Bosses of Fannie Mae and Freddie Mac both give general support to Bush administration plans to tighten federal control.
By Associated Press
Published September 26, 2003
WASHINGTON - Freddie Mac raised its estimate of underreported earnings to at least $4.5-billion Thursday as lawmakers weighed a Bush administration proposal for tighter federal supervision of the mortgage giant and its larger rival Fannie Mae.
Government-sponsored Freddie Mac also said its restatement of 2000-2002 profits, originally expected by Sept. 30, will be delayed until November because of glitches in the computer system and the need to process additional data.
Another financial institution with government ties, the Federal Home Loan Bank of New York, suspended payment of its October dividend to its 300 or so customer banks because of financial troubles. The bank reportedly has run into difficulty because of $183-million in losses on soured investments in bonds backed by mobile-home loans.
The New York bank is one of 12 in a nationwide system that provide money to home lenders in local communities.
"The bank has plenty of cash," John Korsmo, head of the federal agency that oversees the Federal Home Loan Banks, told the House Financial Services Committee at a hearing.
Rep. Jim Leach, R-Iowa, noted that the banks had grown rapidly and said, "I am very concerned with the supervision of these banks."
Several lawmakers insisted that if regulatory authority for Freddie Mac and Fannie Mae is transferred from the Department of Housing and Urban Development to the Treasury Department, as the administration is advocating, the Federal Home Loan Banks also should come under the new regime.
Fannie Mae chairman and CEO Franklin Raines, and Freddie Mac's presiding director George Gould, expressed general support for the administration proposal in their testimony to the panel.
The two influential companies have for years successfully resisted congressional attempts at tighter regulation. Company officials say they are pleased that the new plan would not require the Fannie Mae and Freddie Mac to increase their capital reserves, or change their mission or status.
Congress created the two companies and has not wanted to upset the housing market. But Republican lawmakers now appear largely receptive to the Bush proposal in the aftermath of Freddie Mac's accounting troubles - which brought the ouster of two chief executives since early June and investigations by the Justice Department and the Securities and Exchange Commission. The $40-billion-a-year company said this summer that accounting errors and manipulations of internal accounts resulted in earnings being underreported by an estimated $1.5-billion to $4.5-billion in 2000-2002.
Democrats complained about the plan to leave HUD with authority over the two companies' mission to expand home ownership, especially among lower-income people, while moving financial regulation to Treasury.
"I don't think we face a crisis. I don't think that we have an impending disaster," said Rep. Barney Frank of Massachusetts, the committee's senior Democrat.
Gould insisted that "Freddie Mac is safe, sound and strong."
He dismissed criticism that Freddie Mac had become too big and risky, and sharply rebuffed a suggestion by Rep. Christopher Shays, R-Conn., that the company's accounting manipulations may have constituted fraud.
Freddie Mac and Fannie Mae were chartered by Congress to pump money into the home mortgage market, by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street. They are not directly guaranteed by the government, but they can borrow directly from the Treasury, making their borrowing costs lower.
