Order Code RS21896
July 26, 2004
CRS Report for Congress
Received through the CRS Web
The Department of the Treasury’s Authority to
Regulate GSE Debt: A Legal Analysis
Nathan Brooks
Legislative Attorney
American Law Division
Summary
Reports have recently surfaced that the Department of the Treasury may soon seek
to exercise its approval authority over Fannie Mae’s and Freddie Mac’s debt issuances
in a different manner than it has in the past. While the Department of the Treasury has
traditionally used its approval authority merely to coordinate the timing of debt
issuances, the Department may soon 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.
Introduction
In the wake of an accounting scandal involving the Federal National Home Loan
Corporation (Freddie Mac), various members of Congress have launched efforts to tighten
oversight of Freddie Mac and its sister organization, the Federal National Mortgage
Association (Fannie Mae).1 As legislative efforts to increase the oversight of these two
entities are still pending,2 it has been reported that the Department of the Treasury may
soon assert that it has the power to regulate Fannie and Freddie’s debt issuances much
more strongly than it has in the past.3 According to these reports, the Treasury
1 For more information on the history and functions of these two organizations, see CRS Report
RS21748, Fannie Mae and Freddie Mac: An Overview, by Nathan Brooks and Barbara Miles.
2 The 108th Congress has considered a variety of legislative proposals to strengthen oversight of
Fannie and Freddie (See, e.g., H.R. 2575 (108th Cong.)), although those efforts appear to have
stalled.
3 The Treasury Department has issued no formal indication that the Department is planning to
exercise this power. Reports have recently surfaced, however, indicating that Treasury is
considering this action. See, e.g., David S. Hilzenrath, New Tack in Mortgage Firm Oversight,
(continued...)
Congressional Research Service ˜ The Library of Congress

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Department would trace this authority to language in Fannie 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 exercised the approval authority with regard
to Fannie 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. According
to officials from Fannie and Freddie, while the Treasury Department has this authority
over the timing of debt issuances (i.e., asking Fannie or Freddie to change the dates of
their offerings), Treasury has never used its power in such a way as to control the amount
of debt offered.6 As mentioned above, however, reports have circulated that the Treasury
Department may soon seek to exercise its approval authority not in the usual “traffic cop”
manner, but rather to regulate the amount of debt that Fannie and Freddie can issue.7
Analysis
The Supreme Court held in Chevron, Inc. v. Natural Defense Resources Defense
Council8 that courts should defer to a reasonable agency interpretation of an ambiguous
statute that the agency is charged with administering. This Chevron deference is only
available 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 arrived at after formal adjudication or notice-and-
comment rulemaking.10 Actions pursuant to any 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 plans to issue an interpretation, we will analyze the
3 (...continued)
Washington Post, April 30, 2004, at E4.
4 12 U.S.C. § 1719(b).
5 12 U.S.C. § 1455(j).
6 See David S. Hilzenrath, New Tack in Mortgage Firm Oversight, Washington Post, April 30,
2004, at E4.
7 Id.
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.
833 (2001).

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strength of the Treasury Department’s reported proposed interpretation under both
Chevron and Skidmore.
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. If the statute is ambiguous, though, the court must
determine if the agency’s interpretation is reasonable. If so, then the court must 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.
Here, the language in both statutes clearly gives the Treasury Secretary approval authority
over Fannie and Freddie’s debt issuances. There is 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 condition the issuance of debt obligations upon the
approval of the Secretary of the Treasury. The power to approve seems to clearly 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 the first Chevron prong. In FDA v. Brown & Williamson Tobacco Corp.,13 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 is 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 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. While the
Department has never exercised this authority to stop Fannie and Freddie from issuing
debt, the statutory authority to do so is still on the books. Given that the Treasury
Department has this authority, then, 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

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).

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While 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
interpretation is reasonable — whether or not the court agrees with it. For the same
reasons discussed above, it is hard to imagine bases upon which a court would find the
Treasury Department’s reported proposed interpretation here to be unreasonable. If
Congress wanted to limit the Treasury Department’s approval authority, then 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. While Chevron requires a court to defer to an agency
interpretation of an ambiguous statute — whether or not the court agrees with that
interpretation — so long as it is reasonable, an agency interpretation under Skidmore is
merely guidance, the weight of which depends on 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 give it power to persuade, if lacking power to control.”16 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 body of knowledge warranting greater deference. 17
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 the
courts is to enforce it according to its terms.”18 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 the
interpretation of an unambiguous statute.”19
While the general rule is that extrinsic aids such as legislative history are only to be
used when a statute is unclear and ambiguous, there is no rule which forbids a court from
examining legislative history of clear language.20 Courts have on occasion allowed the
admission of legislative history to interpret unambiguous statutes where that history
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).

