting the needs of those lower-income families who find it difficult to raise enough cash for a large down payment.

Also, while rental properties are an important source of low- and moderate-income rental housing, they represent only a small portion of the GSEs' business. The appendices to this rule provide more information on HUD's analysis of the extent to which the GSEs have lagged the mortgage industry in funding loans to underserved borrowers and neighborhoods.

From this analysis of the GSEs' performance in comparison with the primary mortgage market and with other participants in the mortgage markets, it is clear that the GSEs need to improve their performance relative to the primary market of conventional, conforming mortgage lending. The need for improvements in the GSEs' performance is especially apparent with respect to the single family and multifamily rental markets. Further discussion of this issue is found in Appendix A. There are several reasons the Department, having considered all the statutory factors, is increasing the level of the housing goals.

Market Needs and Opportunities. First, the GSEs appear to have substantial room for growth in serving the affordable housing mortgage market. For example, as discussed above, the Department estimates that the two GSEs' mortgage purchases accounted for 55 percent of the total single family and multifamily conventional, conforming mortgage market during In contrast, GSE purchases comprised only 44 percent of the low- and moderate-income mortgage market in , 46 percent of the underserved areas market, and, a still smaller, 33 percent of the special affordable market.

As discussed above, the GSE presence in mortgage markets for rental properties, where much of the nation's affordable housing is concentrated, is far below that in the single family owner-occupied market. The GSEs' role in the mortgage market varies somewhat from year to year in response to changes in interest rates, mortgage product types, and a variety of other factors. Underlying market trends, however, show a clear and significant increase in the GSEs' role.

Specifically, OFHEO estimates that the share in dollars of single family mortgages outstanding accounted for by mortgage-backed securities issued by the GSEs and by mortgages held in the GSEs' portfolios has risen from 31 percent in to 42 percent in In absolute terms, the GSEs' presence has grown even more sharply, as the total volume of single family mortgage debt outstanding has increased rapidly over this period.

The GSEs have indicated that they expect their role in the mortgage market to continue to increase in the future, as they develop new products, refine existing products, and enter markets where they have not played a major role in the past. The Department's housing goals for the GSEs also anticipate that their involvement in the mortgage market will continue to increase. There are a number of segments of the multifamily, single family owner, and single family rental markets that the GSEs have not tapped in which the GSEs might play an enhanced role thereby increasing their shares of targeted loans and their performance under the housing goals.

Six such areas are discussed below. One sector of the multifamily mortgage market where the GSEs could play an enhanced role involves loans on small multifamily properties—those containing units. These loans account for 39 percent of the units in recently mortgaged multifamily properties, according to the Survey of Residential Finance. However, the GSEs typically purchase relatively few of these loans. HUD estimates that the GSEs acquired loans financing only three percent of units in small multifamily properties originated during This is substantially less than the GSEs' presence in the overall multifamily mortgage market, which the Department estimates was 29 percent in Increased purchases of small multifamily mortgages would make a significant contribution to performance under the goals, since the percentages of these units qualifying for the income-based housing goals are high—in , 95 percent of units backing Fannie Mae's multifamily mortgage transactions qualified for the Low- and Moderate-Income Housing Goal, with a corresponding figure of 90 percent for Freddie Mac.

That year, 43 percent of units backing Freddie Mac's multifamily transactions qualified for the Special Affordable Housing Goal, with a corresponding figure of 56 percent for Fannie Mae. Another multifamily market segment holding potential for expanded GSE presence involves properties with significant rehabilitation needs. Multifamily rehabilitation loans accounted for only 0. These loans accounted for 1. Studies show that single family rental properties are a major source of affordable housing for lower-income families, yet these properties are only a small portion of the GSEs' overall business.

HUD estimates that approximately , mortgages were originated on owner-occupied single family rental properties in These mortgages financed a total of , units—the owners' units plus an additional , rental units. There is ample room for an enhanced GSE role in this goal-rich market. Thus, significant gains could be made in performance on all of the goals if Fannie Mae and Freddie Mac played a larger role in the market for mortgages on single family owner-occupied rental properties two to four units. While the GSEs have traditionally played a minimal role in financing manufactured housing, they have recently stepped up their activity in this market.

However, even with their increased level of activity, the GSEs' purchases probably accounted for less than 15 percent of total loans on manufactured homes in —a figure well below their overall market presence of 55 percent. There is ample room for an enhanced GSE role in this market, with its high concentration of goals qualifying mortgage loans.

In , for loans reported by 21 manufactured housing lenders that are required by HMDA to report loan data , 76 percent qualified for the Low- and Moderate-Income Housing Goal in , 42 percent qualified for the Special Affordable Housing Goal, and 47 percent qualified for the Geographically Targeted Goal. Thus, manufactured housing has significantly higher shares of goal qualifying loans than all single family owner-occupied properties, though purchases of these loans are not quite as goal-rich as loans on multifamily properties.

