Freddie Mac may raise capital levels

November 18, 1990|By Patricia Lamielland Nanette Burns | Patricia Lamielland Nanette Burns,Knight-Ridder News Service

NEW ORLEANS -- The cost to take out a mortgage will rise if government-sponsored mortgage agencies are forced to raise their capital levels, according to Leland Brendsel, Federal Home Loan Mortgage Corp. chairman and chief executive.

Both Freddie Mac and the Federal National Mortgage Association have been under federal pressure this year to raise capital levels.

Mr. Brendsel said that if, for example, Freddie Mac is forced to double its capital reserves, the agency would raise the fees it charges lenders by 25 percent -- a cost that ultimately would be passed on to borrowers.

"Capital does have a cost," Mr. Brendsel told a committee of the National Association of Realtors at a conference here. "Any increase in capital is reflected in higher rates and fees."

Under current guidelines, Freddie Mac and Fannie Mae are required to hold $1 of capital for every $15 of debt.

Freddie Mac currently exceeds that requirement by a wide margin, holding nearly $4 of capital for every dollar of debt, a spokeswoman said in a telephone interview.

However, federal regulators might persuade Congress to raise requirements next year according to each agency's financial condition, in which case the amount of capital Freddie Mac now holds would be forced higher, the spokeswoman said.

Earlier this year, credit-rating agencies rejected a proposal by the Treasury Department and the Office of Management and Budget that the mortgage companies should meet AAA rating standards. However, the issue will be taken up again next year in hearings before congressional committees.

Mr. Brendsel repeated earlier statements that he supports efforts to evaluate Freddie Mac's capital standing but that he thinks AAA standards are too strict.

Mr. Brendsel also said the recent slowdown in the growth of property values "signals that there will probably be less equity buildup in the system to protect against" defaults.

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