WASHINGTON (Dow Jones)--Fannie Mae (FNM) and Freddie Mac (FRE) "face
challenges to sustaining their high rates of profit growth," the Bush
Administration said Monday.
The Administration said in part that total mortgage debt financed by Fannie
Mae and Freddie Mac has been increasing more quickly than residential mortgage
debt outstanding, suggesting their charters eventually could limit their
ability to expand their mortgage asset portfolios.
At the same time, however, the Administration said the benefit of government
sponsorship enjoyed by Fannie Mae and Freddie Mac is one factor that may help
the two mortgage finance giants maintain "relatively high profitability."
The Administration discussed Fannie Mae and Freddie Mac - both
government-sponsored enterprises charged with assisting housing - in an
"analytical perspectives" section of its complete budget for fiscal year 2002.
The budget was released Monday morning.
Fannie Mae and Freddie have achieved strong growth in profits in recent
years, "in large part by rapidly growing their debt-financed holdings of
mortgage assets," the Administration said.
"From September 1997 to September 2000, their mortgage asset portfolios more
than doubled in dollar volume," it said, adding that "increased retained
portfolios may imply increased interest rate exposure."
To fund their rapidly growing asset portfolios, the Administration said,
Fannie Mae and Freddie Mac have increased sharply their outstanding debt. "The
GSEs' combined debt outstanding rose from $196 billion at the end of calendar
year 1992 to $1.07 trillion at the end of calendar year 2000, an average growth
rate of nearly 24% a year," it said.
In elaborating on its statement that the firms face challenges to sustaining
their high rates of profit growth, the Administration said: "A small number of
large originatorsaccount for a large proportion of single-family mortgages
that the GSEs buy and securitize. Larger firms may have somewhat greater market
power in negotiating with the GSEs over guarantee fees. Further, total mortgage
debt financed by Fannie Mae and Freddie Mac have been increasing more quickly
than residential mortgage debt outstanding, which suggests that their charters
could eventually limit the GSEs' ability to expand their mortgage asset
portfolios.
"There also may be limits to the amount of mortgage securiites the GSEs can
finance with debt at attractive margins and the amount of counterparty risk
exposure to Fannie Mae and Freddie Mac that other market participants are
willing to absorb," the Administration budget document continued.
"The benefit of government sponsorship, however, is one factor that may help
Fannie Mae and Freddie Mac to maintain relatively high profitability," it
added.
With respect to another housing-related GSE, the Federal Home Loan Bank
System, the Administration said the FHLBanks' investment activities "pose
important public policy issues about the degree to which their asset
composition adequately reflects the mission of the system" to assist housing.
The Administration said the FHLBank System, like other GSES, issues debt
securities at close to U.S. Treasury rates and invests the proceeds in
higher-yielding securities. |
