Home Page Fannie, Freddie Had Adequate Capital NEW YORK (Reuters) - The financial regulator of Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) said on Wednesday the two U.S. mortgage finance giants were adequately capitalized at the end of the fourth quarter of 2003. The Office of Federal Housing Enterprise Oversight, or OFHEO, said the two companies held enough capital as of Dec. 31 to exceed both their risk-based and minimum capital requirements. But these capital measures, which gauge the levels of the companies' financial cushion against market shocks, could be changed as proposed by a federal bill unveiled last week by Senate Banking Committee Chairman Richard Shelby. The regulator currently measures the shareholder-owned, congressional chartered companies in two ways. One test, the minimum capital standard, is a straight percentage of assets. The other, the risk-based test, determines how much capital and risk-hedging the companies would need to withstand a prolonged collapse of U.S. housing markets or extreme interest rate gyrations. Fannie Mae exceeded its risk-based capital requirement of $27.221 billion by $7.96 billion and its minimum capital requirement of $31.52 billion by $2.885 billion, OFHEO said. Freddie Mac exceeded its risk-based capital requirement of $5.094 billion by $28.010 billion and its minimum capital requirement of $24.237 billion by $9.048 billion. Last year, Freddie Mac rattled markets when it replaced its top three executives due to an accounting scandal. The company said it underreported past earnings by $5 billion. An independent report commissioned by the company said executives had ignored accounting laws in efforts to push earnings into the future to sustain an image of steady earnings growth. The scandal fanned calls within Congress to strengthen oversight of Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank system. OFHEO said Freddie Mac's earnings restatement could affect its minimum capital and risk-based capital surpluses. In January, OFHEO said Freddie Mac would have to hold 30 percent more capital than its current minimum requirement of 2.5 percent of assets plus 0.45 percent of off-balance-sheet obligations. The new requirement will remain in place until the No. 2 U.S. mortgage finance company sorts out of its books. "Although OFHEO imposed a capital surcharge for Freddie Mac in January 2004 due to increased operational risk, that surcharge does not impact past periods, including the fourth quarter 2003," the regulator said in a statement. In the wake of Freddie Mac's accounting woes, OFHEO hired Deloitte & Touche LLP in February to conduct a review of the accounting practices at Fannie Mae. Last July, the head of the regulator, Armando Falcon, said such a move was prudent. But he had no specific worries about Fannie Mae's accounting. OFHEO said it may recalculate the regulatory capital for Freddie Mac after Freddie Mac publishes its 2003 financial results, currently expected in the middle of 2004. As for Fannie Mae, the regulator said it may restate prior capital test results and revise respective capital calculations, depending on the outcome of its current review of the company's accounting policies. More News: 3-31-04 Snow defends outsourcing of jobs 3-31-04 Elderly who can't pay taxes losing homes 3-31-04 Factory Orders Rise 0.3 Pct. in February 3-31-04 Finance: Do-It-Yourself Credit Counseling 3-31-04 Grasping for debt relief 3-31-04 Fannie Mae May Need to Restate Earnings 3-31-04 Ideas for How to Spend Your Tax Refund 3-31-04 In Wisconsin, Bush preaches free trade, lower taxes 3-31-04 Kerry Releases New State-by-State Report on Job Growth 3-31-04 OPEC Tightens Oil Supply Restrictions 3-31-04 Stocks Fall, Jobs and Oil Hover 3-31-04 White House urges OPEC not to harm U.S. economy         Financial News

 

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