The size of Fannie and Freddie, the complexity of their financial operations, and the general indifference of many investors to the financial condition of the GSEs because of their perceived special relationship to the government suggest that the GSE regulator must have authority similar to that of the banking regulators.
In addressing the role of a new GSE regulator, the Congress needs to clarify the circumstances under which a GSE can become insolvent and, in particular, the resultant position both during and after insolvency - of the investors that hold GSE debt.