In 'Re-Switch,' Fannie Now Backs Oversight Plan

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Fannie Mae changed its mind again last week and returned to its original stance on legislation to reform oversight of the secondary mortgage market. Fannie, the biggest player in the secondary market, once again endorsed a legislative proposal to move its primary federal regulator from the Department of Housing and Urban Development (HUD) into the Treasury Department.

That, of course, was Fannie's original position, but things got muddled near the end of Congress last year and Fannie waffled before withdrawing its support for the bill. That succeeded in stalling the legislative reform efforts and appears to have opened up the issue to a number of new ideas, including review of the guaranteed line of credit enjoyed by Fannie and Freddie Mac with the U.S. Treasury. Fannie is hoping to ward off a broader reform bill by endorsing the simple one to move oversight from one agency to the other.

Meantime, Fannie's current regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), told Congress last week it has requested a broad number of documents from Fannie in its probe of the company's mistatement of finances, revealed in November. The federal regulator said it does not expect the problems at Fannie to be anywhere near as significant as at sister secondary mortgage giant, Freddie Mac, which was found to have understated its profits by as much as $5 billion over three years, prompting a civil administrative action by OFHEO.

Armando Falcon, the lame duck director of OFHEO, said the agency doesn't suspect similar problems at Fannie, but believes a comprehensive review of the company's accounting practices is prudent. Congress has yet to act on a successor to Falcon nominated by President Bush because of the uncertainty of the oversight agency.

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