Regulator Faulted for Freddie Mac Woes

Senate Banking Committee chairman will propose a new overseer for Freddie and for Fannie Mae, too.
Stephen TaubFebruary 9, 2004

Richard Shelby (R-Ala.), the chairman of the Senate Banking Committee, said Saturday that he intends to install a tougher regulator for mortgage finance companies Fannie Mae and Freddie Mac, according to the Associated Press.

In remarks before an American Bankers Association conference in Fort Lauderdale, Florida, Shelby said that the Office of Federal Housing Enterprise Oversight (OFHEO) isn’t capable of properly supervising them. “The agency was, in many regards, designed to fail in its mission,” Shelby said. “We cannot tolerate inadequate and ineffective regulation of entities as important to the U.S. home mortgage market as Fannie Mae and Freddie Mac.”

Shelby added that he expects his Senate panel will take up the legislation next month.

The Bush administration had already proposed that OFHEO be moved from the Department of Housing and Urban Development to the Treasury Department; Shelby would make the regulator independent of either agency, according to the AP. “This new regulator should have the power to quickly and forcefully remedy problems that are detected,” said Shelby.

In December, noted the AP, federal regulators ordered Freddie Mac to pay a record $125 million fine for alleged management misconduct and violation of its public trust regarding its $5 billion earnings misstatement. Fannie Mae’s accounting practices are also under review, adds he AP.