OFHEO says Fannie, Freddie remain ’significant supervisory concerns’
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Fannie, Freddie, Mortgage-Default April 16th, 2008WASHINGTON (Thomson Financial) - The federal regulator of mortgage giants Fannie Mae and Freddie Mac said while the two companies have made strides in getting their financial reporting in order, they still need to be closely supervised in light of the risk they face given their exposure to trillions of dollars of mortgages.
The Office of Federal Housing Enterprise Oversight (OFHEO) said both companies remain ’significant supervisory concerns’ in its annual report to Congress that was released on Tuesday.
OFHEO has made that judgment in the past in light of the accounting overhaul that both companies needed to undertake. While that process is nearly complete, OFHEO said close supervision is still needed because the ‘extraordinary declines in the housing and mortgage markets have greatly increased their credit and interest rate risks’.
These risks have put ‘additional pressure on their credit management, interest-rate risk management and financial modeling processes’, OFHEO said in its report.
OFHEO noted Fannie and Freddie’s total exposure to the mortgage market grew by 15 pct in 2007, up from 8 pct in 2006. Together, they have a total of 5 trln dollars worth of mortgage-backed securities and mortgage investments.
In terms of mortgage origination, Fannie and Freddie accounted for a whopping 75.6 pct in 2007, up sharply from 37.4 pct in 2006. But OFHEO director James Lockhart said there is ‘increasing pressure’ on both companies to ‘do even more to support the mortgage market’.
He also said this is ‘problematic’ given the absence of legislation that would strengthen federal oversight of the two companies. Lockhart noted in March OFHEO agreed to lower the capital reserve requirements for both companies in an effort to increase their ability to support the mortgage market, and said the mortgage portfolio of both companies will likely expand later this year.
But he again stressed better oversight is needed and called on Congress to approve legislation that would give the federal regulator greater oversight over the two companies, as well as other changes OFHEO believes would strengthen its role in overseeing Fannie and Freddie.
‘The time to act on the legislation is now,’ he said. The House has approved legislation, but the Senate has not.
Tags: Fannie, Freddie, Mortgage-Default
