As debate in Washington is revving up over the future of the home financing structure, the head of Freddie Mac offered a defense on Tuesday of the government-sponsored enterprise model that served as the foundation of the U.S. mortgage loan market for decades. In a speech before the Detroit Economic Club on Tuesday, Freddie Chief Executive Charles “Ed” Haldeman Jr. also noted that the housing market, despite some signs of stabilization, faced some potentially rough headwinds from the supply of foreclosures in process. While the nation may be “at last approaching a bottom” in housing, Mr. Haldeman said, “The big downside risk to all this is a large wave of homes now in foreclosure potentially hitting the market at prices that are destructive.”
Fannie and Freddie have reemerged as a bit of a political punching bag on Capitol Hill. Last week, House Republicans introduced a bill to establish federal pay scales for the company’s executives in response to pay packages approved for top executives on Christmas Eve. Meanwhile, Rep. Barney Frank, the Massachusetts Democrat who has long backed the companies’ role in supporting affordable housing, said at a hearing last week that he would recommend ultimately “abolishing” Fannie and Freddie as part of a wholesale revamp of the U.S. mortgage market. Mr. Haldeman described Rep. Frank’s statement as “not helpful” during a question-and-answer session after yesterday’s speech. “I do get that he’s the decision maker but in this interim period, it wasn’t a great day for me, and it wasn’t a great day for our 6,000 employees who saw that headline,” he said.
Freddie Mac has been through a particularly tough and uncertain year that saw the company without permanent executives for the top three executive jobs. Mr. Haldeman, who said he was a “real Barney Frank fan,” said the comments had nonetheless made it harder to “keep people energized and motivated.” He said he had already met with a subset of the company’s employees on Monday to address the comment. “It was a concern,” he said. Rep. Frank’s comments were widely picked up on Friday, largely because of the eye-catching use of the word “abolish.” But his underlying viewpoint—that the government should conduct a wholesale re-evaluation of the housing-finance system—wasn’t entirely new from his previous statements on Fannie and Freddie. Employees can take comfort in the fact that the Obama administration doesn’t appear to be in a hurry to refashion the companies anyway. In an interview with PBS last week, Treasury Secretary Timothy Geithner said it was unlikely that the administration would advance legislation this year addressing Fannie and Freddie, despite the fact that policymakers would take a “cold, hard look” at the home financing structure.
Since taking the helm of Freddie six months ago, Mr. Haldeman has made clear repeatedly that he and the company won’t be lobbying for a desired outcome. Since they were taken over by the government, Fannie and Freddie have ceased all lobbying activities. But Mr. Haldeman said that if asked to provide input by policymakers he’d be sure to “remind” them of a number of “very important” functions the companies serve:
We are the constant liquidity provider—the source of almost three quarters of the liquidity to the mortgage market last year. We are the “backstop bid.” That means our customers know there will always be a buyer for their loans—which gives them the confidence they need to keep lending in any environment and keeps prices more stable. We deal with innovation in the mortgage market better than a purely government entity. And we are an important counter-cyclical influence that stays in the housing finance market even when purely private capital has pulled out. This has been proven by the events of the last two years.
Mr. Haldeman bracketed his remarks on the future of the housing-finance system with the caveat, “We don’t claim to be perfect.” He lauded efforts taken 18 months ago to beef up Fannie and Freddie’s regulator, and he said that additional regulation was “virtually certain.”
Still, he said that the companies’ ability to clean up the housing mess of mortgage loan modifications illustrated the companies’ continued commitment to a public mission. “We’re making decisions on [loan modifications] and other issues—without being guided solely by profitability—that no purely private bank ever could,” he said. Read the original article online. Article was written by Nick Timiraos
