Newspaper article THE JOURNAL RECORD

More Supervision of Lenders Needed

Newspaper article THE JOURNAL RECORD

More Supervision of Lenders Needed

Article excerpt

WASHINGTON - Federal auditors said that the government should sharply increase the regulation and supervision of government-sponsored enterprises that lend money to home buyers and college students or else taxpayers might have to foot the bill in the future.

In a report to Congress on Wednesday, the General Accounting Office said the ``ambiguous status'' of such lenders - ``neither fully private nor clearly public'' - exposes the government to potentially large financial risks, as in the savings and loan industry.

The report said the Department of Housing and Urban Development had been passive in monitoring two such lenders, the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac.

Also, it said, the Student Loan Marketing Association, known as Sallie Mae, ``has no federal regulator to oversee the safety and soundness of its financial activities.''

The General Accounting Office, a congressional investigative agency, said the government should treat such hybrid entities more like commercial banks and insist that they increase their capital with the risks they take.

Leland C. Brendsel, the chairman of the Federal Home Loan Mortgage Corp., responded that the report ``understates both the financial strength of Freddie Mac and the importance'' of its mission to provide credit for home buyers.

``We have a 20-year unbroken string of profits,'' he said, and Freddie Mac will not become a liability to the government unless there is ``a nationwide economic catastrophe worse than the Great Depression.''

Similarly, David O. Maxwell, Fannie Mae's chairman, said his congressionally chartered corporation had ``never cost taxpayers a penny.'' In fact, he said, ``over the last three years, we paid some $908 million in Federal income taxes.''

Maxwell added that he welcomed ``close scrutiny,'' but he denied that the special status of a government-sponsored enterprise created ``incentives for management to take excessive risks.''

Edward A. Fox, the president of the Student Loan Marketing Association, said the report unfairly reinforced the ``perception among investors that the federal government will act as a credit backstop for all government-sponsored enterprises.''

He said he saw no need to impose ``an outside regulator to monitor and evaluate the adequacy of Sallie Mae's capital.''

The General Accounting Office acknowledged that ``Sallie Mae's credit standing is quite high, and that there is no evidence to suggest that Sallie Mae represents an imminent risk of failure to the government. …

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