Fannie, Freddie regulator seeks power to close companies; legislation begins moving in Congress By Robert Schroeder
CBSMarketWatch.com
Thursday, February 3, 2005
WASHINGTON -- The federal office that regulates Fannie Mae and Freddie Mac
is seeking authority to close the giant mortgage finance companies in the
event of a financial crisis, as legislation toughening rules on the firms
begins to make its way through Congress.
"Receivership is a valuable thing," Patrick Lawler, chief economist of the
Office of Federal Housing Enterprise Oversight, told a forum about Fannie
Mae and Freddie Mac on Thursday.
Receivership refers to the ability of a regulator to settle the affairs of a
business or to manage a corporation during reorganization.
Lawmakers and the Bush administration have their sights set on both Fannie
and Freddie as the legislative year begins. Both companies, which pump
millions of dollars into the mortgage market, have weathered accounting
scandals recently, with two of Fannie's top executives resigning over a
massive earnings restatement.
The company may have to record a loss of $9 billion and it is still being
investigated by the Justice Department and the Securities and Exchange
Commission.
Meanwhile, legislation is beginning to move through Congress. Republican
Sens. Chuck Hagel of Nebraska, Elizabeth Dole of North Carolina, and John
Sununu of New Hampshire have co-authored a bill that would create a receiver
for Fannie and Freddie, as well as allow for higher levels of capital at
both institutions.
The senators are members of the Senate Banking Committee, which has
scheduled a hearing about Fannie and Freddie for Feb. 10. Assistant
Secretary of Housing John Weicher is scheduled to testify. The Office of
Federal Housing Enterprise Oversight is part of the U.S. Department of
Housing and Urban Development.
Separately, chief Securities and Exchange Commission accountant Donald
Nicolaisen will testify before a House Financial Services subcommittee about
his determination in December that Fannie Mae broke accounting rules.
Meanwhile, a coalition of 37 federal, state, and local groups urged the
federal government and Congress to cut ties with Fannie and Freddie
Thursday. Warning that Americans are threatened by a potential taxpayer
bailout of the two companies, the groups recommended privatizing both.