Fannie Mae, Freddie Mac Answer Criticism By Pleading Higher Costs by Lew Sichelman
Discussions about placing two key mortgage market institutions under a single, stronger regulator and cutting their ties to the U.S. Treasury has had a negative impact on what investors are willing to pay for their debt -- and as a result, what consumers pay for their mortgages, the two companies maintain. "Mortgage rates are a quarter-percentage point higher than they would have otherwise been, and that differential persists," Fannie Mae Vice Chairman Jamie Gorelick said at a Mortgage Bankers Association conference last week two. Freddie Mac also has seen its costs increase, though company officials refused to estimate by how much. Fannie Mae and Freddie Mac are private companies with a public purpose -- to keep the cost of mortgages as low as possible by bringing liquidity and standardization to the marketplace. But they have come under increasing criticism lately, and for a variety of reasons. Some detractors say the government sponsored enterprises make too much money and are more interested in keeping their dividends strong than in helping low and moderate-income home buyers. Some say they are moving beyond their charters into businesses that already are served well by private enterprise. And some say that they are putting taxpayers on the hook for billions of dollars in financial risk. Of course, the two companies deny all the charges. Anyway, according to Fannie Mae's Gorelick, mortgage rates have subsided somewhat since Treasury Undersecretary Gary Gensler told Congress he favored eliminating the GSEs' lines of credit with his department -- but only "by about half" the initial 25-basis-point jump. Freddie Mac also has seen its costs increase since hearings on the legislation introduced by Rep. Richard Baker (R-La.) to bolster federal oversight of the GSEs, but some of that has started to come back, President David Glenn told reporters covering the San Diego meeting. "Our spreads widened in relation to other benchmarks, but I wouldn't feel comfortable stating it as a percentage increase in financing costs," Glenn said at the BA conference. "We saw some (increase) but I don't think we experienced anything" as high as Fannie Mae. But Gorelick went even further, saying there hasn't been much her company has been able to do about its higher costs. "We have tried to explain to the international investment community why the (Baker) bill won't pass and why they should continue to invest with us," she said. "But anyone who thinks this is a benign set of changes (should understand) it is not." The last time Fannie Mae criticized the Treasury Department's testimony, the company was called on the carpet by Rep. Baker, who is chairman of the House GSE subcommittee and Fannie Mae was forced to issue an apology. But in her convention address, Gorelick didn't hesitate in her condemnation of the Baker legislation, labeling the measure and other efforts to reign in the two financial institutions "an assault on the best housing finance system in the world." The intent is not to contain Fannie Mae and Freddie Mac but rather to "force us from the field altogether," she charged. "Just the debate has increase our costs and raised prices for consumers." However, Freddie Mac's Glenn put a little more positive spin on the Baker bill, saying that the GSEs "need to have a sound regulatory structure." While Freddie Mac didn't agree with many of the measure's provision, he said, it would allow for an open debate on the issue. In another convention talk, meanwhile, Assistant HUD Sec. William Apgar said that slightly higher loan rates are "a cost that has to be paid" in the debate over the potential risk the GSEs pose to the nation's financial system and the best way to supervise that risk. "To say we can't have communication because it will upset the capital markets is saying that Congress can't do its job," the HUD official said. | 
