The Department of the Treasury's Authority to Regulate GSE Debt: A Legal Analysis
The Department of the Treasury’s Authority to
Regulate GSE Debt: A Legal Analysis
Michael V. Seitzinger
Legislative Attorney
American Law Division
Summary
The Department of the Treasury is developing a more formalized approach for
approving Fannie Mae’s and Freddie Mac’s debt issuances. Although the Department
of the Treasury has traditionally used its approval authority merely to coordinate the
timing of debt issuances, the department may seek to regulate the amount of debt that
Fannie Mae and Freddie Mac may issue. This report analyzes the Department of the
Treasury’s legal authority over Fannie Mae and Freddie Mac and concludes that a court
would likely hold that the department possesses the power to regulate the amount of debt
issued by these two organizations.
I ntr oducti on1
In the wake of accounting scandals involving the Federal Home Loan Mortgage
Corporation (Freddie Mac) and its sister organization the Federal National Mortgage
Association (Fannie Mae) and, more recently, with various housing problems beginning
with the subprime mortgage crisis, Congress has launched efforts concerning the
oversight of Freddie Mac and Fannie Mae.2 Legislative efforts to increase the oversight
of these two entities are still pending. The Department of the Treasury may assert that it
has the power to regulate Fannie and Freddie’s debt issuances more strongly than it has
in the past.3 According to these reports, the Treasury Department would trace this
1 This report was originally written by Nathan Brooks, former legislative attorney, American Law
Division.
2 For information on proposals in the 110th Congress, see CRS Report RL34236, Fannie Mae and
Freddie Mac: Proposals to Regulate Their Mortgage Portfolio Size in the 110th Congress, by N.
Eric Weiss.
3 There are reports indicating that Treasury is considering new debt approval procedures for
Fannie Mae and Freddie Mac. See, e.g., BUDGET OF THE UNITED STATES GOVERNMENT, FISCAL
YEAR 2008: ANALYTICAL PERSPECTIVES, p. 75 (2007); Brian Collins, Treasury Wants GSE
(continued...)
authority to language in Fannie’s and Freddie’s charters. The Fannie Mae charter
provides Fannie Mae the authority to issue obligations “upon the approval of the Secretary
of the Treasury, and have outstanding at any one time obligations having such maturities
and bearing such rate or rates of interest as may be determined by [Fannie Mae] with the
approval of the Secretary of the Treasury.”4 The Treasury Secretary has the same authority
over Freddie Mac’s securities issuances.5
The Treasury Secretary has traditionally, although not exclusively,6 exercised the
approval authority with regard to Fannie’s and Freddie’s debt issuances — not to prevent
them from issuing such debt but, rather, to time such issuances so that they do not conflict
with the Department of the Treasury’s own debt issuances. In other words, the
Department of the Treasury has traditionally acted as a “traffic cop” with regard to Fannie
and Freddie debt issuances as part of an overall effort to coordinate the federal
government’s debt issuances. As mentioned above, however, reports have circulated that
the Treasury Department may seek to exercise its approval authority to regulate the
amount of debt that Fannie and Freddie can issue.7
Analysis
The Supreme Court held in Chevron, Inc. v. Natural Resources Defense Council8
that courts should defer to a reasonable agency interpretation of an ambiguous statute that
the agency is charged with administering. Later cases have clarified the scope of
Chevron. For example, the Chevron deference is available only to interpretations of an
agency to which Congress has delegated the authority to make “rules carrying the force
of law.”9 Generally, then, Chevron deference is warranted for agency interpretations after
formal adjudication or notice-and-comment rulemaking.10 Actions pursuant to less formal
interpretations are “entitled to respect” under an earlier case, Skidmore v. Swift Co.11
Because it is not clear how, or even if, the Treasury Department will issue an
interpretation, we will analyze the strength of the Treasury Department’s reported
proposed interpretation under both Chevron and Skidmore.
3 (...continued)
Review, NATIONAL MORTGAGE NEWS, November 27, 2006, at 1; and David S. Hilzenrath, New
Tack in Mortgage Firm Oversight, WASHINGTON POST, April 30, 2004, at E4.
