A GSE Critic Accuses Freddie Of Self-Insurance Charter Creep
Long time GSE critic Rep. Richard Baker, R-La., is asking Freddie Mac's regulator to look into a possible charter violation by the government-sponsored enterprise involving self-insured risk.
Recent disclosures by Freddie Mac revealed that the secondary mortgage company did not record certain retained interests and credit obligations when it sold mortgage-backed securities.
"Is Freddie Mac essentially self-insuring risk that should be otherwise covered by third parties?" Rep. Baker asked in a letter to Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight.
"If so, is it retaining risk on high loan-to-value loans that would otherwise have to be covered by third-party enhancers as required under the charter?" On high LTV loans, GSEs are generally required to have mortgage insurance.
A Freddie Mac spokesman said, "There is no charter violation." But he would not elaborate.
Separately, Rep. Baker, who chairs a GSE oversight panel, asked the .General Accounting Office to examine the accounting treatment Freddie Mac and Fannie Mae employ for their derivative activities.
Chairman Baker has held one hearing on GSE oversight following the management shakeup at Freddie Mac and disclosures about the company's accounting problems.
The Louisiana congressman is planning to hold another hearing on the Freddie Mac situation in July and September. He asked OFHEO to report its findings to his GSE subcommittee by July 15 and GAO to report its findings by Sept. 15.
Meanwhile, Senate Banking Committee chairman Richard Shelby, R-Ala, has scheduled a July 17 hearing to get a preliminary report from OFHEO on Freddie Mac's restatement process. OFHEO is investigating whether Freddie Mac officials deliberately adopted accounting policies to smooth out the company's earnings.
The Senate Banking Committee also is preparing to hold a confirmation hearing for Mark Brickell, who President Bush nominated to be the next OFHEO director - replacing Mr. Falcon.
The committee is currently waiting for the nominee to complete a questionnaire. "It all depends on when we have a completed committee questionnaire and he is ready to go," a committee spokesman said.
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