Thank you, Mr. Chairman.
As our economy moves towards a recovery in the face of the worldwide economic downturn, the housing sector has been providing Americans with a much-needed boost for the last several years. Mortgage rates have been at all-time lows, enabling families to access the equity in their homes. At the same time, many new families have been able to realize the American dream of homeownership. And as you all know, the positive effects of homeownership reach every level of society by strengthening communities and building financial independence.
Because of the importance of homeownership, we must ensure that there is proper oversight over the different components of the housing market. Over 30 years ago Congress chartered the Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, known as Freddie Mac, to create a secondary mortgage trading market. By doing this, we improved the safety and security of home mortgage markets by expanding the availability of funds for home purchasers.
To improve the market, these Government Sponsored Enterprises, known as GSEs, were granted special privileges not available to other private-sector firms. In addition to an exemption from SEC regulation, neither company is subject to state regulation or income taxation. Besides these direct benefits, Fannie Mae and Freddie Mac have a wide variety of privileges that add up to what many view is an implicit government guarantee. In other words, investors anticipate that the Department of the Treasury would intervene rather than allow either company to fail.
In 2001, the Congressional Budget Office estimated that the federal charter translates into a $10.6 billion annual subsidy. As a result, many Americans have achieved the dream of affordable homeownership. Last month we all learned that Freddie Mac has been making questionable accounting decisions over the past few years. According to some reports, these decisions were made in an attempt to demonstrate continuing growth for the confidence of investors. I am concerned that this practice was a violation of generally accepted accounting practices.
In 1992 Congress created the Office of Federal Housing Enterprise Oversight to oversee Fannie Mae and Freddie Mac. I would like to thank the Director of that office, Armando Falcon, for joining us today to provide his perspective of what has been occurring at Freddie Mac. In addition, we have asked him to discuss the steps that should be taken to ensure these problems don't occur in the future.
I would also like to thank Chairman Shelby for holding this hearing. This is an issue that commands all of our attention. I believe recent events call for a long hard look to preserve confidence in the secondary mortgage market, which by all accounts is the best in the world.