A plan by Fannie Mae to make $10 billion worth of home construction loans over the next 10 years has renewed calls among banks and lenders for legislation tightening regulation of the mortgage giant, the Washington Post reported Friday.

Although the company first announced the plan as part of an affordable-housing initiative two years ago, remarks made Thursday by Fannie Mae chief executive Daniel H. Mudd at the Orlando National Association of Home Builders convention stirred concerns about a move by Fannie into construction finance, reports said.

Critics of the move contend that the government-sponsored enterprise has a competitive advantage because it can borrow money more cheaply, the Post reported, though the company is still struggling with accounting problems that are still under investigation and will likely lead to a profit restatement of as much as $11 billion.

“Once they are in a line of business, because of their marketplace advantages, they are able to do very well,” Paul Leonard, a vice president of the Financial Services Roundtable, a group representing large financial institutions, told the Post.

Mudd tried to allay such fears during his speech, saying: “We’ll still be a small player in a big market … We’re not striving to put a big, hairy King Kong footprint on the market,” the Post reported.

At the same time, however, he argued that Fannie Mae had a role to play in construction finance, reports said. “While construction financing is plentiful right now, the flow can have cyclical ups and downs, as banks and thrifts move in and out of commercial lending,” Mudd reportedly said. “We’re striving to serve the market.”

Some housing industry representatives agreed, the Post reported. “As interest rates continue to move just slightly up, anything we can do to provide more additional financing for home construction adds to the possibility of keeping costs down for home buyers,” said Al Mansell, past president of the National Association of Realtors, told the Post.

Banking industry representatives countered that there’s no shortage of money for construction, reports said. “There is no demonstrated need for more home construction loans,” Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents large mortgage companies, told the Post.

The company’s construction-loan initiative began as a pilot program 15 years ago and has since grown. The renewed attention to it has revived calls for Congress to pass legislation tightening oversight of Fannie Mae this year. The House approved a bill to do that in October. A companion bill is pending in the Senate.

“The way the…approval process goes, once it’s a pilot project, it’s difficult for [regulators] to turn down its expansion,” Leonard told the Post. “This shows the need to have oversight consolidated under one regulator.

In 2003, the Office of Federal Housing Enterprise Oversight discovered accounting irregularities by Fannie Mae, setting off shareholder lawsuits and investigations by the Justice Department and the Securities and Exchange Commission. As a result, the company will have to restate earnings by as much as $12 billion.

In December 2004, Fannie Mae replaced Franklin Raines, its chairman and CEO, who announced he was taking early retirement, and Fannie Mae’s chief financial officer, Timothy Howard, resigned Dec. 21.


Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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