Fannie Mae and Freddie Mac largely rose to the challenges posed by the credit crunch, purchasing or guaranteeing three out of four mortgages in the fourth quarter of 2007, compared with about one in three loans the year before, federal regulators said in their annual report to Congress.

But "extraordinary declines" in housing and mortgage markets have "greatly increased" Fannie and Freddie’s credit and interest-rate risks, and there is increasing pressure for the government-chartered loan financers to do even more to support the mortgage market, said James Lockhart, director of the Office of Federal Housing Enterprise Oversight in his introduction to the report.

Although Fannie and Freddie have made strides in fixing management and accounting problems that forced both companies to restate several years of earnings, further expansion of their role in providing liquidity to mortgage markets is "problematic" in the absence of legislation from Congress to strengthen oversight of the companies, Lockhart said.

Fannie and Freddie reported $6 billion in combined fourth-quarter losses and $5.1 billion in losses for the year, forcing the companies to raise $15 billion in additional capital in the last four months of the year and cut their dividends.

Lockhart said that although problems in the housing markets continue, OFHEO expects to lift consent agreements that require Fannie and Freddie to have large capital reserves on hand, and urged Congress to act quickly to strengthen the regulator’s powers.

Analysts at Standard & Poor’s said in a report this week that under a "sever stress scenario," a bailout of Fannie and Freddie might create a "material fiscal burden" equal to 10 percent of gross domestic product, and lead to a downgrade of the U.S. government’s AAA debt rating.

Lockhart said that if the government-sponsored enterprises complete the changes to their management and accounting practices and add "significant additional capital" — and if Congress expands regulatory authority of the companies — it is his hope "we will end 2008 with the stakeholders in the nation’s housing finance system much stronger than today."


What’s your opinion? Leave your comments below or send a
letter to the editor.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Thank you for subscribing to Morning Headlines.
Back to top
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription