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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: shades who wrote (65866)	7/11/2006 7:06:51 PM
From: shades	Respond to of 110194

Treasury Sets Meetings With GSEs On Debt Limit Authority (Russ did Bernanke and Paulson catch your message on their voicemail?) By Damian Paletta Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--Senior U.S. Treasury Department officials have scheduled separate meetings with Fannie Mae (FNM), Freddie Mac (FRE) and the 12 Federal Home Loan Banks over the next week to discuss potential new reporting requirements that could restrict the growth of the housing government-sponsored enterprises. The existence of the meetings, confirmed late Tuesday by a Treasury Department spokeswoman, indicates that the Treasury is a step closer to possibly limiting the debt issued by the mortgage finance giants, a stick it has waved at the GSEs for years. The GSEs issue debt in order to buy mortgages on the secondary market, which allows them to grow. Both Fannie Mae and Freddie Mac are recovering from massive accounting scandals, and Treasury officials have alleged that size and weak internal controls at Fannie Mae and Freddie Mac posed systemic risks to the economy. The Treasury plans to meet Thursday with Fannie Mae, Friday with Freddie Mac, and Monday with the Federal Home Loan Banks, according to a person familiar with the meetings. At the meetings, Treasury officials will discuss plans to begin requiring the GSEs to report at the beginning of each quarter exactly how much debt they plan to issue and retire over the next three months, the person said. If they discover they need to issue more than this amount, the Treasury is considering a plan that would require special permission from senior agency officials, the source said. In the past, the Treasury only has limited the debt issued by Fannie Mae and Freddie Mac for scheduling purposes, never to restrict their growth. But in separate speeches last month, both U.S. Treasury Undersecretary for Domestic Finance Randal Quarles and Assistant Secretary For Financial Institutions Emil Henry said the agency had begun a review of the process the Treasury used to approve the debt issuances because of systemic risk concerns. "We need to ensure that our process corresponds adequately to the importance of our responsibility, especially in a changing environment," Quarles said in his speech. "As a consequence, I have asked the Treasury staff to undertake such a review to ensure that the process by which we exercise this responsibility is appropriate in light of all circumstances." The review came on the heals of Fannie Mae's $400 million fine from the U.S. Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight, its safety and soundness regulator. The regulators alleged senior Fannie Mae executives manipulated accounting to trigger millions of dollars in bonuses. Combined, Fannie Mae and Freddie Mac hold close to $1.4 trillion in their mortgage portfolios. Fannie Mae and Freddie Mac have said limiting their mortgage portfolios would hurt their affordable housing missions. Freddie Mac spokesman Doug Duvall confirmed that the company would be meeting with Treasury officials, but wouldn't comment on the substance of the meeting. Fannie Mae spokesman Brian Faith and Council of Federal Home Loan Banks President John von Seggern declined comment. Both Fannie Mae and Freddie Mac have said they would cooperate with the Treasury review, but neither GSE has conceded that the Treasury actually has the authority to limit their debt issuances. This could set up a possible legal challenge from either GSE if the Treasury ultimately decided to move forward and limit their debt. Separately, Congress is considering legislation that would create a new regulator for Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. Legislation has stalled, however, because of a disagreement over whether Congress should direct the new regulator to limit the portfolio sizes of Fannie Mae and Freddie Mac. -By Damian Paletta, Dow Jones Newswires; 202-862-9241; Damian.Paletta@dowjones.com (END) Dow Jones Newswires July 11, 2006 18:54 ET (22:54 GMT)