WASHINGTON — Nearly two months after the government seized Fannie Mae and Freddie Mac, not much has changed.
Both government-sponsored enterprises have new chief executives, but the conservatorship that began Sept. 7 was supposed to help resuscitate the mortgage markets with lower borrowing costs and an increase in modifications.
But observers, citing policy miscues, say mortgage rates have not come down, borrowers are not getting more help, and even debt issued by Fannie and Freddie now costs more.
"You go back to the goal of conservatorship, which was to unleash them as positive forces," said Jim Vogel, the head of fixed-income research at First Horizon National Corp.'s FTN Financial Capital Markets Corp. "That hasn't happened. … It's a period of intense confusion."
That confusion is disappointing those who had hoped the conservatorship would lead to a stronger mortgage market.
"If they've changed, they've changed for the worse," said Robert Gnaizda, the general counsel of the Greenlining Institute. "They are frightened of taking action. Key executives have been immobilized. … That does not bode well for the homeowner."
One problem: puzzling statements by top regulators.
In testimony Oct. 23 to the Senate Banking Committee, Federal Housing Finance Agency Director James Lockhart, who is running the conservatorship, said the $100 billion credit lines held at the Treasury Department for Fannie and Freddie amount to an "explicit" guarantee of existing and future debt issued by the GSEs.
Later that day his agency said "effective" would be a better adjective than "explicit." But that hardly clarified matters for investors, who are unsure whether the government is backing GSE debt.
"You're not really sure politically what's going to happen," said Ira Jersey, the director of U.S. interest rate strategy at Credit Suisse Group. "You're not sure what the endgame is."
Fannie and Freddie debt costs are also being affected by the Federal Deposit Insurance Corp.'s move last month to guarantee bank debt.
GSE debt has historically been seen as one of the safest bets for investors, but with the FDIC's unambiguous backing, bank debt is even safer.
As Fannie and Freddie pay more for funding, mortgage rates rise for consumers — the exact opposite of what was supposed to happen under the conservatorship.
"It's kind of a seesaw effect," said Howard Glaser, a housing consultant. "The left hand and right hand in government are not always working in sync … and you end up with a patchwork of guarantees."
Federal Reserve Board Chairman Ben Bernanke acknowledged the deteriorating situation Friday at a Berkeley, Calif., symposium on the mortgage meltdown. The GSE conservatorship was initially viewed positively, he said. "More recently, however, markets for GSE debt and mortgages have again come under stress, because of the widespread dislocations in financial markets generally."
Mr. Vogel said the FHFA could move to explicitly guarantee GSE debt, giving it parity with bank debt. Until then "there's a feeling that the government is trying to make … [the effective guarantee] sound stronger than it may actually be."
In a e-mail Friday to American Banker, Mr. Lockhart insisted his agency "is making good progress" but needs more time.
"Mortgage rates need to come down, and the markets need to settle," he said. "It will take some time."
While Mr. Lockhart, Mr. Bernanke, and Treasury Secretary Henry Paulson have argued that the GSEs' "mission" should be reoriented toward affordable housing, officials in that industry said they have not found a new partner in Fannie and Freddie.
"Refocusing the mission is still the stepchild," said Judy Kennedy, the CEO of the National Association of Affordable Housing Lenders. "Without a strong regulatory direction, it's unlikely to happen."
One thing playing a central role in the frustration is a perceived lack of interest at Fannie and Freddie in modifying loans held by troubled borrowers. The GSEs were maligned as barriers to modifications this year before the conservatorship, because their standards did not allow them to change a loan that was not delinquent.
"Banks have not told me there's an improvement," under the conservatorship, Ms. Kennedy said. "They're missing an opportunity to stimulate more lending."
Anger over modifications was so high last week that the National Assistance Corp. of America held a protest outside Fannie's Washington headquarters. After the protest Bruce Marks, the nonprofit's CEO, scored a one-hour meeting with Herb Allison, Fannie's new chief.
"He said 'I've only been in this for seven weeks,' " Mr. Marks said. "He said he's going to sit down and spend a lot of time with us. He wants us to send him examples of homeowners having problems."
How much Mr. Allison or his counterpart at Freddie, David Moffett, can accomplish is unclear. The FHFA has delegated some authority to the CEOs, but where that authority begins and ends is unclear.
"No one's running it," Mr. Gnaizda said. "Lockhart should have already come up with new plans for new types of mortgages or other new models."
A Freddie spokeswoman said it has "an evolving" relationship with its regulator.
"In general, Mr. Moffett functions as would virtually any corporate CEO, and FHFA functions as would virtually any corporate board — giving advice and offering assistance to the CEO," she said. "As such, Mr. Moffett runs the company and makes all day-to-day business decisions."
In the e-mail, Mr. Lockhart said the CEOs "maintain an ongoing dialogue with the director and FHFA staff and will continue to do so as the companies rebuild."
A Fannie spokesman would not discuss the CEO's duties but acknowledged that it could do more to help the housing market.
"We strongly agree we could do more," the spokesman said. "We're developing broader approaches to reach far more borrowers than we have so far. To that end, we're looking at adopting streamlined modification efforts for borrowers that we'll be rolling out."
Mr. Lockhart called foreclosure prevention a "serious concern" in an interview last week.
"The new CEOs have taken the issue of foreclosure prevention to heart, and they're working hard on their existing programs, and we are looking at more creative ones," he said. "We're encouraging them to be even more proactive in the future."
As confusion continues to surround Fannie and Freddie, many industry observers are preparing for another big debate over them on Capitol Hill.
"It's going to be one of the top issues for the next Congress," said Steve O'Connor, the Mortgage Bankers Association's senior vice president of government affairs.
That could be a daunting prospect, considering it took seven years to pass legislation that strengthened oversight of Fannie and Freddie. But Mr. Marks said the next round would be different, since the conservatorship stripped them of their lobbying might.
"All that's gone," he said. "Now it's open season."