4 12 U.S.C. § 1719(b).
5 12 U.S.C. § 1455(j).
6 It appears that, in the past, the Treasury Secretary used his authority to prohibit a debt issuance
by Fannie Mae. See, e.g., Fannie Mae Request for Debt Sale Abroad is Denied by Regan, WALL
STREET JOURNAL, April 26, 1983, at 45.
7 See, fn. 3.
8 467 U.S. 837 (1984).
9 United States v. Mead Corp., 533 U.S. 218, 226-227 (2001).
10 See Christensen v. Harris County, 529 U.S. 576, 587 (2000).
11 323 U.S. 134, 140 (1944). For a discussion of the different levels of deference due to agency
interpretations, see Thomas W. Merrill and Kristin E. Hickman, Chevron’s Domain, 89 GEO. L.J.
Chevron Deference. Chevron analysis requires a two-step inquiry. First, the
court must ask if the statute is ambiguous. If not, then the court simply rules according
to the clear meaning of the statute. However, if the statute is ambiguous, the court must
determine whether the agency’s interpretation is reasonable. If the interpretation is
reasonable, the court must then defer to that interpretation. Here, it would seem that the
analysis would end after the first prong. The statute is not ambiguous; it vests approval
authority in the Secretary of the Treasury. The language in both statutes clearly gives the
Treasury Secretary approval authority over Fannie’s and Freddie’s debt issuances. There
appears to be nothing in the statutory language to suggest that this approval authority is
limited to the “traffic cop” role through which the Secretary has traditionally exercised
this power. The statutory language in both Fannie Mae’s and Freddie Mac’s charters
conditions the issuance of debt obligations upon the approval of the Secretary of the
Treasury. The power to approve seems clearly to imply the concomitant power to
disapprove.12 Indeed, the power to approve would be no power at all if an agency did not
have the ability to withhold that approval.
There is one notable Supreme Court case where the Court, faced with clear statutory
language, used superceding congressional and agency action to find ambiguity under the13
first Chevron prong. In FDA v. Brown & Williamson Tobacco Corp., the FDA had
interpreted its statutory mandate to regulate “drugs” and “devices” to give the agency the
power to regulate tobacco. The Supreme Court, however, looked at the FDA’s long
history of disclaiming authority over tobacco and the fact that Congress had legislatively
addressed tobacco regulation separately six times to find a congressional intent contrary
to the agency’s proposed interpretation.14 There appears to be no such history here which
would force a reviewing court to look beyond the language of the statute. Congress has
passed no legislation evincing a different congressional intent from what the language
indicates. Further, Congress has not created a separate regulatory scheme for the
regulation of Fannie’s and Freddie’s debt issuances.
Moreover, unlike the FDA in Brown & Williamson, the Treasury Department has
never disclaimed or receded from its authority to regulate in this area. Although the
department has not generally exercised this authority to stop Fannie and Freddie from
issuing debt, the statutory authority to do so remains. Given that the Treasury Department
has this authority, there appears to be nothing to prevent the department from exercising
it in a different way. As the Supreme Court has held, agencies must be allowed to “adapt
their rules and policies to the demands of changing circumstances.”15
Although it seems doubtful that a court using the Chevron analysis would even get
to the second prong of that analysis, the Treasury Department’s reported proposed
exercise of authority would very likely be legal under Chevron’s second prong. Under
this highly deferential prong, a court must accept an agency’s interpretation so long as that
12 See, e.g., State v. Duckett, 130 S.E. 340 (S.C. 1925) (“Approval implies knowledge and
exercise of discretion after knowledge”); McCarten v. Sanderson, 109 P.2d 1108 (Mont. 1941).
13 529 U.S. 120 (2000).
