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
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
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
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. …