The assault on Fannie Mae and Freddie Mac escalated on two fronts this week.
The government on Thursday told Fannie and Freddie to boost their commitment to lower-income home loans by $500 billion, to $2.4 trillion over the next 10 years.
The Department of Housing and Urban Development report - front-paged in a Thursday morning story in The Washington Post that said the government-sponsored enterprises "hurt blacks" - came on the heels of a new public relations campaign by Fannie's and Freddie's critics in the private sector.
The chain of events illustrates the predicament faced by the government-sponsored enterprises. On one hand is the pressure to meet the government's affordable housing goals under their charters to buy home loans and foster homeownership. On the other, is rising resentment from lenders and other players in the mortgage market, who fear intrusions on their turf by huge companies that enjoy low funding costs thanks to their quasi-governmental status.
The critics argue that higher risk loans are the province of specialists, and that Fannie's and Freddie's participation in that end of the market may put taxpayers at risk.
HUD, which is studying whether the government sponsored enterprises' policies result in discrimination, but has not determined that they do, nevertheless urged them to expand their outreach to low-income communities - and to blacks and Hispanics in particular.
The new HUD goals "will have a substantial impact on the low-income loan community and will differentially impact blacks and Hispanics, who make up a large share of these underserved markets" said Federal Housing Commissioner William Apgar.
If Fannie and Freddie fail to meet the targets, the housing department could levy penalties ranging from monetary fines to cease-and-desist orders, after a review to determine if the economy has been strong enough to make the goals feasible.
HUD is requiring that 48% of the GSE's loan activity benefit low-to-moderate-income families, 29% benefit low-income families, and 18% very-low-income families. Those percentages will ratchet up to 50%, 31%, and 20% respectively for the calendar years 2001-2003.
Frank Raines, chairman of Fannie Mae, stressed that his company is cooperating with the department. "We have been very pleased to work with [HUD Secretary Andrew] Cuomo on this issue over the past year and are happy to stand up to the goals he has set."
On the other hand, Sharon McHale, a spokeswoman for Freddie Mac, acknowledged that "these are very tough goals to meet, especially if the economy hits tougher times.
"We are looking at this right now to determine feasibility," she said.
Though HUD has obtained data from the two enterprises for a review of whether their underwriting policies have resulted in discrimination, it has not yet issued any finding. Some experts said, however, that they would not be surprised if Hud discovers such a pattern.
"It's more likely in our economy that people who depart from complete compliance with underwriting guidelines are more likely to be members of minority groups in that they are more likely to be lower-income," said John C. Weicher, senior fellow at the Hudson Institute in Washington. "They have complicated credit histories because they've had lower incomes, more spells of unemployment, and so forth."
But Mr. Weicher said Fannie and Freddie should be able to offer credit to minorities and low income families safely. "It seems to me that there should be the ability to identify good credit risks more without having such a rigid standard," he said.
Earlier this week, Fannie and Freddie faced an attack on the other flank, as FM Watch, a lobby funded by a coalition of financial services companies, launched a web page that purports to expose inconsistencies in what Fannie and Freddie say to the public.
The page, Truth Watch, will provide analysis of the two companies' public statements ranging from advertising to speeches. "One thing FM Watch has learned is that often Fannie and Freddie say one thing to Congress and the public and another to customers Wall Street", said Mike House, Executive Director of FM Watch. "Truth Watch has been established to point out their inaccuracies and contradicting messages in their public statements."
The campaign is targeted primarily at policymakers on Capitol Hill. The advertisement ran in the Capitol Hill newspapers "The Hill" on Wednesday and "Roll Call" on Thursday. "Banner" advertisements have also been posted at a number of Internet sites including "The National Journal".
Spokesmen for Freddie and Fannie were dismissive.
"We think what we say, we do: We're all about helping our customers help their customers get quality, fast, efficient, affordable mortgage finance," said Freddie Mac spokesman Doug Robinson.
David Jeffers, Vice President for Corporate Relations at Fannie Mae, said he expects people will be turned off by what he considers "the anti-consumer version of the truth".
"Mortgage insurers, high cost lenders and big conglomerates posing as 'the Truth Squad?' George Orwell is rolling over laughing in his grave," Mr. Jeffers said.
This debate shows no signs of cooling off in the near future, however.
FM Watch's ad campaign corresponded with the introduction of a bill by Rep. Richard Baker of Louisiana calling for increased supervision of Fannie Mae and Freddie Mac. Mr. Jeffers believes the bill has little chance of being passed into law because "it could increase regulatory burden and harm consumers."
FM Watch spokeswoman Beneva Schulte considers the bill a "first step" towards progress, but calls for stronger oversight of Fannie Mae and Freddie Mac's entry into new products and markets. She insists, "Fannie Mae and Freddie Mac are not only intruding upon and upsetting open and competitive markets, but their growing debt is creating taxpayer risk."
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