Competitors Want Fannie, Freddie Out Of Their Business
At least one group was cheering last week's turmoil at Freddie Mac, bringing new scrutiny to the practices of the secondary mortgage market giant.
The self-styled FM Policy Focus, formerly called FM Watch, has been lobbying Congress for the past few years to rein in the so-called mission creep of Freddie Mac and Fannie Mae beyond their original purpose of facilitating a secondary market for home loans. What they don't want to see, according to sources familiar with the group, is what happened with Sallie Mae, another entity created by the federal government to facilitate a secondary market for student loans which, after privatization, has come to dominate the market for student loan originations and branched into consumer and mortgage lending in direct competition with institutions it was chartered to benefit.
The FM Policy Focus sees initiatives by one or both of the two secondary mortgage market giants to get into private mortgage insurance, consumer lending through the purchase of home equity loans, and the origination market through the setting of underwriting standards, beyond the mission the two companies were chartered for, according to Mike House, a Washington lobbyist representing the group.
"At some point, they get into everybody's else's business because there's no place else to go," he said. "The power of the GSEs is so strong that whatever market they enter into they can dominate."
The group was started by Bank of America, JP Morgan Chase, GE Capital, Household Finance, Wells Fargo and American International Group, all powerhouses, themselves, in the mortgage and other financial services markets.
The underlying fear among the group is that Fannie and Freddie, like Sallie Mae, will eventually create their own network of loan originators in direct competition with the institutions they were chartered to benefit.
"I think the major concern is to keep them focused on their original mission and keep them from getting into anything that approaches originations," said Fritz Elmendorf, a spokesman for the Consumer Bankers Association, another member of FM Policy Focus.
But sources familiar with the group say the competing financial giants would also like to increase their ability to compete in the giant secondary mortgage market, which is currently monopolized by Fannie Mae and Freddie Mac. Some of these companies already buy mortgages from credit unions and banks but are at a disadvantage to Fannie and Freddie.
However, an oft-mentioned goal of eliminating the borrowing advantage of the GSEs through the guaranteed line of credit with the U.S. Treasury, the so-called implied federal guarantee, is not a current aim of the group, said House.
The immediate goals of the group, he said, are to put more teeth into the regulatory oversight of Fannie and Freddie by getting Congress to strengthen the regulator, currently the Office of Federal Housing Enterprise Oversight (OFHEO) in the Department of Housing and Urban Development (HUD).
"Our goal from day one has been for a strong single regulator that has the means and ability to regulate the GSEs, both their debt and their mission," said House, who called OFHEO a "joke." The next aim is to work for passage of greater disclosure requirements for the GSEs, currently pending in Congress.