AFL-CIO Lines Up to Oppose GSE Creep

Article excerpt

Add the AFL-CIO to the list of groups willing to pick a fight with Fannie Mae and Freddie Mac.

Citing concern about the government-sponsored enterprises' drive to automate real estate appraisal, officials of the nation's largest labor organization confirmed this week that it may direct its $5 trillion in pension funds away from GSE paper.

Though they said the union is worried that the automated process could introduce risk into the GSEs' loan portfolios, they also made it clear that the fate of traditional appraisers plays a significant role in the internal debate. With the growing use of automated appraisals, led in part by the GSEs, concern is growing that the livelihoods of real estate appraisers -- a fair number of whom belong to an AFL-CIO affiliated union -- could be at stake.

At the very least, the disagreement is another instance of how the GSEs' expanding reach has put them at odds with an opponent of considerable political and financial clout.

Community banks have recently complained that GSE investment notes, sold in increments as small as $1,000, compete with their products, such as certificates of deposit and checking accounts. Moreover, mortgage insurers, credit reporting agencies, and even large lenders have griped that Fannie and Freddie are slowly encroaching on their bread-and-butter businesses.

Oddly enough, it's not the first time the AFL-CIO (formally the American Federation of Labor and Congress of Industrial Organizations) has joined forces with white-shoe firms. In February the organization sent a joint letter with the Financial Services Roundtable to the White House asking the administration to support federally backed terrorism insurance.

This time however, there may be more directly at stake.

Officials for the federation's 66 unions -- which are major investors in mortgage-backed securities -- say the appraisers' concerns led to a grassroots campaign aimed at persuading the AFL-CIO's leadership to use its vast pension holdings as a lobbying tool to change the corporate strategies of Fannie and Freddie.

"There is a lot of pension money tied up in mortgage financing," said Michael Goodwin, a vice president of the AFL-CIO's executive council and president of the 145,000 member Office and Professional Employees International Union. "We are going to try to use that leverage we have with the billions of dollars that are controlled by the AFL-CIO funds and turn it into a voice that can be heard."

Damon Silvers, an associate general counsel for the AFL-CIO, said it plans to make its decision in less than six months.

Though industry observers say most mortgage appraisals are still done in the old-fashioned way, Fannie, Freddie, and many lenders are pushing for wider acceptance of the automated systems.

"The notion that you would automate an appraisal process for a home doesn't strike us as making any sense at all," Mr. Silvers said. "We are generally skeptical of claims that you can automate the valuation of any particular asset. …