Mortgage Informer

The regulator for Fannie Mae and Freddie Mac on Tuesday defended the way it has overseen the two mortgage finance agencies since the government took control of the firms a little more than a year ago, including the decision to allow multimillion-dollar pay packages for top executives.

“As conservator, I believe it is critical to protect the taxpayer interests in the Enterprises by ensuring that each company has experienced, qualified people managing the day-to-day business operations in the midst of this uncertainty,” Federal Housing Finance Agency Acting Director Edward DeMarco said in a letter to lawmakers.

The government put the two firms into “conservatorship” in September 2008 and late last year, DeMarco approved pay packages that could allow the top executive at each firm to earn up to $6 million a year.

As part of his effort to protect taxpayers, DeMarco said the two government-sponsored enterprises, would not be allowed to introduce new loan products in the mortgage market.

“In view of the critical and substantial resource requirements of conserving assets and restoring financial health, combined with a recognition that the Enterprises operate today only with the support of taxpayers, I believe the Enterprises should concentrate on their existing core business, including minimizing credit losses,” DeMarco wrote in the letter, released to media soon after it was sent.

The letter was addressed to Senate Banking Committee Chairman Christopher Dodd and Senator Richard Shelby, who is the top Republican on Dodd’s panel, as well as to House Financial Services Committee Chairman Barney Frank and that committee’s top Repubican, Representative Spencer Bachus.

TIME FOR “DIFFICULT” DECISIONS

DeMarco also said private firms are likely to replace the Federal Reserve as buyers of new mortgage-backed securities issued by the two GSEs. On March 31, the Fed is due to end its program of buying $1.25 trillion of agency mortgage-backed securities.

He said he does not expect Fannie Mae or Freddie Mac to be substantial buyers of mortgages, with the exception of buying delinquent mortgages out of mortgage-backed security pools.

DeMarco emphasized that the conservatorship status should not be a long-term solution, and Congress and the administration need to make “difficult and important decisions” about the way that houses in the United States are financed.

While they are under government control, DeMarco said, “FHFA does not intend for the Enterprises to undertake uneconomic or high-risk activities in support of” its core statutory purpose that includes their support of affordable housing.

The letter comes one day after the Obama administration said it expected losses to mount at the two agencies even as it failed to lay out a vision for the future of the two agencies in its budget proposal. Analysts had been expecting some guidance on what the administration is planning to do with the two agencies.

On Christmas Eve, the administration said it would allow the two agencies unlimited losses through 2012. So far, the firms have tapped about $111 billion from the Treasury Department’s line of credit.

The regulator for Fannie Mae and Freddie Mac on Tuesday defended the way it has overseen the two mortgage finance agencies since the government took control of the firms a little more than a year ago, including the decision to allow multimillion-dollar pay packages for top executives. 

“As conservator, I believe it is critical to protect the taxpayer interests in the Enterprises by ensuring that each company has experienced, qualified people managing the day-to-day business operations in the midst of this uncertainty,” Federal Housing Finance Agency Acting Director Edward DeMarco said in a letter to lawmakers.

 The government put the two firms into “conservatorship” in September 2008 and late last year, DeMarco approved pay packages that could allow the top executive at each firm to earn up to $6 million a year.

 As part of his effort to protect taxpayers, DeMarco said the two government-sponsored enterprises, would not be allowed to introduce new loan products in the mortgage market.

 “In view of the critical and substantial resource requirements of conserving assets and restoring financial health, combined with a recognition that the Enterprises operate today only with the support of taxpayers, I believe the Enterprises should concentrate on their existing core business, including minimizing credit losses,” DeMarco wrote in the letter, released to media soon after it was sent.

 The letter was addressed to Senate Banking Committee Chairman Christopher Dodd and Senator Richard Shelby, who is the top Republican on Dodd’s panel, as well as to House Financial Services Committee Chairman Barney Frank and that committee’s top Repubican, Representative Spencer Bachus.

 TIME FOR “DIFFICULT” DECISIONS

 DeMarco also said private firms are likely to replace the Federal Reserve as buyers of new mortgage-backed securities issued by the two GSEs. On March 31, the Fed is due to end its program of buying $1.25 trillion of agency mortgage-backed securities.

 He said he does not expect Fannie Mae or Freddie Mac to be substantial buyers of mortgages, with the exception of buying delinquent mortgages out of mortgage-backed security pools.

 DeMarco emphasized that the conservatorship status should not be a long-term solution, and Congress and the administration need to make “difficult and important decisions” about the way that houses in the United States are financed.

 While they are under government control, DeMarco said, “FHFA does not intend for the Enterprises to undertake uneconomic or high-risk activities in support of” its core statutory purpose that includes their support of affordable housing.

 The letter comes one day after the Obama administration said it expected losses to mount at the two agencies even as it failed to lay out a vision for the future of the two agencies in its budget proposal. Analysts had been expecting some guidance on what the administration is planning to do with the two agencies.

On Christmas Eve, the administration said it would allow the two agencies unlimited losses through 2012. So far, the firms have tapped about $111 billion from the Treasury Department’s line of credit.

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Tags: Mortgage