In general, goal performance could be enhanced substantially if the GSEs were to play an increased role in the manufactured housing mortgage market. Based on HMDA data for subprime lenders, the Department estimates that 58 percent of the units financed by subprime loans qualified for the Low- and Moderate-Income Housing Goal in , 29 percent qualified for the Special Affordable Housing Goal, and 45 percent qualified for the Geographically Targeted Goal. Freddie Mac has estimated that 10 to 30 percent of subprime borrowers would qualify for a prime conventional loan. Fannie Mae Chairman Franklin Raines has stated that half of all mortgages in the high cost subprime market are candidates for purchase by Fannie Mae.

Both Fannie Mae and Freddie Mac recently introduced programs aimed at borrowers with past credit problems that would lower the interest rates for those borrowers that were timely on their mortgage payments. However, there may be ample room for further enhancement of both GSEs' roles in the A-minus market. A larger role by the GSEs might help standardize mortgage terms in this market, possibly leading to lower interest rates. Over the past five years, depository institutions banks and thrifts have been expanding their affordable loan programs and, as a result, have originated substantial numbers of loans to low-income and minority borrowers and to low-income and predominantly minority neighborhoods, under the incentive of the Community Reinvestment Act CRA , 25 which requires many depository institutions to help meet the credit needs of their communities.

As the GSEs noted in their comments, some of these loans, when originated, may not have met the GSEs' underwriting guidelines. Given its enormous size, the CRA market segment provides an opportunity for Fannie Mae and Freddie Mac to expand their affordable housing financing programs.

The Department recognizes that purchasing these loans may present some challenges for the GSEs. However, it appears these loans are beginning to be purchased by GSEs after the loans have seasoned and through various structured transactions. As explained in Appendix A, Fannie Mae's purchases of seasoned loans improved its performance on the housing goals in and Seasoned loan purchases did not have a similar impact in With billions of dollars worth of CRA loans in bank portfolios, the early experience of Fannie Mae suggests that purchasing these loans could be an important strategy for reaching the housing goals and provide needed liquidity for a market that is serving the needs of low-income and minority homeowners.

The GSEs have an opportunity to play a leadership role in making mortgage credit more widely available to African American and other minority borrowers, who represent yet another underserved market. In , for example, African American borrowers accounted for five percent of conventional, conforming single family mortgage loans originated in metropolitan areas, as shown in Appendix A.

Hispanic borrowers accounted for 5. Market Share Higher than Goal Levels. The shares of the mortgage markets that would qualify for each of the housing goals are higher than the goal levels as they were set through Specifically, the Low- and Moderate-Income Housing Goal for through was 42 percent, but the market share for low- and moderate-income mortgages has been estimated at percent. The Geographically Targeted Goal for through was 24 percent, but the estimated market share of geographically targeted mortgages has been estimated at percent.

The Special Affordable Housing Goal for through was 14 percent, but the estimated special affordable market share is percent. HUD's analysis indicates that the goal levels established in the final rule are reasonable and feasible and that its market estimates reflect significantly more adverse economic environments than have recently existed. Reasons for the remaining disparity between the GSE housing goals established in this final rule and the respective shares of the overall mortgage market qualifying for each of the housing goals are discussed below.

See Appendix D for further discussion of these issues. Higher housing goals are needed to assure that both Fannie Mae and Freddie Mac increase their purchases of Start Printed Page single family mortgages for lower-income families. The GSEs lag behind depository institutions and other lenders in the conventional, conforming market in providing mortgage funds for underserved families and their neighborhoods.

Numerous studies have concluded that Fannie Mae and Freddie Mac have room to increase their purchases of affordable loans originated by primary lenders. The single family affordable market, which had only begun to grow when HUD set housing goals in , has now established itself with seven straight years of solid performance. Current projections suggest that the demand for affordable housing by minorities, immigrants, and non-traditional households will be maintained in the post period, leading to additional opportunities for the GSEs to support mortgage lending benefiting families targeted by the housing goals.

Market Disparities. Despite the recent growth in affordable lending, there are many groups who continue to face problems obtaining mortgage credit and who would benefit from a more active and targeted secondary market. Homeownership rates for lower-income families, certain minorities, and central city residents are substantially below those of other families, and the disparities cannot simply be attributed to differences in income. Immigrants represent a ready supply of potential first-time home buyers and need access to mortgage credit. Special needs in the market, such as rehabilitation of older two- to four-unit properties, could be helped by new mortgage products and more flexibility in underwriting and appraisal guidelines.

The GSEs, along with primary lenders and private mortgage insurers, have been making efforts to reach out to these underserved portions of the markets. However, more needs to be done, and the proposed increases in the housing goals are intended to encourage additional efforts by Fannie Mae and Freddie Mac. Impact of Multifamily Mortgage Purchases. When the goals were established in December , Freddie Mac had only recently reentered the multifamily mortgage market, after an absence from the market in the early s.

Freddie Mac's limited role in the multifamily market was a significant constraint when HUD set the level of the housing goals for through While Freddie Mac has made progress in recent years in significantly increasing its multifamily mortgage purchases, Freddie Mac's smaller multifamily portfolio relative to that of Fannie Mae has meant fewer refinance opportunities from within its portfolio. Accordingly, the Department is providing Freddie Mac with a temporary adjustment factor for purchases of mortgages in multifamily properties with more than 50 units under the goals as it continues to increase its multifamily mortgage purchases, as discussed in more detail, below.

