SEC Chief Says Fanni, Freddie Need to Seek Best Prices on Debt
WASHINGTON - Fannie Mae and Freddie Mac may not be getting the best price for their debt securities and should look at different ways of selling them, Richard C. Breeden, chairman of the Securities and Exchange Commission, said Tuesday.
The Federal National Mortgage Association (Fannie Mae) sets the price for its securities based on feedback from 55 investment firms and banks. THe Federal Home Loan Mortgage Corp. (Freddie Mac) also has a selling group but uses both auctions and allocation.
"Why are [government-sponsored enterprise] securities not today allocated to purchasers on the basis of best price?" Mr. Breeden asked in his appearance before the American Council of Life Insurance.
He said a price-based system would help solve the problem of firms submitting false or misleading data during the sales.
Changes in the auction procedure could reduce the income of about two dozen banks that are authorized to purchase and distribute Fannie Mae and Freddie Mac debt.
Fannie Mae and Freddie Mac debt are popular investments for commercial banks and savings and loans. The institutions held $42.1 billion of the securities as of March 31.
Discussions Were Held
In the wake of recent investigations of brokers' inflating of customer orders, Mr. Breeden said the SEC has had "lots of discussions with the agencies. They have a very strong interest in policing themselves."
But in response to reporters' questions, Mr. Breeden emphasized that the SEC is not advocating a policy change. "We don't have the authority to regulate Fannie Mae and Freddie Mac securities," he noted.
Fannie Mae spokesman David Jeffers said the agency would go along with changes only if they translated into reduced costs for mortgage borrowers.