By Mark Felsenthal
WASHINGTON, June 15 (Reuters) - Mortgage finance giants
Fannie Mae <FNM.N> and Freddie Mac <FRE.N> exceeded their
safety and soundness requirements last year, their federal
financial regulator said on Friday.
In its annual report to Congress, the Office of Federal
Housing Enterprise Oversight found the two so-called
government-sponsored enterprises, or GSEs, surpassed
requirements on credit risk and interest-rate risk management,
among other areas.
"In 2000, the office's oversight of Fannie Mae and Freddie
Mac continued to ensure that the enterprises are financially
safe and sound, fostering the strength and vitality of the
nation's housing finance system," wrote OFHEO Director Armando
Falcon, Jr.
OFHEO's report comes as the regulator is under fire from
congressional and industry critics for a delay in publishing a
risk test determining the level of capital Fannie Mae and
Freddie Mac need to withstand severe economic shocks.
The agency submitted its final version of the test to the
White House Office of Management and Budget in late March, and
observers expect the regulation to be published some time
during the summer.
Critics say delays in developing the test, which was due in
1994, demonstrate the regulator's shortcomings. OFHEO officials
and other observers contend changes in the agency's management
and an underestimation of the complexity of the project are the
reasons for the delay.
GSE supporters maintain the exam will go a long way in
silencing doubts about the financial soundness of the mortgage
finance institutions.
OFHEO's annual report describes Fannie Mae and Freddie Mac
as two highly successful financial services firms that used new
technology to their advantage in the mortgage markets.
The GSEs achieved record profits last year, despite lower
housing-market activity and a 20 percent decline in the volume
of mortgage originations, the report said. Their combined net
income rose 14 percent to $7billion.
The combined assets of the two companies topped $1 trillion
last year, increasing 18 percent over a year-end 1999 level of
$962 billion, OFHEO reported.
Computer-automated underwriting systems have "profoundly"
impacted the mortgage market and the systems developed by
Fannie Mae and Freddie Mac are among the most widely used, the
regulator said.
OFHEO supervises the financial soundness of the GSEs, while
the Department of Housing and Urban Development is charged with
supervising whether they meet low- and moderate-income and
underserved areas goals. OFHEO is an independent arm of HUD,
and its director, a presidential appointee, serves a five-year
term. Falcon, formerly a Democratic congressional staffer, took
office in September 1999.
Fannie Mae and Freddie Mac are congressionally chartered
but publicly traded financial institutions that help finance
home mortgages by purchasing loans from lenders and packaging
them as securities for investors. This arrangement helps limit
risk for banks and other lenders who originate the loans, while
providing fresh funds for further lending.
Critics charge OFHEO, with a budget of $22 million in the
fiscal year that ends Sept. 30, is too small to effectively
oversee the GSEs, who have financed or helped finance 47
percent of U.S. single-family mortgages under $275,000 that are
currently outstanding.
Legislation proposed by Louisiana Republican Rep. Richard
Baker would transfer regulatory responsibility for Fannie and
Freddie to the Federal Reserve. However, most analysts say that
with Democrats now in control of the Senate, the bill stands
little if any chance of passage this year. |