14 Id. at 137-138.
15 Motor Vehicles Mfrs. Assoc. of the United States, Inc., v. State Farm Mutual Automobile Insur.
Co., 463 U.S. 29, 42 (1983).
interpretation is reasonable, whether or not the court agrees with it. For the same reasons
discussed above, it appears difficult to imagine bases upon which a court would find the
Treasury Department’s reported proposed interpretation here to be unreasonable. If
Congress had wanted to limit the Treasury Department’s approval authority, Congress
could have done so. Because Congress chose instead to use broad language in describing
Treasury’s authority, it follows that a broad interpretation of that authority would likely
be judged to be reasonable.
Skidmore Deference. Although Chevron requires a court to defer to an agency
interpretation of an ambiguous statute, so long as the interpretation is reasonable, an
agency interpretation under Skidmore is merely guidance. The weight of the agency’s
interpretation depends upon a variety of contextual factors, including the thoroughness
evident in the agency’s consideration of the interpretation, the validity of its reasoning,
its consistency with earlier and later pronouncements, “and all those factors which give16
it power to persuade, if lacking power to control.” In essence, under the Skidmore
analysis, the court will determine the statute’s meaning, merely taking into account the
agency’s interpretation as one tool among the many statutory interpretation tools used by
courts — unless the agency can convince the court that the agency has some special body17
of knowledge warranting greater deference.
One of the most basic premises of statutory construction is that the statutory
language itself should be the initial touchstone for analysis. The Supreme Court has
consistently stated that “the meaning of the statute must, in the first instance, be sought
in the language in which the act is framed, and if that is plain ... the sole function of the18
courts is to enforce it according to its terms.” As mentioned above, the statutory
language at issue here unambiguously grants approval power to the Secretary of the
Treasury without any qualifying language limiting the exercise of this power in any way.
Further, as the Supreme Court has stated, “legislative history is irrelevant to the19
interpretation of an unambiguous statute.”
Although the general rule is that extrinsic aids such as legislative history are only to
be used when a statute is unclear and ambiguous, there appears to be no rule that forbids20
a court from examining legislative history of clear language. Courts have on occasion
allowed the admission of legislative history to interpret unambiguous statutes if that21
history clearly expresses a legislative intent contrary to the language. It is important,
then, to examine the legislative history and see if it points strongly against the
interpretation that the language appears to command.
16 323 U.S. at 140.
17 See Jim Rossi, Respecting Deference: Conceptualizing Skidmore Within the Architecture of
Chevron, 42 WM. & MARY L. REV. 1105, 1131 (April 2001).
18 Caminetti v. United States, 242 U.S. 470, 485 (1917); see also United Air Lines, Inc., v.
McMann, 434 U.S. 192, (1997).
19 United Air Lines, Inc., v. McMann, 434 U.S. 192, 199 (1997).
20 2A SUTHERLAND’S STATUTORY CONSTRUCTION § 48.01 (1992).
21 See, e.g., Escobar Ruiz v. Immigration and Naturalization Service, 838 F.2d 1020 (9th Cir.
Fannie Mae has been authorized to issue obligations since 1934.22 However, it was
not until 1954, when Congress re-chartered Fannie Mae as a mixed government and
private sector entity, that Congress inserted into Fannie Mae’s charter the aforementioned
language conditioning the issuance of debt obligations on the Secretary of the Treasury’s
approval.23 Although the legislative history is silent as to why the Secretary of the
Treasury was given this authority or how Congress expected him to use it, the clear
language suggests that the power is a broad one.24
The statutory language indicates a broad authority vested in the Secretary of the
Treasury to regulate Fannie Mae’s debt issuances. However, the Secretary has generally
used this power not to disapprove of proposed issuances but, rather, to coordinate these
issuances so as not to conflict with the Treasury Department’s debt issuances.25 One
House committee had this in mind in 1989 when Congress gave Freddie Mac powers
similar to those held by Fannie Mae to issue debt.26 Although the House report that
accompanied that legislation stated that one of the overarching purposes of the statute was
to give Freddie Mac powers and authority parallel to those enjoyed by Fannie Mae,27 Part
III of the House Report, submitted by the Committee on Banking, Housing, and Urban
Affairs, also offered a very different picture of how the committee expected the Secretary
of the Treasury to exercise the approval authority:
The title also grants the Secretary of the Treasury certain approval authorities over
[Freddie Mac’s] issuance of unsecured debt obligations and mortgage-related
securities. Treasury already possesses such powers over [Fannie Mae] ... The
Committee intends that the Treasury shall use these powers solely to ensure that
[Freddie Mac’s] financing activities are conducted in a way that promotes [Freddie
Mac’s] statutory purpose. In fulfilling this responsibility, and as is the case with
[Fannie Mae], the Committee expects that Treasury will function largely as a “traffic
cop” to assure that securities issued or guaranteed by [Freddie Mac] are marketed
in an orderly way in appropriate coordination with the financing activities of the28
Treasury and other government-sponsored enterprises (GSEs) [Emphasis added].
