Freddie Mac's most detailed explanation to date of its accounting woes raised more questions than it answered and prompted a prominent lawmaker to call for additional probes of the government-sponsored enterprise and its rival.
Rep. Richard H. Baker, R-La., said Wednesday he was "more disconcerted ... than comforted" by Freddie's update that day on its efforts to correct accounting mistakes and its related disclosures. He said he would ask the General Accounting Office to investigate the GSE's accounting practices and would demand that its regulator examine potential violations of its charter.
The chairman of the House Financial Services subcommittee on capital markets also made it clear that he intends for the investigations to extend to Freddie's principal competitor, Fannie Mae.
"Given the disclosures today, we will have a specific list of inquiries for them to respond to," Rep. Baker said. "The derivatives will no longer be treated as capital. We need to fully understand the implications of this accounting change and potential impact on Fannie as well."
He also said that Freddie would do well to announce any other potential accounting issues as soon as possible. "Whatever the picture is, I would advise them to take the snapshot, make it public, and let's get this behind us. This continued release of bad information is not helpful to the markets."
Rep. Baker said he would ask the GSE's safety-and-soundness regulator, the Office of Federal Housing Enterprise Oversight, to check whether Freddie violated its charter by retaining an interest in mortgage-backed securities that it sold to third parties. The charter places limits on the sorts of risks Freddie may retain and what risks it has to lay off through mortgage insurance or other means.
His promise to request an OFHEO investigation followed a hearing before his subcommittee, in which several lawmakers expressed doubt about the agency's competence as a regulator.
In an opening statement, House Financial Services Committee Chairman Michael G. …