Time travelers from 2002 would have been shocked to hear public pleadings last week from the two pre-eminent government-sponsored housing agencies, Fannie Mae and Freddie Mac. The GSE pair, bedeviled by financial malfeasance (both alleged and admitted) the past couple of years, sounded like bloodied pugilists on the ropes, pleading forbearance and a second chance from their mortgage lender-customers.

“In the past year, Fannie Mae has shut up and listened to you, our customers,” said Tom Lund, the company’s chief acquisitions officer. “We’re going to work with lenders to expand markets especially with hard-to-do loans (and) we will participate more broadly in the product spectrum,” he promised.

Building up a head of near-evangelical steam, Lund said: “We will roll up our sleeves and tackle affordability issues; actively bidding on subprime (products),” he said, suggesting an advance into territory historically off-limits to the GSEs.

It was a sight to behold, but no longer surprising in the wake of accusations dating back to 2004 by federal regulators who accused Fannie Mae of serious accounting problems and earnings manipulation to meet Wall Street targets. The Securities and Exchange Commission ordered Fannie to restate earnings back to 2001. That correction could total $11 billion. A Justice Department criminal investigation also is underway.

Before he was through with his plea, Lund offered this reflection: “I’m sure you’re saying: ‘We’ve heard this before, so I would say: ‘Watch what we do, watch us in the market and watch us in the months to come and look for Fannie Mae to work hard to win back your business’.”

The GSE executive surely would have surprised those time travelers with this concluding comment: “We plan to be a player in the market and one thing you can be sure of (is) we will be here day in and day out.” Incredible — coming as it was from a company created by federal fiat some 70 years ago and virtually owning the secondary market since.

Indeed, in 2002, GSE loan buying was at a peak of close to 60 percent of residential mortgage loans sold. Today, that number is around 25 percent. Blame the malfeasance but also the swell of private investors around the globe from Wall Street to Asia. Tack on purchase-price ceilings that look modest in a super-heated housing market; add in “exotic” products off-limits to the GSEs and it becomes easier to understand Lund’s worries.

If that’s not enough Congress is writing legislation that would circumscribe activities of both Fannie and Freddie, in particular creating new oversight of their activities and even limiting their debt holdings. As the GSEs hold their collective breath, awaiting those final regulations, the Mortgage Bankers Association stated last week that “this session (of congress) is the best and perhaps last (chance) to pass meaningful GSE reform.”

Taken together, these events certainly will further change the GSEs’ world, already much different than only a few short years ago. Evidence of that was Paul Mullings nearly unbelievable statement last week. The senior vice president at Freddie Mac said his company, once a secondary market darling, is “committed to regain market share. Our goal is to…get back our relevance.”

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