Freddie Mac, Fannie Mae Face Regulatory Actions
While congressional efforts to create a new stronger regulator for Fannie Mae and Freddie Mac came to a halt, the current regulators of the two government sponsored enterprises (GSEs) flexed their muscles.
More Aggressive Housing Goals. The Department of Housing and Urban Development, the GSEs' program regulator, is proposing more stringent housing goals for Freddie Mac and Fannie Mae for 2005 to 2008. The goals govern the purchase of mortgages financing low-and moderate-income housing, special affordable housing, and housing in central cities, rural areas and other underserved areas.
HUD wants Fannie and Freddie to take more aggressive steps to lead the industry in ensuring mortgage credit is available to certain targeted groups or areas. For example, HUD believes the GSEs lag the industry in making credit available to first-time minority homebuyers. Also, proposed goals would put a greater focus on purchase money loans to increase homeownership opportunities for targeted families. Following a 15-day congressional review, HUD will publish the goals for a 60-day comment period.
Stricter Governance Standards. The Office of Federal Housing Enterprise Oversight, the GSEs' safety and soundness regulator, is proposing new corporate governance standards for Fannie Mae and Freddie Mac based on recommendations in its special examination of Freddie Mac completed late last year. OFHEO wants to address current identified weaknesses and reduce the potential for future corporate misconduct.
OFHEO wants to separate the CEO and chairman functions, limit directors to ten years of service and impose an age limit of 72. New requirements would include: audit partner rotation every five years and auditor rotation every ten years; more frequent board and committees meetings; "appropriate and reasonable" compensation that considers legal compliance and organizational stability, not just earnings; review of codes of conduct at least every three years; and boards informed of the companies' growth plans and resources to manage risk.
Impairment Accounting Concerns. OFHEO announced it is focusing on Fannie Mae's accounting for impairments as one part of its ongoing investigation of accounting policies and practices. OFHEO is concerned about proper accounting for impairments related to Fannie's manufactured housing portfolio and other assets. OFHEO is also looking at how a possible misapplication of GAAP could affect Fannie Mae's financial statements.