Regulator Raises Questions About Freddie, Fannie

Freddie Mac and Fannie Mae’s government regulator, in a bid to assert its power as Congress weighs dissolving it, raised concerns Monday about the stability of the giant mortgage companies if the economy fails to improve.

The Office of Federal Housing Enterprise Oversight voiced concerns about Freddie Mac and Fannie Mae in a draft for its five-year plan for overseeing the two companies.

But after a recent accounting scandal at Freddie Mac, some legislators are considering eliminating the office and moving its responsibilities to the U.S. Treasury Department.

“The Office of Federal Housing Enterprise Oversight is under intense pressure to sound like they have teeth. They don’t want to go away,” said Paul Miller, an equity analyst at Friedman Billings Ramsey in Arlington, Va.

The office, created by Congress in 1992 to prevent the failure of Fannie Mae and Freddie Mac, is required to outline its mission and goals every five years.

Freddie Mac and Fannie Mae have long been controversial, because although they reduce home buying costs, their government charters prevent other companies from competing with them on a level playing field.

But the controversy grew this summer when Freddie Mac fired top executives and revealed the full extent of accounting problems mentioned earlier in the year, which could force the company to increase retained earnings by up to $4.5 billion.

After the news emerged, some accused the office of being ineffectual.

Freddie Mac’s shares gained 48 cents to $49.83 on Monday; Fannie Mae share’s rose 47 cents to $64.29. Both trade on the New York Stock Exchange.