GSE Regulator Reveals 1st 'Supervisory Action'

Fannie Mae's federal regulator has revealed that it took its first supervisory action against the government-sponsored enterprise last September after a key indicator of interest rate risk swung in a dangerous direction."A Prompt Supervisory Response action was taken in September 2002 to address concerns regarding Fannie Mae's substantial duration gap imbalance," the Office of Federal Housing Enterprise Oversight revealed in its annual report to Congress on June 4. OFHEO noted that volatile interest rates and sharp increases in mortgage refinancings caused Fannie Mae's duration gap to widen in July and August, which "posed a safety and soundness concern." In mid-September, Fannie Mae publicly disclosed its duration gap hit a negative 14 months in August and tried to assure investors it would quickly fix the imbalance, which it did. At the same time, OFHEO told Rep. Richard Baker, R. La., in a letter that Fannie Mae is operating in a safe and sound manner, despite the mismatch in its duration gap. OFHEO lifted the PSR action in April.