Put Fan and Fred on a Leash

As government sponsored enterprises, the mortgage-finance companies known as Fannie Mae and Freddie Mac need a tougher overseer than the one they have got in the Office of Federal Housing Enterprise Oversight (OFHEO). And though both should accept efforts to strengthen their regulation, unfortunately, they're fighting back.

Over the years, Fannie has grown well beyond its original mission - to provide low-cost housing to individuals who might otherwise not be able to afford it. Fan and Fred now account for 45 percent of US home mortgages; they have $1.6 trillion in mortgage-backed securities. If they were to fail, their current structure could mean American taxpayers would have to foot the bailout bill.

Fannie recently made a $1 billion error in calculating shareholders' equity. Freddie Mac admitted last year that it misreported its earnings to mask big market fluctuations of its stock, and paid a whopping $125 million fine.

Last month, OFHEO's director Armando Falcon as much as said that his office found bonuses at Freddie Mac were put together in ways that gave top executives even more incentive to doctor the books.

"The compensation of senior executives of Freddie Mac, particularly compensation tied to earnings per share, contributed to the improper accounting and management practices of the enterprise," Falcon said.

That's reason enough for Fannie to readily comply with a House committee's request to reveal the salaries of more of its top executives.

Fannie and Freddie currently serve two very different masters - stockholders and Americans who can't afford a mortgage. Both entities have special privileges, like a line of credit at the Treasury Department, that their competitors - the banks - do not have. But Fan and Fred can't have it both ways. Recent news that the Federal Reserve will stop giving Fan and Fred interest-free advances should help level the playing field.

The new Bush budget wisely sets aside money for a new Fan and Fred regulator in the Treasury Department. Congress is considering such a step; the White House expects it will pass.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK