Housing Bubble
OFHEO Study on On systemic risk
WASHINGTON, D.C. — Armando Falcon, Jr., Director of the Office of Federal Housing Enterprise Oversight (OFHEO), safety and soundness regulator for Fannie Mae and Freddie Mac (the Enterprises), today addressed the Bond Market Association and discussed an OFHEO report on systemic risk, among other topics.
“Fannie Mae and Freddie Mac are very strong financial institutions today, and the possibility of either Enterprise failing or contributing to a financial crisis is remote. OFHEO employs examinations, a strong risk-based capital test and other tools to reduce the possibility of systemic risk,” said Director Falcon. “However, in the unlikely situation that an Enterprise experienced severe financial difficulties, there could be disruptions to the housing market and financial system given their size and central role in the housing and financial markets.”
The OFHEO Director released the report titled: “Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO.” The report analyzes how the Enterprises operate in the housing finance system and the financial sector, how their activities affect economic activity and how they can affect systemic risk in different circumstances. It also discusses how safety and soundness regulation and market discipline of Fannie Mae and Freddie Mac can reduce their risk of serious loss or failure, thereby limiting the potential of systemic risk.