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clearly expresses a legislative intent contrary to the language.21 It is important, then, to
examine the legislative history and see if it points strongly against the interpretation that
the language appears to command.
It was in 1968 that Congress inserted into Fannie Mae’s charter the aforementioned
language authorizing Fannie Mae to issue debt with the Secretary of the Treasury’s
approval.22 The House report that accompanied the legislation stated in clear terms that
this language was intended to aid the Treasury Secretary in ensuring that Fannie Mae stays
true to its mission:
The [Treasury] Secretary would have general regulatory powers over FNMA to assure
that the purposes of the Charter Act are served. The issuance of all securities or
obligations by FNMA would have to receive the prior approval of the Secretary.
Through this and other authority, the Secretary would participate in the decision
making process at the level of mortgage purchases at various times.23
While both the statutory language and the legislative history point to a broad
authority vested in the Treasury Secretary to regulate Fannie Mae’s debt issuances, the
Secretary has traditionally used this power not to disapprove of proposed issuances, but
rather to coordinate such issuances so as not to conflict with the Treasury Department’s
debt issuances.24 One House Committee clearly had this in mind in 1989, when Congress
gave Freddie Mac powers similar to those held by Fannie Mae to issue debt.25 While the
House Report that accompanied that legislation stated that one of the overarching
purposes of the statute was to give Freddie Mae powers and authority parallel to those
enjoyed by Fannie Mae,26 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 Treasury Secretary 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

21 See, e.g., Escobar Ruiz v. Immigration and Naturalization Service, 838 F.2d 1020 (9th Cir.
1988).
22 P.L. 90-448, § 804(a).
23 H.R. Rep. No. 90-1585 (1968), reprinted in 1968 U.S.C.C.A.N. 2873, 2946.
24 See David S. Hilzenrath, New Tack in Mortgage Firm Oversight, Washington Post, April 30,
2004, at E4 (“Freddie Mac spokeswoman Sharon McHale said the Treasury Department has
never used that clause to control the amount of debt the company has issued or the interest rates
on the debt. Instead, the Treasury has asked the company to change the dates of some offerings
so they would not interfere with the government’s sale of Treasury securities, McHale said”).
25 P.L. 101-73, § 731(i).
26 H.R. Rep. No. 101-54(III) (1989), reprinted in 1989 U.S.C.C.A.N. 86, 385.

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in an orderly way in appropriate coordination with the financing activities of the
Treasury and other government-sponsored enterprises (GSEs)
27 [Emphasis added].
At first glance, then, 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, while
the statutory language regarding the Treasury Secretary’s authority here is clear, one could
argue that Congress’s understanding of that authority may have changed in between the
time it was granted over Fannie Mae and when it was granted to Freddie Mac, due to the
way that the Treasury Department 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.28 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.”29 This is not to suggest that Committee reports are not important
interpretive tools. On the contrary, such reports are among courts’ favorite sources of
interpretation. Such sources, however, cannot be divorced from the statutory language.
In other words, “Courts have no authority to enforce [a] principle gleaned solely from
legislative history that has no statutory reference point.”30 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 to completely constrain the Treasury Secretary’s authority.
The language describes an expectation that — with regard to 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.
Lastly, the legislative history does not provide a clear Congressional intent that
courts should depart from the clear statutory language. At best, the scant legislative
history available on this question provides a confusing conflict between two committee
reports. In addition to the clear language, as mentioned above, a reviewing court using
the Skidmore analysis would weigh the opinion of the Treasury Department. The likely
final result under the Skidmore analysis, then, appears to be the same as that under
Chevron deference.
27 H.R. Rep. No. 101-54(III) (1989), reprinted in 1989 U.S.C.C.A.N. 86, 386.
28 See TVA v. Hill, 437 U.S. 153, 191 (1969).
29 Puerto Rico Dept. of Consumer Affairs v. Isla Petroleum Corp., 485 U.S. 495, 501 (1998).
30 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).