Plan for Fannie Mae bureau proposed

May 01, 1991|By Stephen Labaton | Stephen Labaton,New York Times News Service

WASHINGTON -- The Bush administration disclosed yesterday the details of its plan for a significant increase in the supervision of the government-sponsored companies that help finance home purchases, higher education and agriculture.

"The whole purpose here is to avoid another financial mess," Jerome H. Powell, an assistant Treasury secretary, said, referring to the collapse of the government-sponsored enterprise that protected depositors at savings and loan associations. That collapse will cost taxpayers hundreds of billions of dollars.

In a report to Congress, Treasury Department officials said that an independent bureau should be set up within the Department of Housing and Urban Development to oversee the companies that help finance one in every four residential mortgages.

The companies are the Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac, which have posted record profits in the last year.

They are now overseen by fewer than a half-dozen officials at the housing agency, whose authority to control the companies is in dispute and who insist they are unable to control or monitor the companies effectively.

The proposed bureau would have the authority to set more stringent regulatory standards and capital levels -- cushions that could be drawn upon should financial difficulties occur. Its director would be appointed by the president, with the consent of the Senate, and would report to the secretary of housing and urban development.

The recommendation stops short of a more stringent proposal -- the removal of Fannie Mae and Freddie Mac from agency supervision to a different regulatory body.

The idea had been considered by the Treasury through last week and was dropped only recently after being vetoed by the officials at the White House and Office of Management and Budget, which by some accounts had been heavily lobbied by representatives of the government enterprises. But an independent regulatory agency for the enterprises will soon be recommended by the General Accounting Office, the investigative arm of Congress, which has also been studying the government-backed lenders.

The Treasury also recommended tighter control over the other leading government-sponsored enterprises, or "GSEs" -- the Student Loan Marketing Association, or Sallie Mae, the Federal Agriculture Mortgage Corp., or Farmer Mac, the Farm Credit System and the Federal Home Loan Bank System.

Treasury officials and independent auditors have emphasized that none of the companies, which hold implicit and explicit government guarantees of more than $1 trillion, pose an imminent financial threat to the federal budget. But the report dTC also states that the government cannot adequately control or monitor the companies now, and that their chance of encountering "financial difficulty is more than a hypothetical possibility."

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