Liquidity Comes First, GSEs Maintain

Fannie Mae and Freddie Mac are defending their need for higher prices on riskier products, maintaining at the Mortgage Bankers Association's Secondary Market Conference in Boston that the first requirement under their charters is to provide liquidity to the market. "Our goal is to fulfill our mission of providing liquidity," said Thomas Lund, Fannie Mae's executive vice president for single-family mortgage business. "We need to align our prices to the risk we take in the marketplace to make sure we will be a liquid secondary-market provider." Patricia Cook, Freddie Mac's executive vice president and chief business officer, said her company is "approaching pricing in a risk-managed way" because the method used to price mortgages in the past is now passé. "Average pricing worked" in a narrow market, she explained. But with a wide array of products and underwriting requirements, it works "less effectively." Ms. Cook told the conference that Freddie Mac has struggled with a high default rate and declining profitability, so it had no choice but to re-evaluate its pricing. "We know you're hurting, but so are we," she said. The GSEs can be found online at http://www.fanniemae.com and http://www.freddiemac.com.