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

The Office of Federal Housing Enterprise Oversight (OFHEO) was the regulatory body that previously oversaw Fannie Mae and Freddie Mac until the two government-sponsored enterprises (GSE) entered into conservatorship in 2008. The Federal Housing Finance Agency (FHFA) replaced the office following the passage of the Housing and Economic Recovery Act of 2008.

Key Takeaways

  • The Office of Federal Housing Enterprise Oversight (OFHEO) oversaw Fannie Mae and Freddie Mac until the Federal Housing Finance Agency (FHFA) replaced it in 2008.
  • OFHEO was established as an independent entity within the Department of Housing and Urban Development in 1992.
  • The FHFA absorbed the regulatory authority of the OFHEO and other entities it replaced, including the power to place the housing GSEs into receivership or conservatorship.

Understanding Office of Federal Housing Enterprise Oversight (OFHEO)

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.

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.

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

The Conservator Role

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. 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.

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.

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

  1. Foster competitive, liquid, efficient, and resilient national housing finance markets that support homeownership and affordable rental housing.
  2. Operate in a safe and sound manner appropriate for the GSEs in conservatorship.
  3. Prepare for the eventual exit of the GSEs from conservatorship.

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. 

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.