WASHINGTON - The Office of Federal Housing Enterprise Oversight Director, Armando Falcon, said Tuesday that there are serious shortcomings in an agreement reached last week among Rep. Richard H. Baker, Freddie Mac, and Fannie Mae.

Mr. Falcon, in a speech Tuesday before the Mortgage Bankers Association convention in San Francisco, reiterated that the pact was no substitute for stronger regulatory oversight of the two GSEs.

He said he was pleased that Fannie and Freddie agreed to more disclosure practices, but he questioned many facets of the agreement, including self-implementation of an interim risk-based capital standard, the use of voluntary liquidity standards, and the sale of subordinated debt.

Any stress test for risk-based capital is extremely complicated and could be too weak if developed by the GSEs, Mr. Falcon said.

Mr. Falcon was also skeptical about the institutions' sale of subordinated debt, and said he felt that the market may perceive the debt as being backed with a federal guarantee.

"It is not clear how useful subordinated debt would be in strengthening market discipline for government-sponsored enterprises," he said. "While I remain open-minded, it's hard for me to imagine that their GSE status would not in some way influence how their sub debt will trade."

Mr. Falcon said he expects the agency to deliver a final rule containing risk-based capital standards for the GSEs to the Office of Management and Budget by yearend.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.