A wide variety of quantitative and qualitative indicators demonstrate that the GSEs' have ample, indeed robust, financial strength to improve their affordable lending performance. This financial strength provides the GSEs with the resources to lead the industry in making mortgage financing available for families and neighborhoods targeted by the housing goals. This section discusses the relationship between the housing goals, the GSEs' performance and HUD's market estimates; and identifies key segments of the affordable market in which the GSEs have had only a weak presence.

Understanding exactly how the secondary mortgage market works can be difficult, particularly because many homebuyers don't know it even exists. Here are the three main steps in the moving a mortgage through the secondary market:.

The past 20 years have seen drastic changes in the US housing market and this volatility has impacted the secondary mortgage market as well. Home prices in the US housing market reached an all-time high in , just before the recession began, which caused home sales as well as home values to begin falling dramatically in As a result of these changes, many private equity investment institutions in the U. Without these investors buying loans, lenders had fewer loans to offer and buyers had fewer options.

In order to bolster the US housing market and the overall economy, Fannie Mae and Freddie Mac became the primary buyers in the secondary market. This kept investors interested, as loans backed by Fannie and Freddie are considered to be safe investments due to their government support. Another layer of protection for investors is offered in the form of the government agency Ginnie Mae The Government National Mortgage Association.

A part of the Department of Housing and Urban Development, Ginnie Mae guarantees the timely payment of mortgage bonds that include federally insured or guaranteed loans, such as FHA mortgages. Fannie and Freddie guarantee loans to secondary market investors, while Ginnie Mae guarantees mortgage-bond payments. For example, if a borrower defaults on their mortgage, Fannie and Freddie are responsible for the losses on the loans they guarantee to investors, while Ginnie Mae is financially responsible for the bond payments to the holders of Ginnie Mae securities.

The relationships may seem complicated, but the ultimate goal of each of these three institutions is clear:. While many consumers never come in direct contact with Fannie Mae and Freddie Mac, these two important GSEs do ultimately provide buyers with important benefits through their local banks and other lenders. Some of these benefits include:. According to American Banker, HUD also was looking at the possibility that the GSEs' underwriting policies had resulted in discrimination against blacks. Scrutiny came from another direction as well in FM Watch, a coalition of financial services companies, launched a web page, Truth Watch, to report inconsistencies in messages from Fannie Mae and Freddie Mac directed at Congress and the public versus messages targeting Wall Street.

The web page was part of a lobbying effort by FM Watch geared toward influencing policymakers considering increasing the level of oversight on Freddie Mac and Fannie Mae. In October , Freddie Mac announced six voluntary commitments relating to risk and capital management and information disclosure practices. They included monthly interest-rate disclosures, forward-looking credit risk sensitivity disclosures, and periodic issuance of publicly traded, externally rated subordinated debt.

Although lauded by many on Capitol Hill, on both sides of the aisle, the effort did not put an end to GSE bashing, especially in the light of their ever expanding control of the secondary mortgage market. The pair would hold nearly one-third of the multifamily financing market by the end of the year. Finally, the year marked Freddie Mac's 30th anniversary. The agency had quite a record: an unbroken string of profitable years during its three decades of operation; returns on common equity exceeding 20 percent for 19 consecutive years; and earnings per share growth at a compound rate of 19 percent annually over the past ten years.

Favorable interest rates and a refinance boom had been already fueling the mortgage industry. With home ownership at an all-time high, Freddie Mac planned to capitalize on the positive trend. By increasing distribution of its Loan Prospector tools it hoped to capture even more of the market. Freddie Mac was exploring growing its subprime loans and was testing and adapting underwriting technology to grant mortgages in that segment of the market. Plans to draw in new investments from overseas, particularly the euro market, were already in the works. The GSEs ruffled some feathers again in with their national advertising campaign.

Critics said the GSEs, since they were not allowed to do business directly with the consumer, should not be targeting them in their advertising. The GSEs countered that their advertising was intended to educate consumers about the mortgage process. Advertisements made in trade magazines were geared toward product sales, and those in financial magazines were to draw investors. Freddie Mac also said it needed to counter the negative campaigns against GSEs and to inform stockholders of its activities.

While critics abounded, the GSEs were credited with helping to boost home ownership levels from 64 percent to 68 percent over the last decade, according to the Financial Times in November In addition, while other segments of the economy faltered in , the U. The lowest interest rates in three decades and the attractiveness of real estate for investment purposes also helped to keep the market strong. Freddie Mac and Fannie Mae themselves benefited from the charged market, ranking among the most profitable companies in the United States.

Their stunning success led to yet another wave of concern by some over their influence on the housing market. Banking system highly dependent on Fannie- and Freddie-issued bonds and that taxpayers would be on the hook for a bail-out that would dwarf the savings and loans scandal of the s," wrote Paul Taylor in the Financial Times. Concerns such as this led to an agreement under which Fannie Mae and Freddie Mac would register with the Securities and Exchange Commission for the first time.

Additional calls for further restrictions were likely to come up before Congress down the line.