Hud - The History Of The Department Of Housing And Urban Development

In 1965 the federal government created a new cabinet agency, the U.S. Department of Housing and Urban Development. This agency became the primary agency responsible for all federal housing programs and policy. FHA, FNMA, and certain other programs, were placed under the auspices of HUD, although they continued to have their own identities within HUD. Financial oversight of both agencies, however, was the responsibility of the Secretary of Housing and Urban Development.

In 1968 FNMA was partially privatized. It was designated as a Government Sponsored Enterprise (GSE), a status it still retains. This status means that the firm is owned by shareholders, but that the federal government has significant control over the leadership and policies of the firm. In particular, the CEO and one-third of the board of directors are appointed by the President of the United States and subject to Congressional confirmation. Further, the federal government has the right to require the GSE to undertake certain missions that are in the public interest, even if they are not necessarily profit-maximizing for, or even in the interests of, the shareholders.

The conversion of Fannie Mae to GSE status came with a renewed mandate for it to make a secondary market for mortgage loans. At the same time, the federal government created a new agency within HUD called the Government National Mortgage Association (GNMA, or Ginnie Mae) which was tasked with creating and maintaining a secondary market for FHA-insured loans. Financial oversight of these two entities primarily rested with HUD. In fact, Fannie Mae’s charter specifically exempted it from many of the securities regulations that the SEC placed on other private firms.

In 1970 Congress created another GSE, the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac), to compete with Fannie Mae. Freddie Mac was originally placed under the regulatory mandate of the Federal Home Loan Bank Board, but in 1990 was also brought in under HUD’s regulatory mandate. Freddie Mac’s federal charter is nearly identical to Fannie Mae’s, and the two companies have always been similar in both operations and their economics.

By: Linda Kinyo

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