A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies. The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors.
Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws. The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session. After the hearing, Representative Michael G.
Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal.
Conservatorship | Federal Housing Finance Agency
Industry executives said Congress could complete action on legislation before leaving for recess in the fall. Oxley said at the hearing. The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios. At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve.
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Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. This year, however, the chances of passing legislation to tighten the oversight are better than in the past.
Reflecting the changing political climate, both Fannie Mae and its leading rivals applauded the administration's package.
The support from Fannie Mae came after a round of discussions between it and the administration and assurances from the Treasury that it would not seek to change the company's mission. After those assurances, Franklin D. Raines, Fannie Mae's chief executive, endorsed the shift of regulatory oversight to the Treasury Department, as well as other elements of the plan.
Raines said. The only logical solution is to keep them in conservatorship and immediately begin to shrink them by administrative action.
By promptly taking these actions, director-designate Calabria will help make housing more affordable, reduce taxpayer liability and enhance competition. For reprint and licensing requests for this article, click here. Login Subscribe.
Bush signs housing bill as Fannie Mae grows
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BankThink submission guidelines BankThink is American Banker's platform for informed opinion about the ideas, trends and events reshaping financial services. View our detailed submission criteria and instructions. Posted by S.
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I will let other point out to Ed who was the President when that decision was made hint: it wasn't Jimmy Carter or Bill Clinton. More from American Banker. November 1. October
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