The Wall Street Journal-20080117-Grip on Freddie- Fannie May Ease- Policy Shift Reflects Firms- Importance Amid Housing Woes
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Grip on Freddie, Fannie May Ease; Policy Shift Reflects Firms' Importance Amid Housing Woes
WASHINGTON -- The Bush administration appears to be softening its regulatory grip on Fannie Mae and Freddie Mac, reflecting a growing reliance on the companies to provide money for home mortgages as other investors retreat.
The Treasury Department privately gave the companies a proposal Monday night that would establish new standards for how the government approves debt issued by both firms, said people with direct knowledge of the plan. The government-sponsored enterprises issue debt in order to buy mortgages on the secondary market, where they are by far the biggest players.
The proposal is scaled back from the Treasury Department's initial plans from late 2006. It would require semiannual -- not quarterly -- reporting of planned debt issues and wouldn't require Fannie's and Freddie's chief executives to sign off on the reports. The initial proposal was widely viewed as a way for the Bush administration to exert more control over how much money the companies borrowed.
"Treasury's goal is to be the best possible stewards of our debt- approval responsibility," Treasury spokeswoman Jennifer Zuccarelli said. "These procedural changes are still in draft form, so it's premature to discuss any results."
A Freddie Mac spokesman said the company was reviewing the proposal, and a Fannie Mae spokesman declined to comment. The companies have until Feb. 20 to provide feedback.
The Bush administration has long been at odds with Fannie Mae and Freddie Mac, arguing as their portfolios grew that if either company faltered, it would pose a systemic risk to the broader economy.
But the housing-market turmoil has forced the White House to ease its position somewhat, as other secondary-market investors have exited and liquidity has evaporated. Treasury Secretary Henry Paulson has adopted a less confrontational approach to the companies than his predecessor, John Snow.
Other regulatory changes facing the companies could be coming soon. The Office of Federal Housing Enterprise Oversight could lift its limits on the companies' combined $1.4 trillion mortgage portfolios by the end of next month if both companies file timely audited financial statements. The limits, in place since 2006, stem from major accounting scandals.
The companies could also get a reprieve from the Department of Housing and Urban Development, which requires the firms to devote a large share of their investments each year to meet affordable housing goals. HUD is likely to conclude that some of those goals couldn't be met last year because of turmoil in the mortgage market.
"Certainly, the market downturn that we are experiencing has made it extremely difficult to meet the goals," Freddie Mac spokesman Doug Duvall said. He declined to provide specifics.
The Bush administration still is trying to push legislation to overhaul oversight of the companies, and the White House has said it would support allowing them to temporarily securitize more expensive loans if a new supervisory framework is created.
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James R. Hagerty contributed to this article.
