U.S. said to lack reins on loan firms Freddie Mac, others like it, may get more supervision.

April 29, 1991|By New York Times

WASHINGTON -- Administration officials will recommend a sharp increase this week in the supervision of the government-sponsored companies that help to finance home purchases, higher education and agriculture.

Senior White House and Treasury Department officials say they are concerned that the enterprises have grown so large so quickly that their potential liabilities to taxpayers total more than $1 trillion and that the government is unable to exert any control over them.

The agencies say there is no immediate threat to the federal budget from these companies, the largest and best known of which are the Federal National Mortgage Association, popularly known as Fannie Mae, and the Federal Home Loan Mortgage Corp., known as Freddie Mac.

Executives at the companies say they are not taking any improper risks and that significant regulatory changes are not only unnecessary, but may prove counterproductive.

"The bottom line is you start out with the fact that this company is financially sound," said Leland C. Brendsel, chairman and chief executive of Freddie Mac, "so you don't need financial requirements substantially different from what they are now."

What is more, the executives note that their companies are owned by stockholders, and they say they are responsible to them, like officers of other corporations.

The companies have an odd provenance, blending elements from the worlds of corporations and government.

They were created by Congress. They have been granted implicit and explicit federal guarantees and subsidies to achieve certain public policy objectives, like increasing affordable housing, expanding education and promoting and protecting farming.

Within the next few days the Treasury; the General Accounting Office, which is the investigative arm of Congress, and the Congressional Budget Office are expected to release reports concluding that the government lacks the ability to control these enterprises.

"We don't say there's an immediate and imminent danger," said a Treasury official who worked on one report and asked not to be identified. "We will say there is a lack of protection for the taxpayer."

And Charles A. Bowsher, the comptroller general and head of the GAO, said in a recent interview: "Congress and the regulators just aren't watching the situation closely enough. Potential problems can develop."

But it will not be easy to change the law governing the enterprises, which have millions of dollars to finance an extensive marketing campaign and employ an array of politically well-connected advisers -- including former presidential aides like Clark M. Clifford and Leonard Garment.

Fannie Mae has a political action committee that has contributed more than $102,000 in recent years to lawmakers, and tens of thousands of dollars of other contributions have been made by its senior executives.

The enterprises also exert enormous influence over Wall Street and among bankers and home builders who rely on them.

Between them, Fannie Mae and Freddie Mac provide financing for one in four homes in the United States, and each has grown larger than the nation's largest financial services companies.

Not only have the companies been able to blunt previous attempts to put them under tighter control, but they have also won changes in the rules that have allowed them to expand into new kinds of businesses.

Some government officials say they do not have adequate controls to monitor Fannie Mae, Freddie Mac and the other enterprises for safety and soundness or to prevent them from engaging in risky activities.

The other government-sponsored enterprises discussed in the reports are the Student Loan Marketing Association, or Sallie Mae; the Federal Agriculture Mortgage Corp., or Farmer Mac; the College Construction Loan Insurance Corp., or Connie Lee; and the Farm Credit System, which failed in 1985 and has since been rescued.

The Federal Home Loan Banks System, another government-sponsored enterprise, was strikingly overhauled as part of the savings and loan bailout.

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