Fannie Mae, Freddie Mac Agree To Scrutiny by Federal Regulators
WASHINGTON -- In a surprise move aimed at silencing a rising chorus of criticism about their financial disclosures, Fannie Mae and Freddie Mac agreed for the first time to submit themselves to scrutiny by federal securities regulators.</br></br>The Securities and Exchange Commission will oversee only the government-sponsored mortgage giants' existing common stock, however, under an agreement reached Friday with the SEC and Treasury. That means the companies have sidestepped -- for now, at least -- their biggest worry: full-scale securities regulation. The deal excludes direct government oversight of the debt and mortgage-backed securities the companies issue on Wall Street.</br></br>Fannie and Freddie will have to submit the periodic financial statements, proxy statements and reports that other issuers file with the SEC. But they already provide similar information to investors, so the immediate practical effect is relatively small.</br></br>Still, in broad terms the agreement with the Bush administration is a milestone for the two companies. Created decades ago as government agencies to increase the efficiency of the U.S. mortgage market, Fannie and Freddie later were privatized. But they maintained many of their ties to the government, including a line of credit to the Treasury and exemption from SEC oversight. The companies are reluctant to give up those benefits because they contribute to a common perception that Fannie and Freddie are backed by the federal government, and therefore worthy of preferred status with investors.</br></br>Some economic policymakers and rivals in the financial-services industry worry that Fannie and Freddie are taking advantage of this implied government backing -- which enables them to borrow more cheaply than their rivals -- to grow too large and crowd out competitors. More recently, critics have warned that the lack of SEC-required disclosure of Fannie's and Freddie's mortgage-backed securities leaves investors in the dark about exactly what they are buying.