----- Original Message ----- From: "Doug Henwood" <dhenwood at panix.com>
As John Dizard wrote in yesterday's FT:
> At a time when America, or at least Wall Street, needs a spineless
> hack as the head of a key agency, it is saddled with a credible man
> of principle: James Lockhart, OFHEO's director. Yale graduate,
> Harvard MBA, lieutenant in the nuclear navy, risk management
> software entrepreneur, senior insurance executive, and former head
> of the Pension Benefit Guarantee Corporation. "A real hard-ass" in
> the words of a mortgage finance executive. It doesn't seem as
> though he can be intimidated by the threat of being sent back to
> Plano, Texas, to work in his uncle's car dealership.
=================
[He must've won the argument with BB]
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/29/AR2007082902155.html
Bernanke Opposes Lift Of Fannie, Freddie Caps
By David S. Hilzenrath Washington Post Staff Writer Thursday, August 30, 2007; D04
Federal Reserve Chairman Ben S. Bernanke said Fannie Mae and Freddie Mac don't need a loosening of regulatory constraints to help borrowers threatened with foreclosure.
The government-sponsored mortgage funding companies have said they could help ease the crunch in the mortgage markets if they were allowed to buy more mortgages and mortgage-backed securities and help borrowers refinance on more manageable terms.
Democratic lawmakers have joined housing industry groups and Wall Street investment firms in calling for a relaxation of the limits, but President Bush and federal regulators have rejected the proposals.
In a letter made public yesterday, Bernanke joined those opposed, saying Fannie Mae and Freddie Mac have the ability to provide relief.
"The current caps on the [companies'] portfolios -- which were imposed for safety and soundness reasons -- need not be lifted to allow them to accommodate new borrowers," Bernanke wrote.
Bernanke suggested instead that Congress consider allowing the Federal Housing Administration to play a larger role. The FHA guarantees mortgages that meet its criteria, thereby making them less risky for investors and less expensive for borrowers.
Bernanke agreed that many homeowners face trouble as payments on their adjustable-rate loans ratchet up.
"Over the next several years, many such homeowners will face significantly higher monthly payments and, consequently, an increased risk of losing their homes to forced sale or foreclosure," he wrote.
A Freddie Mac representative said the company still believes it can provide additional relief. Lifting the caps on its portfolio "would help ease some of the turmoil that exists in the market today by enabling us to provide additional liquidity, stability and affordability to the U.S. housing finance system," spokesman Michael Cosgrove said in an e-mail.
A Fannie Mae spokesman declined to comment.
Fannie Mae, of the District, and Freddie Mac, of McLean, which were created by the government to promote homeownership, have two main functions: They buy loans from lenders to replenish lenders' funds, and they package mortgages into securities for sale to other investors, promising to pay the principal and interest if the borrowers default.
The companies accepted limits on their investment portfolios last year as part of agreements with federal regulators in the aftermath of accounting scandals. Those investments have been a major source of profit for the companies, but the Fed has argued that their scale could pose a risk to the financial system.
Bernanke spelled out his position in a letter dated Aug. 27 to Sen. Charles E. Schumer (D-N.Y.), whose office released it yesterday. Schumer has urged the government to unshackle Fannie Mae and Freddie Mac.
Bernanke suggested that policymakers encourage the companies to increase their securitization efforts, "which are not constrained by their portfolio caps."
He also said the companies could make room for new mortgages in their investment portfolios "if they wished to do so."
The companies have been among their own best customers, investing heavily in the securities they package. Those securities could be sold easily "even under current conditions," making room for other investments, Bernanke wrote.
Fannie Mae's $729.8 billion portfolio of mortgage-related investments in July included $277.5 billion of its own mortgage-backed securities, while Freddie Mac's $720.6 billion portfolio included $365.3 billion of Freddie Mac securities.