Fannie, Freddie uneasy about Senate overhaul bill
WASHINGTON, March 29 (Reuters)
- U.S. mortgage giants Fannie Mae and
Freddie Mac expressed concern over the weekend about a plan to
overhaul government supervision of them after a Freddie Mac accounting
scandal rattled markets last year.
Freddie Mac Investor Relations Vice President Peter
Mahoney said legislation proposed by Senate Banking Committee
Chairman Richard Shelby could unsettle capital markets. Both companies
said they are trying to get the proposed bill changed.
Shelby, an Alabama Republican, on Friday proposed
creating a new regulator able to close a failing enterprise, adjust
minimum capital levels, and reject new programs.
The proposal comes amid building momentum in Congress
for tighter supervision of Fannie Mae (nyse: FNM - news - people)
and Freddie Mac (nyse: FRE - news - people) after Freddie Mac
acknowledged last year that senior executives misstated earnings
to mask their volatility.
Mahoney said language giving a new watchdog agency
receivership authority -- power to shut down a failed enterprise
-- and to raise its minimum leverage ratio has made markets nervous.
"Senator Shelby's draft legislation, which
the Senate Banking Committee will discuss as early as this week,
includes a number of provisions that have raised concerns in the
capital markets," Mahoney said in a letter to investors dated
He said Freddie Mac is working with the top Democrat
on the panel, Sen. Paul Sarbanes, to modify the proposal.
Fannie Mae spokesman Chuck Greener also said "certain
elements" of the draft bill would hurt the company and are
likely to generate opposition to the bill, but did not elaborate.
Spokesmen for Fannie Mae and Sarbanes did not immediately respond
to requests for comment on Monday.
Shelby's proposal comes amid intense Congressional
debate over whether the size of Fannie Mae and Freddie Mac pose
potential risks to the U.S. financial system, and whether regulatory
overhaul could hurt the U.S. housing system, which has been a
rare bright spot in an economy that has struggled to recover convincingly
from the 2001 recession.
Senate aides said last week the goal of the legislation
was to focus on strengthening oversight rather than restricting
the operations of Fannie Mae and Freddie Mac.
Many observers believe that legislative prospects
for Shelby's bill depend on whether he can muster bipartisan support
so it can avoid getting bogged down in election-year politics.
National Association of Home Builders Chief Executive
Jerry Howard said on Sunday the proposal would weaken government
support for housing and raise mortgage costs.
"This bill is very hostile to housing. It will
radically alter investors' perceptions of 'government sponsorship,'
place (the) housing mission in a backseat position, add an unnecessary
capital drag and stymie new innovation of affordable loan products,"
he said in a statement.
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