Magazine article American Banker

Work Far from Done on Capital Rule for Fannie and Freddie

Magazine article American Banker

Work Far from Done on Capital Rule for Fannie and Freddie

Article excerpt

WASHINGTON -- A risk-based capital rule for Fannie Mae and Freddie Mac that took the Office of Federal Housing Enterprise Oversight nearly a decade to finish "needs a lot of work," the agency's acting director said Tuesday.

James Lockhart also told lawmakers at a House Financial Services subcommittee hearing that a cap imposed on Fannie's retained mortgage portfolio would probably continue for "several years" and that Freddie Mac may be subjected to similar constraints.

Mr. Lockhart did not detail any changes he might make to Fannie's and Freddie's risk-based capital rule. Asked by Rep. Sue Kelly, R-N.Y., if the rule, which was finalized in late 2001, required revision, Mr. Lockhart said that it did.

"It is just a stress test, to my mind," he said, adding that he hoped proposed legislation to create a stronger regulator for Fannie and Freddie would give the agency tools to craft a better risk-based rule.

Mr. Lockhart was similarly circumspect on discussions of putting a cap on Freddie's portfolio. Rep. Richard Baker, the chairman of the subcommittee with oversight of the government-sponsored enterprises, said any restriction placed on Fannie should be extended to Freddie. In a May 23 consent agreement, Fannie agreed not to expand its portfolio past the level at Dec. 31, 2005.

"I'm an equal-treatment GSE guy," Rep. Baker said.

In response, Mr. Lockhart said that Freddie's portfolio has grown 20% in recent years, while Fannie's portfolio has shrunk, and that OFHEO could cap Freddie's growth. …

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