Regulator Mortgage giants still have big financial problems

Posted on February 26 By MLP Blog


WASHINGTON — Fannie Mae and Freddie Mac have made progress toward correcting financial weaknesses, but tight government supervision is needed as the mortgage giants emerge from accounting scandals, a federal regulator said Thursday.

James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight, also disclosed that Fannie Mae, which just last month announced a restatement of $6.3 billion in profit for 2001 through mid-2004, had a loss in the third quarter of 2006. He did not specify the amount of the loss.

"They unfortunately have very, very large problems," Lockhart said in a meeting with reporters, referring to the government-sponsored companies that are the two biggest financiers in the $8 trillion home-mortgage market in the United States. "They have a long way to go; there are still significant worries."

The problems "are massive and they're ongoing," he said.

Lockhart noted that the companies' financial results continue to be volatile from quarter to quarter, saying that both lost money in the July-September period last year. Freddie Mac, the smaller of the two, recently forecast a loss of about $550 million for the quarter due mainly to declines in interest rates, compared with a profit of $880 million in the third quarter of 2005.

Fannie Mae has not reported or forecast its results beyond June 2004.

The company, which is the second-largest U.S. financial institution after Citigroup Inc., is not expected to return to timely financial reporting until early next year.

Fannie Mae spokesman Brian Faith declined to comment on the third-quarter results.

With the Democrats now in control of Congress, prospects have improved for compromise legislation tightening the government's reins on Fannie Mae and Freddie Mac.

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