Post Number: 451
|Posted on Thursday, January 30, 2003 - 03:45 pm: ||
US bank group study urges limiting Fannie, Freddie
Wednesday January 29, 12:26 pm ET
WASHINGTON, Jan 29 (Reuters) - The rapid growth of U.S. mortgage finance giants Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News) is a risk to taxpayers, and Congress should limit their roles in the housing market, said a study funded by members of a financial services trade association.
Fannie Mae and Freddie Mac, shareholder-owned companies chartered by Congress to provide a deep, steady flow of funds to mortgage markets, dominate the secondary mortgage market, said the report released by the Financial Services Roundtable.
"This dominance, combined with their relentless expansion and weak federal oversight, has increased the chances of a financial mishap," said the study's author, Thomas Stanton. Stanton is a lawyer and author whose work has been critical of these so-called government-sponsored enterprises.
Congress gives the companies benefits as part of their charters. These include some tax and disclosure exemptions and multibillion dollar lines of credit, which have never been drawn on, to the U.S. Treasury.
The benefits lead investors to believe the government would protect the mortgage giants in a financial crisis, and that belief contributes to lower borrowing costs for the companies.
Members of the financial services group, which include J.P. Morgan Chase & Co.(NYSE:JPM - News) and Wells Fargo and Co. (NYSE:WFC - News), compete with Fannie Mae and Freddie Mac in the secondary mortgage markets. The GSEs' charters restrict them from lending directly to home buyers, but they instead buy them from lenders and hold them in their own portfolios or repackage them as securities for investors.
Another lobbying group of the GSEs competitors, FM Watch, on Wednesday released a letter asking Federal Reserve Chairman Alan Greenspan to tighten government supervision of the companies. FM Watch said Freddie Mac's need to restate up to three years of financial results to reflect higher earnings from derivatives raises concerns about government oversight.
Fannie Mae and Freddie Mac dismissed the Stanton study as being the work of a perennial critic of their companies.
Industry rivals will have an uphill struggle to persuade Congress to alter GSE charters at a time when housing has been one of the few bright spots in a struggling U.S. economy, said Robert McCarson, a spokesman for Fannie Mae.
"The proponents of change have the burden of proof to show why their proposals to upset the world's best housing finance system and essentially the bulwark of this economy are anything but a plan to make more profits," he said.
The FM Watch letter is an attempt to cast the restatement in the most negative light possible, said Freddie Mac spokeswoman Sharon McHale.
"They are just trying to latch on to anything to make noise," she said.