Lawmakers Push for More Lending Oversight
|April 6, 2005|
Lawmakers Push for More Oversight Fannie Mae, Freddie Mac in Wake of Accounting Scandals
WASHINGTON (AP) -- A move under way in Congress could bring tighter government oversight of Fannie Mae and Freddie Mac and possible limits on their size in the wake of accounting scandals at the huge government-sponsored mortgage companies.
Prospects for passage of legislation appear stronger than in previous years, when the two politically influential companies successfully lobbied against new restraints. The Bush administration wants to see legislation enacted, though it has not endorsed a specific plan.
Congress created Fannie Mae and Freddie Mac, the No. 1 and No. 2 U.S. buyers and guarantors of home mortgages, to inject money into the home-loan market. They buy mortgages and bundle them into securities for sale to investors worldwide.
The director of the Office of Federal Housing Enterprise Oversight, which has been investigating Fannie Mae's accounting since last year, was testifying Wednesday before a House subcommittee on the company's new agreement with the agency to set up policies to prevent faulty bookkeeping and make governance changes.
Armando Falcon, a Democrat appointed by President Clinton, told President Bush in a letter Tuesday that he will step down on May 20. He submitted his resignation two years ago but stayed on to deal with problems at the companies.
Rep. Richard Baker, R-La., chairman of the House subcommittee that oversees Fannie Mae and Freddie Mac, proposed legislation that would strengthen the government's hand over them.
"The terrible troubles at Fannie Mae make it painfully clear that major reforms are necessary to strengthen regulatory oversight" of the two companies "to reduce the risks to taxpayers and investors, and to improve our commitment to serving America's homebuyers," Baker said at a news conference Tuesday.
In a departure from previous legislation, the Baker bill would create a regulatory agency to reduce the size of their multibillion-dollar portfolio holdings. The portfolios include home mortgages and other investments, some of which have been criticized as not comporting with the companies' mission to make homeownership more affordable.
Under the bill, the new agency could compel Fannie Mae and Freddie Mac to sell off any assets it deemed to be "not in the public interest."
Several other Republican lawmakers, including House Financial Services Committee Chairman Michael Oxley of Ohio and Rep. Christopher Shays of Connecticut, are co-sponsors of Baker's bill. In the Senate, Chuck Hagel, R-Neb., has put forward similar legislation.
Federal Reserve Chairman Alan Greenspan, whose views carry formidable weight with lawmakers, suggested in February that Congress consider placing limits on the two companies' massive portfolios. Greenspan said he did not see an immediate risk to the U.S. financial system from their holdings, but he said that could change.
Federal regulators last year accused Fannie Mae of serious accounting problems and earnings manipulation to meet Wall Street's quarterly targets. The Securities and Exchange Commission ordered the company to restate its earnings back to 2001, a correction that could reach an estimated $11 billion.
Freddie Mac has emerged from an accounting debacle that became known in June 2003 with the ouster of three top executives and the disclosure that it misstated earnings by $5 billion for 2000-2002.
The two companies enjoy huge support in Congress. They have been generous contributors to lawmakers of both parties and have supported housing projects around the country.
House Democrats haven't signed on to Baker's bill.
Shays, like Baker a longtime critic of the two companies, said, "Politically, it's going to be a very tough bill to pass." Still, Shays said, he would have considered it impossible before now. "I'll take tough over impossible."
Copyright Associated Press