Since then credit conditions in the mortgage market continued to deteriorate, with home pricesĬontinuing to decline and mortgage delinquency rates reaching alarming levels. Never completed the capital raise promised in March.
#FREDDIE MAC CONFERENCE MAC#
Subsequently, Fannie Mae successfully raised $7.4 billion of new capital, but Freddie Mac In May OFHEO lifted its 2006 Consent Order with Fannie Mae after the company completed the terms of
In April, we released our Annual Report to Congress, identifying each company as a significant supervisory concern and noting, in particular, the deteriorating mortgage credit environment and the risks it posed to the companies. We reduced the OFHEO-directed capital requirements in return for their commitments to raise significant capital and to maintain overall capital levels well in excess of requirements. In March, we announced with the Enterprises an initiative to increase mortgage market liquidity and market confidence. In February, in recognition of the remediation progress in financial reporting, we removed the portfolio caps on each company, but they did not have the capital to use that flexibility. In the first few months of this year, the secondary market showed significant deterioration, with buyers demanding much higher prices for mortgage backed securities. Key events over the past six months have demonstrated the increasing challenge faced by the companies in striving to balance mission and safety and soundness, and the ultimate disruption of that balance that led to today’s announcements. Rather than letting these conditions fester and worsen and put our markets in jeopardy, FHFA, after painstaking review, has decided to take action now. They also find themselves unable to meet their affordable housing mission. The result has been that they have been unable to provide needed stability to the market. They have made good progress in many areas, but market conditions have overwhelmed that progress.
Over the last three years OFHEO, and now FHFA, have worked hard to encourage the Enterprises to rectify their accounting, systems, controls and risk management issues. There are pervasive weaknesses across the board, which have been getting worse in this market. It stands for Governance, Solvency, Earnings and Enterprise Risk which includes credit, market and operational risk. FHFA’s rating system is called GSE Enterprise Risk or G-Seer. Today’s action addresses safety and soundness concerns.
In particular, the capacity of their capital to absorb further losses while supporting new business activity is in doubt. Unfortunately, as house prices, earnings and capital have continued to deteriorate, their ability to fulfill their mission has deteriorated. Given recent market conditions, the balance has been lost. A key component of this balance has been their ability to raise and maintain capital. That has required a very careful and delicate balance of mission and safety and soundness. During the turmoil last year, they played a very important role in providing liquidity to the conforming mortgage market. Their market share of all new mortgages reached over 80 percent earlier this year, but it is now falling. Between them, the Enterprises have $5.4 trillion of guaranteed mortgage-backed securities (MBS) and debt outstanding, which is equal to the publicly held debt of the United States. Fannie Mae and Freddie Mac share the critical mission of providing stability and liquidity to the housing market.
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