fannie and freddie.. more us ructions

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    Bush to Replace Head of Fannie, Freddie Watchdog

    By Daniela Deane
    Washington Post Staff Writer
    Thursday, February 6, 2003; Page E03

    The White House has announced that it will nominate Mark C. Brickell, an expert on financial derivatives, to head the federal agency that oversees secondary mortgage market giants Fannie Mae and Freddie Mac.

    Sources familiar with the situation said Armando Falcon Jr., head of the Office of Federal Housing Enterprise Oversight, was asked by administration officials for his resignation Tuesday morning.

    That was just hours before Falcon released the findings of a "systemic risk" study, which laid out a scenario in which Fannie Mae and Freddie Mac could experience severe financial difficulties that then would cause wide-ranging disruptions in the housing and financial markets.

    An OFHEO spokesman said Falcon and the agency had no comment beyond his official resignation letter, which said he looked forward "to a smooth transition."

    Falcon, appointed director of the OFHEO by President Bill Clinton in 1999, had more than a year remaining in his term.

    Later Tuesday, the White House announced that it wanted to fill the spot with Brickell, chief executive of Blackbird Holdings Inc., an electronic trading system for financial derivatives. Brickell is known as an avid advocate of free markets and deregulation, a philosophy he shares with friends such as former senator Phil Gramm and his wife, Wendy Gramm, a former director of Enron Corp.

    Brickell used to be managing director of J.P. Morgan & Co. He declined comment.

    Falcon's report, which took two years of research, was released in a speech to the Bond Market Association in New York City. The sources said administration officials as well as officials of Fannie Mae and Freddie Mac had expressed displeasure with parts of the report. Critics of Fannie Mae and Freddie Mac, however, said the report didn't go far enough.

    Sources said that Brickell's nomination has been in the works for a few weeks and that there is growing concern among market regulators and within the White House about the potential risks Fannie Mae and Freddie Mac pose because of their size and concentration in mortgages and related products. But the White House was concerned about the timing of the release of the report, according to sources, because the Bush administration did not want any more bad economic news coming out at a time when it is trying to restore investor confidence.

    Spokesmen for both Fannie Mae and Freddie Mac denied that there had been any recent conversations involving officials of their institutions and either the regulatory agency or the administration concerning the risk report.

    The White House didn't return calls seeking comment.

    Sharon McHale, a Freddie Mac spokeswoman, criticized parts of the report, saying the "doomsday scenario was so speculative, it's just incredible to us."

    In the study, the agency calls Fannie Mae and Freddie Mac "very strong financial institutions" and says the possibility of either one "failing or contributing to a financial crisis is remote."

    But the report also presents a scenario in which one of the mortgage giants suffers large losses, which then spiral into a far-reaching financial crisis. An agency spokesman said the study looked at hypothetical situations in an effort to prompt discussion.

    Fannie Mae and Freddie Mac, government-chartered companies established by Congress, control more than 40 percent of the U.S. mortgage market. The two companies buy mortgages and then package them into securities to sell to investors.

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