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To: Oblomov who wrote (179813)	7/15/2002 7:54:41 AM
From: Giordano Bruno	Read Replies (1) \| Respond to of 436258

Has this been posted? Fannie Mae, Freddie Mac Agree To Federal Regulators' Scrutiny By JOHN D. MCKINNON and PATRICK BARTA Staff Reporters of THE WALL STREET JOURNAL WASHINGTON -- In a surprise move aimed at silencing a rising chorus of criticism about their financial disclosures, Fannie Mae and Freddie Mac agreed for the first time to submit themselves to scrutiny by federal securities regulators. The Securities and Exchange Commission will oversee only the government-sponsored mortgage giants' existing common stock, however, under an agreement reached Friday with the SEC and Treasury. That means the companies have sidestepped -- for now, at least -- their biggest worry: full-scale securities regulation. The deal excludes direct government oversight of the debt and mortgage-backed securities the companies issue on Wall Street. Fannie and Freddie will have to submit the periodic financial statements, proxy statements and reports that other issuers file with the SEC. But they already provide similar information to investors, so the immediate practical effect is relatively small. Still, in broad terms the agreement with the Bush administration is a milestone for the two companies. Created decades ago as government agencies to increase the efficiency of the U.S. mortgage market, Fannie and Freddie later were privatized. But they maintained many of their ties to the government, including a line of credit to the Treasury and exemption from SEC oversight. The companies are reluctant to give up those benefits because they contribute to a common perception that Fannie and Freddie are backed by the federal government, and therefore worthy of preferred status with investors. Some economic policymakers and rivals in the financial-services industry worry that Fannie and Freddie are taking advantage of this implied government backing -- which enables them to borrow more cheaply than their rivals -- to grow too large and crowd out competitors. More recently, critics have warned that the lack of SEC-required disclosure of Fannie's and Freddie's mortgage-backed securities leaves investors in the dark about exactly what they are buying. The agreement officially preserves the pair's exemption from SEC oversight, at least on paper. But by voluntarily submitting to the SEC, the companies are effectively placing themselves under the agency's purview for good, something that would have been unthinkable a few years ago. Only the SEC now has the power to end its oversight, a prospect that is almost unheard of. "It is ... permanent," Fannie Mae Chairman Franklin Raines said in announcing the agreement. The agreement should also put to rest some of the key concerns raised by critics, among them the fear that Fannie and Freddie someday could cease the voluntary financial disclosures they now provide. The move elicited praise from several lawmakers and mortgage-trade groups, as well as Treasury Secretary Paul O'Neill, who made it clear in a prepared statement that the administration isn't interested in registration of the companies' securities -- one of the big potential changes the pair most feared. "It's a classic case of [Fannie-Freddie] jujitsu, where they've gotten ahead of the issue," says Howard Glaser, a mortgage-industry consultant and a former lobbyist for the Mortgage Bankers Association. "Most political observers think there are months and months of hearings and pressure on corporate-disclosure issues coming for everyone. Fannie and Freddie have now effectively taken themselves out of that debate." The companies aren't out of the woods yet, though, as investors seemed to signal on Friday. Fannie Mae's stock, for example, was down $1.26, or 1.75%, at $70.63 in 4 p.m. New York Stock Exchange composite trading, though company officials downplayed the decline, saying it was a result of broader problems in the stock market. The companies also face the first of two congressional hearings on disclosure and other issues Tuesday, though observers say those hearings should now be far less painful for both. Perhaps most important, the agreement with the SEC provides for a government study of disclosure of the contents of mortgage-backed securities -- a possible step toward further government regulation in the area where Fannie and Freddie have been most sensitive. The study will include disclosure for all MBS issuers, including so-called private-label issuers that compete with the two giants. Fannie and Freddie have opposed registering their securities because they say it would introduce delays in the mortgage process that could make it harder for consumers to lock in interest rates. Further disclosure requirements are still possible, officials say. "Their voluntary registration [of their stock] does not end the issue of disclosure," says Armando Falcon, director of the Office of Federal Housing Enterprise Oversight, which monitors the companies' safety and soundness. Officials of the companies cast their agreement as a reaction to President Bush's pleas last week for greater corporate accountability. "I am delighted to respond to the president's call," Mr. Raines said. In fact, though, the rough outlines of the pact had been emerging for weeks, and came only after the administration had hinted at even stronger action.