At first glance, it appears possible that Congress had a different intent in mind when
it granted this approval authority to the Secretary of the Treasury. Put simply, although
the statutory language concerning the Treasury Secretary’s authority here is clear, one
could argue that Congress’s understanding of that authority may have changed between
the time that it was granted over Fannie Mae and when it was granted to Freddie Mac,
22 Act of June 27, 1934 ch. 847, title III, § 304.
23 P.L. 83-560, § 201.
24 A broad interpretation of this authority would also be consistent with the significant role
assigned by Congress in the 1954 legislation to the Secretary of the Treasury in ensuring therd
success of Fannie Mae’s transition to a mixed entity. See, e.g., Conf. Rep. No. 2271, 83 Cong.,
25 See David S. Hilzenrath, New Tack in Mortgage Firm Oversight, WASHINGTON POST, April
26 P.L. 101-73, § 731(i).
27 H.Rept. 101-54(III) (1989), reprinted in 1989 U.S.C.C.A.N. 86, 385.
28 H.Rept. 101-54(III) (1989), reprinted in 1989 U.S.C.C.A.N. 86, 386.
because of the way that the Department of the Treasury had traditionally chosen to
exercise this authority.
For a variety of reasons, however, the above-quoted report language from 1989
would not likely be enough to convince a court that the Secretary of the Treasury’s power
is limited here. First and foremost, the language represents the opinion of one committee,
not the entire Congress. The Supreme Court has made it clear that a committee’s
direction cannot be equated with a statute passed by Congress.29 Under the Constitution,
federal statutes must pass both Houses of Congress and be signed by the President to have
legal effect. As the Supreme Court has stated, “unenacted approvals, beliefs, and desires
are not laws.”30 This is not to suggest that committee reports are not important interpretive
tools. On the contrary, these reports are among courts’ favorite sources of interpretation.
Such sources, however, cannot be divorced from the statutory language. “Courts have
no authority to enforce [a] principle gleaned solely from legislative history that has no
statutory reference point.”31 In this case, Congress could have chosen to enact language
explicitly limiting the Treasury Secretary’s authority to the “traffic cop” function
described above. Congress chose not to do so, however.
Even if the report language were to be given greater weight, however, the language
itself does not evince an intent completely to constrain the Treasury Secretary’s authority.
The language describes an expectation that, concerning securities and debt issuances, the
department would function “largely as a ‘traffic cop.’” This use of the word “largely,” as
opposed to “only,” suggests that there are other, unenumerated ways in which Treasury
could exercise that authority.
Consequently, the legislative history does not provide a clear Congressional intent
that courts should depart from the clear statutory language. In addition to the clear
language, as mentioned above, a reviewing court using the Skidmore analysis would give
weight to the Treasury Department’s opinion that the Treasury Secretary possesses the
power to regulate debt issuances by Fannie and Freddie. The likely final result under the
Skidmore analysis, then, appears to be the same as that under Chevron deference.
29 See TVA v. Hill, 437 U.S. 153, 191 (1969).
30 Puerto Rico Dept. of Consumer Affairs v. Isla Petroleum Corp., 485 U.S. 495, 501 (1998).
31 Shannon v. United States, 512 U.S. 573, 581 (1994) (quoting International Brotherhood of
Elec. Workers v. National Labor Relations Board, 814 F. 2d 697, 712 (D.C. Cir. 1987).