Freddie, No. 2 Mortgage Player, Gets Credit for Disclosure Deal

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Freddie Mac, long overshadowed by Fannie Mae, outfoxed its larger and more powerful rival last week.

It announced a truce with Rep. Richard H. Baker on Thursday under which both government-sponsored entities agreed to increase capital over three years, disclose more information to investors, and ramp up risk management.

The deal addresses some of the Louisiana Republican's concerns and is expected to quiet his threats of sweeping legislation next year.

Freddie stepped in after talks between Rep. Baker and Fannie Mae broke down following an incendiary speech in which Fannie chairman Franklin D. Raines essentially declared victory over Rep. Baker's effort to overhaul oversight of Fannie and Freddie.

According to sources, in the days following Mr. Raines' speech Freddie Mac officials offered Rep. Baker a look at a plan the two GSEs had been working on to improve their regulation. From that proposal, the final deal emerged -- without Fannie's participation, sources said.

One Washington source said Mitchell Delk, Freddie's senior vice president for government relations, quietly went up to Rep. Baker and said, "We'll agree to standards that nobody else would possibly think we could agree to."

Rep. Baker, who liked what he saw, finalized the deal with Freddie and made plans to announce it at a Capitol Hill press conference Thursday, another Washington source said. Fannie Mae officials "went berserk," this source said.

According to these sources, at Fannie's and Freddie's behest, Treasury Secretary Lawrence Summers held a meeting with officials from both GSEs on Wednesday. It is unclear what happened in that meeting.

Only late Wednesday did Fannie agree to the deal that Freddie had brokered with Rep. Baker. A congressional source close to the negotiations said that Fannie Mae dragged its heels throughout the process.

Fannie was rather reluctant to support the proposal, he said. "I know they had seen the contents" and were not happy, he said. …