ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, August 1, 1996 TAG: 9608010043
SECTION: BUSINESS PAGE: B-10 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
The nation's two major sources of money for home mortgages came under scrutiny Wednesday as Congress began questioning if they should continue getting special tax-supported backing.
Congress is questioning whether Fannie Mae and Freddie Mac are taking on too much risk. Four new government studies openly asked whether lawmakers should make them independent and yank a $6 billion subsidy.
Despite these rumblings, one theme emerged from four oversight hearings by the House Banking subcommittee on capital markets, which concluded Wednesday.
Congress is unlikely to force the companies, formally known as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., to become fully private this year, although less dramatic reforms are in the works.
Both agencies feed the supply of money available to home buyers by purchasing existing mortgages from banks, thrifts and other lenders and then selling packages of the loans as securities to investors.
``We are far from having an answer to consider privatization at this point,'' said Rep. Ken Bentsen, D-Texas.
The focus of Congress' inquiry is the use of federal benefits by the two ``government sponsored enterprises.'' They were created by Congress to expand the national mortgage market but have stock traded on the New York Stock Exchange.
Both companies save about $400 million a year because they don't have to pay state or local corporate income taxes and don't have to register their securities with the Securities and Exchange Commission. They also can fall back on U.S. Treasury credit lines of $2.25 billion, which allows them to borrow at almost the same rate as the federal Treasury.
Banking committee members fear that with more than $1 trillion in outstanding mortgage-backed bonds, both companies may not have enough capital set aside to cover unexpected losses if the economy soured rapidly. If that happened, analysts assume taxpayers would be asked to help cover losses.
The companies' federal regulator, Aida Alvarez, director of the Office of Federal Housing Enterprise Oversight, said it would take an ``unlikely scenario'' - a 6-point increase in interest rates and high loan losses - before the two companies would run out of capital.
``The results do illustrate, though, that the survival of both firms in a very high interest rate environment is not a sure thing,'' Alvarez said. She suggested both companies may have to increase their capital levels when her agency finishes a review of capital standards next year.
Leland Brendsel, Freddie Mac's chairman, said it's misleading to compare his company's capital levels to banks or other lenders which engage in more diverse and riskier activities.
``Freddie Mac has only one line of business - the purchase of high quality mortgage loans,'' Brendsel said in prepared remarks. Testimony of Brendsel and Robert Zoellick, Fannie Mae's executive vice president, was postponed until today due to a series of votes on the House floor.
In Zoellick's prepared testimony, he emphasized the positive aspects of the recent investigations. ``All of the study agencies ... agree that Fannie Mae and Freddie Mac reduce mortgage rates, and that mortgage rates would rise if our federal charter were revoked,'' he said.
LENGTH: Medium: 64 linesby CNB